1. USDA Forest ServiceNortheastern Area, State and Private Forestry Ecosystem Service Market Opportunities & Partnerships Workshop August 20, 2008 – Ft. Collins, Colorado Jay Jensen, Western Forestry Leadership Coalition Prepared by / Adapted from: Albert H. Todd, NA Watershed Program Leader Potential Markets for Watershed Services

2. USDA Forest ServiceNortheastern Area, State and Private Forestry Nature is humanity’s landlord…. and we have been getting a great deal on rent and utilities! R. Bruce Hull

3. USDA Forest ServiceNortheastern Area, State and Private Forestry Goals of Presentation Describe markets and issues Examples

4. USDA Forest ServiceNortheastern Area, State and Private Forestry Valuing Ecosystem Services Global Environmental Services are over US $ 33 trillion annually (Costanza, 2005) Chesapeake Bay – over $30 billion annually from trees alone - more than seafood industry. * does not include water or recreation benefits) (TCF & Forest Service, 2006)

5. USDA Forest ServiceNortheastern Area, State and Private Forestry Putting a value on water Water is currently free! Take services for granted No consequences for loss Undervaluing leads to overuse Concern: commoditizing water as a forest ecosystem service may devalue or ignore other benefits (intrinsic)

6. USDA Forest ServiceNortheastern Area, State and Private Forestry What are the hydrologic services of forest lands? slow the rate of runoff reduce soil erosion and sedimentation in waterways filter contaminants that influence water chemistry provide stable annual water flow in a watershed increase or decrease groundwater recharge sustain aquatic system productivity – temp, habitat Forest functions

7. USDA Forest ServiceNortheastern Area, State and Private Forestry Key influences in the development of markets for watershed services? Urgency/scarcity is now real (of supply or quality) Climate change effects first felt in the water cycle Location matters – carbon is global, water is local Complexity – a ton of carbon is a ton of carbon – water services are tougher to define Water is a property right Many types of users Many types of solutions

8. USDA Forest ServiceNortheastern Area, State and Private Forestry Potential watershed service buyers… Agriculture Drinking water providers Sewage treatment plants Big box retailers Water using industries State and local governments Large residential and commercial developers Industrial point source polluters and energy companies

9. USDA Forest ServiceNortheastern Area, State and Private Forestry Tree planting/forest expansion Riparian buffers/meadow/wetland restoration Management to enhance water or nitrogen storage or prevent fire Avoided deforestation (targeted) Erosion control Urban tree canopy Others… Potentially eligible practices

10. USDA Forest ServiceNortheastern Area, State and Private Forestry Types of Water Markets 1) Self organized private deals 1 to 1 deals Usually in the absence of regulation 2) Trading Schemes Regulatory standards or pollution caps Driven primarily by cost 3) Public Payment Schemes Most prominent world-wide Traditional incentives and new outcome-based incentives

11. USDA Forest ServiceNortheastern Area, State and Private Forestry 1) Self organized private deals Perrier- world’s largest bottler of water. Coor’s Beer – Pure Water 2000 Nutrient Net – World Resources Institute Nutrient Net Online marketplace for water quality trading Nutrient Net Online marketplace for water quality trading

12. USDA Forest ServiceNortheastern Area, State and Private Forestry Sierra Nevada Meadow Restoration Plumas National Forest Private ranchers Reduce sediment to PG&E hydropower plants Feather River - 30% of CA drinking water supply Groundwater storage for downstream uses Non-consumptive use/change of timing New water rights?

13. USDA Forest ServiceNortheastern Area, State and Private Forestry Coca Cola Company 190 plants in 20 countries Largest single consumer of water in the world. Policy to offset production volumes through environmental flow replenishment Risk to future supplies is motivation “The price of water must rise” Joe Rozza, CC Dir of Sustainability)

14. USDA Forest ServiceNortheastern Area, State and Private Forestry 2) Trading Schemes Water quality BMPs that improve WQ (quantified benefit) create tradable credits (scarcity creates demand) Non-point land practice vs point source structural Aspects of the trading market Allocation of caps (scarcity creates demand) Trading ratios – reflect uncertainty Nutrient reduction calculations – science Establishment of the baseline – regulated vs trends Market structure – institutional and private intermediaries Trading activity – experience Credit Insurance

15. USDA Forest ServiceNortheastern Area, State and Private Forestry

16. Chesapeake Bay Voluntary cap (TMDL) for nutrients Point sources exceed or are projected to exceed Tributary limits EPA Model efficiencies for BMPs Cheaper compliance Forest buffers PA: 40-70% of edge of field N and P load based on physiographic provinces + conversion of land use. VA: buffer width X ave. perimeter of buffer in feet/43,560 ft =acre for land conversion. N in # applied X acreage = credits of reduction. Forest buffers PA: 40-70% of edge of field N and P load based on physiographic provinces + conversion of land use. VA: buffer width X ave. perimeter of buffer in feet/43,560 ft =acre for land conversion. N in # applied X acreage = credits of reduction.

17. USDA Forest ServiceNortheastern Area, State and Private Forestry Tualatin Watershed (OR) Sewage Treatment Plant Temperature TMDL Tree planting for riparian shading Reconnect floodplains to cool base flow $6 million committed by water utility in lieu of $35 million refrigeration cost

18. USDA Forest ServiceNortheastern Area, State and Private Forestry Australia : Murray Darling Basin New South Wales Coastal flooding and salinization due to land clearing and loss of transpiration Irrigation farmers purchase transpiration credits from State forests or private landowners who plant trees upstream. Market success may lead to government establishment of forest cover targets

19. USDA Forest ServiceNortheastern Area, State and Private Forestry Issues related to WQ Trading Success limited to date Time scales Death by a thousand discounts Reliance on cost discourages accounting for multiple benefits Lack of strong demand drivers Limited experience

20. USDA Forest ServiceNortheastern Area, State and Private Forestry 3) Public Payment Schemes: NYC Watershed Drinking water supply for >6 million people Protection and management of forests and agricultural lands Invest $30-50 million per year in conservation vs. $7+ billion in capital & $300 million/year in operating costs.

21. USDA Forest ServiceNortheastern Area, State and Private Forestry Denver Water Company Over 80% of the water supply for over 1.5 million people in the Denver metro area Fire and flood events degraded water quality and damaged water treatment and storage facilities City funds fuels treatment, road rehabilitation, prescribed burning, fire protection measures in nearby private subdivisions. Public education

22. USDA Forest ServiceNortheastern Area, State and Private Forestry Vermont Stormwater Offsets 1264a. Interim stormwater permitting authority Offset trading policy No net increase in sediments or flow in impaired waters Developers offset discharge through BMPs or pay for impervious removal projects or forest protection ($30K/acre )

23. USDA Forest ServiceNortheastern Area, State and Private Forestry Equador Equador (Ecodecision) Watershed Protection user fees go into a trust fund managed by an investment company - farmers Watershed tariff (1 cent /m 3 )on goods that use water Drinking water consumers, Beer/bottled water Co Electric utilities Farm production 6% of hydroelectric power generation sales returned to municipalities, environmental groups and landowners. Similar schemes in Columbia and Brazil.

24. USDA Forest ServiceNortheastern Area, State and Private Forestry Costa Rica Forest protection subsidies - $ from 3.5% national gas tax returned to private landowners ($400 million/year) to protect forests in headwaters of water supplies and rivers of high ecological value From: the social impacts of payments for environmental services in Costa Rica Miranda, Porras, and Moreno, 2003 From: the social impacts of payments for environmental services in Costa Rica Miranda, Porras, and Moreno, 2003

25. USDA Forest ServiceNortheastern Area, State and Private Forestry Other market techniques for traditional incentives… Reverse auctions – landowners or other benefit providers bid for public funding (NRCS) Watershed service payment model –“Farmers for clean water” – WV- watershed scale enrollment - monthly payments for clean water volume (CIG funding)

26. USDA Forest ServiceNortheastern Area, State and Private Forestry Developing Hybrid Markets: the “Bay Bank TM ” for Chesapeake forests Multi-state Multi-market Privately led (NGO) Spatial land registry Matchmaker.com

27. USDA Forest ServiceNortheastern Area, State and Private Forestry Willamette Partnership (OR) NGO led Salmon protection Bundling multiple markets, (wetlands, T&E) Conservation Registry Credit Protocols

28. USDA Forest ServiceNortheastern Area, State and Private Forestry Developing water markets Identify water-related ecosystem services Define geographic parameters Determine what can be measured and monitored and how (third party certification of water) Identify who supplies & who receives the benefit? Determine the rights, responsibilities, and rules? Build coalitions to link downstream and upstream Link multiple service markets – stormwater, wq, aquatic health, etc. Provide political support tougher standards

29. USDA Forest ServiceNortheastern Area, State and Private Forestry Forestry Agency Role Convene partners and connect efforts Create a framework supporting credits & trading ecosystem services Verifiers / Aggregators Provide technical data & information Learn, test, pilot, & promote project examples

30. USDA Forest ServiceNortheastern Area, State and Private Forestry Contact information: Albert H. Todd Watershed Program Leader Northeastern Area S&PF 410-267-5705 atodd@fs.fed.us Jay Jensen Executive Director Western Forestry Leadership Coalition 303-445-4366 jay.jensen@colostate.edu www.wflcweb.org - www.na.fs.fed.us/watershed www.wflcweb.orgwww.na.fs.fed.us/watershed www.wflcweb.orgwww.na.fs.fed.us/watershed Contact information: Albert H. Todd Watershed Program Leader Northeastern Area S&PF 410-267-5705 atodd@fs.fed.us Jay Jensen Executive Director Western Forestry Leadership Coalition 303-445-4366 jay.jensen@colostate.edu www.wflcweb.org - www.na.fs.fed.us/watershed www.wflcweb.orgwww.na.fs.fed.us/watershed www.wflcweb.orgwww.na.fs.fed.us/watershed