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A New Market-Based Approach to Restoring the Environment

October 5, 2016

The Environment and Natural Resources Division recently announced a natural resource damage (NRD) settlement with the city of Seattle, Washington, to resolve its liability for injured natural resources at the Lower Duwamish Waterway Superfund Site by funding restoration projects.  Unlike previous NRD settlements, this one uses a new, market-based mechanism to achieve restoration..  Under the new approach, highly credible restoration project development companies design and construct approved restoration projects, then sell credits in those restoration projects to liable parties.  Liable parties can then use purchased restoration project credits to satisfy NRD liability.  Although this innovative approach will not be available in every case, it provides another option for parties to consider when resolving a case involving natural resource damages.

The first result of this new innovative approach will be the natural resource damage restoration in Seattle, a project that, when complete, will restore marshes, mudflats, riparian areas and other critical habitats for fish, shorebirds and bottom-dwelling organisms.   

The settlement is a collaboration involving the city of Seattle, Bluefield Holdings and the Lower Duwamish Waterway Superfund Site natural resource trustees: the National Oceanic and Atmospheric Administration (NOAA), the Department of the Interior (DOI), the Washington State Department of Ecology, the Suquamish Tribe and the Muckleshoot Indian Tribe.  The city of Seattle purchased restoration credits from Bluefield to account for the city’s share of the injuries to natural resources from hazardous substances released into the Lower Duwamish Waterway.  The city’s credit purchase totals approximately $3.5 million worth of restoration, when calculated using the cost of projects developed directly by the natural resource trustees.  In addition, the city will make available a number of properties along the Lower Duwamish Waterway for potential restoration project development by Bluefield. 

Past Settlement Practice

For many years, the Environment and Natural Resources Division has brought civil cases on behalf of natural resource trustees against polluting parties who have damaged natural resources.  The Environment and Natural Resources Division brings those cases under the Comprehensive Environmental Response, Compensation, and Liability Act, often called the ”Superfund” law, the Clean Water Act and the Oil Pollution Act.  In those NRD cases, parties wishing to settle typically have had two options.  The first option is to pay the natural resource trustees an amount of money sufficient for the trustees to complete restoration projects, or conduct other restoration activities, to compensate for the injuries to natural resources for which the settling party is responsible.  This option may be used when a settling party’s liability is relatively small, but is also available to address significant liability, as in the settlement with BP for the 2010 Gulf of Mexico oil spill that was approved by the federal court in Louisiana earlier this year, and which included more than $8 billion in natural resource damages.  A key advantage of this approach for settling parties is that the trustees will then construct restoration projects.  At the same time, this option may be more expensive for settling parties than doing the restoration themselves.

A second option for settling parties is to conduct the restoration work themselves. Frequently a group of responsible parties will collaborate to share the costs of a restoration project as a means of settling the group’s liability.  This option is often preferred by parties with substantial liability because it can be less expensive than paying the trustees to conduct restoration.  However, this option does require significant expertise in restoration project design and construction, which settling parties often may not possess in-house.

A New Settlement Option

Until recently, the two options above constituted the range of choices available to liable parties wishing to settle.  But a third approach was recently taken in a settlement with the city of Seattle at a Superfund site in Washington State.  In that settlement, natural resource trustees composed of federal and state agencies and Indian tribes agreed to accept restoration “credits” in projects constructed by Bluefield Holdings Inc., a company that develops and sells credits in restoration projects.  This arrangement is attractive to both settling parties and the natural resources trustees from the standpoint of minimizing the time commitment required to design and develop restoration projects.  In addition, in many cases, the cost to settling parties of buying restoration “credits” may be less than the cost of paying the natural resource trustees to design and build projects.  Thus, in some cases, this new approach may be preferred by both settling parties and natural resource trustees than traditional settlement approaches.

The new approach described here is very different than a generic “mitigation banking” approach that is sometimes advocated.  Key features of the settlement with the city of Seattle include:

  • A separate agreement between the National Oceanic and Atmospheric Administration (NOAA) and Bluefield Holdings under which NOAA reviews restoration projects prior to construction and makes the ultimate determination, after construction, regarding the number of restoration credits that can be sold for that project.  The other federal natural resource trustee that is party to the city of Seattle settlement is the United States Department of the Interior.
  • The Bluefield project in the city of Seattle settlement contains all of the key components previously identified by the Trustees’ Programmatic Restoration Plan for preferred restoration projects: it is in the Lower Duwamish Waterway and includes marsh, mudflats, riparian areas and off-channel habitats.  These are the habitats that best restore injuries to fish, shorebirds and bottom-dwelling (benthic) organisms.
  • A determination by all natural resource trustees which are parties to the settlement that the number of credits purchased by the city of Seattle, and the particular restoration projects from which those credits are taken, are appropriate compensation for the specific injuries to natural resources caused by the release of hazardous substances at the site.
  • Assurances that Bluefield’s restoration projects will be adequately developed and managed over time, including:
    • Conservation easements on the land on which the restoration projection are built;
    • Participation by Bluefield Holdings in the consent decree, making its commitments to the natural resource trustees enforceable in court;
    • An escrow account that the natural resource trustees may draw upon if Bluefield does not adequately construct, operate, and monitor the restoration project; and
    • The ability of the natural resource trustees to reduce the number of credits that can be sold from any given project if a project is not fully successful.

These settlement conditions give federal, state, and tribal trustees confidence that restoration projects will as noted above address natural resource injuries and will be built properly.  If projects are not constructed and implemented appropriately, the trustees have the legal tools and resources they need to remedy any defects.  As a result, the settlement with the city of Seattle could be the first of a number of such natural resource damages settlements at contaminated sites around the country. This particular settlement is not yet final as we are taking public comment on the agreement before seeking approval by the District Court.

Topic(s): 
Environment

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