Compensatory mitigation markets may be expanding in the US as high level policy guidance from the Department of Interior and the White House, released this month, directs land managing agencies to follow the mitigation hierarchy and scale up private investment in conservation.
13 November 2015 | Just before he rejected the Keystone XL oil pipeline, US President Barack Obama released a different memorandum related to environmental policy – this one on the decidedly less sexy but more substantive issue of mitigation and private investments for conservation. The memo, released on November 3, intends to strengthen and streamline landscape-level mitigation policy within five federal agencies, directing them to follow the mitigation hierarchy. This, in turn, is expected to lead to an upswing in private investments for natural resources.
The agencies addressed are those responsible for managing government land: the Department of Agriculture, the Department of the Interior, and the Department of Defense, as well as the Environmental Protection Agency and the National Oceanic Atmospheric Administration.
The National Mitigation Banking Association (NMBA) says the memo will increase market certainty and environmental outcomes while also ensuring high quality mitigation across the board.
“The Presidential Memorandum strikes the right balance between economic development and restoring the nation’s natural resource endowment,” NMBA President Wayne White said in a statement.
Coinciding with the Executive Office’s announcement, the Department of Interior (DOI) released a new policy that highlights mitigation as a core part of public land management decisions. The policy lays out key processes and principles needed to implement landscape-level mitigation and will serve as a directive for agencies within the DOI like the Fish and Wildlife Service (FWS) and the Bureau of Land Management (BLM).
“The DOI policy contemplates more robust use of the mitigation hierarchy in the public land management context,” says Jessica Wilkinson, a Senior Policy Advisor on mitigation at The Nature Conservancy (TNC).
“We’ve had the hierarchy in wetlands for many years but these recent policy announcements cement it in other settings,” says James McElfish, a Senior Attorney at the Environmental Law Institute.
A New Direction for Mitigation
Typically, mitigation is thought of as a tool for private and public entities to meet regulatory requirements regarding their environmental impacts. The DOI’s policy, however, pushes mitigation to play a bigger role. It instructs its agencies to utilize mitigation not just as a regulatory tool but as an overall part of their public land management strategies, employing mitigation to meet departmental goals.
“It’s a different angle and one that has potential to open up a lot of new markets for compensatory mitigation” Wilkinson says.
More Market Activity?
Following the mitigation hierarchy means first avoiding, then minimizing and lastly, compensating for adverse environmental impacts. The memo notes agencies should implement monitoring tools to evaluate and measure the effectiveness of their mitigation efforts.
Compensating for impacts involves using an offset mechanism. Though the presidential memo includes something of an irreplaceability clause where some areas are designated as too fragile or important to develop and can’t be offset. This pleases several environmental organizations such as TNC. Offsets that federal agencies permit are required to, at a minimum, deliver a no net loss of conservation, although a net gain is preferred.
Another preference the memo highlights is using advanced compensation mechanisms, like mitigation and conservation banking, which delivers the benefit prior to the negative impact. One noteworthy mention in the memo about banking is guidance to incorporate “restoration banking” as part of Natural Resource Damage Assessment (NRDA) restoration plans.
“This could open up a significant market,” White says. Though, the language around this issue in the memo is nonspecific and not particularly groundbreaking: “agencies should evaluate criteria for whether, where and when a restoration bank is appropriate.” Still, McElfish says this is the first time guidance has laid out criteria for banks to play a role in the NRDA process, which is significant and could signal growth.
Regardless, the memo is pro advance compensation. “The memo encourages agencies to look for ways to promote private sector opportunities to invest in mitigation banking. I suspect that it will lead to the establishment of more banks under a wider range of programs,” Wilkinson says.
Ratcheting Up Private Investment
The Obama administration has its reasons for seeking more private sector engagement. Among others, the memo notes nonprofit organizations and businesses’ expertise in restoration and its use of such methods as “Pay for Success” to achieve conservation objectives.
The government’s role, then, is to encourage engagement by establishing clear and consistent policy that operates similarly among the different agencies. The public sector develops an efficient and transparent permitting system for mitigation and better environmental outcomes, laying the groundwork for public private partnerships.
According to the NMBA, this memo will indeed increase private sector investment in conservation. The organization expects to double the pace of private investment to 200,000 acres per year over the next five years. That’s up from the 2014 rate, which is 85,000 acres per year.
Joel Shapiro, the Managing Partner and Chief Executive Officer of Timbervest, an investment management firm that focuses on restoration projects, including mitigation banking, says they’re also encouraged by the memo.
“We’ve always believed the path to successful environmental restoration and preservation would require an effective partnership between the public and private sector,” Shapiro says. “We look forward to the ongoing growth of the environmental and restoration industry.”
When does this Happen?
Positive policy signals are nice but the real test will come with application, Wilkinson says.
“That’s the real question. How effectively will these directions be pushed out into the field and become the new way of doing business,” she asks.
As far as moving forward goes, the affected agencies are under different time constraints to comply with this framework. The DOI’s agency, the FWS, is required to finalize a revised agency-wide mitigation policy and also a separate policy on compensatory mitigation related to the Endangered Species Act (ESA) in one year. The Service is also responsible for a policy for mitigation in advance of a listing decision under the ESA that’s due in one year.
Like the FWS, the BLM, another DOI agency, has one year while the Forest Service, within the USDA has two years to finalize their mitigation policies. The Forest Service is however, responsible for developing and implementing mitigation hierarchy guidance within the year.
The memo doesn’t lay out a timeline for other affected agencies like the DOD. It does say, however, that these instructions don’t apply to military training, testing and other readiness activities.
Kelli Barrett is a freelance writer and editorial assistant at Ecosystem Marketplace. She can be reached at [email protected].
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