Conventional markets are the wrong institutions for managing ecosystem services
We need to think much more creatively about the design of institutions better suited to the common asset nature of ecosystem services. If we think of ecosystem services as part of “the commons,” we still can and should use economic incentives (fees and payments) to manage the commons, but we need a different institutional form than “markets” within which to do this – something more akin to an “ecosystem trust”.
American property law, regulation, and social norms have an anti-ecosystem services bias. However, an alternative emerges in the “public trust doctrine,” an idea which has the breadth and substance to guide a comprehensive approach to natural resource management. “Common asset trusts” may be one way of implementing this doctrine.
For example, Vermont’s Senate introduced a bill to create such a trust that would “propertize” (but not privatize) the state’s natural and social capital assets in order to better manage them on behalf of their common stakeholders. This is a new but demonstrably straightforward approach. Trusts would define whole ecosystems as common property assets, managed by trustees on behalf of all current and future beneficiaries. Once property rights are assigned, we can use existing property law to manage ecosystems more effectively; charging fees for damages, making payments for enhancements, and paying dividends to stakeholders. This approach can also help to drastically reduce transaction costs of Payments for Ecosystem Services schemes.
While trusts may not be the only or the best institution for managing ecosystem services, do they seem to be a move in the right direction?
Comments
Identifying whole ecosystems
Identifying whole ecosystems as common property assets does provide a new context to view ecoservice values. I think markets need to have this context to generate landscape intelligence and allow supply-and-demand forces that are so fundamental to any market, to organize. But as a land owner/manager that gains financially from the production of provisional ecoservices, I would not be able to trust the trustees making decisions on behalf of the current and future generations. Trustees may decide to penalize certain production systems of provisional ecoservices relative to the value of them expressed by the commodity market or government policies.
A new type of Institutional structure may emerge from Strategic Doing, a new discipline described by Ed Morrison, Purdue economist. It could be described as Strategic Planning infected with a social networking virus. When this discipline was applied to a pilot ecoservice market for Minnesota ag water issues, it allowed stakeholders to express various types of values for ecoservices within the context of a watershed and it can be designed to value ecoservices within the context of any geo-spatial unit (milkshed, duckshed, etc.)simultaneously.
I have not given it thought until now, but it may be able to capture some of the trust structure values you described within the context of today's market structure.
Our current combination of
Our current combination of property rights on private property and environmental regulations actually amount to something very like the notion of a 'common asset trust'. Environmental laws are always trying to balance the rights of a property owner to act in a self-interested manner with the rights of neighbors 'downstream' to not be negatively affected. The resulting restrictions (no filling of wetlands, 'taking' of endangered species and so on) essentially recognize the value of nature, albeit imperfectly. So I can't see how a new law that would 'propertize' ecological value and create a new public institution would really advance the situation on the ground.
What we refer to as 'environmental markets' are entirely creations of regulation, and are in turn highly regulated activities. Because this is the case, they reflect public values, promote good measurement of ecological production and uplift, and appropriately align incentives.
We have to keep our eye on what we are actually trying to accomplish: using our deepening knowledge of the value of natural systems to make sure that conservation and restoration can compete with development and extraction when decisions are being made about ecological resources. Environmental markets help to accomplish this by creating a simple yet powerful dynamic in which "the more good you do, the more money you make".
Importantly, environmental market solutions are not in any way exclusive of or counter to traditional public or philanthropic solutions. We can still raise state conservation bonds, create parks and wilderness areas, contribute to NGO's that buy conservation easements, and so on. But it's critical that we acknowledge the reality of public and philanthropic financing and admit that our ability to create sufficient ecological results in the face of ongoing population increase and related development is limited.
The real question is: where does the money come from to do the good things we want to do. Environmental markets are the only solution set that provides incentive for private investment in such a way that it expands the pool of capital we have for conservation and restoration outcomes. It's possible that a Trust like the one Robert describes could facilitate more efficient and effective results, but it wouldn't be as an alternative to environmental markets, but rather as a platform from which they could operate.
Speaking not as an expert but
Speaking not as an expert but an interested writer who tries to follow these issues, if I understand how trusts work, it seems that the difficulty in both trusts and markets is a certain "critical mass" of interests have to agree on the "rules" for protecting and managing ecosystem services appropriately. Whether it is regulation (or voluntary green marketing) that requires offsets/mitigation and thus creates a market for ecosystem credits or whether it is a trust that defines the objectives for management of ecosystem services, it's the societal/regulatory/business level agreement that is difficult, isn't it? Perhaps because we know a lot of things about managing ecosystems but even more that we aren't sure how to do right, which also may require building in a degree of flexibility to the "rules." So, is the question market vs. trust vs. something else or is the question how to learn to weave together science and diverse interests and apply successes in creating agreement on "rules" for managing ecosystem services (such as the Willamette Partnership, which has begun with 4 aspects of ecosystem services and thus 4 types of credits). It's a question I have.
These are all insightful
These are all insightful comments that I think make my case. We are talking about complext systems that are going to require some sublty, experimentation, and community buy-in in order to work. I couldn't get into much detail in the 250 words alloted, but only used it to raise the questions. We need to figure out how to use all our existing tools (economic incentives, government regulation, community based management) but in a more coordinated way toward a more consistent shared goal that recognizes the public good characteristics of many ecosytem services. The trust idea provides, I think, such an umbrella under which this can happen. I can recommend a few additional readings that get into much more detail on this:
1. The Law and Policy of Ecosystem Services by J.B. Ruhl, S. E. Kraft, and C. L. Lant. This book discusses the problems with conventional common law in dealing with ecosystem services and the need to move to the "public trust doctrine" to do a better job. Trusts fit in this category