Getting Started
with
Payments for Ecosystem Services
Getting Started
with
Payments for Ecosystem Services
October 2009
United States Forest Service
1
Overview
What are Payments for Services?
Review/Examples of Existing US
Markets and Payments
• USDA efforts
•
•
2
Ecosystem Services
…the benefits people obtain from ecosystems
Marketable
$$$$
Non-Marketable
$$$
$$
$
Markets do not currently give the appropriate signal
+
Farm and Forest Private landowners do
Landowners
not benefits from
producing public goods
Others
Beneficiaries do not pay
for services
Landowners not adequately
compensated for producing
things society values
Landowners may
not be penalized for
negative impacts
Others are left to
pay the costs
Farmer or other
landowner do not pay the
full cost of negative
impacts
Payments for Ecosystem Services
A payment for environmental services
scheme is:
1)
2)
3)
4)
5)
a voluntary* transaction in which
a well-defined environmental
service (ES), or a form of land use
likely to secure that service
is bought by at least one ES buyer
from a minimum of one ES provider
if and only if the provider
continues to supply that service
(conditionality).
5
Why ‘Payments’ for Ecosystem Services?

Nature provides services free of charge

Consumption of ecosystem goods (such as timber or oil) is
favored over the conservation of ecosystem services

Grey infrastructure is favored over green infrastructure

Market forces must be realigned to invest in the production
of both ecosystem goods and services

If market forces reward investments in ecosystem services, a
positive feedback loop will start in which increased
investments in ecosystem services leads to increased
production of ecosystem goods.

This will fuel sustainable economic growth and ecological
restoration
6
Early Environmental Markets
 Wood/Forest Products
 Capped Issuance of Hunting and Fishing Licenses
 Limited, Sellable Water Use Rights
 Cap-and-Trade Trading in Pollutant Allowances of Sulfur
Dioxide (U.S., 1990s)
 Wetlands and Species Credits (U.S.)
7
Markets for forest ecosystem services
•
Emerging markets
•
•
•
•
•
•
•
Renewable energy (bioenergy)
Carbon sequestration
Watershed services
Stream and Wetlands
Water quality
Biodiversity (T&E Habitat)
Avoided deforestation
15
Environmental Markets & Payments for Services
Carbon trading
(regulatory and
voluntary)
Carbon trading
(regulatory and
voluntary)
Water-related
payments (public
sector)
Water markets
(regulationdriven)
Biodiversity
trading
(regulation-driven)
Water payments
(public sector
funding)
Carbon trading
(regulation-driven)
Water payments (B2B &
public sector)
Water payments
(B2B)
Biodiversity
transactions (B2B)
Biodiversity
transactions (B2B)
Water markets (public
sector funding)
Water payments
(public sector)
Biodiversity
trading
(regulation-driven)
9
What are the drivers of
ecosystem service
demand?
•
Private market demand
•
•
Government incentives
•
•
i.e. Farm Bill programs (CREP, EQIP, CRP, WHIP)
Environmental regulation
•
•
Timber and non-timber products
i.e. cap and trade, no wetland loss, ESA
Voluntary private “Green
Goodwill”
Types of Markets
•
•
•
•
•
•
•
•
•
Private deals/Voluntary markets
Usually in the absence of regulation
1 to 1 deals – benefit and opportunity
Trading/Mitigation Schemes
Regulatory standards or pollution caps
Driven primarily by lower cost
Public Payment Schemes
Most prominent world-wide
Traditional or new outcome-based incentives
A Review of Existing Markets
Policy or Regulation-based
Open-Trading Schemes
Markets that require
sufficient liquidity and
transferability, low
transaction costs and
good access to
information
Regulatory
Markets
Voluntary
Markets
Voluntary
or Private
Transactions
Public Payments
Payments to propertyowners who agree to
adopt land
management practices
associated with the
maintenance of
ecosystems
Government
Payments
Government
Taxes
Self-Organized Deals
Individual beneficiaries of
environmental services contract
directly with providers of these
services.
Landowner (or
NGO) to
Landowner
Multi-Buyer
Consortium
12
Potential buyers of ecosystem
services…
• Agriculture
• Drinking water providers
• Sewage treatment plants
• Developers
• Federal, State and local governments
• Large residential and commercial developers
• Industrial polluters and energy companies
• Individual Citizens and Communities
Categories of Services/ Markets
•
•
•
•
•
Biodiversity
Water (qual, quant, temp)
Carbon
Wetland
Others: Scenic beauty
(eco- tourism), bundled
services (land trusts,
conservation easements)
14
Biodiversity Markets and Payments
15
U.S. Species Banking
•
•
•
•
Species banking started in the
early ’90s & wetlands in early
‘80s
~115 species & 800 wetland
& habitat banks in the US
Species offset & banking $200-300 million in 2007
Wetlands offsets & banking
$3 billion in 2007 (ELI)
Mechanisms: do it yourself, pay into a fund, or buy a third-party credit
16
Water payments
Payments for Watershed services
(quality & quantity)
•
•
•
Private deals
Regulated markets
Upstream-downstream PWS
17
Self organized private deals
• Perrier -Vittel- France- largest
bottler of water. Protect land,
improve ag practices, and reforest
critical recharge areas. $24.5
million in payments to landowners to
protect water quality.
•
Coca Cola Company – working
toward goals for water neutrality by
investing in local watershed to
improve water conservation and
environmental flows as an ‘offset’ to
withdrawals.
Chesapeake
Bay
•
•
•
•
Cap (TMDL) for
nutrients
Point sources
exceed or are
projected to exceed
Tributary limits
EPA Model
efficiencies for BMPs
Cheaper compliance
Tualatin Watershed (OR)
• Sewage Treatment Plant
• Temperature TMDL
• Endangered salmon
• Tree planting for shade and
restore/reconnect floodplains to
cool base flow
•
$6-10 million spent by water
utility in lieu of $60 million
refrigeration cost
•
•
•
Public Payments:
NYC Watershed
Drinking water supply
for >6 million people
Conservation of forests
and agricultural lands
Invest $30-50 million per
year in conservation vs.
$7+ billion in capital &
operating costs
(estimate 80%+
reduction in costs.
Denver Water Company
•
•
•
•
Over 80% of the water supply
for over 1.5 million people in
the Denver metro area
Fire and flood events degraded
water quality and damaged
water treatment and storage
facilities
City funding road rehabilitation,
prescribed burning, fire
protection measures in private
subdivisions and upstream.
Public education
Carbon Markets
•
The most global environmental
market as a result of Kyoto
Protocol, which drives European
Emissions Trading System (EU
ETS)
•
Non- Kyoto carbon markets
•
•
•
Voluntary carbon markets
US carbon markets
Markets for biological
carbon sequestration
23
Universe of Carbon Markets in 2009
CDM
$2.7
Billion
EU ETS
$118 Billion
AAU
$2 Billion
Total value, 2009:
US$143,727 Billion
Voluntary
OTC
$326 Million
JI
$354
Million
RGGI
$2.2 Billion
NSW
$117 Million
Source: Ecosystem Marketplace and World Bank
Chicago
Climate
Exchange
(expired)
$50 Million
24
Active Forest Carbon Offset Projects
Source: www.forestcarbonportal.com
At www.forestcarbonportal.com, the Ecosystem Marketplace tracks and
posts active forest carbon offset projects.
25
Market-based conservation faces a
number of barriers…
•
•
•
•
•
•
limited demand (and connection to supply),
clear, consistent rules and standards,
high start-up and transaction costs,
long-term investment risks,
lack of an institutional/policy framework,
And, a lack of information and experience.
10
Farm Bill: Food,
Conservation, and Energy
Act of 2008
Sec 2709:
Farm Bill authorizes USDA to create
a Federal framework to facilitate
Environmental Services Markets.
13
The Secretary shall…
•
•
•
•
•
Establish technical guidelines that outline
science-based methods to
measure the environmental services
benefits from conservation and land
management
report and verify benefits through protocols
collect, record, and maintain measured
benefits in a national registry
Facilitate the participation of farmers,
ranchers and forest landowners in emerging
markets
Established the USDA Office of
Ecosystem Services and Markets
• Carry out intent of the legislation
•
•
•
Form Technical Work Groups
Provide Coordination among federal
agencies
Carry out consultation and involve the
public
Forest Service Objectives
•
•
•
•
Raise awareness of a wide range of ecosystem
services provided by forests
Better integrate ecosystem services in planning,
management, and decision-making
Convene partners and learn, test, pilot,
demonstrate
Expand opportunities for private forest lands to
remain forested through market opportunities
*** Public-Private partnerships***
** Ecosystem Commons **
•
Willamette Partnership (OR)
• NGO led
• Salmon protection
• Bundling multiple
markets, (wetlands,
T&E)
• Conservation
Registry