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In the Market for Conservation

Written by Brett Walton, who writes for Circle of Blue, a network of journalists, scientists and communication design experts reporting on global water issues.

What is a clean watershed worth? Nature lovers might say ‘priceless’, but the emerging consensus among global conservation experts is that the best way to preserve an ecosystem is to put a price on it.

The buzzphrase in international conservation is ecosystem services; that is, the things nature does that are beneficial to humans. Proponents divide the concept into four service categories: provisioning (e.g. timber, food), regulating (maintaining water quality, controlling floods), supporting (pollination, photosynthesis), and cultural (recreation, beauty).

Because these services are not traded on markets, their value is often neglected in corporate and governmental balance sheets. For example, a city might clear-cut a forest or drain a wetland to build a factory. The factory has clear economic metrics: jobs created, output, construction costs; but the ecosystem is usually described obliquely and does not factor well into cost-benefit equations. If we had a way to quantitatively assess the environment, maybe that factory doesn’t get built because the wetland is more valuable as a climate-regulating, water-purifying, flood-controlling, tourism-inducing bird habitat.

To redress this, researchers are now looking at putting a dollar figure on the benefits from natural processes. Programs such as the United Nations Environment Program’s The Economics of Ecosystems and Biodiversity hope that better valuation of the environment will lead businesses and governments to make better development decisions. A corollary to the idea is that an ecosystem is an asset that land owners are paid to preserve.

This shift in thinking is particularly important for watersheds. In my last post I wrote about problems with clean drinking water. Globally, 75 percent of freshwater supplies come from forested catchments. Payment for ecosystem services (PES) can play a huge role in improving source quality. New York City does not have to filter its water supply because of a watershed restoration program that involved purchasing forests and paying land owners for best management practices. The cost of the restoration program: US$1 billion. The cost of a water treatment plant: US$8 billion, plus US$300-500 million annual maintenance. More than one-third of the world’s largest cities get their water supply from such protected forests.

Not only is it good government policy, it is also good business. Evian and Vittel, two bottled water companies, use payment for ecosystem services to reduce treatment costs at their bottling plants in France. The companies have contracts that pay upstream farmers per hectare to use organic fertilizers and pesticides. Preventing pollutants from entering the rivers and aquifers by paying the land owners for the fertilizer cost difference is cheaper than removing them.

These types of payments are most common in Latin America, the United States and China, according to a recent report by Ecosystem Marketplace quantifying PES transactions for water quality. The report found that US$9.3 billion was paid to land owners in 2008. The Chinese government’s Conversion of Cropland to Forest and Grassland program, accounting for 40 percent of its seven-fold increase in water quality PES in the last eight years. The benefits, as measured in economic terms, are substantial. The UNEP’s report on ecosystem restoration argues that well-managed projects provide returns of 7 to 79 percent.

Tracy Stanton, who wrote the Ecosystem Marketplace report, told me in an interview that the market-based approach helped to bring together people who would not normally cooperate.

“With a market system we start from a point of shared stewardship instead of being told by the government to meet a permit volume,” Stanton said.

The PES model is far from perfect. There is much debate on what to include in the valuation calculus: the proper temporal and spatial scales, discount rates, and proper valuation method. Despite the uncertainty, the PES model should continue to grow. It gives land owners incentive to preserve vital spaces, and couches the costs and benefits in language decision-makers are accustomed to using.

The Release of Global Washington’s Policy Paper

One might not usually expect to find an indoor auditorium packed to capacity on a beautiful sunny, Seattle summer afternoon. But on July 6, Seattle University’s Pigott Auditorium was filled to capacity as Senator Maria Cantwell and Maura O’Neill, Chief Innovation Operator of USAID headlined the release of Global Washington’s policy paper; “Global Development through Trade, Aid, Education, and Partnerships: Recommendations from Global Washington.” This paper was designed to provide policy makers with the knowledge and tools with which to reform a broken foreign assistance system.

After an introduction by Stephen Sanborg S.J., president of Seattle University, Senator Cantwell highlighted the importance of Global Washington’s activity in a state that is deeply connected with the world around it. With a culture of unbridled generosity, caring, and innovation, Senator Cantwell believes Washington State is well positioned to provide recommendations to the policy makers in Washington DC on issues of development. As Senator Cantwell recognized, it is very uncommon for constituents to provide their elected officials with clear policy recommendations and a plan to enact those policies. Thus Senator Cantwell committed herself to play her part in promoting these recommendations. To raise awareness of the need to reform the foreign aid system, Senator Cantwell promised that she and Senator Patty Murray would work together to ensure policy makers such as President Obama, Secretary of State Hilary Clinton and important Congressional leaders consider these recommendations.

Senator Cantwell noted that with only 1% of the federal budget, foreign aid funding must be spent as efficiently as possible to ensure development objectives are met. Development projects must be crafted to ensure aid reaches the intended targets, that aid is measurable and that future development strategy is formed on results. Given President Obama’s understanding and commitment to strengthening development alongside diplomacy and defense, Senator Cantwell believes there is no better time than now to reform foreign aid. Referencing a local Native American saying, “Alki,” Senator Cantwell ended by saying “Global WA is giving hope for everyone in the future.”

After Senator Cantwell’s speech, a panel of leaders in the development community convened to discuss the main recommendations of the policy paper. Jennifer Potter, President and CEO of the Initiative for Global Development, opened the panel discussion by noting the need to make foreign aid a main priority of the U.S. government. To accomplish this task, Ms. Potter offered several primary recommendations of the policy paper. Most notably, Ms. Potter expounded the need to create a national development strategy that would incorporate various policy sectors such as trade, aid, and agriculture. Ms. Potter also voiced the importance of targeting aid to those most in need and ensuring the local ownership of aid projects, a central tenet of the Millennium Challenge Corporation.

Steve Crane, president of Crane International, focused on trade as it relates to development policy. While noting there is still much to be done to achieve the goals of development, Mr. Crane believes trade is an important factor in achieving development. As such, Mr. Crane highlighted the need to target aid to build the capacity of local entrepreneurs as a means to achieve sustainable economic growth. Mr. Crane also noted the need to grant the poorest countries duty-free access to U.S. markets.

Given that education correlates to positive trends in society such as improved health, higher levels of economic growth, and increased democracy, Steve Hanson believes global education policy must be incorporated and coordinated with development policy. Scott Jackson, of the Rural Development Institute discussed the need to improve public-private partnerships in the development community. To ensure partnerships work as effectively as possible towards achieving development goals, Mr. Jackson offered the recommendation that a directory of all opportunities to work with the government be created. Such a tool would clearly delineate the roles of all organizations and facilitate a stronger public-private partnership.

The panel discussion ended with a speech by Maura O’Neill, the Chief Innovation Officer at USAID, calling on Washington State to harness its bountiful sources of innovation to work towards achieving development objectives. For local ownership of aid projects to work with sustainability, Ms. O’Neill believes a dialogue must be in place between donors and local leaders in which a free exchange of ideas exists. Simply fulfilling the requests of the locals can often be counterproductive to the goals of the development project. Ms. O’Neill also informed the audience of the current administration’s policy shift from a focus on basic education, to a focus on higher education. Another important concept of development Ms. O’Neill discussed was scale. The development community must learn how to build development models that can be scaled-up and apply to a larger population.

With such a large turnout from Washington State’s development sector, it is apparent that the issue of foreign aid reform is of paramount concern to the global development community. Hopefully, as this policy paper makes its way to the political arena of Washington, DC, policy makers will awaken to the pressing need of reforming the bloated and fractured U.S. foreign assistance structure.

To read the full version of our policy paper and other publications of Global Washington, please visit our website.

The President’s New Approach to Development

Nearly two months after the draft Presidential Study Directive (PSD) on development was leaked, the White House is showing a strong commitment to reforming the U.S. foreign assistance system. At the G8 summit in Muskoka, Cananda, President Obama issued a statement outlining his objectives in reforming the U.S. global development strategy entitled “a New Approach to Advancing Development.” Like the draft PSD, President Obama’s new approach would place a greater emphasis on research and innovation, tailor development strategies to specific conditions in the field, and hold all aid recipients accountable for results.

Unlike the leaked PSD draft, this new development approach explicitly exemplifies all four of Global Washington’s Principles of Aid Effectiveness; consolidation and coordination, transparency and accountability, targeting to those most in need, and local ownership. By strengthening multilateral capabilities, the U.S. can consolidate resources and increase donor coordination. Using data and analysis from strong monitoring and evaluation mechanisms to guide policy will help to make the process more transparent and will increase both donors’ and recipients’ accountability to results. President Obama’s new development strategy will also target aid to select countries, regions, and sectors and emphasize local ownership of development projects.

Missing from this strategy, however, is any mention of institutional reform of the U.S. foreign assistance structure. Without addressing the tangled and unwieldy web of U.S. departments and agencies charged with carrying out U.S. development programs, the goals of President Obama’s new development strategy may not be met. Such reforms will most likely be taken up by the highly anticipated development policy directive to be released in the near future. Until the official policy directive is released, “a New Approach to Advancing Development” acts as a strong framework of objectives to be met by a new U.S. foreign assistance strategy.