Getting Started with

Payments for Ecosystem Services

October 2009

Getting Started with

Payments for Ecosystem Services

United States Forest Service 1

MODULE TWO: Existing Markets

and Payments Schemes for Ecosystem Services

Existing Markets and Payments Schemes

• Module 2: Existing Markets and Payment Schemes for Ecosystem Services • Early Environmental Markets • Environmental Markets and Payments for Services • A Review of Existing Markets• Categories of Services/ Markets • Biodiversity Compensation and Offsets • Water Payments and Nutrient Trading • Carbon Markets Summary• US Legislative Activity• Regional Highlight: California• Multi-Market Trends

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Early Environmental Markets

Water Quality Trading (U.S.) Wetlands and Species Credits (U.S.)

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)

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Environmental Markets & Payments for Services

Water markets (regulation-

driven)

Water markets (public sector funding)

Water payments (B2B & public sector)

Biodiversity trading

(regulation-driven)

Biodiversity trading

(regulation-driven)Biodiversity

transactions (B2B)

Biodiversity transactions (B2B)

Carbon trading (regulatory and

voluntary)

Carbon trading (regulation-driven)

Carbon trading (regulatory and

voluntary)

Water payments (B2B)

Water payments (public sector)

Water payments (public sector

funding)

Water-related payments (public

sector)

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A Review of Existing Markets

Policy or Regulation-based Voluntary or Private

Transactions

Public Payments Payments to property-owners who agree to

adopt land management practices

associated with the maintenance of

ecosystems

Self-Organized DealsIndividual beneficiaries of

environmental services contract directly with providers of these

services.

Open-Trading Schemes Markets that require

sufficient liquidity and transferability, low

transaction costs and good access to

information

Regulatory Markets

Voluntary Markets Government

PaymentsGovernment

TaxesLandowner (or

NGO) to Landowner

Multi-Buyer Consortium

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Categories of Services/ Markets

• Biodiversity

• Water

• Carbon

• Others: Scenic beauty (eco- tourism), bundled services (land trusts, conservation easements)

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Biodiversity: The Anti Commodity

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Biodiversity Compensation Programs

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EXISTINGUnited States

Wetland & Endg Species MitigationAustralia

Biobanking (NSW)BushBroker (Victoria)Native Vegetation Offsets (South)

Canada – Wetland Mitigation Banks

INTERESTEDFranceUK South Africa New Zealand Others

888

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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)

9999

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Voluntary Programs

• BBOP

• Malua BioBank

• Gopher Tortoise Habitat Credit Bank

• Climate, Community Biodiversity Standards

10101010

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Water paymentsPayments for Watershed services

(quality & quantity)

• Paying land owners (ex. Heredia, Costa Rica/ Perrier Vittel)

• Purchasing land (Water Conservation Fund in Quito)

Nutrient trading

• Nitrogen, phosphorus, sediments

• Small pilot programs across the United States (Ohio’s Miami Conservancy District)

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Nutrient trading: challenges

• Not easily commoditized (not carbon)

• But markets want to be global and this will happen on watershed scale so smaller size (watershed)

• Could become a series of large markets

Think Chesapeake, Ohio

Forest Trends “Chesapeake” Fund

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Source: EPA

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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

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AAU$2 Billion

CDM$2.7

Billion

RGGI$2.2 Billion

EU ETS$118 Billion

Chicago Climate

Exchange (expired)

$50 Million

NSW $117 Million

JI$354

Million

Universe of Carbon Markets in 2009

Total value, 2009: US$143,727 Billion

Source: Ecosystem Marketplace and World Bank

Voluntary OTC

$326 Million

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Role of Forests, Soil and Agriculture

• Emission source and sink

• Landowners and farmers critical political stakeholders

• Balance carbon flows

• Green carbon under-utilized in market based climate change solutions

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Active Forest Carbon Offset Projects

Source: www.forestcarbonportal.com

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US Legislative Activity

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• Federal History • Waxman – Markey • Kerry – Boxer • American Power Act • Agriculture plays a powerful role in

Senate politics• Legislation stalled, states looking to

state and regional programs

• Voluntary (“pre-compliance”) markets prevail in the US

• Patchwork of regional compliance schemes• The Regional Greenhouse Gas

Initiative (RGGI)• Assembly Bill 32, Global Warming

Solutions Act

Regional Highlight: California

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• Global Warming Solutions Act – AB32

• CA electorate 61.3%, CA Air Resources Board 9-1 in favor cap/ trade

• Polluting industries buy/sell emission allowances

• By 2020 emissions limited to 1990 levels

• Future for REDD • Companies unable to reduce

emissions to target levels can ‘offset’ with forest conservation in tropical countries

• 74 million tons of CO2 reductions from offset credits by 2020

Regional Highlight: California

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• California (US), Acre (Brazil), Chiapas (Mexico)

• Signal of sub-national activity in the US in absence of federal carbon trading

• CA Air Resourced Board (ARB) to allow offsets from avoided deforestation in Chiapas and Acre

• REDD credits sold as offsets to CA industrial emitters in 2nd and 3rd compliance periods

• Forestry projects in the 1st period: reforestation, improved forest management, avoided conversion

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Multi-market trends• Difficult to track

• Demand for real benefits

(honing requirements)

• Growth in Infrastructure

(TZ1 pilot registry for CA

species banking; Bay

Bank)

• Carbon as entry point for

many investors

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Blazing Trails…

• Voluntary market mental

model

• Innovation across the globe

• Multi market systems

• Stacking, bundling

questions

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