Exploring ecosystem markets for the delivery of public goods in the UK

Transforming food production systems, to minimise environmental impacts and maximise public goods is a major policy challenge, given the costs of restoring damaged habitats and incentivising shifts to more sustainable production methods. To meet this challenge, Defra’s new Nature for Climate Fund, announced in the last budget, is designed to leverage new private investment in natural capital, and demand for the UK’s two national carbon markets for woodlands and peatland restoration are now outstripping supply. Investing in the delivery of public goods can benefit both commercial organisations whose business relies on ecosystem services, as well as landowners, land managers and the general public. This combination of public and private financing of natural capital improvement presents an opportunity to substantially increase the availability of funding for conservation and sustainable agriculture in the UK.

A new report, published today, explores the voluntary ecosystem services market in the UK, identifying key actors involved, trading platforms and supporting modelling tools. It was found that organisational structures that ensure transparency and reduce the potential for power asymmetries are important for successful implementation of natural capital projects. Farmer/landowner engagement presented a challenge for all ventures and it was important to treat farmers/landowners as equal transactional partners as they are fundamental in ensuring a long-term commitment to the delivery of mutually beneficial ecosystem services.

Additionality presented a concern, with potential for private investment to stall if it is not possible to demonstrate (through evidence) that interventions would not happen without it. Explicit integration and consideration of the wider social distribution of ecosystem services was low and there is limited evidence that the ventures were actively considering the wider social distribution of the ecosystems services or defining wider beneficiaries of the public goods that they deliver. The value of a given ecosystem service across all schemes was negotiated between demand and supply side actors based on market demand and ‘willingness to pay’. The legal instruments used to deliver each scheme varied within and between ventures, with direct contracts used in most cases. Ventures were mindful that binding legal arrangements (e.g. environmental covenants) could be a barrier to participation but recognised that contracts needed to be both robust and flexible, particularly in the case of long-term landscape interventions where suppliers and/or the interventions may change over time.

Understanding how private ecosystem markets operate and the synergies and differences between existing schemes and trading platforms can support better integration of public and private finance, and broaden the range of outcomes and the scale at which these can be delivered. To find out more about these ecosystem markets, and the challenges and opportunities for UK agriculture, you can view the new report here.

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