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Emerging markets for ecosystem services

Emerging markets for ecosystem services. Outline. Ecosystem services & emerging markets State of carbon cap and trade markets What ’ s the deal with forest carbon? Ecotrust Forests: an example of a forest carbon strategy Parting thoughts. Ecosystem service markets in forests.

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Emerging markets for ecosystem services

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  1. Emerging markets for ecosystem services

  2. Outline • Ecosystem services & emerging markets • State of carbon cap and trade markets • What’s the deal with forest carbon? • Ecotrust Forests: an example of a forest carbon strategy • Parting thoughts

  3. Ecosystem service markets in forests • Carbon sequestration/storage • Habitat banking for forest-dependent species and habitats (Pacific salmon, spotted owl, oak woodland, floodplain forest) • Wetland banking (forested wetlands) • Flood control/water storage • Water quality: temperature reduction • Scenic vistas • Passive and active recreational opportunities • Moderate temperature and rainfall • Wild mushroom and plant harvesting… • while providing for timber, pulp, fuel, and other commercial harvest opportunities, and jobs, management and ownership opportunities for millions

  4. Integrated production of commodities and ecosystem services, Australia Source: David Brand, New Forests

  5. The early markets SOx and NOx trading Transferable fishing quotas Mitigation banking

  6. Carbon market: cap & trade components

  7. Size of global carbon market

  8. Projected growth of carbon market EU market projected to be dwarfed by U.S. market, estimated to reach $1 trillion by 2020 Largest distribution of property rights since settlement of West!

  9. Regional & state efforts proliferating

  10. WCI at a glance

  11. Role of forests in WCI • Forests iconic, and carbon rich • Limited opportunities for afforestation and reforestation • All desire carbon to help forestry stay in forests, but must solve leakage issues • Most relevant role is in forest management projects: enhancing carbon through changes such as longer rotations. • Sweet spot is finding carbon project locations that maximize delivery of co-benefits and minimize opportunity costs: steep slopes, for example. • No guarantee of significant role for forest carbon in regional and federal trading system unless we find quality solutions together.

  12. What’s the deal with forest carbon? Forest carbon is very attractive: • Very important: deforestation/forest degradation responsible for 25% of global emissions (same as US, world’s largest polluter). • Rich co-benefits • Easy to understand the connection But also very challenging: • Baseline (sequestration/emissions that would have occurred without carbon project may be hard to determine) • Forests can burn or decline, leading to loss of carbon (permanence) • Forest conservation/reduction in logging can just shift activities elsewhere (leakage) • For these reasons, forest carbon very controversial, but global importance of forest carbon demands a resolution.

  13. Policy Rationale for Offsets • Quality reductions: IF DONE RIGHT, equally effective in reducing atmospheric GHG levels as on-site mitigation • Lower cost: Offsets are only used if lower cost • Lowers climate change mitigation cost to society • More money for everything else: • Food, shelter, health, security, recreation • Technology bridge: Allows reductions now while new low-carbon technology is developed

  14. Rationale against offsets • Need to create pressure for reductions from primary emitters • Need to fundamentally change our behavior, not pay others to clean up our messes (especially people with few economic options) • Offsets have quality issues • Moral objection to creating license to pollute

  15. Case study: Ecotrust Forests LLCCurrent status • Raise capital into open, perpetual fund (currently $30 million under management) • Acquire and manage forestland • Manage forests for longer rotations, structural complexity & diversity • Generate competitive returns for investors through full range of forest products and services: timber, non-timber, ecosystem services, recreation • Make strategic acquisitions in high-conservation value watersheds, and restore health and productivity • Generate jobs and wealth for local residents

  16. Carbon Stockby Forest Type and Stand Age Data from 2006 accounting guidelines, 1605(b) program Graph by EcoFor 2006

  17. Long rotation forestry results in 2.5x more standing volume

  18. Additional carbon value per acre on PNW westside forests

  19. Ecosystem services are key Source: Binkley, Beebe, New & von Hagen, 2006

  20. Ecotrust Forests carbon transaction • Methodology under review by Voluntary Carbon Standard • Sources of additional carbon above baseline: • extended rotations • expanded riparian reserves • carbon reserves on steep and unstable slopes above salmon streams • Evaluating financial and tax implications of carbon credit sales for different classes of investors (exempt and non-exempt)

  21. Parting thoughts • New conversation: more than a zero sum game • Market solutions demand more rigor in delivering clear quantifiable benefits • Early ecosystem service markets messy and full of drama, but that goes with the territory • Not a panacea, but a powerful and occasionally wonderful new tool • Creation of new class of entrepreneurs is a powerful co-benefit

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