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IDR Team Summary 8
Design a system for international trade that
accounts for impacts on ecosystem services.
CHALLENGE SUMMARY
The goods moved from country to country in global trade are associated
with changes in ecosystem services in both the selling and buying nations.
For example, the United States exports a very large fraction of the soybeans
and corn grain that it produces to other countries. The funds derived from
this exchange helps the farmers and the national economy. However, there
are disservices left behind that are uncompensated. A certain fraction of
the fertilizers that went to produce the corn and soybeans end up in the
Mississippi River and are related to the dead zone in the Gulf of Mexico.
The country that buys the corn and soybeans can reduce the land they use
for food, the water that is needed to produce it as well as the fertilizers and
pesticides used that end up reducing the value of ecosystem services that
could have been provided. A number of other cases of “virtual” or “em-
bodied” ecosystem services have been analyzed. Nations with limited water
supplies can purchase water-intensive commodities such as rice or cotton,
and thereby shift the impact on freshwater ecosystem services to the seller.
Studies of the carbon costs of crops generally show that mechanisms that
shift food production from temperate to tropical farms decrease carbon
storage. Countries that establish policies to protect forests do not save for-
est ecosystem services globally, because the supply of forest products merely
shifts deforestation to other nations. In many cases, markets for ecosystem
services are blind to the side effects of virtual or embodied ecosystem services.
The literature on trade in virtual or embodied ecosystem services is
growing, and could be extended to a wider range of types of ecosystem
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86 ECOSYSTEM SERVICES
services. However, there has not been comparable progress on policies and
regulations to address the hidden costs of environmental damage associ-
ated with trade in ecosystem services. How can this complex, emerging
and serious problem be addressed by policy makers and trade regulation
organizations?
Key Questions
• How can we transparently monitor the full effects on ecosystem
services of international trade?
• What policy instruments are available for accounting for virtual or
embodied ecosystem services in international trade?
• What should be the goal of an international policy for managing
virtual or embodied ecosystem services?
• How could a policy for virtual or embodied ecosystem services be
integrated with existing structures that regulate international trade?
• If policies were established to address virtual or embodied eco-
system services in global trade, how could the effectiveness of those policies
be assessed? How should such assessments feed back into the evolution of
policies for global trade?
Reading
Burke M, Oleson L, McCullough E, and Gaskell J. A global model tracking water, nitrogen,
and land inputs and virtual transfers from industrialized meat production and trade.
Environmental Modeling and Assessment 2008;14:179-193.
Galloway JN, Burke M, Bradford GE, Naylor R, Falcon W, Mooney HA, McCullough E,
Oleson KLL, McCullough E, and Steinfeld H. International trade in meat: the tip of
the pork chop. AMBIO 2007;36:622-629.
Hoekstra AY and Hung PQ. Globalisation of water resources: international virtual water flows
in relation to crop trade. Global Environmental Change 15 2005;15:45-56.
MacDonald GK, Bennett EM, Potter PA, and Ramankutty N. Agronomic phosphorus
imbalances across the world’s croplands. Proc Natl Acad Sci 2011;108:3086-3091.
Meyfroidt P, Rudel TK, and Lambin EF. Forest transitions, trade, and the global displacement
of land use. Proc Natl Acad Sci 2010;107:20917-20922.
Peters GP and Hertwich EG. CO2 embodied in international trade with implications for
global climate policy. Environ Sci Technol 2008;42:1401-1407.
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87
IDR TEAM SUMMARY 8
IDR TEAM MEMBERS
• Kimberly M. Carlson, Yale University
• David C. Cook, Department of Agriculture and Food, Western
Australia
• Jessica A. Dempsey, University of British Columbia
• Justin Kitzes, University of California, Berkeley
• Claire Kremen, University of California, Berkeley
• Fernando A. Milano, Facultad de Ciencias Veterinarias, Universidad
Nacional del Centro (National Univ.)
• Beth Marie Mole, University of California, Santa Cruz
• Nathalie F. Walker, National Wildlife Federation
IDR TEAM SUMMARY
Beth Marie Mole, NAFKI Science Writing Scholar
University of California at Santa Cruz
IDR Team 8 was asked to design a system for international trade that
accounts for the economic impacts on ecosystem services. To address this
challenge and identify areas for future work, they used palm oil production
as a practical framework because it is particularly damaging to ecosystems
rich in biodiversity and often spans multiple countries. Palm oil represents
one of the few global commodities responsible for a large share of negative
effects on ecosystems, thus a useful example for new policy.
The palm oil in a store-bought birthday cake in the United States, for
example, is often farmed in a foreign, relatively poor, country on a large-
scale palm plantation where a rainforest previously stood. Raw pulp is
harvested from the palm tree fruit and shipped off to a second, often moder-
ately wealthy, country where it is refined and processed in a smoke-spewing
factory. On the last leg of its journey, the finished product is sent to the
United States where it is added to cake mix and sold. The same international
trade transactions also occur for palm oil that ends up in other foods, such
as granola bars, ice cream, frozen pizzas, and candy, as well as other products
such as in beauty products, biofuel.
Each time palm oil changes hands, the hidden costs of production are
being traded as well. That palm plantation in the first country is replac-
ing a biodiverse, functional ecosystem that once had pollinators, native
plants and animals, carbon storage, and nutrient cycles. Now, in its place
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88 ECOSYSTEM SERVICES
is a plantation with fertilizers, pesticides, topsoil run-off, and no place for
a backwoods hike. When the second country receives the raw palm oil, it
is importing a product while, perhaps unthinkingly, exporting the loss of
ecosystem services. But the second country, which processes the oil, has
also cleared an ecosystem to make way for a factory that puts out industrial
waste. By the time the palm oil gets to the United States, the process has
damaged a series of ecosystem services that are not factored into the transac -
tion costs or the price of the birthday cake purchased at the supermarket.
Accounting for the Ecosystem Services that Count
In order to account for those lost ecosystem services, the team first
grappled with the definition of ‘services’. Generally, ecosystem services span
the range of benefits that ecosystems can and do provide society. These in-
clude, but are not limited to, services such as cleaning water, easing floods,
cycling nutrients, providing places for recreation and homes for pollinators
that ensure that crops bear fruit.
Scientists have so far tried to account for the negative effects on eco-
system services by focusing on individual resources—proxies for overall
ecosystem services. These include the amount of clean water, carbon
sequestration, and nutrients such as phosphorus and nitrogen that are
cycled or accumulated. But these resources are difficult to value since they’re
dependent upon each other. For instance, without nutrient cycling, there
might not be successful vegetation that can store carbon. Thus, accounting
for multiple services may involve counting proxies multiple times.
While considering the possibility of redundancy in placing a dollar
value on ecosystem service proxies, the team also acknowledged the need to
consider trade-offs. Disrupting some ecosystem services may be worthwhile
in order to produce crops or meat, provide jobs for local communities, and
establish an industry that will bolster the overall local economy.
These issues, which account for the importance of ecosystems on local
and global scales, are new questions that will need to be addressed on a case-
by-case basis. A policy of ecosystem service valuation will greatly increase
the nature of policy regarding international trade of ecosystem services.
So, what are those possible policies?
With the uncertainty of how trade-offs could be assessed, the team
interpreted “policy” loosely to include policies by governments, campaigns
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IDR TEAM SUMMARY 8
by nonprofits and other organizations, and mechanisms instituted in the
private sector that would help account for or mitigate ecosystem service
losses. In addition, with the compounding factors of different priorities
from different governments, ecosystems, and social impacts, policies would
likely not be a one-size-fits-all matter where win-win situations are always
possible.
There is already a variety of mechanisms available that could start
accounting for ecosystem services tied to traded goods. These include
• Taxes and subsidies: The government of a country importing palm
oil could tax that transaction if the oil was coming from a country/company
that isn’t sustainably producing the oil. Likewise, the same government
could provide subsidies for imports that are coming from responsibly pro-
duced oil.
• Market based instruments: Countries where palm oil is being made
could allow quotas of individual ecosystem service proxies, such as carbon,
and provide tradable credits for companies that don’t reach their limits.
• Private sector activities: Companies producing palm oil can willingly
institute their own policy to reduce ecosystem service loss.
• Financial pressures: International-banking agencies can alter a palm
oil company’s access to loans and credit in return for responsible environ-
mental policy.
• Outreach programs: By having companies put labels on their prod-
ucts that boast that their palm oil came from a sustainable plantation, public
awareness and purchasing trends could persuade companies to reduce their
damage to ecosystems.
While these approaches provide a framework to start accounting for
impacts on ecosystem services attached to goods that cross the globe, they
still don’t comprehensively account for individual ecosystem service costs
and trade-offs. Moreover, some ecosystem service effects are felt at different
time and space scales. For instance, palm oil plantations that provide work
for local community members tomorrow, may contribute to greenhouse
gas emissions that will affect generations years to come and reduce the bio-
diversity of a regional ecosystem.
A new mechanism to address valuing trade-offs in ecosystem services
is to bundle them by valuing multiple proxies. In countries with palm
plantations, the ecosystem services of the original rainforest could bundle
the attraction of tourists to rainforests and a diversity of tropical wildlife.
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90 ECOSYSTEM SERVICES
Bundled ecosystem services can then be balanced or compared with con-
trasting aspects of ecosystem service impacts, such as the production of a
commodity, in this case, palm oil.
Policies in Practice
How will regulators know that these policies account for or reduce the
impacts on ecosystem services in the production of internationally traded
palm oil? Governments, companies, or other international agencies will have
to accurately measure and monitor the ecosystem service impacts on local and
global scales. This requires some measuring tools that aren’t developed yet.
While scientists can continue to monitor proxies for local ecosystem services,
as of yet there is no mechanism for measuring some ecosystem services on a
global scale. IDR Team 8 suggested that part of this problem could be dealt
with by setting up a system to monitor the effect on ecosystems throughout
the supply chain, which can reassess cumulative ecosystem service effects of
palm oil as it travels through the three countries.
Possible watchdogs and judges
While many institutions and structures, including the World Trade
Organization, already exist to monitor trade, IDR Team 8 was uncertain
whether current regulatory bodies could take on the new role of ecosystem
service impact monitoring or if new entities need to be established. How-
ever, the team acknowledged that current national policy bodies could
provide a starting point for monitoring impacts linked to trade.
When developed countries import any goods, they usually perform a
risk assessment to determine if it’s worth importing, rather than making the
goods within its own borders. The risk assessment takes into account threats
such as the likelihood that the trade will also import hitchhiking invasive
species. The risk model could be expanded to include ecosystem damage
and social impacts of production.
If, upon review of preexisting structures, no current institutions seem
appropriate for coordinating and monitoring new policy, the team sug-
gested the creation of an international institution to step in and launch
global ecosystem service impact policies. One means by which to sustain
a new institution would be for it to have authority of taxing global traders
that were determined—using ecosystem service impact monitoring—to be
“worst offenders.” A worst offender classification would apply to compa-
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IDR TEAM SUMMARY 8
nies that create particularly harmful effects on the ecosystem services. An
example would be companies that clear out rainforests to make way for
large-scale oil palm plantations, versus a company that repurposes land.
The funds provided by this tax could also be invested, through international
banking institutions, into companies that provide positive ecosystem service
impacts.
Although many questions and unknowns remain about how exactly to
monitor ecosystem service impacts that accrue during international trade,
the IDR Team 8 agreed that the more countries committed to addressing
the challenge, the better.
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