Mitigation banks are an increasingly popular way for resource companies to meet environmental obligations in a more predictable and timely fashion

By Ray Ewing and Dan Maltese

Mitigation bankers purchase a property in a client’s service area, such as the tailings pile seen in the background, and reclaim the lands, giving the client environmental credits.
Mitigation bankers purchase a property in a client’s service area, such as the tailings pile seen in the background, and reclaim the lands, giving the client environmental credits.

Mining companies live in an unpredictable world—sudden changes to mineral prices, fuel costs and labor rates, along with constantly changing environmental regulations are some of the risks they face.

The mining industry, like many other industries, relies on certainty and predictability when it comes to permitting and regulatory compliance. Companies can easily be blind-sided by regulator or stakeholder concerns about a mine’s impacts, possibly resulting in unexpected expenses, delays and/or negative publicity.

When it comes to compensation for unavoidable environmental impacts, many mining companies would like the opportunity to pay a one-time, predictable fee and receive assurance that their environmental compliance obligations will be met. It’s much like forward buying or selling of a commodity, or a long-term contract for the price for fuel. Increased knowledge of capital project costs will help mining executives make informed decisions regarding the siting of new mines or the expansion of existing mines.

So it’s not surprising that business solutions have developed to help meet this need—entities buy or secure rights to property, improve that property’s capacity and function as natural habitat, and then sell credits to offset environmental impacts elsewhere.

These “mitigation banks” are an increasingly popular way for resource companies, highway builders, property developers, and other industries to meet their environmental obligations in a more predictable and timely fashion.

From their start about 10 years ago, mitigation banks have spread throughout much of the U.S., although they are more common in the West and South than in the rest of the country. The concept has been tried and tested, and regulatory agencies are familiar with this way of meeting environmental obligations. In fact, under the U.S. Army Corps of Engineers 2008 compensatory mitigation rules, mitigation banks are the preferred way to meet environmental obligations.

Regulators like the fact that the environmental benefits have already been created—that the new habitat actually exists in reality, not just on paper. In addition, the permitting process is simplified since regulators do not need to review and approve site specific mitigation plans. Mining companies like the certainty in knowing that what they are buying is real, not just a promise, and that they can plan their budgets and timelines accordingly.

Developing a ‘Product’ to Meet Mining Companies’ Needs
Like any business, mitigation banks have evolved in the way they operate in order to meet their client’s needs.

Mitigation bankers do a lot of homework prior to establishing a bank. That is, they attempt to determine what needs industries have in a region and then tailor the proposed mitigation bank to meet those needs. This may involve buying heavily impacted property—perhaps a worked-out quarry or a farm in which natural drainage patterns have been altered. They will then take steps such as returning streams to their natural flow, stabilizing stream banks to prevent erosion, and planting riparian vegetation along the sides to promote wildlife use. In the case of endangered species banks, it might involve buying caves where bats hibernate and partially sealing entrances to prevent human intrusion.

The bank then works with environmental regulators through an Interagency Review Team (IRT) to determine the amount of “credits” that are available for sale. The banker proposes a service area to the IRT, often based on a specific watershed or drainage basin. The credits must be drawn from the same service area as that in which the company’s impacts take place.

Many banks will try to “multi-task” the properties they acquire. That is, they might establish stream credits for returning a farming-impacted stream to its natural course, they might also create an artificial bat habitat and/or some wetland acreage. Multipurposing a site is referred to as credit “stacking.”

The Growing Need Being Met by Mitigation Banks Mitigation banks are based on the principle that if there is an impact to natural habitat such as a stream or wetland, that impact must be mitigated by creating compensatory habitat, generally close by. Currently, there are three main ways that mining companies can do this:

 

  • Permitee-responsible, in which the mining company takes on the task of developing the compensatory habitat, and is then responsible for ensuring that the habitat delivers the promised environmental benefits;
  • In-lieu fee programs, in which the mining company pays a fee to an entity, such as a state program, that then undertakes development of the compensatory habitat; and
  • Mitigation banks, which develop the habitat, have it approved by regulatory agencies, and then make those credits available for purchase.

 

From the mining company’s point of view, buying credits from a mitigation bank is more secure, in that some in-lieu fee programs can be extremely expensive, and the permitee-responsible option leaves the legal responsibility with the company involved.

There are three main ways to work with mitigation banks:

Private, owner-operated mitigation banks—In some cases, a company who has planned environmental impacts over multiple years or with multiple projects may develop their own in-house mitigation bank and buys properties, improves their environmental quality, and works with the IRT to have the credits approved for release. The company then transfers credits from its own internal bank when projects require them. This approach may be best suited to companies that have a continuous stream of projects for which environmental permitting is required—and it is possible to predict the geographic location of those projects, so as to be sure that the company has credits available in the service area where they are needed.

Buying credits from a public bank—In this option, the mining company looks for a bank operating in the same service area that has credits available for purchase and buys those credits to use toward its projects. This option provides high flexibility, allowing the mining company to, for example, expand swiftly to respond to changing commodity prices. However, this option depends on another entity—the bank—having credits available in that service area when they are needed. Those credits may be priced at a premium, because the bank has taken the risk of financing development of the land without having a firm offer from a buyer.

Buying an independent bank in its entirety—Because of their need for tying down their timelines and costs, some mining companies prefer the third option: the company buys all the credits available from an independent bank and then uses those credits as they are needed for their projects. This option can involve a larger lump-sum payment, but result in a lower overall cost per credit as the mitigation bank is able to recover its investment more quickly, covering its own risks and financing costs.

Getting Good Results From a Mitigation Bank
Shop around: because all banks must have their credits certified by the IRT, those credits become a tradable commodity—but the prices may vary. So, it is important for mining companies to look for the best possible price in the credits they buy. Prices vary by location: Mitigation banks may be plentiful in some areas, which drives down the cost per credit, while they are scarce in other areas. Mining companies need to be prepared for sticker shock in areas where credits are expensive.

Stay in touch: Mitigation banks are highly flexible. They may build their
projects in stages, depending on demand—do restoration and enhancement work on one part of a property in order
to develop some credits, and then develop other sections if the demand is there. So, a bank that has no credits available at one time may have credits for sale
in the near future. Get to know mitigation bankers.

Accessing Mitigation Banks Through RIBITS
An online source, RIBITS (Regulatory In-lieu fee and Bank Information Tracking System), was developed by the U.S. Army Corps of Engineers with support from the Environmental Protection Agency and the U.S. Fish and Wildlife Service to provide better information on mitigation and conservation banking and in-lieu fee programs across the country.

RIBITS allows users to access information on the types and numbers of mitigation and conservation bank and in-lieu fee program sites, associated documents, mitigation credit availability, and service areas, as well as information on national and local policies and procedures that affect mitigation and conservation bank and in-lieu fee program development and operation. See http://geo.usace.army.mil/ribits/index.html.


Ray Ewing is a project manager with Civil and Environmental Consultants Inc. (www.cecinc.com) based in Pittsburgh, Pennsylvania. Contact: 412.429.2324; [email protected] Dan Maltese is vice president, ecological services, with Civil and Environmental Consultants Inc. (www.cecinc.com). Contact: 412.429.2324; [email protected]

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