We develop a normative approach to optimal environmental compensation in a spatial framework. We determine both the location and the level of compensation that minimize the total cost of restoration while maintaining the social welfare unchanged. In our framework, the policy-maker implements a No Net Loss policy that meets the No Worse-Off principle as well as a location constraint on the offset. We describe the additional ecological cost induced by the No Worse-Off principle and how the spatial distribution of individuals, the environment and land costs affect the compensation location. The location constraint is shown to give rise to a trade-off between the compensation cost and the inequality among individuals induced by the policy.