Environmental Entrepreneurship

In my Stanford Graduate School of Business course on environmental entrepreneurship, I emphasize how important it is for any entrepreneur, especially an environmental one, to have a clear business plan. Although this should be obvious to MBA students, it tends to be a revelation because they think the environment is different. The importance of a sound business plan is particularly relevant to land conservation. As Dominic Parker points out in his recent PERC Policy Series essay on conservation easements (Parker 2005), the number of land trusts has grown exponentially in the past few decades. Private land conservation has become a competitive industry with firms competing for donations and for land to conserve.

The primary measure of conservation success has been the number of acres under easement, but such a measure raises the question: Are we really getting the conservation we want? Conservation easements are tax-advantaged and, as Parker discusses in his PERC paper, the public benefit from an easement should be commensurate with the cost of forgone tax revenues that easements entail. This point is particularly important in the wake of the Enron debacle, as Congress is carefully scrutinizing management of both for-profit and not-for-profit organizations.

Let me illustrate the problem with an example. Suppose a land trust takes an easement on a 50-acre, “u-pick” produce farm that is not unlike surrounding land. In return for the easement, the owner gets a tax deduction.

Does an easement that keeps the land in agriculture generate public conservation benefits? If the parcel is in an urban area, 50 acres might make a significant additional contribution to conservation values such as open space or wildlife habitat. But if it is in an area with lots of other open space, the contribution may be trivial. Of course, the tax deduction might help keep the farm in business, but this would be a private good to the farm owner, not the public; thus its public benefit (the reason behind the tax deduction) is far from clear. In the future, the less obvious the public benefits the more likely private land conservation will undergo significant scrutiny. Policy makers are likely to say that private conservation needs more regulation.

Skeptical of “improved” regulation, Dominic Parker suggested elimination of tax support for easements, replacing them with outright grants for land conservation coupled with private matching funds. At least this approach would require that conservation grantees be more specific about what conservation they are producing.

Real environmental entrepreneurs, however, will go a step further by bringing sound business principles to the conservation table. For example, Conservation Forestry, LLC, a new for-profit conservation venture, is working with the Nature Conservancy to combine the conservancy’s expertise in easements with profitable timber and land management. The company’s mission is to “align private equity with conservation capital” in a way that “provides superior risk adjusted rates of return…while leveraging the goals of…conservation.”

Moving private conservation from the charitable, tax-supported sector into the for-profit sector will require astute business acumen. With that will come more conservation at a lower cost with less governmental regulation. Sounds like free market environmentalism.

Reference
Parker, Dominic P. 2005. Conservation Easements: A Closer Look at Federal Tax Policy. PERC Policy Series PS-34. Bozeman, MT: PERC, October. Online.