Ecosystem Services

SFR Researchers Developing Auction Mechanism

 

Healthy forest ecosystems provide many benefits in addition to conventional forest products that enhance our environment and quality of life.  These benefits are often referred to as ecosystem services.  They include clean water and air, fish and wildlife habitat, scenic beauty, recreational opportunities, carbon sequestration, and plant pollination.  Many of these goods and services are traditionally viewed as free benefits to society, or "public goods.” Lacking a formal market, these natural assets traditionally do not appear on society’s balance sheet and, as a result, they are under-provided .  They are increasingly susceptible to development and other land use options.  Recognizing them as natural assets with economic and social value will give forest landowners additional revenue options and might allow them to sustain critical services for future generations.
 
The task of selling ecosystem services can be difficult and controversial.  Measuring how important ecosystem services are to people and what they are “worth” in terms of dollars is not always straightforward.  Most ecosystem services are public goods such as an aesthetic view of a forest or a recreational opportunity in a national park.  Although many of these services are held in high regard by the public, most people don’t have an incentive to pay for them, and collective action is required to sustain the integrity of the system that can produce these benefits.  Ecosystem services can also be affected by the side effects of human actions. As an example, flooding caused by clearcutting on a steep slope generally does not result in compensation for property or crop damages. In addition, property rights related to public forests and their services are not always clearly defined, often leading to unregulated overuse.  Since most ecosystem services are not traded in conventional markets, people are unfamiliar with the concept of purchasing such goods and services, and thus their willingness to pay is often not clearly understood. 

SFR researchers propose a new market mechanism, called ECOSEL, that natural resource managers could use to sell ecosystem services. Some of the questions that could be answered with the new tool include:  How much purchasing power are people willing to give up for ecosystem services such as forest habitat preservation or the minimization of fire risk?  What are the relative weights people place on a variety of competing forest services such as clean water, wildlife habitat, or recreation? 

Forest landowners often want to keep their land as forest but face strong economic pressures to convert to other uses such as real estate development. ECOSEL is an online bidding platform that allows the public to influence land management decisions on private or public land via real dollar contributions The concept was initially developed by Assistant Professor Sándor Tóth, who directs the ECOSEL project.  The model was further streamlined with the assistance of team members Associate Professor Gregory Ettl, Assistant Professor Sergey Rabotyagov, Research Scientist Luke Rogers, and graduate students Nóra Könnyű, Svetlana Kushch, and Gabrielle Roesch.

ECOSEL facilitates monetary transactions between willing sellers and buyers of forest ecosystem services via a carefully designed auction platform. Upon selecting a piece of forestland with a view on selling ecosystem services, ECOSEL can generate quantitative information about the tradeoffs and production possibilities of the resource. It finds the most efficient combinations of ecosystem services that can be delivered at the least possible cost to the landowner. The competing management plans that would produce these combinations of services are then used in an auction where people can bid on them to reveal their preferences. Whichever plan attracts the highest dollar amount in bids over the associated costs will be implemented by the landowner. The original model was written for SFR’s C.L. Pack Experimental Forest, where Ettl serves as Director. The goal is to run a real ECOSEL auction to demonstrate and monetize the values of ecosystem services that are provided by Pack Forest. 

In preparation for the real auction, environmental economist Rabotyagov designed and implemented a series of experiments that gathered empirical evidence suggesting that the method could increase efficient provision of ecosystem services to the public while generating revenue for the landowner. These results also helped the team acquire a major USDA grant in 2009 to complete the development phases of ECOSEL in an attempt to run a real auction at Pack Forest in 2011.  The team is currently building a web-based platform for ECOSEL, and is fine-tuning the design variables of the mechanism. Concurrently, two attorneys from the K&L Gates law firm are developing the legal framework for ECOSEL. After the Pack Forest auction is executed, the team will study the participants’ bidding behavior along with the winning scenario to better understand people’s monetary preferences with respect to ecosystem services.

Graduate student involvement in this research includes Könnyű’s work on developing more efficient algorithms to generate efficient management plans for the auctions; Kushch’s work on finding ways to capture the key intricacies of ecosystem services within the framework of an optimization model; and Roesch’s stated preference surveys. Says Tóth, "We hope to at least partially validate or contradict the results of these surveys by looking at the actual outcomes of the auction—the revealed preferences of the public."

C.L. Pack Experimental Forest, site of a planned 2012 ECOSEL auction. Photo: Pack Forest Image Archives.

 

 

ECOSEL figure showing tradeoffs associated with producing various combinations of old-forest habitat and carbon sequestration. Each bundle is associated with a spatially-explicit management plan.