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Mitigation banking

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Mitigation banking is a market-based system (used primarily in the United States as part of its "no net loss" policy) that involves restoration, creation, or enhancement of wetlands to compensate for unavoidable impacts to a wetland in another location.[1] It involves a system of mitigation banks, sites where projects to restore, create, or enhance wetlands can be carried out in advance of impacts. The outcomes of these projects are valued through the creation of compensatory mitigation credits that can be purchased from mitigation banks to offset the negative impacts of developments or agriculture expansion on wetlands and aquatic habitats.[2] This process is generally conducted with the aim of achieving no net loss of function and value for specific aquatic habitats, such as in terms of the biodiversity or ecosystem services provided by a wetland.[3]

Mitigation banking is a form of biodiversity banking, and a mechanism to conduct biodiversity offsetting (described by the term "compensatory mitigation" in the United States). Mitigation banking was developed in the United States with the aim of conserving wetlands (while still allowing development) by working towards a goal of "no net loss of wetlands", developing from compensatory mitigation policies under section 404 of the Clean Water Act.[4] Since then, the concept has expanded beyond the United States and, from mitigation banking, various other forms of biodiversity banking evolved, including conservation banking and habitat banking.[5]

Fox Creek looking south from county road bridge at Champion, Missouri, USA
Fox Creek near St. Louis, Missouri, the site of the first stream mitigation bank in the United States approved by the US Army Corps of Engineers in 2000.[6]

The public interest is served when enforcement agencies require more habitat as mitigation, often referred to as a mitigation ratio, than is adversely impacted by management or development of nearby acreage.[7] Wetland Mitigation Credits do not convey any interest in the real estate that hosts the mitigation bank. Wetland Credits are treated, for accounting purposes, as intangible personal property.

Terminology

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Mitigation banking is defined by the Natural Resources Conservation Service (a US government agency) as "restoration, creation or enhancement of wetlands for the purpose of compensating for manipulated wetlands at another location".[8]

This system uses mitigation banks - wetland areas that have been restored, established, enhanced, or preserved away from the site of impacts and set aside to compensate for future damage to wetlands.[9] Banks can be created by bank sponsors (such as government agencies, corporations, non-profits) by making a formal agreement with the US Army Corps of Engineers that describes the plan for restoring the site and the number of credits it is expected to generate. The functions of the bank or the acres that have been restored within its "service area" (its geographical location) are quantified to determine the value of the credits sold by the bank.[8]

Where a wetland is described as "manipulated", this might mean that it has been drained, dredged, filled, levelled, or altered in some other way to allow agriculture or development to take place on the site.[8] If manipulation of wetlands results in unavoidable adverse impacts, compensatory mitigation measures are used to offset these impacts. Unavoidable adverse impacts are negative effects on wetlands that cannot reasonably be avoided or minimised, therefore requiring compensatory mitigation. The mitigation sequence is used as a tool to guide the type and level of compensatory mitigation that will be required under the Clean Water Act.[10] It includes the steps avoid, minimise, and compensate, requiring that avoidance and minimisation measures should be exercised before compensation.[10] The term mitigation hierarchy may also be used and its framework has been expanded.[11]

Compensatory mitigation includes measures to restore, create, enhance, and preserve wetlands to offset unavoidable adverse impacts.[12] It is a form of environmental mitigation and can include both on-site (on or adjacent to the site of impacts) and off-site mitigation. The measures that come under compensatory mitigation and conducted as part of mitigation banking are defined by the EPA as:[13]

  • Restoration involves re-establishing wetland conditions to an area where wetland used to exist.
  • Enhancement involves alterations to increase function and value of existing wetland.
  • Creation involves making a new wetland or aquatic resource where one did not exist beforehand.
  • Preservation involves permanently protecting wetlands that are considered ecologically important. This can involve physical and legal methods, such as conservation easements or title transfers.

Mitigation banking is one of three main mechanisms used in the United States to carry out compensatory mitigation, in addition to in-lieu fee mitigation and permittee-responsible mitigation.[13]

Mitigation banking in the US

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Policies

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In the United States, federal agencies (under section 404 of the Clean Water Act), as well as many state and local governments, require mitigation for the disturbance or destruction of wetland, stream, or endangered species habitat. Once approved by regulatory agencies, a mitigation bank may sell credits to developers whose projects will impact these various ecosystems.

The USEPA identifies four components of a mitigation bank as: the bank site, the bank instrument, the Interagency Review Team (IRT), and the service area. The bank site identifies the acreage of the area preserved, enhanced, restored, or created. The bank instrument is the formal agreement between regulatory agencies and the bank owner which establishes liability and success of the mitigation bank. The IRT regulates approval and oversight of the mitigation bank. The service area identifies the area in which the bank can sell credits for permitted impacts.[14] Mitigation banks with multiple credit types (habitat types) can have different service areas for each credit type.[15]

A policy of "no net loss" of habitat value and function has been used as the objective for mitigation banking in the United States since the 1990s.[16] However, there have been challenges to implementing and monitoring this policy in practice. In some cases, wetland mitigation programs have been approved based on total area rather than in terms of equivalence of ecological function.[17][18] In addition, where mitigation banks are located far from the site of impact, rather than in the same watershed as the impact, it may be difficult or impossible to retain original value and function.[14]

Mitigation credits

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Credits are designated by an interagency Mitigation Bank Review Team (MBRT).[19] The MBRT evaluates and permits a proposed Mitigation Bank. They also determine the number of potential mitigation credits a bank may earn and sell. The MBRT may include representatives of various federal, state and/or local government agencies, including: U.S. Army Corps of Engineers, National Marine Fisheries Service, Environmental Protection Agency, US Fish and Wildlife Service, State Environmental Protection Divisions, Local Water Management Districts, County Environmental Departments and the Soil Conservation Service.

A mitigation bank generates credits for the amount and quality of habitat the bank site improves. Credits are units of exchange defined as the ecological value associated with converting a naturally occurring wetland or other specific habitat type, for economic purposes. Mitigation credits to compensate for riparian impacts may be assigned in relation to the linear distance of a stream functioning at the highest possible capacity within the watershed of the bank. Mitigation credits are determined based on bank acreage, functional units, and other assessments. The estimated potential number of credits a bank may earn can vary based on ecological performance of the bank. The Interagency Review Team periodically releases bank credits as the bank meets certain performance milestones. This happens over the course of the "establishment period", which lasts around 10 to 12 years. When the IRT releases potential bank credits, they become available credits meaning they can be purchased for ecological offset.[15]

RIBITS (Regulatory In lieu fee and Bank Information Tracking System) is a website created by the USACE with information on mitigation and conservation banks and in-lieu fee (ILF) program sites. The website contains local and national policies and procedures for mitigation banking. It houses information about all mitigation and ILF sites including site documents, mitigation credit availability, and service areas as well as tracks all credit transactions.[20]

Taxation

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The creation of a mitigation bank will require the owner of the land to convey a perpetual conservation easement. A conservation easement is a legal arrangement that prohibits future development of the property. The Internal Revenue Service has viewed the filing of a perpetual conservation easement in return for mitigation credits as a sale or exchange of property under section 1001 for federal income tax purposes.[21]

Mitigation banking beyond the US

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Further information: Biodiversity banking

The mitigation banking concept has been extended to develop other forms of biodiversity banking that are applied outside of the United States as a mechanism for biodiversity offsetting.[16] For example, mitigation banking has been used to inform and shape biodiversity banking frameworks in Australia, New Zealand, Canada, Colombia, and Brazil.

Biodiversity banking is an umbrella term that encompasses a range of market-based systems for offsetting, including mitigation banking, conservation banking, habitat banking, and species banking.[22] Biodiversity banking describes a market-based framework for biodiversity offsetting where offsets can be traded in the form of credits to offset negative environmental impacts of development projects or activities.[23][16]

History

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Origins

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Compensatory mitigation was developed in the United States with the aim of balancing the demand for economic development with the need to conserve wetlands.[24] This began with the Clean Water Act (CWA) in 1972.[25] Under Section 404 of the CWA, a permit from the US Army Corps of Engineers is required to conduct certain activities that may impact wetlands. The developer must submit a Public Notice to their respective district of the US Army Corps of Engineers (USACE) requesting to carry out a project and associated ecological impacts on a wetland.

Mitigation banking was developed in the United States in the 1980s as a new method for compensatory mitigation with a market-oriented, off-site approach.[26] Guidance from the US Fish and Wildlife Service in 1983 led to the establishment of the first wetland mitigation banks in the early 1980s.[27] The practice began as a way for state highway and public works departments to comply with regulations for wetland mitigation, and later entrepreneurial banks were set up to sell credits to public and private developers.[28] For example, the Fina La Terre in Louisiana, signed off in 1984 and proposed by a private company, was one of the first mitigation banks in the country.[29]

The Corps initially preferred on-site mitigation to preserve the wetland functions at their location. Unfortunately, this approach had a low long-term success rate.[16] A 1993 Memorandum of Agreement gave national guidance on mitigation banking by instead supporting a market-oriented method. It supported off-site wetland mitigation in which a permittee purchases mitigation credits from a third-party mitigation bank. This entity, private, governmental, or non-governmental, promotes the no-net-loss policy by restoring or creating an area of wetland into a mitigation bank and selling compensatory mitigation credits to permittees.

Development since the 1990s

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In 1995, federal guidance governing the establishment, use and operation of mitigation banks was issued by several government agencies, including USACE, EPA, NRCS, USFWS, and NOAA (National Oceanic and Atmospheric Administration) Fisheries. This guidance defined mitigation banks and their objectives, enabling the use of mitigation banking for compensatory mitigation to meet the goal of "no net loss" of wetlands.[30]

The application of mitigation banking has been expanded beyond wetlands to include streams and other aquatic habitats.[31] This led to the creation of the first stream mitigation bank in Fox Creek, Missouri in 2000.[32] The concept has also been expanded to develop other forms of biodiversity banking, including conservation banking for endangered species in California and habitat banking in other countries. By 2000, there were over 230 private mitigation banks and 180 state-run mitigation banks.[33] By 2001, 23 states had statutes or regulations authorising the use of mitigation banks and a further 8 had issued guidelines to govern mitigation banking.[34]

In 2008, the regulations for compensatory mitigation (which includes mitigation banking) were revised by the USACE and USEPA under the 'Compensatory Mitigation Rule'. These new federal regulations established mitigation banks as the preferred method for compensatory mitigation and also introduced ecosystem services into the standards for mitigation banking.[35]

By 2024, more than 1200 mitigation banks had been approved and were operating in the United States with a total of 750,000 credits approved across the country.[36] However, state and regional studies on wetland compensatory mitigation suggest that a significant portion of compensation sites are failing to meet administrative and ecological performance standards, according to the Environmental Law Institute.[37]

Conservation easements

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Further information: Conservation easement

In the United States, for land to be used for mitigation banking, a commitment to protecting these lands must be made using a legal agreement called a conservation easement.[38] This is a voluntary legal arrangement between a landowner and a government agency or conservation organisation to restrict future commercial or residential development on a site, permanently setting it aside to be managed for conservation purposes.[39][40] This may include a dedicated trust fund to finance the continued long-term management of the site for mitigation banking.

As part of this process, monitoring and enforcement are required to make sure that long-term investment into conservation continues in perpetuity.[41] Despite this, concerns remain over successfully monitoring and enforcing these agreements in practice.[42]

Setting aside land for mitigation banking in perpetuity might be regarded as a disadvantage for landowners, who may want to use the land in different ways for their own needs in the future (such as for agriculture or development) or may face a reduction in the value of their land.[43] On the other hand, using a conservation easement to permanently set aside the site of a mitigation bank might be regarded as beneficial for the achievement of broader goals for biodiversity conservation and in preventing future damage to wetland habitats and their biodiversity.

See also

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References

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  1. ^ Environmental Protection Agency, United States (2024-06-28). "Mitigation banks under CWA section 404". EPA. Retrieved 2024-07-31.
  2. ^ Environmental Protection Agency, United States (2008). "Compensatory Mitigation Rule Factsheet" (PDF). epa.gov. Retrieved 2024-07-30.
  3. ^ "Background on Compensatory Mitigation | Environmental Law Institute". www.eli.org. Retrieved 2024-07-31.
  4. ^ "Mitigation Trade: Making Up for Environmental Harm". Investopedia. Retrieved 2024-07-31.
  5. ^ Froger, Géraldine; Ménard, Sophie; Méral, Philippe (2015). "Towards a comparative and critical analysis of biodiversity banks". Ecosystem Services. 15: 152–161. doi:10.1016/j.ecoser.2014.11.018. ISSN 2212-0416.
  6. ^ Harding, Scott D. (2001-09-28). "Fox Creek Mitigation Bank". Wetlands Engineering & River Restoration 2001. American Society of Civil Engineers: 1–10. doi:10.1061/40581(2001)25. ISBN 978-0-7844-0581-9.
  7. ^ "Mitigation Ratio Calculator | Ecosystem Based Management Tools". www.ebmtools.org. Archived from the original on 2013-01-25.
  8. ^ a b c Natural Resources Conservation Service, US Department of Agriculture (2024-07-29). "Conservation Compliance Glossary". National Resources Conservation Service, USDA. Retrieved 2024-07-27.
  9. ^ Environmental Protection Agency, United States (2024-06-28). "Mitigation banks under CWA section 404". EPA. Retrieved 2024-07-31.
  10. ^ a b OECD (2016). Biodiversity Offsets: Effective Design and Implementation. Paris: Organisation for Economic Co-operation and Development. doi:10.1787/9789264222519-en.
  11. ^ "Understanding the Mitigation Hierarchy". www.joesblooms.com. Retrieved 2024-07-31.
  12. ^ "Wetland Mitigation". The Wetland Conservancy. Retrieved 2024-07-30.
  13. ^ a b Environmental Protection Agency, United States (2008). "Compensatory Mitigation Rule Factsheet" (PDF). epa.gov. Retrieved 2024-07-30.
  14. ^ a b Jhawar, Vikram. "Understanding the Basics of Mitigation Banking". Investopedia. Retrieved December 1, 2018.
  15. ^ a b Washington State Department of Ecology, Interagency Review Team. "Credit Guide for Wetland Mitigation Banks" (PDF). Access Washington. Retrieved December 2, 2018.
  16. ^ a b c d Bayon, Ricardo; Fox, Jessica; Carroll, Nathaniel, eds. (2009). Conservation and biodiversity banking: a guide to setting up and running biodiversity credit trading systems. London Sterling, VA: Earthscan. ISBN 978-1-84407-814-1.
  17. ^ Enrivronmental & Natural Resource Economics 8th edition. Tom Tietenberg, Lynne Lewis. 2009 Pearson Education
  18. ^ "Wetlands Mitigation Banking". www.epa.gov. Archived from the original on 1999-11-05.
  19. ^ "Mitigation Banks under CWA Section 404". 16 June 2015.
  20. ^ "About RIBITS". RIBITS. Retrieved December 2, 2018.
  21. ^ IRS PLR 201222004 released 6/1/2012
  22. ^ Froger, Géraldine; Ménard, Sophie; Méral, Philippe (2015). "Towards a comparative and critical analysis of biodiversity banks". Ecosystem Services. 15: 152–161. doi:10.1016/j.ecoser.2014.11.018. ISSN 2212-0416.
  23. ^ "A Guide to Biodiversity Banking | Ecology by Design". | Ecology by Design. 2022-01-10. Retrieved 2024-07-30.
  24. ^ J.B. Ruhl and James Salzman, No Net Loss? The Past, Present, and Future of Wetlands Mitigation Banking, 73 Case W. Rsrv. L. Rev. 411 (2022)
  25. ^ Hough, Palmer; Robertson, Morgan (2009-02-01). "Mitigation under Section 404 of the Clean Water Act: where it comes from, what it means". Wetlands Ecology and Management. 17 (1): 15–33. doi:10.1007/s11273-008-9093-7. ISSN 1572-9834.
  26. ^ J.B. Ruhl and James Salzman, No Net Loss? The Past, Present, and Future of Wetlands Mitigation Banking, 73 Case W. Rsrv. L. Rev. 411 (2022)
  27. ^ US EPA, OW (2015-06-16). "Mitigation Banks under CWA Section 404". www.epa.gov. Retrieved 2024-08-05.
  28. ^ Ruhl, J. J., Salzman, J., & Goodman, I. (2009). Implementing the new ecosystem services mandate of the section 404 compensatory mitigation program a catalyst for advancing science and policy. Stetson Law Review, 38(2), 251-272.
  29. ^ Tyrna, Abbey Anne, "Wetland mitigation banks and the no-net-loss requirement: an evaluation of the Section 404 permit program in southeast Louisiana" (2008). LSU Master's Theses. 3116. https://repository.lsu.edu/gradschool_theses/3116
  30. ^ Kathrin Ellen Yates, Wetlands Mitigation and Mitigation Banking in Louisiana, 59 La. L. Rev. (1999) https://digitalcommons.law.lsu.edu/lalrev/vol59/iss2/10
  31. ^ "Stream Mitigation Banking". Ecosystem Marketplace. Retrieved 2024-08-05.
  32. ^ Harding, Scott D. (2001-09-28). "Fox Creek Mitigation Bank". Wetlands Engineering and River Restoration 2001. American Society of Civil Engineers: 1–10. doi:10.1061/40581(2001)25. ISBN 978-0-7844-0581-9.
  33. ^ Bondes & Pompe, Matthew and Jeffrey (March 11, 2004). "Calculating Wetland Mitigation Credits: Adjusting for Wetland Function and Location" (PDF). Retrieved December 1, 2018.
  34. ^ Environmental Law Institute (2002). "Banks and Fees: The Status of Off-site Wetland Mitigation in the United States" (PDF). Environmental Law Institute. Retrieved 2024-08-05.
  35. ^ Hough, Palmer, and Rachel Harrington. "Ten years of the compensatory mitigation rule: reflections on progress and opportunities." Envtl. L. Rep. News & Analysis 49 (2019): 10018.
  36. ^ "The Basics of Mitigation Banking | EASI". Retrieved 2024-08-05.
  37. ^ "Ecological Effectiveness of Compensatory Mitigation | Environmental Law Institute". www.eli.org. Retrieved 2024-08-05.
  38. ^ "Mitigation Banking 101: How Does Mitigation Banking Work?". The Mitigation Banking Group. 2022-11-01. Retrieved 2024-08-06.
  39. ^ "conservation easement | U.S. Fish & Wildlife Service". www.fws.gov. Retrieved 2024-08-06.
  40. ^ "What is a Conservation Easement? – National Conservation Easement Database | NCED". Retrieved 2024-08-06.
  41. ^ "Mitigation Banks". Freshwater Land Trust. Retrieved 2024-08-06.
  42. ^ Jessica Owley, Preservation Is a Flawed Mitigation Strategy, 42 Ecology L. Currents 101 (2015). Available at: https://digitalcommons.law.buffalo.edu/journal_articles/178
  43. ^ "Wetland and Stream Mitigation Banking". westernlandowners.org. Retrieved 2024-08-06.
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