Reviving Kentucky’s Streams: A Market-Driven Solution for Lasting Restoration Case Study
Case Study
Big Sandy Mitigation Bank
Reviving Kentucky’s Streams: A Market-Driven Solution for Lasting Restoration
By Toby Bokum-Fauth, Yale School of the Environment
May 2025
Problem
Many streams in eastern Kentucky suffer from artificial straightening, erosion, and lost riparian buffers, degrading water quality and habitat. New development projects add further pressure to these fragile stream ecosystems. At the same time, the region faces economic hardship due to coal mine closures, which exacerbate land-use and employment challenges, while infrastructure and development drive demand for required mitigation credits due to section 404 of the Clean Water Act. Limited mitigation options for developers complicate compliance and result in overreliance on in-lieu fee programs.
Solution
Ecosystem Investment Partners (EIP) created the Big Sandy Mitigation Bank which restored 757 acres of degraded streams across eastern Kentucky, improving water quality and habitat while generating credits for developers to meet regulatory requirements. This streamlines compliance for infrastructure and commercial projects, ensuring large-scale, lasting environmental restoration. The project also supports local economies by creating jobs in ecological restoration and land management, offering a sustainable alternative in a region negatively affected by coal mine closures.
Partners
Sponsor (Funder) |
Design Firm & Monitoring Partner |
Construction Contractor |
Administers of “Fee-In-Lieu-Of” Program |
Credit Issuer |
Credit Buyers |
Exit Partner |
Ecosystem Investment Partners (EIP) |
Beaver Creek Hydrology |
Stream Restoration Partners |
KY Department of Fish and Wildlife Resources |
US Army Corps of Engineers (USACE) |
KY Transportation Cabinet, Carter County HS, KY Power Company |
Institutional Investor |
Outcomes and Benefits
- Restored 757 acres of degraded streams and riparian buffers in eastern Kentucky.
- Improved water quality, biodiversity, and flood resilience.
- Generated 26,184 mitigation credits to support compliance for development projects.
- Created local jobs in ecological restoration, land management, monitoring, and construction, supporting a region impacted by coal mine closures.
- Secured long-term conservation through easements and monitoring.
Credit Release Schedule | First | Post-Construction | Monitoring Year 1 | Monitoring Year 2 | Monitoring Year 3 | Monitoring Year 4 | Final |
% | 20% | 10% | 10% | 15% | 12.5% | 12.5% | 20% |
Financial Model
The Big Sandy Mitigation Bank was funded through a conservation finance model that attracts private investment to restore degraded ecosystems while generating financial returns through the sale of mitigation credits and land. Here's how it worked:
- Capital Raise – Ecosystem Investment Partners (EIP), a private equity firm specializing in mitigation banking, raised a $181M fund (EIP Fund II), primarily from institutional investors. Once fully raised, EIP had four years to deploy capital by committing or allocating funds to a suite of mitigation projects, including Big Sandy.
- Site Selection & Land Acquisition – By combining Freedom of Information Act (FOIA)-obtained data from the Army Corps of Engineers’ permit tracking database (ORM) , internal proprietary systems, and other datasets, EIP forecasted specific credit demand locations and then acquired parcels with degraded streams in high-credit demand areas.
- Entitlement & Construction – This phase included securing regulatory approvals via a Mitigation Banking Instrument (MBI), determining credit potential, and ensuring financial assurances for long-term management. Once the MBI was approved, stream restoration construction began.
- Regulatory Certification & Credit Issuance – After restoration, regulatory agencies such as the US Army Corps certified the site and issued mitigation credits based on environmental improvements aligned with the credit release schedule.
- Credit Sales & Land Divestment – Developers, state agencies, and businesses purchased credits to meet Clean Water Act Section 404 permit requirements. Once a deed restriction or conservation easement was recorded, EIP sold the underlying real estate. The US Army Corps required mineral rights to be included in the title which added significant expense.
- Fund Closure & Returns – The combined revenue from credit and land sales enabled EIP to deliver returns comparable to other private equity natural resource asset classes (e.g. TIMOs). After 12 years, EIP exited, selling its remaining stake to a new institutional investor while continuing to manage the investment for them.
- Monitoring & Stewardship – EIP contracted with Beaver Creek Hydrology to monitor the sites for five years. Long-term management extends 20 years or until forest crown closure is achieved. EIP established a required Reserve Fund totaling $354,064, incrementally funded at $15 per credit sold and deposited quarterly, to pay for this stewardship.
Lessons Learned
Given the long lifespan of mitigation projects (often 10–15 years), they frequently require adaptation to evolving standards, new monitoring interpretations, and updated protocols from the US Army Corp staff - making early alignment during permitting and monitoring phases especially important. To navigate this dynamic regulatory environment, EIP builds in financial contingencies, partners with flexible local firms, and, when necessary, engages in legislative advocacy to help ensure project success over time. The Big Sandy Mitigation Bank demonstrates how private investment can drive large-scale environmental restoration while ensuring regulatory compliance for development. By leveraging data-driven site selection, private capital, and strategic land management, the project restored over 750 acres of degraded streams, improved water quality, and provided lasting conservation benefits. This market-based approach not only delivers strong financial returns but also supports local economies, proving that ecological restoration and economic resilience can go hand in hand.
References
https://www.usace.army.mil/Missions/Civil-Works/Regulatory-Program-and-Permits/Federal-Regulation/
https://ecosystempartners.com/project/big-sandy/
https://ribits.ops.usace.army.mil/ords/f?p=107:43::ledger::43:P43_BANK_ID:3020
https://fw.ky.gov/Fish/Pages/Stream-and-Wetland-Restoration-Program.aspx?utm_source=chatgpt.com