Price-Tagging Nature

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The spindly legs and elegant flight of the whooping crane could go down in history as a mascot for the melding of modern ecology and economics. In 1978, the federal government’s Army Corps of Engineers granted permission for breaking ground on a dam project in Wyoming, a massive undertaking that would supply water to eight adjacent states. The State of Nebraska and various environmental organizations contended that the dam would divert precious water from the wetlands and meadows around the Platte River that were a critical stopover on the annual migratory flight of whooping cranes. Further stress on the already endangered cranes, they argued, would sentence the species to extinction. A judge agreed, and the defendants, including the Army Corps, settled. The developers would proceed with the dam project, but also establish a $7.5 million fund for the “maintenance and enhancement” of the wetland habitat. Thus was born the first high-profile environmental trade-off, according to Laura Martin, a historian and ecologist, in her book Wild by Design: Restoration in one place to compensate for ecological harm somewhere else. 

That seminal swap would set in motion what is now, almost 50 years later, a multibillion-dollar national industry built around restoring and protecting important ecosystems. The compensatory mitigation industry is an outgrowth of the Clean Water Act and Endangered Species Act and has become a market-based force for salvaging what’s left of California’s beleaguered wetlands, forest, and riparian ecosystems. It has also compelled ecologists and developers—often opposed to one another—to find common ground through a market system that assigns monetary value to ecosystems and endangered species through a system of credits. How much money is an intact wetland or preserving the habitat of an endangered species worth? The mitigation brokers at the center of the industry are attempting to answer such questions. “For the government, it’s been a political steam valve,” comments James Salzman, an environmental lawyer and law professor at UC Santa Barbara. “The government can say, we’re not stopping you from building, you just have to buy these credits.” 

In spite of federal efforts to limit the reach of environmental protections and widely varying standards of oversight, and as California and other states scramble to contend with loss of biodiversity and the whipsawing impacts of a changing climate, a dynamic market has emerged that aims to channel private real estate money into the conservation of natural resources. So far, in this economy of trade-offs, the compensatory mitigation market has been responsible for conserving 47,264 acres in California, according to an Army Corps of Engineers database; another 16,257 acres were available, as of late April, for use by future developers. Private landowners and the state are both key players in this yin-yang economy fueled by an invention—the mitigation credit—inspired partly by that whooping crane deal. 

I paid a visit to several of these restoration projects to understand how giving financial value to elements of an ecosystem, and a price for destroying them, works in practice.  

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When Charles Salas visited a 1,700-acre property of rolling grasslands and oak woodlands about 10 miles east of Paso Robles, he saw its beauty and its potential. After a lifetime in commercial real estate finance in San Diego, he thought those wondrous hills rippling out from the Estrella River, and a landscape rich with grasses and foliage, would be ideal for raising horses. He would settle on a parcel and develop and sell the rest as horse ranches. After buying the place, that was the plan in early 2024, until he learned the county would never allow such development.

Shortly thereafter he invited his son Greg, 35, a wildlife biologist who works for the environmental consulting firm Althouse and Meade, for a tour of the property. His son saw things that Salas, he recently explained to me, did not have the knowledge to recognize. Greg described a bounty of ecological features spread across the parcel that were potentially of great value if preserved. Which is how Charles Salas, 67, discovered the building blocks of ecology. 

Salas was used to figuring out the value of land when it was the site of a new office park or housing development. He told me that he’d avoided real estate projects on environmentally sensitive land because the slow pace of paperwork and the regulations introduced “too much risk and uncertainty.” But letting the ecological forces on the land just simply function as they’re supposed to could make Rancho Estrellita eligible for millions of dollars’ worth of credits on the compensatory mitigation market—also called the mitigation banking market or simply an ecosystem services market. 

Under the rules governing this $3.5 billion market, the Clean Water Act requires developers of sensitive wetlands to compensate for that damage by protecting another wetland and its associated ecological features, typically within the same watershed. And similarly, the Endangered Species Act mandates that a developer whose plans would destroy the habitat of an endangered species must get a permit from the U.S. Fish and Wildlife Service, which requires the developer to protect other comparable critical habitat. These rules have unleashed a system, born from concepts in that whooping crane trade-off, that’s helped fuel thousands of real estate deals and environmental tradeoffs across the country.   

The Army Corps is a central player in conjuring the market, usually in consultation with state and federal environmental officials. The Corps has the final say in determining the financial value of the damage a project would cause and hence the credits necessary to offset it—the demand side of the equation. On the other side, the credit supply, an Interagency Review Team composed of federal and state officials, determines how many credits a project, like Salas’s ranch, should receive, based on the importance of the property’s ecological features. In California, that team usually includes the state’s Departments of Fish and Wildlife and Water Resources and regional water quality boards. 

Salas could enter the market, his son told him, by forgoing any future development of the property and instead preserving the land. If awarded credits, he could sell them to a developer. Important habitat or species on a landscape can be valued anywhere from $10,000 to $1 million per credit; credits generally refer to an acre of preserved habitat. But first, to gain entrance to this byzantine system, he had to apply for them. 

Last October, the Althouse and Meade firm helped Salas submit his application for credits to an Interagency Review Team. The application contained about 500 pages of data, maps, and photos of the ecosystems and species on the ranch and proposals for their restoration. Those include rotational grazing and installing wildlife-friendly fences around vernal pools to allow small mammals to pass through but keep out cattle; planting native plants and grasses; and slowing down the water flow in a portion of the Estrella River. Salas also pointed to already having removed refuse left behind by four generations of the previous owners, including 10 miles of failed fencing, 45 containers of trash, 40 tons of scrap metal, 5 tons of tires, and dozens of 50-gallon drums filled with toxic substances, and  having cleared creek beds that had been used as landfills. “Over 15 months,” he commented, “we turned the clock back 50 years.”

In April, the Army Corps sent a team to inspect his property in person; later in the spring and summer he’s expecting visits from the state and federal Fish and Wildlife authorities and the Central Coast Regional Water Quality Control Board and California Department of Fish and Wildlife. All are assessing the ecological features on the property and proposed plans for preservation and enhancement of those features to judge what is eligible for turning Salas’s land into financially valuable credits. Salas hopes to have their final word by the year’s end.

Important species

In the interim, we jumped into Salas’s pickup for a tour of the ranch and what he sees as his potential bounty of credits. As he ground the gears on the dirt roads circling the property that February afternoon, Salas spoke zealously about the land and its ecological services like a new convert. The words seemed to have leapt off a page from Walt Whitman or some other transcendentalist poet. 

First stop: the vernal pools, highly valuable in California’s hierarchy of endangered ecosystems. Such pools accumulate in shallow depressions after a rainstorm. It had been six weeks since the last serious rains, but I saw at least half a dozen sizable vernal pools with water still in them from the December rains—glistening gray-blue against the green grasses. Salas pulled out a hand-drawn map with a scattering of purple and orange splotches that identify 32 vernal pools, habitat he hopes could garner a bundle of credits. What makes them rare and ecologically valuable is the hard clay soil, which means rainwater doesn’t disappear into the ground; the pools last as long as the rain keeps coming and sometimes for months afterward. 

Several threatened species like the California tiger salamander rely on the transitory pools for reproduction. When the rains come, the black-and-yellow-spotted amphibians dart out of their refuges under rocks, logs, and ground squirrel burrows; they find their mates and lay eggs in the pools. Another species Salas hopes but has yet to confirm are present are fairy shrimp, which leave their eggs in the muddy pond bottoms of vernal pools. As the pools evaporate, the eggs dry into cysts embedded in the desiccated pool bed; then the next set of rains prompt them to hatch. Both species are listed as federally threatened, which under the Endangered Species Act translates into potentially valuable credits for the Rancho Estrellita. 

Then there are the ephemeral streams—another of nature’s monikers lifted, it seems, straight out of Whitman. They emerge after a rainstorm as cascading water through gorges and incisions in the land, providing habitat to tadpoles, snakes, various reptiles and amphibians, and prey for fish and birds. They also serve to moisten the landscape, of particular importance after years of drought and wildfires. On the day I visited, we clambered down the canyon-like gorge that would be filled with water during the next rain and is now lined with wildflowers and three-foot-high native grasses.

We walked along a dry riverbed—the Estrella River, when it runs. The river flows when it rains; when it doesn’t, like now, the river bottom is sandy brown. “Fifteen years ago,” Salas says, “this would have been filled with water at this time of year.” How does he know?

Beavers. As we walked, Salas pointed excitedly to logs and tree stumps that had been gnawed into a point—classic evidence of the masterful engineers of water conservation that famously fell trees by chewing them with their large front teeth. According to Salas, the gnawed wood goes back 12 to 14 years, about when the river started going dry for much of the year. The depletion of the Estrella, he speculates, is the result of irrigation by the rapidly expanding vineyards and industrial-scale agriculture in the region drawing down the aquifer, combined with California’s multiyear drought. But the beavers’ chewed stumps are a sign that the water was indeed flowing. Salas is hoping that the riparian ecosystem—aided by hand-installed beaver-style dams, planting of deep-rooted native plants, and building of fences to keep cows away—could generate another slough of credits for ensuring that when it does rain, the restoration raises the water table, replenishes the aquifer, and ensures that the water sticks around. And maybe even brings back those beavers. In water-deprived San Luis Obispo County, he said, such measures are looked upon kindly by county water boards and by the Interagency Review Team.  

“When I first heard about beavers,” Salas says, “I thought it was some kind of voodoo science. Then I heard more and more, and we found these gnawed stumps about three months ago. I came to realize, it’s the furthest thing from ‘voodoo science.’” 

The vernal pools, the ephemeral streams, the river running through it, the endangered species trying to maintain a precarious existence—all suggested that he could get credits for as many as 11 ecological features that appeared to be everywhere on the Estrellita. 

Salas still seemed dazzled by the idea that the land itself could be valued entirely on what’s already there, or returning it to what had been there. “We’re rich,” he said, “in ecological assets.”   

If the credits are approved, Salas’s land will officially become a “mitigation bank”—a “bank” of credits available to be bought to “mitigate” the impacts of ecological destruction caused somewhere else by private developers or even the state. Typically linked to the credit transaction is an agreement to place the land under a conservation easement once it’s restored, which entails oversight by a “land steward” who monitors the property regularly to ensure it hasn’t been transformed or degraded. The California Council of Land Trusts, based in Sacramento, lists more than 50 membership organizations, many of which can perform this oversight function, including well-known environmental nonprofits like The Nature Conservancy and the Marin Agricultural Land Trust, as well as dozens of other smaller organizations.  

Prices for credits fluctuate based on supply and demand: The rarer the species, the more rare a wetland, the more substantive the mitigation, the more expensive the credits. William Coleman, founder and CEO of San Francisco–based Eco-Asset Solutions and Innovations (EASI), who worked closely with Salas at the later stages of his application, told me that prices vary widely from, say, $10,000 per credit for rangeland to 10 or nearly 20 times that for a restored wetland in California’s Central Valley. 

Salas says that if he receives the 1,700 credits he’s hoping for, they may earn more from the mitigation market than he could have if the horse-ranch idea had been viable. “We’ll do OK!” he said as we stood at the topmost hill of the ranch, looking down on the green hills and dry riverbed.

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The demand for development-versus-restoration deals, like what Salas hopes to be part of, has grown rapidly. The number of mitigation banks—like Rancho Estrellita, if approved—more than quadrupled nationally between 2005 and 2013. By April 2026 there were more than 2,800 mitigation banks across the country, representing billions of dollars in potential assets. Coleman of EASI estimates that nationwide there are at least $400-to-$500 billion worth of latent mitigation assets out there on more than a million acres, all potentially eligible to be turned into credits and sold to needy developers. Big pension and other investment funds have been significant investors over the past decade in the small handful of major players known as mitigation banking companies. 

Todd BenDor, a professor of sustainable community design at the University of North Carolina, has tracked over two decades the evolution of what he and colleagues have dubbed “the world’s oldest operating ecosystem services market.” He’s been a regular at annual conferences for the Ecological Restoration Business Association, a trade association that was formed in 1998 to represent the compensatory mitigation industry’s interests in Washington. “The conference used to be people in overalls, a bunch of ecologists.” He laughs. “Now, it’s just suits. I’m the poorest person in the room.” 

 The mitigation market grew rapidly after 2008. In that year, the U.S. Fish and Wildlife Service clarified mitigation rules, ensuring there would be “no net loss” of wetlands, strengthened oversight, and stiffened the standards for the awarding of credits. The reforms included a credit scheme that favors restoration and creation of wetlands over merely preserving them, incentivizes having ecological corridors connected to one another, and put an end to what Bryan Matsumoto, a senior regulatory manager based in the Army Corps’ Dublin office, called the preservation of  “postage-size pocket parks” that had been common. It also required that the mitigation offsetting occur within the same geographic service area—the same watershed, for example—as the project causing the damage and, critically, that they share the same characteristics. A decimated wetland can’t be offset by, say, a conserved forest.

The changes prompted a boom. The demand for restored acres grew, giving fuel to a new kind of private company: mitigation credit brokers. They’re essentially the middlemen who seek out land they can turn into mitigation credits, then sell those credits to developers or, as is often the case in California, to the state itself, to offset impacts of new freeway on-ramps or other public infrastructure on environmentally sensitive land. 

A critical source of information for mitigation brokers is a website hosted by the Army Corps called RIBITS, which provides an ongoing list of mitigation projects across the country that are either approved or in the process of being reviewed, like Rancho Estrellita. The listings are the lifeblood of the industry, the flea market for conserving nature. California, a biodiversity hot spot, has at least 194 mitigation sites either approved or pending approval, according to a RIBITS database.

The quality of mitigation credits varies widely, according to Salzman, a law professor at UC Santa Barbara who has followed the evolution of the mitigation system. Their integrity depends on the robustness of environmental enforcement. Twenty-three states, for example, have wetland protection laws that are stronger than federal wetland protection. In California, which has some of the strictest protections in the nation, regional water quality control boards are integral to the Army Corps’ credit approval decisions. Salzman uses a metaphor, the bicycle, to explain how such inconsistencies can be reflected in the long-term oversight that such deals require. “If I’m selling a bicycle to you, we both care about its quality. You care because you’re buying it, I care because it’s been my bicycle and you can try it out. The mitigation market is different. If you’re a developer you don’t care about the mitigated wetland. And if I’m the landowner [of the mitigation bank] what I care about is getting paid. The only party who cares about the quality who is not involved in the transaction is the regulatory authority. They govern the transaction, approve the credits. If the regulator is not really on the case, it’s a bad deal for the environment.” 

Among the factors influencing the regulation of that “bicycle”— i.e., the wetlands and species across the United States—is the Supreme Court’s 2023 Sackett v. EPA decision. That judgment limited the application of the Clean Water Act to waters that have a surface connection with permanent or flowing bodies of water, which has been interpreted to mean lakes, rivers, streams, and oceans. The decision dramatically shrank the ability of the federal government to protect wetlands, which often connect to underground, not surface, water sources and are frequently cut off from such sources by dams and levees. Combined with the Trump administration’s reversal of clean water and species protections, such regulatory rollbacks may put a damper on the nationwide demand for ecosystem-based credits and heighten the disparities in the rules imposed by different states. In the wake of Sackett, for example, the Army Corps was stripped of its authority to include vernal pools in its credit assessments nationwide, but California’s guidelines do include vernal pools, according to Chris Beale, an attorney with the Sacramento-based Resources Law Group.

For an industry of this size, there are remarkably few nationwide assessments as to the success of the various mitigation efforts. A few assessments over the years have suggested possible areas of vulnerability. In 2005, the Government Accountability Office reviewed the Army Corps oversight of compensatory mitigation projects and concluded that just over a third involved an on-site inspection by the Corps to validate the claims of the mitigation bank. Ten years later, in 2015, the Environmental Law Institute found there were “large gaps” in the evaluations of success of the projects in some geographic areas in completing the promised restorations. Such critical reports, says Beale, led to more scrutiny of credit applications and more sensitivity by the Corps to ecological factors like the proximity of a mitigation bank to other preserved areas and a higher valuation of restoration over mere preservation. Still, Becca Madsen, who has studied the program extensively as an analyst with the Environmental Policy Innovation Center, comments, “Nationwide, it would be nice to have a random audit of a percentage of the banks to make sure everyone is keeping everyone honest, and the banks are doing what they’re supposed to be doing.” 

In 2008 California began its own epic quest for credits, to deal with an environmental cataclysm of its own making. In that year, the U.S. Fish and Wildlife made a decision whose effects continue to ripple across the state. The diversion of fresh water by the State Water Project and Central Valley Project from the Sacramento–San Joaquin Delta to the farms and cities to the south, the USFWS determined, were sufficiently threatening to delta smelt habitat in the Delta to warrant the restoration of 8,000 acres of wetland and stream ecosystems. The “biological opinion” from Washington, D.C., was clear: Either the state finds the lands to restore, or it would be in violation of the Endangered Species Act. The biological opinion compelled the state to take a closer look at the key ingredient in the elaborately engineered system it had constructed a century ago that tamed the waterways of the Delta—the levees. In California’s own bayou, the state began to reassess how it could return at least some of the land to the water. 

When Memphis Minnie, a century ago, recorded the song “When the Levee Breaks,” she was singing about what happens when the levees fail, as they did during the infamous flood of the Mississippi River in 1927. The song, as have many covers of it since, evoked the pain wrought by overflowing levees. 

But what happens when levees succeed too well? That multibillion-dollar question now confronts California officials, prompted by the hot winds, wildfires, and drought and its climate cousin, torrential rains. As many as 90 percent of California’s natural wetlands have been separated from their water sources over the past century, in part by the proliferation of levees. In the Delta, they prevented flooding and made possible large-scale cultivation of pears, walnuts, tomatoes, and other fruits and vegetables. 

But all that agricultural and water engineering came at the expense of Delta ecology and its formerly abundant animal populations. Lands that once might have provided a buffer to rising seas or been capable of absorbing excess water are now often parched, nonabsorbent hard landscapes. Habitats for countless fish, amphibian, reptile, and other species were threatened if not destroyed by water diversions. The century-old strategy of cutting off wetlands from their water sources backfired. 

After years of concern, a study in 2004 set off alarm bells about the impacts of water diversions. The Pelagic Organism Decline study, as it was known, identified collapsing populations of fish in the Delta linked to diminishing water. Most notably that included four fish populations accustomed to swimming, spawning, and eating in open waters—the delta smelt, longfin smelt, striped bass, and threadfin shad. The delta smelt’s diminutive size—it’s about two to four inches long, while its longfin cousin can reach six inches—can fool you. It’s an “indicator species,” so sensitive to its conditions that its presence is a powerful signal about the overall health of the Delta marshland ecosystem. For the smelt and its fish cousins, the water had dried up in its spawning grounds, the tidal flows loaded with phytoplankton had weakened, and the aquatic plants were deprived of the watery soils where they thrive—all either gone or grossly diminished as the water supply was diverted south. The state would need to restore 8,000 acres of smelt-friendly habitat to trade for the water it had diverted. 

But you can’t just go and blow up the levees. 

In May 2023, I took a drive on a 26-foot-high levee surrounding Lookout Slough—3,400 acres of former farmland and a duck-hunting club. My guide was Adam Davis, cofounder and managing partner of Ecosystem Investment Partners, one of the largest mitigation bankers in the country. “We’re a private-equity shop that’s entirely a creature of public policy,” he said.

On the day we met, in the spring of 2023, the company was in its first year of restoring this land on behalf of the state. This would be the 10th land parcel of 11 required to meet the demands of the 2008 biological opinion.

The levee, wide enough to drive an SUV on, was built about 100 years ago to hold back the water of the Sacramento River. To our left was water flowing slowly, tauntingly, along the walls of a cement canal. To our right, the remnants of a farm. In a year or so, much of what we’re seeing would be underwater when the levees were breached. 

But for now it was clear that the latticework of watery channels and sandbars that once crisscrossed this landscape can’t be resurrected with a couple of bites from a John Deere excavator. On that day during my first visit in May 2023, the place was crawling with an army of bulldozers, dump trucks, and excavators moving over the dessicated landscape, digging out furrows, creating space for thin rivulets in the dried-out soil, preparing it to become a wetland. 

After a century or so as levee-protected farmland, the earth gets flattened, pancaked out. One of the trickiest challenges in restoring an old riverine ecosystem is getting the angles right for the river bottom. Stephanie Freed, a conservation biologist and Western Director of Operations for  EIP who was out there that day measuring those angles, said it needs to be steep enough to “ensure 14-day residence of the water,” but not stop the water from flowing to the point of its becoming stagnant. It’s the whorls of water created by the rough edges of the river bottom that create the flow and, critically, that enable fish to flourish, tadpoles and frogs to mature, waterbirds to find a calm place to land.

Ecosystem Investment Partners got the job after the state spent years looking in vain for land it could acquire. Finding sellers who would work with the state proved difficult, so the state put the word out to private mitigation bankers. Dan Riordan, an environmental scientist at California’s Department of Water Resources, says, “We at DWR realized that we were not going to complete the 8,400 acres solely by direct acquisition. We needed multiple delivery mechanisms.” 

When in 2018 EIP’s Adam Davis saw the call for a project that could earn credits to meet the terms of that biological opinion, he jumped. His private-equity firm—with money from pension funds, endowments, and other sources—had the means to purchase 3,400 acres in prime Delta farmland. EIP pitched the state: The firm would remove the levees and open the land, once again, to the tidal flows from the San Francisco Bay. In late 2018 they signed the deal. Thus kicked off the five-year restoration project at Lookout Slough, located east of Vacaville and about 20 miles south of the city of Davis. Over those years, EIP moved more than 30,000 truckloads of dirt to re-animate the land. 

As we circumnavigated the property on the elevated levee, Davis told me that mitigation banking had made it possible to identify a financial value for restoring this place, once rich with riparian habitat. “An intact wetland,” he said, “is worth zero. If you build on that intact wetland, it creates value for people. Because ‘nature’ is valued at zero, there’s no economic incentive to preserve it. But what nature does is not worth zero.” Mitigation banking puts a price on it. 

Davis counts himself an environmentalist who became a businessman; in 2023 he was awarded a National Wetlands Award from the Environmental Law Institute. He saw the business opportunities in restoration. “Environmentalists for the longest time were about stopping things,” he says. “We tried to get laws passed to stop bad things from happening. Now we’re asking the more difficult question: How do you provide incentives to produce value for goods and services that align with natural systems?” 

In September 2024, 16 months after my initial visit, I joined several dozen state officials, journalists, and curious landowners on an elevated berm above Lookout Slough as a bulldozer tore away at the last remaining levee. Water from the canal churned through the breach, whitecaps pouring into the newly constructed riverbanks and eddies. After the levees were bulldozed for the final time, the project earned EIP 2,975 credits, which the state then turned around and purchased at a rate of $32,605 per credit. The total payout equaled almost $97 million. 

“Forces of development, infrastructure, new roads, data centers, these are the things that create demand for mitigation,” said Davis when I spoke with him again earlier this year. “The value of nature is going up, not down. The demands on ecosystems are serious: flooding, coastal erosion, extinction, loss of pollinators . . . What nature does is worth money. It is valuable. Not just spiritually, but economically valuable. And it’s going to become more and more valuable as ecological function becomes more scarce.” 

By March 2026, Lookout Slough was a recovering wetland, of sloughs and waterways threading through thick vegetation with birds fluttering about. The largest tidal restoration project in Delta history, the slough is now owned by the state and is accessible only by nonmotorized boats. The tenth parcel in the state’s plan to comply with the biological opinion—each of which involved the breaching of levees—was complete. One more parcel to go. 

About four miles away as the crow flies, but an hour or more across the sloughs and waterways, I drove along Winding Levee Road, which encircles Prospect Island, about eight miles from the Delta town of Walnut Grove. To the right that day in early March, there were the gnarled shapes of oak trees, bent by the winds; some scraggly native grasses; and the flimsy walls of dilapidated old barns. Just over the berm, there was the Deep Water Ship Channel, a rippling waterway diverted from the Sacramento River for ship traffic, a world away from the parched landscape. Here the state is doing the restoration work itself and completing the last installment in that debt of 8,000 credits, one for every acre, a more than 15-year effort to compensate for the state’s diversion of water from the Delta. The hope is that when the levees that created Prospect Island are breached, this lunar scape will revert to its previous condition—a marshy, fecund wetland, ideal habitat for the small fish, reptiles, and small mammals that once were abundant here, nourished by the tidal pulses from the San Francisco Bay.

This article was supported by the March Conservation Fund. It was produced in collaboration with High Country News. Visit HCN.org for more about the restoration of Lookout Slough and the future of the Delta smelt.