SPEECH USDA Forest Service Washington, D.C.

Markets for Ecosystem Services
Forest Service Associate Chief Sally Collins
The Law and Policy of Ecosystem Services
Tallahassee , FL — April 7, 2006

It’s a pleasure to be here today. The topic you are addressing is vitally important for our country, and I want to thank Jim Solomon and all of you for inviting me to be here. Markets for ecosystem services are a tool for addressing the most vital and pressing conservation challenges facing us in the 21 st century. Time is not on our side when it comes to addressing these challenges—we are losing our natural areas and the services they provide at an alarming rate.

The Forest Service has gone through quite a journey to come to realize the importance of markets for ecosystem services. A few years ago, most of us hadn’t even heard of the concept. Today, you can’t go to a gathering of foresters or ecologists or a conservation organization without this topic on the agenda.

I’d like to do four things today:

• First, I’d like to tell you a little about the Forest Service, since many of you are probably unfamiliar with our agency.
• Second, I’d like to explain why we have become so interested in markets for ecosystem services—why we think the topic is so urgent.
• Third, I’d like to tell you what we’re doing to promote markets for ecosystem services.
• And finally, I’d like to outline some of the challenges we face.

Forest Service Overview

Most people know that we manage the national forests—in fact, there are 155 national forests and grasslands in 42 states and Puerto Rico , totaling about 193 million acres. We manage 2 million acres of lakes; 5 million acres of wetlands; 200,000 miles of fishable streams; and 50 percent of the nation’s premiere trout and salmon habitat, plus 80 percent of the habitat for elk and bighorn sheep in the Lower 48 States. We also manage habitat for thousands of threatened, endangered, and sensitive species.

The national forests and grasslands have 400 wilderness areas and 5,000 miles of wild and scenic river. They host 60 percent of the downhill skiing in this country. We also manage 4,300 campgrounds; 23,000 developed recreation sites; and dozens of research natural areas and experimental forests.

As you might imagine for a natural resource estate of this size, we deliver ecosystem services galore from national forest land. For example, roughly 60 million Americans get their drinking water from sources that originate on the national forests and grasslands. One of our current projects is to catalog all the ecosystem services Americans get from national forest land.

The Forest Service also has the world’s largest forestry research organization, and we play an important role in sustaining the health and productivity of state, tribal, and other federal forest land. We also assist dozens of countries around the world through our international programs—working with migratory bird protection, illegal logging, invasive species eradication, and sustainable forestry.

We are a large, decentralized organization (30,000 employees) inside the U.S. Department of Agriculture, which speaks volumes about our organizational roots. We are also the largest federal agency with a career Chief—a tradition that goes back 100 years. Our current Chief has worked almost 40 years for the Forest Service. We manage resources with an eye to natural, not political cycles—but, knowing full well that politics and conservation have always been clearly linked—making these jobs a challenge at times—interesting at all times.

Restoration Focus

In our hundred-year history, the Forest Service has been through a lot of changes. Our mission has always revolved around managing natural resources for multiple uses, ranging from water and timber, to wildlife habitat, to outdoor recreation. Following World War II, we started removing substantial amounts of timber from national forest land. Our timber program generated a lot of controversy in the 1970s and 1980s. Since then, however, we have largely stopped commercial timber harvesting on national forest land. The amount of timber we removed peaked at almost 13 billion board feet in 1987, then rapidly declined to about 2 billion board feet today.

From the 1960s until the 1980s, Congress passed a series of environmental laws. You’ve probably heard of most of them—the National Environmental Policy Act, the Endangered Species Act, and the National Forest Management Act, to name a few. In response, the Forest Service developed a whole new set of regulations.

And that was fine—as far as it went. The environmental laws and the corresponding regulations were designed to keep bad things from happening on the land. The problem was, they weren’t designed to make good things happen, and that’s what we wanted to do. We believe that the people we serve want us to do what is right, not just prevent what is wrong.

So that’s the direction we’ve taken. Today, our focus is on restoring healthy, resilient ecosystems. We’re doing things like reducing the risk of catastrophic fire, replacing old culverts in streams for fish passage, improving wildlife habitat, closing roads, and so on. Our activities mainly revolve around restoring ecosystems and investing in forests so they can deliver all the values and benefits that Americans want, such as clean air and water, lots of habitat for wildlife, and plenty of opportunities for outdoor recreation.

Our nation faces four major threats to delivering these values and benefits, and much of our time is spent meeting these threats. They include fire and fuels, invasive species, unmanaged outdoor recreation, and the loss of open space. The last one in particular is associated with the sale of private lands to developers and the loss of the ecosystem services they provide. That’s what we’re here to discuss.

Loss of Open Space

Let me talk about private forested land for a minute. In the United States , approximately 71 percent of the nation’s timber and some 89 percent of our timber production is on private land. The problem is that markets for America ’s forest and rangeland products have softened at the same time that markets for urban land development have boomed and the demand for second homes has exploded.

In this age of globalization, where international markets drive so much of what happens, the answer is very complex. Illegal logging is destroying forests in some parts of the world while helping to undermine our own forest products industry. And labor and transportation costs contribute to an ever more difficult corporate environment for U.S. competition.

For example—a Mead Westvaco study showed it was less costly to bring wood to Baltimore from South America or South Africa than from Atlanta—and another industry report illustrated that timber harvest in the southern United States is some of the most expensive in the world. Largely because of this trend, 60 percent of the transactions involving industrial forest lands in the last 5 years were transfers from the timber industry to timber investment management organizations and real estate investment trusts. In just the last 2 weeks, International Paper announced one of the largest land sales ever, involving more than 6 million acres. The main buyers were TIMOs and REITs.

In the United States , the amount of forested acreage has been fairly stable for the last hundred years, but that is changing. Every day, we lose more than 4,000 acres of working farms, ranches, and forests to development (3 acres a minute). The South remains the most productive timber region in the world, but even the South has been affected. Some southern states have had net forest losses in every decade since 1960, including Florida, Louisiana, and Texas. North Carolina has less forest cover today than ever before in its recorded history, mostly due to urban development. By 2050, if current trends hold, we are projected to lose 23.2 million acres of forest. That is an area about the size of Maine.

When a private forest or ranch is sold for development, the loss of ecosystem services is direct, immediate, and permanent. Even a meager forest or ranch operation provides more ecosystem services than your average subdivision.  

Solutions

There are a number of approaches to solving these natural resource challenges and increasing the supply of these ecosystem services. Governments at all levels can and are acquiring more land to deliver ecosystem services as public goods. Tax relief and tax incentives can help landowners manage forests sustainably. Land trusts and other NGOs are acquiring more conservation easements—here, we’ve made incredible strides in the past two decades. And, as in Farm Bill programs, government can make direct payments to landowners to provide these ecosystem services.

All of these traditional approaches are good and necessary, but none of them offers enough, either alone, or in combination, to greatly reduce the loss of ecosystem services. Together, they can meet only about 5 percent of the identified needs. Mobilizing market forces and private sector investments can offer an economic engine to conservation unlike anything we have seen in America to date.

Globally, there has been tremendous growth in these markets over the past several years. The last data I heard regarding the international carbon market indicate that it has grown extremely fast—it totaled more than $11 billion worth of transactions in 2005. It is likely that it will at least double in 2006. Last year, just under 800 million metric tons of carbon dioxide were traded—an eightfold increase over the previous year. By far the dominant carbon market is the European Union’s, and although it does not currently include forestry, nearly $9 billion worth of carbon was traded in 2005.

As you know, water rights have been traded for decades, and worldwide they are worth hundreds of billions of dollars. Endangered species and wetlands banks—mostly here in the United States —now have a total value of over $1 billion. As an aside, I think it is important to recognize that a lot of innovative ideas, like wetland mitigation banks, safe harbor agreements, biodiversity credits trading, and sulfur dioxide trading were pioneered in the United States.

Pricing for ecosystem services varies greatly as well. For carbon dioxide, prices range from $35 per metric ton for the European Union to just over $2 per metric ton on Chicago ’s Climate Exchange. For endangered species here in the United States , prices range from $3,000 an acre for fox habitat to $125,000 for a breeding pair of red-cockaded woodpeckers . Wetlands credits, again, here in the United States , have traded as low as $5,000 an acre and as high as a quarter of million dollars.  

Our Interest and Next Steps

So where does that leave us, the Forest Service, as stewards of the national forests and grasslands and as partners with private landowners? What is it we see as our role and what are we going to do about it? Remember, I suggested when I began this evening that time is not on our side when it comes to addressing the challenges of keeping our nation’s forests and grasslands healthy and productive. Then where do I see us headed?

Our interest in a market for ecosystem services is to get enough additional cash in the hands of landowners to entice them to keep their forests or rangelands intact, to resist the impulse to sell. But outpacing real estate values in America today is an increasing challenge.

The very least we must do is to continue to provide a safe environment for information sharing and promoting constructive dialogue around what is possible and what might be realistic with respect to markets for ecosystem services. With the help of partners like Forest Trends, the Forest Service has convened annual leadership seminars on ecosystem services in Oaxaca, Mexico, and we have conducted numerous workshops on the subject for both internal and external audiences.

Our efforts to build understanding have borne several kinds of fruit. First, the Forest Service is conducting a pilot study to see whether it makes sense to enroll national forest land in a forest certification program. Second, we are studying ways of reducing our own environmental footprint as an organization. Third, our researchers are exploring ways of utilizing woody biomass, particularly cellulosic ethanol, as an alternative to fossil fuels. Fourth, we are looking into ways of using both public land and private land for offsets of carbon emissions, wetlands mitigation banks, and other ways of protecting ecosystem services. Finally, we have joined the efforts of the international Katoomba Group, and we support its Ecosystem Marketplace website.

The Forest Service is also working with partners to explore the feasibility of payments for ecosystem services on private land. We are supporting related partnership projects in Hawaii and Texas as well as along the lower Mississippi River. At the same time, our researchers are measuring the tremendous value of the ecosystem services that Americans get from their national forests and grasslands. Americans get 193 million acres worth of water quality protection, carbon sequestration, wetlands protection, biodiversity, and so on. That’s an enormous dollar value.

As I mentioned, the Forest Service is an international leader in conservation research. For he last 15 to 20 years, our researchers have been on the forefront of climate change research. They are currently exploring the indicators we need to be measuring to determine how much carbon is stored by this or that project as a basis for marketing carbon sequestration as an ecosystem service.

In the policy arena, we see the conversation on ecosystem services expanding to influential circles in the Administration and Congress. In surveying this political landscape, we see growing interest in increasing concentrations of carbon in our atmosphere, if not a consensus on climate change. The mere fact that hearings were held this week speaks volumes. The fact that the President acknowledged in a recent speech that “the globe is warming” shows another shift.

In August 2005, the Secretary of Agriculture spoke at the White House Conference on Cooperative Conservation, and he asked the Forest Service to prepare his remarks. Among other things, he said he envisions a time when ecosystem services are traded as freely as corn is today.

The Forest Service must be prepared to act when the time is right. You never know when an idea has matured enough in people’s minds to be of interest to the Administration and Congress. You also can’t know what the best “vehicle” for new policy might be: new regulations, Executive Order, or law. We need to be ready.

And there are signs that the time might be nearly at hand. Imagine someone turning to you and saying, “Create a framework for an ecosystem services marketplace that draws investment dollars for conserving private forests, farms, and rangelands.” That’s the challenge the Forest Service needs to prepare for.

Challenges Ahead

And the challenge will indeed be great. We cannot expect extensive new funding for such a program, and it must generate cohesive positive conservation results on a landscape scale. The key to success is to mobilize funds from the private sector, keeping a close watch out for unintended consequences.

The Forest Service has long experience with laws and regulations that were designed with the best of intentions in mind, only to end up undermining those very intentions. Governments trying to do good often blunder terribly. In the instance of the ecosystem services markets, the opportunity is ripe for both success and blunder. We could easily make a muck of the opportunity by not considering the consequences of actions for new or revised authorities.

Knowing that command-and-control, top-down, regulatory approaches to conservation often fail to achieve objectives, we must ask and answer the important questions as we collectively move forward. Here are some of the questions we might need to think through:

• Do we have enough information about natural resources and their interactions to be sure we protect them?
• Do federal lands participate in some way in the market?
• What’s the right balance between regulations and incentives? We need enough regulation to establish security but not so much that values are confusing and transaction costs too burdensome.
• What do private investors need to purchase? What role might the public sector play in facilitating and directing a private market?
• What are we trying to do with an ecosystem service approach? Are we somehow trying to change management on public lands or simply establish incentives for managing private lands differently?
• How do we layer the ecosystem services market? How do we sort out land tenure and property rights?

Opportunity Ahead

The challenges are daunting, but I am optimistic that we, among others, are doing right by convening conversations on the topic. This change in the societal construct for supply and demand is critical if we are to proceed to a more sustainable supply of all the services provided to humanity by farms, ranches, and forests. The reauthorization of the Farm Bill certainly looms in 2007 as a possible venue for offering something as simple as a skeleton proposal to a comprehensive plan for promoting a market for one or many services in an integrated fashion. Other legislative opportunities might also arise.

#