Wetland Mitigation Banking

Since the mid-1980s the United States has had a series of functioning biodiversity markets worth more than $3 billion a year. This system is currently the largest and most well established experiment on Earth on creating biodiversity markets. Although these are markets and they involve the private sector, it is government that makes these markets possible. The system that makes the flower-loving fly worth real cold, hard cash begins with government regulation. Indeed it has its roots in two very important U.S. laws: the Clean Water Act (CWA) and the Endangered Species Act, both passed in the 1970s.5

Although the Clean Water Act is basically designed to prevent the dumping of chemicals into the nation's rivers, it is also in some respects a rather innovative biodiversity law— thanks to section 404, which attempts to prevent the placement of dredged and filling materials into the "waters of the US." Anyone wishing to dredge or fill a wetland considered of national importance in the United States must first obtain a permit through a program administered by the U.S. Army Corps of Engineers and the U.S. Environmental Protection Agency (EPA).6

In considering whether to award this permit, EPA and the Corps are supposed to follow a process known as "sequencing," in which the first step is to determine if the damage to the wetlands can be avoided. If it cannot, the next step is to minimize the damage. Finally, the developer is supposed to offset, mitigate, or compensate for any damage that cannot be minimized. This hierarchy should be considered in all forms of offsets, but it is not usually codified into law. Section 404 of the CWA is an exception.7

The law is also quite clear on what is considered appropriate compensation for the damage to wetlands: developers must "create, enhance, or restore" an amount equal to or greater than the amount being damaged in a wetland of "similar function and values" in the same watershed. In some special cases, protecting a similar wetland is considered suitable compensation, though this is rare. The law recognizes that not all wetlands are equal. Someone cannot damage a wetland in California and protect one in New Jersey. In short, the law is trying to ensure "no net loss" of wetlands.8

The compensation for any development projects that harm wetlands—whether done by private developers or the government—can be undertaken by the developers themselves or by third parties. And the Army Corps of Engineers and EPA are charged with overseeing this process and making sure the compensation happens.

One of the most interesting repercussions of this law is that there are now private, forprofit, wetland mitigation bankers who make money by creating, enhancing, and restoring wetlands and then selling the resulting "wetland credits" to needy developers. (See Box 9-2.) They buy wetland areas in parts of the United States that are likely to experience economic growth; they work with the Corps and EPA to get "credits" for their "creation, enhancement, and restoration" of wetlands (hence creating a "wetland bank"); and then they sell these wetland credits to developers who find themselves in need of compensation. In other words, wetland mitigation banking


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