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Getting Started with Payments for Ecosystem Services October 2009 Getting Started with Payments for Ecosystem Services United States Forest Service 1 MODULE TWO: Existing Markets and Payments Schemes for Ecosystem Services

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Existing Markets and Payments Schemes Module 2: Existing Markets and Payment Schemes for Ecosystem Services Early Environmental Markets Environmental Markets and Payments for Services A Review of Existing Markets Categories of Services/ Markets Biodiversity Compensation and Offsets Water Payments and Nutrient Trading Carbon Markets Summary US Legislative Activity Regional Highlight: California Multi-Market Trends 2

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Early Environmental Markets Water Quality Trading (U.S.) Wetlands and Species Credits (U.S.) Capped Issuance of Hunting and Fishing Licenses Limited, Sellable Water Use Rights Cap-and-Trade Trading in Pollutant Allowances of Sulfur Dioxide (U.S., 1990s) 3

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Environmental Markets & Payments for Services Water markets (regulation- driven) Water markets (public sector funding) Water payments (B2B & public sector) Biodiversity trading (regulation-driven) Biodiversity transactions (B2B) Carbon trading (regulatory and voluntary) Carbon trading (regulation-driven) Carbon trading (regulatory and voluntary) Water payments (B2B) Water payments (public sector) Water payments (public sector funding) Water-related payments (public sector) 4

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A Review of Existing Markets Policy or Regulation-basedVoluntary or Private Transactions Public Payments Payments to property- owners who agree to adopt land management practices associated with the maintenance of ecosystems Self-Organized Deals Individual beneficiaries of environmental services contract directly with providers of these services. Open-Trading Schemes Markets that require sufficient liquidity and transferability, low transaction costs and good access to information Regulatory Markets Voluntary Markets Government Payments Government Taxes Landowner (or NGO) to Landowner Multi-Buyer Consortium 5

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66 Categories of Services/ Markets Biodiversity Water Carbon Others: Scenic beauty (eco- tourism), bundled services (land trusts, conservation easements) 6666

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Biodiversity: The Anti Commodity 777

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Biodiversity Compensation Programs 888 EXISTING United States Wetland & Endg Species Mitigation Australia Biobanking (NSW) BushBroker (Victoria) Native Vegetation Offsets (South) Canada Wetland Mitigation Banks INTERESTED France UK South Africa New Zealand Others 888

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99 U.S. Species Banking Species banking started in the early 90s & wetlands in early 80s ~115 species & 800 wetland & habitat banks in the US Species offset & banking - $200-300 million in 2007 Wetlands offsets & banking $3 billion in 2007 (ELI) 9999

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10 Voluntary Programs BBOP Malua BioBank Gopher Tortoise Habitat Credit Bank Climate, Community Biodiversity Standards 10

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11 Water payments Payments for Watershed services (quality & quantity) Paying land owners (ex. Heredia, Costa Rica/ Perrier Vittel) Purchasing land (Water Conservation Fund in Quito) Nutrient trading Nitrogen, phosphorus, sediments Small pilot programs across the United States (Ohios Miami Conservancy District ) 11

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12 Nutrient trading: challenges Not easily commoditized (not carbon) But markets want to be global and this will happen on watershed scale so smaller size (watershed) Could become a series of large markets Think Chesapeake, Ohio Forest Trends Chesapeake Fund 12 Source: EPA 12

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14 Carbon Markets The most global environmental market as a result of Kyoto Protocol, which drives European Emissions Trading System (EU ETS) Non- Kyoto carbon markets Voluntary carbon markets US carbon markets Markets for biological carbon sequestration 14

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AAU $2 Billion CDM $2.7 Billion RGGI $2.2 Billion EU ETS $118 Billion Chicago Climate Exchange (expired) $50 Million NSW $117 Million JI $354 Million Universe of Carbon Markets in 2009 Total value, 2009: US$143,727 Billion Source: Ecosystem Marketplace and World Bank Voluntary OTC $326 Million 15

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Role of Forests, Soil and Agriculture Emission source and sink Landowners and farmers critical political stakeholders Balance carbon flows Green carbon under- utilized in market based climate change solutions 16

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17 Active Forest Carbon Offset Projects Source: www.forestcarbonportal.comwww.forestcarbon 17

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US Legislative Activity 18 Federal History Waxman Markey Kerry Boxer American Power Act Agriculture plays a powerful role in Senate politics Legislation stalled, states looking to state and regional programs Voluntary (pre-compliance) markets prevail in the US Patchwork of regional compliance schemes The Regional Greenhouse Gas Initiative (RGGI) Assembly Bill 32, Global Warming Solutions Act

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Regional Highlight: California 19 Global Warming Solutions Act AB32 CA electorate 61.3%, CA Air Resources Board 9-1 in favor cap/ trade Polluting industries buy/sell emission allowances By 2020 emissions limited to 1990 levels Future for REDD Companies unable to reduce emissions to target levels can offset with forest conservation in tropical countries 74 million tons of CO2 reductions from offset credits by 2020

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Regional Highlight: California 20 California (US), Acre (Brazil), Chiapas (Mexico) Signal of sub-national activity in the US in absence of federal carbon trading CA Air Resourced Board (ARB) to allow offsets from avoided deforestation in Chiapas and Acre REDD credits sold as offsets to CA industrial emitters in 2 nd and 3 rd compliance periods Forestry projects in the 1 st period: reforestation, improved forest management, avoided conversion

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21 Multi-market trends Difficult to track Demand for real benefits (honing requirements) Growth in Infrastructure (TZ1 pilot registry for CA species banking; Bay Bank) Carbon as entry point for many investors 21

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22 Blazing Trails Voluntary market mental model Innovation across the globe Multi market systems Stacking, bundling questions 22