Wetland Mitigation Banking

Biodiversity Water Jan 1, 2001
Robin Meadows

The ongoing 8th National Mitigation & Conservation Banking Conference includes sessions on "What a developer considers" and "A buyer's perspective – why should I buy credits from you?" by Florida wetland mitigation banking experts. New approaches to wetland mitigation banking at the state and federal level are already impacting mitigation banks throughout the United States. In the midst of these changes, the Ecosystem Marketplace gets a look at the experts' take on what buyers want and why it matters. The conventional wisdom among many in the United States is that real-estate developers only care about the bottom line. "All the developer wants is a permit to build the mall. The cheaper she can get the permit, the better," says James Salzman, an environmental lawyer at Duke Law School in Durham, North Carolina. But Florida's mitigation banking experts say that, when it comes to restoring wetlands, they often see another side of developers. While there's no denying that developers want to save time and money when shopping for mitigation credits, according to mitigation bankers, they also care about certainty and fairness, and most also enjoy being associated with socially-responsible projects. As for why the buyers' perspective matters, the answer is that mitigation banks could not exist without their buyers. "Buyers are critical to a successful project," says David John, an environmental engineer who was an early proponent of mitigation banking and is CEO and Chairman at Miller Legg & Associates in Fort Lauderdale, Florida.

Banking Basics

More than half of all Americans now live along the country's coastline, where wetlands and coastal estuaries abound. The coastal population has risen by 33 million — a 28% increase — since 1980, and it is expected to rise by another 7 million in just three years. In places like Florida, the numbers are even more eye-popping, with some counties tripling, even quintupling, in population since 1980. Regardless of one's take on the issue, it seems that continued development in the environmentally sensitive areas of the coastal United States is here to stay. Wetland development is generally permitted by the U.S. Army Corps of Engineers under Section 404 of the Clean Water Act as long as the losses are offset, or "mitigated", through habitat restoration somewhere else. Developers can choose either to mitigate wetland losses on-site by themselves, or to buy credits from an off-site provider or "mitigation bank". Since most developments are relatively small, the on-site option typically results in a lot of little mitigation projects. In contrast, an off-site mitigation bank results in a single large project. Industry advocates argue that mitigation banks, through economies of scale, reduce the per-acre costs of mitigation and thus allow for bigger and more cohesive restoration projects than those that might otherwise be scattered amongst numerous locations.

What Buyers Want

When developers are choosing between on-site and off-site mitigation projects, "The number one consideration is cost," says Ken Bailey, a salesman at Tetra Tech EC, Inc. who has been on both the buying and selling sides of mitigation banking. And cost, he points out, can be counted in terms of time as well as money. Besides providing economies of scale, mitigation banking can save buyers considerable amounts of time. For example, developers who have already bought the land are usually paying interest and so want to complete their projects as soon as possible. While it can take two years to get a permit for on-site mitigation, that time can be cut to just six months by using a mitigation bank. Saving 18 months of time translates into saving 18 months of interest. "Thousands of dollars per month really adds up and can take a big bite out of their profit," says Bailey. Mitigation banking also offers developers a sense of certainty in a somewhat uncertain field. "Most developers, especially companies that build homes, are not in the business of mitigation and there's risk in building mitigation areas," says Bailey. Mitigation banking allows buyers to shift these risks, as well as the responsibilities of monitoring and maintaining the area for five years and then transferring it to another party for maintenance in perpetuity. "The developer's strength is in development, the mitigation bank's strength is in restoring the ecosystem. Put those strengths together and the community gets the benefit," says John. While not all mitigation projects are successful, he points out that mitigation banks have a higher success rate than on-site projects. Last but not least, mitigation banking can represent a green branding opportunity for developers who are keen to be associated with successful environmental projects. "Most developers are looking for white-hat opportunities because they get beat up by the press and public opinion," says John. "Being socially-responsible raises the public's trust."

Function-based approaches

Conservationists' biggest criticism of mitigation banking is that it has historically emphasized acreage over ecosystem services. Notably, wetland mitigation was slammed for failing to meet the federal goal of no net loss of wetland function by the 2001 National Academy of Sciences report Compensating for Wetland Losses Under the Clean Water Act, which found that "the area of a wetland type is often used as a proxy for wetland functions" and cautioned that "the establishment of wetland structure does not necessarily restore all the functions of a wetland ecosystem." For their part, buyers are frustrated by inconsistent standards from agency to agency that can result in conflicting mitigation requirements. Federal, state and local agencies can have overlapping jurisdictions and often have different methods of assessing mitigation ratios, that is, the level of mitigation required to offset a given impact of a given development. "It drives developers crazy," says John. Experts maintain that both problems might be fixed by switching from acreage- to function-based assessments of wetland restoration projects, such as Florida's Uniform Mitigation Assessment Method (UMAM). Adopted in 2004, UMAM accounts for factors concerning both the quality and quantity of the wetland, as well as its proximity to other protected wetlands. While this type of approach is intended to be better for the environment, it turns out that function-based assessments can also be better for developers. Under Florida's former approach, which was more acreage-based, buyers typically were required to replace twice as much wetland as they developed, a mitigation ratio that put buyers at a disadvantage. "It assumed that the developed wetlands functioned perfectly but that's not true," says Bailey. "Florida has lots of very degraded wetlands with lots of exotics, but developers still had to mitigate them with very high-quality wetlands." Since wetland function is being taken into account under UMAM, the number of mitigation bank credits required to offset a five-acre impact has dropped from roughly 10 to two, a change that has prompted as much skepticism in some circles as it has optimism in others. "[UMAM] supersedes stronger local wetland regulations unless local governments have a preservation only policy," argues the Florida chapter of the Sierra Club. "The direct effect of this statewide weakening of regulations gives developers the ability to invade and pave over thousands of acres of ecologically important lands that were once protected in Florida." Others say it's too soon to tell how UMAM will work out. "Only time and experience will show how this new method will work," say those at LG2 Environmental Solutions, an environmental consulting firm.

The Need for Consistent Standards

Even if it proves successful in the long-run, Florida's function-based approach still won't represent a panacea for developers. For one thing, UMAM is a state-level regulation and the Corps of Engineers has not adopted it, says John, which means there is still plenty of room for disagreement over mitigation requirements. And, he observes, new approaches seem to come along every five years, so there is no telling, as yet, whether the UMAM program is really around to stay. Bailey echoes this concern: "Regulatory changes are a moving target, assessment methods can even differ county by county." Another source of inconsistency is high staff turnover at the agencies that set mitigation requirements. "Not all regulators are experienced at permitting mitigation banks so you have to keep educating them, and recreating the history of a project is costly," says John. Even then, new staffers may not become familiar enough with a mitigation bank to be comfortable granting permits. "The natural default is 'if you don't know, say no'," says John. This can be devastating from the buyers' standpoint. When the rules change mid-way through a project, developers' original assumptions about a mitigation bank may no longer hold and they may choose on-site mitigation instead. "Variance drives up costs and can be an obstacle to mitigation banking," says John. John believes that the mismatch between state and federal regulations is inherent in our political system and so argues that the specifics of mitigation regulation should be worked out state-by-state. Others call for a more consistent mitigation regulations at the federal level. For example, the "unpredictable and variable practices of individual Corps districts" are cited as an impediment to wetland mitigation by the National Mitigation Banking Association.

Movement at the Federal Level

One federal agency that is considering adopting a function-based approach is NOAA, the National Oceanic and Atmospheric Administration, which frequently advises on wetland mitigation in coastal areas. Developed by Dennis King, an environmental economist at the University of Maryland, the approach is called "The Five-Step Wetland Mitigation Ratio Calculator" because it accounts for five factors:

  • the existing level of wetland function before mitigation,
  • the expected level of wetland function after mitigation,
  • the expected length of time it will take to complete the mitigation,
  • the risk that the mitigation will fail, and
  • any differences in the locations of the lost and mitigated wetlands that affect ecosystem services.

This approach could benefit buyers in two ways, says King. Besides giving them more certainty by making mitigation requirements more consistent, and thus more predictable, the approach would give buyers increased flexibility. For example, developers could meet their mitigation requirements with either a large, low-quality wetland or a small, high-quality wetland. In other words, buyers can choose between paying for more land or more restoration.

More Mitigation Banks

A standard approach to permitting could also encourage more mitigation banks. This in turn would benefit developers because mitigation banks aren't always an option in a given area, even in Florida, which has 38. Bailey estimates that 80% of Florida developers already choose mitigation banking but that 90% would prefer to. More mitigation banks would also mean more choices, which could mean more competition and thus cost-savings for buyers. "Developers like more than one choice because then they can negotiate on the price," says John. Ultimately, however, the biggest beneficiaries of having more mitigation banks could be the environment and the public. "We need more mitigation banks because development is impacting wetlands nationwide," says John. And mitigation banks, he argues, can help offset that damage. In the end, he says, they provide for "better land use." Robin Meadows is a Fairfield, California-based freelance science writer. Her work has appeared regularly in California Agriculture, Conservation In Practice, and ZooGoer. She may be contacted at robin@nullnasw.org.