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Bankers, Developers & Environmentalists Weigh In On New Wetlands Regulation

Alice Kenny

The U.S. Army Corps of Engineers and the U.S. EPA recently released a draft of the new guidelines for Compensatory Mitigation for Loss of Aquatic Resources. The Ecosystem Marketplace finds out what environmentalists, developers, in lieu fee providers and bankers think of the proposed regulation.

The U.S. Army Corps of Engineers and the U.S. EPA recently released a draft of the new guidelines for Compensatory Mitigation for Loss of Aquatic Resources. The Ecosystem Marketplace finds out what environmentalists, developers, in lieu fee providers and bankers think of the proposed regulation. In 2003, Walter Jones, a North Carolina congressman, slipped authorization to revamp the wetland mitigation banking industry into a bill funding U.S. troops in Afghanistan and Iraq. Two years later, the draft regulations are now open for comment until May 30; a final version of the regulations should be singed into law within a year. As proposed, the new regulations would promote wetland mitigation banks—which restore wetlands in exchange for government credits that can then be sold to developers destroying other wetlands—by requiring developers planning their own mitigation to meet the tighter, more expensive rules governing mitigation bankers. The regulations also phase out one of mitigation bankers' main competitors, "in lieu fee providers," organizations paid by developers for promises of future restoration. Not surprisingly, mitigation bankers praise the proposed regulations, saying they are a competent way to shore up their industry while increasing the number of healthy wetlands in the United States. While still wading through dense copy published in the Federal Register on March 28, others have been far more reserved in their assessments. "If bankers are writing regulations for their own industry and giving it a preference, that tips the scale," says environmentalist Patricia White from Defenders of Wildlife, referring to Congressman Jones' large constituency of wetland mitigation bankers. "Bankers are an important asset to conservation, but they should not be calling the shots."

Sorry Track Record

In order to understand the aims of the new regulations, it is important to revisit the bleak history of wetlands preservation in the United States. Wetlands—once viewed as mosquito-breeding swamps but today valued for their sponge-like ability to filter pollutants, restrain shoreline erosion and prevent floods—continue disappearing despite laws enacted to protect them. Plowed over by farmers and filled by developers, fewer than half the wetlands covering the New World at the time of its discovery by Europeans, remain. Congress, alarmed by wetlands' rapid disappearance, passed the Clean Water Act in 1972, mandating that developers replace as many wetlands as they destroy. Still, millions more wetland acres have disappeared. Fed up, legislators gave developers three options. They could replace the wetlands they destroyed themselves; they could pay in-lieu-fee providers, typically nonprofit corporations, to replace them at some future time; or they could buy "credits" from wetland mitigation banks that proactively restore, enhance or create wetlands. Nearly three decades later, Congress asked the National Academy of Science's National Research Council to assess mitigation programs' success at preserving wetlands. They also asked the U.S. General Accounting office to evaluate in-lieu-fee mitigation. Results from both studies were dismal. The Army Corps of Engineers, the agency assigned to supervise wetland protection, had been lax in its oversight, and wetlands were disappearing without being replaced. At first glance, a recent Bush-administration report indicates this trend has reversed. But after subtracting water bodies serving few wetlands purposes, such as golf course and storm retention ponds, the new study confirms wetlands' steady, albeit slower disappearance. In addition to spotlighting problems, the National Academy of Science report also pointed the way toward some potential answers. The report, for instance, determined that more highly regulated mitigation efforts were more likely to succeed. Among the three mitigation options—developers performing their own mitigation, in-lieu-fee providers and mitigation bankers—bankers are, by far, the most highly regulated group. Unlike their competitors, bankers can only release credits and get paid for wetland rehabilitation when they meet predetermined success criteria. The report also noted that wetland restorations were more successful when considering an overall watershed approach. Leonard Shabman an economist and wetland specialist who helped author the National Research Council study, says that instead of "sticking a wetland in the middle of a parking lot" as developers might do when performing their own onsite mitigation, mitigation efforts should look at what effect a wetland has on the overall watershed. Rather than using acreage to measure replacement value, Shabman suggests analysts should evaluate the functions of soon-to-be destroyed wetlands and then consider how best to replace these functions. Despite the publicity generated by the National Academy of Science's report, its conclusions initially produced few results. Developers still perform their own mitigation work 60 percent of the time with limited oversight. In seven percent of cases, developers meet their wetland replacement obligations by paying in-lieu-fee corporations that promise to replace wetlands but do not always do so. And 33 percent of the time, developers buy credits in mitigation banks that, while shown to demonstrate the greatest potential for replacing wetlands, have also been cited for failures.

A Mixed Reception

Drawing on the National Academy of Science's 2001 critique, the proposed regulations are intended to improve the federal track record when it comes to protecting wetlands. Reached at his office in Washington D.C., Shabman said he was pleased to see that the proposed regulations respond to most of the Academy's major suggestions. "They generally pick up on most of the themes, coming pretty close to the NRC report," he says. The regulations prioritize avoidance and minimization of potential wetland impacts as the first line of defense for wetland preservation. When this is not possible, the regulations say that mitigation efforts should consider a watershed approach, safeguarding the most important wetlands in the watershed instead of focusing only on the area surrounding the disturbed parcel. Mixing its metaphors while listing its goals, the Army Corps of Engineers writes in the proposed regulations that it hopes to create "a level playing field" among the three compensatory mitigation mechanisms by "raising the bar" so that providers of high-quality mitigation are not disadvantaged by others held to lower performance standards. Ironically, the regulations envision leveling the playing field by doing away with mitigation bankers' main competitors. Some have welcomed this development, but others deplore it. "The regulations are all about supporting the mitigation banking industry," says Julie Sibbing, senior program manager for agriculture and wetlands policy at the National Wildlife Federation. To increase the odds that mitigation will actually occur, the proposed regulations encourage developers to rely on mitigation banks when they are locally available and require in-lieu-fee providers to convert their mitigation efforts into banks within the next five years. Scott Yaich, a wetland scientist and director of conservation programs for Ducks Unlimited, a world leader in wetlands preservation and an in-lieu-fee provider, says he is disappointed by this decision. "Removing this tool reduces flexibility to provide mitigation that replaces the full functional value of wetlands destroyed. The problem," he continues, "has always been with accountability. There were lots of cases in the past where money was provided but wetlands were never mitigated. That's a problem with enforcing accountability, a problem with the Army Corps of Engineers." Until now, adds White from Defenders of Wildlife, "no one was watching the farm." By holding all providers to the same standards so that the high quality provider is not at a disadvantage to the low quality one, the percentage of successful mitigation efforts could go up, she says, but eliminating mitigation bankers' competition could also come with an environmental price. "If you go into a store with 50 different kinds of bread", she says, "each bakery has to bake their bread as well as it can, so it will sell. If there's only one kind of bread, it can be bad but you have no choice but to buy it." Developers express similar concerns. When a single mitigation bank with no competition exists near a development site, the bank could charge exorbitant fees. Susan Asmus, vice president for the National Association of Homebuilders, worries that these fees might be passed on to home buyers in the form of higher house prices, but adds, "as a practical matter, homebuilders aren't the right people to build wetlands just like wetland builders aren't the right people to build homes." The new regulations' propose moving from a mathematical mitigation equation (replacing, for example, two acres of wetlands for every acre destroyed) to a functional one that seeks to get the greatest ecological result regardless of size. Asmus thinks this could ultimately save developers money. But permitting smaller wetlands to replace larger ones—or preserving existing wetlands in exchange for destroying others—will not help realize the "no-net-loss" of wetlands mandated by the Clean Water Act, observes Sibbing of NWF. And eliminating mitigation bankers' main competitors could enable bankers to raise their prices and lower their quality. "Bankers and banks are not all created equally," Sibbing says. "When they succeed, there will be a much larger bank of wetlands. When they fail, there will be a much larger mud hole." Wetland bankers and regulators counter that the new regulations include enough safeguards to minimize the odds of mud holes. For example, they include requirements that mitigation efforts receive annual inspections. "The new mitigation rules," says Rich Mogensen, a wetlands scientist and immediate past president of the National Mitigation Banking Association, "will bring all forms of wetlands mitigation to a higher and consistent level of review while promoting the use of mitigation banks, the most regulated form of mitigation." Palmer Hough, a point man at the EPA who helped draft the regulations agrees: "I would encourage people not to prejudge the regulations simply because they are the result of a Congressional Directive. Some have criticized compensatory mitigation as simply a paper exercise." From Hough's perspective, the new regulations offer a prime example of creating a system that is good for the environment and good for business. Unlike traditional wetland replacements that will be phased out, wetland restoration credits granted to banks are tied to demonstrated achievement of project goals. "The proposed regulations," he says, "would ensure that compensatory mitigation projects are more thoughtfully planned and successfully executed, making our commitment to no-net-loss of wetlands a reality." Alice Kenny is a regular contributor to the Ecosystem Marketplace. She may be reached at alkenny@aim.com. First published: April 25, 2006

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