This document discusses ecosystem services and emerging markets for them. It provides background on the concept of ecosystem services and examples. Key points include: - Ecosystem services are benefits that ecosystems provide to people, like food, water, recreation opportunities. - Markets are emerging for ecosystem services like carbon sequestration, water quality protection, as demand increases for these natural benefits. - Managing lands for both traditional uses like timber and ecosystem services like watershed protection through emerging markets could provide additional revenue streams for landowners.

1. Stuart Hale
Abingdon VA

2. Ecosystem services are “the benefits people
obtain from ecosystems” (MEA 2005).
Examples include:
Fiber
Recreation
Air Quality
Carbon Sequestration
Water Quality
Biodiversity
 The term “ecosystem services” was first introduced in the
report, Study of Critical Environmental Problems in 1970.

3. Human relationships with ecosystems:
• Plato (c.400 BC)
First noted human impacts on the
environment
• George Marsh
Man and Nature, in 1864, argued that natural
resources are finite
• Progressive Era conservationists
Pinchot and Leopold - Humans are part of ecosystems and must act
as proper stewards to ensure their health
• Current Academy
Daily’s Nature’s Services (1997); Constanza et al. (1997); Salzman
and others-
 Increasing awareness of humans’ dependence on nature and accounting
for the services provided

4. The UN Millennium Ecosystem Assessment was initiated in
2001 as a global assessment of ecosystem health and
human impacts comprised of 1,360 experts worldwide.
General Categories of Ecosystem Services :
• Provisioning Services:
food, water, fuel, fiber, and other goods
• Regulating Services:
climate, water quality, disease regulation,
pollination
• Supporting Services:
soil genesis, nutrient cycling
• Cultural Services:
educational, aesthetic, heritage, recreation

5. Millennium Ecosystem Assessment found:
• Human actions are depleting the Earth’s natural capital
straining the planet’s ecosystems ability to sustain future
generations.
• It is possible to reverse the ecosystem degradation over the
next 50 years but will require substantial changes in policy and
practice, not currently underway.
 Major gaps in knowledge were found at the local and national
levels on the status of ecosystems and their economic values.
“…at the local scale there is typically insufficient information on
the full economic costs and benefits of alternate uses of
ecosystems to fully inform decisions.” (MEA 2001)

6.  Demands and stresses on ecosystems are changing due
to:
 Increasing scarcity
• Population growth
• Suburban encroachment
• Land-use conversion
• Forest fragmentation
• Habitat degradation
• Pests and pathogens
• Invasive species
 Market conditions- social values
 Product preferences
 Available information
 Bio-accumulation

7. Source: Southern Forests for the Future

8. Ecosystem services :
• Non-exclusive
• Externalities
• Dependent on private
landowners
 This rise of TIMOs and REITs
places approximately 12-14% of
private forestlands with
organizations in the business of
managing natural capital.

9. Increasing demand for benefits of ecosystem
services have generated ecosystem markets.
• Public policy and regulatory
shifts
• Potential economic benefits to
landowners and communities
• Dynamic land-use and
ownership patterns – TIMOs and
REITs

10.  Emerging ecosystem services markets
are driven primarily by:
 Consumer demand
• Voluntary markets
• Eco-labeling
 Government regulation
• Mitigation markets
 Clean Water Act
 Safe Water Drinking Act
 Endangered Species Act

11.  New York City watershed protection in 1990s
• $6-8 billion facility improvements versus 1.5 billion upstream
conservation
 Denver Water
• Split bill of $33 million with USFS to manage watersheds in
response to a current $40 million clean-up of one reservoir
 Wal-Mart - “Acres for America”
• In US, protecting 1 acres of land for every 1 acres disturbed
through 2015
• Approximately 687,000 acres so far
Grey versus green

12. Existing primary markets:
• Forest products
• Recreation
• Carbon sequestration
• Watershed services
• Biodiversity

14. Source: Ecosystem Marketplace, Bloomberg New Energy Finance

17. Source: Virginia Tech Urban Forest Assessment 2011

18. Compensatory mitigation
 “No Net Loss”
 Options:
• Permittee-responsible
• In-Lieu Fee
• Mitigation banks

19.  These prices represent credit prices and not payments to landowners.
Credit prices consists of many variables including construction costs,
administrative costs, land acquisition costs, and others.

23. Thunderstruck
Conservation Bank
 Approximately 600 acre but
part of a larger 2000 acre
management area
• Cheat Mountain
Salamander
• Northern Flying squirrel
• High potential of Indiana
and Virginia big-eared
bats

24. • Markets are emerging
• Potential benefits to landowners
• May offer opportunities to generate
income off otherwise non-
productive areas
• Diversify natural capital portfolio to
mitigate market fluctuations
Could ecosystem services marketing fit into current
management without substantial opportunity costs?

25. • Determine validity of ecosystem services management as part
of a comprehensive resource management strategy and
compare to traditional management
• Provide a demonstrative example of an ecosystem services
management scheme and actual land-base as a case study
• Estimate direct market present value of ecosystem services
• Use open-source information as available

26. •Proposed Project Area is
approximately 3,976 acres
•Dumps Creek watershed in
southwest Virginia
•Mixed mesophytic forest eco-
region of predominately upland
hardwoods with some cove
hardwood forest types
•Current and past land uses
included timber, coal, and natural
gas extraction, human habitation,
and agriculture

27.  Identify traditional and ecosystem services markets
Examples:
• Local fiber markets
• Local recreational hunt leasing
• Ecosystem Marketplace
• The Bay Bank
• Mitigation banks/ ILF programs
• “Over the Counter” (OTC)
 Find comparable prices from
reported transactions or estimates

28. Traditional management
scheme:
1. Fiber
2. Recreation leases
Ecosystem management
scheme:
1. Fiber
2. Recreation leases
3. Watershed services
4. Carbon sequestration
5. Biodiversity

29. Traditional Management Scheme
Service Area (ac)
Fiber 2,873 410 3,283
(80% BA (50% BA
harvest) harvest)
Recreation 3,883 NA*
Non-timber 693 693
TOTALS: 3,976
*The area of recreation is considered co-use,
in that it provides multiple services, and
therefore will only be counted once in total
area.

30. Traditional Management Scheme Service Prices
Service Units Price per unit Sources Assumptions
Fiber MBF •$100 – pessimistic •Local prices •3000 BF/ac
•$125 – most likely •Timber Mart- •Harvest 80% for
•$150 – optimistic South suitable areas
2nd Quarter •Harvest 50% for
2010 SMZ buffers
•Annual harvest rate
of total area/15-year
ownership period
Recreation acre •$2.00 – pessimistic •Local prices •All areas suitable are
•$2.07 – most likely •VA DOF leased annually
•$3.00 – optimistic based on current
conditions

31. Landscape features with potential to offer
marketable ecosystem services:
1. Areas suitable for fiber harvests
2. Culturally significant sites
3. Retention areas of recent timber harvest
4. Areas unlikely for timber harvest
5. Perennial streams
6. Critical habitats
7. Non-forest areas
8. Wetlands
9. High Conservation Value Forests
10. Critical viewsheds
11. Areas with public safety concerns

32. Ecosystem Services Management Scheme
Service Area (ac) Linear feet
Fiber 2,264 NA
(80% BA
harvest)
Recreation 3,883* NA
Carbon 685 NA
Watershed 397 94,212
Services (No harvest
SMZ Buffers)
Biodiversity 630 NA
(Non-timber)
TOTALS: 3,976
*The area of recreation is considered co-use, in
that it provides multiple services, and therefore
will only be counted once in total area.

33. Ecosystem Management Scheme Service Prices
Service Unit Price per unit Sources Assumptions
Fiber MBF •$100 – pessimistic •Local prices •3000 BF/ac
•$125 – most likely •Timber Mart- •Harvest 80% for suitable
•$150 – optimistic South areas
2nd Quarter 2010 •Harvest 50% for SMZ
buffers
•Annual harvest rate of
total area/15-year
ownership period
Recreation acre •$2.00 – pessimistic •Local prices All areas suitable are
•$2.07 – most likely •VA DOF leased annually based on
•$3.00 – optimistic current conditions
Carbon ton •$0.10 – pessimistic •Ecosystem •127 tons/ac
•$1.00 – most likely Marketplace •Annual enrollment rate of
•$4.00 - optimistic •Appalachian total area/15-year
Carbon ownership period
Partnership •Additional area from fiber
retention in Year 2

34. Ecosystem Management Scheme Prices (continued)
Service Unit Price per unit Sources Assumptions
Watershed linear •$20 – pessimistic •Approximate ILF •1% of total LFt sold
feet •$25 – most likely average – annually for 15-year
•$30 – optimistic construction cost ownership period
•Approximately 10% •Act as mitigation
of ILF prices bank
•Demand provided
through mitigation
markets (CWA)
Biodiversity acre •$0.00 for all pricing •Transactions are •Act as conservation
scenarios taking place but prices bank
are highly variable •Demand provided by
and project specific conservation markets
•No local transactions (ESA)

35. Valuate marketable services as available and
projected :
5
y= Σ (a )(v )
i i
i =1
Whereas,
y = economic benefits to landowner
i = landscape feature
a = units of marketable ecosystem services
v = value per unit of marketable ecosystem
services

36. Comparison of Management Schemes by Pricing Scenario
1600000.00
1400000.00
1200000.00
1000000.00
Dollars (US)
Ecosystem
Services
800000.00 Management
600000.00 Traditional
Management
400000.00
200000.00
0.00
Pessimistic Most Likely Optimistic

37. Traditional Management Scheme Ecosystem Management Scheme
- Combined Pessimistic Prices - Combined Pessimistic Prices
700,000
600,000
600,000
500,000
500,000
Biodiversity
400,000 Recreation
Dollars (US)
Watershed
Dollars (US)
400,000
Fiber Services
300,000 Carbon
300,000
Recreation
200,000 Fiber
200,000
100,000 100,000
0 0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Year Year

38. Traditional Management Scheme Ecosystem Management Scheme
- Combined Most Likely Prices - Combined Most Likely Values
800,000 1,000,000
900,000
700,000
800,000
600,000
700,000
Biodiversity
500,000 Recreation
600,000
Dollars (US)
Dollars (US)
Fiber Watershed
400,000 500,000 Services
400,000 Carbon
300,000
300,000
Recreation
200,000
200,000
Fiber
100,000
100,000
0 0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Year Year

39. Traditional Management Scheme Ecosystem Management Scheme
- Combined Optimistic Prices - Combined Optimistic Prices
1,000,000 1,600,000
900,000
1,400,000
800,000
1,200,000
700,000
Recreation Biodiversity
1,000,000
600,000
Dollars (US)
Dollars (US)
Fiber Watershed
Services
500,000 800,000 Carbon
400,000 Recreation
600,000
Fiber
300,000
400,000
200,000
200,000
100,000
0 0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Year Year

40.  Problems
 Market approach may not be best for
insuring long-term ecosystem health
 Highly variable costs and pricing
 Negative impacts from perpetual deed
restrictions
• Future selling price
• Restricting future management options

41.  Positives
• Additional revenues and making acres productive that
may not have been otherwise
• Additional management actions could be incorporated
into current practices
• Provide opportunity for management of other desirable
species without market values
• Could provide for significant gains if applied to a larger
portfolio
• Promote awareness and education of human impacts
and dependence on ecosystem health

42.  Ecosystem markets are emerging but immature
 Ecosystem services management and marketing
may offer additional revenues to landowners now
and in the future
 Greater recognition of ecosystem service values
could influence management policies
 Humans and ecosystem health are dependent
upon the services originating on private lands
 Improved ecosystem management could result in
improved human and ecosystem health

43. D. Stuart Hale Copyright © 2012 All rights reserved.