Markets for Ecosystem Services from Agriculture: Outlook

Laila Racevskis Assistant Professor, Food & Resource Economics Department

University of Florida/IFAS

Presented for Florida Agricultural Commodity & Policy Outlook Conference November 15, 2012

Photo credit: Brian Belcher, Christian Cossalter & Sven Wunder

What Are Ecosystem Services (ES)?

• “The benefits people obtain from ecosystems”

• Millennium Ecosystem Assessment, 2005

• Also known as ‘Environmental Services’ • (will use both terms interchangeably in this presentation)

• We rely on them for our well-being, but their quantity and quality are being rapidly degraded worldwide

• Most farms and ranches provide some form of ecosystem/environmental services

Ecosystem Services and Human Well-being

MARKETS FOR ECOSYSTEM/ENVIRONMENTAL SERVICES (ES)

Ecosystem Services from Agriculture: Policy & Market Trends

• Increased federal funding in recent years dedicated to working lands (as opposed to land retirement) programs

• An Office of Ecosystem Service Markets has been created at USDA to assist in design and implementation of markets

• Over 800 ES markets created in the US since 1970s

• Represent increased potential for sources of on-farm income – But, they are not perfect

– Many markets are still in early stages

– Farmer and rancher input is important as these markets continue to develop

3 Types of ES Market Approaches

Direct Payments

– Subsidies

– Tax incentives

– Payment for Ecosystem/Environmental Services (PES)

Certification

– Eco-labeling

– Agricultural product certification (e.g. Fresh from Florida™)

– Forestry certification

Tradable Permits

– Carbon credit trading

– Biodiversity Offsets • Wetland Mitigation

Banking

• Conservation Banking

– Water Quality Credit Trading

Who Participates in ES Markets?

BUYERS

- Government

agencies

- NGOs

- Private

individuals

- Corporations

- Developers

- Utilities

- Public Works

INTERMEDIARIES

- Government

agencies

- NGOs

- Academic

institutions

- Local

government

bodies

SELLERS

- Private

landowners

(farmers,

ranchers,

timber

companies)

- Conservation

organization

Adapted from Stuart & Canty 2010 and Mercer et al 2011

MARKET RULES

Successful ES Markets Will:

• Minimize loss of agricultural productivity and maintain active agriculture

• Work with farmers and ranchers directly to establish and maintain credits for ecosystem services

• Allow farmers and ranchers to make a profit (price/credit > cost/credit)

• Offer simplicity and flexibility in market standards and processes

Based on feedback from farmers and ranchers in Stuart & Canty 2010

ES MARKETS: EXAMPLES

Typical ES Markets

• Carbon:

– Current voluntary market, prices low and will remain low unless national legislation creates emissions cap

• Wetlands and Habitat:

– Driven by regulation on wetland and habitat disturbance; Wetlands Mitigation Banks; Wetlands Reserve Program

• Water Quality:

– Water Quality Credit Trading, potential for but does not exist yet for agriculture in FL

• Renewable Energy:

– Growing markets for solar, wind, biofuels

• Water Quantity: NE-PES, Florida example

Northern Everglades Payment for Environmental Services Program: NE-PES

• Evolved out of the Florida Ranchlands and Environmental Services Program (FRESP), a demonstration project from 2007-2010

• Today, the South Florida Water Management District (SFWMD) is buyer of Water Management Alternatives (WMAs) on ranchlands within these watersheds

www.fresp.org

NE-PES: How It Works

• SFWMD solicits call for proposals from ranchers within designated watersheds

• Ranchers submit proposals for:

• Water Retention WMAs (environmental service = acre feet of water retention), and/or

• Nutrient Removal WMAs (environmental service = lbs. of phosphorous (P) removed)

• SFWMD selects contracts to be awarded and selected ranches enter into 10-year contracts with SFWMD, which monitors progress and distributes payments

www.sfwmd.com

10-year contracts awarded to 8 ranches in 2011

$7 million investment

All contracts secure average of 4,800 acre feet of water

Future of NE-PES

• Proposal solicitation was scheduled for release in March 2012 but status unknown

• Program expected to continue through fiscal year 2016 with $46 million total allocated

• More information can be found at www.fresp.org

• Details on criteria, procedures, etc. found at: http://www.fresp.org/ne_pes.php under Frequently Asked Questions about the NE-PES Program

Willamette Partnership

www.willamettepartnership.org

NutrientNet

Water Quality Trading in

Chesapeake Bay

http://pa.nutrientnet.org/

Future of ES Markets Will Depend on Farmer and Rancher Involvement

• Identify opportunities for ES credits on your land

• Evaluate market demand

• Evaluate cost vs. return

• Assess risks

• Develop an environmental markets plan

• Produce market credits

• Consult with agency and/or academic personnel who work with ES markets

Adapted from Stuart and Canty 2010

ES Markets Outlook: Concluding Thoughts

• Markets for ES from agriculture provide opportunities for additional revenue streams for farmers and ranchers, but programs have design and implementation challenges that need to be overcome.

• Funding sources are uncertain.

• Input and participation from farmers and ranchers will be critical to the future success of these markets.

• More information is needed on limitations and farmer perceptions of the pros and cons of different market approaches.

ES Markets: Resources The Use of Markets To Increase Private Investment in Environmental Stewardship, Ribaudo et al 2008

Baselines in Environmental Markets: Tradeoffs Between Cost and Additionality, Marshall and Weinberg 2012

Guide to Environmental Markets for Farmers and Ranchers, Stuart and Canty 2010

Markets for Ecosystem Services: New Challenges and Opportunities for Businesses and the Environment, World Business Council for Sustainable Development

Innovations in Market-based Watershed Conservation in the U.S.: Payments for Watershed Services for Agricultural and Forest Landowners. 2011. Ecoagriculture Partners

Taking Stock: Payments for Forest Ecosystem Services in the U.S. Mercer et al 2011

Other ES Resources / Forums

World Resources Institute and Business Interests in ES http://www.wri.org/ecosystems/sustainable-business-and-markets

FAO Payment for Environmental Services from Agricultural Landscapes

http://www.fao.org/es/esa/pesal/index.html

Performance-based Environmental Policies for Agriculture http://www.uvm.edu/~pepa/

Ecosystem Marketplace http://www.ecosystemmarketplace.com/

The Katoomba Group http://www.katoombagroup.org/

Ecosystem Commons www.ecosystemcommons.org

Thank You!

Laila Racevskis

racevskis@ufl.edu

352-294-7671