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Gearing up for Ecosystem Services Stacking: Are We Ready?

Lydia Olander

If a farmer plants a forested buffer along a stream, he reduces nutrients in the water and pulls carbon from the air.  Traditionally, however, he’d only be allowed to earn one ecosystem service payment for his action.  Here’s a look at programs experimenting with ways of changing that.

If a farmer plants a forested buffer along a stream, he reduces nutrients in the water and pulls carbon from the air.   Traditionally, however, he’d only be allowed to earn one ecosystem service payment for his action.   Here’s a look at programs experimenting with ways of changing that.

20 July 2011 | Expanding environmental markets may soon provide opportunities for landowners to combine multiple revenue stream for a single parcel of land.   Leading programs are beginning to develop policy and pilots   around “stacking” or combining ecosystem service payments or credits .     It’s not yet clear, however, how multi-credit systems and stacking can best be implemented.

In theory, stacking payments could provide multiple benefits. By increasing revenue for landowners who provide services, for example, they can incentivize the creation of better ecosystem services projects than are possible with a single payment and encourage management across multiple services rather than favoring only select services. Unfortunately, there aren’t yet enough examples of projects with stacked payments to assess whether these benefits can be realized.

Stacking also presents new concerns.   Will stacking mean scarce conservation dollars conserve fewer acres or less effective conservation per dollar?   Will stacking allow previous conservation (i.e. conservation easement) to be sold a second time (double dipping) without the first buyer knowing? These and other concerns are clamoring to be answered.

Good Business or a Double Dip?

It doesn’t help that the example of payment stacking cited most often has also been derided as   a case of “double dipping”.   It happened when an existing wetland mitigation project in North Carolina received a second payment for nutrient water quality benefits it was already providing. Rough calculations estimated if all the existing wetlands mitigation in the region could claim the same payments, there would be no additional water quality benefits for many years to come. As a result, state regulators in North Carolina have readjusted rules to disallow this type of stacking.

Regardless, a wide range of programs are beginning to consider how to address stacking in their programs. Many shared their efforts recently at the Ecosystem Markets Conference in Wisconsin.

The Willamette Partnership’s Counting on the Environment program, for example, has developed an approach allowing projects to sell to multiple markets, but requiring that when one credit type is sold, the other credit types are reduced by a proportionate amount.   This approach does not allow stacking using a strict definition of the term, instead it allows what might be considered credit grouping where side by side services are sold from an individual project,   They currently link both bundled credits, which in theory encompass all embedded services in one credit such as wetland, salmon and prairie credits, as well as a few individual service credits including nutrients, sediment, and temperature.

Meanwhile, the Ohio River Basin Trading Project is beginning to assess potential benefits of stacking water quality credits with carbon credits. Their approach, however, is still being refined.

The new city of Damascus, Oregon, is looking into conservation easements — which are, in practice, a tax incentive for bundled ecosystem value — to provide its green infrastructure for water resource management. The city would like to design these easements so landowners could stack value by selling services on these easements into other ecosystem services markets.

Two other programs are also considering stacking of water quality and carbon credits. The State of Maryland is currently developing a water quality trading program and plans to stack carbon credits where benefits overlap. The Climate Action Reserve has just initiated a work group to discuss how stacking should be handled in their agricultural nutrient management protocol.  

Most reviews and assessments of stacking have focused on mitigation and offsets markets where the credits allow impacts to the environment. One paper on the economic impacts of stacking by Richard Woodward (2010) shows stacking can theoretically increase landowner participation and increase credit supply — leading to lower credit prices.   At the Ecosystem Markets Conference, Woodward noted when stacking is not allowed, all other co-benefits generated by a project are provided without allowing any additional impacts — making it possible that more ecosystem services benefits are gained when stacking is not allowed.

A recent working paper explores potential risks to ecological outcomes resulting from stacking. This includes double dipping (or overlapping credit types), incomplete coverage (where new externalities are formed because some services are not incorporated into regulatory programs), and additionality (a key consideration for carbon market programs requiring that payments provided are needed for projects to happen). And a third major assessment of stacking is a paper by Jessica Fox (2011) which surveys the ecosystem services community in order to assess how the practices of stacking are being defined and considered by practitioners.

As stacking is integrated into developing ecosystem services payment and credit programs, new guidance and rules will be needed to encourage potential benefits while minimizing risks. These early experiments and experiences in stacking will provide valuable precedent and lessons for future policy.

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