I recently had the opportunity to travel to the Environmental Markets Conference in Chattanooga, Tennessee, representing AlliedOffsets on the “Market Trends and Intelligence” plenary panel. The conference was a refreshing opportunity for me to meet experts working in parallel systems to the voluntary and compliance carbon markets. In particular, I learned a lot about the compliance markets set up in the United States around the Clean Water Act and the Endangered Species Act, and I realized that there are many untapped opportunities for carbon projects to be developed in synergy with the mitigation banks that project developers build for these markets.
What Environmental Compliance Markets Can Teach Carbon Project Developers
Environmental compliance markets like the CWA and ESA mitigation banking markets or the California CARB credit market can help to incentivize environmental restoration by providing an offset-based mechanism for meeting environmental obligations. By providing a less expensive alternative to on-site habitat restoration, mitigation banks enable important economic development while preserving important biodiversity and ecosystem function. Voluntary credit markets like the voluntary carbon market (VCM) build capacity for compliance markets by serving as a testing ground for new methodologies and allowing outside scrutiny of projects before they are used to meet compliance obligations.
The United States: A Global Hotspot for Voluntary Carbon Credit Issuance
While the US is not currently a party to the Paris Agreement, leaving American project developers at a disadvantage when it comes to selling credits into the international CORSIA and Article 6 compliance markets, it is still a hot spot when it comes to VCM activity. Projects located in the US issued 62.8 million carbon credits in 2025, 72 percent more than the next most plentiful source of credits, Indonesia. The United States hosts a high proportion of agriculture forestry and land use (AFOLU) carbon projects as well as many industrial process and waste disposal projects, with 21.7 million credits issued to improved forest management (IFM) projects and 5.2 million credits issued to projects including afforestation, reforestation, and/or revegetation (ARR) last year.
US carbon project credit issuances 2016-2025, by project sector. Source: AlliedOffsets data.
Project developers working in the Clean Water Act and Endangered Species Act markets use similar methods to carbon project developers, but the systems of accounting for impact and determining the responsibility to pay to compensate damage is quite different. These compliance markets operate under the principle of "no net loss," meaning that any damage to waterways or any harm or "take" of an endangered or protected species must be compensated by a project that has contributed to the recovery of that waterway or species' health.
Like carbon markets, these markets are designed to facilitate economic growth while preserving environmental value. The way this is accomplished is through the creation of "mitigation banks," areas of restored land or waterways where the positive outcomes measured by clean water or increased presence of threatened species can compensate for future development through the sale of compliance credits. The key difference is that these markets are highly local, with service areas within each state or region that are defined by state and federal regulators. For example, for the "in-lieu fee" system allows states and the US Army Corps of Engineers to set rules for local service areas in which developers can purchase credits from valid wetland mitigation banks.
US Army Corps of Engineers regulatory districts (blue lines) and service areas (colored backgrounds) for Clean Water Act in-lieu fee markets. Source: USACE RIBITS.
Project developers working in these markets are speculating on future demand for these credits under no net loss regulatory schemes. Like carbon project developers, they must convince investors that the upfront costs of project development will be paid off with revenue from future credit sales. In many situations, they are already embarking on nature-based activities that may reduce emissions or remove carbon from the atmosphere, but they have chosen to market the benefit through wetland or species banks.
The Case for Co-Located Carbon and Nature Projects
The principle of additionality says that carbon projects cannot earn credits for activities that would otherwise happen in the absence of the credit sales, and the same is true for wetland and species banks. However, there is potential for developers to take advantage of the principle of positive leakage by positioning sites for carbon projects and mitigation banks next to each other. Positive leakage is the flipside of leakage that can make carbon projects less effective, referring to situations in which project activities instead make restoration easier in the surrounding landscape. Carbon and nature projects that are co-sited could produce more carbon and nature benefits with lower operating costs, as long as developers are able to quantify the added efficiencies of integrated project design.
So far, carbon markets and other environmental markets like mitigation banks have largely evolved independently, and each has found a niche where ecological restoration can be funded. But for project developers working in both market types, not understanding the potential benefits of co-developing carbon and mitigation banking projects could mean higher capital costs to produce fewer credits, leaving money on the table.
If you are a project developer working in ecosystem mitigation banking, and you want to learn more about AlliedOffsets and how our data can help you understand the potential value from carbon credits in the regions where you work, please reach out to book a meeting with our team.