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Wetland Mitigation Banking: Jeffrey Zinn September 12, 1997 97-849 ENR Summary
Support for Mitigation Banking
Criticisms of Mitigation Banking
Congressional Considerations Wetland protection is controversial because the federal government regulates activities on private lands and because the natural values at some of these regulated sites are being debated. This controversy pits property owners and development interests against environmentalists and others who seek to protect the remaining wetlands. Mitigation banking, which allows a person to degrade a wetland at one site if a wetland at another site is improved, has been identified as a potential answer to this shrill and seemingly intractable debate. Mitigation banking is relatively new, and federal mitigation banking policies continue to evolve. It was first endorsed by the Bush Administration. The Clinton Administration subsequently endorsed the concept in 1993, and the Corps and EPA issued detailed direction to field staff concurrently. Five federal agencies published final guidance in the Federal Register in November 1995 providing a framework to support a functioning banking system. In addition, many states have initiated or are considering banking programs. Banking can occur only after three steps are taken in the federal process for protecting wetlands. First, wetland development must be avoided if possible; second, when this it is unavoidable, impacts must be minimized; and third, impacts that can not be minimized to an acceptable level must be mitigated. Mitigation banking is an option only when mitigation on-site is not possible. Bank sponsors create wetland "credits" at a bank site that can be acquired by those who fall within the purview of these two programs and are required to offset wetland losses, or "debits," at other sites. Congressional interest is building because mitigation banking appears to be a promising approach for offsetting wetland degradation and implementing an overall policy goal of "no net loss." While the recent growth in the number of mitigation banks suggests expanded interest and support for this approach, several years or more may elapse before success (or failure) at individual sites can be determined. This time lapse is one reason why mitigation banking is controversial. Supporters claim that mitigation banking, when compared with mitigation on-site, provides better-organized planning, an improved regulatory climate, greater commitment to long-term wetland protection, and more consolidation of habitat. Opponents are concerned that banking is a loophole and endorses additional wetland destruction, that some types of wetlands are difficult to create or restore as thriving ecosystems, and that wetland losses are sometimes allowed before the bank is fully functional. More generally, supporters view policy flexibility as critical to success, especially for commercial banks, while critics worry that flexibility will lead to unacceptable losses of wetland functions and values. Congress is hearing about these benefits and concerns as it considers how mitigation banking might be incorporated into future wetland protection laws and programs. Wetland Mitigation Banking: Status and Prospects1 Mitigation has received widespread attention because it has been incorporated into federal wetland protection policy as an approach for offsetting the negative impacts of wetland losses. The President's Council on Environmental Quality defines mitigation as actions taken to avoid, minimize, reduce, rectify, or compensate for the adverse repercussions of development.2 Federal agencies may require mitigation so that an applicant will receive a permit only after agreeing to substitute replacement wetlands to offset an unavoidable loss of a wetland and its functions. Recognized wetland functions include;
Banking is one method of implementing mitigation policies that has received considerable attention and interest recently. It can be used to compensate for the loss of valuable functions of wetlands that contribute to a healthy environment. A mitigation bank is usually a relatively large site where wetland habitat is created or restored. This habitat will replace altered or degraded wetlands from several nearby sites. Banking can consolidate activities to offset wetland losses that may otherwise have been mitigated piecemeal at smaller sites, that are not coordinated, and may provide less overall benefit. The interest in mitigation banking is high, as measured by the numerous recent publications (a sampling of which are cited in the bibliography) and by congressional interest. This report describes the concept of banking, its principal elements and various forms. It examines the potential of mitigation banking as a means to protect wetlands, given their wide variation in forms, functions, and value to society. Additionally, it outlines current criteria for a federally approved mitigation bank, summarizes the reported advantages and disadvantages of banking, and reviews policy issues of interest to Congress. Mitigation banking has many definitions, but most center on the restoration, creation, enhancement, or, in exceptional circumstances, the preservation of wetlands which will compensate for unavoidable wetland losses at another site.3 Banking is designed to coordinate mitigation at one location for habitat losses allowed under federal programs at other sites. Mitigation banking is used primarily when on-site mitigation can not be achieved or is not as environmentally beneficial. Mitigation banking involves a process in which a client may be required to obtain wetland units with similar functions and values at a nearby site to satisfy federal permit or program requirements. Bank operations vary widely, but all follow the same general principles. These principles use the terminology of financial institutions: transactions are described in terms of credits and debits to wetland resources. A bank sponsor creates credits as it restores, enhances, or creates wetlands at the bank site. These credits are either debited (money is not involved) or purchased by clients (a financial transaction) who are being required to compensate for wetland losses. When clients obtain these credits, they are withdrawn from the bank and become unavailable for future transactions. Clients are usually required to make these withdrawals prior to or concurrently with their proposed activity that will result in wetland losses. Banks may be allowed to transfer some credits, usually to fund their operations, before the site is fully established. A hypothetical example of a bank may help to explain this process. Consider that a banking entity has been established. The bank sponsor purchases 500 acres of land on which it plans to restore a wetland. The land costs $1,000 per acre. The sponsor then spends $2,000 per acre to restore and maintain the wetland, for a total investment of $1.5 million. At a later time, and as part of a section 404 permit approval at a nearby site, a client whose project will alter 10 acres of wetlands (that are almost identical to the ones at the bank site) is required, for permit approval, to purchase mitigation "credits" to offset these impacts. The bank sponsor sets a price of $8,000 per credit, and each credit is one acre. The client is required to purchase 10 credits. This payment will partially compensate the banker for restoring wetlands at the bank site. After several clients have purchased credits, the costs of setting up the bank may be repaid. The bank sponsor may become the long-term 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.4 The example described above is a private commercial bank, one of four types of banks that the U.S. Army Corps of Engineers (Corps) identified in a recent multivolume review of many aspects of banking. It distinguishes these types based on the relationship between the sponsor and client(s) and on the financial goals of the sponsor. 5
Two federal programs might require wetland mitigation. Section 404 of the Clean Water Act (CWA), enacted in 1972, requires federal approval for most activities involving the disposal of dredge or fill material into wetlands. Landowners must obtain permits from the Corps before they can carry out such activities. The Corps can impose certain conditions, including mitigation, as part of the permit approval. Permit approval is a shared responsibility of the Corps and the Environmental Protection Agency (EPA). Other agencies may have important advisory roles, including the U.S. Fish and Wildlife Service (FWS) and the National Marine Fisheries Service (NMFS). The swampbuster program, enacted in the 1985 Food Security Act, may also require mitigation for activities affecting agricultural wetlands. Under this program, farmers may be denied most federal farm program benefits for altering a wetland to plant crops. The Natural Resources Conservation Service (NRCS) monitors agricultural wetlands for compliance with swampbuster. In some instances, NRCS may allow mitigation as part of a farmer's effort to comply with swampbuster. Swampbuster and § 404 do not affect identical sites on agricultural lands, so in some instances, an applicant who is not affected under § 404 may fall under swampbuster and vice versa. Federal mitigation policy for wetlands has grown out of regulations that the Corps uses to evaluate the environmental impacts of proposed discharges, called the § 404 (b)( 1) guidelines. These regulations, first promulgated in 1975, provided a structure for mitigation. From the beginning, off-site mitigation was permitted to avoid on-site impacts of development, such as siltation. In general, however, off-site mitigation was limited because public agencies sometimes objected and business interests apparently viewed the risks of upfront costs and uncertainty as too high for the projected return. Mitigation policies were clarified by a Memorandum of Agreement (MOA), signed on February 6, 1990, between EPA and the Corps. This MOA specifies that these two agencies are primarily responsible for assuring that actions affecting wetlands comply with federal regulations. The MOA mandates that compensatory mitigation should be used only when; (1) impacts cannot be avoided, and (2) unavoidable impacts cannot be minimized. Controversies do arise over defining the least environmentally damaging alternative for a particular project. Some wetland protection advocates contend that avoidance is the only acceptable policy because wetland degradation should not be allowed. (Avoidance means an applicant has selected an option that causes no unacceptable environmental damage to wetland resources. Mitigation is not necessary if the applicant is determined to have successfully avoided affecting wetlands.) Others claim that avoidance may be the best policy for protecting wetlands with high habitat and hydrological values, but that greater flexibility, including mitigation, is appropriate, especially for sites of less value.6 Impact minimization is required when altering wetlands cannot be avoided. Projects are generally required to be modified to minimize impacts of wetland degradation. Minimization might include redesigning or scaling back aspects of a proposal, or limiting proposed modifications to a portion of the project site. Wetland protection advocates generally support on-site minimization of wetland damages over mitigation because it preserves some important wetland characteristics that might otherwise be lost. Minimization requirements may be opposed by those applicants who would prefer to use more of the site and to implement a mitigation program. If unacceptable impacts would still result, mitigation may be required. Mitigation on the site is generally preferred over mitigation at another location. It may include the restoration of existing wetlands or creation of new wetlands. If on-site mitigation is not possible, then off-site mitigation is the final option. Banking can provide an acceptable off-site mitigation option if it is properly designed. However, the 1990 MOA does not provide detailed guidelines on banking. It does state that each bank has to be approved by the EPA and the Corps, and that more detailed guidance would be forthcoming. Mitigation banking does not become an option until the Corps and the EPA have determined that the applicant has fully complied with the policies of avoidance and minimization. Evaluations concluding that on-site mitigation has performed poorly have helped garner support for banking. Several reviews of early mitigation efforts found extensive failure. For example, Kevin Erwin conducted a study for the South Florida Water Management District in which only 40% of permitted projects requiring wetland mitigation had been completed.7 Only four of the completed projects were deemed successful. Among the deficiencies cited were 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. Other deficiencies identified by different evaluators include delays in construction and lack of maintenance. Many view mitigation banking as having the potential to overcome these problems. A poor record should not be a surprise as, with few exceptions, applicants seek least-cost solutions that meet minimum acceptable standards and avoid legal actions or further costs. They have no incentive to exceed these standards, even when added commitments are necessary for an ecological success. The relatively high cost of conducting mitigation on some sites has also dampened applicant enthusiasm. Average mitigation costs per acre tend to increase as the size of the site decreases. In this environment, applicants have little incentive to create and maintain high quality sites. ENDNOTES 1 Jennifer Delong, an undergraduate student from Cornell University, researched and prepared a draft of this report under the supervision of Jeffrey Zinn, Senior Analyst in Natural Resources Policy. 2 40 CFR 1508.20 3 This definition is basically the one used by federal agencies. Some states use different definitions; for example, while the federal definition allows preservation as an option for banking, some states do not. 4 The long-term responsibility of a bank is similar to the "perpetual care" obligation of a cemetery. 5 Some ventures operate on a fee-based system, so that clients pay a fee, perhaps into a trust, that subsequently funds improvements at a "bank-like" site. Private entities who have expressed an interest in becoming bank sponsors see the ability to receive funds before the bank site is fully established as critical to their involvement. 6 It is important to remember that, even without development and with protection, a wetland could be substantially degraded by activities on surrounding sites. 7 Erwin, K. An Evaluation of Wetland Mitigation Within the South Florida Water Management District Volume1. South Florida Water Management District, July 1991, p.3. ... |
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