Fourth-generation Middle Tennessee cattle farmer Cole Liggett lined up with scientists and environmental advocates in March to urge Tennessee lawmakers not to gut the state’s historically strong protections for wetlands.

Wetlands protection has been good business for Liggett. In addition to raising cattle, he’s a manager at Headwaters Reserve, a firm that developers pay to preserve and restore wetlands and streams so they can destroy them elsewhere, called mitigation banking. If lawmakers follow through on a plan to deregulate an estimated 80% of the state’s isolated wetlands, that will upend the industry in Tennessee and drive up prices for developers still required to pay for mitigation, Liggett testified.

Liggett works in a growing industry that operates more than 2,500 mitigation banks nationwide, earning an estimated $3.5 billion in revenue in 2019, according to a 2023 study funded by the Ecological Restoration Business Association. 

The industry is built on demand spurred by the 1972 U.S. Clean Water Act, which requires developers to offset their damage to wetlands by building or restoring wetlands nearby.

But recent federal actions to shrink the scope of that law are pushing states to choose how strictly they will regulate wetlands. The consequences of those decisions not only threaten further degradation of land, water and wildlife, but also the fortunes of an industry that has made a big business out of conservation.

The 2023 U.S. Supreme Court ruling in Sackett v. EPA stripped federal protection from wetlands that don’t have a surface connection to navigable waters, which means bigger rivers and lakes. President Donald Trump’s Administration has vowed to ease regulation, allowing developers to ditch and drain all but the wettest wetlands without permits or mitigation. Environmentalists fear that a recent order to speed up around 600 energy projects nationwide could limit requirements to compensate for the destruction of wetlands.

Some states, such as North Carolina and Indiana, have loosened regulations since the Sackett decision. In March, Kentucky lawmakers passed legislation to do the same, overriding Gov. Andy Beshear’s veto.

Tennessee’s wetlands regulations predate the federal Clean Water Act protections passed in the 1970s, but pending legislation could roll back much of that protection, according to the Southern Environmental Law Center.

The Tennessee Ecological Restoration Association, which represents Liggett and other mitigation bankers in Tennessee and the southeast, told the Tennessee Lookout that this will directly impact the growing mitigation industry. “We will see a decrease in demand for credits if aquatic resources are deregulated.”

Those concerns aren’t shared by everyone in mitigation banking. The national industry is more worried about the defunding of agencies that oversee banks and the prospect of a recession.

William Coleman’s California-based ecological consulting firm Eco-Asset Solutions and Innovations does much of its business in states that have active wetlands mitigation banking programs.

“My company has not seen any downturn in business,” Coleman, the firm’s founder and president, said. “Landowners are still very interested in the revenue opportunities mitigation banking offers.”

States limiting wetlands protections could risk long-term industry investments

Just outside of Memphis, a chorus of frogs on a roughly 250-acre tract of former farmland nearly drowns out the traffic on nearby Austin Peay Highway. Environmental consulting firm EnSafe planted about 54,000 trees on the once flood-prone fields in 2018 and will be responsible for its upkeep until the wetland is mature and healthy – anywhere from seven to 10 years. After that, the land will go to a partnering land trust, where it will be conserved in perpetuity.

“Granted, there is a business piece to what we do, but restoring things to the way they were is also pretty cool … There will be a pocket here forever,” EnSafe principal Paul Stoddard said.

The West Tennessee Wetlands Mitigation Bank has sold credits to Amazon to offset a new delivery center in Fayette County. A contractor purchased credits to compensate for a 2-million-square-foot distribution facility called “Project Iron Giant,” according to records kept by the U.S. Army Corps of Engineers, one of the federal agencies tasked with overseeing wetlands regulations.

TERA estimates that mitigation businesses have poured more than $1 billion into around 130 mitigation bank investments across Tennessee.

“The beauty of mitigation credits is that the developer just writes a check and they’re done. All the monitoring and reporting and maintenance and stuff is up to the bank,” EnSafe Senior Ecologist Jimmy Groton said.

That process makes mitigation banking a high-risk industry, according to Liggett. Regardless of whether they sell credits, banks are required to maintain their wetlands for at least seven years. The proposed regulatory rollback on Tennessee’s wetlands would mean an 80% decrease in demand for mitigation businesses, he testified to Tennessee lawmakers on March 26.

“Such a drastic decrease in the demand after such a high investment … has potential to drive up credit prices as a necessity to avoid potential financial insolvencies,” Liggett said.

Hillary Bonham, a principal at environmental consulting firm Baetis Restoration Partners, has experience as both a residential developer and mitigation banker. She told Tennessee lawmakers that the current average price of a credit in Tennessee is around $50,000. Reducing regulations and hampering demand will likely cause the credits that remain to be “exponentially more expensive when they are needed.”

In Georgia, where isolated wetlands are not regulated, a single credit can range from $750,000 to $1.1 million according to the Georgia Alabama Land Trust In Lieu Fee Program, Bonham said.

States can further protect isolated wetlands that no longer count as Waters of the U.S.

Mitigation banks have been the preferred way to offset wetland destruction for the U.S. Environmental Protection Agency and the Corps since 2008, and the industry has ballooned rapidly since the first entrepreneurial banks were established in the early 1990s.

John Paul Woodley, Jr. helped issue the Army Corps of Engineers’ 2008 mitigation rule while serving as assistant secretary of the Army for civil works. He’s also the immediate past chair of the board of the National Environmental Banking Association, a trade association with around 100 members nationwide.

Some people expected to see the Sackett decision have a dramatic impact on mitigation banking, he said, but two limiting factors prevented a panic within the industry.

First, when the decision was made, developers already well into the permit process could either choose to move forward under the previous terms or go back to the drawing board. Most businesses didn’t want to start over, so many pending permits under review by the Corps proceeded as though nothing had happened, Woodley said.

Second, states have significant control over the regulation of state waters.

“Many states have just said, ‘We don’t care about that. We have our own jurisdiction, and we’re not limited by what the Clean Water Act says is the waters of the United States … If the U.S. doesn’t want to protect those waters, that’s fine and dandy. We will,’” Woodley said.

Some states have more isolated wetlands than others, he added, and those states will have to decide whether to protect those resources. Woodley thinks they ultimately will.

Generally, coastal wetlands will maintain federal protection because of their connection to the navigable waters of the ocean. But experts fear that some swamps and marshlands, once protected, may now face development due to human-made flood-control structures, such as levees or berms, that could be construed as legal separations between wetlands and waters of the U.S.

How President Trump’s push to expedite wetlands permitting process could backfire

President Trump’s declaration of a “national energy emergency” led the Corps to fast-track review for more than 600 permits. 

Environmental advocates say that could come at the expense of wetlands. 

“Any damages to wetlands due to this emergency must be mitigated properly,” said Matt Rota, senior policy director for Healthy Gulf, a nonprofit advocating for communities along the Gulf Coast. “For every wetland that is destroyed, we must see at least three acres of wetlands being built, which would not happen during an emergency process.”

Those in the industry see other actions by the administration as slowing down environmental permitting, posing a different kind of threat. Trump’s first administration made funding cuts to the U.S. Fish and Wildlife Service and the Corps that ultimately increased the time it took to review pending permits. Longer review periods can mean less return on investment for landowners, Coleman said.

“That meant there were just not enough bodies to review the applications that were on the table … so there was a tremendous delay,” he said. 

Coleman’s company found that an average two- to three-year review period stretched into four or five years during Trump’s first term. 

Woodley said demand for mitigation banks is driven largely by development pressure. In Virginia, where he’s based, data centers are a big contributor. Some of the mitigation banking industry’s biggest customers are state transportation departments and the oil and gas industry—roadways and pipelines often have less flexibility to build elsewhere.

“Anything that takes place that causes an economic downturn, that causes people to retrench and postpone their development plans … that’s the risk to the mitigation industry,” Woodley said. “They had a very difficult time around 2008 … the number of permits applied for declined, and at the same time, the number of the requirements for mitigation took a downturn.”

In Gulf States like Louisiana, which is home to 40% of wetlands in the continental U.S. and has sustained 80% of national wetland losses, environmental advocates warn about the consequences of filling in wetlands through emergency permitting without ensuring proper mitigation. 

“We have learned the hard way that each acre of wetlands that is destroyed and replaced with concrete worsens our flooding problems and increases our climate risks,” said Kristen Schlemmer, senior legal director of the Bayou City Waterkeeper, a nonprofit working to protect communities impacted by water pollution and flooding in Houston.

Some wetlands mitigation banking businesses have begun to diversify their offerings to include conservation-based credits for protecting the habitats of endangered species, carbon sequestration or nutrient banking to prevent excessive runoff of nitrogen and phosphorus.

This story is part of the series Down the Drain from the Mississippi River Basin Ag & Water Desk, an independent reporting collaborative based at the University of Missouri in partnership with Report for America, with major funding from the Walton Family Foundation.