SwampGate: News and Observer busts EBX for hitting the punch bowl twice

Quite a find on my porch this morning. The state’s paper of record revealed a long-stewing controversy in the obscure but important world of compensatory environmental mitigation policy.  [EBX paid twice for wetlands work, December 8, 2009]  RS’ principal competitor, Environmental Bank and Exchange (EBX), sold nutrient mitigation credits to the North Carolina Ecosystem Enhancement Program subsequent to the site being banked, restored and previously paid for by the North Carolina Department of Transportation for wetland mitigation credit.  In industry parlance —  we call this a “double-dip.”

This is an unfortunate affair that will hopefully lead to a moment of clarity.  It does not reflect well on the mitigation industry when the government botches the management of mitigation markets and credit, or when a company takes advantage of the mismanagement in a way that looks like profit trumps all.  But the state regulatory apparatus will be unlikely to award credit in the future to already protected sites.  And EBX is hardly a criminal enterprise swapping swamp from a boiler room in Baltimore.  They are an experienced restoration and mitigation firm that took advantage of a dangerous loop hole in state policy and profited at the expense of the environment.

However, there is more to the story, on a couple of fronts:

ISSUE ONE: The mitigation credits released by the state to EBX from the previously conserved site exceed the number of credits purchased by the NCEEP — therefore thousands of credits remain on the open market.  Those credits are still available for sale in the Neuse River watershed but provide no additional environmental benefit, and have an incremental production cost to EBX of….. ZERO!  That means that for RS or anyone else to compete effectively (the credits are a commodity) we would need to charge a penny less than zero, which is problematic.

RS contends it is entirely in the discretion of the state to dis-allow the use of these remaining credits based on their utilization being “inappropriate,” as empowered by the Paragraph 18 of EBX \ DWQ banking instrument below.  Most mitigation banking instruments have this kind of language, which to my knowledge is a hammer intended for an extraordinary nail.  Time to nail it.

DWQ power to restrict use of credits

ISSUE TWO: What is to be done with the thousands of riparian buffer credits the State Fee Program (the Ecosystem Enhancement Program) has double-dipped themselves?   There is evidence the state has paid itself for buffer credits from stream sites which were already in the ground — and paid for by developers — through a little known process termed “Direct Purchase.”  Direct Purchase is an accounting gimmick whereby the NCEEP takes “fees” charged to the public and reallocates them among its various funds and in effect buys mitigation from itself.

These funds are intended to be used for pollution abatement, and the “fees” are based largely on the cost to purchase newly identified appropriate land to acquire, restore and conserve.   However, the NCEEP is taking the “fees” and buying the credits from themselves from existing mitigation sites previously conserved for other purposes.  Thus the “double-dip”.

All this reveals an inexcusable lack of understanding and oversight of mitigation policy by “stakeholders” and policy makers.  The entire mitigation system has grown without a careful gardener, and we should not be surprised when stupid things happen.  In this case, oversight was provided by the Water Keepers Alliance and The Upper Neuse Riverkeeper, Alissa Bierma.  With the world meeting in Copenhagen this week to bang out a treaty requiring trillions — yes trillions — of dollars of mitigation, perhaps it should give us pause that current mitigation systems are in such disarray.

“Stories from the Field” will have much more to report on this subject as things develop.  Stay tuned.

3 replies
  1. Paul Parker
    Paul Parker says:

    I’ll say…there better be more on this subject. I think everyone knows that you cannot double dip. It was even heavily recognized on the old TV show Seinfeld: George Costanzia and the double dipping chip! Double dipping is down right rude.

    It is funny how regulation can be put out to pasture, even when the ones regulating know that it is not in anyone’s best interest to be put out to pasture. Regulators should be able to regulate when they know the law is wrong. All you guys are trying to do is make a living while protecting the environment and making the world a better place. Then you run into a loophole. I think what you got here is short term reward for longer term damage. Now everyone is going to think the wetland thing is a waste of time and money…Oh how short sighted some are. Look at the comments on the N and O web site! This is not good for the business or the environment.

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