Living and Learning

In order to survive, organisms must adapt to changing circumstances. The same is true for environmental markets. Over the past month the Ecosystem Marketplace has seen clear signs of this type of adaptation. And, while some see it as a sign of impending doom for markets, we can't help but think this sort of change is healthy; that it is one of the surest signs that these markets are here to stay. To give but a few examples of this dynamism, in this newsletter we focus on new policy, new science, new ventures, and new collaboration; all of which have caused upheaval, adaptation, and--we think--progress in carbon, biodiversity and water markets all over the globe.

New Policy
The United States and Australia announced a new climate pact--aimed at advancing the fight against climate change through technological innovation--with Japan, India, China and South Korea at the ASEAN-plus-three meeting in Laos in July. Some hail the partnership as a move in the right direction; others fear it will spell an end to Kyoto in 2012. Right now it looks like nothing more than an agreement to encourage clean technologies--hardly a fiendish scheme--but if countries begin to talk about it as an alternative to Kyoto, it could have repercussions in the post-Kyoto negotiations. Already it has slightly impacted the price of carbon in the markets. We'll know more after a planned meeting in Australia in November. If nothing else, the pact represents tacit acknowledgment from both the US and Australian governments that climate change may be real.

New Science
What some considered to be bad news on the policy front was quickly followed by even more disturbing news on the scientific front: Last week, a team of scientists in the UK released the findings of four years of research into the links between upstream land use and downstream water-flows. The results of this study may mean that the advocates of water quality and quantity markets need to go back to the drawing board to re-consider their assumptions.

Essentially the report found that there was no clear link between tree-planting and forest cover upstream and water flows downstream. And, where a link was found, it was often that more trees upstream can lead to less (not more) water downstream. Indeed, in one study, in India the results suggested "that converting agricultural lands to forests in Himachal Pradesh and Madyha Pradesh caused a 16-26% reduction in water yields." Putting the case even more bluntly, one of the main findings of the report was that "massive amounts of money" are being wasted by government agencies and development banks pursuing tree planting initiatives under the assumption that "forested land always conserves and supplies more water than grasslands or other treeless areas," hardly the sort of thing that nascent markets for water-related ecosystem services want to hear.

But like it or not, this is precisely the sort of science that will ultimately serve to make environmental markets stronger, not weaker. It is better to consider these sorts of issues now, as the market is in it infancy, than to discover these problems later, when massive amounts of money are changing hands and people find they may be paying for a service they are not getting. Indeed, even this ominous dark cloud had its silver (or should we say golden) lining: it found that one of the problems that make it difficult to trace water from land users upstream to water users downstream is the issue of leakage (sound familiar?), that is that water may cross from one watershed to another via little understood underground connections. If this is true, it may in fact mean that the market that needs to be created needs to be bigger, not smaller, that it needs to cover several watersheds at once instead of just focusing on a single watershed at a time. For markets this can be good news: it just means the market for water may in fact need to be bigger than previously thought.

New Business
On a more unambiguously positive note, in early July the Ecosystem Marketplace reported that the Hancock Timber Resource Group announced the sale of its Sydney-based New Forests program--essentially its largest environmental markets branch--to David Brand, the program's erstwhile manager. The fact that Brand was able to raise the necessary capital to buy out the business--now simply called New Forests Pty. Ltd.--in what would appear to have been a relatively short space of time could indicate that there are plenty of investors out there who, like Brand, see tremendous potential in the world of ecosystem service-based markets. We look forward to seeing this new company venture into many new environmental markets.

In other words, and to paraphrase Brand himself, there is often opportunity in change. And, as buyers and sellers test the policy and science behind the markets against the environmental and business realities of the world, it is only natural--nay healthy--that some ideas will be discarded, some celebrated, and still others refined. Tracking the conversations surrounding this process of natural, market-mediated, selection has been a theme for the Marketplace of late. We hope that you will stay with us as we work to keep up with the rapid evolution of these markets.

Ricardo Bayon, Managing Editor
Amanda Hawn, Assistant Editor
Adam Davis, Editor-in-Chief
Michael Jenkins, Publisher