E t S i M k tE t S i M k tEcosystem Service Markets: Potential and Pitfalls

Ecosystem Service Markets: Potential and PitfallsPotential and PitfallsPotential and Pitfalls

Sara Vickerman

May 5, 2010

Defenders of Wildlife

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Ecosystem Service Markets

• Background, examples• Essential elements• Essential elements• Programs, status • Pitfalls and potential

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What are ecosystem services?

Benefits that human communities enjoy as a result of naturalenjoy as a result of natural processes and biodiversity

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Ecosystem Servicesy

• Fish and wildlife habitat• Clean water and air• Pollination• Mitigation of environmental hazards• Control of pests and diseases• Carbon sequestration and emissions control• Soil productivity

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What is an ecosystemWhat is an ecosystem marketplace?

• System for buying, selling ecosystem services • Wetland and conservation banks • Offset, or cap-and-trade programs• Voluntary transactions

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Why ecosystem markets?

• Reserves, regulations, public funds insufficient • Need conservation on private landsNeed conservation on private lands • Need large infusions of private capital

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Payments for EcosystemPayments for Ecosystem Services

• Generally government sponsored • Compatible with outcome based programsp p g• Potential transition to markets

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Examples of Ecosystem Markets

• Wetland banking• Conservation bankingConservation banking• Water quality trading

C b t di• Carbon trading • Voluntary biodiversity marketsy y

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Regulatory Market 1: g yWetland Mitigation Banking

• Authorized under Clean Water Act• Authorized under Clean Water Act• No-net loss of wetlands requires

developers to offset impacts in watersheddevelopers to offset impacts in watershed• Formerly on-site, in-kind preference

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Wetland Mitigation Banking

• Increased emphasis on banking p g• Wetland “banker” enhances or restores

degraded wetlands and sells credits to gdevelopers

• Potential for greater ecological benefits g g

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Regulatory Market 2: egu ato y a etConservation Banking

• Endangered Species Act• Endangered Species Act • Adverse impacts to species offset by

habitat conservation elsewherehabitat conservation elsewhere

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Conservation Bankswww speciesbanking comwww.speciesbanking.com

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Regulatory Market 3: Water g yQuality Trading

• Clean Water Act• Temperature, phosphorus, nitrogen • Allows use of “green technologies” instead g g

of hard infrastructure

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Quasi Regulatory Market:Quasi-Regulatory Market: Carbon Trading• Anticipatory of regulations

F i i d ti

g

• Focus on emissions reduction• Some credits from forest, prairie• Starting point for most investors

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Voluntary Market: Biodiversity

• Biodiversity -- all habitats and species• Most biodiversity isn’t regulated • Some international companies understandp• Business and Biodiversity Offset Program

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E ti l El t fEssential Elements of a Marketplace:a etp ace

1 Ecologically effective1. Ecologically effective2. Address multiple values3 F ilit t t t i i t t t3. Facilitate strategic investments at

landscape scale4. Transparent and credible to public5. Accessible with low transaction costs

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1 Ecological effecti eness1. Ecological effectiveness…

• Concrete goals with monitoring• An accounting systemAn accounting system • Principles of conservation biology

C ti it– Connectivity– Allows ecological processes to function– Addresses species, habitat at-risk

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2 Add lti l l2. Address multiple values. . .

• Wetlands

• Endangered species

• Water qualityWater quality

• Carbon

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3. Strategic investment at glandscape scale…

• Current projects ll d di t dsmall and disconnected

• Many programs, narro l foc sednarrowly focused

Willamette Valley Synthesis Map

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4 T t d dibl4. Transparent and credible…

• Existing markets opaque• Need trading platform & credit registry

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5 A ibl ith l5. Accessible with low transaction costs…t a sact o costs

• Balance precision with practicality• Attract buyers and sellers• Provide assistance to help cover risk

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Defenders Programs re.Defenders Programs re. Ecosystem Markets:

• Conservation economics • Conferences and policy dialogues• Oregon legislation

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g g

Willamette Partnership• Non-profit group in Willamette basin• Counting on the Environmentg• Acting as regional market manager • Best example of multi-credit marketBest example of multi credit market

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Bay Banky

• Chesapeake Bay• Chesapeake Bay• Pinchot Institute

L dS l d d t i• LandServer – landowners determine eligibility for markets and incentives C di t ith Will tt

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• Coordinates with Willamette

Policy Issues

• Role of government • Integrating programs• Integrating programs• Combining credits • Consistent methodology• Strategic investmentg• Uneven regulation

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O L i l ti SB 513Oregon Legislation – SB 513

• Encourages market-based approaches• Policy to protect, restore ecosystem

services on all land uses • Authorizes adaptive management • Work groupWork group

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Habitat / Biodiversity Metric• Inability to measure inhibits marketing • Bullitt Foundation• Willamette Partnership • Reviewed existing metrics none suitable• Reviewed existing metrics, none suitable

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Habitat / Biodiversity Metric

• Evaluate baseline and lift • Tool will produce % optimum acresp p• Type, condition of vegetation and species• Ecological context size connectivityEcological context, size, connectivity • Consistency with priorities• Key ecological processes like fire and flood• Key ecological processes, like fire and flood• Management security

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www conservationregistry orgDefenders of Wildlife

www.conservationregistry.org

Status of EnvironmentalStatus of Environmental Markets

Growing, but constrained by – Lack of standard metrics– Limited information – Lack of infrastructure for transactions

Illiquid nature of financing instruments– Illiquid nature of financing instruments

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Potential Pitfalls • Won’t scale, ecologically or economically • Random projects without contextj• Imbalance -- complexity and practicality• Poor integration -- government silos• Poor integration -- government silos

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More Potential Pitfalls

• Maximize one value, damage others • Inability to mix and match funding • Too few buyers • Risk-averse gatekeepers

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More Potential Pitfalls

• Traded like commodities• Mismatch between science and marketsMismatch between science and markets • Too much or too little regulation

P bli l d k t• Public lands swamp markets• Distorted land prices• Visibly bad projects

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Potential for Ecosystem Service Markets: Reasons for Optimism• Cap and trade legislation• Federal agencies – Office of EcosystemFederal agencies Office of Ecosystem

Services• National Ecosystem Services Partnership• National Ecosystem Services Partnership • Oregon’s policy dialogue

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More Reasons for Optimism

• Emphasis on accountability outcomes• Emphasis on accountability, outcomes • Companies, shareholders want eco

f i dl ifriendly image• Infrastructure – registry, trading platforms• Willamette Partnership. Bay Bank

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C t tContact:

Sara VickermanSenior Director, Biodiversity PartnershipsDefenders of WildlifeDefenders of WildlifeE-mail: Svickerman@defenders.orgTelephone: 503 697 3222Telephone: 503-697-3222

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