Author: Sara Vickerman

Landowners whose properties generate ecosystem services should be rewarded for preserving those services – but that requires agreement on what those services are and how they should be measured. The US State of Oregon has embarked on a two-year program designed to reach that agreement.



Second in the Series Building the Ecosystem Marketplace. Adapted from a story that will appear in the August edition of the Oregon Insider

5 August 2009 | Advocates of payments for ecosystem services believe these schemes can help improve the environment while expediting development in designated areas. They can also provide revenue to struggling rural areas by paying cash-strapped landowners to act as guardians of the ecosystem.

To achieve their potential, however, these schemes must not only be properly structured and managed, but they must follow a clear set of rules that everyone agrees on.
On July 23, the US state of Oregon took a giant step towards creating those rules when Governor Ted Kulongoski signed Senate Bill 513. The new law doesn't create the rules, but rather provides a framework within which stakeholders and legislators can work together to agree on what works and what doesn't.

To resolve especially thorny issues, the law calls for the establishment of a workgroup that is expected to be convened in late summer or early fall. It will work for approximately a year to develop a report and policy recommendations for the 2011 legislature. Although detailed plans for the membership and process have not been announced, suggestions from potential buyers, sellers, and regulators of ecosystem services will be solicited and considered.

Among these thorny issues is how to establish clear direction on the circumstances under which providers of ecosystem services can combine different environmental values in one transaction without double-dipping. Once this is agreed on, a landowner whose property generates wetland services, water quality services, biodiversity services, and carbon sequestration can earn income by maintaining all of these services on one property. If a piece of the property generates more than one service, he can earn income from the most valuable service, but he will most likely not be allowed to sell multiple credits from the same piece.

The bill was proposed by Defenders of Wildlife and supported by a host of other diverse stakeholders including the Willamette Partnership, the Oregon Homebuilders Association, The Nature Conservancy, the Oregon Forest Industries Council, the Oregon Business Council, Ecotrust, Sustainable Northwest, Wildlands Inc., Parametrix, Clean Water Services, and the City of Portland.

Ecosystem Services Defined

The bill defines ecosystem services as "benefits that human communities enjoy as a result of natural processes and biological diversity". It defines ecological values as "clean air, clean and abundant water, fish and wildlife habitat and other values that are generally considered public goods". An ecosystem services market is defined as "a system in which providers of ecosystem services can access financing to protect, restore and maintain ecological values, including the full spectrum of regulatory, quasi-regulatory, and voluntary markets". A payment for ecosystem services is defined as "an arrangement through which the beneficiaries of ecosystem services pay back the providers of ecosystem services".

Legislation Overview

The new law includes formal recognition that maintaining sustainable rural landscapes is important to Oregonians, and that landowners need assistance to maintain ecological values on the land and pass it on to future generations.

The legislation acknowledges the need to restore some of Oregon's ecosystems, especially in the face of climate change. It also finds that – given appropriate oversight – ecosystem service markets can save money, lead to more efficient, innovative and effective restoration actions than pure regulatory approaches, and facilitate improved integration of public and private resources.

The bill addresses a shortage of industrial land in the Willamette Valley, created largely by previous zoning decisions that placed many industrial zones in protected wetland areas. In a somewhat misunderstood Section 3 (2), the bill recognizes the potential economic benefits of directing development to less ecologically-sensitive areas and providing options for developers that enhance both economic and ecological outcomes. The legislation encourages more effective approaches like the West Eugene Wetlands program, where development continued while substantial contiguous areas of wetland have been restored.

The misunderstandings associated with this provision may have been based on concerns about changing the way local governments allocate resources under the State's current land-use regulations.

SB 513 Specifics

Experiences with existing programs (see Background & Examples, lower right) have revealed a number of thorny challenges that frustrate practitioners and stakeholders and have led to a series of policy dialogues in Oregon and elsewhere.

Sponsored by the Willamette Partnership and Defenders of Wildlife, and facilitated by the Oregon Institute for Natural Resources, these forums produced several reports (see LaRocco/Vickerman, Oregon Insider #416/417), culminating with a report called Policy Cornerstones and Action Strategies for an Integrated Ecosystem Marketplace in Oregon in July, 2008. An early draft of SB 513 began to address these issues.

A Summary of the Findings

Ecosystem Services Unevenly Regulated: For example, water quality, endangered species, air quality and wetlands are regulated to varying degrees, but other resources, like forested watersheds, native prairie, and functioning floodplains are not.

Section 2 of SB 513 begins to address this problem by establishing a policy in Oregon to "support the maintenance, enhancement and restoration of ecosystem services throughout Oregon, focusing on the protection of land, water, air, soil and native flora and fauna."

The bill does not require that these resources be protected through regulation, but goes beyond the "no-net-loss" requirement for wetlands by suggesting the need to restore some ecological systems that have been degraded and require restoration. It also sets the stage for more specific policies that address the conversion of the forest land base to other uses, or the destruction of pollinator habitat by industrial farming practices. This provision suggests a need to quantify the ecosystem services provided by different land uses and management practices in order to determine when they are being compromised and when they are showing improvement.

Agency Authorizations: Agencies are/were not explicitly authorized to engage in adaptive management under Oregon law.
Based on a court decision in the Deschutes Basin (Waterwatch of Oregon, Inc. vs. Oregon Water Resources Commission, 112 P.3d 443(2005), a representative of the Oregon Attorney General's office suggested that agencies were not explicitly authorized to modify management activities in accordance with new information gained through monitoring the results of previous actions.

Section 4 (1) in SB 513 explicitly encourages State agencies to "adopt and incorporate adaptive management mechanisms in their programs in order to support the maintenance, restoration, and enhancement of ecosystem services." This provision is especially relevant in the face of climate change, where so many uncertainties surround predictions about temperature, precipitation, and the response of Oregon's flora and fauna to inevitable changes.

Market Encouragement: Narrowly-focused mitigation approaches remain embedded in agency policy and culture.

As previously noted, historically on-site/in-kind mitigation efforts have produced limited ecological benefits and often irritate developers who are not expert ecologists and do not generally want long-term management responsibilities. Section 4 (2) of SB 513 encourages state agencies to use ecosystem services markets to address mitigation needs, after carefully avoiding impacts to the most sensitive areas, and minimizing damage to others.

The bill explicitly requires that agencies "consider mitigation strategies that recognize the need for biological connectivity and the overall ecological viability of restoration at landscape scale rather than exercise an automatic preference for on-site, in-kind mitigation."

The Workgroup

To address the remaining policy issues, SB 513 directs the Oregon Sustainability Board to convene a workgroup to prepare a report and policy recommendations for the 2011 legislature. Staff support is to be provided by the Oregon Watershed Enhancement Board. The workgroup will be composed of diverse interests including – but not limited to – local, state and federal agencies; Indian tribes; conservation organizations; developers and landowners from the private sector.

Representatives must "be active in improving the ecological effectiveness of ecosystem services markets", and the law mandates the group work on the following issues:

Goals: The workgroup will study and propose over-arching goals to guide the development of integrated ecosystem service markets in Oregon that are efficient, coordinated, and designed to produce positive ecological and economic outcomes with reasonable administrative costs to all participants. The purpose of this section is to encourage agencies to work together to develop an integrated system rather than continue in silos.

Implementation: The workgroup will identify the entities that would be the most appropriate to guide, facilitate, and implement an ecosystem service market in Oregon. This section opens the door to a discussion of a potential role for a lead agency or private sector entity (like a non-governmental organization) to manage transactions. For example, the Green Building Council oversees green building standards and certification without government management. The Willamette Partnership has emerged as a facilitator and market manager in the Willamette Basin and beyond.

Methodology: The workgroup will address the need for consistent methodology to describe and quantify ecological values and in doing so consider methodologies that have been developed or are in the process of being developed. This section recognizes that substantial work has been done in this arena, especially under the "Counting on the Environment" project managed by the Willamette Partnership, and by Parametrix working with the Oregon Department of Transportation. The Oregon Institute for Natural Resources also has a grant from the federal Transportation Research Board to refine these tools. SB 513 also highlights the need to develop a full complement of tools to quantify these services, ideally with an appropriate balance between the need for precision and practicality.

Evaluation & Accounting: The workgroup will make recommendations concerning the development of appropriate ecological evaluation and accounting systems. The goal in this section is to promote more consistent approaches.

Government Participation: The workgroup will consider the appropriate role of government participation in ecosystem service markets in order to ensure that the activities of state agencies are well-coordinated and maintain a positive influence in maximizing ecological, social, and economic benefits for the public and private sectors.

This section highlights a significant difference of opinion concerning the role of government in managing ecosystem service markets. Some agencies have proposed selling ecosystem services (like wetland credits, carbon sequestration benefits, or improved habitat) to the regulated private sector from their publicly held lands. Some private actors consider the sale of ecosystem services from public lands to be unfair competition, and some conservation interests object for other reasons.

A related issue involves the degree to which government agencies control the market transactions. While most agree that some role is appropriate, some fear that overly prescriptive regulations will raise transaction costs and create enough uncertainty to strangle the markets.

Bundling & Stacking: The workgroup will consider rules concerning the "bundling" and/or "stacking" of ecosystem services (i.e. the production and sale of multiple eco-credit types from the same actions/land parcels). Landowners want to be able to sell multiple ecosystem services from the same property, but some regulators consider this practice to be double-dipping. While there are technical solutions to the bundling and stacking problem, different approaches by different agencies complicate the application.

Stimulating Demand: The workgroup will propose policies to stimulate the demand for payments for ecosystem services, in particular the development of voluntary or regulatory markets.

This effort will address policy options for rewarding public and private sector entities for using market-based approaches that create demonstrable ecological improvements. For example, developers may agree to purchase credits from conservation banks to avoid the delays and costs associated with on-site mitigation. Another option is to address the unevenness of regulations to facilitate a more holistic approach to conservation and mitigation. Improving the certainty for investors by adopting clear and consistent rules and providing insurance to cover unforeseen events will all help encourage buyers to participate. It is generally recognized that regulations create markets, but the workgroup may consider creative policy options or incentives that stimulate investment without new regulations.

Conclusion

Oregon has already established a leadership position in the ecosystem markets arena, especially with respect to multi-credit markets focused on ecological integrity. Successful implementation of the workgroup process could have a profound and positive impact on the development of markets in Oregon and nationally.


Sara Vickerman is Senior Director for Biodiversity Partnerships for Defenders of Wildlife. She can be reached at SVickerman@defenders.org.

This article has been adapted from a story in the August edition of the Oregon Insider, a monthly digest of environmental management and regulatory news.

Please contact David Light (epi@rio.com) for permission to reprint or distribute this content.