Banking on biodiversity
As the market for carbon offsets balloons in the United States and in Europe, observers say other ecosystem markets may follow suit.
Conservation efforts gain value in the ecosystem marketplace.The organization has already brought one of its major customers on board: Broomfield, Colo.–based WhiteWave foods, which makes Silk soymilk and Horizon Organic dairy products, has used BEF’s certificates to offset its power use since 2003. A subsidiary of Dean Foods (NYSE: DF), White-Wave is planning to purchase water certificates to offset consumption at its corporate headquarters initially, with possibility to expand from there, says Ellen Feeney, WhiteWave’s vice president of responsible livelihood.
But while buyers are increasingly turning to carbon offsets in anticipation of possible regulation, water and other voluntary ecosystem markets must figure out how to attract buyers who aren’t mandated to invest in conservation. Getting consumers and businesses to invest in voluntary markets presents a challenge, and marketplace development can be a real test, says BEF CEO Margie Gardner.
At this point, voluntary markets are less than 1 percent of the size of regulated markets, says Hamilton of Ecosystem Marketplace. For involuntary markets, where mitigation or conservation measures are mandated, government has a huge role to play in the success or failure of ecosystem markets.
Role of government and regulation
One of the challenges to scaling up ecosystem markets is providing a sense of certainty to both buyers and sellers: assuring sellers that if they opt to set aside land for conservation that there will be someone there to buy their credits, and convincing buyers that credits will meet their long-term mitigation needs. In both ways, government action could go a long way to providing a dose of certainty to ecosystem markets. Through regulation, government can create a demand for conservation services by enacting regulations requiring mitigations or offsets, and create rules allowing them to be used for mitigation purposes.
Regulation can make or break the market, says Tom Lindley, a partner at Seattle-based law firm Perkins Coie. In addition, the same way the government increased demand for the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) as well as Energy Star-certified products, it could create a steady demand for ecosystem markets by purchasing offsets for public projects.
One need look no further than the burgeoning carbon market to see the effect impending regulation can have on demand. The market for carbon emission offsets reached $700 million in 2008, double what it was in 2007; it could double again by 2012, according to a June 2009 report from research firm New Energy Finance. About 95 percent of that demand comes from Europe and the United States, where government regulation is underway or in development.
Some government entities are already throwing their weight behind ecosystem markets. In mid-2009, Oregon passed a bill defining ecosystem services and ecosystem services markets. The legislation encourages state agencies to use ecosystem markets and establishes a working group aimed at improving the effectiveness of such markets and proposing potential state policies to boost demand for ecosystem services payments.