IDEAS home Printed from https://ideas.repec.org/a/eee/jeeman/v66y2013i3p554-572.html
   My bibliography  Save this article

Crediting uncertain ecosystem services in a market

Author

Listed:
  • Springborn, Michael
  • Yeo, Boon-Ling
  • Lee, Juhwan
  • Six, Johan

Abstract

The margin of safety (MOS) approach is an increasingly prevalent tool for ensuring the integrity of market-based programs for providing ecosystem services. Over-crediting is reduced by setting aside mean estimates of uncertain services in favor of a more conservative estimate. Like many environmental policy problems, ecosystem service markets involve the aggregation of uncertainty over multiple scales, e.g. from landowners to market intermediaries to the overall market. We examine how the MOS instrument affects, and is affected by, an ecosystem services market. We show that the common bottom-up approach of imposing risk preferences at a local, disaggregated level—held over from earlier development in the context of toxics and command and control-style health risk regulation—leads to several unintended consequences. Furthermore, discounting landowner services can actually increase their profits, conditional on the elasticity of credit demand. We illustrate theoretical insights with an empirical application to greenhouse gas offset crediting in agriculture.

Suggested Citation

  • Springborn, Michael & Yeo, Boon-Ling & Lee, Juhwan & Six, Johan, 2013. "Crediting uncertain ecosystem services in a market," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 554-572.
    • Handle: RePEc:eee:jeeman:v:66:y:2013:i:3:p:554-572
    DOI: 10.1016/j.jeem.2013.07.005
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0095069613000648
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jeem.2013.07.005?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Suzi Kerr & Joanna Hendy & Shuguang Liu & Alexander S. P. Pfaff, 2004. "Tropical Forest Protection, Uncertainty, and the Environmental Integrity of Carbon Mitigation Policies," Working Papers 04_03, Motu Economic and Public Policy Research.
    2. Siân Mooney & John Antle & Susan Capalbo & Keith Paustian, 2004. "Design and Costs of a Measurement Protocol for Trades in Soil Carbon Credits," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 52(3), pages 257-287, November.
    3. Montero, Juan-Pablo, 2000. "Optimal design of a phase-in emissions trading program," Journal of Public Economics, Elsevier, vol. 75(2), pages 273-291, February.
    4. Kim, Man-Keun & McCarl, Bruce A., 2009. "Uncertainty Discounting for Land-Based Carbon Sequestration," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 41(1), pages 1-11, April.
    5. Antle, John & Capalbo, Susan & Mooney, Sian & Elliott, Edward & Paustian, Keith, 2003. "Spatial heterogeneity, contract design, and the efficiency of carbon sequestration policies for agriculture," Journal of Environmental Economics and Management, Elsevier, vol. 46(2), pages 231-250, September.
    6. Fischer, Carolyn, 2005. "Project-based mechanisms for emissions reductions: balancing trade-offs with baselines," Energy Policy, Elsevier, vol. 33(14), pages 1807-1823, September.
    7. Jonathan E. Hughes & Christopher R. Knittel & Daniel Sperling, 2008. "Evidence of a Shift in the Short-Run Price Elasticity of Gasoline Demand," The Energy Journal, International Association for Energy Economics, vol. 29(1), pages 113-134.
    8. Lyubov A. Kurkalova, 2005. "Carbon Sequestration in Agricultural Soils: Discounting for Uncertainty," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 53(4), pages 375-384, December.
    9. Mingxia Zhang, 1997. "The Effects of Imperfect Competition on the Size and Distribution of Research Benefits," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1252-1265.
    10. Paul J. Thomassin, 2003. "Canadian Agriculture and the Development of a Carbon Trading and Offset System," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(5), pages 1171-1177.
    11. Sergey S. Rabotyagov, 2010. "Ecosystem Services under Benefit and Cost Uncertainty: An Application to Soil Carbon Sequestration," Land Economics, University of Wisconsin Press, vol. 86(4), pages 668-686.
    12. Erik Lichtenberg & David Zilberman, 1988. "Efficient Regulation of Environmental Health Risks," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 103(1), pages 167-178.
    13. Ribaudo, Marc & Delgado, Jorge & Hansen, LeRoy T. & Livingston, Michael J. & Mosheim, Roberto & Williamson, James M., 2011. "Nitrogen in Agricultural Systems: Implications for Conservation Policy," Economic Research Report 118022, United States Department of Agriculture, Economic Research Service.
    14. van Benthem, Arthur A. & Kerr, Suzi, 2011. "Bigger is Better: Avoided Deforestation Offsets in the Face of Adverse Selection," 2011 Conference (55th), February 8-11, 2011, Melbourne, Australia 100569, Australian Agricultural and Resource Economics Society.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Shuang Gao & Patrick L. Gurian & Paul R. Adler & Sabrina Spatari & Ram Gurung & Saurajyoti Kar & Stephen M. Ogle & William J. Parton & Stephen J. Grosso, 2018. "Framework for improved confidence in modeled nitrous oxide estimates for biofuel regulatory standards," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 23(8), pages 1281-1301, December.
    2. Sabrina Spatari & Alexander Stadel & Paul R. Adler & Saurajyoti Kar & William J. Parton & Kevin B. Hicks & Andrew J. McAloon & Patrick L. Gurian, 2020. "The Role of Biorefinery Co-Products, Market Proximity and Feedstock Environmental Footprint in Meeting Biofuel Policy Goals for Winter Barley-to-Ethanol," Energies, MDPI, vol. 13(9), pages 1-15, May.
    3. Garnache, Cloé & Mérel, Pierre R. & Lee, Juhwan & Six, Johan, 2017. "The social costs of second-best policies: Evidence from agricultural GHG mitigation," Journal of Environmental Economics and Management, Elsevier, vol. 82(C), pages 39-73.
    4. Susan Stratton Sayre, 2019. "Pay for the Option to Pay? The Impact of Improved Scientific Information on Payments for Ecosystem Services," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 73(2), pages 591-625, June.
    5. Marc Le Menestrel & Luk N. Wassenhove, 2016. "Subjectively biased objective functions," EURO Journal on Decision Processes, Springer;EURO - The Association of European Operational Research Societies, vol. 4(1), pages 73-83, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Suzi Kerr, 2013. "Managing Risks and Tradeoffs Using Water Markets," Working Papers 13_13, Motu Economic and Public Policy Research.
    2. Gren, Ing-Marie & Carlsson, Mattias & Elofsson, Katarina & Munnich, Miriam, 2012. "Stochastic carbon sinks for combating carbon dioxide emissions in the EU," Energy Economics, Elsevier, vol. 34(5), pages 1523-1531.
    3. Amy W. Ando & Shibashis Mukherjee, 2012. "Benefits of pollution monitoring technology for greenhouse gas offset markets," Economics Bulletin, AccessEcon, vol. 32(1), pages 122-136.
    4. Sergey S. Rabotyagov & Adriana M. Valcu-Lisman & Catherine L. Kling, 2016. "Resilient Provision of Ecosystem Services from Agricultural Landscapes: Trade-offs Involving Means and Variances of Water Quality Improvements," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 98(5), pages 1295-1313.
    5. Zhen, Chen & Zheng, Xiaoyong, 2015. "Measuring the Informational Value of Interpretive Shelf Nutrition Labels to Shoppers," 2016 Allied Social Sciences Association (ASSA) Annual Meeting, January 3-5, 2016, San Francisco, California 212812, Agricultural and Applied Economics Association.
    6. Knut Rosendahl & Jon Strand, 2015. "Emissions Trading with Offset Markets and Free Quota Allocations," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 61(2), pages 243-271, June.
    7. Antle, John M. & Diagana, Bocar & Stoorvogel, Jetse J. & Valdivia, Roberto O., 2010. "Minimum-data analysis of ecosystem service supply in semi-subsistence agricultural systems," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 54(4), pages 1-17.
    8. Santiago Bucaram & Mario Andrés Fernandez & Diego Grijalva, 2016. "Sell the oil deposits!: A financial proposal to keep the oil underground in the Yasuni National Park, Ecuador," WIDER Working Paper Series wp-2016-14, World Institute for Development Economic Research (UNU-WIDER).
    9. Jonah Busch & Ruben Lubowski & Fabiano Godoy & Marc Steininger & Arief Anshory Yusuf & Kemen Austin & Jenny Hewson & Daniel Juhn & Muhammad Farid & Frederick Boltz, 2011. "Structuring national and sub-national economic incentives to reduce emissions from deforestation in Indonesia," Working Papers in Economics and Development Studies (WoPEDS) 201105, Department of Economics, Padjadjaran University, revised Jun 2011.
    10. Timothy Capon & Michael Harris & Andrew Reeson, 2013. "The Design of Markets for Soil Carbon Sequestration," Economic Papers, The Economic Society of Australia, vol. 32(2), pages 161-173, June.
    11. Sergey S. Rabotyagov & Manoj Jha & Todd D. Campbell, 2010. "Nonpoint-Source Pollution Reduction for an Iowa Watershed: An Application of Evolutionary Algorithms," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 58(s1), pages 411-431, December.
    12. Valentin Bellassen & Igor Shishlov, 2017. "Pricing Monitoring Uncertainty in Climate Policy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(4), pages 949-974, December.
    13. Mireille Chiroleu-Assouline & Sébastien Roussel, 2010. "Contract Design to Sequester Carbon in Agricultural Soils," Documents de travail du Centre d'Economie de la Sorbonne 10060, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    14. Santiago Bucaram & Mario Fernandez & Diego Grijalva, 2016. "Sell the oil deposits! A financial proposal to keep the oil underground in the Yasuni National Park, Ecuador," WIDER Working Paper Series 014, World Institute for Development Economic Research (UNU-WIDER).
    15. John Antle & Stephen Ogle, 2012. "Influence of soil C, N 2 O and fuel use on GHG mitigation with no-till adoption," Climatic Change, Springer, vol. 111(3), pages 609-625, April.
    16. Gulati, Sumeet & Vercammen, James, 2005. "The Optimal Length of an Agricultural Carbon Contract," Working Papers 37027, University of Victoria, Resource Economics and Policy.
    17. van Benthem, Arthur & Kerr, Suzi, 2013. "Scale and transfers in international emissions offset programs," Journal of Public Economics, Elsevier, vol. 107(C), pages 31-46.
    18. Boaitey, Albert & Goddard, Ellen & Mohapatra, Sandeep, 2019. "Environmentally friendly breeding, spatial heterogeneity and effective carbon offset design in beef cattle," Food Policy, Elsevier, vol. 84(C), pages 35-45.
    19. Diagana, Bocar & Antle, John & Stoorvogel, Jetse & Gray, Kara, 2007. "Economic potential for soil carbon sequestration in the Nioro region of Senegal's Peanut Basin," Agricultural Systems, Elsevier, vol. 94(1), pages 26-37, April.
    20. Sumeet Gulati & James Vercammen, 2005. "The Optimal Length of an Agricultural Carbon Contract," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 53(4), pages 359-373, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jeeman:v:66:y:2013:i:3:p:554-572. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622870 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.