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What is Conservation Banking?

Conservation banks consist of permanently protected lands preserved and managed for their natural resource values. Landowners who choose to establish a conservation bank can develop an economic advantage to sell habitat credits to developers who impact similar resources.

TerraWest Conservancy is an industry leader in mitigation banking services and conservation banking services. Landowners who wish to monetize their property utilizing conservation and restoration activities need professional guidance from biological, ecological, conservation finance, and real estate finance teams. Without these teams, landowners could lose large portions of their land’s ecosystem services value.

Bank sponsors have and continue to rely on TerraWest to consolidate crucial components to any successful banking venture. Among these are 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?
  • What is a Wetland Mitigation Bank?
  • 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 through a conservation easement in perpetuity. The easement is held by an entity responsible for enforcing the terms of the easement. The terms of the easement benefit endangered or protected species and used can be used to offset offsite habitat impacts. These non-bank lands must possess equal resource values. 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 offsite values.

The conservation bank is specifically managed and protected by the banker or designee for the natural resource values. These values are translated into quantified “credits.” Typically, the credit price represents the cost of funding for long-term natural resource management and protection of the natural resource values. Project proponents are, therefore, able to 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.

Conservation banks can be created in association with specific projects from a circumstance where the project proponent sets aside more area than is needed for the immediate project; where the specific project and is willing to protect the remaining area and thus credits, or where the specific project is implemented over a period of time. 

A conservation bank can be created as an entrepreneurial opportunity.  Anticipation of an independent customer base from many different potential projects can spark these efforts. Once conservation banks are established each credit sold is considered to be a component of the environmental baseline. As a result, future project decisions can be made in a more stable ecological context regarding evaluation listing or delisting. This stability is one of conservation banking’s greatest assets, ecologically and economically

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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What is a Wetland Mitigation Bank?

“Wetland mitigation banking is the restoration, creation or enhancement of wetlands to compensate for unavoidable impacts to wetlands at another location” (See USDA Definition of a Wetland Mitigation Bank). Wetland Mitigation Banks are used as compensation for wetland impacts from both development and agriculture.

Producers can buy credits from wetlands mitigation banks to compensate for the impact of lost wetlands. When a wetland mitigation bank is established, the landowner retains ownership and use of the property, while a conservation easement protects the wetlands from incompatible degrading activities. The size and scope of the wetland restoration, creation or enhancement activities determine the number of credits available for sale. The price of credits is negotiated between the buyer and seller with no involvement by USDA.

For more information regarding wetland mitigation banks, contact TerraWest Conservancy today.

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Planning Considerations

1. Goals and Objectives

A prime focal point of any conservation bank should be to provide an economically effective process that incentivizes landowners to offset the adverse effects of proposed projects on listed species.

A conservation bank should also focus on producing perpetual conservation benefits for the bank’s identified species. For instance, many species are facing the threat of habitat loss and fragmentation. By consolidating and managing high-priority areas in a reserve network, the threat of fragmentation may be reduced, and threatened species can be stabilized. The species recovery plan and conservation strategy are among the tools available to develop goals and objectives for establishing conservation banks.

An important objective in establishing a conservation bank is to locate the banks in suitable areas. These locations must be able to reduce the threat of fragmentation and provide management measures. These processes address other threats a species may encounter, such as cowbird parasitism, a non-native invasion, or a disruption of natural disturbance regimes.

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Site Selection

When choosing a location for a conservation bank,  the Service gives careful consideration to the ecological suitability of a site to achieve valuable mitigation. The location, size, and configuration of the proposed bank will be taken into careful consideration. It is also important to consider topographic features, habitat quality, compatibility of existing and future land use activities surrounding the bank, and species use of the area. Conservation biology principles indicate that conserving large, unfragmented habitat blocks in a reserve network to reduce the edge effect will help maintain viable populations.

A conservation bank could be large enough to maintain a viable population within its boundaries or be strategically located to an adjacent conservation area. The nearby conserved area could be a privately owned mitigation site established under a habitat conservation plan or even a State Park. Conservation banks could also be located in a corridor, between two larger parcels, to maintain connectivity for dispersing individuals (i.e., movement of individuals from their birth site to their breeding site).

The boundaries of the conservation bank should be drawn to exclude developed areas or other locations that cannot reasonably be restored. Potential conservation banks encompassing such areas should only be approved if the activities in these areas will not impact the bank’s conservation value or if the resulting value is sufficient to warrant conservation despite the developed areas. If the latter is the case, there must be assurances that the impacts will not change over time resulting in a decreased value of the conservation bank. Factors to consider include but are not limited to, activities that may result in incidental take, habitat degradation, and contamination.

It is also possible to establish a conservation bank within the boundaries of an already proposed project, such as an HCP planning area. The planning areas must be both feasible and appropriate according to habitat type and species needs. If the project plan area contains sufficient land and project impacts are fairly localized, it may be feasible to designate a conservation bank within its boundaries. Ultimately, the habitat credits purchased from a conservation bank must contain comparable habitat values to offsite parcels affected by the activity to be mitigated.

If you have a parcel of land in mind for a potential conservation bank, contact TerraWest Conservancy for a site feasibility study.

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Service Area

The Service Area of a conservation bank is identified in the bank agreement. It generally 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 by purchasing the appropriate number of conservation credits from that bank. This must be done with the Service’s approval.

If a proposed project falls within the Service Area of more than one conservation bank, then the project proponents would have the option of using either bank 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 should generally be located within designated recovery units or other applicable recovery focal areas as identified in their recovery plan. Additionally, 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.

There are two exceptions to the preceding general guidance that should be noted:

First, some projects may be located outside a recovery unit. Conservation banks located within recovery units may 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.

Second, some projects may be located in recovery units and undertaken after their recovery objectives have been achieved. Such projects may be able to purchase mitigation credits from banks located in other recovery units. Allowing this approach will help achieve the recovery objectives in the applicable recovery unit. This can be done without damaging the offsite mitigation objectives.

The Service Area is a crucial component for a bank owner when evaluating the marketability of their conservation bank (i.e., the potential demand for their conservation credits). The individual bank owner must determine if a bank will be profitable. Accordingly, the bank agreement should clearly define any constraints found within the Service Area. Constraints may require the exclusion of key parcels to a regional reserve system, such as projects within corridors or core reserve areas. Additionally, a bank Service Area may also be within a county-specific regional plan boundary, limiting applicable mitigation projects to those that are in fragmented, isolated, or highly urbanized areas not contributing to the regional reserve system.

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Credit System

Credits are the quantification of species’ or habitat’s conservation values within a conservation bank. The values secured by a bank are converted into a fixed number of credits. These credits may be bought, sold, or traded to offset the impacts of private, local, state, or federal activities. In its simplest form, one credit represents one acre of habitat or the area supporting one nest site or family group. Credit values are based upon a number of biological criteria and may vary by habitat types or management activities.

When determining credit values, some of the biological criteria to be considered include habitat quality and quantity, species covered, conservation benefits (i.e., contribution to regional conservation efforts) property location and configuration, and available or prospective resource values. Generally, the credit system must be expressed and measured in the same manner as the developmental offsite impact projects utilizing the conservation bank.

For instance, if a development project will permanently harm habitat acreage and displace a pair of protected species, then the bank’s credits should be expressed in terms of acreage and pairs. If effects are evaluated in terms of reflecting losses of family groups due to timber activities, then the bank credits should be established in terms signaling of the number of family groups being conserved.

The method of calculating bank credits is the same as calculating in-kind project impact debits. In some instances, a bank may represent a habitat suitable for multiple listed species. When this occurs, it is important to reflect the division of the credits. For instance, when a project buys a credit for one species, the same credit cannot be sold again for different species. If the proposed project impacts multiple species and the bank reflects the same terms, then the credits can be sold for in-kind replacement.

As a general rule, banks can overlap multiple species credits for a single project, but not multiple projects. If the bank is a preservation bank, the credits should be based on the bank’s biological values when the bank agreement is established. Because some populations may vary in size due to natural dynamics, a preliminary agreement should be made before the finalization of the bank agreed to reflect the number of credits in the bank, especially if the credits are based on the number of individuals or nesting pairs. This is due to risk for both 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.

Another approach may be to undertake a study to determine the average population occupying the bank. However, this may be too time-consuming and expensive for the banker and the Service. An alternative method is to incentivize the banker and the Service to arrive at a fair accounting. For example, an initial allocation of credits could be made to the bank based on the average species population sizes. This information is limited to the best available information, not necessarily the most accurate information.  The number retrieved 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 mitigation outcomes or conservation milestones are reached, established standards must be met to earn credits that surpass the initial credit allocation. The Service must authorize all additional credits. When the first bank credit is sold, the land within the bank or its phase must be permanently protected through fee title or a conservation easement. All land-use restrictions must also be set in perpetuity.

In addition, when any bank credit is sold, the entire parcel is automatically and legally protected. This happens even when the rest of the bank credits 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. These set performance standards to calculate credit availability and devise accounting procedures to track the creation and use of the credits.

If multiple conservation banks are created for the same species, the Service will use a consistent methodology for determining credits in each bank. The methodology will be available to the public. This methodology should also be consistent with the approach used to determine the mitigation requirements for activities mitigated by any other means. Credits or debits associated with a mitigation activity should reflect an assessment of the degree of impact (beneficial or detrimental) of the activity pertaining to 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. This could be represented by occupied acres of nesting pairs, whether beneficially or detrimentally affected.

In determining credits or debits, similar activities may be weighted differently depending on location (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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