Financing mechanisms that advance ecosystem service markets and promote rural sustainability

Ecosystem services markets represent potential revenue streams for small- and medium-scale rural agricultural and forest producers, many of whom have faced significant economic downturns over the past several decades. Demand for ecosystem services (ES) in the form of investments by public agencies, mitigation funds from regulated entities, and voluntary payments from corporations and individuals will require credits predominantly supplied by rural areas. Participation on the supply side entails high transaction costs and financial risks that may, however, discourage many rural landowners from participating in projects that would generate supply credits. The project purpose was to explore rural landowner financing needs for ES projects in the growing marketplace.\ud The Institute for Natural Resources (INR) explored those issues in two phases. Phase I entailed preliminary identification of the range of financial approaches for payments for ecosystem services (PES) projects. That was followed by a December 1, 2009, workshop which brought together financial industry professionals along with non-governmental and government leaders active in developing ecosystem services markets to discuss the challenges and opportunities for financing ES projects.\ud Workshop findings from Phase I, entailing participation by financial experts, helped inform the investigation for Phase II involving rural landowners. Phase II combined multiple approaches including focus groups, case studies and a pilot project evaluation