By Martin Doyle

The Trump Administration has been active in reforming environmental regulations, from the Clean Air Act early, to the Clean Water Act more recently.

However, the administration’s appetite for reform could undermine a shining example of the private sector leading environmental conservation.

“Mitigation banking,” an important component of the ecological restoration sector, is a little-known industry that has created jobs, restored the environment, and enabled private investment, which has been made possible by regulatory certainty.

Under the Clean Water Act, infrastructure projects that might affect wetlands must obtain a permit. Building highways or parking lots often means felling trees or draining away water, so the demand for federal permits can be large.

This doesn’t mean all development is off-limits. Regulations allow developers to offset environmental damage by restoring natural habitats elsewhere. If developers leave a particular ecosystem worse than they found it, they need to leave some other area better than they found it.

Because meeting regulatory requirements is challenging, a nascent industry has emerged specializing in ecological restoration. Infrastructure developers benefit by outsourcing offsets; builders focus on construction, while restoration companies focus on conservation.

Mitigation banking firms play a critical role; they use private capital to finance restoration projects, which require years to permit. With their capital, they complete restoration projects well in advance of impacts they are offsetting, and then carry liabilities until the projects demonstrate environmental improvements. The results have been higher quality environmental projects coupled with faster permitting.

This entire system works – and the government noticed. In 2008, federal officials published a regulatory rule creating a preference for “advance mitigation” – doing the restoration work prior to the environmental impacts occurring. The 2008 Rule was critical, leading to a doubling of the industry in the decade since.

This summer, seven restoration firms disclosed their records to me. In aggregate over the past five years, these firms have invested more than $1 billion, restoring 166,600 acres of wetlands, 46,200 miles of stream and 93,000 acres of endangered species habitat.

The sector also supports over 126,000 jobs – more than the logging, steel or coal industries. And according to researchers at UNC-Chapel Hill, generates around $25 billion in annual economic output.

The Trump Administration is now putting the 2008 Mitigation Rule into its crosshairs. While there are undoubtedly changes that could improve efficiencies and outcomes of restoration projects, we should be careful to not undermine the private sector – and environmental – success seen to date.

When I asked the seven firms what made the economic and environmental successes possible, all but one pointed to the 2008 Rule. Without it, the underwriting investors would not have had confidence in the stability of this industry. Loss of such investors would undermine the ability to finance projects in advance, likely leading government into the business of restoration project planning and building, with the costs (and risks) borne by taxpayers.

Government-run mitigation programs have routinely under-delivered on their offset liabilities. Such inefficiencies have resulted in significant permit delays for large infrastructure projects, which has a ripple effect across regional economies.

While the Trump Administration may be looking for opportunities for regulatory reform, the mitigation banking industry has benefited from regulatory stability. Destabilizing this industry wouldn’t just harm the environment – it would hurt thousands of workers and a growing number of investors.

Martin Doyle is a professor at Duke University’s Nicholas School of the Environment. He’s the author of The Source: How Rivers Made America and America Remade its Rivers (WW Norton, 2018). This piece originally ran in InsideSources.

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