Understanding the basics of mitigation banking


Mitigation banking is a credit and debit system designed to ensure that ecological loss, especially the loss of wetlands and streams as a result of various development works, is offset by the preservation and restoration of wetlands, natural habitats and streams in other areas so that there is no net loss to the environment. Mitigating means reducing the severity of something. In this case, mitigation banking is reducing the damage done to the environment.

According to the Ecological Restoration Companies Association (ERBA), “Mitigation banks are highly regulated companies that have historically been shown to offer the highest quality and most reliable compensation for environmental impacts … and a private investment in ‘infrastructure green ‘to help offset the impacts associated with economic growth. “

Key takeaways

  • Mitigation banks are a way to compensate for the ecological loss of a development project by compensating for the preservation and restoration of a different area.
  • Mitigation banks generally include wetlands and streams, while conservation banks include habitats of endangered species.
  • Since increasing industrialization creates an unavoidable impact on the environment, mitigation banking aims to protect nature, reduce damaging impacts, and hold developers accountable.

A mitigation bank is a site developed for this purpose, while the person or entity that performs said restoration work is called a mitigation banker. Just as a commercial bank has cash as an asset that it can lend to its customers, a mitigation bank has mitigation credits that it can eventually sell to those who are trying to offset mitigation debts. Generally, these mitigation credit buyers are individuals or entities undertaking commercial projects.

There are two types of mitigation banks:

  • Wetland or stream mitigation banks offer mitigation credits to offset ecological losses that occur in wetlands and streams. These are regulated and approved by the US Army Corps of Engineers (USACE) and the US Environmental Protection Agency (USEPA).
  • Conservation banks offer mitigation credits to compensate for the losses of endangered species and / or their habitats. These are regulated and approved by the US Fish and Wildlife Service (USFWS) and the National Marine Fisheries Service (NMFS).

How does mitigation banking work?

The mitigation banker, after purchasing an environmentally damaged site that he wishes to regenerate, works with regulatory agencies such as the MBRT (Mitigation Bank Review Team) and the CBRT (Conservation Bank Review Team) who approve plans for the construction, maintenance and monitoring of the bank. .

These agencies also approve the amount of mitigation credits that the bank can obtain and sell with a particular restoration project. These mitigation credits can then be purchased by anyone planning to undertake commercial development in or near a wetland or stream that will negatively impact the ecosystem of that region in the process. The mitigation banker is responsible not only for the development, but also for the future maintenance of the mitigation bank.

The United States EPA (the United States Environmental Protection Agency) has defined four distinct components of a mitigation bank:

  • The bank’s site it is the physical surface that is restored, established, improved or preserved.
  • The banking instrument It is the formal agreement between the bank’s owners and the regulators that establishes the responsibility, performance standards, management and monitoring requirements, and the terms of bank loan approval.
  • The Interagency Review Team (IRT) It is the interagency team that provides regulatory review, approval, and oversight of the bank.
  • The service area is the geographic area within which the allowed impacts can be offset at a given bank.
Image by Julie Bang © Investopedia 2020

Story

The Clean Water Act (CWA) was passed in 1972. Section 404 and two other provisions of the CWA made it mandatory to avoid and minimize impacts on designated bodies of water and to provide compensatory mitigation for unavoidable impacts. Below is a chronological breakdown:

  • In 1977, a law was passed requiring federal agencies to take steps to avoid impact on wetlands.
  • In 1988, a national policy of ‘No Net Loss’ of wetland values ​​and functions emerged with concepts of ‘Similar Type Replacement’ and ‘Functional rather than Spatial Replacement’.
  • In 1993, the concept of mitigation banking began to take shape when the Clinton administration advocated for the use of mitigation banks in federal wetland programs.
  • Guiding principles published by the US Environmental Protection Agency (USEPA) and the US Army Corps of Engineers (USACE) on the role of mitigation banks in the CWA 404 program were expanded in 1995 , with guidelines on the establishment and use of mitigation banks. .
  • In 1998, TEA-21 (the Transportation Fairness Act for the 21st Century) became law, specifying a preference for mitigation banking for transportation projects.
  • In 2008, after four years of planning, a federal rule was implemented to set standards for mitigation banks, fee-instead-of-pay programs, and individual mitigation (also called responsible permitting mitigation). These standards are consistent with those of CWA 404.

Mitigation banking benefits

Protection and Conservation of the Environment

Mitigation banking helps protect nature and its diversity. The impact of increasing industrialization and urbanization on natural habitats, streams, and wetlands is inevitable. Mitigation banks provide the opportunity to offset, at least partially, this impact.

More efficiency

A mitigation bank is more efficient because it ensures that a vast consolidated land is reclaimed or conserved to offset the adverse impact of developers on many small sites. The economies of scale and technological expertise of a mitigation bank make it more efficient not only in terms of cost, but also in terms of the quality of the restored surface.

Less waiting time and regulatory ease

It is easier for developers to purchase credits from an approved bank than it is to obtain regulatory approvals that would otherwise take months to obtain. Since mitigation banks have already restored affected acreage units in the loan process, there is little to no lag between the environmental impact on a service area and its restoration on a bank site.

Transfer of responsibility

The mitigation banking system effectively transfers the responsibility for the ecological loss from the developer (also called the permittee) to the mitigation banker. Once the permittee purchases the required credits under the regulations, it is the responsibility of the mitigation banker to develop, maintain and monitor the site for the long term.

Actual state

Currently, there are several approved mitigation banks in the United States. According to the Regulatory Fee and Banking Information Tracking System in Place (RIBITS), developed by the U.S. Army Corps of Engineers (USACE), as of July 2021 there were more than 2,000 approved banks.

Challenges and concerns

The main challenge to the success of mitigation banking is the difficulty that regulatory agencies find in correctly assessing ecological loss in economic or monetary terms. Credits offered to mitigation banks must be priced appropriately and evaluated by regulators, but although these agencies make use of a number of environmental assessment techniques, it is not an easy task to fully capture the economic impact of such damage caused to natural resources.

It is also questionable whether natural habitats and wetlands that took centuries to evolve can be artificially designed in a span of a few years. In some cases, the quality of these artificially developed wetlands in terms of floral and fauna diversity has been found to be poor, compared to their natural counterparts.

It is also believed that mitigation banks, unlike individual mitigation where developers create their own mitigation sites in the vicinity of the destroyed surface, tend to be located far from impact sites and therefore cannot replicate completely impacted site.

The bottom line

Mitigation banking is a system whereby responsibility for ecological damage is transferred from the permittee to the mitigation banker through a system of credits and debits under regulatory guidelines. A mitigation banker develops, restores, conserves and manages the acreage at a bank site and earns mitigation credits, which are then sold to a permit holder or developer for a fee.

This system, despite some of its limitations, such as the lack of robust environmental assessment techniques and the poor quality of natural diversity in some cases, still has many advantages. With increased private investment in mitigation bank development and ecosystem research, as well as the easing of regulatory controls, the future of mitigation banking is truly bright for investors and nature alike.

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Mark Holland

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