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Overhead at Katoomba China: How do you define a 'beneficiary'?

2013-05-17T01:24:14Z

An interesting comment during the keynote address became a recurring theme during today's public meeting at Katoomba XVIII: Forests, Water, and People.

Niu Chonguan, Deputy Director General of the Department of Soil and Water Conservation at the with the Chinese Ministry of Water Resources spoke about soil and water conservation incentives in China and efforts to develop a new soil & water conservation (SWC) law that would define the scope of 'eco-compensation', simplify calculation methods, and clarify how dedicated fees for SWC could be used.

That first objective, Niu noted, is harder than it looks. "Everyone agrees that the beneficiary pays. But we know that beneficiaries are not just downstream users, but also those benefiting from reduced flood risks or reduced disasters from sandstorms." Should these groups pay as well? How can you quantify the relative share of 'benefits' of each?

That question isn't just an academic one - compensation levels for soil & water conservation payments are supposed to be set based on valuation of ecosystem services and resulting ecological and downstream improvements. "It's easy to define ecosystem services values - but not the other values," Niu said. (This is a little unusual; in most watershed investments that we track payments are still estimated based on the costs of the intervention or foregone income.)

Water, as was noted in other presentations, sits at the nexus of so many critical systems - including energy and food. The cliché is obvious: the 'ripple effect' of efforts to protect natural infrastructure is far-reaching. Deciding where to draw the line around direct beneficiaries is an important question, and one we expect to see being asked more and more frequently as compensation mechanisms increasingly use ecosystem services valuation to set payment levels.

Eco-Compensation in China: Can the Government Move from 'Buyer' to 'Enabler'?

2013-05-16T16:46:05Z

We're in Beijing this week at Katoomba XVIII: Forests, Water and People. We'll be bringing you live coverage of the meeting at Ecosystem Marketplace, on our blog, and on Twitter - so check back frequently! In this post, ADB Water Resources Specialist Zhang Qingfeng offers an update on new trends in Chinese eco-compensation - including early steps towards encouraging private-sector investments in China's natural infrastructure.

China is the world's largest investor in watershed protection, with nearly $7.5 billion spent in 2011 on restoring and safeguarding the country's water supplies at their sources. That dwarfs activity in the rest of the world - for comparison, every other country combined spends a bit more than $700 million every year.

But unlike in other countries, virtually 100% of China's investments come from the government. In our recent State of Watershed Payments 2012 report, there is plenty of diversity in the way environmental incentives are used around the world to protect water.

But patterns also emerge: beverage companies from Tanzania to France have decided to look outside their gates to the larger watershed in order to address water risk. Agricultural producers from Minnesota to Kenya are compensating communities upstream for sending clean water their way. Hydropower operators everywhere see the logic behind watershed management to limit erosion and maintain flows in rivers. And just about everywhere you look, there's an NGO mediating these deals, designing conservation plans, and monitoring outcomes.

But there are no good corollaries when it comes to the Chinese model of 'eco-compensation'. In many respects, it's uniquely Chinese. Financing and policy directives are much more coordinated at a national level, compared to the diffuse grassroots projects that are so common elsewhere on the planet. NGOs play a very small role at present. And as we mentioned, the only party that's paying for restoration is the government.

That's why Zhang Qingfeng's presentation this morning was so intriguing.

Is there a role for the private sector in a traditionally public effort?

Zhang, Lead Water Resources Specialist with the Asian Development Bank, took the stage to make the case for opportunities for public-private partnerships in China on eco-compensation projects.

Businesses, he said, are perhaps better positioned to play a role in eco-compensation in China than at any time in the past. Beverage companies or water utilities, for example, are natural buyers. And private-sector opportunities exist in providing market services and infrastructure as well. Traders could play important roles in nascent carbon cap-and-trade, water quality trading, and water rights trading markets, or forest exchanges. Sixteen environmental exchange centers are already active in Shanghai and Beijing, Zhang noted.

Meanwhile, the government could begin to "shift from buyer to enabler." That means providing regulatory drivers, training and information, and mapping and setting priorities for environmental values - defining conservation goals on behalf of the public, but finding ways to encourage new players and new sources of finance to enter the market.

The Chisui Watershed Pilot

A groundbreaking effort to do just this is underway in the Chishui River watershed, where UNDP, WWF, and ADB are backing a new public-private financing mechanism.

They've gotten initial agreement from Moutai, a major liquor company, to pay into a new water fund that focuses on converting sloping agricultural lands to forests, "ecological farming," and de-intensifying livestock production in the upper catchment. Payments will go to farmers and landholders, and are meant to cover the costs of the interventions and foregone income. Details of the fund are expected to be finalized in the next few months. Other contributors are also lined up - the GEF has committed $2 million to supporting the mechanism, and other liquor producers in the watershed are also being courted.
It sounds like a straightforward enough water fund, but this is a very new model in China.

And government even here remains in a sense the buyer. Moutai's contributions go to the provincial government, which then channels the money into projects in the Chishui watershed.

"Could we more directly link the buyer and provider?" Zhang asked. In China, that's still an open question.

Private-sector barriers to investment in China sound awfully familiar

In the meantime, these efforts have yielded some useful lessons. Public-private partnerships like the Chishui project will have a slow go of it until some institutional and policy questions are resolved. Zhang listed a few major challenges to private investments - and this is actually where China starts sounding like the rest of the world.

Legal frameworks, particularly water use rights, need to be clarified.
Regulations enabling and providing guidance for private participation would be helpful.
The relationships between multiple administrative stakeholders at varying levels are still be worked out when it comes to implementing projects like these, leading to uncertainty from a private perspective.
A shift toward results-based projects would be welcomed, as opposed to the status quo of paying for practice: buyers want to know what they're paying for.
Standard contractual agreements linking ecosystem services providers with service buyers are nonexistent; as we mentioned, in the Chishui case funds are still passing through the government.

On the public front, No signs of slowing down

Of course, don't expect to see that $7.5 billion figure shrinking. Zhang expects to see continued growth in public investment in eco-compensation, citing new policy drivers like a national key function regional zoning plan, water conservation being prioritized in 2011 in key policy documents, national eco-compensation regulation on the way (which, incidentally, highlighted diversified funding sources and private sector participation), and "ecological progress" recently being established as a national priority.

The government also will remain the key buyer, through a variety of mechanisms. Direct payments, compensation to households for creation of protected areas, compensation of less-developed regions for past and current environmental damage, an eco-compensation fund to protect watershed services, and other incentive-based direct payment mechanisms are all in the arsenal.

A Tale of Two Markets

2013-05-10T15:12:12Z

We're bringing you live coverage all week from New Orleans of the 2013 National Mitigation & Ecosystem Banking Conference. Check back often!

Thursday morning's Alternatives to Mitigation session found Craig Denisoff taking the podium to talk about habitat credit trading systems - a new species of mitigation program - and where they stand in relation to conservation banking.

A bit of background: "conservation banking" refers to banking for listed species under the ESA (a backgrounder is available here), whereas habitat credit trading (HCT) refers broadly to voluntary offsetting that seeks to protect imperiled species and habitat. HCT has been in the news a lot recently thanks to interest in incentive mechanisms to protect so-called 'Candidate Species', which may be eligible for listing under the Endangered Species Act but the listing hasn't happened yet.

Denisoff offered a roundup of the "real and perceived issues" surrounding HCT. First off - how does it differ from conservation banking? Well, first off, the credits are administered by a 3rd party rather than a banker. Trading can take place transparently, on public exchanges. And unlike conservation banking, the mitigation action might not extend into perpetuity: temporary offsets for temporary impacts are possible.

The pros? HCTs, Denisoff said, have the potential to offer greater flexibility in protecting imperiled species and habitats where no listing exists. That flexibility extends to being able to focus on multiple species and whole ecosystems. Voluntary credits can be a way to leverage funding for larger linked projects. And - perhaps most importantly - these programs can get private landowners and other stakeholders to the table with the promise of financial incentives and regulatory assurances if the species ever is listed.

The cons? With all that flexibility, it can be pretty hard to agree on metrics or currencies. There are different rules at different levels. Stakeholder participation can lead to dilution of mitigation requirements. Since the programs are administered by government or some other third party, prices won't reflect real market forces.

If you're a banker, lower standards and the threat of being crowded out might make you a tad suspicious of HCTs.

If you're a regulator, you might share the concerns about lower standards (especially those temporary offsets for temporary impacts).

Denisoff recognized the "inherent conflicts" between a centralized trading program like HCTs and the more individualized conservation banking system. But, he said, there are new opportunities for bankers in the arena: they're in a great position to act as aggregators and experts. Rather than resisting HCTs, he said, bankers should take it on themselves to step in and find ways to drive up the quality of the work.

In the Friday morning plenary - a "Regulatory and Legislative Update" - Paul Souza of the US Fish & Wildlife Service (FWS) noted that the FWS had gotten quite a lot of feedback (presumably on many of these issues) during the comment period last year on proposed rulemaking on addressing candidate species. A big issue will be how those regulatory assurances work - in other words, how these habitat credits might carry over once a species is listed - so aligning standards is going to be critical.

Overheard at the National Mitigation and Ecosystem Banking Conference

2013-05-09T16:47:14Z

"One of the priorities of the National Mitigation Banking Association is to try to get some teeth into the [Endangered Species Act]. If all regulators had to require conservation and mitigation measures, we'd have a thriving market. The agencies that are designed to protect these species are missing these opportunities."

- Craig Denisoff, "Alternatives to Banking" Session, in response to an audience question about why habitat credit trading systems are not active in the Southeast, despite dozens of species listings.

"We could use a little more Silicon Valley, and a little less old-school utility."

2013-05-08T22:13:22Z

We're bringing you live coverage all week from New Orleans of the 2013 National Mitigation & Ecosystem Banking Conference. Check back often!

March 8

President & CEO of The Conservation Fund Larry Selzer opened his keynote address at the opening session with a joke:

Sherlock Holmes and Dr. John Watson went on a camping trip. After sharing a good meal and a bottle of Petrie wine, they retire to their tent for the night.

At about 3 AM, Holmes nudges Watson and asks, "Watson, look up into the sky and tell me what you see?"

Watson said, "I see millions of stars."

Holmes asks, "And, what does that tell you?"

Watson replies, "Astronomically, it tells me there are millions of galaxies and potentially billions of planets. Astrologically, it tells me that Saturn is in Leo. Theologically, it tells me that God is great and we are small and insignificant. Horologically, it tells me that it's about 3 AM. Meteorologically, it tells me that we will have a beautiful day tomorrow. What does it tell you, Holmes?"

Holmes replies: "Watson, someone stole our tent."

"Like Watson," Selzer noted, "We tend not to notice our infrastructure until we have a problem."

A string of recent disasters have shown us the trouble with that approach. Hurricanes like Sandy or Katrina illustrated all too well the inadequacies of our coastal defenses, electrical grids, and flood prevention measures.

"If it had been raining," Selzer joked. "Watson surely would have noticed his tent was gone."

But our national infrastructure time-bomb is also the future of the mitigation banking industry, for better or for worse, Selzer predicted.

In the coming years, high-speed rail, communication systems, bridges and roads, water delivery infrastructure, and energy developments have the potential to grow the industry tremendously, but in radically different directions. These projects are "large, linear, multi-jurisdictional. The problem is they don't line up well with the way the mitigation banking industry has been in the past," said Selzer.

An industry that has long specialized in hyper-local, one-off projects will have its work cut out for it. Today's science, regulatory frameworks & relationships, and approaches to mitigation will all require ingenuity from the industry. How do we define service areas when projects span states? How do we quantify massive impacts like development of the Bakken shale?

Figuring out these questions becomes much harder, "given the level of regulatory and budget uncertainty we're facing today," says Selzer, or a public discourse that either dismisses environmental science as climate hoaxes or the like, or ignores it altogether.

It's worth noting that there are few regulators at this year's conference compared to past meetings - apparently thanks to tight budgets, and much to the conference's loss.

It's a hard time to be either a scientist or a public official. Selzer concluded by remarking that the mitigation banking industry's reinvention thus is going to have to include some rebranding.

"Mitigation banking must be seen as helping to address the big issues of the day," he said - rather than being associated with the problems. A road, a housing development, a bridge - these are not the big issues of our times."

We need to think about big goals, he told the audience: climate change, habitat loss, the global water crisis. But will we? Selzer sounded hopeful, but unconvinced.

What's Next for the Mitigation Banking Industry?

2013-05-08T21:53:20Z

We're bringing you live coverage all week from New Orleans of the 2013 National Mitigation & Ecosystem Banking Conference. Check back often!

March 8, 2013

This conference marks the passing of the torch, with presidency of the National Mitigation Banking Association passing from Randy Wilgis to Doug Lashley for the 2013-2014 period. In this videoblog, Wilgis and Lashley discuss priorities and challenges for the Association and the mitigation banking industry more broadly, and reflect on progress so far.

Randy Wilgis on Progress so Far

Randy Wilgis has just completed his term as NMBA President in this morning's NMBA Annual Meeting. Reviewing current drivers for the association, and priorities for action, he comments on the achievements of the association and work so far fostering growth of the mitigation and conservation banking markets and overcoming challenges, with regulatory and policy work and lobbying in Washington, DC. Mr. Wilgis also notes the achievements working with large NGO's such as Ducks Unlimited, The Nature Conservancy and Environmental Defense Fund to create a strong, consolidated message with regulation and policy. Standardization across regions and local implementation is a key part of this. He also comments on the current challenges given current budgetary constraints within regulatory department, and the importance of maintaining membership to support the Association's work.

Doug Lashley Previews 2013-2014 Priorities

Mr. Doug Lashley, of Greenvest LLC, Maryland, has just taken over as President of the NMBA for the 2013- 2014 year. He describes the some of the priorities notes the focus upon improved 'hard' data, and moving from lobbying for improved process towards how to best use the credits generated and finding new ways both for permitted and non-permitted impacts, to grow the use and continue to vibrancy of the Conservation and Mitigation Banking Market; an observation of the seemingly wider trend within the industry of a second phase, of sorts, of this environmental market. Of course, as incoming President he'll be focusing on growing membership of the Association, and continuing to work on the suggestions and feedback from members in years to come.

Tracking and Status of Banking: Steve Martin presents RIBITS for 2013 at the NMBEC

2013-05-07T20:19:29Z

From year to year, a key staple of the conference is the RIBITS update (Regulatory In lieu fee and Bank Information Tracking System), with Mr. Steven Martin of the Coprs Wetland Resources Institute, Virginia. This year, moderated by Mr. Palmer Hough of the EPA, Steve presented "An analysis of National Mitigation and Conservation Banking Status and Trends, using RIBITS.

Access RIBITS here:

Accurate tracking of banks, credits and agreements is such a key element of the transparency and accountability and for several years now we've watched the USACE RIBITS Database become more and more comprehensive and responsive to the Industry's needs.

See the user handbook here and users' guides here and here

This year we can see RIBITS is growing. There have long been information gaps primarily as a result of time and resources of all concerned. So each year the NMBEC learns which gaps have been filled this year, which ones are coming up, and can start to think about those new ones the industry is identifying. Information gaps aside, RIBITS and Steve Martin have long been able to provide snap-shot of the Industry in time, with some numbers to see how things are progressing at a national level.

It was clear, too, that RIBITS has reached a stage where it has some elegant reporting capabilities. 1416 approved banks nationally. That's up from last years' 1,255 approved bank sites. In 2013, banks now 580,625 square miles across the nation, 65,006 of which are sold out and permanently protected.

86% of banks have wetlands credits, 22% have steam credits including many that have both. And 2% of credits are sold out, meaning that there are a growing number of wetland areas permanently protected and endowed under the Mitigation Banking system. In terms of distribution the south Atlantic (Carolinas to Florida) and Mississippi basin have the highest concentration of bank sites.

With particular relevance to the Mitigation Banking industry, RIBTIS showed us that commercial banks have much larger acreage, overall. Most mitigation banks are indeed private commercial, but there are public commercial banks and those built from public-private partnerships, and those run by Non-Profit groups as well.

Slides from S. Martin Presentation RIBITS.pdf

In conservation banking nationally there are 108 FWS banks (up from 105 last year) and 5 NOAA Banks across 11 States and the Island of Saipan. This covers an impressive 60 species, and around 90,000 acres conserved. The map in the slide bellow shows these are still concentrated in California, but this distribution is slowly changing. Last year, there was still some work to do integrating all the Conservation Banking data, as this material must come from FWS, which of course require precious time and resources - and therefore a little patience all round.

Species Banks May 2013.pdf

But this year presented comprehensive Fish and Wildlife data, and moving forward the aim is always to provide the most comprehensive record of all mitigation banking - under all agencies, not just the USACE and wetlands. Steven announced that USACE has last year signed an agreement to incorporate NOAA data as well, to provide access to the fish banking activities they over-see. They're now working on integrating better with the Federal Highways Administration and other Transport agencies such as State Departments (DoT's) in ways that support them as both credit purchasers and single-client bank developers. They're a bit part of the Industry, so RIBITS is focused on recognizing this.

Also in 2012, RIBTIS has responded to user demand and has improved the capabilities of the platform for those using the GIS data, including integration capacity with other software. The other big 'user demand' topic is the integrating better reporting on In Lieu Fee programs. There are 19 approved in the system to date, and 28 are continuing to seek approval. There's a whopping 45 Pending approval, and it will be interesting to see how these numbers pan out this time next year. In Lieu Fee programs currently conserve 34,738 acres nationally.

The ultimate compliance date comes up in June this year, and attaining a level playing field in terms of ecological outcomes, transparency and responsibility has been a source of consternation among Mitigation Bankers for some time. It would appear we're approaching a resolution on this one and getting RIBITS data up to speed will be an important step for the coming year, or years.

See Ecosystem Marketplace article covering this topic...

RIBITS capabilities and market reach is clearly improving, but still lingering from years gone by, 2013 - 14 will still have a heavy focus on getting better state-level banking information, which for the most part, relies of regions and districts have the impetus and resources to update accordingly. Of course, at the State level, current sequestration and economic cutbacks don't work in favor with this. This year too, they're looking at ways to improve reporting of stacked credit banks, for those currently listed in the system, and the expected stacked credit banks of the future.

If there is a common point between those inside and outside the industry it's an insatiable thirst for this kind of data that will keep us returning year upon year to hear Steve speak: RIBITS has been a long time coming so great to see how for it's come, and where it will g in 2014.

For more, contact Mr. Steve Martin, Environmental Planner, Institute of Water Resources
USACE, Regulatory Branch, Norfolk VA.

Finding the path through the forest

2013-04-30T22:05:46Z

By Sissel Waage

Last week, the very first REDD+ Talks (à la TED Talks) took place in Sausalito, California, where speakers from Wildlife Works, Code REDD, Puma, Microsoft, and other organizations discussed benefits of REDD+ projects that go beyond carbon sequestration. Here are a few thoughts on the underlying pitch for REDD+.

(Note: This post originally appeared as a blog post on BSR. Sissel is Director of Biodiversity and Ecosystem Services at BSR.)

How often do you hear a sales pitch offering "two for the price of one?"

When it comes to corporate sustainability initiatives, it seems almost too good to be true that an investment in reducing carbon emissions could also restore forests, protect wildlife, provide a water source for a drought-ridden community, and generate the funds for health care programs and schools in a village in Kenya.

But the (seemingly arcane) domain of REDD+ is showing us that all of these benefits are possible.

For more than 20 years, forest-carbon programs have offered companies a way to offset carbon emissions through maintaining standing forests, which is critical, given that deforestation and land degradation account for 20 percent of greenhouse gas emissions globally.

Forest carbon and REDD+ projects are based on the simple rationale that trees absorb carbon and release oxygen. By ensuring that forests are not cut down, or are re-planted, carbon stocks are maintained on the landscape rather than being dispersed into the atmosphere.

These projects also provide income for the local communities--in terms of payments to maintain standing forests as well as, in some cases, additional income from jobs to plant and restore forests.

Experience with REDD+ is now well established. According to the Ecosystem Marketplace (EM), in 2011, forest-carbon finance transactions worth US$237 million occurred on 18 million hectares in 40 countries.

Last week, I participated in the first REDD+ Talks event, where speakers from Wildlife Works, Code REDD, Puma, Microsoft, and other organizations described the numerous benefits of REDD+ projects that go beyond sequestering greenhouse gas emissions. The relevance of this work is wide-ranging and includes many benefits:

For companies with carbon goals: REDD+ provides a robust, verifiable way to offset emissions.
For companies with community-engagement objectives, particularly where they source raw materials and/or operate facilities: REDD+ offers the opportunity to invest in rural "green infrastructure"--in the form of the resilient forests, habitat for wildlife, and expanses of land that are buffered from landslides and able to filter water as well as refill underground aquifers. At the same time, it provides the community with social benefits from the new source of income that they can use to address issues like access to water, health care, education, and even jobs.
For companies interested in investments in biodiversity and ecosystem services: REDD+ provides a learning laboratory on how to measure and monitor ecological structure and function as well as the flow of ecosystem services.

It is likely that the biggest opportunity of REDD+ will be from this last point. In the coming years, techniques used to measure and monitor investments in forests can be adapted and expanded to improve corporate measurement and management of other sustainability challenges--particularly related to growing questions around business impacts and dependencies on natural capital, biodiversity, and ecosystem services.

The journey is sometimes the destination. In the case of REDD+, the journey itself offers great returns.

Wetlands methodology, GM, Disney-funded forestry projects draw raves

2013-04-18T22:11:13Z

By Gloria Gonzalez

At this week's American Carbon Registry (ACR) annual awards ceremony, some of North America's biggest voluntary offset buyers showed it is a small world after all, purchasing carbon credits from the same forestry organization.

General Motors (GM) and the Walt Disney Company drew raves for their common affinity for projects developed by the National Forest Foundation, the nonprofit partner of the US Forest Service.

GM's Chevrolet brand will retire carbon credits from a variety of projects, including a foundation project that is restoring 250 acres of the San Juan National Forest in Colorado, as part of its $40 million Chevrolet Carbon Reduction Initiative, which has a goal of reducing up to eight million tons of carbon dioxide emissions.

"This is one of the project types that GM has seen as really innovative," said Nicholas Martin, chief technical officer for ACR, which awarded its Corporate Excellence award to the Detroit-based automaker.

The Walt Disney Company likewise has invested $30 million in global forest carbon projects. One was a National Forest Foundation project to reforest 900 acres in the Angeles National Forest through the planting of 154,000 trees to help recover from the Station Fire, the largest and deadliest of a series of California wildfires in 2009. ACR recognized the Burbank, California-based entertainment and media conglomerate, alongside the Chesapeake Bay Foundation, for its efforts to revive and restore forests with the registry's Commitment to Quality award.

"It's just been a phenomenal ride for us," said Robert Antonoplis, vice-president and counsel for Disney. "It's been a real learning experience for us as a company," he added, also describing the positive impact Disney's offset commitment has had on the company's employee recruitment efforts.

Meanwhile, the use of the carbon markets to finance the restoration of the delta wetlands became a reality in 2012 with approval of the first carbon offset project methodology.

Tierra Resources developed the first methodology to finance restoration of the wetlands, starting with the Mississippi Delta, with funding from Entergy's Environmental Initiatives Fund. The methodology facilitates the creation and monetization of carbon offset credits from a broad range of wetland restoration activities.

"This was very personal work for us being based out of Louisiana," said Sarah Mack, CEO of Tierra Resources. "We really see it as a key to our sustainability to be able to implement and expedite large-scale restoration in our region."

The company is working with the ACR to expand the methodology to California. The registry approved the methodology last year and gave its Innovation Award to Tierra Resources and Entergy for its development.

"Tierra Resources invested a whole lot of sweat into making this methodology a reality and really went above and beyond what people thought was possible at this time," said Belinda Morris, ACR's California director. "This is a great opportunity for greenhouse gas reductions. It also presents opportunities for adaptation."

Buyers in the United States were the world's top source of voluntary demand for carbon offsets, contracting 37% of global volumes worth $178 million in 2011, according to the State of the Voluntary Carbon Markets 2012 report.

Dear President Obama: for clean air, do we dial 111, Boxer, or Waxman - and at what cost?

2013-03-21T21:01:21Z

By Daphne Yin

The EPA is slated to pass regulations on power plants this year under the Clean Air Act, while Senators Boxer and Waxman work to inject a carbon price back on to the federal agenda. Here are a few reflections on the undercurrent of discussion on how tradable mechanisms for climate mitigation might figure into federal GHG regulations down the line...

We've seen the United States achieve significant emission reductions for the transportation sector through the Clean Air Act, but power plant emissions - representing almost 70% of US emissions - require a unique fix. This week in Washington, DC, I attended a symposium hosted by Senator Tom Carper (D-DE) where panelists explored possibilities for achieving meaningful reductions of power plant emissions under Section 111 of the Clean Air Act - and without hurting the US economy.

Climate Change Symposium, Washington, DC / March 18, 2013

Through the Clean Air Act, the US Environmental Protection Agency is slated to finalize New Source Performance Standards for GHG emissions from new power plants this year under Section 111(b), and expected to propose standards for existing power plants under Section 111(d).

What would meaningful reductions at reasonable cost look like under Section 111? Conrad Schneider from the Clean Air Task Force walked through calculations by the Northbridge Group for different levels of GHG reduction targets, invoking the most stringent example - 28% reductions by 2020 compared to 2005 levels - as a strawman argument. Costs to run the program would approximate $23/tCO2e. Schneider said that if phased in properly, increases in natural gas prices could be limited to 1% a year.

David Doniger from the Natural Resources Defense Council argued that these emission reductions could be achieved at a lower cost than Schneider proposes - thus it really comes down to the model and set of assumptions used.

While I can't pass judgment on these models per se, what interests the Ecosystem Marketplace Carbon Program of course is how GHG regulations might leverage market mechanisms to make these numbers more favorable for compliance and ultimately for political and industry buy-in.

Because there it is - legislatively elusive yet referenced everywhere these days: President Obama's State of the Union address call to Congress to pass a "bipartisan, market-based solution to climate change." What enabling power does this phrase really have? What's the federal legislative hook that might enable the US to achieve greater emissions reductions at reasonable cost and with legal certainty?

Against all political odds, if and when Congress stops dragging its feet, the US could see passage of a new climate bill - perhaps in the form of a federal carbon tax as promoted by Senators Barbara Boxer (D-CA) and Henry Waxman (D-CA) through their respective new carbon tax plans. But in the interim, Congress has the potential to provide clarity on how markets could fit into existing Clean Air Act legislation, which Monday's panelists believe could create a clearer pathway for market-based solutions at a federal level.

Expanding existing EPA regulation:

Within Section 111's regulation of power plants, there are a couple of grey areas relevant to markets. Kyle Danish - who advises companies from energy and other sectors at Van Ness Feldman - explained these at Monday's symposium:

The EPA has yet to clarify whether compliance activities can include "beyond-the-fence" reductions outside of the power plant. There is no case law yet on compliance options for 111(b). Using industry preferences as the litmus test for legislative outlook, assuming regulations will require some level of GHG emission reduction target, it seems that industry members prefer to have flexibility in how they meet their compliance requirements. As Danish put it, "All companies in the industry place a high priority on having requirements that are at modest cost, provide for some flexibility all other things being equal, and have legal certainty." Following on this, the business case seems to point in favor of use of a market-based approach that allows some level of flexibility through trading. The aggressiveness of emission reduction targets could in turn vary depending on the level of flexibility provided.
There is a lack of legal clarity on how much discretion states would have in determining their own plans in relation to the federal EPA directive. Industry's receptiveness to GHG regulations varies by state, depending on how much companies rely on coal or natural gas for power generation. Already, many states feature market-based mechanisms - California's cap-and-trade scheme, the Regional Greenhouse Gas Initiative, and the 35+ US states operating mandatory or voluntary renewable portfolio standards to name just a few. How these would plug into federal legislation is still up for discussion.

What about a fresh climate bill?

Beyond the Clean Air Act, the carbon tax candle is still burning. Sen. Barbara Boxer and Sen. Henry Waxman - historically cap-and-trade proponents - are both incubating carbon tax plans with the intention of restarting the conversation and pushing their plans through Congress.

The quick and dirty:

The bill backed by Sen. Barbara Boxer (D-CA) and Sen. Bernie Sanders (I-VT) seeks to regulate upstream GHG emissions from coal mines and oil refineries rather than power plants (and so could theoretically complement any legislation covering power plants).

Price tag: $20/tCO2e, +5.6% annually for 10 years

Revenues: $1.2 trillion over 10 years, with 60% rebated to US residents and 40% to incentives for clean energy and research

Emission reductions: 20% from 2005 levels

Next steps: hearings this spring in the Environment and Public Works committee, Senate floor vote this summer

The plan (see discussion draft) backed by Sen. Henry Waxman (D-CA) and Sen. Sheldon Whitehouse (D-RI), like Section 111, hones in on power plants.

Price tag: $15/$25/$35/tCO2e, +2-8% annually

Revenues: TBD, possibly going toward mitigating energy costs for consumers, reducing Federal deficit, protecting jobs of workers at trade-vulnerable, energy intensive industries, reducing tax liability for individuals and businesses, and/or investing in other carbon mitigation activities

Emission reductions: TBD

Next steps: Public comments on draft due April 12

How Boxer and Waxman relate to 111:

Going into the Q&A, I asked the panel to provide their frank assessment of the prospects for these new bills compared to working within Section 111 legislation. Dirk Forrister, head of the International Emissions Trading Association, said that based on his conversations with those involved with the new carbon tax plans, "Part of the interest in these new carbon tax plans is to allow discussion on options or proposals that might follow a path like Australia's, which began as a fixed price that looks like a tax and then shifts into an emissions trading program."

Forrister noted that a new carbon tax bill would have advantages in terms of providing legal stability (compared to patchwork provisions for markets using Section 111) and some basis for harmonization with carbon markets abroad, but that it's probably "a long, slow path."

Van Ness Feldman's Danish shared two views on the interplay between the EPA moving forward with legislation this year and how that might affect Congressional willingness to act. "On one hand, some people take the position that the EPA moves forward to regulate this area and then Congress can take a pass because they won't have to act," he explained.

"On the other hand," Danish continued, "some folks find that for the EPA to move forward with legislation will create the kind of friction needed for Congress to act. So it depends on which side you fall down on in that debate."

What are your thoughts? Feel free to comment below - Ecosystem Marketplace will continue providing updates on this issue as it unfolds!

The ACES & Ecosystem Markets Conference

2012-12-18T17:50:50Z

Last week's ACES/Ecosystem Markets conference in Ft Lauderdale has been a near reflection of its host city - domestic with a splash of international flavor, and seeing a rebound from the financial crisis but still searching for market demand.

Here are a few conference highlights, gathered by Ecosystem Marketplace staff attending the conference:

Story-Telling + Science = Strategy

An interesting thing happened at the Tuesday morning opening plenary, Applying an Ecosystem Services Framework to Natural Resource Management. Panelists, who included Barry Gold of the Gordon and Betty Moore Foundation's Marine Conservation Initiative, Craig Hansen of the World Resources Institute, Paula Harrison, a Senior Researcher in Biodiversity at Oxford University, Marina Moses of the National Academies, and Charles Perrings of Arizona State University, struck a similar chord in each of their remarks.

It's time to be clear-eyed and strategic about ecosystem services, was the plenary's refrain. Gold noted a change in the foundation world away from "pure protection" to managing landscapes in light of the people on them. That same shift, he said, should be taking place in the way that conservationists try to engage business on ecosystem services. "CEOs are not in this game for conservation," Gold said. "They're in the game because they want to be in business twenty or thirty years from now."

Paula Harrison offered an overview of mainstreaming ecosystem services in the European Union, particularly the region's biodiversity strategy and other policy instruments for incorporating ecosystem services into national accounts. Still, she noted, the focus is on capacity-building - and whether capacity alone is enough to operationalize these principles is anyone's guess.

Craig Hanson might argue that it's not. "Being right isn't enough," he told the audience. "Running numbers only gets you so far. There is a political economy game to be played."

In other words, it's high time for the ecosystem services community to get its elevator speech ready. The idea was a common current through the whole conference. Hanson offered one tip: We need to make sure that we find a hook on ecosystem services already on decision-makers minds. These people are busy. They don't need a new frame for understanding the world's problems - better to position ecosystem services approaches as a solution to existing problems like climate change or food security.

That means we need to get better at story-telling, added moderator Olivia Ferriter of the US Department of Interior. Of course, those stories need to be backed up with hard numbers, and we need to get better at that too.

We thought those two goals - mastering the art of the sell, while continually pushing the science forward - were beautifully illustrated by the conference itself, which brought together the formerly-separate ACES and Ecosystem Markets conferences into one big community.

But seriously this time - Let's start breaking down silos

Calls for an interdisciplinary approach were common - and by that we mean inter-agency cooperation, cross-sectoral collaboration, and economists having drinks with engineers.
There was surprisingly little distinction between the water, carbon, biodiversity silos, not that they weren't there, just that the focus was on larger principles and issues.

We're sorry to report that the ecosystem services communication problem was not solved at this conference.

More than once, we heard a motion to get rid of the term "ecosystem services" once and for all, followed by shrugs when we asked what to use instead. Indeed, communication around ecosystem services is starting to feel a little schizophrenic: conference-goers seemed to stress the need for more detailed scientific understanding but also called for the kind of "elegant simplicity" in messaging that allows the private sector to move with acceptable confidence in ecological outcomes.

It's hard to tell whether the communication problem is a serious crack in the architecture or a distraction. It might be both. At one communication workshop, federal agency employees repeatedly noted how their efforts to be the ecosystem services champion in their place of work kept tripping over the phrase itself. A recent report from Resource Media confirms that there's a lot of room for improvement; that report suggests that in the absence of a perfect, one-size-fits-all vocabulary, it's better to just focus instead on your target audience, telling stories, and offering concrete examples instead of abstract jargon.

All of these themes were at play in a panel session early on Wednesday morning, when Jeffrey Thomas (Director, Timber and Fish Division, Puyallup Tribe), Carol Hasburgh (Yukon River Inter-Tribal Watershed Council), Terry Williams (Commissioner of Fisheries and Natural Resources, Tulalip Tribes), Jon Waterhouse (Executive Director of the Yukon River Inter-Tribal Watershed Council) and Steve Darden (Steven A. Darden Enterprises) gathered for a plenary on Native American Views of Ecosystem Services and Markets: Challenges and Opportunities, moderated by James Caudill, Chief of the US Fish & Wildlife Service's Division of Economics.

Panelists spoke about the difficulties of coordinating between tribes and government agencies, and of integrating nature resource values into tribal decision-making processes on the one hand and into culture as well - especially a culture that holds the earth to be sacred and is uncomfortable with what looks like the commodification of nature.

One panelist noted the potential of connecting with other indigenous communities around the world through international policy mechanisms.

But Where is the Private Sector?

Our sense - that corporations were interested, concerned, even feeling their dependency on ecosystem services but taking the wait and see approach - was confirmed. As one corporate panelist put it: pre-investment is too risky and almost never a good financial decision. Much better to be "first to be second" when the policy change actually happens. (For an excellent interpretation of this principle in dance form, click here.)

"Most of these benefits accrue as avoided costs, not increased cash flows," we heard at a Tuesday session on valuing coastal ecosystems as green infrastructure, from Sheila Walsh of The Nature Conservancy. In other words, ecosystem services management doesn't necessarily generate any new revenues for business, making it a harder sell.

A similar point was made the next day at a lunchtime panel on unlocking private capital for land conservation and rural economic development. With the exception of carbon, business just doesn't seem motivated.

What's private capital thinking about? asked Pat Coady (of Coady Diemar Partners). Things like:

Risk - both assessing it and managing it. Particularly regulatory risk.
Scale and market size. Water quality markets were $10 million in 2008. Compare that to $118 billion for regulated carbon in the same year and you'll understand why investors aren't banging down the water door.
Transaction costs: markets are spatially diffuse, price information is hard to get, and linking buyers and sellers can be a lengthy process.
Resale & liquidity - as far as we can tell, carbon is the only place where we're seeing secondary markets yet.

And as far as businesses investing in protecting the ecosystem services that their own operations depend on, other barriers arise. A sampling of key points:

There lots of tools out there for identifying and valuing ecosystem services dependencies. But once you value ES - how do you operationalize it? Businesses aren't sure.
Water scarcity is nonlinear and thus hard to plan for.
Water and biodiversity are vastly undervalued in the financial perspective - neither have substitutes, but that isn't reflected in our accounting for them.
That lack of true-cost accounting limits the returns on investment that firms see (that is, water gets left out of capital expenditure decisions).

What Did You Think?

Those were some of our impressions - if you were at the conference or have your own thoughts on these issues, we'd love to hear them in the comments!

All dressed up and nowhere to go? A California cap and trade update

2012-09-21T21:02:34Z

By Selene Castillo

They've done the test run, they've set the date but how many entities will actually participate in California's initial cap-and-trade program? Talk of this question and more in this quick check in on recent west coast carbon developments.

To assist California in fulfilling the state's Global Warming Solutions Act (AB 32) objective of reducing GHG emissions to 1990 levels by 2020, the state will begin its much anticipated cap-and-trade program regulating initially electric utilities and large industrial facilities in January 2013. During the program's first year, the plan is to auction only 10% of credits, giving away the rest for free. Afterwards, the number of free carbon permits is expected to diminish annually, resulting in 50% of credits being auctioned by 2020.

In late August, the California Air Resources Board (ARB) conducted a mock GHG auction to test the system before the state's marketplace officially launches with its first "real" auction. ARB officials reported the pseudo-bidding among roughly 150 emitting entities went smoothly. However, they stated ARB will not disclose trading volumes and prices to prevent affecting future actions - like the first actual auction coming up on November 14.

But how many entities will turn up to take part when the big day arrives?

Market players say not to be surprised if participation in the initial auction is low - pointing out that, as of a notice sent out last week from the ARB, "Many covered entities have not initiated the user registration and account application process" for registering with the state's Compliance Instrument Tracking System Service (CITSS). This process is the first of a few mandatory steps that entities are required to undergo in order to participate in November's auction.

Says one Cali-facing forest carbon offset developer, "The big question right now is 'will everyone participate in November, or will no one?' Given that there are no compliance offsets in place and the actual true-up period isn't for several years, there's just not a lot of incentive to participate."

Indeed, though the ARB conducted its offset verifier and registry training from March-May of this year, it has not yet announced any accredited verifiers to audit projects generating reductions under one of the state's four compliance offset protocols. In the mean time, word has it that verifiers are informally filling up their calendars for compliance offset protocol audits as soon as ARB opens up the starting gate.

This is particularly true of projects in the forestry sector, where developers report sitting on potentially millions of tons of sequestration in wait to be verified to compliance offset protocols - that is, if ARB has the capacity to move projects quickly through the system. Verifier Environmental Services, Inc.'s Janice McMahon says of the forest carbon offset supply outlook, "I don't think there will be a shortage, but it depends on how many projects can get through, and in what timeframe. Forestry is definitely more complex than the other protocols they've approved."

Well timed for this discussion, last week, Finite Carbon and Downeast Lakes Land Trust (DLLT) registered the first Climate Action Reserve IFM carbon project outside of California in Maine. Finite Carbon says it intends to enter the Farm Cove project into California's offset project pool.

On a recent webinar detailing the American Carbon Registry's recently published Compliance Offset Supply Forecast, presenters made the point that forestry (particularly IFM) has the potential to generate the largest volume of reductions of the three major protocols that also include ozone depleting substance (ODS) and livestock methane destruction.

The truth of the matter is that the program is still in its very early stages although it's been in the works since 2006. In its first "go" at a real auction, participation and supply levels may not align with initial expectations - but that should not be taken as representative of the potential success of the program overall. It's a long road to November 14 and an even longer one to 2020. We'll keep you posted!

Coverage of the Ecosystem Services Partnership Conference

2012-08-07T21:03:05Z

August 2

Practitioners, policy-makers, researchers, and educators in the ecosystem services field have arrived from all over the world (47 countries if you're counting) in Portland, Oregon for the 5th Annual Ecosystem Services Partnership Conference. Ecosystem Marketplace's Genevieve Bennett is blogging the conference.

Morning plenary

The morning session hits the ground running with keynotes from Stephen Polasky of the University of Minnesota and the Natural Capital Project (presentation title: "What's needed to mainstream ecosystem services?"), Pushpam Kumar ("Use and abuse of economic value of ecosystem services: what can be done better?"), and Michel Masozera ("The role of ecosystem services in Sub-Saharan Africa's transition to a green economy"). Here's a summary of Polasky's presentation, with more on Kumar, Masozera, and the panel Q&A to come.

Polasky starts off the plenary with a quick introduction to the rationale for mainstreaming ecosystem services into our policy and economic decisions, before diving into a proposed research agenda for ecosystem services. Noting that economic valuation "attracts attention, but is only part of the story," he spoke about the need for better biophysical and socio-economic analysis that are flexible to a range of scenarios, transferable, and spatially and temporally explicit. In turn, these models inform a process of stakeholder engagement, which refines scenario development, which in turn improves model outputs - the idea being an iterative policy and stakeholder process allowing us to both better assess our ecosystem impacts and better manage them.

He introduced a few case examples: an analysis of land-use/land-cover change in Oregon's Willamette Basin modeling impacts and trade-offs on multiple ecosystem services under three different land-use scenarios, using NatCap's InVEST tool, and a similar study carried out in Minnesota. The Oregon example showed a striking difference in net present values of commodities produced included ecosystem services, and much higher provision of commodity values under a 'conservation' scenario. In Minnesota, the study demonstrated how under our current set of accounts, the values of increasing ecosystem services don't necessarily accrue to landowners. Instead, in the absence of tools to let us evaluate trade-offs, the incentives are still stacked toward production that burns through natural capital over the long term.

The question of weighing trade-offs and evaluating outcomes appeared again in Polasky's next example: water funds in Latin America, which must answer a range of complicated questions about land-use, development priorities, management interventions and attendant costs, and social and ecological priorities in deciding where and how to best invest in protecting natural capital.

Finally, Polasky turned to the question of communication in anchoring ecological concerns into the mainstream - always an interesting topic! Your grasp of psychology and framing can make or break your message, Polasky said, then offered a few tips, like focusing on 'public health' rather than 'ecological health', presenting change incrementally, and incorporating behavioral 'nudges' into our every day choices that make conservation the default option. View his full presentation here.

Coverage of the Ecosystem Services Partnership Conference

2012-08-03T16:46:34Z

August 1

This morning I attended a working group hosted by Jeanne Christie of the Association of State Wetland Managers, Andrew Warner of The Nature Conservancy, David Conrad of the Clean Water Network, and David Batker of Earth Economics looking at ways that ecosystem services approaches might be used to mitigate flood losses in the US.

The costs of flood damage every year in the US amount to about $20 billion. The question asked by the group: could changing our economic assessment methods help to cut down on flood damages and spur more 'green' flood risk prevention projects?
As Christie put it, currently our national policy rewards "getting water off the land quickly, which leads to faster flows, and large engineering projects, which may not be able to handle larger flood events we may see as the climate changes."

The group received a briefing on how FEMA and the Corps currently carry out cost-benefit analysis, and discussed how incorporating a larger range of ecosystem service costs and benefits could strengthen those methodologies. As it stands today, explained Jody Springer of FEMA, the agency only considers reduced structural damages when it decides whether to acquire properties in floodplains and restore them to their natural state. Considering not just flood damages, but water quality benefits and improved habitat values could help to tip the scales toward more natural floodplain restoration and protection in the country.

Conversation considered barriers and opportunities to shape policy and decision making-tools for flood risk and floodplain management. Peter Black of SUNY ESF noted that we need to think about other incentives to mitigate flood damage like reforming federal flood insurance to discourage construction in flood plains in the first place. Bob Freitag of the University of Washington pointed out that beyond simply using environmental benefits "to add weight to a BCA," the agencies ought to make a shift to considering natural capital on the same level as built capital in economic assessments. Jim Robins of Alnus Ecological/SC3 asked when ecosystem service considerations would trickle down to the local agency level, noting that he had run into trouble with local floodplain managers when carrying out a riparian restoration project that would have created rise and thus increased flood stage in one area.

Incorporating ecosystem services considerations into how we manage flood risk has the potential to save a tremendous amount of money in flood damages and support better management of our flood plain areas - this is definitely an idea we'll be revisiting in future Ecosystem Marketplace coverage.

Coverage of the Ecosystem Services Partnership Conference - July 31

2012-08-02T00:22:00Z

July 31, 2012 - Afternoon

The afternoon has been a bit of a blur, with five hours of parallel five-minute oral presentations. This meant having to choose between a lot of great work being presented. I spent most of my time in the 'Policy' and 'Quantifying' rooms. Some highlights:

- Nikola Smith of the US Forest Service spoke about the agency's work incorporating ecosystem services into its forest management activities: "We'd like to move from outcomes, like millions of board feet or miles of streams restored, to outputs like ecosystem services," Smith said. The Forest Service has been using the Deschutes National Forest in Oregon as one test case to identify key ecosystem benefits from forestland, effects of different management activities, and trade-offs between these benefits. They're also supporting the Forests to Faucets project that models and maps the role forests play in providing drinking water to downstream communities.

Smith noted that an ecosystem services approach has been useful in demonstrating to neighboring private forestland owners the economic sense behind sustainable forest management practices. That being said, she cautioned that the Forest Service wasn't coming from an "income, market perspective" but instead sees the value of ecosystem services as driving "an integrated, landscape management approach."

- Nancy Steele of the Los Angeles Council for Watershed Health talked about an innovative project using stormwater runoff to safely recharge groundwater in L.A. via green infrastructure installations. The single street chosen for the demonstration project drained a full 40 acres, and was highly built up with lots of impermeable surfaces and no storm drains. This meant chronic flooding. But the geology of the area was right, with good soils for infiltration.

Now the project developers are seeking similarly good sites for more demonstration projects, and the cities of Los Angeles and Burbank are developing stormwater capture master plans. Steele says that L.A. is ultimately aiming at 50,000 acre-feet a year of stormwater capture and infiltration; the city famously relies on piping water from far-flung places for its water supplies, yet could do much more to capture rainfall and encourage greater groundwater recharge.