Wednesday, October 26, 2005

Salzman on Ecosystem Services

A few weeks ago, James Salzman's new article Creating Markets for Ecosystem Services: Notes from the Field made an appearance on the Weekly Top 10.  Salzman's article is fascinating, and I highly recommend taking a look.  Natural resources law people probably already will be familiar with the general idea of ecosystem services, but ordinary property folks like me might not be.  Here is a short excerpt that gives a sense of the idea in the context of water quality:

Imagine that the municipal water supplier owns the upland forest, which naturally filters and cleans water as it flows through the upper watershed. Property owners in the farmlands are dairy farmers, grazing cows on their fields beside the stream that flows into the reservoir. The farmers could manage their land to provide an improved service of water purification by planting riparian vegetation buffers (i.e., erecting fences to protect strips of plants alongside the stream from grazing). Such vegetative buffers capture nutrients and reduce silt before they reach the watercourse. Downstream water consumers benefit from these actions, which provide them with clean drinking water that does not require extensive pre-treatment. Farmers might benefit from reduced streambank erosion.

Traditionally, this would be the end of the story. No benefits would be produced, for few land owners actually would plant riparian buffers. Farmers may well have been informed of the benefits of this practice for themselves and for downstream users, but it is unlikely that they would change their behavior because of the hassle and cost of fencing and the concerns over the loss of productivity from setting aside pasture. And those who did fence off their streams would bear all the costs, with no contributions from those downstream who benefit from the positive externalities of cleaner water.

So how could the government ensure clean drinking water? The traditional engineer’s approach (“I’ve never seen a problem I can’t build around”) would likely involve building a pre-treatment plant. An ecosystem service approach of riparian buffers, however, would likely be less expensive. But what role should government play in ensuring provision of services?

The traditional regulator’s approach would likely impose prescriptive regulations to require farmers to plant riparian buffers. One could equally rely on financial penalties, levying a tax on farmers who do not have buffers, or trying to persuade farmers to put in buffers. As described in detail in Part V, such approaches have largely proven ineffective in the past because of overbreadth, strong political opposition, and poor compliance behavior in the face of what are viewed as punitive or intrusive measures.

One could, however, view the issue from a totally different perspective. Why not, one might argue, simply recognize this situation for what it is—the provision of valuable services to consumers—and realize this through an explicit arrangement of payments for services rendered? Put another way, why not treat farmers’ provision of ecosystem services as no different from their provision of other marketable goods? Farmers are certainly well accustomed to contractual arrangements for their agricultural products. Dairy farmers sign contracts to sell their milk; potato farmers do the same for their spuds. Why not treat the provision of water filtration services as a similar business transaction, where farmers manage their land through riparian buffers and grass swales to “grow the crop of water quality” much the same as dairy and potato farmers do for their cash crops?

In many respects, provision of ecosystem services would be no different than supplying traditional farm produce, with the level of compensation dependent on the quality and level of services provided. In contrast to the earlier description of subsidies, ecosystem services
payments could focus directly on the quality and quantity of services delivered. Such exchanges would be arm’s-length payments for services rendered, creating an ongoing incentive for the landholder to manage the property so that service provision is ensured rather than the typical one-off application for funds in grants programs with (in practice) little follow-up by the funding body to ensure value for money. For cash-strapped farms, it becomes difficult to justify capital investments with long payback periods, uncertain returns, and potentially reduced land productivity. Service payments could address these common concerns by providing consistent funding sources. The farmers would begin to think differently about the nature of running a farm, as well, perhaps instilling new attitudes and priorities toward land management.

We covered some of Salzman's main points in my Property Theory class as part of our discussion of the role of property in the allocation of natural resources.  Property typically comes up in natural resources theory in the context of giving people property rights in natural resources as a method of avoiding the tragedy of the commons.  But as Salzman's example of the dairy farmers shows, natural resources issues are also often interwoven with land use issues.  The idea of ecosystem services provides a new perspective on many land-use issues, and was helpful in our class discussion of the role of property in various natural resources issues, from global warming to management of the Chesapeake Bay's blue crab population.

One of the things I liked about Salzman's article is that it is a meld of theory and practice, providing reports on how actual ecosystem services projects have worked in the real world.  It is also realistic, recognizing that ecosystem services aren't a magical cure-all for environmental and natural resources issues.  That said, the concept of ecosystem services has great potential to reconfigure the debate on many property issues.  Many people tend to approach the discussion of land use issues, like the preservation of wetlands or open space, from the perspective that a property owner developing land is causing harm to the environment and therefore doing something morally wrong.  The difference between harm and benefit, however, often is in the eye of the beholder.  Recognizing that when owners leave their land undeveloped they can provide a valuable service to society as a whole has the potential reduce the political controversy, and regulatory takings consequences, created by many land-use planning issues.

Anyway, this is a very interesting article.  Check it out!

Ben Barros

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