Natural markets: an idea whose time has come?

Sunset reflected in the meanders of the Cuckmere River, Cuckmere Valley, East Sussex.It’s heretical for a think tank to admit this, but our latest big idea is not really that big. It is in fact medium sized and achievable step from where we are now.  It’s an idea so obvious, that once you hear it, you’ll be surprised it’s not happening already. But it isn’t, we checked. Rather than coming up with another big idea for nature, Green Alliance, in partnership with the National Trust, has researched how to enable existing big ideas, around ecosystem services and natural capital, to translate into real changes on the ground. The result is the Natural Infrastructure Scheme (NIS), a new market mechanism which would mean farmers and other land managers could financially benefit from environmental improvements such as flood alleviation and habitat creation. We think its simplicity could lead to ‘payments for ecosystem services’ becoming a mainstream market, reversing declines in nature, and supporting new, environmentally beneficial approaches to farming in the UK.

A small idea that could change everything
A NIS is a mechanism through which existing expenditure is spent better. It diverts the money spent dealing with a depleted environment towards farmers instead, who invest in their land in ways that avoid the problems occurring in the first place.

There are plenty of ecosystem services that a NIS could deliver but, to trial the idea, we focused on water quality and flood prevention. The speed water flows through a catchment, and the quality of the water, is affected by the water holding and natural filtration capacity of land. The effective demand for these ‘services’ is evident from the cost of not having them. Every year we spend £2.4 billion tackling water pollution, water treatment, investing in flood resilience and dealing with damage caused by river flooding. Avoiding just a quarter of these costs would be worth £575 million a year, equivalent to roughly £6 million a year, to each of the one hundred catchments in England.

Using natural engineering and land management in the upper reaches of a catchment to meet this demand can be more cost effective for those downstream than paying for hard defences, end of pipe water treatment and the effects of flooding. For example, in Belford, Northumberland, traditional hard flood defences would have cost £2.5 million whereas the equivalent natural engineering solution cost only £200,000. And, Fowey River in Cornwall, South West Water’s found that every £1 spent reducing pollution at source saved £65 compared to downstream water treatment.

Turning the market on its head
Our idea makes the market work by bringing together a consortium of downstream customers, eg local authorities and water companies, who are currently paying for water treatment and flood prevention and repair, with a consortium of upstream suppliers who can offer a cheaper alternative.

Crucially, the NIS puts farmers and land managers at the forefront of designing and delivering the services needed. Currently, the market is buyer- rather than seller-led, which means water companies and the Environment Agency take on all the intellectual and co-ordination costs of developing a scheme. Because it involves a long term contract, a NIS brings new income into farming and moves ecosystem service delivery from the periphery to become a significant financial opportunity.

This is significant. The way the current ecosystem services market works doesn’t make sense. If it was the car industry, customers would have to design their own cars and find someone with the steel to make them.

Getting the market to work would have additional benefits. The attenuation ponds, river meandering, tree planting, reed beds and restored peatland in a NIS which slow down and clean water, will also sequester carbon and provide richer habitats for nature.  And, at marginal cost, farmers could enhance a scheme by adding more carbon sequestration, habitat improvement or recreational amenities for other interested customers investing in a NIS Plus.

If it’s so obvious why isn’t it already happening?
As Tim O’Reilly, the internet entrepreneur, said “An invention has to make sense in the world it finishes in, not in the world it started”In the case of flood prevention and water treatment, the NIS is an idea that makes sense once we have the techniques to design and specify natural engineering with the same level of confidence as hard engineering. Our work anticipates the point at which natural engineering techniques are proven and tackles the other practical challenges in getting the market to work.

We need to start now because the practical challenges are significant. First, land managers have to be convinced of the potential to increase their returns by investing time and energy in this new market and organise themselves to access it. Second, downstream organisations need to expand the scope of their collaborations, to move from flood co-ordination and management to joint purchase of solutions. And third, there are multiple legal and regulatory barriers to being able to buy and sell ecosystem services in this way.

Brexit has shone a light on the subsidies currently received by land owners under the Common Agricultural Policy (CAP) and started the discussion about its UK replacement. The £3.1 billion spent on CAP in the UK currently encourages land managers to keep the maximum amount of land available for agricultural use and props up uneconomic farming, dulling responsiveness to other potential markets. From 2020 the UK will have its own agricultural subsidy regime. This is the opportunity to encourage new markets for ecosystem services. There are lots of good reasons to support agriculture in the UK but farmers should also be allowed and encouraged to deliver other services that benefit both society and the environment too.

Image: National Trust

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