CO 2 Valuing Virginia’s ECOSYSTEM Services In the next few minutes, I will explain what ecosystem services are, our challenges in valuing them, and why society must find innovative ways to financially compensate landowners for providing them. Ecosystem services are generally defined as benefits and services that nature provides. These services include clean air, water quality and quantity, wildlife habitat, pollination, aesthetics, and carbon sequestration services. In short, they are our natural capital. Many of these services are considered public goods and private landowners often do not receive adequate financial compensation for providing these ecosystem services.

Provisioning Regulating Cultural Types of Ecosystem Services………… Provisioning Regulating Cultural Not all Ecosystem Services are created equal…explain -function (provisioning, regulating, cultural) -voluntary versus regulatory driver (market opportunity and price) -scale of the market (local, regional, global) for each service….fungibility -quantification of a credit (pounds, tonnes, acres)

Degraded Mixed Enhanced The Millennium Ecosystem Assessment found that 60% of ecosystem services are being degraded or used unsustainably Degraded Mixed Enhanced Provisioning Capture fisheries Wild foods Biomass fuel Genetic resources Biochemicals, natural medicines, & pharmaceuticals Freshwater Timber and wood fiber Other fibers (e.g., cotton, hemp, silk) Crops Livestock Aquaculture Regulating Air quality regulation Regional & local climate regulation Erosion regulation Water purification & waste treatment Pest regulation Pollination Natural hazard regulation Water regulation Disease regulation Global climate regulation (carbon sequestration) Cultural Spiritual, religious, or cultural heritage values Aesthetic values Recreation & ecotourism From 2001 to 2005, the Millennium Assessment involved the work of more than 1,360 experts worldwide. Their findings provide a state-of-the-art scientific appraisal of the condition and trends in the world’s ecosystems and the services they provide, as well as the scientific basis for action to conserve and use them sustainably. According to the Millennium Ecosystem Assessment, forests and soils were a net source of carbon dioxide emissions over the past two centuries.  Approximately 40 percent of carbon dioxide (CO2) emissions came from land use change, primarily through deforestation, while terrestrial ecosystems absorbed approximately only a third of all CO2 emissions during that time period.  During the 1980s and 1990s, however, terrestrial ecosystems were a net CO2 sink.  They were the source of about 20 percent of CO2 emissions—fossil fuels accounted for the rest—but absorbed approximately a third of total CO2 emissions during that time period.  Therefore, the ability of ecosystems to sequester carbon in the 1980s and 1990s was “enhanced” relative to the past two centuries.  Nevertheless, deforestation is still a major source of man-made carbon emissions and efforts to curb deforestation would help reduce greenhouse gas concentrations in the atmosphere. Source: Millennium Ecosystem Assessment, 2005

Ecosystem Services: Value for Who? Value to Landowner: Marketed services Timber, Food, Fish, Fuel Food The provisioning services are fairly easily valued by our economic system. We know how to measure these products and the market will provide financial value to the landowner through traditional supply and demand interactions. These other regulatory services are very different. The landowner’s forests and agricultural lands provide these services to society. They are measured differently and to date, have been difficult to value in traditional markets in ways that landowners receive adequate financial compensation. A key piece of this puzzle is finding ways to financially strengthen this societal connection with the rural landowner. Urban and suburban populations have a great deal at stake to insure that these ecosystem services are provided for. These populations represent the demand for these environmental services. How we successfully channel that demand in ways that provide financial compensation to rural landowners will be our measure of success. Fiber Fuel Value to Society: Non marketed services Climate regulation Flood control Water filtration Climate regulation Water regulation Fresh water Erosion control Storm protection Viewsheds Fresh water Erosion control

Decision Making Process Externalities CARBON BIODIVERSITY Decision Making Process Land Clearing Costs Building Construction Costs Land Value Cost Because of inadequate financial compensation, the landowner does not associate the social cost of losing these services as a cost in a transaction with a developer or when converting to a more intensive land use. A good example of this is when a land developer clears a 30 acre forest to create a new subdivision. The development costs may not include the social costs associated with a loss of biodiversity or a carbon sink. Perhaps that particular forest was an important patch of forest that interconnected two other fragmented parcels. The value of that forest for air quality or carbon sequestration is lost also. WATER AIR

How do we price the ecosystem services and benefits? Taxes (land-use) Best Management Practice (BMP) cost-share Protected areas (conservation easements, public land acquisition) User fees (park visitation) Cap and Trade programs (pollution emissions) Land-use policy (zoning) Certification Programs designed to insure sustainability Eco-labeling Legislation (wetlands, endangered & threatened species) All of these items represent strategies for placing value on ecosystem services. With these and other strategies in place, what else is missing in the equation to compensate landowners for providing important environmental services and benefits? I feel that what is truly missing are mechanisms that provide annual income streams to landowners that provide these ecosystem services. Many of these strategies simply do not generate a cash flow to a landowner like other commodities such as crops, timber, or livestock. BMP cost-share, reduced real estate taxes, certification programs, and the like simply don’t provide the necessary cash flow to influence landowner decisions to more intensively develop their property. So what’s missing?

3 Million More People 1 Million Fewer Forest Acres These diverging trends provide the social impetus that is driving the need to create new tools and initiatives to value the natural capital provided by our private landowners. Last year, Virginia experienced a net loss of nearly 30,000 acres of forestland. Agricultural lands suffered similar losses. Cash flows through ecosystem service payments can make a difference to many landowners on their land-use decisions. VA Population VA Forest Land

We have choices to make… Stormwater Management Strategies The reality is we’ll need both. The bottom line is we will need to provide financial incentives to landowners and farmers that are willing to establish the natural infrastructure and be part of the solution. Natural infrastructure provides a tremendous amount of environmental value added versus expensive, engineered solutions. The stormwater management solution on the right provides nutrient load reduction, sediment load reduction, air quality benefits, and biodiversity enhancement in addition to addressing stormwater management.

Virginia Landowner Carbon Sequestration Project 18 acres afforested Nutrient Credit Trading Project 8 acres Hardwood Stand – 400 MBF Wetlands Mitigation Project – 11 acres 87 acres total forested acres in municipal watershed Our vision is that one day farmers and landowners will be managing for the flow of ecosystem services as a commodity just as they do crops, cattle, and timber. This map depicts the opportunity to “build” a landowner payment and enhance their income stream off the property. Hay Production Beef Cattle Operation Riparian Buffer to be planted – 12 acres

“conservation will ultimately boil down to rewarding the private landowner who conserves the public interest.” - Aldo Leopold I’ll leave you with this quote from Aldo Leopold.

Water Quality Efforts (Sediment Load & Nutrient Load Reduction) Sediment Load Reduction – Infiltration Practices Afforestation Stream restoration work Potential Applications Municipal water supplies (reservoir life, treatment costs) Stormwater management TMDLs Nearly three years ago, I used this slide to address how forest cover provides water quality ecosystem services. In those early presentations, I used the South Fork Rivanna River reservoir as an example of how investing in ecosystem services provided by forest cover could lower reservoir maintenance costs and extend reservoir life. Now three years later, we have a chance to actually demonstrate that concept with developing a PES program.

Thank You Buck Kline Virginia Department of Forestry 900 Natural Resources Drive Charlottesville, VA 22903 PHONE: 434-220-9035 E-MAIL: buck.kline@dof.virginia.gov