New academic paper explores wetland mitigation risks

March 20, 2014

Last year, this blog featured a post about rules laid down by the U.S. Environmental Protection Agency (EPA) regarding the protection of streams and wetlands. In preparing these rules, the agency made a crucial point about wetland ecosystems. These areas are important to their habitats, and the quality of even the smallest streams can affect open waters.

This is an important point, and one that stakeholders must consider during the process of wetlands mitigation. 

As pointed out in a recent article on GreenBiz.com, the creation of the Clean Water Act in 1972 placed an emphasis on mitigating wetland loss by monitoring dredging and filling. Since then, the dangers of wetland loss have only become more apparent. In New Orleans, for example, wetland environments in the Gulf Coast protect the city and the surrounding area from strong hurricane winds. However, loss of this land over the years has created vulnerabilities, as witnessed in 2005 in the form of Hurricane Katrina.

Though many recognize the importance of wetlands mitigation, there are still numerous risks facing the stakeholders involved in the process.

Facing wetlands mitigation risks

As GreenBiz.com noted, developers have several options when it comes to compensating a wetland area that they may have disrupted during construction. They also face risks from numerous angles.

First, there is the issue of the capital required to commence such a project. According to a recent study titled, "Navigating Wetland Migration Markets: A Study of Risks Facing Entrepreneurs and Regulators," the complexities of mitigation banking often lead to inefficiency and high transaction costs.

"Typically, the entrepreneur produces mitigation credits by acquiring land, entitling it as a wetland mitigation bank, and receiving credits that can then be sold to developers," the study reads. "This approach often requires a large initial capital outlay that can be as much as 75 to 93 percent of total costs for a bank—including costs for land acquisition, legal work, and bank construction and design—years in advance of realizing any returns."

Regulations also pose major risks to projects. Sometimes delays can occur, especially during the entitlement process. This is not only frustrating for stakeholders, but also extremely costly, as legal fees can add up as the process drags along. Sometimes, the entitlement process fails altogether, leaving property owners with a piece of land that they can no longer work with.

Finally, there are other industry-wide risks that stakeholders need to keep an eye out for. Sometimes, it is difficult to determine credit prices in a timely manner, leading to troubling uncertainty. Other times, stakeholders will know credit prices for one area but will have no way of ascertaining those for other areas.

Wetlands mitigation is crucial for the preservation of many ecosystems and must be encouraged. But for the process to proceed smoothly, stakeholders need to work with environmental consultants who understand the issues and pertinent regulations.