Coverage of the AFF/WRI Environmental Markets Conference - June 23
Becca Madsen on June 23, 2010 Comment
Ecosystem markets practitioners from across the US are gathering in the Research Triangle area of North Carolina (eg - Raleigh-Durham) for a national gathering of folks working not at a theoretical level, but at a practical level - on various types of Payments for Ecosystem Services (PES) schemes. Check out our blog, EKO-ECO.com, for day-by-day coverage of the conference.
Opening Session
Jim Salzman, from Duke University, opened the conference with some ideas about environmental markets.
5 Core requirements to have a working PES system:
1) A discrete set of suppliers - can't have a payment system if you're paying *everyone*
2) A discrete set of beneficiaries - have to have someone who will pay. That's the difficulty of biodiversity - everyone benefits from it, so it's hard to set up some kind of PES scheme.
3) Perceived scarcity and value of the service - if you're going to get someone to provide ecosystem services, and if you're going to get someone to pay for it, you've got to convince someone that it's valuable - which can be a tough sell when we've always gotten these services for free.
4) A mechanism for suppliers and buyers to agree on a price - eg: mitigation markets/offsets, government subsidies...
5) Ways to make it work - procedures for implementation, oversight and dispute resolution.
Models for making money on environmental markets from Wall Street - high volume, low margins (probably not likely), or low volume, high margins (possible)... but what about medium volume, medium margins.
He also questioned whether we should be calling schemes on payments of ecosystem services 'markets.' The existing environmental markets are: carbon markets, mitigation markets, and then there are all the other payments for ecosystems - but there may be limited space for entrepreneurs, except at the local or regional level.
Ecosystem Marketplace spoke to Jim Salzman after the plenary session to get his thoughts on biodiversity markets.
Jim Salzman
Denise Knight, from Coca-Cola, spoke about Coca-Cola's 'Replenish' program. Markets for water is an evolving discussion. Commitments on water have to align with over 300 bottling partners (in a franchisee system). Water is at the core of Coca-Cola's product, and around 2000, starting tracking water quantity/use (in addition to tracking water quality). In 2003, publically noted a risk of water quantity, and began to plan to mitigate that risk. Also got a wake-up call that in addition to a natural 'license to operate' (water quantity and quality), and regulatory (?) 'license to operate', they needed to have a social 'license to operate' (healthy local communities).
Coca-Cola's water stewardship strategic framework includes four points: plant performance, watershed protection, sustainable communities, and global awareness and action (using Coca-Cola's visibility to bring to the forefront issues in water).
Their 'Replenish' goal is to "return to communities and nature an amount of water equivalent to what we use in all of our beverages and their production." They use scientific calculations to figure out how much water they've 'given back' - for example, determining the increased water storage from floodplain restoration in the Danube in Europe.
Their 'Replenish' program has 250 CWP (community water partnerships) projects in 70 countries that focus on watershed protection, water sanitation, watershed management and community livelihood support (?). One example of watershed protection project is a reforestation project in Brazil.
Lessons learned: you have to have demand from the local community. Although new technology may be enticing, needs identification is a 'must' first-step. Aligning with the government sector is important for project success.
Bobby Cochran, the new Executive Director of the Willamette Partnership, talked about where we are and where we're going. Status - seeing millions of $s transacted in environmental markets (voluntary and compliance), on top of even more payments for ecosystem services in programs like Farm Bill environmental programs. The tough part of environmental markets is developing the infrastructure to get there. There are environmental risks associated with the restoration that's the basis of environmental markets. It takes a lot of time to create the projects that underpin environmental markets. There are currently inconsistencies across regulators in the US.
If we could do 3 things before next year... activate demand; connect programs in the Northeast to the Midwest to the Pacific Northwest; and federal agencies can take advantage of their position to enable partnerships.
Q&A's from Opening Session
A: What are the first steps for developing water quality?
A: First need to determine what does your watershed really need? Need point sources and nonpoint sources rather than everything going through state and federal agencies. And then if you have agencies giving the message that water quality trading is appropriate... And also need to acknowledge when trading is not appropriate.
Q: Some ecosystem markets are catalyzed by regulations, others not - how see that changing in future?
A: Don't see balance of this changing in the future. Coca-Cola's work is voluntary, some voluntary work on clean drinking water provisioning, but don't see balance of voluntary vs. regulatory changing.
Q: Landowners may have difficulty participating - hope another major issue brought up in this conference will be environmental equity. Not sure if ecosystem markets will address equity issues.
A: You said it best: equity is an important issue. If not addressing equity in design of programs, will see issues of success. Those communities, those landowners need advocates - it's only the savviest landowners that can participate directly. If equity is a priority, then need to make sure that their advocates are informed about participating in environmental markets.
Panel: Making Federal, State, and Local Policies Relevant to Ecosystem Market Design
Panel speakers: Garrett Johnson (Pacific Forest Trust), Sara Vickerman (Defenders of Wildlife), and Michael Beck (Endangered Habitats League)
Moderator: Jerry Greenberg (American Forest Foundation)
Garrett Johnson of Pacific Forest Trust spoke about the Climate and Energy Bill and the US Farm Bill. In the Climate and Energy bill, the PFT has been advocating for a $5 million of funds to be directed on the landscape. Garrett thought that the next Farm Bill offered more of an opportunity to move payments towards outcome-based land management incentives, and moving some of the land protection programs in the Farm Bill to rural development.
Sara Vickerman, from Defenders of Wildlife, spoke about Oregon's Senate Bill 513. SB 513 was passed in Oregon in 2009 to encourage the legislature to encourage market-based approaches. The bill acknowledged the 'mitigation hierarchy' of 'avoid, minimize, mitigate' as a principle of market-based approaches. A work group and ad hoc advisors were convened related to the bill. Some of the high points of the working group were: that payments for ecosystem services should be ecologically credible. As well, they should be integrated across values, rewarding to both buyers and sellers, likely to scale-up (rather than 'goofy one-off deals'), and efficient (don't want these deals to be more expensive than the ecological value they provide) and transparent. The working group also outlines some roles that government could play: to facilitate integrated planning, to serve as a buyer of ecosystem services, to enforce existing regulations (which drive ecosystem markets), to provide incentives for multi-credit projects (to make sure you're not maximizing one service at the expense of another), and to improve transparency and efficiency. Metrics and methodologies are something very exciting, but easy to get hung up on.
Some major 'lessons learned' from the working group:
• Uneven regulation inhibits demand for biodiversity markets
• whatever credit generation/quantification system is built, it should be linked to conservation priority areas
• agency/program silos cause conflicts, raise transaction costs and jeopardize good projects
• need more efficient systems
• there is widespread distrust of markets, but it can be overcome with positive results at a broad scale
Michael Beck, with Endangered Habitats League (a small non-profit based in California), spoke about a 20-year experiment with many transferable attributes. In San Diego county, his group is focused on preservation of biodiversity - but what drives the program is economics. The endangered species act (along with California's state level species regulation) requires development projects to go through permitting process, and require mitigation.
Habitat Offsets and Crediting Session
Presenters: Nancy Natolie, Randy Wilgis, Todd Gartner
Todd Gartner from American Forest Foundation spoke about a voluntary system for credits of non-listed species (meaning, they may be rare, but they are not yet 'listed' as an endangered species in the US). Todd is working on a pilot habitat crediting system for the non-listed portion of the gopher tortoise (the species is already listed in the Western portion of the range), with the intention of putting efforts to prevent the species from becoming listed (eg - helping the species recover). AFF argues that it is ecologically easier to invest in protection before the species is close to the brink of extinction. The driver of this program is the threat of gopher tortoise habitat listing (eg - pre-compliance). The sellers are the smaller woodland owners of the Southeast. A 'weighted habitat credit' is what is being sold, which is a combination of the raw acreage weighted with quality indicators. The project has come a long way, but there are still some major steps to tackle. Buyers want to have certainty that the investment they make voluntarily now will be considered if the species is listed. The organization is also exploring an incentive for early adopters - for example a 'discount' on the normal impact to offset ratio. Another issue of this project is the aspect of a non-wasting endowment - most landowners are land rich/cash-poor, so there isn't a large pot of money around to create this a non-wasting endowment to fund long-term management. So AFF is looking for creative solutions to this issue.
Nancy Natolie from the Office of the Secretary of the Department of Defense (DoD), spoke about the military's activities related to ecosystem markets - which they see is an opportunity to help them meet their military readiness needs. DoD has a great of amount of endangered species on their lands, which impacts their ability to use those lands for military readiness. Military lands often become surrounded by residential development - so the lands become a species refuge. A great example of how endangered species impacts military readiness: the red-cockaded woodpecker lives in Ft. Bragg - originally, the Fort was required to make their trainees stay outside a 200-ft buffer of each tree with a bird cavity (/nest) in it... perhaps not a realistic situation with young trainees being put through military simulations. A private lands initiative now works with private landowners nearby to make sure they are protecting the birds so that the Fort has more flexibility about where they can do their training. A renewable energy 'gold rush' may have impacts on military operations, especially in the US West. With partnerships, federal dollars are multiplied for private land conservation with partner contributions.
Randy Wilgis, of EBX, spoke about the Carolina Heelsplitter (an endangered mussel found near the Charlotte metropolitan area) Conservation Bank. Conservation banking occurs under a regulatory scheme - within permitting for Section 7 & 10 of the Endangered Species Act. A 'credit' could be protection of the habitat area of a cluster of red-cockaded woodpeckers, or it could be acreage of another endangered species or habitat. The Carolina Heelsplitter is federally listed, with two major groups near Augusta Georgia and near Charlotte North Carolina - an area threatened by development. The threats to the species come from the development happening in the uplands of the species' habitat.
Q: What is the guidance for non-listed species?
A: Nothing in ESA related to non-listed species, but perhaps will see in guidance in the future
Q: Who holds endowment?
A: Usually local land trust, or the Nature Conservancy, or a local or state agency. We write a check for the endowment/long-term management of the property.
Q: What would you like FWS to do to see assurance to buy 'pre-compliance' credits
A: Potnetial buyers need certainty that what they spend money on now will be recognized in the future. Assurance of ecological soundness of methodology. Project will provide a case study. Also - we feel like for non-listed, we need to be pragmatic about long-term management fund (EBX - we have credits of non-listed flying squirrel...)
Q: Since Conservation banking has been modeled after wetland banking... how do you see view of preservation credits
A: Consensus from biologists was that we're losing high quality habitat of species and that's what's important to keep. But develop mitigation ratios in some way to help protect more than impacting. Important to note: there's no 'no net loss' stipulation in the ESA - but the imperative is a species' jeopardy of going into extinction.
Q: Has EBX sold credits to federal agencies & does that create any different kinds of issues. Does REDI program consider purchasing credits instead of going into partnerships / conservation easements.
A: DoD requires some kind of aspect of real property with REDI funds - but the transaction can be structured in any kind of way - so trying to figure out how to incorporate characteristics of conservation banking (eg - instead of 'handshake deal').
Ecosystem Marketplace Tools
Speakers: Joanna Silver (Markit), James Remuzzi (Sustainable Solutions, LLC), and Kevin Halsey (Parametrix)
The speakers followed a path of ecosystem credits to highlight tools that are available in the process of ecosystem credit creation to sale.
Here's the steps in the credit process:
• baseline assessment and eligibility
• market standards and education
• project design and development
• project validation
• credit estimation and calculation
• verification and certification
• project registration credit issuance and tracking
• marketplaces / reporting and transparency
• demand-side tools / reporting and transparency
More details on these steps...
James Remuzzi outlined the first few steps...
Baseline assessment and eligibility - at the landscape level and separately at the site level, where are markets possible? Landscape level investigations are looking at the areas of greatest ecosystem services. For example, the Natural Capital Project's InVest Tool can map out... and therefore show highest conservation priority... of areas with greatest ecosystem service value. The LandServer tool (created as part of the Bay Bank project) is a site-level identification of eligibility for ecosystem markets. LandServer allows a landowner user to identify their property using something like GoogleMaps, and then the tool opens up a 'layer cake' of data to tell the landowner about potential for ecosystem markets - both basic scientific/landscape information, and also ecosystem market opportunities (eg - such as carbon, forest conservation, water quality trading...).
Market standards and education - important to educate about what standards there are for creating ecosystem markets.
Project design and development - Willamette Partnership has been developing an Ecosystem Crediting Platform. The Freshwater Trust's StreamBank tool streamlines funding, permitting, and monitoring of stream restoration projects.
Project validation - is the step to ensure that an ecosystem credit meets requirements in the appropriate ecosystem market standard.
Kevin Halsey continued with description of the next steps...
Credit estimation and calculation - As opposed to project planning, in credit estimation, one needs to drill down more at the site level, and all require some level of site scientific data. The Willamette Partnership's Counting on the Environment Toolbox has credit measurement for water quality (thermal load reductions from riparian vegetation), upland prairie, wetlands, and salmonid crediting protocol. All of these crediting systems have a manual explaining the system, and all fall within a basic crediting framework. The World Resources Institute has a water quality trading tool called NutrientNet focused on nutrient reduction offsets. The tool is a simple excel-type calculation system that requires farm-level information and then determines pounds of nutrient reduction (from particular practices). EcoMetrix is a tool that ParaMetrix (a consulting firm) created and is testing in Arizona (Buckman Diversion District). The USDA has a site-level Nitrogen Trading Tool (NTT) that is being tested in Colorado, Alabama, North Carolina, and Oregon (and many states coming soon) - and also coming soon: expanding the tool for phosphorous, carbon, and more. The Nutrient Load Estimator (NLE) developed by Water Stewardship measures nutrient reductions at the site level (field/parcel/farm) and incorporates the Chesapeake Bay Program Phase 5.3 Watershed Model. Environmental Incentives' Lake Tahoe water quality tool (nutrients?).
Verification and certification - there's generally on-the-ground verification and certification
Joanna Silver then took the baton and continued to explain the next steps...
Project registration credit issuance and tracking - You can track these markets, it's easy once you set up the system. Tracking markets provides transparency to the public, and confidence to investors. It also allows one to track the progress of the underlying environmental policy of the market. Three types of tracking tools - project tracking (eg - Conservation Registry), inventory tracking (eg - CCAR), and credit tracking (eg - Markit environmental registry). The Conservation Registry is a tool developed by Defenders of Wildlife (with the Other Firm web design firm) that provides conservation project visibility by tracking/mapping on-the-ground conservation projects. Markit Environmental Registry tool allows users to register projects and list credits, and then follows transfers/sales/retirements of credits - think serial numbers - for all types of environmental credits (or could be used for any conservation outcome). The end goal from a project developer's perspective is seeing credits on a registry.
James Remuzzi again took the lead on final steps...
Marketplaces [ + linked to reporting and transparency] - One of the end steps is a [virtual] place where buyers and sellers can come together - or a 'marketplace.' The Bay Bank is a multi-credit marketplace for the Chesapeake Bay - a place where buyers can locate sellers and sellers can upload there project; but you can't buy credits here. Mission Markets Earth is an environmental markets exchange facilitating transactions, and facilitates investments in things like mitigation banks.
Demand-side tools [+ linked to reporting and transparency] - Typically, the tool used to calculacte the credit is the same as the tool to calculate the impact. Demand-side tools relate to the world of corporate 'footprinting' tools and sustainability measurement tools. Bonneville Environmental Foundation: Water Restoration Certificate - has a tool to calculate an individual's water 'footprint', suggests behaviors to reduce their footprint, and then offers water restoration certificate to offset the footprint. Chesapeake Fund's Nitrogen Calculator is another individual footprint calculator - this time for nutrient loading to the Chesapeake Bay, and again is intended to facilitate voluntary investments or 'offsets.' Markit Eco tool leads a company through a footprinting exercise. BSR (Business Sustainability Roundtable) has some tools for corporate sustainability decision-making. Landscape Auction was developed by TriplE (a Dutch consulting firm) where they define ecosystem credits [&/or conservation??] and then sells it via an auction.
Bundling Services and Stacking Credit Session
A discussion of multi-credit trading platforms. Core question: Does credit stacking result in real conservation offsets, or is it simply a case of "double dipping"? If only one ecosystem value can be monetized, will ecosystem services ever be able to compete?
Nicholas Bianco:
"Principles for Stacking Payments for Ecosystem Services." Stacking is based on whether there is enough potential opportunity on the property to warrant generating multiple ecosystem credits. The main issue then becomes how to generate the credits and calculate the benefits. There is a strong interest among the market participants to develop standards-based protocols focused on 'legal additionality' screens that include financial, legal, market penetration and other factors.
Jim Klang: "Stacking Ecosystem Credits in the Upper Mississippi River Basin"
Conservation Marketplace of Minnesota: Effort among like-minded conservationists in MN to devise a system for credit stacking that leverages multiple environmental benefits from one implementation site. Especially from the agricultural perspective, the key is to devise a credit that is priced to compete with traditional commodity markets. (Think ecosystem credits competing with corn and soybean futures.)
New and emerging market examples:
Source water protection
Pollinator habitat
Stormwater quality and quantity (which is inherently legally complex)
Regarding opportunities for source water protection, many communities are far behind in protecting well heads and source water. Sauk River Watershed/Streams County pilot project offers an on-the-ground experiment to protect the wellhead. Working with farmers to protect water quality through BMPs (BMP challenge program (a risk guarantee program for applying to agronomic rates www.bmpchallenge.org
Have sequestered 4076 pounds of nitrogen loading from some XX acres.
Other stackable BMP options: perennial vegetation in wellhead protection zones
buffers, ag drainage volume reductions, sediment reductions measures, livestock exclusion.
Urban storm water WQT credits: Stormwater example from Rahr Malting Company which worked to restore and stabilize a bluff reducing sedimentation from the site. The idea is to bring BMPs from water quality trading to storm water mitigation.
Scale could be bolstered by standard metrics. Towards uniform applications.
Brad Gentry: Summary comments: what management options is the owner giving up to receive the value? What are the changes in land use asked of the land managers. Key is get all players in the room at the beginning to negotiate the best deal for them and the markets themselves. Real question: can carbon be compared to wetlands and other more local commodities.
Q: What are barriers to using Latin America's Water Funds?
Discussion: Stacking doesn't answer the question of better land management.
Additionality is the key criteria. Does adding on the extra payment allow something additional to occur.
Q: Can land preservation serve to generate ES credits?
PES related to Source Water Protection and Water Use: Pilot Projects Session
John Gunn Case studies: Northern Forest Project.
Starting point of the project was to determine who are the beneficiaries and how do they benefit from clean water?
Demand side: is it a regulatory driver through the Safe Drinking Water Act.
Case studies:
Vision of watershed services marketplace: Users, NRCS, State Teams, Mitigation Funds.
Examples of Creditable Practices: riparian buffers, culverts and drainage improvement,
Key Issue: How to quantify what you get from the implementation of the BMP?
Where to from here in the pilot project: develop the infrastructure for how to make payments. Understand the role of conservation easements. Leveraging other ecosystem service revenue streams. Demonstration.
Challenges: making the case (educating the beneficiaries), communicating the challenges to both buyers and sellers, assuring "we get what we pay for," creating self-sustaining system.
Eric Sprague: Upper Delaware River Clean Water Fund: A new funding approach for protecting private forests. It's a partnership with state and local governments, called Common Waters. About the Upper Delaware Basin: it provides drinking water to 17 million people (in NY, PA) and helps keep salt water out of the basin.
Mostly private lands, close to NY and Philadelphia so development pressure is the biggest threat to water resources.
Concept: Working on developing a program to incent upstream forest owners for conservation and protection efforts funded by downstream beneficiaries.
Approach: All funding mechanisms seek to interface with water users--water utilities and especially water utility customers. Focusing on mechanisms to target the user at the point when they are looking at their water bill. Also looking at how to use billing inserts and online ads.
Other consumer-driven models informing the design of the project:
-Tucson AZ, Conserve to Enhance Program: Incentivize conservation by allowing consumers to donate the value of real water savings to environmental restoration projects in need of water to proceed.
-Bend OR, check-box to allow donations to water trust for purchases of in-stream flow water rights.
-Santa Fe Municipal Watershed: PES scheme to pay for fuel treatment to mitigate threat to water quality from wildfires. Ecosystem Service Credit appears on the customer bill for first 5 years then it becomes a real charge.
Project Goal: seed a Fund which will be available to land owners. 2nd year start investing in projects upstream. 3rd year, hope to have a sustained source of funding beyond the pilot phase.
Lisa Creasman, Connecting Water Suppliers and Consumers through Land Conservation in NC's Upper Neuse River Basin.
No Notes.
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