The Transportation
Ecosystem Crediting
Strategy Guide
July 2014
Draft Task 3 Report 1 - Part 2
Submitted to:
U.S. Department of Transportation
Federal Highway Administration
1200 New Jersey Ave, SE
Washington DC 20590
Submitted by:
ICF Incorporated, L.L.C.
9300 Lee Highway
Fairfax, VA 22031
2
Prepared by:
Willamette Partnership
Portland, OR
With assistance from:
ICF Incorporated, L.L.C
Fairfax, VA
Institute for Natural Resources
Oregon State University, Corvallis, OR
NatureServe
Boulder, CO
Venner Consulting
Lakewood, CO
3
Table of Contents
EXECUTIVE SUMMARY
6
FIGURE I. KEY STEPS AND MILESTONES IN BUILDING AND OPERATING A CREDITING STRATEGY.
DEFINED.
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I. PREFACE
8
I. WHAT IS AN ECOSYSTEM CREDITING STRATEGY AND WHY BUILD ONE?
9
II. PREWORK: BEFORE INITIATING THE CREDITING STRATEGY
12
2.1. USING & ADAPTING EXISTING STRATEGIES
2.2. ASSESSING THE FEASIBILITY OF BUILDING A NEW CREDITING STRATEGY
13
14
III. BUILDING A CREDITING STRATEGY
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IV. STEP 1: CONVENING PROCESS FOR A CREDITING STRATEGY
18
4.1. WHO SHOULD BE INVOLVED?
4.2. WHAT DO YOU NEED FROM STAKEHOLDERS?
4.3. DEALING WITH PROCESS ADVERSITY
19
19
20
V. STEP 2: DESIGNING A CREDITING STRATEGY
22
5.1. DESIGN ELEMENTS TO ADDRESS UNCERTAINTY AND RISK
23
TABLE 5.1. DESIGN ELEMENTS TO ADDRESS RISK AT EACH STAGE OF CREDIT GENERATION
25
5.1.1. ELIGIBILITY CRITERIA
25
5.1.2. VERIFICATION AND CERTIFICATION RULES
29
5.1.3. REPORTING AND TRACKING
29
5.1.4. TRADING RATIOS
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5.1.5. LIABILITY, ENFORCEMENT, AND OTHER FORMS OF RISK MANAGEMENT
30
5.1.6. PACKAGING A STRATEGY THAT MANAGES RISK
30
5.2. ESTABLISH INFRASTRUCTURE (MARKETPLACE, REGISTRY, CALCULATOR, ETC.)
31
VI. STEP 4: PILOT TESTING STRATEGY COMPONENTS
32
PILOT TESTING: DO A REALITY CHECK ON YOUR DESIGN WITH LOCAL CAPACITIES, ECONOMIC NEEDS, AND NEEDS OF
POTENTIAL INVESTOR
32
VII. STEP 3: AGREEMENT
33
TABLE 6. POSSIBLE FORMS OF A CREDITING STRATEGY AGREEMENT
33
VIII. STEP 5: OPERATIONS
35
4
8.1. GOVERNANCE
8.2. TRANSACTION ROLES AND PROCESS
TABLE 8.2. ROLES IN IMPLEMENTING A CREDITING STRATEGY
8.3. PRICING AND TRANSACTION COSTS
8.3.1. PRICING
8.3.2. TRANSACTION COSTS FOR SELLERS
8.3.3. ADMINISTRATIVE COSTS
8.4. ELEMENTS OF TRANSACTION AGREEMENTS
8.5. TRAINING/CAPACITY BUILDING
35
35
36
36
37
38
38
39
40
IX. STEP 6: ADAPTIVE MANAGEMENT
41
9.1. MONITORING
41
X. CONCLUSIONS
43
XI. REFERENCES
44
XII. APPENDIX A: EXAMPLE ELIGIBILITY CHECKLIST
46
XIII. APPENDIX B: FORMS & DOCUMENTATION FOR THE CREDIT GENERATION PROCESS
56
5
i. Executive Summary
An ecosystem crediting strategy is a more consistent, programmatic approach to measuring, tracking,
approving, and acquiring multiple kinds of ecosystem credits that can be used to offset the impacts of
transportation projects. A crediting strategy can help provide:



Predictability in planning and implementing projects;
Certainty that conservation goals are being met; and
A more consistent way to track and account for conservation and development activities.
A transportation agency needs to understand the feasibility of expanding, adapting, or building a new
ecosystem crediting strategy. A crediting strategy may not make sense for a transportation agency with
simple, limited, or one-off affects on ecosystem services. Assessing feasibility will weigh what credit
types are needed and when, what other ecosystem services should be tracked and communicated, who
needs to approve credit purchases, and whether credits are available. Before building a new crediting
strategy, a feasibility assessment helps consider whether the demand for credits, policy context,
scientific information, supply of creditable projects, and support and participation of local leaders will be
sufficient to make the strategy work.
A large part of building an ecosystem crediting strategy is managing for various forms of risk. The
ecological, economic, and social systems transportation agencies work in are often dynamic. Uncertainty
exists in how to measure the ecological benefits of restoration, the cumulative effects of small impacts,
and how mitigation projects will perform over time. Over the course of planning and constructing
transportation projects, and implementing credit projects, regulations and rules can change, staff can
come and go, and other project elements change. An ecosystem crediting strategy can help clarify the
sources of these risks, and put tools and processes in place to manage them.
Past efforts to build and operate crediting strategies helped identify a concise set of phases to ensure
that the sequence of work and stakeholder engagement is effective and efficient. Those phases are
summarized in Figure i. below. The rest of the document is structured to walk transportation agencies
through each phase.
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Feasibility: Making sure there is adequate demand and
supply for credits to justify an ecosystem crediting strategy;
and ensuring the science, policy, and people can be in place
to successfully operate a crediting strategy.
Convening: Understanding which stakeholders need to be
involved and when, what roles they might play, and what
process is needed to reach agreement on an ecosystem
crediting strategy.
Design: Building the crediting strategy to clarify goals and
tools to quantify ecosystem credits, set rules for which
projects can generate credits and which projects can use
credits, and how to confirm and track the performance of
credit projects over time.
Testing: Taking the quantification methods and other
elements of a crediting strategy out for a trial run prior to full
agreement and implementation.
Agreement: The process and form of agreement needed from
regulatory agencies and other stakeholders to use a crediting
strategy.
Operations: Setting up a governance structure to oversee the
crediting strategy and establishing a process to price and
purchase credits. Operations also includes providing the
documents and training for the people generating and using
credits.
Adaptive Management: A structured process for improving a
crediting strategy so it runs efficiently, is using the best
available science, and is meeting the goals of the
transportation agency and stakeholders.
Building and operating an ecosystem crediting strategy is not
always simple, but it is doable. The elements described in this
document are intended to help new crediting strategies build on
past efforts and get a head start toward success.
7
Figure i. Key phases in building
and operating a crediting strategy.
Building
a Crediting Strategy
1. Feasibility
2. Convening
3. Design
(Goals & Methods)
3. Design (Eligibility)
3. Design (Verification,
Certification, &
Reporting)
3. Design
(Ratios, Liability,
Infrastructure, & Testing)
Operating
a Crediting Strategy
4. Testing
5. Agreement
6. Operations
7. Adaptive Management
ii. Preface
The Integrated Ecological Framework (IEF) is a tool to integrate conservation planning and
transportation planning for Departments of Transportations and Metropolitan Planning Organizations.
IEF Step 6 proposes the development a crediting strategy, which allows agencies to use a programmatic
approach to measuring impacts and mitigation, including tracking, approving, and acquiring multiple
types of ecosystem credits that can be used to offset the impacts of transportation projects. Ecosystem
credits can be generated from mitigation and conservation banks, funding set-asides, land grants, in-lieu
fee programs and many other examples. Credits are established to provide ecological protection more
broadly than specific to a project site. A crediting strategy can provide transportation agencies with the
predictability needed to plan and implement projects, regulatory agencies and the public with more
certainty that conservation goals are being met, and overall a more consistent way to track and account
for conservation-based debits and credits.
Transportation agencies building a crediting
Credits and Debits Defined
strategy need not start from scratch. Based
For this document, an ecosystem credit is a unit of
on experience developing credit accounting
ecological benefit measured in terms meaningful to
protocols for both regulated and
potential buyers who need to offset impacts (debits),
non-regulated but important resources, a
or who want to quantify and track the ecological
basic framework of processes and tools has
benefit of their investments. A credit can be a
been identified that can be adapted to
bundled set of services from a particular ecosystem
address local issues, geography and political
(e.g., an acre wetland credit), or a single (e.g., a
needs. The framework, described in this
pound of phosphorous reduction credit).
guide, includes 1) evaluating the feasibility
of a program, 2) convening the right group
of stakeholders, 3) designing the crediting strategy itself, 4) securing some form of approval from
regulatory agencies, 5) pilot testing and then implementing the strategy, and 6) setting up an adaptive
management approach that will allow for improvements and fine tuning along the way.
This guide is a resource for building a crediting strategy. It is essentially a manual for new or emerging
programs that outlines how to move through the phases of crediting strategy development and provides
milestones within each phase that will help strategy designers identify and plan for the resources and
work required to walk through the process. The guide will help transportation agencies and MPOs
building new crediting strategies to reduce program start-up time, increase efficiency, and build the
base of trust necessary to locally adapt and implement the Integrated Ecological Framework.
8
I. What is an Ecosystem Crediting Strategy and Why Build One?
An ecosystem crediting strategy is a more consistent, programmatic approach to measuring, tracking,
approving, and acquiring multiple types of ecosystem credits that can be used to offset the impacts of
transportation projects. A strategy can also be a structured way to evaluate different alternatives for
mitigating unavoidable ecosystem impacts.
In an ideal world, agencies and stakeholders work together to develop an integrated crediting strategy
for multiple natural resources across an entire state. In reality, however, key pieces of a functioning
strategy are absent in most places. In those cases, transportation agencies need to decide whether to do
the best with what they have, borrow elements of a crediting strategy from elsewhere, or develop
elements of a strategy specific to their needs. There are pros and cons to all of these approaches.
A functioning crediting strategy will generally need four major components:
1) Quantification tools: The models and methods needed to quantify impacts to ecosystem services
from development actions (debits) and to quantify benefits to those services from conservation actions
(credits). Quantification tools need some level of calibration for local conditions and approval from
applicable regulatory agencies. Tools can be as simple as a set of crediting ratios or mitigation site
performance standards, or can involve complex hydrologic and water quality modeling.
2) Protocol for creating and tracking credits: A crediting protocol defines the criteria for which impacts
are eligible to purchase credits, what mitigation projects can generate credits, and how credits should
be tracked and accounted for over time as they are bought, sold and/or retired.
3) Regulatory approval process: Most crediting strategies will be focused on meeting regulatory
requirements, and therefore will require approval from appropriate regulatory agencies. In almost all
cases, that approval will be formal, memorialized through some type of written agreement between
regulatory and transportation agencies. Approvals may be more or less formal, may be a multi-agency
agreement, or could take the form of standard operating procedures within individual agencies to
improve consistent use of a crediting strategy.
4) Credit procurement process: A crediting strategy will also need to define the different ways a
transportation agency might secure the credits they need. This could include creating credits themselves
(i.e., permittee-responsible mitigation), working with contractors to implement projects, and/or
purchasing credits from a mitigation bank or in-lieu fee program. Each procurement strategy works well
under different conditions.
Throughout this guide, call-out boxes present key milestones and considerations that local groups
should aim and plan for when developing crediting strategies. These considerations include approaches
that have been successful in one or many current programs and will help groups to budget the time
and resources needed to complete each phase of developing a crediting strategy.
Groups building crediting strategies often underestimate 1) the time and the resources required to
assess feasibility and convene the right stakeholders; and 2) the resources required for ongoing
operations and adaptation of the crediting strategy.
9
Whether designing a complex program for multiple buyers or sellers, or putting together a deal between
one buyer and one seller, the same basic steps are generally repeated for crediting strategies
throughout the country. Each of the following phases requires attention depending on the specific
needs and characteristics of a watershed:
Feasibility: Making sure there is adequate demand and supply for credit to justify an ecosystem
crediting strategy; and ensuring the science, policy, and people can be in place to successfully operate a
crediting strategy.
Convening: Some of the most important work in building a crediting strategy comes in convening and
preparing the right group of stakeholders necessary for creating and operating the strategy.
Design: The design phase turns a feasible opportunity into a reality. Important aspects of this phase
include building the science to connect environmental benefits to unavoidable transportation impacts,
and creating the policy to shape who can buy credits from whom and how.
Agreement: A strategy needs some level of stakeholder agreement to move from the design phase to
becoming a fully active strategy with actual credit transactions. In almost all cases, that approval will be
formal, memorialized through some type of written agreement (e.g., a Memorandum of Agreement)
between regulatory and transportation agencies to ensure solid legal and policy footing for use of a
crediting strategy.
Testing: Elements of the strategy might need to be tested prior to use. This could include repeatability
and sensitivity testing of quantification methods, as well as gathering and synthesizing stakeholder
input.
Operations: Often, most energy is focused on strategy design, but operating a successful strategy over
time requires flexibility, careful planning, a range of skill sets, and potentially different groups of
stakeholders. The Operations phase might include rolling out a pilot version of the strategy’s
quantification methods and protocol documents, identifying a Strategy Administrator to see projects
through the credit issuance process, and maintaining and improving the strategy over time.
Adaptive Management: No strategy is perfect; every strategy will need adjustments, particularly in the
first few years of operation. Successful strategies include structured ways in their design to gather
lessons learned, catalog needed improvements, and make regular adjustments on a predictable
schedule.
Figure 1 below describes some of the key phases and associated milestones in building and operating an
ecosystem crediting strategy. The sections below provide detail on each of these phases and milestones.
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Figure 1: The phases and milestones for building and operating an ecosystem crediting strategy
Building
a Crediting Strategy
Milestones
Milestones
Adequate demand & supply of credits
Do a pilot test to make sure the crediting
strategy design matches local capacities and
ecological realities
Supportive policies are in place for crediting
1. Feasibility
Operating
a Crediting Strategy
4. Testing
The science is available to quantify credits
Local leaders have the skill and willingness to implement
Secure formal crediting strategy agreement
with agency approval
5. Agreement
Costs of building a strategy match expected benefits/savings
2. Convening
Identification of roles
Establish strategy governance structure
List of stakeholders & requirements of them
Complete strategy user’s guide
List of potential challenges
Set pricing structure
Process design completed
3. Design
(Goals & Methods)
Clarify ecological & other program goals
Select field and landscape-scale credit quantification methods
Define baseline requirements
3. Design (Eligibility)
Make strategy improvements over time
Set timing, duration, and maintenance
requirements for credits
Define what gets verfied, by whom, and when
Clarify role for agencies approving credit transactions
Establish reporting rules and database
Set trading ratios for uncertainty and other factors
3. Design
(Ratios, Liability,
Infrastructure, & Testing)
Annual report on strategy results
Agree to changes needed to quantification
methods and strategy designs
List of needed information and research
Set service area boundaries
Establish credit project performance standards
3. Design (Verification,
Certification, &
Reporting)
6. Operations
Provide training for participants
Agree to business plan for sustaining
strategy operations
Define other liability and enforcement tools
Build necessary infrastructure to make crediting easy
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7. Adaptive Management
II. Phase 1: Feasibility--Is a Crediting Strategy the Best Approach?
1. Feasibility
2. Convening
3. Design
4. Testing
5. Agreement
6. Operations
7. Adaptive Management
An ecosystem crediting strategy will not be the best approach for every situation. Assessing feasibility
lets a transportation agency understand if a crediting strategy makes sense, and then lay the
groundwork for successfully building and operating a strategy. Much of building a crediting strategy
involves navigating through inconsistencies in existing policy, uncertainty in science, and the different
perspectives of multiple stakeholders. Successful navigation through these issues can inform how other
community-based approaches (e.g., targeted landowner incentives or coordinated land use practices) to
conservation might work.
Significant time and resources have been expended building and testing crediting strategies throughout
the U.S. (see Framework 2), giving rise to the program elements and process steps necessary to develop
a successful strategy. While there are many common aspects, the place-based nature of ecosystem
crediting requires significant customization to suit the economics, environmental conditions, and
political context of the location or jurisdiction within which the strategy is being implemented. The
challenge for transportation agencies and their stakeholders is to move through those process steps
efficiently while managing diverse needs and goals, understanding sophisticated scientific concepts, and
assessing the economics needed to make crediting transactions work.
One of the first tasks for transportation agencies embarking on the development of a crediting strategy
is an assessment to determine which of the four strategy components have already been used in their
geography for the ecosystem services of interest.
Assessment of existing crediting strategies requires an understanding of:
What credit types are needed and when? Determining
what credit types (e.g., wetland function, endangered
species, water quality) are needed will help focus the
search for applicable crediting strategies. Many
components for crediting strategies have been built for
single ecosystems, and many for specific states,
species, or watersheds. For example, North Carolina’s
Ecosystem Enhancement Program works for multiple
credit types, but may not be immediately transferrable
to the Southwest. A credit quantification method
measuring prairie dog impacts will need to be adapted
to quantify impacts to pocket gophers.
The timing of when each credit type is needed is also
important. If credits are needed within 3 months to
complete a project, the range of options to meet that
need will be different that if credits are required in
12-24 months. Finally, understanding the approximate
quantities of each credit type can help determine how
much effort to put into borrowing and adapting a
crediting strategy versus building one. For example, if
an interchange project is likely to need credit for a
localized endangered species that is very unlikely to
12
The Pikes Peak Area Council of
Governments (http://www.ppacg.org) in
the Colorado Springs area of Colorado is
developing an Advanced Integrated
Regional Mitigation Plan to address
mitigation requirements related to the
Endangered Species Act. The COG has a
performance measurement framework
with ecosystem goals measured in acres,
for “minimizing environmental impacts”
and also for “improving, protecting and
mitigating impacts of critical habitat and
connecting corridors suitable for
threatened, endangered, and imperiled
species.” The framework supports the
measurement of habitat impacts (debits)
and benefits (credits). In addition to the
ESA, Clean Water Act regulations present
an opportunity to develop a similar
approach to mitigation requirements for
impacts to water quality, wetlands,
streams.
occur elsewhere on the transportation system, it might be more straightforward to mitigate for that
impact at the project scale rather than include that credit type in a programmatic crediting strategy.
Are ecosystem services established for other reasons? In addition to purchasing credits, there may be
ecosystem service benefits or impacts a transportation agency wants to highlight for other reasons
beyond mitigating regulated impacts. For example, possible new stormwater or other water quality
rules may drive an interest in tracking how stream mitigation projects improve water storage and delay,
nutrient reductions, etc. Agency or state climate strategies may create an interest in tracking and
communicating the carbon sequestration value of wetland mitigation projects. Tracking other
ecosystem services can be an important way to build a case for lower project risk, or communicate to
the public about the broader value of transportation projects. Note that tracking ecosystem services
outside the regulatory arena may demand a different standard for approvals of crediting strategy
components.
Who needs to approve or agree to the purchase of credits? If there are existing components of a
crediting strategy in place, specific approval from regulatory agencies to use those components in an
agency-specific crediting strategy may still be required. For example, or county may have a Habitat
Conservation Plan (HCP) in place with an associated crediting strategy, but specific approval from
USFWS may still be needed to use or adapt that HCP for state transportation mitigation purposes.
Are credits available in the right service area? Even if all the regulatory approvals and crediting
strategies are in place, there still need to be the right types of credits available in the right service area.
Regulatory agency staff should understand where mitigation and conservation banks are available, and
whether in-lieu fee programs are an option. In many cases, the right type and quantity of credits are not
immediately available, but could quickly come online if providers knew there was a need.
If you have determined that there are existing credits or crediting strategies to build upon, Section 2.1
outlines how to use and adapt those strategies for your specific objective. If you determine there is a
need to build new crediting strategies, Section 2.2 Assessing the Feasibility of Building a New Crediting
Strategy, describes those steps in detail.
2.1. USING & ADAPTING EXISTING STRATEGIES
Using existing crediting strategies makes sense whenever possible—especially when they are fully
developed for the credit types and geographies of interest. Using existing strategies can reduce start-up
time, re-invest in strategies that already have some stakeholder buy-in, and help improve consistency if
many groups are using the same or similar strategies.
Yet, there are sometimes reasons not to use existing strategies. In many cases, existing strategies are
incomplete (e.g., a wetland crediting strategy exists, but an endangered species crediting strategy does
not) and it can be a challenge to get a regulatory agency to approve the crediting strategy of a different
agency. It can also be difficult for a federal agency in one region to approve a crediting strategy from the
same agency in a different region. In these cases, it can be easier and faster to build or re-build a
crediting strategy using the lessons from the existing strategies. Existing strategies may also not
incorporate the latest information on conservation goals and priorities, and could therefore be
inconsistent with the information developed under IEF Steps 1 and 2.
More than likely, existing strategies will need some adaptation to local needs. The same kinds of
questions need to be applied when adapting a strategy. Do stakeholders support existing strategies?
How applicable are the scientific assumptions and data built into the crediting strategy to be adapted?
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Are there other barriers to adapting a crediting strategy that make it easier to build something new?
2.2. ASSESSING THE FEASIBILITY OF BUILDING A NEW CREDITING STRATEGY
Part of assessing existing strategies will be the identification of what is missing. The next steps can help
figure out what level of effort will be required to fill those gaps, who should fill them, and which gaps to
fill first. A feasibility assessment can be rapid and simple or go much deeper depending on how much
information a transportation agency needs in order to make decisions on a crediting strategy.
Components of a feasibility assessment include the determination of:
1) Is there adequate demand? There are two types of credit demand: potential and actual. Potential
demand can be estimated based on total projected impacts. Actual demand is often less than potential
demand because of onsite avoidance and minimization, change or delay in project implementation, and
other operational factors that reduce the total credit demand. Getting to actual demand might involve
talking with other staff within the transportation agency or initiating early conversations with regulatory
agencies.
It is assumed that a transportation agency
knows the type, timing, quantity, and location
of credit demand. This information is
important for designing regulatory approval
processes and establishing timelines for
completing a crediting strategy. In some cases
a transportation agency’s demand alone may
be enough to justify building a programmatic
crediting strategy. In others, demand for
credits from other sources may bolster that
need or effort.
Some relatively quick ways to understand
demand for ecosystem service credits include:
Thinking Through Feasibility in Colorado
In 2012, Colorado State University tested the use
of the SHRP 2 C06 Integrated Ecological
Framework (IEF) for integrating conservation into
transportation planning and project development.
As part of this effort, the research team
conducted an ecosystem service crediting
assessment to address: 1) what ecosystem
services are most likely to be impacted (positively
or negatively) by transportation projects, 2)
whether banks or other markets exist for these
affected ecosystem services, and 3) if there are
markets needed for the affected areas can we
adopt approaches used in other regions of
Colorado (Kagan et al, 2014).

Review Clean Water Act 404
permitting activity in the last 5 years
for target watersheds;

Identify new TMDLs or statewide water quality limits, and the likely changes needed within
NPDES permits (municipal, industrial, and MS4) needed to comply with those limits;

Review existing Endangered Species Act consultations and/or HCPs for target regions;

Consider other localized mitigation requirements that might generate demand for credits; and

Explore growth estimates to project where future infrastructure and development needs might
also result in impacts that would create demand for credits.
2) Are supportive policies are in place for crediting? Ecosystem crediting to meet compliance needs for
a transportation agency will not work without support from regulators at the federal, state, and local
levels. During the feasibility stage, it is necessary to secure some indication from these agencies that
they support the concept of crediting, and that they are willing to participate in crediting strategy
design. This includes confirmation that the required legal authorities for crediting are in place where
they exist. It can be helpful if those building the crediting strategy work with agency staff to explore
14
existing authorities to see what is “allowed,” what needs “further exploration,” and what is “not
allowed.” Without agency support, credit buyers and sellers will be hesitant to invest.
At the state level, agencies may have statutes, regulations, policy, or guidance governing crediting.
These policies provide a legal foundation to issue permits with crediting provisions. The clearer those
rules and guidance are, the more predictable crediting will be.
3) Does the science exist to support quantification of credits? Science informs the development of a
crediting strategy in several ways. First and foremost, it helps shape the overall environmental goals and
objectives of a crediting strategy. Science is also used to quantify potential credits from land
management activities in terms that allow potential buyers to compare crediting to other compliance
alternatives.
From a trust and transparency perspective, there is great value in having consistent methods for
quantifying credits. Quantification methods can include models (both simple and complex), standardized
best management practices (BMPs) or crediting ratios, and use of best professional judgment. Crediting
strategy design costs are greatly reduced if these quantification methods are already available and
require minimal adaptation as developing new quantification methods can consume a large percentage
of the budget and time available for strategy design.
This guide assumes that previous steps in the IEF process have identified most of the science required
to quantify credits. Some of the characteristics of site-level credit quantification tools are provided
below. The following points are adapted from Measuring Up (Willamette Partnership, 2011).
Good credit quantification methods should:
• Incorporate the landscape context of site (e.g., location in a priority conservation area,
potential threats, connectivity, patch size, etc.);
• Be valid (e.g., repeatable, sensitive, accurate, and transparent);
• Be practical, economical, and easy to use; and
• Be applicable at different scales (e.g., a 1 acre wetland or a 10,000 acre sagebrush steppe).
A good method should be linked to outcomes and incentivize the kinds of actions that will lead to a
region’s overall ecological goals. Ideally, methods can give information about both specific elements of
an ecosystem as well as its whole. For example, a stream function assessment methodology might give
one score for overall stream function, but generate individual scores for the geomorphological,
biological, hydrological, and chemical functions of a stream.
Inputs and Indicators for a method might include the landscape location of a site, vegetative
conditions, abiotic conditions, species attributes, as well as ecological processes/functions,
A appropriate
catalogue ofmanagement
potential quantification
methods
that: 1) quantify environmental impacts and benefits at
practices, and
risks/threats/viability.
the site level, and 2) quantify the effect of actions to the broader landscape or watershed can be
identified early on. That list of potential methods should specify any validation, calibration, or other
adjustments needed to adapt methods for local use. Regulatory agencies may have already selected
methods that they will require. Experience shows that there is a strong tendency with local groups to
want to build methods from scratch for their local situation. The feasibility assessment should question
whether that customization is necessary, especially for transportation agencies that need tools state- or
region-wide. Building from existing work can reduce costs and increase consistency across programs.
4) Is There Adequate Credit Supply? For a crediting strategy to be effective, there needs to be an
adequate supply, or potential supply of credits in the right place and time to meet credit demand. Credit
15
supply can come from nearly anyone conserving, enhancing, or restoring ecological value. Some
potential sources of supply include:





Landowners installing habitat or water quality best management practices;
Mitigation banks;
Nonprofits or private firms implementing restoration on contract with transportation agencies;
Transportation agencies acquiring habitat to protect or doing restoration; and
Anyone else who is generating ecological benefit above and beyond what would have occurred
if not for the possibility of creating credits.
In general, there may be 1-3 years of lag time from when demand levels are definite to when supply is
available. For example, it may take the equivalent of a planting season to recruit a farmer to commit to
generating stream or wetland credits, then a year to get regulatory approval of a mitigation bank, and
then six months to implement eligible restoration activities. A feasibility assessment should look closely
at the timing of when supply can be available compared with key benchmarks for when buyers need to
have credits in hand.
To assess supply, transportation agencies need to know:
 The types of conservation actions and landscapes that can meet their credit demand (See IEF
Steps 4-5). Similar to demand, there is a difference between potential and actual credit supply.
IEF Steps 4-5 provide methods to assess potential supply—the places with important natural
resource value and estimates for potential acreages and credit types available;
 How many credits are currently available in existing projects and mitigation banks;
 Since most transportation projects involve permanent ecological impacts, mitigation will often
require long-term assurances and protection. A feasibility assessment should evaluate the
patterns of land ownership and how willing people are to provide access to land for mitigation;
 Information on land values and credit prices; and
 Availability of third parties (e.g., mitigation bankers, local governments, or conservation
districts) to provide technical assistance and/or aggregate credits to deliver as a package.
5) Are there local leaders with the capacity, skill, and willingness to help implement a crediting
strategy? It is rare that a
transportation agency or
North Carolina Ecosystem Enhancement Program (EEP)
individual regulatory agencies will
(http://portal.ncdenr.org/web/eep/home)
be able to implement all aspects
of a crediting strategy by
The EEP was established in 2003 primarily to help NC
themselves across their entire
Department of Transportation (NCDOT) meet its Clean
service territory. Local
Water Act 404 requirements for wetlands and stream
stakeholder organizations and
mitigation. EEP is a cooperative effort between the Army
inter-agency cooperation can play
Corps, NC Department of Environment and Natural
an important role in designing a
Resources, and NCDOT. The program engages public and
strategy, interfacing with
private partners to provide mitigation, and has expanded
regulatory agencies, delivering
so other developers can use the program to meet its
credits, and operating other parts
mitigation needs. The EEP now also supports water
of a crediting strategy. Part of
quality crediting.
assessing feasibility includes
identifying stakeholders and
16
defining roles stakeholders might play during convening, crediting strategy design, and strategy
operations. Vaguely defined roles create uncertainty, which can slow strategy design and
implementation. It is important to establish early on who will act as the local convener, who will lead
crediting strategy design, and who will be responsible for administering the crediting strategy later on.
Each of those roles requires different skills sets:
Conveners need to have strong process and facilitation skills and legitimacy in the eyes of multiple
stakeholders, with the ability to effectively bring stakeholders together.
Crediting strategy designers need to have an expert technical understanding of ecosystem dynamics
and relevant regulations (e.g., Clean Water Act and Endangered Species Act), as well as process skills
that will help local stakeholders articulate a vision for the crediting strategy, prepare stakeholders
for required decisions, and complete the design process in a timely manner.
Strategy administrators need the administrative skills and legitimacy to sustain operations of a
crediting strategy, which includes understanding of existing policies and regulations, risks and
liabilities associated with administering credit transactions, and the ability to sustain trust from
stakeholders.
One or more organizations may fill these leadership roles, but having “champions” to help crediting
strategies move through various hurdles is critical. A state regulatory agency and/or transportation
agency can be a good leader as long as transportation, environmental groups, and other key
stakeholders trust agency staff. In some instances, a non-profit organization or a coalition of
organizations could effectively fill the leadership role. Finding those leaders might involve determining
who has regulatory authorities, which groups have a trustworthy public profile, which organizations
have staff with experience bringing stakeholders together, and which organizations other key
stakeholders point to as leaders in the field. Separating the financial side of transactions (e.g., buyers,
sellers, and their agents) from the oversight roles (e.g., regulatory agencies, verifiers, strategy
administrators) can help avoid potential conflicts of interest.
MILESTONE - Feasibility Assessment: Identification of potential quantification methods;
identification of strategy leaders; assessment of demand and supply; and assessment of agency
interest and support. With this information, the group is prepared for the convening work
ahead.
17
IV. Phase 2: Convening Process for a Crediting Strategy
1. Feasibility
2. Convening
3. Design
4. Testing
5. Agreement
6. Operations
7. Adaptive Management
The reality of ecosystem crediting is that many credit transactions and/or permits can be challenged. As
a result, both regulatory agency and broad stakeholder support is important. A successful process to
build a crediting strategy depends on the right stakeholders fulfilling the right roles and on cultivating
crediting champions during the process itself. Face time spent with each stakeholder before and during
convening can help refine process design, flag issues for conversation, and build each stakeholder’s
ownership of the process and resulting decisions (Emerson et. al., 2003). The questions below are
examples of ones that can be asked and then revisited/reinforced during the convening phase.
Questions to Answer as Part of a Convening Report
1. What should a crediting strategy do? What should it not do?
2. In two years, how will it be determined successful or not?
3. Who should be part of the discussion and when?
4. What do stakeholders need to participate effectively and reach agreement?
5. What is the right process for accomplishing those goals?
A convening report that captures this information provides a good reference point for strategy
designers down the road. Documentation of the effort should be transparent and inclusive. The end
product of the convening phase should be a workplan that articulates who will be involved, what their
respective roles and responsibilities will be, and what the crediting strategy needs from each
stakeholder. This workplan should map out at least the first year of crediting strategy operations.
Before meetings begin, each stakeholder should have an understanding of the goals of the crediting
strategy, how the process can benefit them, as well as other stakeholders’ interests and motivations for
participating. White papers can be used to brief stakeholders on these details prior to the first group
meeting. Because regulatory agencies will need to approve all or portions of a crediting strategy, they
will also need to be involved throughout this process. Including regulatory agencies will help ensure
consistency with existing interpretations of state and federal statutes, rule, guidance, and standard
operating procedures. Early engagement with agencies might also identify needed changes to agency
policies or practices to ensure the crediting strategy works as desired.
Ultimately, the collaborative process should 1) build direct relationships between buyers and sellers of
credits, 2) enable business and environmental interests to have candid conversations about, for
example, overall goals for their watershed, 3) safeguard the interests of the broader community and
people not directly involved in the process, and 4) ease organizational adoption of agreements made by
the stakeholder group. Some excellent guidance exists on the principles and practice of collaborative
decision-making1.
1
Several sources provide great guidance on building collaborative processes: Fisher and Ury, 1983;
O’Leary and Bingham, 2003; Suskind and Cruikshank, 1987; Dukes and Firehock, 2001; Wondolleck
and Yaffee, 2000; Carpenter and Kennedy, 2001; Gray, 1989; Ozawa, 1991; Yankelovich, 1999; Innes,
2004; Cohen, 1997.
18
4.1. WHO SHOULD BE INVOLVED?
Different phases of designing a crediting strategy will involve different groups. Essential groups usually
include representatives from state/tribal regulatory agencies, local representatives of federal regulatory
agencies, other credit buyers, credit sellers,
environmental groups, and technical experts
Interagency Review Teams
on ecosystem dynamics, farm practices, etc.
The 2008 Compensatory Mitigation Rule (US
The convening process helps strike the balance
EPA/US ACE 2008) calls for interagency review
between inclusion of key stakeholders and
teams (IRTs) to review mitigation proposals.
keeping a group to a manageable size. Not
everyone needs to be involved in every
Many US Army Corps Districts have established
decision. Criteria to consider when drafting a
IRTs. A convening report can assess whether the
list of individuals within those organizations
IRT group can help build and operate a crediting
include:
strategy, or whether broader stakeholder
involvement is needed.
 Which agency issues permits, and who
else has to say ‘yes’ to a crediting
strategy (e.g., who will be signing agreements)?

What resources/skills does the organization/individual bring, and where are those best used?

Is the individual in the organization positioned as a liaison to check details with technical staff,
but also able to present policy decisions to directors?

Does the organization/individual have the availability and financial resources to participate
effectively in collaborative settings

Is the organization or individual trusted by others? Trust is not simple to evaluate, but can come
out through interviews. Some questions around trust might include, who really considers the
interests of others when they make decisions, who consistently follows through on their
commitments, or who works really well in collaborative settings?
Not all stakeholders need to be involved in all parts of strategy design. Good process design will provide
multiple opportunities for participation, but will ask appropriate questions of the right groups of people.
For example, it may not make sense for a group of policy leaders to review the methods to quantify
credits, or for hydrologists to develop the mechanisms to determine credit prices.
4.2. WHAT DO YOU NEED FROM STAKEHOLDERS?
Before stakeholders begin actively meeting, they should have a clear set of expectations in terms of
their role in the process, as well as what their role might be in a crediting strategy going forward. This
includes being clear on the number of meetings and time commitments expected. If the crediting
strategy agreement will be requesting formal approval and signatures from stakeholders, people should
know that early on.
19
Meetings need an agenda and
purpose. Meetings will be most
effective when strategy designers can
clearly communicate exactly what is
being asked of the group as a whole
and have a schedule looking ahead to
future decisions/requests, ensuring
that group members have time to
communicate with their technical
staff and directors as necessary.
Some examples of what a crediting
strategy might need from some
stakeholders:
Regulatory agencies: Regulatory
clarity and formal approval and use
of a crediting strategy if
appropriate;
Buyers and Sellers: Assurance the
crediting strategy meets their needs
and commitment to purchase or
supply credits using the crediting
strategy if appropriate; and
Willamette Partnership’s General Crediting Protocol
(http://willamettepartnership.org/tools-templates/to
ols-and-templates-1/)
In 2008, with funding from the Natural Resources
Conservation Service, Willamette Partnership began
convening work on their General Crediting Protocol.
The objective was to bring together all the federal and
state agencies who write or comment on permits,
environmental groups, potential buyers of ecosystem
services, and potential sellers together in a room to
agree on a common set of metrics and protocols to
govern a regional ecosystem market.
Willamette Partnership spent more than three months
interviewing potential stakeholders, carefully
constructing process elements, and developing
agendas for meetings. When the stakeholders first met
as a group in 2009, the Partnership knew the issues for
each individual, could articulate decision points needed
at each meeting, and clarify the ultimate outcome at
the end of the process in eight months.
Technical experts: Assurance that the crediting strategy provides real, verifiable credit transactions
that do not compromise environmental quality.
Broader stakeholders: A recognition that crediting strategy decisions and processes are transparent
and responsive to stakeholder interests.
4.3. HOW DO YOU DEAL WITH PROCESS ADVERSITY?
With the diversity of stakeholders involved in developing a crediting strategy, some level of conflict can
be expected, either from within the stakeholder working group or external to the stakeholder group.
These internal and external challenges can be handled much more easily if they are anticipated and
planned for early on in the process. Below are some common challenges experienced by crediting
strategies with some ideas on how to prevent or deal with them.
Internal process challenges: It is common for stakeholders from different agencies, with different
mandates and different expectations, to have misconceptions about how crediting strategies work and
about the roles of various stakeholders. The convening phase can help reduce these misconceptions
through individual conversations with various stakeholders outside of group settings.
Issues often arise when groups are getting down to the final stages of reaching agreement, where
implications of engaging in crediting and associated responsibilities start to become real. If individuals
have been minimally engaged and have not been part of the decisions made by the group, the last
meeting is likely where they will raise objections or put up roadblocks. To avoid this scenario, it is
essential to clearly outline the level of commitment required to be involved in the process, get clear
commitments upfront from stakeholders, and hold them to their commitment.
20
External process challenges: Challenges that come from sources external to the process are more
difficult to manage. A stakeholder who was left out of the working group can end up being a vocal critic
of either the process or the outcomes. It is important to ensure that there is a venue or mechanism to
acknowledge the ideas or issues being raised by people who are not part of the initial stakeholder
group. This can be a planned series of presentations, question and answer sessions, or thinking ahead
about how to add people to the stakeholder group mid-process, if necessary. Public access to the
project (e.g., a project website) increases transparency and can help mediate critics.
Another challenge can come from changes in key agency or other stakeholder staff. This requires that 1)
a new person be brought up to speed on the technical details and decisions already made, and 2) that
the convener/organizing group ensures a smooth transition as a new person enters a group process
already underway.
As a group goes about designing a crediting strategy, they should always have their ear to the ground for
signs of changing economic, political, or legal conditions that may be relevant to their work (e.g. an
election, lawsuit, or bankruptcy of a key buyer). This means building relationships with individuals in
regulatory agencies and with local and state government officials that can provide some advance
indication as well as guidance for what the changing conditions mean.
21
Potential Stakeholder Groups to Guide Design of a Crediting Strategy
Strategy Design Team (Strategy Designers): A lead team that oversees all strategy design elements and
day-to-day activities. A team will be most effective when they have relevant policy knowledge, good working
relationships with each stakeholder, excellent process and project management skills, and nearly full time
dedication to the project. This role is best filled by respected staff of transportation agencies, regulatory
agencies, or third parties, who are able to build trust, discuss stakeholder concerns in confidence, remain stable
in changing political climates, and nimbly adapt to stakeholder needs. A consultant hired with public funds may
also fill this role.
Stakeholder Working Group: The key group that forms and approves the details of the crediting strategy. This
group is broadly representative of local stakeholders, but not too large to manage (e.g., about 10-30 members).
Working Group members must be in a position to act as a liaison to the organizations they represent—ideally,
in a middle position close enough to check details with their technical staff, but also able to present policy
decisions to organizational directors.
Most importantly, Working Group members should be their organization’s representative with the best
working relationships with other members of the Working Group and Strategy Designers. With larger
stakeholder groups, it will likely be important to create a small executive committee, or a Coordinating Team,
of the few (e.g., 4-8) most engaged Working Group members that reviews work between meetings, guides
Strategy Designers, and helps move decisions along.
Coordinating Team members should have availability to meet regularly and spend significant time working as a
group and reaching out to other stakeholders. This group can identify and articulate potential directions and
decision points for the larger Working Group. Work includes drafting briefing papers and organizing project
tasks and Working Group meeting agendas.
Technical Groups: Small groups that make detailed recommendations to the whole Working Group (e.g., credit
quantification methods, finance, setting trading ratios, or software tools). Technical Group members can be
both Working Group members and outside stakeholders with the best working knowledge of the technical task
at hand. “Technical” is not just limited to science expertise. It can include expertise on pricing and financing,
process improvement, etc.
Policy Group: If necessary, organizational policy leaders that can be convened to adopt decisions or provide
direction to the Working Group. The policy group or the Working Group might also help resolve conflicts.
Milestone - Convening: Understanding by all participants of the scope and scale of the project
and the commitments needed to secure approval and move the crediting strategy design into
operation. With this information, the group is prepared for the substantive design work ahead.
22
V. Phase 3: Designing a Crediting Strategy
1. Feasibility
2. Convening
3. Design
4. Testing
5. Agreement
6. Operations
7. Adaptive Management
All the work completed to assess feasibility and convene the right stakeholders sets the stage for
successful crediting strategy design. The substantive work of design includes confirming environmental
goals, developing methods to quantify credits, creating a protocol of policy assurances and crediting
rules, implementing pilots to test the strategy design, adapting to new data and needs, and finally,
transitioning to strategy implementation.
Ideally, previous IEF Steps 1 and 2 have clarified goals for a crediting strategy. It may be important as
part of design to reinforce or reiterate those goals. Shared goals provide both a foundation and
touchstone that make design decisions easier. Similarly IEF Steps 4 and 5 should have identified
methods to quantify credits and debits. The relevant regulatory agencies will need to have accepted the
use of selected methods within the crediting strategy. If quantification methods have not yet been
selected, crediting strategy design leads may establish a technical group of interested stakeholder group
members and outside technical experts to evaluate and guide the details of a specific quantification
method.
A credit issuance process is the backbone of a crediting strategy. Design elements woven through a
credit issuance process screens crediting projects for eligibility, adjust credit quantities with trading
ratios, verifies that credits are real, keeps track of transactions, and provides for ongoing monitoring and
assurances that credits provide ecological
Forms of Uncertainty
value over time. Reducing various forms of
to
Address
in a Credit Issuance Process
risk and uncertainty is a major emphasis of a
“Will
crediting
help
achieve environmental goals” is a
credit issuance process.
5.1. WEAVING DESIGN ELEMENTS INTO A CREDIT
ISSUANCE PROCESS
A credit issuance process helps inform all
aspects of a crediting strategy and helps
designers make tradeoffs and integrative
decisions about where best to address
different forms of uncertainty and risk present
in crediting. The credit issuance process
should incorporate the following elements: 1)
eligibility screens to ensure a seller is eligible
to produce the type of credits required prior
to generating those credits and to get higher
quality projects, 2) trading ratios, 3)
performance, financial assurance, verification,
and registration standards to ensure promised
environmental benefits are achieved, and 4)
contracts and insurance. Building a credit
issuance process can be done in three steps:

Establish key elements of the credit
issuance process: These are largely the
question full of uncertainty. Reducing risk and
uncertainty is so essential, that this report treats
many parts of a credit issuance process as tools to
deal with uncertainty. Several forms of uncertainty
exist including:
Substantive uncertainty comes from limited scientific
understanding of how ecosystems work and what it
takes to improve them. For example, will a buffer strip
reduce nutrient loads by 30%?
Strategic uncertainty is generated by interactions
among multiple stakeholders. Will stakeholders
participate in good faith? Will a mitigation banker go
out of business, or will a farmer maintain a BMP for
10 years?
Institutional uncertainty
stems from changing regulations and ways those rules
are interpreted. Will a lawsuit change the definition of
baseline requirements?
Uncertainty generates risk (including the perception
of risk), which can keep buyers, sellers, and other
parties from embracing a crediting strategy, increase
credit prices or transaction costs, or otherwise keep a
strategy from meeting its goals.
23
same across different credit types and geographies. Elements include sellers determining their
eligibility for generating credits, calculating environmental benefits, applying trading ratios, verifying
to confirm accurate credit quantities, registering credits, selling credits, and finally settling into
long-term monitoring and stewardship.

Analyze sources of risk and weave risk management throughout the credit issuance process:
Within each of the credit issuance elements above, there are different ways to address risk and
uncertainty. Stakeholders will need to discuss which risk management tools best manage the risks
they are most concerned about given the resources they have.

Finalize a Crediting Protocol and other Documentation: A crediting protocol is a core document
combining the chosen quantification methods with a credit issuance process in a complete protocol
for creating, buying, selling, and tracking credits. Other documents might include manuals on
applying methods, protocols for credit verification, monitoring frameworks, etc. (See Appendix B for
a full list).
Development of a credit issuance process is necessarily a highly collaborative effort between strategy
designers and stakeholders. In its entirety (see Figure 5.1), a design that deals comprehensively with risk
builds confidence in all parties that the crediting strategy will achieve environmental goals as well as
meet state and federal laws.
24
Figure 5.1. Design elements for each stage of the credit issuance process
Process for issuing
credits
Design elements
Investigating whether
selling ecosystem credits
makes sense
5.1.1. Eligibility requirements:
Is the project additional?
Quantify baseline and
Design credit project
5.1.1. Eligibility requirements:
Do credit actions meet criteria?
Who can I sell credits to?
Implement credit project
5.1.1. Eligibility requirements:
What is the service area?
Are financial assurances and land
protections in place?
Quantify credits and
Apply trading ratios
5.1.2. Trading Ratios:
Is uncertainty accounted for?
Verify credits
5.1.3. Verification
Are credit calculations correct?
Register credits
5.1.4. Registration:
Can credits be tracked over time?
Sell credits
Ongoing maintenance
and verification
5.1.2. Ongoing Verification:
Are credit projects meeting
performance standards?
5.1.1. Eligibility Requirements
Eligibility criteria determine who can buy credits and who can sell credits. They also can define when
credits can be sold (e.g. after meeting pre-established performance standards) and where credits can be
sold (e.g. only to buyers within a service area). Eligibility criteria act as an early filter to make sure
appropriate projects are generating credits and appropriate trades are occurring. Setting the level of
eligibility is likely to be an iterative process, reflecting conservation objectives and market conditions.
Ideally, a crediting strategy would include an eligibility checklist that potential credit sellers can fill out,
and be provided with some formal notification of eligibility before sellers invest too much time and
money into developing their credit projects. A eligibility notice in response to getting a eligibility
checklist from sellers gives assurances to sellers that they are able to generate some level
25
of credit (see Appendix A for sample eligibility forms).
Preconditions to Purchasing Credits for Buyers
Transportation agencies and other buyers must take steps to avoid and minimize impacts prior to
purchasing credits. Each permitting agency may interpret the mitigation hierarchy slightly differently. It
is important to understand what other requirements must be met onsite for a given project prior to
purchasing credits. These requirements are referred to as “baseline”. Baseline requirements can come
from explicit regulatory requirements or from additional measures needed as part of a crediting strategy
that go above and beyond regulatory requirements.
In some cases (e.g., stormwater crediting), transportation agencies may also need to demonstrate there
are not localized impacts or “hotspots” caused by projects offset with credits purchased elsewhere. In
addition, only some types of impacts or pollutants may be eligible to access a crediting strategy. Other
impacts will need to be addressed onsite.
Preconditions for Generating Credits for Sellers
Not all land uses, ownerships, or conservation actions will be eligible to generate credits. A crediting
strategy can facilitate approval of credit-generating projects by creating a pre-approved list of eligible
project types for credits. For each project type (e.g., habitat enhancement, habitat preservation, or
on-farm BMPs), there can be guidelines to fast-track approval of credits. Those guidelines can include:
 Criteria for site selection;
 Design standards to ensure quality implementation; and
 Maintenance and monitoring standards to ensure performance.
In some cases, these guidelines might already exist. For example, USDA Natural Resources Conservation
Service has developed standards for many on-farm BMPs, DOTs and local governments have standards
for stormwater BMPs, and many states have developed criteria for wetland mitigation.
Defining baseline requirements for credit-generating projects can be complex. There are several
components to a seller’s baseline:
 Regulatory requirements with affirmative obligations (e.g., 100-ft setback requirements from
streams);
 Broad regulatory obligations (e.g., requirement for a nutrient management plan); and
 Ecological improvements required to meet crediting strategy or other goals (e.g., contribution
toward meeting TMDL nonpoint Load Allocations; implementation of BMPs to improve habitat
as part of a Candidate Conservation Agreement with Assurances).
There are a lot of ways to set and express baseline requirements, but a crediting strategy should set
clear expectations for which conservation actions are “additional” and can provide credit. Setting
baselines should also identify timelines for when baseline obligations need to be met.
Finally, some funding sources may challenge a project’s ability to generate credits. Some states, and
some funding sources limit the ability to use public funds dedicated to conservation for mitigation. For
example, projects funded by the Wetlands Reserve Program cannot create wetland mitigation credits in
most instances. A crediting strategy will need to identify how public funds dedicated to conservation can
or cannot be used to generate credits.
26
Trading or Service Areas
A crediting strategy should define eligibility for trades by defining trading areas or service areas. A
trading or service area defines the geographic region where trading can occur and makes it clear to
strategy participants which buyers and sellers can conduct trades with each other. Trading areas can be
based on watersheds, ecoregions, or other geographic areas and are often defined in regulatory
documents guiding mitigation policy.
Setting a trading area requires a balance between different factors. Of primary consideration is the
ecological boundary within which it would be appropriate to offset an impact. For wetlands, stream
function and water quality impacts, this may be the watershed or basin level; for terrestrial habitat
impacts, it may be the ecoregion. Economic conditions are also important. Will there be enough buyers
and sellers in a trading area to support trades? For trading to be economically feasible, there needs to
be enough supply and demand of credits. Ecological considerations tend to push trading or service areas
to be smaller while economic considerations push them to be larger (Womble and Doyle 2012). Political
jurisdictions and preferences may also shape trading areas. Groups designing or advising design of the
crediting strategy for example may want to incentivize investment in their local community and not too
far away from their infrastructure or facilities.
Challenges may arise in trading that occurs across state lines (i.e. in watersheds that cross those
boundaries). U.S.EPA supports interstate water quality trading under Section 103a of the Clean Water
Act that directs U.S.EPA to encourage cooperative activities by the states (U.S.EPA, 2007). Yet, interstate
trading requires multiple state agencies to agree to common design elements, which can be challenging.
States may also need to explicitly allow for impacts in their state to be offset with improvements in
other states.
Timing and duration of credits
Different types of ecosystem credits behave differently. Generally, habitat credits are used to offset
permanent impacts to habitat. Water quality credits are often used to offset an annual or seasonal
discharge of pollution. As a result, each credit type has different characteristics. A crediting strategy will
need to clarify how long they are good for (credit lifespan) and what actions or conditions constitute the
start of a credit lifespan. Some simple rules of thumb include:
 The credit lifespan should match the duration of the impact (a permanent credit for a
permanent impact; an annual credit for an annual loading of pollution);
 Credits should not be issued until a verifiable action has been taken to create an ecological
benefit (e.g., recording a conservation easement, getting a restoration plan approved,
implementing on-farm BMPs, etc.); and
 Temporal credits creating benefit of one time period (e.g., in Spring 2014) should generally not
be used to offset temporal impacts in another time period (e.g., Spring 2016), because this
makes it difficult to value the equivalency of the benefits.
Some credit types can also be released in phases as performance standards are met. Performance
standards for project generating credits establish the ecological targets that need to be met prior to
credit release. Performance standards should also help determine if project conditions are on track to
support and deliver the ecosystem benefits consistent with the estimated credit amount. Ideally, clear
performance standards and design specifications have been set early in the crediting strategy design to
help save time and money. A sample phased credit release might look like:
 Phase I: Release X% on signing of a crediting instrument;
 Phase II: Release X% as major ecosystem enhancements are complete;
27


Phase III: Release X% as interim performance standards are met; and
Phase IV: Hold back X% until all performance standards have been met and all stewardship
elements are in place.
Stewardship and maintenance requirements
There are very few credit-generating actions that will not require some level of stewardship and ongoing
maintenance to provide promised ecological benefits—particularly in a world of invasive species and
climate change. A crediting strategy should include an overall stewardship plan, and individual projects
can either reference this plan and/or provide more project-specific details. Elements of a stewardship
plan include:
 Who will do the near-term maintenance, and who will take over long-term stewardship;
 Stewardship cost estimates and a plan for providing those funds;
 If endowments are needed, the timing of when funds will be contributed, assumptions about
return on investment, and descriptions for using interest and principal funds; and
 Contingency plans if projects do not meet performance standards either because of force
majeure events or because of inadequate maintenance.
Crediting strategies might also choose to set minimum project protection periods. For example, credits
offsetting permanent impacts might require some form of permanent project projection (e.g.,
easements, deed restrictions, public lands designation, etc.). For temporal credits, there may need to be
contracts or recorded leases covering the crediting life of the project.
5.1.2. Trading Ratios
Trading ratios are discounts A) applied to the total possible credits from a project, and B) applied to the
total issued credits setting aside a portion held in reserve. Ratios are used to account for uncertainty,
dynamic ecological processes, and risk. Depending on a crediting strategy’s quantification method and
other mechanisms to deal with risk, there may be more or less need to address uncertainty with trading
ratios. Ratios are not always based on extensive analysis, but they should be based soundly in science
and solid information. Ratios need to be defensible. A crediting strategy’s analysis of ratios should
address the following questions:
 Do credit quantification methods adequately address a credit-generating project’s landscape
context and processes relative to the impact site (e.g., attenuation of pollution through the
watershed or habitat connectivity)? If yes, ratios may not be needed;
 Does the transaction require translating between different credit types (e.g., between
phosphorous and sediment or between wetland and stream)? If no, may not need to address
with ratios;
 How much uncertainty is there in current quantification methods, likely success of projects, and
the ability of participants to follow through on their agreements? If very low, may not need to
address with ratios;
 Is there a need to hold credits in “reserve” to manage risk of project failure? If no, may not need
to address with ratios;
 Is there a need to demonstrate new environmental gain? If no, may not need to address with
ratios.
Overall, many crediting strategies are trying to answer these questions within quantification methods or
other protocol elements, leaving fewer issues to be addressed by trading ratios. Crediting strategies may
choose to lump considerations into a single trading ratio or keep ratios separate. Either way, the total
28
ratio should ensure a ratio greater than 1:1 (e.g., for every acre of habitat lost, at least one acre of
habitat is gained). This rule of thumb acknowledges the certainty of loss with most impacts and the
uncertainty of ecological gains for most crediting projects.
5.1.3. Verification and Certification Rules
Verification
Credits that are traded only have value if participants - buyers, regulators, sellers, and the public - are
confident that sites are achieving the proposed environmental quality benefits. To this end, verification
answers two general questions: 1) are project developers (sellers) complying with crediting strategy
rules and procedures, and 2) is the site achieving performance standards established by the strategy?
A crediting strategy needs to clarify when and how often verification occurs (e.g. after as built conditions
are established and annually over the length of the credit contract). The first, full verification of a project
confirms that the correct methodology is being used to calculate credits and that project conditions
meet the minimum quality standards. Initial verification also confirms that credit calculations are
accurate within some allowable margin of error (e.g., within +/- 15% in the case of Willamette
Partnership programs) and might also confirm the information used to determine a project’s eligibility.
In subsequent years, verification confirms that installed practices are constructed as designed and that
maintenance is occurring as scheduled. Ongoing verification might include some combination of
monitoring report review and field visits.
Verification can be conducted by agency staff, independent third parties, or by the buyers and sellers
themselves, and it can vary in frequency, intensity, and information reviewed. In general verifiers should
be familiar with the credit calculation methods and crediting protocols. Who verifies a project is an
important consideration. Several strategies have used third party entities such as soil and water
conservation districts or nonprofit organizations as verifiers. There needs to be clear guidance for
identifying and avoiding conflicts of interest for those who act as verifiers. Ideally verifiers are
accredited, trained, and included in ongoing updates to crediting strategy rules and tools.
Another important element of verification is a clear dispute resolution clause in case verifiers and buyers
or sellers cannot agree on credit estimates.
Certification
Certification is the final review step before credits are issued. During certification a regulatory agency or
other credit strategy administrator confirms that all documentation is complete and accurate. In some
cases regulatory agencies may need to certify every credit- generating project. In those cases,
verification and certification may be blended into the same process.
Agency involvement is important in this final stage, but state agencies may choose to approve the
overall crediting strategy rather than individual
RIBITS
projects. With certification in hand, a seller is
(http://ribits.usace.army.mil/)
ready to make trades.
The US Army Corps of Engineers, US Fish and Wildlife
5.1.4. Registration, Reporting and Tracking
For a crediting strategy to work, a central
database, or interconnected databases to track
performance and transactions in a centralized
way is needed. Several strategies are using a
Service, and now National Marine Fisheries Service
will use the Regulatory In lieu fee and Bank
Information Tracking System (RIBITS) to track all
credits generated from mitigation and conservation
banks. Not all credit types (e.g., water quality) are
currently supported by RIBITS.
Markit Environmental Registry
(http://www.markitenvironmental.com)
29
Markit is a private firm that provides web-based
registries for multiple types of credits in multiple
countries.
specific form of database called a registry. A registry facilitates a number of important tasks for a
crediting strategy including project registration, credit issuance, credit serialization, and transfer of
credits between accounts. It also provides a public view of the strategy. Some strategies may have low
enough trading volume that a simpler database may suffice.
Standardization of reporting and tracking tasks increases the transparency and overall credibility of a
strategy by ensuring that credits are only sold once. There is a balance between full transparency and
privacy for landowners. Strategy participants and the public need to know projects performing as
designed, and they need to know a contract is in place for the maintenance and monitoring of ecological
conditions. They do not necessarily need to know the terms of that contract or all details of a project.
The central database can keep public and private versions of documents, so long as the strategy has a
clear policy on confidential information.
5.1.5. Liability, Enforcement, and Other Forms of Risk Management
Crediting strategies need to be clear on what happens if something goes wrong and who is liable.
Liability rules will be different for different credit types. For wetland and conservation banking, buyers
have the ability to transfer their permit’s mitigation liability to credit sellers. For water quality credits,
the transportation agency will retain permit liability to offset their pollution load in many cases. As a
result, a crediting strategy may need a combination of regulatory and contract liability tools to manage
the different types of credits a transportation agency needs.
As part of stewardship, crediting strategies will have defined contingency plans if particular projects fail,
but there are also ways to manage these risks programmatically.
A reserve pool is a centralized cache of issued credits intended to cover risks in the market; it can be
drawn upon to compensate for unexpected project failure associated with force majeure (catastrophic
acts of nature) or other conditions beyond the control of a project developer or manager; however, it is
not intended to insulate project managers from inadequate planning or project implementation. The
reserve pool is built up by applying a reserve ratio to the total credits generated from projects, often
between 10 to 20 percent. Designers of a crediting strategy need to determine when reserve ratios are
applied in the credit generation process, at what level, and what conditions or circumstances must exist
for the reserve pool to be accessed.
Compliance schedules and true-up periods can also be used to minimize risk associated with using a
crediting strategy to achieve regulatory compliance. Meeting mitigation requirements for impacts
usually does not happen all at once. A compliance schedule can be used to determine how many
credits are required to meet performance standards at various stages of a project and track through
reporting and monitoring activities that those targets are being met. In cases where credit needs cannot
be exactly determined in advance, a “true-up” period can be used as a brief period of time after a
certain date where permittees can purchase additional credits to meet requirements without being out
of compliance.
5.1.6. Packaging a Strategy that Manages Risk
A crediting strategy should create a predictable system of rules for participants to avoid inappropriate
trades, incentivize the types of projects that create the greatest environmental improvements, and
deliver on the promises sellers make to buyers. The risk management elements of the strategy need to
be shaped and endorsed by regulatory agencies, buyers, sellers, and other stakeholders.
30
The strategy should be complete, but not burdensome. It should improve on existing approaches while
targeting the highest priority risk factors and incentives that stakeholders want to capture.
5.2. ESTABLISH INFRASTRUCTURE (MARKETPLACE, REGISTRY, CALCULATOR, ETC.)
Building the infrastructure to implement and
operate a crediting strategy is an essential and
potentially costly undertaking. Below are some
of the standard infrastructure elements
associated with crediting strategies. Groups
should review existing materials that have been
developed by other strategies and fully explore
the range of existing tools and platforms that are
available online in order to save on both start up
time and costs. Regulatory agencies will need to
approve the infrastructure elements that
operationalize the crediting strategy.
The Ohio River Basin Water Quality Trading
Program (http://wqt.epri.com/) for
point-source water quality pollutants is
working to develop water quality credits for
nitrogen and phosphorous that meet the
standards and requirements of Clean Water Act
(NPDES) permits. In addition to piloting the
trade of “stewardship credits”, the program
has recently launched a credit registry that
tracks certified credits from creation to sale to
retirement1i. Stakeholder involvement,
resulting agreements, tools, and crediting
platform that have been developed are all key
components of program design for an
ecosystem crediting strategy.
Required infrastructure elements include:
Calculator/quantification method(s): A tool
that quantifies environmental
improvements. The calculator automates a
quantification to transform the results of management practices at a specific site into actual
ecological benefits or credits that can then be traded or used for mitigation.
Standard forms: Contract templates, verification documentation, etc.
Transaction process: This could be as simple as a memo on who to notify when credits are bought
and sold, or as sophisticated as an online exchange platform for buying and selling credits.
Reporting database: A system that facilitates the management (i.e. registration, verification,
issuance, serialization, tracking, buying, selling and retiring) of credits.
MILESTONE – Four Project Design Elements
1. Goals and methods: Clarify goals, select quantification methods;
2. Eligibility: Define baseline requirements, establish performance standards;
3. Verification, Certification and Reporting: Define what gets verified, by whom,
and when; establish reporting rules; and
4. Ratios, Liability, Infrastructure, and Testing: Set trading ratios; define liability
and enforcement tools; build necessary infrastructure to make crediting easy
31
VI. Phase 4: Pilot Testing Strategy Components
1. Feasibility
2. Convening
3. Design
4.Testing
5. Agreement
6. Operations
7. Adaptive Management
PILOT TESTING: DO A REALITY CHECK ON YOUR DESIGN WITH LOCAL CAPACITIES, ECONOMIC NEEDS, AND NEEDS
OF POTENTIAL INVESTOR
Throughout the process, credit calculation and policy guidelines must be checked against local capacity,
economic realities, and business needs. For example, do quantification methods perform as anticipated
(i.e. are they rapid, highly repeatable, and accurate)? Similarly, simple methods of accounting for risk
may yield greater participation in the strategy (Hosterman, 2008).
Early pilot projects can provide a base of data and early lessons before a crediting strategy is rolled out
on a broader scale. Pilot projects can range from “mock” transactions where the strategy is used, but
not tied to an actual permitted project. A true pilot test, however, needs a completed transaction
between a real buyer and seller with full agreement from the necessary regulatory agencies. Those real
transactions in the first year or two inform what changes need to be made to credit calculation
techniques and policy guidelines in order to support greater volumes of transactions.
MILESTONE – Pilot Testing the Project
Conduct pilot testing to ensure the crediting strategy design matches local capacities/ecological
realities.
32
VII. Phase 5: Agreement
1. Feasibility
2. Convening
3. Design
4. Testing
5. Agreement
6. Operations
7. Adaptive Management
By this stage in the development of a crediting strategy, stakeholders will have invested significant hours
and dollars in design. Several strategies in the U.S. have had the design phase completed only to have
changes in political leadership at state agencies, lawsuits filed against for example, the TMDL, or other
external shocks that keep trades from occurring. A formal agreement among stakeholders can help
reinforce broad support for the crediting strategy.
The most effective agreements have agency director-level and field-level staff support. A written
agreement signed by the directors of each organization represented in the stakeholder group can be a
powerful tool during operations. If stakeholders are in regular contact with policy leads in their
organizations regarding the process and its progress, enough trust may exist for smooth approval.
Strategy design leads should expect to budget time to accompany or support stakeholders in regular
meetings to brief their policy level decision-makers, especially before asking for agreement.
The agreement is stronger with full support of all stakeholders, but some groups may not be ready to
sign a formal agreement. At a minimum, key but hesitant stakeholders should confirm that they can live
with piloting the crediting strategy for a specific time period even without their signature.
Asking for a formal, signed agreement from stakeholders and directors inevitably leads to a more
thorough review of the draft agreement and can generate last-minute concerns. Notifying stakeholders
and their directors exactly when and what they will be expected to sign as early as possible can help
avoid snags and disruptions. Yet, some stakeholders may need a lot of discussion time before they are
willing to think about a formal agreement.
Table 6. Possible forms of a crediting strategy agreement
Agreement form
Informal Statement
Memorandum of
Understanding
Programmatic
permit or
consultation
Multi-agency
programmatic
Pros
Does not changes existing agency
authorities and provides flexibility for
implementing a crediting strategy. Can
also be quicker to get signatures.
One step up in formality, but still does
not create the same weight as an
agency action. Several crediting
strategies have been initiated based on
an MOU. MOU’s can be important ways
to coordinate actions across agencies
whose authorities are quite different
(e.g., Army Corps and USFWS).
Provides regulatory certainty to the
transportation agency on both
processes and criteria tied to a
crediting strategy.
Provides coordinated regulatory
certainty.
33
Cons
Does not have the weight of an agency action,
so may provide less certainty in the face of
changing staff or agency leadership. Informal
statements are often less specific too.
It may be unclear whether an MOU
constitutes an agency action in some cases,
and what the legal implications of that grey
area might be for the defensibility of an
MOU.
Programmatics can often take a long time to
negotiate and put in place. It may not be
worth that effort for a small number of
crediting projects. It may also be difficult to
align programmatics across multiple
agencies, resources, and ecosystem services.
May be too difficult to negotiate
coordination of authorities and agency
processes.
MILESTONE – Secure Crediting Strategy Agreement
Secure formal crediting strategy agreement with agency approval.
34
VIII. Phase 6: Operations
1. Feasibility
2. Convening
3. Design
4. Testing
5. Agreement
6. Operations
7. Adaptive Management
The final phase in a crediting strategy is implementation and market operations. This means rolling out a
beta version of the strategy’s quantification methods and protocols, identifying an Administrator to see
projects through the credit issuance process, and adaptively managing to resolve conflicts and address
new needs. The relationships built during the design phase can help keep transaction costs low and
operating efficiency high.
Relationships and understanding gained though the design process will also be valuable in
implementation, especially at first when only a handful of people understand how the crediting strategy
works and must champion it within their organizations. Land and water trusts may use the crediting
strategy to channel investment, or if strategy rules allow, public funds may be used for demonstration
projects or backstop funds. Agencies can encourage regulated entities to use the market to meet
permits, and permittees can implement innovative compliance strategies that would be risky without
the trust, relationships, and good will built though the process of developing the crediting strategy.
8.1. GOVERNANCE
Every crediting strategy needs some form of ongoing governance once it begins generating transactions.
An Administrator is needed to approve and coordinate trades. This Administrator might be the state
water quality agency, a third party (e.g. a soil and water conservation district), or a committee of
organizations; the position can be funded by fees from credit sales, grants, or public funds. The
Administrator performs the day-to -day functions that ensure a crediting strategy operates efficiently
and in accordance with approved standards. A governing body can oversee operations and make official
decisions to improve the strategy on an annual basis.
8.2. TRANSACTION ROLES AND PROCESS
No matter how well written a strategy’s protocols and documentation is, participants still need a stepby-step description of how the transaction process works and which organizations will take on
responsibility for which process. There are several different functions that are part of administrating a
crediting strategy. These include:
Site Selection & Eligibility: This phase provides an opportunity for administrators to review how
projects meet eligibility criteria and provide technical commentary on project design. This stage
provides a screen to minimize investment and expenditures on the part of market participants for
projects that, for one reason or another, may not be eligible to generate credits.
Credit Verification & Certification: Verification is an essential component that provides assurance to
regulators and to the public that the ecosystem benefits generated by projects/restoration actions
are real. Independent verification should be conducted by professional, third parties or by the lead
agency overseeing a specific credit type. Verification methodologies may differ depending on the
strategy. Typically, this process confirms project eligibility, pre-project and post-project calculations,
and that the project was implemented to meet any applicable quality standards. The last stage of
verification includes any formal letters of credit certification or release needed from agencies.
35
Credit Registration & Issuance: Once a project has been verified, a package of information is sent to
an online registry. The package is reviewed for completeness before credits are issued. Project
participants will need an account with the registry provider, to which credits are issued. Upon
issuance, credits become visible to the public and are tracked with a unique serial number.
Ongoing Verification, Tracking and Transfer of Credits: Regular verification of all credits for the
entire crediting period. Ongoing review of monitoring reports is used to determine if performance
standards are being met and to trigger phased credit releases, where applicable.
Within a crediting strategy, there are several roles that need to be filled. These roles can be filled by a
transportation agency, a regulatory agency, a third part, or some combination of all three.
Table 8.2. Roles in implementing a crediting strategy
Role
Description
Credit Strategy
Administrator
Organization responsible for ongoing crediting strategy operations and
oversight.
Implementer
Group that signs contracts with credit generators and sells credits to buyers.
Buyers
Transportation agencies, commercial firms, government agencies, utilities
or philanthropic organizations that purchase credits from the implementer
or directly from the landowner.
Sellers
Landowners who have entered into agreements with either an Implementer
or directly with a commercial firm, utility or agency with the intent of
generating and selling credits.
Regulating Agency
Government branch responsible for enforcing internal or external policy
that brings Buyers into compliance with environmental statues.
Credit Strategy Designer
Group responsible for ensuring metrics and protocols are developed, as well
as overseeing stakeholder engagement.
8.3. PRICING AND TRANSACTION COSTS
Many crediting strategies jump quickly into how the pricing of credits will work, exploring options like
reverse auctions and other innovative approaches. Those discussions can consume a lot of time,
especially if the design elements that define which conservation benefits or mitigation credits being
traded and how transactions will work are not in place. There are two basic approaches to pricing
credits: 1) a fixed price for all credits, and 2) letting negotiations and the market determine prices. Each
has pros and cons. There are also a number of transaction costs involved in credit trading (e.g.
brokerage costs, verification, registration, ongoing monitoring, maintaining a strategy’s credit
calculators and updated protocols, etc.) that need to be understood and estimated.
Finally, there is a timing element to pricing. Buyers usually purchase credits on an annual cycle, so
36
landowners and aggregators will likely get paid on annual cycles. In some cases, landowners may get
larger payments upfront to increase participation. The sections below discuss different pricing models
and how to estimate/control transaction costs.
8.3.1. Pricing
There are several different credit pricing models that can be used by a crediting strategy. These include:
Negotiated pricing: Most often, prices are negotiated directly between a credit buyer and seller.
Negotiation lets both parties discover the sales terms that make sense to them. If a crediting
strategy anticipates a high volume of transactions (i.e., a lot of buyers and sellers transacting
regularly), bilateral price negotiations can have high transaction costs. The following pricing
strategies provide some more structure if needed.
Fixed pricing: Fixed prices provide a standard price per credit for all sellers. The price is usually set
by either the transportation agency or with stakeholders via the crediting strategy. Fixed prices
are predictable, making it easier compare costs of using credits to other technology or
management alternatives. This can reduce a lot of transaction costs. It also promotes equity
among sellers, ensuring that farmer Jack does not get a better deal than farmer Joe for the same
conservation actions. Yet, fixing the “right” price can be difficult, and fixed prices miss the
opportunity for competition among sellers to generate lower prices. Private mitigation bankers
may prefer the opportunity to compete on pricing. If a crediting strategy chooses a fixed- price
approach, there needs to be a mechanism for adjusting prices on a regular cycle (e.g. every two
years) based on feedback on cost of implementing and maintaining conservation actions and on
willingness to pay.
Auction pricing: Reverse auctions, where buyers request bids for selling credits, are common
across several programs, especially water quality trading programs. Auction pricing works will
when several buyers and sellers will participate in a crediting strategy, and the timing of credit
supply and demand is fairly regular and concentrated (e.g., transactions occur once or twice a
year). Auctions may not make sense if transaction volume is small or transactions occur
throughout the year or in unpredictable volumes.
Market pricing: In theory, market pricing gets closest to an optimal price because lots of buyers
and sellers trade back and forth, creating information about the right price. The challenge is that
market pricing requires a large enough volume of transactions to arrive at the market price.
Generally, auction pricing is a simpler way to start for most crediting strategies wanting to use
variable forms of pricing.
Packaging credits for sale
The forum for buying credits also differs across programs. In water quality trading programs, point
sources may buy from a clearinghouse, which has packaged up bundles of credits for point sources to
buy (e.g., Ohio’s Great Miami program). A crediting strategy might also buy from aggregators via a
contract to provide credits (e.g., The Freshwater Trust in Oregon’s Rogue River program, Forest Carbon
Partners in California’s carbon market). Buyers might also go directly to landowners to purchase credits
or create internal capacity to generate credits to meet their needs (e.g., Clean Water Services in
Oregon’s Tualatin River program).
37
8.3.2. Transaction Costs for Sellers
As sellers work to identify the credit price, they need to think about recovering transaction costs
described above. Some of those transaction costs include:
Cost of getting to baseline: Depending on rules, sellers may need to reduce some percentage of
impact prior to being able to sell credits. This creates a cost.
Opportunity costs: There are opportunity costs to creating mitigation (e.g., taking riparian land out
of production, lowering yields from reducing fertilizer, fixing farm management for long contracts,
etc.).
Recruitment costs: Landowners will need to be recruited and signed up, and it takes time to
market credits to potential buyers.
Land protection and/or rental payments: Most transportation projects will need to purchase
credits with long-term or permanent protection. For BMPs like riparian forest restoration, credit
prices might include the cost to rent land for 5-20 years. Either way, there are costs to negotiating
this protections and providing compensation for land protection.
Planning/Site preparation: Once a contract is signed, projects need to be designed, equipment
may need to be purchased, and the site may need to be prepared.
Construction: This can be one of the costlier parts of implementation, but it is often one of the
most predictable in terms of budget and timing.
Maintenance: Projects need to be maintained, from anywhere from 5-20 years to in perpetuity
depending on the credit type. Those costs plus a contingency for events like flood or fire can be
significant, but are critical to achieving actual environmental improvements. Budgeting adequately
for maintenance is a shift from many current conservation practices.
Monitoring/Verification: Most strategies will require some kind of annual compliance monitoring
and verification. Regulatory agencies may not be able to store and make available all this
information. A crediting strategy will need to decide whether the transportation agency, regulatory
agency, or a third party stores and maintains this information.
Registration: There are likely to be costs to register and transfer credits.
Risk & Profit: Buying and selling credits involves risk. No one party should assume all of this risk
without compensation. If buyers retain all risk for performance of projects, there may be little
room to pay landowners as much. The more risk a landowner is willing to take for performance, the
greater the potential for higher payments.
8.3.3. Administrative Costs
Administrators need an approach for financing the ongoing operations of the strategy, especially when
there are likely to be few transactions in the first few years of operation. Administrative costs include:
Outreach and education: Administrators will need to do a lot of outreach informing different
38
stakeholders about the strategy, answering questions, and problem-solving. This also includes
providing training to strategy participants.
Reviewing project eligibility: There is generally a screen for whether a given project is eligible. For
simple projects, this can take minutes. For more complex projects with multiple funding sources,
an eligibility screen can take several days or longer. Strategy rules can also shape the cost of
eligibility review.
Accrediting and assigning verifiers: Administrators need to have trained verifiers ready and
available. Buyers or sellers pay for the costs of verification.
Reviewing verification reports and other project materials: In preparing to certify credits,
administrators will need time to review documents, ask questions of their verifiers, and interact
with other regulating agencies.
Updating protocols and credit calculators: In the first few years of operations, there will be regular
updates to tools and designs based on information coming in from early transactions. Updates should
occur on a scheduled basis, but incorporating new information takes time.
In the Willamette Partnership’s program to date, most administrative costs have been covered by grant
sources. This is not sustainable over the long-term and transaction fees applied to each credit will likely
come to represent a small portion of the total cost of administration in most cases. Each administrator
should have a business plan in place early on, so they can sustain their operations over time.
8.4. ELEMENTS OF TRANSACTION AGREEMENTS
Generally, transactions will have two types of agreements: 1) one between whoever is creating the
impact and the supplier of credits, and 2) where aggregators or clearinghouses are involved, an
agreement between the landowner and the aggregator.
Templates for each type of contract can be provided by strategies and can ease negotiation costs for
these agreements. In general, the simpler the contract, and the more consistent the contract with what
buyers and sellers are used to seeing, the better. Below are some minimum items necessary for each
contract:
Buyer to Seller
 Quantity of credits to be purchased at a price per credit
 Boundary conditions on where credits can be produced
 Benchmarks for timing of credit delivery and payments
 Actions to be taken in case seller fails to deliver credits
 Standard language for termination, dispute resolution, insurance, and indemnification
Aggregator/Banker to Landowner
Amount and timing of payments
 Length of contract
 Landowner and aggregator responsibilities for maintaining projects
 Clear assignment of ownership of credits to Aggregator
 Permission to regularly inspect projects
39


Standard language for termination, dispute resolution, insurance, and indemnification
Compliance with applicable federal, state, and local requirements
8.5. TRAINING/CAPACITY BUILDING
Crediting strategies have a lot of moving parts and bring together many people from different
backgrounds. As such, there will need to be some level of training and capacity building to prepare
buyers, sellers, agencies, and third parties to interact efficiently. To operate a crediting strategy,
administrators need to have a basic understanding of the rules and regulations governing mitigation
requirements (i.e. Clean Water Act, Endangered Species Act, state regulations governing water quality
and aquatic and terrestrial habitat and species), as well as issues related to stormwater/development,
wastewater technology and business constraints. Buyers need to understand the risks and liabilities of
purchasing credits. Sellers providing credits need to understand how to apply the credit calculators to
estimate the environmental benefits of projects. Verifiers need to understand both the credit
calculations and their role in confirming benefits.
Trust, transparency, and policy support for the crediting strategy are also important to maintain. This
often means an annual meeting of stakeholders to check in on results, and other regulator
communications. During the design phase, only a small subset of stakeholders may be involved. As a
strategy moves into operations, it is important to expand that network of people involved via meetings,
presentations, email, website, etc. This is particularly important for regulatory agencies, project
engineering firms, and environmental group staff who might not be as involved in the day-to-day
operations of trading.
MILESTONE – Begin Credit Strategy Operations
This process includes:
 Establishing a governance structure;
 Complete a “user’s guide;”
 Set pricing structure;
 Provide training for participants; and
 Determining project’s business plan.
40
IX. Phase 7: Adaptive Management
1. Feasibility
2. Convening
3. Design
4. Testing
5. Agreement
6. Operations
7. Adaptive Management
9.1. MONITORING
No one designs a perfect crediting strategy in the first years of operation, and very few have designed
robust mechanisms for adaptive management and monitoring of projects (Selman et. al., 2009). For the
most part, crediting strategies are new in concept and represent a small fraction of the total
conservation or development activity in a region. As such, monitoring and a well defined adaptive
management program can go a long way toward continual improvement in a crediting strategy as well
as mitigating risk associated with a new approach.
To be effective, a crediting strategy requires a process for collecting, evaluating and integrating
verification and site-level monitoring reports into a high-level analysis that is ideally linked to monitoring
at the watershed level. There also needs to be a mechanism for incorporating new quantification
methods as they are developed over time.
Adaptive management can help a strategy respond to lessons learned and feedback generated by
market activity and new science. It should take place on a predictable schedule using a transparent
process to update credit calculation methodologies and revise market rules. As elements of the strategy
are revised, existing credit contracts must be honored so that participants have certainty that meeting
pre-established performance standards will continue to keep them in good standing.
Adaptive management cycles that are transparent and fixed for a specific period of time provide
flexibility to allow for learning as well as predictability, allowing for significant investments with a higher
degree of certainty regarding return on investment. As examples, the Lake Tahoe Lake Clarity Trading
Program for water quality and the Klamath Tracking and Accounting Program both use a standard
adaptive management framework to improve their programs (see Figure 9.1).
41
Figure 9.1 Program Improvement Cycle (courtesy of Environmental Incentives)
MILESTONE – Ongoing Adaptive Management
The process of adaptive management includes the following:

Annual report: creating an annual strategy report;

Periodically assess quantification: determine whether changes are required for
quantification systems;

Research and reporting: creating lists of needed information and reports; and

Ongoing Improvement: continue to implement strategy improvements over time.
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X. CONCLUSIONS
1. Feasibility
2. Convening
3. Design
4.Testing
5. Agreement
6. Operations
7. Adaptive Management
Building and operating an ecosystem crediting strategy is not simple, but it is doable. The elements
described in this document are intended to help new crediting strategies build on past efforts and get a
head start toward success.
While the process has involves some significant challenges, the potential benefits in terms of
predictability, certainty, consistency, and transparency can be impressive. A more integrated approach
to tracking and communicating these outcomes across agencies, actions, ecosystems, and resources
holds significant promise for a better and more effective approach to planning, implementing, and
accounting for conservation and development actions.
Table 10. To build, or not to build a crediting strategy?
Advantages of a crediting strategy
Challenges of a crediting strategy
More predictable timing to plan and implement
transportation projects
Often involves multiple stakeholders, which can
make agreement challenging
Greater certainty that environmental goals are
being met
More programmatic approaches can involve more
“what if” scenarios that can take resources to
address
A consistent way to track for cumulative benefits
and impacts tied to conservation and development
actions
A crediting strategy may not generate savings for
impacts to resource types that occur only once or
twice
Provides a common platform for multiple partners
to implement mitigation priorities
Organizing multiple partners can be complex
Can make it easier to incorporate the best
available science and efficient technology
adaptively over time
Every project is somewhat unique, making it
difficult to implement a programmatic approach
43
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Fisher, R., and Ury, W. (1983). Getting to Yes: Negotiating Agreement without Giving in. London:
Penguin Books.
Gray, B. (1989). Collaborating: Finding common ground for multiparty problems. San Francisco,
CA: Jossey-Bass.
Hosterman, H. (2009). Practitioner’s Working Group: White Paper 2. Hillsboro, OR: Willamette
Partnership. Retrieved from:
http://willamettepartnership.org/publications/Practioners%20Working%
20Group%20White%20Paper.pdf.
Innes, J.E. (2004). Consensus Building: Clarification for the Critics. Planning Theory, 3, 5-20.
Kagan, J.S., R. Fiegener, S. Howie and M. Venner. 2014. Framework 2: Creating Transportation
Focused Ecosystem Crediting Frameworks in States with Active Ongoing Crediting or Mitigation
Trading Programs or State Watershed Restoration Programs. ICF Incorporated, LCC, Fairfax, VA.
23 pp.
O’leary, R., and Bingham, L.B. (Eds). (2003). The Promise and Performance of Environmental
Conflict Resolution. Washington, DC: Resources for the Future.
Ozawa, C.P. (1991). Recasting Science: Consensual Procedures in Public Policy Making. Boulder,
CO: Westview.
Selman, M., Branosky, E., and Jones, C. (2009). Water Quality Trading Programs: An
International Overview. World Resources Institute. Washington, D.C.
Susskind, L., and Cruikshank, J. (1987). Breaking the Impasse: Consensual Approaches to
Resolving Public Disputes. Basic Books, Inc.
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U.S. Environmental Protection Agency. (2007). Water Quality Trading Toolkit for Permit Writers
(EPA 833-R-07-004). Washington, DC:
http://www.epa.gov/owow/watershed/trading/WQTToolkit.html.
U.S. Environmental Protection Agency /US Army Corps of Engineers. (2008). Compensatory
Mitigation for Losses of Aquatic Resources: Final Rule. Federal Register 73(70) 2008.
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http://willamettepartnership.org/ measuring-up/
Womble, P. and M. Doyle. 2012. The Geography of Trading Ecosystem Services: A Case Study of
Wetland and Stream Compensatory Mitigation Markets. Harvard Environmental Law Review.
Vol. 36, pp. 230-296.
Wondolleck, J.M., and Yaffee, S.L. (2000). Making Collaboration Work: Lessons from Innovation
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and Schuster.
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Ecosystem Credit Accounting System
Version 1.1
Last updated May 1, 2013
XII. Appendix A: Example Eligibility Checklist
How to use this check-list
Credit Validation is an initial screen of a project’s eligibility to generate credits in the Ecosystem
Credit Accounting System (ECAS). The Validation Checklist (Checklist) is meant to be completed
early in the project development process so that the Willamette Partnership can give a
preliminary determination of eligibility before significant project investments are made.
This Checklist should be filled out by the Project Developer or a party acting on their behalf that
is highly familiar with the proposed project. Questions in the Checklist are designed to determine
whether the project will meet ECAS eligibility requirements, as described in the relevant General
Crediting Protocol (GCP) (noted in 1a). Please use the space provided to describe any
circumstances that affect the answer. Complete and correct information is required for the
Willamette Partnership to accurately evaluate project eligibility. Please note that this document
will be made public for projects that are successfully verified and registered.
The Willamette Partnership’s review and validation of the project at this stage is only a
preliminary determination of the project’s eligibility to generate credits. The type, quantity, and
final approval of credits are confirmed in later phases. Contact the Willamette Partnership
(info@willamettepartnership.org) for assistance with the Checklist.
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Eligibility Checklist
1. Credit Types
Indicate all credit types that the Project Developer seeks to generate, the validation lead entity for each
credit type and whether that credit will be compliance-grade or voluntary. For more detail on generating
credits, please reference the GCP version noted in 1a.
a.
Which protocol and version will be used to generate credits?
Credit Types
(check all that apply)
Aquatic
Habitat
Salmon habitat
Upland
Habitat
Oak woodland habitat
Water
Quality
Quantification
Method and
Version
Validation Lead
Voluntary
Credit
Categories
Compliance
Grade
Enter current protocol name and version unless an earlier version should apply (e.g. General
Crediting Protocol version 1.1)
Wetland habitat
Upland prairie/Fender’s
blue butterfly habitat
Water temperature
Nitrogen
Phosphorus
Other
Other 1:
Other 2:
2. Project Description and Timeline
a.
Provide a brief summary (approx. 50 – 200 words) that Willamette Partnership can use (if
needed) to describe the project:
Including but not limited to project location, credit type(s) being sought, anticipated
credit-generating activities, pre-project and anticipated post-project conditions, timeline for
project implementation.
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3. Types of project activities that will be used to generate credits (check all that
apply)
Credit
Categories
Aquatic
Habitat
Upland
Habitat
Credit Types
(check all that apply)
Salmon habitat
Plant native vegetation
Restore and create wetland hydrology
Restore channel geomorphology
Fish passage barrier removal
In-stream: Large wood placement
Protect existing habitat
Improve function of an existing habitat
Restore habitat functions
Other:
Wetland habitat
Protect existing habitat
Improve function of an existing habitat
Restore habitat functions
Other:
Oak woodland habitat
Protect existing habitat
Improve function of an existing habitat
Restore habitat functions
Other:
Upland prairie/Fender’s
blue butterfly habitat
Water
Quality
Credit Generating Project Activities
(check all that will generate credits)
Protect existing habitat
Improve function of an existing habitat
Restore habitat functions
Other:
Water temperature
Active riparian restoration
Other:
Nitrogen
Fencing/animal exclusion
Cover crop
Crop rotation
Conservation tillage
Nutrient management
Filter strips
Other:
Phosphorus
Fencing/animal exclusion
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Cover crop
Crop rotation
Conservation tillage
Nutrient management
Filter strips
Other:
Other
:
4. Ownership
a.
Yes
No
Yes
No
Have you reviewed and confirmed ownership of the property where the project will take
place?
Check all that have been reviewed:
Copy of property deed
Review of county assessor records
Title search
Other:
b.
Did the property review identify any ownership disputes, conflicting uses, liens,
easements, or other items that would potentially disqualify the project from generating
credits?
If “Yes”, please provide separate documentation describing the items and whether they
can be resolved prior to project implementation.
c.
How will ownership of the credits generated from this project be documented between
the property owner(s) and Project Developer?
Check the applicable form of document:
Property lease, recorded with the county
Property lease, unrecorded
Access agreement
Easement, permanent
Easement, term of years
Other:
Yes
d.
No
Has the property been sold or ownership transferred within the last 10 years?
Describe changes to land ownership in the last 10 years
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5. Additionality
a.
Yes
No
Yes
No
Has the proposed project been reviewed for compliance with all applicable federal, state
and local laws?
Where existing laws, rules, and regulations are applicable to the project, describe
actions taken to comply.
Check all that have been reviewed:
County ordinances
Local ordinances (City/Unincorporated areas)
State law (e.g., Oregon Forest Practices Act); list:
State guidance; list:
Federal law; list:
Federal guidance; list:
Water quality:
TMDL
Oregon Agricultural WQMP
State water quality rules
Other:
b.
Does the scope of the credit-generating activities on the property meet and exceed any
requirements under Section 5(a) or other standard practices (i.e., “business as usual”)
given the applicable land use type, entity, or industry on site?
As necessary, describe how the project activities exceed standard practice for landuse and management
on the project site
c.
Were public dollars dedicated to conservation 2 used to fund any portion of the
credit-generating activity?
Yes
No
If “yes”, please list the name of the funder, amount (if known), term of the agreement, and use of the
funds (particularly any uses that would otherwise qualify as a credit-generating BMP).
For the purposes of the ECAS, public funds dedicated to conservation include those targeted to support voluntary natural resource
protection and/or restoration with a primary purpose of achieving a net ecological benefit through creating, restoring, enhancing, or
preserving habitats, as described in Oregon Interagency Recommendations: Public Funds to Restore, Enhance, and Protect Wetland
and At-Risk, Threatened and Endangered Species Habitats: Appropriate Uses of These Funds in Species and Wetland Mitigation
Projects (2008), Some examples include Farm Bill Conservation Title cost share and easement programs, EPA 319 funds, U.S. Fish
and Wildlife Service Partners for Wildlife Program, state wildlife grants, and other sources. Public loans intended to be used for capital
improvements of public water systems (e.g., State Clean Water Revolving Funds and USDA Rural Development funds), and utility
stormwater and surface water management fees are not public funds dedicated to conservation.
2
51
d.
Have previous conservation actions or restoration activities been attempted on the site
within the last 10 years?
Yes
No
If “yes”, please list the name of the funder, term of the agreement, use of the funds, expected outcome,
and current condition of the project activities. If previous activities were unsuccessful, please provide a)
justification that the activities qualify as having failed; b) relevant factors for failiure; and c) measures
that will be taken toavoid similar challenges during the current project.
e.
i.
Have the agreement(s) and on-site activities expired or been terminated?
ii.
Are there ongoing obligations under the agreement(s) that require an entity to
perform, maintain, or monitor the same types of project activities checked in
Section 3? (If “yes”, please contact the Willamette Partnership before completing
the rest of this form, as your proposed project may not be additional.)
Yes
No
Yes
No
Yes
No
Have any credits been previously generated or sold on the property?
Describe any previous credits generated on the site and how those actions and areas relate to the current
project activities.
f.
To the best of your knowledge, have any significant portions of the site’s natural land
cover been converted or undergone significant ecological change (e.g., wetlands fill,
vegetation removal) in the last 10 years? If yes, describe the activities and the federal,
state, or local environmental or development permit procured.
Yes
No
Describe significant changes to natural land cover or ecological condition in the last 10 years. Describe
any permits required for actions including, but not limited to development, enhancement, or land use
change.
6. Stewardship
a.
Will the agreement listed in Section 4(c) prohibit incompatible property uses for the life
of the credit?
b.
If your answer is “no” to Section 6(a), how will incompatible property uses that may
impact credits be restricted?
Yes
No
Notes/Comments as necessary
7. Project Suitability
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a.
Yes
No
Yes
No
Does the project manager have past experience with this type of restoration?
Notes/Comments as necessary
b.
Will the project design meet all applicable ECAS minimum quality standards?
Describe components of the project concept relevant to meeting minimum quality standards and project
performance standards.
8. Documentation
a.
Does the project require agency pre-approvals (e.g., county or city development permit,
ODFW review of restoration plan)? If so, describe the necessary permits and/or approvals
needed to complete the project.
Yes
No
Yes
No
Notes/Comments as necessary
b.
If so, have agency pre-approvals been secured?
Notes/Comments as necessary
Please attach documentation to support the Checklist. Required and optional documents are listed below. (Note:
documents that are optional for Validation may be required for Verification.) Descriptions of these document types
can be found at the end of the checklist, see the Willamette Partnership website for links to available document
templates (http://willamettepartnership.org/ecosystem-credit-accounting). Where final or signed versions of
documentation are not available, please include labeled drafts. Final versions will be required and reviewed during
Verification. Unless required by law or regulatory requirements, documents submitted during Validation will not
be shared or made publicly available without consent from the Project Developer.
Required:
Proof of Ownership*:
Proof of Rights to Credits*:
Project Design**:
Project Map:
Optional:
Project protection documents
Accounting Area Map
Service Area Map
Wetland delineations
Monitoring Plan
Stewardship Plan
Approved bank prospectus documents or bank
* In most cases, draft documents are acceptable at Validation. Full proof of ownership and rights to credits will be required and
reviewed at verification.
** It is understood that during the implementation phase, project specifics are likely to change and new information will become
available. Upon seeking verification, as-built conditions should be provided in the As-Built Project Design Document.
53
instrument
Other agency-pre-approval notices
Other:
54
[Sample] Attestation:
I attest that this information is true to the best of my ability and is consistent with Ecosystem Credit Accounting
System’s General Crediting Protocol Version Willamette Basin and Verification Protocol Version Willamette Basin
for the Willamette Basin basin.
___________________
[Signature Line]
____________________
[Printed Name]
____________________
[Project Developer, if different from printed name]
____________________
[Date]
55
XIII. Appendix B: Forms & documentation for the credit generation
process
DOCUMENT TYPE
DESCRIPTION
Proof of Ownership
Confirmation of the legal ownership of the property on which project activities will
take place.
Project Map
Delineates the project site, indicating where project activities and any relevant
geographic context. For users of Version 2.0, additional information is available in the
Protocol Appendix for the relevant credit type.
Project Design
Describes the intended project activities, considerations, and timelines,
demonstrates that minimum quality standards will be met.
Proof of Rights to
Credits
Document confirming the Project Developer has legal title to the credits to be issued
for the project. This could include an easement, legal agreement, legal opinion, deed
restriction, letter of intent, contract or other form clearly stating who owns the
underlying land and who has rights to own and sell credits generated from the
project.
Project Protection
Documents
Confirms that the project site will be legally protected from development actions and
alterations impacting the performance of credits for the life of the credit. Project
Protection Agreements may be the same as Proof of Rights to Credits.
Accounting Area
Map
Delineates subareas for which accounting of credits will be linked (accounting units).
Accounting units cannot overlap.
Service Area Map
Delineates area within which the credits will be tracked, or, from compliance credits,
the area in which they can be sold.
Wetland
delineations
Establishes the location and size of a wetland for the purposes of federal, state and
local regulations.
Monitoring Plan
Describes how monitoring will be conducted over the life of the credit to ensure
project success and the attainment of project performance standards in the ECAS.
The Stewardship and Monitoring Plans may be combined.
Stewardship Plan
Describes the Project Developer’s intent for project maintenance including the
designation of stewardship responsibility, cost estimates, anticipated activities, and
management of stewardship funds. The Stewardship and Monitoring Plans may be
combined. Stewardship will also include proof of financial assurances, such as
performance bonds, if required as part of a crediting strategy.
Agency
Pre-Approvals
Where applicable, confirmation of agency approval to proceed. This may be an
approved prospectus, bank, letter or other form.
Bank Prospectus
Where necessary, detailed description of proposed mitigation bank that has
undergone review and comment from the Interagency Review Team to assess
technical feasibility of the bank development and operations.
Bank Agreement
Where necessary, the formal agreement between the Project Developers and
agencies establishing liability, performance standards, management and monitoring
requirements, and the terms of bank credit approval.
56