The first environmental bank

March 18, 2003

The combination of strong population growth and equally strong environmental awareness in the last few decades of the 20th century has led to an unavoidable consequence for highway and road builders--construction projects of almost any significant size in most areas of the U.S. are likely to include the potential of adverse impacts on wetland ecosystems. Under the jurisdiction of the U.S. Army Corps of Engineers since the mid-1980s, a specific protocol has generally been followed for the approval of construction permits where adverse impacts to wetlands are involved.

The combination of strong population growth and equally strong environmental awareness in the last few decades of the 20th century has led to an unavoidable consequence for highway and road builders--construction projects of almost any significant size in most areas of the U.S. are likely to include the potential of adverse impacts on wetland ecosystems. Under the jurisdiction of the U.S. Army Corps of Engineers since the mid-1980s, a specific protocol has generally been followed for the approval of construction permits where adverse impacts to wetlands are involved. In the past 10 years, that protocol has come to include the increasingly popular option of either establishing a wetlands mitigation banking project or purchasing credits from one.

State departments of transportation  (DOTs) were among the first organizations to actively promote the use of mitigation banking, and recent highway-funding legislation has helped support the practice. Mitigation-banking projects over the past decade also have been sponsored by other governmental agencies, non-profit organizations and even private-sector entrepreneurs.

According to a recent survey by the Environmental Law Institute, only 46 mitigation banking sites existed in 1992, with 40% of those located in California or Florida. By 2001, the practice of mitigation banking had spread to 42 states and included a total of nearly 350 projects. Only six privately operated mitigation-banking projects had been established in 1992. By 2001, more than half the mitigation-banking projects in Georgia and Texas, two of the most active mitigation-banking states, had been established by private-sector operators.

In Texas, for example, PBS&J has been involved in several mitigation-banking projects. Private-sector participants have been both representatives from the oil and gas industry and independent entrepreneurs.

While mitigation-banking projects have become increasingly popular in the past decade in addressing adverse impacts to protected wetlands for road building and other construction projects, anyone thinking about establishing a bank or buying credits from one ought to fully understand how the practice came about, what its main uses are and what potential benefits it provides.

Streamlining and maximizing

DOTs were among the early adopters of the mitigation-banking practice to achieve two basic goals: streamlining the permit-application process and maximizing the economies of scale associated with the design, implementation, management and monitoring of sites. Both concerns surfaced around the planning and cost of large highway projects, where wetland impacts might occur at several locations. In those cases, each impact might represent the need to design a separate mitigation site and demonstrate the effectiveness of individual mitigation strategies.

Planners quickly complained about redundancies in the permitting process, which required not only approval for individual sites, but certification of successful mitigation as well. A key issue driving the evolution of mitigation banking, therefore, became timing. If wetlands functions could be restored, enhanced or newly created at a single site in anticipation of major highway construction, then all impacts could be addressed in a single strategy. That strategy also would allow permit approvals in advance of tight construction schedules.

This established the first operating principle of mitigation banking: environmental improvement (enhancement or restoration) taking place before the occurrence of adverse impacts, which is where the concept of a mitigation bank comes from.

Cost-efficiency became an equally compelling justification for mitigation banking. Wetlands evaluation, restoration, enhancement, creation and monitoring are all specialized practices that require a surprisingly broad array of expertise, from knowing the specifics of regulatory practices to understanding biological dynamics and specialized construction practices to managing ongoing site evaluation and collection of field data.

Compensating for impacts to wetlands, after all, is defined not simply by the amount of acreage being disturbed but by the type and quality of environmental functions the disturbed acreage provides. These may include, but are not limited to: the natural habitat for fish, birds and wildlife; floodwater conveyance and storage; groundwater recharge; sediment and erosion control; nutrient supply; water supply; timber, fiber and food production; and opportunities for recreational activities.

Road builders quickly realized that addressing environmental impacts required expertise very different from that of highway construction and that it made better economic sense to bring this distinct type of expertise to bear on one large project instead of several small ones. Also, establishing a stand-alone mitigation bank transferred responsibility from the project sponsor to a third-party entity, hence the description of mitigation banking as a third-party environmental strategy.

Regulatory support

While mitigation banking demonstrated clear benefits for construction sponsors, regulatory agencies and environmental organizations also began to see advantages in the strategy. The Clinton administration's early-1990s emphasis on regional watershed planning, for example, also addressed the two biggest problems associated with individual, on-site mitigation: failure of individual projects and insufficient positive impact on the surrounding environment, also known as the postage-stamp effect.

In 1995, the Corps of Engineers and the U.S. Environmental Protection Agency--in consultation with the U.S. Fish and Wildlife Service, the Natural Resources Conservation Service and the National Oceanic and Atmospheric Administration--published a document, Federal Guidance for the Establishment, Use and Operation of Mitigation Banks, intended to make the federal government an active supporter, encouraging and providing direction for the increased establishment and use of mitigation-banking projects.

Further support in the form of financial sponsorship came from the 1998 Transportation Equity Act for the 21st Century, which identifies mitigation banking as the preferred method of mitigation within the service area of an established mitigation bank and authorizes the use of federal highway funds for mitigation-banking projects.

A 2001 survey by the Transportation Research Board also indicates that at least 26 state DOTs have created or operate their own mitigation banks, with several others relying on the use of banking projects based outside the department. In addition to support on the federal level, more than 30 states have developed statutes, regulations or guidelines directed toward the establishment of wetland-mitigation banks and at least a dozen counties or cities have developed wetland-mitigation banks within their own jurisdictions.

Along with the increased support has come the development of different types of banking projects, including the relatively recent establishment of stream mitigation banking specifically for stream, creek and tributary impacts; the use of umbrella, or regional banking projects; and the use of in lieu fee-mitigation programs in 21 states, where fees later dedicated to mitigation projects are collected instead of--or in lieu of--required on-site or banking-based mitigation.

Sponsors and applications of mitigation banking have become more diverse as well. There has been a significant change in bank types over the last 10 years, according to the Environmental Law Institute's recent survey, "from primarily publicly owned banks intended for a single user to a mix of private and public banks intended for both single and multiple users."

The Environmental Law Institute groups projects in three categories: single-client banks, where the sponsor also is the main user; public/commercial banks, sponsored by public agencies to compensate for a combination of public works projects and private development; and private commercial or entrepreneurial banks, sponsored by private entrepreneurs with credits available for sale on the open market.

In addition to compensating for commercial or industrial impacts, another primary driver of entrepreneurial banking has been environmental stewardship, with restoration and enhancement--rather than open-market profits--the main goal of a significant proportion of private-sector projects sponsored by PBS&J clients as well as many others around the country.

A national agenda

While the specific guidelines for setting up and/or using a wetlands mitigation-banking project may vary from state to state (with professional guidance generally available from experienced consultants as well as the Corps of Engineers), the foundation of a wetlands-mitigation bank involves creating a banking instrument, or document, that specifies  exactly how a bank will be established, operated, monitored and maintained.

This generally is preceded by an on-site Corps evaluation, a formal wetlands determination and an assessment of the functions and value of the site, according to local standards, which provides the basis for trading credits. Before a final instrument is approved and contract terms established, however, a project sponsor must get approval from a Mitigation Banking Review Team composed of representatives from the Corps of Engineers, the U.S. Environmental Protection Agency, the U.S. Fish and Wildlife Service and all relevant state agencies.

Potential sponsors, and even users, of proposed wetlands mitigation-banking projects should be aware they must continue to follow the protocol established by the Corps of Engineers in which all efforts to avoid and minimize adverse impacts have been exhausted. In some jurisdictions, on-site mitigation or site-related mitigation projects also may take priority. Similarly, use of an in lieu fee program may not be allowed in specific cases by Corps regulations or state and local statutes.

While many of the details regarding the establishment and use of wetlands mitigation banks are still being clarified at both the federal and state levels, the practice clearly has won strong support from all parties concerned, including regulators, environmentalists and industry representatives. Among the legislative priorities recently established by the American Road & Transportation Builders Association, for example, was a strong endorsement of mitigation banking.

"Wetlands mitigation banking  . . . has been shown unequivocally to provide better mitigation results than on-site, postage-stamp mitigation parcels," the organization said, insisting that "Congress should enact a provision expressly authorizing and encouraging wetlands-mitigation banking."

With unanimous support for the concept, it is likely the practice of mitigation banking will become not only more common in coming years, but more accessible and nationally standardized as well.

The Environmental Law Institute's Wetlands Mitigation Banking Study can be accessed online  (www2.eli.org/wmb/index.html).

More information on wetlands mitigation for state DOT managers is available from the Transportation Research Board publication Guidance for Selecting Compensatory Wetland Mitigation Options, (www4.nationalacademies.org/trb/crp.nsf/All+Projects/NCHRP+25-16).

About The Author: McAfee is based in Texas and can be reached at 903/509-1552 or [email protected].