Research on the Efficacy of Applying a Supply Chain Paradigm and Economic Valuation Tools to Optimize Management Decision-Making and Enable Quantification of DoD Stewardship Value

Stephen Petron | CH2M HILL, Inc.

RC18-1615

Objective

The objective of the research was to evaluate the efficacy of the following toward improving the incorporation of natural capital into valuation and management of Department of Defense (DoD) test and training infrastructure:

• Business supply chain assessment tool

• Contingent valuation (CV)

• Net Environmental Benefit Analysis (NEBA)

Beyond assessing the efficacy of these tools, the research identified potential missed opportunities, misalignment, inefficiencies and fatal flaws, refinements to the approaches, and as appropriate, next phases of work.

A key component of the research effort was a workshop held at Eglin Air Force Base (AFB) to discuss the potential for the tools to be explored as part of research to fill the DoD natural capital gaps. The project team is grateful to the Eglin AFB staff for providing their planning documents, participating in the planning and execution of the workshop, responding to follow-up queries, and providing valuable contributions to the assessment. To place the discussion of the assessed tools into a military perspective, they are described in the context of Eglin AFB wherever feasible.

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Technical Approach

Application of a Business Supply Chain Tool to Integrate Natural Capital into Valuation and Management of DoD Lands. The research objective was to test whether a business supply chain paradigm can provide a consistent framework for standardizing the process of identifying and accounting for risks, threats, conflicts, opportunities, system dynamics, boundaries, and scale associated with natural capital managed by DoD to meet its mission. The project team initially tested one type of business supply chain assessment tool: Life-Cycle Perspective Analysis (LCPA). The project team applied the LCPA to the Eglin AFB setting, and the conclusion that a different tool applicable to business supply chains called the Natural Capital Protocol (NCP1) could potentially address the gap related to a consistent, repeatable framework to optimize decision making through full incorporation of natural capital considerations.

Application of Contingent Valuation Methods to Develop Comprehensive Value Estimates and Inform Decision Making. This approach examined the efficacy of applying stated preference/CV methods to fill the gap related to the ability to assess the stewardship value derived from restoring and protecting unique natural resources including, but not limited to, threatened and endangered species and their habitat. Two scales are considered: 1) individual military installations; and 2) across all DoD land holdings.

Application of Net Environmental Benefit Analysis to Project-Level Decision Making. NEBA, a tool that is most often applied to project-level decisions involving trade offs affecting natural resources is of particular interest. The project team considers how this tool can be cost-effectively applied to identify and defend solutions consistent with sustaining test and training operations while maximizing environmental benefits or minimizing environmental losses.

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Results

The DoD has been actively engaged in research on tools and approaches to account for natural capital and ecosystem services in decision making. Despite the considerable advances in valuing natural capital, the DoD pointed out several knowledge gaps such that “full consideration of natural capital in environmental management and decision-making has not been realized” (SERDP 2017). Furthermore, “quantitative approaches have been developed for substantiating these benefits yet none of these approaches focus on the dedicated environmental stewardship at defense installations” (SERDP 2017). To address these gaps, the present research set out to investigate the applicability of three tools -business supply chain paradigm, CV, and NEBA - that have been employed successfully in other contexts to evaluate their suitability toward meeting DoD needs.

Business Supply Chain Assessment Tool - Using an assessment tool called LCPA, the project team evaluated the business supply chain paradigm as a platform for “full consideration of natural capital in environmental management and decision making.” The premise was that this paradigm can provide a consistent framework for standardizing the process of identifying and accounting for risks, threats, conflicts, opportunities, system dynamics, boundaries, and scale associated with natural capital managed by DoD to meet its mission.

While LCPA is a tool, it is also part of a paradigm that companies operationally integrate into investment processes and decision making. The integration involves adopting a set of standards around  environmental, social, and governance (ESG), with the intent of maintaining a “license to operate.” Through the analysis process, which included the workshop at Eglin AFB, the project team ultimately concluded that LCPA as applied in the private sector did not seem to be a good fit for Eglin AFB and other military installations because “license to operate” is less relevant to the military; ESG is a newer concept to the government; bundling E&S elements can be confusing and not readily relatable to military readiness; there is a lack of uniform metrics for the social and governance aspects; and valuation is not a strong aspect of LCPA.

Contingent Valuation - The outputs of a CV study could: 1) Support decision making by understanding the incremental benefit of natural resource asset types when considering acquisitions, divestitures, re-use, land swaps, leases, land  withdrawals, or other activities involving significant changes in the quantity or quality of relatively unique habitats; 2) Contribute valuable information to the assessment of off-installation activities that may impinge upon national parks, wilderness areas, and other valued natural resources; 3) Provide supporting information to justify natural resource management funding requests; and 4) Demonstrate DoD stewardship value to the public. In all circumstances, the objective of monetizing benefits is to support decision making when balancing training requirements, land stewardship, and costs. Given the complementarity between DoD’s readiness mission with protecting and restoring the natural resources under its management, knowledge of the stewardship value is expected to strengthen the case for keeping those resources under DoD management.

Net Environmental Benefit Analysis - The project team proffered that NEBA could provide value-added information to decision makers faced with alternative test and training land management techniques and options regarding land use or the timing of actions. Specifically, the project team proposed that the information could be used to rank alternatives in terms of maximizing environmental benefit, minimizing environmental losses, and achieving the greatest environmental benefit for a given budget, thus facilitating the mission and optimizing co-benefits. The research tested the hypothesis that NEBA can be effectively used from a cost and time perspective to provide decision makers necessary information to assess environmental tradeoffs, balancing training requirements, land stewardship, costs, and legal drivers.

As part of this research project, the project team provided a detailed description of NEBA, reviewed and summarized its historic and current DoD applications, identified situational characteristics that can be indicative that NEBA application could provide value, and presented a historical example where NEBA was used to assess mitigation alternatives. In addition, based on the input received at the Eglin AFB workshop, the project team prepared a recreation benefits assessment for Eglin’s recreation program. Using those results, the project team presented a demonstration of the calculation of a net environmental benefit associated with a hypothetical change in recreation access.

NEBA application contexts for DoD have included remediation, mitigation, infrastructure, lease assessment, and redevelopment. The dominant application is the evaluation of remedies for contaminated soil, surface water, sediment, and groundwater, including at closed and inactive ranges. In these cases, the analyses have identified the protective remediation alternatives that provide the greatest net environmental benefit (or least loss) at the lowest cost. The core purpose behind these NEBAs was to facilitate acceptance of a cost-effective path forward to site closure.

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Benefits

The business supply chain paradigm was considered and rejected and was replaced by the NCP. The NCP, CV method, and NEBA each have stand-alone value, but there are also linkages among these tools. As a group they address the natural capital gaps identified by DoD related to decision making and documenting the value of DoD environmental stewardship. The NCP, at a minimum, is an awareness tool geared to inform organizations about their supply chain natural capital dependences and impacts, and the associated risks. In the case of DoD, it can also be used to delineate the public-dependent ecosystem services that flow from DoD lands. CV is a method to quantify the economic value of the DoD environmental stewardship, and the NEBA framework has been demonstrated to generate value-added information to support project level decision making. Cumulatively, these tools and their outputs can help reduce operational risk and sustain support for DoD test and training missions.

Business Supply Chain Assessment Tool - The project team believes the NCP shows considerable promise as a focused framework to integrate natural capital into valuation and management of DoD training and testing lands. An NCP application pilot study on one or more DoD installations is recommended. If the results are positive, then the pilot study could be followed by guidance development.

Contingent Valuation - The outputs of a CV study could: 1) Support decision making by understanding the incremental benefit of natural resource asset types when considering acquisitions, divestitures, re-use, land swaps, leases, land withdrawals, or other activities involving significant changes in the quantity or quality of relatively unique habitats; 2) Contribute valuable information to the assessment of off-installation activities that may impinge upon national parks, wilderness areas, and other valued natural resources; 3) Provide supporting information to justify natural resource management funding requests; and 4) Demonstrate DoD stewardship value to the public. In all circumstances, the objective of monetizing benefits is to support decision making when balancing training requirements, land stewardship, and costs. Given the complementarity between DoD’s readiness mission with protecting and restoring the natural resources under its management, knowledge of the stewardship value is expected to strengthen the case for keeping those resources under DoD management.

Net Environmental Benefit Analysis - It is recommended that DoD consider developing guidance to identify and convert opportunities to use the NEBA framework and associated economic benefit assessment methods (for example, benefit transfer and habitat equivalency analysis) on a project-specific basis to evaluate environmental tradeoffs and more comprehensively integrate natural capital considerations into decision making. Outputs from tools already in use by DoD, such as InVEST, can feed into a NEBA.

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Points of Contact

Principal Investigator

Stephen Petron

CH2M HILL, Inc.

Phone: 603-898-0732

Program Manager

Resource Conservation and Resiliency

SERDP and ESTCP

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