Incentives for conservation easement: a systematic literature review and an empirical evaluation of state tax credits in Colorado

Abstract

A conservation easement (CE) is a legal agreement between private landowners and government entities or non-profit organizations that is widely used as a mechanism to protect private lands from development and promote long-term ecological, recreational, and agricultural benefits. Donated CEs in the US are eligible for tax benefits at both the federal and state levels. As the adoption of easements has increased over the years, understanding how these incentives impact easement donation rates is warranted. This study focuses on two interrelated research objectives related to tax incentives for CE: (1) a systematic literature review on CE tax incentives throughout the US, and (2) a county-level analysis of the impact of state tax incentives on easement acres in Colorado. In the first study, we reviewed 74 peer-reviewed and grey literature related to tax incentives for CE published between 2000 and 2023. Studies were selected by thematic coding approach and were analyzed under five themes: (1) economic implications of easement incentive programs, (2) environmental and ecological implications, (3) landowner and land trust perceptions of easement incentives, (4) tax as a motivating factor to donate easements, and (5) opportunities and barriers to participation in CEs. Findings show a significant increase in CE donation with tax incentives, especially in states like Colorado and South Carolina, which have a transferable tax credit, but the benefits from tax incentives are not evenly distributed. Various studies also found significant challenges associated with CE donation, including but not limited to inflated appraisals, misuse of the available credit, and administrative complexities. Moreover, landowners' decision to donate a CE is not only influenced by tax incentives, but also by several other factors, including a sense of attachment to their land, the preservation of land for future generations, and the land's ecological importance. In the second study, we examined the impacts of state tax incentives on CE enrollment in Colorado. We employed a fixed-effects panel regression to analyze a panel dataset of 64 Colorado counties spanning the period from 1995 to 2022 (n = 1792). Results showed that the presence of a state tax credit is significantly associated with an increase in CE acres. While the number of easement holders, educational attainment, population density, income, and public land were positively correlated with easement acres, the price of land was negatively correlated. Overall, these studies improve our understanding of the critical role of tax incentives in easement donation. The findings could be used by policymakers to design easement tax policies that enhance the program's efficiency and meet its conservation objectives. The findings also provide valuable insights and have implications for similar incentive programs for other conservation programs, such as forest carbon programs in the US.