'Conservation banking' gains ground

As development continues to scrape away wildlife habitat, a new, market-based approach to conservation is gaining ground.

In the past, developers had to purchase or set aside lands to offset losses of habitat for federally threatened or endangered species. But in recent years, developers have a new option: conservation banks.

"Conservation banking is now emerging as a way for developers, both public and private, to take care of their obligations under the Endangered Species Act," said Jeff Mathews, director of sales and marketing for Wildlands Inc., a conservation banking firm in California. "Before banking, they'd have to find their own land. Now, they can just buy credits."

A conservation bank is similar to a bank account, but instead of money, the "account" holds habitat that is worth credits. Landowners sell these credits to a conservation banking firm, which in turn sells them to developers that need to compensate for the conversion of habitat to buildings and roads. Currently, there are 122 banks in 14 states, covering 136,000 acres. California has the most, and Wildlands Inc. is the largest holder of conservation credits in the country.

Conservation banking saves developers time and money while ensuring that prime habitat on private lands remains intact, Mathews added. "Before banking, people could go out and buy an acre of land, put a fence around it and call it their mitigation site," he said. "I've seen Wal-Mart parking lots that left a wetland in the middle, and it was full of shopping carts and garbage. That met the letter of the law, but not the spirit of the law."


The success of a conservation banking firm depends on its ability to maintain viable habitat, providing an incentive to manage the land responsibly, he added. "It's a much better habitat that we provide."

Every habitat bank is covered by a conservation easement that ensures it will be protected forever and has an endowment that generates funds to manage the land in perpetuity.

Still, there have been cases in which the conservation lands provided considerable value for the developer that bought the credits but little value for the species the lands were intended to help protect. A few years ago, another California conservation banking firm had an agreement with the U.S. Fish and Wildlife Service to create a conservation bank of trees to provide habitat for the threatened valley elderberry longhorn beetle. But the firm sold more credits than it had approval for from the agency, even as many of the trees that provided the value for those credits died.

Kenneth Sanchez, assistant field supervisor for the U.S. Fish and Wildlife Service's Sacramento, Calif., office, said such problems are rare, because the agency is selective about which companies it will partner with. "I won't work with bankers who are just in it to try to make a quick buck and go the short route," he said, adding that the firm with the valley elderberry longhorn beetle habitat has since improved its tree-growing operation and has not had any difficulties since. "We put in mechanisms by which we get monitoring and management."

The value of a credit ranges widely, from about $3,500 for a San Joaquin kit fox to $300,000 for a vernal pool, a vanishing type of wetland that provides habitat for several imperiled species, including fairy shrimp and San Joaquin Valley Orcutt grass. Several factors go into the valuation, including scarcity and the proximity of the wildlands to development.

A for-profit business blooms amidst development

Like any market-based industry, conservation banking is wholly dependent on supply and demand -- and profit margins. "If we're not going to make money, unless we can turn some sort of profit, we're not going to do it," Mathews said. "We're a for-profit company."

Before the recent economic downturn, business was booming, Mathews said, adding that an increasing number of developers and landowners are signing up for conservation banking. "It is becoming more popular," he said.

Sanchez, whose office oversees more threatened and endangered species than any other FWS office -- and faces some of the greatest development pressures -- said conservation banking is essential for holding onto key habitat on private lands. "Land is being lost forever on a scale that's unprecedented," he said, adding that the state needs 180,000 new housing units to accommodate the annual influx of 500,000 new residents. "I'm just trying to preserve the biggest and best pieces of what's left."

FWS and conservation banking firms work together to protect habitat that is suitable for offsetting losses from development. In one recent case, the California Department of Transportation was able to compensate for the combined impacts of five highway projects by purchasing credits from Wildlands Inc. for 277 acres of habitat for the endangered giant garter snake in Southern California. FWS has to approve the credits before they can be sold.

While some may see irony in the fact that the success of conservation banking is dependent upon the forward march of development, one of the biggest threats to imperiled species, Mathews prefers to look at it as a way to protect important habitat in the face of the inevitable.

"Without development, there would be no need for what we do -- and vice versa," because developers have to mitigate for their effects on threatened and endangered species, Mathews said.

"You're not going to stop development," Sanchez added. "I could try to stop a bulldozer, it'll run right over me. But all these big companies, they know when they come to California, they need to find compensation."

And on the landowner side, conservation banking provides an incentive to be a good steward of the land, said Becca Madsen, biodiversity program manager for Forest Trends, a nonprofit organization that last month launched an online clearinghouse for information about conservation banking. "Some people make the argument that conservation banking or species banking is a free pass to allow developers to develop areas that they shouldn't," she said. "But really, this is a way to make sure people are protecting species. Without an instrument like this, endangered species are really a liability for a landowner. This actually is a financial incentive to keep habitat."

The expansion of conservation banking

The idea of offsetting the biological costs of development originated with the Clean Water Act, which requires that the conversion of wetlands be offset with protection or creation of wetlands elsewhere. One way developers can compensate for the loss of wetlands is through mitigation banking, which involves buying wetland credits.

In recent years, the concept has evolved to include credit-trading for wildlife habitat, as well. In 2003, the U.S. Fish and Wildlife Service issued guidance for endangered species mitigation banks.

Now, the Forest Service and other natural resource agencies are moving toward credit trading, as well: Last month, Agriculture Secretary Ed Schafer announced the creation of a new Office of Ecosystem Services and Markets and an interagency Conservation and Land Management Environmental Services Board. The office and the panel were established to help assess the benefits of environmental services, and that information, in turn, can support the development of markets for ecosystem services, including carbon sequestration and biodiversity, Schafer said.

"Our nation's farms, ranches and forests provide goods and services that are vital to society -- natural assets we call 'ecosystem services,'" Schafer said in announcing the new program. "The Office of Ecosystem Services and Markets will enable America's agriculture producers to better compete, trade their services around the world and make significant contributions to help improve the environment."

But the conservation banking industry is still so new that prospective buyers and sellers still have a hard time finding out what banks are out there and which credits are available. Forest Trends' new clearinghouse, speciesbanking.com, is intended to fill that gap, Madsen said.

"In order for the market to grow, there's a need for transparent information out there," Madsen said. "Before, you'd have to sort of be an insider on the local scene to find out what credits are going for and what banks are available. Now you can find out everything in one place."

The program will initially focus on U.S. conservation banks but plans to eventually expand into other countries, Madsen added.

While the expansion of the conservation banking market is welcome news to FWS officials like Sanchez, he recognizes its limitations. Eventually, there may not be enough prime habitat to provide an equal trade for lands lost to development. And while more lands are being protected in perpetuity, many more acres are being developed. "God ain't making any more vernal pools in California," he said. "Once they're gone, it's forever."

Still, Sanchez is hopeful that conservation banking will help keep habitat on private lands intact -- in perpetuity. "Overall, in terms of protecting California's natural heritage, I think it's working," he said.

April Reese writes from Santa Fe, N.M.

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