Ports and Nature-based Solutions: An Overview of 12+1 Financial Instruments
Source: Water Science Policy
Date: 31 January 2021
- A variety of nature-based and hybrid solutions are available to build sustainable value in and around ports.
- Financiers and investors are willing to jump in, but diffused benefits and a lack of hard and enforceable cashflows prevent uptake at scale
- 12+1 value instruments, derived from a wide assessment, can enable port authorities to bridge this gap.
A variety of nature-based and other sustainable solutions are currently available and suitable for application in and around ports. Examples are replanting mangroves to reduce sedimentation of navigation-channels, artificial reefs to dampen wave-energy, hybrid breakwaters and quay walls accommodating an abundance of sea-life, or the ecologically beneficial use of dredged sediments.
The socio-economic benefits of such nature based and hybrid solutions in comparison to classic 'grey' solutions have raised the interest of policy makers, development banks, private capital agents and port authorities. However, the uptake remains modest, due to a variety of hurdles in linking investments to these kinds of solutions. A fundamental issue comes from the diffused benefits in the wider area, serving many stakeholders, but leaving the (extra) costs for the port authority. A common idea in the literature is that all such stakeholders should pick up their fair share of the bill. But without proper instrumentation, this remains more of a desire than a reality. Or translated for financiers and investors; there remains a lack of hard and enforceable cashflows. Typically, this makes infrastructure managers fall back to their proven 'grey' solutions, optimizing financial performance for their economic need, and taking (allowed) externalities for granted.
On the upside, in contrast to many non-port related coastal or riverine settings, port authorities do have a set of financial instruments at their disposal. This set is dependent on the administrative structure of the port, which could vary from a fully privatized structure to a full public entity. In practice, only a few instruments are used like port dues, service fees and lease-tariffs. But by considering the full spectrum, a much wider set becomes visible. This wide set offers a variety of options to convert benefits from nature-based or hybrid solutions to improved cashflows, improving the business case for such solutions. These instruments are described below, including an example of how this could help.
1. Port dues (ship owner)
These are payments by ship owners to make use of port facilities. Usual tariffs are linked to ship-metrics, cargo held and/or type of cargo. These dues can be structured to metrics linked to the environmental impact such as the needed depth of the access channel.
2. Lease tariffs (terminal lessee)
Port terminal areas are leased out for a certain period of time with regular payments to the port authority. These are sometimes also referred to as concessions. Structure lease-tariffs on basis of environmental impact. This instrument reduces downtime and provides higher value for lessees.
3. Service tariffs (ship owner)
Ships are billed for specific services in ports like tugboat assistance, piloting, waste-collection, utility services usage etc. Sustainable actions deliver extra service to ship owners, allowing for inclusion of fee in service tariffs or adding a new service to the menu. Treatment of ballast water to avoid mixing of ecosystems could be such an option.
4. Transporters Hinterland
Transport from and to the hinterland is usually subject to various payment regimes like tolls, fuel tax, vehicle tax, road tax, railway usage fees etc. These revenues can help to stimulate sustainable development and/or co-fund specific actions. This instrument is particularly useful to influence hinterland transport. It could be used to (dis)incentivize short sea shipping and/or inland waterway transport, according to local needs.
5. Land or real-estate value taxes
Land and real-estate owners are generally taxed according to the value of their assets. Sustainable actions leading to increased land value will increase land value taxation income. Typically, a more attractive waterfront of the city, less flood risk, healthy attractive waters have a minor but significant influence on value. Even minor effects, but covering a wide pool of assets, can generate considerable extra tax revenues.
6. Development impact fees
Projects by developers are expected to have an impact on the nearby public infrastructure and are required to contribute to the upgrade of such infrastructure. These payments can be structured to stimulate or sponsor sustainable action.
7. Joint development
Collaboration by the port authority with other entities can improve general performance. This cooperation can bring synergy for both parties, reduce spending or leverage effectiveness. This could be used to find synergy with public programs on environmental rehabilitation, like inclusion of ecologic ambitions in specific port projects beyond mandatory standards.
8. Negotiated exactions
This requires developers to forfeit part of their land in exchange for off-site benefits. Indeed, it is an in-kind contribution by developers. This contribution can be used to stimulate sustainable development, for instance, by mandating the use of bioswales, reducing runoff and improving groundwater storage.
9. OpEx or CapEx reduction
Port authorities have regular expenditures for maintenance and operation and less-regular capital expenditure to ensure their port remains competitive. Sustainable actions can reduce such expenditures. Replanting mangroves along the nearby shorelines can reduce local erosion and related sedimentation in the shipping channels.
10. General taxation
This is not specifically port related, but sustainable action through taxes in the port will lead to increased revenues or income for local, regional or national government. Example; when artificial reefs, planting of seagrass and living breakwaters are introduced, this will not only benefit the port, but could also support local fisheries communities and eco-tourism.
11. Carbon markets
In several geographical areas, carbon emission rights trading markets have been developed, or are under consideration. Port authorities could opt to include natural sequestration schemes, like sea grass and mangrove planting to reduce dredging of sediments in and around the port, and, receive payments from those markets for sequestering carbon.
12. Habitat banking
When habitats are damaged due to development activities, in many cases there is the need for compensation. In various regional settings, a legal framework exists to outsource such activities to parties with suitable land. Port authorities could help other parties to compensate for lost marine habitats and receive payments for doing so. Such habitats (e.g., sea-grass, mangroves, reefs) could simultaneously be beneficial for operation and maintenance related to dredging and providing tranquil waters.
+1 Third party benefits – special arrangements
This tool is called +1 as it is a generic financial tool suitable for all port administrative structures. Sustainable action within the port can lead to benefits for other parties (spill-over effects) like rising real estate value, increased ecosystem services, reduced insurance premiums, fulfilling governmental targets and many more. Sustainable actions can partly be funded by negotiating to receive payments for such third-party benefits. For instance, when discharged wastewater in the port basin contaminates sediments, a smart deal to reduce or clean wastewater discharge will significantly reduce dredging costs for navigation purposes.
As might be clear from the description of all 12+1 instruments, not all instruments will be fitting for every conceivable sustainable solution. Additionally, not all instruments are available for each administrative port setting. Therefore, it is key to link the specific local need, to a suitable solution and find the right instrument to generate the cashflow. This will be different for private ports, corporatized ports, tool ports, landlord ports. Do you want to learn more? An explorative study on linking these key elements in an interactive way, resulted in an online tool for training practices called 'Quick Scan Green Value'. This tool enables port managers to learn about the potential of specific financial instruments. This study and tool were developed with support by the MAVA foundation.
Written by Arjan Hijdra, an infrastructure planner and also the director of Vital Ports. His key expertise is maximising societal value for the port and waterway sector. His background enables him to link engineering, network and governance perspectives. He holds a PhD degree in spatial planning and a M.Sc. degree in Civil Engineering.