Friday, June 29, 2012

The First Wetland Bank

History lesson!  Settle back, kids.

Wetland banking did not, contrary to some current narratives, emerge out of the ferment of enthusiasm for markets in the 1980s, as some kind of think-tank product pushed by headquarters ideologues.  It had a very practical beginning, and cleaning my office yesterday I came across one of the founding documents of the field, so I thought I'd post it up here.  The instrument for the very first wetland bank to bear the name.  It's a great read, representing some outstanding work by the pioneers of the field -- and this copy (which was being discarded while I was at EPA) appears to have belonged to David Soileau himself, the FWS field biologist who was the primary author.  And ya gotta like the old skule pen sketch on the cover, right?  It has the aesthetic of a very earnest high school newspaper cartoon.

Following the 1979 oil shock there was a surge of interest from Texas oil firms in reopening the Louisiana oilfields.  They plowed into the bayou, buying up old operations and digging new channels for laying pipelines.  But they came up against something that no powerful resource industry had yet encountered: the permitting requirements of Section 404 of the Clean Water Act, established in 1972 and newly clarified in the 1977 amendments.

The New Orleans Corps District wasn't about to start denying permits to oil companies, and was inclined to call project-by-project compensation "impracticable" in a landscape composed almost entirely of wetlands.  So the Lafayette Office of the Fish and Wildlife Service got creative and from 1981-83 worked with one of the oil companies (Tenneco) to create a large amount of advanced compensation in anticipation of their impacts.  This made compensation "practicable" in the eyes of the Corps, and it was called a wetland bank -- the term had been used over the past decade (the earliest reference I can find is in a conference paper by LaRoe in 1974, in which he's essentially spitballing the idea), but they didn't really exist in the form we know them today.

The report is a really interesting read for those of us who've followed the industry.  First of all, even though the credits at the LaTerre bank were intended for Tenneco's own use, the instrument explicitly contemplates entrepreneurial banking, and in fact envisions an entire future sector:
The interagency group concluded that the selling or trading of credits by a mitigation banker would be a reasonable extension of the mitigation banking concept. ... Major land holding companies having mitigation credits in one region or State could trade with other companies having credits in other regions or States to facilitate permit issuance for activities of a company within an area where that company may not have an available supply of its 'own' credits. (p.16-17)
The authors took a cue on this from a federal/state conference on wetland policy in Baton Rouge in June of 1983, but this was the first instance of using the idea in practice.  The first credit sale to an outside party didn't occur until 1986, and we'd have to wait until 1994 to see the first sale of a credit at a wetland bank established entirely as an entrepreneurial venture.

Secondly, their crediting methodology is insanely complicated by today's standards.  It attempts to account for so many issues of ecological and geomorphic complexity that trying to use it truly makes your head spin. (See my thoughts on this trend here).  For example, since the entire wetland landscape of southern Louisiana was subsiding, the instrument defines the credits the Tenneco LaTerre bank in terms of the years of deferred subsidence.   FWS assumed, using a coastal marsh loss rate of 6.6%/year, that the LaTerre site would be open water in 77 years, and that the that the physical modifications made in constructing the bank (largely a matter of erecting berms and controlling water flow) would delay subsidence -- and thus preserve wetland habitat.
...a net annualized increase of 3,306 acres of fresh and intermediate marsh, aquatic bed, and scrub/shrub is expected over the 77-year project life under the [Future-With-Management] condition; this net increase represents a reduction in the average annual decline of fresh and intermediate marsh acreage, compared to the [Future-Without-Management] condition. (p.11)
That is, in delaying subsidence by controlling wave action, in 2059 there will be 3,306 more acres of wetland than there would have been without the bank.  It's a kind of an astounding accounting for geomorphic instability, and it's the kind of temporal nuance that rarely if ever enters into crediting these days.  One consequence of this is that the bank can only be used to compensate for sites that would naturally be open water by 2059, meaning that the bank becomes naturally obsolete as time goes on.

What's more, there are no Acres or Ecosystem Services at Tenneco LaTerre... their credits were sold in Average Annualized Habitat Units (AAHUs) using the good ol' Habitat Evaluation Protocols (HEPs).  The HEPs were used to establish baseline habitat condition for Year 1, and the assumption was that by Year 77, the site would have degraded back to that condition after the lift provided by the management actions.  For each project year (1 through 77), Habitat Value (measured with HEP) is multiplied by Habitat Area (acres).  The average of all 77 values is the AAHU, and to make matters more complicated, Tenneco had AAHUs in three different habitat types (wildlife, freshwater fishery and estuarine fishery).  So, if you like, the first wetland bank sold stacked credits.

Debiting at an impact site was rather charmingly assumed to work the same way: wetland loss rates through subsidence would be applied to both the direct and indirect (!!) impacts of the activity and the acreage of open water produced by 2059.  These would also be translated into AAHUs by HEP analysis, and debited from the LaTerre bank.  This kind of apples-for-apples talk -- the need to conduct assessment of impact sites that is as rigorous as that at the bank site -- has been around since the beginning... only back in 1983, the difficulty of doing so (and doing so in a temporal dimension!) was simply seen to be the cost of doing business.

The entire document is responding to FWS 1981 Mitigation Regulations, which is where the mitigation sequence really comes from (ok, it comes from the 1978 CEQ regs for NEPA, but FWS was the first to make it clear that the steps in mitigation are sequential).  FWS had written these to govern its commenting role over Section 404 permits and other regulated impacts. Notice who's not at the table?  Their name begins with "Environmental" and ends with "Agency."  EPA is nowhere to be found in this whole document -- not even in the signature block!  (Neither is the Corps, shockingly, although they did allow LaTerre bank credits to serve as compensation -- of the feds, only FWS and NMFS signed).  Until the late 1980s, its safe to say that FWS was the driving force in mitigation banking, a fact largely forgotten now.  EPA was busy self-destructing at the time: they had only just written environmental criteria for 404 permits (in 1980) and then turned around and attempted to nullify them (in 1983) just as their Administrator was found in contempt of Congess.  They were in no position to worry about wetland compensation.

So yeah.  Wetland banking didn't pop out of the forehead of a market-happy Zeus -- third-party sales were "a reasonable extension of the concept", but not at its core.  It was the solution to a very conventional command-and-control problem of getting big, wealthy, powerful permittees to comply with the CWA, in a situation where the agency tasked with providing an accepted and reliable answer to the question of "what should wetland mitigation look like?" was unable to do so.   So FWS had to invent an answer that worked in that place and time.  Some amazingly creative work by the FWS, and some credit probably goes to Michael Zagata as well, the negotiator for Tenneco Oil.  Zagata popped up later in the 1990s in New York as Gov. George Pataki's Secretary for Natural Resources, where he proposed privatizing the state parks and was promptly shown the door.  Gotta be a story there, but that's for another time.

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