The term “markets” is too limiting: is it time for a change?

I think the biggest issue is are you talking about government activity or private sector investment?  I think when it comes to the idea of "paying" a landowner for a environmental benefit with the dollars coming from the private sector, you are going to have to stick to the term "market" if for no other reason that the business or individual can recognize this as an activity where they have gone to the market place and purchased something--whether they are buying this environmental good for their own personal benefit because they wish to help the environment with their dollars (and often in the case of a business get good p.r.) or they are purchasing an offset to mitigate activity they are involved in that has some negative impact on the ecosystem in an effort to avoid a fine or other negative result of a existing or potential government regulation, most I think recognize the concept of the market place as a way to offset any negative activity they are undertaking through a direct purchase.

When you are talking about making a payment directly to a landowner (especially someone involved in agriculture) from a governmental source, I feel we should talk about "direct payments" since this is a term most folks who deal with farm programs understand.  Unlike traditional NRCS and like programs that "cost-share" with producers, sharing the cost of implementing a practice that provides a environmental benefit, we are in this case talking about a "direct payment" tied to the type of stewardship activity they are undertaking.  The big difference is that you are being paid for how you manage your land, not for what kind of crops you grow or based on the price that crop is currently bringing in the market place.  Agriculture producers understand this concept straight on while it often takes a little while to explain how someone is buying the carbon that is sequestered on their land or the acres of habitat they are improving for a certain species.

As I mentioned in an earlier post, we have a partial blue print for this kind of direct ecosystem payment in the existing Conservation Stewardship Program (CSP) at NRCS. This is one way to place a value on environmental  protection on privsate land.  We also could explore ways of encouraging EPA and state environmental agencies to start having businesses and individuals who are facing penalties offset these penalties through some form of ecosystem payment program where they pay roughly the same dollar amount as their fine into a carbon credit program or a wildlife credit program or the like that helps with the area of the environment they are hurting (say, you have a clean air violation? Instead of paying the government the fine, go pay the same amount to landowners to plant grass or trees or better manage forest ground and grassland or convert to no-till farming--all to sequester carbon dioxide).

just a couple of thoughts    

Why do you believe landowners deserve renumeration?  Isn't that a part of a deal that is constructed to create offsets? When we are talking about agricultural, why does not a regulatory regime exist which causes action already on a volutary basis?  Why should agricultural benefit?  Marketplaces develop where there is supply and demand.  Thus far, in most watershed marketplaces I watch there is ultimately too much supply and not enough demand, so that private investment can be supported.  Is your question about requiring regulation to support creation of demand?  I think was the demise of the carbon credit business in 2009 and 2010.  What I think is the important question is how does one keep markets from allowing too much supply to outstrip demand and therefore have adequate price support.  Licenses are one way where supply can be limited.  Regulation and government infrastructure can be supported by license fees.  I don't know too many landowners who have the wherewithal nor the rights to the services to take the risks though.    

Jean Bungener • For me there is no market, just a revolving credit that the nature gives to you and that you have to pay back generation after generation . Starving is the older , paying for conservation or restoration is the new one, next one ? There is no market because there is no sellers, nature is not selling is own ecosystem! Who is the true owner? The monkeys, the frogs? Perhaps could we compare it with an offering we give to the nature to keep us alive and wealthy?

Agreed -- the concept of “market-based” policy is becoming applied with so broad a brush that it threatens to mean nothing, similar to the argument about “ecosystem services” themselves.  So you get the strict economists like Jim Boyd and Bob Costanza meaning very specific and measurable things when they talk about “services”, and then you get the Millennium Assessment accused of kitchen-sinkery by same.  I’ve always found it faintly absurd that programs like South Africa’s or Australia’s are trumpeted as “market-based!” when in fact they establish a government monopsony (single-buyer market) transacting only as many credits as the state-defined environmental goals called for.  If this isn’t Keynesian demand-management, I don’t know what is!  Even in the archetypal US wetland compensation example, supply and demand are entirely determined by the state: the Corps both certifies credits for sale, and requires their purchase on the part of permittees.

None of this is a surprise to the environmental economists who envisaged this – and most of their intellectual descendents protest vigorously that regulatory markets were never meant to be actual markets, and that state policy was always understood to be an imperfect surrogate for individual utility.  So the vernacular use of “market” seems to signify a policy arrangement that involves some element of negotiation over cost: either the Australian farmer negotiates a bid price for performing state-directed ecosystem mitigation, or the Clean Water Act 404 permittee negotiates a price with a wetland banker.  But these moments occur within an architecture of state-directed policy -- there is always a lack of "hunger" as Kelly Haggar says above. and this was foreseen by the inventors of the approach.

I’m actually ok with this vernacular.  The purist alternative is that there would be no such thing as a market-based environmental policy, and I don’t think that’s a useful position to hold.  A middle-ground might be to adopt something like a tripartite distinction between a) payments that are explicitly a form of subsidy or government aid, b) reverse auctions involving a government (or other) monopsony, and c) market-like situations where many buyers and sellers meet, albeit often under government compulsion.  There is no d) actual real live markets.  Esteve Corbera has written a ton of useful stuff on the PES/CES/MES distinction.

Very good point above by Kelly: the very unsettled debate about the boundaries/definition of the commodity itself prevents the kind of perfect-information conditions of the ideal market from existing.  The challenge of measurement is paramount, and I think paradoxical (I've written elsewhere that the more precise ecological measures we use, the greater the challenge of actual fungibility in an actual market).  Not to caricature Kelly's point, however, but I’m not sure a purist approach is best here (that is, “because the commodity isn’t transparently understood by all members of the transaction, true markets will not arise”).  Big macs and 747s are understood by many, but the existence of advertising has always suggested that information is never perfect.   My gut says Kelly is right, but the facts on the ground suggest that people have historically laid out substantial sums of money for very nebulous objects.   Derivatives, mortgage-backed securities, “land in Florida”, property in Second Life.  And carbon isn’t such a great counter-example in some ways – sure, end-of-stack measurements can be quantified easily, but sequestration in a reforestation CDM is as hard-to-measure and contingent as any ecosystem service.

I think there's always going to be a tension between professional and academic economists, on the one hand, and policymakers, on the other.  Economists are trained to use the term "market" (and all other terms of art) with precision, while policymakers will want to utilize the real political cachet of the term "market". This isn't really a productive debate: lack of adherence to strict economic principles will not keep the term from being used -- we can't herd the term back into its corseted textbook definition.  So yeah, I'd rather see a wider definition, yet one that stops short of "everything".

Wetlandia -- a blog about ecosystem services and some other things.

Timothy Waldie • I believe the term you are reaching for is 'ecosystem exchange' referencing all of the economic benefits and processes of open market. The term also implies some form of return for investment that the ecosystem is expected to recieve.

Of course the term is too limiting.  I always use Jim Salzman's "5P's" for managing ecosystem services in presentations, discussions, and courses - those are prescription (laws mandating protection of ecosystems and the services they provide), payments (PES), penalties (fines for destruction of/damage to environmental public goods), persuasion (social pressures for sound resource management), and property rights (changing property rights regimes).  I think it's dangerous to think that markets are the only type of solution to ecosystem services management out there - in many cases other forms of incentives will be easier to create, get social buy-in, and manage than PES programs, and thinking that markets are the only way can blind us to some good solutions.

I hate to be simplistic about this, but one virtue of the term "market" is that it's two syllables long, and everyone has experienced being in one.

Let's cull the other terms proposed above to cover the same breadth and compare:

ecosystem accounting

environmental accounting

environmental performance

perscription, payments, penalties, persuasion, and property rights

ecosystem exchange

payments, reverse auctions, and market-like policies

payments for ecosystem services

compensation for ecosystem services

Average of 9.5 syllables.  I know, we're really comparing them with the phrase "environmental market", which is 7 syllables, or "ecosystem services market", which is 9.  But the virtue of the word "market" in these phrases is that people hear it as a thing, an institution -- it invokes a sense of something that might be bricks-and-mortar, even if it isn't.  A concrete noun.  All the other words we are substituting are more often thought of as processes: compensation, payment, accounting, persuasion, exchange.  Less solid, less reassuring in the mind, somehow, that something real and lasting is being described.

Yes, of course, a market is a process and a set of relationships  -- but it is also a building where transactions happen and where you go every day to get the necessities of life (even before you add the particle "-place" onto it as EM.com has done).  The semantics of that are unbeatable.  I suspect any satisfactory replacement is going to have to do the same.

Edit: In case it's not clear, I agree with everything Jeremy said!  I'm just thinking with a regulator's mind here about how I would sit down with USDA and propose renaming OEM.  Office of Ecosystem Accounting and Performance?  I'd get some perverse joy out of seeing the Office of Environmental Market-Like Arrangements, but I just don't think it's going to happen.

Wetlandia -- A blog about ecosystem services and some other things.

Why was the term “markets” chosen in the first place? Were the first examples of the range of instruments we now throw under the category of “Ecosystem Markets” even market-based back then? That was hardly the case if we consider what most people believe constitutes a real market.  Even today, it’s certainly true that there are many different tools categorized as Ecosystem Market mechanisms that stretch even the most liberal definitions of a market tool.  So yes, if the term is meant to only serve as a descriptive expression for this category it does indeed fall short.  I think we’d be pretty hard pressed to find consensus around a succinct and usable word or expression that does actually describe the sheer breadth of ecosystem positive mechanisms.  But perhaps, the use of “Markets” has another purpose, other than simply descriptive. 

It may not always be the most precise descriptive term for the ecosystem project or tool at hand but the term “markets” does convey the essence of the paradigm shift many of us are trying to bring about. It does capture this intuitive yet currently radical idea that nature has value, a value for which there is great demand and a tragically limited supply.  The word “markets” symbolizes the broad solution to our larger problem that our supply of nature, of these ecosystem services and natural resources, is incredibly limited and waning, yet our demand for these services, essential for virtually everything we do, is practically unlimited. 

How can we illustrate this intuitive yet complex problem of supply and demand?  How can we express it in the language of those best positioned to have a big impact on this dilemma, government leaders, corporate executives and landowners?   We should describe our box of ecosystem tools (some arcane and complex, others charmingly elegant and simple) with a word that illustrates that we understand both the root problem (limited supply vs. ravenous demand) and our best solution, working together to solve problems of scarcity, wanton destruction and poor allocation of great value; in a word…Markets. 

-Patrick Beary
Ecosystem Capital