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November 17, 2015
he invisible hand of the market might seem a strange player for environmental science, but it’s an emerging force for regulators and land managers. It’s these markets that have inspired USGS scientists Emily Pindilli and Frank Casey to explore how earth science and economics can join forces to achieve meaningful impacts for decision-makers.
Image: Honey Straight from the Hive
Honeybees are important pollinators, an ecosystem service that is not always adequately accounted for in traditional markets. Image credit: Marisa Lubeck, USGS.

The invisible hand of the market might seem a strange player for environmental science, but it’s an emerging force for regulators and land managers. It’s these markets that have inspired USGS scientists Emily Pindilli and Frank Casey to explore how earth science and economics can join forces to achieve meaningful impacts for decision-makers.

Their research falls under a concept known as environmental markets. These markets won’t be found in Wall Street, but rather out on the landscape, as the natural environment provides many amenities that aren’t included in traditional markets. For example, when bees pollinate farmers’ crops, they’re providing an ecosystem service that benefits the farmer and society with a higher crop yield.

Emissions trading is one example of a market-based solution to an environmental problem. Image credit: Arnold Paul/Gralo via Wikipedia.

The Economics of Earth Science

So how does earth science fit in with the idea of environmental markets? The answer is information. Markets function most efficiently when buyers and sellers have as much information as possible. In the realm of environmental markets, that takes the form of scientific information about ecosystems, habitats, animals and plants, and other ecological players that help the environment operate.

USGS, then, is perfectly situated to provide information along those lines to emerging environmental markets. From water levels, use, and quality data from thousands of streamgages across the country to bird surveys that have spanned decades, USGS can provide important materials for these markets to function as effectively as possible. Agencies like the USDA’s Office of Environmental Markets can then take USGS data and use it to help foster and coordinate environmental markets.

However, that then raises the question of what kind of markets are being implemented and how do they work? Pindilli and Casey decided to take that on, using the lens of biodiversity to frame their investigation.

Image: Sagebrush Landscape
Sagebrush landscapes are important habitat for maintaining biodiversity in much of the United States. Image credit: Steve Knick, USGS.

In the Market for a Solution

Biodiversity is under increasing threat, both in the United States and all around the world. Species are going extinct at a rapid rate, which is an indication of the larger issue of biodiversity and habitat loss. Biodiversity and habitat provide important ecosystem functions and their loss represents a significant risk to the stability of these systems.

So how can environmental markets help protect biodiversity? A first, and significant, step is to understand the economic values associated with biodiversity. Even more important is to align those values with reasons to actually protect and restore biodiversity. Enter the concept of environmental markets. These markets are designed to allow environmental goods and services to be produced and traded similar to goods and services in traditional markets.

A good example of a created environmental market is the sulfur dioxide trading market. Here, a set number of sulfur dioxide credits are issued which caps sulfur dioxide emissions at a certain level each year. These credits can be traded between parties, with the idea being that some facilities can reduce emissions at a lower cost than others. Those facilities can then sell those credits to facilities who would otherwise have to pay even more money to reduce emissions. By making money from the sale of the credits, those facilities that could most cost-effectively reduce emissions have a good reason to do so. This is a win-win, whereby the environmental goal is attained and it is accomplished at the lowest cost.

In the United States, there are a number of other developing environmental markets and similar mechanisms that seek to leverage market forces to achieve environmental goals. There are emerging markets in water quality, carbon emissions, wetland preservation, and for species and habitat protection. Among these are a number of market-based or market-like approaches that can benefit biodiversity. The USGS has recently evaluated the status and potential of the following mechanisms:

Image: Bats in a Texas Evening Sky
Bats provide important pest control by eating insects, and threats to their biodiversity imperil that ecosystem service. Photo credit: Paul Cryan, USGS.

Getting What You Pay For

The first approach is known as “Payments for Ecosystem Services.” Here, a “buyer” pays a “seller” for the ecosystem service of biodiversity. The “buyer” may be anyone, such as the Federal government, a State agency, a local community, a non-profit, or even a business, while the “seller” is the individual or business that will supply protections for species and their habitats. An example of this approach might be a conservation stewardship program that pays farmers to set some land aside for wildlife, or maintain the riverbanks with trees to shelter fish. The least like a traditional market, payments for ecosystem services are essentially contracts that provide incentives to potential biodiversity suppliers with payments that don’t necessarily reflect a market-value.

The Ohlone Reserve Conservation Bank in California, one of the many conservation banks run by the U.S. Fish and Wildlife Service. Photo credit: Robert Fletcher, Ohlone Preserve Conservation Bank

Conservation Banking

The next approach is explicitly market-based: regulations are set up that lay the foundations for a market that includes property rights to an environmental amenity and the ability to trade. One of the best examples for biodiversity is the Conservation Banking Program run by the U.S. Fish and Wildlife Service. Conservation banks are areas of habitat that are protected and managed to meet the needs of one or more threatened species in perpetuity. These banks must be approved by the FWS under stringent protocols. With this approval, the banks can sell ‘habitat’ or ‘species’ credits. Demand for credits comes from developers that are required to mitigate actions like building roads that may negatively affect threatened species and their habitats under the authority of the Endangered Species Act.

Image: Suburban Growth
When planning suburban neighborhoods, for instance, a developer might buy land to set aside as habitat in exchange for encroaching on existing habitat. Image Credit: Roger Auch, USGS.

Beyond the Bank

Taking the concept of the conservation banks even further, there’s the idea of habitat exchanges. The concept of a habitat exchange is to extend the conservation banking approach to protect species or habitats that are not currently federally listed as threatened. Habitat exchanges also seek to streamline the conservation bank approval process by developing and implementing Habitat Quantification Tools. These tools are used to standardize the evaluation of the number of credits on a given plot of land and increase certainty and transparency for landowners. Habitat exchanges are an emerging concept and demonstration on the landscape has yet to be fully implemented.

It’s all in the Label

The last market-based approach evaluated goes in a different direction: the idea of eco-labeling, similar to the concepts of organic and fair-trade labeling currently seen in grocery stores. Farmers, ranchers, and others can take actions that help protect biodiversity, and in so doing receive an accreditation and label their products to signify that they are protecting biodiversity. People can then reward these businesses by selecting these ‘green products’ over comparable items, even if they cost a bit more. That extra cost compensates the farmers, ranchers, and others for implementing biodiversity protecting practices. Eco-labelling is the most like a traditional market.

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