http://broome.directrouter.com/~eomf/media/k2/attachments/Valuing by Vince Murphy

Valuing Ecological Goods and Services: An Ontario Perspective Workshop Proceedings March 1, 2007 Peterborough, Ontario

ONE

OF A SERIES OF REGIONAL WORKSHOPS ON THE VALUATION OF ECOLOGICAL GOODS AND SERVICES FROM CANADA’S FORESTS

Table of Contents Table of Contents …………….................................................................................................................... i Acknowledgements ………………………………………………………………………………………………………………... ii

1. Introduction ……………………………………………………………………………………………….. 1 2. Highlights of the Presentations ……………………………..……………………………………….. 1 2.1 The Fundamentals ………………………………………………………………………………………………. 1 2.2 Roles of Different Agencies …………………………………………………………………………………. 2 2.3 Application of the Concept of VEGS ……………………………………………………………………. 2

3. Presentation Abstracts and Summaries ……………………………………………………………. 3 3.1 Opening Remarks ……………………………………………………………………………………………….. 3 3.2 Valuing Ecosystem Services and Resources (Dr. Robert Babe) ……………………………………. 5 3.3 Economic Instruments for Sustaining Supplies of EG&S (Ed Hanna) ………………………. 10 3.4 National Survey on Ecological Goods and Services (Lynn McIntyre) ………………………….. 16 3.5 A Decision-Support Process for the Development of Habitat-Based Biodiversity Standards for Agriculture in Canada – Integrating Ecological Goods and Services (Cathy Nielsen) …………………………………………………………………………………………………………… 19 3.6 Agroforestry Systems: Providing Ecological Goods and Services (Dr. Andy Gordon) …….. 27 3.7 Employing Science to Value Ecological Goods and Services Programs in Canada (Erling Armson) …………………………………………………………………………………………………………… 29 3.8 Ecological Goods and Services: Perspectives for Agricultural Policy and Programs (Darryl Finnigan) …………………………………………………………………………………………………………. 31 3.9 Ontario’s Conservation Authorities, Ecological Goods and Services and Watershed Stewardship (Mike Puddister) ……………………………………………………………………………………….. 34 3.10 Valuing Ecological Goods and Services: Policies and Experiences from the U.S. (Laura Haynes) …………………………………………………………………………………………………………… 38 3.11 Payment for Ecological Goods and Services Schemes: Experiences from Costa Rica (Michael Kennedy) ……………………………………………………………………………………………………….. 45 3.12 Developing Local Markets for Sustaining and Enhancing EG&S from Private Land (Ed Hanna) ……………………………………………………………………………………………………………….. 50 3.13 Healthy Ecosystems = Healthy Communities: Natural Areas Restoration to Benefit Water Quality and Quantity in the Agricultural Landscape (Dave Richards) ……………………… 55 3.14 Alternative Land Use Services (ALUS): Valuing Ecological Goods and Services on Farmland (Dr. Bob Bailey) …………………………………………………………………………………………… 58 3.15 Alternative Land Use Services: Norfolk County Pilot Proposal and Actions to Date (Dave Reid) ………………………………………………………………………………………………………. 62

Appendices Appendix A: Speaker Biographies & Contact Information ……………………………………………………… 66 Appendix B: Ecological Goods & Services and Related Topics: Selected Web Links …………………… 71

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

Acknowledgements The Valuing Ecological Goods and Services: An Ontario Perspective workshop could not have happened without the support of many individuals and agencies. The foundation of any successful workshop is built around interesting and knowledgeable presenters, and this workshop was no exception. To this end, we would like to thank all of the speakers (Appendix A) who traveled from across the country, and even from abroad to share their experiences and give of their time. Their contribution to the effort was demonstrated not just through their presentations, but also through the many reflective questions that came from the 60-plus participants. It took a lot of people to organize and deliver the workshop. We would like to thank the members of the National Steering Committee for the many hours they spent on conference calls and in meetings helping to design the overall structure for each of the five regional workshops. In particular, we need to recognize the effort of Karen Mousseau who coordinated the group and helped with the Ontario workshop. The Ontario Steering Committee also helped tremendously in developing the content of the Peterborough workshop – thanks to each and every member. Our facilitators, Peter Mabee and Andy Margetson did an excellent job – thanks guys! And to Gord Rodgers, a card of thanks for a fine job of capturing the essence of the day’s proceedings, no easy feat given the volume of information shared. A special note of thanks needs to go out to Mary Humphries of the Eastern Ontario Model Forest who coordinated the registration. Elizabeth Holmes, also with the Eastern Ontario Model Forest, deserves an award or at least an extra week of holidays for all the effort (and stress!) she went through helping with the workshop and developing these proceedings. Workshops like this are not inexpensive to put on – many thanks to the Canadian Model Forest Network and the Canadian Federation of Woodlot Owners for making it happen. And, finally, we don’t want to forget the audience who came to hear about this important topic and braved the worst weather of the winter: it is hoped that the workshop was useful and interesting. Thank you all.

Mark Richardson Project Forester Eastern Ontario Model Forest

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

Valuing Ecological Goods and Services: An Ontario Perspective One in a Series of Regional Workshops on Valuing Ecological Goods and Services (VEGS) from Canada’s Forests March 1, 2007 Peterborough, Ontario

Workshop Proceedings 1. Introduction Hosted by the Eastern Ontario Model Forest (EOMF), this workshop was one of a series of five regional events held across Canada. The nation-wide initiative was sponsored by the Canadian Model Forest Network (CMFN) in partnership with the Canadian Federation of Woodlot Owners (CFWO), with the objective of bringing together interested participants to discuss potential ways to recognize ecological goods and services (EG&S) produced by forests in Canada. More than sixty people attended the session in Peterborough, Ontario. Participants represented rural landowners (including farmers, woodlot owners, landowner and farm organizations), environmental organizations, academia, and government agencies at the municipal, regional, provincial, and federal levels.

2. Highlights of the Presentations 2.1 The Fundamentals Several speakers highlighted the fundamentals – definitions, the science, techniques, and arguments (pro and con) for using the valuation of ecological goods and services (VEGS). The first speaker of the day, Dr. Robert Babe of the University of Western Ontario, opened the session with some reservations about the application of “environmental economics” (see Section 3.2). While Dr. Babe made it clear that he had no objections to using prices, taxes, subsidies or markets as tools to cut back on pollution or preserve resources, he did have reservations: “Prices are but one tool in a panoply of techniques that must be deployed to assure a sustainable future.... and that... little stock should be placed in money-based expressions of value of ecosystem resources or services; indeed, expressions in money terms may well do more harm than good because of the ‘bias’ of money as a medium of communication.” A very different opinion came with the second speaker, Ed Hanna, of DSS Management Consultants, and a Research Fellow at York University. Mr. Hanna offered a very positive outlook on the valuing of ecological goods and services, with a presentation stressing the benefits of applying fundamental economic theory to this subject of VEGS (see Section 3.3). In his morning presentation, he described various economic instruments and how they could be used to value ecological goods and services, with some emphasis on how one can build a private market system. He gave a second presentation in the evening, which expanded on this aspect of how to develop and encourage local markets (see Section 3.12).

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

Another important fundamental is the building block of the underlying science. Cathy Nielsen of Environment Canada provided insight into how her department is working with Agriculture and Agri-Food Canada to develop habitat-based biodiversity standards and an associated decisionsupport process (see Section 3.5). The products of this work may offer one of the building blocks in valuing EG&S. The specific example of agroforestry was defined and explained by Dr. Andy Gordon of the University of Guelph (see Section 3.6). He specifically focused on riparian systems and intercropping, explaining the science behind the application of these techniques. Lynn McIntyre, of Wildlife Habitat Canada, provided a snapshot of what Canada’s farmers and ranchers are thinking in his presentation of highlights from the 2006 National Survey of Farmers and Ranchers on Ecological Goods and Services (see Section 3.4).

2.2 Roles of Different Agencies A number of the speakers offered an explanation into the role of their agencies in dealing with VEGS or some aspect of VEGS. Mike Puddister of Credit Valley Conservation described the conservation authorities of the Province of Ontario, including their mandate and their roles (see Section 3.9). Laura Haynes of the USDA’s Natural Resource Conservation Service provided the group with an explanation of the myriad of programs offered by her service, and insight into the multi-billion dollar conservation component of the US Farm Bill (see Section 3.10).

2.3 Application of the Concept of VEGS Although the application of the concept of VEGS is still generally in its early iteration in Canada, there were many examples provided by speakers at the workshop – from Ontario and from abroad. Erling Armson pointed out, by referring to specific projects of Ducks Unlimited Canada, that this organization is practicing the concept routinely (see Section 3.7). In fact, Mr. Armson suggested that they have 70 years of experience delivering “EG&S projects.” The Costa Rican example, an application of VEGS on a country-wide basis, was presented by Mike Kennedy (see Section 3.11). He explained how Costa Rica adopted a “payment for environmental services” scheme in 1996 to address increasing deforestation and to promote economic development. Laura Haynes demonstrated the degree to which the United States has endorsed this concept in describing the various programs of the National Resource Conservation Service (see Section 3.10). Her prediction that financing through the US Farm Bill will increase substantially as the Farm Bill shifts some of its emphasis (i.e., money) from commodity subsidies toward conservation demonstrated a strong commitment at the federal government level of the US to VEGS.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

There were a number of projects in Canada described by various speakers. Dr. Bob Bailey of Delta Waterfowl Foundation and Dave Reid of the Ontario Ministry of Natural Resources described the ALUS (Alternative Land Use Services) program in their two presentations. Bob spoke about the program in general, including goals, principles, and how it works through partnerships and through empowering farmers (see Section 3.14). Then Dave Reid ran through a pilot ALUS project in Norfolk County, in southwestern Ontario, which is currently getting underway (see Section 3.15). Dave Richards, a Water Resource Coordinator with the Ontario Ministry of Natural Resources, described two projects he is involved with in southwestern Ontario – the Wetland Drain Restoration Project and the Subwatershed Riparian Buffer Restoration Project (see Section 3.13). And Darryl Finnigan, of the Ontario Ministry of Agriculture, Food and Rural Affairs, provided an explanation of Environmental Farm Plan – Ontario’s flagship agri-environmental program that has been in place since 1992. He pointed out there may be opportunities to build on the successes of the Environmental Farm Plan to increase the supply of ecological goods and services (see Section 3.8).

3. Presentation Abstracts and Summaries 3.1 Opening Remarks (Peter deMarsh) Peter deMarsh, of the Canadian Federation of Woodlot Owners (CFWO), kicked the conference off with his opening remarks, briefly addressing: • What are Ecological Goods and Services (EG&S); and • Why is the CFWO interested in it? The first thing we have to do in approaching these questions is to be prepared to broaden our imaginations, to begin to see things we don’t see, or things we take for granted. If we want to value something, we first have to see it and see it clearly. EG&S is a new way of looking at the forest for all of us. It is an especially big challenge for the city folks. They see private family woodlots every time they drive outside of town. They see them without much awareness of what it is they are seeing. They are, in fact, seeing forests owned by families for a range of purposes, all faced with a common and more or less urgent challenge of how to balance good stewardship with financial viability of their ownership and any small business that depends on it. The most the city folks see is nice scenery.

Where does clean water come from? “The tap, of course.” Where does wildlife come from? “Well, it comes from…Mother Nature, the wilderness.” This kind of generalization, and a somewhat bigoted one at that, is a bit unfair to some city people. But the truth is that the forests between our cities and towns are largely owned by families and are a

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

significant part of the economic and social fabric of our rural communities, and this reality is beyond the imagination of most city folks. First, all of this must be seen and recognized. Second, we need to begin to understand that clean water, wildlife and other EG&S aren’t free. They involve costs for the landowner. Three types of costs can be described: • “passive costs” are the costs associated simply with ownership. Property taxes are an obvious example. Not so obvious, but extremely important are “opportunity costs”. Woodlots have a real estate value. If translated into, say, mutual funds, that financial value would provide a certain rate of return. As a working woodlot, the return is quite a lot less. The difference is the opportunity cost. This is especially prominent in areas where there is strong development pressure. • “active costs” are the costs of carrying out specific activities, e.g., to improve deer wintering habitat, or taking extra care during road construction, putting in better culverts, etc. • there is also a type of cost that falls in between “active” and “passive”, forest practices that generate less revenue than common alternatives. The difference between clearcut and careful selection logging in New Brunswick is clear and fairly easy to measure. This leads us to a third question: So it costs woodlot owners something and the folks who benefit, the consumers, get it for free. How could this be different? How could the costs be shared between producers and consumers? Surely this would be very complicated, both practically and politically. In fact, there are many examples from around the world where methods to do this are working quite well: • New York City Watershed • Costa Rica • many examples from the European Union • the US Farm Bill • the new Chicago Climate exchange • China’s compensation program for logging restrictions for flood control • now, in Canada, the ALUS pilot project for farmers in Manitoba We will be hearing about some of these examples during this workshop. For woodlot owners, this topic is of critical importance. We want to develop something like a woodlot version of the ALUS project in Manitoba as quickly as possible. We are more and more aware that our economic situation as woodlot owners is increasingly a struggle for survival. On the one side, society’s demand for water and other EG&S is increasing. On the other side, our capacity to cover the increasing costs of meeting these demands is under severe pressure. In New Brunswick, timber sales are down 50% over the past 3 years, and, in general, woodlot owners across the country are trying to deal with vanishing markets due to major disruptions in the forest industry. Our imaginations are beginning to accept the fact that as far as the traditional forest industry is concerned, we are entering a new era, and that the current crisis is not just another downturn in the normal cycle for pulp and paper and lumber we saw throughout the 20th century. The forest industry of the future will likely be very different and a lot smaller. So compensation for EG&S has strategic importance for woodlot owners.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

We’re hoping this workshop will help identify the best models for sharing the cost of EG&S between producers and consumers. We hope it will begin to set a course for introducing an EG&S program into the political process in the most effective way and as quickly as possible. Thank you for being here and for being prepared to participate in this very important imagination-stretching exercise with us.

3.2 Valuing Ecosystem Services and Resources (Dr. Robert Babe) Following Peter deMarsh’s introduction of the subject, Dr. Robert Babe, holder of the Jean Monty/BCE Chair in Media Studies at the University of Western Ontario, argued for caution when applying monetary values to ecological goods. Abstract: The United Nations’ World Commission on Environment and Development (Brundtland Commission) 1987 report, Our Common Future, insisted that economics and ecology must be fully integrated in our thinking and planning, as economies and ecosystems in the material world assuredly are fully integrated and interdependent. Continuing the bifurcation in our thinking, Brundtland insisted, will perpetuate misunderstanding and thereby global and local environmental stresses and strains. At present there are two major economics initiatives for such integration: (i) environmental economics, which essentially enfolds ecology into the standard (neoclassical) economics paradigm, thereby treating ecosystems as subsets of economies, and (2) ecological economics, which maintains that economics needs to be fundamentally transformed in light of ecological principles; this latter approach recognizes that economies are subsets of ecosystems. The endeavour to place money value on ecosystem services and resources is part and parcel of the first (environmental economics) approach, and this paper argues attempts at pecuniary valuations are not only insufficient from an ecological point of view, but that they may ultimately be harmful. The paper explores the “biases” of money indicators of value and the dubious practice of treating ecosystem services and resources as “commodities”. The paper explores environmentally-related aspects of money as a medium of communication, since like all media money is “biased” in the Innisian sense. The anti-environmental biases of money include: (i) the doctrine of consumer sovereignty, (ii) the bias toward perfect, bi-directional substitutions, (iii) the trivialization of past and future, (iv) the expectation of exponential growth, (v) the bias toward quid pro quo, and (vi) the insistence on quantification. Dr. Babe set the stage by referring to the work of Harold Innis, and his “medium theory,” with the following points: • • • • •

Money mediates human interactions; Money is a medium of exchange; Money provides a “store of value”; Prices are messages denoting value; and As a medium, money and its messages are “biased”.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

First, a qualification: Nothing in my talk should be regarded as objecting to using prices, taxes, subsidies or markets as tools to cut back on pollution or preserve resources. On the other hand, prices are but one tool in a panoply of techniques that must be deployed to assure a sustainable future. Further, I will argue, little stock should be placed in money-based expressions of value of ecosystem resources or services; indeed, expressions in money terms may well do more harm than good because of the “bias” of money as a medium of communication. Dr. Babe provided an intuitive explanation for what he was saying: • It is only a century and a half since slavery was abolished in the United States, but we now cringe at the thought of humans being owned and traded; • The sale of body parts, too, in our day is objectionable; • We protest also when political favours are bought and sold; • The exchange of cash between the accused and the judge or the police officer ought to have no place in our judicial system, we believe.

Evidently, then, we recognize value other than pecuniary value and believe that the affording of a money price to certain things debases its non pecuniary value. In an oft-cited piece, Robert Costanza and associates estimated the annual dollar value, not just of a forest, but of all of “nature’s services”, and they came up with the figure of US $33 trillion, about twice the world’s GDP. While Costanza’s approach is certainly of interest in calling attention to a range of usually disregarded ecosystem “services”, the study is misleading and flawed. In using money to indicate the value of nature’s “services”, Costanza implied that ecosystem interactions can/should be conceptualized as subsets of the economy, and that nature’s “services” are substitutes or can/should be exchanged for all other commodities and services in the economy. Indeed, the authors declare: Ecosystem services provide an important portion of the total contribution to human welfare on this planet; we must begin to give the natural capital stock that produces these services adequate weight in the decision-making process. Dr. Babe characterized the Costanza model as flawed, and suggested a different model shown graphically below:

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

economy

ecosystem

ecosystem economy

Costanza’s Implicit Model

A More Ecologically Sane Understanding

Costanza’s study represents one of two general approaches to pursuing a key recommendation of the 1987 Brundtland report, that, “Economics and ecology must be completely integrated.” The dominant approach to this integration is known as environmental economics. It enfolds ecology into mainstream economics, thereby treating ecosystems as subsets of the economy. A major contention of mainstream economics is that prices normally are adequate to indicate value, and when they are not the major task of public policy should be to ensure that altered or shadow prices become adequate indicators of value. Most of my talk today explains the logic behind, and the limitations of, this approach. The second position is known as ecological economics. It claims that price adjustments are insufficient, and calls instead for a fundamental transformation of economics — to make it more consistent with ecological principles. In discussing prices and valuation, Babe notes that most of nature’s “services” never pass through markets, and hence they command a zero price. This is suicidal for cultures wedded to the practice of equating prices with value. • • •

Often services unvalued or undervalued in money terms are called “public goods”, meaning that one person’s benefit does not decrease the benefit of others; Also, there are “externalities” or third party effects, where some but not all costs and benefits of the resource pass through markets; Hence, the prices generated are deemed by environmental economists as being inadequate as signals for economic decision making.

“Value” can be expressed as either: • Willingness to pay; or • Willingness to accept compensation But there must be some way of measuring or estimating value, and Babe provides a critique of the “monetizing of ecosystem services and resources”: • First, since people normally do not have to pay for nature’s “services”, these services never enter consumer’s cost calculations. • A second serious flaw concerns just how much credence should be paid to consumer preferences in any event. Should the momentary, and easily-manipulated, subjective valuations of “consumers”

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

• • •

constitute the sole, or even a primary basis whereby questions like species survival/extinction are decided? Would it not make much more sense to try to convince consumers that environmental “services” are of great value? But to do so would contradict the very logic of estimating the money values of nature’s assets and services! Individual preferences, the core “justification” of price solutions, are based at least in part on knowledge, and in terms of ecosystem interactions, human knowledge is overwhelmed by ignorance. The discounting of future costs and benefits is also problematic. Future generations — those who will actually experience the consequences of today’s decisions — remain voiceless by the procedure. There are the “biases” of money as a medium of communication.

Money and prices, whether adjusted or unadjusted, in and of themselves are “biased” transmitters of information, and this bias is profoundly anti-environmental, in the following manner: • Prices critically misrepresent ecological reality by suggesting that things are infinitely substitutable. Most economists argue that resources (aka “factors of production”) are largely substitutable one for another, that an effectively operating price system will raise the relative cost of scarce resources and induce firms and consumers to shift into lower cost substitutes. This doctrine of infinite substitutabilities flies in the face of ecological thinking, and common sense. There is no substitute for potable water or for oxygen in the atmosphere.

“.....Only in economic models, science fiction and video games can extinct species be revivified, and rain forests reinstated after clear cutting.” •

•

There is the inherent bias of time. The price system trivializes the future. Assuming a 10 percent rate of interest (or discount rate), $1,000 payable thirty years from now are worth only $57.32 today! Note that the time period, considered in ecological terms, is extremely short— merely thirty years. The more remote the benefit (or the cost!), the more trivial it is to present-day economic actors making decisions on the basis of price information. Unfortunately, environmental “tradeoffs” are mostly between consumption today (which receives a non-discounted value) vs. a sounder ecosystem in the future. Since the Industrial Revolution, exponential growth has been realized in many sectors of the real economy. By living within the logic or mindset of money, by continually viewing the material world in money terms, one can easily construe (or, rather, misconstrue) the natural world whereby it seems to take on the infinite expansibility properties of the money system. Or equally as bad, one can lose sight altogether of the natural environment, so riveted is the mind on money. Quid pro quo means an exchange of equivalences: “What I give to you must be worth at least what you give to me.” A society functioning exclusively by quid pro quo will engage solely in commodity exchange/barter relations. The emphasis on quid pro quo implies also a linear understanding of relations — a series of production nodes from resources extraction, to various stages of manufacture, to distribution, and finally to purchase and consumption, each node being characterized by a commodity exchange. This logic of linearity supported by flows of money lies at the heart of neoclassical economists’ faith that prices are/can be adequate guides to technological change and habitat preservation, and hence of environmental economists’ recommendation that market prices be adjusted to induce or constrain as appropriate activities affecting ecological well-being. The presumption of linearity, however, is a major distortion of ecosystem reality.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

•

Quantification of economics is made possible by the commodity of money. Those elements that cannot be quantified, or “named” will disappear from the present forms of economic science.

Dr. Babe concluded his presentation with these thoughts: Mainstream or neoclassical economics is, in large measure, a theory of prices and of the price system. A large part of the problem with neoclassical economics is that it theorizes uncritically or apologetically a technology, namely money, that is inherently anti-environmental. As a general principle, an economy should conform to ecological principles, for at least two reasons: • First, it is the economy, not ecological principles, that humans can control; • Second, the economy is contingent on the environment, not the reverse. Questions and Answers: 1. Dave Reid, speaking as a private landowner: One thing you said bothered me – you made the point that, as a private landowner, one might look at a mountain, and all you see is a mine. A. I was quoting a native leader. The point is that if land is looked at as a commodity, then we see it in terms of profitability RESPONSE: We don’t look at our land in that way. 2. Q. Woodlot owners are being biased as a result of regulation and the tax regime. In some cases, landowners are being forced to sell parts of their land because of high taxes. If there were positive changes (e.g., to the tax regime), it may be possible to maintain or enhance the total ecological goods and services. A. Yes – I did not mean to suggest that you should not apply the tools of taxes, subsidized prices, and markets. However, I was offering a critique of the environmental economists who claim that you don’t need intervention – that the “invisible hand” will rule – if you have the correct system of prices. And I dispute this proposition. 3. Q. Wildlife biologist, MNR. How do you go about changing the fundamental economic system? A. Dr. Babe brought out a number of slides to argue that there needs to be a change in culture – a change in mainstream economics discourse, and in technological discourse. These changes need to address: • Holistic nature of ecology vs. individualism of economics • Balance of nature • Thinking in terms of systems and sets of relationships rather than individual objects • Bio-centrism – centering elsewhere than on humans • Adapting to changing circumstances • Looking at time – the long term future, rather than immediate time frames • Thresholds, limits, and imperfect solutions • Entropy should be considered – “we’re using high grade energy to create waste” • Scale – traditional economic models have no concept of scale, but ecologists look at carrying capacity

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

4. Q. Local landowner. Urban dwellers are having an “ecological footprint” by putting pressure on rural landowners – don’t cut those trees, don’t allow your cattle in the steam . . . A. We need to remove nature from the commodity exchange – areas like parks and greenbelts should be outside the economy. RESPONSE – I disagree – we are a part of the ecosystem, and this needs to be taken into account – not to just let things sit there without humans. As this discussion was starting to take off, Andy Margetson had to break things up in the interest of time...

3.3 Economic Instruments for Sustaining Supplies of EG&S (Ed Hanna) Ed Hanna, of DSS Management, provided an overview of the application of economic instruments for sustaining and enhancing EG&S. Abstract The focus of this presentation is not on global environmental issues (e.g., global sustainability) but on local decisions that affect local supplies of EG&S. These local decisions involve incremental (i.e., marginal) change that collectively when taken together result in system-level change. Basic economic principles and methods are well suited for influencing these decisions and managing overall system behaviour, in this specific case, in inducing individual decisions that will enhance local supplies of EG&S. Various economic instruments can be used to enhance and sustain local supplies of EG&S. The requirements for an economic instrument to be effective are outlined. This presentation provides a comparative evaluation of economic instruments, ranging from command and control regulations, cost-share capital improvement programs, taxes, direct payment for EG&S and various forms of EG&S markets. The practical application of these methods is examined in the context of public land management decisions. The decision-making information needs of public land managers, the role of economics in satisfying these needs, potential economic instruments and their use within the public land decision-making process are examined. Finally, the decision-making environment of private landowners is examined. To successfully influence supplies of EG&S produced on private land, some significant barriers need to be overcome. Many EG&S are public goods that yield little or no direct economic return to the private landowner. These EG&S are called externalities (i.e., the value of these EG&S is outside or external to the financial and other decision criteria of the private landowner). A well established literature exists that discusses the economic problems created by externalities and possible solutions. The bottom line is that private markets will not result in optimal land management decisions where externalities are present. A common strategy is to “internalize” externalities so that private land management decisions will take these values better into account. Economic instruments can be effective tools for overcoming these deficiencies (i.e., market failures). The potential of various economic instruments for improving private land management decisions is critically examined.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

Ed’s presentation offered an overview of the application of economic instruments when valuing Ecological Goods and Services: First, he pointed out that there are some problems for which economics has little to offer. • These issues tend to be large-scale changes that can result in catastrophic change (i.e., nonmarginal changes). • The ability to trade is key. Competitive markets involve trade: I will trade something I have in return for something you have if doing so makes me better off. Otherwise, no trade. • Externalities, in the economic sense, are an important consideration: Where externalities are present, market prices will not reflect these costs/opportunities. Many EG&S are external to conventional economic markets. The result is that EG&S are undervalued when private land management decisions are being made; the result is supplies of EG&S on private land are less than optimal from an overall social welfare (i.e., benefit) perspective.

A private landowner who improves runoff water quality cannot sell this benefit. Producing this benefit does not affect the farmer’s bottom line. Next, Ed made the point that, when applying economic principles to EG&S, there are 5 key questions to ask: 1. How much EG&S is required/optimal? 2. Is the best quality EG&S being supplied in the best location? 3. Are EG&S being supplied most efficiently (least cost)? 4. Are EG&S supply costs fairly distributed (equity)? 5. Are long-term supplies of EG&S secure (stability)? Further, that there are five generic types which cover the majority of the economic instruments used to sustain EG&S: 1. Privatization involves modifying existing property rights to encompass more EG&S within our system of private property rights. o In concept if private property rights existed for all EG&S, economic instruments would not be required. The market would produce an optimal balance of EG&S relative to other needs and preferences. o This approach is attractive in that it is consistent with our existing system of private rights associated with private land. o Example: Hunting, fishing, camping, etc. Private property owners can capitalize on these EG&S by charging an entrance/user fee and hence these values are already captured at least partly by real estate prices. o Weaknesses: It’s impossible to define fully and clearly private rights to for some EG&S (e.g., clean air, clean water, migratory and free-ranging animals). o A key part of our Canadian identity is tied to our public lands and resources. Shifting these EG&S to private ownership would have major social and cultural ramifications.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

2. Command and control (C&C) involves conventional laws and regulations that restrict what individuals can legally do (e.g., Environmental Protection Act, Nutrient Management Act). o Examples include: Water and air pollution regulations; Fish habitat and endangered species regulations; Tree cutting regulations and bylaws o C&C provides negative economic incentives (e.g., fines and penalties) for doing something prohibited. o C&C does not prescribe desired outcomes; only what is undesirable and punishable. o To make C&C effective, large administrative costs are incurred (e.g., laws and regulations, policing, courts and jails). These are extremely expensive to operate. o C&C restricts the behaviour of the market and does not accord with the principles of supply and demand. C&C does not result in the optimum balance between demand and supply. 3. Purchasing or renting private land by the public allows the public to manage the land to enhance supplies of EG&S. o Examples include: Nature Conservancy lands; Expropriation; ALUS o Private land purchasing/rental is a familiar activity. o Purchase/rental of private land rights has limited flexibility to target specific EG&S. EG&S tend to be supplied over extensive areas making large-scale acquisition and management economically and socially infeasible. o When the public rents land to enhance supplies of EG&S, getting the price right is essential. Under-pricing or over-pricing will result in an imbalance of supply and demand and will not result in optimal social benefits (i.e., the best return to the public on their investment). o Land purchase and rental prices are driven by the private market (i.e., they reflect the opportunity cost of the land for the production of conventional private goods and services). o Prevailing market prices are not appropriate for pricing the value of land to produce EG&S (i.e., the value of EG&S is external to the private market). o As a result, using prevailing land purchase or rental prices to purchase rights to produce EG&S is fundamentally wrong and will not yield the optimal social benefit. o Purchase/rental shifts property rights to the new owner/renter. This can alienate the current landowner and can result in significant public management costs. o Purchase/rental of private land rights results in the public being forced to purchase the economic potential for producing private goods and services. 4. Subsidies and Cost Share are payments to land owners for meeting certain requirements (i.e., for doing something that will enhance supplies of EG&S). o Examples: Farm best management practices (nutrient management, riparian protection); Reforestation assistance o Assistance is usually given for capital works. Operating costs fall on the landowner. o Cost-share programs are largely tied to capital works/equipment. Not well suited for encouraging ongoing land management practices.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

o o o o

There is no ongoing incentive to operate and maintain capital works after they are installed at the best possible level. Prioritization of funding for cost-share programs tends to favour the worst cases (i.e., unfairly rewards bad actors). If a landowner has already improved the management of their land, they are not rewarded (no need). Limited application due to international trade restrictions.

5. Tax Relief is another form of subsidy. o Examples: Managed Forest Tax Incentive Program (MFTIP); Farm tax credits o There is no reward for doing more than is necessary to qualify for the tax relief program. o Usually assistance programs favour those who can LEAST afford to pay but tax relief favours those most able to pay (i.e., those who pay the most taxes and who tend to have the greatest assets). o Tax rates are tied to assessed (i.e., market value) value of land but market value does not capture the value of many EG&S. Therefore the amount of tax relief is poorly correlated with supplies of EG&S. o Tax relief provides imprecise economic signals to landowners leading to less than optimal land management decisions with respect to supplies of EG&S. 6. Markets involve buying and selling EG&S o Examples: Carbon credit exchanges; Hunting and fishing rights o Economists have defined the requirements for a perfect market and they are quite demanding. Indeed, no market fully satisfies these requirements. o When a perfect market does not exist, market imperfections (i.e., some loss of efficiency) will be present. o The degree of inefficiency depends on the nature of the imperfection. o Markets do not suddenly emerge. Markets have evolved over many millennia of human civilization. o Preparing the groundwork for a market requires time; in particular, markets require an organizational framework within which to operate. o The advantage of markets is once they are established and functioning smoothly, they result in efficient outcomes and are largely self sustaining. o Markets for the supply of EG&S on private land have considerable untapped potential.

“It’s not easy to get a well functioning market, and not easy to establish one but once a well-functioning market is in place, the benefits to the public and private citizens can be significant.” Following this general discussion of economic principles and EG&S, Ed got more specific in discussing the potential for applying economic instruments to public and private land management. First, in the case of public land management, the example of forest management was used: •

The multiple benefits of forests have been long recognized. The challenge has been developing a management system that results the maximum size of the “benefits pie” (i.e.,

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

• • • • • •

the greatest supply of forest benefits at the least cost) and ensuring that the pieces of the pie are fairly distributed. Because Canadian forests are largely publicly owned, conventional economics have not played as much a role as is the case with private land, but should economics have played a greater role? Forest management is largely a “do this, do not do this” management system (i.e., largely command and control). Forest management is highly regulated and little opportunity exists for more efficient economic instruments to be used. The major barriers to economic instruments are the licence agreements that do not provide positive economic incentives for industrial forest managers to produce anything other than timber. The forest management planning process is not based on economic principles, indeed, economics hardly appear in the process other than with respect to private forest industry costs. Unfortunately, efforts to move forest management in Ontario toward a management system based on optimizing supplies of economic and ecological goods and services have largely failed. Forest management is based largely on maximizing timber yield while meeting certain ecological constraints.

So what is the potential for using economic instruments? • EG&S are public goods and public forest management is intended to optimize social welfare. By definition, EG&S should be part of the decision-making process. • Because EG&S are part of the decision making process, no externalities should be present, at least in theory. • Forest management does involve a certain amount of cost share (e.g., road building, reforestation, forest protection); some claim outright subsidy (US countervailing duties). • These cost-share schemes have induced some outcomes that some segments of society strongly oppose (i.e., advocates of roadless areas) and diminish the importance of some EG&S. But these problems are best addressed through the formal forest management planning process, not through economic instruments per se. Accurate valuation of Forest Ecological Goods and Services (FEGS) could: • Achieve a better balance of economic and ecological FGS. • Communicate to the public the benefit of optimizing economic and ecological FGS. • Provide incentive to change the planning paradigm.

If economic instruments have no role in public forest management, is there any reason to value forest ecological goods and services? The answer is YES.

The management of private lands differs substantially from public land management: • Examples of EG&S from private farms include: Wildlife habitat; water regulation; climate regulation • The farm community has played a major role in environmental stewardship for many years. So why are economic instruments needed now?

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

Economic forces are driving farmers to use their land as efficiently as possible, efficiency here meaning to obtain the greatest revenue for the lowest cost. o These forces are driving the push to convert “vacant” land to productive uses (i.e., to revenue yielding uses). o Within this context, EG&S that formerly were viewed as neutral or slightly positive benefits are now viewed as barriers or negatives. They are impediments to using farmland more efficiently. There is a continuous scale of improvement that is possible with stewardship. How much stewardship is reasonable to expect from private landowners? o

•

If increased stewardship is desirable, how much of the costs of increased stewardship is it fair for the private landowner to bear? •

The farm is a private business, and the landowner independently determines the best management practices for the land. A key objective of the owner is to optimize private welfare or what is more commonly referred to as profit. o However, profit is not the only private land management consideration. Other private values and social obligations affect private land management decisions. o The profit equation is quite simple. When land management decisions are being made, different combinations of products are analyzed to see what combination will yield the greatest profit. o If EG&S can make a positive contribution to the profit equation, land managers will evaluate whether managing part or all of their land to produce certain EG&S is profitable.

“It’s not just an issue of the bottom line, but whatever else happens we still have to pay the taxes...” In concluding this discussion of EG&S and private land, Hanna provides these points regarding the potential for using economic instruments: • Given the nature of farm enterprises and past experience with various types of economic instruments, we can confidently conclude that economic instruments will stimulate positive land management responses if they are well designed and delivered. • It is essential to get the price right. • Prices for EG&S must be determined locally and must reflect local supply and demand. • The value of the supply for many EG&S is highly sensitive to geographic location, much more so than for conventional economic goods and services (e.g., agricultural commodities). • If the price is too high, the public will get too much of the wrong type of EG&S in the wrong place. Likewise, if the price is too low, we will get too little of the right type in desirable locations. • The accurate valuation of EG&S on private land involves balancing : o The maximum willingness to pay of the public for local supplies of EG&S; o The minimum willingness to accept of private landowners to produce local supplies of EG&S; • The effective future application of economic instruments will require:

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

Developing reliable and enduring financing mechanisms so that adequate budget allocations for EG&S management will be assured over the long term similar to the stability provided by our property tax system; and Demonstrating the economic performance of EG&S programs in terms of yielding the greatest public benefit for the least cost.

Ed left us with these concluding comments: • • • • • •

Economics is NOT an elixir for all EG&S ailments. Prudent public policy including public policies designed to sustain and enhance future supplies of EG&S must satisfy some critical requirements but these requirements are commonly overlooked or poorly addressed. Valuation of EG&S is useful for both public and private land management; but for different reasons. Externalities create the primary need for economic instruments. Private land offers the greatest potential for economic instruments. Choosing the best economic instrument must be done carefully, one size does not fit all.

Questions and Answers: 1. Q. Jim Coles, a Bruce County landowner, made the point that an important criterion that must be included is that, whatever system is put in place should be there for a long period of time. He noted problems with the continual changes to the Environmental Farm Plan program. A. Yes – For economic instruments to work effectively in sustaining future supplies of EG&S, there must be long term stability in the market. 2. Q. Frank Hoftyzer, President of the Ontario Soil and Crop Association, noted that if you want to cut costs, cut out some of the regulations. A. Yes. Where you have positive incentives, people will respond better. The high administrative costs associated with conventional command and control approaches to environmental management are a primary force driving the move toward using economic instruments to secure future supplies of EG&S.

3.4 National Survey on Ecological Goods and Services (Lynn McIntyre) Lynn McIntyre, of Wildlife Habitat Canada (WHC), presented the results of a “National Survey on Ecological Goods and Services” In 2005, with support from Agriculture and Agri-Food Canada’s Advancing Canadian Agriculture and Agri-Food Program, WHC initiated a leading edge survey on the topic of ecological goods and services. The National Survey on Ecological Goods and Services is the fourth in WHC’s series of National Rural Landowner Surveys, which began in 2000 in an effort to better understand rural landowners’ attitudes and behaviours towards stewardship and conservation. Collectively, these surveys represent some of the most comprehensive work of their kind ever undertaken in Canada. WHC recognized the potential for production of EG&S in the working landscapes of Canada and sought out the opportunity to further explore this potential on agricultural lands.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

1794 farmers, ranchers, and other rural landowners were surveyed in an effort to: • Benchmark their attitudes and behaviours towards EG&S; • Gain a better understanding of their willingness and capacity to provide EG&S; • Highlight opportunities to for offsetting landowner costs; and • To spread information on the development of EG&S policy to farms and ranchlands in Canada.

“Respondents also reflected a high degree of interest in the issues explored in this study, as evidenced by the significantly greater than average compliance rate of 91%. In other words, almost everyone that qualified for the survey completed the entire survey; virtually no one “bailed out” mid-interview. A compliance rate of about 40% is considered good for any survey – in this case, 91% of the respondents hung through the entire survey.” The National Survey on Ecological Goods and Services was developed by WHC with input from an advisory committee comprised of individuals from Agriculture and Agri-Food Canada, the Canadian Federation of Agriculture, Delta Waterfowl, Ducks Unlimited Canada, Keystone Agricultural Producers, and the Prairie Habitat Joint Venture. Some of the key findings of the survey were: • Of 12 possible concerns about agricultural operations, the 5 that were mentioned most related to “making a living” or some element of farm costs or prices;

Greatest concern regarding agricultural operation Farmers

Top mentions

April 2006

Making a living/profitability/sustainability

Prices (unspec.)

Expenses/input costs

Commodity prices

Grain/cereal prices

Government restrictions/lack of farmer control

Cattle/livestock/lamb/pork prices

Disease/BSE/avian flu

Fuel/gas/electricity/machinery costs

Weather

Marketing issues

Environmental issues (gen)

3 Q.1

5742 Rural Landowners 2006

• •

ENVIRONICS

Increased participation in “environmentally sound land management” is highest where a landowner can see a direct benefit; Only 2 in 10 farmers are averse to adopting new practices;

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

•

The main reason stated for participating in environmental programs is “environment;” and the main reason for non participation is “financial.”

“Promotion of ecological goods and services must include financial incentives” •

There is only a limited knowledge of the phrase “ecological goods and services” across the country (25% “unaided” familiarity), with a decidedly smaller percentage being familiar in the province of Quebec (9% familiarity);

“We’ve got to think of something else to call this thing – “ecological goods and services” just doesn’t do it.” •

The vast majority of farmers recognize their responsibility for practicing environmentally sound land use practices without compensation, but find two impediments: 1. Financially things are already very stressed, and if it means additional costs to the farmer, this is not easy to do; 2. There are gaps in the knowledge of how to apply some of the environmentally sound practices.

Addressing information gaps The major information gaps appear to be in the following areas:

5742 Rural Landowners 2006

Specific environmentally-sound practices and how these can be applied to agricultural operations;

The economic benefits of specific environmentally-sound practices;

The importance of taking into account the impact of land use practices on neighbouring lands and more broadly, the impact on the watershed;

The ripple-out effects of environmentally-sound land management practices;

The existence of environmental programs offered in both the public and private sectors; and

The meaning and implications of the term “ecological goods and services.”

ENVIRONICS

Questions and Answers: 1. Q. A self-identified hunter asked whether the effect of “command and control”, or regulations, was included in the survey.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

A. Yes – it was included in the list of reasons, and was about half way down – regulations was one of the reasons why farmers and ranchers would participate. 2. Q. Joe Banbury of the Northumberland Stewardship Council noted that farmers are well ahead of the curve. Urbanites lecture him on the use of pesticides, when they themselves are taking “7 prescription drugs a day and I’m not applying any pesticides.”

3.5 A Decision-Support Process for the Development of Habitat-Based Biodiversity Standards for Agriculture in Canada – Integrating Ecological Goods and Services (Cathy Nielsen) Cathy Nielsen, of Environment Canada, discussed the work being jointly undertaken by Environment Canada and Agriculture and Agri-Food Canada in the development of biodiversity standards for agriculture in Canada. Abstract: The goal of the Environment Chapter, under the Agricultural Policy Framework, is to decrease risk and increase benefits of agriculture to air, water, biodiversity and soil (four environmental themes). Environment Canada (EC) has signed a Memorandum of Understanding with Agriculture and Agri-Food Canada (AAFC) to develop agri-environmental standards within a four-year time period. The National Agri-environmental Standards Initiative (NAESI) is the EC program to set environmental performance standards, for agriculture, that address each of the four environmental themes. Cathy began her presentation with a number of broad definitions, including the definition in the MOU of “Standards”: 1. Performance Standards: • Establish the degree of desired environmental quality of air, biodiversity, water, and pesticides in agricultural areas; • Can be quantitative or qualitative measures (descriptive benchmarks) or a “degree of desired environmental quality”; • Are voluntary; • Are defined in terms of: – ideal maximum concentration of harmful or dangerous substances; – a specified condition of the environment; or – habitat standards (biodiversity). 2. Priority Standards: • They answer the question: “What are the critical characteristics of land cover/ land use pattern to conserve biodiversity at a level that will ensure the continued supply of ecological/ecosystem goods and services (broadly defined) and the conservation of ecosystem, species and genetic diversity typical for the region?” o Standards – quantitative and qualitative descriptors of the land cover amount, pattern and quality required to meet biodiversity goals;

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

Biodiversity (habitat conservation- wetlands, riparian areas, woodlands, grasslands and connective corridors)

“Biodiversity is much more than simply the number of species. It’s more like an operating bus – all the pieces need to fit together properly to make it work.” The Millennium Ecosystem Assessment project has identified the types of benefits people obtain from ecosystems:

Cathy then listed the myriad of premises that guide us when considering EG&S: • Ecological goods and services are provided by healthy functioning ecosystems, and populations of species that are part of those ecosystems; • Services provided by ecosystems (such as water quality and quantity, flood control) are dependent on the amount, distribution and condition of ecosystems that provide these services; • Ecosystems are composed of interdependent networks of species – interacting with each other – and the abiotic components of an ecosystem; • Representation of species across functional groups is important to maintain ecosystem function; • Diversity of species present in an ecosystem is important for the stability, resilience and functioning of ecosystems (insurance policy); • Landscape patterns affect species populations – therefore the amount, distribution and condition of ecosystems affect the provision of services; • Some species currently provide a greater portion of ecosystem goods; however, all species have potential to contribute goods;

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

• • •

Some species may provide a greater portion of ecosystem services but empirical studies are rare and our knowledge of this aspect is rudimentary; Goods and services provided directly by species are dependent on the distribution and abundance of populations of the species and, in turn, the distribution, abundance and condition of the habitat that supports the species; There is an existing but limited body of science that can be incorporated in a decision support process to guide the landcover/landuse design to conserve biodiversity and maintain ecological goods and services.

An important consideration is that in striving for national consistency in the biodiversity goals, one must be sensitive to regional variation. The NAESI Generic Biodiversity Goals are to: • Conserve regional ecosystem services (regulating, provisioning supporting) that are dependent on biota that inhabit wetlands, forests, grasslands, riparian areas; • Conserve ecosystem services in a pattern that continues to be of direct benefit to agriculture; • Conserve ecosystem diversity – representation of full array of ecosystems in proportions indicative of pre-settlement or potential natural vegetation (PNV) landscape; • Conserve unique landscape features; • Conserve habitat quality of natural areas; • Conserve species composition typical for region; • Reverse negative trends in species populations; • Conserve contribution of agricultural areas as habitat; • Conserve habitat for species at risk; • Be consistent with legislation. The NAESI project has used this approach: • Use multiple lines of evidence to develop landcover standards to conserve biodiversity: o Representation of ecosystems relative to PNV and NCC -30% threshold; o Landscape pattern (patch size, connectivity, patch shape, adjacency of complimentary habitats) relative to published landscape metric thresholds applicable to the area; o Habitat supply for list of surrogate species relative to PNV and published targets; o Modeled population trends for sub-set of surrogate species relative to viable, stable, and ecologically functional targets; • Develop a decision support process to determine if current landscape will provide habitat quantity and quality required to conserve ecologically functional levels of surrogates measured over time using a combination of existing tools; • Use the decision support process to assess scenarios and facilitate trade-off analyses. Models are being developed and used to paint a picture of the ecosystems that might be on the landscape if there had been only natural processes and changes at work, in order to: • Investigate the range of variation in plant community types expected considering historical disturbances; • Provide a baseline to analyze representation of current land cover types; and • Provide a baseline to analyze the natural range of variation in habitat supply

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

“As a coarse rule of thumb, if we are able to protect 30% of an ecosystem, we have a possibility of protecting 80% of the species.”

A case study from the Eastern Ontario Model Forest (EOMF) was described: In this example, the Habitat Guidelines for the Mixedwood Plains Ecotone were used: • Thirty percent forest cover (blocks of >10,000 ha); • At least one 200-hectare forest patch that is a minimum of 500 metres wide; • Ten percent of the watershed - forest cover 100 metres or further from the forest edge; Five percent - forest cover 200 metres or further from the forest edge; • Forest patches - circular or square in shape and within two kilometres of one another; • Corridors designed to facilitate species movement - minimum of 50 to 100 metres wide; • Corridors to accommodate breeding habitat must consider target species requirements; • Watershed forest cover - representative of the full diversity of forest types found at that latitude; • Seventy-five percent of stream length naturally vegetated; • Thirty-metre wide stream buffers;

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

Habitat Based Standards Decision Support Process- Case Study Eastern Ontario Model Forest

Cathy then described 4 examples of the application of the criteria: 1. Total Forest Cover • How much habitat is enough: o Percent forest cover: At least 30% of the AOC watershed should be in forest cover • Species-based thresholds: o Consider areas of forest cover at 40, 50 and 60%; – White throated sparrow 40% forest cover for probability of occurrence; – White-breasted nuthatch rapid decrease in pairing success at 40-60% remaining forest cover; – Ovenbird populations breeding in moderately fragmented landscapes with <60% forest cover within a 100 km radius are generally not viable in the long term. 2. Forest Patch Size • How much habitat is enough: o A watershed or other land unit should have at least one 200 ha forest patch which is a minimum 500 m in width • Other broad habitat targets: o blocks greater than 30 ha likely to support a range of area-sensitive species (OMNR 2001 - SWHTG) • Species-based thresholds: o Wood Thrush: manage forests to maintain supply of upland deciduous or mixed forest with dense understory preferably in patches of 100 ha or greater; o Red Shouldered Hawk: protect extensive tracts (>100 ha) of mature forest with wetland or riparian features;

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

Canada Warbler: protect mature mixed swamp forest with dense understory within extensive forest tracts (>400 ha)

(BCR 13 Habitat Objective 2005) 3. Riparian and Wetland Buffers • How much habitat is enough: o Minimum guidelines for Critical Function Zone / Protection Zone: ⇒ bog = the total catchment area; ⇒ Fen = 100 m or as determined by hydrogeological study, which ever is greater; ⇒ marsh and swamp = 100 m o Percent of stream naturally vegetated: ⇒ 75% of stream length should be naturally vegetated; ⇒ 30 m minimum buffer on both sides • Other habitat and species-based thresholds: o Buffer widths for habitat values are generally greater than those listed for water quality concerns: ⇒ Approximately 150-300m from edge of aquatic site for amphibians and reptiles ⇒ 150-175 m total width for corridor to include 90-95% of bird species ⇒ >50 m for mammals ⇒ 50 m for detrital input, bank stabilization ⇒ >30 m for invertebrates and fish ⇒ 25 m for nutrient and pollutants ⇒ 16 m grass or woody buffer removed 97% of sediment 4. Pollinator Services for Agriculture • How much habitat is enough: o There are no guidelines for habitats such as grassland, hedgerows, old field which provide important resources for many species • Other habitat and species-based thresholds one could consider: o 10% natural/semi-natural habitat within 1-2.5 km of crop field to retain pollination services to field (Kremen et al. 2004); o similar results for predators/ parasitoids – 1-3 km (Hickman and Wratten 1996; Tscharntke et al. 2005) Another important piece in the work is to identify then measure the appropriate indicator species: • Indicators of Stressors • Indicators of Processes

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

And an example check list was provided:

Indicator Checklist STRESSOR

Species examples

SPECIES FUNCTIONS Pollination

Nutrient cycling

Predator / insectivore

herbivore

Seed dispersal

structural influence

Habitat loss/ fragmentation Good disperser

L.Wood Satyr Red Squirrel

X X

Poor disperser

S. Flying Squirrel

Area sensitive/ Interior

Goshawk Cerulean Warbler

X X

Large home range

Barred Owl Coyote

X X

+ edge impact

Wild Turkey L.Wood Satyr

- edge impact

RB salamander

Multiple Habitat types

Gray Treefrog Beaver Wood Duck

X X X

X X

X X X

Specific Habitat Needs Stand Age/ Composition

Ruffed Grouse RS Hawk

Features (mast/ CWD/ ponds)

Pileated WP Wood Frog

X X X

X X

As were other criteria to be considered when selecting indicator species: • Practical: o Data availability for habitat (quantity versus quality at a variety of scales); o Data availability – species life history characteristics; o Ease of interpretation (predicted outcomes, how will this transfer to agri-environmental standards?) o Sensitivity to agricultural stressors (will the standards be sensitive to changes in actions at the farm level - e.g., BMPs). • Ongoing work in the region: o MNR/NHIC rankings of wildlife species; o Provincially featured species; o List of priority bird species for conservation in the EOMF; o Identified wildlife areas (seasonal concentration areas, animal movement corridors, significant wetlands, Areas of Natural and Scientific Interest, rare vegetation communities); o Species of economic significance. She then outlined some examples of the key questions NAESI will be asking as they integrate their analyses into a final report and recommendations. The example from the forest: • How much habitat is enough to sustain ecologically viable populations of: o forest obligate species associated with a variety of cover types and age classes; o forest obligate species with a range of area sensitivities and home range sizes (umbrella species); o forest interior species; o forest species susceptible to edge impacts.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

•

What types of habitats should be connected/adjacent to ensure access to a range of resources required to ensure the long term viability of: o species with a range of seasonal habitat requirements; o species using multiple habitats to access daily resource needs; o species requiring edge habitats. How should patches of the same broad cover type be connected to ensure dispersal between patches and long term viability of: o species with limited dispersal ability; o species vulnerable to dispersal related mortality when traveling between patches.

And in summary, Cathy offered these thoughts: • It is important to consolidate and integrate existing science/information/tools. We should build on what came before us – if it is appropriate; • For the habitat-based standards decision support process, the goal is to define a realistic and scientifically sound decision support process not necessarily a fully operational integrated software based system – this can come later; • We need to ensure that the approach is practical but also provides progress in terms of integration of science; • The decision support process is about providing a synthesis of the science, in a way that it can be integrated with social and economic aspects to support landuse/land management decisions; • When we are dealing with biodiversity standards for terrestrial systems at a landscape scale, there are many unknowns; • Empirical studies directly relating landcover/landuse pattern to ecological services are limited to a few specific areas: o water quality and quantity; o pollination; and o pest control. • The relationship between ecologically functional populations and viable populations is a major area requiring investigation; • How representative is the suite of surrogate measures/species of biodiversity? • There is a lack of consensus in the science community around appropriate reference conditions – at the landscape scale for habitat and for species population levels. There is greater consensus on reference conditions for habitat quality of patch; • Validation will need to be through longer term monitoring and trend through time analysis. Conventional experimental design approaches are difficult for landscape scale parameters; • People: The social dimension of biodiversity goals and objectives for a geographic area must also be taken into account.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

Natural areas are a huge research and development facility- providing direct products and services and a irreplaceable reference library of systems, species and genes .

“Remember that we value just because it’s beautiful, too – and we don’t want to forget that.” Questions: None

3.6 Agroforestry Systems: Providing Ecological Goods and Services (Dr. Andy Gordon) Dr. Andy Gordon, Director of the Agroforestry Research and Development Program at the University of Guelph, provided a discussion on ecological services associated with agroforestry systems. Abstract: Dr. Gordon mentioned all systems of agroforestry, but focused on riparian systems and intercropping. He based his presentation on historical scientific studies and provided a focus on carbon in terms of sequestering and climate change interactions. Agroforestry is defined by Dr. Gordon as “Incorporation of trees into farming systems,” or “farming with trees”. Further, he notes that one can consider agroforestry in terms of several different “systems”:

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

1. Forest Farming Systems: Where we look at agrofestry in terms of what commodities may be taken from the forest that is associated with the farming operation. Examples of the non-timber forest products (NTFPs) that are included here would be: • Maple syrup production; • Christmas trees; • Ginseng; • Shiitake mushrooms; and • Pharmaceuticals. 2. Windbreak Systems: Where we see the often used “trees around fields” approach. 3. Silvopastoral Systems: “Trees, animals and pasture” interacting are the defining elements of this “system”. The benefits of the silvopastoral system can be: • Control of erosion; • Nutrient filtering; • Shading effects /Animal welfare; • Wood / Nut / Fruit production; • Wildlife corridors; and • Carbon sequestration. Dr. Gordon offered a number of examples of where the silvopastoral system is in effect today: • Southern US, with cattle • New Zealand, with sheep and Radiata pine o Tree density is around 100-400 stems per hectare. o The trees are pruned to improve tree value, and pruned branches are left for the sheep to graze; o Meanwhile, the animals are better off with a shaded environment. • France, where sheep graze under larch • Northern Ireland, where sheep graze under ash 4. Integrated Riparian Management Systems: “Trees on streambanks” offers many well understood benefits, and the example of Washington Creek, southwest of Kitchener, Ontario was used to illustrate: • The banks were planted with hybrid poplar in 1985; • Within 5 years there had been a dramatic improvement to the environment of the stream; • The poplar were thinned, and underplanted with ash, oak, and walnut; • By 2005, the stream had improved significantly, to the point where it was able to support a population of brook trout

Dr. Gordon and his colleagues estimate that the value of carbon sequestration in such a riparian “buffer” could amount to $80/ha/yr., based on projected estimates of carbon values in 2010. 5. Intercropping Systems: – “Trees and crops” sharing the same “fields” offers benefits such as: • Often less pesticide is needed, as the rows of trees provide a haven for arthropods; • A “third dimension” is added to the system, whereby one now sees raptors entering the picture, preying on the moles and voles;

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

• •

In contrast to monocropping, where leaching of nitrogen can be very significant, intercropping reduces nitrogen leaching by as much as 50%; and Because of these factors – while output may always be less with intercropping – the yields are often identical.

6. Bioenergy Systems: “Trees for energy” is becoming a more realistic concept, and the bottom line for the future is: “The sky’s the limit!” Dr. Gordon continued his presentation with an outline of some of the research he and his colleagues at University of Guelph are conducting – research that is empirically testing and confirming the value of all the “systems” of agroforestry, and noted: • They have worked out carbon budgets for each of the systems discussed – something that will be critical as Canada moves toward implementing Kyoto; and • That there is research needed to continue the work for all the systems. Questions: None

3.7 Employing Science to Value Ecological Goods and Services Programs in Canada (Erling Armson) Erling Armson, a biologist with Ducks Unlimited Canada (DUC) for 26 years, provided a snapshot of some of the relevant work that DUC has been involved in relating to EG&S. Erling began his presentation with an overview of Ducks Unlimited Canada: • DUC was established in 1938 • It is a national, non-profit conservation organization; • Its objective is to conserve, restore, and manage wetlands and associated habitats for North American waterfowl; • These habitats also benefit other wildlife and people. He established the link between “natural capital” and EG&S in this way: • Natural capital can be defined as the “stock of natural resources/ecosystems”; and • Ecological Goods and Services (EG&S) can then be defined as the “economic and social benefits derived from natural capital”. The need for a science-based approach is important: • There are still gaps in our understanding of functions and values; • What value do you place on non-market EG&S? • Who is paying the piper? The fact that DUC has been valuing EG&S for almost 70 years suggests that this is not a new process, but it still needs a number of factors for it to work effectively: • Needs sustainable agricultural and forestry sectors; • It needs to recognize and reward producers and owners; • It must be science-based; and • There must be long term programs with significant uptake.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

The science-based approach is needed in order to accomplish: • A justification for the valuation of the natural “It’s worth noting that in the U.S. the capital; Conservation Reserve Program may start to lose • Converting the valuation out to the production of bio-fuels”. into quantifiable terms that society will support; and • Developing the sustainable programs with significant uptake. He then summarized a number of examples of science-based EG&S initiatives in which DUC is involved: 1. WEBs Project (Watershed Evaluation of BMPs) • Assessing the water quality benefits of BMPs • Multi-partnership initiative with AAFC, DUC and others • 7 regional projects across Canada • Project objectives are: o To determine the environmental and economic benefits of selected BMPs such as cattle exclusion, subsurface water management; o To model the data at a watershed scale; o To identify those BMPs and lands that will give the greatest return on investment; and to determine the appropriate compensation to landowners. 2. Carbon Research – the Agriculture and Wetlands Greenhouse Gas Initiative, including these 2 ongoing projects: • Finding a Natural Solution: Exploring Carbon Sequestration of Prairie Wetland Landscapes • Management of Agricultural Landscapes with Wetlands and Riparian Zones: Economic and Greenhouse Gas Implications • Initial results will be forthcoming, contact DUC IWWR for more information. 3. Research in the Boreal Forest • DUC is involved in a comprehensive inventory in the Western Boreal Forest of: o Wetlands o Forest o Waterbirds; and • Wetland carbon research (expanded to the boreal); and • Boreal hydrology research (to better understand water movement and role of wetlands). 4. Integrated Modeling of Isolated and Riparian Wetlands in Agricultural Watersheds • Working with University of Guelph; o To conduct a watershed based evaluation of the benefits of wetlands in southern Ontario and o Potential project in cooperation with George Morris Centre to better determine the costs, benefits and barriers to implementation and ownership of wetland BMPs.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

5. Wetland Farm Stewardship Pilot Project: • Pilot program in Niagara, Peterborough, Prince Edward and Leeds Counties • Has an evaluation component; • It has been developed in association with: AAFC; OMAFRA; OSCIA; farmers; farm associations; • The pilot project is looking at the effect of topping-up the current 50% grants/cost share available through the Environmental Farm Plan, and • The project is looking at the difference in uptake at 50%, 75%, 90%, and 100% cost share. Erling closed his presentation with a reiteration of why science is critical to the development of EG&S: • There must be justifiable and quantifiable costs and benefits; • We need the science to inform the policy process; • We need it to develop effective and sustainable programs that are: o Economically sustainable; and have o Significant uptake. Some of the future directions that DUC will be pursuing include: • Continuing to build our understanding of EG&S on a watershed scale; • Continuing to work with governments, landowners, associations and the public; and • Working to develop and implement real life programs to guide appropriate levels and amounts of compensation to landowners. Questions: None

“Uptake is very important: Who cares about a program that only has 2 or 3 or 4 people interested in it?”

3.8 Ecological Goods and Services: Perspectives for Agricultural Policy and Programs (Darryl Finnigan) The next speaker, Darryl Finnigan, a policy analyst with the Ontario Ministry of Agriculture, Food, and Rural Affairs (OMAFRA), discussed the Canada-Ontario Environmental Farm Plan and its connection to EG&S. Abstract: Since 1992, the Canada-Ontario Environmental Farm Plan (EFP) has been one of the flagship agri-environmental programs in the province. The program aims to improve soil, water, air and biodiversity through education and by encouraging the voluntary adoption of on-farm projects. Eligible farmers receive one-time payments to defer some of the costs of implementing projects. There may be opportunities to build on the successes of the Environmental Farm Plan to increase the supply of ecological goods and services, but choosing the right policy approach is important, and many policy questions remain.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

Darryl noted at the outset that the Ontario Ministry of Agriculture, Food and Rural Affairs (OMAFRA) is part of a federal/provincial working group looking at EG&S. The Working Group is: • Examining the costs of different policy approaches; and • Examining research on what is working at the farm level and how to measure progress

When defining EG&S, one might consider them as: “the benefits from healthy ecosystems”. Putting a value on ecological goods and services is another way of thinking about the environment: • We already use a mix of policy tools in the province: o Regulation (e.g., Nutrient Management Act); o Education (e.g., Environmental Farm Plan); and o Financial Incentive Programs (e.g., Greencover Canada) • Much depends on clearly defining environmental objectives and adopting measurable outcomes. Within the farm community, awareness of EG&S is changing: • There is a growing awareness of the environment in general; • There is a growing recognition of agriculture’s contribution to environmental quality; and • Suggestions are being heard that farmers should be better compensated for the ecological goods and services that they provide through land use practices; • There is plenty of opinion on EG&S in the media – in the general media, as well as in the farm-specific media. He identified four broad goals from Canada’s Agricultural Policy Framework: • Cleaner air; • Cleaner water; • Healthier soil; and • Improved biodiversity. And then he addressed specifically agri-environmental programs in Ontario: • To date, most programs have involved first-come/first served one-time payments; • The key example is Ontario’s main environmental program for agriculture the Canada-Ontario Environmental Farm Plan OMAFRA’s approach to dealing with EG&S is through the Environmental Farm Plan: • This is agriculture’s main environmental program in Ontario; • It was developed by: o Ontario Farm Environmental Coalition; o Agriculture and Agri-Food Canada; o OMAFRA; and o Ontario Soil and Crop Improvement Association. • The EFPs are based on an on-farm risk assessment; • The plans have a long history of success: o The program started in 1992;

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

Today, farmers are working with the 3rd edition of the guide, from 2005; and Over the period April 2005 to January 2007, there have been over 8,000 workshop participants and over 5,500 peer-reviewed EFP Action Plans produced. The program operates on the philosophies of: o Voluntary and confidential in nature; o Self-directed, risk reduction approach; and o Seeking continuous on-farm improvements. o o

•

The types of project “uptake” under the EFP reflect a tendency toward agriculture-related improvements, with the highest uptake for the following categories: • Improved cropping (1,388 projects); • Manure storage and Handling (962); • Water wells (744); • Nutrient management (623); • Pest management (596). On the other hand, the types of projects that might fit well within the realm of EG&S policies and programs were all “low” in uptake: • Species at risk protection; • Grazing management; • Habitat enhancement; • Increasing water supply on the land; • Carbon sequestration. Darryl offered a number of ideas for how to build on the Environmental Farm Plan for EG&S: • New partnerships (e.g., Greenbelt, Ducks Unlimited); • Targeted cost-share projects, by sector, by project, by geography; • Voluntary trading (e.g., on the Chicago CO2 markets); • Environmental taxes; • Annual payments; • New regulations; • A mix of the above. He left the group with the following questions to ponder: • Should EG&S be included in agri-environmental policy in Ontario? • If so, which policy approaches should Ontario consider? • What is the baseline of farm stewardship responsibility? • How do you measure success? Questions and Answers: 1. Q. We restored 20 acres of tall grass prairie, and the only concern of our neighbours was about weeds. Although weeds have not become a problem, I am now starting to worry that it will attract endangered species. Also, I can’t get the cash to continue the management of the property. Prescribed burning just went from $1,500 to $4,500. A. I don’t know exactly how to answer your concerns. The EFP program funding runs out in 2008, although I expect it will be continued. The money available for environmental

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

programs is a small amount relative to the Agricultural Policy Framework overall. If things are not working, as you point out, then farmers may want to raise these issues with the federal government as it is currently developing the next generation of the Agricultural Policy Framework (see http://www.agr.gc.ca/pol/consult/index_e.php). Comment from the Floor: I know someone in South Dakota with 160 acres of tall grass prairie who uses it to graze cattle. I’m not sure how well it’s working, because he’s only been doing it for 100 years. He says it’s great pasture, and he gets no complaints from his neighbours about smoke.

Comment regarding managing tall grass prairie: “The buffalo did a great job...”

3.9 Ontario’s Conservation Authorities, Ecological Goods and Services and Watershed Stewardship (Mike Puddister) Mike Puddister, Manager, Natural Heritage and Stewardship with Credit Valley Conservation, currently also carries responsibilities for a new initiative which is exploring the Ecosystem Goods and Services provided by the Credit River Watershed. Abstract: The presentation provided an overview of the conservation authority program in Ontario, a program created some sixty years ago under the Conservation Authorities Act. Conservation authorities are community-level organizations that manage natural resources on a watershed basis across Ontario. The goal of Conservation Authority watershed stewardship programs is to protect and improve the health of watersheds in Ontario. Conservation Authorities work with their watershed communities and landowners in identifying local concerns and creating solutions to protect and enhance the local environment and the ecological goods and services that they provide. Conservation Authorities collect data, carry out studies, map resources and monitor the state of Ontario’s watersheds daily. This positions them to be able to track the quality and quantity of the EG&S provided within a watershed, subwatershed or smaller tributary area. Mike began with an overview of the conservation authority (CA) program: • The program was created over 60 years ago in Ontario; • Conservation authorities are community-level organizations that manage natural resources on a watershed basis; • 10+ million people live in watersheds managed by CAs o This represents almost 90% of the population of Ontario; o CAs cover 98,000+ sq. km. (almost all of southern Ontario); o They expend $160+million per year, mostly through municipal levies and self-generated revenues

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

Using science as a basis for action, Conservation Authorities develop programs and approaches that protect, restore and manage Ontario’s land and water resources through: • Collecting data ; • Carrying out studies; • Mapping environmental resources; and • Monitoring the state of Ontario’s watersheds daily. This type of work positions CAs to be able to track the quality and quantity of ecological goods and services within a watershed. Authorities offer a wide range of programs and services often tailored to meet the needs of the local communities and the needs of the watershed, including: • Watershed strategies; • Flooding and erosion control; • Water quality and quantity; • Reforestation and sustainable woodlot management; • Ecosystem regeneration; • Environmental education; • Securement of sensitive lands; • Outdoor recreation; • Soil conservation; • Environmental land use planning; • Habitat protection and restoration; • Agricultural and rural landowner assistance; • Protection of sensitive wetlands, flood plains and valley lands. Conservation Authorities approach watershed management through partnerships: • CAs have a strong track record of partnering with municipal, provincial and federal governments as well as landowners and other groups; • CAs believe in the importance of involving people living in watersheds to make decisions about the best way to ensure there are healthy and sustainable resources now and in the future; • Authorities work closely with their watershed communities and landowners in identifying local concerns and creating solutions to protect and enhance the local environment and the ecological goods and services that they provide; • The need to build trust with landowners is key. Watershed Stewardship is a key priority: • Goal of CA Watershed Stewardship Programs is: To protect and improve the health of watersheds in Ontario; • Three key watershed stewardship programs offered by many CAs to landowners are Water Quality Improvement and Protection, Forestry and Fish, and Wildlife Habitat Enhancement; • A natural component of these programs involves the protection, enhancement and rehabilitation of natural areas and corridors (many of which fall along creeks and streams); • The rehabilitation and protection of natural areas (such as wetlands and watercourses) also play a significant role in addressing surface and ground water quality.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

While the level of Watershed Stewardship services may differ, all conservation authorities offer some common basic services: • They provide: o technical advice; o design and planning services, with o on-site assessment and financial incentives (often in partnership with local municipalities and community groups, provincial and federal government and non-government agencies). Financial incentives are offered for a number of services: • BMPs, which can include nutrient storage, buffer strip establishment, erosion prevention, shelterbelt planting and fencing of cattle from streams; • Planting programs, including tree and shrub planting, direct sales of trees and shrubs, site planning, site assessment and monitoring; • Rehabilitation, restoration and enhancement generally focusing on stream and wetlands, wildlife habitat and species at risk; • Woodlot management, which focuses on sustainable forestry practices and assistance to meet landowner needs. From 2000 to 2005, Conservation Authorities supported: • 8,759 water quality improvement projects; with o 7,004 landowners involved; and o $22.4 million in grant dollars given out; o 21 CAs support Permanent/Fragile Land Retirement Programs; and • 10 million trees planted: o 5,199 ha. (13,000 ac.) of land planted; o 4,464 landowners were involved; and o $5.5 million in grant dollars given out. On the specific subject of valuing ecological goods and services: • Conservation Authorities support the concept of payment for EG&S; • However, further research is required towards understanding the value of these environmental benefits to society – particularly from an integrated watershed perspective; • For example, the Credit Valley Conservation Authority is currently supporting two research studies that will help us place value on some of the ecological goods and services provided by the Credit Watershed. This is our initial attempt to better understand the EG&S provided by the watershed and how they benefit the watershed community. The first study is looking at the socio-economic value of the Credit River Fishery. In this case we are attempting to place an economic value on fishing products or goods that are provided through the ecological services or features and functions of the river – which is not only the fish themselves but the overall experience provided. This is a rather common example of studying EG&S and uses what has been referred to as the Product Travel Cost Method which essentially measures the “willingness to pay”. The second study is attempting to determine the portion of the total value of properties that can be attributed to their proximity to, and nature of, nearby natural areas such as

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

woodlots and ravines. This study utilizes hedonic models to determine the effect of natural features on real estate prices in different neighbourhoods. In this case we will be determining the value of the various services (such as aesthetics) which is provided by these natural areas to the nearby properties and their owners…at a cost. In both cases this information will assist the Authority in making stronger and more complete arguments for the protection, restoration or enhancement of natural features and functions within the watershed. We are also supporting an application to research farm level EG&S which we hope will help shape future agricultural policy • • • • • •

• •

Therefore, CAs support work that builds an understanding of the environmental, human and economic cost and benefits of BMPs implemented by landowners. We should also be careful to not undersell the value of stewardship as an ethic and a sense of responsibility; Emphasis must be placed on directing limited public resources to those actions that achieve the highest benefits for the community. Approach to dealing with EG&S needs to be straight forward; It should compliment existing programs; and Once developed, this enhanced approach must be straight forward in its implementation, complimentary to existing programs and supported by long term funding. A significant challenge is to develop a way to sustainably fund payment for EG&S on a per acre basis that is flexible, that would motivate landowners in all regions of Ontario to go beyond the minimum (or what may be legally required) and on an ongoing basis to help ensure that land is not reverted back to past practices when traditional market conditions change. Given our traditional and evolving role in watershed stewardship as a key component of watershed ecosystem management we will continue to support the delivery of new and innovative stewardship programming that benefits watersheds, society and landowners. It must be supported by long-term funding.

Conservation Authorities have and will continue to support the delivery of new and innovative stewardship programming that benefits watersheds, society and landowners. Questions: 1. Frank Hoftyzer, President, Ontario Soil and Crop Improvement Association. I am not sure how to take the message. We have a system in place right now through the Environmental Farm Plan. We don’t need any more research, we just need the funding to get on with it. A. We’re not saying that we need to research at the farm level. We see a role in implementing projects under the environmental farm plans.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

3.10 Valuing Ecological Goods and Services: Policies and Experiences from the U.S. (Laura Haynes) Laura Haynes, a Natural Resource Specialist with the U.S. Department of Agriculture, presented the perspective of VEGS from her experience with the U.S. Natural Resources Conservation Service (NRCS). Abstract: This presentation provided a comprehensive look at the approaches and programs used by the U.S. Natural Resources Conservation Service (NRCS) to help value ecological goods and services. With the mission of “Helping People Help the Land”, NRCS has been providing products and services since 1935 to enable people to be good stewards of the soil, water, and related natural resources on non-Federal U.S. lands. Valuing ecological goods and services is at the core of the NRCS mission – and is reflected in the actions of the Agency. This presentation reviewed the policies that drive these actions and provides a deeper look into four USDA programs: Conservation Security Program; Environmental Quality Incentives Program; Wetland Reserve Program administered by NRCS; and Conservation Reserve Program administered by the Farm Service Agency. In addition, the presentation addresses the challenges, strengths and weaknesses of the USDA approach. A better understanding of these methods and practices could provide ideas for changes in current Canadian policy. Laura began her presentation with an overview of the U.S. Natural Resources Conservation Service and the programs the NRCS supports. • Since the Dust Bowl of the 1930’s, the Natural Resources Conservation Service (previously known as the Soil Conservation Service) within the U.S. Department of Agriculture has worked with conservation districts and others throughout the U.S. to help private land owners, as well as Federal, State, Tribal, and local governments and community groups conserve soil, water and other natural resources on non-Federal lands. •

With the mission “Helping People Help the Land”, NRCS provides financial and technical assistance to private land owners through a wide portfolio of natural resource conservation programs that provide environmental, societal, financial, and technical benefits.

•

Most of these programs are authorized through the Food Security Act of 1985 (also known as the Farm Bill), which is reauthorized every five years.

The primary “customers” of the NRCS are the following: • Farmers and ranchers; • Private sector who support agriculture and natural resource conservation; • Governments (or units) responsible for natural resources use and management; and • Non-profit organizations. The NRCS has six mission goals to help achieve an American landscape where both productive agriculture and high-quality environment coexist. These goals are the following: • Foundation Goals o High-quality, productive soils o Clean and abundant water

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

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o Healthy plant and animal communities Venture Goals o Clean air o Adequate energy supply o Working farm and ranch lands

In order to reach these goals, the NRCS is guided by these key principles: • Assess the resources on the land, the conservation problems and opportunities; • Draw on various sciences and disciplines and integrate all their contributions into a plan for the whole property; • Work closely with land users so that the plans for conservation mesh with their objectives; and • Through implementing conservation on individual properties, contribute to the overall quality of life in the watershed or region. The NRCS does face challenges when trying to meet mission goals: • Honoring private property rights • Complex, dispersed nature of non-point source pollution • Diverse nature of agriculture • Urban-rural conflict • Ongoing agricultural production and enterprise changes • Increasingly complex array of environmental problems and regulations • Competition for Federal funding However, the NRCS also faces opportunities: • There is a growing public interest in: o Environmental amenities; and o Paying for ecological goods and services. • Technology is advancing to help address conservation concerns. The NRCS meets these challenges and opportunities, through the following VEG&S approach: 1. The NRCS uses a locally-led framework • Conservation partnerships with decisions at the field level; • These partnerships include a close working relationship with the 3,000 state conservation districts across the U.S. and the 17,000 district employees; • Most of the 12,500 NRCS employees are located at the field level. 2. The NRCS conducts Resource Assessments through the use of the Natural Resource Inventory a statistical survey of land use and natural resource conditions and trends on U.S. non-Federal lands. 3. The NRCS applies science-based assistance, by: • Developing sound conservation technologies; and • Providing technical assistance to producers. 4. The NRCS uses a “Portfolio Approach,” which offers: • A wide range of conservation programs;

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

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o Technical assistance o Easement programs o Cost-share programs o Stewardship program o Grants for innovation; Conservation solutions tailored to producer needs; Market-based approaches

The NRCS Conservation Programs fall into two funding authorizing categories: 1. Mandatory Programs: • $1.76 Billion in 2006 • Agricultural Management Assistance Program • Conservation Reserve Program o Technical assistance only • Conservation Security Program • Environmental Quality Incentives Program (EQIP) o EQIP Conservation Innovation Grants o EQIP Ground and Surface Water Conservation o EQIP Klamath River Basin • Farm and Ranch Lands Protection Program • Grassland Reserve Program • Wetlands Reserve Program o Wetlands Reserve Enhancement Program o Bid Pilot Project • Wildlife Habitat Incentives Program 2. Discretionary Programs: • $1.49 Billion in 2006 • Conservation Technical Assistance (CTA) Program o CTA Cooperative Conservation Partnership Initiative o CTA Grazing Lands Conservation o CTA Grazing Lands Conservation Invasive Species Grants • Emergency Conservation Program – Technical assistance only • Emergency Watershed Protection Program • Resource Conservation and Development Program • Watershed Protection and Flood Prevention Program • Watershed Rehabilitation Program • Watershed Surveys and Planning Program • Healthy Forests Reserve Program She then went on to provide descriptions of two of the NRCS “Working Lands” programs: I. The Conservation Security Program (CSP): • CSP aims to "Reward the best and motivate the rest”. • The CSP encourages conservation stewardship for soil, water, air, plants, animals, and energy by: o Rewarding producers that meet the highest conservation standards o Providing incentives for others to meet same conservation standards; and thereby

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

o •

Providing long-term conservation benefits for society.

Programs status for fiscal years 2004 - 2006 o 280 Watersheds/50 States o 19,375 Contracts/15.8 Million Acres

CSP funding by resource concern: Conservation Security Program Total Funding from 2004-2006 3% Energy

3% Water Management

37% Soil Conservation 2% Air Quality 8% Wildlife Management

47% Water Quality

Total: $408,104,821

Pie chart percentages represent the primary resource concern address ed through the implementation of each cons ervation program . NRCS recognizes there are multiple benefits gained through the im plementation of cons ervation program s.

Who can participate in CSP? • Those in a Priority Watershed; • Those with eligible land; • Those meeting applicant eligibility; • Those meeting treatment requirements for soil and water quality; and • Those willing to do additional resource enhancement. A producer can enter into CSP in one of the three Tiers. As the producer rises in Tiers, the payments increase. • Tier I – A producer must at least meet soil and water quality criteria on part of the agricultural operation to enter the first Tier. • Tier II – A producer meets soil and water quality criteria on all of the agricultural operation AND agrees to address one other resource concern (i.e., wildlife habitat). • Tier III – A producer meets criteria to protect all natural resources on all of the agricultural operation AND agrees to do additional activities. The CSP offers 4 different payment components, with contracts for specified terms: • An annual stewardship component for the benchmark (current level of) conservation treatment; • An annual existing practice component for maintaining existing conservation practices; • One-time new practice component for additional practices; and • An enhancement component for exceptional conservation effort.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

CSP Four Payment Components 5 -10 Years 5 -10 Years 5 -Year Contracts

Enhancement Payment New Practice Payment Existing Practice Payment Stewardship Payment

Tier I

Tier II

Tier III

She noted sample practices that a producer could do to receive an enhancement payment through CSP. 1. Practices for Achieving Soil and Water Quality (Beyond Water and Soil Criteria): • Conservation tillage • Erosion control (e.g., terraces) • Cover crops • Nutrient management • Grazing management • Pesticide application and management • Use of buffers 2. Energy Enhancements – an exciting new area in conservation incentive payments: • Management, conservation, and generation options (e.g., energy audits, recycling lubricants, using ethanol or biodiesel); • Likely to evolve with experience. II. The second program discussed was the Environmental Quality Incentives Program (EQIP): • Purpose: Offers financial and technical assistance to help participants install or implement structural and management practices on eligible agricultural land to confront threats to soil, water, air, and related natural resources on their land; • Eligibility: persons who are engaged in livestock or agricultural production on eligible land; • Voluntary program: EQIP does not impose any obligation or burden upon agricultural producers that choose not to participate; • Promotes: agricultural production and environmental quality as compatible national goals

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

The incentives or payments that are offered under the EQIP program include: • Practice Payments: o Cost-sharing up to 75% of the costs for certain conservation practices important to improving and maintaining the health of natural resources in the area, such as: grassed waterways; manure management facilities; filter strips • Incentive payments to encourage land management practices: o nutrient management o irrigation water management o wildlife habitat management • Practices are subject to NRCS technical standards and adapted for local conditions. Funding for fiscal years 2002-20006 for EQIP based on resource concerns:

Environmental Quality Incentives Program Total Funding from 2002-2006 29% Soil Management

24% Water Management

Less than 1% Wetland Conservation 3% Air Quality

6% Wildlife Management

Total: $3,548,297,867 38% Water Quality

Laura provided examples of EQIP-funded projects: California is using EQIP to assist farmers to reduce agriculture generated particulate matter (PM) and ozone contributions: • Cost-share payments to farmers who reduce on-farm dust contributions from unpaved roads or for use of alternatives to burning agricultural wastes; • Results indicate that for each mile of unpaved road treated, up to 1,600 pounds of PM-10 can be prevented from entering the atmosphere; • Provides cost-share payments for the replacement of old diesel engines so they meet California Air Resources Board’s TIER II emission requirement level for NOx; She then went on to provide descriptions of two of the NRCS “Land Retirement” programs: I. The Wetlands Reserve Program (WRP):

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

• • • •

This is a voluntary program to restore and protect wetlands on the agricultural landscape through the establishment of permanent or 30-year conservation easements or restoration cost-share agreements where there is not an easement involved. The landowner continues to control access to his/her land. The program creates habitat for migratory birds and wetland-dependent wildlife and provides producers a viable option for marginal lands through endeavors such as hunting. Since 1992, WRP has restored and protected 1.6 million acres.

II. The Conservation Reserve Program (CRP) • The Farm Service Agency (FSA) administers CRP, however the NRCS provides technical assistance to landowners and operators • Landowners receive annual rental payments and cost-share assistance to establish long term, resource conservation on eligible farmland. • Payments are based on agriculture rental value of the land, and cost-share assistance up to 50 % for costs to establish approved conservation practices; • Participants enroll in CRP contracts for 10 to 15 years; • The benefits of CRP include: o Protects millions of acres of American topsoil from erosion; o Reduces run-off thereby protecting surface and groundwater; o Acreage enrolled is planted to resource-conserving vegetative covers – making a major contribution to increased wildlife populations in many parts of the country; Laura concluded her presentation with a summary of the strengths and weaknesses of the NRCS approach to providing VEG&S: The Strengths: • Solutions are tailored to local conditions and farmer and rancher objectives, meaning there is: o Local support; o The ability to leverage partner resources; o One-on-one technical assistance; and o Conservation plans are resource based; • NRCS is able to capitalize on the inherent conservation ethic of landowners. • NRCS allows for the development and transfer of proven technology, such as: o Reduced till o Waste management systems • Finally, the NRCS VEG&S approach allows for national consistency and efficiencies. The Weaknesses: • Enhancements could be made to target assistance to high problem areas; • Administrative functions can take time away from work in the field; • Programs could be integrated better; • It is difficult to monetize goods and services; and • The incentives for innovation could be improved. And as a final comment, Laura offered some recommendations for Canada based on the experience of the NRCS: • There is a need for a Federal presence and consistency;

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

• • • • • • • •

Recommend the development of a measure for local control; Recommend the development of a process to ensure that conservation plans are developed in partnership with the producer; Undertake resource assessments to help ensure the greatest benefit for the tax payer’s investments in conservation; Develop technical expertise; Measure what you have done – develop science-based tools to measure desired outcomes; Understand farmers and ranchers; There are opportunities to share technology across national boarders; and There is a need for improved interaction with businesses and the private sector to develop markets for environmental goods and services.

Questions and Answers: 1. Q. Who pays for all of this? A. NRCS programs are funded through federal funds authorized mainly through the Food Security Act of 1985, also known as the Farm Bill. 2. Q. Agricultural easements – how are they used, how do they provide benefits? A. NRCS works with willing private landowners to buy the development and production rights of a piece or whole property. The Wetlands Reserve Program is the best example of an easement program that also provides private landowners benefits beyond the easement. WRP allows participants to have hunting activities on WRP land as long as structures are not built upon the land. Therefore this program not only protects wetlands, but it also offers a side income from hunting. 3. Q. You indicated that there is a growing public interest in conservation. A. Yes, I believe there is a growing public support for environmental amenities and paying for EG&S. The Secretary of Agriculture when on a series of 100-plus town hall meetings in preparation for the new Farm Bill, found general support for conservation programs. The general feeling is if we are going to pay our farmers, why not receive conservation benefits from those payments. As a result, the Secretary has proposed a $7 billion increase in conservation programs for the 2007 Farm Bill. 4. Q. Are the programs voluntary? A. Yes, NRCS programs are voluntary. But if you sign up for the program, you must follow the requirements, and use NRCS approved technology. 5. Q. There was a question related to hunting, and incentives to retain hunting on the land that does not seem to exist here in Ontario. A. When a landowner signs up to the program, they lose certain rights to develop the land, however, they continue to own the hunting rights, and often the carbon rights as well.

3.11 Payment for Ecological Goods and Services Schemes: Experiences from Costa Rica (Michael Kennedy) Michael Kennedy has worked for the past year as an Advisor on Technology and Economics to the Latin American and Caribbean Model Forest Network in Costa Rica.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

Abstract: Costa Rica adopted a “payment for environmental services” (PES) scheme in 1996 to address increasing deforestation and to promote economic development. The program now has been in place for 10 years and has been studied extensively by researchers and forest practitioners due to its universal utility as a market based policy tool. Since the PES scheme was adopted, forest cover in the country has increased, however the PES scheme is not solely responsible. What is clear is that the PES scheme in Costa Rica is a working program that is addressing some very serious issues and this program provides an opportunity to learn about an alternative forest policy approach that holds potential for use in Canada. Mike began his presentation with a few clarifications and assumptions: • By valuing EG&S we can better evaluate trade-offs; • Examples of valuing EG&S already exist; • Payment for EG&S schemes are contributing to rural development; • A PES scheme can clearly address social, economic and environmental issues related to forest-use; • Ecological Goods and Services = Environmental Goods and Services; • EG&S= Ecological Goods and Services; • PES=Payment for Environmental Services; • PES scheme: Framework in which payment for environmental goods and services are traded; • The existence of EG&S are linked to increases in human welfare; • If we know the value of EG&S we can better manage a region’s natural capital; • EG&S become assets whose increasing value is sought rather than inputs for production; • By valuing EG&S we can slow or reverse environmental degradation; • A new sustainable economy starts with valuing its assets (EG&S). Then, to put the PES program in perspective, he provided an overview of the political situation and history that led Costa Rica to launch this approach: • Lack of public trust in the government; • Government has increasingly relied on international development aid; • International parties (funders, private enterprises and governments) have had a very influential role in the country; • Most industrialization has been state-run and bureaucratic; • Presidential Decrees have been used to expedite the democratic process. • More recently there has been a shift to a more open market form of capitalism; • Deforestation - from 1972-1990 Costa Rica lost 51% of its forest cover to land conversion; • 1979 - Incentives were provided to land owners for reforestation and sustainable forest-use (National Forest Development Plan); • Structural Adjustments - (late 1980’s) World Bank called for the abolishment of traditional farming subsidies and encourage a decrease in deforestation; • Establishment of FONAFIFO - This non-profit organization was formed to promote reforestation and then to allocate the national tax fund to purchase EG&S; • Forestry Law (1996) - This law laid the groundwork for a new National Forest Strategy aimed at conservation and the marketing of EG&S.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

And further, Mike provided an overview of the Program of Payment for Environmental Services (PES) itself: • The Costa Rican program of PES was the first of its kind in terms of scope and size; • The PES program is Costa Rica’s forest policy tool for environmental management and economic development; • In Costa Rica there are five working PES programs; • The Forestry Fund program (FONAFIFO) is the most extensive in the country, and has been in existence for 10 years; • The goal of the Costa Rican PES program is to consolidate the Meso-American Biological Corridor: o Also the program seeks to provide benefit to landowners whose properties had forests or were suitable for forestry activities, in order to promote the conservation and recovery of the country's forest cover (FONAFIFO 2007). To ensure the management, conservation and sustainable development of natural resources. To promote environmental sustainability. • In 1997 the World Bank funded an Eco-Markets project to: o Provide payments for contracted projects (+200,000 ha) o Increase the volume of existing contracts in 100,000 ha o Increase by 30% participation of women in ESP o Increase by 100% participation of indigenous peoples o Strengthen FONAFIFO and SINAC institutional capacities For the program as a whole, payments per contract are stratified over the 5 years in all cases: Yr 1

Yr 2

Yr 3

Yr 4

Yr 5

Reforest.

50%

20%

15%

10%

Plantations

20%

SFM

50%

20%

10%

Protection

20%

Agroforestry

65%

20%

15%

• • • • • •

The transaction costs of the program are 7% of total funding (approx. $1 million); The main source of funding is from a gas tax The national program is managed by a non-profit group with 52 people in 9 offices across the country. Monitoring is done through annual sampling (10%/year). External audits are performed every 5 years. Close monitoring of satellite imagery and GIS coverage is done on a regular basis (by the University of Alberta).

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

Measuring success of environmental management is never easy: • The Costa Rican PES program has increased: o Forest cover o Area in protection o Land areas with management plans o Participation of landowners. • Costa Rica is an emerging economy with 26% of the population in poverty thus attention is given to the program’s impacts on: o Deforestation o Economic development o Poverty reduction. Potential future benefits of the programs could include: • Increased revenue from tradeable carbon credits • Bio-prospecting potential • Reduced costs of hydroelectric production • Establishment of low-cost wood supply Many of the original PES programs were started in developing countries to contribute to economic development and reduce tropical forest loss, so an important question is: Has this program decreased poverty? • Many researchers say NO! (Espinoza et al. 1999, Herrador and Dimas 2000, Landell-Mills 2002, Miranda 2003, Miranda 2004, Landel-Mills 2002, Pagiola 2003, Pagiola 2005); • The Costa Rican PES scheme for the most part provides a secondary and tertiary income to land owners What is next for Costa Rica? • Prioritization of country based on key ecological features; • Re-evaluation of sustainable forest management program; • Purchase of carbon off-sets through regional airlines; • Re-examination of how program can address poverty. Mike continued with some commentary on PES schemes in general: PES schemes can be successful when: • There is a clear link between science and the service being provided. • The EG&S to be provided are clearly defined. • Contracts and payments are flexible, ongoing and open-ended. • Transaction costs do not exceed benefits • Rely on multiple sources of revenue that are sufficient and sustainable. • Compliance, land use changes and provision of services is closely monitored. • The program is flexible to promote efficiency and effectiveness. PES schemes have limitations when: • They are executed without proper monitoring and control mechanisms. • The cost or price of good or service is set arbitrarily and does not correspond with demand. • Their design is not based on previous socio-economic or biophysical studies. • They depend on external funding sources.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

•

The PES scheme is not accepted by the local population.

And the lessons learned? • A PES scheme can renew the relationship between rural and urban populations. • Careful attention needs to be given to prioritizing the areas of ecological significance. • A balance needs to be sought in benefits (balancing small and large landowners). • The public must be involved, as buyers and as knowledge providers. • A PES scheme is not a short-term solution to environmental problems. It takes years. • Differences between Canada and Costa Rica • Costa Rica is traditionally dependent on farming. • Exploitation of the forest is very recent in Costa Rican history. • More demands on the land base (higher population density). • Big shift to conservation based forest policy. • Tourism is the principle industry. • It’s hot in February! And Mike left the group with a long list of fundamentals that need to be taken into consideration: • Deciding whether a payment for EG&S scheme is appropriate starts with one question: o “Are there EG&S that are being lost because we have no measurable value for them?” • If yes, then creating a market for EG&S requires three key components: o Market framework o Legal framework (institutional and financing) o Management (monitoring and evaluation) • Establishing a market for EG&S requires : o Identification of the services to be provided. o Establishing a willingness to pay and willingness to accept of buyers and sellers. o Establishing payment mechanism(s) and distribution of transaction costs. • At this point marketable EG&S include: water quality, biodiversity, carbon sequestration and storage, landscape beauty, and waste assimilation. • The legal framework required to establish a payment scheme includes: o Clear legislation o Institutional framework (key players) o Monitoring program (indicators) o Clear property rights • Legislation can lay the foundation of the PES scheme. • Institutional framework defines the roles and responsibilities of all key players. • Financing - setting up the program and securing its sustainability is paramount. • The management of a payment schemes must include the following stages: o Goal and objective setting o Planning and prioritization o Monitoring and evaluation • Many of the tools used to manage payment schemes include: o GIS o GPS o spatial modeling o multi-criteria analysis

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

Traditionally there are four methods to value EG&S. o Contingent valuation method o Travel cost method o Hedonic price method o Benefits transfer • Determining the value of EG&S is critical. • Values of EG&S should be high enough to provide an incentive and low enough to be financially viable. • A lot of time and energy in research has been spent on determining the appropriate method to value EG&S. • The technique used to value a particular EG&S will depend on the good or service in question and the political landscape. • The types of EG&S considered will vary by the priorities of the management authority. • The services considered in modern markets include: o Mitigation of greenhouse gases o Water quality: flow and regulation o Biodiversity o Erosion control o Aquatic and terrestrial animal habitat o Aesthetics • Valuing EG&S is a way to market services that landowners are already providing. • Valuing EG&S can renew the “social contract” between rural and urban people. • An EG&S scheme is not a short-term solution. • EG&S can and must be valued and marketed at different scales (local, regional, and global). • There are already some great ideas in Canada. Questions: None

3.12 Developing Local Markets for Sustaining and Enhancing EG&S from Private Land (Ed Hanna) Ed Hanna returned for a second presentation, in which he expanded upon his earlier presentation by speaking to the development of local markets for sustaining and enhancing EG&S from private land. Abstract: The presentation described a proposed program to create local markets for EG&S produced by private farms. The underlying economic rationale for this market-based system was presented. The advantages of using competitive markets to purchase local supplies of EG&S were explained. Implementation details of the market system including the central roles played by the highly successful Environmental Farm Plan program and local conservation authorities were discussed. As well, the practical challenges of implementing the program at a large scale across the entire province or all of the country are considered. Implementation barriers that need to be resolved were

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

discussed including information requirements, transaction costs, funding stability, landowner reaction and the potential for perverse outcomes. To begin, Ed addressed basic economics: First, there must be producers and consumers: EG&S Producers: • Landowners are EG&S producers. • EG&S are another farm product. • Private producers (i.e., landowners) ultimately make the decision as to how much EG&S is produced from their land; and • Each producer decides what they are willing to accept to produce a certain amount of EG&S (i.e., their minimum selling price) • The concept of EG&S markets is based on the principle that the selling price of producers (i.e., their willingness to accept) will partly depend on their costs of production. Those landowners who are able to produce the most valuable units of a given EG&S at the lowest cost are most likely to sell the most EG&S resulting in the public securing future supplies of EG&S at the least cost. EG&S Consumers: • Many EG&S are consumed (enjoyed) by everyone (the public). • Private citizens cannot purchase certain EG&S for their exclusive use; • Therefore public purchasing agents are required; and • Each agent decides their willingness to pay for a certain amount of EG&S (i.e., their maximum purchase price). • The amount of a certain EG&S purchased in any period will depend on local demand/need (i.e., local ecological conditions), private production costs and the available purchasing budget. • In the IRIS1 market-based incentive system, the local conservation authority has been identified as the public purchasing agent for EG&S. So how would a market-based EG&S system work? • Periodically (e.g., annually), the conservation authority would issue requests for EG&S bids. Ideally the requests for bids would be as specific as possible about the desired types of EG&S and the preferred locations where EG&S are required. • Producers (i.e., private landowners) would submit competitive bids to produce EG&S. Each producer would individually decide: o whether they wished to submit a bid, o the amount and location of certain EG&S to be supplied and o the bid price for each. • Purchasing agents (i.e., the conservation authority) would then compare bids with available funds and choose which and how much of each EG&S to purchase. The

IRIS is an acronym for the Institute for Research and Innovation in Sustainability at York University. This presentation is based on a research proposal that has been developed by IRIS to test the requirements for establishing local EGS markets.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

objective would be to secure the best balance and greatest amount of local EG&S given the budget available. In order for the system to work, three challenges need to be overcome: 1. There must be well-defined products, to overcome the information barrier. • A major challenge for producers and purchasers is EG&S information; • Few landowners have detailed knowledge of EG&S, let alone how best to produce and measure them; • Purchasers have a hard time measuring produced EG&S, and their value.

“The farmer knows exactly what he needs in order to produce corn, soybeans, etc., but to produce Cerulean Warbler habitat – no way!” The IRIS market-based incentive system proposes to overcome this information barrier by using the existing Environmental Farm Plan (EFP) program: • EFPs provide a well established tool for bridging this information gap; • The EFP program was initiated in Ontario in the early 1990s by the Ontario Soil and Crop Improvement Association and has now spread throughout Canada. In Ontario, the program is administered by the OSCIA. The EFP program has been embraced by the farm community and is now well established; • An EFP is a voluntary and confidential process used by individual farmers to identify environmental risks and benefits from their farm operations; • Instead of producing and purchasing specific EG&S, the products are EFP land management practices; • The EFP program provides an ideal delivery platform for a market-based incentive system provided that the EFP framework can be used to bridge the EG&S information barrier; • EFP themes cover all farm operations that may influence local supplies of EG&S: o EFPs are based on 22 environmental themes (worksheets) that correspond well with certain EG&S. o The EFP themes (areas of focus) include: Fertilizer and pesticide handling; On-site waste management; Water use; Soil and crop management; Runoff and drainage management; Wetlands and pond management; Woodlot and wildlife management •

The connections between these individual practices and local supplies of EG&S need to be established. o The missing link is tying these EFP themes to local supplies of EG&S; o This missing link is common to many EG&S programs; o Making these connections is a primary focus of ongoing research (e.g., Watershed Evaluation of Best Management Practices (WEBs)); o Ultimately, local purchasing agents will need to make this link;

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

o o

Conservation authorities have the technical expertise relating to EG&S and are well suited to serve as the local EG&S purchasing agent. Local farm organizations would continue to deliver the EFP program itself but do not have comparable focus and expertise in EG&S and are therefore not proposed to be the local purchasing agent despite this being the case with other EG&S programs.

2. There must be a degree of long term market stability • Nothing is certain in farming but, on the other hand, there is some certainty that people will continue to eat and that markets will continue to exist for many conventional farm products. Without this certainty, capital investments in farming would be greatly reduced. • The same is true for EG&S markets. The farm community must have confidence that that the public will continue to purchase EG&S from private land in the future or long term investments in land management practices to enhance and sustain EG&S will be minimal. • Some stability can be provided through the terms of purchase agreements; • Ultimately, market stability will depend on public demand for EG&S and the establishment of a stable mechanism for financing the ongoing purchase of EG&S from private land. 3. There must be efficient transactions • Transaction efficiency is a primary research focus, and the IRIS program is particularly interested in determining the reaction of the farm community to a bidding process; • It’s necessary to confirm that the public receives what it is paying for; • Auditing of Environmental Farm Plans is a regular occurrence. The IRIS market-based incentive system auditing will piggyback on the current EFP auditing program as much as possible; • Confirming certain farm management actions is auditable. However, attempting to measure directly the actual amount and quality of a given EG&S produced by individual farm is highly impractical. Instead, farm practices will be audited and the supply of EG&S deduced on this basis. Ed went on to discuss three potential pitfalls with a market-based incentives system: 1. There is potential for a reduction in stewardship: • Some programs provide greater rewards for bad actors. Incentive programs should not reward unfairly those who have been the least responsible environmental stewards in the past. • Strategically reducing farm stewardship could improve EG&S competitiveness. The cheapest improvements are the easiest to implement and are done first. Incentive programs must not reward backsliding. • Two counteracting measures are proposed to be put in place: o Minimum EFP requirements as have been used with other programs would be established to set a minimum baseline to be eligible to participate; o Terms of the purchase agreement would include specific conditions to restrict “backsliding.” 2. Loopholes may exist • Every program has the potential for loopholes (e.g., laws, taxes);

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

• • •

Remedying loopholes is an inevitable and never-ending task; Requires vigilance in identifying and efficiently remedying loopholes; A major advantage with a market-based system is that market prices will automatically adjust as loopholes are detected and remedied (i.e., the inherent intelligence of the market).

3. Market response or enrolment in the program • Market response is commonly used as a measure of performance with other EG&S programs (e.g., the level of enrollment in a program). However, choosing the right market response criterion to measure program performance is critical. • For example, enrolment is typically a poor indicator of program performance. Obviously if the farm community refuses to participate totally, the program will not be able to achieve its goals. • On the other hand, high enrolment often is indicative of the “selling price” being too high. This means that the public is not getting the best return on its investment. • The underlying reasons for enrolment rates are the most informative measures of program performance: o Prices; o Transaction costs; o Market stability; o Cultural/social acceptability. • The local purchasing agents will need to adjust their purchasing behaviour as the market dictates. A key measure of program performance is the cost of securing supplies of EG&S. Ed repeated a point he made in his earlier presentation, that it is important to select the best economic instrument, and these criteria need to be applied: • Efficiency • Distributional effects • International trade • Continual improvement • Flexibility • Transaction costs The advantages of using markets include: • Desired EG&S are supplied at the least cost (efficient EG&S supplies); • Markets reward local knowledge and ingenuity (most deserving operators are rewarded accordingly); • Under international trade rules, purchasing EG&S is not considered an illegal subsidy, just another farm product; • The system rewards continual improvement (i.e., continual innovation by individual farmers and by the farm community collectively in producing local supplies of EG&S will lead to lower production costs and greater margins); • Purchasing agents can set prices according to local circumstances and the need for certain EG&S. Likewise, prices can be adjusted over time as circumstances change. This provides a high level of program flexibility.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

He then went on to discuss one last advantage of a market-based incentive system: • With a market-based incentive system, the price is an emergent property of the system. Prices are not set a priori; • Instead, the supply price is established by the producers. According to Adam Smith, through the interaction of producers and consumers, the best result will emerge and is reflected by the prevailing market price. This approach is directly opposite to the idea of central governments attempting to control the economy to promote the public interest or attempting to impute what the market value of EG&S would be if an EG&S market existed. • EG&S prices (i.e., the valuation of EG&S) emerge from the selling and buying of EG&S. This price information is extremely valuable and greatly improves our understanding of EG&S supply costs. In conclusion, Ed reminded us of the key EG&S questions:

Concluding Comments

Key EGS questions: 1. How much? 2. What quality? 3. What location? 4. Least cost? 5. Fair distribution? 6. How certain?

Questions: None

3.13 Healthy Ecosystems = Healthy Communities: Natural Areas Restoration to Benefit Water Quality and Quantity in the Agricultural Landscape (Dave Richards) Dave Richards, a Water Resources Coordinator with the Aylmer District office of the Ontario Ministry of Natural Resources (OMNR), provided some insight into two local initiatives in southwestern Ontario. Abstract: The practical implementation of natural areas conservation and protection is taking place through the Wetland Drain Restoration Project and the Subwatershed Riparian Buffer Restoration Project. These initiatives are very successful collaborative partnerships with local landowners, municipal

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

agencies and resource organizations. Two aspects profiled through these projects are the incorporation of incentives to landowners for services derived from natural areas function and the use of the Drainage Act as a tool to promote healthier waters.

“TRUST: It was very important for us to get the trust of the landowners.” Dave began by stating that ecosystem components (wetlands, riparian areas, woodlands) are critical to hydrological features: • They are a part of surface and groundwater pathways; • Impairment of ecosystem components influence and impact water quality and quantity; • They provide the first line of defence to protect water before we use it in our homes – they are an integral part of source water protection; and • They provide critical habitat for fish and wildlife, including species at risk Dave used a specific example of an irrigation pond that is not functioning properly: • A wetland being drained by two municipal drains is no longer functioning to recharge groundwater and adjacent irrigation ponds are drying up; • Through dialogue and involvement of the landowners and drainage superintendent remedial efforts were undertaken to “plug the leak,” • The wetland was able to function properly, and the irrigation pond provided a more sustainable water supply. He suggested the following strategies for protection and restoration of natural areas: • Identify potential restoration areas in the landscape (GIS mapping model); • Protect and restore wetlands and riparian areas in the landscape, (Wetland Drain Restoration Project, South Creek Buffer Project); • Develop and test new incentives for landowners to practise resource stewardship (Ecological Goods and Services, ALUS); • Involve partners and landowners in all projects (CAs); and • Promote adoption of projects through demonstration sites. Dave asked the question: “How much habitat is enough?” and noted that Environment Canada has these targets based on science, in its publication, How Much Habitat is Enough, 2nd Ed., 2003: • Wetlands: > 10% of each major watershed, < 6% of each sub watershed or restore to historic; • Forest Cover: > 30% of watershed, 10% interior forest with 100 m buffer, 6% interior forest with 200 m buffer; • Riparian Habitat: at least 75% of watercourse naturally vegetated (30 m width). He then went on to show how these targets have been applied to a specific project in southwestern Ontario: Enhancing Riparian Buffers on South Creek:

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

South Creek Riparian Buffer Watershed Targets: What we need!

Have Now? Riparian Buffer 36.4%

Wetlands

South Creek Subwatershed Riparian Buffer Restoration Background Info. South Creek Riparian Buffer Project:

75.0%

4.3%

- 66 PTTW; - 122 Rural Wells; - 1 Municipal Water Supply; - Willing landowners; - Solid Stewardship Council; - Solid CA working relationship; - Strong working relationship with local municipality.

10.0% (18.3% historic)

Targets should be specific, measurable and quantifiable. They will serve as a benchmark to track progress towards ecosystem objectives.

MNR Aylmer District

1. Through the use of GIS modelling, project members were able to identify priority sites for restoration, and specific landowners they wanted to talk to. • They identified 30 landowners to talk to; • 16 of the 30 were doing a good job already (2 more have signed on); • It was difficult for government to contact landowners; • So they used landowner partners (Stewardship Council and Drainage Superintendent) to contact new landowners on their behalf;

•

“Landowner/landowner contact has 8/10 hit rate…We were getting 2/10 on our own”.

2. They then applied incentives for ecological goods and services to change farming practices on the priority sites: • Incentives equalled the average value of the land rental rate to produce crops (i.e., $150/Acre/Year x 2.31 Acre = $346.50/Year for ecological services provided by the riparian buffer); • 26 of 30 landowners participated; • Environmental Farm Plan workshops were held in communities within the watershed and the landowners and public were made more aware of the value of riparian buffers; • Drainage Act programs covered 1/3 of the costs and MNR/partners the rest. 3. The outcome was: • 71.8% riparian buffer is now in place along South Creek; • Target is 75%; • With 2 new landowners signing on, they’ll meet the target of 75%, coming from an original buffer of 36.4%; • Total cost: $3909.75.

How did we do it? Incentive for Ecological Goods & Services. Services. Property #

Prescription

Priority

Annual Cost

Three Yr. Cost

4m Riparian Buffer

High

Area (Acre)

0.289

43.35

130.05

9m Riparian Buffer

Very High

4.512

676.80

2,030.40

5m Riparian Buffer

High

2.476

371.40

1,114.20

4m Riparian Buffer

High

0.455

68.25

204.75

Incentive programs are important tools to support biodiversity conservation conservation on private property, Ontario’ Ontario’s Biodiversity Strategy, MNR 2006. MNR Aylmer District

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

Dave provided reference to a very useful document entitled ‘Source Water Protection & the Clean Water Act: How do we Build Capacity?’ developed by The Ontario Rural Council (TORC). And he noted these particular points that emerged from the TORC forum in July 2006: • “Rural landowners believe the Clean Water Act would be a more effective legislation if funding for land stewardship activities was made available” (TORC); • Preferred outcomes: “Create an inventive-based program for landowners providing environmental service”. Questions and Answers: 1. Q. What did you plant in the buffers? A. Only one of the 26 landowners wanted trees planted. We planted tall grass, winter wheat, alfalfa. 2. Q. In a way, this is rewarding the bad performers. What can we do to reward good performers? A. That’s a good point. One thing we did was, when we dealt with landowners who had 3 m buffers, and they went to 5 m, we would pay for the whole width. 3. Q. Did the water quality at the Delhi water treatment plant improve? A. It’s being monitored by the CA, MOE, and the local municipality. The Drainage Superintendent looks at it this way: If you look at a stream without buffers, the water is dirty; if you look at one with buffers, the water is clean. The landowners have noticed this and are quite happy.

3.14 Alternative Land Use Services (ALUS): Valuing Ecological Goods and Services on Farmland (Dr. Bob Bailey) Dr. Bob Bailey, Vice President of Policy for Canada at Delta Waterfowl, is working with a policy team led by agricultural producer organizations, in cooperation with conservation groups and governments, to develop and implement the Alternative Land Use Services (ALUS) concept. He provided an overview of ALUS, and explained why Canada needs an ecological goods and services program like ALUS. Abstract: Alternative Land Use Services (ALUS) is a farmer developed, farmer driven conservation plan for agriculture. It recognizes and provides incentives to participating farmers who practice good land stewardship and helps protect the environment for all of us. Experience with award-winning programs like Ontario Stewardship has shown that the most effective on-farm environmental solutions are farmer driven, which means that they are planned and delivered by farmers and farm organizations, in cooperation with governments, conservation groups and the public. ALUS is different from traditional conservation plans because it empowers farmers to design and deliver environmental solutions in their communities. Dave Reid, Stewardship Coordinator with Norfolk Land Stewardship Council, will present on the proposed ALUS pilot in Norfolk County and what actions have been taken to date to implement the ALUS concept there.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

“Agriculture has a unique opportunity to be recognized for taking the lead on environmental issues, and we believe that ALUS is the best method to capture that opportunity.” Dr. Bailey began by reminding us of our key values: • Our life support system relies on: o air; o water; o food and fibre. •

Our social system values : o spouse; o family; o friends; and o community.

And then went on to speak to: How Wealth is Created on Farmlands: 1. There is a simple formula: • Natural capital + social capital / physical inputs = economic capital 2. Goods from farmlands include: • Air; • Water; • Food/ fibre; of all the goods, these are the only marketable goods • Wildlife; • Fish; • Species at risk; and • Biodiversity. Dr. Bailey pointed out that we are using and exporting our natural capital and we’re not having any effect on farm income.

Natural Capital and Agriculture – is there a disconnect?? 35 (Billions $)

30 25 20 Net Farm Income Value of Exports

15 10 5 2004

2000

2002

1998

1994

1996

1990

1992

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

And what is the result, or the “cost of the status quo?” • Erosion of natural, social and economic capital in rural Canada; • Marketplace continues to erode natural capital on farmlands; • We have a farm income crisis – more exports of natural capital; • A distorted global playing field for Canadian agricultural products; • $55 billion in direct support/ trade injury compensation; $6.1 billion more demanded; • Proliferation of ineffective regulatory approaches to environmental problems – treating symptoms not causes; • Environmental boutique programs and projects. Canada doesn’t take advantage of the “greenbox” program under the WTO. Every other country does, and we heard a good example today of the U.S. Farm Bill.

Farmers are major landowners in Canada, and if they can no longer afford to continue to protect the wetland on their acreage or to work around the brush, all Canadians are losing an ecological benefit. If these environmental benefits are what all Canadians want, then there must also be a sharing of responsibility and a sharing of cost. Dr. Bailey described ALUS as: • an incentive- based concept developed by grassroots farm organizations across Canada for delivering ecological goods and services to Canadians from farmland And, suggested that ALUS is needed for these reasons: • Conserving life support systems is essential on working landscapes; • The lack of a market for environmental goods is depleting natural capital; and • The public is demanding effective programs that deliver environmental results. The goal of ALUS is to foster the production of ecological goods and services from privatelyowned agricultural land in Canada • In addressing this goal, we will support rural incomes, economic diversification, and rural communities in general; • In this sense, ALUS is an appropriate political complement to the urban agenda that is capturing public attention. • Foundation of the ALUS Partnership Resource Ownership on Private Lands

Resource Soil Water Crop Wildlife Fish Livestock Trees Air

Private

Public

•

X X X X X X X

•

Those areas that are “public” have traditionally been regulated to conserve the resources; We believe that regulation can only go so far, and only to deal with specific issues; For broad impact on the landscape, a different approach is needed.

X X

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

The key points about the new ALUS approach are: First, the approach is based on the concept of paying farmers on an annual basis to provide Canadians with services that produce benefits such as clean air, water and wildlife habitat. And the key points include: • It is based on ecosystem management principles; • The emphasis on environmental assets/ landscapes; • ALUS rewards people for doing the right thing – it provides incentives for new and some existing environmental services; • It is trade neutral, and within the rules of the WTO; • It is community driven and farmer delivered; • It is administered by existing agricultural organizations and agencies; • It does not replace, instead it builds, on existing policies and programs; • It integrates conservation programs at the community level; and • It is based on accountable and transparent program delivery. In implementing the ALUS concept for EG&S policy, what would it look like? • There would be a baseline of reasonable environmental regulations, and farmers accept this principle; • It would include good agricultural land stewardship and business risk management (BMPs); and • There would be ALUS incentives to deliver on-farm ecological goods and services. ALUS will work because: • Farmers are in the best position to manage agricultural ecosystems; • Communities are in the best position to manage local delivery of environmental goods and services (EG&S); o Decisions should be pushed down to the local level • Communities empowered with knowledge and resources will make good environmental decisions; o People are better educated and more environmentally concerned. And, returning to the “Valuing” of Ecological Goods and Services: Life Support Values: • We are conserving natural capital (life support processes) by easing market pressures on the environment on working landscapes; • Securing the supply and quantity of ecological goods and services; and • Treating causes rather than the environmental symptoms. Social Values: • We are reconnecting Canadians with farmers, food and rural environments; • Farmers and communities are acting directly to improve the environment and quality of life; and • Achieving mind- change.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

Questions and Answers: 1. Q. Ed Hanna asked, “Why do you think that the crop insurance companies are best delivery agents for ALUS?” A. A good deal relates to trust. Crop insurers also have all the GIS data and people know them well.

“It isn’t our common future that people are worried about now, it’s our common backyards.”

3.15 Alternative Land Use Services: Norfolk County Pilot Proposal and Actions to Date (Dave Reid) Dave Reid, Stewardship Coordinator for the Norfolk Land Stewardship Council in southwestern Ontario, followed Dr Bailey’s presentation with a presentation of an example of an ALUS project – a pilot project in Norfolk County, Ontario. Dave began with an outline of the history of developing the proposal for this pilot: • In Jan 2002 Ian Wishart and Bob Bailey presented the idea to Ontario Stewardship; • In March 2002, the Norfolk Federation of Agriculture endorsed pursuing a pilot; • The organizing committee met 6 times in 2002; • $40,000 from Agricultural Adaptation Council, Norfolk Land Stewardship Council and Delta Waterfowl Foundation to develop the pilot; • March 4 & 5, 2003 an evaluation workshop was held; and • On Jan 31, 2004 the Norfolk ALUS pilot proposal was completed. The pilot project is based on these operating principles: • Voluntary – farmers chose to participate; • Capping – farmers could enrol up to 20% of farmed land; • Integrated – linked to Environmental Farm Plan program and existing programs; • Flexible – 9-year agreement; 3-year intervals; • Targeted – the focus was on fragile or marginal lands; • Accountable – audit to ensure “bang for buck”. ALUS includes four services: • Wetland Services o Protect and restore wetlands via wetland drain restoration; o To improve surface and ground water supplies. • Riparian Services o Establish undeveloped grassy areas along lakes, streams, ditches and ponds; o To reduce silt load and improve fish habitat. • Upland Services o Promote tree planting, grassed waterways, wild flower meadows and perennial grassed field borders on uplands; to Sequester carbon; Produce clean air;

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

•

Reduce soil erosion; and Improve wildlife (& pollinator) habitat. Wildlife Enhancement Services o Protect and enhance fish and wildlife habitat with emphasis on species at risk (e.g., implement recovery plan actions); o To increase biodiversity.

And the incentives that were offered included: • Annual payments o based on land area; and o varying from $10 - $150/ac/yr depending upon specific service and extent of continued farm use of affected area; • Share start-up costs 50-75% while capitalizing on existing incentive programs; • Extension assistance on the farm; and • Property tax rebate. The ALUS pilot allows for an evaluation of the ALUS concept, and useful research into how it might work: • This is a pilot to test the ALUS concept; • We don’t have all the answers; • University of Guelph and Ontario Farm Environmental Coalition involvement; • The pilot has two primary objectives: o To assess community capacity to manage and deliver EG&S, and; o To determine if we can successfully integrate existing programs via collaborative community structure. Funding for the pilot: • $260,000 expended to date originating from 24 partners; • Fundraising for a county-wide pilot started this past spring (2006); • $1.9 million cash and in-kind is required for 2+ year pilot ending March 31, 2009; • Sources include 3 levels of government, NGO’s, participating farmers, foundations and U.S. sources. The predicted benefits of ALUS include: • Increased landscape connections and perennial green natural areas; • Enhanced nutrient management on the farm, complimenting the Nutrient Management Act; • Increase in the pastoral settings in the rural countryside … attractive to residents and visitors; • Increased hunting, fishing, viewing opportunities …enhanced farm income from this source; • Enhanced biodiversity – incentive not to “Shoot/Shovel/Shut Up!” • Help in ensuring source water protection and safe drinking water … this means improved human health!

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

What have been the actions to date on the ALUS Pilot? â&#x20AC;˘ The Partnership Advisory Committee was formed: o In fall 2004; o Membership for the core group includes: 3 Norfolk farmers; one County councillor; a vice president of Delta Waterfowl; the Chair of the Long Point Foundation; the general manager of the Long Point Conservation Authority and the stewardship coordinator from the Norfolk Land Stewardship Council; o They have met 15 times to administer and manage the Norfolk pilot; o Guests from Ontario Ministry of Agriculture Food and Rural Affairs (OMAFRA), Agricorp, Ontario Ministry of Natural Resources (OMNR), Ontario Federation of Agriculture (OFA), Long Point Region Conservation Authority (LPRCA) and Agriculture and Agri-Food Canada have provided input. â&#x20AC;˘ A Benchmark Survey was conducted in 2005: o 731 returns from farmers, rural non-farmers, and town folk; o Sought opinions on the current state of social, economic, and environmental conditions in Norfolk County; o Results published July 18, 2006, available at www.ontariostewardship.org/norfolk

Dave then showed a few examples of projects that had been completed or were underway: 1. The first example was the South Creek Buffer Restoration, the project referred to by Dr. Bailey in the previous presentation:

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

• ALUS Demonstration Watershed being developed to restore riparian buffers on 5x municipal drains in South Creek watershed … involves potentially 30x farmers … aim to increase % channel buffered from 30% to 75%; 26 of 30 priority sites identified by MNR through GIS now have minimum 4 m. vegetated buffers … all landowners approached through farmer-to-farmer liaison … all chose the ALUS type annual payment of $150/ac/yr over 3-year agreement … this raised extent of creek length buffered from 36.4% to 71.1% affecting ~25 acres for a 3-year cost of $11,126 18

2. The other examples were “demonstration farm” sites participating in the ALUS Pilot:

• 4x ALUS Demonstration Farms established to show the public, interested farmers and 19 potential investors the merits of the concept. Questions and Answers: 1. Q. A comment: I know a farmer who has seeded prairie grass on 8 hectares of land. He’s paid $50/acre to keep the cattle out until July – the cattle have it for 2 months of the year, nature has it for the remaining 10. 2. Q. Did you zero in on sites you were interested in specifically? A. No – we got expressions of interest from farmers. We received 20 and then chose 4 locations for the pilot. 3. Q. Was completion of an Environmental Farm Plan a requirement? A. No – we wanted farmers to do a plan, but it was not a requirement of the project.

ALUS is a landscape approach to nurture environmental goods and services (EG&S) from private farmed land … “Farmers are the original stewards of the land. If the farmer can provide these services for the good of society, it's another form of business,” says Bauke Vogelzang, past president, Norfolk Federation of Agriculture. Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

Appendix A Speaker Biographies & Contact Information Erling Armson Biologist Ducks Unlimited Canada 1-614 Norris Court Kingston, ON K7P 2R9 (613) 389-0418 ext. 123 e_armson@ducks.ca Erling Armson has been a biologist with Ducks Unlimited Canada for 26 years. He has been involved with delivering and managing conservation program in eastern Ontario for most of that time. He has also been involved in the development of new landowner and landscape programs. More recently Erling has participated in wetland oriented conservation policy development at the municipal, provincial and federal levels. He is currently involved with implementing a wetland top-up program in conjunction with the Canada-Ontario Farm Stewardship Program. Dr. Robert Babe Jean Monty/BCE Chair in Media Studies University of Western Ontario London, ON N6A 5B7 (519) 661-2111, ext. 88501 rbabe@uwo.ca Robert E. Babe is holder of the Jean Monty/BCE Chair in Media Studies at the University of Western Ontario. He holds both an M.A. and PhD in economics. He is author of many articles and of seven books, all addressing interrelations between economics and media/communications. Several of his articles, and most recently his book, Culture of Ecology: Reconciling Economics and Environment, University of Toronto Press 2006, focus on environmental matters. Dr. Robert O. Bailey Vice President Policy for Canada Delta Waterfowl Foundation rbailey@deltawaterfowl.org (613) 283- 6866 As a professional â&#x20AC;&#x153;agent of changeâ&#x20AC;? Dr. Bailey has a wide range of public and private sector experience in providing strategic services to organizations with environmental and natural resource conservation and management missions. As Vice-President of Policy for Canada at Delta Waterfowl, he is working with a policy team led by agricultural producer organizations, in cooperation with conservation groups and governments, to develop and implement the Alternative Land Use Services (ALUS) concept. Dr. Bailey and his colleagues are active advocates for landowner, community and industry participation in the development of national policy on ecological goods and services (EG&S), and for testing EG&S delivery options through farmer- and rancher-driven ALUS pilot projects on private farms and ranchlands. Dr. Bailey was raised on a farm in rural Quebec and received his PhD from the Faculty of Agriculture, McGill University.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

Darryl Finnigan Resource Management Policy Analyst Environmental Management Unit Environmental Policy & Programs Branch Ontario Ministry of Agriculture, Food & Rural Affairs (519) 826-3843 darryl.finnigan@ontario.ca Darryl Finnigan lives in Waterloo, Ontario, and has worked as a policy analyst for the Ontario Ministry of Agriculture, Food and Rural Affairs since 2005. He is currently examining the agriculture sector interests in provincial species at risk initiatives, management of the Great Lakes, and is a member of a federal-provincial working group examining future policy options for ecological goods and services. Previous work experience includes regulating new and existing pesticide uses in Canada for several years for Health Canada, and researching and campaigning for stronger environmental laws for the Canadian Environmental Law Association. Darryl has completed degrees at the University of Guelph and Simon Fraser University. Dr. Andy Gordon ECBA Room 2109 Environmental Biology University Guelph Guelph, ON (519) 824-4120 ext. 52415 agordon@uoguelph.ca Andrew M. Gordon received his Bachelor of Science in Forestry (Forest Environment) from the University of New Brunswick in 1978 and a PhD (Forest Soils/Ecology) from the University of Alaska in 1985. Since 1984, he has been a faculty member in the Department of Environmental Biology, University of Guelph, Guelph, Ontario, where he currently holds the rank of full professor, and is Director of the Agroforestry Research and Development Program. His research interests lie in the investigation of ecosystem-level processes in both agricultural and temperate/boreal forest systems. He has spent considerable time developing and promoting agroforestry systems in temperate regions for their ameliorative and restorative properties. Ed Hanna DSS Management Consultants Inc. 1886 Bowler Drive Pickering, ON L1V 3E4 (905) 839-8814 ed.hanna@dssmgmt.com Ed Hanna has worked as a private consultant in environmental policy analysis and resource management for over 30 years. During this time, he has coordinated numerous interdisciplinary studies involving diverse disciplines. He holds an Honours Bachelor of Science and a Masters of Environmental Engineering specializing in water resource management. He has conducted projects throughout Canada, as well as in various other countries including the United States, Mexico, Costa Rica, Africa and Asia. Ed has taught graduate-level courses in resource management and applied ecology in the Faculty of Environmental Studies at York University and is currently a Research Fellow with the Institute for Research and Innovation in Sustainability at York.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

Laura Haynes Natural Resources Specialist Resource Economics and Social Sciences Natural Resource Conservation Service/USDA (202) 720-0064 laura.haynes@wdc.usda.gov Laura Haynes is a Natural Resources Specialist for the Resource Economics and Social Sciences Division within the Natural Resources Conservation Service at the U.S. Department of Agriculture. Laura has been with the Agency for six months and focuses her work on energy, air quality and climate change issues and policies. Currently, she is the Agency’s point contact for the energy title of the 2007 Farm Bill and for the U.S. Interagency Regional Working Group, a coordinated effort to restore and protect the Great Lakes. Prior to joining NRCS, Laura was with the U.S. Environmental Protection Agency’s Office of Air Quality and Planning Standards focusing on ecological residual risk assessments for the air toxics program. In addition to her work with the EPA, Laura worked in the U.S. House of Representatives. She served as a primary advisor for two U.S. Congressman, both of whom represented the 5th Congressional District of Tennessee, on several issues, including the environment, agriculture, and energy. Laura graduated from the University of Tennessee with a Bachelor of Science in Biology. She received a Masters of Science in Public Health with a focus on environmental health/air quality policy from the University of North Carolina at Chapel Hill. Michael Kennedy (506) 375 4498 milkennedy@gmail.com Michael Kennedy has a Masters and an Undergraduate degree in forestry from the University of New Brunswick. The focus of Michael’s research is forest modeling related to environmental economics and forest management. Michael has worked as a consultant for private woodlot owners, Industry Canada and numerous forest companies in Mexico, Costa Rica and throughout Eastern Canada. More recently, Michael worked as an Advisor on Technology and Economics to the Latin American and Caribbean Model Forest Network in Costa Rica. In this role, he conducted numerous workshops, briefings and wrote position papers on the Costa Rican experience in payment for environmental services. Over the course of a year, Michael interviewed landowners, government staff and local NGOs about the program of payment for environmental services in the region. Currently, Michael is working with the Costa Rican Protected Areas System (SINAC) to facilitate capacity building related to internet communications. Michael is planning to move back to Canada this year. Lynn McIntyre Director of Stewardship Wildlife Habitat Canada 1750 Courtwood Crescent, Suite 310 Ottawa, ON K2C 2B5 (613) 722-2090 ext. 234 lmcintyre@whc.org Lynn McIntyre is currently Director of Stewardship for Wildlife Habitat Canada, with responsibilities for the national stewardship recognition programs, the Stewardship Canada web portal and the citizen science community monitoring program. Lynn has led numerous projects which included the National Volunteer Sector multi-stakeholder consultation which led to Canada’s Stewardship Agenda, the 2000 and 2003

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

national Environics Survey of Farmers, Ranchers and Rural Landowners as well as the 2006 Ecological Goods and Services national survey. Previously he was the Executive Director with the Ontario Woodlot Association and was instrumental in the development of the Ontario Managed Forest Tax Incentive Program. Lynn has 15 years experience in the NGO community serving as director on various boards. He owns a farm and woodlot in rural eastern Ontario. Cathy Nielsen Biodiversity Standards Project Coordinator Landscape Science and Technology Environment Canada 7th Floor, Place Vincent Massey 351 St. Joseph Blvd Gatineau, Quebec K1A 0H3 (819) 994- 4582 Cathy.Nielsen@ec.gc.ca Cathy Nielsen graduated from University of New Brunswick with a Bachelor of Science in Forestry in 1981. She worked in forestry in New Zealand then became the owner/operator of a landscaping business in Alice Springs, Australia. She returned to Canada in 1983 and joined the Ontario Ministry of Natural Resources, first as a Forester in a District, then as Biodiversity Specialist with the Science and Information Section. In 2004, she joined the Landscape Science and Technology Division within Environment Canada, in Ottawa. She currently coordinates the development of voluntary biodiversity standards under the National Agri-environmental Standards Initiative (NAESI). Mike Puddister Manager, Natural Heritage & Stewardship Credit Valley Conservation 1255 Old Derry Road Mississauga, ON L5N 6R4 (905) 670-1615 mpuddister@creditvalleycons.com Mike has an undergraduate degree in Environmental Studies from the University of Waterloo and a graduate degree from the School of Rural Planning and Development at the University of Guelph. Mike has been employed by the Ontario Ministry of Natural Resources and the Maitland Valley Conservation Authority. Since 1985, he has been working for the Credit Valley Conservation Authority. At present he is Manager, Natural Heritage & Stewardship, with responsibilities for a new initiative which is exploring the ecosystem goods and services provided by the Credit River watershed. Dave Reid Stewardship Coordinator Norfolk Land Stewardship Council c/o OMAFRA P.O. Box 587, (Blueline Rd. & Hwy #3) Simcoe, ON N3Y 4N5

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

(519) 426-4259 dave.j.reid@ontario.ca Dave grew up on a mixed cash crop farm in Norfolk County in southwestern Ontario. In 1975, he graduated from University of Guelph, with an Honours degree in Fish and Wildlife Biology. For 20 years Dave worked as biologist with the Ontario Ministry of Natural Resources in Long Point Area of Aylmer District; over the past 12 years he has been the Stewardship Coordinator for the Norfolk Land Stewardship Council. Dave lives in Simcoe, Norfolk County with wife Sue, an elementary school teacher and their two children, 21-year-old Garrett and 24-year-old Meagan. He enjoys hunting, fishing, birding, walking, wine making, reading, cooking and crokinole. Dave Richards Water Resources Coordinator Ontario Ministry of Natural Resources Aylmer District (519) 773-4731 dave.richards@ontario.ca David Richards is a Water Resources Coordinator with the Aylmer District office of the Ontario Ministry of Natural Resources (OMNR). Dave grew up in Englehart, a small northern Ontario farming and resourcebased community, where he was captivated by the great outdoors at an early age. He graduated from the University of Guelph in 1989 with an Honours Degree in Biology and has been working in natural resource management all over Ontario ever since. Most recently Dave has been providing leadership in the practical implementation of natural areas conservation and protection through the Wetland Drain Restoration Project and the Subwatershed Riparian Buffer Restoration Project. These initiatives are very successful collaborative partnerships with local landowners, municipal agencies and resource organizations. Two aspects profiled through these projects are the incorporation of incentives to landowners for services derived from natural areas function and the use of the Drainage Act as a tool to promote healthier waters. Dave was formally recognized for this work in 2002 when he received the OMNRâ&#x20AC;&#x2122;s prestigious Innovation Award.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

Appendix B Ecological Goods & Services and Related Topics: Selected Web Links *Collected and compiled with assistance from Darryl Finnigan, Ontario Ministry of Agriculture, Food and Rural Affairs

(1) Canadian Model Forest Network www.modelforest.net Model forests are more than just trees. Model forests are working-scale forest-based landscapes, but they are also mainly about people and the process of coming together in local partnerships and in a larger network to develop, test and share solutions to local challenges in sustainable forest management. The Canadian Model Forest Network (CMFN) is the network that links together Canadian model forests. The network allows model forests across the country to share ideas and communicate methods of sustainable forest management. The CMFN also provides direction for activities that occur at a national level or between Canadian model forests and model forests located elsewhere in the world. Valuing Ecological Goods & Services from the Forest: Overview and Results of Five Regional Workshops (coming soon to the CMFN web site â&#x20AC;&#x201C; www.modelforest.net) Ecological goods and services provide vital assets, but they are not valued as commodities within traditional market places. Consequently, there has been a strategic separation within resource management between resources that have a commodity value enabling application of economic profit criteria and resources that are intrinsic to the public good. Several programs and pilot projects have been initiated in Canada to address this issue, but the focus so far has mostly been on agricultural land, with little attention to the forested landscape. To bring forests, such as private woodlots, into the equation, the Canadian Model Forest Network and the Canadian Federation of Woodlot Owners held a series of workshops across Canada from February 22nd to March 8th 2007. This report 1) provides an overview of key pilot projects, research and alternatives presented at the workshops 2) summarizes key issues discussed at the workshops, and 3) recommends next steps to further the valuation of EG&S in both practice and policy development based on the workshop conclusions. Private Woodlot Strategic Initiative (PWSI) http://www.modelforest.net/cmfn/en/initiatives/stewardship/default.aspx To address many of the sustainable forest management challenges and opportunities existing in the private woodlot sector, the Canadian Model Forest Network (CMFN) has created a national initiative focusing on issues specific to private woodlots and highlighting the multi-faceted work which has taken place in the private woodlot sector within Model Forests. This initiative also facilitates sharing experiences and information with other woodlot organizations. The PWSI steering committee is co-chaired by a representative from the CMFN and the Canadian Federation of Woodlot Owners. The remaining committee members include representatives from the model forests, provincial woodlot associations and landowners, both affiliated and unaffiliated. PWSI Primers: http://www.modelforest.net/cmfn/en/publications/publications/default.aspx No. 1 Introducing Canadaâ&#x20AC;&#x2122;s Family Owned Forests No. 2 The Value of a Woodlot Management Plan No. 3 Working Woodlot Conservation Easements No. 4 Forest Management Certification for Woodlot Owners: What is it all about? No. 5 Species at Risk and Your Woodlot No. 6 Taxation and the Managed Woodlot â&#x20AC;&#x201C; Keeping it in the Family!

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

No. 7 Have You Tried Exploring Non-Timber Forest Products? No. 8 World Wide Web – A Wealth of Woodlot Management Resources No. 9 Best Management Practices – A Recipe for Success on Your Woodlot No. 10 Got Questions About Your Woodlot? No. 11 Improving Your Woodlot – Working With Mother Nature No. 12 Woodlots and Biological Diversity No. 13 Your Woodlot – A Warehouse of Products No. 14 Working Forest – Why Not on Your Woodlot? _____________________________________________________________________________________

(2) Canadian Federation of Woodlot Owners www.woodlotscanada.ca Woodlots Canada website is a Canadian Model Forest Network and partners initiative. The website aims to connect provincial woodlot organizations, woodlot owners, and woodlot support agencies by providing a medium (a website) as a one-stop "porthole" for communications. ______________________________________________________________________________________

(3) Eastern Ontario Model Forest www.eomf.on.ca The Eastern Ontario Model Forest (EOMF) works with government, landowners, industry, First Nations and other stakeholders to develop new ways to sustain and manage our forest resources. The EOMF champions the belief that we all have a stake in ensuring that the environmental, economic, cultural and social values of eastern Ontario's forests are maintained for the benefit of all, now and in the future. EOMF Private Woodlot Certification Program http://certification.eomf.on.ca/ This ground-breaking program brings private woodlot owners together to learn about and apply the concepts of sustainable forest management under the principles and criteria of Forest Stewardship Council (FSC) certification. ______________________________________________________________________________________

(4) Advancing Canadian Agriculture and Agri-Food (ACAAF) - Ecological Goods and Services Pilot Research Initiatives http://www.agr.gc.ca/acaaf/egs/egsmain_e.html Federal, Provincial, and Territorial Ministers of Agriculture have agreed to engage producers and other stakeholders to support Ecological Goods and Services (EG&S) pilot research initiatives that meet established criteria. The expectations are that these initiatives will contribute measurable results to the EG&S policy development process and to the next generation of agricultural policy in Canada with a view of improving the environment and the quality of life of farmers. Agriculture Agri-Food Canada (AAFC) supports EG&S pilot research initiatives, through its Advancing Canadian Agriculture and Agri-Food (ACAAF) program, if the proposal meets or exceeds established criteria. These criteria and their principles are the basis of the evaluation matrix used to assess all pilot research proposals submitted to ACAAF. Based on the results of this assessment, federal and provincial officials recommended whether or not to support a proposal. Greencover Canada http://www.agr.gc.ca/env/greencover-verdir/index_e.phtml National Water Supply Expansion Program http://www.agr.gc.ca/env/index_e.php?section=h2o&page=h2o

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

______________________________________________________________________________________ (5) Prairie Habitat Joint Venture - Ecological Goods and Services fact sheets (Sept. 2005): Introduction to Ecological Goods and Services http://www.aic.ca/issues/Introduction.pdf Canada boasts a wealth of natural capital, including the ecosystem structures and functions that provide the services that make life possible. This natural capital also provides a stream of ecological goods and services (EGS). Paying for Ecological Goods and Services http://www.aic.ca/issues/MECHANISMS.pdf Ecological goods and services (EGS) provide many varied and essential services, including nutrient cycling, erosion control, maintenance of biodiversity, and air and water purification. EGS solutions to environmental problems offer society the opportunity to capture significant economic efficiencies. Market Failure and Ecological Goods and Services http://www.aic.ca/issues/MARKET.pdf Market failure refers to the inability of markets to reflect the full social costs or benefits of a good or service. As a consequence, markets do not result in the most efficient or beneficial allocation of resources. Valuing Ecological Goods and Services http://www.aic.ca/issues/VALUE.pdf Agricultural producers and other landowners supply ecological goods and services (EGS) that all society enjoys. But they may do so at an economic loss. Since market forces sometimes reward producers who convert their land to traditional agricultural production, protecting natural capital necessitates determining the market value of EGS. ______________________________________________________________________________________

(6) USDA Economics Research Service (ERS) Greening Income Support and Supporting Green Roger Claassen and Mitch Morehart, Economic Brief No. (EB1) 6 pp, March 2006 http://www.ers.usda.gov/Publications/EB1/ A multitude of design decisions influence the performance of voluntary conservation programs. This Economic Brief is one of a set of five exploring the implications of decisions policymakers and program managers must make about who is eligible to receive payments, how much can be received, for what action, and the means by which applicants are selected. In particular, this Brief focuses on potential tradeoffs in combining income support and environmental objectives in a single program. Better Targeting, Better Outcomes LeRoy Hansen and Daniel Hellerstein, Economic Brief No. (EB2) 6 pp, March 2006 http://www.ers.usda.gov/Publications/EB2/ A multitude of design decisions influence the performance of voluntary conservation programs. This Economic Brief is one of a set of five exploring the implications of decisions policymakers and program managers must make about who is eligible to receive payments, how much can be received, for what action, and the means by which applicants are selected. The particular issue addressed here is options for targeting program payments to where they can yield the greatest gain. Participant Bidding Enhances Cost Effectiveness Robert Johansson, Economic Brief No. (EB3) 6 pp, March 2006 http://www.ers.usda.gov/Publications/EB3/ A multitude of design decisions influence the performance of voluntary conservation programs. This Economic Brief is one of a set of five exploring the implications of decisions policymakers and program managers must make about who is eligible to receive payments, how much can be received, for what action,

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

and the means by which applicants are selected. The particular issue examined here is the potential benefits of allowing farmers to "bid" for the activity they will undertake and the level of payment they would receive for it. Contrasting Working-Land and Land Retirement Programs Marcel Aillery, Economic Brief No. (EB4) 6 pp, March 2006 http://www.ers.usda.gov/Publications/EB4/ A multitude of design decisions influence the performance of voluntary conservation programs. This Economic Brief is one of a set of five exploring the implications of decisions policymakers and program managers must make about who is eligible to receive payments, how much can be received, for what action, and the means by which applicants are selected. In particular, this Brief focuses on potential tradeoffs in balancing land retirement with conservation on working lands. Rewarding Farm Practices versus Environmental Performance Marca Weinberg and Roger Claassen, Economic Brief No. (EB5) 6 pp, March 2006 http://www.ers.usda.gov/Publications/EB5/ A multitude of design decisions influence the performance of voluntary conservation programs. This Economic Brief is one of a set of five exploring the implications of decisions policymakers and program managers must make about who is eligible to receive payments, how much can be received, for what action, and the means by which applicants are selected. The particular issue examined here is whether to pay for conservation practices or to link payments to environmental performance. Environmental Credit Trading: Can Farming Benefit? Marc Ribaudo, Robert Johansson, and Carol Jones, Amber Waves February 2006 http://www.ers.usda.gov/AmberWaves/February06/Features/featureupdate.htm Environmental regulations often require firms that emit pollutants to limit emissions to a set level or to install specific emission-reducing technologies. While fairly straightforward, this command-and-control approach can be costly both to the firms and to society. Firms with high costs of pollution reduction and those with low costs are required to meet the same requirements, which may waste resources. Environmental credit trading, an alternative to command-and-control regulations, is a market-based approach to comply with regulations that could achieve pollution abatement goals at lower costs to society. Conservation-Compatible Practices and Programs: Who Participates? Dayton Lambert, Patrick Sullivan, Roger Claassen, and Linda Foreman, Economic Research Report No. (ERR14) 48 pp, February 2006 http://www.ers.usda.gov/Publications/err14/ This report examines the business, operator, and household characteristics of farms that have adopted certain conservation-compatible practices, with and without financial assistance from government conservation programs. The analysis finds that attributes of the farm operator and household and characteristics of the farm business are associated with the likelihood that a farmer will adopt certain conservation-compatible practices and the degree to which the farmer participates in conservation programs. For example, operators of small farms and operators not primarily focused on farming are less likely to adopt management-intensive conservation-compatible practices and to participate in working-land conservation programs than operators of large enterprises whose primary occupation is farming.

________________________________________________________________________ (7) Resources For the Future (RFF) The following papers, and many others, are available from http://www.rff.org/ValuationOfEnvironmentalBenefits.cfm and http://www.rff.org/Agriculture.cfm. What Are Ecosystem Services? The Need for Standardized Environmental Accounting Units James W. Boyd, H. Spencer Banzhaf, February, 2006 http://www.rff.org/Documents/RFF-DP-06-02.pdf This paper advocates consistently defined units of account to measure the contributions of nature to human

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

welfare. We argue that such units have to date not been defined by environmental accounting advocates and that the term "ecosystem services" is too ad hoc to be of practical use in welfare accounting. We propose a definition, rooted in economic principles, of ecosystem service units. A goal of these units is comparability with the definition of conventional goods and services found in GDP and the other national accounts. We illustrate our definition of ecological units of account with concrete examples. We also argue that these same units of account provide an architecture for environmental performance measurement by governments, conservancies, and environmental markets. The Architecture and Measurement of an Ecosystem Services Index H. Spencer Banzhaf, James W. Boyd, October, 2005 http://www.rff.org/Documents/RFF-DP-05-22.pdf This paper describes the construction of an ecological services index (ESI). An ESI is meant to summarize and track over time the magnitude of beneficial services arising from the natural environment. A central task of this paper is to define rigorously ecosystem services so that services can be counted in an economically and ecologically defensible manner—a requirement if ecological contributions to welfare are to be incorporated into the national accounts. This paper advocates a particular economic structure and relates it to index theory and makes concrete recommendations for the measurement of such an index. Ecosystem Services and the Government: The Need for a New Way of Judging Nature's Value James W. Boyd, H. Spencer Banzhaf, August, 2005 http://www.rff.org/Documents/RFF-Resources-158_EcoServices.pdf Ten years ago environmental policy discussions became flooded with the term “sustainability.” Books, articles, conferences, grant competitions, even entire organizations, took sustainability as their focus. No doubt the word took off because it evoked environment-friendly concepts like balance and stewardship. Its success may also have been due to the fact that it could mean almost anything. Now a new term— ecosystem services—threatens to dethrone sustainability as the ultimate environmental buzzword. What's Nature Worth? Using Indicators to Open the Black Box of Ecological Valuation James W. Boyd, August, 2004 http://www.rff.org/Documents/RFF-Resources-154-worth.pdf What is the value of nature? This difficult question has motivated much of the work done at RFF over the last 52 years. If it seems odd that such a question could occupy an institution for half a century, consider both the importance and difficulty of the challenge. Nature and the services it provides are a significant contributor to human well-being, and society makes decisions every day about whether we will have more or less of it. Knowing nature’s value helps us make those decisions. The difficulty is that nature never comes with a convenient price tag attached. Ecosystems aren’t automobiles, in other words. They are like factories, however. They make beauty, clean air, and clean water, and they feed and house species that are commercially, recreationally, and aesthetically important. Incentive-Based Land Use Policies and Water Quality in the Chesapeake Bay Margaret A. Walls, Virginia D. McConnell, April 2004 http://www.rff.org/Documents/RFF-DP-04-20.pdf The activities conducted on land surrounding the Chesapeake Bay directly affect pollution levels in the Bay, and they do so in complex and varied ways. Policy attention has been focused, for the most part, on modifying these activities within a particular land use category but not on wholesale changes in land use. For example, farmers are encouraged to use "best management practices" (BMPs) that focus on fertilizer use, crop covers, and the like; residential and commercial developers are encouraged to manage storm water runoff; and wastewater treatment plants are required to meet technology-based standards. But the amount of land in urbanized uses relative to the amount in farming, forestry, and open space has not been given the attention it deserves. In this paper, we discuss the ways that land use affects pollution in the Bay. We then analyze three economic incentive-based policies that could be used to alter land use patterns—purchase of development rights (PDRs), transferable development rights (TDRs), and development impact fees. The strengths and weaknesses of each policy are discussed. Finally, we discuss the issue of policy coordination, i.e.,

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

synchronizing policies focused directly on land use, such as TDRs, with input-based taxes. More research on this important policy issue is needed. Measuring Ecosystem Service Benefits: The Use of Landscape Analysis to Evaluate Environmental Trades and Compensation James W. Boyd, Lisa Wainger, April, 2003 http://www.rff.org/Documents/RFF-DP-02-63.pdf Ecosystem compensation and exchange programs require benefit analysis in order to guarantee that compensation or trades preserve the social benefits lost when ecosystems are destroyed or degraded. This study derives, applies, and critiques a set of ecosystem benefit indicators (EBIs). Organized around the concept of ecosystem services and basic valuation principles we show how GIS mappings of the physical and social landscape can improve understanding of the ecosystem benefits arising from specific ecosystems. The indicator system focuses on landscape factors that limit or enhance an ecosystemâ&#x20AC;&#x2122;s ability to provide services and that limit or enhance the expected value of those services. The analysis yields an organized, descriptive, and numerical depiction of sites involved in specific mitigation projects. Indicator based evaluations are applied to existing wetland mitigation projects in Florida and Maryland in order to practically illustrate the virtues and limitations of the approach. A Note on the Valuation of Ecosystem Services in Production R. David Simpson, April, 2001 http://www.rff.org/Documents/RFF-DP-01-16.pdf There has been considerable recent interest in the valuation of ecosystem services. We focus here on the value of such services in the production of market goods. Although the conceptual basis for conducting such exercises is straightforward, the data with which to implement them empirically is generally not available. An upper bound on the value of ecosystem services arises when the production technology exhibits constant returns to scale in ecosystem services and market inputs jointly. There are compelling reasons to suppose that the existence of fixed factors of production would imply that production technologies exhibit decreasing return to scale. Under these circumstances, no general conclusions can be drawn. We show in an illustrative example that a range of outcomes is possible, depending on the substitutability between ecosystem services and other inputs and the scarcity of ecosystem services relative to other factors of production. ______________________________________________________________________________________

(8) Alternative Land Use Services (ALUS) http://www.kap.mb.ca/alus.htm ALUS is a voluntary, incentive-based environmental program that recognizes and rewards the positive contributions that farmers make to clean air and water and biodiversity through their land management practices. The ALUS concept has received widespread support from farmers, farm organizations, conservation groups, government officials, and other decision makers. The first pilot project was launched in Manitoba in November 2005, with others planned across Canada. The Manitoba ALUS Pilot Project "ALUS: An Ecological Goods & Services Research Project - Manitoba" is running for three years in the Regional Municipality of Blanshard, located northwest of Brandon, Manitoba. It will test the ALUS concept, to see if farmers will participate, to evaluate the efficiency of program delivery, and help to determine if ALUS could be implemented as a national program. ALUS was initially developed by Keystone Agricultural Producers, and the pilot project is taking place with the partnership of Delta Waterfowl Foundation, Agriculture & Agri-Food Canada, Manitoba Agriculture, Food & Rural Initiatives, the RM of Blanshard, Manitoba Rural Adaptation Council, Manitoba Agricultural Services Corporation, and the Little Saskatchewan River Conservation District. Alternative Land Use Services (ALUS) - Norfolk Land Stewardship Council Pilot Project http://www.ontariostewardship.org/ontariostewardship/mi_currentProjects/mi_currentProjects.asp?s=osNL SC&l=en

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

The Norfolk Land Stewardship Council (NLSC) is composed of people who have an interest in conservation and land care. They represent landowners and land interests in Norfolk County and volunteer their time out of concern for local land stewardship issues. The Alternative Land Use Services (ALUS) - Norfolk County Pilot Project is designed to determine the most cost effective method of assisting farmers in delivery of environmental services to society. For more information about ALUS, please see the recent information flyer produced by NLSC and the Norfolk Federation of Agriculture. You can view the flyer in PDF format (6.5 MB) or as text-only. ______________________________________________________________________________________

(9) Ducks Unlimited Canada http://www.ducks.ca Ducks Unlimited Canada (DUC) has been committed to wetland conservation for more than 65 years. Despite this, wetland loss continues across Canada. As much as 70 per cent of Canadaâ&#x20AC;&#x2122;s original wetlands have been lost in some areas of the country. Natural Values - The Importance of Wetlands and Upland Conservation Practices in Watershed Management http://www.ducks.ca/conserve/wetland_values/conserve.html Natural Values is a report written by DUC biologist Shane Gabor that focuses on the function and value of wetlands, riparian areas, and permanent cover within watersheds. Ducks Unlimited Canada Fact Sheet on Ecological Goods and Services http://www.ducks.ca/conserve/wetland_values/pdf/nv1_eg.pdf Ducks Unlimited Canada Fact Sheets Series: Natural Values: Linking the Environment to the Economy (PDF format) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Ecological Goods and Services Freshwater Soil Atmosphere Biodiversity Wetlands Grasslands Lakes and Rivers Riparian Areas Forests Agriculture and the Environment

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(10) Canada West Foundation http://www.cwf.ca Natural Capital Project http://www.cwf.ca/abcalcwf/doc.nsf/doc/proj_natural_capital.cm The objective of The Natural Capital Project is to draw attention to the importance of natural capital for public policy, and to argue for the greater recognition of natural capital within public policy discussions in the West. The long-term prosperity of the West depends on finding the appropriate public policy balance among produced, human and natural capital.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

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(11) Soil and Water Conservation Society The Farmer’s Decision: Balancing Economic Successful Agriculture Production with Environmental Quality (Book) Edited By Jerry L. Hatfield, August, 2005 http://swcs.org/en/publications/books/the_farmers_decision.cfm Decision making to achieve a balance between the economic goals of producers and environmental quality benefits is complex. The Farmer’s Decision is a synthesis of years of interdisciplinary research and practice, and addresses the recent increasing development—applying decision support tools to agriculture. This book is a resource for the decision making process that goes into balancing economic success with a healthy environment. The discussions represent an international view and are a blend of field and watershed scale observations and research. The writers wish is to move science forward to impact the lives of fellow scientists, policymakers, planners, producers, and the consumers of food and fiber. ______________________________________________________________________________________

(12) Millennium Ecosystem Assessment http://www.millenniumassessment.org/ The Millennium Ecosystem Assessment (MA) is an international work program designed to meet the needs of decision makers and the public for scientific information concerning the consequences of ecosystem change for human well-being and options for responding to those changes. The MA was launched by U.N. Secretary-General Kofi Annan in June 2001 and was completed in March 2005. It will help to meet assessment needs of the Convention on Biological Diversity, Convention to Combat Desertification, the Ramsar Convention on Wetlands, and the Convention on Migratory Species, as well as needs of other users in the private sector and civil society. If the MA proves to be useful to its stakeholders, it is anticipated that such integrated assessments will be repeated every 5– 10 years and that ecosystem assessments will be regularly conducted at national or sub-national scales. Ecosystems & Human Well-being: Synthesis (2005) http://www.millenniumassessment.org/proxy/document.356.aspx This report presents a synthesis and integration of the findings of the four MA Working Groups (Condition and Trends, Scenarios, Responses, and Sub-global Assessments). It does not, however, provide a comprehensive summary of each Working Group report, and readers are encouraged to also review the findings of these separately. This synthesis is organized around the core questions originally posed to the assessment: How have ecosystems and their services changed? What has caused these changes? How have these changes affected human well-being? How might ecosystems change in the future and what are the implications for human well-being? And what options exist to enhance the conservation of ecosystems and their contribution to human well-being? GreenFacts.org's Popularized Version of Synthesis Report http://www.greenfacts.org/ecosystems/ ______________________________________________________________________________________

(13) Wildlife Habitat Canada http://www.whc.org/home.htm Wildlife Habitat Canada (WHC) is a national, non-profit, conservation organization established in 1984 by Environment Canada, provincial wildlife agencies and conservation organizations. National Survey of Farmers and Ranchers - Ecological Goods and Services (2006) Press release: http://www.whc.org/ResultsofNationalSurvey2006.htm Survey results: http://www.whc.org/documents/EN5742landowners1.pdf Wildlife Habitat Canada (WHC) is pleased to release the results of the National Survey on Ecological Goods

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

and Services. Over 1,700 Canadian farmers and ranchers were surveyed for their attitudes and behaviours towards ecological goods and services in an effort to inform policy development at the national level. ______________________________________________________________________________________

(14) World Wildlife Fund 2004 Living Planet Report http://www.panda.org/downloads/general/lpr2004.pdf The Living Planet Report is WWF's periodic update on the state of the world's ecosystems. This is measured using 2 main indicators. The first indicator is the fact that the Living Planet Index is derived from trends over the past 30 years in populations of hundreds of species of birds, mammals, reptiles, amphibians and fish. The second indicator is a measure our human Ecological Footprint - this is the pressure placed by humans on these populations, and caused by our consumption of renewable natural resources. ______________________________________________________________________________________

(15) Ecosystem Marketplace http://www.ecosystemmarketplace.com The Ecosystem Marketplace seeks to become the world's leading source of information on markets and payment schemes for ecosystem services; services such as water quality, carbon sequestration and biodiversity. We believe that by providing solid and trust-worthy information on prices, regulation, science, and other market-relevant issues, markets for ecosystem services will one day become a fundamental part of our economic and environmental system, helping give value to environmental services that have, for too long, been taken for granted.

________________________________________________________________________ (16) Media & Opinion Canada's capital challenge Nancy Olewiler, April 2006 http://www.irpp.org/po/archive/apr06en/olewiler.pdf Canada is endowed with an abundance of capital - human capital and natural capital. But we have for too long “been living off our public capital and under-investing in it or investing ineffectively,” writes Nancy Olewiler of Simon Fraser University. On natural capital, she notes that “we don’t have good data on how much natural capital we have, let alone what we are losing.” Human capital challenges include educating a workforce to meet the demands of the labour market, such as replacing retiring baby boomers, like nurses, who will eventually need nurses to care for them. Finally, she notes the imperative of rebuilding sound relations with the United States, without abandoning Canadian social policies. “Other foreign markets help,” she concludes, “but cannot replace those of the US.” Will ALUS encourage farmers to go green? Don Stoneman, Better Farming January 2006 Special Edition http://www.betterfarming.com/2006/bf-jan06-spec/cover.htm 'Farmers provide an environmental benefit. Let society pay for it'" says Norfolk farmer Bryan Gilvesy, a strong proponent of Alternative Land Use Services. But critics say Canadian society cannot afford it and governments have been slow to sign on. ______________________________________________________________________________________

(17) Research A Valuation Of Ecological Services In The Great Lakes Basin Ecosystem to Sustain Healthy Communities and a Dynamic Economy http://msep.mcmaster.ca/epp_publications.html Gail Krantzberg and Cheryl de Boer, July 2006 The intention of this paper is to ascertain the economic value of an ecologically important resource such as the Great Lakes.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

Counting Canada’s Natural Capital: Assessing the Real Value of Canada’s Boreal Ecosystems http://www.anielski.com/Documents/BW_Eng_FINAL.pdf This two-year study, completed for the Canadian Boreal Initiative by my colleague and ecological economist Sara Wilson and I in 2005, examines the state and economic value of Canada’s boreal ecosystems natural capital and ecological goods and services which are currently ignored in measures like the GDP. The report provides a new framework for which nations can establish a new balance sheet that accounts for the importance of natural capital to human well-being.

________________________________________________________________________ (18) Conferences & Workshops National Symposium on Ecological Goods and Services in Agriculture (Agriculture and Agri-Food Canada) February 2006, Winnipeg, Manitoba http://www.agr.gc.ca/pol/egs-bse/index_e.php A national symposium contributing to policy development for Ecological Goods and Services (EG&S) was held in Winnipeg in February 2006. The symposium brought together some 150 Canadian stakeholders from farm organizations, governments, academia, practitioners and environmental non-government organizations. They discussed and promoted a common understanding of what a Canadian EG&S approach involves. Speakers from Australia, the U.S., United Kingdom, France and the Organization for Economic Co-Operation and Development (OECD) shared their insights and experiences with EG&S. The symposium was co-hosted by Agriculture and Agri-Food Canada (AAFC) and the Government of Manitoba in cooperation with Environment Canada. Environmental Services: The Other Countryside Products - Making the Link between Rural and Urban (The Ontario Rural Council) April 26, 2005, Grand River Conservation Authority, 400 Clyde Road, Cambridge, Ontario http://www.torc.on.ca/events.shtml#1 TORC Green Paper: http://www.torc.on.ca/downloads/TORC%20Spring%202005%20Forum%20Summary%20(p.m.)final.doc The goal of this forum was to provide the opportunity for information-sharing related to environmental services, and make positive links between rural and urban.

Valuing EG&S: An Ontario Perspective (Workshop Proceedings March 1, 2007)

If we begin to think like a mountain, we will keep all that is truly valuable in this world and pass these treasures on to succeeding generations. All we need to do is pay attention and pay the price. Iâ&#x20AC;&#x2122;d say the cost is more than worth it. Robert Frost, Thinking Like a Mountain

ISBN 1-897262-16-7