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Setting a Clear Course for the Obama Administration’s Federal Office of Ecosystem Services and Markets

July 6, 2009
Source: USDA-NRCS, Lynn BettsIn the days between the November election and Barack Obama’s January Inaguaration, the Bush Administration established the Office of Ecosystem Services and Markets while wrapping up its 2008 Farm Bill duties. The Farm Bill, afterall, did require the USDA to establish guidelines and science-based methods to analyze the environmental services provided by working agricultural lands as a first step toward establishing markets through which farmers may receive compensation for these ecological services.
 
What is Conservation Worth?
 
The development of the Office of Ecosystem Services and Markets is one step in a long line of attempts to address the underlying difficulty that has heretofore been inherent in working lands conservation: placing a price on a product that has no currently existing market or inherent or obvious monetary value. Efforts to this point to establish cost-effective conservation delivery systems not only acknowledged this difficulty, but for the most part have also sought to work within its limitations. If conservation could not be obtained through the clarity of markets—with their ability to reward cost-effective and proven results—then the government would simply require conservation steps of agricultural producers. For years that provided the basis of conservation efforts and allowed for the implementation of key conservation steps such as terracing and windbreaks, with the fairly obvious benefits of reduced water and wind erosion. Yet, because the value of the results could not be easily monetized or measured through cost-benefit analysis, the public exhibited a high level of frustration with conservation programs. For many people not on the ground observing the conservation measures, the benefits seemed to outweigh the costs. Moreover, without a true valuation of the environmental benefits to be gained through conservation measures, and often determined by site-specific characteristics, many farmers themselves found difficulty justifying participation beyond the minimum required.
The newly created Office of Ecosystem Services and Markets will seek not only to duplicate earlier efforts for traditional working lands, but also to implement a working market for ecosystem benefits.
 More recent conservation methods have sought to mimic market valuations by providing payments for implementing particular cropping methods. The Conservation Reserve Program pays landowners a portion of the average land rental rate in the area for fulfilling long-term land set-aside agreements. The more recently developed Biomass Crop Assistance Program seeks to  provide payments to landowners while biomass crops are established, which can take a number of years, and become able to provide a return on investment. These programs have experienced some success in at least mimicking or mirroring market valuation for conservation measures. However, they are fairly limited in application to set-aside and biofuels-dedicated crops. Thus, the newly created Office of Ecosystem Services and Markets will seek not only to duplicate these earlier efforts for traditional working lands, but also to implement a working market for the ecosystem benefits.
 
Early indications from Washington point to the development of a carbon market as the inaugural ecosystem market. In some regards USDA officials will face fewer difficulties with this initial carbon market than with other ecosystem markets, which, by the way, are yet to be determined. Potential ecosystem markets include but are not limited to: methane, nitrous oxide, phosphorous, water quality, sediment and wildlife habitat.
 
Moving Forward: Three Key Issues
 
Source: Misty PfeilThis is easier said than done, and the devil is in the details. As the USDA moves forward with developing the Office of Ecosystem Services and Markets, a number of questions will require clear answers in order for ecosystem markets to become efficient trading venues with clear product ownership, pricing mechanisms, product information and tracking methods—all while reducing government costs and minimizing uncertainty for participants. This is a tall order indeed, and one which will be fulfilled only after USDA clarifies three issues.
 
First, what measurement methods will ecosystem markets require for farm-provided ecosystem services to qualify for markets? The inherent difficulty with ecosystem markets, and a main reason for the long history of difficulty in pushing conservation, is the difficulty with measuring ecosystem impacts from conservation activities. In other words, it is one thing to measure point-source pollution and a reduction in point-source pollution; it is entirely another thing to measure reduction in non-point solution across millions of acres, thousands of water drainage areas, and thousands of miles of streams and rivers. Indices, however, appear the best tool for addressing the measurement issue as they can provide a quick and fairly accurate snapshot for scoring ecosystem services on individual farms. These indices will need continued development and refining as this program moves forward.
 
Second, what requirements, if any, will be placed upon land owners and managers to achieve minimal ecosystem services? Establishing standards for participation is another inherent difficulty with developing ecosystem services markets. Historically, agriculture has not been held to pollution reduction laws. And within the proposed ecosystem services markets, with participation voluntary for farms, what ground rules will be established for voluntary participation? In other words, when farmers sign up to sell various carbon, water quality or habitat credits, what actions must they do to qualify?
 
Third, who will be the major market players providing ecosystem services, and who will they serve? Since farmers themselves will not be required to participate in pollution reduction programs, who will provide the demand for the voluntarily farm-produced ecosystem services? Entities currently regulated for point-source pollution are likely customers. Water quality trading programs are an example where the group of regulated entities is determined based upon geographic regions, in this particular case a single watershed area. But the market for water quality ecosystem services is fairly unique in that it enjoys clearly defined boundaries and requirements for participation. What about carbon, wildlife habitat, methane and other markets lacking clearly defined boundaries? Determining the scope of participation within each market will play a large role in setting up each market for long-term success or failure.
 
The creation of the Office of Ecosystem Services and Markets stands as a vital first step to establishing a system that may finally resolve the inherent difficulties of leading individuals to take positive steps towards providing public conservation benefits. The concept of ecosystem services markets also has the potential to resolve many of the difficulties experienced in past conservation programs. Rulemaking and other upcoming decisions will be crucial for designing ecosystem services markets that really work for the nation’s landowners, service providers, and our environment.
The Conservation PlannerThis article is from the June 2009 issue of The Conservation Planner, a publication of The Minnesota Project. Click here to download the entire issue and explore past issues >>
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