An ecosystem is a community of people, plants, animals, and microorganisms interacting with one another and their nonliving environment (water, soils, nutrients).
Ecosystem services are commonly defined as the benefits people obtain from ecosystems. Ecosystem services include basic services - provisioning services like the delivery of food, fresh water, wood and fiber, and medicine - and services that are less tangible and harder to measure but equally critical: regulating services like carbon sequestration, erosion control, and pollination; cultural services like recreation, ecotourism, and educational and spiritual values; and supporting services like nutrient cycling, soil formation, and primary productivity.
Many ecosystem services are traditionally considered free to society. As public goods, their use and benefits are not exclusively controlled. For example, everyone enjoys the clean air, clean water, and flood control provided by healthy forest, range, and wetland ecosystems. Because these services are generally free, the true worth of healthy ecosystems is not recognized or accounted for in decision-making.
In 1997, Robert Costanza and colleagues estimated the worldwide value of all ecosystem services at $33 trillion per year. While there were many uncertainties in developing this estimate and the calculation itself generated much criticism, this study is one of the first efforts to try to put a price tag on ecosystem services.
In 2000, Forest Service economists estimated the minimum value of water from National Forest System lands to be $3.7 billion per year. Studies continue to evaluate the economic value of ecosystem services; at present, their true worth is unknown.
Government or public payments: Through conservation incentives, tax credits, and subsidies, the government may compensate private landowners for protecting, enhancing, or restoring an ecosystem service.
Voluntary private payments: Businesses, nongovernmental organizations, and conservation groups may provide payments to landowners for philanthropic, public relations, or ethical reasons or to protect investments. For example, a developer may pay a forest landowner to maintain an attractive view. An interest group may pay for hunting leases on private land. A bottled water company may protect its water source by paying upstream landowners to implement good management practices.
Regulation-driven private payments: To comply with national policy (no net wetlands loss) or to more efficiently comply with regulations (water quality and safe drinking water standards), regulated entities may choose alternatives to traditional pollution control measures. For example, the Environmental Protection Agency watershed-based permit for the Tualatin River basin in Oregon allows wastewater treatment plants to enter into a trading scheme to achieve the permit requirement for temperature. Instead of installing refrigeration systems at two Tualatin River treatment plants (at a cost of more than $60 million), a wastewater utility can pay upstream farmers to plant shade trees in the riparian area (at a cost of about $6 million). Flow augmentation and irrigation with effluent wastewater are also part of the trading strategy to comply with temperature regulations.
In a traditional market system, people regularly come together to buy and sell goods or services. Effective markets require secure property rights, sufficient demand, access to market information for all stakeholders, and established legal institutions. The US market in sulfur dioxide is a good example of a fully functioning environmental market. This relatively new market effectively reduced sulfur dioxide emissions and set the lowest price at which emission reductions could be achieved.
Markets for ecosystem services are based on the same premise: ‘Sellers’ are landowners that provide clean air, clean water, wildlife habitat, and other goods and services by sustainably managing their forests, wetlands, and grasslands. ‘Buyers’ of these goods and services are power plants, water treatment facilities, developers, and others who invest in conservation – either by purchasing credits to offset air emissions, water discharges, or habitat/wetland destruction or as a good will gesture to improve the corporate image.
Since ecosystem services are traditionally considered free, there is no means to explicitly attach a monetary value to these services. Lacking a role in the formal market place, ecosystem services are often undervalued and in some cases exploited. For most ecosystem services, systems to set limits, clarify ownership rights, assign values, quantify delivery of services, and target benefits to buyers have not yet been developed.
Some additional barriers to the development of ecosystem service markets include uncertainty about the quality of the services (whether actions to enhance or improve ecosystem services are permanent and do not lead to ecosystem service decline in other areas); the potentially high transaction costs of quantifying and verifying the services; the need to aggregate landowner activities to a scale that attracts investment; and the lack of knowledge and interaction among buyers and sellers.
While there is growing recognition of the public benefits provided by forests, the idea of landowner compensation for these benefits is not similarly understood or accepted. An open, active dialogue is needed to encourage businesses and the public to re-examine the notion that ecosystem services are free, and take a critical look at the prospect of paying for these services. Research and demonstration projects are needed to improve the credibility of land management practices that enhance and maintain the delivery of ecosystem services.
Effective markets for ecosystem services are almost always associated with public policy or a regulatory framework. For example, the active carbon trading markets in Europe are a result of the greenhouse gas limitations set in the Kyoto Protocol. Wetland mitigation banking is a result of national policy and regulation. Cost savings associated with the use of forests and forestry practices as an alternative to engineering solutions may drive some ecosystem service trades. For example, it may be more cost effective for a municipality to pay upstream landowners to reduce erosion than to dredge sediment from dams and waterways. Other motives - altruism, improvement of corporate image, and philanthropy, for example – may also play a role in future market development.
Investors are most attracted to ecosystem service markets that have universally accepted standards; an internationally fungible, tradable unit; risk mitigation; legal and financial accountability; an insurance product; and a scalable solution.
The Forest Service is working to advance market-based approaches to conservation and stewardship on private and community lands. Valuing ecosystem services presents an opportunity to promote public awareness of the importance of forests and grasslands to human well-being; provide an economic incentive for private landowners to own and sustainably manage their land; encourage ecological restoration; and inspire individual efforts to reduce consumption of natural resources and minimize human impact of ecosystems.
Our state & private forestry, research, national forest and rangeland management, and international programs staffs are working closely together to communicate an ecosystem services perspective and explore opportunities for market-based conservation.
As a general policy, USDA believes that market-based environmental stewardship can encourage competition, spur innovation, and achieve environmental benefits at low cost, while helping USDA customers comply with environmental regulations. In August 2005, former USDA Secretary Johanns issued a Memorandum on USDA Roles in Market-Based Environmental Stewardship (PDF, 105 KB), aimed at broadening the use of voluntary, private-sector markets for ecosystem goods and services. The memo establishes an Undersecretary-level council to facilitate department activities and ensure a sound market-based approach to ecosystem services.
The Food, Conservation, and Energy Act of 2008 (the Farm Bill) took a first step towards facilitating landowner participation in emerging markets for ecosystem services. The conservation title directs the Secretary of Agriculture, in consultation with other agencies and interests, to establish standards by which to measure the ecosystem services provided by conservation and land management activities. A federal government-wide Environmental Services Board has been established to assist the Secretary. Nominations will be sought in the near future for a federally chartered public advisory committee to advise the Board. A new USDA Office of Ecosystem Services and Markets has been established in the Office of the Secretary; Sally Collins is the first Director of this office, after serving as Associate Chief of the Forest Service for the past eight years.
Updated: May 29, 2009 9:09 AM