Economic Analysis of Critical Habitat Designation for Eleven Mobile River Basin Mussels

ECONOMIC ANALYSIS OF CRITICAL HABITAT DESIGNATION FOR ELEVEN MOBILE RIVER BASIN MUSSELS June 2004 ECONOMIC ANALYSIS OF CRITICAL HABITAT DESIGNATION FOR ELEVEN MOBILE RIVER BASIN MUSSELS Prepared for: Division of Economics U.S. Fish and Wildlife Service 4401 N. Fairfax Drive Arlington, VA 22203 Prepared by: Industrial Economics, Incorporated 2067 Massachusetts Avenue Cambridge, Massachusetts 02140 TABLE OF CONTENTS EXECUTIVE SUMMARY .................................................ES-1 1 INTRODUCTION AND BACKGROUND ............................... 1-1 1.1 Description of Species and Habitat ................................. 1-2 1.2 Proposed Critical Habitat ......................................... 1-3 1.3 Framework and Methodology .................................... 1-11 1.4 Information Sources ............................................ 1-22 2 SOCIOECONOMIC PROFILE AND BASELINE ELEMENTS ............. 2-1 2.1 Socioeconomic Profile of the Critical Habitat Area .................... 2-1 2.2 Relevant Baseline Elements ...................................... 2-12 3 SECTION 7 ACTIVITIES WITHIN THE MUSSEL CRITICAL HABITAT DESIGNATION ..................................................... 3-1 3.1 Categories of Economic Impacts Associated with Section 7 Implementation . 3-1 3.2 Activities Potentially Affected by Critical Habitat Designation for the Mussels ....................................... 3-4 3.3 Summary of Results ............................................ 3-18 4 ECONOMIC IMPACT OF CRITICAL HABITAT DESIGNATION ......... 4-1 4.1 Estimated Total Costs of Section 7 ................................. 4-1 4.2 Section 7 Activity Details Within Proposed Critical Habitat ............ 4-11 4.3 Estimated Technical Assistance Efforts ............................. 4-55 4.4 Other Regulatory Assessments ................................... 4-58 5 POTENTIAL BENEFITS OF PROPOSED CRITICAL HABITAT .......... 5-1 5.1 Categories of Benefits ........................................... 5-2 REFERENCES ......................................................R-1 APPENDIX A: State-level Baseline Protections to the Mussels and Habitat ......A-1 APPENDIX B: Other Regulatory Assessments ............................. B-1 APPENDIX C: Section 7 Costs for the Mussels Per Unit and Activity ...........C-1 EXECUTIVE SUMMARY 1. On March 26, 2003, the U.S. Fish and Wildlife Service (Service) proposed to designate critical habitat for 11 mussels in the Mobile River basin, hereafter referred to as the mussels. The purpose of this report is to identify and analyze the potential economic impacts associated with the designation of critical habitat designation for these mussels. This report was prepared by Industrial Economics, Incorporated (IEc), under contract to the U.S. Fish and Wildlife Service’s (Service) Division of Economics. 2. Section 4(b)(2) of the Endangered Species Act (Act) requires the Service to designate critical habitat on the basis of the best scientific data available, after taking into consideration the economic impact, and any other relevant impact, of specifying any particular area as critical habitat. The Service may exclude areas from critical habitat designation when the benefits of exclusion outweigh the benefits of including the areas within critical habitat, provided the exclusion will not result in extinction of the species. KEY FINDINGS • The present value cost associated with the designation of critical habitat for the 11 Mobile River Basin Mussels is forecast to be $20 million to $144 million (seven percent discount rate), or approximately $2 to $13.6 million annually over the first ten years. • Consultations regarding proposed construction of water supply dams within the designation represent approximately 51 percent of the total designation costs. This is due to the high potential nominal opportunity cost of $154 million associated with constructing at an alternative site a water supply reservoir that is currently proposed to be built at Locust Fork in Unit 12. The relatively large range in costs results from whether section 7 considerations represent the precipitating factor concerning the construction of the dam at Locust Fork and its possible relocation. As discussed in detail in Section 4.2.3 of this analysis, many factors may influence the construction decision. • Consultations and resulting impacts regarding hydropower accounts for another 36 percent of the total costs. This is driven by the estimated annual costs of decreased energy production and dependable capacity at Weiss Dam and Carters Dam of up to $107 million over 30 years. This analysis assumes this cost is passed on to power consumers in the form of fuel price adjustments. • Of the proposed 26 critical habitat units, approximately 79 percent of the total designation costs are anticipated to stem from the designation of two Units. Economic activity within proposed critical habitat Unit 12 is anticipated to result in approximately 52 percent of the total costs of the designation due to the potential relocation of Locust Fork Reservoir from this Unit. Unit 18 is anticipated to generate another 29 percent of total costs associated mostly with decreased power production due to flow modifications at Weiss Dam. Consultations within Unit 25 are forecast to result in another nine percent of the total costs due to impacts at Carters Dam. Unit 14 is anticipated to bear approximately three percent of total costs, and Unit 1 another two percent. All other Units are anticipated to engender less than one percent of the total costs associated with section 7 for the mussels. • State, and local agencies will bear 62 percent of the costs of the designation; private entities will incur another 32 percent. The Service is anticipated to bear approximately one percent of the designation costs, with the remaining five percent being borne by other Federal agencies. • The designation is not expected to have a significant economic impact on small businesses or the energy industry. ES-1 June 2004 Framework for the Analysis 3. This analysis is consistent with the designation as described in the proposed rule. As such, this analysis does not reflect potential changes to the proposed units in the final rule. Description of the habitat designation in the final rule may consequently differ from that presented in this analysis. 4. The primary purpose of this analysis is to estimate the economic impact associated with the designation of critical habitat for the mussels.1 This information is intended to assist the Secretary in making decisions about whether the benefits of excluding particular areas from the designation outweigh the benefits of including those areas in the designation.2 This economic analysis considers both the economic efficiency effects that may result from the designation and addresses how the impacts of the designation are distributed, including an assessment of any local or regional economic impacts and the potential effects on small entities and the energy industry. This information can be used by decision-makers to assess whether the effects of the designation might unduly burden a particular group or economic sector. 5. This analysis focuses on the direct and indirect costs of the rule. However, economic impacts to land use activities exist due to multiple regulations irrespective of mussel conservation efforts or related critical habitat. These impacts may result from, for example, local zoning laws, State natural resource laws, and enforceable management plans and best management practices applied by other State and Federal agencies. Economic impacts that result from these types of regulations are not included in this assessment; they are considered to be part of the “baseline.” 6. This analysis describes impacts that are expected to occur above and beyond the baseline. In other words, it measures the costs of compliance with the Act that would not occur in the absence of constraints on activities engendered by section 7 of the Act. In addition, where appropriate, costs associated with sections 9 and 10 of the Act are considered related to the designation of critical habitat. 7. The measurement of direct compliance costs focuses on the implementation of section 7 of the Act. This section requires Federal agencies to consult with the Service to ensure that any action authorized, funded, or carried out will not likely jeopardize the continued existence of any endangered or threatened species or result in the destruction or 1 This analysis considers the effects of the regulatory action as proposed in the Federal Register on March 26, 2003 (68 FR 14752). 2 16 U.S.C. § 1533(b)(2). ES-2 June 2004 adverse modification of critical habitat. The administrative costs of these consultations, along with the costs of project modifications resulting from these consultations, represent the direct compliance costs of designating critical habitat. Importantly, this analysis does not differentiate between consultations that result from the listing of the species (i.e., the jeopardy standard) and consultations that result from the presence of critical habitat (i.e., the adverse modification standard). 8. The designation may, under certain circumstances, affect actions that do not have a Federal nexus or are otherwise not subject to the provisions of section 7 under the Act. For the purposes of this analysis, these impacts are defined as indirect effects. For example, although technical assistance is not a direct cost of section 7 of the Act, these costs are incorporated into the cost analysis

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