Session 14: In Lieu Fee, Mitigation Options

b) The Role of In lieu Fee Programs Under the 2008 Mitigation Rule

Friday, May 12
11:00 AM - 12:30 PM
Location: Room 308

The 2008 mitigation rule established new priorities for providing compensatory mitigation under federal permitting programs covering wetland and stream impacts. The rule establishes a clear preference for off-site compensatory mitigation in advance of permitted impacts. The rule, however, recognizes that commercial banks may not always be able to feasibly provide mitigation credits. For instance, permittee demand for mitigation credits in some areas might be insufficient to stimulate restoration investments by commercial mitigation bankers. To address credit supply issues, the rule allows for in lieu fee programs (ILF) to sell “advance credits”. Advance credits are credits sold to permittees prior to an approved mitigation project. To reduce the temporal losses, the rule also limits the temporal lag between fee payment and compensatory offset by requiring ILF programs to begin compensatory projects within third years of selling an advance credit.

Some stakeholders remain skeptical of ILF programs, charging that these regulatory preferences are not being followed (IWR 2015). The mitigation rule places the burden on Corps permit administrators to enforce the preference for commercial mitigation credits over ILF advance credits. The rule grants regulatory officials the authority to deviate from the compensatory mitigation hierarchy based on the relative ecological advantages of different mitigation options.

This presentation examines how advanced credits and ILF programs are being used to provide off-site compensatory mitigation in two states with well-developed commercial banking sectors (Virginia and Georgia). The structure and operation of the two state ILF programs are first described. The presentation will show both the extent and location of advance credit sales and under what conditions regulators approve advance credit sales in the two states.

The results show that regulatory authorities closely follow compensatory mitigation preferences. ILF advance credit transactions represent less than 6% of total offsite compensatory mitigation credit sales and are almost exclusively confined to areas where no private mitigation alternatives are available. The evidence also suggests that ILF programs may experience challenges in meeting compensatory mitigation time requirements due to the financial and regulatory circumstances in which they must operate.

Kurt Stephenson

Professor
Virginia Tech

Stephenson is a professor in the Department of Agricultural and Applied Economics at Virginia Tech. Stephenson’s research interests include market-based environmental policies and water resource economics and policy. Stephenson received his B.S. in Economics from Radford University, his M.S. degree in Agricultural Economics from Virginia Tech, and his Ph.D. in Economics from the University of Nebraska-Lincoln.

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