Tackling Environmental Liability

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Scott Lockert and his friend Jeff Andrilenas were working as financial risk analysts in 2005 when they noticed that the failure to address liabilities surrounding natural resource damages on waterways was preventing comprehensive solutions from being put in place.

Not only was cleanup taking longer than necessary, but businesses liable under Superfund law were finding difficulty in transferring or selling property. They were also having trouble getting loans because their liability was considered a risk.

Lockert and Andrilenas, geologists by training, decided businesses needed a new way to settle a portion of their Superfund liability that didn’t involve time-consuming litigation. In 2006, they joined Earl Scott and Shawn Severn in founding Bluefield Holdings Inc., which uses a credit system to help businesses settle Superfund liabilities efficiently and less expensively, outside court.

Similar approaches have been used in mitigation banking schemes nationwide, but Bluefield’s credit system creates one large, shared habitat that can be used by several businesses, rather than approaching restoration piecemeal. Bluefield also oversees habitat creation on leased public lands in response to existing Superfund damage, rather than on private lands in anticipation of construction.

Lockert, who serves as vice president of Northwest operations, says Bluefield is testing its model with the Lower Duwamish Superfund site cleanup, though he believes its product has universal applicability. Bluefield has already expanded operations into New Jersey, where Andrilenas runs the company’s satellite office, with the intent of expanding nationwide.

Seattle, however, will be the proving ground for Bluefield’s business model. A decade ago, the EPA listed Seattle’s lower Duwamish waterway as a federal Superfund site, placing the river with more than 1,000 other sites on a register of the country’s most polluted places. Despite the classification, cleanup has been slow to occur: As late as last year, local businesses were still accidentally dumping contaminants into the water. The cleanup of “Slip 4,” one of the most contaminated hot spots on the river, only began last October.

One thing that has made it difficult to address the problem has been an offshoot of Superfund legislation called Natural Resource Damage (NRD) law, which requires polluters to offset any lost use of contaminated property by wildlife or people. This use essentially amounts to a loss of services—recreational, commercial and ecological—from the land and water, which must be offset by additional restoration in the form of habitat creation, a requirement that can take years to fulfill. Bluefield’s goal is to shorten the process by offering ready-made habitat credits.

When a Superfund potentially responsible party (PRP) settles directly with the trustees responsible for the Duwamish Superfund site, that party can either go through the lengthy process of creating its own ecological project to offset the damages it may have caused, or take the easier route of buying credit in one of Bluefield’s larger, integrated projects designed to restore wild public land within a certain radius of the Duwamish.

Severn, president and CEO of Bluefield, explains that the company looks for financing on Wall Street to build its projects on land leased from cities. The company obtains the rights to sell credits in advance of construction. Liable parties can then purchase these credits, and when enough customers are committed, Bluefield begins construction on large tracts of waterfront.

Once Bluefield was incorporated in 2006, it began to court credit customers for the cleanup of the Lower Duwamish Waterway. The 1.07-acre parcel of land on which Bluefield plans to oversee its initial habitat development is leased from the City of Seattle, and it will include public access as much as possible. Taking on the form of an off-channel inlet surrounded by vegetation, Bluefield’s restored site will give shelter and food to fish and birds. Across the country, Bluefield’s New Jersey rain capture project is situated in an urban area with many impermeable surfaces; that project collects, cleans and reuses rainwater rather than building habitat.

Bluefield’s credit model occupies a distinctive niche between emissions trading and wetland mitigation banking schemes. Emissions trading works by allowing businesses to purchase offsets for the air pollution they produce—often carbon-based—with the idea of reducing net emissions over a population, much in the same way Bluefield’s scheme restores shared public land. The carbon market is unregulated, however, and Bluefield’s credit valuation must comply with Superfund law.

On the other end of things is the wetland mitigation banking business. In this model, private entrepreneurs purchase land on which to construct wetlands (this land and its valuation together compose the “bank”), and sell credits to developers whose projects are deemed to have adverse impacts on other wild lands. While Bluefield’s scheme addresses existing environmental damage and issues specific to NRD law, wetland banking occurs in anticipation of future damage. Many developers can’t build until they have proven mitigation through purchasing wetlands credits. Wetland banking in Washington is still a growing field, with about 11 banks currently operating in the state. Three of them are owned by out-of-state investors.

Wetland banking, because it must occur within a specific range of a development project, also involves an enormous amount of financial risk. There is no way to create demand for banks, says Victor Woodward, the Woodinville-based owner of Habitat Bank, the first private wetland mitigation bank to have both federal and state approval to operate in Washington State. “You have to put the bank in a place where demand for them will be created” by developers, he explains. Bluefield uses a credit model like a wetland bank’s, but builds on leased public land in response to existing damage, essentially eliminating the risk.

While public reaction to Bluefield has been mixed, principally because of the business’s novelty and superficial similarity to other eco-credit operations, the company is taking steady steps toward restoration. Having completed its permitting process and closed its first two credit sales last year, Bluefield has committed to its initial Seattle project with the Trustees of the Duwamisha and will break ground on by the end of 2012.

So far, most of Bluefield’s operations are on the Duwamish, though about a third are in New Jersey, according to Severn. He says the company intends to expand nationwide beyond its New Jersey expansion. Lockert agrees that Bluefield’s approach has national potential. “Superfund is where we started,” he says. “Our model has much broader applications.”

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