MITIGATION BANKING

Wetland mitigation banks

It was not until the 1980s that government authorities in the USA fully realised the value of wetlands, by which time more than half the country's wetlands had been destroyed by agriculture and development.

Developers, however, found the requirement for compensatory miti­gation burdensome and expensive. Early attempts by individual devel­opers at mitigation through restoration and enhancement of wetlands elsewhere had been generally unsuccessful because of 'poor site selec­tion, improper or insufficient monitoring and evaluation, lack of wetland persistence, poor hydrological design, sparse vegetative cover, inade­quate management, and insufficient wildlife utilization... delays in con­struction and lack of maintenance' (Zinn 1997).

Mitigation banking was proposed as a way of making development cheaper and easier for those not expert in wetland management. The regu­latory authorities believed that 'mitigation banks' might be more successful than previous mitigation efforts because they would be professionally designed, more easily supervised, and employ economies of scale.

'Mitigation banks' were areas of wetland that were being preserved, restored, enhanced or created (see box 13.2).

The way a mitigation bank might work is this. An entrepreneur buys 500 acres of wetland at $1000 per acre, and spends $2000 per acre to restore and maintain it - a total upfront investment of $1.5 million. The entrepreneur then sells credits for each acre of land to developers needing to mitigate the damage they are doing on wetlands elsewhere. Each credit costs $8000 and a developer might need to buy several to gain a permit to develop their own land (Zinn 1997):

After several clients have purchased credits, the costs of setting up the bank may be repaid. The bank sponsor may become the long­term manager of the site after credits are sold and the bank site is a fully functioning wetland, or it may sell the property to another owner, such as a conservation group, who assumes long-term responsibility for maintaining the site.

The amount of land required for mitigation is not necessarily equal to the amount of wetland being destroyed. Often a larger area has to be pre­served, restored or enhanced than is being destroyed to make up for the fact that no new wetland is being created to replace the destroyed wetland, and so the total amount of wetland is being reduced.

Box 13.2 Methods of compensatory mitigation for wetlands

Restoration: Re-establishment of wetland and/or other aquatic resource characteristics and function(s) at a site where they have ceased to exist, or exist in substantially degraded state.

Creation: The establishment of a wetland or other aquatic resource where one did not formerly exist.

Enhancement: Activities conducted in existing wetlands or other aquatic resources that increase one or more aquatic functions.

Preservation: The protection of ecologically important wetlands or other aquatic resources in perpetuity through the implementation of appropriate legal and physical mechanisms.

Source (USEPA 1995)

In 1990 the Department of Army and the EPA signed a Memorandum of Agreement that gave official endorsement to mitigation banks. The Fish and Wildlife Service (FWS) also helped to establish a system of wetland mitigation banks in the early 1990s (ELI 2002c; FWS 2004). California introduced legislation in 1993 for wetland mitigation banks to compen­sate for wetlands destroyed by developers in urban areas (CRA 1995a). Federal guidelines issued in 1995 defined mitigation banking:

[M]itigation banking means the restoration, creation, enhancement and, in exceptional circumstances, preservation of wetlands and/or other aquatic resources expressly for the purpose of providing com­pensatory mitigation in advance of authorized impacts to similar resources. (EPA 1995)

Many of the early mitigation banks were established by government authorities such as state departments of transport wanting to compen­sate for wetlands lost to roads and highways. Today wetland mitigation banks are a 'mainstream option' in the USA, and there are more than 500 banks in more than 40 states. They range in size from 6 acres to 24 000 acres, with most being over 100 acres. Most are commercial enterprises owned by private entrepreneurs. Wetland credits cost between $5000 and $250000 per acre (ELI 2002c; Wilkinson et al. 2002: 5).

Stream mitigation banks

In 2000 the first stream mitigation bank was formed in the USA. It covered a 2.6 mile section of Fox Creek in Missouri, and the owner earned stream mitigation credits by planting vegetation along its banks. By 2005 there were around 25 stream mitigation banks, ranging in size from 15000 to 150000 linear feet (Gillespie 2005). They work in the same way as wetland mitigation banks, in that a developer can destroy a stretch of river by paying a stream mitigation bank to restore a section of a waterway somewhere else.

Conservation banks

Conservation banks extend the idea of wetland mitigation banks to other conservation areas, with the aim of protecting endangered species. The US Endangered Species Act 1973 aimed to avoid development that threatened endangered species. The Act prevented anyone from 'taking' a listed animal species; 'taking' included not only deliberate hunting and trapping but also habitat modification (Mills 2004: 523-5).

In 1983 the Act was amended to allow developers or landowners to obtain an 'incidental take' permit from the US Fish and Wildlife Service which enabled them to undertake habitat modifications. To obtain a permit they must present a habitat conservation plan (HCP) that shows how they will minimise damage to habitat and compensate for any impact on the species. This may be through acquiring land elsewhere that can support the species. In 1994 a further policy change guaranteed those who undertook an HCP that if new species were found on their land, they would not have to protect them (Fox 2005; Mills 2004: 526-7).

These changes were made because of claims that some landholders were going to great lengths to ensure that endangered species were not found on their land, so that they would not need a permit to develop it, build on it or farm it: 'Damaging shrubs, stomping on seedlings, disposing of nests, and removing trees are all regular activities in some quarters' (Fox 2005).

Conservation banking enables a private entrepreneur or a public authority or a partnership of both to buy and manage an area of land that is habitat to a listed endangered or threatened species, then sell credit for that land to developers who want to 'destroy, degrade, or adversely alter' the habitat of endangered species elsewhere (CRA 1995a). Credits may be equivalent to:

1. an acre of habitat for a particular species;

2. the amount of habitat required to support a breeding pair;

3. a wetland unit along with its supporting uplands; or

4. some other measure of habitat or its value to the listed species.

The idea of introducing markets in conservation is to make conservation profitable so that private landowners will want to save species rather than destroy them, because they can make some money from them: 'the more effective the species recovery on the property, the more a landowner can charge for the corresponding conservation bank credits' (Mills 2004: 537).

From an economic perspective, banking is advantageous because it allows a private landowner to transform a former legal liability (i.e., the species) into a financial asset (i.e., the credit)... From a conserva­tion perspective. banking may not result in an increase in quantity of suitable habitat for a particular species, but it may result in higher quality habitat being conserved for an individual species. (Fox amp; Nino-Murcia 2005: 997)

California was the first state to introduce conservation banking, in 1995, in cooperation with federal agencies, including the FWS. In 2003 the federal government issued guidelines to promote conservation banks nationwide (FWS 2004).

It is argued that conservation banking is a better system than project- by-project mitigation, which requires developers to preserve a part of the land they were developing (on site) or to find their own compensating preservation area somewhere else (off site). Such a process was expen­sive for the developer and thought not to be good for the environment as it resulted in the preservation of small, isolated, fragmented areas. A con­servation bank would ensure preservation of a larger area, which would not only ensure economies of scale in terms of management and greater ease of administration in terms of government oversight, but also a more viable habitat for larger populations of species (CRA 1995a; FWS 2004).

Such schemes are attractive to economists and business because they seem to harness the forces of the market by turning 'the protection of habitat' into 'an economic asset' that can be bought and sold (CRA 1995a).

By 2005 there were 76 conservation banks, 35 of them established under an official agreement approved by the FWS. The 35 official banks covered 40 000 acres (16 000 hectares), of which 91 per cent was finan­cially motivated, that is, for-profit; the remaining 9 per cent was conser­vation motivated (Fox amp; Nino-Murcia 2005: 996). Anyone can establish a conservation bank provided the land has been determined by 'an author­ized wildlife agency' to have 'substantial regional habitat value, be in need of preservation and/or restoration, and be worthy of permanent protection' (CRA 1995a).

In order to work out how many credits are available from a particular area and how much they are worth, an environmental baseline is negoti­ated between the owner of the land (the bank manager), the regulatory authority and the developer seeking to buy credits:

This baseline will be used to establish credits for a number of cate­gories requiring resource management, including, but not limited to, the following:

a. Resource Preservation (the preservation of specified resources through acquisition or other appropriate means);

b. Resource Enhancement (the enhancement of a degraded resource);

c. Resource Restoration (the restoration of a resource to its historical condition);

d. Resource Creation (the creation of a specified resource condition where none existed before. (CRA 1995b)

The first such agreement was brokered between the California govern­ment, the Bank of America, the Nature Conservancy (an environmental NGO) and the US Department of the Interior.

To become a conservation bank the land must be permanently pro­tected through a conservation easement on the land title, or through some other legal mechanism. Conservation easements prohibit certain types of developments on the land, regardless of changes in ownership, and may include restrictions on what type of activity can take place there. They are generally monitored by public agencies, land trusts or government-authorised conservation groups. The land may still be used for farming, ranching and timber harvesting, provided that the listed endangered species are not put at risk. There may be limits on the number of livestock kept on the land, or prohibitions on the use of off­road vehicles and the construction of roads and buildings (FWS 2004).

A conservation bank also requires a management plan and some sort of permanent funding, such as a large sum of money deposited in a bank account that provides enough interest to perpetually fund the manage­ment of the land without using up the capital.

A management plan may include removing trash on a regular basis; mending and replacing fencing; monitoring the listed species or habitat conditions; controlling exotic, invasive species that interfere with the naturally functioning ecosystem; conducting prescribed burns; and other activities to maintain the habitat. (FWS 2004)

Australian biodiversity banking

In New South Wales, Australia, where over 1000 species are under threat, a system of biodiversity banking has been proposed for coastal areas, where development pressures are greatest. Regions will be classified as 'green-light', 'amber-light' or 'red-light' as part of a regional conserva­tion plan. In green-light areas that are determined to have 'low biodiver­sity values', development will be fast-tracked with no requirements to protect threatened species. In red-light areas that have high biodiversity values, new development that may destroy the habitat of endangered species will not be allowed (DEC 2005: 3-6).

It is in the amber-light areas that biodiversity banking will be applied. Where an area is to be developed an assessment will be made by the regulator as to how many biodiversity credits will be required to offset the damage the development is likely to do. The developer can then decide to 'reconfigure the project to eliminate' the damage; under­take an offsetting conservation project, or buy biodiversity credits from a biodiversity bank manager or 'approved conservation broker' (DEC 2005: 8).

The biodiversity bank is created by a 'scheme manager' negotiating with existing landholders to improve the biodiversity values of their land. This might be done by paying landholders to set aside some of their land for conservation with a covenant or agreement. The scheme manager might pay the landowner to manage the land 'through control­ling weeds and feral animals, excluding stock and undertaking revegeta­tion'. This would generate biodiversity credits that the scheme manager could sell to developers and brokers. The scheme manager might be an entrepreneur looking to make a profit from the credits or a not-for-profit organisation interested in conservation (DEC 2005: 7-8).

In this way the bank's properties need not be large aggregates as in the case of conservation banking in the USA, but may be isolated and fragmented. As with US conservation banks, the aim is to make conser­vation of land profitable to private owners. The scheme is being trialled for two years in the Lower Hunter Valley and Far North Coast.

Tradeable fishing quotas, water allowance trading, salinity trading and offsets, mitigation, conservation and biodiversity banks and auc­tions, as well as tradeable development rights, are all market-based policies which have environmental protection as either a primary or subsidiary goal. Chapter 14 considers how well they comply with the sustainability principle. Chapter 15 examines these policies in the light of the precautionary principle, the equity principle and the participa­tion principle.

Further Reading

‘Biodiversity Certification and Banking in Coastal and Growth Areas', Department of Environment and Conservation (NSW), Sydney, July 2005, lt;http:// www.environment.nsw.gov.au/resources/biodiversitybankingweb.pdfgt;

Board of Environmental Studies and Toxicology et al., Compensating for Wetland Losses under the Clean Water Act, National Academy Press, Washington DC, 2001, lt;http://www.nap.edu/books/0309074320/html/gt;

Buck, Eugene H (1995) ‘Individual Transferable Quotas in Fishery Management', Congressional Research Service 95 (849), 25 September, lt;http://

www.ncseonline.org/NLE/CRSreports/Marine/mar-1.cfm?amp;CFID=7981623amp; CFTOKEN=73755620gt;

Environment amp; Natural Resources Committee, ‘Inquiry into the Allocation of Water Resources for Agricultural and Environmental Purposes', Parliament of Victoria, Melbourne, November 2001, ch 7, lt;http://www.parliament. vic.gov.au/enrc/inquiries/old/enrc/water_alloc/report/gt;

Fox, Jessica amp; Anamaria Nino-Murcia (2005) ‘Status of Species Conservation Banking in the United States', Conservation Biology 19 (4), August, pp. 996-1007.

Robinson, Jackie amp; Sean Ryan (2002) ‘A Review of Economic Instruments for Environmental Management in Queensland', CRC for Coastal Zone, Estuary and Waterway Management, 2002, lt;http://www.coastal.crc.org.au/pdf/eco- nomic_instruments.pdfgt;

Special issue on fisheries of The Ecologist, 25(2-3), March-June 1995.