Water Trading Gains Support at Katoomba XII in Washington, DC

Senator John Kerry delivered the keynote address at last week’s Twelfth Katoomba Meeting, which was co-hosted by the Smithsonian Institution and held at the Smithsonian’s National Museum of Natural History in Washington, DC. Canadian environmental writer Chris Wood takes stock of the proceedings for the Ecosystem Marketplace.

15 June 2008 | To a visitor familiar with other world cities, Washington presents an ambivalent face. Iconic monuments and imposing quarters dedicated to the conduct and influence of American government speak to power – while unexceptional streetscapes away from the Mall, banal lives overheard in scraps of conversation, the unoccupied and homeless idling in scruffy parks within rifle shot of the White House, expose the quotidian complexities beneath the mystique.

Some of the same ambiguity was apparent at the twelfth meeting of the Katoomba Group at the capital’s Smithsonian Institution (which co-hosted the event) in the second week of June.

Progress and Problems

On the one hand, events surrounding the best-attended Katoomba conference to date gave many of its nearly 600 participants reason to appreciate the historic urgency of their mission — engaging markets to preserve the environment — and an invigorating sense that the climate of public opinion is shifting decisively toward action in response to changes in the physical climate.

On the other hand, successive speakers reminded their audience of the many political, institutional and practical problems yet to be solved.

As Michael Jenkins, the President and CEO of Forest Trends (which, like the Katoomba Group, is an affiliated organization of the Ecosystem Marketplace) and the meeting’s convener, summarized the sentiment:

“We’ve come a long way,” he said. “But we’re still not anywhere near where we need to be.”

Timely Reminders

Unprecedented flooding in the US Midwest, and a city beyond the air-conditioned elegance of the Smithsonian’s Baird Auditorium that sweltered under near-record humid heat, supplied the backdrop as Dr. John Holdren, director of the Woods Hole Research Center, surveyed the fast-moving front line of climate science.

With Arctic ice melting at a pace to leave the North Pole in open water as early as 2013, Himalayan glaciers facing a half-life of a decade, stream run-off declining in scores of the world’s most important watersheds, hypoxia threatening nearly as many major lakes, bays and estuaries, and hundreds of people dying daily from the effects of what he calls “climate disruption” rather than “global warming,” Holdren warned that developed countries must reverse the growth in their carbon emissions within the term of the next US president if they hope to have “a better than even chance” of keeping global temperatures within two degrees Celsius of pre-industrial levels.

As it is, Holdren said, humanity everywhere faces three choices: adaptation, mitigation and suffering. “We’re already doing some of all three,” he said. “What’s up for grabs is the future mix.”

Against the peril clearly looming as the price of inaction, the near-miss a week earlier of an attempt to push through Congress a bill (the Lieberman-Warner Climate Security Act) that would have capped U.S. carbon emissions captured the reasons for both optimism and caution. Speakers parsing the vote that sealed the bill’s fate cited it both as evidence of a positive tipping point in American leadership on climate change, and of what Washington attorney William Boyd described as “an extremely partisan debate” still ahead.

Ecosystem Markets on the Ascendant

Nonetheless, there was agreement that a tide has decisively turned in American opinion. “Whether we have a Republican or Democrat president next year,” Senator John Kerry told the meeting in a keynote address, “the United States Senate is going to pass a mandatory carbon reduction bill.”

Other speakers found significance in the week’s record price for carbon reductions, and predicted that the United States’ entry into global carbon trading (followed, “kicking and screaming”, as one delegate put it, by Canada) would expand the world’s biggest market for ecosystem services by the equivalent of triple the existing $17.5 billion in annual transactions under the Kyoto Protocol’s Clean Development Mechanism.

Even some of the names on the agenda spoke to a shift in thinking in the highest reaches of the world’s economic establishment.

Representatives of oil giant Shell, with operations in 140 countries and 2,000 subsidiaries, and Rio Tinto, the world’s second-biggest mining company, described how their corporations are re-examining landscapes under their management as potential sources of revenue for their ecological services, as well as their buried minerals and hydrocarbons.

Katherine Sierra, a senior vice-president for sustainability at the World Bank, confirmed that organization’s conversion to the view that development in many parts of the world depends critically on tapping the value of services from living ecosystems.

“Those who use ecosystem services should pay for those services,” she articulated the new guiding principal. “Those who provide ecosystem services should be compensated.”

Heavy Lifting Ahead

But as discussions continued over two days toward translating that “new paradigm” and the energy infusing carbon markets into fledgling counterparts in water and biodiversity, it became clear how much heavy lifting remained to accomplish the meeting’s declared purpose of “Developing an Infrastructure Fund for the Planet” based on private-sector investment.

Presenters brought a wide range of experience to the podium, from community mobilization to international finance, entrepreneurial ventures to roles in globe-spanning corporations, administrative agencies to elected politics. Their conclusions largely aligned.

What Hath Carbon Wrought?

The factors driving the surge in ‘cap-and-trade’ carbon trading are not so easily found in other markets where eco-services play. When it comes to water (its quantity or quality) and biodiversity, the regulatory ‘cap’ driving $65 billion a year in carbon trading is frequently weak or absent.

Customer demand and the need to protect corporate social licenses, encouraged by improving product standards, are fueling modest voluntary markets for environmental credits that are not required by regulation. But they are likely to remain too small to prove decisive in mobilizing the changes in environmental practices now demanded of societies.

The Limits of the New Markets

More fundamental challenges arise from the different attributes of carbon and other eco-services — the chief difference being that carbon dioxide is a perfectly fungible commodity whose removal (or withholding) from the atmosphere at any point on the planet is of equal benefit to all its inhabitants, while others are not.

One liter of water may be the same as the next, for example, but the ecosystems that provide it are captive to markets limited by their own watersheds.

Biodiversity is even less fungible: “The ultimate anti-commodity,” in the phrase of Kerry ten Kate, the director of Forest Trends’ Business and Biodiversity Offset Program (BBOP).

“We’re not getting into trading elephants for jaguars, or three Pacific whales for one Siberian tiger,” she said.

The inescapable specificity of species and habitat values means that potential markets for those are likely to be even more fragmented than those involving water.

Involving Indigenous People

Whether the transaction contemplated was for carbon sequestered in forests, land managed to improve downstream water quality or the creation of new wildlife habitat, speakers agreed that willing and engaged local residents were critical to its success. “Carbon and ‘Payment for Ecosystem Services’ (PES) projects that don’t involve local people are going to fail,” declared John Mason, executive director of Ghana’s Nature Conservation Research Centre.

“I can say that categorically,” he added.

Harvesting the Carbon Chain

In the view of Jonathan Lash, the president of the World Resources Institute, the keys to achieving liftoff for non-carbon ecosystem markets will be those already maturing in the carbon marketplace.

They include clearly-defined property rights, regulations to create scarcity (for example, in the right to release pollutants to waterways), and the credibility of the new markets’ currency: the credit instruments that represent the ecoservice values at stake.

If the mood was one of optimism tempered with a realistic view of tough country still ahead, Katoomba XII nonetheless produced enough heartening evidence of progress to energize its attendees for the next march.

In part that was reflected in a growing list of category-leading companies that are either participating in ecosystem markets or indirectly support them through other environmental initiatives. In addition to Shell and Rio Tinto, the roll includes such names as Morgan Stanley, Credit Suisse, both Coca Cola and Pepsi, Cadbury Shweppes, General Electric and Wal-Mart.

Research and Standards: The Nitty-Gritty

Progress was also apparent in subtler but no less significant ways. US Under Secretary for the Environment of the Department of Agriculture Mark Rey, for example, reported that his agency was funding research to reduce uncertainty about the specific water quality benefits produced by certain changes in farm practice.

The goal, Rey said, was to create new “standards which can be used in private markets.” Such standards would greatly simplify the challenge of designing water-quality offset credits for trade in the US.

But if the meeting highlighted the contrasts between the surging carbon market and less-developed markets for water and biodiversity, it also returned repeatedly to the opportunities that the latter enjoy to catch a boost from the former.

Interconnectedness of Ecosystem Markets

As Forest Trends’ Jenkins put it, doubtless with both analogy and actual fact in mind: “The issue of energy and the issue of food and the issue of environmental services all land on the same real estate.”

In other words: sustainability, both for human society and the biosphere on which it depends, is contingent on our learning to value each of the multiple, simultaneous services a healthy ecosystem provides—both individually and together.

The same is true if sufficient private investment is to be drawn to ecosystem services to make a difference.

“No single use will provide you enough resources to maintain biodiversity,” said Alvaro Umaí±a, former Minister of the Environment in Costa Rica and a leader in that country’s pioneering ecosystem-service payments schemes.

“The trick is to study the compatible uses, try to find markets for each of them, and then stack or bundle them,” he said. “In Costa Rica, we say our carbon comes with a strong bouquet of biodiversity and more than a hint of freshwater!”

New Investment in Old Forests

That formula is starting to work for the private sector as well. In its home country of Australia,   New Forests Pty Limited has been reforesting degraded land and earning revenue from several ecosystem streams at once.

“We have timber, water, carbon, biodiversity, all being bundled together,” said founder David Brand.

Emboldened by the success of that project, Brand’s company recently invested $10 million to acquire a 68,000-acre forest habitat for rhinoceros, gibbons and orangutans in Malaysia. New Forests proposes to sell a variety of credits for each 100-square-meter plot in the forest on both the regulated carbon and voluntary bio-diversity markets.

Brand sees vast new business opportunities ahead, as more of the world catches on to the need to put the right price on nature’s contribution to the human economy—and begin paying it.

“We’re seeing real tipping points,” he told the Washington meeting.

Challenge to the Private Sector

State actions alone are plainly insufficient to check, let alone reverse, the unintended perils humanity has let loose on the planet.

That fact has already been ceded in the case of carbon pollution.

In most heavily populated watersheds, private owners control more than eighty percent of the land collecting rainwater for human and environmental uses. Public parks and protected areas will save barely five percent of the world’s biodiversity, Steve McCormick, until this year CEO of the world’s largest nature conservancy and now president of the Gordon and Betty Moore Foundation, reminded listeners in remarks closing Katoomba XII.

At the same time, McCormick enjoined his audience, “We’re at an immense frontier of the imagination.”

Minds are changing, in the public as well as the corporate sphere, with political thinking perhaps the last to catch up.

But as McCormick noted, “It’s still largely theoretical. What we need is a lot of empirical work, experiments in real places and real time.”

The Chesapeake Bay

A few of those who attended the Washington Katoomba meeting began that spade-work promptly the next day, working with other invited participants to the Aspen Institute’s Wye River Retreat on the Chesapeake Bay to advance several nascent market initiatives aimed at reducing the nitrogen pollution that each summer leaves much of the fabled estuary devoid of life.

Work, plenty of it, lies ahead. Yet McCormick surely spoke for many who spent two of the hottest days ever in the US capital talking about how to bring humanity and nature back into alignment, when he voiced his closing thoughts:

“We’re at an extraordinary moment,” he said. “It will look even more so in 50 years. I hope at the 75th Katoomba, you’ll be able to look back and say, ‘We did change the course of history’.”

As though to punctuate his sentiment, a few hours later the heat that had been oppressing Washington broke, in a barrage of thunder and flashes of white lightning, letting loose a lash of cleansing rain.

Canadian journalist and author Chris Wood‘s most recent book is Dry Spring: The Coming Water Crisis of North America, published jointly by Publishers Group West (Canada) and Raincoast Books (USA), and available at Amazon.com. He can be reached through his web site, www.bychriswood.com.

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