Ricardo Bayon

Protecting the world's biodiversity requires answers to a few not entirely rhetorical questions: Assuming agreement of the need to protect Earth's biological wealth, how much would you be prepared to pay to protect an endangered fly? Would you spend $1.50, $15, $150,000, or more? How about society as a whole, how much should society spend on the protection of this fly? Does the answer depend on the nature of the fly itself? On its role in the ecosystem? Or is the calculus based on something else—perhaps on what you must give up to save the fly, or your standard of living, or your priorities?

The questions may seem crass and mate-rialistic—and in some ways they are—but they are essential if the world is to conserve the species and ecosystems that sustain humankind. The reason is simple: like many other important matters, the staggering loss of biodiversity is really a matter of values—and not just the principles that allow people to dis tinguish right from wrong, but also the more mundane concept of economic values.

In a way, the issue boils down to the fact that the world is losing species and ecosystems because the economic system has a blind spot. It sends signals that cutting down a rainforest to grow soybeans or palm oil plantations makes more economic sense than leaving that forest intact. It says that building a shopping mall to sell iPods is more valuable than having a wetland that buffers coasts against storms, filters water, and provides nesting ground for birds. Is it, therefore, any surprise that people take such signals seriously?

Or, to put it another way, the fact that the U.S. suburban landscape appears to have more bowling alleys than wetlands is simply a symptom of an economic system that has its values—used here in the sense of its prices—wrong. It is what economists call a problem of externalities. Some values—like

Ricardo Bayon is Director of Ecosystem Marketplace, a leading source of information on market and payment schemes for ecosystem services.

Banking on Biodiversity SPECIAL SECTION: PAYING FOR NATURE'S SERVICES

that of a species of woodpecker or of a particular ecosystem such as a rainforest or a wetland—do not enter into the economic system. They are external to it, and so they are not taken into account when economic decisions are made.

Indeed, for eons the price of nature has been woefully close to zero. Supply outstripped demand, and priceless came to mean worthless. But that equation is changing. Priceless nature is becoming increasingly scarce (see Box 9-1) and therefore needs to be made valuable once again. Giving some economic value to biodiversity would make it easier to protect. At the very least, standing rainforests would not compare so unfavorably when considered against soybean fields and palm oil plantations. Their value would no longer be zero.1

It may sound strange, even counterintuitive, but the solution to the loss of biodiversity may actually lie in the very same markets that appear to be causing the problem. It may lie in creating payment schemes for biodiversity, mechanisms that give nature a value and that force the economy to look into its blind spots. Luckily, a good number of countries— from Australia and Brazil to the United States—have been experimenting with such schemes, sometimes for more than 20 years, and there is much to be learned.

Countries use a variety of mechanisms for giving value to ecosystems and the services they provide. In essence, these can be summarized as follows:

• Government sets the price: This is done either by fining those who damage the ecosystems (through endangered species laws, for instance) or by paying those who conserve it (providing tax breaks or subsidies for conservation, for example). While these systems are useful and play an important role in protecting biodiversity, they suffer from a fundamental flaw: they do not send the right signals to the economy; they do not permit society, via markets, to determine and understand the actual value (the price) of biodiversity.

• Voluntary transactions set the price: Users of ecosystem services voluntarily agree on the value with those who provide the services. These "self-organized private deals" are sometimes mislabeled as "markets," but true markets depend on multiple buyers and multiple sellers meeting regularly to exchange goods and services. In contrast, in most cases these are one-time-only deals. They may also take the form of "voluntary biodiversity offsets," in which an individual or company that damages biodiversity pays to "protect, enhance, or restore" an equivalent amount of biodiversity somewhere else.

• A hybrid system sets the price: In this case scarcity of a traditionally "public" good is established through government regulation, which then forces buyers and sellers to negotiate in order to set a price for the good or service in question. Examples of this include various "cap-and-trade" schemes in the United States for sulfur dioxide and in Europe for greenhouse gases (see Chapter 7). These schemes create true markets because they generate demand for services from multiple buyers and therefore lead to the provision of services from multiple sellers.

This chapter focuses mainly on the third of these mechanisms, regulatory cap-and-trade systems. While government payment schemes and voluntary biodiversity offsets are extremely useful and are likely to account for the majority of global payment schemes for biodiversity in the near future, they tell more about where we are now than where we might be in the future. The new and emerging regulated markets for biodiversity offsets hold the key to that future.

SPECIAL SECTION: PAYING FOR NATURE'S SERVICES Banking on Biodiversity

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