Markets for Ecosystem Services: International Experience Sara J. Scherr Forest Trends Ecoagriculture Partners May 2005

International Trends in Payments for Ecosystem Services: Key Messages 1) PES strategies are emerging because conservation finance is in crisis just as broader ecosystem conservation needs are identified; conservation investment must be part of the mainstream economy 2)Innovative market and ‘market-like’ mechanisms are emerging all over the world that seek to convert major “sources of threat” to sources of conservation stewardship (U.S. leads in some market developments, lags in others) 3) The rules and strategies developed over the next decade will influence patterns of conservation and investment globally over the next century; the U.S. can play a leadership role

Investing in “Natural Infrastructure’ The Forest Climate Alliance Strategic Advice to National Policy Initiatives Biodiversity Offsets Carbon sequestration and storage Soil formation and fertility Decomposition of wastes Landscape beauty Wilds species & habitat protection Plant pollination Watershed protection and regulation Air quality Pest & disease control

Failures of traditional regulatory approaches Limits of protected areas and broadened ecosystem approach Financial markets reward short-term returns over long-term ones Financial value of natural area conversion is much higher than for conservation Motivations to Use Market-Type Instruments Stagnant public and civic funding for conservation

THE FOREST CLIMATE ALLIANCE Who Buys Ecosystem Services? Direct Beneficiaries Watershed protection –Industrial, agricultural water users – to secure stable supply, flow –Municipal water utilities, consumers (reduce costs, water quality) –Agencies managing environmental risks (e.g.,floods) Biodiversity conservation –Conservation agencies and organizations working on private lands –Tourist industry, for landscape beautify or protection of key species –Land developers (offsets for damage, or for amenity values) –Farmers (to protect pollinators, sources of wild products) Carbon emission offsets or avoided deforestation –Industries required to comply with carbon rules (offsets for emissions) –Agencies, municipalities seeking to improve air quality –Businesses providing carbon offsets

Using Carbon Emissions Trading to Finance Sustainable Development and Conservation Above-Ground Time-Averaged and Total Soil Carbon (0-20 cm) for sites in the humid tropical lowlands of Brazil, Cameroon and Indonesia

THE FOREST CLIMATE ALLIANCE Who Buys Ecosystem Services? Indirect Beneficiaries Consumers: “green” values Companies: “green” branding Investors: ”green” filters

Types of Markets and Payment Schemes for Ecosystem Services Self-organized private deals Private entities pay for private services Public payments to private land and forest owners Public agency pays for service Open trading of environmental credits under a regulatory cap/floor Landowners either comply directly with regulations, or buy compliance credits * Eco-label of forest, farm products Consumers prefer certified sust. supplies

Public Payments for Ecosystem Services Agri-environmental payments in EU –Switzerland – over 8% of total agricultural land “Green payments” in China –Over $1 billion in payments for Green compensation, etc. Watershed payments in Mexico –Since 2002, $23 mln/year in on 770,000 A Watershed payments in Costa Rica –$9 million on 51,000 A

Private Deals Retail carbon market –Now 0.7m t/CO2; expected to grow to 15m Payments for water quality protection –Perrier bottling plants in France Payments for landscape beauty/tourism value –Chile’s private Protected Area Network – 2.5 million A Conservation NGO payments for habitat and biodiversity conservation –Latin America - $100,000,000’s

Trading Under a Regulatory Cap or Floor The Kyoto-compliant carbon market –Was 1.16m t/CO2 in 2002 and is expected to grow to a at least 15m t/CO2 in ( LULUCF under $50 million) European Trading System –20 million tons 16.7 euros/t (not yet LULUCF) New South Wales, Aust. GHG Abatement –Aus$11-14/tCO2e Tradable development rights in Brazil

Creating Markets for Ecosystem Services

Obstacles to Development of PES * Lack of technical and market information Limited institutional experience Inadequate legal framework Suspicion of markets for public goods Equity concerns

Priorities for Action Democratize information about ecosystem service markets Encourage broad participation in policy dialogue about the rules and shape of ecosystem service payments (local, national, international) Reduce learning costs for new entrants to these markets; through training programs and enterprise support Reduce transaction costs through institutional innovations like suitable intermediaries, ‘bundling’, large- area programs, integrate with economic activities

The Katoomba Group– Linking Global Innovators “The Katoomba Group has become the incubator for the development of new environmental markets, providing the intellectual capital supporting the boldest new economy experiments.” – G. Daily

The Katoomba Group’s “Ecosystem Marketplace” The first global information service to report on and track developments in new ecosystem service-based markets for: Water quality and flow related to land use decisions Carbon sequestration and storage Conservation of biodiversity and endangered species Other conservation-related transactions Vol. 1. No.1

Ecoagriculture Partners International Learning Network : Paying/rewarding farmers and farming communities for stewardship of ecosystem services Steering Committee: Forest Trends, Winrock Int’l, IUCN, NEMA-Uganda, EcoTrust, IFAD, REBRAF, ICRAF, Katoomba Group, UNDP/GEF Nairobi meeting, September 2004 Uganda meeting, September 2005 (with Katomba Group)

Thank you! Ecoagriculture Partners