A Regional Multi-permit Market for Ecosystem Services

Abstract:

Regional cap and trade programs have been in operation since the 1970’s to reduce environmental externalities (NO_x and SO_x emissions) and have been shown to be beneficial. Air quality and water quality limits are enforced through numerous Federal and State laws and regulations while local communities are seeking ways to protect regional green infrastructure and their ecosystems services. Why not combine them in a market approach to reduce many environmental externalities simultaneously?

In a multi-permit market program reforestation (land offsets) as part of a nutrient or carbon sequestration trading program would provide a means to reduce agrochemical discharges into streams, rivers, and groundwater. Land conversions also improve the quality and quantity of other environmental externalities such as air pollution. Collocated nonmarket ecosystem services have societal benefits that can expand the crediting system into a multi-permit trading program. At a regional scale it is possible to combine regulation of water quality, air emissions and quality, and habitat conservation and restoration into one program. This research is about the economic feasibility of a Philadelphia regional multi-permit (cap and trade) program for ecosystem services.

Instead of establishing individual markets for ecosystem services, the assumption of the spatial portfolio approach is that it is based on the interdependence of ecosystem functions so that market credits encompasses a range of ecosystem services. Using an existing example the components of the approach are described in terms of scenarios of land portfolios and the calculation of expected return on investment and risk. An experiment in the Schuylkill Watershed will be described for ecosystem services such as nutrients in water and populations of bird species along with Green House Gases. The Philadelphia regional market includes the urban – nonurban economic and environmental interactions and impacts.