Conference coverage courtesy of Becca Madsen of Madsen Environmental.

…continuing coverage on the National Mitigation and Ecosystem Banking conference in Sacramento, California from May 8-11.

Friday, May 11

Breakfast Plenary – Legislative and Regulatory Update
Regulations are the true driver of mitigation banking, so conference planners always leave the ‘good stuff’ – aka a round-up of regulatory news – for the last day.

First to speak was Peggy Strand Esq., of Venable LLP, which is the firm that represents the National Mitigation Banking Association. Ms. Strand saw no major policy or regulatory changes coming out of Congress or the agencies, but provided two ideas to agencies for what could be done to improve wetland mitigation:
• Oversee permittee-responsible mitigation with the same scrutiny as banking, and
• Pursue enforcement actions to ensure that permittees seek high quality mitigation.

Gary Frazer, Assistant Director for Endangered Species with the U.S. Fish and Wildlife Service, noted that the agency supported the growth of conservation banking for several reasons. First, to provide an incentive for strategic (as opposed to opportunistic) species conservation. He also appreciated the landscape perspective potential of banking. Finally, the agency is faced with larger projects to evaluate, particularly with renewable energy development and regional development plans, which can be well-suited to compensatory mitigation via conservation banking.

One of the key policy issues the U.S. FWS is confronting are settlement agreements. The agency has completed a great deal of listing determinations and critical habitat designations and that will continue to be a large part of the workload. The increased number of listed species means that there will be more evaluations, and potentially greater use of conservation banking. For example, following a proposed listing of the dunes sagebrush lizard in southeastern New Mexico/west Texas, oil and gas companies have begun working on a Candidate Conservation Agreement with Assurances, which has a lot of characteristics of conservation banking. In March of 2012, the agency requested public comment on various landowner endangered species incentive programs. One issue on which they particularly want comments is how and whether the agency should provide incentives for candidate (pre-compliance) species, including the use of banking. The agency also has provided increased internal training for agency staff on conservation banking.

Denise Keehner, Director of the Office of Wetlands, Oceans and Watersheds with the US EPA, discussed the 2008 Rule and pressure from the industry to improve consistency and implementation. In response, her agency is investing in training, including Interagency Review Team ‘bootcamps,’ and trainings relating to stream restoration. The EPA is also holding regular meetings across regions to bring up issues and hopefully improve consistency of implementation across regions. Regarding the watershed approach, the agency has had requests for greater clarification and they have responded by compiling examples of watershed approach and supporting Environmental Law Institute’s development of a handbook.

There has also been great deal of work on the part of both EPA and the Corps to clarify the legacy of the SWANCC and Rapanos Supreme Court decisions. In April of 2011, the agencies released draft guidance on which waters were covered under the Clean Water Act. Draft guidance that was released reaffirmed protections for wetlands, maintained exemptions for agriculture, and focused on small headwater streams. Comments were gathered and considered and in February of 2012, draft final guidance was released for interagency review. Final guidance is expected to come out this Spring. Beyond guidance, the agency has the intention to proceed with rulemaking.

Other agency efforts related to wetlands include data collection and analysis, including the National Wetlands Condition Assessment and a Status and Trends Report. In March of this year, an Executive Order (EO) was released requiring efforts to streamline permitting of infrastructure development – a requirement that all agencies are dealing with. The message from DC was to focus on the economy and job growth, and to make permitting efficient and timely to achieve this while protecting the environment.

Angela Somma, Chief of the Endangered Species Division at NOAA, spoke about her agency’s efforts related to species recovery and opportunities for conservation banks. NOAA does not currently have internal policy guidance related to conservation banking. Their focus has been to support experimentation at the regional level that will inform national guidance they are developing and they hope to release by early 2013. Regions like the Southwest region and Northwest region have developed or are developing regional guidance to help staff members understand and encourage the use of conservation banking for aquatic species recovery. Ms. Somma noted that she was interested in replicating the Western adoption of conservation banking to the East coast, where the agency was listing more anadromous fish species. That said, getting the attention of the agency for fish banking has been a struggle because of normal agency focus on the marine environment.

Margaret (Meg) Gaffney-Smith, the Chief of the Regulatory Program of the U.S. Army Corps of Engineers, discussed issues related to her agency’s regulation and oversight of compensatory mitigation. One of the biggest issues for her office was guidance on Clean Water Act jurisdiction in light of Supreme Court decisions, which the previous speaker noted. Ms. Gaffney-Smith noted “Obviously it’s highly controversial and there are people interested in it on both sides.” Another major focus of her office has been the release of new nationwide permits, with new categories for alternative energy development. She also echoed that there was administration pressure to streamline permitting processes: “How fast can we get things done when it comes to energy transmission infrastructure” while complying with environmental laws. “It’s going to be an extreme challenge and a lot of the burden is going to come back to the Corps.” Like the EPA, the Corps is also working on guidance in the form of handbooks on multiple issues including real estate, watershed assurance, and the HGM method. Other activities the agency is taking include internal trainings, cumulative effects modeling and piloting in Appalachia and the Puget Sound.

Breakfast Plenary Q & A
Below is a small sample of audience questions.

Q: Is there anything the banking community can do to help the ACE Districts in their timeliness of uploading bank data to RIBITS?
A: No, but Districts are getting much better. One of the things that could be helpful would be to notify a District of inaccurate information.

Q: An earlier speaker address the idea of an audit of the 2008 Rule – is there any interest in this?
A: The EPA and Corps have been talking about taking stock of the Rule, and the agencies were committed focusing on this in 2013.

Q: There was some discussion of consolidating NOAA into the Department of Interior – can you comment?
A: The Government Accountability Office (GAO) is doing work with DOI and Department of Commerce and there is a lot of exploratory work to be done. The focus on the Executive Order (EO) [requiring streamlining] will focus the agency on our existing statues and get better conservation results. In terms of communication, the EO requires transportation projects to be posted on a ‘dashboard’ so the public can track timelines.

Q: Are there any initiatives to expand conservation banking?
A: There is no legislative action on the Endangered Species Act in the foreseeable future. All agencies are reviewing regulation to be responsive to the EO, such as the process for designating critical habitat, but… the agency doesn’t anticipate changing policy that would affect the need for compensatory mitigation. They are looking into creative uses of HCPs. As well, the number of species listings is increasing and petitions are increasing.

Q: There is a clear preference for wetland mitigation bank [in the 2008 Rule], but no parallel requirement for conservation banking. Is there an initiative to change that?
A: We can inform actions, and encourage, but there are limits to what we can dictate and drive in Section 10 applications.

Session on Users/Customers-Needs & Challenges
This final session gave mitigation industry folks an outsider’s perspective of using bank credits.

Brian Plant, Counsel for Remy, Thomas, Moose & Manley, gave a presentation on the a permit applicant’s process and opportunities for bank credit use. Within a 404 permit, the application needs to make a statement about their proposed compensatory mitigation. The Corps reviews for accuracy and then puts it out for public notice – which is helpful for mitigation bankers.

There are some emerging state issues that impact the permit application process. For example in California, although isolated waters do not fall under federal (US ACE jurisdiction), they do fall under protections of California state law. State policy tends to focus on avoidance and on-site restoration and may require separate mitigation requirements beyond federal mitigation. Applicants have to demonstrate that the proposal is ‘LEDPA’ – the least environmentally damaging practicable alternative. Although there is a requirement of sequencing (avoiding, minimization, and only as a last step compensatory mitigation), mitigation is always in the background, he notes. Mr. Plant provided some background on the 2008 Rule (for aquatic compensatory mitigation). “At the end of the day we want quick and efficient ways to solve our mitigation problems, and that’s what mitigation banks do for us.” He thinks that there are opportunities to include bank credits in HCPs.

Corrie Veenstra, Ecologist, with the Office of Planning, Environment and Realty, at the Federal Highway Administration, spoke about FHWA connections to mitigation banking – particularly the federal aid highway program. The agency directs funds to state transportation projects, but does not pick projects. These state Departments of Transportation (DOTs) are consistent buyers of credits in this economy. Many impacts from highways are in areas with no banks, but bank credits outside the service area of the impact are often used. DOTs may not be aware of banks in their project areas, so it is important to communicate with the agencies. FHWA has an ‘Every Day Counts’ initiative, which – like other agency efforts – is aimed at streamlining processes in developing transportation infrastructure.

David C. Robinson, CEO of Mitigation Procurement Systems, discussed the benefits of outsourcing restoration work rather than creating permittee-responsible mitigation banking or in-house restoration for an in-lieu fee program. A customer’s risk is reduced if they purchase credits from either an ILF or mitigation bank (thereby transferring legal liability for the success of the restoration) whereas permittee responsible mitigation incurs risks for an indefinite period. Even ILF programs have risks… of spending too much. Mr. Robinson highlighted NC EEP staffing costs which translated into higher restoration costs and productivity than contracted restoration work. He noted that the ILF program had less flexibility in reducing staffing than external organizations during a downturn in demand for restoration. Mr. Robinson featured several graphs of risk related to the proportion of outsourced work. He noted that in-house restoration requires staffing and skills beyond what would be needed for contracted restoration. Overall, Mr. Robinson emphasized the benefits of outsourced, contracted wetlands and stream restoration.

This concludes the 2012 National Mitigation Banking and Ecosystem Conference. The 2013 conference is scheduled to take place in New Orleans. Until then, laissez les bon temps rouler!

Conference coverage courtesy of Becca Madsen of Madsen Environmental.

…continuing coverage on the National Mitigation and Ecosystem Banking Conference in Sacramento, California from May 8-11.

Thursday, May 10

Emerging Markets Session
This session takes us on a mini-tour of developments in Japan and Canada, and an update of one of the major current water quality trading initiatives in the US – the Ohio River Basin Water Quality Trading Project.

Kiichiro Hayashi, Professor at the EcoTopia Science Institute at Nagoya University in Japan, spoke about research on the potential for biodiversity banking in Japan, which is a topic of interest in Japan although there currently is only voluntary activity. Regarding the potential drivers of biodiversity offsets/banking, Dr. Hayashi described the lack of investment and management of both forests (eg, lack of active management like thinning) and SATOYAMA areas, which are landscapes that combine natural features and agricultural or forest production. The activity that has occurred to mitigate or direct funds in the country include a tax on forests and local government fees on drinking water.

Dr. Hayashi’s research has included ‘assessment’ methods, which appear to be a holistic prioritization/mapping of important habitat and provisioning of ecosystem services. His research group is also conducting a cost-benefit analysis of a banking system – and he requested that US bankers help in this effort by completing a survey regarding costs in setting up banks in the US. For Japan, the high price of land weighs the cost side of the equation in a cost-benefit analysis.

Patrice LeBlanc, Senior Habitat and Environmental Specialist with SENES in Ontario Canada, provided an overview of habitat banking in Canada. In Canada, any alteration of fish habitat is prohibited, unless permitted by the Department of Fisheries and Oceans (DFO). This permitting system is the driver for compensatory mitigation/banking. About 10 years ago, DFO released guidance on fish habitat compensation which included some mention of banking, but no great detail (think ~1 page vs. the 20+ pages of the US’ 2008 Rules).

The first bank in Canada was established in 1993, and slowly more banks emerged in Nova Scotia, Quebec, Manitoba, and Alberta. Mr. LeBlanc detailed the recent history of an industry-led effort to research the potential to expand the use of banking in Canada. The government has slated to make revisions to major environmental law and policy for faster and smarter regulatory reviews – another reason for the evolving interest in banking.

Phase 1 of the banking study resulted in a series of recommendations: developing principles, accounting methods for credits and debits, banking agreements, service area determinations, monitoring protocols, and performance standards. The habitat compensation guidance is being updated, with stakeholder input. The industry-led effort is continuing to the second phase of the study, which includes the development of drafts of some of the recommendations noted above (eg – principles). A national workshop is scheduled at the end of June to review research and recommendations to date.

Jessica Fox, Senior Manager with the Electric Power Research Institute (EPRI) reviewed highlights of the Ohio River Basin Water Quality Trading Project. The project is soon to become the world’s first consensus agreement on interstate water quality trading (for nutrients). The reason the power industry is supporting this project is that while there is a drive to install ‘scrubber’ mechanisms, “nutrients don’t disappear. They go somewhere, and typically they go into the waterway.” Water quality trading is seen as one tool available to deal with non-point source water quality issues.

The potential market size for water quality trading in the Ohio basin encompasses:
- 8 states
- 46 power plants
- 230,000 farmers that could be creating credits
- thousands of wastewater treatment plants
- millions of pounds of nutrients

The project has developed a draft trading plan which will be signed in July. Pilot trades are planned on the boundaries of Ohio, providing an opportunity to test interstate trades. One of the major components of the project has been the development of a publically-available model (Watershed Analysis Risk Management Framework, or WARMF). Ms. Fox noted that the model provides a foundation for ecologically-defensible crediting. Ms. Fox noted that EPRI was going to publish the methodology in peer-reviewed literature in September – and this rigor was a reason for achieving agency buy-in.

During the pilot, EPRI will give funds to farmers through soil and water conservation districts who will aid in implementing BMPs with the farmer. EPRI is investigating the Markit environmental registry for online transparency of regulator-verified credits. Finally, a unique component of the project is testing ‘stacking’ of carbon credits generated from reductions of fertilizer use. The Climate Action Reserve (CAR) has a comment period open for this protocol.

One of the topics of interest in the Question and Answer session was regarding the ‘lifespan’ of water quality credits. While EPRI was considering 5- and 10-year credits, an audience member noted that North Carolina nutrient credits were ‘permanent’ and required a conservation easement.

Lunchtime Plenary on Trends in Banking
The plenary discussion focused on new opportunities for mitigation banking (in-lieu fee funds as potential credit buyers, post-BP gulf spill coastal restoration), and an overview of the latest national data on mitigation and mitigation banking.

Doug Lashley, Managing Member of GreenVest, presented on concepts about using mitigation credits in In-Lieu Fee programs (ILF). Mr. Lashley noted that 11 Corps Districts had implemented 2008 Rules in regards to bringing ILF programs in compliance. But as of June of 2013, all ILFs must be in compliance with the 2008 Rule. Mr. Lashley urged the audience to note public notices of proposed ILFs. Mr. Lashley noted the importance of not just Clean Water Act 404 permitting ILF programs, but other ILF programs that protection natural resource values like forests, streams, flood storage, etc. where there could be opportunities to tap funds to purchase credits to meet program needs.

As well, some funds were collected as fines that needed to be spent and could be used to purchase mitigation credits. The opportunity in this area is where programs collect money in accounts without the capacity to direct it efficiently and reduce the temporal loss of wetland functions and values. Some examples of states which allow mitigation credits to satisfy ILF program needs are: FL, MS, MO, NJ, CA, WA, and NC.

George Howard, President of Restoration Systems, appealed to the audience to apply their skills and experience beyond speculative mitigation banks to other restoration needs. Resources are coming. In Louisiana there will soon be $500 million, $600 million… up to $1 billion spent annually to restore coastal ecosystem services in Louisiana and the Gulf coast. Fifty billion was the price tag noted in a March 2012 Louisiana master plan [relating to coastal restoration]. And that plan links to BP restoration funds. But what was not discussed in the plan was *how* they were going to do it (and efficiently).

Mr. Howard purports that bureaucracies are poorly suited to get it done – but the mitigation banking industry has nimble skills along with a financial model that includes financial assurances. His proposition was to apply the North Carolina model of full-delivery mitigation to other areas needing coastal restoration. He noted that with collaboration, there was the potential to access resources of up to $50 billion for something the industry knows how to do.

David Urban, Director of Operations of Ecosystem Investment Partners, provided a big picture view of the current state of mitigation banking. He first noted the history and growth of mitigation banking – which started with early banks in the 1990s, grew to around 500 prior to the 2008 Rule and has since grown to around 900 banks. He noted that there was a lot of press about the failure of wetland mitigation in general. The 2008 Rule was a result of the 2002 National Academy of Sciences study that laid out what should be included in a mitigation plan. Mr. Urban noted that a standard against which mitigation banks are measured is regulatory requirements — and the track record is favorable with only 1% of banks suspended.

A brief foray into analyzing RIBITS database unearthed both internal and external errors in data availability and analysis – highlighting the need for continued transparency of data. The other piece of the story, Mr. Urban noted, related to ‘ORMS’ wetlands permits data. From 2011 data, only about 50% of the watersheds in US had a permit issued for an impact to wetlands. He noted that this could be because of problems of enforcement. Some watersheds indicated areas where permits had been issued, but no mitigation required.

Lunchtime Plenary Q & A
Below is a small sample of audience questions.

Q: Do mitigation banking companies outsource (for purpose of avoiding implication of conflict of interest) actions like land acquisition, biology, real estate brokerage or do in-house?
A: Our firm has an integrated approach, but it’s up to the individual banking company.

Q/comment: In regards to basing banking success on having only the existence of only several examples of failed banks… another perspective is that regulators don’t have appropriate funding to know if all banks are in compliance.

Q/comment: Support more transparency of banking data which may show not only more banks, but more banks with failures.

Q/comment: One banker noted the complexities of applying for NRDA restoration funds [from the BP Oil spill].
A:”Oh yeah, it’s what I call a BHAG – a big hairy audacious goal” (George Howard)

Join us tomorrow for our continued coverage of the National Mitigation and Ecosystem Banking Conference.

Conference coverage courtesy of Becca Madsen of Madsen Environmental.

Mitigation and Ecosystem Bankers from across the US are gathering in Sacramento, California for the country’s biggest gathering of folks involved or interested in wetland mitigation banking, conservation banking, and issues at the very cutting edge in the non-carbon market world. We’ll be providing day-by-day coverage of the National Mitigation and Ecosystem Banking Conference on our blog here.

Wednesday May 9

Conservation & Fish Banking Session
This session focused one of the newest elements in conservation banking — banking for aquatic species. So far in the US, the only activity has been in California and Oregon (that we know of).

Moderator Maura Eagan Moody, with NMFS/NOAA noted that a 2008 book on Conservation & Biodiversity Banking described fish banking as ‘up & coming’ area of mitigation banking… and there is still a great deal of interest. Ms. Moody noted that she knew of at least 5-10 banks in development that will include some type of fish credit.

Julie Mentzer, of Wildlands discussed the Liberty Island Conservation Bank for Salmon, Delta Smelt and Longfin Smelt. The story of the bank is tied up with the complexities of the area’s levees and flooding, numerous agencies (9!) requiring permits for the project, along with the known and unknown needs of the species. The bank is located in the California inland delta, in the Yolo bypass area. It’s surrounded by water – thus the ‘Island’ in the name of the bank. The land, as is the case of many mitigation banks, was previously farmed (through 1997). Wildlands created the bank because there was demand for credits from projects involving flood control, levee repair, and dredging. Although Ms. Mentzer noted that research on what the species needs is still ongoing, they decided to move forward with the bank based on best available science. The organization is continuing their work on fish banks with the new 700-acre North Delta Conservation Bank.

Next up, Michael McCollum of McCollum Associates, spoke about the East Austin Conservation Bank that was created for salmon. His project involved turning a sterile environment into a salmon-friendly stream. Logs were installed in the headwater stream that created pools and ripples, and the design allowed sediment to be washed out of the substrate, leaving the kind of gravel stream beds that salmon like. And then in came the salmon… in backpacks. Yep, fish backpacks. They exist. In this case, CA DFG reared genetically-consistent baby salmon in their fish hatcheries and then brought them into the new conservation bank. Monitoring later showed the juvenile fish were doing fine. The service area of the bank includes the Russian River watershed (primary service area) and a larger area outside the watershed that can be used for temporary impacts at NMFS discretion.

Howard Brown, Fisheries Biologist for NMFS/NOAA, noted that there is a general culture of distrust in the agencies in regards to conservation banking for migratory species. But Mr. Brown noted banking can be appropriate when the species is predictable in terms of where they are and where they are going – as was the case with salmon and steelhead. Mr. Brown went through the process of the agency’s thinking about applying banking systems to migratory species. The agency first thought broadly about the full range of the species range, and then more and more narrowly about population segments and recovery domains. The life cycle of the species also needed to be incorporated: where the species are and when (eg – spawning in upper parts of watersheds, rearing lower down).

Banking can be appropriate if it addressed the threats/stressors and limiting factors of the species: loss of habitat (floodplain, riparian), fish passage constraints, loss of spawning habitat, and altered river flows. Finally, species recovery plans can be used as a model for a conservation bank.

Mr. Brown noted that there was a need for new approaches to credit systems because area-based approaches don’t always address threats. There is also an opportunity to find a way to incorporate the site-specific monitoring of conservation banks into more regional species monitoring efforts. He noted the need for policy guidance for the agencies: “This is new business to us and we’re struggling with it… we’re faced with the challenge internally of communicating this new system.” Finally, he noted that the three existing banks in California addressed the juvenile rearing and growth part of the species’ life cycle, but there could be opportunities for banking for other parts of the life cycle (spawning, migration) further upstream.

Opening Plenary

Colonel William J. Leady, District Engineer, US ACE, Sacramento District, started the plenary session by discussing the background of the US ACE. Col. Leady noted that the US ACE’s regulatory mission given by Congress is a permitting program. He joked that it was not a permit denying program, but continued that the agency had to balance permitting that protects aquatic resources with development pressures. “That’s a job that makes very few people happy,” he noted. He concluded by noting “…in the end, we all have this common goal of preserving the nation’s aquatic resources while allowing sustainable development, but it’s not easy to achieve.”

Next up was a speaker from the Caliifornia Department of Fish and Game (CA DFG) – Kevin Hunting, Chief Deputy Director. CA DFG is the agency that oversees (along with US FWS) conservation and mitigation banking in California. That agency, of note, recently put a moratorium on permitting new mitigation banks due to lack of funding. Mr. Hunting noted that his agency believed that “conservation banking is a high value conservation endeavor.” He noted that the agency has been in the banking arena for nearly 20 years. He was most proud of the agency’s effort to develop a standard banking instrument that could accomplish all regulatory rules.

Mr. Hunting highlighted two new tools to direct funds towards highest conservation benefit:
-California essential habitat connectivity project – a project in collaboration with CALTRANS – which maps areas of highest value to achieve connectivity with existing conserved lands.
- Areas of conservation emphasis – an internal GIS tool to identify biodiversity hotspots.

Mr. Hunting addressed CA DFG’s budget cuts and reduced capacity and noted that the agency believed conservation banking was a high-value program and “…we’re committed to having a robust program as soon as we can.”

The final speaker was Michael Bean, Counsel to the Assistant Secretary for Fish and Wildlife and Parks, U.S. Department of the Interior (US DOI). Mr. Bean noted that the US Fish and Wildlife Service (US FWS) first published its first policy on conservation banking 9 years ago. He provided some statistics: 105 approved banks, in 10 different states, covering 60 endangered species. He noted “Much more could be, and frankly should be, done with conservation banking… I don’t mean to suggest that banks are the most appropriate for every listed species, but they can be useful for many more species than for 60 species.” Training of US FWS staff was identified as a need in moving conservation banking forward, and Mr. Bean noted new trainings that had been developed and given, which he believed would “help clarify the efficiency and effectiveness” of regulatory oversight.

Mr. Bean also encouraged the audience to provide public comments on an advanced notice of rule-making. Input is requested on UW FWS’ various incentives for species conservation on private lands – including conservation banking and ‘pre-compliance’ banking that would provide ‘credit’ for investment taken prior to a species’ listing.

Finally, Mr. Bean noted two initiatives addressing a landscape-approach to conservation:
- Crucial Habitat Assessment Tools – efforts spearheaded by states to identify areas to target for conservation and avoid development, and
- LEAP – Landscape Scale Energy Action Plan – a similar effort to map areas to avoid energy development

Opening Plenary Q & A
The audience was feeling a bit shy, so here are two questions addressed to Michael Bean.

Q: Question regarding trust species and natural gas development.
A: The LEAP program is under development. There is to be a pilot test in Wyoming – to create online maps and resources. The original focus was on energy development, but its principles are applicable to any development.

Q: Regarding banking for pre-compliance species – what would be the regulatory driver that would create demand for a banker?
A: With the caveat that this is an advanced rule-making to allow public to tell us if this idea makes sense… the idea is that there might be some parties interested in investing in candidate species prior to listing if their investment today could be used later in the event that a species became listed. An organization would be motivated by the expectation that it could use credits if the species becomes listed.

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Join us tomorrow for our continued coverage of the National Mitigation and Ecosystem Banking Conference.