Ecosystem services, business and payments for ecosystem services Janet Ranganathan World Resources Institute

Presentation overview Ecosystem services – an introduction Business and ecosystem services Payments for ecosystem services

A few definitions Ecosystem Biodiversity Ecosystem services The variability among living organismsThe variability among living organisms –Within species & populations –Between species –Between ecosystems The benefits people obtain from ecosystemsThe benefits people obtain from ecosystems The services of natureThe services of nature A dynamic complex of plant, animal, and micro- organism communities and the non-living environment interacting as a functional unitA dynamic complex of plant, animal, and micro- organism communities and the non-living environment interacting as a functional unit

World Resources Institute Provisioning services: Goods produced or provided by ecosystems

World Resources Institute Regulating services: Benefits obtained from control of natural processes by ecosystems

World Resources Institute Cultural services: Non-material benefits obtained from ecosystems

20% of coral reefs lost and more than 20% degraded over last several decades 20% of coral reefs lost and more than 20% degraded over last several decades 35% of mangroves lost in the last two decades 35% of mangroves lost in the last two decades Amount of fresh water in reservoirs quadrupled since 1960 Amount of fresh water in reservoirs quadrupled since 1960 More than half of synthetic fertilizer ever used on planet occurred since 1985 More than half of synthetic fertilizer ever used on planet occurred since 1985 Species extinction rates now 100 – 1,000 times background rate Species extinction rates now 100 – 1,000 times background rate Millennium Ecosystem Assessment findings

DegradedMixedEnhanced Provisioning Capture fisheries Wild foods Wood fuel Genetic resources Biochemicals Fresh water Timber Fiber Crops Livestock Aquaculture Regulating Air quality regulation Regional & local climate regulation Erosion regulation Water purification Pest regulation Pollination Natural hazard regulation Water regulation (e.g., flood protection) Disease regulation Carbon sequestration Cultural Spiritual & religious values Aesthetic values Recreation & ecotourism Source: Millennium Ecosystem Assessment, 2005 Condition of the worlds ecosystem services World Resources Institute

Presentation overview Ecosystem services – an introduction Business and ecosystem services Payments for ecosystem services

Business and ecosystems are inter-related Business contributes to ecosystem change Business depends on ecosystem services

Pharmaceutical Insurance Comm. real estate Tourism Agribusiness Electric utility Tourism Beverage Agribusiness ProvisioningProvisioning RegulatingRegulating CulturalCultural CropsLivestockAquaculture Carbon sequestration Capture fisheries Wild foods Wood fuel Genetic resources Biochemicals Fresh water Air quality regulation Climate regulation Erosion regulation Water purification Pest regulation Pollination Natural hazard regulation Spiritual & religious Aesthetic values TimberFiber Water regulation Disease regulation Recreation & ecotourism EnhancedDegradedMixed Examples of industries with high dependence on ecosystem services NOT EXHAUSTIVE

WRI, WBCSD and Meridian Institute are pilot testing a methodology for helping corporate managers proactively identify business risks and opportunities arising from their companys dependence and impact on ecosystem services Getting business focused on ecosystem change Road testers

5. Develop strategies Steps in a corporate ecosystem services review 4. Identify business risks and opportunities 3. Analyze trends in priority services 2. Identify priority ecosystem services 1. Determine scope

Ecosystem services: a guide for policy makers Forthcoming – Dec 2007

Presentation overview Ecosystem services – an introduction Business and ecosystem services Payments for ecosystem services

Microenterprises in Guatemala Source – Equilibrium Fund Supplier – community-based microenterprises Purchaser – multiple private companies Service – Maya nuts Scale – local Supplier – farmers Purchaser – Company Service – Freshwater Scale – Local

The Forest Climate Alliance Strategic Advice to National Policy Initiatives Biodiversity Offsets Supplier – Forest owners Purchaser – Government Service – water regulation, erosion control Scale – National Mexican PSAH

Supplier – private sector/governments Purchasers – multiple – GHG emitters Service – climate regulation Scale - global Reduced deforestation offsets market

PSAH 2003 PSAH 2004 PSAH 2005 PSAH 2006 Very High Marginality Over exploited aquifers High water scarcity municipa High risk of deforestation Source: Wunder, S Experiences with Pro-Poor Payments for Environmental Services. CIFOR Presentation: PES Copenhagen Be careful about adding on side objectives to PES

Payments for ecosystem services - key success factors Clear buyer(s) Robust business case or driver of demand (voluntary, regulatory) Demand NOT EXHAUSTIVE

Possible business cases for buyers Business Decrease operational risk cost-effectivelyDecrease operational risk cost-effectively Lower regulatory riskLower regulatory risk Strengthen reputation / brandStrengthen reputation / brand Meet CSR goalsMeet CSR goals Satisfy regulationsSatisfy regulations Government Improve environmental quality for citizensImprove environmental quality for citizens Foster rural sustainable livelihoodsFoster rural sustainable livelihoods Implement lower cost option vs. engineered solutionImplement lower cost option vs. engineered solution Try alternative approach to regulationTry alternative approach to regulation NGOs / foundations Fulfill missionFulfill mission

Supply Clear buyer(s) Robust business case Correct science Agreed, measurable unit of trade Trusted quantification methodology Monitoring & verification Legal/regulatory framework (e.g., tenure) Low transaction costs Awareness & capacity Benefits of PES must exceed opportunity cost of other uses Demand Supporting infrastructure NOT EXHAUSTIVE Payments for ecosystem services - key success factors

Thank you Janet Ranganathan Director People & Ecosystems Program World Resources Institute

Source: Malavasi,. E.O. and J. Kellenberg, Program for Payments for Ecological Services in Costa Rica Supplier – landowners Purchaser – Company/Government Service – erosion regulation Scale – Costa Rica, watershed

Fiber Food Spiritual & religious Freshwater Genetic Resources Climate regulation Water purification Disease regulation Flood/Fire regulation Recreation & tourism Aesthetic Economic Value ($) Private Benefit Capture Difficult Easy ? ? ? ? ? ? ? ? ? ? ? Many services are public goods Adapted from MA, 2004 Quantification Difficult Easy

Source: Wunder, S Experiences Experiences with with Pro-Poor Payments for Environmental Services. CIFOR Presentation: PES Copenhagen Targeting Poverty – The Mexican Scheme 0% 20% 40% 60% 80% 100% PSAH 2003 PSAH 2004 PSAH 2005 PSAH 2006 NATIONAL (forests) % de las localidades rurales. Very HighHighMiddleLowVery Low

Opportunities for businesses in light of ecosystem change New markets Carbon tradingCarbon trading Water quality/nitrogen tradingWater quality/nitrogen trading Certified sustainable productsCertified sustainable products Wetland bankingWetland banking Endangered species bankingEndangered species banking New businesses Environmental asset finance and brokerageEnvironmental asset finance and brokerage Ecosystem restorationEcosystem restoration New technologies and practices SubstitutesSubstitutes Mitigate or reverse degradationMitigate or reverse degradation Improve efficiency of ecosystem useImprove efficiency of ecosystem use OpportunityExample NOT EXHAUSTIVE New revenue streams for assets Payments for ecosystem servicesPayments for ecosystem services Allegheny Energy, Canaan Valley, WV First mover advantages Enhanced imageEnhanced image Operational or cost advantages by recognizing trends earlyOperational or cost advantages by recognizing trends early