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US Wetland Banking
Market Features & Rules: 
 
Compensatory mitigation in the US takes the form of a national wetland and stream offsets program (called ‘compensatory mitigation’) driven by compliance to the Clean Water Act (§404) and the principle of ‘no net loss.’ After following the mitigation hierarchy, applicants filing for permits to drain, fill, or dredge a wetland (or stream) may offset their impact.
 
Wetland and stream offsets in the US are created via: restoration, enhancement, creation, and preservation; indirect offsets (e.g., payments to fund research) are not allowed. Offsets must be located within the same watershed (‘service area’) as the impact, usually designated by US Geological Survey Hydrologic Unit Codes (i.e., HUC 0166900 indicates the Lower Rappahannock watershed in northern Virginia).
 
Permittees may create their own offsets (called permittee-responsible mitigation), or pay for offsets via third-party mitigation banks or ILF programs. The agency in charge of oversight is the US Army Corps of Engineers (US ACE), who interprets and implements regulations at the regional level (38 ‘Districts’).
 
When a land developer fills or otherwise impacts a wetland they may buy offsets from a mitigation banker. The mitigation banker restores, enhances, creates or preserves an area of wetland to generate credits.  In April of 2008, the US Army Corps of Engineers (Corps) and US Environmental Protection Agency (EPA) jointly issued the Final Rule on Compensatory Mitigation for Losses of Aquatic Resources.
 
The number of credits generated by a restoration project is related to the area of wetland and/or the functional value of the wetland (credit determination varies by Corps district). In many instances the number of credits available for sale is less than the number of acres of restored. Further, a ratio is applied to the mitigation transaction typically in the range of one acre of impacted wetland to between one and three acres of restored wetland. Ratios increase to one to ten acres for wetland preservation projects that do not create or improve wetlands. 
 
A mitigation banker is responsible for establishing a wetland bank following financial and environmental guidelines before credits are released to the bank for subsequent sale. The Mitigation Banking Instrument which constitutes approval to restore, enhance, create or preserve the wetland has historically taken between 6 and 18 months to complete and considerable longer in some Army Corps districts. The new Mitigation Rule sets a timeframe for steps in the approval process and agency decisions on mitigation banks should now be made within 225 days. 
 
Mitigation is expected to take place before the impact on the wetland occurs, nonetheless credits are released to the bank sponsor over a period of a few years after the wetland is planned and authorized, and before 5 years of project monitoring concludes. In many instances up to 15 percent of the expected credits from a bank can be released before construction is complete. 
 
To secure the long-term success of the mitigation bank, a performance bond and contingency security are required to cover construction and 5 year post construction monitoring of wetland quality and function. Long term management of the site must be guaranteed and endowed by the bank sponsor. Wetland mitigation credits must ensure that the wetland functions will be guaranteed to endure to perpetuity. The regulatory authority can exercise random audits and inspections of the compensation wetlands project. 
 
Three main performance parameters are used to verify the number of credits created at the site and the site's credit value, including hydrology, vegetation and presence of exotics. Different states, and oftentimes, regulatory agencies in the same state use different methods to certify credits. Functional Assessment methods are more complex than acreage to credit equivalency ratios. 
 
The 2008 Final Rule: Previous guidance on compensatory mitigation created differing drivers and standards for the three categories of offset supply (permittee responsible, mitigation bank, ILF). New regulations (‘new rules’) that came into effect in June of 2008 have a watershed focus and give a preference to larger, landscape-scale offsets created before the impact (versus previous guidance favoring on-site restoration).
 
The new rules give a stated preference hierarchy of offsets from mitigation banks (first preference) or
ILF programs (second) as opposed to permittee- responsible offsets (third). The new rules also provide equivalent standards for all categories of supply credits. Now, anyone creating credits – be it a developer, non-profit, government, or for-profit organization – will have to create most of their credits before they can sell them and will have long-term funding requirements. The new rules have resulted in greater equivalency between mitigation options, though full implementation across districts remains uneven.
 
Service Area: The basic rules for mitigation banking apply to the entire United States of America. Trading for a given bank is normally limited to a localized geographic region based on US Army Corps of Engineers hydrologic unit designations. 
 
Market Participants 
 
Sellers: Because the US system allows third-party development of offsets, wetland mitigation has a wealth of participants involved in creating offsets, including environmental consultants, engineers, and lawyers hired by permittees; private mitigation bankers; nonprofit organizations and government agencies running mitigation banks for commercial or their own use; and government and non-profit organizations collecting funds and providing active programs.
 
Buyers: The buyer of an offset is anyone impacting a stream or wetland. The most common buyers are government transportation agencies, residential and commercial developers (which account for about a third of demand), the Department of Defense, extractive industries, and utilities. 
 
Mitigation Banking Review Team: Representatives of the US Army Corps of Engineers with local regulatory agencies and community interests constitute an ad hoc Mitigation Banking Review Team to oversee the activities of mitigation bankers, evaluate the bank product that a banker proposes to build, and certify the creation of credits that can be used to mitigate identified impacts approved in an individual Impact Permit. 
 
Contractors: Consultants are available in many states for hire to delineate wetlands or other waters of the United States, design wetland compensatory mitigation projects, or assist mitigation bankers in navigating the permitting process with the multiple agencies involved.
 
Market Value and Activity
We estimate the total yearly dollar volume to be $1.3 - $2.2 billion. Of this total, wetlands account for $1.1 - $1.8 billion and streams account for $240 - $430 million.
 
Wetland and stream banking in the US grew substantially in the mid-1990s, by which time official Federal Banking Guidance had been released (in 1995) and disputes between federal agencies over interpretation of wetland mitigation guidance had been resolved. These events gave mitigation bankers a degree of consistency and confidence for investing and creating mitigation banks. The growth of banking in recent years is less clear, as US ACE Districts were unable to verify or update about 40% of our dataset.
 
US wetland and stream banking saw an increase in transparency from the US Army Corp of Engineers (US ACE) as a demand driver for mitigation bank credits. In 2010, the active number of banks in the US increased to 798 from 431 in 2009. Median bank size in 2008 was 174 acres. Other relevant statistics:
 
Area of Wetland and Stream Mitigation per Annum (2008)
Total area of wetland loss: 18,800 acres
Total area of compensatory wetland mitigation: 24,178 acres
Total linear distance of stream mitigation: 312 miles
 
Total Payment for Wetland and Stream Mitigation per Annum (2008)
Wetlands: $1.1 - $1.8 billion
Streams: $240 - $430 million
TOTAL: $1.3 - $2.2 billion
 
Credits
 
The national range in credit prices in 2008 was $3,000 - $653,000, with the average price at $74,535. When tidal or vernal pool credit prices are included, the average is $112,449. The highest price was recorded in Virginia, and the lowest in Arkansas. For stream credits, the national range in 2008 was $15-$700, with an average price of $260. 
 
The variability in the market value of wetland section 404 credits reflects differences in the availability and price of land suitable for bank development and the cost to create an acre of wetland compensation within a given region. Although the sales prices of wetland credits are not tracked or made publically available by the Corps, in-lieu fee prices can serve as a rough proxy.  Some state agencies set in lieu prices that can be paid if mitigation opportunities are not available. A sample of these in lieu fees include: 
 
$24,000 - $46,000 per acre of non-riparian wetland in North Carolina
$36,000 - $63,000 per acre of riparian wetland in North Carolina
$156,000 per acre of coastal wetland in North Carolina
$55,000 - $65,000 per acre of nontidal wetland in Southeast Virginia
$125,000 - $150,000 per acre of nontidal wetland in Northern Virginia
$400,000 - $653,000 per acre of tidal wetland in Virginia
$84,500 per acre of wetland in Oregon
 
As noted above, credits in different regions of the US use different metrics - acres, fractions of an acre, or ecosystem function - to calculate credits. Therefore, the price of a credit in one region cannot be compared ‘apples to apples’ to a credit price in another region. Nevertheless, we present the results of our pricing data collection as ‘per credit.’ The high end of credit prices in our dataset was predominantly for credits in tidal wetlands. The average price of non-tidal credits was $74,535. 
 
Regional Variations: The West, Southeast, and Chicago area have the most wetland mitigation banks. Six states have more than 20 banks: CA, FL, GA, IL, LA, and VA. All of these states were ‘early adopters’ of compensatory mitigation, with at least one bank in 1995. 
 
Other interesting characteristics these states have in common are:
• High percentage of coastal area (with the exception of IL),
• States with rapid development (with the exception of IL and LA), and
• A less-than-average amount of mitigation coming from ILFs (with the exception of CA).