carbon
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Making the Priceless Valuable: Ecosystem Service Payments Markets Translinks Tanzania - September 2008 Michael Jenkins, Forest Trends. Markets in Transition - Ecosystems Services. Revenue. Services. Certified Timber Botanicals Wastewood Utilization. Trees. - PowerPoint PPT PresentationTRANSCRIPT
Making the Priceless Valuable:
Ecosystem Service Payments Markets
TranslinksTanzania - September 2008
Michael Jenkins, Forest Trends
Carbon
Watershed Conservation &
Restoration
Biodiversity
Conservation
Revenue
Carbon Credits –Reforestation/AfforestationBiofuelsConservation Carbon
Pharmaceuticals/Natural Medicine Personal Care/ Cosmetics
Eco-tourism Protection Biodiversity Credits & Offsets
User FeesMitigationSalinity Credits
TreesCertified Timber BotanicalsWastewood Utilization
Markets in Transition - Ecosystems Services
Services
New Finance: Payments for Ecosystem Services
Types of PES: Self-organized private deals
Private entities pay for private services
Public payments to private land and forest ownersPublic agency pays for service
‘Cap and Trade’ - trading of environmental credits under a cap or floorLandowners either comply directly with regulations, or buy compliance credits
Eco-labelling of agricultural and tree productsConsumers prefer certified sustainable supplies
Charting Payments for Ecosystem Services: The Matrix
55
EU ETSVol: 2,061 Mt
(CO2e)Value: $50 Billion
CCX23 Mt72 M
CDM791 Mt
$ 15 Billion
Voluntary OTC42 Mt
$258 M
NSW GGAS25 Mt
$224 M
5Source: New Forests/Ecosystem Marketplace, World Bank
JI41 Mt $495 M
CARBON: Carbon Markets
Carbon Market Transaction Volumes and Values, 2006 and 2007
Markets VOL. (MtCO2e) VALUE (US$mill)2006 2007 2006 2007
Voluntary OTC Market 14.3 42.1 58.5 258.4Chicago Climate Exchange (CCX) 10.3 22.9 38.3 72.4 Total Voluntary Markets 24.6 65.0 96.7 330.8
EU-ETS 1,1044 2,061 24,436 50,097Primary CDM 537 551 6,887 6,887Secondary CDM 25 240 8,384 8,384Joint Implementation 16 41 141 495 New South Wales 20 25 225 224 Total Regulated Markets 1,702 2,918 40,072 66,087
TOTAL GLOBAL MARKET 1,727 2,983 40,169 66,417
Sources: Ecosystems Marketplace, New Carbon Finance, World BankOTC = Over the Counter
CARBON: Growth of Carbon Markets
Forest carbon is < 1% of total market since effectively excluded from regulatory markets (high transaction costs in CDM)
Forest carbon composed ~20% volume of Voluntary Market
Voluntary carbon prices are increasing – for OTC trades from $1.80/tCO2e in 2006 to $3 in 2007. Forest carbon prices are above average: $7-8 for afforestation and $4.8 for AD projects
Voluntary market allows innovation, e.g., development of methodologies and standards for REDD; ‘gourmet carbon’ combines carbon and equity objectives
Key role of standards to ensure quality and reassure buyers, e.g., combination of CCB and VCS standards
CARBON: Forest Carbon in the Voluntary Market
Potential of Avoided Deforestation or REDD
Stern Review (2006): deforestation contributes about a fifth of CO2 emissions – he said avoided deforestation (AD) should be one of four key elements of global climate change mitigation strategy.
Stern also said AD is a “highly cost-effective way of reducing greenhouse gas emissions” due to (often) low land-use opportunity costs
REDD will have major co-benefits: biodiversity, water and (perhaps) equity
Bali CoP 2007 committed to “urgent and meaningful action on REDD” – need to define REDD mechanism for post-Kyoto regime (2013-2017) at Copenhagen
Source: Stern, 2006
Baselines are difficult due to future uncertainty
Ex-post payments but up-front costs: how to fund ‘Readiness’, e.g., baselines, REDD planning, national carbon infrastructure, etc.
National strategy is vital due to leakage, but so is a project approach involving private sector investment – ‘nested approach’
Equity concerns, e.g., compensating the ‘bad guys’; community conservation has potential, but ‘additionality’ and transaction costs (role for ODA/philanphropy finance?)
Deforestation is highest where governance is worst
But REDD is Complex - Challenges
WATER: Payments for Watershed Services
Demand for clean water is increasing rapidly: water use has increased at twice the population rate. 40% of cities depend on forest areas for water.
Investment in watershed management is cheaper than treatment or obtaining new water supplies. In the US, each $1 in watershed protection saved $7-200 in filtration/water treatment.
Payments of upstream watershed protection is already taking place in New York City as well as several countries (e.g., Mexico, Costa Rica, Ecuador)
WATER: The “Dead Zone” Problem
Source: New Scientist
WATER: Payments for Watershed Services - Types
Nutrient Trading:
Is essentially cap-and-trade applied to watersheds - Those who pollute more buy from those who pollute less.
Ex. Chesapeake, Gulf of Mexico,Yellow River (China)
Upstream Watershed Protection:Ex. Mexico, Costa Rica, Ecuador
Other: Flood Control Salinity Control
Provide food, habitat, and temperature control for stream communities
Stabilize streambanks and control sediment flux by holding the soil in place
Filter pollutants by removing suspended solids from surface runoff
Function as a sink by taking up and sequestering nutrients in plant tissue
WATER: The Benefit of Forested Watersheds on Quality
WATER: The Chesapeake Fund
Goal: attract new capital and maximize return of restoration investments
Collaborative project: Forest Trends, Chesapeake Bay Foundation, and World Resources Institute
Regional pilot with the potential to scale and model in other watersheds
Focus on “offsetting” nitrogen emissions by investing in water quality protection and restoration projects
Forest restoration and protection: potential for high-value return
BIODIVERSITY: Biodiversity Markets
Not easily commoditized Is an “anti-commodity”
Wetland Banking
Conservation Banking
Voluntary Biod. offsets
Gov’t payments for biodiversity
– Such as Bush Tender, Eco-Tender in
Australia
– Program in Mexico
BIODIVERSITY: Biodiversity Markets
Largest Biodiversity Offset Market in the U.S.
$3.3 billion a year spent on mitigation in the U.S. $2 billion in mitigation parcel purchases
$1.3 billion sold from the roughly 120 species banks and 600 wetland banks in the US
Credits sell from $4,000 to $450,000 an acre
Banks are usually 30 to 400 acres (some as big as 1500)
Can be profitable, a known bank started selling credits for $1,500 and 10 years later they were selling for $125,000 - due to demand and ambient land value
The industry is ~20 years old and is growing steadily
Environmental Mitigation:
Forest landowners have the advantage of already owning the land. This is the big expense in selling mitigation credits.
Forestry Opportunity: generate income from existing conservation parcels generate mitigation for internal permitting
Sectors involved: Forestry (International Paper,
Weyerhaeuser) Mining & Minerals (Rio Tinto, Vulcan) Oil & Gas (Chevron, Shell) Electric Utilities (Southern California
Edison, EPRI) Finance (Bank of America)
BIODIVERSITY: Biodiversity Markets – Forest Landholders
Non Timber ActivitiesWatershed CreditsCarbon CreditsConservation CreditsRecreation ExtractiveOther
Timber Activities
ROI, Shareholder Value, Ratings, Capital
Sales, Profit, Pricing, Margins
Tangible Value Drivers
Intangible Value Drivers
New Revenue StreamsCost EfficiencyRisk ManagementAsset Value – Land AppreciationDiversity of Income Streams(minimized cyclicality)
Reputation (PR, Brand)Stakeholder Licence to Operate• protection of asset• stakeholder & local community
relationsInnovationTalent Attraction & RetentionBiodiversity/Natural Capital
Financing: Driving Sustainability into Natural Resource Management - A New Business Model for Forest Land Owners
More Finance from PES … But Big Challenges Remain
Need to tackle policy, market and governance failures, e.g., illegal logging, weak property rights, weak compliance, etc. These cause high opportunity costs so SFM can’t compete with alternative land uses – so the challenge is forest finance AND incentives
Challenges of REDD, e.g., start-up costs, government capacity, equity, nested approach, etc. – needs multiple financing and partnerships
The adaptation challenge – can we combine mitigation with adaptation?
How to combine equity and environmental objectives (trade-offs between these objectives have been more common in the past)
Global food and energy needs versus environment
A New Challenge: Creating Ecosystem Markets
Roles for ODA and/or philanthropy finance
1. Promoting an enabling regulatory and governance environment, including monitoring FLEG and secure property rights
2. Capacity building for PES: new institutions dedicated to PES (e.g. FONAFIFO), national certifiers/verifiers, carbon registries, business development services for PES, etc.
3. Ensuring equity: subsidising transaction costs, promoting secure tenure, SMFE finance, collective institutions for PES, etc.
4. Venture capital role - up-front investment for innovative PES mechanisms to leverage other private sector investors
Roles for ODA and/or philanthropy finance
5. Tackling risk constraints to new instruments, e.g., innovative approaches to insurance and re-insurance
6. ‘Product development’ role: pilot projects to develop new approaches, method-ologies, metrics, standards, etc. with communities/low income forest people
7. Facilitating information flows on new markets – PES, forest investors, technical assistance, etc.
8. Catalysing collaboration between donors, i.e. CPF members, UNFF-UNFCC, Millennium Development Goal programs
Some Other Resources