THE WINSTON CHURCHILL MEMORIAL TRUST OF AUSTRALIA · Winston Churchill Memorial Trust of Australia,...

Sheahan, M (2001) Credit for conservation – a report on conservation and mitigation banking in the USA, and itsapplicability to New South Wales. Winston Churchill Memorial Trust of Australia, Canberra 1

THE WINSTON CHURCHILL MEMORIAL TRUST OF AUSTRALIA

Report by Mark Sheahan – 2001 Churchill Fellow

Credit for conservation: A report onConservation Banking and MitigationBanking in the USA, and its applicabilityto New South Wales.

VOLUME 1REPORT


Credit for conservation: A report on ConservationBanking and Mitigation Banking in the USA, and itsapplicability to New South Wales.

September 2001

This project was supported by a fellowship from The Winston Churchill Memorial Trustand also by the NSW Department of Land and Water Conservation.

The views expressed in this report are, unless otherwise sourced, the authors,and do not necessarily represent the views of either the Trust or the Department.

This report is available on the web atwww.transremote.com.au/conservation

Appendices are included as a separate volume with limited distribution.Copies of some appendices may be available from the author.

Mark SheahanPO Box 963, Albury, NSW, 2640

[email protected]


ContentsForewordExecutive Summary

1. Introduction: Why Consider Conservation Banking?1.1 What is Conservation Banking?1.2 Why might it be relevant for NSW?1.3 Aim and structure of this report

2. Essential elements of a credit-trading system2.1 Legislation and regulation2.2 Data Inventory, Classification schemes, and Planning2.3 Permitting, and requirements for mitigation2.4 The impact site: Valuing debits, and compensation ratios2.5 The bank site: Valuing credits2.6 Land management of the bank2.7 Securing the bank’s conservation status2.8 Conservation Banking Agreement2.9 Selling credits2.10 Monitoring and compliance

3. Ancillary programs and policies3.1 Non-profit conservation organisations3.2 Conservation Easements3.3 Tax incentives3.4 Open space conservation programs3.5 USDA Programs

4. Options for private land nature conservation

5. Considerations for biodiversity credits in NSW

References

Acknowledgments and Personal Communications

List of appendices


Foreword

Market-based systems for natural resource and environmental management are, in Australia,increasingly being recognised as potentially valuable tools to bring about the land-use change thatis needed to ensure environmental sustainability. However, Australia has little or no experience insuch schemes with regard to biodiversity.

The fellowship allowed me to visit the United States, where programs for trading credits inbiodiversity have been in place since the mid 1980’s. There are principally two programs inoperation, ‘mitigation banking’ under the Federal Clean Waters Act, and ‘conservation banking’,under California’s Endangered Species Act.

My study fellowship took place over a five week period in April / May 2001. It consisted ofinterviews with a range of agency staff (Federal, State and County), stakeholders (conservationgroups, farmer organisations, and community groups) and scientists. This was principally in tworegions of California, San Diego County, an urban / coastal area with rapid population growth,where conservation banking began; and, Shasta and Yreka Counties in northern California,predominantly rural areas where conservation banking is in its infancy. Interviews were also heldwith peak bodies and agencies in Sacramento, the State capital, and the San Fransisco Bay Area. Ialso attended the 4th annual national ‘mitigation banking’ conference in Florida. A full list ofinterviewees is listed under ‘Personal Communications’ at the end of this volume.

The research was facilitated by a fellowship from the Winston Churchill Memorial Trust,supported by the NSW Department of Land and Water Conservation, though the views here(unless otherwise sourced) are my own.

The aim of the report is not to define the process of banking and credit-trading, as there are manysystems in place, all using different processes. Rather, it is to define and describe some of the keyissues which must be considered by those involved in establishing such systems here.

The title of the report indicates that such systems can be seen as giving credit to those involved inthe conservation of habitat, through economic reward, rather than just facilitating ongoingimpacts from expanded development. Which of these two directions future credit-tradingprograms take will rely in part on an informed community debate. I hope that this report cancontribute to this debate.

Mark SheahanAlbury NSW3 September 2001


CREDIT FOR CONSERVATIONExecutive Summary

Conservation banking and mitigation banking programs in the USA provide useful examples ofthe development of market-based systems for habitat, native vegetation, and biodiversity. The USschemes, despite being operated in a range of jurisdictions, share a number of commoncomponents – this report identifies and describes 10 ‘essential elements’ of banking schemes.

These are:1. Legislation and regulation2. Data inventory, habitat classification, and planning3. Permitting, and the requirement for mitigation4. Valuing debits at the impact site5. Valuing credits at the bank site6. Long term land management of the bank site7. Securing the conservation status of the bank site8. Developing an agreement between all parties9. Establishing systems for credit sale10. Monitoring and compliance

All the schemes adhere to the principle that environmental impacts should be avoided, minimised,and mitigated. Where there are impacts, these should be mitigated, and the banking schemes existto provide for ‘off-site’ mitigation through credit purchase.

A land management plan for the bank site is developed to ensure these credits are delivered inperpetuity, and this is assured through the execution of a conservation easement, theestablishment of an endowment fund for management costs, and ecological monitoring programs.All parties to the bank site enter into a Banking Agreement to ensure commitment to the scheme.

It is apparent that the demand for credits that drives both conservation and mitigation banking isgenerated from urban development. There is little evidence of either banking scheme being well-established in rural areas. There appear to be a number of reasons for this, including:! The reach of environmental regulation may not be comprehensive in rural California,

meaning that some environmental impacts are not subject to regulatory approval and may not,therefore, require mitigation through credit purchase.

! If rural landholders are required to implement mitigation, it is feasible for them to do so ‘onsite’, given the larger size of rural holdings, rather than driving a demand for credits on theopen market.

! Banks which sell credits are only allowed to do so in limited ‘service areas’, usually 40 milesor less from the bank. If the demand is from urban or near-urban areas, then banks will onlybe economically viable if established near these areas.

The great attraction for developers in buying credits, and hence creating the demand to protecthabitat in banks, is that buy buying a credit, they transfer legal responsibility for environmentalmitigation to the banker. This legal responsibility is only onerous where mitigation of impacts isrigorously enforced. Therefore, perhaps the most important aspect of banking and credit-tradingis first of all, the valid, consistent assessment of development impacts, and strenuous enforcementof compliance to mitigation of those impacts.


Despite its predominantly urban or semi-urban focus, we have much to learn from the USexperience. It highlights a number of issues which need to be addressed in NSW, and these aresummarised in recommendations in each chapter of this report. These include:! The requirement for mitigation of environmental impacts to be scientifically valid,

consistently applied and rigorously enforced in all development consents.! Growing the market by broadening the requirements for mitigation to a range of Acts and

jurisdictions, whilst keeping one marketplace and one credit type to enhance trading.! The need to develop State-wide classification systems of vegetation or habitat that can be

applied to credits and debits to enhance trading, where appropriate, across the State.! The development of credit and debit valuation methods which recognise the complexity of

biodiversity yet enable relatively rapid assessment and classification.! The need to take into account the ‘time lag’ of mitigation if the goal of ‘net ecological gain’

is to be achieved.! The ability of a scheme to protect the greatest area of habitat, and to share the economic

benefits to the greatest number of landholders! The necessity of legal security of the bank site, assured through the execution of a

conservation easement, covenant, or registered agreement.! The necessity of financial security for bank sites to ensure ongoing management of the site –

although the US model of endowment funds may not be appropriate for the NSW situation.! Developing an effective process for Banking Agreements with strict time lines and

accountabilities.! The requirement of administration of a scheme, including adequate databases of credits and

debits and the availability of this information to industry and the community.! The need for clarification of assignment of liability, if mitigation fails

If the delivery of mitigation required to offset environmental impacts is to be assured, thenexacting systems for environmental assessment, and financial and environmental monitoring,must be established and adequately resourced. Without these resources, there can be no suretythat stated environmental goals are being met.


SECTION ONEINTRODUCTION: WHY CONSIDER CONSERVATION BANKING

1.1 What is conservation banking?

1.2 The New South Wales context

1.3 Aim and structure of this report


INTRODUCTION: WHY CONSIDER CONSERVATIONBANKING? 1.1 What is Conservation Banking?

Summary:Conservation banking involves theestablishment of land banks dedicatedfor conservation, which sell credits todevelopers who are required to purchasethem to offset the environmental impactsof approved developments.

The supply of, and demand for credits isdirectly dependant on governmentlegislation, regulation and policy, andthe administrative decisions which flowfrom it.

Conservation banks are legallyprotected through a conservationeasement, and financially protected bythe establishment of an endowment. Tofinance the bank, a market must exist forits product, the ‘conservation credit’, sothe system requires developmentapprovals to be issued in the banks‘service area’.

Conservation banking is, at its mostsimplistic, a system whereby theenvironmental impacts of a project aremitigated off-site on another land-holding,used as a ‘conservation bank’.

The developer who proposes the impactpays money to the conservation bank to buy‘credits’. These credits enable theconservation bank to undertake landrestoration and protection activities whichoffset, or mitigate, the impacts of thedevelopment.

The demand for credits by developers iscompletely dependent on regulation.Environmental regulation directly createsthe product, through the requirement to‘offset’ a development with the purchase ofcredits.

Demand for credits encourages theestablishment of conservation banks, whichproduce credits. The supply of credits is adirect product of regulation, as agenciesdetermine and approve the number of creditswhich a bank can sell.

Range of banking programsBanking and credit trading in the UnitedStates is facilitated by a range of programsoperated by various jurisdictions to meet therequirements of a variety of statutes.

The most widespread system in place is‘Mitigation Banking’. This flows fromsection 404 of the federal Clean Waters Act1970, which requires developers to offset theimpacts of developments to wetlands andwaterways. In 1995, the CaliforniaDepartment of Fish and Game (CDFG),which administers the State EndangeredSpecies Act, introduced its ConservationBanking program.

A range of other federal, state and countyagencies issue permits for developments thatrequire mitigation through the purchase ofcredits from banks established under theseand other programs.

The lines of distinction between the varioussystems have blurred, and in this paper,‘conservation banking’ is used as a genericterm.

Aims of banking programsIn considering the number and range ofbanking schemes, the objects of suchsystems appear to be 1) The pursuit ofenvironmental objectives, including ‘no netloss’ (of wetland values and functions). 2)The achievement of successful mitigationoff-site at one large bank, rather than manysmall ‘postage stamp’ mitigation projects onsite. 3) The establishment of a system where


the private sector takes responsibility for itsenvironmental impacts. 4) The creation of aneconomic value over land wheredevelopment is currently prohibited byregulation.

Types of banksThere are basically three types ofconservation banks:Institutional banks, where a public authority,such as a roads or utility authority, willestablish a bank to offset its own mitigationrequirements.Entrepreneurial banks, where a privatelandholder will establish a bank to sellcredits to a variety of buyers.Joint ventures, a category which covers amultitude of arrangements betweenlandowners, conservation bankingconsultants, agencies and non-profitorganisations.

Parties to a bankThe parties to a Conservation BankingAgreement will include regulatory agencies,landholders, and others involved in the jointventure. A Review Team, comprisingrepresentatives from each of these parties, isestablished to oversee the establishment ofthe bank.

In preparing the Agreement, the parties willreach agreement on the biological resourcesof the bank, the number and types of creditsthe bank is authorised to sell, the geographicarea they can be sold to, legal protection forthe bank, a long-term plan of managementfor the bank (and arrangements to financethis), and mechanisms for financial andecological monitoring and reporting.

Protection for a bankLegal protection for the bank site isguaranteed through the execution of aconservation easement on the title of theland on which the bank is established.

Financial protection is assured through theestablishment of an endowment account forlong-term land management, funded througha percentage of credit sales.

Pre-requisites for a banking systemUltimately, the establishment of aconservation banking system depends onapproved developments requiring mitigationof impacts off site, through the purchase ofcredits.

Business must have confidence in the abilityof all levels of government to provideconsistency in environmental regulation, ofwhich mitigation requirements are thetangible product.

Community support and acceptance of sucha system is dependent upon outcomes thatdemonstrate the achievement ofenvironmental goals.

Section 2 of this paper outlines 10 elementsof a conservation banking system whichmust be addressed for successfulimplementation.

General introductory reading on conservation bankingFull citations are included in the Reference section

Environmental Defense Fund (1999)Lawhead, D (1997)Marsh, L et al (1996)Toyon Environmental Consultants (date unk.)


INTRODUCTION: WHY CONSIDER CONSERVATIONBANKING? 1.2 The New South Wales context

Summary:Three key issues for New South Waleswhich warrant the investigation of aconservation banking / credit-tradingscheme are:! the decline in environmental quality,

evidenced by biodiversity loss andland and water degradation

! equity between all members of theNSW community in paying the costsof environmental management

! increasing the resources availablefor environmental management, anddeveloping mechanisms to reduce thereliance on government funding forenvironmental management.

Various policies and strategies committhe Government to implement market-based mechanisms, and somepreliminary work to develop thesesystems has commenced.

Turning around environmental decline.New South Wales faces seriousenvironmental problems, including decliningwater quality, salinity, tree decline, landdegradation, and biodiversity loss1. There isa need to stem the rate of environmentaldecline, and turn it around so that there is anet gain in environmental quality.

The partnership agreement, between theNSW and Commonwealth Governments, forthe Bushcare program under the NaturalHeritage Trust2 has a national goal of “NoNet Loss” of native vegetation.

Whilst the Bushcare program providesfunding for sustainable management ofnative vegetation, one of the main regulatorytools for native vegetation management inNSW, the Native Vegetation ConservationAct 1997, provides for ‘trade-offs’, such as

tree-planting or improved management andprotection of existing vegetation, where aconsent to clear is issued.

The aim is that “‘trade-offs’ should strive toachieve a net environmental benefit whilstmeeting landholders needs”.3 The Ministerfor Land and Water Conservation, Mr.Richard Amery, also supports ‘no net loss’outcomes4. Given that NSW is still sufferinga decline in native vegetation cover, thedelivery of a ‘net environmental benefit’will, in part, involve a more rigorous systemfor trade-offs, or ‘compensatory mitigation’.

Equity considerationsA consequence of NVCA implementation isthat, where clearing is not allowed (as eithera refusal of development consent, or as acondition of consent for clearing of otherareas) many forms of economicdevelopment are prohibited.

In July 2000, the NSW premier, Mr. BobCarr, announced the exploration of the useof ‘offsets’ to provide increased flexibility inthe implementation of the NVCA5. In thefollowing month, the NSW SalinityStrategy6 was released by the Government.Action 4.3 commits the Government todevelop a Discussion Paper, on “how toimplement offsets for clearing with negativesalinity impacts, and how offsets might belinked to market based solutions”

Such approaches hold the promise thatretained areas of native vegetation mayprovide environmental services which canoffset the loss of environmental serviceselsewhere. If these services are valued andtraded, they may realise an alternate incomestream for rural landholders7. Market-basedsolutions such as this are being trialledthrough the Department of Land and WaterConservation’s Environmental ServicesScheme. 20 trial properties for the scheme


will be selected in the next six months, theowners of which will sell ‘environmentalservices’ to the NSW Government.

Funding the costs of managementThe need of better management of naturalresources, including native vegetation, isgenerally well accepted8, but awareness ofthe costs of doing so is only now beingrealised. For instance, in a joint paper for theAustralian Conservation Foundation and theNational Farmers Federation, the cost oftackling salinity is estimated at $64billion9.

Much of the funding for environmentalmanagement is delivered in the form ofGovernment programs, such as theCommonwealth’s Natural Heritage Trust,and the State’s Native VegetationManagement Fund. These programs areshort-term, generally 3-5 years. Whilst theremay be community concern that long-termfunding is not guaranteed, Government maybe concerned about the dependence on itsfunding, and that a “quasi environmentalwelfare state” is being established whichwill be a perpetual strain on its financialresources.

There is a need, therefore, to find ways forthe private sector to fund environmentalmanagement, so that the true costs ofdevelopment are incorporated intodevelopment projects, and to reduce thereliance on government funding.Conservation-banking and credit-tradingschemes are one mechanism which maycontribute to achieving such an outcome.

Work to date on credit-trading systemsUnless, from this point forward, there are nodevelopments permitted which have anenvironmental impact, the achievement of a‘net environmental benefit’ will bedependent upon appropriate trade-offs or‘offsets’ for those impacts.Work on defining those ‘offsets’ hascommenced. In Victoria, Biosis Research

has been commissioned to author a paper10

on the achievement of ‘no net loss’. The unitof measurement for native vegetation creditsis the ‘habitat hectare’, and this is beingimplemented in a trial with VicRoads in aroad construction project. In addition tonative vegetation credits, Biodiversitycredits are being developed under the State’sFlora and Fauna Guarantee Act 198811.

The NSW Roads and Traffic Authority hasdeveloped a draft policy on CompensatoryHabitat, to guide the offset of environmentalimpacts of road construction12.

Funded from the NSW Government as partof the NSW Salinity Strategy, the NSWNational Parks and Wildlife Service hasestablished a project to scientificallybenchmark biodiversity as a precursor tocredit-trading schemes13.

The NSW Dept of Land and WaterConservation has prepared a DiscussionPaper on Offsets14. It discusses theprinciples for ‘offsets’ and potential marketmechanisms.

FootnotesFull citations are included in the Reference section1. Environment Protection Authority NSW

(2000)2. Commonwealth of Australia (1997)3. Dept. of Land and Water Conservation

(1999)4. Amery, R (2000)5. Carr, R (2000)6. Dept. of Land and Water Conservation

(2000)7. Binning, C (2000)8. Goldney, D et al (1995)9. Madden, B et al (2000)10. Biosis Research (2000)11. www.nre.vic.gov.au12. Roads and Traffic Authority NSW

(1999)13. www.cse.csiro.au14. Dept. of Land and Water Conservation

(2001)


INTRODUCTION: WHY CONSIDER CONSERVATIONBANKING? 1.3 Aim and structure of this paper

Summary:The aim of this paper is to broadlydefine and describe some of the issuesthat must be considered by designersand administrators of conservationbanking programs, and to facilitatefurther discussion of these.

This paper is set out as follows:1. This section introduces the topic

of conservation banking2. Considers 10 essential elements

of banking systems, the ‘essentialplanks’ of any scheme at anyscale

3. Considers other ancillary USprograms, to provide somecontext to the scene within whichconservation banking occurs

4. Summarises the range of optionsfor conservation on private land,and whether conservationbanking has been widelyadopted.

5. Outlines some options for theimplementation of such a schemein NSW.

There are a number of ways of fashioningsuch a conservation banking program, and arange of programs exist. Each has differentprocedures, different stakeholders andpartners, applying various tools andinstruments, to meet a variety ofenvironmental and landholder needs.

It is therefore difficult to define and set outthe process for developing a bankingsystem. All the systems, however, sharesome fundamental elements, common to therange of systems, small scale pilot projectsor larger State or National schemes.

The paper aims to define and describe theseelements. The following section nominates10 elements which could be considered as‘essential planks’ of biodiversity credit-trading schemes.

Each of these elements could be the subjectof far greater description and discussion thanthe scope of this paper allows. For instance,the question of defining, valuing, andquantifying the services provided bybiodiversity, in Chapter 2.5, is central to abank’s conservation outcomes. A number ofresearch teams in Australia and elsewhereare working on this question, and continuingresearch will undoubtedly be needed.

The aim of this paper is to briefly define anddescribe some of the issues that must beconsidered by designers and administratorsof conservation banking programs, and tofacilitate further discussion of these.

These ‘elements’, and the banking system asa whole, must be seen in context of therange of other land management andincentive programs active in the UnitedStates. These other programs providechoices for landholders other than sellingcredits as a conservation bank. Whilst notcentral to the operation of banking systemsin the US, they could form part of such asystem for NSW. Section 3 sets out theseancillary programs.

Section 4 attempts to provide an overview ofthe options that landholders have to manageland for conservation, of which conservationbanking is just one. Do landholders adoptconservation banking as the favouredoption?Section 5 concludes with some generalconsiderations, and sets out some pre-requisites and options for the introduction ofconservation banking in NSW.


SECTION TWOESSENTIAL ELEMENTS OF A BANKING SYSTEM

2.1 Legislation and regulation

2.2 Data inventory, classification schemes, and planning

2.3 Permitting, and requirements for mitigation

2.4 The impact site: Valuing debits, and compensation ratios

2.5 The bank site: Valuing credits

2.6 Land management of the bank

2.7 Securing the bank’s conservation status

2.8 Conservation Banking Agreement

2.9 Selling credits

2.10 Monitoring and compliance


ESSENTIAL ELEMENTS OF A BANKING SYSTEM.2.1 Legislation and regulation

Summary:Conservation Banks have beenestablished without any legislationwhich refers specifically to banks,credits or credit trading.

Nevertheless, banking systems aredependent upon legislation andregulation requiring assessment andapproval of development applications,and for environmental impacts ofapproved developments to be mitigated.

A number of policy statements have beenissued which serve as guidance toagencies in assessment protocols, creditvaluation, and bank establishment.

Conservation Banking is growing in theUnited States. Consequently, federallegislation has been drafted to provideuniformity of approaches to this growingindustry, and this may be debated in USCongress this year.

Whilst the establishment and operation of acredit trading system is clearly dependentupon the exercise of environmentalregulation, the development of legislation inthe US which refers specifically to thecreation and trading of credits through bankshas been ‘after the fact’.

Existing environmental regulation whichcreates the demand for credits from bankscomes (in California) from the federal CleanWaters Act, Federal and State EndangeredSpecies Acts, and the CaliforniaEnvironmental Quality Act. What these Actshave in common is the requirement tomitigate environmental impacts. They do notspecify standards for mitigation, nor do they

specify processes to achieve mitigation, suchas conservation banking.The practice of mitigation and conservationbanking arose from agencies, permitapplicants and landowners together creatingan innovative solution to achievingmitigation. The valuation of credits / debits,the trading system, and the establishment ofthe first banks all occurred without a singlepiece of legislation which referredspecifically to these processes. Only whenthe popularity of banking as a mitigationtool was gaining increasing favour byagencies and private enterprise, was there aneed to draft legislation to cope with theissues that such a system brought forth.

Legislative background to WetlandMitigation BankingIn short, the development of a bankingsystem under the federal Clean Waters Actcan be summarized as follows1:1. The Clean Waters Act2 gives the US

Army Corps of Engineers (‘the Corps’)the power to regulate impacts on‘jurisdictional waters’ as defined in theAct, including wetlands.

2. An Executive Order3 (which has asimilar effect to the promulgation of aregulation in NSW) was issued underthe previous Bush administration, to theeffect that there should be ‘no net loss’of wetland values and functions.

3. An inter-agency MOU4, between theCorps, the federal Fish and WildlifeService, and the federal EnvironmentProtection Agency was drafted tooperationalise the Executive Order. Itestablished the provisions for‘sequencing’ (refer to Section 2.4).

4. A Federal Guidance5 was issued in1995, to guide the Corps in theestablishment of banks.

5. Various policy guidances have followed.(Such guidances appear to be ‘policy’


which all Corps offices should follow,but in practice, are widely interpreted bythe various regional offices of theCorps.)

Still, there is no federal legislation whichrefers to mitigation banking, to the creationor trading of credits. Yet the mitigationindustry is rapidly growing. The experienceof bankers is that the absence of suchlegislation is hampering their business6.There are no standard rules which guide thedevelopment of a Mitigation BankingInstrument (see Section 2.8), the variousFederal and policy guidances issued arewidely interpreted, and the agenciesinvolved are not required to complete theirconsiderations within a certain time.

Consequently, legislation7 has been draftedwhich recognises the reality of wetlandmitigation banking, and to establish somestandard processes to guide it.

Despite the fact that wetland mitigationthrough banks stems from a federal law, theState of California passed the Sacramento-San Joaquin Valley Wetlands MitigationBank Act8 in 1993, which regulates theoperation of mitigation banks in that part ofthe State. It defines bank sites, bankoperators, permittees and credits.

In 1997, a model statute for mitigationbanking9 was introduced to, and passed by,the California legislature. It had the supportof conservation organisations10, but wasvetoed by the (then) State Governor, andnever enacted.

A Bill was also introduced in 1999 into theCalifornia Legislature, regarding CoastalWetland Mitigation Banking.11 The bill, asproposed, was not widely supported as itwas considered its implementation wouldlead to different rules for the coast andcentral valley, and would also limit thescope of conservation banking12.

However, in 2000, the State legislatureenacted legislation13 that requires the

Department of Fish and Game to create amitigation bank database and to provide areport to the legislature on the status ofbanks every two years. This had the supportof the bankers, who saw it as necessarymarket information to assist them to sellcredits, as well as the environmentalcommunity, who saw it as necessary toensure the transparency of the wholesystem14.

Legislation has been drafted which has justbeen tabled in the Congress regardingwetland mitigation banks. According to theNational Mitigation Banking Association 15,the ‘American Wetland Restoration Bill’7

seeks to" Codify the 1995 Federal Guidance, so

that it must be followed by regulators." Establish a timeline for agency review

of draft banking proposals" Requires that agencies develop similarly

exacting standards for forms ofmitigation other than credit purchase(e.g., on-site mitigation; in-lieu fee –refer to Section 2.3)

" Provides for the first time, formalrecognition of the Mitigation BankingIndustry.

Legislative Background to ConservationBanking

The California Endangered Species Act alsoprovides the relevant agency (Dept of Fishand Game) with the power to requiremitigation for impacts of developments onlisted endangered species. Again, thelegislation does not explicitly refer to credittrading or banking16.

The listing in the Federal ESA of theCalifornia Gnat-catcher, a threatened specieswhose habitat is Coastal Sage Scrub in theSan Diego region prompted agencies andprivate industry to examine the prospect oftrading schemes for uplands, not justwetlands as had been the case. The CoastalSage Scrub habitat was under intensedevelopment pressure, and the Bank Of


America had just come into ownership of aparcel. At the same time, CalTrans needed tomitigate a freeway project through adjacenthabitat. The two negotiated a deal, andgained Departmental approval17.

The State Resources Agency simultaneouslyreleased the “Official Policy onConservation Banks” in 199518. Since therelease of the policy, no legislationunderpinning conservation banks or creditcreation and trading has been introduced,with the exception of that section of theCalifornia Coastal Wetland MitigationBanking Bill passed in 2000. (describedabove).

Legislative Background to EndangeredSpecies Banking under the Federal ESA

Again, the Federal ESA does not refer to theexistence of credit trading or bankingschemes. It does, however, provide formitigation of impacts to threatened species.This could include the purchase of credits.

If a permit to ‘take’ a threatened species isissued by the California field office of theFWS, it routinely includes a requirementthat mitigation be expressed as the purchaseof n bank credits, where a bank offeringappropriate credits is known to exist19.

New South Wales contextThe American experience indicates thatwhilst legislation requiring ‘compensatorymitigation’ of developments is required,there may not be a need for legislationwhich specifically refers to ‘debits’,‘credits’, or ‘conservation banks’.

In New South Wales, the main instrumentthrough which a mitigation condition couldbe applied is the Environmental Planningand Assessment Act 1979. Determinationsunder the EPAA are made by a range ofCouncils and state agencies, includingdevelopment consents for native vegetationclearing under the NVCA.

Section 80A of the EPAA provides for acondition of development consent to beimposed under a wide range ofcircumstances, including where thecondition relates to any of the assessmentmatters listed under s79C of that Act.

Sections 99 and 101 of the ThreatenedSpecies Conservation Act 1995 provide forconditions to be attached to licences issuedunder that Act.

The Plantations and Re-afforestations Act1999 provides that authorisation forplantations will not include conditions.However, section 23 of the draft PlantationsCode of Practice Regulation 2000 includesmitigation conditions for the removal ofisolated trees. The Code is a criticaldocument, as it could be viewed asestablishing a precedent for mitigationrequirements.

Sections 66 and 67 of the WaterManagement Act 2000 provide forconditions to be attached to licences issuedunder that Act.

None of these Acts, however, explicitlyrefers to the requirement for compensatorymitigation of environmental impacts –although that conclusion could be inferredfrom the objects of each of these Acts,particularly their references to principles ofecologically sustainable development.

Nevertheless, adequate policy directingagencies to require compensatory mitigationof environmental impacts is required.

The NSW Roads and Transport Authority,for example, has developed a draft policy onCompensatory Habitat which provides forhabitat to be permanently set aside in lieu ofthe environmental impacts of roadconstruction.

A credit-trading system is unlikely to besuccessful if the demand for credits isgenerated by consents from just one Act. To


create a market which encourages bankestablishment, and to ensure that alldevelopments are subject to the samemitigation standards, common approaches tomitigation should be applied under all NSWlegislation.

If, after the development of the necessarypolicy and procedural guidelines,implementation of a banking system istrialled in a pilot region, the need forlegislation could be assessed at that time.

Recommendations2.1.1 That any permit, licence, authority orconsent issued under any NSW legislation,which has any impact on biodiversity,should include a requirement forcompensatory mitigation, and that standardapproaches be developed across all Acts.2.1.2 That environmental legislation,including the NVCA, WMA, TSCA andEPAA, be reviewed to ensure that arequirement for compensatory mitigation inall development consents is not inconsistentwith these Acts.2.1.3 That policy guidelines be written toenable the establishment of banking / credittrading schemes in pilot areas.2.1.4 That, if these pilots are successful, aninter-agency review consider whetherlegislative development is necessary tofacilitate banking schemes on a State-widebasis.

FootnotesFull citations are included in the Reference section

1 D. O’Neill, pers.comm.2 Clean Waters Act3 US Federal Register, 19864 Department of the Army and the

Environmental Protection Agency(1990).

5 US Federal Register (1995).6 Lew Lautin, pers.comm7 American Wetland Restoration Act

H.R. 1474 http://thomas.loc.gov8 California State Legislature 1993

Sections 1775-1779.59 Wetlands Mitigation Banking and

Restoration Bill. California LegislatureAssembly Bill No. 241, 1997

10 John McCaull, pers.comm.11 California Coastal Wetlands Mitigation

Banking and Restoration Bill.California Legislature Assembly BillNo. 642, 1999

12 Craig Denisoff, pers.comm.13 Wetlands Mitigation Banking, Section

1850-1851, California State Legislature,2000

14 John McCaull, Craig Denisoff, DonMacon, pers.comm.

15 Craig Denisoff, pers.comm.16 Caitlin Bean, pers.comm17 Environmental Defense Fund (1999)18 State of California (1995)19 Deblyn Mead, pers.comm.

http://thomas.loc.gov/


ESSENTIAL ELEMENTS OF A BANKING SYSTEM2.2 Planning, data inventory, classification schemes

Summary:A credit trading scheme should beimplemented in pursuit of regionalconservation goals. Identification ofthese goals is provided through regionalvegetation planning processes. A‘Natural Communities ConservationPlanning’ process is established toachieve this.

These plans classify vegetation andhabitats, identify conservation priorities,and plan a vegetation network consistingof priority zones for conservation (andlinkages between them), and other areassuitable for development.

Plans provide for resources forconservation to be transferred fromdevelopment areas to conservationareas, achieved in part by banking /credit trading schemes.

The plans use an over-arching systemfor classifying vegetation and habitat.Two systems are used in California forthis purpose, enabling vegetation at bothimpact sites and bank sites to beuniformly described and classified.

Development of planningEarly planning efforts in California weredirected to the protection of habitat for asingle listed species, usually in response to adevelopment application in a discretegeographic area. These ‘HabitatConservation Plans’ did not take a regionalapproach, but considered how mitigationcould be developed to offset a singledevelopment.1

Later developments included “Multi-SpeciesConservation Plans”, which considered therequirements for a number of listed species

in the same area, but these also were reactiveto development pressures.

The Natural Communities ConservationPlans (NCCP) “represent a paradigm shiftaway from existing models of strictlyreactive, project-based permitting… towardfront-loaded, ecosystem based planning”2.By identifying important habitat in advanceof development, it provides for resources forconservation, in the form of money realisedfrom the sale of credits, to be directedtoward these areas.

Data collection and modellingThe NCCP evaluates the habitat in the planarea by collecting baseline data according to24 modelling factors, organised into fivecomponents3:! Habitat Value Index! Key Species Models! Grassland Evaluation! High priority species locations and

vernal pools! Potential Wildlife Corridors AnalysisA composite model is developed by takingthe maximum value of each of the fivecomponents for each grid cell in the planarea.

The results are plotted to show areas of‘very high’, ‘high’, ‘moderate’ and ‘low’value habitat, as well as already developedareas. A gap analysis is performed to buildthe regional protected areas network, it isthis network which forms the credit‘sending’ area, whilst areas outside this arethe credit ‘receival’ areas.

In addition to the NCCP process, the Stateof California has embarked upon a programto identify state conservation priorities tostrategically guide investment. A draftmethodology has been released 4.


Amendments to planning instrumentsThe NCCP plan is used by local countiesand cities to amend their ‘general plans’5 –the planning instruments used by these localgovernments to guide development. Anexample is the “Biology Guidelines”incorporated in the Municipal Code of theCity of San Diego6.

Landholder and community supportAn important feature of the NCCP is theinclusion of private lands. Ultimately, theplanning process may re-zone areas ofprivate land to effect developmentrestrictions. Such decisions are not madearbitrarily, and a consultation process is inplace to include the views of landowners insuch planning decisions7.

In general, the identification of parcels of‘private land’ in conservation zones is avexing issue. One planner noted that “assoon as you put people on notice that theirland may be what you want, two thingshappen – the price goes up, and you losecommunity support”8.

Landholders in the plan area therefore needto be fully involved in the planning process.Parcels will be identified, but the tradingsystem ensures that those conservationvalues will lead to an economic return forthe landholder, through the credit tradingsystem.

Habitat classificationA critical feature of the plans is theirclassification of habitat. This allows forcredits to be ‘typed’ according to the habitatthey protect. It is self-evident that a tradingsystem is reliant on the use of a commonterminology to describe the habitat at bothimpact and bank sites.

One planner noted: “I don’t know how youcould work a trading system if the buyersand sellers aren’t speaking the samelanguage”9.

Systems have been developed in Californiato classify vegetation across the State10,11,12.Their use is critical in ensuring that buyersand sellers can talk the same language.

Business planningProspective bank owners and operators willwant to ensure that their proposed bank willbe economically viable.

A feasability study is normally conducted,before approvals from agencies are soughtor Bank Review Teams appointed.

The feasibility study will examine the likelydemand for credits, based on13:! the number of development permits

issued by a range of jurisdictions! forecast development in the region! forecast trends for issuing of permits! vegetation types likely to be impacted

by these developments,! the mitigation that agencies are likely to

require of developers in these permits.

Formal systems have been developed forforecasting credit demand, including amodel for wetland mitigation banks fromOhio14.

Changes to legislation or policy that wouldreduce requirements for mitigation, or areduction in regional development, mayadversely affect a bank’s viability.

New South Wales contextNew South Wales has a strong basis forplanning, through the Regional VegetationManagement Planning process establishedunder the NVCA.

These plans have the potential to identifyzones in which the ‘sending’ and ‘receival’of conservation credits is appropriate.RVC’s are able to conduct soundcommunity consultation, through theirdiverse membership, and communicationactivities they initiate. As a planninginstrument under the EPAA, RVMP’s canensure that all planning decisions by a range


of State and Local jurisdictions areconsistent with the plan.RVMP’s can also establish a vegetation /habitat classification system that can be usedto ‘type’ credits in the plan area. However,the absence of State-wide vegetationclassification system which is universallyaccepted by all agencies is a stumbling blockto the transfer of credits between planningareas.

The two-tier system of “Broad VegetationTypes” (BVT’s) and “Ecological VegetationClasses” (EVC’s) in place in Victoria15 is amodel which would allow such a universaltrading system to be established.

Perhaps the major difference between theNCCP approach in California and theRVMP’s in NSW, is the level and detail ofbiological data collection, and subsequentmodelling and gap analysis.

The Native Vegetation Mapping Programunderway in various regions of NSW willprovide some much-needed data to informthe planning process. Ways in which thismapping program, and the data it iscollecting, can:! contribute to habitat modelling and gap

analysis! assist in developing a two-tiered

vegetation classification systemneed to be urgently considered.

If a banking system is to be developed,prospective bank operators will needsufficient information to undertakefeasibility studies. The system for publicreporting of clearing applications under theNVCA may need to be expanded to showthe mitigation that was conditioned ondevelopment consents. Parallel systems needto be developed for the range of permits andconsents issued under other Acts.

Recommendations2.2.1 That banking and credit-tradingsystems be consistent with RVMP’s, and theaims and objects they set.

2.2.2 That RVMP’s identify zones of high(and medium) conservation value, wherefurther loss of habitat should not besanctioned, but which can ‘send’ credits to‘receival’ areas.

2.2.3 That the data available to RVC’s forhabitat modelling and gap analysis bereviewed.

2.2.4 That, before a trading system isestablished in any area, that a system ofagreed habitat / vegetation classification isestablished, similar to the two-tier systemused in Victoria. This could be achieved bysupporting, and implementing the results of,the Statewide vegetation classificationprogram at the Royal Botanic Gardens.

2.2.5 That such a two-tier classificationsystem be a pre-cursor for State-wideestablishment of a banking / credit-tradingsystem.

2.2.6 That mitigation requirements includedas conditions of development consents, bepublicly available as part of the register ofclearing applications under the NVCA; and,also made available by other agencies /councils for permits or consents issuedunder other Acts.

FootnotesFull citations are included in the Reference section1 Noss, R et al (1997)2 Murphy, D (1999)3 Dept of Fish and Game, CA (2000)4 Nichols, M (2001)5 R. Asher, pers.comm.6 City of San Diego (1997)7 D. Lawhead, pers.comm8 S. Lawson, pers.comm.9 D. Lawhead, pers.comm.10 Sawyer, J & Keeler-Wolf, T (1995)11 Holland, R (1986)12 www.natureserve.org/13 C Denisoff, pers.comm.14 Sutliff, J (2001)15 www.nre.vic.gov.au


ESSENTIAL ELEMENTS OF A BANKING SYSTEM2.3 Permitting, and requirements for mitigation

Summary:A demand for credits must be created.Therefore, development proposals withenvironmental impacts must seekdevelopment approval through anagency or development authority – andthat the approval require creditpurchase.

The assessment of proposals may resultin a proposal being refused, orapproved.

Where a development is approved,environmental impacts must be carefullyassessed and a requirement to mitigatethese impacts must be specified as acondition of approval. In order toprovide certainty to industry (and tomeet environmental objectives) thismitigation must be scientifically valid,consistently applied, and rigorouslyenforced. Without this, a developer hasno motivation to purchase credits from abank, and no landholder would have theconfidence to invest the funds needed todevelop a bank.

If the reach of environmental regulationincreases, there is increased potentialfor stronger credit demand, and henceincreased viability of conservation banksand the banking industry.

Fundamentally, a credit-trading systemdoesn’t work unless there are developmentsapproved which have environmentalimpacts, which developers must offset withcredit purchase.

In its assessments under s404 of the CleanWaters Act, the Corps must undertake what

is referred to as ‘sequencing’1. The agencyconsiders, in sequence,1. Avoidance of impact to wetlands2. Minimisation of impacts to wetlands3. Compensatory Mitigation for‘unavoidable impacts’ to wetlands

Where the development is approved, it maybe approved without mitigation. As with the‘Best Management Principles’ developed byDLWC for the assessment of minimalimpact clearing applications, the Corps hasdeveloped a range of ‘Nationwide Permit’criteria, for which mitigation is not requiredif the proposal meets those criteria2.

However, in the vast majority of cases,mitigation is a requirement of the permit.The mitigation may be3

! On-site, on the parcel of land approvedfor development, and at the ownersexpense.

! Off-site, through-the purchase of credits-the payment of an ‘In-Lieu Fee’

The development of a trading system and abanking industry is therefore dependent notonly on a project with an environmentalimpact being approved, but also that thepreferred method for mitigation of thisproject is off-site mitigation.

The payment of an in-lieu fee is preferredwhere on-site mitigation is not practical ordesirable, and where there are no availablebanks from which credits can be purchased.The fee is paid into a fund, either held by anagency or non-profit environmentalorganisation, for use in environmentalprojects. The Army Corps of Engineers hasreleased guidelines on the use of in-lieu fee4.

Where the purchase of credits is the methodto be used for mitigation, these credits arethe basis for a private sector bankingindustry. Therefore, offsets (i.e., mitigation


requirements) need to be consistentlyassessed between projects, and bescientifically valid. If mitigation is either notroutinely required, or (if required on-site)not enforced, then there will be nomotivation for a developer to go onto theopen market to buy credits.

The banking system, is enhanced when thereis a greater demand for credits. This demandcan be stimulated in three ways:! Encouraging philanthropic purchase of

credits! Extending the reach of regulation to

include activities which are not currentlyregulated, and hence not mitigated.

! Providing for activities which arecurrently prohibited to be approved witha requirement for offsets or mitigation.

The latter of these points has led to somecriticism of credit-trading schemes to theeffect that ‘conservation banking leads todevelopment’. The basis of this assertion isthat where a bank exists nearby adevelopment proposal, then thatdevelopment may be approved where itpreviously would have been refused,provided that it buys credits from this bank.

However, no evidence has ever beenpresented that such a decision has in factbeen made by a government agency5, andagencies deny that this ever happens.

Nevertheless, many in the conservationmovement have expressed the lingeringconcern that “the presence of a functioningmitigation bank could indeed make thedecision for approval easier than if theregulator had to make a determination ofwhether the proposed mitigation wouldwork or not.”6

Given that the potential for such a scenariodoes exist, it will be necessary to ensure thatstandards of environmental assessment arenot reduced simply because of the presenceof a conservation bank. It will also be

necessary to identify those impacts whichcannot be mitigated –i.e, are prohibited.

Why would regulatory agencies preferoff-site mitigation?Quite often, they don’t. The requirement for‘sequencing’ demands that agencies first tryto negotiate with developers to modifyprojects so as to completely avoidenvironmental impacts; and then, to modifyprojects to minimise the extent of anyimpacts. Successful implementation of theseoptions will reduce the requirement formitigation.

Where projects may be approved which willhave an ‘unavoidable impact’, thenmitigation is required. Most agency staffwould consider that on-site mitigation ispreferable, to ensure that environmentalfunctions and values are maintained in thelocal area and of the same habitat type.

However, much on-site mitigation has beenshown to be unsuccessful. A study in Floridashowed that 85% of on-site wetlandmitigation had failed7, and a similar study inMassachussets found that 54% of projectsdid not meet regulatory requirements, andthat 38% produced no wetland at all. In 22%of cases, no wetland had even beenattempted to be constructed.8 The report alsonoted that the wetlands being createddiffered significantly from those they werebeing designed to replace.

The problems of tiny ‘postage stamp’mitigation projects has led, inevitably, tofailure. Furthermore, it creates largecompliance problems for agencies.

This has led to increased interest by agenciesin the establishment of larger banks, whichare established and / or managed byorganisations with expertise inenvironmental management, and which arelarger in scale (and hence potentially moreecologically viable) than smaller on-sitemitigation projects 9,10.


‘The court is still out’ on whether theselarger banks are meeting their environmentalgoals.

Why would a developer prefer topurchase credits for off-site mitigation?The developer could mitigate the impacts ofa project on site. Or, she could pay an in-lieufee, or buy credits. Both of these latteroptions are quite costly. Why, therefore,would a developer choose these options overon-site mitigation?

The requirement for on-site mitigation mustbe detailed and able to be rigorouslyenforced. If the developer can ‘get awaywith’ not implementing the requirement foron-site mitigation, there will be no impetusto purchase credits from bankers as analternative to this.

Assuming that the on-site mitigationrequirement is rigorously enforced, then thedeveloper, who may have no experience inenvironmental restoration, will be requiredto meet certain goals. This may require on-going expenditure, and lengthy negotiationwith agencies. By buying a credit, they aretransferring their responsibility formitigation to the banker 7,10. The purchase ofa credit is, in reality, a ‘no more hassles’option – it is the banker who is left with thetask of achieving mitigation, and thedeveloper can get on with her project.

But again, unless a consistent, scientificallydefensible, and rigorously enforcedrequirement for mitigation is in place, thereis no impetus for a banking system todevelop.

Why does the banking industry preferoff-site mitigation?Without permits requiring off-sitemitigation, there is no banking industry. TheNational Mitigation Banking Association(NMBA) advocates that off-site mitigationin conservation banks has greater ecologicalbenefits, is easier for agencies to monitor,and is cost-effective for developers 7,10.

Some have commented on the potential forthe industry to lobby for approval ofprojects, and for those approvals to requireoff-site mitigation. The industry, however, iskeen to maintain ‘an arms length’ frompermitting decisions 7,10. This would beparticularly important given that the industryis in its infancy, and needs to build alliancesfrom a broad spectrum of organisations tofurther develop. Nevertheless, there isconcern that, once well-established, thebanking industry and agencies maycollaborate to achieve mutually agreeablemitigation outcomes.

New South Wales contextFor credit-trading to develop in New SouthWales, it is critical that developmentconsents issued under a range of statutesrequire compensatory mitigation forenvironmental impacts.

This will require standardised systems forthe quantification of environmental values atthe impact site, and this is discussed inSection 2.4.

The current Staff Guidelines for theassessment of clearing application under theNVC Act11 provide only broad guidance forstaff in recommending ‘trade-offs’. Therewill need to be a more detailed set ofguidelines for this purpose.

Nor is it only the NVC Act that is relevanthere. For a conservation banking market toflourish, for a greater number of landholdersto receive an economic benefit for habitatprotection, and for greater areas of habitat tobe protected in conservation banks, allconsents issued under the EPA Act(including those issued under the NVCA),and the TSC Act, should treat mitigation in aconsistent manner.

Similarly, all mitigation implemented bygovernment utilities, such as the RTA,Telstra, and electricity authorities, should be


done in accordance with State-wide policiesand procedures for conservation banking.

In its Discussion Paper on Offsets12, theDept of Land and Water Conservationconsiders that “if market mechanisms are tobe used, a single trading system would beneeded, involving the same register andsame marketplace as native vegetationcredits.”

In doing so, efforts must be made to ensurethat, at the least, existing standards ofenvironmental assessment are maintained. Inother words, it is critical that the existence ofa conservation banking program does notresult in developments being approvedwhich would otherwise have been refused.

Guidelines for the assessment ofdevelopment applications, for all relevantActs, should entrench the principle of‘avoidance, minimisation, and compensatorymitigation’ that is referred to as‘sequencing’ in the US. The NSW RTA’sdraft policy on compensatory habitat, forexample, makes this explicit 13.

To provide an incentive for developers tobuy credits from banks, it will also benecessary to ensure that mitigationrequirements set out in developmentconsents which remain current are subject toa rigorous compliance checks. Only whencompliance of mitigation requirements isenforced will developers seek to offloadthese responsibilities to a conservation bankthrough the purchase of a credit.

Recommendations

2.3.1 That standards in environmentalassessment be maintained, so that theexistence of a conservation banking schemedoes not influence the determination ofapplications. The principle of ‘avoidance,minimisation, and compensatory mitigation’must be put into effect by all consentauthorities and government utilities.

2.3..2 That mitigation requirements aremade as conditions to a range of consents,not only to those under the NVC Act, but toall consents issued under the EPA, TSC andWM Acts, among others.

2.3.3 That mitigation requirements includedas conditions to development consentswhich are current, and all future consentsissued, be subject to an extensivecompliance program.

2.3.4 That mitigation requirementscontained in the DLWC Staff Guidelines forthe assessment of clearing applicationsunder the NVC Act be reviewed to ensurethat these requirements are scientificallyvalid and consistently applied in alldeterminations.

2.3.5 That these guidelines be reviewed byan inter-agency review team forimplementation by the range of relevantconsent authorities and government utilitiesin NSW.

2.3.6 That development consents bedeferred consents, i.e., projectcommencement should not occur untilrequired credits have been purchased.

FootnotesFull citations are included in the Reference section

1. Department of the Army & USEnvironmental Protection Agency (1995)

2. Department of Defense et al (1996).3. D. O’Neill pers.comm.4. Dept. of Defense et al (2000)5. J. McCaull, pers.comm6. M. Kraus, pers.comm7. L. Lautin, pers.comm8. Brown and Veneman (1998)9. Environmental Defense Fund (1999)10. C. Denisoff, pers.comm11. Dept. of Land and Water Conservation

NSW (1999)12. Dept. of Land and Water Conservation

NSW (2001)13. Roads and Traffic Authority NSW (1999)


ESSENTIAL ELEMENTS OF A BANKING SYSTEM2.4 The bank site: valuing debits, and compensation ratios

Summary:If a development application is! approved by a permitting authority! has an environmental impact, and! if the agency considers that the most

effective means of mitigating thatimpact is the purchase of creditsfrom a bank,

then that approval will indicate thenumber of credits which must be boughtto offset those impacts.

This will flow from an assessment of theenvironmental values and functionswhich will be lost as a consequence ofthe development.

There have been numerous approachesdeveloped in response to this task. Mostinclude two factors – the area to beimpacted, and its ecological quality.

Given the difficulty of reducing thecomplexity of biodiversity to a simpleformula, all methods ultimately informthe ‘best professional judgement’ ofagency officers, rather than beinginfallible empirical tools in their ownright.

If a permit is issued, and the environmentalimpact is to be mitigated through thepurchase of credits from a conservationbank, then there must be an assessment ofthe ‘size’ of the impact and the number /type of credits which must be bought1.

Obviously, not all wetlands (or otherhabitats), even of the same type, are thesame. Impact sites will display a range ofconditions, and a range of values andfunctions. If a ‘net ecological benfit’ is to beachieved, there must be an assessment of the

value of the impact site, so that the loss ofthese values can be offset at the bank site.

To achieve adequate mitigation, each debitpoint incurred at the impact site must beoffset by the purchase of 1 or more creditsfrom a bank. The number of credits thatmust be purchased from the bank, in relationto the number of debit points incurred at theimpact site, is referred to as theCompensation Ratio.

In order to develop these ratios, agenciesassessment methods have developed overthe last decade.

Methods used by the Corps in s404permits.

Crude Area methodsOriginally, valuation methods used a crudearea basis. If one acre of wetland is lost, thenone acre of wetland would be purchased,i.e., the compensation ratio was always 1:12.It was realised that this did not recognise thevalue / functions of wetland lost – a severelydegraded wetland with a history of toxicdumping would be rated equally with awetland in good condition.

If no net loss is to be achieved, then anypermit issued for a wetland in goodcondition would need to have a highercompensation ratio5. Accordingly, highermitigation ratios are applied for the loss ofhigh quality wetlands2.

Best Professional JudgementOfficers of the Corps were then able to sethigher compensation ratios, based on theirbest professional judgement. For degradedsites, a 1:1 ratio may still be stipulated. Foran impact site with a range of values andfunctions in good condition, a ratio of 3:1may be stipulated2,3. This means that foreach acre impacted, 3 credits must bepurchased. If the impacted wetland was 1.4


acres, 4.2 credits would need to bepurchased from a bank.

Wetland Evaluation Model (WET)This is a lengthy guideline, which isessentially an assessment checklist(conceptually similar to the Guidelines tothe Assessment of Clearing Applicationsunder the NVC Act). However, it doescontain a scoring system, so that someelements of the assessment system areweighted unequally to others4. Through theuse of the scheme, a compensation ratio isdeveloped. It is also common practice forthe score assigned by the model to informBest Professional Judgement, not vice-versa.

Hydro-Geomorphic Model (HGM)These models also rate hydrological valuesof wetlands on an empiric scale. They havebeen developed by the Corps for specificcatchments and wetland habitat types4. LikeWET, it is used by Corps officers to informand defend their Best ProfessionalJudgement2,4.

Valuations for Endangered speciesThe CDFG, under that State’s EndangeredSpecies Act, and the federal Fish andWildlife Service, under the federalEndangered Species Act, may determine thata certain number of credits need to bepurchased to mitigate the impact ofapproved developments.

It must be noted that both are based on thepremise that habitat must be occupied (seeSection 2.1). Therefore, credits are classifiednot only by habitat type, but morecommonly for individual species6.

For example, a developer may be required topurchase ‘4 Red-legged Frog credits’. Inpermits issued by both DFG under theconservation banking program, for each acreof occupied habitat, one credit for thisspecies must be purchased.

Whilst it is recognised that this does not leadto a ‘net ecological gain’, it is also true that

the NCCP process (see Section 2.2) hasidentified areas where permits may begranted, and areas where conservation banksare to be established. The former areas areidentified through the process of havinglower quality, more fragmented habitat. Thelatter areas are large blocks of habitat ofhigher quality. Although the compensationratio is only 1:1, the areas traded off areinevitably of poorer quality than the banksites from which credits will be purchased7.

The ‘best professional judgement’ of thefederal FWS is contained within a‘biological opinion’8. This opinion is ascientific report, which considers the qualityof the habitat on site, records of the species,and relevant literature. It concludes with thenumber of credits which must be purchasedto mitigate those impacts. An example isincluded in the Appendices. This examplecites a 2:1 compensation ratio for creditspurchased from a bank (i.e., 2 credits foreach acre of habitat impacted) or a 3:1compensation ratio for land bought outside abank (i.e., 3 acres to be purchased for eachacre of habitat impacted).

The California office of the Federal FWShas developed empirical formula forestimating the number of credits whichwould be given to a conservation bank tosell. Systems have been developed forimpacts on Vernal Pools9 (ephemeralwetlands which are habitat for endangeredinvertebrates), and RedLegged Frogs10.These are included in the Appedices, andfurther discussed in Section 2.5.

Consideration of the systems.Biodiversity is complex and defies simpleformulisation. Empirical formulas andassessment criteria may never be able toadequately represent this complexity.

The establishment of a credit-trading systemhas not been reliant on the development ofsuch systems. However, they do rely ondefensible professional judgements based onvalid criteria prepared by qualified


professional staff, as they do for a multitudeof decisions made for a whole range offunctions both in the US and Australia.

Formulas and assessment systems developedto quantify biodiversity on an impact sitehave been used in the United States toinform best professional judgement, ratherthan as infallible tools.

It seems inevitable that the area of habitataffected, the quality of that habitat, and itslandscape context, will remain the three keyconsiderations in valuing debits at an impactsite.

New South Wales contextAny method for valuing or assigning debitpoints must deal with area, quality andcontext. This is the basis of the ‘habitathectare’ unit developed in Victoria11.

The work currently underway by NSWNPWS is likely to develop a model forvaluing debits and credits in NSW.

Already, compensation ratios have beendeveloped in NSW. Under the SouthernMallee Land Use Agreement12, there is aratio of 1:1 for all vegetation types approvedfor clearing under some circumstances, withthe exception of Chenopod Mallee whichhas a ratio of 2.3:1 (i.e, for each hectarecleared, 2.3 hectares must be legallyreserved for conservation). Under the Plains-wanderer Habitat Policy13, areas ofsecondary habitat may be cleared undersome circumstances with a compensationration of 1.5:1. Neither policy caters forinter-property trading of debits for credits.

For a trading system to be established, themethod for valuing debits must be able to beused by field staff of agencies to assist themto develop their best professional judgement.So that the system can be understood by allinvolved, a method involving a limitednumber of compensation ratios (e.g., 1:1,2;1, 3:1) could be implemented.

The debit valuation made by regulatoryagencies should be underpinned by a formalevaluation. This already occurs in theassessment of native vegetation clearingapplications under the NVC Act14, similar inscope to the ‘biological opinion’ used by theUS Fish and Wildlife Service.

The debit valuation will require that acertain category of credit be purchased. Thiswould need to conform to the over-archingcredit classification scheme. It isrecommended that credits be classifiedaccording to one criteria, perhaps based onthe units identified in a vegetationclassification scheme. (see Section 2.2)

Recommendations:2.4.1 That, where developments areapproved, the area affected be classifiedaccording to one criteria only, perhapsderived from a vegetation communityclassification.2.4.2 That the debit evaluation be based onthe area of habitat affected, its quality andlandscape context.2.4.3 That compensation ratios bedeveloped according to quality and context,i.e., the higher the quality of the vegetation,the greater the compensation ratio.2.4.4 That a limited range of compensationratios be used in the system.2.4.5 That policy on compensation ratiosand categories used be developed, based onfurther research and discussion.

FootnotesFull citations are included in the reference section1. Department of the Army (1995)2. D. O’Neill, pers.comm3. K. Lawrence, pers.comm4. Department of Defense (2001)5. Studt and Sokolove (1996)6. C. Bean, pers.comm7. D. Lawhead, pers.comm8. D. Mead, pers.comm9. FWS (1999)10. FWS (2000)11. Biosis Research (2000)12. Sthn Mallee Planning C’tee (1999)13. DLWC (2000*)14. DLWC (1999)


ESSENTIAL ELEMENTS OF A BANKING SYSTEM.2.5 The bank site: Valuation of credits

Summary:When a bank is established, the numberof credits it can sell needs to bedetermined. This, in turn, will determinethe bank’s economic viability.

As with valuation of debits, the two mostimportant factors are area, and quality,of habitat. Ideally, there will beconsistency between the systems forvaluing debits and credits.

However, an additional factor to betaken into account with credit valuationis the potential for biodiversity to be‘enhanced’ over time as a consequenceof conservation management. This is animportant consideration if ‘no net loss’is a goal of the credit-trading scheme.

This enhancement is taken into accountthrough consideration of the type ofenvironmental management activitiestaking place on the bank site: whethernew habitat is being created; poorquality habitat is being restored orenhanced; or existing high qualityhabitat is being preserved.

These assessments are based on aBiological Resources Report, preparedat the bank owners expense.

Each credit the bank can sell will beclassified according to the habitat orspecies which it protects, and thegeographic area in which it can be sold.

The number of credits that a bank ispermitted to sell must be determined by theagencies and agreed to by all the parties.

Biological Resources ReportThe first step in determining this is thepreparation of a Biological ResourcesReport. This is carried out at the bankowners expense, usually by consultants. Itwill include a description of the bank’s sitesphysical resources, and the results ofecological surveys to document the speciesand ecosystems present, and their condition1.The report will be used by the agencies andother parties to the agreement to determinethe number and types of credits which canbe sold.

Where the bank owner intends to sellspecies-specific credits, the occupation ofthe site by these species will need to beestablished1.

Types of creditsThe types of credit which can be sold willdepend on the habitat, or species present.There is no such unit as a ‘biodiversitycredit’, as credits are classified according tothe more specific biological resources thatthey protect. For example, this could include‘red-legged frog credits’, or ‘vernal poolcredits’, or ‘coastal sage scrub credits’1.

Number of credits. – endangered specieshabitat.The number of each of these types of creditswhich can be sold begins with aconsideration of the area of each of thesehabitat types present on the bank site.

Crude methods of determining the numbersof credits will result in one acre of habitatequalling one credit. This is the method usedfor California’s State Conservation Banks1.This takes no account of the quality orcondition of the habitat, and may notachieve a ‘net ecological benefit’ outcome.However, under the NCCP (see Section 2.2)the planning system directs impacts to areas


of lower ecological value, and bank sites toareas of higher ecological value2.Some approaches rely on ‘best professionaljudgement’ to determine how many credits abank can sell, based on factors relating to theecological viability of the site, such as size,connectivity, condition of the habitat, andthreats to it from surrounding land uses. Thelower the long-term viability of the site, themore acres will be needed to sell one credit.

The Federal Fish and Wildlife Service hasdeveloped more formal systems fordetermining the number of credits a bankcan sell for vernal pools3, and red-leggedfrog habitat4. These are included in theAppendices.

These numerical scoring systems also takeinto account factors such as bank size andshape, condition and ecological viability ofthe site. By using these systems, the normalrange of outcomes is that each acre ofhabitat will provide between 0.5 and 1.5credits, with a maximum of 2 credits peracre5.

Number of credits – wetland habitatsGiven that the goal of the Clean Waters Actis ‘no net loss’ of wetland functions andvalues, consideration is given to the net gainthat each bank can achieve. The 1995Federal Guidance6 considers four types ofenvironmental management that may occurat a bank.

Creation. The establishment of a wetlandwhere none existed before, or where throughpast bad management, all wetland valuesand functions had been lost. In this case, it isassumed that (if the project is successful)there will be a 100% increase in wetlandvalue, so that for each acre created, the bankcan sell 1 credit.

Restoration. The restoration of a degradedwetland, valued at, say, 20% of fullfunction. This may involve reinstatement ofnatural flow or drainage features, or theremediation of toxic or noxious substances.

It is assumed that there may be a substantialincrease in wetland values, say 80%. Thebank may sell 0.8 credits for each acre ofwetland restored.

Enhancement. The enhancement of awetland that still retains substantial values /functions, valued at 60% of full function.For instance, the removal of exoticvegetation. This may enhance the value ofthe wetland by 40%, so the bank can sell 0.4credits for each acre of wetland enhanced.

Preservation. The preservation of a wetlandin good condition. Under the FederalGuidance, this can only generate credits inexceptional circumstances – as it does notcontribute to a ‘no net loss’ outcome. InCalifornia, no wetland credits are allowedfor preservation7. However, in other States,it is provided for with a substantial acreageneeded for the sale of one credit.Commonly, this is in the range of 15-30acres of preserved wetland being needed forthe bank to sell one credit8.

Example of a trade, as practicedunder Federal Wetland Mitigation8

Impact site! Developer gets permit for a projectwhich will destroy 2 acres of wetland,! It is assessed as being in modified,but not degraded, condition, so! The permit stipulates acompensation ratio of 2:1.! The developer must therefore buy 4credits.

Bank siteDeveloper buys from bank:! 20 acres of preserved wetland: = 1credit! 2 acres of restored wetland:

= 1 credit! 2 acres of created wetland:

= 2 credits4 credits purchased, totalling 24 acres ofwetland.


Where can credits be sold?The guiding principle is that mitigationshould occur as close to the impact site aspossible. For wetland mitigation, mitigationmust occur in the same catchment as theimpact6. Endangered species mitigationshould occur in the same eco-region, or asub region of these1,5.

Accordingly, the bank will have a ‘servicearea’ in which it can sell credits. For wetlandbanks, this will be the catchment area, or, inthe case of small catchments, a number ofadjacent catchment areas.

For endangered species banks, the servicearea will be delineated according toecological criteria. Usually, the service areawill extend no further than 40 miles from thebank site, although exceptions to this dooccur, provided that agreement of the partieshas been reached1,7.

The bank owner will want the service area tobe large enough to ensure a sufficient marketfor the bank’s credits.

As stated in Section 2.4, the mitigation mustusually be ‘in kind’, i.e., the credits boughtare for the same wetland type as the impactsite. However, exceptions to this exist in theNCCP area2, and in some other cases whereagreed by the permitting agency.

Banks with multiple credit typesBecause there are a number of systemsoperating in the US, banks will want toenhance their economic viability be beingable to sell credits through multiple marketplaces.

For example, one bank in northernCalifornia is authorised to sell credits underthe federal Clean Waters Act andEndangered Species Act, the StateEndangered Species Act, and to countypermit holders as well. Each of theserequires different rules for credit valuation,service area delineation, and managementand monitoring. Consequently, the

development of the Banking Agreement wastherefore technically and administrativelycomplex, and the bank only sold its firstcredit 5 years after the bank site wasproposed9.

The greater the number of schemes andsystems are in place, the more complex theoperation. This is a clear disincentive to theadoption of conservation banking.

New South wales contextThe assessment of debits and compensationratio at the impact site, and the valuation ofcredits at the bank site, work together todetermine the degree of net ecologicalbenefit or impact.

The valuation of credits should strive toensure that the ecological gain from onecredit is equivalent to the ecological gainfrom any other credit from any other banksite. This may require different managementactivities to be ranked accordingly, and forthis to be reflected in the number of credits abank can sell.

" Revegetation on cleared landIf an area of cleared land with little or noresilience is re-planted by traditional re-vegetation techniques (e.g., tubestockplanting or direct seeding), it will be manydecades before an ecological gain isachieved. For instance, the planting ofwoodland trees in rural NSW may take 100years or more to provide adequate mitigationfor habitat removal.

Therefore, because of the limitations of thisactivity to contribute to ecological goals, itis proposed that a large area of revegetationbe required to realise one credit, say, 10hectares. A case could be made to lower thisif the revegetation connected, or built upon,existing remnant areas.

" Regeneration and restoration of partiallymodified vegetaion.

Areas which have been modified throughtree-cutting or grazing, and which may


appear to be ‘essentially cleared’ may haveenough ‘resilience’ or recovery potential toshow relatively quick improvement instructure and function with minimal inputs.Such areas may be characterised by remnanttrees, and low past fertiliser use. These areashave the greatest potential to mitigate forecological impacts under a trading system,and should therefore require smaller areas torealise one credit – say, 1-2 hectares.

" ‘Preservation’ of vegetation in goodcondition.

An area of native vegetation in goodcondition will have little potential for anenvironmental gain that can be translatedinto credits. For these reasons, ‘preservation’cannot normally attract credit sales forwetland mitigation in the US. However, thesecuring of examples of vegetationcommunities whose current extent is ‘undertarget’ is an important action, especiallywhen these areas may show a slow declineof condition over time even withoutdeliberate clearing. Therefore, it is proposedthat ‘preservation’ should attract credits, butat a rate of, say, 10 hectares per credit sale.

Exact formulas for the managementactivities to realise one credit sale need to bedeveloped. NSW NPWS is currentlyworking on a project “benchmarkingbiodiversity credits”10. What is essential isthat the formula recognise the contributionto ecological gain that various managementactivities have, and for this to be reflected inthe credit-trading system.

These considerations, for a particular banksite, should be based on a BiologicalResources Report, which sets out the presentextent of vegetation communities and theircondition. The cost of preparing the Reportwould be included in the ‘initialestablishment costs’ of a bank, and recoupedthrough credit sales.

A schedule of available credits, agreed bythe Bank Review Team, would be includedin the Banking Agreement.

Recommendations:

2.5.1 That a Biological Resources Reportbe prepared for the bank site as a pre-cursorto consideration of credit valuation.2.5.2 That this report document theEcological Vegetation Classes (seeRecommendation 2.2.4) on the bank site,and the condition of the vegetation2.5.3 That the potential for net ecologicalgain from improved management, based onthe condition of the vegetation, be assessedand credits valuation determinedaccordingly.2.5.4 That credits be classified according tothe vegetation type, with sub-categories (forexample) ‘conservation of vegetation’,‘restoration of resilient land’, and‘revegetation of highly modified land’ withsuitable credit valuations for each based onagreed standards.2.5.5 That policy development, based onfurther research and discussion, includingthe work of the NPWS, be developedrelating to the number of hectares that wouldbe required from each of these sub-categories to constitute one credit.2.5.6 That the number of available creditswould be documented in a schedule as partof the Banking Agreement.

FootnotesFull citations are included in the reference list.1. C.Bean, pers.comm.2. D. Lawhead, pers.comm3. FWS (1999)4. FWS (2000)5. D. Mead, pers.comm6. Dept. of the Army (1995)7. C. Denisoff, pers.comm8. K. Lawrence, pers.comm9. C. Martz, pers.comm10. Phil Gibbons, NSW NPWS Pers. Comm.


ESSENTIAL ELEMENTS OF A BANKING SYSTEM.2.6 Land management of the bank

Summary:The ongoing management of the banksite is a critical factor in ensuring thatthe mitigation that the banker takesresponsibility for is actually achieved.

A qualified land manager is appointed toprepare and implement a Plan ofManagement.

This identifies on-ground works, andcosting of the plan determines theamount required for the LandManagement Fund, which is derivedfrom the interest from an endowmentaccount, funded through credit sales.

Usually, the roles of managing theendowment and managing the landmanagement fund (i.e., the interest fromthe endowment) are separated.

Approvals for credit sales may bedependent upon the bank achieving theperformance standards set out in thePlan.

Substantial amounts of capital are nowheld in endowment accounts so thatmanagement in perpetuity is assured.

When a developer buys a credit from a bank,he is transferring the responsibility for hismitigation requirements to the banker1. Theachievement of this mitigation is dependentupon the bank site being well managed inperpetuity. The role of ongoing managementof the bank is therefore a critical element inany conservation banking scheme.

Appointment of Land ManagerAccordingly, parties to the BankingAgreement will agree on the appointment ofa ‘Land Manager’. This will usually be a‘qualified conservation organisation’ – anon-government organisation with skills andexperience in conservation landmanagement.

Where such an organisation is also the bankowner, it may fulfil both roles, i.e., bankowner and operator, and bank land manager.It is also possible for a government agencyto be appointed as land manager, althoughthis does not happen in the case of privatelyowned banks2.

Plan of ManagementThe Land Manager will prepare a Plan OfManagement for the bank site. This will beinformed by the Biological Resources report(see Section 2.4). It usually includes3

! Initial establishment operations, such asweed knockdown, rubbish removal,fencing, road and track rationalisation.

! Management actions designed toenhance the target species or habitats forwhich credits will be sold

! Ongoing management actions, such asroutine weed and pest control,prescribed burning,

! Provisions for ecological monitoring.

An example of a Plan of Management isincluded in the Appendices.

Costing the PlanThe Plan Of Management will include aschedule for implementation of each of theseactions over the first five or ten years of thelife of the bank, and costings based on thisschedule will be prepared. A widely usedmethod for completing these costings is theProperty Analysis Record (PAR), developedby the Center for Natural LandsManagement4.


The Corps has also developed a computerprogram to estimate management costs forwetland mitigation banks5.

Land Management Fund and EndowmentAccountThe annual schedule of works identified byPAR is used to generate a figure for thecosts needed for land management over thelong term. The Land Management Fund isused by the land manager to fund the costsof management, including its own expenses.An example of a practical application of thePAR is shown in the Appendices.

The land management fund is derived fromthe interest generated from the endowmentaccount. If, for example, it is estimated that$5,000 will be needed per annum for landmanagement, and it is assumed that theendowment account will earn 5% interest,then the endowment account will need tohave $100,000.

This is funded from credit sales. TheBanking Agreement will state that a certainpercentage of each credit sale will beinvested in the endowment.

To facilitate the high costs of the bank’sinitial establishment, the Agreement mayspecify that 50% of funds realised from thefirst n credit sales from the bank will go tothe endowment account, and that thispercentage will reduce for later credit sales4

(see Section 2.9)

Management of the EndowmentThe management of the endowment is acritical issue. Obviously, various investmentportfolios will produce different returns.Land managers generally use a combinationof bonds and stocks, and will argue that theyhave the potential to generate more funds forland management purposes than aGovernment agency, which is onlypermitted to invest in bonds2,4.

Because of the risk involved in investmentsin stocks, DFG stipulates that it must

manage the endowment, as a hedge against acollapse in stock prices. There have,however, been Agreements which haveallowed a third party, or the Land Manager,to manage the endowment, provided thatDFG has approval over the endowmentaccounts charter, bylaws and investmentportfolio, and that drawing on any principlemust also have DFG’s approval2.

Where public utilities are required tomitigate their own projects, there have beeninstances where they have purchased landand established an endowment for that land.In the case of a new transmission linethrough Modoc County, the utilitypurchased a 4,000 acre ranch as a bank,vested it in the DFG, and then put $1m intothe endowment, also managed by DFG6.

The achievement of land management goals,and the use of the Land Management Fundis to be documented in the annualmonitoring report. (see Section 2.10)

Issues relating to the endowmentThere are now substantial amounts of capitalheld in endowment accounts across theUnited States. It is widely accepted that it iscritical to ensure proper conservationmanagement of banks over the long-term,and that this should be funded from bankowners – otherwise, it would be true thatthere was public subsidisation of the costs ofmitigation.

Nevertheless, use of endowment accountsfor this purpose has raised several issues.These stem from the realisation that toachieve long-term conservation goals, fiscalmanagement is as important as biologicalmanagement.

Firstly, the quantum of funds needed for theLand Management Fund, and hence thatneed to be invested in the endowment, arebased on current costs.

Perpetuity ‘is a long time’, and there need tobe assurances that the endowment will be


sufficient for management in perpetuity.Some Agreements stipulate that some of theinterest generated from the endowment mustbe put into the principal of the endowmentto counter the effects of inflation.

Secondly, who should manage theendowment? Management by an agency is alow-risk but low-return strategy, whereasprivate management of the endowmentcould yield greater funds for landmanagement by investment in stocks, butwith some risks. What guidance (if any)should be given to the managers ofendowments?

Thirdly, is the use of endowments the bestapproach anyway? One alternative would befor all areas protected through conservationeasements (see Section 2.7), includingbanks, be subject to low-level property taxesor rates, paid into a land management levy(regularly reviewed to reflect cost increases)to be administered by local Counties or Stateagencies7. These bodies could use the levyto retain the services of a Land Manager forall conservation land in their area.

New South Wales contextLand management is a crucial long-term roleif banks, and the banking scheme, are toachieve their goals.

The NSW National Parks and WildlifeService prepares a Plan of Management forareas under Voluntary ConservationAgreement, and the schedule of actionsunder a Registered Property Agreementachieve much the same ends.

Where a conservation bank is involved, thePlan of Management is even a more criticaldocument, given that the ecological gainsare essential if they are to offset impactselsewhere.

The use of the endowment account is auseful approach to ensure long-term landmanagement. However, the capitalrealisation from credit sales to ensure the

successful operation of an endowment maybe a barrier to the endowment accountmodel in rural NSW.

The amount of capital needed to be tied upin these endowment accounts is large, andmay not be able to be supported by arelatively small market for credits in ruralNSW. As it is funded from credit sales, itmay make credit prices too expensive for themarket.

Issues related to investment strategies, andthe ability of an endowment account to keepup with inflation may also be problematic.

It seems that the Land Management Planidentifies two sorts of costs:" Initial establishment costs" Long-term maintenance, management

and monitoringThe former could be covered by credit sales,whilst the latter could be covered by thepayment of a conservation rate, which fundsa ‘conservation land management fund’operated either by the local government orthe NSW Nature Conservation Trust. Thiswould circumvent the need for theestablishment of an expensive endowmentaccount.

Recommendations:2.6.1 That an organisation which is on thefederal Register of EnvironmentalOrganisations be appointed as LandManager, regardless of whether thisorganisation may also own the land title tothe bank site.2.6.2 That the Land Manager be required toprepare a Plan Of Management, includingcostings for a period of at least 10 years.2.6.3 That the Land Management Planidentify and cost ‘initial establishmentoperations’ and ‘long-term management,maintenance and monitoring operations’.


2.6.4 That ‘initial establishment costs’ befunded from credit sales, but that long-termmanagement costs be funded from a‘Conservation Land Management Fund’drawn from a minimal annual rate onconservation land.2.6.5 That the options of the ConservationLand Management Fund being administeredby local government, or the NSW NatureConservation Trust, be investigated.2.6.6 That the Plan Of Managementidenitfy ecological targets or goals which thebank must achieve.

FootnotesFull citations are included in the Reference section1. Marsh et al (1996)2. C. Bean pers.comm.3. S. Teresa pers.comm4. Center For Natural Lands Mgt (1994)5. D. O’Neill pers.comm6. J. Nelson, pers.comm.7. J.Rickert, pers.comm


ESSENTIAL ELEMENTS OF A BANKING SYSTEM.2.7 Securing conservation status of the bank

Summary:To ensure that the bank site is managedfor conservation in perpetuity, it issecured with a conservation easement.

Analogous to a covenant, the easementensures that the Banking Agreement,including the Plan of Management, isbinding on all future successors in title.

In addition to government agencies, any‘qualified conservation organisation’ islegally able to place a conservationeasement on a parcel of land, providedof course that the owner has consented.

Conservation easements are notstandard documents – each is negotiatedindividually and there exist a hugediversity in easements with relation toresource utilisation and management.For bank sites, however, easementconditions will re-inforce the agreedPlan of Management.

The easement is formally executed whenthe bank sells its first credit.

In addition to the easement, the BankingAgreement may stipulate that the title tothe land will transfer to a governmentagency or conservation organisationonce all credits have been sold, i.e.,when the economic value of the land hasbeen exhausted.

The permit received by a developerauthorises an environmental impact which isof a permanent nature. When the wetland isfilled, or habitat cleared, it is lost forever.Similarly, the mitigation which compensatesfor that loss should also be of a permanent

nature. To ensure this, a ‘conservationeasement’ is executed over the bank site.

A conservation easement ensures that thebank site is managed for its conservationvalues in perpetuity, and is binding onsuccessors in title. The easement is ‘held’ bya third party, which is given right of accessto the property, and who has theresponsibility of ensuring that themanagement of the site is being conductedin accordance with the Plan of Management.

In banks established under the CalifornianConservation Banking program, theeasement is usually held by the Departmentof Fish and Game1. The federal Fish andWildlife Service also holds easements overbank sites2.

However, as described in Section 3.2, adiverse range of agencies and non-profitorganisations are legally entitled to negotiateand hold conservation easements. Some ofthese non-profits, including land trusts andconservation organisations, also holdeasements over some bank sites1,3.

As with all other arrangements regarding thebank site, the choice of easement holdermust ultimately be agreed to by the ReviewTeam.

Easement conditionsAs discussed in Section 3.2, a range ofconditions may be stipulated as part of aconservation easement. They range from‘open space’ easements, which serveprincipally to prevent subdivision and urbandevelopments, to easements which providefor specified resource use, such as grazing orforestry, to those whose primary goal isbiodiversity conservation.


Conditions attaching to the easement willvary according to its primary goal.Where an easement is used to secure a banksite, its conditions will re-inforce the agreedPlan of Management.

Date of executionGenerally, the easement is formallyexecuted and comes into effect when thefirst credit from the bank is sold1,4.

Financial incentivesUnlike easements securing non-bank sites(see Section 3.2), the easement will notattract tax benefits, nor will it be ‘bought’ byany of the parties to the agreement. Theauthorisation to sell credits represents theeconomic incentive to the landholder1.

Transfer of land titleAn alternative to a conservation easement isfor the title of the land to be transferred to agovernment agency or conservationorganisation.

This can occasionally occur before the bankcommences operation as part of a jointventure arrangement, where the landownerwill be financially recompensed through theterms of the agreement.

Alternatively, an institutional bank boughtby a government utility to meet itsmitigation needs may be held by theconservation agency of that government.

More commonly, once the banks credits aresold out, the Agreement may provide for thetitle to be transferred. In this instance, thebank owner has exhausted economic valueof the bank. As the agreement and easementprescribes perpetual conservationmanagement (ruling out other economicdevelopments), the bank owner may simplywish to divest himself of the title.

NSW ContextTo provide the security needed bygovernment and the community that a

conservation banking scheme is meetingconservation goals, it is essential that banksbe managed for conservation in perpetuity.

In NSW, there are already mechanisms toachieve this, either a VoluntaryConservation Agreement under the NPWAct, or a Registered Property Agreementunder the NVC Act. These can be operatedby the NPWS, DLWC, or the NatureConservation Trust of NSW.

If credit sales are to be capped at the valueequivalent to covenant value plus intitalestablishment costs (see Section 2.9),landholders would be unlikely to supporttransfer of the full title to an agency.

Recommendations2.7.1 That bank sites be secured by aRegistered Property Agreement under theNative Vegetation Conservation Act 1997 ora Voluntary Conservation Agreement underthe National Parks and Wildlife Act 1974.

2.7.2 That the agreement be negotiatedwith, and held by, either the Department ofLand and Water Conservation, NSWNational Parks and Wildlife Service, or theNature Conservation Trust of NSW.

2.7.3 That the Agreement’s term be ‘inperpetuity’.

2.7.4 That the Conditions attaching to theAgreement are consistent with, and re-inforce, the agreed Plan of Management.

2.7.5 That the Agreement be executedconcurrently with the signing of a BankingAgreement.

FootnotesFull citations are included in the Reference section1. C. Bean pers.comm.2. D. Mead pers.comm3. S. Teresa, pers.comm4. Toyon Consultants


ESSENTIAL ELEMENTS OF A BANKING SYSTEM.2.8 Conservation Banking Agreement

SummaryThe establishment of a conservationbank involves a range of stakeholders.They must consider a range of complexfinancial, environmental, legal andadministrative issues.

In order to consider these issues from arange of perspectives, these stakeholdersare represented on a Bank Review Team.

The Review Team prepares aConservation Banking Agreement, andits members will ultimately sign thisAgreement once resolution of theseissues is achieved.

The Conservation Banking Agreementusually comprises the Instrument ofAgreement (Legal Contract) plus" Title search" Plan of bank site, inc. bank phases" Biological resources report" Land Management Plan" Conservation easement" Property Analysis Report" Rules relating to endowment account" Schedule of credits

The time-frames involved in thepreparation of the Agreement arelengthy – three years is not uncommon.

According to industry, this is a majordisincentive for landowner involvementin conservation banks, and legislationhas been introduced to Congress toprovide standard procedures, with time-frames, for the operation of Bank ReviewTeams.

The establishment of a bank is a complexmatter. All of the factors dealt with inSection 2 of this report must be considered,and agreement with all the stakeholdersmust be reached.

To facilitate this process, a Bank ReviewTeam is established in the early stages ofnegotiation. This will usually occur after theland-owner, or prospective bank-owner oroperator, has conducted his own feasabilitystudy which concludes that the site iseconomically viable as a bank.

Membership of the Review TeamThe Bank Review Team is usuallycomprised of1,2,3:! Representatives of agencies which

authorise the bank to sell credits towhich offset the mitigation requirementsthey condition in their permits. Thiscould include federal, state and countyagencies.

! Parties to the bank, including landowner, bank operator, land manager,endowment manager and any otherparties involved.

! Others co-opted for specific purposes,e.g., consultants who prepare theBiological Resources Report.

The Review Team does not usually includerepresentatives from the broader community.However, where a Natural CommunitiesConservation Plan has been developed withcommunity consultation, banking systemsare implemented according to that plan.

Banking AgreementThe Conservation Banking Agreement(referred to as the Mitigation BankingInstrument for banks established under thefederal Clean Waters Act) is a legal contract,the recitals setting out the interest of allparties.


Additionally, it will include the followingexhibits or schedules:! Legal Description and survey plan of the

parcel! Land Title Search report! Plan showing bank phases, where

applicable.! Biological Resources Report! Conservation Easement! Plan of Management! Property Analysis Record, including

details relating to funding of theendowment

! Schedule of credits approved for sale.

TimeframesThe time taken by a Bank Review Team tofinalise a Banking Agreement may beanything from 18 months to four years.Timeframes up to three years are notuncommon.

The ‘banking industry’, represented by theNational Mitigation Banking Industry(NMBA), considers that the time taken byReview Teams is a major factor indetermining the economic viability of a newbank, and therefore contributes substantiallyto the cost of credits4,5. Reasons for thisdelay include:

" Biological surveyThere is an array of classification systemsfor credits, either wetland credits (with avariety of classifications for differentwetland types), habitat types (based onhabitat for endangered species), or species-specific credits (e.g., Red-legged frogcredits). These classification systems eachrequire a unique survey and verificationmethodology, and agreement must bereached in the Bank review team as to whichparts of the bank can sell which types ofcredits.

" Agency reviewAnother factor commonly referred to is thatgovernment policy to establish andpolitically support banking systems have notbeen followed by adequate resources for itsagencies to implement the policy. Agencyreview is therefore a time-consuming factorin the process.

Lack of standard contentsBanking Agreements vary widely across therange of banking schemes which operate inthe US. Whilst certain elements are commonto all agreements, there is not one standardpro-forma for agreements and necessaryexhibits across the programs.

Statutory guidanceAs mentioned in Section 2.1, there is noover-arching legislation for conservation ormitigation banking schemes. Whatlegislation does exist deals with specificaspects of banking schemes (e.g., publicdatabases) or refers only to specific regionsof some States.

One of the aims of the American WetlandRestoration Bill6, which has been tabled inCongress, is to cut the time involved inpreparing a Bank Agreement. It sets out aprocess for preparing an agreement, andtimelines for each part of the process.

New South Wales context.A Banking Agreement is a necessaryinstrument to ensure commitment to thebank by all parties, to ensure that the bankoperates in a way that conforms tocommunity expectations, and that it canachieve stated conservation objectives.

If conservation banking is to establish inNSW, it is clear that a Banking Agreementmust be able to be negotiated expeditiously.

This would be greatly assisted by the! adoption of a single uniform

classification system for credits, basedon vegetation types


! agreement on the standard contents of anAgreement

! by ensuring agency resources areadequate to deal with the demandsgenerated by a banking scheme

! by overarching policy and proceduraldocuments agreed to by all relevantState agencies and local government.

Recommendations2.8.1 That a Conservation Banking ReviewTeam be established for each proposedConservation Bank, to prepare a BankingAgreement.2.8.2 That it comprise representatives ofDLWC, NPWS and the relevant localgovernment authority, and all parties to theagreement.2.8.3 That policy and procedural guidelinesbe developed, with DLWC the lead agency,to guide the process and provide

recommended timelines, standardAgreement contents and pro-formas.2.8.3 That these guidelines be agreed to byall relevant State agencies and the LocalGovernment and Shires Association ofNSW.2.8.4 Legislation (if deemed necessary) beinformed by the implementation of theseguidelines.

FootnotesFull citations are included in the Reference section.1. C. Bean pers.comm.2. D. Mead, pers.comm3. D. O’Neill, pers.comm4. L. Lautin, pers.comm5. C. Denisoff, pers.comm6. American Wetland Restoration Act H.R.

1474 http://thomas.loc.gov

http://thomas.loc.gov/


ESSENTIAL ELEMENTS OF A BANKING SYSTEM.2.9 Credit sales

Summary:Once the Bank Agreement is signed byall the parties, the bank is authorised tosell credits.

Some banking systems require that thesale of credits be staged, in response toenvironmental performance criteriabeing met.

Credits are sold at a value determinedby the market. Factors which influencemarket price are the cost of establishingthe bank, such as land purchase,consultants reports, mapping andsurvey, and site management.

Bank operators, however, need to ensurethat the credits they sell are a cost-effective option for potential buyers –that is, they are cheaper than thedevelopers buying and managing theirown land for their mitigation needs.

Bank operators may decide to retain theservices of a sales agent to sell credits.

The market for credits is driven by urbanand industrial expansion, and hence,banking systems are not well-establishedin rural areas.

Bank operators are required to keep adatabase of credit sales, for reporting toagencies. Some agencies require that thecredit transaction be approved prior tosale. Additionally, agencies are requiredby law in California to maintain a publicregister of credit sales.

Once the Bank Agreement is signed, thebank is ‘in business’ and can sell credits onthe open market.

Timing of credit saleWetland Mitigation Banking Instrumentswill specify the environmental criteria whichmust be met before ‘the next batch ofcredits’ can be sold. For instance, a bankmay be allowed to sell 20% of its creditseach year over 5 years, provided that annualperformance criteria are met.1,2

Conservation Banks established to meet therequirements of the California DFG may sellall their credits immediately2.

Price-settingThe price of credits is set by the bankoperator in response to market conditions.For the bank to be profitable, the price willreflect the costs of establishing the bank.These include:! Land purchase (or land value if title is

already held)! Feasibility studies! Consultants reports, including the

Biological Resources Report! Survey and mapping! Establishment costs such as constructed

wetlands, or other initial environmentalremediation

! Agreed contribution to the managementendowment

! Marketing costs

In setting credit price, the bank operator willconsider the return on investment required toundertake the project, i.e, the anticipatedprofit margin3.

The bank operators must be careful to ensurethat the cost of credits is a cost-effectiveoption for potential buyers. Potential buyerscould buy their own land for their mitigationneeds, provided that they also have the long-term management commitment which canmeet the goals of the Bank Agreement.


By buying a credit, they are transferringresponsibility for mitigation to the bankoperator, and need make no long termcommitment to meet their own mitigationneeds4. They by the credit, walk away, andget on with their own development – leavingthe mitigation to a bank operator withgreater skills and expertise in environmentalmanagement.

Though this in itself is attractive todevelopers, the price of credits needs to alsobe realistic if the trading system is to besuccessful.

Credit prices vary considerably across theUnited States. In southern California andFlorida, where land costs are high anddevelopment is proceeding apace, a singlecredit may cost $100,000 or more. In otherareas of California, prices tend to range from$40,000 to $70,000 per credit, whilst in ruralareas, wetland mitigation credits commandbetween $2,000 and $10,0003,5.

Credit buyersThe cost of credits in California is generallytoo high to be attractive to farmers, as thereturns from agriculture are insufficient formost agribusinesses – even intensiveagriculture –to justify the outlays requiredfor credit purchase6. In any case, ruralproperties may be more able to undertaketheir own mitigation.

Banking systems in the United States aredriven more by urban development. Thereturns from subdivision and urbandevelopment set the market prices forcredits. Therefore, credit-trading andbanking systems are only well established inthe more populous areas of the country, suchas southern California, Florida, and thenorth-east.

Banking systems have been established inresponse to these demands, and thereappears to be far less potential for thesesystems, as currently framed, to operate inrural areas.

The high price of credits may present anopportunity for farmers to get higher per-acre returns from conservation banking thanfrom farming. However, several factors areat play to make this a difficult proposition,including6,7

! The limited service areas to which abank can sell credits

! A requirement for mitigation to be “inkind”

! Administrative and technical complexityof bank establishment and operation

There is also potential for philanthropicbodies with an interest in conservation topurchase credits to support habitatrestoration activities.

Marketing creditsBank operators need to effectively markettheir product – conservation credits – if thebank is to get the returns it needs to beviable.

As a relatively new business, effectivemarketing has been a challenge for somebank operators – especially those outsidemajor development areas where demand ishigh.

In response, a number of ‘mitigation sales’companies have risen, which act on behalfof the bank to market credits to potentialclients. Their fee is usually 10% of creditprice1.

The most important market information usedby these sales agents are developmentpermits issued by federal, state and countyagencies1,3. (Analysis of permitting trends isan important part of forecasting sales and inbank feasibility studies – see Section 2.2)

Some bank operators have found thatagencies have directly assisted in findingbuyers for credits. However, given that thesite is permanently protected byconservation easement once the first credit issold, some bankers find that, after the


easement is executed, agencies are generallymore interested in securing additional siteswith easements – and that agencies mayeven direct credit buyers to these newerbanks6,8.

Some have questioned that this is a role forgovernment at all. Issues of government‘interference’ in the market place – or‘picking winners’ – have been raised.

To overcome this, the California StateCongress recently passed legislation torequire the Department of Fish and Game tokeep a database of all permits issued whichrequire mitigation through credits, and alsothe credit status of all banks. This databasewill be publicly available. It will assist bankoperators to find buyers for credits, and willmake the role of government in the marketplace more transparent9.

The legislation was supported by bothconservation groups and the bankingindustry3,9,10. It came into effect on July 1,2001.

New South Wales contextThe high price of credits in southernCalifornia is driven by the demand from theextraordinary residential growth. It alsoreflects the technical and administrativecosts in establishing a conservation bank.

If credit-trading systems are to be introducedin rural NSW, it is clear that the cost ofcredits must be realistic to attract ruralbuyers. This will mean ensuring that costs ofbank establishment are minimised, whilststill meeting environmental goals.

The classification of credits according tovegetation type, and the ability for a debitholder to ‘trade up’ to buy credits of othertypes of a higher conservation status, wouldpotentially enable rural landholders to sellcredits to urban developers.

To facilitate this, a public register ofapproved debits and credits needs to bemaintained.

A goal of such a system must also be toprotect significant natural areas, byproviding alternative income streams forrural landholders. To achieve this, fullerparticipation from rural landholders asbankers must be stimulated.

A method for facilitating this involvementcould be to cap credit sales from a bank site(provided landholders expenses andopportunity costs have been met) and forany overflow to go to other bank sites.

Recommendations2.9.1 Credit sales should be notified togovernment within 30 days.2.9.2 Government agencies should keep aregister of approved credit and debits, whichis publicly available, as market informationto assist those involved in the scheme, andto facilitate public scrutiny of the scheme’seffectiveness.2.9.3 If the scheme is to be effective acrossrural NSW, credit service areas (to which abank is allowed to sell credits) need to berelatively large.2.9.4 To facilitate greater landholderinvolvement and to secure conservationgoals, credit sales could be capped at a valueequal to the bank’s covenant value plusinitial establishment costs.

FootnotesFull citations are included in the reference section1. L. Lautin pers.comm2. K. Lawrence, pers.comm3. C. Denisoff, pers.comm4. Marsh et al (1996)5. K. Lawrence, pers. comm.6. B. Blodgett, pers.comm7. J. Rickert, pers.comm8. D. Macon, pers.comm9. C. Bean, pers.comm10. J. McCaull, pers.comm


ESSENTIAL ELEMENTS OF A BANKING SYSTEM.2.10 Monitoring and reporting

Summary:When the bank is fully operational, itsperformance is monitored and reviewed

Environmental monitoring occursannually to ensure that the Plan ofManagement is being adhered to, andthat the bank’s performance goals arebeing met. Evidence of this may benecessary for agencies to approve thefurther release of credits for sale.

Financial reporting occurs to ensurethat the endowment account, and othermoneys, are being managed inaccordance with any clauses included inthe Agreement.

Bank operators are required to report toagencies on these matters annually.Credit sales are tracked, and the detailsof credit sales included in a publicregister.

When a conservation bank is established andoperational, the bank operator is required tomaintain records to document thefunctioning of the bank. This documentationmust relate to a range of factors:" demonstration of adherence to Plan of

Management" ecological monitoring" financial monitoring, both for credit

sales and the management of theendowment fund.

Adherence to Land Management PlanAnnual reports must be completeddemonstrating adherence to the Plan OfManagement. These reports are sent to theDept. of Fish and Game, who may also carryout a compliance check of the bank1.(Banking Agreements provide for right ofaccess to DFG officers).

Ecological monitoringAdditionally, the Land Manager may beresponsible for conducting surveys ofhabitat types and targetted species. Thesurvey will also record the degree ofecological gain that has occurred as aconsequence of the implementation of thePlan of Management. These surveys arereported to DFG, who may adjust the landmanagement plan in response to the findingsof these surveys.

Generally, general vegetation surveys areconducted annually, with targetted flora andfauna surveys occurring every 3-5 years1.Targetted surveys are crucial for bankswhich sell credits for endangered species2.

Credit transactionsBank operators are required to maintain adatabase of the credits sold and thecorresponding amount of area conserved.Annual reports are submitted to DFGshowing the year’s activity, together withcumulative transactions since the bankbegan operations.

Agencies also keep a database of creditsales. The Federal Fish and Wildlife Servicemaintains a comprehensive database foreach bank that they authorise to sell credits2.DFG is now required to maintain a publicdatabase of all credit and debits3.

Endowment FundThe land manager may also be required toreport on the performance of the endowmentfund, both money spent from the fund, andinterest received.

Release of credits subject to monitoring.Under the Mitigation Banking programadministered under the federal Clean WatersAct, wetland banks may be required todemonstrate environmental performancebefore credits are approved for release4,5.


In these banks, the Plan of Management willset out milestones, or performancestandards, which must be achieved beforethe next batch of credits can be approved forsale. For instance, the Everglades MitigationBank in Florida (which originally had severeenvironmental weed problems, notably theAustralian Melaleuca and Casuarina) had toachieve 95% native plant cover by its 5th

year5. The purpose of the monitoringprogram is to determine whether theseenvironmental performance standards, as setout in the Banking Agreement (in the Planof Management) had been met.

The release of their final credits for sale isdependent on this goal being met. Generally,wetland banks have milestones in each oftheir first 5 years. The percentage of creditswhich can be released in each of these 5years varies from bank to bank.

Failure to achieve goals.Perhaps the greatest danger inherent in anybiodiversity credit-trading scheme is that,after credit sale, the anticipated ecologicalbenefits do not occur.

One study on wetland mitigation found thatwhilst the laws are sufficient to provide foreffective mitigation, the documentation inpermit files is insufficient to determinewhether or not mitigation is, or is not, incompliance5. DFG has found that less than20% of its regional files on conservationbanks are adequately maintained todetermine compliance6. Clearly, agenciesneed guidelines and resources to undertakeand document monitoring and compliance.

If the monitoring program finds that the Planof Management is not being adhered to, orhas not resulted in environmental standardsbeing met, the bank has failed. Theassignment of liability is an important issue,but “existing banking schemes are notextremely helpful in specifying liability”7. Itis not the purchaser, as they have offloadedtheir mitigation responsibility by buying the

credit. Potentially, it could be the bankoperator, the land manager, or the agency.New South Wales contextMonitoring is undertaken with respect toboth Property Agreements under the NVCAct, and Conservation Agreements underthe NPW Act. DLWC Regions monitor 10%of all agreements annually. Monitoring andcompliance functions have been located inCompliance Units in each DLWC Region. Itis anticipated that these units wouldundertake monitoring and compliancefunctions with respect to bank sites.

Ecological monitoring should be undertakenby the Land Manager, which would ideallybe the same organisation which conducts thesurveys for the Biological Resource Report.

The task of compiling and maintaining apublic database of credit transactions is acritical one and would need to be resourcedby government.

Recommendations2.10.1 That the bank operator, inconjunction with the land manager, berequired to furnish an annual report.2.10.2 That the Land Manager undertakeecological monitoring of the bank site, atleast every 5 years.2.10.3 That conservation banks be subjectto a random audit with respect to adherenceto the Bank Agreement, and specifically theLand Management Plan.2.10.4 That a comprehensive database beestablished to monitor credit transactionfrom banks, as part of the public register ofcredits and debits.2.10.5 That the party that carries liabilityfor the delivery of credits in perpetuity beclearly identifiedFootnotesFull citations are included in the reference section.1. Toyon Environmental Consultants2. D. Mead, pers.comm3. D. O’Neill, pers.comm4. S. Collins, pers.comm.5. Ctr for Natural Lands Mgt (1994*)6. C. Bean, pers.comm7. McElfish and Nicholas, (1996)


SECTION THREEANCILLARY PROGRAMS

3.1 Non-profit organisations

3.2 Conservation easements

3.3 Tax incentives

3.4 Farmland and open space conservation programs

3.5 U.S.D.A. programs


Section 3: ANCILLARY PROGRAMS3.1 Non-profit organisationsSummaryThe successes achieved in private-landnature conservation in the US can beattributed in large measure to the roleplayed by non-government, not-for-profitorganisations.

They play a pivotal role in negotiatingdeals with landholders with none of theattendant suspicions or constraints thatcharacterise similar negotiations withgovernment agencies. Additionally, theyare able to secure private investment toa greater degree than governmentagencies are able to do.

Non-profit agencies include Land Trusts,conservation organisations, andphilanthropic foundations. They arefostered by government throughprovisions of the federal InternalRevenue Board, which sets criteria fornon-profit status which enable suchbodies to be ‘qualified conservationorganisations’.

However, no assessment is made of theconservation expertise of monitoring /management standards of these‘qualified conservation organsiations’.

There are a large number of not-for profit,non-government organisations activethroughout the US, achieving great thingsfor private land nature conservation – and,their numbers are growing.

They are facilitated by favourable taxlegislation, by community interest in landconservation, and by the large amount ofprivate capital in the US, some of which ischannelled through philanthropic

organisations to secure tax benefits andother corporate goals.

Land TrustsLand Trusts are predominantly non-profitlocal, regional or statewide organisationsthat work with private landowners to protecttheir land for conservation, recreation, orother public benefit1. They work to acquireland, conservation easements, managementagreements or other interests to enablepublic benefit from private land.

Each Land Trust will have its own missionstatement, specific to its setting or region.Viewed collectively, Land Trusts canachieve a great deal because of the range ofscales at which they operate, and the rangeof partners with which they work.

The ‘Land Trust movement’ has shownextraordinary growth over the last 10-20years. In 1950, there were 50 Land Trusts inthe US. By 1980, there were 200, and thereare now over 1,200 supported by 900,000members across the country1.

In 1998, they collectively owned 828,000acres of land, held conservation easementsover a further 1,385,000 acres, and hadacquired 2,487,000 acres which had beentransferred to third parties. A further1,764,000 acres had been protected by othermeans, including deed restrictions, andpurchase of mineral rights, among others1.

The majority of Land Trusts engage in otheractivities, such as maintaining public accessfor recreational purposes, public educationand outreach, and land-use planning.

The role of Land Trusts as an access pointfor landholders seeking options aboutprotecting their land is critical, and theircommunity base makes this role possible.


There are four basic legal requirements thatmust be met in the formation of a LandTrust2. These are:" That it is an incorporated body" That it has received federal (and, if

applicable, state) tax exempt statusunder section 501(c)(3) of the InternalRevenue Service Code.

" That it complies with its requirementsfor retaining its tax-exempt status,including prohibitions on privateinurement and political campaignactivity.

" That it meet its reporting requirements.

These basic legal requirements do not referto standards for conservation landmanagement or monitoring compliance –although these are referred to as essentialundertakings in the Land Trust standardsand practices guidebook2, prepared by theLand Trust Alliance to guide individualTrusts.

Provided that a Trust complies with thesebasic legal requirements, it can legally holdeasements, regardless of its track record inconservation management.

There is some evidence of lack ofcompliance in monitoring3, as discussed insection 3.2 of this paper, and therequirement for auditing of a Trust’sconservation functions may be an importantnext step in the development of themovement.

Whilst the community base of Land Trustsis similar to the Landcare movement inAustralia, landcare-type activities are morecommonly conducted by ResourceConservation Districts, facilitated by (butindependent from) the US Department ofAgriculture.

Conservation organisationsThe range of conservation organisations inthe US, as elsewhere, demonstrates thediversity of niches that must be filled for

effective representation of conservationviewpoints.

Increasingly, it seems, conservationorganisations are attaching greaterimportance to the role of ‘hands-on’, activeinvolvement in the identification, purchase,and management of land.

Whilst some organisations concentrate theirefforts on campaigning, a large number aredoing deals with landholders andgovernment to secure parcels of importantconservation land.

This can create some interesting challengesfor the conservation movement.

Issues such as urban sprawl have seen theseorganisations involved in the purchase ofeasements to limit development but allowthe continuation of ranching. Some havequestioned the role of their organisationsinvesting in land where grazing (even withspecified limits) continues as a land use4.

Attaining non-profit status under s501(c)(3)of the IRS Code enables conservationgroups to be involved in much the sameactivities as Land Trusts – but limits party-political activity.

This has led to what could be viewed as adichotomy of conservation organisations –active party-political campaigners, andactive land management practitioners. Bothhave a legitimate role. The latter seems to bean inevitable consequence of the need toprotect more and more areas of America’sland from development, and the necessitydictated by that goal of turning stakeholdersinto partners.

The success of this approach isdemonstrated by The Nature Conservancy,which owns 12 million acres of conservationland5 and is one of the top 10 charities in theUS.


Private foundationsLand Trusts and conservation organisationsmust have access to funding to achieve thesegoals. Whilst the tax base in the US is largeenough to enable governments to makesubstantial contributions to these groupsthrough various programs, the existence ofand role played by private philanthropicorganisations is also fundamental to theirsuccess.

Several hundred million dollars is donatedannually for land and nature conservationpurposes in California. One prominentfoundation, the Packard Foundation,annually donates US$135m6.

Philanthropic organisations are encouragedto do so because of the favourable tax statusthey receive, provided that they donate atleast 5% of their capital to charitableorganisations each year. Tax incentives arediscussed in Section 3.3 of this paper.

NSW ContextSupport for community-based conservationin NSW has increased dramatically in thelast decade, and has led to the developmentof over 1,400 Landcare groups throughoutthe State7. Their role includes communityeducation and awareness, the developmentof catchment plans for improved landmanagement, and the implementation of on-ground works such as re-vegetation, riparianprotection, and soil erosion control works.As such, the existence and continuity of theLandcare movement is critical for theachievement of conservation goals.

However, their role does not usually involvelegal interests in land. They generally do notbuy or sell land, or rights in land, such asconservation covenants, water allocations ormining rights.

Yet the ownership of rights in land isincreasingly recognised as fundamental tosecure the private and public investmentnecessary to achieve conservation goals.

Several conservation groups in Australianow have active land acquisition programs.

How can the twin goals of local communityinvolvement on the one hand, and ensuring alegal / institutional capacity to deal in andmanage land on the other, be married?

Landcare groups could expand their role, oralternate trusts to deal in land (like the USLand Trusts) could be formed.

The soon-to-be established NSW NatureConservation Trust could act as umbrella forthe formation of regional Trusts, responsiveto local conservation priorities, but able tocall on the expertise of a State-wide body forassistance with legal and financialtransactions. The State-wide body wouldalso provide a quality-assurance role withregard to the conservation managementactivities of the regional Trusts.

It will also be necessary to develop the roleof philanthropic organisations, throughappropriate tax treatment for conservationand the marketing of land conservationpriorities to these bodies.

Recommendations.3.1.1 That regional non-profit organisationsbe established to deal in, and manage, landfor conservation purposes.3.1.2 That consideration be given to theNSW Nature Conservation Trust acting asan umbrella body for these groups.3.1.3 That the ability of philanthropicorganisations be developed to support theactivities of conservation organisations and(if established) regional Trusts.

FootnotesFull citations are included in the reference section1. Gustanski, 20002. Land Trust Alliance, 20003. Bay Area Open Space Council, 19994. Stolzenburg, 20005. www.nature.org6. S.Teresa, pers.comm.7. www.dlwc.nsw.gov.au/community/landcare/

index.html


ANCILLARY PROGRAMS3.2 Conservation easements

SummaryThe ‘Conservation Easement’ is a legalinstrument used to protect a parcel ofland in perpetuity. An easement is, forpractical purposes, analagous to a‘conservation covenant’ in Australia.

Conservation Easements are widelyused, and for a range of purposes.Easements for farmland or open spaceprotection, forest resource use, orbiodiversity conservation, are all termed‘conservation easements’. Theinstrument is the same, but theconditions attaching to it vary.

Methods for valuing easements arewidely accepted, and carried out byaccredited appraisers. Easements arecommonly bought by agencies and non-profit organisations, or alternatively aredonated to them by landholders who areencouraged to do so by certain taxadvantages.

Easement valuations are central to thesuccess of these instruments, as theyform the basis for purchase price and /or tax incentive calculations.

Monitoring and compliance of easementconditions varies widely, and bettercompliance standards may be needed.

The Conservation Easement (for practicalpurposes, analogous to a conservationcovenant in Australia) is a widely-used toolfor land and nature conservation in the US.The holder of the conservation easement hascertain rights over the property, inperpetuity, whilst the landholder maintainsownership of land title.

Purposes and conditions of easementsConservation easements are used for amultitude of purposes. These include1

! To retain or protect natural, scenic oropen space values

! To ensure the availability of realproperty for agriculture, forest,recreational or open space use

! To protect natural resources! To maintain or enhance air or water

quality! To preserve the historical,

archaeological, architectural or culturalaspects of real property

Restrictions and obligationsThe instrument is the same, but theconditions attaching to it vary to match itspurpose. In this way, each and everyeasement can have “its own set of rules”1

This is done by imposing restrictions andlimitations on land use within the easement.In some cases, an easement can also createaffirmative obligations for landholders (i.e.,to perform certain acts), although this cancreate difficulties with compliance,especially in the long-term1.

Conditions on conservation easements usedby The Nature Conservancy (TNC) in one ofits’ Californian programs2 serve as a usefulguide to what conditions would attach to abiodiversity conservation easement. Insummary, they include (inter alia):! The right of the TNC to enter the property

for monitoring and compliance, and tocarry out specified land managementfunctions

! The right of the landholder to grazelivestock in accordance with specifiedlimits, to maintain identified water points,to maintain existing improvements, and toengage in a range of specified non-commercial uses


! The prohibition of additional specifiedbuildings and infrastructure, dumping ofhazardous waste, subdivision, introductionof non-native species, damage to nativevegetation or wildlife, among others.

The range and type of conditions attachingto the range of easements (of all types) areinnumerable. It is appropriate for easementsto be tailor-made for the property, andobviously they will be negotiated to thesatisfaction of all parties.

Nevertheless, the plethora of conditionswhich can apply to easements are apparentlygrowing, and some may give the appearanceof being inimical to ‘conservation’. This iscausing some disquiet3,4, as it affects thewhole perception of the value of easementsamong landholders, agencies, philanthropictrusts, and the wider community.

Some observers believe that thestandardisation of easements into a limitednumber of categories, such as:! Conservation easements! Forestry easements! Open Space easements! Agricultural easementseach with standard instruments, butproviding for site-specific managementplans, is both desirable and inevitable3,4.

Valuation of easementsIn the US, conservation easements arevalued according to a set of methodologieswhich are becoming increasingly well-accepted5. Valuation reports are completedby accredited appraisers, or by propertyvaluers. Where an easement is sold at value,the landholder will pay the appraisal fee.Where it is donated, the donee commonlypays.

Easements can be viewed as representing a‘bundle of rights’ held by a third party6. Forinstance, an agricultural easement mayprohibit urban development, but allowcontinuing agricultural production, evenintensive irrigation. A biodiversity

conservation easement may similarlyprohibit development, but also limit grazing,woodcutting and certain recreational uses.Hence, a larger ‘bundle of rights’ is held inthe latter example than compared with theformer.

Also, the same ‘bundle of rights’ on twoproperties may represent a markedlydifferent percentage of the full market valueof those properties. This may be due to thevarying development potential of the twoproperties.

Conservation easements are usually valuedat 40-60% of full market price3,7,8. Aneasement over land on the city fringe may bevalued at more than 75% of market price3.The value of a restrictive conservationeasement over land in a remote area, withlimited development potential may be only30% of market value. On the same land, anopen space easement with no restriction onagriculture may be valued at 10-20% of fullmarket value3.

It is widely held that easements with a valueof <20% of market value are not worthbuying. Conversely, where an easementrepresents >80% of market value, the fulltitle should be secured3,8.

In order to complete a valuation, anappraiser can use a range of valuationmethods. These include3:! Market Approach: What is the

difference between existing marketvalue, and the market value with aconservation easement?

! Income approach: What is the incomepotential under the two scenarios?

! Cost approach: What are the costs ofdevelopment needed to realise incomeor market value, versus the costs ofimplementing conservation?

Valuation reports are a critical factor in thewidespread use of easements. On the basisof these reports, the purchase value of aneasement is determined. Alternatively,


where the easement is donated, the valuationis used by the donor to determine his or hertax benefits.

A mix of sale / donation for the oneeasement is possible. These ‘bargain sales’will benefit the purchaser who pays less thanthe easement value3,8. The other portion ofeasement value is donated and thelandholder will accrue proportionate taxbenefits for that part of the easement whichis donated.

Who holds easements?Easements are bought by a range of bodies,including regulatory or conservationagencies, counties, and non-governmentorganisations, such as conservation groups,farmer groups or timber firms, depending onthe easement purpose. The importance ofLand Trusts (see Section 3.1) in acting tosecure easements is critical.Landowners who wish to donate aneasement will usually favour Land Trusts orconservation organisations.

Monitoring and complianceGiven the public resources that are used tobuy easements, and their increasing use tosecure conservation outcomes (especially tomitigate the impacts of permitteddevelopments as in a conservation bank), itis self-evident that monitoring compliancewith conditions is a critical task. It appears,however, that it is one that may not havereceived sufficient attention.

A study in the San Fransisco Bay Area9

found that 51% of easements are regularlymonitored. Violations of easementconditions occurred in 14% of cases. Thismay not seem extreme, but given that two-thirds of easements in the area were lessthan 9 years old, and that nearly half are notmonitored at all, the scope for problems isgreat.

The report found that easements held byLand Trusts had >60% of all violations,

followed by county-held easements (30%),and State and Federal agencies (10%).

This underscores the importance oforganisations which can hold easementsbeing accredited not only on the basis ofnon-profit status, but also as capable ofdelivering effective conservationmanagement10.

It also underscores the importance of someregulatory requirement for monitoring andcompliance, especially given that publicfunds are often used to buy easements.

NSW ContextConservation covenants, either as‘Registered Property Agreements’ under theNVCA or ‘Voluntary ConservationAgreements’ under the NPWA, are availableas conservation tools in NSW. Yet theirpotential to deliver conservation outcomeshas barely been realised.

This may be due to a number of factors,including:! That they are administered by government

agencies.! That they are (in American terms)

required to be ‘donated’.! That funding for land management works

(through the NVMF) is availablesporadically.

! That their economic value is not usuallyassessed, and that methods for such anassessment have not been developed

! That there are limited tax advantages

The establishment of the NSW NatureConservation Trust, which can operate bothschemes as a non-government organisation,is a welcome development, and will assistthe uptake of covenants.

The NSW NCT may be able to fosterregional bodies which are responsive tolocal conservation priorities, and locallandholders. This would mirror the successof Land Trusts in the US as a local body,


whilst providing assurances of professionalconservation management and monitoring.

However, for the uptake of covenants toreach its full potential, the development of avaluation framework, and realistic tax andrate incentives (see Section 3.3) will beessential.

Whether the valuation of a covenant inAustralia will reflect the Americanexperience is not at all clear. Evidence inQueensland, Victoria and South Australiaindicates that the execution of aconservation covenant may be eithernegative, neutral or positive on propertyvaluation, and that this varies widely withregard to the region, and the purpose of thecovenant11.

The situation in NSW is unclear, but is alsolikely to vary widely across the State. Untilthere are methods trialed for valuingconservation covenants in various regions ofthe State, the situation will remain unclear.

Work on the development of a valuationmethodology should be a priority to test this.Such a trial could be run in conjunction withthe trial of the Environmental ServicesScheme.

Recommendations3.2.1 That conservation agreements orproperty agreements be negotiated byregional bodies (refer to recommendation3.1.1)

3.2.2 That methods be developed forvaluing covenants and easements in NSW,in consultation with the Real Estate Institute

3.2.3 That these methods be trialed inconjunction with the trial of theEnvironmental Services Scheme.

FootnotesFull citations are included in the reference section1. Mayo, T (2000)2. J. Jacobsen, pers.comm3. J. Rickert, pers.comm4. J. McCaull, pers.comm5. Land Trust Alliance (2000*)6. Gustanski, J (2000)7. D. Macon, pers.comm8. N. Schaefer, pers.comm9. Bay Area Open Space Council10. S. Teresa, pers.comm11. Skitch, R (2001)


ANCILLARY PROGRAMS3.3 Tax incentives

SummaryThe achievements in private landconservation in the US are underpinnedby a comprehensive system of taxincentives. These incentives encourageconservation actions by landholders,and also encourage the growth ofphilanthropic organisations whichsupport other agencies andorganisations.

Whilst a full treatment of US taxprovisions with respect to conservationland is beyond the scope of this paper,the issue warrants this separate sectionto highlight the importance of theseinitiatives.

The issue has also been raised inAustralia by a number of authors andorganisations, and the implementation oftheir recommendations will be central toachieving stated government objectivesfor ‘no net loss’ of native vegetation.

The following is not a comprehensive guideto federal US tax law relating toconservation easements, but a summary ofthe main tax tools used that acts asincentives to landholders.

Charitable gifts:A gift to a charitable (non-profit)organisation can be deducted from grossincome for income tax purposes. The valueof a conservation easement, if substantiatedby an appraiser and subsequently donated, issuch a gift.

The limit for gifts is 30% of gross income,so if the value of the easement exceeds this,the balance can be carried forward forincome tax purposes for up to five years1.

Alternately, if donating property, the valueof the property when purchased or inheritedcan be deducted, up to 50% of gross incomeover 5 years.

Property taxesA conservation easement will ensure thatproperty taxes (‘rates’) are calculated on thevalue of the property minus the easementvalue, significantly reducing the burden onlandholders.

Estate taxesAs a conservation easement generally lowersthe full market value of the land, it willlower the value of the taxable estate1. Again,these values are documented in an appraisersreport.

Further to this, an additional 40% of thevalue of the land (even after the easementvalue is subtracted) may be deducted undercertain circumstances2.

Original Property value: $2mEasement Value $1mProperty value with easement $1mS2031(c) exclusion of 40% $400,000Taxable estate: $600,000

Post-mortem easement donationAdditionally, a conservation easement canbe placed on the land by the heirs of theestate. This will reduce estate taxes, evenwhere the deceased had never placed aconservation easement over the propertyduring his or her lifetime2.

Further reading:For a fuller discussion of the US taxtreatment of conservation land, refer toSmall (2001), Gustanski and Squires (2000)and Land Trust Alliance (1999).


New South Wales contextThere have been numerous reports andpapers documenting the necessaryamendments to local, State and Federaltaxation laws that are required to encouragenature conservation on private land.

The R&D program of Land and WaterAustralia and the Centre for SustainableEcosystems at CSIRO have beeninstrumental in providing this analysis.Some reports include:! Binning and Young (1999) Talking to

the taxman about nature conservation! Binning, Young and Cripps (1999)

Beyond roads, rates and rubbish –opportunities for local government toconserve native vegetation

! Binning and Young (2000) Philanthropy– conserving the land.

Full citations are included in the referencelist at the end of this report. The latter has aparticularly useful summary of thedistinctions between US and Australiantaxation laws affecting conservation, with anumber of recommendations on thenecessary amendments required toAustralian tax law.

Some recommendations have already beenimplemented, including:! Exemption of capital gains tax from sale

of land with conservation covenant.! Apportionment of gifts of conservation

land over 5 years

! Recently announced tax incentives forland held under conservation covenant.

However, a number of recommendationsremain unaddressed. Additionally, NSWState Land Tax does not have any provisionsrelating to land covered by a conservationcovenant.

Given that financial considerations lie at theheart of most land use decisions by privatelandholders, the amendment of rate andtaxation legislation is essential to reflectstated government objectives of ‘no net loss’of native vegetation.

In so doing, we may finally see ‘Pitt Stfarmers encouraged to become Pitt Stconservationists’, as well as enabling thebroader community to receive ‘goodconservation advice from their accountants’.

Recommendations3.3.1 That the recommendations ofpreviously commissioned reportsregarding Federal taxes and their impacton conservation be implemented3.3.2 That State Land Tax haveseparate provision for conservation land.

FootnotesFull citations are included in the reference section1. Land Trust Association (1999)2. Small (2000)


ANCILLARY PROGRAMS3.4 Farmland and Open Space conservation programs

SummaryThe high rate of population growth inCalifornia is leading to pressure fromurbanisation or ‘sprawl’. Innovativeschemes have been developed to ensurethat the land base for agriculture ismaintained, and that open space isprotected.

They include government-fundedschemes to purchase conservationeasements, and schemes in whichlandholders enter a contract to notsubdivide or develop their land, inreturn for property tax and rate benefits.

The contract-based schemes have beenstaggeringly successful, with over 16million acres subject to these contracts.

California’s high rate of population growthis fuelling a boom in suburban development.This ‘sprawl’ is occurring on land whichwas previously open space, or farmland. Formany years, there has been concern thaturban sprawl could consume valuableagricultural land that would threatenCalifornia’s position as the United States’number #1 agricultural producer, and alsothreaten California’s scenic landscapes.

Given that urban subdivision is a lucrativeproposition for many landholders,innovative schemes needed to be developedwhich would protect farmland and openspace by providing economic incentives tolandholders as an alternative to selling todevelopers.

Whilst these schemes do not havebiodiversity conservation as their primarygoal, maintaining large tracts of land as openspace is essential in keeping conservationoptions open. Also, the mechanisms these

schemes employ could equally be applied tobiodiversity conservation programs.

Easement-based programsThe California Farmland ConservancyProgram provides funding for groups andorganisations to purchase conservationeasements over farm and range lands1.Section 3.2 of this paper outlines basics ofconservation easements. The conservationeasements bought under the CFC Programdo not have conditions relating tobiodiversity conservation. Indeed, their mainintent is to maintain productive farmlandinto the future. All such easements will havea condition that the land cannot bedeveloped, i.e.2:! Re-zoning is prohibited! The number of new structures on the

farm is limited! Subdivision is restricted.

The granting of moneys to purchase theeasement does not require the grantee todevelop a Property Land Use / ConservationPlan2. But it would not preclude USDApreparing such a plan for the property. (seesection 3.6)

The main applicants for grants under thisprogram are Land Trusts (see Section 3.1).The State of California contributes $6-10mannually for the program, and the FederalUS Government contributes $10-20mannually for the whole USA. Approximately25,000 acres is held under an open-space /agricultural conservation easement inCalifornia2.

Contract-based programsA somewhat different approach is the use ofa contract to secure a property as farmlandor open space. The Land Conservation Act(often referred to as the ‘Williamson Act’,after its proponent) provides for property taxrelief for landholders entering the scheme3.


A landholder enters into a contract with theirlocal government (county) for a 10 yearperiod, which is renewed every year unlesstermination proceedings are initiated (seebelow). The landholder agrees not todevelop their land, and in return, receives aproperty tax assessment based on generatedincome, rather than potential market value ofthe property3,4. This translates to savings of$35.73 per acre for horticultural land, and$5.60 for grazing land (1988/89 values) 4.

Counties receive a partial subvention offoregone revenue from the Stategovernment. This amounts to $40m/yr, butas the State also foregoes State propertytaxes. The total impost on the State isapproximately $125m2.

A landholder may exit the contract, buteffectively only with 9 years notice. If thecontract is not renewed when due annually,property taxes will gradually increase totheir full level over the remaining 9 years ofthe life of the contract. Alternatively, thelandholder may opt out of the contractimmediately, but only under specificcircumstances, and with the payment of afee equal to 12% of the full market value ofthe property3,4.

The “Williamson” contracts do not precludea conservation easement being bought overthe land, but would significantly reduce theeasement value2. The system has beenextremely successful with 16 million acres,or 50% of all private land in participatingcounties, being enrolled in the program3.

The scheme, obviously, comes at a cost tothe State Government. But its longevity –approaching 40 years - indicates that it isconsidered to be a cost-effective option forland conservation by Government. Itssuccess also indicates that it has been, andcontinues to be, favourably received bylandholders.

Perhaps this is because the incentives areattractive to landholders as they aredelivered annually, and without requiring an‘in perpetuity’ commitment. For governmentand the wider community, the exitprovisions also provide a high degree ofcertainty over the future of the land base.Importantly, it does not preclude futureconservation options, including the use ofconservation easements.

NSW ContextThe use of easements, or covenants, in NSWis discussed in Section 3.2. The powers oflocal government to influence conservationoutcomes has long been recognised, and thepotential to use differential rating schemes isoften viewed as a key tool to achieve this5,6.However, they have generally not beenadopted by NSW Councils. The chiefconcern of local government to suchschemes is the potential loss of rate revenue.

The ‘Williamson Act’ in California,however, provides an example of amechanism by which rate relief could beintroduced, perhaps in target bio-regions orlocal government areas, in NSW.

NSW Agriculture is concerned at thepotential loss of agricultural land to otherforms of development. The use of covenantand contract based schemes may provideexamples of possible approaches.

Recommendations3.4.1 That a contract-based scheme, similarto the ‘Williamson Act’, be considered as amechanism for introducing rate relief forprivate conservation land in NSW.3.4.2 That consideration be given toestablishing trials of the scheme in targetbio-regions.FootnotesFull citations are included in the reference section1. California Dept. of Conservation (2000)2. E. Vink, pers.comm.3. California Dept. of Conservation (2001)4. University of California (1989)5. Binning, (1999)6. Bateson (2000)


ANCILLARY PROGRAMS3.5 U.S.D.A. Programs

Summary:The US Department of Agriculture(USDA) administers a large number ofprograms which deliver incentives to USfarmers. Landholders entering acontract receive generous cost-share foron-ground works, and / or annual leasepayments.

The Conservation Reserve Program(CRP), has two delivery modes" a competitive bidding program,

where bids are assessed against anEnvironmental Benefits Index, withannual application and sign-up; and,

" a continuous sign-up program withpre-set cost-sharing rates forprotection of riparian areas.

Additionally, the Environmental QualityIncentives Program (EQIP) combines acompetitive bid process (with referenceto an EBI) and a whole-farm planningprocess, to deliver cost-sharearrangements to implement the plan.

A set of technical standards for these on-ground works are locally developed butnationally accredited.

These programs derive from the USFarm Bill. As such, they represent adelivery mechanism for agriculturalsubsidies.

The Conservation Reserve Program (CRP)administered by the US Department ofAgriculture flows from the US Farm Bill,and therefore represents a deliverymechanism for agricultural subsidies.

There are two modes of delivery for theCRP1:Annual CRP: An annual competitive tenderprocess where landholders bids are assessedagainst an Environmental Benefits Index(EBI)Continuous CRP: Landholders can sign onat any time to a pre-set cost sharearrangement for the protection of riparianareas.

To qualify, land must currently be inagricultural production.

Annual CRPThe annual CRP is targeted to designatedcounties which have particularenvironmental problems, such as large areasof land identified as at risk from erosion.

An Environmental Benefits Index isdeveloped to reflect the relative scarcity ofenvironmental services. In effect, it is usedto indicate to farmers the value of variousenvironmental management strategies thatthey might implement on the farm. As theydevelop their bid, farmers can score theirproposal against the EBI2.

An example of the EBI used by USDA inCalifornia is included in the Appendices.

When bids are received, they are assessedagainst the EBI, and ranked accordingly.Each county office of the USDA will submita list of bid proposals, including EBI scores,to the State USDA office, which determinesa threshold below which proposals will notbe funded2.

Siskiyou County in northern California isone of only two counties in the State wherethe annual CRP operates. In an area of 6,300square miles (with 39% in privateownership), 66 contracts had been signed by1998, protecting 14,490 acres of land, withannual payments of $500,9593.


Continuous CRPLandholders can apply to USDA at any timeof the year for certain ‘high prioritypractices’, which relate to the managementof riparian land.

The land must be in agricultural production(i.e., cropped or grazed) and the proposalmust improve water quality. Commonly, theproposal will involve fencing, revegetationand de-stocking of riparian areas, withestablishment of alternate watering points1,2.

If the proposal qualifies, the land-holder willreceive2

" a 50-75% cost-share of on-ground works" an annual rental payment for the land

(market value)" ‘practice incentive payment’

representing 40% of total cost of on-ground works

" one-off ‘signing incentive payment’calculated at $10/acre/year

An example is a project resulting in theprotection of 14.6 acres of riparian land,signed for 10 years. On-ground works are$39,222, for which the landholder receives a50% cost-share of $19,611, plus a rentalpayment of $987/yr, plus a ‘practiceincentive payment’ of $15,688, plus the‘signing incentive payment’ of $1,460. Overthe 10 year life of the agreement, USDA willpay $47,367 for this 14.6 acres2.

It appears that a landholders ‘duty of care’has not been articulated, and that any naturalresource management activity can qualifyfor federal assistance, provided that itmatches regional priorities.

Despite these very generous payments (byAustralian standards), landholders responseto the program has been mixed. In someregions, it is observed that landholders havea reluctance to sign with a governmentagency. Nevertheless, the area signed up(under both delivery modes) for the entireUS is 27,623,611 acres1.

Environmental Quality IncentivesProgram (EQIP)EQIP works in areas identified as ‘priority’,where there are serious environmental needsand concerns, such as erosion, water quality,wildlife habitat or wetlands4.

A Local Work Group will identify programpriorities, based on these environmentalconcerns, and translate these into anEnvironmental Benefits Index.

However, EQIP will only fund farmers whohave developed a plan for their wholeproperties which are referred to as‘conservation plans’. The conservation plansmust address the range of natural resourcemanagement actions on a property, andidentify works to deal with each of them.These plans form the basis for their EQIPbid, and are assessed against the EBI.

The works proposed to implement the planmust conform to one of a large number of‘Technical Practice Standards’, e.g.,‘fencing’, ‘firebreaks’, ‘prescribed burning’or ‘tree establishment’ These are locallydeveloped and nationally accredited. Anydistrict in the US can adopt one of theaccredited standards, or more commonly,choose a sub-set of them which are relevantfor their district. A cost-share ratio may bedeveloped for each2.

A list of these Technical Practice Standards,and copies of some, are included in theAppendices.

Landholders will list the priority actions intheir conservation plan, and specify whichpractices they propose to implement. This,then forms the basis for their bid. The bidsare then assessed against the EBI.

If successful, landholders will sign a 5-10year contract. Payments are limited to$10,000 per year and $50,000 for the life ofthe contract.


Other USDA cost-share programs.USDA offers a diverse range of programs,all of which include cost-share assistance forthe implementation of works identified in aconservation plan. They include1:Wildlife Habitat Incentives Program, whichprovides cost-share assistance for therestoration of wildlife habitat (cannot beaccessed by conservation banks)Forest Stewardship Incentives Programwhich provides cost-share assistance forforest management activities.Wetlands Reserve Program which provides75% cost-share assistance for wetlandconservation and 100% of conservationeasement purchase price.Conservation Farm Option whichconsolidates separate payments from CRP,EQIP and WHIP.

NSW ContextThe level of support from USDA forconservation programs, and the diversity ofprograms, is impressive. However, it seemsthat without a primary commitment toagricultural subsidies, they might not exist.The financial resources necessary toimplement these sorts of programs isunlikely to be found within governmentconservation budgets in Australia.

However, the way in which these programsoperate provide useful models for naturalresource management programs in NSW.This is particularly relevant as enhanceddelivery mechanisms are being sought todeliver programs such as the EnvironmentalServices Scheme (ESS), the National ActionPlan on Salinity and Water Quality (NAP)and the Natural Heritage Trust (NHT)

The delivery mechansims which may haverelevance for NSW include:Competitive tendering:The concept of landholders bidding fornatural resource management funding, sothat they specify the cost share necessary tocomplete on-ground works, is being trialledby the Liverpool Plains Land Management

Group in northern NSW. It is also beingtrialled by two catchment managementauthorities in Victoria. This approachnecessitates the development of an EBI.Walk-in, sign-upThe continuous CRP provides an example ofa response to top-priority conservationissues, such as riparian management. Theability to walk in to an agency, sign-upimmediately for cost-share assistance foraction on urgent issues, as opposed to alengthy grant application and assessmentprocess, is a model that could be adopted.Farm-planningEQIP demonstrates a mechanism that linksproperty planning to incentive payments.The concept could ensure that all the n.r.m.issues in a district can be addressed at farmscale, and that the effectiveness of thatproperty plan in achieving those prioritiescan be assessed against other property plans.Technical standardsThe cataloguing of technical standards foron-ground works could be a mechanism forquality assurance of funding dispensed.Technical standards could be developed foreach of the priority management actions thatare detailed in the Catchment ManagementBoard plans currently being developed.

Recommendations3.5.1 That the implementation of CMBplans have a mix of competitive tendering,based on Property Plans assessed against anEBI, and a ‘walk-in sign-up’ mode for high-priority actions.3.5.2 That the Management Actionsidentified in CMB plans be developed into aseries of technical standards.3.5.3 That cost-share ratios be developedfor each Technical Standard, for ‘walk-in,sign-up’ delivery, and as maximum figurespayable for a competitive tender process.

FootnotesFull citations are included in the reference section

1. USDA, 20002. Joe Gassaway, pers.comm3. Joe Ulics, pers.comm4. USDA, 2001


SECTION 4:OPTIONS FOR PRIVATE LAND NATURE CONSERVATION

SummaryCalifornian landholders have a largenumber of options if they want to gainfinancial assistance for conservation ontheir properties. These include:" Conservation banking" Sale of the land" Sale of a conservation easement" Cost-share assistance and annual

rental payments from USDA.

Conservation Banking is just one ofthose options. Is it a preferred option?

When compared to all the other options,conservation banking appears not to bea favoured option for rural landholders.The reasons for this include:" The time and expertise required to

establish a conservation bank areconsiderable, and may not align withthe commitments necessary tocontinue managing a rural propertyat the same time.

" Urban development is the principaldriver of the market, and as bankshave limited ‘service areas’, there islittle market for credits in ruralareas.

" Markets for credits are limitedbecause the reach of regulation islimited.

These issues need to be addressed ifconservation banking is to be adopted inNSW.

As stated previously, conservation bankingis a concept which includes a multitude ofarrangements, to achieve a range ofoutcomes. This is explored using a range ofexamples.

1. BANKING OPTIONS1.1. The entrepreneurial bank.In this model, an entrepreneur buys land thatis suitable for a bank site. This will usuallybe land that has limited developmentopportunity because of the impact ofenvironmental regulation.

Because of the existence of credit-tradingschemes, a market is created for this landwhich previously did not exist.

The bank operator will develop their bankusing the approaches outlined in Section 2of this paper. Once all credits are sold, thetitle to the land may be transferred to aconservation agency.

1.2. The leased bankIn this arrangement, the landholder maylease a part of their property to a bankoperator for the purpose of operating aconservation bank. The landholder receivesan annual payment for the life of the bank(i.e., until all credits are sold), whilst thebank operator receives profit from the saleof credits.

After the bank is sold out, the landownerretains title to the land. However, theeasement remains on the title and thenominated land manager continues therequired land management activities usingthe endowment fund.

1.3. Joint venture partnershipThis is a similar arrangement, but instead ofthe bank operator paying the landholder anannual lease, both the landholder andoperator agree on a profit share from creditsales.


1.4. Landholder as bank operatorThe landholder may decide to maximise thereturns from a conservation bank on hisland, by becoming the bank operator.

2. SELLING OPTIONS2.1 Sale to a non-profit organisation.The range of conservation organisations andphilanthropic foundations makes this optiona reality for landholders with highlysignificant lands.

3.2 Sale to a bank operatorSee 1.1 above.

3.EASEMENT OPTIONS3.1. Selling an easementLandholders can enter an agreement with aLand Trust or conservation organisation topurchase a conservation easement thatprotects biodiversity values, but at the sametime allows the continuation of the grazingenterprise, with specified limits onagricultural activities.

In this way, the Trust or conservationorganisation pays for the easement,commonly between 40-60% of full propertyvalue, and, if the property is sold at the sametime, the new grazier pays the balance.

This method is enabling farming families toretain ownership of properties whilstprotecting identified values and keepingfurther conservation options open.

3.2 Donating an easementLandholders can donate an easement to anon-profit organisation in return forsignificant tax benefits.

3.3 Bargain saleLandholders can sell a conservationeasement to a non-profit organisation forless than its market value. The balance of themarket value of the easement that is donatedattracts tax benefits.

4. OPEN-SPACE CONTRACTS4.1 Williamson ActLandholders can sign a contract under theWilliamson Act to ensure their land is notdeveloped. This attracts significant propertytax benefits.

5. USDA PROGRAMS5.1 Cost share programsLandholders can apply for funding underone of the US Dept of Agriculture cost-shareprograms, such as CRP, EQIP, FSIP, orWHIP, to receive a cost-share for on-groundworks, plus annual rental payments.

5.2 RCD fundingLandholders can apply for funding throughtheir Resource Conservation District.

6. OTHER PROGRAMSThere are many other programs offered bycounties and other government agencieswhich provide assistance to landholders.

WHY CHOOSE CONSERVATIONBANKING?

With the vast array of choices thatCalifornian landholders have, why wouldconservation banking be chosen?

Whilst there is no formal barrier tolandholders becoming bank operators, inpractice, this is uncommon. The Californianexperience suggests that banking is not anoption often considered, and more rarelytaken up by, rural landholders. The reasonsfor this appear to include:

" Resources and expertiseThe time and expertise needed to developthe Banking Agreement requires thelandholder to be singularly focussed on thebank. Most landholders would, it seems,prefer to leave that business to anexperienced bank operator. Their mostimportant task therefore is to negotiate anattractive lease fee or profit share.


Urban development the driverAcross the United States, conservationbanking (and mitigation banking) appear tobe driven by urban development. Banks areestablished to sell credits to urbandevelopers, and because of their limited‘service areas’ are located near to whereurban development occurs. There are veryfew conservation banks in rural areas.

" High price of creditsThe price of credits is high, because theprice of on-site mitigation in urban areas isalso high. Urban development has a greatercapacity to spend more on a credit that doesbroad-acre agriculture, because of therelative returns of these two enterprises. Thismeans that where development is approved,a rural landholder will prefer to mitigate on-site, so that no market is created for creditsin that rural area.

" Limitations on the marketMarkets for biodiversity credits need to bebetter developed. In the US, the marketprincipally derives from impacts to‘jurisdictional waters’ and in some States,‘habitat occupied by endangered species’.As the reach of regulation extends, so doesthe requirement for mitigation of impacts,and so does the demand for credits. Market

development is a direct product ofenvironmental regulation.

If the object of a conservation bankingscheme is to protect large areas of nativevegetation and other habitats across thewhole of NSW, then" it needs to be able to be accessed and

operated by rural landholders more thanis apparent with American schemes.

" It needs to be supported by thedevelopment of a market – i.e., anyagency which regulates impact tobiodiversity should condition anypermits or consents issued with arequirement for compensatorymitigation.

" The market that does develop should beused to maximise the effect over a rangeof different sites, so that a greaternumber of landholders can benefit and alarger area of native vegetation isprotected.

" Credits and debits should be describedusing a Statewide classification schemethat is as simple as necessary to achievethe task.

Section 5 outlines some options forbiodiversity credit-trading in NSW thatattempts to incorporate these features.


SECTION 5: CONSIDERATIONS FOR A BIODIVERSITY /NATIVE VEGETATION CREDIT SCHEME IN NSW

SummaryConsiderations for a model biodiversitycredit-trading scheme are put forward.Schemes in the US may not beappropriate for NSW, for a variety ofreasons. These include the potentiallysmaller market size, the need for such ascheme to protect as large areas aspossible, to enable greater involvementby rural landholders, and to create asingle register and marketplace.Specifically, the issues that need to beconsidered are:" The desirability of one classification

system only for credits." Should ‘Out-of-kind’ mitigation be

possible?" The activities authorised to realise a

credit; the number of hectares ofthese activities needed to sell onecredit;

" Deferred consent for developments" Capping credit sales at a value equal

to the bank’s covenant value plusinitial establishment costs.

" Long-term land management – howbest funded?

" Conservation in perpetuity – howbest secured?

" The process for negotiating abanking agreements – how to ensurerealistic time-frames?

Even if all these factors are resolved, thewhole system is dependent on thedevelopment of a market. The key actionto establish such a scheme is thatmitigation requirements arescientifically valid, consistently appliedand rigorously enforced by all agencies,councils and authorities throughoutNSW.

1. PlanningIf a credit-trading scheme is developed forbiodiversity or native vegetation:" It should work to achieve the targets of

set out in Regional VegetationManagement Plans and CatchmentManagement Board Plans.

" Plans should classify vegetation toenable the operation of such a scheme,and to monitor the achievement oftargets. Such a classification schemeshould be consistent with a Statewideclassification scheme. This wouldenable trading to occur between regions,where appropriate. Targets could also beexpressed in maximum debits allowable,or minimum credits realised.

" Unlike US schemes, which havemultiple classifications of credits (e.g.,wetland types, habitat types, endangeredspecies), one classification type wouldenhance the operation of the tradingscheme.

" Each vegetation type should beclassified into one of three ‘conservationstatus’ categories, e.g., “>80% cleared”,“40-80% cleared”, “<40% cleared”.

" Plans should identify those sorts ofvegetation which are not suitable to beimpacted, i.e., where impacts should becompletely avoided.

2. Permitting and mitigationrequirements.If a credit-trading scheme is developed forbiodiversity or native vegetation:" In considering development

applications, the sequence ofconsiderations should be to# avoid impacts on biodiversity,# minimise impacts# compensate for any impacts.

" Every permit, license, consent orauthority issued, by any agency,authority or council, that has an impacton biodiversity, should include a


requirement for mitigation. This wouldbe necessary to develop a demand forcredits, and to ensure that Statewideenvironmental objectives can be met.

" Requirements for mitigation beconsistently applied by all agencies, andrigorously enforced.

" Consents for development could be‘deferred’ until mitigation actions areimplemented and making acceptableprogress toward a predicted ecologicalgain.

" The activities of government agenciesand utilities be subject to the samestandards.

3. Assessing debits.If a credit-trading scheme is developed forbiodiversity or native vegetation:" The impacts of any approved

development on biodiversity should beassessed with regard to the area ofimpact, the quality of habitat, includingits landscape context. (i.e, ‘habitathectares’).

" The basic unit of the debit is a hectare,but this is multiplied by the ‘quality’factor. i.e., a compensation ratio is usedto ensure that greater impacts areassessed as a greater debit. Models forthis are being developed by NPWS.

" The conservation status of thevegetation type determines the type ofcredits that must be bought to offset thedebit. Debits can be offset by thepurchase of the required number ofcredits from the same vegetation type, orone with a higher conservation status. Inthis way, ‘out-of kind’ mitigation wouldbe permitted.

N.B. In rural NSW, on-site mitigation (i.e.,mitigation on the same landholding as theimpact) may be a realistic option, given the largeproperty sizes. This will adversely affect thedevelopment of a market for credits, given thatthe landholder does not have to go on the openmarket to buy credits.

Compensation Ratio:If a permit is given for the clearing of 5hectares of Dry Sclerophyll Forest, then that5 hectares should be multiplied by a suitablecompensation ratio to determine the numberof credits required.

For instance:10:1 for an area in ‘near natural condition’5:1 for an area in modified condition2:1 for an area in degraded condition1:1 for individual components, e.g., paddocktreesExample:" If the 5 hectares has paddock trees only,

then 5 credits would need to bepurchased.

" If the 5 hectares is in near naturalcondition, and the compensation rationwas 10:1, then 50 credits would need tobe purchased.

Issues relating to compensation formulas isbeing addressed by NSW NPWS.

Classification and trading of creditsUnder the above example, if 50 debit pointswere to incurred, then these would beclassified according to their BVT, e.g., “50Dry Sclerophyll Forest” credits would needto be purchased. The credits to be boughtshould be of the same type.

However, in order to secure conservationoutcomes for the most threatened vegetationtypes, the developer could instead buycredits for vegetation types with higherthreat status, such as Grassy Box Woodland.In this way, the rule could be stated as “out-of-kind mitigation is allowed, but only ifcredits of a higher category arepurchased.”

Consideration could be given to a ‘discount’for credits of higher threat status, toencourage protection of these vegetationtypes.


4. Assessing creditsIf a credit-trading scheme is developed forbiodiversity or native vegetation:" Bank sites be authorised to sell credits

according to their achievement oftargets. The number of hectares of acertain activity (e.g., preservation,restoration, revegetation) necessary tosell one credit vary according to theimportance of that activity to achievingtargets (see box).

" The credits should be described by theirvegetation classification, and be sold tobuyers with debits of the same or lowerconservation status.

How many hectares for one credit?

One credit here must equal

One credit thereEach credit approved for sale at a bank shouldresult in the same level of ecological benefit asevery other credit from any other bank.

Some land management activities are more equal than others

Some land management activities will result ingreater ecological benefit than others. Therefore,a land management activity that results in agreat benefit will require less hectares to realiseone credit.

Which activitieshave a greater ecological benefit?

Selling credits for ‘preservation’ will not achievea net ecological gain if traded off for anecological impact elsewhere. Revegetation(‘creation’) on cleared land will take significanttime periods to achieve ecological outcomes. Forthese reasons, both ‘preservation’ and‘revegetation’ should require relatively largeareas for one credit to be realised – perhaps10 hectares required for each credit sale.

Perhaps a more important activity to achievetargets will be the restoration of modified areas,e.g., areas which retain some resilience and willshow relatively quick improvement in ecologicalstructure and function. Accordingly, these shouldrequire less hectares for each credit – perhaps1-2 hectares required for each credit sale.

5. Effective long-term land managementIf a credit-trading scheme is developed forbiodiversity or native vegetation:" A land management plan must be

prepared for the bank site." The plan should identify ‘initial

establishment costs’ such as fencing,initial weed control (knock-down) andinitial restoration activities; and, ‘long-term maintenance’ activities.

" The plan should identify milestones tobe achieved in demonstrating ecologicalbenefit at regular intervals

" Achievement of these milestones maybe necessary for release of credits forsale.

" ‘Initial establishment works’ would befunded from credit sales. Long-termmanagement would be funded fromcollection of a conservation rate (see #8below)

" Management would be the responsibilityof a nominated organisation which is onthe federal Register of EnvironmentalOrganisations

6. Conservation SecurityIf a credit-trading scheme is developed forbiodiversity or native vegetation:" The bank site must be secured by a

conservation covenant ‘in perpetuity’." The covenant could be held either by a

government agency, or by the sameorganisation responsible for landmanagement of the bank. This could bethe Nature Conservation Trust of NSW.

7. Agreement of the partiesIf a credit-trading scheme is developed forbiodiversity or native vegetation:" A banking agreement should be

prepared for each bank site. It should setout:" the nature of the vegetation types onsite, their extent and condition" The land management activitiesproposed for each area of vegetation" The number and classification of creditsthat can be sold from the site.


" The region to which credits can be sold." The ecological milestones which mustbe achieved for partial release of credits forsale." The land management plan" The conservation covenant, including avaluation report setting out the market valueof the covenant.

" The parties to the agreement shouldinclude:" Bank owner" Land manager" Govt agencies – DLWC, NPWS" NSW Nature Conservation Trust (oraffiliated regional body)" Local Govt.

8. Credit salesIf a credit-trading scheme is developed forbiodiversity or native vegetation:" A register of approved credits and debits

should be kept by DLWC or NPWS, andmade publicly available on the agency’sweb site.

" The trading of credits would be operatedin the marketplace, without a direct rolefor government, however, credit saleswould require notification togovernment.

" A bank would be considered ‘sold out’whenever:# It sells all its allocated credits, or# The sale of credits exceeds itscovenant value plus ‘initialestablishment costs’ identified in theland management report. whichever happens first.# This would ensure that approveddebits can be used to secure a greaterarea of land under covenant across theState. It would also ensure thatlandholders who establish aconservation bank would be fullycompensated for the value of the landset aside, but would limit additionalprofit from credit sales

" Land management expenses for ongoingmaintenance activities would be fundedby a nominal annual rate for the land,paid into a ‘conservation landmanagement fund’ administered eitherby the local government or the NSWNature Conservation Trust.

Capping credit sales at a bank siteThe purpose of credit sales from a bank sitebeing capped at ‘covenant value plus initialestablishment costs’, is to:" ensure that any additional potential for

profit from credit sales is spread out, ordiverted to, other potential bank sites.

" ensure that as many landholders aspossible can benefit from the scheme, sothat they can receive full market valuefor a conservation covenant.

" ensure that as much native vegetation aspossible can be protected undercovenant from the scheme.

Standard methods for valuation of covenantsneed to be developed, endorsed and adopted.

The ‘cap’ assumes that the covenant wouldadversely affect the market value of theland, i.e., covenant value is >20% of fullmarket value. This has not yet beenestablished, and remains an assumptiononly.

9. MonitoringIf a credit-trading scheme is developed forbiodiversity or native vegetation:" Using the ‘conservation land

management fund’ (see #8 above),annual monitoring of the site should beundertaken by the approved landmanager.

" This should include# monitoring of completion of on-ground works identified in the plan ofmanagement, and# ecological monitoring against themilestones set out in the plan ofmanagement.


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Department of Fish and Game, California (2000)GIS Habitat Evaluation Model for the NorthCounty MCSP sub-area plan. DFG San Diego.

Department of Land and Water ConservationNSW (1999) Staff Guidelines for the assessmentof clearing applications under the NativeVegetation Conservation Act 1997. DLWC,Sydney

Department of Land and Water ConservationNSW (2000) NSW Salinity Strategy. DLWC,Sydney www.dlwc.nsw.gov.au/care/salinity

http://www.cpbr.gov.au/biodiversity/2000/biocerdits/bio-credits-sem.html

http://www.cpbr.gov.au/biodiversity/2000/biocerdits/bio-credits-sem.html

http://www.cnlm.org/

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http://www.wes.army.mil/EL/wetlands/hgmhp.html

http://www.dlwc.nsw.gov.au/care/salinity


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Environmental Defense Fund (1999) MitigationBanking as an endangered species conservationbanking tool. Environmental Defense Fund,Washington DC.

Environment Protection Authority NSW(2000).NSW State of the Environment Report2000. NSW EPA, Sydneywww.epa.nsw.gov.au/soe2000

Fish and Wildlife Service (1999) A method fordetermining the number of available Vernal PoolCredits in ESA Conservation Banks in theCalifornia Central Valley. FWS, Sacramento

Fish and Wildlife Service (2000) A method fordetermining the number of available credits forCalifornia Red-legged Frog Conservation Banks.FWS, Sacramento

Goldney, D., Bauer, J., Bryant, H., Hodgkins, D.,and Watson, G (1995) ‘Winning battles butlosing the war: the education marketingimperative’ in Saunders, D.A., Craig, J.L., andMattiske, E (eds) The role of networks SurreyBeatty and Sons, Sydney

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century” in Gustanski, J and Squires, RProtecting the land – Conservation easementspast, present and future Island Press,Washington DC

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University of California (1989) Land in thebalance: The Williamson Act – costs, benefitsand options University of California AgriculturalIssues Center, Davis

USDA (2000) The Conservation ReserveProgram US Dept. Agriculture, Washington DCwww.nrcs.usda.gov/NRCSProg.html

USDA (2001) Environmental Quality IncentivesProgram fact sheet US Dept. Agriculture, Daviswww.ca.nrcs.usda.gov/pa/EQIP.html

AcknowledgmentsI would like to thank the Winston Churchill Memorial Trust of Australia and the NSWDepartment of Land and Water Conservation for their support.

The persons listed in the following section ‘Personal Communications’ were generous with theirtime and assisted me greatly with the research. I am particularly grateful to Caitlin Bean,Manager of Conservation Banking with the California Department of Fish and Game forassistance in establishing contacts, advising on itineraries, sharing her knowledge of conservationbanking, and reviewing the draft of this report.

Also, thanks to Phil Gibbons, Mark Rowe, and Peter Wright, for their thoughtful comments onthe draft.

http://resources.ca.gov/ccrisp/CCRISPMethodology.pdf

http://www.latimes.com/business/20010514/t000040517.html

http://ceres.ca.gov/

http://www.nrcs.usda.gov/NRCSProg.html

http://www.ca.nrcs.usda.gov/pa/EQIP.html


Personal Communications

Robert AsherCounty of San DiegoSan Diego CA

Caitlin BeanDept of Fish and GameSacramento CA

Bruce BlodgettCalifornia Farm BureauSacramento CA

Stephen CollinsEverglades Mitigation BankFlorida City FL

Craig DenisoffWildlands Inc.Sacramento CA

Lynn DwyerEnvironmental DefenseOakland CA

Joe GassawayUS Dept. AgricultureRedding, CA

Kathleen GilmanShasta Land TrustRedding CA

Jake JacobsenThe Nature ConservancyRed Bluff CA

Mark KrausAudubon SocietyMiami FL

Lew LautinFlorida WetlandsbankFort Lauderdale FL

Dave LawheadDept of Fish and GameSan Diego CA

Karen LawrenceUS Army Corps of EngineersOmaha NE

Scott LawsonThe Nature ConservancyChico CA

Don MaconCalifornia Rangelands TrustSacramento CA

Linda MarianitoUS Dept of AgricultureRedding CA

Craig MartzDept of Fish and GameRedding CA

John McCaullAudubon SocietySacramento CA

Deblyn MeadFed. Fish & Wildlife ServiceSacramento CA

Jim NelsonDept of Fish and GameRedding CA

Debra O’NeillUS Army Corps of EngineersSan Fransisco CA

Daryl PetersonThe Nature ConservancyChico CA

Larry PlumbUS Dept. of AgricultureDavis CA

Jim RickertWestern Ag ConsultantsFall River CA

Nancy SchaeferConservation FundSacramento, CA

Sherry TeresaCtr for Natural Lands Mgt.Fallbrook CA

Joe UlicsUS Dept of AgricultureYreka, CA

Eric VinkResources AgencySacramento, CA

Linda WaltonUS Dept of AgricultureRedding CA


Appendices

Appendices have been compiled in Volume 2, which has limited distribution. Copies of somemay be available from the author.

1. State of California – ‘Official Policy on Conservation Banks’2. Federal Guidance for the establishment, use and operation of mitigation

banks3. American Wetland Restoration Act4. Habitat Evaluation Model, and Gap Analysis methodology, for the

Natural Communities Conservation Plan5. San Diego Municipal Code – Biology Guidelines6. MOU between US EPA and US Army Corps of Engineers on

determination of mitigation7. US Army Corps of Engineers – Guidelines for habitat mitigation and

monitoring8. Biological opinion of impact of development, including debit valuation.9. Federal guidance on the use of ‘In-Lieu Fee’10. Methods for determining the number of credits available from

Conservation Banks for Red-Legged Frog, and Vernal Pools.11. Method for determining number and type of credits available – multi-

species conservation bank12. Property Analysis Record template, including method for determining

endowment account, and Case Study example13. Items to be supplied to DFG for processing a Bank Agreement14. Flow chart showing process for Mitigation Banking Instrument15. Manchester Ave. Conservation Bank – Banking Agreement16. Table of contents and exhibits – Kern Conservation Bank Banking

Agreement17. Bill requiring the keeping of a banking database18. Federal Fish and Wildlife Service – Conservation Banks and Credit-

tracking database19. USDA Conservation Reserve Program – Environmental Benefits Index20. USDA Conservation Reserve Program – Program Contract21. USDA Environmental Quality Incentives Program – Application

Ranking System22. USDA List of approved practices. Example of ‘approved practice’

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