The Trump administration has been active in reforming environmental regulations, from the Clean Air Act early, to the Clean Water Act more recently. And the White House is continuing to consider further reforms.
These reforms are often couched as promoting business interests, or as addressing ineffective regulations. However, the administration’s appetite for reform could, ironically, undermine a shining example of the private sector leading environmental conservation.
“Mitigation banking,” an important component of the broader ecological restoration sector, is a little-known industry that has created jobs, restored the environment, and enabled private investment, which has been made possible by regulatory certainty.
Here’s how it works: Under the Clean Water Act, infrastructure projects that might affect bays, rivers and wetlands must obtain a federal permit. Building highways or parking lots often means felling trees or draining away water, so the demand for federal permits can be large.
This doesn’t mean all development is off-limits. Instead, regulations allow developers to offset environmental damage by restoring natural habitats elsewhere. In other words, if developers leave a particular ecosystem worse than they found it, they need to leave some other area better than they found it.
Because meeting regulatory requirements is challenging, over the past couple decades a nascent industry has emerged specializing in ecological restoration from wetlands in Louisiana to streams in Maryland. Infrastructure developers benefit by outsourcing offsets; builders focus on construction, while restoration companies focus on environmental conservation.
Mitigation banking firms play a critical role in the middle — they use private capital to finance restoration projects, which require years to permit. But with their capital, they can complete restoration projects well in advance of impacts they are offsetting, and then carry liabilities until the projects demonstrate environmental improvements.
Indeed, the private sector has proven efficient in understanding and limiting risks associated with ecological restoration. The net results have been higher quality environmental projects coupled with faster permitting when using services of restoration professionals.
This entire system works well — and the government noticed. In 2008, under the George W. Bush administration, federal officials published a regulatory rule, and codified several key facets of this industry, particularly creating a preference for “advance mitigation” — doing the restoration work prior to the environmental impacts occurring. The 2008 Rule was critical, leading to a doubling of the industry in the decade since.
As part of my research on the mitigation banking industry, this summer, seven different restoration firms disclosed their records to me. In aggregate over the past five years, these firms have invested more than $1 billion, restoring 166,600 acres of wetlands, 46,200 miles of stream and 93,000 acres of endangered species habitat.
But beyond this, the sector also supports over 126,000 jobs — more than the logging, steel or coal industries. And according to researchers at UNC-Chapel Hill, generates around $25 billion in annual economic output. By most any metrics, this industry is considered a success for infrastructure, the environment, and the economy.
The Trump administration is now putting the 2008 Mitigation Rule into its crosshairs of regulatory reform. While there are undoubtedly changes that could be made to improve efficiencies and outcomes of restoration projects, we should be careful to not undermine all of the private sector — and environmental — success seen to date.
When I asked the seven firms what made the scale of economic and environmental successes possible, all but one pointed to the regulatory certainty created by the 2008 Rule. Without it, the underwriting investors — particularly institutional investors — would not have had confidence in the stability of this relatively strange industry.
Loss of such investors would undermine the ability to finance projects in advance, likely leading government into the business of restoration project planning and building, with the costs (and risks) borne by taxpayers rather than investors and the private sector.
As in other parts of the economy, the private sector has proven more efficient in generating successful restoration projects than their public-sector counterparts. My own research has found numerous examples of government-run mitigation programs that have routinely under-delivered on their offset liabilities.
Such inefficiencies have resulted in significant permit delays for large infrastructure projects, which has a ripple effect across regional economies, such as construction jobs and secondary economic development utilizing new infrastructure.
While the Trump administration may be looking for opportunities for regulatory reform, the mitigation banking industry is one that has benefited from regulatory stability.
Destabilizing this industry with unnecessary changes wouldn’t just harm the environment — it would hurt thousands of workers, and a growing number of investors, who now rely on this emerging restoration economy.