Habitat banking and tradable development rights (TDR) have gained considerable currency as a way of achieving ‘no net loss’ of biodiversity and of reconciling nature conservation with economic development goals. This paper reviews the use of these instruments for biodiversity conservation and assesses their roles in the policy mix. The two instruments are compared in terms of effectiveness, cost effectiveness, social impact, institutional context and legal requirements. The role in the policy mix is discussed highlighting sequential relationships, as well as complementarities or synergies, redundancy and conflicts with other instruments, such as biodiversity offsets and land-use zoning.

Habitat banking and TDR have the potential to contribute to biodiversity conservation objectives and attain cost-effective solutions with positive social impacts on local communities and landowners. They can also help to create a new mind-set more favourable to public-private cooperation in biodiversity conservation. At the same time, these policy instruments face a number of theoretical and implementation challenges, such as additionality and equivalence of offsets, endurance of land-use planning regulations, monitoring of offset performance, or time lags between restoration and resulting conservation benefits.

A clear, enforceable regulatory approach is a prerequisite for the success of habitat banking and TDR. In return, these schemes provide powerful incentives for compliance with regulatory norms and ensure a more equitable allocation of the benefits and costs of land-use controls and conservation. Environmentally harmful subsidies in other policy sectors as well as alternative offset options, however, reduce the attractiveness and effectiveness of these instruments. Thus, the overall performance of habitat banking and TDR hinges on how they are integrated into the biodiversity conservation policy mix and fine-tuned with other sectoral policies.