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USDA Proposes Standards Board for U.S. Environmental Markets

Alice Kenny

Mark Rey, Under Secretary for Natural Resources and the Environment at the Department of Agriculture, announced plans last Thursday (April 12) to press Congress to create a single board to set standards for the plethora of current and emerging ecosystem markets. The Ecosystem Marketplace reports.

Mark Rey, Under Secretary for Natural Resources and the Environment at the Department of Agriculture, announced plans last Thursday (April 12) to press Congress to create a single board to set standards for the plethora of current and emerging ecosystem markets. The Ecosystem Marketplace reports. Ecosystem-service markets began blossoming in America's heartland just two decades ago; some answered to specific regulators, others answered to none. Until now. Raising his voice to be heard over rain pounding against a wall of windows in a well-appointed midtown Manhattan board room, Mark Rey, Under Secretary for Natural Resources and the Environment at the Department of Agriculture, announced plans last Thursday to press Congress to create a single board to set standards for the plethora of current and emerging ecosystem markets. Rey made his presentation to a small group of environmental investors and reporters in the conference room of Baker & McKenzie, an international legal firm and frontrunner in environmental market development. And with this announcement, it became clear that the budding field of ecosystem-service markets had entered a new era. The standards proposed in the USDA 2007 Farm Bill could bulk up the muscle of ecosystem markets, making trading in water quality or carbon offsets as commonplace as investing on Wall Street. It would promote the deep-pocketed money stream of the private sector to bolster government-subsidized conservation efforts. And with national standards overseen by a single board, consumers and investors would be assured that ecosystem-based markets are real and the credits they trade are correctly quantified and priced, Rey said, "bringing certainty to the market." If passed, the Farm Bill could prove particularly powerful at boosting the U.S. voluntary carbon market. In this ecosystem market, consumers seeking to compensate for their cross-continental flights or carbon-spewing SUVs write checks to underwrite carbon-offset projects such as protecting rain forests and building wind farms. Yet no single standard exists to appraise the quality of marketed carbon offsets, threatening the market's credibility. In response to this reporter's questioning after the meeting, Rey said that with a national ecosystem-services-credits-standards board overseeing carbon credits, "it would not be a long leap" before the U.S. voluntary carbon market became as robust as the mandatory European carbon-offset market governed by the Kyoto Protocol. Audience member Jessica Orrego said the environmental finance company she works for, EcoSecurities, supports this initiative, adding that "market-based mechanisms provide an efficient way to reduce greenhouse gases." Environmentalists and economists outside this small gathering who have been pushing for a mandatory carbon market are likely to be more skeptical. Reached by phone for his assessment, Derek Broekhoff, senior associate for the think tank World Resource Institute commented that while a central oversight board "sounds like a good idea in principle and voluntary markets can play a complimentary role in reducing greenhouse gases, it will not undermine the need for a mandatory system." The Bush Administration continues to oppose mandatory regulations of greenhouse gases. His administration's Farm Bill does, however, contain a variety of proposals intended to help fight global warming. A significant highlight is $1.7 billion in loan guarantees for the development of energy from cellulosic ethanol. Considered by many to be the most promising form of renewable energy discovered to date, this type of ethanol is produced from cellulose commonly found in plant walls. Although still in the experimental stages, a study published by University of Minnesota scientists in December 2006 determined that cellulosic ethanol could yield up to 238 percent more energy per acre than any single cultivated species such as corn, soybeans or sugarcane. "Just as the 2002 Bill supported corn-based ethanol," said Rey, "the 2007 Bill could enable cellulosic ethanol to make the same leap." Promoting private-sector environmental markets to foster conservation marks a major evolution for the USDA. Ever since the Great Depression, the U.S. government used federal, public funds to supplement farm incomes and subsidize conservation. When over-farming on sensitive lands led to the Dust Bowl in 1935, the federal government began paying farmers to conserve portions of their land. Over the years, the government added funding that further encouraged farmers to preserve marginal lands, prevent soil erosion, and promote environmental improvements that protected water supplies. The proposed 2007 Farm Bill maintains these supports while promoting a market-based approach to conservation. It includes plans to invest $50 million over ten years to encourage private-sector environmental markets. Some of this would be used to develop the proposed standards board. Funding would also go towards establishing credit registries and offering credit audit and certification services. Michael Jenkins, the moderator of Thursday's meeting and president of Forest Trends, the parent organization of Ecosystem Marketplace said that "this brings a new chapter for conservation and the ability to bring private-sector investment to preserve the public good." Currently, ecosystem markets in the United States function in varying levels of size, sophistication and oversight. They include wetlands banking overseen by the U.S. Army Corps of Engineers, water-quality trading overseen by the Environmental Protection Agency, the Department of Energy's work with carbon credits and the USDA and Department of Interior's plans to create credits for protecting endangered species. The 2007 Farm Bill would bring these markets under a single umbrella, setting standards for all ecosystem service markets, both voluntary and mandatory and, Rey said, "creating a seamless infrastructure to make markets occur and reduce transaction costs." A top priority involves determining baselines to verify that marketed environmental solutions, such carbon sequestration credits, offer additional services that would not have been created had there been no ecosystem market. Similarly, a central-standards board could ensure that an acre sold as preserved wetlands was not double sold as an acre protecting endangered habitat. The standards board is one of a sweeping number of proposals the Bush Administration included in the USDA's 2007 Farm Bill aimed at bolstering environmental markets while including financial support and incentives to support farmers, agriculture and the environment. The last Farm bill was passed in 2002 and is due to expire on September 30, 2007. If Congress approves this one, the bulk of the work for turning these proposals into reality remains to be done. Scientists and economists will be called in. Politics and preferences will be considered. But by including ecosystem markets in the Farm Bill, ecosystem markets already leaped the next hurdle towards mainstream legitimacy. Alice Kenny is a regular contributor to the Ecosystem Marketplace. She may be reached at alkenny@aim.com. First published: April 16, 2007 Please see our Reprint Guidelines for details on republishing our articles.

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