About Ecological Assets

The moment we are born into this world, whether we reside in a rural area, an urban sprawl, or a country setting; whether we live in Kansas, Tokyo or New Delhi; we depend on the most basic, bountiful natural resources, also known as ecosystem services, to survive.

The natural services afforded to us by our planet — the air we breathe, the water we drink, the rich landscapes and plentiful plant and animal life we are meant to enjoy — have always been abundant and free, and have generally been thought of as unlimited resources that will constantly support life. Yet humanity as a whole has often neglected to care for and value these vital processes of nature.

Now there is a way to preserve, enhance, restore and create (PERC) natural capital, and to be rewarded outright for such investments.

How Eco-Assets Work

In an attempt to improve the health of our planet, government agencies in countries the world over have been developing and implementing incentive-based programs specially created to reward private landowners, corporations and other organizations for voluntarily restoring ecosystem services to their productive natural state.

These rewards generally occur as either:

1) government subsidies, direct payments or tax incentives (non-market rewards),

or

2) transferable eco-asset 'paper' (market based credits, allocations, certificates, etc.) that can be banked, traded or sold; in other words, that are fungible in the same way as some familiar forms of commercial paper (such as bonds).


Eco-asset paper is usually based on de minimus pollution standards protective of health and welfare, but representing certified improvements to natural environmental quality above-and-beyond the minimum standard.

Eco-credits can be used to offset future pollution impacts created. An example of this could be licensed facility operations or other industrial/commercial activities where compliance with established environmental standards is too costly or overly difficult. See the EAG market clinic for additional explanation of eco-asset mechanics.

Why doesn't the issuance and exchange of eco-credits represent an overall net loss of environmental quality? Because government agencies generally require greater than one-for-one compensation before credits can be certified.

For example, if U.S. wetlands are impacted during construction or operation of an industrial or commercial facility, agencies may require compensation ratios of 3:1, or even 20:1 (depending on the ecological significance of the impacted wetland) before regulatory compliance is assured. A new facility required to compensate for the loss of 10 acres of wetland will, on a 3:1 compensation basis, restore 30 acres of wetlands to satisfy regulatory requirements. But if they restore, say, 39 acres of wetland instead, they may not only satisfy the basic regulatory requirement, but also earn 3 wetland credits (represented by the additional 9 acres restored). These 3 credits may be banked for future use (to accommodate facility expansion), or may be sold to other nearby facilities that may have to compensate for wetland impacts of their own.

What's the open-market value of a wetland credit in the example above? It's price will typically be set at least at the 'avoided cost level'; that is, at a level reflecting the costs someone else might incur if they were to invest in wetlands banking on their own, from the ground up (pardon the pun).

By requiring greater-than-one compensation ratios, agencies can achieve several goals:

1. they can accommodate proposed new developments (serving private interests), while 2. protecting, or even enhancing, environmental quality (serving the public interest), and while also 3. offering cost-optimum compliance choices that stimulate regional or even global markets.

For the agencies, the tricky thing is learning to set compensation ratios at a level that represents a net gain in environmental quality, without discouraging new development. A too-high compensation ratio will simply drive growth & development somewhere else. Meaning that jobs, new infrastructure and related currency flows may be lost to local communities as a result.

Yet more and more frequently, once predetermined certification guidelines have been met, agencies are indeed awarding mitigation credits. When these credits are bought, traded or sold, become bookable commodities — ecological assets, sometimes simply called eco-assets.

Though eco-assets are most often realized in the form of mitigation credits, they may also come in the form of pollution offsets, capacity allocations, environmental certificates, or other measurable units established by the agencies. As in the above example, these can become fungible commodities that may be banked, traded or sold in the environmental marketplace.

Once earned eco-assets have the same power as some familiar forms of commercial paper (such as bonds). They can represent significant new worth in terms of increased land values, reduced compliance costs, and expanded business opportunities.

To continue learning about eco-asset value, click here.

To learn about eco-system services, the foundation of ecological asset value, click here.