Economic Models Adapting To Evolving Challenges

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Aerial view of flooded rice fields participating in California’s BirdReturns program. White areas are dense gatherings of birds. Photo © Drew Kelly for The Nature Conservancy

The Moneyball approach to thinking about how to make the next big breakthroughs in conservation–not surprising that we are hearing this from The Nature Conservancy’s best and brightest:

Economics: The Next Frontier in Conservation Science

BY ERIC HALLSTEIN, SARAH HEARD

Engaging in markets is not new for The Nature Conservancy. But with our roots as a land trust, we thought about markets in a very specific way. We bought property to protect biodiversity using donor and public funding. We were in the market for “externalities.”

Externalities are by-products of economic activity that impact other parties without being reflected in the cost of the goods or services involved. In the case of traditional property purchases and sales, the ecological, scientific, recreational and other benefits of biodiversity are rarely fully priced into the market value of the properties even when public and private funders may have a very high willingness to pay for them. For example, a property that provides valuable habitat for endangered coho salmon is not usually offered at a premium.

Property rights have long been the Conservancy’s primary transaction unit. As a consequence, the Conservancy’s ‘priorities’ could often be very precisely defined: a discrete property of interest. And over decades the Conservancy’s planning systems, decision-making and analytical tools became highly tailored to this model. The measure of our success often could be boiled down to “bucks and acres.”

Why Economics?

We are in a very different world now than the one the conservation movement was born into. To drive the systemic changes we need for large-scale and lasting conservation, we need to be in the business of creating and intervening in markets in a much more profound way.

Why? We live in a world that is being rapidly transformed by the needs and activities of 7 billion people. 75% of the land on our planet is now used in some way to produce the food, fiber, and energy that these people need to survive. Figuring out ways for the diversity of life to co-exist and even thrive in this crowded planet is one of the great human and environmental challenges of this century.

Despite decades of land protection work by the Conservancy in California, for example, we have permanently protected only about 1.5 percent of the state’s habitat. While that 1.5 percent is precious and merits long-term protection, to a great degree the fate of biodiversity hinges on what happens outside of formal protected areas.

The question we face as conservationists is how to improve places for nature where agriculture, ranching, forestry, energy extraction and other commercial interests impact vast portions of the state’s critical ecosystem.

A key way to do that is by deploying market-based approaches and piloting new pathways for using private capital to ensure the needs of nature get met.

The power of economics for the Conservancy is that it allows us to quantify the benefits nature provides people and make clear the interdependence of people and nature. And economics and technology allow us to develop incentives and structures that support large-scale change. For example, fishermen taking better care of the ocean is not altruism – it is good business, made possible by new economic incentives and rapid data-sharing tools.

And we are finding good business can be good for nature too.

Harnessing Market Forces for Conservation

We have seen powerful demonstrations of how applied economics can help align conservation goals with individual and industry goals. There is big opportunity if we invest appropriately and are willing to experiment. Here are examples of four ways the Conservancy has used economics to inform how we harness market forces for conservation in California.

1. Improve Market Efficiency

We can use economic tools and approaches to value assets and price environmental goods and services that aren’t yet transacting at large volumes in the market and hence don’t have well-established pricing, such as how we apply reverse auctions in the California program’s BirdReturns project. BirdReturns pays rice farmers to create temporary wetlands for the millions of waterbirds and shorebirds migrating each year through California’s Central Valley where roughly 95% of the wetland habitat has been lost due to conversion to farmland and other uses.

Through BirdReturns, we rent habitat rather than buy it. Renting is typically less than 1 percent of the cost of purchasing land in this area, and it offers the added benefit of allowing us to dynamically adapt to seasonal changes in migratory patterns, weather conditions, and commodity markets.

Importantly, this is a landscape where buying the land for this purpose is really not an option. To protect the Pacific Flyway, scientists estimate the habitat need in the Central Valley at roughly 1 million acres. Given the price for land in this, one of the world’s most productive agricultural areas, as well as the likely resistance that land purchases on this magnitude would face, renting has proven to be a quite attractive conservation strategy.

BirdReturns uses a reverse auction to determine the market-clearing price to pay rice farmers to change their flooding practices on their rice fields in order to create “pop-up” wetlands. In the auction, farmers bid on how much s/he would need to be paid to maintain particular levels of flooding on fields during specific weeks of the fall or spring, and the Conservancy selects and pays the winning farmers based on the price and the suitability of the created habitat for migrating birds.

BirdReturns is a landmark project for the way that the Conservancy can intervene to make a market more efficient using a market-based mechanism, in this case a reverse auction. And through this program, tens of thousands of acres of migratory habitat are embedded into the economics of private agriculture, effectively internalizing an externality…

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