Economics of biodiversity

The French Centre d'Analyse Stratégique published a very pedagogical and understandable report of biodiversity recommendations on May 2009. The cautious report answered to four questions, asked by the end of the "Grenelle Environment Round Table":

- Establish a state of the art study of scientific knowledge on the valuation of ecosystems services and biodiversity.
- Analyze the socioeconomic stakes
- Determine the future research specifications
- Establish the first reference values to take into account biodiversity in socioeconomic studies on infrastructure projects.

After a study of socioeconomics stakes, and an analysis of the current ecosystems comprehension, emphasis was made on a critical state of art of environmental economics. References values, which have the dimension of a price, but rather merely are indicators, have been build, and yield a 970€/ha.yr for the French forests, and of 600 for meadows.

The 378 pages paper is interesting in the sense that it develops the juridical aspect of biodiversity, as seen by the national powers, and discusses of the legal status of biodiversity, mentioning that it may become "merit goods". It also recognizes technical issues, from the biophysical standpoint – the need of a robust model to link biodiversity and ecosystems services --, and socioeconomics point of view – the lack of clear milestones for the European 2010 objective, and the need to develop socioecosystems understanding.

However, it also mentions current difficulties, such as the lack of more comprehensive studies, and between the lines is still the problem of absence of an ecological equivalence system.

Source : http://www.strategie.gouv.fr/article.php3?id_article=980

We have seen habitat banking in the US. However, little has been done in the EU, but the gap is being bridged.

The EFTEC, an environmental economics consultancy in the UK, is leading a research project for the European Commission looking at the potential use of habitat banking in the EU as an economic instrument for biodiversity protection. A workshop will be organized in Brussels as a part of this work.


Read more at
http://www.eurosite.org/en-UK/content/habitat-banking-eu

Two environmental associations, The Association for Tropical Biology and Conservation and the Society for Tropical Ecology (GTOE), published a "Marburg Declaration" in which is explained the issue of not exploiting the conservation potential of the Reducing Emissions from Deforestation and Degradation (REDD) mechanisms.

Experts say that most critical ecosystems are the 'last surviving scraps of forests', not necessarily in the Amazon. And yet, the global overhead of establishing a REDD project keeps investors away from developing small scale projects, and therefore from these "final refuges for thousands of endangered plants and animals". One solution, proposed by Manfred Niekisch, president of the GTOE, would be to include an 'extra' to carbon funds to cover these imperilled habitats.

It is urgent for both public and private stakeholders to understand the possibilities of the REDD projects – not only as carbon sinks, but also as living ecosystems. Especially when the REDD standards are being prepared for the post-2012 Kyoto negotiations.


See the whole declaration:
http://burica.wordpress.com/2009/07/30/the-marburg-declaration-for-the-biodiversity-of-the-world/

What: The Energy and Biodiversity Initiative (EBI) was a partnership, created in 2001, between four energy companies: BP, Shell, ChevronTexaco, and Statoil – and five conservation organizations, namely the Conservation International, Fauna & Flora International, Smithsonian Institution, The Nature Conservancy, and IUCN. The project was managed by the Center for Environmental Leadership in Business, a department of Conservation International , co-created with the Ford Motor Company.
Goal: The EBI was created to develop and promote biodiversity conservation practices in oil and gas exploration and exploitation.
First output: On August 25, 2003, the EBI released a report, which is designed to provide guidance for integrating biodiversity conservation into oil and gas development. It is composed of four guides concerning indicators, site selection process, impact assessments, and environmental management systems . There are also two discussions papers on the secondary impacts, and on biodiversity conservation opportunities. This was the EBI Phase I.
After the report: The group wanted to test and refine its recommendations during the EBI Phase II. The main goal was for industry to adopt, disseminate, apply, and gather feedback on, the EBI report and products. It finished on 2007.
Partnerships: It also joined the UICN group about extractive industries and biodiversity, work with the IPIECA . Like other initiatives, it paid attention to the other stakeholders: "Achieving this vision will require a collaborative effort among companies, conservation organizations, governments, communities and other stakeholders."
Awards: The EBI was awarded the 2002 World Summit Business Awards for Sustainable Development Partnerships, by the International Chamber of Commerce and the United Nations Environment Program.

The BBOP initiative
The Business and Biodiversity Offsets Program (BBOP) is a partnership of companies, government agencies, scientists and NGOs, supported by the Forest Trends and Conservation International . The BBOP wants to show, through a portfolio of pilot projects in a range of industry sectors, that biodiversity offsets can help achieve significantly, better and more cost-effective conservation outcomes than normally occur in infrastructure development. The BBOP also thinks that demonstrating no net loss of biodiversity can help companies secure their license to operate and manage their costs and liabilities.

During the first phase of the BBOP (between 2004 and 2008), six pilot projects were launched, to try to demonstrate the "no net loss" of biodiversity and livelihood benefits. It designed a "how to" toolkit for offset design and implementation, as well as its principles, and tried to influence policies on offsets to meet their conservation and business objectives.


Offsets in general
Biodiversity offsets are measurable conservation actions intended to compensate for significant residual, unavoidable harm to biodiversity caused by major development projects, after appropriate prevention and mitigation measures have been taken. It aims at ensuring that at least no net loss of biodiversity and, where possible, net gain , with respect to the original state of the ecosystem, as well as preserving the people's use and culture of the areas.

To be efficient, such actions should respect the mitigation hierarchy: it should take place after the avoidance, impact minimization, and rehabilitation measures. They have to be conducted in a transparent way, in the landscape context, with the stakeholders' participation, and aim at long-term outcomes.

Biodiversity offsets are necessary for three main reasons. First, there are laws requiring offsets in the US, EU, Brazil and Australia. The second reason is to build a good business case for voluntary offsets, which tends to be an advantage in risk management. As a result, for example, companies obtain permits rapidly, competitive advantage since best companies are preferred partners, and build good relationships with the different stakeholders. The business case for biodiversity offsets also gives the firm an "influence" on emerging environmental regulation and policies . At the same time, it can also be seen as a bad practice if there are permit delays, liabilities, and high costs.

These offsets rely on principles. They have for example to result in a no net loss of biodiversity, and achieve conservation outcomes above and beyond results that would have occurred if the offset had not taken place – while not displacing activities harmful to biodiversity to other locations. They also cannot compensate some losses, because of the irreplaceability or vulnerability of affected biodiversity. Moreover, offsets should be designed in a landscape context, and sharing the revenues in an equitable manner, especially in the case of local communities and indigenous people.


More details on offsets and aggregated offsets.
The offset context in the US is relatively clear. The US offset market is divided in two segments, the Clean Water Act, for wetland and stream mitigation, and the Endangered Species Act, for endangered species mitigation. Mitigation can be performed in three different ways: develop a mitigation parcel, create an in-lieu fee fund ie, paying a government authority), or by buying credits from a bank. This latter is interesting for the client, because of its ecological effectiveness, and administrative efficiency. The demand comes from both the public and the private sector, especially from high land use projects, when the supplies also originates from private actors (such as farmers, ranchers, banking companies,..) and the public sector, with municipalities. Wetland banking stared in the early 1980s, while species banking in the 1990s. There are currently ~800 wetland banks, and 115 species bank, the latter covering 80.000 acres. In 2007, the market was of $2 billion in single offsets, and $1.3 billion of offset banking. Banks in this case represent a "privately or publicly owned land managed for its natural resource values" , whose owner can sell habitat credits to parties wanting to fulfill their legal requirements. The life of a mitigation bank involves several steps: the restoration, enhancement or preservation of an environmental asset; the conversion of resources into marketable credits based on a credit ratio; the sale of credits to offset impacts to similar resources within a service area. It should obtain approval as Mitigation Banking Instrument, taking 1 to 3 years.

The aggregated offsets may be a proposition to answer to the diverse threats and pressures occurring on a important biodiversity area. Moreover, the aggregation can address the issue of fragmented and constrained ecosystems: the conservation of a sufficiently large area can help to maintain the integrity of characteristic biodiversity. In that sense, the respondents of the scoping study have said that aggregated offsets could 'make sense'. The key areas for such tools have been identified as important biodiversity zones with multiple threats and pressures. New regulations will be effective on June 9, 2008, seeking to promote one standard for mitigation, with a preference for mitigation banking.

The principle to aggregate first can lead to a co-ordinated approach focused on priority areas. This also can lead to a greater ecological value, by creating for example a greater connectivity, and reducing the edge effect. Strategically, the offset can be planned to avoid uncoordinated single offsets. They also de facto turn a liability into an asset, since conservation values are usually seen as restricting land development and resale value.
Administratively, it also enables the different developers to gather their resources and to have standardized performance standards, when delivering the offsets. This can actually reduce the different costs through economies of scale, and different synergies, while avoiding the duplication of stakeholders' efforts (eg through easier ecological monitoring, permitting time reduction …). In bank offsets, the bank retains the legal liability for the offset credit, which means the buyer does not bear the performance risk.

However, aggregated offsets also have a set of drawbacks. The teamwork could result in difficult agreements on the right contribution of each party that can meet a consensus, and a complexity of transaction that could lead to increased costs and delays, which can be capital for small users. Too many developers could also mean that there is a reduced transparency of each developer's contribution to the offset. Moreover, the intervention of a third party to supervise the whole process can result in reputation risks, and maybe in financial payments to the operator that will not be translated into 'on the ground' outcomes. The offsets being concentrated in one place, there is also a magnified risk of a catastrophe, with no back-up, diversified portfolio. Adaptation (to climate change for example) should also be considered. Also, the certification process is still evolving: there is no fungibility for credits yet. Finally, in some cases, the market supply is not static. With rising standards for example, some suppliers will disappear.

Aggregated offsets nonetheless remain attractive when the suitable conditions are met. For example, pooling either skills, knowledge or resources can lead to significant, effective biodiversity offsets. This can also be the case for actors in the same sector and area that are required to meet a shared standard. Some conditions need to be fulfilled for the mechanism to be successful. First, it should be demand-driven, either through legislation or EIA policy compliance, or through a voluntary approach (ie for environmental risk management; or to assure the license to operate). The supply also should be cleared of practical (Are there landowners willing provide offsets?) and ethical (Are local small landowners able to supply as well as corporate land owners?) issues. Finally, monitoring should be efficient, to ensure the product legitimacy. The study also reports that some particular approaches should be developed, especially in laws that currently lack amendments to enable aggregated offsets. The collaborative process should also be standardized, in order to reach agreements between the several parties, to determine each contribution to the offset, as well as to explore the use of coalition of key stakeholders to 'steer' the offsets.

The US government seems interested in testing aggregated offsets. The presentation highlights a few factors to consider in developing a pilot, such as : aiming at a particular clustered development sector, having the support of a legal and/or planning system (since regulatory enforcements are key drivers to the creation of markets), and obtaining the support of a individual or organization able to 'champion' an aggregated offset pilot. Key to all of this, is a thorough understanding of supply, demand, and local context. Maybe factors such as clear and uniform standards, as well as uniform mitigation metrics, and other transfers of liabilities and certification process could be useful to facilitate the market.

"Agriculture producers provide many ecosystem services which have historically been viewed as free benefits to society - clean water and air, wildlife habitat, carbon storage, and scenic landscapes. Lacking a formal structure to market these services, farmers, ranchers and forest landowners are not generally compensated for providing these critical public benefits. Market-based approaches to conservation are proven to be a cost-effective method to achieve environmental goals and sustain working and natural landscapes. Without financial incentives, these ecosystem services may be lost as privately-owned lands are sold or converted to development." -- The current interrogations about environmental issues, such as biodiversity and ecosystems services are more and more integrated in governments and decision making.

The USDA[1] secretary Ed Schafer reported the creation of a new office on December 18, 2009: the Office of Ecosystem Services and Markets, as well as a Conservation and Land Management Environmental Services Board. Authorization was approved in the Farm Bill. This is the result of the last actions by the Bush administration to address climate change issues[2]. It will "assist the Secretary of Agriculture in the development of new technical guidelines and science-based methods to assess environmental service benefits which will in turn promote markets for ecosystem services including carbon trading to mitigate climate change"[3].

The Office will be directed by Sally Collins (former Associate Chief of the DA Forest Service) who worked on ecosystems services and markets as tools promoting sustainable land use. She believes the office will make industries and private land owner associates, while restoring forests through the carbon tax.

During its first year, it will collaborate with the Conservation and Land Management Environmental Services Board, which is composed by advisers from other governmental groups. The CLMES Board will be assisted by an Advisory Committee, including farmers, ranchers, forest owners, and other official representatives. It may be a sign that the US government apprehends the interdependence concept for environmental policies. Federal agencies and markets for water, biodiversity and, of course, carbon will have to work together.

Developing appropriate markets is seen as a solution to preserve the ecosystems services provided by privately-owned lands, and to offer another approach to industrial CO2 emitters. The federal government will have to find funds and long term incentives to mainstream ecosystems services payments

The first service to be studied will be carbon sequestration – while the trust in the science supporting global warming is declining in the US. Therefore, focus will be made on the CO2 trapping activities and creating "verifiable national standards"[4]. Very much like the carbon issue, the very ecosystem services markets are not questioned – it is rather the development context, and especially the regulatory driver and the market design behind the markets.

But, "for the ecosystem service concept to generate real results, it will have to go beyond valuing ecosystem services to actually contracting for them", says Terry Anderson[5].

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