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Economic Assessment of Rapid Land-Building Technologies for Coastal Restoration Daniel Petrolia and Tae-goun Kim Dept. of Agricultural Economics, Mississippi.

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Presentation on theme: "Economic Assessment of Rapid Land-Building Technologies for Coastal Restoration Daniel Petrolia and Tae-goun Kim Dept. of Agricultural Economics, Mississippi."— Presentation transcript:

1 Economic Assessment of Rapid Land-Building Technologies for Coastal Restoration Daniel Petrolia and Tae-goun Kim Dept. of Agricultural Economics, Mississippi State University Rex Caffey Center for Natural Resource Economics & Policy, LSU 2008 PIANC Conference November 13, 2008 Mobile, AL

2 Where are we? Katrina and Rita changed everything. Prior to, restoration focused almost solely on ecological services Things appeared to move slowly Post, focus has shifted toward more hurricane protection, i.e., more human- focused Time has become critical A sustainable landscape is a prerequisite for both storm protection and ecological restoration. – CPRA Master Plan

3 Restoration Options: Freshwater Diversions Although this technique helps protect and sustain existing wetlands, it could take decades for new land to be built with new diversions alone. – CPRA Master Plan FWD are excellent options for protecting an existing marsh, but as a reconstructive tool, they arent the first choice. – Penland (2005)

4 Restoration Options: Rapid Land Building Pumping sediments…can build marsh quickly…However, wetlands that are built via pipeline may not function in the same ways as wetlands built through natural processes…pumping in sediment is expensive… – CPRA Master Plan

5 What are the specific benefits? Expected benefits are usually qualitative, not necessarily quantitative Storm surge reductions Ecosystem benefits Fisheries benefits Recreational benefits Even if we can quantify the benefits, how likely are the benefits? When will the benefits accrue? What is the value of these benefits?

6 From an economists perspective: What is lacking? An explicit accounting for: Time Risk Restoration projects, like CWPPRA, have projected acreage changes, reduced erosion rates, etc., but how likely are these outcomes? What is the probability p that x acres of land benefits will be built at time t? This implies that there is some prob (1-p) that they wont. Given that the land is built, what is the probability that the expected benefits will accrue?

7 Risk and Time What are the risks? Technology may not work as expected. Storm activity may affect land-building efforts. Benefits may be dependent on project scale. What about time? The probability that benefits will be delivered in any given year likely depends on the probability that certain progress was made the prior year, which depends on its prior year, etc. What if some major weather event occurs between years 0 and t that significantly affects project efforts? Time value of money: discounting

8 Developing a framework for analysis We cannot address all of the benefits and costs involved in this complex issue But what we can do is develop a framework for analyzing the impact of time and risk, whatever the benefits and costs may to be.

9 Basic Model Each acre of land built has some suite of benefits associated with it caveat: this abstracts away from the land quality issue This suite of benefits can be expressed in dollar terms, i.e., value, which is unknown Given that we have costs and quantity of acres, we can solve for the value per acre necessary for the project to have a positive NPV i.e., the value per acre necessary to justify the cost

10 Data example: CWPPRA Project BA-36: Dedicated Dredging on the Barataria Basin Land Bridge Acres YearNo ActionProjCost 2008502.0 $28,712,267 2009492.01282.0$0 2010482.11269.2$0 2011472.51256.5$0 2012463.01243.9$0 2013453.81231.5$0 2014444.71219.2$0 2015435.81207.0$0 2016427.11194.9$0 2017418.51183.0$0 2018410.21171.1$0 2019402.01159.4$0 2020393.91147.8$0 2021386.01136.3$0 2022378.31125.0$0 2023370.81113.7$0 2024363.31102.6$0 2025356.11091.6$0 2026349.01080.7$0 2027342.01069.8$0 2028335.11059.1$0 2029328.41048.6$0 2030321.91038.1$0 2031315.41027.7$0

11 Cases No Risk / No Discounting Storm Risk Assumes that probability of accruing benefits is equal to 1 – probability that a major storm hits (i.e., a major storm would destroy benefits) Probability is cumulative over time Use landfall probabilities for a major storm (Klotzbach & Gray) for SE LA parishes (site of projects) Storm Risk + Scale Risk Assumes that probability of accruing benefits is positively related to the number of acres in project site (i.e., that benefits are dependent on how many other acres are present) I use Pr(bens) = 1 – (10/ac) Storm Risk + Scale Risk + Discounting Adds 3% discount rate to account for time value of money

12 Case study: CWPPRA projects Data we have: construction cost data (LA DNR) Projected no-action and with-project land changes (acres built and erosion rates) (CWPPRA completion & monitoring reports) Project time frame (usually 20 yrs) Data we dont have: Specific benefits Likelihood of benefits Value of benefits

13 BA-35: Pass Chaland to Grand Bayou Pass Barrier Shoreline Restoration (BI)

14 BA-36: Dedicated Dredging on Barataria Basin Landbridge (MC)

15 BA-37: Little Lake Shoreline Protection / Dedicated Dredging near Round Lake (MC)

16 General Results Incorporating risk and time: increases the necessary value of benefits per acre to justify project (i.e., for benefits to exceed costs) marginal contribution of benefits to overall project NPV decreases because benefits are in the distant uncertain future If accounting for these risks is appropriate, then we need to be willing to invest large sums of money for very risky future benefits.

17 Thinking about restoration options Freshwater Diversions Build land more slowly Mimics natures way of building new land; expected to be high-quality land Is sustainable: continuous delivery of water and sediment But will it actually deliver what we expect? Will the sediment remain where it is directed? Will enough sediment be delivered? Is the process too slow for our immediate needs? Tradeoff: Do the benefits of restoring in a natural way that delivers high-quality land outweigh the risks of waiting for this land to be restored? Rapid Land-Building Builds land quickly But is it low-quality land? Will it stick? Is there enough sediment? There are, thus, obvious tradeoffs: Can be built quickly: earlier benefits may mean less risky benefits So does the risk reduction by moving benefits up in time outweigh the potential liabilities of land restored using this technology?

18 A test case RLB: builds 780 acres up-front that erode at 1% / year, at cost of $28.7 M FWD: builds 2,500 acres over 20-year period (12%/yr), at cost of $9.6 M

19 Rapid Land Building vs. Freshwater Diversion

20 Concluding Thoughts This is only a very preliminary look at the issue of risk in assessing restoration projects I need help! Is my thinking regarding these risks correct? Is there a better way to account for them? Do the data exist to appropriately account for these risks? Do the models used to predict restoration project performance account for the risks cited here? Are policymakers accounting for the risks? Rapid land-building versus slower, more natural land-building processes: future benefits are more risky and worth less in present-value terms: are we accounting for this in our policy comparisons?

21 Questions? Comments?

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