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Getting Started with Payments for Ecosystem Services

Getting Started with Payments for Ecosystem Services. Getting Started with Payments for Ecosystem Services. October 2009. United States Forest Service. What are Payments for Services? Review/Examples of Existing US Markets and Payments USDA efforts. Overview.

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Getting Started with Payments for Ecosystem Services

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  1. Getting Started with Payments for Ecosystem Services Getting Started with Payments for Ecosystem Services October 2009 United States Forest Service

  2. What are Payments for Services? Review/Examples of Existing US Markets and Payments USDA efforts Overview

  3. Marketable Non-Marketable $$$$ $$$ $$ $ Ecosystem Services …the benefits people obtain from ecosystems

  4. Markets do not currently give the appropriate signal Landowners not adequately compensated for producing things society values Farmer or other landowner do not pay the full cost of negative impacts

  5. Payments for Ecosystem Services A payment for environmental services scheme is: • 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).

  6. 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

  7. 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.)

  8. Emerging markets Renewable energy (bioenergy) Carbon sequestration Watershed services Stream and Wetlands Water quality Biodiversity (T&E Habitat) Avoided deforestation Markets for forest ecosystem services 15

  9. Environmental Markets & Payments for Services Carbon trading (regulatory and voluntary) Carbon trading (regulatory and voluntary) Water-related payments (public sector) Water markets (regulation-driven) Biodiversity trading (regulation-driven) Water payments (public sector funding) Carbon trading (regulation-driven) Water markets (public sector funding) Water payments (B2B & public sector) Biodiversity transactions (B2B) Biodiversity trading (regulation-driven) Biodiversity transactions (B2B) Water payments (B2B) Water payments (public sector)

  10. What are the drivers of ecosystem service demand? • Private market demand • Timber and non-timber products • Government incentives • i.e. Farm Bill programs (CREP, EQIP, CRP, WHIP) • Environmental regulation • i.e. cap and trade, no wetland loss, ESA • Voluntary private “Green Goodwill”

  11. 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 Types of Markets

  12. A Review of Existing Markets Policy or Regulation-based Voluntary or Private Transactions Open-Trading Schemes Markets that require sufficient liquidity and transferability, low transaction costs and good access to information Public Payments Payments to property-owners who agree to adopt land management practices associated with the maintenance of ecosystems Self-Organized Deals Individual beneficiaries of environmental services contract directly with providers of these services. Regulatory Markets Voluntary Markets Government Payments Government Taxes Landowner (or NGO) to Landowner Multi-Buyer Consortium

  13. 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

  14. Biodiversity Water (qual, quant, temp) Carbon Wetland Others: Scenic beauty (eco- tourism), bundled services (land trusts, conservation easements) Categories of Services/ Markets 14 14 14 14 14

  15. Biodiversity Markets and Payments 15 15

  16. 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) U.S. Species Banking Mechanisms: do it yourself, pay into a fund, or buy a third-party credit 16 16 16 16 16

  17. Payments for Watershed services (quality & quantity) Private deals Regulated markets Upstream-downstream PWS Water payments 17 17 17 17 17

  18. 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. Self organized private deals

  19. Cap (TMDL) for nutrients Point sources exceed or are projected to exceed Tributary limits EPA Model efficiencies for BMPs Cheaper compliance Chesapeake Bay

  20. 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

  21. 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. Public Payments:NYC Watershed

  22. 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 Denver Water Company

  23. 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 Carbon Markets 23 23 23 23 23

  24. Universe of Carbon Markets in 2009 Total value, 2009: US$143,727 Billion EU ETS $118 Billion CDM $2.7 Billion Voluntary OTC $326 Million JI $354 Million AAU $2 Billion Chicago Climate Exchange (expired) $50 Million NSW $117 Million RGGI $2.2 Billion Source: Ecosystem Marketplace and World Bank 24 24

  25. 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 25 25 25 25

  26. 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. Market-based conservation faces a number of barriers… 10

  27. 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

  28. 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 Consult with stakeholders The Secretary shall…

  29. Carry out intent of the legislation Form Technical Work Groups Provide Coordination among federal agencies Carry out consultation and involve the public Established the USDA Office of Ecosystem Services and Markets

  30. 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 ** Forest Service Objectives

  31. Willamette Partnership (OR) • NGO led • Salmon protection • Bundling multiple markets, (wetlands, T&E) • Conservation Registry • Credit Protocols

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