To Finance Coastal Resilience, States Turn to Innovative Policies and Partnerships
Pay-for-success initiatives, public-private collaboration, and environmental markets can deliver numerous benefits
Coastal wetlands—including tidal marshes, forested swamps, mangroves, and seagrasses—are among humankind’s most powerful natural allies. These ecosystems not only absorb and store large amounts of carbon but also protect communities from flooding and wildfires, provide habitat for commercially and recreationally important species, and filter pollutants and excess nutrients from the water. Yet these habitats are disappearing at alarming rates because of sea-level rise, erosion, and development. Further, communities seeking to protect and restore coastal wetlands have struggled to secure the funding needed to meet the scale of the challenge.
To help address these issues, the Blue Carbon Network—a Pew-hosted group that connects state agencies, practitioners, academic researchers, and nongovernmental organizations working on coastal conservation and climate initiatives—coordinated a webinar that highlighted innovative state-led programs and initiatives to finance coastal resilience projects. Experts from Maryland, Louisiana, and Duke University shared information about a variety of successful approaches. One example is emerging environmental markets, which assign monetary values to environmental benefits—such as cleaner air and water, or carbon emission reductions—that then can be bought, sold, or traded to encourage protection and underwrite conservation projects.
Maryland: Pay-for-success and market-based innovations
Maryland is leading the way in outcome-based financing through its 2022 Conservation Finance Act, which allocates funding for tools such as pay-for-success contracts through which governments pay for projects that deliver documented environmental improvements.
Rachel Lamb, a senior climate adviser with the Maryland Department of the Environment, said the state’s most successful program to date is the Clean Water Commerce Program, which pays entities for projects that verifiably and cost-effectively reduce nitrogen in waterways. Excess nitrogen in water can lead to harmful algal blooms, which deplete oxygen levels and harm aquatic life. Because many project sponsors, especially smaller nonprofits, may not have the up-front capital to fund such projects, the state encourages partnerships with private investors who provide initial funding, with the expectation that they will recoup their investment when the state pays for the success.
Maryland also is pioneering interstate cooperation by funding restoration projects in upstream states such as Pennsylvania that help to meet shared Chesapeake Bay ecological targets.
In addition, the state is exploring how to stack benefits—such as flood mitigation and biodiversity protection—in projects to attract more funding and to further increase the return on investment, Lamb said. The state is also considering greater use of revolving loan funds along with mechanisms such as environmental impact bonds.
Duke University: National clearinghouse for nature-based solutions
A team led by Sara Mason, a senior policy associate with Duke University’s Nicholas Institute for Energy, Environment & Sustainability, developed a case study library of conservation finance deals in more than 10 states that demonstrates how complex public-private projects can be structured. Mason noted several ways that nature-based projects can generate revenue that “motivate different stakeholders, both public and private, to engage,” including:
- Environmental market credits—financial incentives based on quantified benefits from conservation efforts. Credits can be sold, bought, or traded among entities.
- Water quality surcharges—fees added to water or property tax bills to fund initiatives that use nature to protect and improve water quality.
- New amenities that generate revenue for coastal resiliency projects—such as the City Dock project in Annapolis, Maryland, which used revenue from a new parking garage to support a flood prevention barrier and public park to protect the city’s historic port from flooding.
- Funding nature-based solutions that protect infrastructure—such as energy companies funding restoration of oyster reefs that protect their coastal infrastructure from erosion.
Inspired by these models, Duke is now partnering with the U.S. Fish and Wildlife Service to explore creation of a centralized database to connect shovel-ready restoration projects with interested investors. “The vision is to create a matchmaking service that links high-quality projects with external investors—whether public, philanthropic, or private,” Mason said.
Louisiana: Can carbon credits fund wetlands restoration?
No state may be more imperiled by sea-level rise than the Pelican State, which loses roughly a football field of coastal wetlands every 100 minutes—totaling more than 1,853 square miles (4,800 square kilometers) of coastal wetlands from 1932 to 2016—because of advancing waters and associated factors. The state received about $8.7 billion for coastal restoration from legal settlements related to the Deepwater Horizon disaster, the 2010 oil spill in the Gulf of Mexico. That money “allowed us to put a lot of projects on the ground,” said Jim Pahl, senior coastal resources scientist with the Louisiana Coastal Protection and Restoration Authority (CPRA).
However, the state’s Coastal Master Plan (CMP) calls for an additional $50 billion worth of projects over 50 years to achieve a healthy and resilient coast. Pahl noted that state officials are preparing for a “coastal fiscal cliff” in 2032, when funding from the Deepwater Horizon settlements begins to sunset, creating a substantial shortfall. To fill the sizable gap and implement the CMP, the state must diversify its funding sources, Pahl added.
Louisiana’s 2010 coastal restoration legal framework allows the state to claim carbon credits from restoration projects it funds that it can then sell to businesses or entities seeking to offset their climate impact. This would allow the state to underwrite those projects, Pahl said. CPRA is working with partners to assess the feasibility of submitting restoration and risk reduction projects to voluntary carbon markets, which are extremely complicated to set up and implement.
Because two-thirds of the emergent wetlands—transitional areas characterized by plants that grow both in the water and on land—are freshwater, Louisiana is especially interested in restoration opportunities beyond the state’s coastal zone, Pahl said. These include the Atchafalaya Basin, the largest area of forested wetlands in North America at nearly 1 million acres, and one of only 36 global “biodiversity hot spots,” according to the Critical Ecosystem Partnership Fund.
In 2018, the Louisiana State Legislature tasked CPRA with managing the basin and finding ways to finance its restoration. In addition, the state has been working with the National Oceanic and Atmospheric Administration to establish a National Estuarine Research Reserve in the basin, which would provide additional research, stewardship, and monitoring programs that could support additional future funding mechanisms.
Restoration may hinge on incentivizing and supporting diverse financing
Many states are finding that traditional funding mechanisms are insufficient to finance urgently needed coastal restoration projects.
Fortunately, with innovative policies and public-private partnerships, states are finding ways to unlock financing to advance this important work.
As Lamb from Maryland’s Department of Environment told the webinar audience: “We have to be able to leverage what limited resources we have to bring in new investment—to go faster and farther together.”
Jazmin Dagostino is a senior associate with The Pew Charitable Trusts’ U.S. conservation project.
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