Emerging markets for ecosystem services

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Emerging markets for ecosystem services
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Outline

• Ecosystem services emerging markets
• State of carbon cap and trade markets
• Whats the deal with forest carbon?
• Ecotrust Forests an example of a forest carbon
  strategy
• Parting thoughts

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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

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Integrated production of commodities and
ecosystem services, Australia
Source David Brand, New Forests
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The early markets
SOx and NOx trading
Transferable fishing quotas
Mitigation banking
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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
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Size of global carbon market
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Projected growth of 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!
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Regional state efforts proliferating
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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 (2040 billion)
Scope electricity sector, large stationary sources, fossil fuel producers, transportation (5080 of emissions)
Allocation 1025 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
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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.

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Whats the deal with forest carbon?

• Forest carbon is very attractive
• Very important deforestation/forest degradation
  responsible for 25 of global emissions (same as
  US, worlds 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.

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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

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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

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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

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Carbon Stockby Forest Type and Stand Age
Data from 2006 accounting guidelines, 1605(b)
program Graph by EcoFor 2006
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Long rotation forestry results in 2.5x more
standing volume
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Additional carbon value per acre on PNW westside
forests
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Ecosystem services are key
Source Binkley, Beebe, New von Hagen, 2006
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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)

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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