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Spatial Economics of the Louisiana Wetland Mitigation Banking Industry. Ryan Bourriaque Rex Caffey. CNREP Conference May 28, 2010. Evolution of Wetland Policy. 1972: Federal Water Pollution Control Act Sec. 404: Dredging and fill in navigable waterways

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spatial economics of the louisiana wetland mitigation banking industry

Spatial Economics of the Louisiana Wetland Mitigation Banking Industry

Ryan Bourriaque

Rex Caffey

CNREP ConferenceMay 28, 2010

evolution of wetland policy
Evolution of Wetland Policy
  • 1972: Federal Water Pollution Control Act
  • Sec. 404: Dredging and fill in navigable waterways
  • Sequencing: 1) avoid, 2) minimize, 3) mitigate on-site, 4) mitigate off-site
  • 1988: “no net loss” wetland policy
  • 1995: Federal Guidance on Mitigation Banking
mitigation banking definition
Mitigation Banking Definition

What: .wetland restoration, creation, enhancement, and in exceptional circumstances, preservation

mitigation banking definition4
Mitigation Banking Definition
  • What: “….wetland restoration, creation, enhancement, and in exceptional circumstances, preservation
  • Why: compensating for unavoidable wetland losses in advance of development actions, when mitigation cannot be achieved on site or would not be as environmentally beneficial
mitigation banking definition5
Mitigation Banking Definition

What: “….wetland restoration, creation, enhancement, and in exceptional circumstances, preservation

Why: compensating for unavoidable wetland losses in advance of development actions, when mitigation cannot be achieved on site or would not be as environmentally beneficial

Where:…involves consolidation of small, fragmented wetland mitigation projects into one large contiguous site...

mitigation banking definition6
Mitigation Banking Definition

What: “….wetland restoration, creation, enhancement, and in exceptional circumstances, preservation

Why: compensating for unavoidable wetland losses in advance of development actions, when mitigation cannot be achieved on site or would not be as environmentally beneficial

Where:…involves consolidation of small, fragmented wetland mitigation projects into one large contiguous site...

mitigation banking definition7
Mitigation Banking Definition

How:...Units of restored, created, enhanced , or preserved wetlands are expressed as “credits” which may be subsequently be withdrawn to offset “debits” incurred at a project development site.

Army Corps of Engineers

Permit

Approval

$$$$

Wetland Mitigation Credits(Bankers)

WetlandAcres Damaged(Developers)

Credits

Acre to Credit“Trading Ratio”

mitigation banking definition8
Mitigation Banking Definition

How:...Units of restored, created, enhanced , or preserved wetlands are expressed as “credits” which may be subsequently be withdrawn to offset “debits” incurred at a project development site.

Who:banks are businesses, created by private entrepreneurs who sell credits to developers who impact wetlands.

louisiana situation
Louisiana Situation

> 20 banks

6-20 banks

< 5 banks

None/sold-out

  • 2005: ~ 405 banks in US, 96 in Louisiana
  • 23% of the total banks in the US located in LA
louisiana situation10
Louisiana Situation
  • 2005: ~ 405 banks in US, 96 in Louisiana
  • 23% of the total banks in the US located in LA
  • 42 LA banks are currently active, 25 are pending approval, and 29 sold out of credits
louisiana situation11
Louisiana Situation
  • 2005: ~ 405 banks in US, 96 in Louisiana
  • 23% of the total banks in the US located in LA
  • 42 LA banks are currently active, 25 are pending approval, and 29 sold out of credits
  • LA ranks at the bottom of credit prices nationwide
louisiana mitigation banks issues
Louisiana Mitigation Banks Issues
  • Difficulties arise when trying to set a credit price:
    • Value of land
    • Cost to restore the land
    • Monitoring/maintenance costs for perpetuity
  • Availability of credits
  • Pricing info for prospective investors on the market
  • Service areas (market limits) may not be fully enforced
research objectives
Research Objectives

The overall goal of this study is to characterize the market for mitigation banking credits in Louisiana.

Specific objectives include:

1. Collect credit transaction data from state and federal institutions

2. Examine the functional relationship between

credit prices and spatial and economic variables

3. Summarize these factors for use by prospective investors and policy-makers.

data and methods
Data and Methods
  • Transaction data from LaDNR and Corps sampled for temporal and spatial spread:
    • Economic, descriptive, supply and demand data
  • 189 permit files were reviewed at LaDNR with 85 having actual transaction data (45%)
  • 427 permit files were reviewed at the Corps with 80 having actual transaction data (19%)
  • 165 transactions collected, 145 for statistical analyses
  • Data were organized in Microsoft Excel and geo-coded for spatial location in ArcView
data and methods17
Data and Methods
  • Dependent variable = Cost ($/acre, $/credit)
    • ln(cost) for each transaction
  • 13 independent variables collected from permit files
  • 8 additional spatial variables created in ArcView
  • 2 variables created from census and land value data
  • Descriptive and statistical analysis in SpaceStat and SAS
results descriptive statistics
Results: Descriptive Statistics
  • Restoration banks accounted for 83% of the observations
results descriptive statistics22
Results: Descriptive Statistics
  • Restoration banks accounted for 83% of the observations
  • Commercial clientele made up 54% of the transactions
results descriptive statistics23
Results: Descriptive Statistics
  • Restoration banks accounted for 83% of the observations
  • Commercial clientele made up 54% of the transactions
  • Bottomland Hardwood Forests made up 67% of the habitat impacted
results descriptive statistics24
Results: Descriptive Statistics
  • Restoration banks accounted for 83% of the observations
  • Commercial clientele made up 54% of the transactions
  • Bottomland Hardwood Forests made up 67% of the habitat impacted
  • Average credit price over ten-year time span was $6,382
results descriptive statistics25
Results: Descriptive Statistics
  • Restoration banks accounted for 83% of the observations
  • Commercial clientele made up 54% of the transactions
  • Bottomland Hardwood Forests made up 67% of the habitat impacted
  • Average credit price over ten-year time span was $6,382
results descriptive statistics26
Results: Descriptive Statistics
  • Restoration banks accounted for 83% of the observations
  • Commercial clientele made up 54% of the transactions
  • Bottomland Hardwood Forests made up 67% of the habitat impacted
  • Average credit price over ten-year time span was $6,382
  • Two markets or spike in prices from 2003 onward?
results statistical analyses sas sub models
Results: Statistical Analyses(SAS: Sub-Models)
  • Evidence of market segregation
  • Sub-models developed for coastal (n=94) transactions and non-coastal (n=51)
  • Same independent variables as overall model
slide29

Regression Procedure Results for Coastal Model

Approx

Variable

Estimate

Std. Err

t Value

Pr > |t|

LNAVGCOC

3.065328

1.361259

2.25

0.0270

PAPOP

1.822E-6

9.112E-7

2.00

0.0488

PF_S

0.219975

1.186212

0.19

0.8533

RESIDENT

-0.29903

0.209943

-1.42

0.1581

RESTORAT

0.289347

1.196945

0.24

0.8096

LANVA

-0.00002

0.000022

-0.86

0.3925

TOTAC

-0.07758

0.101828

-0.76

0.4483

BLH

0.008647

0.172593

0.05

0.9602

COMPT

0.088068

0.036925

2.39

0.0194

DATE1

0.008828

0.004103

2.15

0.0344

D_BANK_URB

0.000013

8.371E-6

1.60

0.1142

D_IMP_BANK

-5.14E-06

0.000019

-0.27

0.7870

n=91, Adjusted R² = 0.4509, =0.10

summary and conclusions
Summary and Conclusions
  • Rapidly expanding industry
  • Lack of information, proprietary nature of business
  • Coastal mitigation credit prices increased by 18% annually with non-coastal 11%
  • Coastal mitigation banks accounted for only 10% of total number of banks
summary and conclusions32
Summary and Conclusions
  • What drives the price of credits overall?
    • Very limited, lucrative market for coastal banks (+)
    • Land prices - strive for rural land near urban areas (+)
    • Scale of transaction (+)
    • Population (+)
    • Presence of other mitigation banks in watershed (+)
    • Transaction distance (-) Out-of-watershed transactions?
  • In Coastal Zone?
    • Economic factors: competition, population, time
  • In non-coastal banks?
    • Scale, habitat
additional research
Additional Research
  • Survey of bank operators
  • Investigation into credit pricing strategies
  • In-depth inventory of credits in different watersheds
  • Aggregating hydrologic units by like habitats
  • Hindrances and opportunities for coastal banks