CC Seminar 5-11-10
Mark Nechodom
Deputy Director
USDA Office of Ecosystem Services and Markets
1800 M Street NW, Suite N 2130
Washington, DC 20036
What are the climate changes (vs. extreme weather events)?
Climate is what you expect – Weather is what you get (Mark Twain)
Boreal forests may be the next tropical forests – rapid degradation, extreme-event disturbances (fires)
Impacts of melting permafrost are not known – could result in large releases of methane
May also have desirable effects – warming seemed to be welcome by Siberians in a recent visit
The largest and earliest impact on people may be in water supplies
Example – California has about 85 million acre-feet of runoff, 4 million are developed.
That could drop to 3.5 or 3 M with likely climate changes. The Sierra Nevada mountains supply about half of the total runoff. The timing of runoff will certainly change – becoming more seasonal, with more rapid runoff, risking large floods, earlier in the spring, and greater drought in the late summer and fall. One promising adaptation approach is to manage meadows (1 m acres or 400,000 h.) for better retention of water. (Well managed meadows are large sponges, that replace the function of dams). Many public-land meadows are now allocated to low value grazing that damages the ecosystem services of water retention and water quality
Adaptation and mitigation
How are they different, or are they?
Investments in land use, forestry, agriculture, grazing, to better manage carbon can involve both avoiding impacts and accumulating biomass
We assume the major driver of climate change is GHGs – They have increased, trap heat, and we BELIEVE that fixing the GHG problem will fix the warming. We also assume that mitigation will lead to greater innovation toward efficiency and better carbon management. Better monitoring of outcomes of experimental management are needed to demonstrate the reality and magnitude of the impacts in real-world applications
Current negations should lead to $300B annually in climate investment worldwide. This is a radical economic shift, since it is invested in different places (global land owners, who are being asked to manage land for the public benefit). Farmers are economically rationale, so incentives need to changed to represent the changing value of public benefits of land use decisions (from just food toward greater provisions for ecosystem services such as carbon sequestration and protecting water supplies.) If funds do not reach landowners, mitigation programs will not be effective.
Land management is a portfolio, and landowners need to allocate land among revenue generators. Gov’t needs to change the benefits through incentives and regulations (and money needs to flow) on the basis of verified tons or kcal of modified production. A good example is provided by the Oregon salmon market, in which farmers are paid for protecting the condition of salmon rivers.
Regulation creates environmental markets – it is hard to see how voluntary markets could work. (Purchasers buy credits only because governments force them to.) International regulations need to fit range of both ecosystems and the legal/regulatory/governance systems, and are thus much more complex to design than single-country markets.
Payments for ecosystem services are currently estimated at $1.2B worldwide per year, almost all driven by regulations and rules for trading.
Rules:
- We need metrics -- Solid, agreed upon, scientifically-based. (How do you measure decreased nitrogen used on fields to prevent marine “dead zones”?
- Trading platform – where do you find buyers/sellers? We need s regulated exchange similar to those used to trade commodity futures. This requires effective contract law, serial numbers (so each ton of carbon can only be sold once), and transparency (so buyers can know what is for sale, what it normally sells for, and how the purchases can be verified and monitored)
- Demand. Markets only exist if there is demand. Carbon buyers only buy if government requires them to.
Charge to the Office of Environmental Markets. (Policymakers still don’t understand what they do.)
Many environmentalists (and green politicians) are nervous about markets – “pricing the priceless.” A major example of legitimate concerns is indigenous rights, as the buyers (for example, oil companies)) and sellers (maybe large ranchers, timber companies)may not respect values of those not involved in the transactions.
Markets can be very efficient ways of allocating scarce resources, but they need to be well designed. Private buyers can bring much more money to purchase forest (or agricultural, or soil) carbon than governments, so can “expand the carbon budge..” For example, USDA spends $ 4.5B per year on conservation – it could be 10 times that if augmented by well designed markets.
Markets require excellent information and monitoring. Consider how much governments spends to monitor economic systems (GDP, employment, agricultural and industrial output, exports, etc.)
The information needs for ecosystem services markets may be similar. For example, the Climate Action Reserve in CA wanted to produce a performance-based market, and discovered that they need the FIA data (collected at a cost of $74M per year for inadequate data) to even start. Mexico in 5 years has developed a strong biomass dataset and change information, but it was incredibly expensive.
Will single-constituent markets work? (e.g., nitrogen and water together) Example – Coca-Cola has realized that watershed protection is less expensive than water treatment for nitrogen, and has been willing to pay landowners to main vegetation buffers around rivers, or other comparable best practices. However it will not pay for biodiversity protection in the same watersheds (except maybe for small amounts as a co-benefit that can be used to market their products as green.)
Two kinds of metrics:
Avoided conversion – if investment produces additionality, it can be addressed by markets. The problem because everybody can make a case for the status quo being monetized. (if you don’t pay for protection of my unused land, I will have no economic choice other than clearing it…) If the additionality is real, then the opportunity costs of keeping land protected will dictate the market values for the required offset payments.
Sequestration – How much carbon is actually converted? What are the appropriate accounting standards and measurement methods? (Without verifiable standards and performance measures, there will be little transparency.)
There is a good possibility that markets are not the right way to go – maybe it should be public investment. Perhaps funded by a carbon tax.
Market failure – even financial markets, which we understand, have just failed catastrophically. Why should we expect environmental markets to work better?
Opponents of environmental market initiative have been emboldened by the financial meltdown.
Technically – we have carbon futures, e.g., through the CFTC (which is investigating fraud in carbon futures) Carbon exchanges need to be as well regulated as other commodity exchanges.
Transparency – challenging in the environmental world – Outcomes must be verifiable, and the transactions must be known
Example: There is a new carbon sequestration initiative in Jordan to take advantage of Wadi systems) – Jordan is searching for a world-acceptable methodology. There are similar efforts in the U.S. to tune wetland management to retain carbon. Both need a scientific infrastructure to inventory and monitor effectively.
Monitoring could be a co-benefit of biodiversity surveys, and vice versa.
Carbon programs could leverage the expertise and long monitoring programs of conservation groups, which tend to be more driven by species concerns.
Stacking and bundling – A major institutional challenge is that carbon, water quality, wildlife protection, fire protection (etc.) represent separate markets selling to different buyers, but the combination represents total income to landowners, and will determine if they manage land for ecosystem services or traditional crops and products.