Presentation given on May 29, 2009 at the University of Chicago Program on the Global Environment\'s Ecosystem Services Valuation Conference.

1. Putting the Pieces Together: Practical Approaches to
Multi-Disciplinary Challenges in Developing Markets for
Ecosystem Services
Jay Truty -- President/CEO of Ecosystem Capital, LLC
Economic Valuation of Ecosystem Services Conference
University of Chicago Program on the Global Environment
May 29, 2009

2. Categories of Ecosystem Services Market Opportunities (not exhaustive)
• Carbon storage and sequestration
• Wetlands mitigation banking
• Watershed protection services
o non-point source/point source water quality offset trading, stream bank
restoration, soil protection, water supply preservation, flood and hurricane
mitigation
• Biodiversity offsets/conservation banking
• Endangered or threatened plant and animal species mitigation
• Natural resource damage mitigation
• Non-carbon forest ecosystem services/sustainable forestry
• Water rights trading
• Water temperature offsets
• Land development rights/offsets
• Pretty much anything that has natural supply and demand that can be
understood by necessary stakeholders
© 2009 Ecosystem Capital, LLC

3. Ecosystem Market Implementation Challenges
© 2009 Ecosystem Capital, LLC
• Existing Challenges to Ecosystem Market Implementation
– Lack of Demand (or at least identifying it)
– Clear and Consistent Rules and Standards
– High Seed Capital and Transaction Costs
– Long-Term Investment Risks
– Lack of Information
• Challenges are just opportunities in disguise (someone famous
said this, but can’t remember who it was)

4. Lack of Demand
• Ecosystem services are only worth as much as someone is willing to pay for
them.
• Is demand really not present or are we just not finding it?
• Why would demand be lacking?
– Must have sticks (or future sticks) before you can have carrots.
– During market or project feasibility analysis dig deep and uncover some
rocks to find the demand.
• “Natural” supply and demand
– If this exists you can proceed if you can tell a good story – even if
obvious sticks and carrots don’t exist (yet).
– Requires vision and holistic, multi-disciplinary strategy
• Those who need market-based ecosystem services solutions the most don’t
even know it yet.
– If you do your homework and can tell the right story then you can
“create” the initial demand necessary to proceed.
© 2009 Ecosystem Capital, LLC

5. Clear and Consistent Rules and Standards
• Lack of clear and consistent rules and standards
– Main culprit for perceived lack of demand.
– Current ecosystem markets are fragmented – both from a
regulatory standpoint and geographically.
– No one to point finger at – this hard stuff.
– Policy-makers, regulators, economists, conservationists, and
investors will never speak the same language, but the ability to
listen and translate is crucial (remember this one).
– There is some hope – recent establishment of USDA Office of
Ecosystem Services and Markets.
– If rules or standards don’t currently exist for your envisioned
market structure or project then create them (seriously).
• Well-planned projects/market structures will create the rules
and standards if they don’t exist.
© 2009 Ecosystem Capital, LLC

6. High Investment and Transaction Costs
• This is a problem, but things will get better.
• Some ways to overcome (or at least mitigate) this issue:
– Better knowledge dissemination (already occurring)
• Ecosystem Marketplace – www.ecosystemmarketplace.com
• USDA Forest Services -- http://www.fs.fed.us/ecosystemservices/index.shtml
– The ability to stack/bundle/integrate multiple ecosystem market
opportunities within the same project is allowed by the rules and
standards.
• It’s not just about carbon.
• Will also allow integration of emerging market opportunities that are
not quite ripe yet
• Emerging market opportunities should be allowed if they are
identified at initial stages of project/market development (alleviating
second bite at the apple/additionality issues later on).
• Diversifies the ecosystem markets “portfolio” and reduces
speculative risk of return.
© 2009 Ecosystem Capital, LLC

7. Long-Term Investment Risk
• Buyers of ecosystem market mechanisms/credits want to know they are getting what
they pay for.
– Buyers of ecosystem services just want to know that the ecosystem services
solution they are buying will resolve their “problem” (demand driver).
– If financial value is unclear, then approach will differ depending on certain
factors related to maturity/geographic scope of ecosystem market(s) involved.
• Identification of applicable legal and regulatory drivers is crucial (as well as
gaps in same).
• The ability to tell the right story to integral stakeholders in a “multi-
disciplinary” language is key here (not an easy thing to do).
• If a bilateral deal involving an ecosystem market opportunities with no
established regulatory structure (e.g., water quality trading in most states),
then you have to be creative and practical.
• If not already present, land use controls, including conservation stewardship
and monitoring plans must be established that align with resolution of
regulatory requirements governing ecosystem services demand driver.
• Acceptance of “multiple markets approaches” within rules and standards
will also reduce long-term investment risk by reducing transaction costs and
diversifying the ecosystem markets portfolio.
© 2009 Ecosystem Capital, LLC

8. Lack of Information (or Understanding)
• The most important hurdle to overcome in quest to mainstream markets
for ecosystem services.
• Once we accomplish this issue the challenges previously discussed will
be moot points
– Won’t happen over night, but things are moving in the right
direction.
– Ecosystem services is a basic concept, but foreign to most since
society hasn’t had to pay for these services in the past.
• Diminishing supply is causing paradigm shift
– Science is far ahead of the economics and policy
• If policy doesn’t catch up quickly, then economics won’t develop
in a material way.
– Once we can effectively translate the multi-disciplinary language to
applicable ecosystem market stakeholders, ecosystem service
markets will begin to bloom quickly.
© 2009 Ecosystem Capital, LLC

9. Take Aways
• Every ecosystem market project requires a “pleasantly
unreasonable” champion.
• To fully understand the challenges and opportunities of a
given ecosystem markets project (whether creating a
market structure or a specific ecosystem market project)
you need to do quite a bit of homework up front (in the
form of an in-depth market feasibility analysis) .
• Leave no stone unturned if you want to find (and
maximize) the market demand for your project.
• Approach each project holistically – some of the most
profitable ecosystem market opportunities might be right
under your nose but not obvious because of incomplete
market structure.
• Structure your project(s) to take advantage of multiple
markets (ripe and emerging) – requires creativity but
will be worth it in the long run.
• Understand and learn how to translate the multi-
disciplinary ecosystem market languages
• Tell your story in a “language” your audience can
understand.
© 2009 Ecosystem Capital, LLC

10. Questions???
Contact Information:
Jay Truty
Ecosystem Capital, LLC
2040 W. Belmont Ave., Ste. 405
Chicago, IL 60618
773.782.6428 (w)
773.496.6050 (f)
773.209.0846 (m)
jtruty@ecosystemcapital.com
www.ecosystemcapital.com
© 2009 Ecosystem Capital, LLC