Environmental Markets in Washington State


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The Pacific Northwest is anticipating massive growth in the years ahead, most of which is likely to occur in areas of environmental sensitivity.

Environmental markets (also referred to as ecosystem service markets) represent a way for our growing communities to offset or mitigate for the unavoidable impacts of growth and development at the lowest reasonable cost. At the same time, they can provide supplemental income for our farmers and ranchers, improving their economic viability, and providing the funding necessary for them to protect their land and remain in agriculture.

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Environmental Markets in Washington State

  1. 1. Environmental Markets for Washington Farmers & Ranchers Don Stuart -- American Farmland Trust Dennis Canty – Consultant to AFT
  2. 2. <ul><li>Understanding the concept of environmental markets </li></ul><ul><li>Getting an up-to-date picture of the status of these markets in Washington </li></ul><ul><li>Evaluating your opportunities to participate </li></ul><ul><li>Understanding where to go from here </li></ul>Our Goals for this Workshop
  3. 3. <ul><li>Programs for buying and selling credits for improving the environment </li></ul><ul><li>Often driven by regulatory requirements </li></ul><ul><li>Also known as conservation and mitigation banks, water quality trading, and ecosystem service markets </li></ul><ul><li>May be tiny and unorganized (garage sales) or large and formal (Costco ) </li></ul>What’s an Environmental Market?
  4. 4. <ul><li>Environmental regulations limit environmental impacts </li></ul><ul><li>Regulatory agencies allow flexibility in meeting regulatory limit </li></ul><ul><li>Developers/permittees buy credits or offsets to meet limit </li></ul><ul><li>Third parties supply and get paid for credits or offsets </li></ul><ul><li>Brokers sometimes help with transactions </li></ul>What Drives an Environmental Market?
  5. 5. Diagram of an Environmental Market
  6. 6. <ul><li>Successful air quality market in NE </li></ul><ul><li>50 active water quality markets, including 7 statewide programs </li></ul><ul><li>415 wetland markets (2005) </li></ul><ul><li>119 habitat conservation markets </li></ul><ul><li>Lively carbon market ($387M in US, $144B worldwide in 2009) </li></ul><ul><li>Renewable energy credit markets in 29 states </li></ul>Environmental Markets Operating in the US
  7. 7. <ul><li>Ag perspective : dependable added income stream to help with ag viability </li></ul><ul><li>Conservation perspective : encourage conservation improvements where they might not occur otherwise </li></ul><ul><li>An intersection between ag & environmental benefits </li></ul>Why AFT is Interested in Farmer/Rancher Involvement
  8. 8. <ul><li>If conservation is more profitable to farmers and ranchers then… </li></ul><ul><li>Farmers and ranchers will undertake far more conservation projects, and… </li></ul><ul><li>Water quality, habitat, and other environmental resources will significantly improve, and… </li></ul><ul><li>Conservation actions will become more profitable to farmers and ranchers… </li></ul>Our Premise
  9. 9. Theory on Price Versus Participation
  10. 10. <ul><li>Great deal of national and worldwide interest in markets and ag involvement </li></ul><ul><li>Washington lags a bit in market development </li></ul><ul><li>Markets likely to develop and grow in years ahead </li></ul><ul><li>Need farmers involved if markets are to develop appropriately </li></ul>What we Learned from Working on the Guide
  11. 11. Why Washington Lags Sellers (Farmers, Mitigation Bankers, Conservation Groups) Buyers (Utilities, Developers, Brokers) Regulators (Federal, State, and Local Environmental Agencies)
  12. 12. <ul><li>Understand who’s buying what kind of credits </li></ul><ul><li>Identify potential conservation assets on their own farms </li></ul><ul><li>Band together to increase effectiveness of ag interest </li></ul><ul><li>Participate in decisions on markets </li></ul>What Farmers & Ranchers Can Do to Stimulate/Guide Markets
  13. 13. <ul><li>Methane digestion for greenhouse gas and renewable energy markets </li></ul><ul><li>Irrigation efficiencies and changes in seasonal use of water for water markets </li></ul><ul><li>Wetland restoration for mitigation markets </li></ul>Best Immediate Prospects In Washington
  14. 14. <ul><li>Buffer restoration and practices for water quality credits </li></ul><ul><li>Changes in tillage and fertilizer use for carbon (and water quality?) credits </li></ul><ul><li>Installation of wind and solar generators for renewable energy credits </li></ul><ul><li>New markets for habitat, biodiversity, flood storage? </li></ul>Best Long-Term Prospects In Washington
  15. 15. <ul><li>What is your land most suitable for (areas and practices)? </li></ul><ul><li>Maximizing revenue from conservation actions </li></ul><ul><li>Increasing value by conserving larger, more connected areas on adjoining farm and ranch land </li></ul>Determining Which Markets to Pursue
  16. 16. Environment as a Liability Long eroding bank Boggy area Thin gravelly soils
  17. 17. Environment as a Marketable Asset New riparian zone Restored wetland Restored floodplain
  18. 18. A Potential Market Solution
  19. 19. <ul><li>Conservation tillage </li></ul><ul><li>Precision fertilizer application </li></ul><ul><li>Conservation rangeland management </li></ul><ul><li>Cover crops & wildlife-friendly rotations </li></ul><ul><li>Strip cropping and contour farming </li></ul><ul><li>Irrigation efficiencies </li></ul>Practices that Can Produce Credits
  20. 20. Stacking Incentives and Markets CRP and carbon markets CREP and wetland markets WHIP and habitat markets
  21. 21. <ul><li>CREP buffer is worth $100-200 per acre per year (twice soil rental rate) </li></ul><ul><li>May also produce nutrient credits (adds $250-400 per acre per year) </li></ul><ul><li>Possibly also/instead habitat and greenhouse gas credits </li></ul><ul><li>If markets are available and fully used, income from the buffer could double or triple </li></ul>Why Stack?
  22. 22. Theory on Price Versus Participation
  23. 23. <ul><li>Utility to reduce effluent temperature to meet permit requirement </li></ul><ul><li>Buffers as effective and far cheaper </li></ul><ul><li>Used CREP incentives as first layer </li></ul><ul><li>Doubled rental rates and contributed 100% of installation and maintenance </li></ul><ul><li>Annual payments higher than net crop income for all local crops </li></ul><ul><li>Program is fully subscribed, with 28 participating farmers </li></ul>A Stacking Example: Clean Water Services (OR)
  24. 24. <ul><li>Greater clout in market development </li></ul><ul><li>Understanding and mastering complex regulatory requirements (baseline, ratios, certification/verification) </li></ul><ul><li>Sharing risks and common costs </li></ul><ul><li>Increasing environmental value (and prices) when neighbors cooperate </li></ul>Benefits of Cooperation Among Farmers and Ranchers
  25. 25. Moving from a Scattershot Approach…
  26. 26. To a More Strategic Product
  27. 27. <ul><li>Borrowing concepts from traditional commodity marketing cooperatives </li></ul><ul><li>Share costs of credit production (planting, maintenance, etc.) </li></ul><ul><li>Share costs of verification, monitoring and other market requirements </li></ul><ul><li>Share risks of credit failure </li></ul><ul><li>Seek new market opportunities </li></ul>One Option: A Conservation Cooperative?
  28. 28. <ul><li>DoE policies on water quality trading (comment by 11/22) </li></ul><ul><li>WCI on ag participation in regional GHG markets (offset policies) </li></ul><ul><li>WSDOT on mitigation opportunities </li></ul><ul><li>New local market initiatives in Whatcom County, Yakima Basin, Walla Walla, etc </li></ul><ul><li>Let us know how we can help </li></ul>Participating in Market Development
  29. 29. <ul><li>Swans & cattle graze together </li></ul><ul><li>Public education by PNW Direct Seed </li></ul><ul><li>Dairy digesters combine multiple benefits from single facility </li></ul><ul><li>Irrigators join forces for water leases </li></ul><ul><li>Etc. . . . </li></ul>A Few Specific Examples
  30. 30. Questions, Comments, Suggestions . . . More information at: www.farmland.org/ environmentalmarkets
  31. 31. Diagram of an Environmental Market
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