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New Report Outlines Effective and Innovative “In-Lieu Fee” Compensatory Mitigation Programs Nationwide

July 2019

(Washington, DC) — Recent historic flooding across the United States and the ever-increasing threat of powerful hurricanes have highlighted the importance of healthy wetlands and the consequences of the loss of these critical habitats. These vital ecosystems provide a number of economic and environmental benefits, including improved water quality, flood control, wildlife and fisheries habitat, and recreational opportunities. The Clean Water Act (CWA) regulates impacts to wetlands and other aquatic resources. Tens of thousands of acres of wetlands and streams are restored, enhanced, and protected to satisfy compensatory mitigation requirements for permitted impacts. In 2008, the U.S. Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (the Corps) issued a regulation governing compensatory mitigation under the CWA. The Environmental Law Institute and Stetson University College of Law have released a comprehensive report that focuses on one type of compensatory mitigation known as “in-lieu fee” (ILF) mitigation.

ILF mitigation is one of the three primary mechanisms—along with mitigation banks and permittee responsible mitigation—that permittees can use to satisfy compensatory mitigation requirements. Through an ILF program, a permittee may satisfy their legal obligations under the 2008 Rule by purchasing credits from the program “sponsor”—a government or nonprofit natural resources management entity—who then uses the funds to restore, enhance, or protect wetlands and streams. To date, ILF programs have implemented hundreds of compensatory mitigation projects across the country and many more projects are pending or in the planning stages. In addition, new programs continue to come online to provide additional compensation options for permittees. ILF mitigation accounts for about 17% of compensatory mitigation annually.

The report, In-Lieu Fee Mitigation: Review of Program Instruments and Implementation Across the Country, outlines the range of practice in ILF mitigation and describes innovative approaches across the country. Our goal was to support the development of effective ILF mitigation programs and enhance the capacity of state/local/tribal governments and others that develop or oversee ILF programs in order to improve the protection and restoration of watersheds and aquatic ecosystems across the country.

In administering their ILF programs, sponsors must navigate a myriad of credit markets, geographic and climatic contexts, and regulatory schemes. “Programs vary in size and scope, the way they calculate credits, how they evaluate projects for selection, which aspects of program work are covered in house versus by a contractor, and so forth,” said ELI Science and Policy Analyst Dr. Rebecca Kihslinger, who was lead-author of the report. “Through our research, we have identified a number of common challenges faced by ILF programs and have uncovered some strategies for achieving objectives.”

Among the most daunting challenges facing ILF programs are lengthy project development and approval times that make it difficult for programs to meet regulatory time lines, and determining and funding long-term management requirements to ensure projects meet objectives into the future. ILF programs also need further information on financial accounting and budgeting and data management; guidance on how to prepare for, respond to, and recover from significant natural events; and clarification on the degree of responsibility they should expect for the costs and burdens of remediation if disaster strikes.

ELI’s research reveals that some of the most effective programs are those that have forged strong partnerships, developing and tending relationships with local landowners, community associations and interest groups, regulatory partners, and other stakeholders. “Developing strong working relationships and open lines of communication allows programs to predict and address challenges early on, identify beneficial opportunities, and gain the trust of community members,” added Royal C. Gardner, Professor of Law and Director of Stetson’s Institute for Biodiversity Law and Policy.

Programs can also benefit greatly from sharing knowledge with other ILF providers. “Although each ILF program is unique, program sponsors should review other program instruments to see if they might be able to build off another program’s strategy or use another program’s resources, evaluation keys, or other documents to inform their own program’s strategy,” added Kihslinger. Mentorships and knowledge-sharing relationships offer a space to troubleshoot challenges and share effective solutions. They also equip sponsors to better identify the questions they should be asking and to anticipate needs at each stage of implementation.

The report is available for free download at https://www.eli.org/research-report/lieu-fee-mitigation-review-program-instruments-and-implementation-across-country.

Additional resources from ELI’s Wetlands Program are available at https://www.eli.org/wetlands-program.

Dr. Rebecca Kihslinger is available for interview.