Regulatory Update: How the 2025 WOTUS Redefinition Impacts Mitigation Bankers

The May 1, 2025, listening session hosted by the U.S. Environmental Protection Agency (EPA) and the Department of the Army for environmental and conservation stakeholders marked a significant step in redefining “Waters of the United States” (WOTUS) under the Clean Water Act, following the 2023 Sackett v. EPA Supreme Court decision. This session, part of a series to refine the WOTUS definition, focused on key terms like “continuous surface connection” and “relatively permanent” waters. For mitigation bankers—entrepreneurs who restore wetlands and streams to sell credits to developers, offsetting environmental impacts—these regulatory shifts have profound implications. Below, we explore the session’s insights and what they may mean for mitigation banking, drawing on the latest developments and stakeholder perspectives.

The WOTUS Landscape Post-Sackett

The Sackett decision narrowed federal jurisdiction to waters and wetlands with a “continuous surface connection” to “relatively permanent” navigable waters, eliminating the “significant nexus” test that previously extended protections to many isolated wetlands and ephemeral streams. This ruling reflected in the EPA’s September 2023 Conforming Rule, reduced the scope of federally regulated waters, particularly in regions like the Southwest, where seasonal streams dominate. The May 1 session highlighted environmental stakeholders’ push for science-based definitions that preserve protections for ecologically vital wetlands, alongside calls for clarity to streamline permitting. For mitigation bankers, these changes reshape the market for wetland and stream credits.

Key Takeaways from the May 1 Session

Stakeholders, including groups like the Environmental Defense Fund, emphasized the following during the session:

1. Science-Based Protections: Advocates urged the EPA to recognize the ecological value of wetlands and seasonal streams for flood control, water purification, and biodiversity, even if they lack permanent flow. This push could influence future credit demand for restored non-jurisdictional waters.

2.  Clarifying Key Terms: Discussions focused on defining “continuous surface connection” and “relatively permanent” waters to avoid excluding critical ecosystems. Clear definitions are crucial for bankers to assess which restored waters qualify for federal credits.

3. State Regulatory Roles: With federal oversight reduced, stakeholders stressed the need for robust state protections, as seen in other states. This shift creates opportunities for bankers to serve new state-regulated markets.

4. Implementation Consistency: Calls for uniform guidance across EPA regions aim to reduce permitting uncertainty, which directly affects bankers’ ability to plan restoration projects and sell credits.

These points signal a regulatory environment in flux, with potential opportunities and challenges for mitigation banking.

Implications for Mitigation Bankers

Mitigation banking thrives on restoring degraded wetlands and streams to generate credits that developers purchase to offset impacts under the Clean Water Act’s no-net-loss policy. The Sackett decision and ongoing WOTUS redefinition reshape this industry in several ways:

•  Reduced Federal Credit Demand: The narrowed WOTUS definition excludes many wetlands and streams from federal jurisdiction, reducing the need for Section 404 permits and associated mitigation credits. For example, intermittent and ephemeral streams in arid regions, previously jurisdictional under the “significant nexus” test, are now largely unregulated federally. This could shrink the market for federal credits, particularly in states with minimal state-level protections.

•  Shift to State Markets: As federal jurisdiction contracts, states like Florida, California, Washington, and Pennsylvania are strengthening their wetland regulations to fill the gap. Mitigation bankers can pivot to these markets, restoring non-jurisdictional waters to meet state permitting requirements. For instance, North Carolina stakeholders at the session highlighted state efforts to bolster flood prevention, creating potential demand for credits in flood-prone areas.

•  Uncertainty in Project Planning: Ambiguity around terms like “continuous surface connection” complicates bankers’ ability to identify restorable waters eligible for credits. The session’s call for clearer guidance, reinforced by the EPA’s March 12, 2025, memorandum, aims to address this, but ongoing litigation and regional inconsistencies persist.

•  Opportunities in Ecosystem Services: The emphasis on science-based protections during the session suggests growing recognition of wetlands’ role in flood control and climate resilience. Bankers could explore emerging markets for non-regulatory credits, such as those tied to carbon sequestration or flood mitigation, especially in states prioritizing nature-based solutions. The Army Corps’ 2024 memo on supporting non-jurisdictional ecosystem restoration projects, including $13 million for Section 206 initiatives, signals potential funding for such efforts.

•  Increased Competition and Innovation: A shrinking federal market may intensify competition among bankers, pushing innovation in restoration techniques or partnerships with developers for private mitigation solutions. The 2008 Mitigation Rule prioritizes banking for its proactive restoration and remains a framework bankers can leverage to maintain high-quality projects.

Strategic Considerations for Mitigation Bankers

To thrive in this evolving landscape, mitigation bankers should consider the following strategies:

1. Diversify Market Focus: Target states with robust wetland regulations, where demand for state credits is rising. Monitor states like North Carolina, where flood mitigation needs could drive new opportunities.

2. Leverage Expert Guidance: Partner with mitigation banking and environmental professionals to assess jurisdictional status and restoration potential, minimizing risks from regulatory ambiguity.

3. Engage in Rulemaking: Advocate for clear definitions that support credit markets. Participating in upcoming public sessions can also amplify bankers’ voices.

4. Explore Non-Regulatory Credits: Develop projects that generate credits for voluntary markets, such as corporate sustainability initiatives or municipal flood control programs, capitalizing on wetlands’ broader ecological benefits.

5. Stay Agile: Monitor litigation and EPA guidance, as ongoing lawsuits in 26 states challenge the 2023 WOTUS rule, potentially altering its scope. Flexibility in project planning will be key.

The Road Ahead

The EPA and Army Corps will continue refining WOTUS through additional listening sessions, including one for local governments on May 6, 2025, and two public sessions with dates pending. The agencies aim to craft a durable definition that aligns with Sackett while addressing stakeholder concerns. This process offers mitigation bankers a chance to shape a regulatory framework that sustains their industry.

Partner with Revive Ecosystems, LLC for Mitigation Success

Navigating the WOTUS redefinition requires expertise and foresight. Revive Ecosystems, LLC specializes in developing wetland and conservation banks, helping green investors and landowners maximize credit value while meeting regulatory demands. From site selection to compliance, our team ensures your projects thrive in federal and state markets.

Contact Revive Ecosystems, LLC today to secure your place in the evolving world of mitigation banking!

For the latest WOTUS updates, visit EPA’s WOTUS webpage. 

This blog reflects insights from May 1, 2025, listening session and publicly available information. For tailored legal guidance, consult a legal professional.