Ecosystem Valuation and Hydropower Licensing Decisions: Lessons from the FERC Experience

Monetary valuation of benefits and costs of public investments, or of issuing a permit, has been common practice for decades. However, not all benefits or costs have been reported in monetary terms, despite the fact that economists have developed methods for placing a monetary value on all ecosystem services. Advocates for use of these ecosystem valuation methods assert that extending monetary valuation to a comprehensive list of services fills a gap in the information policymakers can use when making investment or permitting decisions. This paper examines the use of ecosystem valuation methods by the Federal Energy Regulatory Commission (FERC) when permitting the operation of existing nonfederal hydropower dams in the United States. First, we report that when FERC reformed the hydropower licensing process it chose not to require specific types of analysis or analytical procedures, including ecosystem valuation for the permit applicant. We explain the logic for that decision. Second, we report on 17 major licensing cases where project operations would yield monetized hydropower benefits, but would also affect fish passage or recreational opportunities. We find that neither license applicants, nor those who commented on the license application, called for ecosystem valuation studies for comparison with monetary estimates of hydropower benefits. In lieu of having ecosystem valuation studies, FERC encouraged applicants to engage in a deliberative, decentralized negotiation process with a wide array of stakeholders. If that group agreed on project operations, FERC would expedite issuing the license. This reliance on a deliberative and decentralized process, in lieu of ecosystem valuation, for comparing and making tradeoffs among project-specific effects is consistent with the deliberative valuation processes supported by many ecological economists.

• When the Federal Energy Regulatory Commission (FERC) reformed its hydropower licensing process to better consider environmental values it did not require non-market valuation analyses.
• FERC chose to create a deliberative and decentralized stakeholder negotiation process for comparing and making tradeoffs among project-specific effects, some of which were reported in monetary terms and others in bio-physical units.
• Non-market valuation analyses could be introduced to the deliberative process if the stakeholders found such analysis useful for reaching agreement.
• A review of major hydropower licensing decisions did not find any instance of non-market valuation studies contributing to reaching agreement on the operational rules included in a FERC license.
• The hydropower industry, ecosystem advocacy groups and resource agencies have endorsed this stakeholder negotiation process as a way to compare environmental values and power production when making licensing decisions.

A version of this paper was published in Ecological Economics. Click below to view the journal article.