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Crediting uncertain ecosystem services in a market

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  • 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
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    Cited by:

    1. 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.
    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. 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.
    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.

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