Conservation Banking: Moving Beyond California

The creation of “conservation banks” may be changing the way private landowners in the US view endangered species and their habitat. In an article commissioned by The Ecosystem Marketplace, Jessica Fox draws some lessons from the experience of conservation banking in California and uses this information to predict where there may be further growth in the practice. For years private property owners in the United States have spent a great deal of energy making sure that rare and endangered species do not make a home on their land. Damaging shrubs, stomping on seedlings, disposing of nests, and removing trees are all regular activities in some quarters. But there is a form of reason behind this seeming madness: Landowners behave this way in an attempt to avoid land use restrictions that result from the presence of plants and animals protected by the U.S. Endangered Species Act (ESA). After all, if federally protected species are on your land, you may be required to pay large sums of money to mitigate impacts to their habitat. It’s better -some landowners believe- to destroy the habitat before anyone knows it is there. But is it really? Thanks to the growth of a practice known as conservation banking, landowners now need to consider that some of their colleagues and neighbors have found ways to get paid as much as $125,000 an acre for endangered species habitat. This ability of private property owners to receive financial returns in exchange for protecting rare species marks a turning point in the history of biodiversity conservation in the US. For the first time, landowners are being rewarded for taking pro-active steps to conserve species. And, since the majority of habitat for rare species in the United States is on private property, engaging the participation of non-governmental landowners in stewardship activities is essential if conservation is ultimately to be achieved. The way the system works is, briefly, as follows: Before a developer builds a road, builds a house, or otherwise does something that might harm an endangered species, the ESA requires that they first obtain an “incidental take” permit from the US Fish and Wildlife Service (FWS). This, in turn, means that they must put together a Habitat Conservation Plan (HCP) that usually requires them to mitigate or compensate for the damage to the species being harmed. Traditionally, developers mitigate for the damages by purchasing new property or modifying existing landholdings that can support the impacted species. The investment required to site these areas is significant and land management responsibilities are heavy as the habitat must be continually maintained, usually unsuccessfully. Both the wildlife and developers are thankful that there is finally another solution. Developers are now finding that they would rather buy “mitigation credits” from a so-called “conservation bank” that has already achieved the mitigation and has obtained approval from the Fish and Wildlife Service to sell these “mitigation credits”. The ability to create conservation banks and sell credits in exchange for protecting habitat is providing the financial incentive necessary to commit land to conservation. Research has found that conservation banks already protect nearly 25 endangered species and cover some 40,000 acres (Fox, J. Nino-murcia, A. In review. The Status of Species Conservation Banking in the U.S.: A Benchmark Study). While the concept is still in it infancy, its influence -not least in the financial sphere- is growing: In California, for example, a landowner has received $125,000 for protecting habitat for a small bird called Least Bell’s Vireo. In Texas, a rancher is actively selling credits for $5,000 per acre of Golden-cheeked warbler habitat on his family ranch. There are even a few landowners in South Carolina that are optimistically asking $250,000 for protecting a breeding pair of red-cockaded woodpeckers. On the legal and institutional front, however, things are moving at a relatively slow pace. For example, although California was the first state to establish guidelines for the creation of conservation banks in 1995, Federal guidance on the subject did not appear until nearly a decade later, in 2003. (The important elements of the federal guidance were recently described by Bauer, Fox, and Bean1 and are noted in Box 1). And yet, despite the time lag, many hope that the release of Federal Conservation Banking Guidance will cultivate a growth in the practice and ultimately lead to the recovery of endangered species, or at least to more effective compensation for habitat impacts.

Since California has benefited from guidance for nearly a decade, it is not surprising that nearly all of the approximately 40 existing conservation banks are in that state. Meanwhile, the impact of the federal guidance on the growth of banking in the rest of the United States has not yet been observed. However, a better understanding of the elements that have allowed banking to be so successful in the West may help foretell the potential success of banks elsewhere. In this vein, there are several factors that have fostered the accelerated growth of banking in California. These include: strong enforcement of biodiversity protection laws, the presence of rare species, demographics, and support from state and federal agencies. These primary elements, discussed in more detail below, will govern the future success of conservation banking across the United States and potentially around the world. Enforcement of Biodiversity Laws. The demand for credits ultimately depends on the enforcement of biodiversity protection laws that require mitigation of impacts to species. In the US, the federal Endangered Species Act is the primary tool to allow this, although state laws can also enforce mitigation requirements. In the absence of this enforcement, compensation for habitat impacts is unlikely to occur and the pool of credit buyers will be limited or absent altogether. Take, for example, the case of endangered plants in the US. With the exception of Hawaii there is a general lack of enforcement related to impacts on endangered plants across the United States. As a result, there are very few credit buyers seeking plant credits, which could, in turn, explain why there are only two conservation banks based solely on a plant (the Pima Pineapple Cactus). The importance of enforcement is also highlighted by the fact that in California, enforcement of both federal and state laws is strong which means that developers are continually seeking mitigation alternatives. This creates a steady stream of species credit seekers, and therefore businesses have arisen to provide a supply for this demand. In other states, where enforcement of laws is weak, the demand for credits will be limited; even if a bank is established it is unlikely to be financially successful. Number of Rare Species. The presence of species listed under the Endangered Species Act as threatened, endangered, or candidate is necessary to establish a conservation bank. With nearly 300 federally ‘listed’ species and an additional 50 state protected species, California has ample opportunities to site conservation banks. Hawaii is the only state with more listed species than California. In areas of the United States where there are few rare species, opportunities for establishing banks will be comparatively low. For example, North Dakota currently has only 8 listed species and Alaska only 11. And the Alaskan species are mostly migratory marine species which are not particularly suited to conservation banking. By contrast, in Tennessee, Alabama, Texas, and Florida there are many federally listed animals and therefore ample opportunities to establish markets in species credits and conservation banks. Demographics and Value of Real Estate. Urban development is active in California and ecological features are continually being sacrificed to build houses, roads, and golf courses. This means that developers are constantly looking for quick and effective ways to mitigate the ecological impacts of their activities. And, since credits sold by conservation banks are pre-approved by the agencies as legitimate and allow developers to simply buy their way out of a liability leaving the long-term habitat management responsibility up to the bank owner, they can be particularly attractive. Likewise, the high price of land in California means buying credits from an existing bank is even more attractive when compared to independently purchasing property for the purpose of habitat conservation. The combination of active development and expensive land has created a firm demand for species credits in California. A few other states with some of the same demographics and real estate characteristics include Texas, Florida, North Carolina, and Illinois. Agency Support. The level of support for conservation banking from agency staff is important for establishing banking agreements. In general, local field offices rather than the regional offices of the Fish and Wildlife service play the biggest role in negotiating, supporting, and approving banking agreements. In some cases, there is a lack of support simply because agency staff have never processed a banking agreement and don’t have the resources or interest to see a banking agreement through to completion. Part of the lack of enthusiasm may stem from underlying resistance to conservation banking as a viable strategy for reducing impacts on species. However, in areas where there are energetic biologists who believe in the ecological potential of banking, banks tend to be actively established and identified. Without at least one proponent at the field office who can shepherd the project through its various steps, push the paperwork, and champion the project to the regional office, it can be extremely difficult to get a banking agreement processed. In California, the state has benefited from guidance on conservation banking for nearly 10 years and the concept has enjoyed overall support by the relevant agency staff. All field offices in California, for instance, are familiar with banking and the process to get an agreement established. In contrast, it was only recently that field offices in the mid-western US even heard of conservation banking. Outside of California, the number of agency staff that know the details of the federal guidance on conservation banking and are prepared to establish a banking agreement is limited. This suggests that the process could strongly benefit from a concerted effort by the Fish and Wildlife Service to ‘kick-off’, promote, and implement the federal guidance, as well as from an increase in landowners seeking to establish banks.

Given all of the above, it is likely that conservation banking will mimic the growth pattern of wetland banking; where the release of the federal guidance in 1995 trailed the initiation of the practice and spurred a swift increase in the number of banks established. Experience indicates that areas of the United States that, like California, share some of the elements described above are primed for a rapid growth in the establishment and use of conservation banks. This allows us to predict that we are likely to see conservation banking grow in places like Texas, Florida, Alabama, and other areas of the Southeast and Midwest. The ability for conservation banking to extend beyond U.S. borders, on the other hand, may be limited by a lack of biodiversity protection laws, ill-defined property rights, and controlled markets limiting credit transactions. However, banking may be successful in those countries where property ownership is clear, government enforcement of habitat impacts is consistent, and free markets are allowed to determine credit transactions. As the various elements that encourage and support conservation banking become better understood, we may see landowners change the way they feel about endangered species. The rancher who previously proactively destroyed seedlings may decide to give the seedlings a chance and reduce the number of cattle grazing on his property. Similarly, the electric utility that originally planned to build a new power plant may decide to convert the property into a habitat reserve. And Departments of Transportation may realize that their so-called “surplus” property holds real financial value if it is placed under a conservation easement. In other words, efforts may be undertaken to protect habitat and endangered species because -for the first time in US history- that habitat and those species will hold financial value on the open market. So, the next time a private landowner considers stomping on the nest of an endangered bird, he or she may want to look again at all the options to see if that really is the most prudent and rational financial choice. Jessica Fox is a Senior Associate at EPRIsolutions, a division of the Electric Power Research Institute (EPRI) in Palo Alto, California. She can be reached at [email protected].

¹ Bauer, M., Fox, J., Bean, M.. 2004. Landowners Bank on Conservation: The U.S. Fish and Wildlife Service’s Guidance on Conservation Banking. Environmental Law Reporter. August: V 34 pp 10717-10722