ECONOMIC ANALYSIS OF CRITICAL HABITAT DESIGNATION FOR MAUI NUI Draft | 14 January 2013 prepared for: U.S. Fish and Wildlife Service 4401 N. Fairfax Drive Arlington, VA 22203 prepared by: Industrial Economics, Incorporated 2067 Massachusetts Avenue Cambridge, MA 02140 Draft Economic Analysis – January 14, 2013 TABLE OF CONTENTS EXECUTIVE SUMMARY CHAPTER 1 INTRODUCTION AND BACKGROUND 1.1 Introduction 1-1 1.2 Economic Activities Considered in this Analysis 1-4 1.3 Summary of Conclusions 1-4 1.4 Organization of the Report 1-9 CHAPTER 2 FRAMEWORK FOR THE ANALYSIS 2.1 Background 2-2 2.2 Categories of Potential Economic Effects of Species Conservation 2-4 2.3 Analytic Framework and Scope of the Analysis 2-7 2.4 Information Sources 2-20 2.5 Presentation of Results 2-21 CHAPTER 3 DEVELOPMENT PROJECTS 3.1 Introduction and Regulatory Overview 3-3 3.2 Scope and Scale of Future Development within the Proposed Critical Habitat 3-9 3.3 Economic Impacts of Critical Habitat on Development Activities 3-14 3.4 Assumptions and Limitations 3-22 CHAPTER 4 ENERGY PROJECTS 4.1 Introduction and Regulatory Overview 4-2 4.2 Scope and Scale of Renewable Energy Projects within Proposed Critical Habitat 4-5 4.3 Economic Impacts of Critical Habitat Designation on Energy Projects 4-8 4.4 Assumptions and Limitations 4-13 CHAPTER 5 GRAZING AND FARMING ACTIVITIES 5.1 Introduction and Regulatory Overview 5-3 5.2 Scope and Scale of Grazing and Farming Activities within the Proposed Critical Habitat Area 5-8 5.3 Economic Impacts of Critical Habitat on Grazing and Farming Activities 5-14 5.4 Assumptions and Limitations 5-22 Draft Economic Analysis – January 14, 2013 6 POTENTIAL ECONOMIC BENEFITS 6.1 Introduction 6-1 6.2 Quantifying Direct Economic Benefits of Critical Habitat Designation for the Maui Nui Species 6-1 6.3 Potential Incremental Benefits of Conservation Efforts for the Maui Nui Species 6-3 REFERENCES APPENDIX A DISTRIBUTIONAL ANALYSES A-1 A.1 Impacts to Small Entities A-1 A.2 Potential Impacts to the Energy Industry A-9 A.3 Potential Impacts to Governments A.4 Takings APPENDIX B SENSITIVITY OF RESULTS TO DISCOUNT RATE APPENDIX C UNDISCOUNTED IMPACTS BY ECONOMIC ACTIVITY APPENDIX D INCREMENTAL EFFECTS MEMORANDUM AND FOLLOW ON COMMUNICATION BETWEEN IEC AND THE SERVICE APPENDIX E CRITICAL HABITAT SPECIES INFORMATION APPENDIX F PARCELS SUPPORTING GRAZING THAT OVERLAP WITH PROPOSED CRITICAL HABITAT Draft Economic Analysis – January 14, 2013 EXECUTIVE SUMMARY 1. The purpose of this report is to evaluate the potential economic impacts associated with the designation or revision of critical habitat for 135 species on the Hawaiian Islands of Kahoolawe, Lanai, Maui, and Molokai (hereafter “Maui Nui species”). This report was prepared by Industrial Economics, Incorporated (IEc), under contract to the U.S. Fish and Wildlife Service (Service). The information contained in this report is intended to assist the Secretary of the U.S. Department of the Interior (DOI) in determining whether the benefits of excluding particular areas from the designation outweigh the benefits of including those areas in the designation.1 2. This analysis describes protections provided by Federal, State and local statutes and regulations that may affect proposed critical habitat areas, including the listing of the species under the Act, that are not generated by or affected by critical habitat designation for Maui Nui species. These are “baseline” protections afforded the species regardless of the designation of critical habitat. Thus the analysis will not quantify the impacts associated with baseline protections, but will describe them qualitatively. 3. The discussion of the baseline protections for the Maui Nui species provides context for the evaluation of the economic impacts of critical habitat designation, which are the focus of this analysis. These “incremental” economic impacts are those that are not expected to occur absent the designation of critical habitat. This analysis considers the potential for both direct and indirect incremental impacts of the designation. Direct incremental costs are associated with additional effort for consultations, reinitiated consultations, new consultations occurring specifically because of the designation, and additional conservation efforts that would not result from compliance with the section 7 prohibition on jeopardizing the species. Indirect costs are those that may result from the influence of critical habitat designation on the decisions of regulators and decision-makers other than the Service (e.g., State agencies and land managers) or the behavior of the public. We provide a qualitative evaluation of potential economic benefits in Chapter 6. 1 16 U.S.C. §1533(b)(2). ES-1 Draft Economic Analysis – January 14, 2013 OVERVIEW OF THE PROPOSED CRITICAL HABITAT AND STUDY AREA 4. The Service proposes to designate approximately 271,062 acres (109,695 hectares) of land on the islands of Kahoolawe, Lanai, Maui, and Molokai (hereafter referred to as Maui Nui).2 The proposed critical habitat comprises new critical habitat for 50 species (45 plant species; two bird species; and three tree snail species) and revised critical habitat for 85 plant species. Approximately 47 percent of the area proposed is currently critical habitat for 85 of the plant species included in this rule, or is already critical habitat for other listed species, including the Blackburn’s sphinx moth. The proposed designation covers 135 species (130 plant species, two forest bird species, and three tree snail species) and includes 11 ecosystem types. 5. The proposed critical habitat area includes 100 units for the plant species; 44 units for the two forest bird species; and six units for the three tree snail species. However, 49 of the proposed critical habitat units are overlapping (e.g., some units described for plant species overlap units described for the bird species), as identified in the first column of the table presented in Appendix E. The proposed designation includes both occupied and unoccupied habitat. 6. In addition, the Proposed Rule identifies several areas as “under consideration for exclusion” from the final critical habitat designation under section 4(b)(2) of the Act. The proposed critical habitat and the areas being considered for exclusion are displayed in Exhibit ES-1. Our analysis separately presents impacts in the areas being considered for exclusion from final critical habitat designation from the remainder of the area proposed for designation. 7. Overall, approximately 35 percent of the proposed designation overlaps State lands, approximately ten percent overlaps Federal lands, approximately one percent occurs on 3 county lands, and approximately 42 percent overlaps private lands. 2 2012 Proposed Listing and Critical Habitat Rule, 77 FR 34464. 3 Ibid. ES-2 Draft Economic Analysis – January 14, 2013 EXHIBIT ES-1. OVERVIEW OF MAUI NUI PROPOSED CRITICAL HABITAT AND AREAS CONSIDERED FOR EXCLUSION Source: U.S. Fish and Wildlife Service. GIS data on proposed critical habitat provided to Industrial Economics, Inc. on July 20, 2012. ES-3 Draft Economic Analysis – January 14, 2013 OVERVIEW OF ECONOMIC ACTIVITIES EVALUATED 8. This analysis focuses on the economic activities that, according to the Service, are of primary concern with respect to potential adverse modification of critical habitat. 4 Such activities include commercial and residential development, and grazing and farming activities. We also evaluate potential impacts to renewable energy projects as these projects: a) have the potential to generate ground disturbance; and b) are important in terms of their contribution to the State of Hawaii’s ability to meet its established renewable portfolio standards, which are mandated by the State. SUMMARY OF KEY FINDINGS 9. Critical habitat may generate incremental economic impacts through implementation of additional conservation measures (beyond those implemented in conjunction with the prohibition on jeopardy to the species) and additional administrative effort in section 7 consultations to consider adverse modification. The presence of the Maui Nui species provides extensive baseline protection that includes offsetting habitat loss (i.e. acquiring and managing habitat to compensate for habitat disturbed as a result of a project or activity). However, critical habitat designation may generate the additional specification that offsets be located within the affected critical habitat unit, or within critical habitat of 5 the same type. Quantified Impacts 10. For most of the ongoing and currently planned projects identified in this analysis, habitat offsets have been implemented or are currently being planned to occur within the critical unit even absent critical habitat designation and at a ratio that the Service believes will avoid adverse modification, although these projects will be evaluated on a case-by-case basis following the designation of critical habitat. Therefore, for these identified projects, incremental impacts of critical habitat designation are expected to be limited to the costs of additional administrative effort in section 7 consultations. However, for one development project – the Honua’ula project, described in detail in Chapter 3 – proposed critical habitat for the Maui Nui species has resulted in incremental impacts in the form of additional conservation measures. Specifically, following publication of the proposed rule for the Maui Nui species, the Service made additional recommendations including that additional habitat offsets