Tuesday, March 7, 2017

Impact Fees Coupled With Conservation Payments to Sustain Ecosystem Structure: A Conceptual and Numerical Application at the Urban-Rural Fringe

Communities in exurban areas increasingly rely on land preservation as a strategy to balance sprawling land development with maintaining environmental amenities. Based on a review of existing approaches for preserving land, we consider a conceptual model of environmental impact fees (EIFs) coupled with conservation payments for managing private land of ecosystem value. In this framework, conservation payments are intended to cost-effectively target fair market value compensation for heterogeneous land for preservation that sustains ecosystem health. EIFs serve as a financial instrument to augment conservation payments and to allow flexibility for landowners with private information to pursue development opportunities while accounting for environmental impacts. Using a bioeconomic model of nature-reserve design, we develop an empirical illustration of how to estimate the EIF of development damage to critical habitat in southern Rhode Island in an effort to preserve land as an environmental infrastructure that maintains ecosystem health.
Preserving the entirety of the patches and corridors identified is not necessary to sustain the target level of ecosystem health with the available budget of $3 million. Indeed, the majority of the identified patches and corridors have an optimal ratio < 0.5, suggesting that only a proportion of the patch and corridor needs to be preserved such that some development is allowed on those land parcels.... There are some patches (e.g., patches 69, 84 and 85 with preservation ratios > 0.5) that require not only full preservation of core habitat but also preserved surrounding upland buffer zones.
In this empirical illustration, development damage is measured by the relative percentage loss of the proportion (i.e., the preservation ratio) of each patch or corridor that needs to be preserved for the conservation program to cost-effectively achieve its goal within the allocated budget. For example, patch 67 has an optimal preservation ratio prescribed at 0.48, which indicates 48% of the identified patch needs to be preserved. For this patch, a 10% development damage is modeled as a 10% reduction (due to development) in its preservation ratio such that only around 43% of the patch is available at most for preservation although a 48% preservation is optimal (cost-effective). Similarly, 100% development damage refers to the complete loss of the portion (48%) of the patch required to be preserved for the target level of ecosystem health.

... The estimated EIFs exhibit two characteristics that deserve mentioning.... For the same level of development damage, the EIF varies across the patches. This result can be attributed to the heterogeneity of individual land parcels in sustaining ecosystem health relative to their costs, their role in the ecosystem health function Q, and the costs and role of the replacement land. A low EIF implies that the related patch is less critical to maintaining the target level of ecosystem health with the available budget, and it is relatively easier to compensate the damage by minor adjustments in the conservation program without incurring a significant cost increase. In contrast, a high impact fee indicates an ecologically valuable patch such that any development damage would require expensive adjustment in the conservation program, including acquiring more expensive land to enhance other identified patches and corridors available for preservation or to target new patches and corridors....

As expected, EIFs can increase quickly with the extent of development damage to patches and corridors. Table 1 shows that for a 10% development damage, the estimated EIF on a per acre basis ranges from $11.03 for patch 176 to $400.07 for patch 71; in contrast, when the development damage reaches 100%, the majority of the estimated EIFs are on the order of $10,000 per acre with the highest at over $82,000 per acre for patch 85. This result implies that: 1) conservation cost increases non-linearly, at a rising rate with development damage, suggesting it is relatively cheaper and easier to establish a conservation reserve in the early stage of community development, and 2) minor development damage could be mitigated at low costs and it can be very expensive to compensate severe development damage to land of ecosystem value. Note that extremely high EIFs seem likely to prevent complete development to the corresponding patches and corridors of critical ecosystem value and yet these high EIFs remain near or below typical market (tax) value of buildable lots in the study area.

by Yong Jiang 1 and 2 and Stephen K. Swallow 3 
1. UNESCO-IHE Institute for Water Education, Westvest 7, 2611AX Delft, The Netherlands
2. Department of Public Management, Faculty of Humanities and Social Sciences, Dalian University of Technology, Dalian 116024, China
3. Department of Agricultural and Resource Economics and Center for Environmental Sciences and Engineering, University of Connecticut, Storrs, CT 06269, USA
Ecological Economics via Elsevier Science Direct www.ScienceDirect.com
Volume 136; June, 2017; Available online 23 February 2017; Pages 136–147
Under a Creative Commons license,  Open Access
Keywords: Land use regulation; Land preservation; Impact fees; Ecosystems; Public finance; Urban sprawl; Wetlands; Development rights; Spatial; Metapopulation

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