Exploring markets for ecosystem services

The Markets Project builds on the extensive groundwork laid by The Ecosystem Services Project in defining the concept of ecosystem services and developing robust methods for their measurement. The project will explore how markets for ecosystem services could work through:

• identifying and matching market mechanisms and production of ecosystem services;
• finding ways to link measures of ecosystem services to landholder actions;
• designing market mechanisms that encourage non-government investment in natural resource management; and,
• analysing what governments should do and what they should avoid when creating markets.

Key challenges are to show where market mechanisms are most effective, where other mechanisms will work better, and, how market mechanisms fit into existing programs (such as regional land and water management planning).

While the concept of an ecosystem services market is relatively simple, the steps in successfully creating markets are, not surprisingly, complex. A piecemeal approach with individual sellers and buyers would not be sustainable or effective. Rather markets will need to be closely linked to the targets for natural resource management being established by governments and catchment management authorities. The targets reflect the type of values and environmental outcomes that communities are trying to achieve. Establishing markets will help coordinate the efforts of initiatives and targets at a farm and catchment scale.

The following table illustrates how a catchment might define targets for different ecosystem services.

In order to help achieve these broader targets, mechanisms would have to be put in place that quantify the contribution of on ground actions at a property scale to the larger Catchment objectives. These onground actions are how credits are created, and provide an opportunity for investors to invest in local scale projects. The following table is a hypothetical illustration of how the performance of on ground actions could be measured in achieving catchment targets.

It may not be possible to precisely quantify the level of all projects to all environmental targets. However, some relative ranking should be possible, for example in the case of salinity credits the table reflects that it may only be possible to rank projects on a high/medium/low basis.

Trading in environmental outcomes is another possibility under this framework. For example, a farmer seeking to clear native vegetation may be required to invest in projects with carbon, biodiversity, salinity and water quality benefits that offset the impacts of the development on their property. These works could either be undertaken on the property or bought from another property.

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