Market News

 October 17, 2007
Markets for Ecosystem Services

 Geneva, Switzerland -- The World Business Council for Sustainable Development (WBCSD) in collaboration with The World Conservation Union (IUCN) has just published a perspectives paper on making markets for ecosystems services.

Entitled Markets for Ecosystem Services -- New Challenges and Opportunities for Business and the Environment, the report shows how at a fundamental level, all economies and businesses depend directly or indirectly on the conservation of biodiversity and the sustainable supply of ecosystem services.

Protection of other species and the conservation of natural ecosystems is a topic that many business leaders find confusing or regard as irrelevant to their day-to-day interests. However, the paper -- written for both the business and conservation communities- is an effort to establish a shared vision of market-based approaches to nature conservation. It builds on current scientific research underlining the economic value of ecosystems, as well as recent inter-governmental decisions to enlist the private sector in conservation efforts.

The publication states that conserving ecosystems and sustaining the services they provide is a pre-requisite for prosperity. Environmentalists have long argued this. Business, governments and society at large are catching up.

The Millennium Ecosystem Assessment (MA) assessed the global status and trends of 24 critical ecosystem services, including "provisioning" services, such as the supply of freshwater, biomass fuel, food and fibers, as well as "cultural", "regulating" and "supporting" services that underpin human wellbeing. The MA concludes that some two-thirds of the world's ecosystem services are degraded or being used unsustainably, while also noting that demand for ecosystem services is rising, fuelled by population growth and economic development.

The natural wealth of biological diversity ("biodiversity") includes the myriad species, complex ecosystems and constantly evolving genetic structure of living resources. Conserving biodiversity is central to sustaining ecosystems and the services they provide. A growing body of research documents how biodiversity increases productivity in different sectors, enhances people's enjoyment of nature, reduces ecological and associated health risks, and improves resilience in the face of shocks.

At a fundamental level, all economies and businesses depend directly or indirectly on the conservation of biodiversity and the sustainable supply of ecosystem services.

The paper notes that biodiversity losses and ecosystem degradation have profound effects on people all over the world. For example, the decline in provisioning services such as freshwater and fiber directly affects the livelihoods of communities that rely on natural resources for subsistence and cash income, while the loss of or changes in the quality or timing of regulating services, such as natural flood defenses and pest control, can leave millions of people at increased risk of disaster.

Ecosystem degradation affects businesses that rely on natural resources for raw materials, waste assimilation or indirect support for production processes. Loss of ecosystem services can also undermine a healthy workforce. Consumers ultimately shoulder the burden in the form of higher costs of goods and services, higher insurance premiums, or higher taxes to cope with natural disasters.

The report seeks to demonstrate that market mechanisms are a powerful complement to existing strategies for conserving ecosystems. Market-based instruments can achieve some environmental objectives at lower economic cost than conventional approaches, such as uniform pollution standards or technology mandates. Three categories of market mechanisms -- that can be voluntary or mandatory -- are described: direct payments, tradable permits and certification.

Direct payments include buying and selling the delivery of specific ecosystem services or, more commonly, payments for maintaining or adopting land uses that are thought to provide such ecosystem services.

Tradable permits create new rights or liabilities for the use of natural resources, and then allow business to trade (i.e., buy and sell) these rights or liabilities. A well-known example is the growing trade in carbon credits, based on government-allocated emission allowances and/or the purchase of voluntary carbon offsets by both organizations and individuals.

The global carbon trade was worth over US$ 30 billion in 2006. Certification and eco-labeling schemes distinguish products and services by their social and environmental performance (consumers will prefer to buy or even pay more for certified goods and services) and are increasingly common around the world.

Through a series of well documented and well illustrated case studies, the paper examines the social, economic and business impacts of biodiversity losses and ecosystem destruction. It provides the following five cardinal rules for business whose activities might affect ecosystems or impact on biodiversity stocks. These are:

  1. Know that you are selling ecosystem services at full cost;
  2. Know that you are buying ecosystems services at full cost;
  3. Ensure clear ownership of the ecosystems services that are to be traded;
  4. Ensure clear and transparent accountability of the ecological value accruing to the owner as a result of the sale;
  5. Create competition among buyers and sellers.

This is a well written and informative report, well worth the read. It is available for download here.

Source: World Business Council - WBCSD .