Global Ecosystem Banking Initiatives

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There are already a large number of offsetting schemes that have been attempted or successfully implemented around the world. This section details the results of a desk based review of current global ecosystem banking initiatives, using relevant elements from the Rapid Evidence Assessments methodology, as published by the UK civil service[1]. The review analysed published and unpublished literature and looked to evaluate the successes and failures of similar projects and how the relevant elements of each scheme could be applied to the Milford Haven Catchment.

This report sets out the results of this analysis and a list of recommendations and potential barriers which have fed into the development of the later work packages and the final proposed toolkit.

[1] http://www.civilservice.gov.uk/networks/gsr/resources-and-guidance/rapid-evidence-assessment/what-is

A literature review was undertaken of published and unpublished literature that related to global ecosystem banking initiatives, nutrient trading and offsetting schemes. The main sources of information accessed included: Scopus[1], the Collaboration of Environmental Evidence[2], WorldCat database[3] and Open Grey database.

These schemes were divided into several categories depending on their content and these categories included: nutrient offsetting, Payments for Ecosystem Services (PES), multiple outcome schemes, or studies with a specific mention of habitat banking. The details of these different schemes were subsequently broken down and analysed, and will be discussed throughout this report.

In addition each study was broken down into a range of categories including: Year of publication, type (reference or case study), approach (practical or theoretical), buyer, seller, units of trade, successes/failures, description and role of broker, quality of reporting and justification & applicability. To establish the importance of each study to the current project, the studies were graded into 3 different categories depending on their quality, applicability and relevance. A basic ‘traffic light’ colour system was used where green were the most important schemes, amber moderate, and red the least important.

Studies that were designated as red were generally identified as being not applicable for the current study. This was mainly because they had little relevance, or were of poor quality. Amber studies were either of high quality, but low relevance, or high relevance but low quality. However, unlike the ‘red’ studies the majority of amber studies provided some useful background information to offsetting or ecosystem but without any practical applicability. Green studies provided information of schemes which were directly relevant, applicable and were of high quality.

Finally, while most of the studies were of high quality, the majority of reports were feasibility studies, or desk based pilots where the outcomes were still largely theoretical. These provided some relevant information but mainly indicated the difficulty and complexity of setting up schemes such as this and the need for the baseline data to be robust.

[1] http://www.scopus.com/home.url

[2] http://www.environmentalevidence.org/Reviews.html

[3] https://www.worldcat.org/

The analysis of global initiatives showed that whilst there are many nutrient trading schemes in operation, habitat banking is the most common initiative type currently in operation. Due to the particular problems in the Milford Haven and Cleddadu catchments habitat banking was not considered by the EEP to be a likely solution.

Consequently, the review of global initiatives focussed on nutrient trading, but did not ignore any alternative type of PES schemes as these alternative schemes highlighted good practice, things to consider and significant issues. These findings have then been fed into the other Work Packages for this project.

For more information on the different schemes analysed please refer to Appendix 1. In addition, Appendix 2 includes further detail on specific schemes of interest including the Fowey, Poole Harbour and Chesapeake Bay in the US.

SOLE-SOURCE OFFSET

Sole-source offsets, where an increase in nutrient discharge is allowed at one point, as long as there is a reduction in nutrient discharges elsewhere (either on or off site). In all cases the nutrient reduction efforts are undertaken by the regulated body (i.e. the polluter) and must be done in the same catchment.

Schemes of this type are typically quick, and easy, as often only 1 party is involved. However it can be difficult to ensure that the increase does not have a greater impact than the reduction. Typically this can happen if the increase takes place in an area of higher risk/value than the equivalent area where the reduction is taking place which can result in an overall worsening of the catchment condition. In order to avoid this there needs to be a sufficient quantity of robust data available to be certain that there will not be any unintended consequences of allowing greater levels of discharge at certain places.

BILATERAL NEGOTIATION

Bilateral negotiations are trades characterized by one-on-one negotiations where a price is typically arrived at through a process of bargaining and not simply by observing a market price. This type of market can occur at any point as it is not limited by auction dates however, it generally has high transaction costs and requires those involved in the negotiation to have a sufficiently high level of knowledge about the required outcomes to develop environmentally effective, not just cost effective, solutions.

CLEARING HOUSE

A clearinghouse scheme is where an intermediary in a trading program aggregates credits from different sources with different prices and converts them to a fixed-price commodity that is re- sold. For example, a clearinghouse may aggregate point-source reductions for re-sale at a fixed price or be the central body to which point sources pay noncompliance fines and they in turn pay farmers to install nutrient-reducing management practices.

Commonly, the clearinghouse has been established as part of the trading program. Advantages of this, is that there should be reduced transaction costs which can facilitate an increase in demand that makes undertaking credit-generating projects more viable. Additionally, the ‘buyer’ can execute one credit purchase, as opposed to multiple purchases, if their credit purchase was sufficiently large, such that it entailed multiple credit sellers. A Clearinghouse would also manage the nutrient credit delivery risk and contract enforcement responsibilities.

Disadvantages of this type of scheme include: those wanting to buy/sell would need to work out in advance how they were going to save or use the traded entitlements, and then may fail to obtain or sell them in the auction. The cost of this process would need to be recovered from participants, or at the very least accounted for in the process, which reduces its cost effectiveness.

In addition, this scheme type requires the clearing house (i.e. a broker) to have the structures in place and the technical competency to aggregate credits and convert them into the fixed price commodity. This is not a simple process and is open to challenge if people do not agree with the price.

EXCHANGE MARKET

An exchange market is where buyers and sellers meet in a public forum (e.g. online) with all commodities being equivalent and all prices observed. An exchange is characterized by its open information structure and fluid transactions between buyers and sellers.

This type of market is quick and easy to use and has been demonstrated through the Hunter River Salinity Trading Program, using an exchange market with real-time trading and the Maryland Nutrient Trading Program which uses bilateral agreements.

REVERSE AUCTION

A reverse auction is where the roles of buyer and sellers are reversed – the bidder is the seller and not the buyer. However, the lowest bid is not always the winner, most bids are different and weighting originates from service the seller is proposing. Many reverse auctions occur online, providing a useful platform for electronic procurement.

There are several varieties of auction – open bid and sealed bid. In an open-bid auction, information relating to the bids are shown in real time – this can be either the exact price, or a ranked position, while identities of bidders are hidden. In Sealed bid auctions, no information is available to any of the participants throughout the auction.

Advantages of online reverse auctions are based on time and price. Where price is a priority, they provide opportunities to obtain better prices, as the auction process quickly lowers prices. Additionally, they are generally quicker than other types of procurement processes, where there are quicker reactions to changing markets. As such, the auction is efficient, both for the buyer and seller; Sellers can focus time on direct proposals, and buyers can quickly find new business and customers.

There are disadvantages for both the buyer and seller. The buyer will often be subjected to the additional associated with setting up a reverse auction – through registration, subscription and commission fees. Moreover, as sellers compete with others, their profit margins may be reduced as they are forced to lower prices[1].

[1] Kuo, C-C., White, R. E. & Rogers, P. (2003) A critical review of online reverse auctions. Available from: http://www.sbaer.uca.edu/research/swdsi/2003/Papers/091.pdf

Successful PES schemes tend to have four principal groups involved; these are buyers, sellers, brokers and knowledge providers. In addition, the other main component of a scheme is the unit of trade and the costing of this unit across different areas and different stakeholders.

This section outlines the findings from the global initiatives analysis on these groups and the units of trade, and where possible, how they might contribute to a nutrient trading scheme in Pembrokeshire.

BUYERS

Background

Typically in PES schemes buyers are considered to be: “beneficiaries of ecosystem services, who are willing to pay for them to be safeguarded, enhanced or restored”[1]. For a PES scheme to work there must be a clear demand for the service being sold and its provision must be financially valuable to the buyer(s).  Without a willing and able buyer, there is no prospect of a PES deal.

Buyers tend to be broken down into three broad types:

  • ‘Primary buyers’ (buyers who benefit directly from, and pay directly for, improved ecosystem service)
  • ‘Secondary buyers’ (organisations that buy improved ecosystem service provision on behalf of sections of society e.g. water company)
  • Tertiary buyers’ (organisation that buy improved ecosystem services provision on behalf of society as a whole e.g. government via agri-environment schemes)

Key Findings

The majority of schemes analysed were aimed at mitigating the impacts arising from infrastructure schemes, extractive industries, industry and development projects. As a result, the buyers tended to be directly involved with these activities and typically they were what could be termed the ‘polluter’.

In the United States, where there is a well established history of nutrient trading, the majority of the buyers are compelled to participate in trading schemes as a condition of their permit to operate.  An advantage of this type of buyer is that it is always present and therefore demand can be always be utilised, however, it can discourage potential buyers from investing in areas where these schemes exist, if other locations nearby do not have such requirements.

In many other countries, including the UK, schemes have focussed more on offsetting the loss of habitats as a result of development. As a result, many developers have been keen to invest in such strategies as it can help them achieve planning permission and they can discharge their environmental obligations transparently, and typically in a very few number of transactions.

Other types of buyer include individuals, who are often farmers. The advantages of this type of buyer is that there are low admin costs, as the program piggy backs onto existing organisations of farmers and systems of monitoring and record keeping. However, individuals are often unwilling to accept long-term contracts for PES measures which can reduce the uptake of such schemes. In addition, many schemes were looking for long contracts, including up to 30 years. Whilst this length of contract provides long term guarantees that the offsetting will continue the contracts, can turn out to be more expensive than outright land purchase or other solutions (e.g. end of pipe solutions in a sewage treatment works)

Governments both national and local, as well bodies funded by government often act as buyers.  Such bodies are able to demonstrate transparently the suitability of their decision, including the ability to demonstrate an audit trail of the decision making process. However, all organisations relying on government money are being squeezed by the current financial climate and in many areas PES schemes are being attempted precisely because they provide the mechanism for achieving environmental improvements with little or no public money.

There are good examples of buyers being brought together, or joining together in successful PES schemes. The reasons for why they do this is varied and dependent on the individual circumstances of the area under a scheme, however what is important is that the bundling of buyers together appears to work very well and increases the value of the buying fund beyond what any one organisation or individual can pay. This has the potential to deliver much greater benefits though it can also be difficult to ensure that there is no free riding occurring and that all buyers are contributing equitably in relation to the impact they are having.

Though there are a significant number of different types of PES schemes operating there are a relatively small number of buyers. Generally these are the polluters or developers (i.e. the actors causing, exacerbating or maintaining the problem) with a few others such as governments, environmental non-governmental organisations (eNGO) or individuals also occasionally involved.

Whatever the type of buyer however, the evidence seems to show that the most effective nutrient trading schemes have been successful because the buyers need to be compelled to enter into a nutrient trade.  This is generally through regulatory action as either a condition of permitting or planning and should be carefully considered within the Pembrokeshire context.

SELLERS

Under a PES scheme sellers are generally identified as land, or other resource managers, who can secure or improve the level of an ecosystem service by maintaining good practice or amending other activities.

After completing the global initiatives review it appears that globally sellers tend to predominantly be landowners / land managers, especially those directly involved in agriculture. Though the farming sector is clearly the most common there were a range of other sellers including: Local Planning Authorities/Government Agencies; mitigation bankers; private sector reserves; indigenous groups; NGOs; and conservation land management companies.

An advantage of sellers being drawn mainly from the agricultural sector is that typically farmers can reduce contamination flowing into watersheds at a fraction of the cost of larger treatment plants. Some farmers are keen to participate in the scheme, as it is seen as a competitive advantage which tends to have the knock on effect of maintaining the flow of credits. However, conversely other farmers do not want to contribute, and are not prepared to diversify, even if the scheme could be more profitable to them as they do not want to compromise the future viability of their land for food production.

There is also the issue about paying farmers additional money to reduce activities that they could and should be reducing anyway. For example, there is a lot of opposition to mandating that developers entering into schemes to offset their nutrient contribution by paying farmers when it is typically agriculture that is causing the majority of the problem.

Globally there do appear to be other sellers, though they tend to be much less common. Other sellers include private sector reserves, which have drawn criticism by allowing publically funded best management practices (BMP) to generate pollution credits. This is not seen as providing an additional reduction in the overall nutrient load, as the public funding has already accomplished the reduction. As such, it wastes financial resources by providing double payments to the private sector for the same reductions. This not only hurts pollution goals, but also distorts the market by artificially deflating the price of a pollution credit. Entities receiving cost-share funds can undercut others who did not receive such funds by selling credits at a lower cost. This places those who cannot or could not receive public money at a competitive disadvantage. This will likely limit participation in the market to a relatively small number of entries.

BROKERS

The most successful schemes tend to always involve a trusted intermediary or broker who undertakes a wide range of activities, depending on the scheme being implemented and the specific circumstances surrounding it. Types of broker recorded included: NGOs; government agencies; private firms such as the Environment Bank; public sector bodies/regulators; and Local Planning Authorities.

Brokers tend to have very different roles, depending on the schemes. For example, they act as intermediaries between buyers and sellers; they bring a wide range of stakeholders together; they can assess the credit requirements of development sites; and they source receptor sites from their registration system that can deliver the credit. They also balance and stabilise credit prices through different techniques depending on the market situation. In a monopoly, bankers can set a competitive price for the credits, to encourage buyers. In an oligopoly, bankers can adjust the cost of credits to reflect the market. Other marketing techniques such as advertising or discounting of the credits can be applied[2].

Impartiality and transparency is also crucial. A scheme set up by the Bristol Avon Rivers Trust to improve water quality from sewage treatment works by improving wetland became problematic when the broker was not impartial. Sellers of the scheme became challenging when they believed that the buyer had employed the broker, and only the buyer’s interests were being recognised[3]. Advantages of using a broker, is the ease of use, however, there are also likely to be high transaction costs.

KNOWLEDGE PROVIDERS

The fourth main actor in a PES scheme is the knowledge provider which tends to be a group of bodies, organisations or experts. All successful schemes appear to be predicated on a wide stakeholder base that includes, from the outset, well informed, partial knowledge advisors.

These are typically specialists whose responsibilities and expertise can help facilitate scheme development. Typically knowledge providers included: scientists; resource management specialists; statutory environmental bodies (eg English Heritage, Environment Agency, Forestry Commission, Natural England); local authorities; agricultural and rural valuers; and representative bodies including the National Farmers Union and the Country Land & Business Association.

However, it should also be acknowledged that knowledge providers are as varied as the number of PES schemes and any potential scheme in the Milford Haven and Cleddau catchments should, especially at the outset, be conducive to working with as many potential knowledge providers as possible.

UNITS OF TRADE

All trading schemes are characterised by a consistent unit that is mostly the pollutant or nutrient causing the problem. As would be expected the units of trade were not consistent across the schemes and different units were used depending on what was being offset. Examples units included:

  • Habitat hectares (habitat score x area),
  • ecosystem & species credits,
  • biodiversity credits,
  • compensatory mitigation credits,
  • pounds of nutrient pollution avoided/sedimentation avoided,
  • tonnes/yr, kg/year of individual determinands
  • environmental improvement score of the project
  • money per unit area

Most of the aspects being offset, such as biodiversity, are inherently difficult to measure and define – and as such, metrics are used to calculate the offset credits. When undertaking the biodiversity offset pilots, Defra devised their own biodiversity offsetting matrix, based on both habitat distinctiveness and condition. Each band of habitat distinctiveness (high, medium, low) and condition weighting (good, moderate, poor) have numbers associated with them. When these two factors are used together, they provide the number of biodiversity units per hectare, which can be used to calculate baseline biodiversity values of the site[4]

Additionally, other schemes may use other means of establishing what and how to offset. For example, in the South Nation Phosphorus Trading Program, the number of credits that need to be bought depends on both the amount phosphorus the polluter contributes, and the ratio of phosphorus required by the Provincial Ministry of the Environment (MOE) to be removed. The MOE requires a 4:1 offset ratio –i.e. 4kg of phosphorus has to be removed from non-point sources for every 1kg of phosphorus discharged by the polluter. Different schemes have different offset ratios. In this instance, the offset ratio was set relatively high – this reflected the novel scheme and the lack of knowledge on phosphorus transportation through the water course[5].

 

[1] Smith, S., et al. (2013). Payments for Ecosystem Services: A Best Practice Guide. Defra, London

[2] Vaissière, A-C. & Levrel, H. (2015) Biodiversity offset markets: What are they really? An empirical approach to wetland mitigation banking. Ecological Economics. 1 (10), pp.81-88

[3] Defra (2014) Defra Payments for Ecosystem Services (PES) Pilot Projects: Review of key findings of rounds 1 and 2, 2011-2013. Available from: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/368126/pes-pilot-findings-141028.pdf

[4] Defra (2012) Biodiversity offsetting Pilots: Guidance for offset providers. Available from: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/69530/pb13742-bio-guide-offset-providers.pdf

[5] O’Grady & Wilson (no date) Phosphorus trading in the South Nation River watershed, Ontario, Canada. Available from: http://www.envtn.org/uploads/ontario.PDF

KEY FINDINGS AND CONSIDERATION POINTS

Determining the nutrient offset requirement is crucial for improving the quality of the area. There are multiple examples of schemes not reaching the required offset, due to uncertainty and time discounting of conservation value[1]. As biodiversity interacts spatially, its value is dependent on other biodiversity components elsewhere[2].  As such, there can be limits to what can be offset through a nutrient trading scheme and these schemes cannot always mitigate for all issues.

In addition, it has been argued that offsets are simply a mechanism for pricing in certain negative environmental externalities into development projects, often without attempting to reduce an impact at the outset[3]. Moreover, it is difficult to monitor sources, pathways and receptors accurately enough to establish robust baselines and equivalence, and to be able to assess success meaningfully. Initial surveys and ongoing monitoring programs can be prohibitively expensive and these are not always accounted for in the project costs[4].

In areas affected by the project, all stakeholders should be included in decision-making processes. However, the process needs to efficient enough to encourage participation, but also rigorous enough to ensure appropriate consideration of biodiversity impacts. A PES scheme in the English upland areas found that working across areas with fragmented land ownership was difficult, and that an integrated local delivery framework was needed, similar to one in the Cotswolds2. Additionally, one of the failures of a PES scheme in Luton was the exclusion of the local planning authority from the development of the policy framework. This would have allowed the scheme to be fully integrated and adopted into the Local Plan2.

It is necessary to ensure that the nutrient trading policy is flexible enough to allow for schemes to be established in ecologically significant areas while still ensuring there is demand for credits.

There is no clear understanding of what is an appropriate timescale that offsets should be managed for, and by whom. Defra reports suggest that offsets should be managed ‘in perpetuity’[5], and further reports have clarified that it “means forever in this context, rather than a finite number of years”[6].  However, in other documentation, Defra imply that costs should in large be paid by the developer, and their calculations imply it should be managed for a minimum of 25 years.

The scheme needs to be economically viable. There needs to be a sufficient and varied market for the sale of credits – ideally the trade of credits needs to be amongst a number of sources.  “Private companies need to be willing to develop new biodiversity based business models. When creating a bank, proponents often lack guarantees about the timing of bank approval and demand for credits, which can make investment returns and profitability uncertain”[7].

There are often heavy dependence on government and international donors for both start-up costs and payments themselves. To set up a PES scheme requires a lot of information, and thus there are high transaction costs. Before the scheme can commence, there are high costs for negotiation, baseline assessments, system designs. When the scheme becomes operational, the costs are smaller and relatively cost effective, where there are costs for monitoring, enforcement/sanctioning and administration.

It is also vital that the right determinand is being traded – whether this is phosphorus, nitrogen or others. This reinforces the need for effective and robust monitoring pre-scheme commencement and also throughout the life of the scheme to ensure it is achieving its outcomes. In addition, the majority of pollution comes from non-point sources, which are less easily monitored, and give opportunities for free-riding where some farms might actually increase their discharges because they know others are reducing the overall load. Depending on the relative size of each polluter this may make the situation worse, though this again relies on having a robust monitoring programme in place to understand the issues and identify changes over time.

Consideration should also be given to the willingness of farmers to contribute to such schemes. Water quality trading programs have highlighted that farmers will be key actors in the trading scheme, due to their lower costs of abatement. Therefore they will need to be convinced that change could be a feasible alternative. Some have argued that farmers will be less willing to shift their livelihood, even if it is proved to be more profitable. Their argument echoes their desire to retain future integrity of the land; many farmers don’t want to compromise the future viability of their land for food production by degrading its agricultural potential through other means. Moreover, farmers at a PES scheme in Poole Harbour were unwilling to take on the risk of a long-term contract as they consider the long term impacts of their farm above and beyond the potential of any short term income.

In addition, offsetting schemes are argued to improve the welfare of the poor in the developing world through its positive impact on wage rate and land rent prices. However, start-up costs can be relatively high, increasing the difficulty of breaking into the market. Additionally, offsetting schemes, such as PES, can have a negative effect on food prices – where the poor consume inelastic locally produced food[8].

There is an opinion that money derived from such offsetting schemes or global ecosystem banking initiatives function more like a support or bonus, rather than a real incentive for land use change.

POTENTIAL BENEFITS TO MILFORD HAVE AND CLEDDAU CATCHMENTS OF A PES SCHEME

PES schemes can provide many environmental and economic benefits, through improvements in biodiversity, land and water quality. These benefits often cascade, and provide positive feedback loops, where one leads to another synergistically. For example, measures to reduce nutrient loads through fencing off grazing animals can also reduce suspended sedimentation levels.

Economic incentives arise from the significant economies of scale experienced when adopting programmes on large scale. Additionally, farmers could potentially receive higher returns with greater security through diversification of income. However, due to possible start-up costs, and changes made throughout pilot stages, profits may only be seen after several years. The long term view has to be considered above any short-term issues.

There are also benefits to those buying credits, namely private companies. When buying credits and subsequently offsetting any impacts, it immediately removes the companies long term liability for any damage caused. There is much debate to whether this effectively gives companies a ‘license to trash’, however it does increase awareness of conservation. By placing a value upon nature, it does introduce incentives for managing the environment, and for increasing conservation projects. This can strengthen conservation partnerships and promoting stakeholder engagement and public support for conservation. Pumlumon project by the Motgomeryshire Wildlife Trust had success in engaging stakeholders through presentations and site visits[9].  This has the capacity to catalyse further improvements within environmental legislation, which could further baseline ecological knowledge and scientific capacity.

KEY LESSONS FROM INITIATIVE REVIEW

Studies showed that regulation and monitoring of schemes are crucial. Enforcement would ensure maximum participation, but this is less feasible. It has also highlighted the importance of understanding the market. In Africa, several watershed payment schemes were planned to be set up, however there were many difficulties in getting these started. The main issue was the lack of buyers – there seemingly wasn’t a suitable market for credits. Additionally, institutional and regulatory frameworks were seen to block any compensation for watershed services. A total of 4 out of 10 schemes seen in 2010 are no longer in operation, with many others abandoned in the development stages[10].

There are trade-offs in policy design: tight restrictions on those who are eligible to trade may also limit the cost savings that may be realised from the trades. A regime that maximises market participation might fail fully to achieve the environmental goals of an offset or trading policy. Perverse incentives need to be eliminated from the system.

Clear, measurable objectives need to be set, so that progress can be monitored. To accompany this, adequate guidance should be given – written in language that is easy to read and apply, especially to non-scientists.

There is uncertainty in the data that can be collected, a lot of the data is hard to measure accurately, or based upon proxies. A project to develop a UK Peatland Carbon Code, found that there was a need to identify and quantify social benefits as well – as these services are less tangible[11].

The PES scheme in Luton found that the complex urban system needed a more holistic approach. Therefore there is a need for better and consistent methods to map, measure and value ecosystem services at a multiple scales. Regular monitoring schemes and programme evaluations would allow for trends in the data to be established and reflection upon progress. Prior knowledge of the system is required to be able to react appropriately and efficiently to change. Temporal changes, especially from seasonality, need to be taken into account – particularly in water quality trading programmes where levels of pollutants rise and fall.


[1] Moilanen, A., van Teeffelen, A. J. A., Ben-Haim, Y., Ferrier, S. (2008) How much compensation is enough? A framework for incorporating uncertainty and time discounting when calculating offset ratios for impacted habitat. Restoration Ecology. 17 (4) pp470-478.

[2] Dreschler, M.  & Watzold, F. (2009) Applying tradable permits to biodiversity conservation: Effects of space-dependent ecological benefits and cost heterogeneity on habitat allocation. Ecological Economics. 68 (4), pp. 1083-1092.

[3] Bull, J. W., Suttle, K. B., Gordon, A., Singh, N. J. & Milner-Gulland, E.. J. (2013) Biodiversity offsets in theory and practice. Oryx. 47, pp. 369-380.

[4] Bekessey, S. A., Wintle, B. A., Lindenmayer, D. B., McCarthy, M. A., Colyvan, M., Burgman, M. A. & Possingham, H. P. (2010) The biodiversity bank cannot be a lending bank. Conservation letters. 3, pp. 151-158

[5] Defra (2012) Biodiversity offsetting pilots: Guidance for offset providers. Available from: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/69530/pb13742-bio-guide-offset-providers.pdf

[6] Defra (2011) Biodiversity offsetting: Summary of responses to discussion material on biodiversity offsetting. Available from: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/218683/110714offsetting-discuss-response.pdf

[7] Bovarnkick, A., Knight, C. & Stephenson, J. (2010) Habitat banking in Latin America and Caribbean: A Feasibility Assessment. United Nations Development Programme.

[8] Zilberman, D., Lipper, L. & McCarthy, N. (2008) When could payments for environmental services benefit the poor? Environment and Development Economics. 13, pp255-278.

[9] Montgomerytshire Wildlife Trust (2015) Pumlumon Project. [Online] Accessed 10th March 2015. Available from: http://www.montwt.co.uk/what-we-do/living-landscapes/pumlumon-project

[10] Bennett, G., Carroll, N. & Hamilton, K. (2013) Charting New Waters: State of Watershed Payments 2012. Available from: http://www.ecosystemmarketplace.com/reports/sowp2012

[11] Reed, M. S., Bonn, A., Evans, C., Joosten, H., Bain, B., Farmer, J., Emmer, I., Couwenberg, J., Moxey, A., Artz, R., Tanneberger, F., von Unger, M., Smyth, M., Birnie, R., Inman, I., Smith, S., Quick, T., Cowap, C., Prior, S. & Lindsay, R. A. (2013) Peatland Code Research Project Final Report, Defra, London. Available from: http://randd.defra.gov.uk/Document.aspx?Document=11658_DefraPESPilotPeatCodeFinalReport2.pdf

A trading scheme should be compliance based, either through permit or planning permission as these are the most effective

Stakeholder engagement should be seen as a priority and involve as broad a spectrum of stakeholders as possible

Most schemes have a heavy dependence on government for both start-up costs and payments themselves. Early discussions need to be had with potential funders to understand the likely appetite for involvement and potential funding levels

All organisations with permitting or planning permission responsibility need to identify how the requirements of the scheme could be incorporated into the relevant processes in order to make membership of the scheme a requirement of receiving a permit or permission

The buyers and sellers need to be identified early on in the project to understand the likely size of any trading scheme. Currently buyers seem to be more problematic and need to be identified as a matter of urgency

A pilot study should be completed prior to commencement of the scheme to ensure that the assumptions about buyers and sellers are borne out and that the project aims are achievable

Detailed, accurate and extensive scientific data is required throughout the project both to ensure it is targeting the right determinand, to the right level and to demonstrate to external parties that the scheme is achieving its overall aims

The scheme needs to be flexible enough to respond to changes in the market, farming costs, level of development etc.

There may be innovative ‘end of pipe solutions’ at water treatment sites that could help with aims of the scheme more cost effectively than a true PES scheme and should not be ignored

Successful schemes tend to work at a landscape scale/sub-catchment scale or at the very least look to implement similar efforts on adjacent farms to deliver greater benefits. It may be necessary to incentivise adjacent farmers to organise and apply together

There is evidence that schemes are more successful when they have a credit insurance pool, where a percentage of the money goes into this fund to protect the scheme, and this should be considered further

The period over which farmers have to comply should be short enough to be attractive but must still deliver benefits over a longer period. For example, a farmer may sign up to a 10 year scheme but this should be designed to deliver savings equivalent to a 25 or 50 year scheme

All schemes have suffered from vulnerability to national/international economic trends. This can be avoided by ensuring the program sets rates based on the actual costs of providing nutrient load reduction credits. This may require rate setting to be done at least annually and potentially quarterly if income and expenses for the program show significant discrepancies

The review of global ecosystem banking initiatives has clearly shown that it is possible to instigate a functioning PES scheme in discreet areas such as a river catchment or catchments. The evidence suggests that there are a few key requirements (stakeholder support and engagement, robust data, adequate funding, sufficient buyers) that typically have to be in place in order to deliver the required benefits. Without all of these the schemes tend to falter or do not achieve their stated outcomes and are consequently not viewed as successful.

There appear to be many of the required elements in place within the Milford Haven and Cleddau catchments, however there are also areas where further analysis is required in order to avoid the issues commonplace with failed schemes.

For example, even at this early stage it is clear that important stakeholders, such as: Natural Resources Wales; Welsh Government; Dwr Cymru Welsh Water; Pembrokeshire County Council; and Pembrokeshire Coast National Park, all of whom have permitting or planning permission related responsibilities, need to identify how they could build the requirements of a PES scheme into their policies and processes.

Whilst there is clearly a lot of best practices that can be taken from these schemes the characteristics of the scheme area mean that no single scheme could be copied in its entirety. There are schemes, especially in the US, that have similar problems as those experienced in the Milford Haven catchment and have implemented very successful solutions however these have been applied at a much bigger scale across a much larger area and crucially with a significant number of buyers.

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