# Presentation: 326915

## Application of Economic Tools to Habitat Conservation Decision Making - Key Concepts and Case Studies 

- Douglas Lipton
- Department of Agricultural & Resource Economics
- Maryland Sea Grant Extension Program
- University of Maryland College Park
***Habitat Economics: Revealing the Value of Habitat***
- April 7th Panel Discussion

## The Report

**A Role for Economics in NOAA Fisheries Habitat Conservation Activities**
- Dennis King
- Douglas Lipton
- Ivar Strand
- Katharine Wellman

## The Approach

- Overview of Economic Concepts Related to  NOAA Fisheries’ Habitat Functions
- 6 Case Studies
- Special Topics That Emerged
- Decision Process
- Replacement Costs as Value
- Mitigation
- Cumulative Effects
- Risk

## Case Studies

- Chosen in Collaboration with NOAA Fisheries
- Provide Topical Coverage, But Many Areas and Types of Issues Not Included
- Not Intended To Be Critical of NOAA Fisheries Performance, Looking at New Dimension
- Level of Documentation Highly Variable

## The 6 Case Studies

- OENJ Cherokee Corporation (NJ)
- Dredging and development in highly polluted area
- Golden Anchor Dredge and Dock Project (ME)
- Moderate size dredging project
- Fire Island Beach Nourishment (NY)
- Offshore sand to restore and protect beach
- Salinas Valley Water Project (CA)
- Water project including upstream modifications to dam and flow to prevent seawater intrusion and provide water for various uses
- Quonset/Davisville Port (RI)
- Development of seaport at abandoned Naval Base
- Providence River Federal Navigation Project (RI)
- Dredging channel at existing port for safety and cost reasons.

## Contents of Case Studies

- Description of Action/Issue
- Economic Issues Considered
- Evaluation of Economic Arguments Used
- Economic Issues Not Considered
- Improving the Decision With Economics
- Generality

## Example – OENJ Case Study

- Description of Action/Issue
- Project
- Dredge 7.4 acres of mudflat and shallow water habitat to 12’
- Install rip rap, headwall and discharge pipe
- Construct pier and floats
- Permanently moor barge for 38-40 slip marina and ferry terminal
- Issue
- OENJ and Corps
- Mudflat not valuable fish habitat
- New habitat will be more valuable
- Rip rap and structures provide new habiat
- NOAA Fisheries
- Mudflat is important fish habitat for commercial and recreational species
- Mitigation should be included

## Economic Issues Considered

- Since area is already heavily polluted, not much in the way of economic arguments were considered
- OENJ stated:
- “We have maintained throughout the permitting process that the **economic benefits of the proposed ferry service far outweigh any environmental impacts** occasioned by dredging a small area of Newark Bay”

## Evaluation of Economic Arguments Used

- OENJ is probably right that benefits outweigh costs, but
- Who benefits?
- Who pays?
- Would net benefits be greater with mitigation?
- Who pays for mitigation?
- Who benefits from mitigation?

## Economic Issues Not Considered

- What is relative economic values of existing and proposed change to habitat?
- Commercial and recreational fishing
- Seabirds and waterfowl impacts
- Ecosystem impacts
- Birders

## Can The Decision Be Improved With Economic Analysis?

- The small scale of change and lack of data and models that makes it difficult to quantify impacts on commercial and recreational fish species and birds will make it equally difficult to estimate economic impacts.
- Risk
- OENJ (and the Corps) claim the new habitat will be more valuable than the existing, although there is little data to support this claim.  Who bears the risk and cost if they are wrong?

## Generality

- Except for it being a heavily polluted area, typical of a small scale dredging project.
- Not much data
- Inability to quantify population effects of change
- Risk issue is universal to these types of projects
- Distribution of costs and benefits is typical as well

## Special Topics That Emerged From Case Studies and Other Discussions

## The Decision Process

- Structured Decision Approach and Other Related Approaches (e.g., Collaborative Learning Process)
- Takes benefit/cost, ecological analyses and risk assessments to the next level
- Complex Issues
- Numerous and Varied Stakeholders
- Controversial
- Not Suggested for NOAA Fisheries directly, but to advocate for use as alternative to current mechanistic project by project decision process.

## Mitigation

- Component of 5 of the 6 case studies examined
- Apply economic principles to establishment of mitigation ratios

## Economic Components of Mitigation Ratios

- Measure only the marginal or incremental improvement generated by the mitigation activity
- Time matters
- When will the mitigation site reach full mitigation capacity?
- Discounting
- Compensate for the probability that project may fail totally or partially
- Makes it highly unlikely that 1:1 mitigation ratios are justified, provides defensible formula based on economic principles to modify mitigation ratios
- Location matters as well

## Costs As Value?

- Cost of replacing fish habitat or the fish themselves depends on technology, not on societies preferences or values.
- When individuals, on their own accord, undertake these replacement expenditures (or defensive expenditures to avoid costs from damages), these costs can then be interpreted as a lower bound on the value of the resource
- When governments undertake these expenditures, one must assume that the action is reflective of societies preferences, as well as include the cases where the government decided not to undertake the expenditures

## Cumulative Effects

## Risk Aversion

- Income or Wealth

- Utility

- Figure 2. Von Neumann-Morgenstern Utility Function

- X1

- X2

- X’

## Caveat

**	****It must be emphasized the NOAA Fisheries in most instances will not be the primary Federal or even state agency making the decision regarding habitat change. Federal agencies such as the Army Corps of Engineers, the Environmental Protection Agency, the Department of Interior or the Department of Energy often have the primary responsibility for doing the regulatory analysis of the entire project, of which the habitat change relevant to fisheries may be only a small fraction. NOAA Fisheries will have a role to assure that the habitat change is costed (valued) in a reasonable manner and to raise question regarding the costs of alternatives (with reduced habitat impacts) to the proposal. NOAA Fisheries will want to assure that the other agencies are following the guidelines for regulatory analysis (e.g. benefit/cost analysis) set forth by the Office of Management and Budget (see for example OMB, “Draft 2003 Report to Congress on the Costs and Benefits of Federal Regulations”, Federal Register/Vol.68, No. 22,54925527, February 3, 2003).**

## Recommendations

- Increase our capability through literature reviews, bioeconomic modeling and research to quantify economic values of habitat change at both large and small scales
- Increase NOAA Fisheries staff in regions and HQ to accomplish such
- Coordinate with other NOAA components with shared interests in economics of coastal habitats (e.g., CZM, Damage Assessment, COP, Sea Grant)
- Strategic alliances with University Research Centers and NGO’s (e.g., RFF) with shared interests
- Interact with OMB to assure that Executive Orders and other guidance of cost-benefit analysis reflect the concerns of NOAA Fisheries.

## THE END