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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 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

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  1. Spatial Economics of the Louisiana Wetland Mitigation Banking Industry Ryan Bourriaque Rex Caffey CNREP ConferenceMay 28, 2010

  2. 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

  3. Mitigation Banking Definition What: .wetland restoration, creation, enhancement, and in exceptional circumstances, preservation

  4. 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

  5. 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...

  6. 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...

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of restored, created, enhanced , or preserved wetlands are expressed as “credits” which may be subsequently be withdrawn to offset “debits” incurred at a project development site.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

  8. 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.

  9. 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

  10. 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

  11. 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

  12. 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

  13. 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.

  14. 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

  15. Louisiana Mitigation Transactions(1997-2006, n=145)

  16. Louisiana Mitigation Banks(1996-2006, n=80)

  17. 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

  18. Results: Descriptive Statistics • Restoration banks accounted for 83% of the observations

  19. Results: Descriptive Statistics • Restoration banks accounted for 83% of the observations • Commercial clientele made up 54% of the transactions

  20. 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

  21. 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

  22. 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

  23. 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?

  24. 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

  25. 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

  26. 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

  27. 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

  28. 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

  29. Thank You!!

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