Highlights from the Environmental Markets and Finance Summit
In October, ALI Director, Dave Poulton, attended the Environmental Markets and Finance Summit in Washington, DC. Here, he shares his reflections and key takeaways.
Accelerating Investment in Natural Infrastructure
The theme of the Environmental Markets and Finance Summit was Accelerating Investment in Natural Infrastructure. The agenda and presentations examined various ways to assign financial values to natural features and landscapes and the services they provide to people. The underlying economic theory is that if the benefits of nature can be represented in financial terms, then it will create an economic incentive to conserve, restore and create more natural areas.
The mainly American crowd heard a series of excellent presentations and panel discussions. Emphasis was not on theory but on showcasing some of the various tools that are currently being used to value natural capital.
Insurance policies to protect coral reefs
We learned how insurance can be used to protect a vulnerable coral reef. Based on research and creative thought from The Nature Conservancy, Swiss Re recently issued an insurance policy on the Great Mayan Reef that protects the east side of the Yucatan Peninsula. In the event of hurricane damage, the insurance pays for local residents to mobilize within 48 hours to repair the reef. The premiums on the policy are paid by beachside hotels, whose beaches are protected by the reef. Local residents benefit from skills training and jobs related to their traditional relationship with their environment.
Impact-oriented investors are putting money into intact forests in the US Pacific Northwest. They are doing so not for timber values but for the environmental values and benefits forests provide, including clean water, flood mitigation, carbon sequestration and biodiversity. The investors expect to gradually recoup their investment by selling these lands, or the credits for the ecological services they produce, to state and local communities and companies needing these things to meet their environmental objectives.
Water quality credit trading
Several states with watersheds draining into Chesapeake Bay have established water quality trading schemes based on a Total Maximum Daily Load established federally for the Bay. Large industrial emitters in many states can meet their emission goals by buying credits produced by others (often agricultural producers) who've earned credits by reducing their own outputs.
The need to scale
Despite such optimistic stories, an underlying theme was that most are pilots, one-offs, or in early design stages. While many of the actors designed their projects to establish precedents and templates, we have yet to reach a stage where these tools are replicated or have established credibility with mainstream financial institutions.
The need to start scaling up was a constant theme of the summit.
Inspiration for Alberta
As Alberta considers how market forces can be used to contribute to the province’s environmental goals there are many examples that we can draw on.
It is clear, however, that a spirit of innovation and ambition must be brought to the task, as must a tolerance for risk. That is the price of learning a new way of doing things.