Conservation Finance: Follow Up to the 2018 ASLA Ecology & Restoration PPN Meeting

By Daniel Martin, Associate ASLA

The Ecology & Restoration PPN Meeting featured presentations by Michael Sprague, President and Founder of Trout Headwaters, Inc., and Damian Holynskyj, M.C.P., Director of the Eastern Region for Great Ecology, hosted by Daniel Martin, Associate ASLA, PPN Co-Chair (2016-2018). / Image: EPNAC
ECOLOGY & RESTORATION PPN MEETING IN PHILADELPHIA

For the annual Ecology & Restoration PPN meeting in October 2018, we were joined by Michael Sprague, President and Founder of Trout Headwaters, Inc., and founding Board Member of the National Environmental Banking Association, as well as Damian Holynskyj, M.C.P., Director of the Eastern Region for Great Ecology. Our discussion covered the big picture of what conservation finance is, how it is situated within the larger economy, and the role landscape architecture fills within the industry.

The conversation that was had between Mr. Sprague, Mr. Holynskyj, and Ecology & Restoration PPN leadership and members is summarized in this document, to serve as a reference for those who were not able to attend, and a jumping-off point for those landscape architects who would like to pursue this topic further.

WHAT IS CONSERVATION FINANCE?

Conservation finance takes many forms, but in the simplest sense it is a way to create economic incentives for conservation and restoration projects. When an economic incentive exists, it opens the door for many different people and organizations to become involved with environmental projects who otherwise might not be. This increases the amount of work that can be done and leverages the specialties of a broad range of professions towards shared goals.

Shared goals; it has become so common to view economy and ecology as two separate entities, related in a fashion which necessitates the degradation of one for the benefit of the other. This is an unfortunate misconception, which Mr. Sprague discussed at length. Looking at the root meanings of ecology and economy, a truer relationship begins to show. Ecology means study of the house and economy means management of the house, so in that sense it can be understood that what is truly good for one ought to be good for the other. In other words, you can’t understand what you don’t study, and you can’t manage what you don’t understand.

The market at large is an impressive show of management, able to balance and correct with every input received. A blind spot occurs when there are stakeholders and inputs that do not make it to the table, which prevents the market from taking that data into account. Up to this time, the ecology of the planet has been largely viewed as an externality in the market, but the various forms of conservation finance aim to secure a seat for the environment at the table as a stakeholder. When that happens, investment can be directed to the environment in the same way it is to other stakeholders. Investment in technology results in technological innovation, investment in cars results in more cars being produced, while investment in environments results in the conservation, creation, and management of high quality habitat. It is interesting to note the restoration economy is already a huge provider of jobs in the market surpassed only by motor vehicle manufacturing and oil and gas extraction (see Figure 1). Taking the direct, indirect, and induced effects of the restoration economy in sum (see Figure 2), it currently provides almost a quarter million jobs and $25 billion in output (BenDor et al. 2015). This suggests that the market is naturally moving to make room at the table for the environment as a stakeholder, and the timing is good to help streamline and formalize this phenomenon, while supporting further development and innovation in environmental markets.

Figure 1: The Restoration Economy and Jobs / Image: Trout Headwaters, Inc.

 

Figure 2: The Total Effects of the Restoration Economy / Image: BenDor et al.
TYPES OF CONSERVATION FINANCE

There are seven well defined classes of conservation finance currently at play, with potential for more in the coming years. These are mitigation banking (wetlands), conservation banking (endangered species), carbon banking, renewable energy banking, water banking, water quality banking, and transfers of development rights. Each of these types of investments have one overarching thing in common – the driver legislation. This is the legal framework that guides interventions within these sectors. Examples include the Clean Water Act for mitigation banking projects, the Endangered Species Act for conservation banking projects, and regional zoning codes for transfers of development rights. These drivers create goals for what we would like to see, such as no net loss of wetlands and penalties for non-mitigated impacts. The drivers set the terms for how the market can creatively facilitate environmental goals.

Another important commonality between many of the different types of conservation finance is the protection of land through perpetual conservation easements. This means that once a bank is set up and protected, it can never be developed in the future. It does not mean that the land cannot be used however, and there are many examples of allowed activities on lands under a conservation easement. As long as the use does not interfere with the ecological protection and it is written into the banking agreement, then it is allowed. For example, a rancher may be able to still run cattle through lands generating species credits if the cattle do not disturb the endangered species. There are also opportunities for public use of protected lands, where people can hike, camp, fish, hunt, and enjoy other forms of outdoor recreation. It comes down to the specific needs of the site and what uses can function alongside them. If this is outlined in the approved banking agreement, then lands under conservation easements can support such multi-use scenarios. Additionally, sometimes a conservation easement lowers the appraised value and can lead to tax benefits for the landowner, because it is attached permanently to the land preventing development. This would be advantageous to the rancher who owns the land and still runs cattle but would then have a yearly savings on property tax.

As many involved in landscape architecture can attest, the long-term management of sites can make or break a project but securing funding can present challenges. Many forms of environmental banks protected under conservation easements also are required to create a non-wasting endowment using a portion of each credit sold. This endowment maintains an inflation adjusted principle and uses interest generated for management and monitoring in perpetuity. Even long after the last credit is sold the land that has been protected is still managed to maintain the same level of integrity in ecological function that was required to generate the credits in the first place.

A TYPICAL EXAMPLE: MITIGATION BANKING

The Clean Water Act has been in place since 1972 and as a federal law it affects projects throughout the country. Because of this, mitigation banking is the most widespread form of conservation finance so far (followed by conservation banking driven by the Endangered Species Act of 1973), and affords the most data for what works and what doesn’t when it comes to mitigation of impacts and restoration of environments. Mitigation banking also shares many technical aspects with the other forms of banking and can serve as a good example of the proto-typical environmental bank as we move forward. At its core, it is a system of credits and debits devised to ensure that ecological loss from necessary impacts is compensated for by restoration and preservation in other areas resulting in no net loss to the environment (Sprague, 2018). In other words, if a project has an area of unavoidable impacts, this creates a debit which can be mitigated through the purchase of credits. Credits are generated though the process of bank creation.

Mr. Holynskyj discussed the idea of ecological uplift as a basis of credit generation in length, because it illustrates how a mitigation credit is generated, and provides a good example of how ecological benchmarks are used to establish an exchange rate, which ultimately translates to marketable credits. Essentially, ecological uplift is the improvement in ecological function that is measured and monetized (Holynskyj, 2018). For example, let’s assume a baseline habitat (see Figure 3) which is in a subprime condition. Through the process of bank creation, additional habitat is restored or created (see Figure 4) and that amount of uplift in quality and volume is what the credit generation is based on. The details of this process vary site by site depending on the condition and type of baseline habitat available, and the credit ratio is negotiated and adjusted according to the amount of creation, restoration, enhancement, or preservation a site supplies (Holynskyj, 2018).

Figure 3: Baseline Habitat before Ecological Uplift / Image: Great Ecology

 

Figure 4: Restored or Created Habitat showing Ecological Uplift / Image: Great Ecology

Mitigation banks (and other types of environmental banks) must be created in the same service area in which disturbance is happening in. This means that a bank on the east coast cannot sell credits to mitigate a disturbance on the west coast. Typically, the service areas are delineated by watershed, thus ensuring that a like-environment is preserved or enhanced for the area necessary to disturb. Because of this strategy, site selection is very important. Oftentimes, the best candidate sites are previous wetlands which have been drained for agriculture or otherwise degraded. This is not always possible due to the service area, competition of other banks, and overall demand in the region. A thorough inventory and analysis of available sites is used to ensure the best site is selected.

Landscape architects are often a part of the team in bank creation from the initial inventory and analysis through to the final design implementation and monitoring. Using the tools typical to the profession, they are situated ideally to the multi-disciplinary team. While many landscape architects may have experience in wetlands projects, newer sectors of conservation finance also utilize design skills. For example, a landscape architect could work on a forest or grassland planted for a carbon bank, the layout of a renewable energy project, infiltration basins for water banking, and the list goes on.

BENEFITS OF ENVIRONMENTAL BANKING

There are three typical options available when mitigation for a necessary impact is needed (1) permittee responsible mitigation, (2) in-lieu fee programs, and  (3) credit systems. Permittee responsible mitigation creates a mosaic of small on-site unconnected patches and places the liability for success on the developer (who may not have any experience in successful environmental design). Government in-lieu fee programs collect monies to purchase lands for protection, but there is often a lag between the in-lieu fee payment/disturbance and the acquisition of the land, so many years can elapse where that ecological function is vacant. Credit systems, however, create large areas of diverse habitat, transfer the liability for success to the bank itself (who are experienced in environmental design and management), and allow an immediate protection of land as soon as an impact is done, removing any lag to the ecological function in the service area.

Figure 5: Net ecological and economic benefits of environmental banking / Image: Trout Headwaters, Inc.

The many ecological and economic benefits of environmental banking also overlap multiple sectors of the economy (see Figure 5). While the active trend to protect and enhance the ecology of our planet is plagued by complications, environmental banking simplifies the route to reach our goals; incentivizing investment in projects, making it quicker and easier for development to comply with regulations, onboarding and integrating with other sectors of the economy, protecting larger areas of land than otherwise able, and providing funding for ongoing maintenance and stewardship.

 

On behalf of myself and the ASLA Ecology & Restoration PPN, I want to extend my gratitude to Trout Headwaters, Inc. and Great Ecology for the time and resources to make the presentation at the ASLA 2018 Annual Meeting and EXPO in Philadelphia a reality.

A special thanks also to EXPO exhibitors ECOncrete® Tech Ltd.; LiveRoof, LLC; and SavATree for sponsoring our guest speakers.

CITATIONS

BenDor, Todd, T. William Lester, Avery Livengood, Adam Davis, Logan Yonavjak. 2015. “Estimating the Size and Impact of the Ecological Restoration Economy” PLOS ONE 10(6): e0128339. https://doi.org/10.1371/journal.pone.0128339

Holynskyj, Damian. 2018. “Mitigation Banking Design” Presentation at ASLA National Conference – Philadelphia.

Sprague, Michael. 2018. “OIKOS: Reconnecting Economy and Ecology” Presentation at ASLA National Conference – Philadelphia.

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