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May 09

Coverage of the National Mitigation and Ecosystem Banking Conference – May 10

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.

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