natural capital concepts in practice: experience in the us (and farther south) brian c. murray...
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Natural Capital Concepts in Practice:
Experience in the US (and farther South)
Brian C. MurrayDirector for Economic Analysis, Nicholas Institute for
Environmental Policy SolutionsResearch Professor, Nicholas School of the Environment
Duke University
Presented at “Big Ideas for Sustainable Prosperity”
University of Ottawa,April 29, 2014
Natural Capital and Ecosystem Services
http://educatoral.com/WoSAchievements.htm
Nature as a capital stock Ecosystem services (flows)
Source: Millennium Ecosystem Assessment
The economic value of the natural capitalDerives from the economic value of the Ecosystem services it generates
The Proposition
• Markets work well to determine what services ecosystems provide– Markets favor traditional commodities
• Some non-traditional ecosystem services are as valuable (or more) than some traditional commodities– But they have no markets
• Can correct this problem by creating markets (or other forms of payment) for a wider range of ecosystem services– Payments for Ecosystem Services (often public to private)– An economic incentive alternative to command-based
regulation
Putting ecosystem services into practice: US
“Green GDP”
Federal land management decisions
Public Payments for Ecosystem Services
Ecosystem Service markets
Land trusts, water funds, and other “Coasean” solutions
Top-down
Bottom-up
Conservation Reserve Program Wetlands Reserve Program
Coase Solution 1: Conservation Land Trusts
Conservation Land Network
Coase Solution 2: Water Funds
• A form of PES (or PWS for watersheds) that has become more common in South America over the last decade (e.g., Ecuador, Colombia, Bolivia)
• Idea: Establish a central fund where principal stays (largely) intact, but interest earnings are used to pay for practices that improve watersheds– Maintained principal => sustainable– Can take a while to build enough principal to generate
interest• May be supplemented with direct payments up front for the
services Fondo de Proteccion del Agua (FONAG), Ecuador
Individual (firm) Willingness to Pay (WTP) for ES
MarketMarginal cost ofES provision
•Price•Quantity exchanged
Q: What drives private demand for an ecosystem service?
Pure self interestAltruism
Government regulation with flexible means of compliance
DEMAND SUPPLY
Ideal; markets with many buyers and sellers – decentralized trade
What are Ecosystem Service Markets ?
Examples of Ecosystem Service Markets
• Wetlands mitigation banking
• Water quality (nutrient) trading
• Habitat Conservation banking (endangered species offsets)
The Big Kahuna – Climate mitigation payments for
sequestered carbon
Reduced Emissions from Deforestation And Degradation: REDD+
Blue carbon – coastal and marineecosystems
Forest carbon offsets in California compliance markets- entities can meet up to 8% of compliance obligations w/offsets- 7.5 million tons of offsets issued since inception (2013), forest carbon largest category
U.S.
Global
Are PES programs living up to the hype globally?
PES type 2020 market projection (in 2006)
Actual market in 2012
2020 market projection (in 2012)
Forest carbon offsets: compliance
$5-8 billion $26 million $470 million
Forest carbon offsets: voluntary
$10 million – $5,000 million
$156 million $10 million – $5,000 million
Watershed trading: compliance
$1,000 million $20 million $43 million
Watershed payments: voluntary
$2,000 million $5 million $50 million
From Katoomba Group periodic “Matrix” assessment Courtesy of Jim Salzman (Duke)
Why are ES markets not scaling up?
• Lack of regulation to drive demand• Low prices where demand exists• Transaction costs
– Search costs– Rules complexity
• Skepticism– Severity of environmental problems– Lack of faith in (and even hostility to)
markets in some places
Big Idea: Getting serious about non-point water
pollution from agriculture• Need to bring
agriculture under tighter regulation or create huge payments for them to reduce N and P
• Market-based approaches such as nutrient trading are likely essential as a cost-effective compliance mechanism
Figure from Nguyen et al (2006) A Guide to Market-based Approaches to Water Quality
Source: NOAA
What does agriculture look like in a green economy?
• Our natural ecosystem stresses are largely driven by the need to produce food – and increasingly, biofuels
• What is greener? – Low impact, land extensive farming?– Intensive “modern” agriculture
• Much emphasis on raising productivity of agriculture, especially if it is land-saving– Can have perverse effects
• What role for radical changes in agriculture? – Vertical farming– GMOs– Major dietary shifts