Joe Heffernan, REDD coordinator for Fauna and Flora International, outlines FFI’s work across SE Asia and tells us a little about what he considers the burning carbon related issue for the region: one of capacity…
Archive for May, 2010
Throughout Southeast Asia, there is increasing regional interest in market-based conservation strategies, including payments for ecosystem services (PES). While a number of projects are underway, PES in the Southeast Asia region primarily occurs on an ad hoc basis through small-scale pilot projects. However, information, capacity to design and manage PES deals, and institutions to support on-the-ground implementation are often lacking and have hindered efforts to scale up.
Carbon markets, both regulated and voluntary, have attracted the greatest attention and offer opportunities for new investment in rural regions of SE Asia. The emergence of opportunities for Reduced Emissions from Deforestation and Degradation (REDD) makes it even more important for countries in the region to build their capacity to engage in the global dialogue, design low carbon emission strategies and build multi-stakeholder processes including local communities.
Many SE Asian nations face a range of water-related challenges, including threats to reliable flows of water and the marine environment. While there are efforts underway to introduce market-based approaches — such as payments for watershed services (PWS) and user fees in marine protected areas — there remain outstanding questions, such as: how to identify additional prospective buyers; how to structure the contracts; how to distribute payments equitably to communities; how to monitor the schemes to ensure efficient and effective delivery of the service; and how to ensure that payments schemes are sustainable.
Mangrove ecosystems, in particular, are of particular interest to stakeholders in the region and represent an interesting vehicle to bridge terrestrial environments and marine environments, adaptation and mitigation, and local and international financing schemes (e.g. REDD). Carbon pools of mangroves are now being shown to exceed that of upland tropical forests. Throughout the Mekong region, market-based instruments for the conservation of marine and mangrove ecosystems are still nascent, with only a few small-scale case studies or pilots.
In response to these questions and challenges, the 2010 South East Asia Katoomba Group meeting offers a unique opportunity to further develop:
• Carbon Financing including post-COP15 discussions on national-level REDD systems, international, regional and national experience, investor and other stakeholder engagement, pilot demonstration sites, capacity building / training needs, and research agendas; and
• Payment for Watershed Services schemes throughout the region, by exploring current projects and experience from around the world where PWS agreements are operational.
• Payment for Marine Ecosystem services throughout the region, by exploring how climate change adaptation strategies can be complemented by mitigation measures and revenues from carbon credits; and identifying buyers for a range of marine ecosystem services.
• Biodiversity Markets and Market-like Structures offsets, biodiversity banking
Frank Tugwell returned to Winrock International as president and chief executive officer in January 1999 and works primarily from the Arlington, Virginia, office. He leads the organization in its quest to increase economic opportunity, sustain natural resources, and protect the environment. Under his leadership, Winrock’s existing program activities have expanded and new initiatives have launched to address the changing needs of the world’s people and the global environment.
Most recently, Tugwell was executive director of the Heinz Endowments of Pittsburgh, Pennsylvania. Previously he served Winrock as vice president of Programs and Global Projects and was director of the Renewable Energy and the Environment Program. He is the founder and first president of the Environmental Enterprises Fund, a non-profit organization that invests in small and medium-sized environmental companies in developing countries.
The article provides a unique insight into Michael’s thinking post the Copenhagen summit and in the lead up to the next Katoomba conference in Vietnam this June.
Mark Kieser has over 25 years of consulting experience in addition to three years of academic research on water resource issues in the U.S. Great Lakes. He has been active in water quality trading program and policy development since 1995 and leads a variety of market-based incentive programs in North America. He is currently the technical co-lead with the Electric Power Research Institute (EPRI) to develop a multi-state, regional trading program in the U.S. for the 518,000 km2 Ohio River Basin. This will be the largest program of its kind in the world. He has advised Japan, Sweden and Canada on the development of similar large-scale trading programs. Since 2001, Mr. Kieser has been serving as the Acting Chair of the Environmental Trading Network, a non-profit clearinghouse for water quality trading program information. He has a Bachelor’s degree in Biological Sciences from Wittenberg University and a similar Master’s Degree from Michigan Technological University.
At the global, regional, and local levels, PES law and policy is evolving rapidly, creating a moving target for understanding these complex issues. The Resources Portal makes current information on PES law and policy available in one place, by collecting and linking to a selection of relevant publications. The publications are grouped into PES law and policy publications and PES contract publications, and are listed in reverse chronological order within each group. The Portal is updated regularly as new materials become available.
Click here to visit the Legal Portal
By Steve Zwick and Henry Teitelbaum
When the ocean degrades, everyone loses – and that includes fishermen who lose their catch, ocean-side properties that lose their protection, and tourism operators who lose their tourists. The private sector,therefore, has much at stake – and should be scrambling for ways to head off disaster. That’s not happening, however. Is the problem the message – or the messenger?
*All of the people quoted in this article spoke at the 16th Katoomba Meeting in Palo Alto, California. Their presentations can be heard in their entirety at: http://www.ecosystemmarketplace.com/pages/dynamic/article.page.php?page_id=7439§ion=home
8 May 2010 Economies grow by turning raw materials into higher-value products – but often in ways that fail to replenish those materials. By ignoring the economic value of the ecology upon which they depend, economies thus often sow the seeds of their own destruction.
Marea Hatziolos believes we can reverse that trend by recognizing nature’s economic value and turning nature into a profit center – which, not coincidentally, is also the core premise of schemes that promote payments for ecosystem services (PES).
“We are talking about natural arrangements between a provider of a service and a recipient or beneficiary of a service,” says Hatziolos, a marine ecologist and senior coastal and marine specialist in the Environment Department of the World Bank.
“Who better to help us do that than the private sector?” she asked in February, at the Fifteenth Katoomba Meeting, which was held in the US city of Palo Alto. “After all, most of their goals have to do with profits.”
Al Appleton agrees. The former head of New York City’s water, sewage, and environmental protection operations, he helped initiate parts of the city’s landmark watershed agreement that pays farmers in the surrounding Catskill Mountains to protect the watershed – a scheme that has saved the city billions in filtration costs over the years.
Despite its success – and despite the efficacy of demonstration projects across the United States – that scheme remains one of the few payments for watershed services projects delivering results on a large-scale. That, says Appleton, is because a successful project requires more than intelligent market models if businessmen are going to get involved.
For one, he says, successful projects need scale if they are to become interesting for businesses. For another, he adds, the public and non-profit sectors need to understand the entrepreneurial mentality by which business people operate.
“You people who are on the cutting edge of environmental economics… need to really get much more involved in creating a climate of opinion that makes ecosystem services proposals more attractive,” he said, adding that a similar awareness of the needs of elected officials must also be taken into account when designing solutions to specific ecosystem challenges.
“Politicians hate incrementalism,” he says, because of the risk that the projects either won’t solve the problem or will do so in a timeframe that won’t justify their investment of political capital. With these stakeholder considerations in mind, Appleton says that as efforts to take on the challenge of creating deep ocean ecosystem markets gather momentum in addressing issues related to acidity, temperature, nitrogen runoff, plastic waste, pirate fishing or fish farming, it’s strategically very important to think big and to “hit the first targets with care” so as to build credibility for further attempts at creating ecosystem markets.
Speaking at the same event, Forest Trends MARES Program Manager Winnie Lau said it is critical to develop a range of voluntary market-based mechanisms, notably through the Payment for Ecosystem Services model, but also through water quality services, ocean zoning, marine spatial planning, and leasing activities to attract private financing for sustainable coastline and ocean resource management. To do this effectively, she says the private sector needs to forge closer partnerships with communities, with governments, and with regulators as well as with existing terrestrial ecosystem service providers.
The Externality Quandary and the Need for Legal Drivers
Ricardo Bayon, of EKO Asset Management Partners (and co-founder of Ecosystem Marketplace), reminded MARES participants that ecosystem markets, far from being a product of free enterprise and private sector innovation, are fundamentally reliant upon governments and government-sponsored regulation for their creation. This is particularly true of wetlands, which do not produce readily identifiable products of interest to consumers or industry, but are nevertheless essential habitats for fish and the preservation of coastline.
“Nobody wakes up in the morning wanting a bowl of wetlands,” he says, citing a friend from the wetlands mitigation banking sector, so “most of these markets are in fact created by governments and by rules set up by governments” to achieve policy goals.
Albert Cho of Cisco Systems says laws don’t just provide a whip to markets’ carrot – they provide clear rules upon which all participants can rely. This regulatory certainty reduces market risk and creates consensus around how to incentivize private-sector risk-taking, and in aligning the design of the market with long-term political goals.
Science and Technology: the Sharpening Saw
Science, technology and our understanding of marine ecosystems and their connectivity to terrestrial and wetlands ecosystems have made enormous advances in recent years. This has opened up opportunities to measure with an improving degree of accuracy the inter-relationships that exist between them. Peter Mumby of the University of Exeter says this has significant implications for the creation of new ecosystem services because the increasing reliability of sonar and satellite mapping makes it easier to determine the impact of a service and to choose where it is most likely to be effective.
“Mapping can help determine the value of a particular mangrove or reef for maintaining ecosystems,” he says, making it possible to more precisely estimate the survivorship of fish that rely on the former to reach a level of maturity that is optimal for survival on the latter.
Besides the implications for fisheries, the ability to predict differences in biomass that result from the protection or restoration of particular ecosystems and coastal habitat has implications for a host of private sector stakeholders. These include those who have interests in making carbon sequestration mappable, in improving coastal defenses against storms and erosion, in selecting building materials or in promoting tourism.
Mumby noted, as an example, how the potential for coastal marine ecosystem services to shore up terrestrial coastlines should enable coordination with the insurance industry in making solutions more effective as well as in scaling them up.
Insurers Lead the Way
As more speakers took the stand, it became clear that some segments are taking action while others aren’t – and insurers are among the leaders. That makes sense, because they deal with risk on a daily basis, says Adam Cole, who is General Counsel for the California Department of Insurance. He said that insurers already engage in a form of PES when they offer lower premiums for environmentally responsible clients and charge higher premiums for clients whose environmental policies introduce an element of risk into the company’s bottom line.
Under California law, however, that adjustment must be offered based on risk, and not on environmental benefit alone.
“I can’t let them give a discount unless there’s a correlation to risk,” he says, adding that governments can play a role in clarifying that risk by clarifying liabilities. “If laws are passed, you create liabilities, you create risk, and you’ve then created the circumstances for the insurance company to kick in.”
Insurers are thus among the leaders in pushing for laws that clearly define liability – both so they can write policies, and so they can protect themselves.
PES Along the Coast
“Katrina alone cost the insurance agency in the United States $20 billion dollars,” said Stephen Bushnell of Fireman’s Fund Insurance Company, who also spoke at Katoomba XV. “Munich Re estimates that the amount that the insurance industry has paid out for catastrophes has risen sevenfold since the 1960s.”
German insurer Allianz, he adds, is projecting a fifteenfold increase in weather-related losses over the next 30 years – due to a double-whammy of growing coastal development and rougher weather from climate-driven storms.
That’s led Allianz to create new risk models that combine future development plans with climate projections (and their accompanying hurricane projections) to estimate the amount of damage that insurers could get stuck with if the big one hits.
“We then use that to decide if we want to write more insurance in that area and what price we should charge,” he says. “Every time these models are recast, they tell us the storms are going to be more severe, our losses are going to be larger.”
From Reactive to Proactive
Allianz responded by creating the Allianz Climate Change Center of Confidence, which is now creating new insurance products that, in part, adjust premiums based on a company’s liability – which, in turn, is based on its environmental stewardship.
Fireman’s Fund plans to offer discounts for LEED-Certified buildings – and not because they’re being green.
“We’ve been able to justify to insurance departments that there is that reduction in risk with LEED Ceritification and the risks the losses that we’ve paid,” says Bushnell, adding that the company has also formed relationships with energy consultants to develop coverage that will replace damaged traditional buildings with leaner, greener constructions.
LEED as Green Proxy
The LEED certification system also rates buildings based on where they’re cited – giving low grades to buildings in sensitive marine and coastal environments.
“You can’t build on a flood plain, or on areas that have been designated as having endangered habitat,” says Bushnell. “You also can’t build within 100 feet of wetlands … or within 50 feet of a body of water that is protected by the Clean Water Act.”
Selling the Win-Win
All of this adds up to massive energy savings down the road – and a massive reduction in greenhouse gas emissions. For Bushnell, it’s a classic win-win, and that’s the pitch he believes NGOs should be making to industry.
“Can you tell private industry why it’s economically compelling for them to be involved with what you do?” he asked. “The green building industry told us why it’s economically compelling for us and for our customers to be involved with them, and that’s why we’re doing it.
Cool Kids Club
Paul Holthus of World Ocean Council believes industry can be brought to the table by creating a sort of “cool kids’ club” of leading companies that embrace sustainable business practices – whether in shipping, fishing, offshore renewable, or even oil and gas.
“We all share one ocean ecosystem, but at this stage there is nothing that brings them together to think about and act together on that shared system,” he says. “There is nothing that focuses them on the issues and challenges of managing the impact and achieving the proactive, constructive input into the future health and productivity of the ocean.”
He proposes the creation of a “leadership alliance” comprised only of companies that abide by certain rules.
Multiple Sectors; Multiple Services; One Ocean
He also warns against taking an approach that’s too narrow in an area as broad and deep as the ocean.
“The cross-cutting of issues – such as ocean noise, marine debris, etc – means that we need for these industries to create ‘common energy’ working together on this,” he says. “Then we can engage with the climate-change community on blue carbon and creating a cross-sector approach that is able to work in a more coordinated fashion.”
For Jim Cannon of the Sustainable Fisheries Partnership (SFP), certification remains the most effective way to encourage industry involvement in sustainable fishing. He points out that SFP certification now covers 65% of the seafood market in the UK, and that major restaurant chains like McDonalds are joining in as well.
“Our mission is to engage global seafood supply chains in the rebuilding of depleted fish stocks and reduction of environmental impact,” he says. “We work in ugly, bad, nasty fisheries that don’t want to make improvements, but we work in new ways now that we’ve gained some trust and credibility with the industry.”
One of those new ways involves going after buyers.
“If illegal fishermen are supplying that product into the international market, we can identify who it goes to, and we can start putting economic pressures on the bad actors to pull out,” he says, citing as an example how legal Russian fishermen benefited when Walmart, McDonald’s and Unilever broke their ties with those breaking the rules.
As the illegals dropped out, prices began to rise – and enforcement tightened even more.
“So how does this relate to payment to ecosystem services?” he asks. “I believe the entire sustainable seafood market is a PES. What it means to buy sustainably means the target stocks is healthy, which means the underpinned environment supporting those stocks is healthy, and the bicatch is low, which means protective species are benefitting from reduced fishery methods.”
The Lesson: Hit the Buyers
“For those of you working in marine conservation and look to the fishing industry, you are looking in the wrong place,” he says. “The fishing industry isn’t usually a place where guys have a lot of money, but the global value of seafood sales is three to four times greater than the value of seafood landings.”
In a final presentation, Bettina von Hagen of the EcoTrust advised attendees at the meeting to be mindful of opportunities to “leverage funding and sympathetic players.” She cited one example in Oregon where by taking ownership of a relatively small plot of watershed property adjacent to a much larger area of publicly owned property, EcoTrust has been more effective at meeting biodiversity challenges and critical needs than if it had been working with just the isolated plot. Similarly, she said it is important to be mindful of regulatory changes, tax incentives and industry restructuring for opportunities to develop new markets.
She also called on ecosystem market designers to look for ways to assist distressed communities by showing them how to create jobs from new services to the natural resources that they have available.
“If your only currency is timber, you’re going to make certain choices that are not optimal, when you have a forest that produces this whole range of goods and services,” including carbon storage, habitat creation, salmon spawning, recreation and scenic attractions.
“You have to look for value in the most unexpected places,” von Hagen said.
Henry Teitelbaum is a London-based international financial journalist and author, most recently of The PFI Market Intelligence Report, PPP: Challenge and Opportunity After the Financial Crisis, which was published by Reuters in September 2009. He is reachable at Henry@P3Planet.com
Steve Zwick is Managing Editor of the Ecosystem Marketplace. He can be reached at SZwick@ecosystemmarketplace.com.
By Steve Zwick
A key question of any Payment for Ecosystem Services Scheme is how big – or small – to go. Size brings economies of scale, but often at the cost of focus. Here’s a look at lessons learned in Latin America.
7 May 2010 It should come as no surprise that Rafael Gallo wants to protect Costa Rica’s watersheds: The island nation’s sparkling rivers and waterways are both his playground and livelihood.
In 1985, Gallo co-founded Rios Tropicales, an ecotourism company that takes travelers whitewater rafting on eight of Costa Rica’s pristine rivers. Rios Tropicales later established a fund that assists in the preservation, protection, and restoration of the rivers, streams and watersheds of Costa Rica.
“It was natural to us to protect the rivers we were running, help the communities we were visiting, and train fellow Costa Ricans to do what we were doing,” Gallo recently said.
Rios Tropicales is a relatively small outfit that Gallo and his partners grew organically from the ground up. But the company also partners with the national-scale Fondo Nacional de Financiamiento (FONAFIFO), the branch of the Ministry of the Environment and Energy that administers Payments for Ecosystem Services (PES). In this capacity, FONAFIFO acts as an umbrella for local organizations that earmark payments to recipients in their target watersheds.
While Rios Tropicales has the flexibility and focus of a small-scale PES, FONAFIFO has the legitimacy and managerial economy of a national-scale program. The scale of each organization plays a part in its overall effectiveness.
Scaling Decisions: Large or Small?
Choosing the right scale of operation is key when implementing a watershed PES, or PWS (Payments for Watershed Services) program. Some PWS schemes function better at one scale than another, in terms of cost-efficiency, sustainability, equity, and other performance indicators.
But when is a PES scheme too small? Imagine a program that doesn’t integrate enough local service providers. As a result, the non-paid upstream actors could jeopardize the service. Conversely, the PES might be too large if varying degrees of rainfall cancel out peak flows in the catchment’s larger basins. It may also be too large if political processes bog it down with side objectives.
Going big often makes sense from an economic and administrative point of view, due to economies of scale. The costs of both starting and running a PES scheme tend to be lower at larger scales. If the state is generally recognized as a good custodian of resources, a national-level initiative may secure legitimacy for the PES more quickly than it would for an NGO or user-led initiative.
Marketing to investors may also be easier at larger scales. Donors financing the start-up costs of PES schemes often like the prospect of larger-scale impacts that benefit more people. For those doing advocacy work, the bigger the impact, the better.
Downsides to Going Big
However, when it comes to PES schemes, bigger isn’t always better.
In fact, some large-scale government PES schemes are just too big to meet their stakeholders’ needs. Because of this, many developing countries are enacting decentralization policies, effectively scaling down — or breaking up — large-scale schemes in order to provide transparency and a better fit.
Large-scale, government-run schemes also run the risk of being sidelined for the sake of competing political objectives. The Mexican national watershed scheme, for instance, initially zeroed in on areas that were highly threatened by deforestation. Over the years, though, the focus shifted toward the poorest providers, unintentionally compromising the scheme’s environmental additionality.
National-level PES schemes, such as those found in China, Costa Rica, and Mexico, also have a harder time targeting high-value, high-threat zones. In addition, these schemes come up short in terms of differentiating payment rates in space, which is one of the best ways to make PES schemes more efficient: When payment rates are fixed, they fail to reflect variations in the quality or amount of service provided. Key economic signals between buyers and sellers get lost, making resource allocation less efficient. In particular, there is a high risk of paying for actions that would have happened anyhow (zero additionality).
In cases where decentralization has given considerable decision-making power to regional governments, financing at the sub-national level makes sense. Colombia, for example, is currently engaged in efforts to create a nationwide PWS system. Colombia’s best chance for success is to go regional, which in Colombia’s case means the corporaciones autónomas. These regional environmental agencies collect legally mandated payments from both hydroelectric power producers and industrial water consumers.
For user-financed schemes, the PWS scheme’s scale should fit closely with the scale of the principal biophysical service that users want. Accordingly, the most logical spatial unit with which to begin is often the micro watershed. Though the biophysical aspects of the service end up playing a big part in scaling decisions, economic, social, and political factors are just as important.
Other factors that should be considered include the number of units utilized; the source(s) of financing; the services and sub-services being provided, as well as their respective users; the dimensions of the watershed; the administrative context; the possibility of scaling up and/or scaling down; and time (e.g., contract length).
When Does It Make Sense to Scale Up?
When a pilot program succeeds, there may be a temptation to increase its scale. But when is “upscaling” a good idea?
To answer that question, let’s use a hypothetical example. Imagine a pilot PWS scheme succeeded at reducing sedimentation in a single village. The first question to ask before upscaling would be: Can the PWS be scaled up within the watershed? In other words, can the scheme be made to encompass the entire watershed that makes up the potential area of influence?
The answer is yes if it certain conditions are met: First, water users would need to be willing to extend payments. Second, the critical areas would need to be distributed fairly within the entire watershed. Finally, the delivery of service would need to be significantly improved by extending coverage.
If, on the other hand, environmental threats are concentrated in “hot spots” that are already covered, and if user resources are likely to remain limited, intra-watershed upscaling is not desirable.
A second question to ask would be: Should the PWS scheme be extended beyond the single watershed? Under certain conditions, functions like aquifer recharge might depend on processes functioning in neighboring watersheds. If this were the case, it would be an argument in favor of upscaling.
Upscaling may also be a possibility if several services from the same watershed are sold simultaneously. If a PES scheme provides carbon services in addition to water, for example, then an extension beyond a single watershed could be meaningful, since carbon services are not limited to the watershed. If the scheme aims to produce other integrated ecological benefits (it aims to create a biodiversity corridor, for example), upscaling can also be a good idea.
When to Avoid Changes in Scale
However, upscaling should not be the goal of every PES program. Because risk and uncertainty are higher at the outset, starting out small may make it possible to manage and adapt the program more effectively. Starting from scratch with a single-design, large-scale scheme also precludes important learning experiences and experimentation.
There are several advantages to staying small. Besides being able to maintain flexibility and focus, small-scale PWS schemes foster a participatory process and negotiated solutions. On the down side, small-scale PWS schemes suffer from high transaction costs and receive rather than make policy. In addition, any innovations that might occur will have a limited impact.
Conversely, there are times to avoid “downscaling” a large-scale scheme. To mitigate climate change, “avoided deforestation” schemes are currently being developed. National-scale carbon accounting frameworks can limit project-induced displacements of environmental threats (“leakage”) and are clearly preferable in these cases.
Besides being better at addressing leakage and the phenomenon known as “free-riding,” (e.g., non-paying users exploiting non-excludable services), large-scale PES schemes enjoy economies of scale, are able to replicate good ideas quickly, and are able to fine tune their policies.
Because of these different considerations, PES scale decisions should be made according to the subsidiarity principle. In other words, PES schemes should be organized at the least-centralized, competent level of authority, given the nature of the environmental problem the program is trying to solve.
Once a decision has been made to scale up, how is it done?
In a typical upscaling process, a good idea develops in a suitable context for innovation and a pilot program is created. If the pilot looks promising, it can be scaled up vertically. In other words, it can be escalated to a higher level of decision-making. summarizes some of the main features of upscaling.
For example, a pilot PES scheme in Los Negros, Bolivia, was the direct inspiration for the development of a larger-scale flood protection PES scheme in the Rio Grande basin. Similarly, Ecuador recently developed a national forest conservation PES (Sociobosque) that was clearly inspired not only by the Costa Rican national PES program, but also by smaller-scale field projects at home. (This process is also sometimes referred to as “scaling out.”) In both cases, some of the same NGO actors also lobbied for the legal steps required to upscale vertically, and provided technical assistance as well.
Vertical upscaling, however, isn’t always a spontaneous, bottom-up process. PES programs such as the seven-million hectare Chinese Sloping Land Conversion Program and the British Environmentally Sensitive Area Program first commissioned pilot phases. These pilot schemes tested strategies under different circumstances.
The advantage of these planned strategies was that certain factors of variation in the samples could be controlled. Each of these programs also made upscaling an explicit, stated aim.
Upscaling can also be achieved horizontally. In these cases, the initiative is not escalated to a higher political-administrative level. Instead, upscaling can be achieved through the gradual inclusion of additional participants within a predefined zone (e.g., extending coverage of a PES scheme within a watershed). The previously mentioned Los Negros scheme, for instance, started off with only a few households under contract in 2004, but later spread by word-of-mouth and trust-building to cover 2774 hectares.
Horizontal upscaling also occurs through replication. Thanks to the NGO Fundación Natura Bolivia, the Los Negros scheme has been replicated in the neighboring Comarapa and Mairana watersheds. The Ecuadorian NGO Cederena piloted the Pimampiro watershed PES in 1999, and has since replicated the scheme at the El Chaco and Celica sites. Similarly, the PASOLAC program is involved in the execution and development of ten different municipal-level watershed PES schemes in Central America.
With 14 and 300 hectares under contract, the Comarapa and Mairana watersheds are still a lot smaller than the Los Negros scheme. But where replications are often small, repeated replication can arguably yield a significant cumulative impact. Moreover, replicating the same type of scheme under different circumstances contributes to the understanding of PES systems in general.
Upscaling and Dryland Agriculture
What scaling issues and obstacles might confront PES programs focused on dryland agriculture? These kinds of programs are still quite new: No government-financed schemes in the Southern Hemisphere are focused solely on dryland agriculture, and only a handful of small user-financed schemes exist.
One potential concern for upscaling water harvesting and water retention schemes is hydrological: If downstream areas suffer from water shortages, the intensification of large-scale agricultural schemes would make them worse.
In Colombia, an organic farming scheme involving poor farmers revealed low upscaling rates within the watershed. Thus far, it has not been possible to sell the organic farming concept to commercial banks in order to make use of their credit channels. Technical assistance is also scarce and costly. In similar settings, the lack of markets for new seeds can also constitute obstacles for upscaling, in spite of their superior economic returns. These problems will need to be analyzed on a case-by-case basis.
In the world of PES schemes, not much up- or downscaling has actually occurred yet: Big schemes tend to stay big and small schemes tend to stay small although, as mentioned, the latter may be replicated at similar scales elsewhere.
The high financial and political costs of moving across scales may simply keep it from happening (ongoing payments are often expected to continue; renegotiating incentives and redesigning contracts can be cumbersome). This underscores the importance of choosing the right scale from the outset, before the initiative becomes locked into certain modalities.
It is also important to note that multiple PES scales can and do operate successfully on the same playing field. Though differently scaled, Rafael Gallo’s ecotourism company Rios Tropicales and the Costa Rican government’s FONAFIFO co-exist and supplement each other. In addition to partnering with Rio Tropicales to protect the island’s rivers and waterways, FONAFIFO also acts as an umbrella for breweries and water-utility companies who provide services to users in other target watersheds.
What makes multi-scaling interesting is that you can have the best of both worlds: the legitimacy and managerial economies of the national-scale PES, and the flexibility and focus of small-scale schemes. Parallel implementation of large- and small-scale schemes encourages complementary experiences and cross-fertilization of knowledge.
“While government organizations and NGOs are certainly important in protecting Costa Rica’s natural resources,” says Gallo, “The partnership of local and indigenous communities to support and self-monitor wildlife and forest protection is our biggest achievement. Without such grassroots ownership and involvement, many valuable and well-meaning efforts at environmental protection ultimately fail.”
No man is an island—but even if he were, it’s never that simple. Social impact assessments provide us with a user guide to these often island-esque project sites, along with a long list of do’s and don’ts (do make as much positive impact as possible. Don’t destroy stuff).
April 2010 When Japan’s Dojima Rice Market pioneered rice futures 300 years ago, it succeeded in part by establishing stringent standards of quality and clear guidelines of accepted behavior designed to ensure a fair and transparent market. The Chicago Board of Trade did the same for corn, wheat, and soybeans more than 100 years later, and every successful market has done the same ever since.
Markets that fail to establish such standards and guidelines usually die a quick death – or, worse, succeed as markets but fail as deliverers of value to society at large, as we’ve seen in the unregulated markets for over-the-counter derivatives.
Environmental markets are no different, which is why participants have created scores of standards and guidelines to help policymakers and project developers estimate the environmental impact of their actions before they are implemented.
Early standards and guidelines focused on the impact that projects had on nature, but they failed to fully measure the impact of such projects on society. That’s why the International Association for Impact Assessment (http://www.iaia.org/) created the “social impact assessment” (SIA).
Putting People First
SIAs are designed to help policymakers and environmental project developers foresee the impact that their actions will have on the people living in and around the project area. Such projects should obviously avoid harming local communities, but ideally they will also generate positive ‘co-benefits’ for people living in and around the project area.
These co-benefits can range from the creation of jobs to the preservation of cultural values to the building of schools. From the developer’s perspective, these additional advantages serve to strengthen the project and may even be considered to have market value if properly maintained and bundled with existing ecosystem service products.
Easier Said than Done
The challenge of SIAs can be summed up as one of how to combine credibility and economy, in view of the already high transaction costs facing land-based carbon projects. SIAs need to effectively identify not only the good that flows from a project, but – perhaps more importantly – the negative and unexpected social impacts. They also need to define acceptable quality levels.
Without appropriate guidance and research, these projects can lack the evidence needed for approval at a verification audit stage of the game. Properly implemented, they help ensure a project that benefits those around it. Poorly implemented, they amount to little more than greenwash.
What and How
Credible SIA involves providing answers to two key questions –what needs to be measured and how should it be measured.
The answer to the ‘what to measure‘question is closely tied to the concept of ‘attribution’ or causality, and the selection of indicators. New standards such as the Climate, Community, and Biodiversity CCB (http://www.climate-standards.org/) standard, for example, require that projects demonstrate ‘additional’ and ‘net positive’ community impacts.
This involves showing that a project’s social benefits outweigh the negatives – or at least outweigh the benefits that would have been achieved if the project had never been implemented. They also have to show that those benefits have been caused by the project rather than by other external factors – or, in other words, that they would not have happened anyway.
The ‘how to measure‘question relates mainly to data collection methods, especially measurement of the indicators. This question may be easier to answer, since there is considerable guidance on appropriate data collection methods. Cost-effectiveness can in general be improved by developing a strong project monitoring and evaluation (M&E) system at the design phase.
On the Ground
Considerable methodological guidance exists for measuring the social and environmental impacts of development projects and other land management activities, but no clear guidance currently exists for carbon project developers on how to choose and apply appropriate and cost-effective methods. Initial analysis has found that many land-based carbon projects, although they are still at the design or early implementation stage, seem to be struggling with the challenge of conducting cost-effective SIA, and would greatly benefit from this type of guidance.
The social impact assessment (SIA) manual is being developed to accompany the Climate, Community and Biodiversity (CCB) Standards, the most prominent and widely respected standards for the co-benefits of land-based carbon projects. It aims to help project developers monitor the socio-economic impacts of their projects, and meet the verification requirements of the CCB or other comparable Standards. The concepts described in this manual will be relevant to a wide range of site-level land-based carbon activities, whether designed for compliance or voluntary markets.
By Steve Zwick
Cash-strapped governments across Southeast Asia are experimenting with market-based schemes to preserve nature by recognizing its economic value. Such schemes have proven effective in other parts of the world, and here’s a look at the reasoning behind them.
In his younger days, Vietnamese farmer Hoang Van Thang made a name for himself hunting birds. Now in his 60s, he’s protecting the birds and their habitat.
“We need to preserve wildlife for the next generation,” he told the author of a report on the web site of the Hanoi National University of Education’s Mangrove Ecosystem Research Centre (http://mangrovesvn.org/index.php/mangroves-wetland/).
So he and roughly 30 other volunteers spend much of their time patrolling small patches of mangrove forest near his village in Nam Dinh Province, about 150 kilometers south of Hanoi, removing illegal snares and keeping an eye out for tree-cutters. Their actions seem to be having an impact.
“Our team hasn’t seen any cases of bird snaring for a long time,” he says. “And local people don’t cut down the mangroves anymore.”
But the areas they patrol are just a tiny part of a 7100-hectare natural park, the bulk of which is manned by an understaffed team of park rangers. Funding for those rangers and the larger scheme within which they operate comes from charitable donations and taxes.
These funds pale in comparison to the needs of farmers, ranchers, and crabbers – all of whom inadvertently put tremendous stress on the mangrove forests, which have never really recovered from toxins unleashed during the Vietnam War.
To take the pressure off mangroves and other ecosystems, the government of Vietnam is exploring financing schemes that replace the economic incentive to destroy mangroves with an economic incentive to preserve them. These schemes begin by recognizing that mangroves aren’t just pretty places for nature lovers – they are part of a critical ecosystem that feeds the local economy.
Short-Term Gain; Long-Term Loss
Nature and commerce have been at odds for centuries, with nature clearly getting the worst of it – especially in the developed world. The dynamic has accelerated in the last half-century, and in the developing world as well, where subsistence farmers often must choose between feeding their families and preserving fragile ecosystems.
But the apparent conflict between commerce and nature is a false one, because in the long run commerce is not opposed to nature. In fact, commerce depends on nature, because everything we buy, sell, eat, and produce is ultimately derived from nature – and not always in the most obvious way. Mangroves, for example, provide shelter for vulnerable fish and breeding ground for shrimp. They also shield the coast from slow erosion and sudden storms; they extract impurities from water and pull carbon dioxide from the atmosphere, depositing it in the ocean floor – thus helping to reduce the greenhouse effect and slow climate change.
Thang’s actions, therefore, aren’t just good for birds. They’re good for coastal farmers, offshore fishermen, the tourism industry – and anyone threatened by climate change.
Payments for Ecosystem Services
Each of these groups has a vested interest in the health of the mangroves that Thang is voluntarily protecting. They should, in theory, be the ones paying the most to guard the mangroves that deliver the so-called “ecosystem services” upon which their livelihoods depend.
“Payments for Ecosystem Services” (PES) schemes begin with the premise that ecosystems are worth more alive than dead, but they work in several different ways.
Some begin by identifying the economic value of the services provided by living ecosystems and then persuading those who benefit the most to pay for its upkeep.
Others work by determining the amount of pollution that an ecosystem can handle and then auctioning off permits that emitters can then buy and sell among themselves. This are generally not called PES, but instead referred to as “cap-and-trade”.
Either way, the goal is to promote the most efficient use of valuable resources by letting government establish the rules and leaving the market to find the best way to proceed within that framework.
Apples and Air
All of these services provide tangible benefits to people who receive them – just like apples and oranges do. Unlike apples and oranges, however, the benefits of ecosystem services are spread diffusely among different people, leaving little incentive for any individual to pay for them.
You can buy an apple, in other words, and you can buy an orange – but you can’t buy the clean air you generate by saving a mangrove tree. What’s more, if you grow an apple or an orange in a way that dumps insecticides into water, you spread that cost among scores of people who might not even be aware of it.
Pollution is called an “externality”, because its cost is not borne by the person who creates the pollution, but rather by society at large. Society – in the form of government – has responded by passing laws against pollution and the wanton destruction of nature.
Such laws work quite well in many cases, but they can often be overly restrictive. They also create little incentive to find new and innovative solutions, and are often expensive to supervise.
PES schemes offer a new tool that is designed to encourage larger-scale and longer-term preservation of living ecosystems by incorporating the economic value of nature’s services into our economy. Rather than simply banning certain practices, PES schemes aim to calculate the cost of environmental degradation and incorporate it into the cost of production. This way, someone who runs a clean apple orchard that doesn’t muddy nearby streams will pay less for his externalities than someone whose orchard dumps pesticides and other chemicals into local water.
Who Should Pay?
In a straight PES scheme, you begin by figuring out who should pay, who should receive, and how the payments are measured. Mangrove guardians like Thang, for example, might be able to earn a commission from fishers if they can prove that their activities increase the number of healthy fish in surrounding waters. They could also earn commissions from tour boat operators, because mangroves often support the coral reefs that attract tourists and divers. Easiest of all: they can collect carbon payments from industrialists who want to reduce their “carbon footprint” by paying men like Thang to help them capture a percentage of their industrial emissions in trees.
The ecosystem services of a mangrove forest can, therefore, be broken into specific “products”: namely, the protection of species (which are a sign of an overall environmental resiliency), the shielding of coastal areas, the filtration of water, and the sequestration of carbon, among others.
In this example, the carbon payments would come from a cap-and-trade scheme such as the ones outlined in the Kyoto Protocol’s “flexibility mechanisms”. Climate-change negotiators are now working on a successor to the Kyoto Protocol, and current proposals make it possible for factories to offset their industrial emissions by preserving or restoring a patch of rainforest, thus capturing carbon in trees.
The most advanced cap-and-trade program to date, however, has nothing to do with carbon. Instead, it has to do with sulfur dioxide, which is the leading cause of acid rain.
The United States launched its Acid Rain Program (http://en.wikipedia.org/wiki/Acid_Rain_Program) in the 1990s with a cap on sulfur dioxide emissions. A “cap” is the overall amount of pollution allowed into a system, and the government issues allowances based on that cap. Companies that emit sulfur dioxide receive some allowances for free and have to buy others. Then the government begins lowering the cap, and companies that reduce their emissions faster than the cap drops can earn a profit by selling their allowances, while companies that are slow to reduce emissions have to pay more for them. This creates an incentive to reduce emissions in the most efficient way possible, and emissions of sulfur dioxide in the United States are now more than 65% lower than they were in the mid 1970s.
Mitigation Banking and WQT
Cap-and-trade can also be applied to wetlands, biodiversity, and water – where it’s called “mitigation banking” and “water quality trading” (WQT).
Pioneered in the United States, mitigation banking draws its strength from two laws: the Clean Water Act (CWA) and the Endangered Species Act (ESA), each of which contains provisions that, in a nutshell, say that anyone who damages the habitat of an endangered species or dredges or fills certain kinds of wetland has to make sure he does so in a way that results in no net loss of habitat or wetland.
The law makes it clear that companies have to first look for ways to prevent damage to the environment. If, however, they can prove that their project is worthwhile and that some environmental damage is unavoidable, they can proceed – provided they restore wetland and/or habitat of equal or greater environmental value than what’s destroyed.
This has led to the proactive restoration of degraded wetland and habitat across the United States as so-called “mitigation bankers” restore marginal farmland to its natural state in the hopes of selling credits to people building roads and houses nearby. In some cases, it’s resulted in healthier habitat than existed before the construction took place, and the model could be tweaked for use across Asia.
Likewise, WQT schemes work by determining how much pollution a body of water can handle, and then letting farms and factories trade among themselves to encourage the most efficient way to reduce runoff into lakes, rivers, and streams.
A Tool in the Belt
None of these schemes is a panacea, and many are still in the early phases of development, but each has the potential to become a valuable tool in the effort to build a sustainable economy for tomorrow.
Their implementation, however, requires a re-thinking of the role of government, the role of the private sector, and the role of civil society. Just as we need to abandon the idea that commerce and environmentalism are in opposition to each other, we also need to recognize that all sectors of society have common goals.
A sustainable economy is one that incorporates all of society’s goals and values – in part by recognizing all of the costs of production.
This will lead to more men like Thang working to preserve nature’s services for future generations – and not as volunteers, but as providers of an ecosystem service.