Environmental Markets for Ecosystem
Services in the UK : scope, opportunity and
challenge
Professor David Hill
The Environment Bank
Ltd
I shall outline ….
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Importance of valuing nature
Market intelligence
Market size - scope for growth
Science, evidence and policy
Public and private investment
Ecosystem Markets Taskforce
Key challenges and next steps
Nature provides us with :
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Food
Water
Fibre and materials
Biodiversity and
landscape
Minerals
Fuel
Flood alleviation
Means of holding
carbon
Our climate
Costs of Nature
• Natura 2000 network - 26,000 sites, 18% EU territory;
management costs €5.8bn/yr
• Total EU funding available for biodiversity 2007-13 =
€1.3bn/yr
• Globally cost estimates of protecting 15% land, 30%
marine = $45bn/yr (IUCN)
• Total biodiversity protection estimate = $290-385bn/yr
(Parker & Cranford 2010); Actual spending = $3638bn/yr
• Sustainable Responsible Investment assets = c.€5
trillion
Info from Eftec (2011) report to EU
Value
• Few ecosystems being explicitly priced
• Priced ones only reflect direct-use values (crops, fish
ie directly consumed)
• Non-use values eg cultural - concerned with a
species or habitat are almost never priced
• Indirect-use values eg regulating services, only
recently starting to be valued
• We need an all-encompassing economic valuation of
benefits to society derived from BES = better
appreciation of financial implications and costs of
BES loss and degradation from misuse and
overexploitation
Environmental markets
• Internationally there is mounting interest in
environmental markets from credit buyers,
regulators, investors, environmental
community
• Emerging recognition of natural resource
stewardship and restoration as a dynamic
area for investment
• Transforming biodiversity from a risk and
liability problem into viable profit-generating
business opportunity
Carol, Fox & Bayon (2008) Conservation & Biodiversity Banking.
‘Innovative private sector mechanisms
to finance and encourage sustainable
management of BES are developing,
given the imperatives of increasing
natural resource scarcity, continuing
BES degradation and loss and
potentially damaging consequences of
such loss for society and the economy’
von Gunten, C. & Cooper, M. (2011). Finance, biodiversity and
managed ecosystems. Where’s the data? Report to NERC by Z/Yen
Group.
MARKET SIZE :
Scope for growth
Estimates for emerging biodiversity
and ecosystem service markets
(derived from Ecosystem
Marketplace) are presented in the
table in the slide drawn from the
TEEB report looking at potential
global growth to 2020 and 2050
compared to present day.
The TEEB report for business
concludes that new markets for
biodiversity and ecosystem services
are emerging and if scaled up, these
markets could represent major
business opportunities and a
significant part of the solution to the
ecosystem and biodiversity finance
challenge.
QuickTime™ and a
decompressor
are needed to see this picture.
Value = $5 - 10bn p.a
Tradable credits in the US
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Wetland mitigation credits
Habitat conservation credits
Water quality credits - N, P, sediments
Bundled biodiversity credits
Marine biodiversity credits
Natural resource damage credits
Mangrove credits
Etc…..
Scope for private investment :
CR markets
• Markets in : forest products, sustainable forestry, emissions
offsets, watershed mgt, flood risk mitigation, ecotourism,
biodiversity, nutrients
• Likely to develop ahead of regulated offsets
• Integrating BES risks and opportunities into corporate planning
and decision making
• Providing corporate licence to operate
• Increased customer loyalty
• Better staff recruitment
• Sustainability in supply chain
• Reduced investment and reputational risks
• Improved profitability and investment value
• Accessing new sources of capital
What is needed to grow
emerging markets
• Good regulatory framework to enhance purely
voluntary mechanisms - create level playing field,
provide stability
• Standardised metrics
• Accreditation of suppliers of offset and ecocredits
• Clearly defined asset classes
• Cooperation between science, finance and on-theground delivery
• Verification, registry, tracking of credits and
enforcement
• Environmentally experienced brokerage system trading platform (Environment Bank)
Science, evidence and policy
• Need good spatial datasets of ecological
resources (already exist ?)
• Where are Ecosystem Services - categorise
to 4 NEA definitions
• Use these to calculate ES impacts from eg
development/land-use change
• Convert these via offset-metrics to Ecocredits
• Do we need 100% confidence ? No. Adaptive
management
Opportunities : Policies we
can use
• Natural Environment White Paper
• National Ecosystem Assessment
• Environmental Liability Directive - turn into
economic cost of restoring environmental
damage - direct economic value of BES
• Potentially offset purchase/credits through
Water Framework Directive
• CR - construct credits that can be purchased
by corporates; create bonds from offsets that
attract investors
Natural Environment White
Paper
• Environment is foundation of sustained economic growth
• Markets, business and government to better reflect the
value of nature - on the balance sheet
• There are £m-multi opportunities available from markets
that protect nature’s services
• Expanding markets and schemes for payments by
beneficiaries to providers of ecosystem services
• An Ecosystem Markets taskforce to expand trade in green
goods and market for sustainable natural services
• Biodiversity offsetting embedded within the planning
system
Public vs private..and
partnerships
• Set by Government
– Environmental
priorities and policy
– Metrics/ Standards
– Local government
cooperation
– Regulatory framework
– Validation of credits
– Speed up processes
– Work with private
sector
• Provided by market
– Offset providers (KDB’s)
– Applying metrics to
determine credit
requirement
– Credit certificates
– Registry tracking of
credits/sites
– Trading infrastructure
– Monitoring evaluation
– Contractual obligations
Opportunities for Pilots
The Shell Foundation and
Environment Bank
• The Shell Foundation has invested in The Environment Bank to
scale up the idea from biodiversity offsetting to markets for
ecosystem services in the UK and potentially Europe
• Capacity building
- securing pilots
- building stakeholder relations
- applying metrics for offset sites and developments
- infrastructure for registering sites and enabling credit
purchasing
- legal documentation for running conservation banks
Conservation Credits Exchange
ECOSYSTEM MARKETS TASK
FORCE
As our understanding
of the value of natural
capital grows (e.g. UK
NEA/TEEB), there is a
natural progression
to reviewing the
scope for new
approaches to
‘capture’ value
The challenge is to
harness these values
so they can also
become real
commercial values
Available estimates
point to a significant
potential for longterm growth in
emerging markets in
biodiversity and
ecosystem services
Strong link to broader
work on green
economy and role
that environmental
markets could play
EMTF TERMS OF REFERENCE
• Assess market opportunities - where UK business has a
competitive advantage
• Greening current products and services as well as creating
new ones
• Clear view of economic and environmental benefit
• Scope for market development and value creation -current
drivers of greener market growth
• Role of the financial sector - potential for new privately
funded green investment vehicles
• Do markets have the required elements to function?
• Prioritise actions to enable and secure market opportunities
Key challenges
• Better use of regulation = market growth, combined with
voluntary markets
• Defining ES to society
• Making the use of ecosystem services economically
visible cross all sectors
• Putting effective infrastructure in place within a short timeframe eg public (eg accreditation schemes, metrics) and
private (eg EBL trading exchange)
• Need to get investment going NOW - too much at stake to
wait
• Recognising some things can be done by government;
some things by the private sector
Next steps….
• Pilot schemes for BES generating income streams by
a) offsets, b) corporate responsibility investment
• Investigate use of environmental bonds - generating
investment eg uplands for C, H2O, biodiversity (multipurpose bonds)
• Where will corporate growth most acutely align with
securing fully functioning ecosystems?
• How can regulatory markets be best created planning system, WFD, ELD, others?
A simple message ….
• We need a major gear shift to restore and enhance
biodiversity and ecosystem services
• We need to move from a position of simply seeing
the environment as a charitable exercise
• Policies need one focus above all - enabling financial
markets to properly value the natural environment so
that it receives the necessary investment
www.environmentbank.com