NCPA - National Center for Policy Analysis

Profiting From Environmental Restrictions

March 5, 2002

Individuals and corporations unable to develop their land due to environmental regulations are looking at the wetlands mitigation banking system as a model for ways to benefit from their property in its undeveloped state.

When a project would alter or disrupt wetlands, the U.S. Army Corps of Engineers can require "mitigation" through creation, restoration or protection of other wetlands. This has led to a thriving wetlands development industry whereby companies enhance or restore wetlands and sell "mitigation credits" to needy developers.

  • The General Accounting Office has estimated that developers have paid $64 million to mitigate damage on 1,440 acres of wetlands
  • The National Academy of Sciences estimates that from 1993 to 2000 more than 24,000 acres were subject to mitigation with permit fees alone costing more than $1 billion.

Entrepreneurs are using similar mechanisms to profit from other land considered undevelopable due environmental restrictions. For instance:

  • Although Glenn Hawes couldn't develop his 900 acres for housing, he was able to create a mitigation bank containing as many as 150 mitigation credits, five of which he has sold to other developers for between $65,000 and $70,000 a piece.
  • And when the Corps refused to allow Allegheny Power to develop a hydroelectric power plant that threatened some wetlands, Allegheny sold the land to the U.S. Fish and Wildlife Service for $16 million -- its value as real estate -- and took a $16.6 million "bargain sale" tax credit for the acreage's marketable environmental values.

Many environmentalists argue that the lands preserved or restored through mitigation are not as ecologically valuable as those developed. However, others argue that forcing developers to shoulder the cost of wetlands or habitat destruction -- on average $44,000 per acre -- may cause them to reconsider the projects' viability.

Source: Ricardo Bayon, "A bull market in ... Woodpeckers?" Milken Institute Review, First Quarter 2002, Milken Institute, 1250 4th Street, Santa Monica, Calif. 90401, (310) 998-2600.


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