1. Markets for Ecosystem Services (ES)
David Zilberman
University of California Berkeley

2. What do we speak about? Alternative ways of selling ES
Formal Markets (Carbon)
Direct deals between two parties
auctions
Subsidies & government payment

3. Categories of Environmental Services (ES)
Conservation&Preservation
Storage and stabilization ( e.g water,carbon )
Risk reduction ( flood control, protection form fire)
Natural resources quality enhancement ( soil,water)
Amenity creation-
restoration
Enhancement

4. Environmental Services & Land Use
Working land programs-promoting green practices
Conversion of lands to “greener” use
From farming to forest
Prevention of land use conversions
Controlling development

5. The Multidimensionality of ES
The same land may provide a multitude of ES
Some ES are provided simultaneously others are not
Growing Wetland conflicts with native plants
Soil erosion and wind erosion are complementary
ES may provide regional, national & global benefits
Benefits of ES vary across individuals &groups
Bird watchers & hunters benefit from better bird habitat
All gain from flood control- gains vary by location

6. The Dimensions of Wetland Services
Local
National
International
Wildlife habitat
Public
Private
Flood control
Public Private
Water purification
Aesthetic value
Recreation
Existence

7. Implication of “Beneficiary pay”
Government pays for public good aspects-
utilized by many
No exclusion - e.g Existence value
Private agencies should pay for private benefits.
BUT
Private willingness to pay for ES is understated because it emits public goods
There is a role for public-private cooperation
Matching fund
Tax credit

8. Selling ES in markets vs. special trades
Low transaction cost
Standard product
Large number of buyers
Minimal contact of buyer
and seller
Special deal
Tailor product to buyers’ needs
Local small number of potential partner
Needs a way to link buyer to seller green E-bay

9. Elements of implementation
Measurement
ES output meeting well defined standards
Monitoring and enforcement
Unbundling
Heterogeneity
Correlation
Targeting
Role of government
Third party

10. Measurement Buyers and sellers need to know
What is delivered - when - for what price
Deliverables can be outcomes or actions
Must be easily measurable
Simplicity and common sense are essential
ES is controlled by the worker in the field
Not the scientist is the lab.
Clever use of new IT can improve measurement accounting and monitoring

11. The reasons for ES product standards ( Being commodities not unique products)
Buyers want
to know what they buy
To sell it when they want ( liquidity)
Certification by trusted agency
All associated with having ES meeting standards. Also
Low transaction cost
High volume of trading

12. Monitoring and Enforcement
ES are frequently generated on large parcels of land over long period of time
Farmers can easily cut corners
Inspection backed by action will lead to improved ES quality
justify higher prices
Can be part of certification program
Monitoring allows establishing buyers insurance plans ( Guaranteeing delivery and compensation)

13. ES markets allow selling bundles of ES
A field may generate various types of ES
Potential buyer may be interested in only part of the package
The Land owner’s gain will increase If they can sell different types of ES to to different buyers
A well functioning ES market results in a pricing of individual ES that will increase the flexibility of the buyers and sellers

14. Heterogeneity Lands vary in their productivity and ES generation
Sometimes 90% of certain ES is provided by 10% land
Both buyers and sellers benefit when buyer who appreciate certain ES are able to get them-part of efficient buying and selling strategies
Buying the lands with the best ES is not always the best strategy- best to buy ES who provide highest value Per dollar

15. Targeting strategies A buyer with given budget may choose
Acreage maximization given the budget
This strategy is preferred by sellers
It is optimal only when cheapest lands provide most ES.
Benefits targeting Purchase the highest quality lands within budget -best for buyers if there is lower variability of productivity than ES among lands
Benefit /cost Targeting Purchase lands with the highest highest per dollars given the budget-always works for buyers

16. Third parties Designers of ES programs need to be aware that
taking lands out of production may result in increase ag prices
May backfire leading to farming of previously idle lands- thus may need to pay for prevention
Reduced farm activities may reduce tax base
Landowners may gain but operators and other lose