The Use of Markets To Increase Private Investment in Environmental Stewardship

USDA, 2009

Content

• Examination of how different markets work in the US that could promote environmental protection.
• 1) water quality markets (farmers who exceed a certain benchmark of acceptable farming practice may sell reductions e.g. in nitrogen leakage to industrial water polluters), 2) greenhouse gas emission markets, 3) wetland mitigation markets (where any loss of wetland services in one place must be compensated through the purchase of new wetland services elsewhere) and 4) fee hunting.

Findings

• 'Markets are not always the answer' because 1) involved parties face many uncertainties and high transaction costs and 2) supply and demand may fail to match (e.g. agricultural and industrial water pollution differ, so that industry has little demand for nitrogen reduction credits from agriculture).
• If markets are to develop, this often takes time and governmental support.

Comment

• If markets fail, we may still use market mechanisms for governmental action (e.g. auctioning of environmental stewardship contracts) or opt for public-private-partnerships (e.g. supporting contracts between water utilities and farmers that limit the use of fertilizer).