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Convert natural resource liabilities into business assets


Market-based approaches to managing natural resources are becoming increasingly popular. In contrast to traditional command-and-control approaches, federal agencies are shifting to incentive-based structures where landowners are rewarded for activities that support vital ecosystem services such as clean water, clean air, healthy habitat, and biodiversity. Now, instead of tracking down and punishing those who do not comply with federal laws, government agencies are sitting at the same table with business managers to sign mutually beneficial land-management agreements. Consensus for this approach has solidified in the past few years; recently, the Millennium Ecosystem Assessment, an international effort by nearly 1,400 scientists to determine human impacts on the environment, expressed encouragement for market-based systems as one tool for “taking nature’s value into account” and achieving a more sustainable future (Millennium Ecosystem Assessment, Statement from the Board. Living Beyond Our Means: Natural Assets and Human Well-being. March 2005 (available at http://www.maweb. org/en/products.aspx). Market-based strategies enable landowners to buy and sell ‘credits’ for conserving ecological features such as wetlands, endangered species habitat, water-quality reduction (nutrients, oxygen, turbidity, etc.), carbon sequestration, and mercury reductions (specific to electric utilities). These credits that represent natural-resource values are banked for internal use or sold on the open market. In its most common application, a property owner agrees to preclude development on a sensitive tract of land in exchange for a cash payment. Under government-sanctioned guidelines, the property owner then collects payments from companies who need mitigation for impacting sensitive land elsewhere. EPRI Solutions has found that new niche markets have resulted in valuations of up to $125,000 per acre for land that supports rare plant and animal species (Fox, J. and Nino-Murcia 2005), up to $250,000 for an acre of wetland (Fox, personal communication), and over $25 for a ton of carbon in European markets (Carbon Finance Magazine). In this way, ecological resources are converted into financial assets, increasingly referred to as “eco-assets.” A summary of eco-asset types and their regulatory instruments is presented in Table 1.

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