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Market-based conservation is an evolving concept that can mean different things to different people. Market-oriented approaches to conservation can include:

• Using economic approaches, such as auctions and trading of credits, niche marketing, and a variety of payment for ecosystem services strategies
• Encouraging competitions, such as bidding for grants or offers to pay for a greater share of the cost
• Providing data to inform the conservation investment decisions of others
• Focusing on monetary and non-monetary incentives
• Fostering knowledge-based conservation

Webcast Presentation

The LPE Learning Center hosted a webcast on Market Based Conservation: Implications for Manure Management in May, 2008.

Market Based Conservation as a Policy

At the White House Conference on Cooperative Conservation in 2005, Agriculture Secretary Johanns announced a new U.S. Department of Agriculture Policy on Market-Based Environmental Stewardship. The goal of this policy is to broaden the use of markets for environmental and ecosystem services through voluntary market mechanisms. These mechanisms may include environmental credit trading, insurance, mitigation banking, competitive offer-based auctioning, eco-labeling—and more. The intent of this new policy is to make a deliberate, determined effort to help bring producers and consumers together and to develop innovative tools to quantify environmental impacts.

Until the last few years, in the U.S., most of the incentives for conservation have been provided by government through sharing the cost of conservation practices on private lands because these practices also have public environmental benefits. Trading is a market approach that is gaining acceptance through the cap and trade system. The Environmental Protection Agency policy on water quality trading is an example of the market approach. With trading, regulated industries have the flexibility to find the least cost avenue to comply with emissions, or at times, to trade with others to improve environmental quality. That is, when regulated industries must reduce emissions it may be cheaper to pay other firms or farms to reduce emissions than to do it themselves. Trading has the potential to accelerate air and water quality improvement and reduce compliance costs. The key to market-based incentives is that they are voluntary, verifiable, and transparent.

Examples of Market Based Conservation or Trading Programs

The New York City Watershed Agricultural Program is a great example of market based trading with a complementary municipal and agricultural partnership. Local farmers and agribusiness worked with the city to protect drinking water quality on nearly 500,000 acres of farmland in the watershed that supplies New York with drinking water. This saved the city millions of dollars in the development of advanced treatment systems and helped the rural community maintain its character.

The National Fish and Wildlife Foundation provides funding to several projects looking at market-based approaches to nutrient reduction on farms. These include watershed projects working closely with farmers to develop “value-added” products that will help farmers stay farmers and farmland remain farmland and projects to establish a third-party dairy certification program that provides premium pricing to dairy farmers who adopt conservation practices that minimize nutrient runoff to the Chesapeake Bay and its tributaries.

One of the best manure based examples that is currently available is the Environmental Credit Corporation Lagoon Cover Program. Through this program, they will design, finance, and install lagoon covers to capture methane and other emissions at no cost to the farmer. They use the results to sell the carbon credits and can provide additional income to producers in some cases. Companies that buy and sell credits like ECC are called aggregators of credits. They often sell these credits to the Chicago Climate Exchange program.

A final example is Vermont’s Cow Power program. Central Vermont Public Service, a utility, created a surcharge/premium people can pay to purchase green power generated by anaerobic digesters on dairy farms. This premium goes back to the farmer, generating a marketplace incentive and reward for farmers who are generating renewable, green energy from manure.

Recommended Reading on Market Based Conservation

EPA has just issued a new publication as part of its effort to support innovative, market-based approaches to water quality trading. The Water Quality Trading Toolkit for Permit Writers: Interim Technical Guide provides National Pollutant Discharge Elimination System (NPDES) provides permitting authorities with the tools they need to incorporate trading provisions into permits. The Toolkit also serves as EPA's first "how-to" manual on designing and implementing trading programs consistent with EPA's 2003 National Water Quality Trading Policy and will be valuable to all stakeholders. The Toolkit is focused on trading nitrogen and phosphorus, although, based on the Trading Policy, other pollutants may be considered for trading on a case-by-case basis.

The USDA Economic Research Service published a publication on Environmental Credit Trading; Can Farming Benefit. This six page document outlines several opportunities and discusses the potential markets for agricultural credit providers. They also published a document called The Use of Markets to Increase Private Investment in Environmental Stewardship that provides an overview of some market based conservation options.

American Farmland Trust's Center for Agriculture in the Environment helps protect America's agricultural lands and promotes healthy farming practices. This public policy research center has some excellent materials on market based conservation such as insurance programs to pay for yield reductions do to reduced nutrient inputs and materials on ecosystem services provided by agriculture.

The Chesapeake Bay Program Trading Website provides many links to great resources and is a good example of an established trading program. The Barn Trading Company has worked in this watershed to trade nutrient credits by exporting poultry litter from the watershed. This provides poultry growers with additional incentives for selling litter to users outside the watershed.

Harnessing Farms and Forests in the Low-Carbon Economy: How to Create and Verify Greenhouse Gas Offsets, a technical guide for farmers, foresters, traders and investors. A preview of the guide is available online at the Duke University Nicholas Institute for Environmental Policy Studies

Research Summaries on Market Based Conservation

Water Quality Trading in the United States provides a great overview of water quality trading programs implemented in the U.S. The primary source of information for this overview is a detailed database, collected and compiled by a team of researchers at Dartmouth College.

Paying For Environmental Performance: Using Reverse Auctions To Allocate Funding For Conservation Since demand for funding in conservation programs usually exceeds the available funds, allocating funding in a way that achieves the greatest environmental outcomes is essential. Reverse auctions are one way to efficiently allocate funding. This paper examines two reverse auctions conducted in Pennsylvania, designed to fund best management practices that reduced phosphorus pollution. It explains how reverse auctions can be used to maximize environmentally desirable outcomes, and outlines lessons learned from the Conestoga Reverse Auction Project within Pennsylvania’s Susquehanna River Watershed.

The Florida Ranchlands Environmental Services Project: Field Testing a Pay-for-Environmental-Services Program This paper examines a project in Florida that will field test a program that pays cattle ranchers to provide environmental services that will benefit the lake. The program came about after a 2004 study conducted by World Wildlife Fund (WWF) with several cattle ranchers concluded that a program to promote changes in water management practices on 850,000 acres of improved and unimproved pasture could moderate water flows to the lake, reduce phosphorus loads, and add to wetlands habitat. The study concluded that the agencies could buy these environmental services from cattle ranchers at a lower cost than producing the services by building new public works projects.

Doug Parker at the University of Maryland has written a report on Creating Markets for Manure: Basin-wide Management in the Chesapeake Bay Region. This report summarizes various methods for creating manure based markets. Other reports and programs from Georgia and Arkansas have focused on improving markets for poultry litter.

Researchers at Rutgers have established a Nutrient Trading Initiative to help local stakeholders understand and increase their capacity for incentive-based pollution trading programs, specifically programs that involve nonpoint (agricultural, rural and suburban) sources. The initiative has fostered regional trading projects, including a project in the Upper Passaic River Watershed that aims to achieve water quality standards for phosphorus.

Author: Mark Risse, University of Georgia
Reviewers: John Lawrence, Iowa State University and Suzy Friedman, Environmental Defense Fund