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Private Investors’ Impact on Mitigation Banks

Liz Clift

If I say wetlands, do you think of the Everglades?

For a lot of us living in the United States, that is exactly what we think because those are the wetlands featured again and again in those half-hour documentaries that we watched in science class. The Everglades, located in the southern portion of Florida, begins with the Kissimmee River and Lake Okeechobee. Water leaves Lake Okeechobee during the wet season and forms a 60-mile wide river that flows for more than 100 miles to Florida Bay.

But while the Everglades are certainly well known, there are many wetland areas in the U.S. – including around the Chesapeake Bay, the Delaware Bay, the San Francisco Bay Delta, the Mississippi River Delta, and the Great Dismal Swamp, as well as smaller wetland areas like prairie potholes, fens, vernal pools, and playa lakes. Wetlands tend to have high levels of biodiversity, because in many ways they serve as an ecotone—a place of transition between two biological communities, where life extends itself as far as it can either into the water or out from it.

Work is being done to preserve these important ecological habitats. Between the mid-1950s and the mid-1970s, natural processes (such as large storms) and human activities resulted in the loss of more than 450,000 acres of wetlands each year. In partial recognition of this alarmingly high wetland loss rate, the passage of the Clean Water Act in 1972 put the U.S. federal government in the business of protecting surface waters from pollution and fill, including wetlands. By 2008, 36 years after the passage of the passage of the Clean Water Act, hundreds of thousands fewer acres[1] were being lost each year.

The decrease likely occurred because during the George H. W. Bush presidency, the act was updated to include a provision mandating “no net loss” of wetlands. In short, this means that if human activities directly destroy wetlands, actions must be taken to restore wetlands within the same watershed. It does not account for human activities that don’t have a direct impact on wetlands (such as upland development), or changes to coastlines through storm surges and sea-level rise.

The “no net loss” provision—along with a growing recognition of the ecosystem services provided by wetlands—has created fertile ground for the development of “mitigation banks” to finance wetland restoration as a creative way to help developers maintain compliance with the “no net loss” policy. These banks, by restoring wetlands, generate credits that developers can purchase to offset damages caused by their projects.

The money received from developers is then turned around to repay investors, who front the money for the banks’ restoration work, along with a generous return. A 2014 report on conservation investments by NatureVest and EKO found that environmental credit-generating projects generate internal rates of return of between 10 and 14.9%. A recent article at Forbes argues “private capital is key to large-scale environmental protection and restoration” because government funding is becoming more constrained and there is little philanthropic money available for these projects. The White House also recognizes the need to importance of private investors—and incentivizing them to invest in what is still a fairly new market. Earlier this year, the White House released a strategy document, “Leveraging Innovation to Boost Private Investment in America’s Natural Resources,” which promotes policies that reward:

  • Flexibility;
  • Outcome-focused conservation;
  • Financing methods to kick-start conservation markets;
  • Technologies that reduce the cost of measuring and verifying conservation outcomes; and
  • Enable collaboration across landscapes.

Wetland mitigation banking, which is the most mature of the ecosystem markets, still has room for growth. There are currently more than 2,900 mitigation banks (which focus on wetlands) and more than 100 conservation banks (which focus on other resources). These banks protect valuable ecosystem services, including providing habitat for threatened and endangered species, water purification, shoreline stabilization and storm surge buffering, flood protection, and groundwater recharge. However, developers can only purchase credits from banks within a certain geographic “service area”, or market. There are, therefore, still places in the U.S. that are not serviced by wetland mitigation banks that could likely use them.

From an economic perspective, one hope is that if outsourced compliance, such as that which comes with mitigation banking, can be proven effective in other areas, more private investors can be attracted to those—and other—ecosystem markets. Private investors may also be encouraged by a November 2015 Presidential Memorandum that created more predictability and incentives to encourage private investments. The Presidential Memorandum came with the anticipation that these additional private investments would grow the estimated 126,000 jobs and $9.5B in direct economic activity that was already centered around restoration of natural resources within the U.S.—providing another 95,000 jobs and $15B in economic output.

Great Ecology is a key player in this growing mitigation banking industry, and has recently partnered with Tellurium Partners, PBC, a mitigation banking investment firm, which works to locate and develop strategic mitigation banking opportunities as part of their mission to:

“restore and conserve wetlands and natural habitats, and to provide public agencies and private parties a method for complying with governmental mitigation requirements for the disturbance of ecological resources.”

Great Ecology provides consulting support for mitigation banks including site assessment, financial analysis, permitting and design, monitoring and maintenance, long term management, construction oversite, and operation and credit sales.  Tellurium Partners owns, operates, finances and invests in the mitigation and conservation banks.

Great Ecology founder and President, Dr. Mark Laska, is on the Board of Directors of the National Mitigation Banking Association and has participated in their annual meeting since 2006.  The upcoming meeting in May 2017 will celebrate the organization’s 20th anniversary, and Great Ecology will have a booth at the conference.

If you’re interested in learning more about mitigation banks, check out our Mitigation Banking Services page or Tellurium Partners’ Mitigation Banking Guide.

[1] Much of the ongoing loss is due to coastal wetland losses driven by subsidence and sea level rise, and not any one collection of permitted development activities.

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