Several market-based programs are in the works to promote actions designed to reduce the amount of nutrients entering the Chesapeake Bay. The Bay Journal recently took stock of various projects on the table, and their findings are reproduced in the Ecosystem Marketplace.
11 July 2008 | When some corporations fly executives to meetings across the nation, they calculate the amount of carbon expended for the trip and buy “offsets” to erase the impact.
The offsets could, for instance, pay for tree plantings that would absorb as much carbon as was emitted by fossil fuels burned for the trip. The goal is to make the trip “carbon neutral.”
Now, some are wondering whether such an initiative could happen with nutrients and the Bay. Could a mechanism be created allowing a company-or individual-to purchase offsets that erase the “nitrogen footprint” of operating their vehicles, heating their homes or fertilizing their lawns?
A business that wanted to offset the nitrogen emissions from its vehicle fleet could buy offsets from a fund that pays farmers to restore wetlands, plant streamside buffers or take other actions that control the nutrient.
Such a program could become a reality soon. The U.S. Department of Agriculture’s Natural Resource Conservation Service recently awarded a $500,000 Conservation Innovation Grant to the Chesapeake Bay Foundation and several partners to develop such a “nutrient neutral fund“, tentatively named the Chesapeake Clean Water Fund, patterned after existing voluntary carbon markets.
The hope is that citizens who want to improve their own stewardship, or businesses that want to enhance their green credentials, would buy offsets from the fund that would in turn support cleanup efforts.
“We can’t rely solely on public dollars to save the Bay,” said Beth McGee, CBF senior scientist. “We know we have a lot of knowledge, awareness and concern for the Bay in this region. Let’s tap into that and get some private money going toward things that are cost-effectively reducing pollution.”
That’s just one example of a market-based mechanism that might be used to leverage water quality improvements in the Bay.
At a two-day meeting in June, the Katoomba Group, an international organization that promotes market-based solutions to environmental problems, brought together roughly 60 nonprofit, government and business leaders from around the region, and the world, to discuss how to unleash market power to help clean up the nation’s largest estuary.
Each year, Katoomba meets somewhere in the world to find ways to break down barriers and jump-start market solutions. It selected the Bay for this year’s meeting because its leaders believe water quality and quantity issues could become the dominant global environmental issue in the future.
“The Chesapeake was about the perfect pilot for voluntary initiatives to move forward,” said Michael Jenkins, president of Forest Trends, a nonprofit group that helped to pioneer the development of voluntary carbon markets and created Katoomba.
Jenkins said the Bay is small enough to pull a critical mass of players together to develop market initiatives, but large enough to draw global attention for its efforts. Perhaps most importantly, there’s a need for a “new push” to show successful results from restoration efforts that can build support for new ideas, he said.
The goal of the workshop was to advance an array of market-type programs. Market solutions don’t always require an exchange such as a trade or offset; some work by creating value for environmental benefits.
For example, the Leadership in Energy and Environmental Design program creates value by promoting green building that can save money over time, even if they cost more up front.
The certification program – carried out by independent evaluators trained by the U.S. Green Building Council, which developed LEED –initially drew interest primarily from nonprofit organizations and government agencies. But businesses are increasingly buying into the benefits in part because they provide value beyond cost savings. More than 12,000 buildings are currently seeking LEED certification.
Demand for green buildings in Portland, OR, is so high that it is difficult to rent a building if is not LEED-certified, said Bettina von Hagen, of EcoTrust, a nonprofit that promotes sustainable economies. In highly competitive fields, job recruits sometimes ask whether the office of an employer is green-so certification provides a competitive edge, she said.
“Green building is cool,” von Hagen said. “It is status. If you don’t have a green building in Portland, you’re toast.”
A certification strategy that may have significant Bay potential is being developed by a new nonprofit organization, Watershed Stewardship. It is working with corporate buyers of agricultural products to ensure that crops and other goods are produced in ways that reduce environmental impacts and protect water quality.
In that approach, the buyers set out performance expectations for producers, with farm performances verified by independent evaluators.
Such programs can give producers a marketing edge. “More and more we are seeing the consumer ask for some certification that their food or product was produced in an environmentally friendly way,” said Tom Simpson, a retired soil scientist from the University of Maryland who heads the new initiative.
The goal is to start with basic levels of performance that would gradually increase. “We want to integrate an expectation of water quality performance into the food system, but to do it in a way that minimizes the impact at the grower level,” Simpson said.
In 2005, Sysco Corp., a major food buyer for restaurants, established such a program in Western states to get farmers to incorporate integrated pest management techniques to curb pesticide use on produce. In the program’s first year, Simpson said the use of pesticide active ingredients dropped by 300,000 pounds. The program seeks “continuous improvement” so farmers make verifiable incremental improvements each year.
Similarly, in the timber industry, many large chains now only buy wood that is certified by independent evaluators as having been sustainably grown.
Other techniques, such as eco-labeling also hold promise. Consumers can voluntarily choose products that meet certain standards of production.
But the voluntary offset, or trading program, may offer some of the quickest benefits. “We think water-and water quality trading-may be the next big thing,” said Ricardo Bayon, of EKO Asset Management Partners, who has worked with carbon programs and is also helping to develop the new Bay nutrient offset initiative.
States in the region have already developed regulatory markets for nutrient trading. In those markets, a wastewater treatment plant that needs to reduce nutrients can meet its obligation by purchasing “credits” from other plants, or even farmers, who do more than required.
So far, few trades have taken place. One of the impediments is the significant technical and regulatory concerns about meeting discharge permit obligations through the purchase of credits from farmers or other runoff sources where nutrient reductions are often hard to quantify.
Participants at the workshop suggested that voluntary programs could help lead the way. In the regulated trades, a buyer or seller could face significant liabilities if they fail to meet their obligations.
Voluntary programs can offer insights about the best ways to accomplish offsets by refining the standards by which nutrient reduction “credits” are generated, reported and verified-important steps for building confidence in any trading program.
Bayon called voluntary markets “the thin edge of the wedge. They are what get things started.”
Beyond that, they can also attract money from unregulated private sources, such as businesses that want to spruce up their image by voluntarily offsetting their impacts.
“Voluntary markets have often been pooh-poohed,” Bayon said. “Nobody is arguing that voluntary programs on their own are going to solve the problem. They are not.”
Last year, the voluntary carbon market totaled $331 million. While small compared to the regulated cap-and-trade programs, which totaled $65 billion, the size of the voluntary market tripled from 2006, while the regulatory market doubled.
Voluntary programs also provide educational value. “Carbon calculators,” which help people and businesses determine how various activities contribute to their carbon “footprint” are now common. People use them to determine the number of offsets they would need to purchase to mitigate the effects of various activities to be “carbon neutral.”
McGee said CBF is working to develop a similar nitrogen calculator. “You have a nitrogen footprint whether you are an individual or whether you are a business,” she said. “It is creating an educational tool that engages the public and makes them more aware of their collective impacts.”
She said market programs alone won’t restore the Bay. But she said current publicly financed programs, such as incentive payments to farmers who install conservation practices, would likely never meet all of the Chesapeake cleanup goals by themselves.
“These are more tools that we are bringing to bear on Bay restoration,” McGee said. “I think it’s sort of an untapped market, if you will, that we are exploring. We need to think more creatively about ways that these market-based approaches may be used. There is not going to be any one silver bullet, but hopefully with these programs working in concert, we can get to where we need to be and maintain it.”
Marketing New Ideas
Here’s a sampling of different market-based programs that are in various stages of development – some conceptual – in the Bay region.
Chesapeake Clean Water Fund: Sometimes called the nutrient neutral fund, the program aims to provide a sustainable funding mechanism to address water quality concerns. Modeled after voluntary carbon funds, it is designed to use public awareness to encourage individuals and businesses to make voluntary purchases into a fund that invests in nutrient control programs that would offset their impacts.
Supplier Certification Programs: Corporate purchasers of agricultural products looking to promote stewardship can create certification programs that set specific performance expectations for farmers supplying their food. These expectations could include the installation of practices that reduce water pollution and the use of herbicides and pesticides. Verification is assessed by third party evaluators. The result is better environmental accountability, improved confidence in the food system, and an enhanced public image for the companies. A pilot project in the Bay region is being developed by a new organization, Watershed Stewardship.
Eco-Branding: An eco-brand is a communication device to indicate a product or product line has a some environmental attribute. For example, milk that is produced by dairies following a specific set of sustainability and ecological practices could receive an eco-brand, which could allow it to get a premium price in the marketplace. Because they are following a prescribed set of quantifiable practices, farmers could get financial rewards from the product. Other benefits might include a head start on other programs, such as certified nutrient credits for trading, facilitated permitting, producing carbon credits or reduced insurance. Environmental Defense, a national nonprofit, is developing a pilot program in the watershed.
The Bay Bank Initiative: This initiative aims to provide a marketplace where forest owners can sell ecosystem service credits to interested buyers. The goal of the bank is to improve the health of the Bay by giving landowners an incentive to protect valuable open space and to adopt stewardship practices that protect water quality and streams. The program would evaluate the ecosystem services-habitat restoration, water quality improvements, carbon reductions, and so on-and create an online marketplace where credits from those services may be purchased. It could be used voluntarily by individuals or companies wanting to offset their impacts, or may be used to help meet regulatory obligations for wetland mitigation, habitat improvement, and carbon or nutrient reductions. A pilot project is being led by the Pinchot Institute.
Credit Insurance Programs: While the EPA and states increasingly embrace nutrient trading programs, one concern about such programs is liability incurred when a permit holder purchases credits from another source which, for a host of reasons, may fail to meet its obligations. Creating a marketable insurance fund or programs to back those credits, perhaps through the establishment of programs that support back-up nutrient reduction initiatives, could provide a greater level of comfort to trading programs.
Mandatory vs. Voluntary
Mandatory carbon markets are driven largely by nations that have committed to specific carbon reductions to meet the Kyoto Protocol. Voluntary markets sell offsets to companies or individuals who do not have to meet regulatory obligations but want to offset their carbon impacts. Some of the reasons companies cite for participating in voluntary carbon funds include:
Differentiating themselves from competitors
Part of a corporate responsibility strategy
Helps to recruit employees
Fear of regulation
A chance to influence policy or regulations
Advocates believe a similar fund could help leverage voluntary nutrient reductions.
This story originally appeared in the Bay Journal, and can be accessed in its original form here.