Fun Tidbits I Learned While Researching US Biodiversity Markets
When nations come together for the UN’s Convention on Biological Diversity, they set ambitious goals to improve global biodiversity. One of these, Target 19 of the Kunming-Montreal Global Biodiversity Framework, focuses on mobilizing private sector finance to drive nature restoration and conservation efforts. EPIC, along with multiple partners (the Global Finance Institute, UNDP Biodiversity Finance Initiative, and the UNEP Finance Initiative) collaborated to develop ‘guidebooks’ on biodiversity markets that active private sector investment in biodiversity restoration and protection.
I researched and wrote EPIC’s report on US biodiversity markets (wetland and stream compensatory mitigation, and species conservation banking) and I came across interesting tidbits along the way–here are the top five.
Finally, I can say it: biodiversity is bigger than carbon!
OK, ok, I have to narrow it down to AFOLU carbon credits (credits based on agriculture, forestry, and other land use), but when I looked up the dollar volume of those land-based carbon credits (compliance + voluntary, USDA 2023, p. 23), it’s dwarfed by the volume of credits sold in US wetland and stream and species markets. In fact, these US biodiversity markets are 27 times bigger than AFOLU compliance and voluntary credit sales in the US ($3.6 billion annually vs $132 million annually).
The US has Completed a Staggering Amount of Wetland and Stream Restoration
The US has accomplished an impressive amount of wetland and stream restoration under its Clean Water Act compensatory mitigation system. To put it in perspective, the area of wetlands restored and permanently protected (1,546,000 acres) is equivalent to Yosemite National Park and Rocky Mountain National Park. The 8,100 miles of restored streams stretch as far as a flight from the West coast of the US to Cairo, Egypt. Roughly 75% of the country’s USD 3.6bn annual offsets markets are supplied by mitigation banks, which are developed by private companies with backing by private investment including national and international pension funds. In lieu fee programs (ILFs) account for just about 5% of the total area of wetland and stream offsets, with the remaining coming from ‘permittee responsible mitigation’ (PRM), or one-off offsets projects.
Wetland and Stream Offsets Drive Impact Avoidance
Wetland and stream offsets encourage developers to avoid impacts. The US Army Corps of Engineers (USACE) has reported that over 90% of all wetland and stream impact permits received annually have been modified to avoid and minimize impacts to the point where offsets are not required. This quote I couldn’t fit into the final US guidebook, but I love it!
“I found back in the 90’s & early aughts that the presence of mitigation banks did more to avoid and minimize impacts than I and my associates could do as regulators. Once there was a price on compensatory mitigation that allowed for transfer of liability to bank sponsors I saw additional avoidance and minimization. In a number of cases when the applicant realized that mitigation to offset loss of 1000 ft of intermittent stream would cost $500-600,000 for a subdivision the applicant was able to further reduce impacts.”
Challenges in Achieving No Net Loss
Despite having the world’s most rigorous wetland and stream offset system, the US is still falling short of its no net loss of aquatic resources policy. The no net loss policy was a significant advance over the pre-1990 wetland regulations, and the subsequent 2008 Rule advanced the stringency and quality of offsets developed. So why aren’t we seeing no net loss? We found four main reasons in our research:
Not all wetlands are protected, and not all impacts require mitigation (see next section).
Credits from preservation make up about 18% of approved offsets.
Some wetland offsets may have failed, leading to a conversion to uplands.
Net wetland loss may be the outcome of many other contributing factors including indirect mechanisms such as climate change and invasive species.
Additionally, we’re not doing a great job of transparently tracking and reporting on wetland impacts and offsets. In particular, there is no public transparency of PRM, and no public reporting that PRM requirements have been met. This is a major flaw in the US system that other offset programs should avoid.
Nerd Alert: What Counts (and Doesn’t) as Aquatic Resource Loss
I hadn’t realized the nuances of what technically gets counted or doesn’t get counted in the USACE’s calculation of no net loss based on its internal database. Forgive me, because I’m going to get super nerdy here, but here’s what is counted as loss of aquatic resources: individual permits with permanent discharge of dredged material, discharge of fill material, and the fill associated with excavation activities. Here’s a more detailed rundown:
Only permanent losses from individual (more complex) permits that account for 6% of all aquatic resource impact permits are considered in the loss equation. The remaining 94% of permits are considered to have “minimally-adverse effects” and can be permitted under ‘Nationwide permits’ (NWPs). About 94% of all permits for wetland and stream impacts use NWPs, and fall under certain thresholds - between 0.1 - 0.5 acres for wetland impacts and less than 0.03 acre for streams. Annual impacts from nationwide permits are estimated at “approximately 5,482 acres [2,197 hectares] per year” (USACE 2021). We’d love to see an independent evaluation of this amount.
Only losses of aquatic resources that are determined to be “Waters of the US” in its current legal definition. The definition underwent a huge change recently as a result of a Supreme Court decision (Sackett vs. EPA). See the full report for a broader discussion on the subject.
Only losses that permanently change an aquatic resource to dry land count for individual permits are counted on the loss side of the equation
Temporary impacts do not count.
Impacts categorized as “conversion of water type, dredging, ecological restoration, removal, structures, transport of dredged material, or other work (e.g., aquaculture, directional boring, aerial crossing)” do not count (per documentation provided by USACE during the delivery of data from a FOIA request). The Corps states that these impact types do not permanently change an aquatic resource to dry land and are therefore not counted as wetland loss.
If that’s not nerdy enough for you, check out the full report, which goes in depth on many more details on US offset programs, like equivalent standards, service area, crediting methodologies, ecological performance standards, financial assurances, investment drivers, and a multitude of lessons learned.
