After two hundred years of policies designed to fill, farm, and pave wetlands, the federal government has changed its view of the ecosystem and has declared a national goal of "No Net Loss" of wetland function. Unfortunately, the current regulatory program, with its focus on permits and "command" regulation, is designed in a way that will ultimately undermine this goal. A market-based approach to wetland regulation would address some of the problems with this system but is laden with issues of its own that need to be addressed before such an approach can be implemented.

The current regulatory system is plagued by three problems: Misplaced incentives vis-à-vis wetland mitigation and preservation, a lack of consideration of wetland functions, and the use of a regulatory framework which pits the regulated in a confrontational role with the regulators.

An alternative to this system is a market approach based on the creation and preservation of wetland functions. Such a system would be similar to the Clean Air Act emissions trading program with permits for wetland restoration (or creation) and destruction used as the currency. Wetland credits would be generated through the use of mitigation banks. The advantages of this system are:

• Incentive Compatibility: In would be in individuals’ interests to preserve wetland functions.
• Technological Progress: Large amounts of financial and technical resources would be directed toward wetland science and engineering.
• Flexibility: Such a system could apply to functional degradation not just wetland loss. It could also be used to facilitate trades between wetland types.
• Reduced Regulatory Workload: Regulators would just need to ensure the viability of created/restored wetlands and police illegal wetland fills. This would reduce the workload as well as bound regulatory discretion.
• Issues that need to be resolved before such a system could be implemented include:
• Watershed Distribution: If wetlands are created/restored in one watershed and destroyed in another then distribution issues become important
• Economic Issues: There could potentially be problems with monopoly pricing and lack of economic viability.
• Transaction Costs: It would be difficult to collect information on individual wetland functions.
• New Avenues For Discretion: Although this market system would constrain discretion it would create new situations that require it.