Is this the first rodeo for nature credits? Far from it

Taking a look back at 40 years of Species and Habitat Conservation Banking in the USA to inform what we are building today.

I have vague memories from my teenage years of going for walks with my Dad in nature preserves and hearing him talking about how the Endangered Species Act was key to their creation. And even vaguer memories of him mentioning habitat and conservation banks playing a role. In retrospect, I wish I would have listened a bit more closely but… I was focused on teenager things. My Dad spent 38 years as a staffer for the Washington State Senate writing environmental legislation. He’s most known for his work on the Cap and Trade bill, but spent many years focused on implementing the Endangered Species Act in state policy and legislation.

Over the past couple of years I’ve become more interested and involved with emerging nature markets. And, like myself, it seems like many colleagues in the nature positive circles I run in come from carbon markets. But I’ve also come across some folks that have been active in nature credit and market schemes for decades. In order to inform where we go next, it’s important to understand what has come before and appreciate the size and complexity of the markets that already exist.

In 2017, biodiversity banking industry in the USA was worth approximately US$3.6 billion per annum (Source)

Species and Habitat Conservation Banking

After a couple very insightful conversations with folks from the EPIC (Environmental Policy Innovation Center), I realized how uninformed I was on the history of nature credits/markets in the US. So I decided to do some research.

I quickly found an incredibly helpful article on, “Species and Habitat Conservation Banking”, from the Conservation Finance Network authored by Amanda Zhang and Katie Allen. It provides thorough history of what truly were the first nature markets in the US that are still operational today. Below are a series of questions I had and answers gleaned from that article which I found quite helpful in understanding the origin story of these mechanisms and how they operate today.

What is conservation banking?

Conservation banking is a market enterprise that a) establishes protected lands for the conservation of endangered and at-risk species and b) functions as a mechanism for off-site mitigation through the selling of approved credits (the metric used to quantify the ecological value of an area).

What policy drives conservation banking in the US

There are two forms of conservation banking in the US, wetland mitigation banking and species and habitat banking. Wetland mitigation banking was catalyzed by the Clean Water Act passed (1972) where a developer has to contribute to restoring wetlands somewhere else if they want to degrade wetlands for their development. Species and habitat banking was catalyzed by the Endangered Species Act (1973).

How does conservation banking work?

Through consultation with USFWS (or NMFS, depending on the impacted species) a determination will be made if an impact is likely to adversely affect a listed species, warrant the issuance of an Incidental Take Permit, and require mitigation set by the regulating entity. Buying conservation bank credits to offset unavoidable impacts to species or habitat will only be permitted after a developer demonstrates that all avoidance and minimization best practices are employed.

It’s worth noting here that conservation banking is essentially a land-based offsetting program. If I’m a developer who wants to build a new housing development on land home to an endangered species, then I have to purchase a credit from a conservation bank that has created additional habitat for that species of equal biodiversity value for that species somewhere else.

What is the scale of conservation banks and species covered in the US?

As of August 2019, the Regulatory In-lieu Fee and Bank Information Tracking System (RIBITS), indicates that there are 158 approved conservation banks protecting the habitats of 71 species under the Endangered Species Act (RIBITS is the national database tracking all wetland, stream, and conservation banks in the United States).

What is the price of credits?

Landowners benefit because they can profit from selling the credits to developers who purchase them as a way to compensate for their negative impacts on the target species elsewhere. According to the USFWS, the prices of these credits can reach hundreds of thousands (for example, the price range for vernal pool preservation is $50,000-$325,000).

What is the size of the market in the US for conservation banking?

In 2017, biodiversity banking industry was worth approximately US$3.6 billion per annum, focused mainly on wetland mitigation driven by the Clean Water Act 1972 (Bennett, Gallant, & Ten Kate, 2017). (Source)

“Species Conservation Banking” or “Conservation Banking” has evolved from this concept and is one of multiple authorized mitigation mechanisms in the USA for mitigating impacts to species listed under the Endangered Species Act 1973 (ESA), with an annual market worth US$354.2 million (Bennett et al., 2017). (Source)

Case Study - Florida Panther Conservation Bank

Sharing here the case study included in the article from the Conservation Finance Network I referenced above as I found it to be an incredible helpful example to understand how Conservation Banks in the US work today.

Thanks to various conservation efforts, the Florida panther (Puma concolor coryi) population has rebounded from just 20-30 individuals to a range of 120-230 panthers over the past twenty years. According to a USFWS recovery plan, the population of these panthers dwindled in the 1900s due to habitat loss and fragmentation, geographic isolation, and genetic inbreeding as well as anthropogenic conflicts such as vehicle accidents. In an attempt to address the issue of genetic variability, a genetic management program placed eight female Texas cougars in Florida in 1995. Since then, there has been a conservation need to protect the natural habitats of these panthers and ensure sufficient resources for population growth. 

Established in 2010 in Hendry County, Florida, the Florida Panther Conservation Bank is a 474.4 acre bank aimed at protecting the endangered Florida panther. A case study from the Conservation Fund highlights the establishment and management process of the bank. 

First, USFWS and the landowners worked together to determine an appropriate area of land that lay within the panther dispersal zone for the site. Then, USFWS determined the number of credits (Panther Habitat Units or PHUs) that the bank would generate. These PHUs were calculated by multiplying the number of acres of a specific habitat by its Habitat Sustainability Value (HSV). The USFWS ended up agreeing to a multiplier of 3.5 (meaning that PHUs would be multiplied by 3.5 for the final value of credits) because landowners were worried about the land acquisition costs and because the area was so ecologically significant. The bank established an active management program that will control for invasive plant species, provide sufficient habitats for prey species, and promote long term maintenance.

Key Learnings

What should we take from conservation banking?

70% of conservation banks reported using a 1 credit = 1 acre approach, and only 13% included a measure of habitat quality in credit calculation (Gamarra & Toombs, 2017). (Source)

In conservation banking, the fundamental unit is an area of land. Theoretically, the land tied to the credit should provide the same or greater biodiversity value as another area that, for example, is being developed for housing. But only 13% of conservation bank credits actually included a measure of habitat quality in their credit calculation. Interesting…

Measure of habitat quality aside, the unit of land is an intriguing foundation for our thinking around the structure and mechanisms of the nature positive movement. Should the unit of transaction be an area of land (not necessarily changing the ownership but changing who can claim the outcomes from that area)? We can still measure all of the outcomes associated with that area of land, like the habitat quality, but have the unit of transaction be an area of land, instead of a credit untethered to a geographic location, may make it easier to track outcomes and attribute those outcomes to a particular entity as well as ensure land management is optimizing for all of the potential values associated with that land area.

How might we do better?

The key evolution in the current nature positive movement is we are transitioning from just looking at black (intact ecosystem) and white (fully developed and degraded ecosystem) to delving into the grey. Habitat and conservation banking have historically given a nature value of 0 for an area that has undergone human development or 1 for a fully intact ecosystem. But we are currently trying to develop a system that incentivizes and drives small practice shifts that increase the value of nature on working lands and areas that have undergone human development in addition to the fully intact ecosystems. Being able to accurately measure and account for each component that provides value or is an indicator of value, like habitat integrity, is absolutely critical for being able to drive action in the grey, where even small land management changes can have significant effects on biodiversity and ecosystem service provision.

We are at a point where we need to restore ecological services on managed lands in addition to intact ecosystems and restoring degraded ecosystems. The challenge is that operating in this grey area takes a much more complex measurement, accounting and attribution system and set of policy mechanisms to drive adoption. And that is where we find ourselves today in the midst of increasing voluntary guidance and corporate disclosure and reporting. We are starting to measure, we are starting to report, but how that translates to changes in practices and land-use on the ground is the key to us achieving true progress in the next decade. 

This little research exercise was incredibly helpful for me in understanding the origins of nature markets and the recognition that there is as much to learn from these early versions of nature markets as there is to learn from the last 20 years of carbon markets.

Where do we go from here?

The Endangered Species Act was the critical piece of legislation in the US that catalyzed the preservation of lands in my Dad’s generation. I wonder, what will the key piece of legislation be in my generation that will lead to all public and private entities optimizing their land use to increase biodiversity, carbon sequestration and the provision of other ecosystem services on every square inch of land they manage?

To start, as a global community of practice, I hope we continue to work on developing and piloting the voluntary mechanisms. And let’s treat them as a sandbox for piloting, testing and learning. They are not and should not be the end game, but they can be a valuable testing ground for ultimately delivering the policy and infrastructure needed to provide robust regulatory structures that have the law driving their adoption.