Policy evaluation of natural resource injuries using habitat equivalency analysis

The natural resources managed by government agencies are commonly subject to injuries from accidental events. In order for agencies to evaluate alternative management plans, economic damage estimates are required of potential natural resource injuries under alternative scenarios. However, accurate damage estimates are often difficult to obtain because of a lack of data on the ex ante economic costs of natural resource injuries. In recent years, trustees have increasingly used habitat equivalency analysis (HEA) to scale compensation for natural resource injuries. Unlike traditional economic analysis, which bases damage estimates on losses to human use (and sometimes nonuse) values, HEA estimates the ecological service loss of the injury and then scales restorative ecological compensation to offset these losses. Thus, HEA aims to maintain a baseline level of ecological functioning rather than a baseline level of human welfare.This paper describes the first attempt to use the HEA approach as an ex ante policy evaluation tool. The specific policy application is offshore oil development managed by the U.S. Minerals Management Service. We describe the reasons HEA was deemed the appropriate methodology to evaluate the ecological damages of potential oil releases into the environment. We then discuss the procedures used to estimate potential natural resource injuries, derive suitable ecological compensation in a HEA framework, and convert restorative ecological compensation into economic damage estimates. The validity of the economic estimates is explored by comparison to existing data. We conclude that HEA offers a viable alternative to traditional economic analysis when potential injuries to ecological habitats are being evaluated.