Ecosystem Service Market Development: The Role and Opportunity for Finance Public Deposited

http://ir.library.oregonstate.edu/concern/defaults/8336h579d

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  • This report is laid out as a progressive exploration of how the economics of ES production interacts with finance, broadly construed, in actual credit transactions. The inquiry proceeds in several steps. First, the economics of ecosystem services production is explored to provide critical context for potential financing approaches. This section examines dynamics of production under a number of incentive mechanisms currently employed to produce ecosystem services and also considers how economic incentives affect policy goals. The paper next turns to the role of finance in ES production, examining project cash flows and how financing directly enables development of ES credits through on-the-ground projects. The following section considers the breadth of sources for project finance, with a particular focus on how project design and characteristics shape access to government, philanthropic, and private capital sources. With this framework established, financing tools and recommendations are explored with an emphasis on how different approaches can influence key drivers of access to project funding. Input from stakeholder and financier interviews, as well as workshop findings, are integrated throughout. A brief conclusion completes the report.
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  • 1. INTRODUCTION...................................................1 2. FINANCE IN CONTEXT: ECONOMICS OF RURAL ECOSYSTEM SERVICE PRODUCTION..........2 2.1 DEMAND, SUPPLY, AND GAINS FROM TRADE IN ECOSYSTEM SERVICE PRODUCTION........................................3 2.1.1 Demand ........................................................3 2.1.2 Supply ........................................................4 2.2 MANAGING POLICY GOALS THROUGH MARKETS .......................................................5 2.2.1 Environmental Protection and Stewardship ...................................................6 2.2.2 Rural Sustainability ................................................7 2.2.3 The Role of Finance in Managing Policy Objectives.....................................................8 3. THE NEED FOR FINANCE IN ES PRODUCTION ....................................................9 3.1 CASH FLOWS .........................................................9 3.2 SECONDARY MARKETS AND RISK MANAGEMENT ....................................................11 3.3 NET PRESENT VALUE AND THE AVAILABILITY OF FINANCE .......................................................13 3.4 DEMAND-SIDE FINANCE FOR ECOSYSTEM SERVICES.......................................................14 4. OPPORTUNITIES AND SOURCES OF FINANCE........................................................15 4.1 FINANCIAL OBJECTIVES AND OPPORTUNITIES..................................................15 4.2 SOURCES OF FINANCE........................................................16 5. FINANCING TOOLS AND RECOMMENDATIONS................................................19 5.1 BUILD FINANCIAL AND MARKET INFRASTRUCTURE ...............................................20 5.1.1 Develop contracts and appraisal techniques to support finance......................................................20 5.1.2 Create simple crediting protocols that can reduce transaction costs .......................................................20 5.2 REDUCING PROJECT RISK ..........................................................21 5.2.1 Establish clear and simple crediting and trading rules .........................................................21 5.2.2 Establish secondary markets for ecosystem services credits ......................................................21 5.2.3 Experiment with insurance, options, and other financial mechanisms to manage risk ...........................22 5.3 INCREASING PROJECT VALUE..........................................................23 5.3.1 Develop regulatory and voluntary markets........................................................23 5.3.2 Use tax policy to increase project value .........................................................23 5.3.3 Route projects through “safe” institutions to reach a wider market ........................................................23 5.3.4 Expedite project permitting and approval ......................................................24 5.4 STRUCTURING PROJECTS TO MANAGE ECONOMICS .....................................................24 5.4.1 Aggregate small projects to improve project value........................................................24 5.4.2 Structure projects as hybrid ecosystem services - natural resource investments.....................................24 5.4.3 Use option contracts to access revenues before incurring credit certification costs...............................24 5.4.4 Manage project investment incorporating option values.........................................................25 5.5 PROVIDING FINANCING DIRECTLY.......................................................25 5.5.1 Subsidize credit for development of ecosystem services projects ......................................................25 5.5.2 Establish a minimum future price for ecosystem service credits........................................................25 5.6 SUPPORTING RURAL SUSTAINABILITY.................................................26 5.6.1 Establish a different participation mechanism for small landowners.....................................................26 5.6.2 Use policy to direct investment in ES project to support rural sustainability aims .................................26 5.6.3 Leverage institutional design to ensure ES markets unfold consistent with policy and rural sustainability aims ..........................................................27 5.6.4 Mitigate for any unavoidable adverse impacts to rural communities....................................................28 6. CONCLUSION.....................................................29 7. GLOSSARY OF TERMS .........................................................30
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  • description.provenance : Submitted by Amy Ewing (ewinga@onid.orst.edu) on 2010-07-13T16:22:08Z No. of bitstreams: 1 Bullitt Phase 1 FINAL 10-03-31.pdf: 1093086 bytes, checksum: ac85ef55615cce18fd401479065956f2 (MD5)
  • description.provenance : Approved for entry into archive by Kuuipo Walsh(kuuipo.walsh@oregonstate.edu) on 2010-07-22T20:03:35Z (GMT) No. of bitstreams: 1 Bullitt Phase 1 FINAL 10-03-31.pdf: 1093086 bytes, checksum: ac85ef55615cce18fd401479065956f2 (MD5)
  • description.provenance : Made available in DSpace on 2010-07-22T20:03:35Z (GMT). No. of bitstreams: 1 Bullitt Phase 1 FINAL 10-03-31.pdf: 1093086 bytes, checksum: ac85ef55615cce18fd401479065956f2 (MD5) Previous issue date: 2010-03

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