THE LEGAL STATUS OF ENVIRONMENTAL CREDIT STACKING

Transcription

1 THE LEGAL STATUS OF ENVIRONMENTAL CREDIT STACKING Royal C. Gardner Professor of Law and Director Institute for Biodiversity Law and Policy Stetson University College of Law Tampa Bay, Florida C-AGG Meeting March 4, 2014 Sacramento, California

2 EPRI & STETSON DISCLOSURE No portion of the publication constitutes legal advice, opinion, or guidance from EPRI or Stetson University. EPRI and Stetson University are not promoting any specific policy or laws. This is an academic research effort with observations and conclusions intended to inform the public.

3 ECOLOGY LAW QUARTERLY, 40(4): #1 Download in last 60 days in four SSRN categories: Environmental Economics Natural Resources Law and Policy Environmental and Natural Resources Law Environmental Law and Policy

4 WHAT IS ENVIRONMENTAL CREDIT STACKING?

5 TERMS, AGENCIES, AND POLICIES Many agencies involved in environmental credit markets. Terms: Bundling Co-benefits Unbundling Credit stacking Payment stacking Double dipping Double counting Horizontal stacking Vertical stacking Temporal Stacking Credit Type Carbon Endangered Species Wetlands Water Quality Oversight Entities Private organizations, state agencies, EPA, USDA FWS, NOAA, state agencies U.S. Army Corps of Engineers, EPA EPA, state agencies

6 AN EXAMPLE OF REGULATORY UNCERTAINTY (PAYMENT STACKING) Thumbs Up from USDA: USDA allows for the sale of carbon, water quality, or other environmental credits associated with federal grants (EQIP, CRP, WRP). Thumbs Down from EPA & USACE: U.S. Army Corps of Engineers and EPA have issued a regulation that precludes the use of CRP or WRP monies to generate wetland credits.

7 WHAT IS ENVIRONMENTAL CREDIT STACKING?

8 THE CRUX OF (VERTICAL) STACKING Can you get paid twice for the same conservation action? Drive to maximize economic returns Concern over ecological validation Development of policy

9 PERSPECTIVES AND RESPONSIBILITIES Agencies: Regulatory agencies need to ensure that the credits appropriately offset impacts. This can be challenging even in one market type. When credits are stacked the question of additionality becomes even more prominent. Landowners: Shouldn t credit producers expect to be compensated for the full range of environmental benefits they support? Project Managers: Even in the absence of clear direction from agencies and standard protocols, pilot projects are proceeding to test the possibilities of credit stacking. Ecosystems: Credits represent mitigation. When credits are stacked, so are the risks to the ecosystem if credits fail.

10 CURRENT PAPER: OVERVIEW Background on markets Wetland mitigation banking Conservation banking Water quality trading Carbon offsets Stacking scenarios Unbundling not permitted Unbundling permitted Considerations for a stacking protocol Preserved/Enhanced Upland Forest -Endangered Species Habitat -Carbon Sequestration Restored Forested Wetland -Endangered Species Habitat -Improved Water Quality -Carbon Sequestration Farm: Reduced Fertilizer Use/No Till -Improved Water Quality -Carbon Sequestration Non-wetland Riparian Vegetative Buffer -Endangered Species Habitat -Improved Water Quality

11 WETLAND MITIGATION BANKING Principal drivers: CWA, Corps and EPA regulations, and similar state laws and regulations Commodity (credit currency): functional or areal measure

12 CONSERVATION BANKING Principal drivers: ESA, FWS and NOAA guidance, and similar state laws and regulations Commodity (credit currency): areal measurement of habitat and/or numbers of breeding pairs

13 WATER QUALITY TRADING Principal drivers: CWA, EPA policy, and similar state provisions Commodity (credit currency): pounds of reduction

14 CARBON OFFSETS Principal drivers: state laws and regulations Commodity (credit currency): short tons or metric tons (tonnes) of carbon dioxide equivalent (tco 2 e) reductions

15 STACKING SCENARIOS: WETLANDS AND ENDANGERED SPECIES Van Vleck Ranch Mitigation Bank (CA) Wetland and vernal pool fairy shrimp credits Source: Westervelt Ecological Services

16 STACKING SCENARIOS: WETLANDS AND WATER QUALITY Neu-Con Umbrella Wetland Mitigation and Stream Restoration Bank (NC) Wetland and nutrient offset credits Source: North Carolina State University

17 STACKING SCENARIOS: WETLAND FUNCTIONS Spellbottom Mitigation Bank (TX) Temporary Storage of Surface Water (TSSW) Maintenance of Plant and Animal Communities (MPAC) Removal and Sequestration of Elements and Compounds (RSEC) Source: Mitigation Solutions USA onbank_map.html

18 STACKING SCENARIOS: MULTIPLE SPECIES (FEDERAL) Ohlone Conservation Bank (CA)

19 STACKING SCENARIOS: MULTIPLE SPECIES (FEDERAL)

20 STACKING SCENARIOS: MULTIPLE SPECIES (FEDERAL)

21 STACKING SCENARIOS: MULTIPLE SPECIES (FEDERAL AND STATE) Lyonia Preserve (FL) Source: Volusia County Florida

22 STACKING SCENARIOS: ENDANGERED SPECIES AND CARBON Florida Panther Conservation Bank Panther credits and reservation of right to seek carbon credits in the future Source: The Florida Panther Conservation

23 STACKING SCENARIOS: WATER QUALITY PHOSPHOROUS AND NITROGEN Maryland s (nascent) water quality trading program Chesapeake Bay Source: Fairfax County

24 Stacking scenario Multiple species Wetland and species Wetland and water quality Individual wetland functions (e.g., water quality; flood control; habitat) Individual water quality credits (e.g., reduction of P; reduction of N) Species and water quality Species and carbon Water quality and carbon Wetland and carbon Transaction rules and policies (may stacked credits be sold in multiple markets?) Multiple federally protected species: not permitted by FWS policy Multiple federally and state protected species: permitted on an ad hoc basis (e.g., Lyonia Preserve) Not permitted by Corps/EPA regulations and FWS policy Not permitted by Corps/EPA regulations (as well by NC) Possible, but currently not permitted in practice (e.g., Corps Galveston District) Permitted in some jurisdictions (e.g., MD policy) Uncertain Permitted on an ad hoc basis (e.g., Florida Panther Conservation Bank) Permitted in some jurisdictions (e.g., MD policy) Uncertain, but not permitted under ACR methodology

25 ACCOUNTING UNITS & DEFENSIBLE STACKING SCENARIO Species Wetlands Carbon Water Quality Bundles of Ecosystem Values (Acres) Defined Accounting Units (tons, pounds) Based on our analysis, the most appropriate credit stacking scenario is when the accounting units are pollutant-specific, such as pounds of nitrogen in water quality trading, and tons of CO 2 equivalents in carbon markets.

26 CONSIDERATIONS FOR A CREDIT STACKING PROTOCOL Credit stacking could provide great economic incentives for effective conservation, but only after the fundamental considerations described here are addressed. Consideration 1: Ecosystem credits that consist of a suite of functions should not be stacked and unbundled. Consideration 2: Stacking and unbundling credits should not result in habitat loss. Consideration 3: Managing the site for one credit type should not denigrate the ecological values represented by other credit types.

27 CONSIDERATIONS FOR A CREDIT STACKING PROTOCOL Consideration 4: Regulatory agencies need the resources and capacity to confirm the ecological validity of the transactions. Consideration 5: Any stacking and unbundling of credits should be transparent. Consideration 6: Tests for additionality should be applied.

28 AIR QUALITY (SO X AND NO X ) Source: Big Bend Power Station Source: Indiana Environmental Law Report

29 The validity of credit stacking boils down to appropriate mitigation: do the credits appropriately mitigate the impacts that they are intended to offset? THE BOTTOM LINE ON CREDIT STACKING While environmental markets can be flexible to accommodate social and economic elements such as price, infrastructure, and mechanics, they need to maintain basic scientific integrity and defensibility. While the perspectives of the buyer, seller, and regulator are important in these markets, the quality of the credits needs to be ensured.

30 THANK YOU FOR YOUR ATTENTION!