OAHP-Valuation-Methodologies-Agricultural-Conservation-Practices.pdf

Review & Feasibility Determination of Methodologies for Valuing Agricultural Conservation Management Actions

June 29, 2019

Prepared For:

Oregon Watershed Enhancement Board (OWEB) 775 Summer St. NE, Suite #360

Salem, OR 97301

Prepared by:

Highland Economic, LLC

2344 NE 59th Ave

Portland, OR 97213

503-954-1741

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TABLE OF CONTENTS

Executive Summary

Project Purpose

Scope of Work and Approach

Data Sources & Certainty

Recommendations: Determination of Feasibility and Path Forward

1 Introduction

2 Approach & Key Considerations

2.1 Overview of Approach & Benefit Analysis Scope

2.1.1 Selection of Outcomes and Services to Review

2.1.2 Selection of Conservation Practices

2.2 Data Sources

2.3 Key Challenges & Available Approaches

2.3.1 Diversity of Oregon Agricultural Regions and Conservation Issues

2.3.2 Synergies, Tradeoffs, and Double Counting Among Environmental Benefits

2.3.3 Varying Effectiveness and Value of Conservation Practices Across Locations

2.3.4 Effects on Producers and Agricultural Lands of Conservation Practices

2.3.5 Landowner Participation

2.3.6 Practice- Based vs. Performance-Based

3 Overview of Technical Approaches & Considerations to Value Environmental Benefits

3.1 Technical approaches

3.1.1 Market Prices

3.1.2 Productivity Methods

3.1.3 Replacement Cost, Substitute Cost, and Avoided Cost

3.1.4 Travel Cost Method

3.1.5 Hedonic Price Method

3.1.6 Stated Preference Surveys on Willingness to Pay (Continent Valuation, Conjoint Analysis, Choice Experiments, etc.)

3.1.7 Benefits Transfer

3.2 General Determinants of Economic Value

3.2.1 Location

3.2.2 Abundance

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METHODOLOGIES FOR VALUING AGRICULTURAL CONSERVATION MANAGEMENT ACTIONS

3.2.3 Temporal and Cultural Context

4 Methodology Review by Benefit Type

4.1 Water Quality

4.1.1 Biophysical Quantification

4.1.2 Economic Valuation

4.2 Water Quantity

4.2.1 Biophysical Quantification

4.2.2 Economic Valuation

4.3 Carbon/Climate Regulation

4.3.1 Biophysical Quantification

4.3.2 Economic Valuation

4.4 Fish and Wildlife Habitat

4.4.1 Biophysical Quantification

4.4.2 Economic Valuation

5 Feasibility Determination

5.1 Policy/Implementation Issues & Next Steps

6 References

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LIST OF TABLES

Table ES-1: Economically Quantifiable Benefits by Conservation Practice

Table 2-1: Oregon Agricultural Regions and Oregon Conservation Eco-Region, Strategy Habitats and Key

Conservation Issues

Table 4-1: Summary of Biophysical Methodologies by OAHP Criteria

Table 4-2: Summary of Economic Methodologies by Potential Criteria

Table 4-3: Water Quality Effect Quantification: Methodologies, Tools, and Data Sources

Table 4-4: Data to Indicate Socioeconomic Value of Water Quality Improvements

Table 4-5: Water Quantity Effect Quantification: Methodologies, Tools, and Data Sources

Table 4-6: Data to Indicate Socioeconomic Value of Water Quantity Improvements

Table 4-7: Carbon Quantity Effect Quantification: Methodologies, Tools, and Data Sources

Table 4-8: Habitat Quantity Effect Quantification: Methodologies, Tools, and Data Sources

Table 4-9: Data to Indicate Socioeconomic Value of Habitat Improvements

Table 5-1: Economically Quantifiable Benefits by Conservation Practice

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EXECUTIVE SUMMARY

The Oregon Agricultural Heritage Program (OAHP) was established by the State Legislature in 2017

(State of Oregon, n.d.). The OAHP authorizes a new grant program for farmers and ranchers to help protect farmland and maintain agricultural working lands in the State of Oregon. The OAHP includes the

Oregon Agricultural Heritage Fund that will provide grants for working lands conservation easements

(permanent and temporary), as well as conservation management plans that support one or more natural resource values (including maintaining or enhancing fish and wildlife habitat, improving water quality, or supporting other natural resource values consistent with the social and economic interests of the agricultural owner/operator). In determining how to value implementation of conservation management plans, the Oregon Agricultural Heritage Commission, which oversees OAHP investments, identified two methods of paying landowners: 1) payment based on land lease rates, management costs, and foregone income, 2) payment based on the value to the public of environmental benefits, or public benefits, provided by conservation practices (Oregon

Agricultural Heritage Commission, 2019). The purpose of this report is to determine whether this second, outcome-based payment option is feasible with currently available science and methodologies.

Environmental benefits are environmental goods and services that people care about, including open space amenities, water supplies, water quality, fish and wildlife habitat, and sequestration and storage of carbon to mitigate climate change. Agriculture can both positively and negatively affect the quality and quantity of these environmental goods and services

(adverse effects may include use or depletion of water supplies or runoff from agricultural fields that decreases water quality in adjacent waterbodies), and conservation practices can both enhance positive impacts and mitigate adverse impacts.

Given the importance of agricultural lands and agricultural practices on the provision of environmental benefits, there is a large body of research from scientists in our state and throughout the Nation on agricultural land management and the environmental benefits of specific agricultural conservation practices. To a lesser extent, there is research on the social and economic value of these environmental benefits resulting from conservation practices. This research serves as the basis for the

Key Terms

Conservation Management Plans: Plans that identify conservation practices that will help steward the resources on a farm or ranch, including soil, water, air, plant and animal resources.

Agricultural conservation practices: Practices implemented by farmers and ranchers that improve resource management and either enhance environmental benefits from agricultural landscapes or minimize adverse environmental effects of agricultural production.

Environmental benefits: Provision of environmental goods and services that people care about, including water supplies, water quality, wildlife habitat, climate regulation, and flood reduction/water storage.

Public value of conservation practices: The economic and social value to the public of enhanced environmental benefits resulting from conservation practices. While many conservation practices enhance agricultural productivity and increase private economic value to the farmer/rancher, this analysis focuses exclusively on the value to the public of environmental benefits and does not evaluate the value of increased agricultural income/productivity.

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determination of feasibility of a payment system based on benefits provided by agricultural conservation practices.

PROJECT PURPOSE

The goal of this report is to review the available science and economics research in order to determine whether it is feasibility to value the environmental benefits to the public of agricultural conservation practices in Oregon (and thereby implement a payment system based on public value). If feasible, the ultimate goal is to develop a methodology that will compensate and incentivize landowners to provide valuable environmental benefits, with the potential ancillary benefit of simultaneously enhancing the productivity and financial viability of working agricultural lands in the State (as many conservation practices can have a positive return on investment for ranchers and farmers). The criteria for such a valuation methodology, as established by the Oregon Agricultural Heritage Commission (OAHC), is that the methodology provide certainty for landowners and the OAHC, as well as be fair, transparent, and easy and inexpensive to implement statewide. Such a valuation methodology would have long-term policy, budget, and land use ramifications for the state, and would also be economically important for landowners and the public in general.

Agricultural lands have long been recognized in Oregon as providing a host of environmental benefits that are valued by the public.1 While some agricultural practices can have negative environmental impacts, many agricultural producers go the extra mile in engaging in voluntary conservation practices that provide valuable environmental benefits to the public. The OAHC envisions a system to compensate agricultural producers for engaging in voluntary conservation practice, as identified in conservation management plans, that go above and beyond standard agricultural practices and that generate value for the public. Recognizing that funding would be limited, the program would seek to prioritize and compensate agricultural conservation practices that are most effective and provide the greatest public benefits. Such a program can provide a valuable win-win for farmers and the public by helping to incentivize and fund key conservation practices that increase agricultural productivity and provide significant environmental benefits valued by the public.

SCOPE OF WORK AND APPROACH

The valuation methodology is focused on environmental benefits to the public of agricultural conservation measures. At the foundation, the OAHP-funded conservation management plan will identify farm practices and management that will lead to desired agricultural and environmental outcomes. The process by which this occurs includes several steps. First agricultural practices result in biophysical changes on the land. These may include changes in the location, quantity, and type of vegetation on the land; changes in the amount of water withdrawn from surface or groundwater sources, and changes in crop and animal management. These biophysical changes then translate into environmental goods and services such as changes in soil fertility, water quality, available water quantity, habitat and species abundance, flood and climate regulation, and protection of cultural assets.

Finally, changes in these environmental goods and services can result in changes in social and economic values such as water supply costs, agricultural income, commercial fishing income, flood damage costs, 1 Environmental good and services from open space and natural areas that provide value to people are often referred to as ecosystem services, though this term is not used in this report, HIGHLAND ECONOMICS, LLC 7 recreation and aesthetic values, wildfire costs, and protection of threatened and endangered species. As such, it is important to focus the methodology review first on the biophysical effects of conservation practices, and second on the economic value of these biophysical effects.

A key challenge in economically valuing changes in agricultural conservation practices (or any conservation practice) is in making the link between the management action and the outcomes people actually care about and value. As such, the general approach in this review is to focus on the types of biophysical effects that can be quantified by available methodologies/tools with reasonable ease and accuracy, and the types of associated economic values and methods that can be applied to the estimated biophysical outcomes with reasonable ease and accuracy. For agricultural conservation practices, these biophysical outcomes and economic values are centered on specific water pollutants

(sediment, nitrogen, phosphorus); measurement of carbon dioxide (or its greenhouse gas equivalent), water quantity made available through conservation or management for habitat or other consumptive uses; and functional acres of habitat (where a functional acre is estimated based on quality and quantity).

With this approach, nearly all social and economic benefits are valued through proxies (e.g., pollutant loads entering waterbodies), rather than through the actual outcomes people directly care about and value (e.g., water clarity or fish populations). For example, outcomes people directly care about include wildfire risks, recreation quality, species populations, flood damages, and drinking water costs.

However, methodologies for these types of environmental outcomes are in general not reviewed as there are no reliable approaches or tools to quantify the biophysical effects of agricultural conservation measures in terms of these social/economically relevant outcomes. This introduces more uncertainty in the economic valuation, but is a practical and feasible approach given the constraints in conducting farm-level analyses that are easy to use and implement. Also, as a result of this approach, out of the diversity of economically and socially valuable outcomes possible from agricultural management practices, this review focuses on water quality, water quantity, habitat, and carbon (climate regulation) benefits.

Other types of economically and socially valuable benefits, including aesthetics and cultural benefits of farmland preservation values, are not included in the review as changes in these benefits as a result of farmland management practices are not readily measured through available methodologies that are more applicable to changes in overall land use (i.e., conversion of agricultural lands to developed lands rather than changes within agricultural land management). Similarly, while farmland management practices may affect the value of a wide variety of cultural assets (from traditional harvesting areas or historic structures), there are also very limited approaches and reliable values to use to quantify these assets and estimate their value. Finally, air quality is not included as air quality benefits of agricultural conservation measures may be limited in rural areas where there are typically few air quality impairments (outside of wildfire events, in which case changes in agricultural emissions would have little overall effect on air quality).

The conservation practices selected for analysis (shown in Table ES-1 below) are those that have the potential to provide significant environmental benefits. They are based on the NRCS effectiveness ratings in the Conservation Practices Physical Effects (CPPE) matrix (Natural Resources Conservation

Service, 2017). The NRCS effectiveness ratings range from -5 (most adverse effects) to +5 (most beneficial effects). Conservation practices that received a +4 or +5 for water quality/erosion control, HIGHLAND ECONOMICS, LLC 8 habitat provision, water quantity, and carbon sequestration/greenhouse gas emission control were identified as significant providers of these types of benefits (as indicated by the bullet points in summary

Table ES-1 below). The selection of habitats to evaluate is based on the strategy habitats in the Oregon

Conservation Strategy (Oregon Department of Fish and Wildlife, 2016).

DATA SOURCES & CERTAINTY

Key data sources for the analysis include:

NRCS evaluations, methodologies, tools, and reviews. NRCS has focused significant effort and funding resources over recent decades on quantifying the environmental effects of conservation practices, including development of numerous user-friendly tools.

Academic journals on all aspects of agricultural conservation practices, as well as on valuation of environmental goods and services.

Oregon State agency publications and datasets on the location, use, and condition of natural resources, particularly habitat and water resources.

These data sources were supplemented with interviews with local and state resource agencies throughout the state and input from the Oregon Agricultural Heritage Commission Sub-Committee

Members and Oregon Watershed Enhancement Board staff members overseeing this project.

There are numerous sources of uncertainty in developing a valuation methodology. These include uncertainty regarding:

a. The ability of available tools and methodologies to accurately predict the effectiveness of different agricultural conservation practices in delivering environmental benefits across the diverse agricultural and ecosystem contexts in the State of Oregon,

b. The ability to apply the available economic valuation methodologies and data in a way to appropriately accounts for how social and economic value for a given biophysical effect will vary by location throughout the state (for example, through the use of filters or screening criteria that prioritize locations in the state where a particularly type of social or economic value may be applied),

c. The feasibility of developing a methodology that appropriately accounts for synergies, tradeoffs and potential double counting of environmental goods and service values, and

d. The acceptance and interest by landowners in participating in a payment based on predicted environmental benefits and the associated estimated social and economic value.

The review of methodologies and data enclosed in this report addresses to some extent these sources of uncertainty and identifies potential methods to address them. However, we expect that the key to addressing uncertainty, throughout the development and adoption of a valuation methodology, will be to develop case study applications. These case study applications will help us better understand how results under a methodology will vary by region and agricultural system, and whether results from the methodology are adequately fair, certain, and reasonable.

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RECOMMENDATIONS: DETERMINATION OF FEASIBILITY AND PATH FORWARD

Based on our review of the available methodologies for each key type of environmental benefit (water quality, water quantity, habitat, and carbon), we provide an assessment of the feasibility of developing a valuation methodology that meets the OAHC criteria (fairness, certainty, transparency, and easy/inexpensive to use). We add the criteria of a reasonable level of accuracy such that the public will, with a reasonable level of certainty, receive benefits at least equal to the payments resulting from a fully developed valuation methodology. While we believe that developing a valuation methodology is feasible for nearly all of the conservation practice/significant benefit combinations indicated by bullet points in Table ES-1, the relative feasibility does vary substantially by practice and benefit type. Table

ES-1 summarizes the initial relative feasibility findings (as high, medium, or low) for each conservation measure and benefit type. The high, medium, or low feasibility rating is intended to convey the relative certainty and accuracy of valuation among the practice/benefit combinations that could be included in a valuation methodology. There are a few conservation practice/significant benefit combinations that are not feasible to value; we find for these that there are not sufficient data to quantify biophysical benefits

(environmental outcomes) of the conservation practices. In our feasibility assessment we assume that a valuation methodology would be used to provide annual payments, and that there would be a corresponding annual farm site visit to visually review conservation practices and outcomes.

Overall, and as shown in Table ES-1, we rate feasibility of a valuation methodology for carbon as high across all key conservation measures (practice-based measurement focused on carbon storage and GHG outcomes). We rate feasibility as high for valuation of riparian and wetland habitats on a per acre basis, and medium to low for grassland, woodland, and sage grouse habitats (outcome-based measurement during annual site-visit). We rate feasibility as high for water quantity benefits related to irrigation methods, land leveling, and water made available for wildlife. We rate feasibility as medium for water quality across all key conservation measures (practice-based measurement focused on key pollutant outcomes), other than for animal waste management for which there is little available quantification of conservation practice biophysical effects.

More specifically, overall feasibility is a composite rating of three feasibility factors:

1. Availability of transparent, accepted (by experts and regulatory agencies), and reasonably accurate tools/methods to quantify biophysical estimates in an easy to use and understand manner. The standard for easy to use and understandable is that with a one or two-day training, a conservation planner would be able to implement and apply the methodology using one annual site visit and some follow-up desktop analysis/review. We rate the available tools for water quality, water quantity, and carbon as a high level of feasibility on this factor. We also rate the available tools that could be adapted for habitat evaluation at a high level of feasibility on this factor for wetland/riparian habitats, sagegrouse habitat, and Oakland prairie/savannah.

Woodlands and grasslands are rated as medium level of feasibility on this factor due to less developed tools for habitat evaluation.

2. The inclusion of a particular agricultural conservation practice by each biophysical quantification tool/method. In other words, we reviewed the conservation practices evaluated in the NTT, COMET-Farm/COMET-Planner, and the availability of existing habitat assessment tools to determine if evaluating that particular practice is feasible with the available

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tools/methods. The specific conservation measures listed in Table ES-1 are based on the conservation practices included in these tools.

3. Availability of published (or derived) economic values for the environmental benefit type as quantified by biophysical tools. We evaluated whether there are available published values, the degree to which these values may be representative/adjustable for the different agricultural regions of Oregon, and the degree to which these values actually represent economic benefits to Oregonians (as many published values are actually cost-based values). We again expect that convening a panel of professional agricultural and natural resource economists, together with representatives from the conservation planning community, would be a good path forward to review and confirm selected values that would be applied in a valuation methodology. The goal would be to reach general agreement and confirmation of values that provide a reasonable estimate of value to the public of changes in biophysical conditions. At this stage, we rate high feasibility on economic valuation for carbon, water quantity, and riparian/wetland habitat. We rate water quality and grassland/sagegrouse/woodland habitat valuation with low to medium feasibility due to limited economic studies that can be appropriately applied/adapted to diverse

Oregon agricultural regions.

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Table ES-1: Economically Quantifiable Benefits by Conservation Practice

Conservation Practice Water Quality

Water Quantity

Habitat Carbon

Vegetation (non-riparian)

Vegetative Barrier/Shelterbelt

Filter strip/field border1

Habitat Enhancement/ Preservation

Flowing Water (flow improvement through water quantity method)

Riparian Habitats1

Wetlands1

Woodlands (water quality captured as buffer strip or riparian area)

Grasslands (water quality captured as buffer strip or

Sage-Grouse (water quality captured as buffer strip or

Grazing/Animal Management

Rotational/Prescribed grazing (habitat benefits evaluated indirectly through grassland ‘habitat’ evaluation)

Compost application

Range/forage planting (habitat benefits evaluated indirectly through grassland ‘habitat’ evaluation)

Feed management

Animal Waste management (water quality measured through crop nutrient management)

Silvopasture

Crop Management

Cover cropping

No Till/ Reduced Till

Nutrient management

Field Harvest Management (habitat benefits evaluated indirectly through grassland/wetland ‘habitat’ evaluation)

Fertilizer Management

Irrigation/conveyance efficiency

Land leveling

1/Water quality add carbon benefits of these habits may be captured through the per acre habitat values. Care must be taken to ensure no double counting of value, depending on how the per acre habitat values are estimated and which services are included in the per acre habitat estimation methodology.

Conservation practice has potential significant impact on the benefit type

Not feasible rating

Low feasibility rating

Medium feasibility rating

High feasibility rating

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1 INTRODUCTION

The Oregon Agricultural Heritage Program (OAHP) was established by the State Legislature in 2017. The

OAHP is a new grant program for farmers and ranchers to help protect farmland and maintain agricultural working lands in the State of Oregon. The OAHP includes the Oregon Agricultural Heritage

Fund that will provide grants for working lands conservation easements (permanent and temporary), as well as conservation management plans that support one or more natural resource values (including maintaining or enhancing fish and wildlife habitat, improving water quality, or supporting other natural resource values consistent with the social and economic interests of the agricultural owner/operator). In determining how to value implementation of conservation management plans, the Oregon Agricultural

Heritage Commission, which oversees OAHP investments, identified two methods of paying landowners:

1) payment based on land lease rates, management costs, and foregone income, 2) payment based on the value to the public of environmental benefits provided by agricultural practices (Oregon Agricultural

Heritage Commission, 2019). The purpose of this report is to determine whether this second, performance-based option is feasible based on currently available science and methodologies.

Agricultural lands have long been recognized in Oregon as providing a host of environmental benefits to the public. Oregon’s land use laws and the efforts of numerous organizations around the state have also protected working lands for the many environmental benefits they provide. Environmental benefits are environmental goods and services that people care about, including open space amenities, water supplies, water quality, fish and wildlife habitat, and sequestration and storage of carbon to mitigate climate change. Agriculture can both positively and negatively affect the quality and quantity of these environmental goods and services (for example, adverse effects may include use or depletion of water supplies, or runoff from agricultural fields that decreases water quality in adjacent waterbodies), and conservation practices can both enhance positive impacts and mitigate adverse impacts.

Given the importance of agricultural lands and agricultural practices on the provision of environmental benefits, there is a large body of research from scientists in our state and throughout the Nation on agricultural land management and the environmental benefits of specific agricultural conservation practices. To a lesser extent, there is research on the social and economic value of these environmental benefits resulting from conservation practices. This research serves as the basis for the determination of feasibility of a payment system based on benefits provided by agricultural conservation practices.

The goal of this report is to review the available science and economics research and determine whether it is feasibility to value the environmental benefits to the public of agricultural conservation practices in

Oregon. If feasible, the ultimate goal is to develop a methodology that will compensate and incentivize landowners to provide valuable environmental benefits, with the potential ancillary benefit of simultaneously enhancing the productivity and financial viability of working agricultural lands in the

State (as many conservation practices can have a positive return on investment for ranchers and farmers). The criteria for such a valuation methodology, as established by the Oregon Agricultural

Heritage Commission (OAHC), is that the methodology provide certainty for landowners and the OAHC, as well as be fair, transparent, and easy and inexpensive to implement statewide. Such a valuation methodology would have long-term policy, budget, and land use ramifications for the state, and would also be economically important for landowners and the general public.

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As highlighted in the 2013 Oregon Values and Beliefs Survey, Oregonians highly value the State’s farmland and want to conserve it (Oregon Values and Beliefs Project, 2013). Oregonians also highly value the state’s natural environment, including clear air and water, recreation opportunities, and open spaces. Agricultural lands contribute to these environmental assets, with many agricultural producers going the extra mile in engaging in voluntary conservation practices that provide valuable environmental benefits to the public. The OAHC envisions a system to compensate agricultural producers engaging in voluntary conservation practices, as identified in conservation management plans, that go above and beyond standard agricultural practices and that generate value for the public. Recognizing that funding would be limited, the program would seek to prioritize and compensate the agricultural conservation practices that are most effective and provide the greatest public benefits. Such a program can provide a valuable win-win for farmers and the public by helping to incentivize and fund key conservation practices that increase agricultural productivity and provide significant environmental benefits valued by the public.

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2 APPROACH & KEY CONSIDERATIONS

This section provides an overview of the approach to the methodology review, including selection of the conservation practices and types of benefits to the public that are the focus of the valuation methodology, identified key challenges and potential approaches to a valuation methodology, and the key types of data sources relied upon throughout the review.

2.1 OVERVIEW OF APPROACH & BENEFIT ANALYSIS SCOPE

Figure 2-1 provides an overview of the thought process and approach in developing a methodology to value the benefits to all Oregonians of conservation actions on Oregon farms and ranches. At the foundation, the conservation management plan will identify farm practices and management that will lead to desired agricultural and environmental outcomes. The process by which this occurs includes several steps. First agricultural practices result in biophysical changes on the land. These may include changes in the location, quantity, and type of vegetation on the land; changes in the amount of water withdrawn from surface or groundwater sources, and changes in crop and animal management. These biophysical changes then translate into environmental goods and services such as changes in soil fertility, water quality, available water quantity, habitat and species abundance, flood and climate regulation, and protection of cultural assets. Finally, changes in these environmental goods and services can result in changes in social and economic values such as water supply costs, agricultural income, commercial fishing income, flood damage costs, recreation and aesthetic values, wildfire costs, and protection of threatened and endangered species.

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Figure 2-1: Conservation Management Plans and Economic Value

CONSERVATION

MANAGEMENT PLAN

KEY CHANGES ON LAND

Water drawn from surface or groundwater sources (Water Management)

Amount, location, and type of vegetation and waterbodies (Landscape management)

Methods of grazing and animal waste management (Animal Management)

Crop rotation, tillage, and other practices (Crop management)

Protection of cultural or historical assets

Productivity of the land (yield/animal carrying capacity), and associated food security benefits

Water quantity in aquifers and streams

Water quality in aquifers and streams

Habitat quality / species abundance and diversity

Flood regulation

Carbon storage

Cultural resources

KEY ECONOMIC BENEFITS

Farm profitability

Food security

Reduced water supply costs

Reduced flood damage costs

Intrinsic value of species & habitat preservation

Recreation & aesthetic value

Climate regulation / carbon value

Cultural values

Reduced wildfire costs

Modifications to Farm Practices / Management

Enhanced Production of Goods & Services from Agricultural Lands

Economic Value Generated

KEY GOODS & SERVICES PRODUCED ESTIMATED OUTCOMES

AF of water available for another use (reduced water use or provision of water for on-farm habitat)

Acres of habitat, by type, weighted by quality

Tons sediment, lbs nitrogen, lbs phosphorus

Tons of CO2 equivalent

ESTIMATED BENEFITS

Value of water/AF in waterbodies with low instream flow/ limited aquifers

Value of improved water quality

(per ton of pollutant) in impaired waterbodies

Value per functional acre of priority habitats

Value per CO2 equivalent

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2.1.1 Selection of Outcomes and Services to Review

A key challenge in economically valuing changes in agricultural conservation practices (or any conservation practice) is in making the link between the management action and the outcomes people actually care about and value. For example, to value water quality, ideally we would complete the following four steps:

1. Identify how a conservation management practice (or suite of practices) changes a variety of water quality parameters (e.g., concentrations of nutrients or sediment, temperature, etc.),

2. Determine the associated change in the aquatic ecosystem (e.g., water clarity, disease-causing bacterial population levels, fish population levels, etc.),

3. Establish a measure of this change in terms of social and economic parameters of importance

(e.g., change in water treatment required, change in number of days swimming is affected by harmful levels of bacteria, change in number of fish caught, change in population of threatened species, number of boating visitor days improved because of increased water clarity, etc.), and

4. Value these changes economically.

However, even completing the first step is challenging. As such, the general approach in this review is to focus on the types of biophysical effects (estimated outcomes in Figure 2-1) that can be quantified by available methodologies/tools with reasonable ease and accuracy, and the types of associated economic values (estimated benefits in Figure 2-1) and methods that can be applied to the estimated biophysical outcomes with reasonable ease and accuracy. As highlighted in the figure, these outcomes and values are centered on specific water pollutants (sediment, nitrogen, phosphorus); measurement of carbon dioxide (or its greenhouse gas equivalent), water quantity made available through conservation or management for habitat or other consumptive uses; and functional acres of habitat (where a functional acre is estimated based on quality and quantity).

With this approach, nearly all social and economic benefits are valued through proxies, rather than through the actual outcomes people directly care about and value. For example, outcomes people directly care about include wildfire risks, recreation quality, species populations, flood damages, and drinking water costs. However, these methodologies for these types of outcomes are in general not reviewed as there are no reliable methodologies to quantify the biophysical effects of agricultural conservation practices in terms of these social/economically relevant outcomes. Other types of economically and socially valuable benefits, including aesthetics and cultural benefits of farmland preservation values, are not included in the review as changes in these benefits as a result of farmland management practices are not readily measured through available methodologies that are more applicable to changes in overall land use (i.e., conversion of agricultural lands to developed lands rather than changes within agricultural land management). Similarly, while farmland management practices may affect the value of a wide variety of cultural assets (from traditional harvesting areas or historic structures), there are also very limited approaches and reliable values to use to quantify these assets and estimate their value. Finally, air quality is not included as air quality benefits of agricultural conservation practices may be limited in rural areas where there are typically few air quality impairments (outside of wildfire events, in which case changes in agricultural emissions would have little overall effect on air quality).

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2.1.2 Selection of Conservation Practices

The selection of conservation practices that have the potential to provide significant environmental benefits is based on the NRCS effectiveness ratings in its Conservation Practices Physical Effects (CPPE) matrix (Natural Resources Conservation Service, 2017). The NRCS effectiveness ratings range from -5

(most adverse effects) to +5 (most beneficial effects). Conservation practices that received a +4 or +5 from NRCS for water quality/erosion control, habitat provision, water quantity, and carbon sequestration/greenhouse gas emission control were included in this analysis as significant providers of these benefit types (as indicated by the bullet points in Table ES-1). Conservation practices that received a -5 to a +3 rating from NRCS for effectiveness for a relevant benefit type were assumed to not provide significant benefits for a given benefit type. The selection of habitats to evaluate is based on the

Strategy Habitats identified in the Oregon Conservation Strategy (Oregon Department of Fish and

Wildlife, 2016).

2.2 DATA SOURCES

Sources are cited in detail throughout this document. However, in general, key data sources for the analysis include:

NRCS evaluations, methodologies, tools, and reviews. NRCS has focused significant effort and funding resources over recent decades on quantifying the environmental effects of conservation practices, including development of numerous user-friendly tools.

Academic journals on all aspects of agricultural conservation practices, as well as on valuation of environmental goods and services.

Oregon State agency publications and datasets on the location, use, and condition of natural resources, particularly habitat and water resources.

These data sources were supplemented with interviews with local and state resource agencies throughout the state and input from the Oregon Agricultural Heritage Commission Sub-Committee

Members and Oregon Watershed Enhancement Board overseeing this project.

2.3 KEY CHALLENGES & AVAILABLE APPROACHES

This section describes some of the key challenges and available approaches for a valuation methodology.

2.3.1 Diversity of Oregon Agricultural Regions and Conservation Issues

Oregon agriculture is diverse and varies substantially across the state, with eight Oregon Agriculture

Regions identified by the State Department of Agriculture, as described in Table 2-1 (Oregon

Department of Agriculture, 2017). In the Willamette Valley agricultural region alone there are more than

170 different crops grown, with other regions specializing more in dairy, beef, or in specific high value crops such as apples, or pears, or vineyards (Oregon Department of Agriculture, 2017). Correspondingly, there are diverse ecoregions, each with its own unique combination of climate, topography, habitat types, and species of concern (Oregon Department of Fish and Wildlife, 2016). This diversity is summarized in Table 2-1. A statewide valuation methodology needs to recognize and accommodate the diversity of agricultural production systems, crop types, and ecological conditions in order to be reasonably accurate and fair. The approach taken in this review is to identify and include the diversity of

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conservation practices that may be applicable in different agricultural regions across the state, as well as identify the Strategy Habitats across the state and review methods pertinent to those habitats.

Secondly, the review focuses on locational factors that would affect the efficacy and prioritization of conservation practices in different regions of the state, based on the current and projected condition and use of resources.

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Table 2-1: Oregon Agricultural Regions and Oregon Conservation Eco-Region, Strategy Habitats and Key Conservation

Issues

OR

Agricultural Region

Ecoregion Counties Chief Products Ecoregion(s) Strategy Habitats Identified Habitat Improvement Actions by Agriculture

Key Conservation Issues

Willamette Valley

Willamette Valley

Columbia, Multnomah, Clackamas, Yamhill, Washington, Polk, Benton, Linn, Lane

Fruit, beef, eggs, trees, nuts, hops, milk, vegetables, grain, grass seed, nursery, grapes

Willamette Valley

Wetlands, flowing water/riparian, grasslands, oak woodlands

Mowing/controlled grazing to maintain open structured habitat; wetland/riparian and river/floodplain connections;

conservation-friendly land management; control of invasive species

Land use changes (including change in crops or intensification of crop management), disruption of fire and floodplain function, invasive species, habitat fragmentation

Southern Oregon

Klamath Mountains

Douglas, Josephine, Jackson

Fruit, beef, hay, milk, potatoes

Klamath Mountains

Wetlands, flowing water/riparian, grasslands, oak woodlands, ponderosa pine woodlands

Reduce stream sedimentation, increase habitat connectivity in valley bottom habitats, conservation-friendly land management; enhanced riparian function, limit and control invasive species

Land use changes, disruption of fire regime, invasive species

Oregon Coast Coast Range

Clatsop, Tillamook, Lincoln, Coos, Curry

Beef and Dairy Cattle, Cranberries

Coast Range

Wetlands, flowing water/riparian estuaries, grasslands, oak woodlands

As feasible, remove dikes/tide gates or replace with new innovations to improve fish passage/hydro function, limit invasive species.

Land use changes, invasive species

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OR

Agricultural Region

Ecoregion Counties Chief Products Ecoregion(s) Strategy Habitats Identified Habitat Improvement Actions by Agriculture

Key Conservation Issues

Mid-Columbia Basin

Columbia Plateau, East Cascades

Hood River, Wasco

Fruit Columbia Plateau, East Cascades

Wetlands, flowing water/riparian, grasslands, natural lakes, oak woodlands, ponderosa pine woodlands, sagebrush

Water conservation, no till-farming/, vegetation to control soil erosion/recharge, maintain/connect wildlife habitats including through riparian corridors, control invasive species, reduce vulnerability of property to fire, conservation-friendly land management; provide water for wildlife in arid areas and limit hazards to wildlife on water developments

Water quantity/quality, habitat connectivity, invasive species, land use change

Columbia Basin

Columbia Plateau

Umatilla, Morrow, Gilliam, Sherman, part of Wasco

Fruit, beef, grass seed, hay, milk, grain, potatoes

Columbia Plateau

Wetlands, flowing water/riparian, grasslands, sage brush

Water conservation, no till-farming/, vegetation to control soil erosion/recharge, maintain/connect wildlife habitats including through riparian corridors, control invasive species, Water quantity/quality, habitat connectivity, invasive species

Northeast Oregon

Blue Mo3untains

Wallowa, Union, Baker, part of Grant

Beef, fruit, grain, hay, hops, potatoes, onions

Blue Mountains

Wetlands, flowing water/riparian, aspen woodlands, grasslands, ponderosa pine woodlands, sagebrush

Increase connectivity between habitat patches on private areas in lower elevations (grasslands/riparian areas/wetlands/shrublands);

provide water for wildlife in arid areas and limit hazards to wildlife on water developments (avoid overhanging lines and provide escape ramps). Control invasives and use native plants in restoration/revegetation

Land use changes (habitat fragmentation), water quality/quantity, invasive species, disruption of fire regimes

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OR

Agricultural Region

Ecoregion Counties Chief Products Ecoregion(s) Strategy Habitats Identified Habitat Improvement Actions by Agriculture

Key Conservation Issues

Southeast Oregon

Northern Basin and Range, Blue Mountains

Malheur, Harney, Lake, Klamath, Wheeler, part of Grant

Beef, grain, hay, milk, potatoes

Northern Basin and Range, Blue Mountains

Wetlands, flowing water/riparian, aspen woodlands, grasslands, natural lakes, ponderosa pine woodlands, sagebrush

Increase connectivity between habitat patches on private areas in lower elevations (grasslands/riparian areas/wetlands/shrublands);

provide water for wildlife in arid areas and limit hazards to wildlife on water developments (avoid overhanging lines and provide escape ramps). Control invasives and use native plants in restoration/revegetation, controlling western juniper.

Proactively manage livestock grazing and restore degrade habitat, minimize grazing during restoration of wetlands/riparian areas.

Land use changes (habitat fragmentation), water quality/quantity, invasive species, disruption of fire regimes

Central Oregon

East Cascades, Blue Mountains

Jefferson, Deschutes, Crook, part of Wasco

Beef, grain, hay, vegetable seed

East Cascades, Blue Mountains

Sagebrush, wetlands, flowing water/riparian, aspen woodlands, grasslands, natural lakes, ponderosa pine woodlands

Increase connectivity between habitat patches on private areas in lower elevations (grasslands/riparian areas/wetlands/shrublands);

provide water for wildlife in arid areas and limit hazards to wildlife on water developments (avoid overhanging lines and provide escape ramps). Control invasives and use native plants in restoration/revegetation

Land use changes (habitat fragmentation), water quality/quantity, invasive species, disruption of fire regimes

Sources: (Oregon Department of Agriculture, 2017), (Oregon Department of Fish and Wildlife, 2016).

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2.3.2 Synergies, Tradeoffs, and Double Counting Among Environmental Benefits

There are synergies and tradeoffs among environmental outcomes – nothing in an ecosystem functions in a vacuum. This methodology review recognizes this complexity and focuses on identifying where overlap may occur and which methodologies may provide the best accounting for valued outcomes. No system will be perfect, but we have tried to focus the methodology review for each conservation practice on the key valued environmental goods/services while avoiding potential double counting. For example, water quantity provides temperature water quality benefits, dilutes concentration of other pollutants, and increases fish habitat availability. Our approach is to focus on the valuation per acre-foot of water made available instream (or to wetlands or watering holes) on a per AF basis that should implicitly include these various habitat and water quality benefits. Similarly, the water quality benefits

(temperature reduction and pollutant capture) provided by riparian habitats should implicitly (or sometimes explicitly) be included in the per acre values for this habitat from the economic literature.

For habitat in particular, there are numerous tradeoffs in the effects on habitat quality among conservation practices. Because of the complexity in linking habitat quality with conservation practices, we have focused our biophysical habitat methodology review on approaches that directly assess habitat condition – with the intent of holistically taking into account the potential positive and adverse effects of a suite of conservation practices and management conditions.

2.3.3 Varying Effectiveness and Value of Conservation Practices Across Locations

The level of environmental service provided, and the value of a given level of environmental services, is very location-specific. The type and magnitude of the effects of a specific conservation practice typically depend on geographic and environmental factors such as location in a watershed, topography, aspect, soil type, precipitation frequency and magnitude, local fauna and flora, and surrounding land uses.

Further, the level of economic value depends on the size and values of the affected human population

(i.e., the population that holds values for the environmental benefit), and the current quantity and quality of environmental services provided in the area. Recognizing the diverse agricultural and socioeconomic landscapes throughout the State, the review includes information on the 1) geographical and environmental factors affecting efficacy of any one conservation practice that may need to be incorporated into the valuation methodology, and 2) socioeconomic factors that may need to be incorporated into the valuation methodology.

2.3.4 Effects on Producers and Agricultural Lands of Conservation Practices

This methodology review focuses on the economic and social benefits to the public resulting from conservation practices. Changes in agricultural production and profitability as a result of management practices are not included in this review. These are the costs and the benefits borne by the landowner/producer. This is an area for which there is likely the most available data on the economic effects of agricultural conservation practices. As the landowner may indirectly be compensated economically for benefits to agricultural productivity (e.g., through receiving more revenue from higher yields or animal production), and there are many Natural Resources Conservation Service (NRCS) programs available for cost-sharing to offset foregone income or costs associated with many conservation practices, this methodology review does not incorporate costs and benefits to the producer.

The purpose of the OAHP is to help farmers and ranchers to maintain their farms and ranches as working agricultural lands. As such, while the methodology review does not focus on quantifying the

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agricultural productivity benefits of conservation practices, the purpose is to supplement and increase adoption of conservation practices that have both environmental benefits and production benefits.

There will be some tradeoffs, where some management practices may reduce agricultural net income, particularly in the short-term.