Overview of Ecosystem Services Markets


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April 23, 3009 lecture given at North Park University, School of Business and Non-Profit Management

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Overview of Ecosystem Services Markets

  1. 1. Overview of Ecosystem Services Markets Presented by Jay Truty, President of Ecosystem Capital, LLC North Park University School of Business and Non-Profit Management Spring Semester 2009 April 23, 2009
  2. 2. Economics and Ecosystem Degradation <ul><li>Economics of Ecosystems and Biodiversity (TEEB) Report -- May 2008 </li></ul><ul><ul><li>Significant development relating to economic valuation of ecosystem services </li></ul></ul><ul><ul><li>Modeled after 2006 Stern review of global economic impacts of climate change </li></ul></ul><ul><ul><li>Findings </li></ul></ul><ul><ul><ul><li>11% of the world’s untouched forests and 60% of its coral reefs could be lost by 2030. </li></ul></ul></ul><ul><ul><ul><li>Approximately 60% of Earth’s ecosystem has been degraded in the past 50 years </li></ul></ul></ul><ul><ul><ul><li>Biodiversity loss could cost the world 7% of its economic wealth by 2030. </li></ul></ul></ul><ul><ul><ul><li>Urgent need to develop economic yardstick that is more effective than GDP for assessing the performance of an economy. </li></ul></ul></ul><ul><ul><li>Web link to TEEB Report </li></ul></ul><ul><ul><ul><li>http://ec.europa.eu/environment/nature/biodiversity/economics/pdf/teeb_report.pdf </li></ul></ul></ul>© 2009 Ecosystem Capital, LLC
  3. 3. Introduction to Ecosystem Services Markets <ul><ul><li>Ecosystems provide a wide range of services that individuals and organizations depend on </li></ul></ul><ul><ul><ul><li>Examples: water purification, carbon sequestration, flood regulation, fuel, nutrient cycling, pollination, etc. </li></ul></ul></ul><ul><ul><ul><li>Private sector depends on these ecosystem services, for raw material inputs, production processes, and climate stability. All of these elements are key factors in the stability of businesses. </li></ul></ul></ul><ul><ul><ul><li>Such services have historically been viewed as “externalities” in the business decision-making process. </li></ul></ul></ul><ul><li>As populations and the demand for resources grow, it has become clear that ecosystem services are not free, invulnerable, or infinitely available. </li></ul><ul><li>Assigning economic value to ecosystem services is creating a paradigm shift regarding how business and society view sustainability and management environment, social responsibility, and business opportunities. </li></ul>© 2009 Ecosystem Capital, LLC
  4. 4. Introduction to Ecosystem Services Markets (cont.) <ul><li>Payments for ecosystem services (PES) have emerged as a way to address growing environmental challenges through market-based mechanisms. </li></ul><ul><li>Ecosystem markets/PES transactions are created when certain parties are willing to pay to establish, enhance, or reduce impacts to a particular natural function, and other parties are willing or able to provide these ecosystem service benefits. </li></ul><ul><li>The demand side of ecosystem services markets/PES transactions can range from promulgation of new regulations requiring mitigation offsets , cap-and-trade programs, competitive economic advantage, or fulfillment of corporate sustainability/environmental initiatives. </li></ul>© 2009 Ecosystem Capital, LLC
  5. 5. Categories of Ecosystem Services Market Opportunities <ul><ul><li>Carbon storage and sequestration </li></ul></ul><ul><ul><li>Wetlands mitigation banking </li></ul></ul><ul><ul><li>Watershed protection services </li></ul></ul><ul><ul><ul><li>non-point source/point source water quality offset trading, stream bank restoration, soil protection, water supply preservation, flood and hurricane mitigation </li></ul></ul></ul><ul><ul><li>Biodiversity offsets/conservation banking </li></ul></ul><ul><ul><li>Endangered or threatened plant and animal species mitigation </li></ul></ul><ul><ul><li>Natural resource damage (NRD) offset credits/supplemental environmental projects (resulting from government agency/private party enforcement action settlement obligations) </li></ul></ul><ul><ul><li>Non-carbon forest ecosystem services/sustainable forestry </li></ul></ul><ul><ul><li>Water rights trading </li></ul></ul><ul><ul><li>Sustainable agriculture </li></ul></ul><ul><ul><li>Water temperature offsets </li></ul></ul><ul><ul><li>Land development rights/offsets </li></ul></ul>© 2009 Ecosystem Capital, LLC
  6. 6. Ecosystem Multiple Markets Approach <ul><ul><li>Integrating or “bundling” some or all of ecosystem market/PES transaction opportunities listed above into one or more ecosystem preservation or enhancement projects at a single project site or across an entire portfolio of properties. </li></ul></ul><ul><ul><li>Objectives of comprehensive EMM framework strategy are two-fold: </li></ul></ul><ul><ul><ul><li>Promote existing and future project site conservation stewardship ethic and priorities through innovative market-based ecosystem/conservation finance mechanisms; and </li></ul></ul></ul><ul><ul><ul><li>Maximize investor return on PES project development investment by leveraging several PES market opportunities and reducing transaction costs through economies of scale. </li></ul></ul></ul>© 2009 Ecosystem Capital, LLC
  7. 7. Types of Payments for Ecosystem Services <ul><ul><li>Self-organized private deals Private entities pay for private services </li></ul></ul><ul><ul><li>Public payments to private land and forest owners </li></ul></ul><ul><ul><li>Public agency pays for service </li></ul></ul><ul><ul><li>‘ Cap and Trade’ - trading of environmental credits under a cap or floor </li></ul></ul><ul><ul><li>Landowners either comply directly with regulations, or buy compliance credits </li></ul></ul><ul><ul><li>Eco-labeling of agricultural and tree products </li></ul></ul><ul><ul><li>Consumers prefer certified sustainable supplies </li></ul></ul>© 2009 Ecosystem Capital, LLC
  8. 8. Ecosystem Multi-Market Value Proposition For Landowners <ul><ul><li>Maximize ROI on transactions involving payments for ecosystem services (PES)/market-based opportunities derived from landowner’s natural resource assets. </li></ul></ul><ul><ul><li>Create new market-based revenue streams to protect, restore and maintain a variety of ecological values, including clean air, clean and abundant water resources, fish, and wildlife habitat, and other ecosystem service offerings on land holdings. </li></ul></ul><ul><ul><li>Maximize value of underutilized corporate surplus real estate assets. </li></ul></ul><ul><ul><li>Expedite and finance implementation of corporate sustainability and environmental initiatives </li></ul></ul><ul><ul><li>Reduce corporate enterprise and facility operational environmental liability exposure through corporate ecosystem services strategies. </li></ul></ul><ul><ul><li>Reduce corporate environmental liability reserves on balance sheet. </li></ul></ul><ul><ul><li>Improve corporation’s standing with public and private stakeholders. </li></ul></ul>© 2009 Ecosystem Capital, LLC
  9. 9. Questions??? <ul><ul><ul><li>Contact Information: </li></ul></ul></ul><ul><li>Jay Truty </li></ul><ul><li>Ecosystem Capital, LLC </li></ul><ul><li>2040 W. Belmont Ave., Ste. 405 </li></ul><ul><li>Chicago, IL 60618 </li></ul><ul><li>773.782.6428 (w) </li></ul><ul><li>773.496.6050 (f) </li></ul><ul><li>773.209.0846 (m) </li></ul><ul><li>[email_address] </li></ul><ul><li>www.ecosystemcapital.com </li></ul>© 2009 Ecosystem Capital, LLC