The Future of Wetlands Mitigation Banking

Concern over historic wetlands loss led to a national goal of no net loss (NNL) of wetlands acres and their environmental services. In support of the NNL goal, the US Army Corps of Engineers (Corps), under authority granted by Section 404 of the Clean Water Act, reviews permits to discharge fill material into wetlands. A permit review process called sequencing requires a permit applicant (permittee) to first demonstrate to a regulator that they have applied all practical means to avoid and minimize the filling in of wetlands areas as part of a development project. Then the NNL goal requires permittees to provide replacement wetlands—ecologically successful restoration of former or degraded wetlands or creation of new wetlands from uplands—to offset the adverse environmental effects of the permitted wetlands filling (see Shabman, Stephenson, & Shobe, 2002, for a discussion of offset programs in air and water pollution control programs). When the replacement requirement was first established, permittees were expected to provide replacement wetlands (or wetlands “credits”) that were similar to the types of wetlands filled (“in-kind”), and that were located on or adjacent to the area of the fill (“on-site”). However, over time, program evaluations consistently found that inferior wetlands restoration and creation practices often were employed by permittees who had little skill (or interest) in wetlands restoration. Even when state-of-the-art practices were applied, the on-site and in-kind requirement often prohibited long-term ecological success, especially for replacing lost habitat services (e.g., wetlands hydrology was compromised by surrounding development). Meanwhile, because limited agency resources for monitoring and enforcement had to be scattered among many small wetlands credit projects, the quality of the credits was not assured; in fact, some required credit projects were never undertaken. These problems motivated interest in new approaches—generally called “wetlands mitigation banking”—for securing ecologically viable credits. One approach to mitigation banking relies on third parties (neither the regulator nor the permittee) to produce wetlands credits that can be used as offsets. Third-party wetlands mitigation banking often has been cited as a successful application of market-like environmental policy. After reviewing the experience with wetlands mitigation banking, we will conclude with a comment on whether this regulatory innovation fits the definition of market-like environmental policy.