Tradable resource use permits and quotas are market-based economic instruments that extend private property rights to shared resources by providing resource users with private access to a specified quantity of a given natural resource and the ability to exchange these rights through market transactions. Tradable permits are effective for managing resources historically under open access like air pollution, fisheries, and water rights. Tradable permits that can be bought and sold are similar to financial assets that can appreciate or depreciate with the health and future prospects of that resource. Therefore, tradable permits and quotas have the potential to benefit the environment by encouraging sustainable use of natural resources to help maintain the value of those permits or quotas to the benefit of whoever owns them. Furthermore, some conservation organizations and impact investors have made the purchase and sale of tradable quotas a central component of investment strategies in sustainable fishing. As an example, Encourage Capital bought quotas from a fishery in Chile without the intention of fulfilling them (i.e. catching fish) in order to reduce pressure on the fish stock and support its recovery. Ideally, those quotas could then be resold, potentially at a profit, assuming the stock has recovered and the quotas have increased in value.
Nutrient Trading
Measurable conservation outcome resulting from a trading system (or market) where nutrient reduction credits are established and traded. These credits can have a monetary value that may be paid to the seller for utilising management practices that reduce nitrogen, phosphorous, or sediment. In general, water quality trading utilizes a market-based approach that allows one source of water pollution to maintain its regulatory obligations by using pollution reductions created by another source. Trades can take place between point sources (e.g. wastewater treatment plants), between point and nonpoint sources (e.g. a wastewater treatment plant and a farming operation) or between nonpoint sources (such as agriculture and urban stormwater sites or systems). Systems can be voluntary or compliance.
Pennsylvania is working to address water quality issues across the Commonwealth and as part of the Chesapeake Bay Watershed. The Nutrient Trading Program is one part of the Bay restoration strategy being implemented. The primary purpose of the program is to provide a more cost-efficient way for National Pollutant Discharge Elimination System (NPDES) permittees in the Chesapeake Bay Watershed to meet their effluent cap load limits for nutrients. To learn more about The Pennsylvania Nutrient Trading program, visit here.
Carbon Markets
Carbon markets aim to reduce greenhouse gas (GHG) emissions cost-effectively by setting limits on emissions and enabling trading of emission units (instruments representing emission reductions). Trading enables entities that can reduce emissions at low cost to be paid to do so by high-cost emitters, thus lowering the economic cost of reducing emissions. Carbon markets can include emission allocation credits as well as emission reduction credits such as carbon offset credits. In various carbon markets, forest or agricultural based offset credits may be used to offset industrial emission
The EU Emissions Trading System (EU ETS) is one of the largest carbon trading systems in the world. This ‘cap and trade’ market was set up in 2005 and as a result of this system, projections for emissions from sectors covered by the system will be 21% lower in 2020 than in 2005. Read more about the EU ETS here.
Climate Credit Mechanisms
Climate crediting mechanisms, like other carbon market mechanisms, enable entities, for which the cost of reducing emissions is high, to pay low-cost emitters for carbon credits that they can use towards meeting their emission-reduction obligations, or for voluntary or trading purposes. These mechanisms-e.g. the Clean Development Mechanism (CDM)-put a price on carbon, helping to internalize the environmental and social costs of carbon pollution, and permit trading, which lowers the economic cost of reducing emissions.
Mikoko Pamoja, the first community-run project of its kind in the world promotes the restoration and protection of mangrove forests for local community benefit. It is validated by Plan Vivo to generate and sell mangrove carbon credits to companies and individuals, who would like to improve their green credentials. The revenue generated from the trading of carbon credits flows into a community benefit fund, which is managed by the community led Mikoko Pamoja steering group. The fund supports local development projects in education, water and sanitation, and mangrove reforestation. Read more about this program here.
Fisheries Quotas (catch limits)
To reduce total catch of a wild fishery to a biologically and economically sustainable level, authorities can introduce quotas for catches. Ideally, the cap should be set at a level that allows optimal economic yields along with conservation considerations. Quotas are specified in tons or numbers and are broken down by species and often fishing method. Some quota systems allow quotas be sold, auctioned or distributed at no cost and then quotas could also be allowed to float in a market (tradable quotas). The revenues generated from the sale of quotas can be earmarked to support sustainable fishery or marine conservation.
Ontario, Canada provides a large amount of detail on the fishing limits, size restrictions and catch and release rules within the state. Read them here.
Water Quality Markets
A range of market mechanisms based on the "cap and trade" system that are designed to reduce the cost of water quality improvement and management. These markets provide for economically flexible measures to reduce water pollution generated by point (i.e., industrial) and non-point (i.e., agricultural) sources. Impacts of reduced water quality on biodiversity typically include excess nutrients such as nitrogen and phosphorous, water temperature (for sensitive fish habitat), and sediment loads.
To view and understand some of the Water Quality Trading activities in the United States and China, read about programs run by the World Resources Institute here.
Water Markets
Water markets create the possibility of buying and selling water access and use water resources. Trading of water rights can promote a more efficient allocation of water rights among users and increase water availability in areas of increasing water scarcity and demand For example, water markets have been used to enhance available habitat for endangered salmon species in northwestern North America.
Read about California’s Water Market here.