“Nature should be valued for its intrinsic worth, over and above any economic factors. However, right now, we’re losing nature because we don’t price it in . . . (TEEB).”
What Are Ecosystem Services?
Earth’s natural systems are humanity’s “life support,” providing valuable services upon which our ability to survive depends. From the air we breathe to the pollination of our food crops, we rely on ecosystems to provide us the essentials for life. Ecosystem services have been described as “The Benefits Nature Provides (Millennium Ecosystem Assessment, 2005).” The Millennium Ecosystem Assessment identifies 24 specific ecosystem services, and groups them into four categories: provisioning services (producing food, fiber, fuel, water, etc.), regulating services (regulating climate, air quality, water purification, pollination, etc.) cultural services (providing spiritual, educational, aesthetical values, etc.) and supporting services (soil formation, photosynthesis, water cycling and nutrient cycling) (Millennium Ecosystem Assessment, 2005).
The Estimated Value of Ecosystem Services
In 1997 Robert Costanza with a team of researchers published a report in Nature Magazine estimating the annual value of global ecological benefits at $33 trillion, nearly twice the then global gross product (Costanza, 1997). In a more recent international report called The Economics of Ecosystems and Biodiversity: Ecological and Economic Foundations (TEEB) speculates that even at current prices on carbon offset markets, the carbon tied up in trees and soils of the Amazon rainforest would have a “stock value” of $1.5 to $3 trillion. The challenge is incentivizing and driving the allocation of resources for the protection of ecosystem services. The New York City Urban Forest Ecosystem Report estimates that New York’s urban trees provide $5.60 in benefits for every dollar spent. The total value of the water quality protection is $35 million each year, air quality is $10 million each year, and greenhouse gas reduction is $24.9 million each year (Nowak, Assessing Urban Forest Effects and Values: New York City’s Urban Forest, 2007).
Of the 24 ecosystem services identified in the Millennium Ecosystem Assessment, only three have significant markets (over $100 million/year); carbon (regulated and voluntary), water quality, and biodiversity. Currently the carbon is the only potentially viable market option for urban forestry participation. Neither biodiversity or water quality can be directly and quantifiably linked to urban forestry (International Society of Arboriculture , 2007). There are other ecosystem services that perhaps could have market potential, such as air quality benefits and health benefits, but neither of these is currently viable. Reasons for this are addressed in the Potential Markets section of this document.
While our entire economic system relies on nature, we fail to account for it in our financial and market systems. We continue to consume our natural resources without accounting for the costs of repercussions associated with that consumption. One of the potential challenges to reducing consumption is the economic mandate for growth. Capitalism depends on growth. “If the dynamic relationship between investment and growth were to break down, the economic system would break down as well (Magnuson, 2007).” But some argue that we can have both growth and ecosystem conservation. The reason why market-based instruments are so attractive is that market-based instruments have the potential to provide powerful financial incentives for companies to adopt cheaper and better pollution control technologies. “This is because with market-based instruments, it always pays for firms to clean up a bit more if a sufficiently low-cost method (technology or process) of doing so can be identified and adopted (Stavins, 1998).”
Market Value of Ecosystem Services
There has been much debate as to whether or not a tax, cap & fee based solution or a market-based solution is the best direction to appropriately internalize externalities associated with the destruction of ecosystems. Ecosystem externalities from corporate activities are estimated at $2.2 Trillion annually (Costanza). With the lack of a national cap and trade system, our only voluntary carbon market (Chicago Climate Exchange) has failed. With the folding of the Chicago Climate Exchange, the price of voluntary carbon has reached 10 cents per ton. As Investors.com editorial states “(The CCX collapse) . . . is an acknowledgement that both the case for climate trade and cap-and-tax legislation has also collapsed (Investors.com, 2010).”
While untrue, this story paints a dim picture of the market potential for ecosystem services. However the truth is that voluntary carbon markets are only a small fraction of the total carbon markets. The regulated carbon market is more than 100 times the size of the voluntary carbon market. Additionally there are other significant ecosystem service markets in water quality trading and biodiversity. Mission Markets tradable credits include renewable energy certificates, carbon credits, water quality credits, wetland mitigation and habitat credits, and fisheries catch shares (Stroud, 2010), signifying a growing diversity of credits could take the focus off carbon and allow for a more holistic ecosystem approach to offset markets. The total annual value of the ecosystem service markets is over $130 billion (World Bank, 2008), $23 billion less than the value of one day’s trading on the New York Stock Exchange.
The US EPA emission trading program started in 1974, and allows for a limited exchange of emission reduction credits for five air pollutants: volatile organic compounds, carbon monoxide, sulfur dioxide, particulate matter, and nitrogen oxides. The first mandatory US GHG Cap and Trade scheme, RGGI, began auctions on September 25, 2008. The 10 participating northeast states are Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont (Reuters, 2008). The states participating in RGGI raised over $107 million. While many experts consider a carbon price of $2.07 per ton too low to create strong incentives for utilities to change their ways by itself, the programs funded by this revenue are already demonstrating the viability of cap and trade.
California Assembly Bill 32, also known as the Global Warming Act Established a statewide GHG emissions cap for 2020, based on 1990 emissions by January 1, 2008. It also requires mandatory reporting rules for significant sources of greenhouse gases by January 1, 2008. Most importantly the Global Warming Act created the California Climate Action Registry to manage and monitor GHG reduction projects (California Environmental Protection Agency).
Why Ecosystem Markets?
We are destroying our life support systems at an alarming rate. We are literally consuming our ecosystems. Our survival as a species depends on those systems being in tact and functioning. While some may argue that design and innovation can solve the problems we face. “Efficiency gains permitted by new technology reduce per capita consumption levels below what they would have been without technological and behavioral adaptation, but they have tended not to keep pace with growth in demand for provisioning services. (Millennium Ecosystem Assessment, 2005).”
With politicians blocking federal legislative action to address the problems of climate change, health care and water quality, voluntary market-based solutions combined with public education may the most effective immediate option. One of the key components of sustainability is to shift our capital systems so that they value that which truly sustains life. We have to invest in that which is most important. Until there is a fundamental shift in how currency is created and functions, ecosystem markets may be one of the few ways to ensure the survivability of our essential life-supporting systems.
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