Property Owners Should Conside...

Property Owners Should Consider Banking on Wetlands: The Concept of Wetlands Mitigation Banking

By Michael W. Kisgen

The use of market-based instruments is rapidly becoming the next frontier in creating more effective environmental protection.  Specifically, the creation of environmental markets has emerged as a viable means of achieving environmental progress by commodifying environmental impacts and creating markets for their sale.  Wetlands mitigation banking is one such method that merges the often divergent interests of development and environmental conservation by creating financial incentives for landowners to restore, create, enhance, or preserve wetlands in order to compensate for wetlands lost to development.

The Importance of Wetlands

Wetlands are habitat to some of the country’s most rare and diverse plants and animals.  But in these species’ shadows lurk lesser-known wetland values that produce some of the most tangible benefits to society at-large, which range from commonplace to extraordinary.  Wetlands have the ability to enhance water quality, store and recharge water to the aquifer, buffer adjoining regions during flood surges (reducing the severity of extreme weather events like Hurricanes Katrina and Rita), and sequester dangerous greenhouse gases like carbon dioxide.[1] 

Wetlands Mitigation Banking Defined

Generally, a wetlands bank is a privately or publicly owned parcel of land managed for its natural resource values. Wetlands mitigation banking involves the restoration, creation, enhancement, or preservation of wetlands in order to compensate for wetlands that are destroyed through permitted construction or development projects.[2]  The landowner/bank operator, in exchange for permanently protecting their land, may sell credits to developers looking to satisfy legal requirements to compensate for a wetlands’ loss. 

How Wetlands Mitigation Banking Works

The wetland bank provides credits to developers within a given service area.  Once the wetland bank has established functional, mature wetlands, an Interagency Review Team (comprised of both federal and state agencies) may grant the new bank a certain number of wetlands credits based on the ecological value of the wetland that they created or enhanced.  Fewer credits are given for preservation, while more credits are awarded for wetlands creation.  These credits are then sold to parties whose construction plans include the destruction of wetlands in order to satisfy permit requirements for EPA, Army Corps of Engineers, or state or local construction permits.  The required amount of credits is determined on a case-by-case basis and regulatory agencies consider both wetland type and ecosystem function when determining credit requirements.  The wetland bank managers maintain the long-term responsibility for bank management.   Those who have purchased credits have no further obligations.

Benefits of Mitigation Banking

Investment minded property owners may enjoy profitability from wetlands banking from the sale of credits.  In 2008, wetlands credit payments per annum ranged from $1.3 ‐ $2.2 billion, and  national averages for individual credits ranged from $3,000 to $653,000 depending on the type of wetland that is being restored, created, enhanced, or preserved.[3]  It should be noted that a credit can represent anything from an acre to multiple acres to a functional unit, so calculating the total dollar volume of the wetland mitigation market is difficult.

Wetlands mitigation banking has also been lauded by government regulators and developers as a way to consolidate small wetland losses, improve the quality of mitigation and facility monitoring efforts, and increase the efficiency of the regulatory process.[4]  Commercial banks sell their credits to developers who are otherwise legally obligated to create wetlands adjacent to the developed property, i.e., on-site mitigation.  On-site mitigation is piecemeal and results in a patchwork of isolated wetlands.  The consolidation of these parcels into one large wetland bank increases the overall ecological value of the wetland, and promotes the wetland ecosystem’s long-term viability.  The economies of scale generated by a larger bank make the mitigation process more economically efficient.  Therefore, wetlands banks have a vested interest in creating and maintaining high quality wetlands. 

Finally, wetlands owners may enjoy additional return on investment beyond the sale of bank credits if carbon markets continue to develop.  Wetlands are terrific carbon sinks – storing almost 33% of the world’s soil organic matter.[5]  Presently, carbon credits are actively traded in global exchanges, such as the Chicago Climate Exchange (CCX).  Demand for carbon credits is likely to grow due to the passage of aggressive federal and state climate policies, such as California’s AB 32 – providing a legislative mandate for a cap-and-trade carbon market (see Cap-and-Trade in California Will Prevail Under Fire). Thus, in addition to all the wetlands benefits previously discussed, property owners that invest in wetlands may also be sitting on a gold mine of carbon credits.

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[1] R. Glennon.  Water Follies: Groundwater Pumping and the Fate of America’s Fresh Water. Island Press: Washington 2002, p. 72 Water Follies (Identifying some of wetlands’ most important functions.)

[2] J. Zinn, “Wetland Mitigation Banking: Status and Prospects”, CRS Report for Congress. 97-849. Congressional Research Service. September 12, 1997, p. 4.

[3] Ecosystem Market Place, State of Biodiversity Markets Report Compendium 2008, available at http://www.ecosystemmarketplace.com/documents/acrobat/sbdmr_methods.pdf.  Also, ELI (Environmental Law Institute), 2005 Status Report on Compensatory Mitigation in the United States,

Washington, D.C.: Environmental Law Institute, April, 2006, available at http://www.elistore.org/reports_detail.asp?ID=11137. 

[4] U.S. Army Corps of Engineers and US Environmental Protection Agency, Compensatory Mitigation for Losses of Aquatic Resources – Final Rule. Federal Register, Vol. 73, No. 70  (April 10, 2008). 

[5] Conservation, Protection and Utilization of Louisiana’s Coastal Wetland Forests

Final Report to the Governor of Louisiana from the Coastal Wetland Forest Conservation and Use ScienceWorking Group (April 30, 2005), available at http://www.coastalforestswg.lsu.edu/THEFinalReport.pdf