Mitigation banks create mitigation acres or credits to be used in the event of an unavoidable environmental impact that’s caused by development or construction. The most common are wetland mitigation banks.
Wetland mitigation banks restore wetlands on properties that are considered prior converted wetland, meaning the property was artificially drained prior to 1985. Each acre of restored wetland generates one credit or a fraction of a credit. These credits can then be sold or used to offset unavoidable wetland damage.
Credits are typically used by transportation departments, municipalities and real estate developers during road, utility and development projects. Mitigation credits can also be used for agricultural improvements, such as tile installation.
Value and Risks Explained
Mitigation banks can create an opportunity for landowners to generate income from marginal or poor-producing land. The value of mitigation credits varies by state and the type of credits, but credits have the potential to generate income many times higher than the annual income from crop production on marginal acres. When considering a mitigation bank’s development, keep several things in mind. The size of the bank, amount of credits to be created, service territory of the bank and demand for credits in the service territory are a few critical considerations.
To capitalize on opportunities presented by mitigation banks, landowners must be comfortable assuming some risks. Landowners may face political, liability and financial risks.
Political risk is created through oversight of mitigation banks by the Interagency Review Team (IRT), made up of the U.S. Army Corps of Engineers, Environmental Protection Agency, USDA Natural Resources Conservation Service, U.S. Fish and Wildlife Service and state Department of Natural Resources. Changes in any of these agencies can create uncertainties in regulation interpretation and enforcement.
The liability risk is associated with performance of the mitigation bank. If the site is not reaching the requirement set by the IRT, then the bank owner must either correct the shortcomings in performance on the existing site or create another site in sufficient size to account for all credits sold from the original site.
Financial risks are created by uncertainty in timing and amounts of credits sales. Depending on demand in a service territory, several credits per year may be sold, or it may be several years between sales.
All of these risks can be reduced with proper due diligence to identify a potential mitigation bank site.
The Three Biggest Benefits
Using a mitigation bank for necessary environmental impacts has many benefits. Cost, reduced liability and timing are the three largest benefits that mitigation bank customers may realize. The cost of a credit can be less than the cost of constructing, monitoring and maintaining a wetland. Reducing liability is a primary consideration for customers of mitigation banks. Once the credit is purchased from a mitigation bank, the customer’s liability for the wetland impact is transfered to the mitigation bank owner. Using a mitigation bank can help a development project meet the construction schedule. The transfer of credits can occur quickly to allow construction to begin promptly.
Although marginal land may create problems in crop production management, these marginal acres can create some opportunities as conservation for profit if utilizing the land as a mitigation bank.