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 definitionsA few definitions

EcosystemEcosystem

BiodiversityBiodiversity

Ecosystem Ecosystem servicesservices

• The variability among living organismsThe variability among living organisms– Within species & populationsWithin species & populations– Between speciesBetween species– Between ecosystemsBetween ecosystems

• The benefits people obtain from ecosystemsThe benefits people obtain from ecosystems• The “services of nature”The “services of nature”

• A dynamic complex of plant, animal, and micro-A dynamic complex of plant, animal, and micro-organism communities and the non-living organism communities and the non-living environment interacting as a functional unitenvironment interacting as a functional unit

World Resources Institute

Provisioning services: Goods produced or provided by ecosystemsProvisioning services: Goods produced or provided by ecosystems

World Resources Institute

Regulating services: Benefits obtained from control of natural processes by Regulating services: Benefits obtained from control of natural processes by ecosystemsecosystems

World Resources Institute

Cultural services: Non-material benefits obtained from ecosystemsCultural services: Non-material benefits obtained from ecosystems

• 20% of coral reefs lost and more 20% of coral reefs lost and more than 20% degraded over last several than 20% degraded over last several decadesdecades

• 35% of mangroves lost in the last two 35% of mangroves lost in the last two decadesdecades

• Amount of fresh water in reservoirs Amount of fresh water in reservoirs quadrupled since 1960quadrupled since 1960

• More than half of synthetic fertilizer More than half of synthetic fertilizer ever used on planet occurred since ever used on planet occurred since 19851985

• Species extinction rates now 100 – Species extinction rates now 100 – 1,000 times background rate 1,000 times background rate

Millennium Ecosystem Assessment findingsMillennium Ecosystem Assessment findings

Degraded Mixed Enhanced

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 world’s ecosystem services

World Resources Institute

Presentation overview

• Ecosystem services – an introduction

• Business and ecosystem services

• Payments for ecosystem services

Business and ecosystems are inter-relatedBusiness and ecosystems are inter-related

Business contributes to ecosystem changeBusiness contributes to ecosystem change

Business depends on ecosystem servicesBusiness depends on ecosystem services

PharmaceuticalPharmaceutical

InsuranceInsuranceComm. real estateComm. real estate

TourismTourism

AgribusinessAgribusinessElectric utilityElectric utility

TourismTourism

BeverageBeverageElectric utilityElectric utilityAgribusinessAgribusiness

Provisioning Provisioning Provisioning Provisioning

Regulating Regulating Regulating Regulating

Cultural Cultural Cultural Cultural

CropsCropsLivestockLivestockAquacultureAquaculture

Carbon sequestrationCarbon sequestration

Capture fisheriesCapture fisheriesWild foodsWild foodsWood fuelWood fuelGenetic resourcesGenetic resourcesBiochemicalsBiochemicalsFresh waterFresh water

Air quality regulationAir quality regulationClimate regulationClimate regulationErosion regulationErosion regulationWater purificationWater purificationPest regulationPest regulationPollinationPollinationNatural hazard regulationNatural hazard regulation

Spiritual & religiousSpiritual & religiousAesthetic valuesAesthetic values

TimberTimberFiberFiber

Water regulationWater regulationDisease regulationDisease regulation

Recreation & ecotourismRecreation & ecotourism

EnhancedEnhanced DegradedDegraded MixedMixed

Examples of industries with high dependence on Examples of industries with high dependence on ecosystem servicesecosystem 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 company’s dependence and

impact on ecosystem services

Getting business focused on ecosystem change

Road testersRoad testers

5. Develop strategies

Steps in a corporate ecosystem services reviewSteps 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 microenterprisesPurchaser – multiple private companiesService – Maya nutsScale – local

Supplier – farmers Purchaser – CompanyService – Freshwater Scale – Local

The Forest Climate Alliance

Strategic Advice to National Policy Initiatives

Biodiversity Offsets

Supplier – Forest ownersPurchaser – GovernmentService – water regulation, erosion control Scale – National

Mexican PSAH

Supplier – private sector/governmentsPurchasers – multiple – GHG emittersService – 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. 2007. “Experiences with Pro-Poor Payments for Environmental Services”. CIFOR Presentation: PES Copenhagen 2007.

10

20

30

40

50

010

20

30

40

50

010

20

30

40

50

0

Be careful about adding on side objectives to PES

Payments for ecosystem services - key success factorsPayments for ecosystem services - key success factors

Clear buyer(s)Clear buyer(s)

Robust “business case” or Robust “business case” or driver of demand (voluntary, driver of demand (voluntary, regulatory)regulatory)

DemandDemand

NOT EXHAUSTIVE

Possible business cases for buyersPossible 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 goals Meet 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

SupplySupply

Clear buyer(s)Clear buyer(s)

Robust “business case”Robust “business case”

Correct scienceCorrect science

Agreed, measurable unit of tradeAgreed, measurable unit of trade

Trusted quantification methodologyTrusted quantification methodology

Monitoring & verificationMonitoring & verification

Legal/regulatory framework (e.g., Legal/regulatory framework (e.g., tenure)tenure)

Low transaction costsLow transaction costs

Awareness & capacityAwareness & capacity

Benefits of PES must exceed Benefits of PES must exceed opportunity cost of other opportunity cost of other usesuses

DemandDemand Supporting Supporting infrastructureinfrastructure

NOT EXHAUSTIVE

Payments for ecosystem services - key success factorsPayments for ecosystem services - key success factors

Thank youThank you

Janet RanganathanJanet RanganathanDirectorDirector

People & Ecosystems ProgramPeople & Ecosystems Program202-729-7656202-729-7656

janetr@wri.orgjanetr@wri.orgWorld Resources Institute

Source: Malavasi,. E.O. and J. Kellenberg, “Program for Payments for Ecological Services in Costa Rica” 2003.

Supplier – landownersPurchaser – Company/GovernmentService – 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. 2007. “Experiences Experiences with with Pro-Poor Payments for Environmental Services”. CIFOR Presentation: PES Copenhagen 2007.

Targeting Poverty – The Mexican Scheme

0%

20%

40%

60%

80%

100%

PSAH2003

PSAH2004

PSAH2005

PSAH2006

NATIONAL(forests)

% d

e la

s l

oc

alid

ad

es

ru

rale

s

.

Very High High Middle Low Very Low

Opportunities for businesses in light of ecosystem Opportunities for businesses in light of ecosystem

changechange

New marketsNew 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 businessesNew businesses • Environmental asset finance and brokerageEnvironmental asset finance and brokerage• Ecosystem restorationEcosystem restoration

New technologies New technologies and practicesand practices

• SubstitutesSubstitutes• Mitigate or reverse degradationMitigate or reverse degradation• Improve efficiency of ecosystem useImprove efficiency of ecosystem use

OpportunityOpportunity ExampleExample

NOT EXHAUSTIVE

New revenue New revenue streams for assetsstreams for assets

• Payments for ecosystem servicesPayments for ecosystem services

Allegheny Energy, Canaan Valley, WV

First mover First mover advantagesadvantages

• Enhanced imageEnhanced image• Operational or cost advantages by recognizing Operational or cost advantages by recognizing

trends earlytrends early