Getting Started with Payments for Ecosystem Services

Getting Started with Payments for Ecosystem Services

MODULE TWO: Existing Markets and Payments Schemes for United States Forest Service

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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 2

Early Environmental Markets

 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)  Water Quality Trading (U.S.)  Wetlands and Species Credits (U.S.) 3

Environmental Markets & Payments for Services

Carbon trading (regulatory and voluntary) Carbon trading (regulatory and voluntary) Water markets (regulation driven) Water payments (public sector funding) Water payments (B2B & public sector) Biodiversity trading (regulation-driven) Biodiversity transactions (B2B) Water-related payments (public sector) Water markets (public sector funding) Carbon trading (regulation-driven) Water payments (B2B) Biodiversity transactions (B2B) Water payments (public sector) Biodiversity trading (regulation-driven)

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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

Public Payments

Payments to property owners who agree to adopt land management practices associated with the maintenance of ecosystems

Regulatory Markets Voluntary Markets Government Payments Government Taxes

Voluntary or Private Transactions

Self-Organized Deals

Individual beneficiaries of environmental services contract directly with providers of these services.

Landowner (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 )

Biodiversity: The Anti Commodity

Biodiversity Compensation Programs

EXISTING United States

Wetland & Endg Species Mitigation

Australia

Biobanking (NSW) BushBroker (Victoria) Native Vegetation Offsets (South) Canada – Wetland Mitigation Banks

INTERESTED

France UK South Africa New Zealand Others

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)

Voluntary Programs

• • • BBOP Malua BioBank Gopher Tortoise Habitat Credit Bank • Climate, Community Biodiversity Standards

Water payments

Payments 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 )

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 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

Universe of Carbon Markets in 2009 EU ETS

$118 Billion

CDM

$2.7 Billion

AAU

$2 Billion

JI

$354 Million

RGGI

$2.2 Billion Total value, 2009: US$143,727 Billion

NSW

$117 Million

Voluntary OTC

$326 Million

Chicago Climate Exchange (expired)

$50 Million Source: Ecosystem Marketplace and World Bank

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 16

Active Forest Carbon Offset Projects Source: www.forestcarbon

portal.com

US Legislative Activity

• • • • • • • • 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 18

Regional Highlight: California

• • • • 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 19

Regional Highlight: California

• 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 2 nd and 3 rd compliance periods • Forestry projects in the 1 st period: reforestation, improved forest management, avoided conversion 20

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

• • • • Blazing Trails… Voluntary market mental model Innovation across the globe Multi market systems Stacking, bundling questions