When Ecosystem Marketplace launched in 2005, the idea of preserving nature by incorporating its value into our economic system was mostly an academic exercise. Today, it’s the cornerstone of a fast-moving and innovative branch of finance. To keep our readers up-to-speed on the latest developments, EM and EKO Asset Management Partners have launched the EKO-ECO blog.
15 June 2009 | Ecosystem Marketplace and EKO Asset Management Partners have teamed up to launch EKO-ECO, a blog dedicated to promoting critical discussion of the emerging global ecosystem marketplace.
This project represents a logical progression of processes that began some nine years ago, when a group of people interested in the environment met under the auspices of a DC-based non-profit called Forest Trends to discuss a question that was pointedly on very few people’s minds: Should nature and the services it provides have an economic value?
That meeting took place in a town outside of Sydney, Australia called Katoomba (appropriately enough, we are told that the word in the local aboriginal dialect means “rushing water”), which is why the group began calling itself “The Katoomba Group“. The idea at the time was that one of the fundamental problems with the global economic system – one of the core reasons for our environmental problems – is that the value of nature isn’t properly being accounted for in anyone’s bottom line.
This concept wasn’t entirely new; there had already been much written in economic circles about the need for a new form of “environmental economics”, or for a “Green GDP”, and there were even estimates of the value of nature’s services that were being published by leaders in the field of environmental economics (I am, of course, thinking of the estimate by Robert Costanza that nature’s services were worth some $33 trillion on an annual basis).
What was different about this group, however, was that rather than rely on the estimates of economists, the group felt that markets were going to have to be created in order to “put a price” on nature. The sorts of markets that they had in mind were not only the “cap-and-trade” style markets like the one created to manage Sulfur dioxide (SO2) emissions in the US, but also other forms of “Payments for Ecosystem Services” such as the voluntary carbon markets that had already emerged, or government-mediated markets such as the ones that were emerging in Colombia, Costa Rica, and elsewhere.
In order to better understand how these systems might work, the group included scientists, NGOs, businesses, financiers, academics, and others. And the group was designed to be practical: to think not of what should be done to establish these payment schemes for ecosystem services, but rather what could be done and what was being done.
The Rise of Ecosystem Marketplace
As it turns out, all of the participants found the meeting to be hugely valuable (if nothing else because each of the participants felt a little less lonely after that meeting, knowing that there were others out there thinking about these issues) and so it became a regular event. Katoomba Meetings were held in London, Vancouver, Tokyo, Rio, Uganda, and many other cities and countries throughout the world.
At a key meeting in Switzerland, the participants realized that one of the links that was missing in the creation of these markets was information; it is no accident that markets generate information tools like the Wall Street Journal, the Financial Times, or Bloomberg.
Without information, markets cannot function. And so the group decided to create a “Bloomberg” for environmental markets in advance of the markets themselves. And that tool was called the Ecosystem Marketplace.
EM has now been operational for nearly six years, and in that time it has produced landmark studies such as the recently released “State of the Voluntary Carbon Markets” report, as well as similar reports and pieces of information on the wetland mitigation markets, species banking, and water quality trading.
But that is only the “ECO” part of this story.
The Alignment of Profit and Preservation
The “EKO” part reflects an explosion of private, for-profit companies created to serve and profit from these emerging markets: it’s the name of a company that some of us created two years ago because we felt there was a growing disconnect between these emerging environmental markets and large sources of capital – a disconnect that was often camouflaged by the success of the carbon markets, which are well-supplied with both capital and capitalists.
For instance, it is a little known fact that the US has had – for almost two decades – a thriving market in ecosystem restoration. The market is called “wetland mitigation banking” because it covers that particular ecosystem and arises out of language in the Clean Water Act, but it is essentially an environmental market – not unlike the EU market for carbon. This market currently transacts (according to the best estimates out there) some $3 billion a year and has led to the creation of other similar markets in species conservation, etc. But despite the fact that this is a real and (some might say) vibrant market, it is almost entirely underserved by large-scale capital providers.
That is why some of us created EKO Asset Management Partners, to serve as Green “Merchant Bankers” (or, if you prefer, a Boutique Investment Firm) created to help bring capital to bear in these new and exciting environmental markets. There are now dozens of other for-profit ventures designed to stimulate (and make money from) these markets, and that is only the beginning.
As we write this (in mid-2009), the US Congress has finished the first of what are likely to be lengthy discussions on the creation of a cap-and-trade market for carbon in the US. If and when a version of these laws finally comes to pass, it will create one of the world’s largest environmental markets. Already, the ripples are beginning to emerge: new businesses are being proposed almost daily to take advantage of these new markets.
In other words, the pace of change is ramping up. When we created Ecosystem Marketplace (and, for that matter, EKO Asset Management Partners), it was enough to write articles every month or every couple of weeks and we were able to cover most of what was happening in this space. But today there is news daily (it sometimes seems like it comes hourly!) and our subjects are being discussed live, on air, via C-Span. For this reason, we believe it is time to create a faster, more vibrant form of discussion, news, reflection, and information on these markets; a truly interactive blog.
While we do not suggest that financial markets – heavily criticized in recent months for inflated profits, obtuse formulas, and outright fraud – are the only answer for conservation or climate stabilization, we do think that they have tremendous potential to achieve cost-efficient environmental aims, provided they are backed by sufficient government foresight and public oversight. They are a tool in our tool-belt, one we can ill afford to overlook.
Admittedly, not all conservation aims will be served by markets. As is the nature of virtually all human institutions, capital markets have proven themselves easily manipulated by human greed (in the guise of financial engineers and fancy derivatives, creating wild profits for a few at the expense of the many). However, the same forces that attracted early proponents to capitalism – namely, production cost-efficiencies and the better distribution of scarce resources – can also apply to environmental markets.
So we recognize that all is not well in the world of environmental markets. We know there are problems, we know there are issues. But we believe there can also be solutions and we hope you will join us (and our “guest columnists”) in discussing and debating these issues. Because only with such open intellectual discussion will we ever be able to solve the many environmental problems we face. We hope you’ll contribute often and let us know what you’re most curious about, what you think is most needed to make markets for ecosystem services succeed, and what you think is merely a green (or capitalist) pipe dream.
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