Download Natural Capital Concepts in Practice

Natural Capital Concepts in Practice:
Experience in the US (and farther
South)
Brian C. Murray
Director for Economic Analysis, Nicholas Institute
for Environmental Policy Solutions
Research Professor, Nicholas School of the
Environment
Duke University
Presented at “Big Ideas for Sustainable Prosperity”
University of Ottawa,
April 29, 2014
Natural Capital and
Ecosystem Services
Nature as a capital stock
Ecosystem services (flows)
http://educatoral.com/WoSAchievements.htm
The economic value of the natural capital
Derives from the economic value of the
Ecosystem services it generates
Source: Millennium Ecosystem Assessment
The Proposition
• Markets work well to determine what services
ecosystems provide
– Markets favor traditional commodities
• Some non-traditional ecosystem services are as valuable
(or more) than some traditional commodities
– But they have no markets
• Can correct this problem by creating markets (or other
forms of payment) for a wider range of ecosystem
services
– Payments for Ecosystem Services (often public to private)
– An economic incentive alternative to command-based
regulation
Putting ecosystem
services into practice: US
Top-down
 “Green GDP”
 Federal land
management
decisions
 Public Payments for
Ecosystem Services
 Ecosystem Service
markets
Bottom-up
 Land trusts, water
funds, and other
“Coasean”
solutions
Conservation Reserve Program
Wetlands Reserve Program
Coase Solution 1:
Conservation Land Trusts
Conservation Land Network
Coase Solution 2:
Water Funds
• A form of PES (or PWS for watersheds) that has become
more common in South America over the last decade
(e.g., Ecuador, Colombia, Bolivia)
• Idea: Establish a central fund where principal stays
(largely) intact, but interest earnings are used to pay
for practices that improve watersheds
– Maintained principal => sustainable
– Can take a while to build enough principal to generate
interest
• May be supplemented with direct payments up front for the
services
Fondo de Proteccion del Agua (FONAG), Ecuador
What are Ecosystem Service Markets ?
DEMAND
Individual
(firm)
Willingness to
Pay (WTP) for
ES
SUPPLY
Market
•Price
•Quantity exchanged
Marginal cost of
ES provision
Ideal; markets with
many buyers
and sellers –
decentralized
trade
Q: What drives private demand for an ecosystem service?
Altruism
Pure self interest
Government regulation with flexible means of compliance
Examples of Ecosystem
Service Markets
• Wetlands mitigation
banking
• Water quality (nutrient)
trading
• Habitat Conservation
banking (endangered
species offsets)
The Big Kahuna – Climate
mitigation payments for
sequestered carbon
U.S.
Forest carbon offsets in California compliance markets
- entities can meet up to 8% of compliance obligations w/offsets
- 7.5 million tons of offsets issued since inception (2013), forest carbon
largest category
Global
Reduced Emissions from Deforestation Blue carbon – coastal and marine
And Degradation: REDD+
ecosystems
Are PES programs living
up to the hype globally?
PES type
2020 market
projection
(in 2006)
Actual market in 2020 market
2012
projection
(in 2012)
Forest carbon
offsets:
compliance
$5-8 billion
$26 million
$470 million
Forest carbon
$10 million –
offsets: voluntary $5,000 million
$156 million
$10 million –
$5,000 million
Watershed
trading:
compliance
$1,000 million
$20 million
$43 million
Watershed
payments:
voluntary
$2,000 million
$5 million
$50 million
From Katoomba Group periodic “Matrix” assessment Courtesy of Jim Salzman (Duke)
Why are ES markets not
scaling up?
• Lack of regulation to drive demand
• Low prices where demand exists
• Transaction costs
– Search costs
– Rules complexity
• Skepticism
– Severity of environmental problems
– Lack of faith in (and even hostility to)
markets in some places
Big Idea: Getting serious
about non-point water
pollution from agriculture
• Need to bring
agriculture under
tighter regulation or
create huge
payments for them
to reduce N and P
• Market-based
approaches such
as nutrient trading Figure from Nguyen et al (2006) A Guide to Market-based Approaches to Water Quality
are likely essential
as a cost-effective
compliance
mechanism
Source: NOAA
What does agriculture look
like in a green economy?
• Our natural ecosystem stresses are largely driven
by the need to produce food – and increasingly,
biofuels
• What is greener?
– Low impact, land extensive farming?
– Intensive “modern” agriculture
• Much emphasis on raising productivity of
agriculture, especially if it is land-saving
– Can have perverse effects
• What role for radical changes in agriculture?
– Vertical farming
– GMOs
– Major dietary shifts
Thank You
[email protected]