IUCN, WBCSD, Sep 2007

Markets for Ecosystem Services:New Challenges and Opportunities for Business and the Environment

Contents

Introduction Ecosystem services are everywhere Why make markets for ecosystem services? How to develop markets for ecosystem services

Direct paymentsTradable permitsCertification

These can be either voluntary or mandatory

Limits on markets for ecosystem services Towards markets for ecosystem services Getting started

Introduction

Market mechanisms can be a powerful complement to existing strategies for conserving ecosystems, if used in the right way

Conserving ecosystems and sustaining the services they provide is a pre-requisite for prosperity. Environmentalists have long argued this. Business, governments and society at large are catching up

Biodiversity & ecosystem services

Ecosystem services are everywhere

Drivers of business investment in ecosystems include: legal requirements and tax incentives rising expectations from investors, customers,

shareholders, local communities and/or NGOs securing long-term license to operate helping to shape and prepare for future environmental

regulations

New business models are being developed to deliver environmental benefits, e.g., water filtration, erosion control Nature-based tourism is an

example of how private enterprise depends directly on

health of ecosystems

Why make markets?

1) Capitalize on strengths of business and power of markets

2) Address existing weaknesses in markets that have resulted in widespread degradation and loss of ecosystem services

3) Help improve livelihood opportunities in impoverished rural landscapes

Market-based instruments can achieve some environmental objectives at lower economic cost than conventional approaches, such as uniform pollution standards or technology mandates

How to develop marketsThree main approaches are available

1. Direct payments

Payments for the delivery of specific ecosystem services or, more commonly, payments for maintaining or adopting land uses that are thought to provide such ecosystem services

Governments in several countries have developed subsidies and tax incentives to encourage resource conservation

Payment for watershed protection: conserving natural

forests in watersheds and reducing pollutant loads in run-off from upland areas can be a

cost-effective means of providing reliable supplies of clean water for hydroelectric power generation, irrigation,

industrial, domestic and recreational uses

2. Tradable permits

Create new rights or liabilities for the use of natural resources, and then allow business to trade (i.e., buy and sell) these rights or liabilities

Growing trade in carbon credits, based on government-allocated emission allowances and/or the purchase of voluntary carbon offsets by both organizations and individuals. Global carbon trade worth over US$ 30 billion in 2006E.g., wetland banking in the US,

trade in forest conservation obligations in Brazil, and markets for ground-water

salinity credits in Australia.

Biodiversity offsets

3. Certification

Eco-labeling and certification schemes to distinguish products and services by their social and environmental performance (consumers will prefer to buy or even pay more for certified goods and services)

Agriculture: Good Agricultural Practices (GAP) to ensure that agriculture is undertaken in a responsible way that respects food safety, the environment, workers’ rights and the welfare of animals

  Forestry: about 7% (approx. 270 mn) of the

world's forests are independently certified

Fisheries, Tourism, Financial Services…

Limits on markets

“Regulating” and “supporting” services most difficult ecosystem services to bring into the marketplace (e.g., nutrient cycling, water purification and natural pest control)

Weak institutions and governance

Lack of experience with market-based approaches to ecosystem management

Towards markets

How to identify most cost-effective market-based mechanisms, in terms of environmental outcomes and financial leverage?

Partnerships among governments, conservation groups and businesses can stimulate new ways of delivering ecosystem services through the market

Getting started

Understand ecosystems and their services Assess dependence and impacts Reduce impact and scale up solutions Explore and pursue new business opportunities

Several business organizations & networks have guidelines and share good practice

• International Council on Mining and Minerals (ICMM)

• International Petroleum Industry Environment Conservation Association (IPIECA)

• Business and Biodiversity Offsets Program (BBOP)

• Ecosystem Services Review (ESR) tool by WBCSD, World Resources Institute (WRI) & Meridian Institute

5 steps to becoming a good trader

1. Know that you are selling ecosystem services at full cost

2. Know that you are buying ecosystems services at full cost

3. Ensure clear ownership of the ecosystems services that are to be traded

4. Ensure clear and transparent accountability of the ecological value accruing to the owner as a result of the sale

5. Create competition among buyers and sellers