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What is Conservation Banking

Conservation banks are permanently protected lands that are preserved and managed for their natural resource values. Landowners who establish a conservation bank have the economic advantage to sell habitat credits to developers that impact similar resources.

TerraWest Conservancy is an industry leader in the field of mitigation and conservation banking services. Landowners attempting to monetize their property utilizing conservation and restoration activities need professional guidance from a team. The team needs to have expertise in biology and ecology. They also need expertise in real estate and conservation finance to fully capture their land’s ecosystem services value. Bank sponsors have relied upon us to bring together the crucial components to any successful banking venture. These components include site selection, market and financial analysis, strategic design, bank entitlement, asset management, sales and marketing, and bank disposition and fundraising.

Intro to Conservation Banking

  • What is a Conservation Bank?
  • Wildlife Agency Authorities
  • Goals and Objectives
  • Site Selection
  • Service Area
  • Credit System

What is a Conservation Bank?

A conservation bank is a parcel of land containing natural resource values that are conserved and managed in perpetuity, through a conservation easement held by an entity responsible for enforcing the terms of the easement. They are for specified listed species and used to offset impacts occurring elsewhere to the same resource values on non-bank lands. Bank parcels are typically large enough to accommodate the mitigation of multiple projects. A project proponent will secure a certain amount of natural resource values within the bank to offset the impacts to those same values offsite.

The bank is specifically managed and protected by the banker or designee for the natural resource values. The values of the natural resources are translated into quantified “credits.” Typically, the credit price will include funding for the long-term natural resource management and protection of those values. Therefore, project proponents can complete their conservation needs through a one-time purchase of credits from the conservation bank. This allows “one-stop-shopping” for the project proponent, providing conservation and management for listed species in one simplified transaction. A bank can be created in several different ways:

  1. acquisition of existing habitat;
  2. protection of existing habitat through conservation easements;
  3. restoration or enhancements of disturbed habitat;
  4. creation of new habitat in some situations; and
  5. prescriptive management of habitats for specified biological characteristics.

Banks can be created in association with specific projects or can proceed from a circumstance where a project proponent sets aside more area than is needed for the immediate project. The creation of a bank may also be needed where the specific project and is willing to protect the remaining area and thus generate credits, or where the specific project is implemented over a longer period of time.

A conservation bank can be created as an entrepreneurial effort in anticipation of an independent customer base with many different potential projects. Each credit they sell is considered to be part of the environmental baseline. As a result, future project evaluations and listing or delisting decisions can be made in a more stable ecological context. This stability is one of conservation banking’s greatest assets, both from an ecological and economic standpoint.

For this reason, conservation banks must be established in perpetuity, regardless of the future status of the species for which the bank was initially established.

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Wildlife Agency Authority

1. Section 7 (a)(1) of the ESA requires that all Federal agencies …in consultation with and with the assistance of the [Service], utilize their authorities in furtherance of the purposes of [the ESA] by carrying out programs for the conservation of [listed species]. Section 7(a)(2) of the ESA also requires each Federal agency to consult with the Service regarding the effects of their actions to ensure that the continued existence of 3 of the listed species will not be jeopardized and that designated critical habitat will not be destroyed or adversely modified. The Federal agency’s project description minimizes impacts on listed species by including conservation measures for the listed species. These conservation measures could include, if appropriate, the protection of off-site listed species habitat through the purchase of credits in a conservation bank.

2. Section 10 (a)(1)(B) of the ESA authorizes the Service to issue to non-Federal entities a permit for the incidental take of endangered and threatened species. This permit allows an on-Federal landowner to proceed with an activity that is legal in all other respects, but that results in the incidental taking of a listed species. A habitat conservation plan, or HCP, must accompany an application for an incidental take permit.

The purpose of the HCP is to ensure that the effects of the permitted action on covered species are adequately minimized and mitigated. The action does not appreciably reduce the survival and recovery of the species. Mitigation may include off-site protection of the listed species and its habitat and may take the form of purchasing credits in an approved conservation bank. Credits must be acquired by the permittee before the commencement of actions authorized by an incidental take permit and intended to be mitigated by those credits.

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Planning Considerations

1. Goals and Objectives

The overall goal of any conservation bank should be to provide an economically effective process that provides options to landowners to offset the adverse effects of proposed projects on listed species. The goal of a bank should be focused on producing conservation benefits for the species for which the bank is being established.

For instance, many species are facing the threat of habitat loss and fragmentation. By consolidating and managing the high-priority areas in a reserve network, the threat of fragmentation may be reduced and the species can be stabilized. The species recovery plan and conservation strategy can provide the tools available to develop the goals and objectives for establishing conservation banks.

The important point in establishing a bank is to place banks in appropriate areas that can reduce the threat of fragmentation. They provide management measures that address other threats a species might encounter, such as cowbird parasitism, non-native invasion, or disruption of natural disturbance regimes.

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Site Selection

The Service will give careful consideration to the ecological suitability of a site for achieving mitigation. The Service will evaluate the location, size, and configuration of the proposed bank. Additional items to consider when determining the suitability of an area as a conservation bank might be topographic features. The features include habitat quality, compatibility of existing and future land use activities surrounding the bank, and species use of the area. Conservation biology principles suggest that conserving large, unfragmented habitat blocks, to reduce the edge effect, in a reserve network will help to maintain viable populations.

A conservation bank could be large enough to maintain a viable population within its boundaries. Or it could be situated in a strategic location 6 that would add to an already established conserved area. The conserved area might be a privately owned mitigation site established under a habitat conservation plan or a State Park. Banks could also be sited between two larger areas in a corridor that will maintain connectivity for dispersing individuals. Bank boundaries should ordinarily be drawn to exclude developed areas or other areas that cannot reasonably be restored. Potential banks that encompass such areas should only be approved if the activities that will occur in these areas will not impact the value of the bank for conservation. Or, if the resulting value will be sufficient to warrant conservation despite the developed areas.

However, if the latter is the case, we must have the assurance that the impacts will not change over time in a manner that will decrease the value of the bank. Factors to consider include activities that may result in incidental take, habitat degradation, and contamination. It is also possible to establish conservation banks within the boundaries of a proposed project, such as an HCP planning area if it is both feasible and appropriate and given the habitat type and species needs. If the project plan area contains sufficient land and the project impacts are fairly localized, it may be possible, or even desirable, to designate a conservation bank within its boundaries. Ultimately, the habitat credits purchased from a conservation bank must provide biologically comparable habitat values to the area affected by the activity to be mitigated.

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Service Area

In general, the Service Area of a conservation bank is identified in the bank agreement and defines the area (e.g., recovery unit, watershed, county) in which the bank’s credits may be used to offset project impacts. In other words, if proposed projects fall within a specific conservation bank’s Service Area, then the proponents of those projects may offset their impacts, with the Services’ approval, by purchasing the appropriate number of conservation credits from that bank.

If the proposed projects fall within the Service Area of more than one conservation bank, then the project proponents would have the option of using any of the banks or perhaps even more than one bank. Designation of the Service Area should be based on the conservation needs of the species being conserved. For this reason, banks generally should be located within areas designated in recovery plans as recovery units or another applicable recovery focal area, and their Service Areas should correspond to the recovery areas in which they are located. If there is no applicable recovery plan, banks should be sited, and Service Areas should be designated, serve a comparable purpose.

Two exceptions to the preceding general guidance should be noted:

First, some projects may be located outside a recovery unit. Banks located within recovery units should be able to provide credits for such projects. In such situations, the project to be mitigated will have little or no detrimental impact on recovery prospects, and the mitigation bank will aid those prospects.

A second exception to the general guidance regarding Service Areas concerns projects located in recovery units and undertaken after the recovery objectives for those areas have been achieved.

Such projects should be able to buy mitigation credits from banks located in other recovery units. Allowing such 8 projects to do so will help achieve the recovery objectives in the recovery unit where the bank is located, without hurting these objectives in the area of the project requiring mitigation.

The Service Area is an important component for the bank owner who will need to evaluate the marketability of their banks, i.e., the potential demand for their conservation credits. The individual bank owner has the responsibility to determine if a bank will be profitable. The bank agreement should clearly define any constraints that are found within the Service Area. These might include the exclusion of areas that are key to a regional reserve system, such as projects that occur within corridors or core reserve areas. Or, a particular bank in a county could have a Service Area corresponding to the regional plan boundary, yet limit projects using the bank to those that are in fragmented, isolated, highly urbanized areas not contributing to the regional reserve system.

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Credit System

Credits are the quantification of a species’ or habitat’s conservation values within a bank. The conservation values secured by a bank are converted into a fixed number of credits that may be bought, sold, or traded to offset the impacts of private, State, local, or Federal activities. One credit will equal one acre of habitat or the area supporting one nest site or family group. Credit values are based upon several biological criteria and may vary by habitat types or management activities.

When determining credit values, some of the biological criteria that may be considered include habitat quality, habitat quantity, species covered, conservation benefit (including contribution to regional conservation efforts), property location and configuration, and available or prospective resource values. The credit system for a conservation bank should be expressed and measured in the same manner as the impacts of the development projects. For instance, if a development project will permanently remove some amount of habitat acreage and several pairs of species, then the bank’s credits should be expressed in terms of acreage and pairs. If effects are evaluated in terms of losses of family groups due to timber activities, then the bank credits should be established in terms of the number of family groups being conserved.

The method of calculating bank credits should be the same as calculating match project impact debits. In some instances, a bank may contain a habitat that is suitable for multiple listed species. When this occurs, it is important to establish how the credits will be divided. Once a project buys a credit for one species, that credit cannot be sold again for another species. If the proposed project impacts multiple species and the bank contains the same multiple species, then the credits can be sold for in-kind replacement.

As a general rule, overlapping multiple species credits can overlap for a single project, but not multiple projects. If the bank is a preservation bank, the credits should be based on the biological values of the bank at the time the bank agreement is established. Some populations may vary in size due to natural dynamics, because of this an agreement should be made. This needs to be made before the bank agreement is finalized, as to the number of credits in the bank, especially if the credits are based on the number of individuals or nesting pairs. This is a risk both for the Service and the banker. The risk to the Service is that the credit overestimates the average population of the bank. The risk for the banker is that the agreement could be made in a low population year, depressing the number of credits that the bank could have received.

A study might be undertaken to determine the bank’s average population, but this would be time-consuming and expensive for the banker and the Service. An alternative would be to use incentives to arrive at a fair accounting for both the banker and the Service. An initial allocation of credits could be made to the bank based on the best available information on species average population sizes. This number would be set on the low end of the spectrum. Additional credits would then be awarded to the banker based on subsequent performance.

When mutually agreed upon mitigation outcomes or conservation milestones are reached the standards that must be met to earn credits above the initial allocation the Service would authorize the additional credits. At the time that the first credit in a bank or phase of a bank is sold, the land within the bank or its phase must be permanently protected through fee title or a conservation easement, with any land-use restrictions set in perpetuity for the land legally established.

Consequently, once any credit in a given bank or phase is sold, the entire area is automatically and legally protected, regardless of the rest of the credits in the bank or phase are sold, thereby eliminating future fragmentation of habitat.

Every conservation banking agreement should specify the methods for determining credits within the bank and debits outside the bank, setting performance standards to calculate credit availability, and devising accounting procedures to track the creation and use of such credits.

If several conservation banks are created for the same species, the Service will use a consistent methodology for determining credits in each of them and make that methodology publicly available. That methodology should also be consistent with the methodology used to determine mitigation requirements for activities mitigated by means other than the purchase of credits from conservation banks. Credits associated with a mitigation activity (as well as debits associated with an activity requiring mitigation ) should reflect an assessment of the degree of beneficial (or detrimental) impact of the activity on the prospects for the affected species’ survival.

In theory, population viability analyses could be used to quantify the degree of impact on survival prospects. In practice, however, the information needed for rigorous population viability analyses is often unavailable. As a result, the units of currency may take the form of surrogates for the extent of the impact on population viability, such as occupied acres of nesting pairs beneficially or detrimentally affected. In determining credits or debits, the same types of activities may be weighted differently depending on where they occur (e.g., nearby or far from existing protected areas), or other factors (e.g., quality of habitat at the affected site). The rationale for any differential weighting schemes should be clearly articulated in the mitigation agreement or elsewhere.

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