Download - Emerging markets for ecosystem services
Emerging markets for ecosystem services
Outline
• Ecosystem services & emerging markets
• State of carbon cap and trade markets
• What’s the deal with forest carbon?
• Ecotrust Forests: an example of a forest carbon strategy
• Parting thoughts
Ecosystem service markets in forests
• Carbon sequestration/storage• Habitat banking for forest-dependent species
and habitats (Pacific salmon, spotted owl, oak woodland, floodplain forest)
• Wetland banking (forested wetlands)• Flood control/water storage• Water quality: temperature reduction• Scenic vistas • Passive and active recreational opportunities• Moderate temperature and rainfall• Wild mushroom and plant harvesting…• while providing for timber, pulp, fuel, and
other commercial harvest opportunities, and jobs, management and ownership opportunities for millions
Integrated production of commodities and ecosystem services, Australia
Source: David Brand, New Forests
The early markets
Transferable fishing quotas SOx and NOx trading Mitigation banking
Carbon market: cap & trade components
Enabling legislation Kyoto Protocol & national counterparts
Cap or floor (baseline) 1990 Greenhouse Gas emissions +/-
Regulated entity (buyer) Utilities & others
Supplying entity (seller) Clean energy, efficiency, sequestration
Distribution of allowance Free distribution to capped sectors, moving towards auctions
Service area Global
Unit of trade One metric ton of carbon dioxide equivalent (CO2e)
Trading platform European Union Environmental Trading System, for example
Enforcing agency Designated national agencies, international accord
Market shapers Secondary markets, futures, options, verifiers, appraisers, insurers
Size of global carbon market
EU market projected to be dwarfed by U.S. market, estimated to reach $1 trillion by 2020
Largest distribution of property rights since settlement of West!
Projected growth of carbon market
Regional & state efforts proliferating
WCI at a glance
Timeline Launch January 1, 2012
Goal Reduce emissions 15% below 2005 levels by 2020
Size 1 billion tons when fully implemented ($20–40 billion)
Scope electricity sector, large stationary sources, fossil fuel producers, transportation (50–80% of emissions)
Allocation 10–25% minimum auction
Registry The Climate Registry
Compliance 3 years
Offsets Maximum of 49% of reductions shall come from offsets
Preference for offsets generated within WCI
Initial project types: forestry (affor/refor; forest management, avoided defor;) livestock manure management; methane; soil carbon
Role of forests in WCI• Forests iconic, and carbon rich
• Limited opportunities for afforestation and reforestation
• All desire carbon to help forestry stay in forests, but must solve leakage issues
• Most relevant role is in forest management projects: enhancing carbon through changes such as longer rotations.
• Sweet spot is finding carbon project locations that maximize delivery of co-benefits and minimize opportunity costs: steep slopes, for example.
• No guarantee of significant role for forest carbon in regional and federal trading system unless we find quality solutions together.
What’s the deal with forest carbon?
Forest carbon is very attractive: • Very important: deforestation/forest degradation responsible for
25% of global emissions (same as US, world’s largest polluter).• Rich co-benefits• Easy to understand the connection
But also very challenging:• Baseline (sequestration/emissions that would have occurred without
carbon project may be hard to determine)• Forests can burn or decline, leading to loss of carbon (permanence)• Forest conservation/reduction in logging can just shift activities
elsewhere (leakage)• For these reasons, forest carbon very controversial, but global
importance of forest carbon demands a resolution.
Policy Rationale for Offsets
• Quality reductions: IF DONE RIGHT, equally effective in reducing atmospheric GHG levels as on-site mitigation
• Lower cost: Offsets are only used if lower cost– Lowers climate change mitigation cost to society
– More money for everything else:
• Food, shelter, health, security, recreation
• Technology bridge: Allows reductions now while new low-carbon technology is developed
Rationale against offsets
• Need to create pressure for reductions from primary emitters
• Need to fundamentally change our behavior, not pay others to clean up our messes (especially people with few economic options)
• Offsets have quality issues
• Moral objection to creating license to pollute
Case study: Ecotrust Forests LLCCurrent status
• Raise capital into open, perpetual fund (currently $30 million under management)
• Acquire and manage forestland
• Manage forests for longer rotations, structural complexity & diversity
• Generate competitive returns for investors through full range of forest products and services: timber, non-timber, ecosystem services, recreation
• Make strategic acquisitions in high-conservation value watersheds, and restore health and productivity
• Generate jobs and wealth for local residents
Carbon Stockby Forest Type and Stand Age
0.0
200.0
400.0
600.0
800.0
1000.0
1200.0
0 5 15 25 35 45 55 65 75 85 95 105 115 125
Years After Clearcut
Me
tric
To
ns
CO
2e
pe
r A
cre
Douglas-fir, Pacific NW W side
Hemlock-Sitka Spruce, Pacific NW W side
Douglas-fir, Northern Rockies
Lodgepole Pine, Northern Rockies
Maple-Beech-Birch, Lakes States
Maple-Beech-Birch, Northeast
Loblolly-Shortleaf Pine, Southeast
Oak-Hickory, Southcentral
Data from 2006 accounting guidelines, 1605(b) program Graph by EcoFor 2006
Long rotation forestry results in 2.5x more standing volume
Additional carbon value per acre on PNW westside forests
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
60 70 80
Rotation Age in Years
$/acre $5/ton
$10/ton
$25/ton
Ecosystem services are key
Source: Binkley, Beebe, New & von Hagen, 2006
Ecotrust Forests carbon transaction
• Methodology under review by Voluntary Carbon Standard
• Sources of additional carbon above baseline:– extended rotations
– expanded riparian reserves
– carbon reserves on steep and unstable slopes above salmon streams
• Evaluating financial and tax implications of carbon credit sales for different classes of investors (exempt and non-exempt)
Parting thoughts
• New conversation: more than a zero sum game
• Market solutions demand more rigor in delivering clear quantifiable benefits
• Early ecosystem service markets messy and full of drama, but that goes with the territory
• Not a panacea, but a powerful and occasionally wonderful new tool
• Creation of new class of entrepreneurs is a powerful co-benefit