Environmental impact bonds can help restore Louisiana’s coast more efficiently than previous methods of funding, according to a report released Tuesday by the Environmental Defense Fund.
The bonds are a financing tool in which repayment to investors is linked to the achievement of a desired environmental outcome. In this case, the outcome is sustained wetlands that help curb land loss and provide risk reduction for coastal residents and businesses. The bonds can be scaled and replicated to support efforts across Louisiana and beyond to help areas coping with sea level rise, land loss and damaging storms.
In the study, the EDF and Quantified Ventures will pilot the program on restoration efforts near the Belle Pass-Golden Meadow Marsh Creation project adjacent to Port Fourchon.
The organization said the bonds will allow coastal projects to be constructed more quickly than waiting on other money sources. The bond would be repaid through future BP oil spill settlement payments.
“Using environmental impact bonds provides Louisiana the opportunity to put more capital to work now and to find new sources of capital,” said Steve Cochran, associate vice president for coastal resilience at EDF. “Those are great outcomes for Louisiana’s coastal communities and can provide a model for other coastal areas around the world.”
The state will lose 4,000 square miles of land in the next 50 years if nothing is done, according the EDF. That would add to the 2,000 square miles of land loss that has occurred since the 1930s. The state has a vision for restoring and protecting its coast through its $50 billion Coastal Master Plan, but it has identified only $9 billion to $12 billion of the money needed to fully implement the plan.
The director of coastal resilience at EDF, Shannon Cunniff, said that the bonds work like other bonds but come with a bonus.
“These bonds are a new form of pay-for-success debt financing,” said Cunniff. “The big difference is that the repayment of the bond depends on the extent to which the desired environmental benefits are achieved.”
The director said a third-party will be used to help define exactly what would qualify as meeting the desired benefits. The investors will get a bonus if the project exceeds the defined goals.
“Environmental impact bonds can be a big-time game changer for Louisiana’s disappearing coastline. This (bond) will have major implications for coastal restoration efforts around the world,” said Eric Lestinger, founder and CEO of Quantified Ventures.
To help assess the feasibility of using the bonds for Louisiana’s coastal restoration efforts, EDF brought in Quantified Ventures. The firm was instrumental in designing the nation’s first environmental impact bond, which financed the restructuring of the Washing, D.C., Water and Sewage Authority.
“We looked at 31 coastal restoration projects across the coast at their potential economic benefit,” said Cunniff.
The EDF representatives said they picked the Port Fourchon area because of the site’s role in the offshore oil industry.
“It’s a great port in terms of the local, regional and national economy,” said Cunniff. “All of these factors made it an ideal location for facilitating the piloting of the partner payer transaction.”
The bonds would allow the state to use its money more efficiently by building wetland restoration projects sooner, involve local owners who benefit from restoration and reward high-performing wetland projects and the contractors who build them, according to the EDF.
“Environmental impact bonds provide the state of Louisiana with another outcome-based performance tool that can help us speed up coastal restoration while lowering costs and involving local partners in financing those efforts,” said Johnny Bradberry, the Louisiana Governor’s Executive Assistant for Coastal Activities. “This approach to bonding shows that (the state) is looking to innovate on all sides of our business: the projects, the procurement and the financing.”
The report outlines the next steps the state has to take to test the bonds, noting that many steps – including establishing credit rating, resolving any issues with Gulf oil spill money and determining the bonds’ tax-exempt status – are the same as those necessary to pursue a more traditional bond.
By Scott McLendon
Aug 14, 2018