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This Week in Ecosystems Services
Joel Makower, 3 Apr 05

Joel Makower is a widely respected writer and consultant on issues of sustainable business, clean technology and green markets. His essays on environmental business and technology are a regular feature of Sustainability Sundays.

This has been a big week for nature’s ecosystem services.

Okay, I'll admit -- that sentence is a bit misleading: Every week is a big week for ecosystem services -- the $33 trillion worth of “free” deliverables provided to us by a healthy planet, including fertile soil, fresh water, breathable air, pollination, habitat, soil formation, pest control, a livable climate, and a bunch of other things we generally take for granted.

So, let’s start again: This was a big week for human acknowledgment of nature’s ecosystem services. Three significant events:

For starters, as has been widely reported (at least in the blogosphere) the final reports of the Millennium Ecosystem Assessment were released on Wednesday, March 30. The MEA is a four-year international scientific assessment of the condition of Earth's ecosystems, potential impacts of changes to ecosystems on their ability to meet human needs, and policies, technologies, and tools to improve ecosystem management.

The findings, in brief:

  • Humans have changed ecosystems more rapidly and extensively in the last 50 years than in any other period. This resulted in a substantial and largely irreversible loss in diversity of life on Earth, with some 10% to 30% of the mammal, bird and amphibian species currently threatened with extinction.

  • Ecosystem changes that have contributed substantial net gains in human well-being and economic development have been achieved at growing costs in the form of degradation of other services. Only four ecosystem services have been enhanced in the last 50 years: increases in crop, livestock and aquaculture production, and increased carbon sequestration for global climate regulation. Two services – capture fisheries and fresh water – are now well beyond levels that can sustain current, much less future, demands. Experts say that these problems will substantially diminish the benefits for future generations.

  • The degradation of ecosystem services could grow significantly worse during the first half of this century. Changes in ecosystems such as deforestation influence the abundance of human pathogens such as malaria and cholera, as well as the risk of emergence of new diseases.

  • The challenge of reversing the degradation of ecosystems while meeting increasing demands can be met under some scenarios involving significant policy and institutional changes. Options that exist to conserve or enhance ecosystem services that reduce negative trade-offs or that will positively impact other services. Protection of natural forests, for example, not only conserves wildlife but also supplies fresh water and reduces carbon emissions.

More than 500 authors were involved in four expert working groups preparing the global assessment and hundreds more are undertaking more than a dozen sub-global assessments.

Also on Wednesday, the World Data Center for Biodiversity and Ecology (in partnership with the United Nations Environment Program , the Center for International Earth Science Information Network, and others) launched an interactive system that allows easy access to reports, maps, and the data collected during the Millennium Ecosystem Assessment.

The third event in this week’s ecosystem hat trick was the launch in London on March 31 of the Ecosystem Marketplace’s Marketwatch -- “the world’s first online information platform for the growing international trade in ecosystem services,” in the words of its creators. It features “complete market descriptions and detailed transaction data from leading Carbon, Water, and Biodiversity-based markets.” The rest of the Ecosystem Marketplace site -- developed by the nonprofit Forest Trends and backed by financial giants ABN AMRO Holding NV, Citigroup, and Swiss Re -- provides daily news from around the world and an extensive library of case studies, presentations, published articles, white papers, and tools on ecosystem banking and other topics. It’s by far the best resource on this topic.

What's going on here is part of a growing marketplace recognition of nature's services. As I reported in the March issue of The Green Business Letter, there’s a growing use in the U.S. and elsewhere of “ecosystem credits” -- tradable permits designed to more efficiently and effectively protect threatened species and habitats while not unduly hampering use of land for commercial purposes. For landowners -- developers, utilities, state transportation agencies, farmers, retailers, and others -- ecosystem credits can help turn contentious land use issues into win-win relationships that protect both the environment and companies’ bottom lines.

The use of ecosystem credits stem largely from two U.S. environmental laws, along with their counterparts in other countries. The Endangered Species Act and the Clean Water Act both require land developers to compensate for any harm they do to streams, wetlands, or habitats critical to endangered and threatened species. Simply put, a developer who develops or destroys habitats in one location is required to protect or restore them somewhere else.

The result are “conservation banks,” which protect land containing endangered species, and “mitigation banks,” which protect wetlands and streams. (California is the leader in conservation banks, as the San Francisco Chronicle recently pointed out.)

In both cases, developers impacting either ecosystem are required to purchase credits from landowners who have legally committed to protecting their land permanently through “banks.” And the “bankers” can sell these credits on the open market, sometimes at levels far exceeding the value of the land on traditional real estate markets.

Both types of banks will be familiar to those who understand the notion of emissions credits for sulfur dioxide (SO2), which became part of the U.S. regulatory system in 1990. That system placed a cap on how much SO2 utilities could emit and issued credits to affected utilities. The most efficient utilities -- those that reduced emissions well below the cap -- could sell their credits to those that were unable (or unwilling) to meet the cap. That led to an open market for tradable emissions credits that values each ton of SO2 emissions reduction at a given price.

In the same vein, a market for trading emissions credits of carbon dioxide reductions began this year in the European Union, part of its Kyoto Treaty obligations. It, too, allows the more-efficient emitters to sell credits to the less-efficient ones while reducing overall emissions. Voluntary CO2 markets, like the Chicago Climate Exchange, also operate in the U.S.

Conservation banks, mitigation banks, and ecosystem credits represent the latest articulation of a question I asked in my 1992 book, The E-Factor: The Bottom Line Approach to Environmentally Responsible Business (out of print, but widely available through used book merchants).

In Chapter Two, I posed the following question:

If a tree falls in the forest and no one’s around to claim it, does it have a value?

This is more than a mere twist on a classic conundrum. Measuring the economic value of the earth’s resources -- trees, fresh air, clean water, and a diversity of animals, insects, plants, and microorganisms -- has become both a cause and a challenge for some economists. And though the science of ecological economics is nascent, companies are increasingly feeling its impact. In coming years, the manner by which we as a global society choose to value resources -- and devalue them when they become expended or polluted -- could affect tax rates, energy costs, balance sheets, and the prices of just about everything, from life’s basic necessities to its most indulgent luxuries. The inevitable shifts in corporate accounting practices may well be felt throughout the world’s economies.

I won’t bore you with the rest of the chapter, which dealt with the then-emerging worlds of ecological accounting and economics. Point is, this stuff is finally moving beyond academe and into the marketplace.

It's about time. For years, environmentalists have decried the lack of economic value placed on “externalities” -- that is, a price tag for the impacts of pollution on public health, species destruction, and the loss of services that healthy ecosystems provide. By ignoring these costs, say critics, the marketplace doesn’t fairly price its goods and services -- allowing, say, low gasoline prices to mask oil’s full environmental costs. As a result, companies are able to manufacture goods more cheaply by utilizing industrial processes that pollute more, without regard for the ultimate cost to society through higher taxes, health care costs, and other impacts.

In that light, the growth of ecosystem credits and banking represent significant steps forward by establishing price tags on nature’s services. Creating a market for species and habitats helps to monetize their value for the first time. Whether those prices truly represent the ecosystems’ value may be up for debate, but it’s a promising start.

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