When is Multi-Credit Banking a Double Dip???

George Howard is not a current director of the National Mitigation Banking Association. He was removed last year due to lack of participation. This should be corrected in the article.

I wonder if additionality could be pro rated...maybe a coefficient of additionality could be established when one environmental benefit overlaps with another.
Lets say a biodiv benefit was concommitant with a water project. If the water project works alone then the bio-d part is additional, right? Well, multiply the bio-benefit by say ,8, the coefficient that our methodology has come up with for " additional bio-d benefits...and on down through the chain of ancillary benefits.
Just because a benefit may be additional doesnt make it worthless...just worth-less...

My personal view is that there can be reasonable and justified grounds for an area of land generating multiple benefits (or offsets). For example, in Australia under the Biodiversity Banking system a conservation site can generate both ecosystem credits (associated with vegetation communities) and species credits (associated with particular threatened species). This encourages the conservation of high value sites with many biodiversity values.

I do recognise that this will not be appropriate in all circumstances. Unfortunately, many marketplace instruments are very complex, and relationships between policies and instruments may not be considered adequately. Making these relationships clear and transparent is surely the responsibility of the respective regulatory bodies.

Thanks, George. We have made the correction.

Richard; Keep your eyes on these pages -- those ideas are in the air, and we will be covering them in more detail in the months ahead. I like your distinction between "worth less" and worthless....

Thanks, Steve for posing these important and timely questions. After taking a closer look at Alice Kenny’s article, I have a few ideas to kick around in response to your first question: when do you believe it's justifiable to award multiple credits for the same patch of land?

To answer this question, I turned to Alice’s explanation of the core debate surrounding credit stacking:

“Environmentalists call reselling the same asset, in this case a restored wetland, ‘double dipping’ and see it as a net loss for the environment – arguing that reduced runoff is an embedded benefit of a restored wetland, and not an extra.”

The issue of embedded vs. extra benefits should not be lost amidst the legal and political frays of credit stacking. This distinction offers a viable solution to the dilemma of generating additional revenues from the same restoration activity. In my opinion, it is justifiable to award multiple credits for the same patch of land if and only if the additional benefits derive from some “extra” investment.

So how can we distinguish an embedded ecosystem benefit from an extra one? One approach would be to examine a project through its lifecycle and determine whether additional resources were invested to generate more than one credit type. In the case of North Carolina, wetlands restoration and nutrient runoff go hand in hand, meaning water quality credits are embedded and not extra. Therefore, this project should not be rewarded for generating multiple ecosystem benefits.

On the West Coast, however, mitigation banks have begun to recognize the dedication of distinct resources to the preservation of different ecosystem resources. The Willamette Partnership’s “Counting on the Environment” program, for example, rewards landowners generating multiple credit types by allowing them to identify and sell only the most valuable credit type generated on each plot of land. While this market avoids the credit stacking dilemma altogether, it provides yet another example of a market where “extra” benefits are not rewarded.

Of course, this “embedded vs. extra” approach may pose a mess of implementation and accounting hurdles. Nevertheless, it is important to keep in mind the underlying objective of payments for ecosystem services: the provision of incentives for environmental resources that would not otherwise exist. Embedded benefits simply do not fit this bill, and credit stacking for embedded benefits should therefore not be justified.

I completely agree with Dr. Ward's statement that credit stacking encourages the conservation of high value sites with many biodiversity values. I would add that it also encourages the restoration of such sites. As the industry matures from one of convenient opportunity (bankers utilizing land they already own primarily for other purposes, such as farms) to one of directed investment, an opportunity presents itself to further align the profit motive with ecological restoration. In other words, we should try to figure out how to make rules for the marketplace that ensure the desired outcomes - full and complex ecosystem restoration.

The idea of embedded benefit versus extra benefit is intriguing, but it begs the question, "relative to what?" We have a statutory baseline of replacing functions lost at the impact site. My experience in Oregon's Willamette Valley indicates that most impact sites exhibit relatively low functional capacity across the range of functions that we currently assess. On the other hand, as bankers we seem to have a difficult time curbing our enthusiasm, and the banks tend to be relatively highly functional by comparison. Both the current and proposed Willamette Partnership credit accounting systems remain acreage-based, resulting in the fact that we are "leaving credits on the table" everytime we mitigate an impact using bank credits. In other words, we are in fact over compensating for the impact, at least as far as we can measure function. My point here is that, if the embedded versus extra argument is going to work, we have to be very careful that the "relative to what" question is answered in such a way we achieve the desired ecosystem outcomes while still incentivizing private capital to flow in an pay for it.

This topic should, in my view, cause us to re-examine what the values are that we are trying to monetize, and which ones are specific/unique to certain habitat types. The fact that a tree sequesters carbon and also casts shade on a nearby stream has nothing to do with the fact that it is growing in a jurisdictional wetland - a tree growing in an upland riparian floodplain could perform those functions equivalently well, at least as far as the stream is concerned. This unbundling and valuation of separable functions is no different that what is routinely done in real estate appraisal for other purposes. The difficulty for them and for us is accurately appraising the components. But the payoff for the exercise would be perhaps a de-valuation of wetlands due to a recognition that relatively few functions are unique to wetlands, but more importantly, a fuller valuation of the other habitat types that we now largely ignore and impact without much thought or tangible consequence.

In summary then, I am for stacking. I believe it has the potential to make manifest in financial terms what we have been saying all along in ecological terms - that some natural areas are indeed the highest and best use no matter how you measure it. I disagree that linking extra credit to extra investment is a practical way, or even a fair way, to draw where the double-dipping line is. Rather, I would propose using the statutory equivalence requirements we currently work under as the starting point, and allow bankers to sell into other markets what they produce above and beyond those requirements.