Ecosystem Markets Primer T.J Mascia Troutman Sanders, LLP

New York State Forum, Inc. Annual Conference and Meeting April 29 – 30, 2014

Ecosystem Markets:

Fundamental Concepts

• Impacts are Inevitable

• Market-Based vs. Command-and-Control

• Restoration vs. Restriction

• Natural vs. Built Capital

Before • Benefits/Advantages vs. Limitations

After Ecosystem Markets: Primer Focal Points

• Driver(s)

• Units

• Participants

• Practices/Process

• Status/Trends

Ecosystem Market Examples

Voluntary Greenhouse Gas (GHG) Offsets

Wetlands and Stream Mitigation Banking

Species Conservation Banking

Water Quality Trading (WQT) Voluntary GHG Offsets

GHG Market Basics

Driver(s): Pre-Compliance / Sustainability / Philanthropy

Units: MtCO2e

Buyers: Unregulated Corporations / NGOs / Universities / Individuals

Sellers: Offset Project Developers / Retailers / Aggregators

Others: Standards / Registries

GHG Practices/Process

Offset-Generating Practices:

• GHG Sequestration • GHG Capture

Offset Certification & Sale

• Verification • Certification • Registration

GHG Status/Trends

Source: Forest Trends Ecosystem Marketplace GHG & Stream Mitigation Banking

Mitigation Market Basics

Driver(s): CWA Section 404 / WRDA / 2008 Mitigation Rule

Units: Acres of Wetlands + LF of Stream

Buyers: Section 404 Permittees

Sellers: Mitigation “Bankers” / ILF Sponsors

Others: USACE / Interagency Review Team (IRT)

Mitigation Practices/Process

Credit-Generating Practices:

• Creation • Enhancement • Restoration • Preservation

Banking Process:

• Initial Regulatory (IRT) Review and Approval • Credit Release(s) • RIBITS • Bank Closure and Long-Term Management

Mitigation Practices/Process

Mitigation Practices/Process

Mitigation Status/Trends: Market Growth & Success

Source: Forest Trends Ecosystem Marketplace State of Biodiversity Markets 2011 Update

• 900+ Approved Banks  960,000+ acres restored/protected (2010) • Average Bank Size = 174 acres (2008) • Average Credit Price = $74,535 (2008) • Estimated Annual Market Value = $1.3 - $2.2 billion/yr

Mitigation Status/Trends: Permitting Efficiency

Source: Birnie, Katherine (Ecosystem Investment Partners),. May 9, 2013."State of the Market: National Market Analysis and Overview.” Presentation at2013Natonal Mitigation &Ecosystem Banking Conference. New Orleans, LA

Mitigation Status/Trends: Regional Variability

Source: http://www.restorationsystems.com/wetland-mitigation-bank/ Mitigation Status/Trends: New York

• 3 Approved Banks as of Jan. 2013 (RIBITS)

• Future Market Potential ?

“NYCEDC Releases Request for Expressions of Interest to Establish First Wetlands Bank in New York City”

Press Release December 20, 2013

Mitigation Species Conservation Banking

Species Market Basics

Driver(s): ESA Sections 7(a)(2) and 10(a)

Units: Acres of Habitat / Population

Buyers: ESA Permittees

Sellers: Species Conservation “Bankers” ILF Sponsors

Others: USFWS / State Resource Agencies

Species Status/Trends

Source: Forest Trends Ecosystem Marketplace State of Biodiversity Markets 2011 Update Species Status/Trends

Species currently protected by US conservation banks:

Black-capped vireo - TX Golden Cheeked Warbler - TX Coastal Gnatcatcher - CA Gopher Tortoise - MS California Tiger Salamander - CA Chub - OR Carolina Heelsplitter – SC San Joaquin Kit Fox - CA Chinook Salmon – CA, WA Sand Skink - FL Conservancy Fairy Shrimp- CA Prairie Dog - UT Panther - FL Steelhead - CA Florida Scrub Jay - FL Cheat Mountain Salamander – WV Giant Garter Snake- CA Western Burrowing Owl - CA Giant Kangaroo Rat - CA Valley Elderberry Longhorn Beetle - CA Swainson’s Hawk - CA Delta Smelt - CA

Species Status/Trends: NY Conservation Banking

• Current Efforts: Indiana Bat

Indiana Bat habitat enhancement: cave gate installation at Nature Conservancy project in the Missouri Ozarks

• Other Species Banking?

Species Water Quality Trading

WQT Market Overview

Driver(s): CWA Sections 402 and 303 / TMDLs EPA WQT Policy / State Laws & Regs

Units: Lbs. N or P / Sediment / Thermal

Buyers: NPDES Permittees

Sellers: “Bankers” / Farmers / Point Sources

Others: EPA / State Agencies

WQT Practices/Processes

WQT Status/Trends

WQT Ecosystem Markets: Criteria For Success

• Driver(s): Strong enforceable “cap”

• Units : Real / Verifiable / Appropriate Ratios

• Participants : Role of Private Entrepreneurs

• Practices/Process: Clarity / Consistency / Transparency

• Status/Trends: Monitor and Adapt

Questions?

T.J. Mascia Troutman Sanders, LLP [email protected] 804-697-1421