A Sustainable Chesapeake BETTER MODELS for CONSERVATION

A Sustainable Chesapeake BETTER MODELS FOR CONSERVATION

Edited by David G. Burke and Joel E. Dunn

THE CONSERVATION FUND

The case study you have downloaded is highlighted below. Other case studies from this Chapter of A Sustainable Chesapeake: Better Models for Conservation can be individually downloaded. The editors encourage readers to explore the entire Chapter to understand the context and sustainability principles involved with this and other featured case studies. The full publication contains 6 Chapters in total: Climate Change Solutions, Stream Restoration, Green Infrastructure, Incentive Driven Conservation, Watershed Protection and Stewardship.

CHAPTER 4 INCENTIVE DRIVEN CONSERVATION

Introduction...... 134

Virginia’s State Tax Credit for Land Conservation ...... 135. Protecting Virginia’s Landscapes With Tax Credit Incentives. By Philip M. Hocker and Joseph H. Maroon

Ecosystem Payments at Work...... 145. Conserving Land in Virginia’s Great Dismal Swamp. By Shannon Meyer

Patuxent Greenway Reforestation Bank...... 153. Making Up for Lost Forestland in Anne Arundel County, Maryland. By Milton McCarthy and Joel E. Dunn

Effective Forest Banking...... 159. Forest Conservation in Carroll County, Maryland. By James E ..Slater, Jr ..and Glenn D ..Edwards

A Residential Subdivision Designed for People and Wildlife ...... 167. Incorporating Wetlands Creation and Forest Protection on Cooke’s Hope . at Llandaff, Near Easton, Maryland. By Lynda Eisenberg, David G. Burke and Joel E. Dunn

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A Sustainable Chesapeake: Better Models for Conservation | Editors—David G. Burke and Joel E. Dunn | The Conservation Fund, 2010 4 Incentive Driven Conservation

Ecosystem Payments at Work Conserving Land in Virginia’s Great Dismal Swamp Government land management agencies and entrepreneurs can mutually benefit from emerging ecosystem market opportunities that restore and preserve important Ecosyst e m Paym e nts at Work conservation lands near existing public lands.

Case Study Summary environmental success and financial the property to its natural wetland Ecosystem Investment Partners’ Great success for their investors. condition and has established a Dismal Swamp project showcases wetlands mitigation bank under the EIP was founded in 2006 by Fred how conservation-minded investors auspices of the Clean Water Act. Danforth, Adam Davis and Nick Dilks. can use private capital and Payments The purchase and restoration of the They represent three components for Ecosystem Services (PES) markets property is being funded by the sale of the newly emerging ecosystem to conserve important landscapes. of credits from the restored wetlands services industry: business, real This case study provides an to development projects in the estate, and conservation. Adam innovative example of capitalizing on surrounding watershed. At the end Davis is president of Solano Partners, multiple resource and value streams of the investment period, EIP hopes Inc., an environmental investment of a property to align return on to sell the conserved and restored and conservation finance consulting investment with restoring a damaged property to the U.S. Fish and Wildlife firm. Davis is also co-founder of the ecosystem. This incentive-driven Service so that it may become part website Ecosystem Marketplace, a conservation solution can be applied of the National Wildlife Refuge. As global information service on market to other properties in the Chesapeake private sector entrepreneurs, EIP mechanisms and financial incentives Bay watershed. is taking market-based restoration for conservation. Nick Dilks is a career and conservation to a new level, conservationist with experience at Ecosystem Investment Partners’ creatively using multiple markets the Nature Conservancy, the Natural (EIP) Great Dismal Swamp property and investment approaches to Lands Trust in Pennsylvania, the is a 1,037-acre inholding in the Great define the environmental value of an Maryland Environmental Trust, and Dismal Swamp National Wildlife ecosystem and create incentives for The Conservation Fund. Fred Dan- Refuge in southeastern Virginia. This its conservation. intensively managed agricultural forth was a co-founder and partner in the private equity firm of Capital land was once part of an enormous Resource Management Resource Partners, which successfully swamp covering close to a million Challenge acres across southeastern Virginia raised and placed almost $1 billion In 1763, George Washington encoun- and northeastern North Carolina. during his tenure. tered the Great Dismal Swamp and EIP’s inholding is uniquely positioned EIP purchased its first property, a saw a “worthless” swamp wasteland to tap the converging needs for portion of the Great Dismal Swamp, in in need of taming. As one of the wetlands restoration and for a ready- June 2007. While only two years into nation’s first real estate developers, made market for mitigation credits their expected 10-year ownership of Washington founded the Dismal in the area. EIP is taking advantage the property, EIP is already showing Swamp Land Company (otherwise of these factors and hoping to positive results. EIP is restoring known as “Adventurers for Draining demonstrate both on-the-ground

A Sustainable Chesapeake: Better Models for Conservation 145 the Dismal Swamp”) for the sole fires created environmental conditions Conservancy then transferred the land purpose of ditching and draining the that drastically decreased plant and to the U.S. Fish and Wildlife Service, swamp for agriculture and timber animal diversity.1 which established the Great Dismal harvest. Swamp National Wildlife Refuge. After ownership by a succession Over the next several decades, a Prior to this time, the Great Dismal of real estate developers, farmers, broad coalition of public and private Swamp supported a distinctive and timber companies, the fate of conservation interests succeeded in Tupelo-bald cypress and Atlantic the swamp finally began to change. adding more than 60,000 acres to the white-cedar forest. Long before In 1973, the Union Camp Timber Refuge, bringing its total acreage to Washington’s arrival, settlers and Corporation donated 49,100 acres of 111,000. slaves ventured into the swamp to the core swamp area to The Nature harvest these trees for shingles, Conservancy – then the largest Efforts across the Refuge have planking, and other products. More land conservation donation by a restored much of its natural hydrology than two hundred species of birds corporation in U.S. history. The Nature and begun to bring back many native have been identified in the swamp, including two southern species, the Swainson’s warbler (Limnothlypis  Great Dismal Swamp National Wildlife Refuge swainsoni) and Wayne’s warbler (Den- droica virens waynei), that are more common in the Great Dismal Swamp than in other coastal locations. The swamp supported a variety of mammals including: river otter (Lontra canadensis), numerous species of bats, racoon (Procyon lotor), Ameri- can mink (Neovision vision), gray fox (Urocyon cinereoargenteus), red fox (Vulpes vulpes), eastern gray squirrel (Sciurus carolinensis), white-tailed deer (Odocoileus virginianus), Ameri- can black bear (Ursus americanus), and bobcat (Lynx rufus).

Washington’s company dredged the swamp land and built canals across the property to make it suitable for crops. Once the canals were complete, the wild swamp was rapidly converted from a naturally functioning ecosystem to commercial timberland and row crops. For three centuries, agricultural, commercial, and residential development destroyed the natural systems of the swamp until only a fraction of the original swamp remained. Logging nearly wiped out the native Atlantic white cedar and bald cypress stands, while related road and canal construction nearly destroyed the complex hydrology of the swamp. By 1950, no virgin timber remained on the property. A drier swamp and the suppression of wild-

146 A Sustainable Chesapeake: Better Models for Conservation 4 Incentive Driven Conservation

ake Drummond, a 3,100-acre natural lake in the heart of Great Dismal Swamp. Aggressive logging nearly wiped out Lthe native Atlantic white cedar and bald cypress stands in the Great Dismal Swamp, while related road and canal construction nearly destroyed the complex hydrology of the swamp. By 1950, no virgin timber remained on the property. Ecosyst e m Paym e nts at Work

species. However, one 1,037-acre markets for these services in order to to investors. “Unlocking return on unprotected inholding remained both restore and conserve land. EIP’s investment from conservation and within the acquisition boundaries of investment strategy focuses on the restoration action on private property the Refuge. Because the Refuge sur- double bottom line of achieving con- is a necessity to promote large scale rounded the inholding on three sides, servation goals and financial gains. protection of ecosystems and gaining ownership of this property EIP creates value for its investors by working landscapes,” said Nick Dilks. was of the highest priority for the purchasing large properties in need of According to EIP’s Adam Davis, the Fish and Wildlife Service, the State of restoration and then actively manag- marketplace is increasingly interested Virginia, and numerous conservation ing them to create and monetize in such partnerships. Conservation groups.2 Attempts to purchase this environmental value by using market measures are now falling into place final piece of the puzzle were repeat- mechanisms such as mitigation and not simply for ethical reasons, but edly thwarted by lack of funding, conservation banking. They also because of the measurable ecosystem coupled with the escalating value of manage the timber, agricultural, and services such protection provides.3 real estate in this area. real estate attributes of these proper- Since purchasing the Great Dismal ties that do not conflict with overall Swamp, EIP has invested in three conservation vision conservation objectives. additional projects in Delaware, EIP’s vision for its Great Dismal Louisiana and Montana. EIP’s principals agree that environ- Swamp property, along with its other mental protection and restoration EIP found a significant portion of the investments, is to capitalize on the activities can be compatible with capital for this project from the Lyme critical services provided by ecologi- economic development and returns Timber Company, a private equity cally important lands and the new

A Sustainable Chesapeake: Better Models for Conservation 147 investment firm based in Hanover, New Hampshire, that is a pioneer in economically profitable conservation projects. Lyme has traditionally focused on timberland investment projects, purchasing large timber parcels with high conservation values as a way of bringing conservation and investment dollars to the table. Because of the properties they target, they are often able to sell working forest conservation easements to state agencies that permit sustainable timber harvests as well as public recreation, thus reducing their capital investment in the property. In the first decade of the 21st century, this conservation investment innovator began to see investment opportunities in projects that included markets Great Dismal Swamp Jericho Ditch. for ecosystem services. Accordingly, Lyme decided to invest a portion of its fund with EIP. grown. There are now markets for an also provide important habitat for a array of ecosystem services including wide range of plant and animal spe- The previous owner of the Dismal the control of greenhouse gases, cies and can help support commercial Swamp property knew that this parcel clean water, habitat protection, forest fisheries. Protection of wetlands in the was very important to conservation and watershed functions, and riparian United States is governed by a 1997 interests. Therefore, he approached restoration. amendment to the 1972 Clean Water The Conservation Fund about Act. purchasing this land before placing it What distinguishes sales of ecosystem on the open market. The Conservation services from other forms of environ- Section 404 of the Clean Water Act Fund contacted the newly formed EIP mental regulation is that they must requires a permit for the discharge which, with its partner Lyme Timber, involve scientifically verifiable units of dredge or fill materials into waters was able to put together the funds of performance. In order to market of the United States. Since 1997, this needed to purchase the property. ecosystem services, one must be able applies to wetlands as well. In order to quantify how much of the service to obtain a permit, a developer must implementation resources is being provided. The United States demonstrate that they have 1) taken The term “ecosystem services” refers has created markets for ecosystem steps to avoid wetland impacts, 2) to the earth’s natural functions, which services through state and federal minimized potential impacts on wet- include water and air purification, environmental regulatory structures lands, and 3) if necessary, provided mitigation of droughts and floods, that require polluters to mitigate for compensation for any remaining 4 decomposition of wastes, regulation unavoidable impacts of development unavoidable impacts. If an impact of climate, and maintenance of projects. is determined to be unavoidable, the biodiversity, to name a few. Tradition- permittee must provide “compensa- The most active PES market sur- ally, economic systems put little or no tory mitigation” for their project. This rounding the Great Dismal Swamp value on ecosystem services. The vital means that other wetlands must be project is the wetland mitigation life-supporting actions of the planet restored, created, enhanced, or, in program of the federal Clean Water are taken for granted until disrupted some cases, preserved in compensa- Act. Wetlands are complex ecosys- or threatened. Over the last decade, tion for the destruction of natural tems that improve water quality, however, the concept of attributing wetlands. This mitigation can be done diminish droughts, provide natural a monetary value for ecosystem by the permittee or by a third party, flood control, recharge groundwater services in the marketplace has such as EIP. aquifers, and stabilize shorelines. They

148 A Sustainable Chesapeake: Better Models for Conservation 4

In April of 2008, a new mitigation rule Incentive Driven Conservation Formula for Credit Creation at EIP’s Dismal Swamp Bank was promulgated by the U.S. Army Acres Credits Corps of Engineers that established one set of standards for all Section Preservation 243.33 24.33 404 mitigation responses. The action Restoration 689.09 686.09 superseded previous guidance docu- Upland Buffers 4.36 0.29 ments and consolidated it in one rule Enhancement 29.15 1.45 that ranks the allowable compensa- Easement Bonus 0 35.608 tion methods in order of preference. Highest preference is given to “due diligence” to determine whether The goal of the Bank is to “establish mitigation through mitigation banks, their financial estimates for the vari- a self-sustaining functional aquatic followed by fee-in-lieu programs and ous PES markets were accurate. They system to replace the functional then permittee responsible mitiga-

anticipate ongoing demand for cred- values of wetlands and other aquatic Ecosyst e m Paym e nts at Work tion actions. The rule further stated its from small-scale projects as well resources anticipated to be adversely that every type of compensation as additional large-project demand affected within the authorized service must include a mitigation plan with that will be generated by public area.” The Bank’s credits may be used a clear and uniform set of required infrastructure projects like roads, to offset development impacts within components.5 airports, and transmission lines. When the Albemarle Sound drainage basin, A wetland mitigation bank is a EIP purchased the property, there which includes all or part of South legally established entity that owns were three large projects planned for Hampton County, Chesapeake City, a wetland, stream, or other aquatic the next three to five years that would the City of Suffolk, and the City of resource that has been restored, require up to 370 acres of mitigation. Virginia Beach. The Bank will gener- established, enhanced, or preserved Since there is only one other wetland ate a total of 747 wetlands credits to compensate for impacts to mitigation bank in the area with and has already sold all 112 of its wetlands elsewhere.6 Mitigation available credits, EIP’s anticipated pre-released credits to the Hampton banks can be created by private market share is very favorable. The Roads Executive Airport project. The corporations, nonprofit organizations, approximate value of wetland credits area included in the mitigation bank and/or government agencies through in the area has historically been in the is subject to a conservation easement a formal agreement with a regulatory range of $12,000 to $15,000 per acre. donated to The Nature Conservancy. agency. The value of a bank is defined EIP will restore and conserve The number of credits created per by the mitigation credits it creates. former wetlands that had been acre depends on the type of land in One benefit of third-party mitigation converted to agriculture on the Great the bank. More credits are given for is that the permittee transfers all Dismal Swamp property. Demand for restoring land than for preserving liability to the bank and the mitigation wetlands mitigation in this part of existing wetlands. The table entitled is usually done by an entity with Virginia is driven by commercial and Formula for Credit Creation at EIP’s more restoration experience than the residential development and road Dismal Swamp Bank shows how permittee/developer. Between 1992 construction in and around the Vir- credits were allocated. and 2005, there was a 376% increase ginia Beach, Chesapeake, and Norfolk in the number of approved mitigation The Bank will be developed over metropolitan area. EIP, with the help banks owned by for-profit and non- several years. Construction was of the Williamsburg Environmental profit organizations. Since 2001, the completed in 2009, with grading and Group, has established a wetlands number of mitigation banks that have plugging of the ditches that traverse mitigation bank, the Dover Farm sold all of their credits has tripled.7 In the site and the installation of hydro- Mitigation Bank on 966 acres of the 2007, the Environmental Law Institute logical control structures. EIP also property. The site on which the Bank found that the annual United States selectively graded the property to is situated is comprised of 239 acres wetland mitigation market was worth create variations in micro-topography of existing wetlands, approximately $2.9 billion.8 and increase habitat diversity. The 700 acres of agricultural land, and entire property has been seeded with 27 acres of nonagricultural upland Conservation Strategy a wetland seed mix and planted with terrain. Approximately 71 acres of the Prior to purchasing the property, EIP over 290,000 native trees and shrubs. property that was entirely uplands went through a rigorous process of The plant diversity will also reflect was excluded from the Bank.

A Sustainable Chesapeake: Better Models for Conservation 149 he Dover Farm portion of the Great Dismal Swamp Property before restoration: drainage ditches illustrate the way Tthat water had been managed on the site. Working with local experts in hydrology, conservation biology and soil science, EIP develops and implements detailed restoration plans for each project.

those volunteer species already and trade system for reducing Total the Migratory Bird Program. Under present and species found at the Maximum Daily Loads of nutrients this strategy, the Refuge would be adjacent Refuge. The Williamsburg into the Chesapeake Bay watershed. able to acquire the fully restored and Environmental Group worked closely Depending on the rules that are permanently conserved property for with the U.S. Fish and Wildlife Service ultimately established, it is possible less than it would have otherwise paid to ensure the appropriate species mix that EIP could receive credit for water for the parcel, even in an unrestored was planted on the site. quality improvements made as the condition. farmlands are restored to forested The Refuge contains identified habitat wetlands. These credits could then Results for the state endangered canebrake be sold much like wetland mitigation EIP’s conservation investment model rattlesnake (Crotalus horridus) and credits to entities that need to offset has led to the conservation and the bank has the potential to provide their nutrient outputs. There is also restoration of one piece of the Great additional habitat. After generat- a possibility that the nascent carbon Dismal Swamp. Because of EIP, the ing wetland credits, a secondary sequestration market could develop land will be restored to its natural goal of the bank is the expansion in such a way that EIP’s forest restora- hydrology, conserved forever, and of canebrake rattlesnake habitat on tion and conservation work could hopefully become part of the Great upland portions of the property.10 generate marketable carbon credits. Dismal Swamp National Wildlife EIP has been authorized by the U.S. Refuge. Army Corps of Engineers and Virginia Because EIP’s property is within Department of Game and Inland Fish the boundary of the Great Dismal Without an investor like EIP, the only to sell rattlesnake credits off 239 Swamp National Wildlife Refuge, the hope of conserving the prop- acres of the wetland bank.11 U.S. Fish and Wildlife Service is very erty would have been the traditional interesting in purchasing it. At the model of seeking government funding There are other current and potential end of the investment period, after and generous philanthropic donors revenue sources on the property. Prior the bank is sold out, EIP would like to pay for its conservation. Even to commencement of restoration to sell the land to the Refuge. EIP if that effort were successful, the activities, EIP leased the farm fields will work with the Fish and Wildlife property still would not have been for corn and soy bean produc- Service to facilitate funding from restored and endowed. The market tion. Recreational leasing for quail, various federal and state conservation for wetland mitigation credits is the waterfowl, deer, and bear hunting funding sources, such as the Land financial driver that facilitated the also provides some revenue. Virginia and Water Conservation Fund and restoration of the property. Without is in the process of establishing a cap

150 A Sustainable Chesapeake: Better Models for Conservation 4

such a market, it is unlikely that EIP hhA property with potential for photos and figures Incentive Driven Conservation could have made this model work for rehabilitation and conservation Page 145, 147: Photos, R. Winn, U.S. its investors. Fish and Wildlife Service hhInvestors who embrace the ecosys- Page 146: Figure, U.S. Fish and tem services investment model and While the Great Dismal Swamp Wildlife Service have relatively patient capital project requires more time to prove Page 148, 152: Photo, C. Lowie, U.S. its financial success, the com- hhThe complementary experience Fish and Wildlife Service pany is currently on track to meet of the EIP partners with expertise Page 150: Photo, Ecosystem its projections. When it is complete, in the three important fields of Investment Partners the Dover Farm Mitigation Bank will conservation, finance and PES Page 151: Figure, Burke Environmental have restored 700 acres of degraded markets Associates/The Conservation Fund, using Google Earth image former wetlands and conserved at hhA strong market for the Bank’s least 966 acres in perpetuity. wetlands mitigation credits in the References surrounding communities Ecosyst e m Paym e nts at Work Keys to Success 1United States Fish and Wildlife hhA conservation entity, in this case Service. 2009. Great Dismal Swamp EIP’s Great Dismal Swamp Project the U.S. Fish and Wildlife Service, National Wildlife Refuge: Habitat shows how the creation of PES interested in purchasing the and Wildlife. In, http://www.fws.gov/ markets can bring a new set of play- restored and conserved property northeast/greatdismalswamp/Habitat. ers to the conservation game. These at the end of the investment period htm. players are not only protecting land hhA strong management partner such from development, but are actually as Williamsburg Environmental 2,11Ecosystem Investment Partners. restoring degraded lands—because it Group to construct and maintain 2007. Investment Overview for Great makes economic sense. Some keys to the Bank Dismal Swamp Project. Ecosystem the project’s success are:

 EIP Great Dismal Swamp Bank Site Plan

A Sustainable Chesapeake: Better Models for Conservation 151 Investment Parnters, Towson, MD. Compensating for Impacts to 9Dilks, N. 2009. Personal communica- Internal document. Wetlands and Streams. Environmental tion April 20, 2009, with Mr. Nicholas Protection Agency, Washington, D.C. Dilks, Managing Partner, Ecosystem 3Kenny, A. 2007. Partners in Conserva- Investment Partners, Towson, MD. tion: EIP Pioneers New Model. In, 7Ecosystem Market Place. 2009. http://ecosystemmarketplace.com/. Biodiversity Markets: US Wetlands 10Williamsburg Environmental Group. Banking. In, http://www.ecosystem- 2007. Mitigation Banking Prospectus: 4Clean Water Act. 1972 as amended. marketplace.com/. (Accessed 2010). Dover Farm Mitigation Bank. Ecosys- P.L. 92-500, 33 U.S.C. § 1251 et seq. tem Investment Partners, Towson, MD. 8Bishop, J., Kapila, S., Hicks, F. and P. 5Federal Register. 2008. Compensa- Internal document. Mitchell. 2006. Building Biodiversity tory Mitigation for Losses of Aquatic Business: Report of a Scoping Study. Resources. Vol. 73, No. 70, pgs. 19594- Shell International Limited and the 19705 (April 10, 2008). World Conservation Union. London, 6Environmental Protection Agency. UK and Gland, Switzerland. (Draft) 2009. Mitigation Banking Factsheet: 168 pp.

i For More Information

Project Contact: Ecosystem Investment Partners 29 West Susquehanna Avenue Towson, MD 21204 Phone: (443) 921-9441 | Email: [email protected] | www.ecosystempartners.com

For more information on ecosystem services markets in the United States, visit www.ecosystemmarketplace.com

152 A Sustainable Chesapeake: Better Models for Conservation