A mitigation bank is a wetland, stream, or other habitat area that has been restored, established, enhanced, or (in certain circumstances) preserved for the purpose of providing compensation for unavoidable impacts to such natural resources. When a corporation or other entity undertakes these activities, it can generate “compensatory mitigation credits” (“CMCs”), which in recent years have significantly increased in value. Corporations and other owners of brownfield or dormant/underutilized properties are increasingly using these lands to create mitigation banks in order to generate CMCs that can be sold into the mitigation market.

Mitigation banking originated under Section 404 of the Clean Water Act and similar state statutes intended to protect wetlands and streams. Developers of projects which involve the discharge of dredged or fill materials into wetlands, streams, or other waters of the United States are required to obtain a permit from the U.S. Army Corps of Engineers (Corps) or an approved state, and must avoid and minimize negative environmental impacts to the extent feasible. When negative impacts are unavoidable, compensatory mitigation is required to offset the impacts on aquatic resources. The Corps or an approved state authority determines the necessary quantity and method of compensatory mitigation, which can be performed by the permittee, a third party under contract to the permittee, or through the purchase of CMCs from a mitigation bank.

Mitigation banking is completed off-site, meaning it is performed within the same watershed as the site of the impacts but not at the same location. Banks are regulated by Interagency Review Teams (IRTs), which are chaired by the district engineer or a designated representative and include federal, tribal, state, and/or resource agency representatives. The person or entity that establishes a mitigation bank and undertakes the restoration activities is sometimes referred to as a “mitigation banker” or “bank sponsor.”

In order to generate CMCs, the mitigation banker must first negotiate a written agreement with the IRT that provides for the long-term funding and management of the bank, as well as the design, construction, monitoring, ecological success, and long-term protection of the bank site. The agreement also identifies the number of credits available for sale and requires the use of ecological assessment techniques to certify that those credits provide the required ecological functions. See EPA Mitigation Banking Factsheet.

Federal policy favors the use of mitigation banks and CMCs to offset the negative environmental impacts of development for a number of reasons. Since mitigation banking is performed prior to development, there is less uncertainty about whether environmental impacts will be effectively offset. In addition, mitigation banking allows for the use of scientific expertise and financial resources that are not always available when mitigation is performed directly by the developer. Mitigation banking also tends to be more cost-effective and to allow for shorter permit processing times.

In 2008, the Corps and EPA adopted regulations that made mitigation banking the preferred method for both wetland restoration and compensation for wetland losses. Due to the success of mitigation banking, the concept was expanded to offset losses of endangered species and associated habitat; known as “conservation banks,” they are under the jurisdiction of the U.S. Fish and Wildlife Service and the National Marine Fisheries Service. Today, there are more than 1,200 mitigation banks in the U.S., and the market value of all CMCs exceeds $100 billion.