The Future of Conservation Trading in Agriculture

Remarks by Bruce I. Knight, Chief Natural Resources Conservation Service,
at the Sixth National Mitigation and Conservation Banking Conference

San Diego, CA
April 24, 2003
 

Thank you, Judy (Taggart). And good morning. It’s an honor to be here to address the opening general session of the Sixth National Mitigation and Conservation Banking Conference.

Before I start, I would like to invite you to visit the exhibit area to see a couple of displays the Natural Resources Conservation Service brought out here this week.

One of our exhibits is called “Restoring America’s Wetlands through the 2002 Farm Bill.” This exhibit tells about farm bill programs for restoring wetlands. It also tells about how for-profit and not-for-profit Technical Service Providers will be helping implement farm bill programs. Any of you who have been meaning to sign up to be Technical Service Providers can do so on-line at our booth. The other exhibit is devoted to some of our web-based technology tools, including our electronic Field Office Technical Guide and our PLANTS web site.

I hope you will get a chance to see these exhibits. They are interesting, and they are your tax dollars at work.

Why Conservation Trading Is Important
I am particularly excited to be here because I regard mitigation banking and conservation trading as a very important part of the future of conservation, not just for agriculture, but for our environment and our economy.

Another part of my job is talking about the conservation programs contained in the 2002 farm bill and supported by the President’s 2004 budget proposal. The 18-1/2 billion-dollar increase in conservation contained in the farm bill is the largest investment in conservation on America’s farm and ranch lands in history.

This increased investment in conservation is making possible the next golden age of conservation, which is a pretty exciting concept and one that will keep us busy for the next five years. But I find the five years after that and the decades after that to be even more exciting.

The American Public, the Congress, the Administration, and even the peoples and governments of the world are becoming more and more interested in the environment and in conservation. Everyone expects industries of all sorts, including agriculture, to do more to maintain and improve our natural resources.

A world mindset is developing that sees value in environmental goods and services. But seeing value in something is not the same thing as placing a value on it. And, until we can do a better job of calculating the value of environmental goods and services, we will see society demanding that industries produce these goods and services at their own expense.

In many countries, this demand takes the form of increased regulation, rather than having ways for market forces to create incentives for industries, including agriculture, to produce these goods and services. Businesses that fail to clean up their act face increased regulation – which usually means increased expenses and less profit.

Regulation can have other effects, including causing production to move from state to state, region to region, and even nation to nation to control costs and improve profitability. The lack of a market that would allow producers to recoup the costs of producing environmental goods and services drives production to those parts of the world where production is less regulated.

Ironically, the result is loss of production, and loss of profitability, in the very countries that value environmental quality the most. And a growth of production in the countries that permit the most environmental degradation. We live in a global economy, and the fact is you can grow corn or rice, cows or sows, lots of places in the world, not just in the United States.

The conservation paradox is that regulations intended to improve environmental quality in one country can produce negative economic effects in that same country, while producing negative environmental consequences for the planet as a whole.


Creating a Framework for Market-Based Conservation
Conservation trading may be the single best way out of this paradox. But we have a lot to do over the next few years to make conservation trading work as well as it needs to work to get the job done.

A fully functioning market in conservation trading would create incentives that would allow agriculture to produce food and fiber and environmental benefits in this country, rather than forcing production overseas. And that is what I see as the future environmental agenda for agriculture -- creating a market place for trading environmental goods and services that will enable producers to do more for the environment.

The agenda for this conference reflects the movement of mitigation banking and conservation trading beyond wetlands to include water quality, air quality, acid rain, endangered species, and other habitat mitigation.

We can expect to see more trading of environmental credits in all these areas, as well as in the emerging area of greenhouse gasses and carbon sequestration. And that is great. The more kinds of trading we have, more incentives there will be for America’s farmers and ranchers to undertake conservation activities.

The Agriculture Perspective
I want to stress the importance of thinking in terms of farmers and ranchers. The essence of farming and ranching is production of food and fiber – the primary products of working lands.

The 2002 farm bill recognizes the importance of working lands by creating a better balance between idling land and doing conservation on working lands. For those of you who don’t come from farms, 70 per cent of this country’s land is private, and 88 per cent of our nation’s water falls as rain or snow on private lands. The future -- and it is a bright future – of mitigation banking and conservation trading also lies in the direction of working lands.

When we are looking at environmental issues, we must always remember the important place of agriculture in our society. We are blessed with the most productive agricultural economy in the world. Not only do we feed ourselves, we also help feed the world. So long as people eat, agriculture will be an important part of our society.

Whatever we do to encourage our farmers and ranchers to address environmental issues, we must do it in ways that strengthen our agricultural economy. That means that the technologies and systems we use to reach environmental goals must be compatible with production systems.

The costs of implementing technologies and practices that are good for the environment fall on the landowner-operator, but many of the benefits go to the public. So to keep agriculture strong, we must find ways for landowners to recoup the costs.

Cost-share programs have traditionally helped landowners recover some of their costs for conservation practices. Trading in environmental credits will provide the next generation of incentives for conservation.

But, trading credits can only happen when we find ways to place a value on the environmental benefits our farmers and ranchers produce and create a market for those benefits. We are not there yet, but we are beginning to see forces building that will take us in that direction. In the direction of creating a market or the environmental benefits created by agriculture. In the direction of creating incentives that will enable producers to do much more for the environment, in a profit-making context. In the direction of utilizing voluntary action as the basis, as opposed to cap-and-control as the basis, of trades.

However, providing the information for those markets to work is a substantial challenge for those interested in conservation. We need good science to point out and keep track of all of the benefits of various conservation practices, no matter what goal they are designed to reach. The challenge is to move beyond the concept of having a market for environmental goods and services, and develop a system of credits that give businesses the confidence to act.

Companies and farmers are understandably reluctant to invest in agriculture offsets without reliable information on the benefits of land management practices. What we need to do is take down the barrier of doubt, confusion, and uncertainty.


Voluntary Conservation Versus Regulation
It is important that we solve environmental challenges through voluntary action, rather than through regulation.

We have seen some of the problems in the regulatory approach in the way our nation handled the management of animal waste. Animal waste is an important problem. Our nation adopted a regulatory approach to solving this problem, and we have seen unintended results both in this country and abroad.

Regulations in the livestock industry controlled nutrients in waste, but created a methane problem. Economic forces, coupled with the need to meet regulatory requirements, accelerated consolidation of the livestock feeding industry. Production shifted from state to state, driven largely by market and state regulatory forces. During this time, production also has moved out of the country, to areas where there was less regulation.

One unintended result of this approach is the clearing of huge areas of land in other parts of the world, such as the Cerrado in Brazil, to produce soybeans. Another result is less production and fewer jobs – in this country, as parts of the livestock industry move to avoid regulation.

Fortunately, with growing cooperation between Federal agencies and the passage of the 2002 farm bill, we are beginning to make it more economical for domestic producers to do their job and meet regulatory requirements. We are seeing a movement toward enabling producers to combine their need for productivity with their desire to take care of the environment. But, we have a long way to go before we bring economics and conservation into proper alignment.

In the voluntary approach, we use proven research to motivate producers and to provide high-quality technical assistance. The Natural Resources Conservation Service bases its entire philosophy on voluntary conservation, driven by the conservation ethic of producers. We are working to keep regulations “lean and local,” and leave most decisions to local leaders and local producers. We are developing more voluntary partnerships to provide leadership, funding, and expertise to get the job done.

Whenever possible, we are using market mechanisms to attain desired results. These results include more conservation on the land and a stronger agriculture industry in our own country, coupled with less environmental degradation at home and abroad.

On a policy level, we should be looking for ways to leverage public and private resources. We can use programs like the Environmental Quality Incentives Program to support the concept of trading environmental credits, not to hinder it.

Incentives should be additive, rather than mutually exclusive. This approach would allow us to use multiple incentives to get the results we need.


Conclusion
So, what do we need to do to make this new environmental agenda work?

First of all, producers already are doing the most important --and most natural thing – and that is responding to incentives. Voluntary conservation is working in this country. The Administration, the Congress, and the public all support conservation on America’s private lands.

But all of us, from farmers and ranchers to conservation agencies, to mitigation bankers and conservation traders need to be flexible and open to innovation if we are to receive the benefits of credit trading.

We must be open to new concepts. The whole concept of trading in environmental credits is an emerging concept but it opens a whole new world of economic opportunities.

We must be open to new conservation practices. Present practices are designed to accomplish agricultural goals. The future may bring additional practices designed primarily to reach environmental goals.

Credits may be available for these new conservation practices and systems. The market for credits will be in a new marketplace, with new partners. There also will be opportunities to partner with the scientists who will be doing the research that needs to be done to develop the marketplace for environmental goods and services.

We simply have to move out quickly on these issues, and create an environmental agenda based on voluntary conservation. By working together, we can apply the trading concept to many environmental goals and create a new era of conservation and profitability for America’s livestock and crop producers and a better world for all of us.

Thank you. I would be happy to answer any questions.