Wetlands Mitigation Banking and its application in the North Carolina Ecosystem Enhancement Program
(Draft)
M. Niel Brooks
PLS 521
Dr. Mark Imperial
December 6, 2005
The US Army Corps of Engineers (Corps) defines wetlands as “those areas that are inundated or saturated by surface or ground water at a frequency and duration sufficient to support, and that under normal circumstances do support, a prevalence of vegetation typically adapted for life in saturated soil conditions.” (USACE Web site)
But wetlands are more than just areas saturated by water. They serve a multitude of ecological functions, providing habitats for fish, shellfish, waterfowl and other wildlife, and essentially maintaining the quality of the nation’s water supply. For the majority of the nation’s history, however, wetlands have been simply viewed as worthless, mosquito-infested swamps. In an effort to eliminate these swamps, their destruction, development and filling has been encouraged and even supported by the federal government. The result has been the destruction of nearly half the nation’s wetlands (Booth). It was not until the environmental revolution of the 1970s that people began to see that wetlands had economic and aesthetic value.
Since that time, legislators, regulators and concerned citizens have struggled to balance the needs of a growing, expanding society with the needs of a healthy, sustainable environment. The result has been a variety of programs, approaches and potential solutions all created to preserve this balance. One of those potential solutions has been the idea of mitigation – the theory that negative impacts such as those on the wetlands can be lessened by certain actions.
A variety of wetland mitigation approaches have been explored, but one of the most interesting and controversial has been the idea of wetlands mitigation banking. This approach is now gaining popularity and being put to work in various forms across the United States. Innovative mitigation programs that incorporate banking – such as the North Carolina Ecosystem Enhancement Program – are now being studied to see if they may be able to even the scale between development and preservation of the nation’s wetlands.
Why Mitigation?
In 1972 in an effort to protect waters and adjacent wetlands from adverse environmental effects due to discharges of dredged or fill material, Congress passed amendments to the Federal Water Pollution Control Act, better known as the Clean Water Act. One of those amendments created Section 404 of the Clean Water Act, which gave the Corps of Engineers the authority to regulate the discharge of dredge and fill material into wetlands and other “waters of the United States.” In 1989 the Environmental Protection Agency (EPA) outlined a goal of “no net loss” of wetlands. The following year, the EPA and the Corps signed a Memorandum of Agreement (MOA), which initiated attempts to develop a permitting process for development activities that may destroy or negatively impact wetlands. The permitting process they created is a three-step process called “sequencing.”
In order to obtain a 404 permit, an applicant must demonstrate compliance with the Section 404 (b)(1) sequencing guidelines. Permit applicants must establish, in sequence, that: 1) impacts to aquatic resources cannot be avoided and there are no practicable alternatives, 2) efforts have been taken to minimize aquatic resource impacts through modification of construction plans and designs, and 3) compensation for unavoidable impacts have been made. If impacts are considered unavoidable, compensation is usually required to mitigate for lost wetland functions and value. Mitigation includes avoiding, minimizing, rectifying, reducing or compensating for resource losses. Any unavoidable impacts that result from the development of a project must be fully compensated for by implementation of a wetlands mitigation plan. (LeDesma)
This type of compensatory mitigation is achieved through the process of restoration, creation or enhancement of wetlands. Since there are no statutory standards for mitigation and determinations on the fulfillment of mitigation standards are done on a case-by-case basis, many various types of mitigation exist. (LeDesma)
On-site Mitigation:
Mitigation falls into two main categories, “on-site” and “off-site.” The Corps allows for both types, but has historically preferred on-site mitigation since lost wetlands are replaced at the same location with wetlands that possess the same functions and values. (Booth)
On site mitigation refers to the “creation, restoration or enhancement of wetlands adjacent to the wetlands being developed.” (LeDesma) The idea behind it is that a developer will fill some wetlands on a property and then go back and create new wetlands equal in size and function to the ones destroyed on the parcel so that the “no net loss” requirement is fulfilled. Critics argue, however, that on-site mitigation often fails to reach the “no net loss” goal and results in poor, functionally ineffective wetlands that are inadequate when compared to the natural wetlands they replace. (Booth)
On-site wetlands are often isolated from other wetlands systems, small in size, widely scattered and not buffered by adjacent uses. Since they are not linked to broader wetland ecosystems, they are more likely to fail, critics say. Such failures result in net loss of wetlands. (Booth)
The success of mitigation projects depends largely on human factors such as a developer’s commitment to the mitigation plan, his willingness to implement it properly and his ability to monitor and adjust the mitigated wetland. Success also depends on economic factors such as a developer’s financial commitment to the mitigation project. Unfortunately, humans often fail when it comes to these tasks, critics say. (Gardner)
The way the permitting process works, developers can simply present a compensatory mitigation plan and get a permit to fill existing wetlands. But sometimes developers hire engineers who do not have a full grasp of wetlands mitigation. As a result, poor site-specific mitigation plans are created. (LeDesma)
Once the Corps approves a mitigation plan and issues a permit, the developer is not required to perform any compensatory mitigation on the land until after the development is finished. If a developer fills a wetland, completes his building project and then goes back to implement his mitigation plan, there has been a time lapse when no wetland at all existed. During that time, wildlife and vegetation would have been displaced and all value and function those wetlands had would have been lost. (LeDesma)
After a wetlands mitigation plan is implemented, the developer is not required to monitor or maintain the site. Regulatory agencies also do not monitor sites due to a lack of resources. As a result, the EPA and Corps rarely enforce permit agreements and developers are scarcely held responsible if a mitigation project fails. (Booth)
Because of these problems with on-site mitigation, the Corps has begun to take a more favorable view of mitigation alternatives. One of these alternatives is wetlands mitigation banking.
Mitigation Banking:
Wetland mitigation banking is an approved and accepted method for compensating for unavoidable environmental impacts to wetlands caused by development activities. In it, a party such as a government agency, a corporation or a nonprofit organization creates, restores or in some cases preserves a medium or large tract of environmentally significant wetlands in advance of permitted impacts. Based upon the type, size and function of the improvements and the overall quality of the wetlands, the owners of the tract or wetlands “bank” are authorized by a regulatory agency to sell a certain number of “credits.” These credits represent a certain amount and type of wetlands acreage. The credits are then sold to permit holders to substitute for the wetlands they propose to impact, thus satisfying the requirements of their Section 404 permits. As part of a sales transaction, the credits are debited against the mitigation bank’s assets and the permit holder is allowed to fill in wetlands at his site.
Wetlands banking has grown in popularity in the last 15 years and is now supported by numerous federal agencies. There are now over 100 mitigation banks in operation or proposed for construction in 34 states across the country (EPA Web site). These mitigation banks fall into three main categories: single-client banks, publicly-sponsored credit-for-sale banks and privately-sponsored credit-for-sale banks (Silverstein). While all three accomplish the same goals of providing mitigation in advance of permitted impacts, they differ primarily in their ownership and administration.
The majority of wetlands mitigation banks in the United States are single-client or single-user banks. These banks are initiated and managed by a single sponsor for the sole purpose of providing advance mitigation for wetlands degradation resulting from that sponsor’s projects. Under this mitigation option, a large land developer or a state Department of Transportation that expects to receive multiple future permits develops one large credit project in advance of and located away from their anticipated wetland filling projects. The credits, once certified by the Corps, are deposited into a “bank account” that is drawn upon as future fills are permitted. Supporters of this type of banking approach say the off-site location and large size of these credit projects increase the chance of the wetlands’ ecological success and allows the Corps to better target its limited monitoring and enforcement resources. (Booth)
The other two types of mitigation banks are known as fee-based programs since permittees pay a fee to a third party, certified by the Corps, who produces wetlands credits in one or more off-site locations (Shabman). Once the fee is paid, the third-party provider accepts financial and legal responsibility for the success of the credits. Fee-based programs arose because many wetlands fill projects are small in size and the developers often have neither the resources nor the need to create large single-user banks. By purchasing credits from a third party, a developer can avoid the hassles of on-site mitigation and still fulfill the requirements of his permit.
Publicly-sponsored “credit-for-sale” banks are one type of fee-based program. These banks are developed by public or quasi-public entities to sell credits on a non-profit basis to developers. They are often owned and administered by resource agencies or non-profit environmental groups. Since these groups have missions of wetlands creation and enhancement, the quality of the wetlands produced and credits sold is generally high and a commitment to their long-term management is secure. (Shabman)
Gaining popularity in recent years have been privately-sponsored credit-for-sale banks or “commercial mitigation banks.” In these market-based or “entrepreneurial” banks private entrepreneurs invest in wetlands credit production and then earn a return on those investments by selling the resulting credits to permittees.
When they began developing guidance for certification and use of commercial wetlands banks, federal regulators faced a dilemma. They had to strike a balance between ensuring high-quality credits and the financial viability of commercial wetlands bankers. Federal regulators were afraid to allow bankers to sell wetland credits before their projects were judged ecologically successful. This created a problem since it can take as many as five years before the success of a project is known. In that period of time, it would be financially impossible for investors to make any return on their money. As a result, commercial wetlands banks were allowed to sell a limited number of “early” credits in return for posting financial assurances that would be released when credit success was assured. This compromise facilitated the development and use of commercial wetlands mitigation banks. (Shabman)
These types of banks have been hailed by proponents as the most successful banks since they result in high-quality wetlands provided at a low cost to consumers. Commercial banks now hold between 10 and 20 percent of the nation’s wetlands mitigation credits. (Booth)
Benefits of Mitigation Banking:
In November 1995, joint federal guidance on the “Establishment, Use and Operation of Wetland Mitigation Banks” was published in the federal register. Agencies participating in the creation of the document included the Corps, the EPA, the US Fish and Wildlife Service, the Natural Resource Conservation Service and the National Oceanic and Atmospheric Administration (NOAA). Recognizing the potential benefits mitigation banking offers for streamlining the permit evaluation process and providing more effective mitigation for authorized impacts to wetlands, the agencies encouraged the establishment and appropriate use of mitigation banks and echoed the findings of mitigation banking proponents. The agencies have since been trying to develop interagency guidance for the establishment and use of mitigation banks. (EPA Web site)
In the federal registry paper, the agencies found that larger, consolidated wetland bank sites can provide greater function and ecological value as compared to small, isolated, on-site mitigation projects. Since a bank’s sponsor gets to choose the location of the bank it is virtually guaranteed that the wetland will be connected in some way to other wetland ecosystems. This is not the case in on-site mitigation where developers are forced to mitigate the destruction of wetlands that may not be connected to other wetland ecosystems and may be of only marginal ecological value.
Small, on-site mitigated wetlands are also often poor habitats for certain types of plant and wildlife because of their limited size. Large mitigation projects naturally tend to draw more species and provide a more suitable natural habitat. Since many of these projects involve reclaiming land that was once historic wetlands, compensatory mitigation occurs in a place where it might not have otherwise occurred. (Booth)
Another benefit of mitigation banking touted by regulatory agencies is the fact that mitigation occurs years in advance of wetlands destruction. Credits are only granted to a bank when restoration and creation efforts are judged to be successful, thus creating a “surplus” of wetlands. When these credits are sold and issued to a permittee, the mitigation has already been accomplished. There is no chance of net loss and the regulatory agency does not have to worry that the developer may never implement his mitigation plan. Banking also eliminates the temporary loss of wetland values that typically occur in the time between when wetlands are filled and when mitigation begins.
Mitigation banks have a greater probability of success compared to on-site efforts because professional and regulatory resources are consolidated and plans are generally better managed and funded (Shabman). The sponsors of mitigation banks also financially guarantee to regulators that their banks will be suitable, thereby increasing the likelihood of success in a way not practical for individual mitigation efforts.
Regulatory agencies also support mitigation banks because they reduce permit processing time, thereby increasing the agencies’ effectiveness. Regulators do not have to spend extended periods of time reviewing site-specific mitigation plans and do not have to go out in the field to check on mitigation efforts for individual sites. According to the EPA, “Banking can provide more cost effective mitigation and reduce uncertainty and delays for qualified projects, especially when the project is associated with a comprehensive planning effort.” (EPA Web site)
Regulators and environmentalists are not the only ones who see the benefits of mitigation banking. Many developers see mitigation banks as a way to streamline the permitting system since they do not have to waste time and money developing and implementing on-site mitigation plans for small, isolated wetlands. Private landowners generally support mitigation banking because they are not deprived of their property rights since they are not forced to create or maintain wetlands on their property. In addition, many landowners in the United States own large parcels of wetlands that cannot be developed. These lands remain valuable when they are enhanced and a mitigation banking system is put in place. This ability also shields the government from accusations of regulatory “takings” under the 14th and 15th amendments to the Constitution. (Booth)
Drawbacks of Mitigation Banking:
While it has many proponents and the support of federal agencies, wetlands mitigation banking is not without its opponents. The most prevalent objection is the fear that banking will accelerate the destruction of natural wetlands. (LeDesma)
A related concern is that mitigation banking will result in a net loss of wetlands. If regulators grant mitigation credits for preservation and acquisition of existing wetlands, it is clear that a net loss will result when developers withdraw these credits to compensate for wetland fills in other places. (Silverstein)
Some opponents perceive mitigation banking is a way to avoid obtaining the proper permits and a justification for easing restrictions on filling wetlands. Others argue it is impossible to have true “in-kind” mitigation when you preserve wetlands in one location, but destroy them in another. Restoration and creation of wetlands may not result in replacement of wetlands functions of equal character and quality to those destroyed by development in existing natural wetlands, they argue.