Conservation MarketsConservation Markets
Mark Ankeny
September 13, 2009
Idaho National Laboratory
Mark Ankeny
September 13, 2009
Idaho National Laboratory
2
USDA ANNOUNCES NEW OFFICE OF ECOSYSTEM
SERVICES AND MARKETS
WASHINGTON, Dec. 2008
A National Ecosystem Services Research Partnership
Opportunity for Participation
Environmental Protection Agency
December 2008
Environmental Research and Education Needs:
An Agenda for a New AdministrationDecember 2008
National Council for Science and the Environment Improving the scientific basis for environmental decision making
National Council for Science and the Environment Improving the scientific basis for environmental decision making
3
Business for Social Responsibility (BSR) Report:
Business drivers for ecosystem function
1. New ways for businesses to:
Create value. Consider risk mitigation. Differentiate among competitors. Realize new revenue streams through ecosystem services protection. Access capital and new markets. Save on costs.
2. New mindsets on the part of regulators and key stakeholders that prioritize holistic ecosystem approaches over siloed management of air, freshwater, biodiversity, etc.
3. New market valuation techniques as trendsetters incorporate ecosystem services into their research
4. New criteria for project finance and credit, as financiers signal that some environmental assets are priceless
1. New ways for businesses to:
Create value. Consider risk mitigation. Differentiate among competitors. Realize new revenue streams through ecosystem services protection. Access capital and new markets. Save on costs.
2. New mindsets on the part of regulators and key stakeholders that prioritize holistic ecosystem approaches over siloed management of air, freshwater, biodiversity, etc.
3. New market valuation techniques as trendsetters incorporate ecosystem services into their research
4. New criteria for project finance and credit, as financiers signal that some environmental assets are priceless
Measuring Corporate Impact on Ecosystems: A Comprehensive Review of New
Tools: Synthesis Report. Business for Social Responsibility (BSR). December 2008
4
New Research, Business and Market Opportunities
New markets
�Certification of ecosystem products
�Fair trade products
�Organic products
�Environmentally-friendly productsExample
In North America and the
Pacific Rim, total sales in
fair trade goods rose 52%
from 2002 to 2003.1
Example
Total value of aggregated
carbon markets globally
was more than US$10
billion in 2005.1
�Water quality trading
�Wetland banking
�Mitigation credit trading
�Threatened species banking
�Innovation in pollution prevention,
capture, treatment and reuse
New businesses
World Business Council for Sustainable Development (WBCSD)
5
Optimizing Sustainability is Difficult with
Missing Pieces
6
Conservation Markets Require Many Pieces
and are Interdisciplinary
7
How Do You Measure Production?
“ A country could cut its forests and
deplete its natural resources and this
would show only as a positive gain to
GDP despite of the loss of capital ”
MEA 2005
“ A country could cut its forests and
deplete its natural resources and this
would show only as a positive gain to
GDP despite of the loss of capital ”
MEA 2005
8
Full Cost Accounting
� Full cost accounting, triple bottom line, measuring
well-being and other proposals for accounting
reform often include proposals to measure an
"ecological deficit" or "natural deficit" alongside a
social deficit and financial deficit. It is hard to
measure such a deficit without some agreement on
methods of valuating and auditing at least the
global forms of natural capital (e.g. value of air,
water, soil).
� Full cost accounting, triple bottom line, measuring
well-being and other proposals for accounting
reform often include proposals to measure an
"ecological deficit" or "natural deficit" alongside a
social deficit and financial deficit. It is hard to
measure such a deficit without some agreement on
methods of valuating and auditing at least the
global forms of natural capital (e.g. value of air,
water, soil).
9
Economic Valuation of Ecosystem Services
Avoided Cost
services allow society to avoid costs that would have been incurred in the absence of those
services (e.g. waste treatment by wetland habitats avoids health costs)
Replacement Cost
services could be replaced with man-made systems (e.g., restoration of the Catskill Watershed
cost less than the construction of a water purification plant)
Factor Income services provide for the enhancement of incomes (e.g. improved water quality increases the
commercial take of a fishery and improves the income of fisher
Travel Cost service demand may require travel, whose costs can reflect the implied value of the service (e.g.
value of ecotourism experience is sufficient that a visitor is willing to pay to get there)
Hedonic Pricingservice demand may be reflected in the prices people will pay for associated goods (e.g. coastal
housing prices exceed that of inland homes)
Contingent Valuation – service demand may be elicited by posing hypothetical scenarios
that involve some valuation of alternatives (e.g. visitors willing to pay for increased access to
national parks)
10
Market Actors and Stacking: One
BMP to Multiple ServicesBest Management
Practices
Market
Functions BuyersSellers
Users/
Buyers
11
Key Question:
What’s in it for the farmer or landowner?
� Fundamentally, a main driver for
agencies or other buyers is to affect /
improve private land management
decisions
� Mortgages trump stewardship for most
landowners
� Fundamentally, a main driver for
agencies or other buyers is to affect /
improve private land management
decisions
� Mortgages trump stewardship for most
landowners
12
Stacking
� Parcels– Subparcels– Decision making level
� Blocks– Individual ecosystem services– Often individual models
� Stacks– Leverage (OPM)– Generic commodity to specific site
� Integration
� Parcels– Subparcels– Decision making level
� Blocks– Individual ecosystem services– Often individual models
� Stacks– Leverage (OPM)– Generic commodity to specific site
� Integration
13
� Controlled and monitored fertilizer
application
– 4R’s
� TFI
– DoD, USDA subsidies, WWTPs, power
companies, quality of fishing/fisheries
� Controlled and monitored fertilizer
application
– 4R’s
� TFI
– DoD, USDA subsidies, WWTPs, power
companies, quality of fishing/fisheries
Water Quality Trading
14
Flood Risks: A “What’s in it for me?”
answer for suburbanites
� Personalized probabilities and
costs of flooding to homeowner
� Personalized costs of
urbanization and climate
change on flooding probabilities
and on losses
� “This is what it’s going to cost
you!”
� Links to zoning/ecosystem service
approaches to abate flood losses.
� Personalized probabilities and
costs of flooding to homeowner
� Personalized costs of
urbanization and climate
change on flooding probabilities
and on losses
� “This is what it’s going to cost
you!”
� Links to zoning/ecosystem service
approaches to abate flood losses.
LiDAR
15
Conservation Market Architecturecommoditization and commodities
User Interface
Trading
Stacks/Analysis
Integration
Models Data
Registry
16
Commodity Component: SAS BookRunner
• Multi-commodity support, including Electricity, Natural Gas, GHGs, Crude Oil, Coal and
associated derivative products;
• Comprehensive deal capture within a database environment;
• Physical Spot and Forward Contracts, Transportation, Storage, Futures, Fixed / Float and
Basis Swaps, Vanilla and Exotic Options;
• Mark-to-Market, Value-at-Risk, Earnings-at-Risk, and Credit-Value-at-Risk;
• Industry leading market and credit risk modules;
• Collateral management;
• A gallery of 75 pre-configured reports;
• Automatic market data updates via live feeds;
• Detail and summary reports such as Transaction Activity, Mark-to-Market, Financial
Exposure, Physical Volumetric Exposure, FX Exposure, Settlement Reconciliation, and
Counterparty Credit Risk;
• Reporting and documentation;
• Multi-currency support;
• Settlement billing;
• Confirmation letters.
17
Dashboards/
Business
Intelligence
18 Physical Emissions in the system
19
Input Screen
20Varying the quantity for different time buckets via the “Quantity Override” mechanism.
21
Emissions by Month
22Price curves in the system.
23Commodity setup. GHG is the main commodity and each type of GHG is a “Sub-type.”
24
Evaluate Land Management Options
Continuous Row Crops
Precision Farming
Native Vegetation
No Till
Select Management Practices: X
25
Select Options, Look Up Agency
Nutrient Loading Model Results
Continuous Row Crops
Precision Farming
Native Vegetation
No Till
Select Management Practices:
X
X
X
X
26
Agency Model Results and
Estimated Market Value
Management Practice – RUSLE2 Model
Phosphate lbs/yr Estimated Market
Practice Reduction Value
Row crops 0 $ 0
Bike path-phosphate reduction 35 $105
Bike path-easement 0 $ 50
No Till 20 $ 60
X
X
Sell Save & Sell Later
X
27
LegendLegend
Stacking & Market Structure
Projects/Buyers
Boise WWTP
Fisheries & Wildlife
Warm Springs Land Trust
Projects/Buyers
Boise WWTP
Fisheries & Wildlife
Warm Springs Land Trust
Mgt. Practices Of InterestMgt. Practices Of Interest Parcels/Sellers
5, 44, 34, 82, 76
44, 82
19, 34, 76
Parcels/Sellers
5, 44, 34, 82, 76
44, 82
19, 34, 76
Easement
Vegetation
No-Till
Precision Farming
28
Warm Springs Land Trust Bicycle Path
Derivatives Screen
82
5 44
Estimated Market Value: $6,220 Records: 3
Parcel Phosphate Reduction Carbon Sequestration Wetland Mitigation
19 $200 0 0
34 $800 $100 $1500
76 $1000 $120 $2500
76
19
34
29
Warm Springs Land Trust Bicycle Path
Order Status Screen
82
5 44
76
19
34
Conditional Bid Outstanding
Total: $10,000
Parcel Bid Status Modify Bid
19 $1000 accepted Closed
34 $4000 rejected
76 $5000 accepted Closed
$5000
X
30
Regulatory Oversight
Parcel: 82
Owner: Farmer Dave
Compliant: No
BMPs Purchased Contracted Phosphate Reduction
No Till 100 lbs
Comments:
Moldboard plowing observed
Verification Report Send NOV
Edit
Parcel: 76
Owner: John Doe
Compliant: Yes
BMPs Purchased Contracted Phosphate Reduction
Bike Path 50 lbs
Plant Grass 60 lbs
Comments:
Edit
X
X
31
Backup Slides
32
Conservation Market Architecture
User Interface
Trading
Stacks/Analysis
Integration
Models Data
Registry