Environmental markets use voluntary approaches to meet regulatory requirements and to target cost-effective, flexible, and efficient means to achieve environmental results. Although these markets create opportunities, they also involve some risk for regulated buyers, project developers (sellers), landowners, and the public. This paper reviews five types of risk these actors face—technical risk, extreme events, behavioral uncertainty, regulatory uncertainty, and market uncertainty—in four markets that commonly engage agricultural and forest landowners in the United States—wetland and stream mitigation banking, conservation banking, greenhouse gas offsets, and water quality trading. These markets involve transactions that range from annual to permanent transfers of environmental benefits. Thus they entail different risks and liabilities. Given robust risk management strategies and significant similarity across programs there are but a few risk management mechanisms that have yet to be tried in all markets and that present opportunities for improvement. These mechanisms include clarifying rules about how water quality and carbon offsets projects can sell into multiple markets, thereby enhancing flexibility and reducing risk for buyers and sellers. None of the markets currently use but all could consider purchase guarantees to encourage supply generation. Another opportunity may be vertical integration of regulatory programs, in which buyers become project developers to control risk. Finally, water quality trading markets could use credit banks to connect buyers and sellers. These banks might work best if they serve a clearinghouse function, providing market coordination and information.

Progress on water reform in the western United States has been slow. Little discussed are opportunities to increase the value of water rights and to improve the ways that they are defined. This policy note in Water Economics and Policy reflects on Unbundling Water Rights: A Blueprint for Development of Robust Water Allocation Systems in the Western United States, a Nicholas Institute report that builds on lessons from Australia’s search for a water rights and management framework that would increase the contribution that water makes to the economy, the environment, and communities.

Coastal wetlands conservation and restoration efforts aim to preserve biodiversity and generate benefits to local communities. A diverse portfolio of financing sources has been used for these efforts, including philanthropy, multi- and bilateral aid, in-country governmental funding, tourism-related and other usage fees, and fees and levies associated with wetlands-centric extractive industries. More recently, recognition of coastal wetlands as carbon sinks has opened the door for wetland managers to explore funding sources directed toward climate change mitigation. But finding appropriate funding sources to set up a coastal wetland carbon project or to develop a national carbon program (which includes or is solely focused on coastal wetlands) is often a challenge. Additionally, carbon finance alone often cannot support the necessary management activities. This report updates Keep It Fresh or Salty: An Introductory Guide to Financing Wetland Carbon Projects and Programs (2014). It uses revised guidance for program and project developers (governments, NGOs, local communities) and extends analysis to other finance avenues that can link and complement carbon activities with non-carbon-based financing sources such as debt-for-nature swaps. Rather than recommending one mechanism over any other, it encourages users to think holistically about the range of benefits provided by coastal wetlands conservation for climate mitigation and adaptation in order to optimize the full range of financial mechanisms.

This paper reviews annual government spending on Canadian agriculture that attempts to stabilize and enhance farm incomes. Since 2010, two-thirds of the $3 billion spent on agriculture went into stabilization programs to support farm incomes. This level of support raises questions about the environmental consequences of enhanced agricultural production. Canadian government expenditures on environmental initiatives in agriculture, as a share of farm income, are more than 10 times smaller than those in the United States and the European Union. Canadian stabilization programs have modest impacts on production, but chemical and fertilizer input use may be higher than in the programs' absence. One possible course of action is to introduce cross-compliance between program payments and environmental objectives. However, there are no requirements that Canadian producers receiving support comply with environmental standards. Although cross-compliance could be considered in the Canadian context, policies that directly target specific environmental issues in agriculture may have greater impact.

In 2008, British Columbia implemented the first comprehensive and substantial carbon tax in North America. By 2012, the tax had reached a level of C$30/t CO₂, and it covered about three-quarters of all greenhouse gas emissions in the province. This article reviews existing evidence on the effect of the tax on greenhouse emissions, the economy, and the distribution of income, and it provides new evidence on public perceptions of the tax. Empirical and simulation models suggest that the tax has reduced emissions in the province by between 5 percent and 15 percent since being implemented. At the same time, models show that the tax has had negligible effects on the aggregate economy, despite some evidence that certain emissions-intensive sectors face challenges. Studies differ on the effects of the policy on the distribution of income; however, all studies agree that the effects are relatively small in this dimension. Finally, polling data show that the tax was initially opposed by the majority of the public but that three years post-implementation, the public generally supported the carbon tax.

The substitution of biogas, an energy source derived from biological feedstock, for fossil natural gas (NG) can mitigate the build-up of greenhouse gases in the atmosphere, making it an attractive renewable energy source in a carbon-constrained future. Although upgraded, pipeline-quality biogas can augment the NG market supply in the United States, researchers and energy industry experts have little studied its long-term potential. This article estimates (1) levelized costs of energy for biogas production facilities operating with landfill waste, animal manure, wastewater sludge, and biomass residue feedstocks; (2) feedstock and technology pathway-specific biogas supply functions; and (3) the aggregate national biogas supply potential for the United States by 2040. Under a range of specified assumptions, generation of biogas could be expanded to approximately 3–5 percent of the total domestic NG market at projected prices of $5–6/MMBtu; the largest potential source comes from thermal gasification of agriculture and forest residues and biomass. As market signals have not spurred widespread adoption of biogas in the United States, policy incentives similar to those used in the European Union may be necessary to increase its production and use. Bioenergy policy in the European Union and the resulting market penetration achieved there provides important lessons for how biogas markets in the United States can overcome barriers to market expansion and, in doing so, provide substantial climate mitigation benefits.

This report lays out a blueprint for transitioning to robust water rights, allocation, and management systems in the western United States—a blueprint ready for pilot testing in Nevada’s Diamond Valley and Humboldt Basin. If implemented, the blueprint’s reforms would convert prior appropriation water rights into systems that keep water withdrawals within sustainable limits, allow rapid adjustment to changing water supply conditions, generate diverse income streams, and improve environmental outcomes. The blueprint’s essential element is unbundling of existing water rights. In law and economics, property rights are often described as a bundle of sticks. When applied to a water right, unbundling involves separating an existing right into its specific, component parts. In an unbundled system, each part is defined and can be managed and traded separately. During the unbundling process, as proposed here, the value of each component is enhanced, and the taking of property rights is avoided. Unbundling brings clarity to water rights and reveals the true value of the water, because willing buyers and sellers are able to trade with one another with dramatically reduced transaction costs. “Liquid markets” emerge. Shares, a primary product of the unbundling, can be used to finance innovation, and opportunities for improving environmental outcomes are increased through the transparent value of water rights shares and allocations. If water managers in Nevada find that an unbundled water rights system is more desirable than the current system, they can use this report’s proposed reforms and schedules to facilitate the transition to it. Although the state engineer and governor’s office may have sufficient perquisites to proceed without the support of new legislation, implementation would be easier if underpinned by legislation.

Mangroves provide multiple ecosystem services such as blue carbon sequestration, storm protection, and unique habitat for species. Despite these services, mangroves are being lost at rapid rates around the world. Using the best available biophysical and socio-economic data, the authors present the first rigorous large-scale evaluation of the effectiveness of protected areas at conserving mangroves and reducing blue carbon emissions in the journal Ecological Economics. The analysis examines the success of protected areas in Indonesia between 2000 and 2010, finding that their use has avoided the loss of 14,000 hectares of mangrove habitat and approximately 13 million metric tons (carbon dioxide equivelent) of blue carbon emissions.

The Regional Greenhouse Gas Initiative (RGGI) is a consortium of northeastern U.S. states that limit carbon dioxide emissions from electricity generation through a regional emissions trading program. Since RGGI started in 2009, regional emissions have sharply dropped. This analysis uses econometric models to quantify the emissions reductions due to RGGI and those due to other factors such as the recession, complementary environmental programs, and lowered natural gas prices. It shows that without RGGI, emissions would have been 24 percent higher. The program accounts for about half of the region’s post-2009 emissions reductions, which are far greater than those achieved in the rest of the United States.

This report, produced as part of a U.S. Department of State-funded project by Winrock International, serves as a practical guide for those seeking finance to implement specific actions to reduce emissions from land use. It is intended to assist national policy makers and other decision makers in accessing and leveraging financial mechanisms to support activities that reduce forest greenhouse gas emissions and increase forest carbon stocks. It features an in-depth exploration of efforts to raise finance for low-emission, sustainable land use activities in Mexico and Ethiopia—two countries with ambitious REDD+ and LED goals but with widely differing natural environments, macroeconomic conditions, and institutional experience. These conditions allow Mexico and Ethiopia to offer important lessons to other countries seeking to develop low-emission and sustainable land use strategies.