Coverage of the National Mitigation and Ecosystem Banking Conference - May 4

Becca Madsen on May 5, 2010 Comment

Mitigation and Ecosystem Bankers from across the US are gathering in Austin Texas for the country's biggest gathering of folks involved or interested in wetland mitigation banking, conservation banking, and issues at the very cutting edge in the non-carbon market world. We'll be providing day-by-day coverage of the conference on our blog here.

Tuesday May 4

Business of Banking Session
Speaking of the housing bubble, Craig Denisoff of Westervelt Ecological Services noted "We rode that wave from 95 to 2006 and it was awesome." But business isn't quite so good these days, and the 'Business of Banking' session looked into if and how the recession has been affecting the mitigation banking industry and the outlook for the future.

During the recession, one usually sees more businesses exiting an industry rather than joining it, but in the mitigation banking, there's been an increase in banks. Bob Brumbaugh of the Corps of Engineers has said there are around 450 active wetland mitigation banks and another 500 or so 'pending' banks.

Ecosystem Marketplace asks Sheri Lewin of Environmental Resource Marketing why mitigation banks grew during the recession - check out the audio below.

Even with 2008 EPA/Corps of Engineers stated preference for banks, regulators often consider this a 'soft preference' and bankers haven't seen increase in demand of wetland mitigation credits from banks. Sheri Lewin of Environmental Resource Marketing researched six US Army Corps of Engineers before and after the 'new rule' which gave a stated preference for using wetland mitigation credits from a mitigation bank and did not find an increase in demand for credits from banks. For example, in the Jacksonville District, in 2007 there was around 35% of credits coming from banks and in 2009 that percentage dropped to 32%. In Fort Worth, in 2007 48% of credits came from banks and in 2009, 47%. Ms. Lewin concluded that while yes, the new rule is increasing availability of credits (eg - the number of mitigation banks has increased), the 'new rule' doesn't appear to be increasing the use of credits. This issue is something the National Mitigation Banking Association is tracking now and into the future.

Charlie Thompson of Timbervest LLC noted that growth of consistency on the regulatory side will bring in more private capital into mitigation banking.

The housing industry is starting to bounce back and there is hope that this will increase demand of mitigation credits from banks. But while bankers are planning for the economic recovery, there are more sober expectations - the 'good old days' of the housing bubble are not coming back. Craig Denisoff of Westervelt Ecological Services noted that banks are still doing OK - provided the basic business structure has been sound, relationships with regulators are good, and projects are high quality (the 'Cadillac of mitigation projects'). Bankers and private capital have focused on projects with lower risk and fairly certain revenue flows. Charlie Thompson of Timbervest LLC noted that there's less of an appetite for speculative investment - an investor may only be willing to invest in a mitigation banking project when there's already a buyer for 30% of the credits that will be created. Investors will be looking for a 15%-30% Internal Rate of Return (IRR). Mr. Thompson noted that private investors look for: experience in mitigation banking, local knowledge in these 'micro markets,' and a project developer with 'skin in the game' - whether that's the project developer's own funds in the project or signing on to sharing cost overruns, etc.

User's Forum
This session gathered users of credits from mitigation and conservation banks to talk about their interests and issues. Some of the themes of the session included questions about when it made financial sense to use credits from mitigation banks and when it didn't; questions about multiple credit needs (wetland and species); and questions about unique mitigation needs.

Ecosystem Marketplace also asked the User's Forum for credit prices they would be willing to share, provided here anonymously...

• Up to $225,000 for CA ILF wetland credit


• Emergent marsh in LA $22,000/acre


• Bottomland hardwood wetland credits in New Orleans District in LA - $40,000-$50,000 per impact acre East of the Mississippi river; $25,000-$40,000 per impact acre West of the Mississippi river. In Northwest LA in watersheds with one mitigation bank, up to $50,000/acre.


• Stream credits in NC: $343/linear foot

Opening Session Q & A
The Corps' Assistant Secretary for Civil Works, Jo-Ellen Darcy, was on the hotseat with questions from the audience - including this small sample...

Q: Perspective on 'preference hierarchy' - have heard references from the Corps to this as 'soft preference' or 'mushy preference'. What does 'preference' mean to the Corps?
A:The legislation says that banking needs to be the first consideration.

Q: Corps Civil Works restoration - any potential to link this to ecosystem banking?
A: It's a possibility.

Q: How can you helps the Corps operate more like the Army ('yes sir, no sir') rather than Century 21 offices
A: All of our District offices are operating under the same legislation... what I'm hearing from you is that there is different interpretation in various places across the country.

Q: Any talk about performance metrics for keeping mitigation banks on the timeline in the 'new rules'?
A: I don't believe the Corps has a performance metric for this - it's a good suggestion.