Outside of the carbon markets, corporate involvement is still rare in emerging ecosystem-service markets. In the field of mitigation banking, however, this is beginning to change. The Ecosystem Marketplace gets the latest on Chevron's new mitigation bank in the United States.
Outside of the carbon markets, corporate involvement is still rare in emerging ecosystem-service markets. In the field of mitigation banking, however, this is beginning to change. The Ecosystem Marketplace gets the latest on Chevron's new mitigation bank in the United States. Gazing from his farmhouse towards adjacent pastures and distant swamps filled with water lilies and cattails, bald eagles and alligators, Eric Matherne drawls in a soft southern accent, "this is paradise to me." Matherne lives in aptly named Paradis, a rural Cajun parish in southern Louisiana. His property abuts part-lush landscape, part-verdant pastureland owned by Chevron. The corporation received approval in November 2005 to convert 11-square miles of this largely undisturbed habitat into the biggest wetland mitigation bank in the state. Matherne says he hopes the bank will preserve the fertile landscape he overlooks, forever. Chevron appreciates the land's beauty and the ecological value of preserving it as a wetland, but economic rather than ecological incentives held the greatest sway in spurring this Fortune 100 Corporation's decision to expand into the field of mitigation banking. "A wetland mitigation bank made the best sense from a financial standpoint," says Matt Carmichael, a Chevron spokesman, from his office in nearby New Orleans. Corporate involvement in the evolving field of ecosystem services markets is relatively rare. Chevron's market analysis and degree of success in expanding into mitigation banking offers a window into the benefits and challenges of investing in this new financial marketplace.
From Black Gold to Green Gold
For decades, Chevron's Paradis wetlands offered more riches for its corporate owners than just diverse wildlife. Oil companies drilled there for 60 years, prospering off oil swirling below the surface. But the oil productivity began declining in the 1980s. By the time Chevron and Texaco merged in 2001, geologists determined that the wells had been tapped out, explains Carmichael. This pushed the new corporation to decide what to do with its former cash cow. They considered a variety of options, Carmichael says, from building homes and businesses to selling the land. But the property's elevation averaged six feet below sea level; percolation tests revealed that it was too weak to support structures. The land, says Carmichael "was essentially undevelopable." It could, however, function as a wetland mitigation bank. Unlike financial banks built from bricks and mortar, mitigation banks are actual wetlands that have been created, restored or enhanced by private companies or government agencies. The system, a byproduct of the federal Clean Water Act, mandates that builders replace as many wetlands as they destroy. Developers building on wetlands can buy credits, or shares, in mitigation banks typically located in the same watershed to offset the ecological damage they are causing. By turning the land into a mitigation bank, Chevron has, in a sense, struck oil once again. Development pressures in this region along Highway 90, the main thoroughfare to New Orleans, are acute and accelerating. Exacerbating the pressures are the state's plans to incorporate the highway into a four-lane interstate called Highway 49, allowing traffic to race to jobs returning to New Orleans. As the city's suburban reach expands, developers are gobbling up available properties, including wetlands. With the supply of mitigation credits in this watershed sparse and the demand for them high, the corporation plans to demand a hefty price for its credits. Meanwhile, turning the land into a mitigation bank requires only a minimal investment by Chevron, according to corporate data. Basically, Chevron plans to plant trees and dig ditches to turn "essentially undevelopable" land into a wetland bank worth millions. Already, nearly half the property is considered wetlands. To meet the criteria to qualify as a wetlands bank, the wetlands portion needs to enhance its wetlands functions and the dry portion must be converted into a natural wetland state. The corporation will meet these objectives, according to the approved plan, by planting cypress and bottomland hardwood trees in the wetlands portion and digging culverts in spoil banks that will hold and gradually release rainwater in the currently drained area. Each wetland acre/credit will then sell for $20,000-$25,000, Carmichael says. With 7100 acres in its wetlands bank, this means that the corporation stands to gross over $150 million. They have already begun releasing some of the credits. Meanwhile, the local drainage board, called the Sunset Drainage Board and headed by Chevron's neighbor, Eric Matherne, remains responsible for maintaining the levee surrounding and preserving the land. The board charges $20 an acre for its services, "one of the best deals," Matherne says," that anyone ever had." The deal, he adds, is also good for the drainage board. The restored, enhanced and created wetlands are expected to retain two-to-three weeks worth of rainwater, taking pressure off the drainage board's pumping stations. And the plan appears to be good for the environment as well. Trees, unlike the seasonal grasses they will replace, provide long-term absorption of carbon that would otherwise seep into the air and contribute to global warming. Their powerful roots help prevent flooding by sucking up rainwater. And wetlands help filter out pollutants.
Doing Business In Hurricane Alley
In the wake of Katrina's wrath, many wonder about the lifespan of the Paradis Mitigation Bank, a below-sea-level wetland located in hurricane alley and protected by breachable levies. Typically, federal legislation aimed at stemming the rapid loss of wetlands requires that wetland banks last "in perpetuity." James Barlow, project manager for the U.S. Army Corps of Engineers Regulatory Branch overseeing the Paradis wetlands bank, says this requirement poses a problem in the case of Chevron's bank. "[W]e've been criticized for setting up banks that are not self-sustaining. And this is not self sustaining." An estimated half of the 220 million acres of marshes, bogs, swamps, and other wetlands that once existed in the United States have disappeared, according to U.S. General Accounting Office data, including over a million wetlands that have been destroyed or degraded since the passage of the Clean Water Act. Paradis, similar to much of the soppy lower Mississippi Valley, survives thanks to protective levees and pumping stations built in the 1930s. Located just 23 miles southwest of New Orleans and seven miles from the Mississippi, the town of Paradis—and everyone investing in it—could have been devastated instead of just sideswiped by Katrina. "It was pure dumb luck that Katrina's eye wall only grazed the town," says Corey Faucheux, economic development director for Paradis. "If the hurricane tracked a bit more westward, we would have been in the same boat as New Orleans." Although the Paradis Mitigation Bank could sponge up excess rainfall, it would be impotent to protect the town if the levees surrounding the town broke. Since the land is below sea level, it would be covered with water and worthless for flood prevention. Further, the bank is located too far inland to provide a barrier to coastal flooding, experts agree. This is no different, however, than much of the other prized wetlands within the bank's watershed. So, as a condition for approving the bank, the Army Corps decided to limit sale of the bank's credits to developers building on wetlands in similar, levee-protected areas. Since the Sunset Drainage Board and not the multi-billion-dollar corporation is responsible for maintaining —and rebuilding—the levees, Chevron's investment is protected regardless of possible flooding. And if the levees were breached, Matherne promised that his board would rebuild them. After all, his home cannot survive without them.
The New American Way
Despite the multimillion-dollar profit Chevron anticipates from its mitigation bank, corporate involvement remains rare in the numerous ecosystem-service markets that have begun evolving. But in the field of mitigation banking, their ranks are growing. Wetland mitigation banking, which began in the early 1990s, now counts over 450 approved banks throughout the United States and an additional 198 in the proposal stage according to an inventory completed last year by the Army Corps of Engineers. Between 20 and 30 percent of them are backed by large corporations, says Rich Mogensen, immediate past president of the Mitigation Bankers Association and director of Mid-Atlantic Mitigation LLC, an EarthMark Company. Corporations dabbling in mitigation banking are predominantly energy or pipeline companies such as Chevron, Tenneco and Florida Power and Light; corporations that are financially secure, have extra land and are looking for ways to diversify. Similar to the Paradis property, the land converted into wetland banks typically had a previous history as a site for oil exploration but no longer has any mineral value. Since the land often lies within flood plains or on wetlands, it cannot pass percolation tests required for development approval. From Mogensen's perspective, "It's a great use of corporate assets that can't be used for anything else." He does not mind the competition, he adds, even though he directs a mitigation banking company. "The big corporations are potential competitors but that's the American way," he says. Further, he adds, these larger corporations often spin their banks off to smaller companies, such as his, to handle the banking. "Besides, the more financially secure companies there are doing mitigation banking, the better off and stronger the industry is." Alice Kenny is a prize-winning science writer and a regular contributor to the Ecosystem Marketplace. She may be reached at email@example.com. First published: March 30, 2006
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