What is a conservation bank? In a nutshell, a conservation bank is a parcel of protected natural land that is authorized to sell a set number of credits, most often in the form of acres of habitat, to a customer that is required by national or state law to mitigate their impact to the same species and habitat on nearby land. The demand for these credits is created by the fact that before a land developer is allowed to harm a protected species, U.S. law requires they obtain a permit. Permits often require mitigation activities, mitigation that is increasingly being satisfied in the form of credits purchased from a conservation bank, also known as a species mitigation bank.
From an ecological perspective, a conservation bank consolidates preservation efforts on a site specifically chosen for ecological value, and guarantees no time delay between destruction and replacement/preservation of habitat. From a regulatory perspective, a bank shifts the monitoring and enforcement effort from tens or hundreds of individual sites to one single site with one party responsible for reporting and ecological performance. From a credit buyer’s perspective, once a credit is purchased he has washed his hands of any legal liability for the maintenance or performance of a mitigation site. Finally, from the perspective of a landowner, a bank is an opportunity to take what is commonly considered a liability on their land - a protected species - and turn it into an asset, which in some cases can demand from $5,000 to $400,000 a transaction.
The roots of conservation banking are found in wetland mitigation banking - a similar system of credits and required mitigation, but based on wetland impacts. While wetland banking got started in the mid 1980s, the first conservation bank wasn’t established until 1995. The first bank, Carlsbad Highlands, was created by Bank of America in response to the challenge of deriving value from a parcel of land they’d acquired as the result of a foreclosure on a bad loan. That land was also home to endangered California gnatcatchers. Bank of America worked with regulators to find a mutually beneficial way to generate revenue from this asset. It took intense development pressure, strong environmental policy, and the innovation of California regulators to bring forth this first conservation bank.
Today there are roughly 800 wetland and 115 species banks in the US, nearly double the number of banks six years ago. Statewide mitigation banking programs are in various stages of development across the US, from North Carolina to Texas to Oregon. Both Massachusetts and Washington have pilot programs in wetland banking. And more than geographic boundaries are being broken. There are now several banks in California that sell anadromous fish (e.g. salmon). The scientific and accounting hurdles overcome to make this happen will likely set a precedent on which similar fish banks could spread quickly into the Pacific Northwest, a region in need of tools to balance the needs of humans, salmon, and the thousands of species that depend on this iconic fish. Finally, and perhaps with the greatest impact, the newly-minted federal Office of Ecosystem Services and Markets will soon be helping to set up the national institutional infrastructure for environmental credit markets, which will benefit private farms, ranches, and forests.
So what does all this mean for forest land managers? It means there is a growing opportunity to earn revenue from managing your land, or a portion of it, for species habitat. However, as with any nascent market, conservation banking opportunities can be hard to see and a challenge to bring to fruition. To successfully navigate to the financial and ecological rewards of a conservation bank, it is critical to fully understand each ingredient of what it takes to establish a successful conservation bank. As outlined by Craig Denisoff, President of the National Mitigation Banking Association, success is a combination of capital, expertise, and opportunity.
The first ingredient, capital, you may already have. This is land, cash, or access to cash. If you already have land for a potential bank, you are at an advantage, since land in areas that have demand for mitigation can be very costly. There are also other significant capital costs such as permitting, design, construction, and an endowment. Another significant factor is the fact that conservation banks usually sell their credit over a period of more than four or five years, and it can take one or more years to bring the bank online. Your return on investment will not likely be swift.
The second ingredient, expertise, should not be underestimated. Let’s admit it; species credit trading is likely out of our core competency as forest land managers. But as managers of the land, we are also likely charged with ensuring the well-being and long-term sustainability of the land, which in most cases includes profitability and tracts with protected species or high conservation value. We can be better stewards by developing diverse revenue streams from our land, but it will take diversifying our knowledge too. Permitting a conservation bank can take a wide array of specialized expertise such as biology, ecology, real estate, legal, regulatory planning, government process, marketing and sales, and financial accounting. Being familiar with each of these will smooth the bank establishment process even if you plan to subcontract most of the work.
The final ingredient, opportunity, is perhaps the hardest to get a clear picture of. Opportunity is simultaneously having the right conditions for a quality, cost-effective product, and a reliable market of buyers. This means having a bank site that not only harbours a protected species, but is also high-quality habitat that is ecologically sustainable and has desirable conservation attributes, such as connectivity for species movement. In short, it should be a site of high conservation value for the species (and the regulators charged with ensuring the species recovery), not marginal habitat with an isolated population unlikely to survive without intensive management.
On the market side, a bank must have demand within its service area - the area within which it can sell credits that are still ecologically relevant. This demand should be diverse (in both the public and private sectors) so as not to be exposed to the whim of a few customers or economic fluctuations. It must be able to compete against the other forms of satisfying mitigation requirements, such as on-site mitigation, in-lieu fees, or other conservation banks. Perhaps most important is the regulatory environment you are in. In some regions, regulators aren’t familiar or favourable towards conservation banking. In other areas they understand the advantages of conservation banking, but it may be their first time permitting a bank, so they will move slowly. A good working relationship with your regulators can go a long way in the success of your bank.
Understanding your market and your place in it requires a good deal of research. Reading up on the general practice of conservation banking is a good way to get started. The industry is always changing and every region has its own flavour of compensatory mitigation. Second, a quick analysis of your particular site and market will give a sense of your opportunity. And third, go meet with your regulators (state and/or federal fish and wildlife agencies); they will be instrumental in the establishment of your bank.
This article is adapted from an article that first appeared in Western Forester, March/April 2007, Vol. 52, No. 2, Society of American Foresters.
Nathaniel Carroll is Project Manager for biodiversity markets at the Ecosystem Marketplace, a leading source of information on markets and payment schemes for ecosystem services around the globe. He can be reached at [email protected]
• Conservation & Biodiversity Banking: A Guide to Setting Up and Running Biodiversity Credit Trading Systems (2008) Carroll, Nathaniel; Fox, Jessica; and Bayon, Ricardo. Earthscan, London
• SpeciesBanking.com: www.speciesbanking.com • Mitigation Mail eNewsletter: www.ecosystemmarketplace.com/pages/static/signup.php • National Mitigation Banking Association: www.mitigationbanking.org/ • Sacramento USFWS conservation banking site: www.fws.gov/sacramento/es/cons_bank.htm
• Federal Guidance for the Establishment, Use, and Operation of Conservation Banks: http://ecosystemmarketplace.com/documents/cms_documents/Federal%20Guidance%20on %20Conservation%20Banking%202003.pdf
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