Steve_Cochran

Louisiana has the opportunity to be a world leader in coastal resilience financing.

Louisiana’s Coastal Master Plan is an impressive, forward-looking strategy to help our state be more resilient in the face of rising seas and land loss. We should be proud of the work the state has done to date to restore and protect our coast for the people and industries that call coastal Louisiana home.

Of course, with a price tag of $50 billion, more with inflation over 50 years, we have not yet identified all the funds needed to fully implement the plan, which leaves communities and businesses increasingly vulnerable over time. That puts a premium on the efficient use of limited coastal restoration and protection resources and on leveraging the involvement of the private sector. Both will be crucial to helping Louisiana find the funds needed to manage our land loss crisis.

Will new 'environmental impact' bonds lure investors to Louisiana's coast? Many could benefit

In pursuit of those goals, a recent report by Environmental Defense Fund and the impact investment consulting firm Quantified Ventures explores how an innovative financial instrument called an environmental impact bond may be able to help close the financing gap and in turn help Louisiana — and other areas dealing with land loss and sea level rise — get coastal resilience projects on the ground sooner. The analysis was supported through a grant from NatureVest, the conservation investing unit of The Nature Conservancy.

An environmental impact bond is a form of pay-for-success financing where investors provide capital for projects and are repaid according to the degree to which those projects achieve desired environmental and economic benefits. With the help of Quantified Ventures, the financial intermediary that designed the nation’s first environmental impact bond for the water utility in Washington, D.C., and with guidance from Louisiana’s Coastal Protection and Restoration Authority, our study determined that environmental impact bonds could be structured to be financially attractive to every party involved.

With this environmental impact bond, CPRA would obligate revenue expected in later years — future BP settlement money and dedicated payments from offshore oil and gas, for example — to pay back investors for capital provided now. That would allow the state to complete wetland projects sooner and therefore at a lower cost, as project costs will increase over time due to continued land loss and inflation.

In addition, asset owners adjacent to restoration project sites — such as oil and gas companies, utilities, shipping companies or ports — can participate as a “partner-payor” alongside CPRA, to get nearby wetland restoration projects constructed sooner, therefore providing flood protection benefits faster. Finally, investors, and wetland contractors who construct the project, can receive a bonus if the project achieves superior results — in this case, higher levels of reduced land loss and flooding risks.

Our study found that an ideal site around which to structure a pilot environmental impact bond transaction would be the Belle Pass-Golden Meadow Marsh Creation project site adjacent to Port Fourchon, which is a critical national oil and gas port and a key driver in our state’s economy. Port Fourchon has already been a leader in adding wetlands protection to its surrounding areas as it manages against the challenges of being directly on the coast.

Of course, financial transactions with any degree of complexity don’t just happen. To move forward with bonding and a pilot environmental impact bond, CPRA and the Coastal Protection and Restoration Financing Corporation need to define how they will work together to activate their existing bonding authority and issue bonds based on incoming revenues. Fortunately, Louisiana has a ready model in the processes designed by Louisiana’s Tobacco Settlement Financing Corporation, which issued bonds against settlement funds from tobacco cases to benefit health and education projects in the state.

Proceeding with a pilot environmental impact bond represents a true opportunity for Louisiana — and indeed for coastal cities and states across the country and the world — to accelerate coastal resilience investments. By demonstrating how the private sector can partner with government to implement coastal projects, while generating a financial return for investors, environmental impact bonds can help Louisiana become a leader in using private investment for coastal resilience.

Learn more and find the report at edf.org/environmental-impact-bond.

Steve Cochran is the associate vice president for coastal resilience at Environmental Defense Fund.