Urban economic analysis of the impacts of biodiversity offset: Focusing on differences in land use regulations of Japan and Germany

Biodiversity offset is an ecological conservation activity to compensate for biodiversity losses caused by development in a measurable way. Almost all conservation activities require lands for conservation, and the costs of biodiversity offset depend on how easily these lands can be acquired. This paper focuses on the relationships among biodiversity offset, land use regulation and urban land use. We build an urban growth model based on Capozza and Helsely (1989). The model considers the following items:household utility of environmental amenities, development approval processes and biodiversity offset. We analyze three scenarios, namely the current Japanese system, the Japanese system with biodiversity offset, and the current German system. Our results show that 1) land use regulation is neutral to the speed of urban growth and urban land use, 2) once the biodiversity offset is introduced, the optimal land use regulation shouldapprove any development project, and 3) the cost of acquiring land for compensation is higher when the land use regulation is loose.