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Creating markets for ecosystem services

Staff research paper

This paper by Greg Murtough, Barbara Aretino and Anna Matysek was released on 19 June 2002. The paper investigates how well environmental problems related to salinity, biodiversity and climate change can be addressed by creating markets for ecosystem services.

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Creating markets for 'ecosystem services' - such as tradeable credits for carbon sequestration - can be an effective way for governments to achieve their environmental goals, according to Productivity Commission researchers.

A staff research paper, Creating Markets for Ecosystem Services, examines how newly defined property rights have been used to create markets in Australia and the United States.

The paper provides practical illustrations of how the creation of markets for ecosystem services can be successful if a number of conditions are met. Necessary conditions include a good understanding of the associated scientific processes and an ability to define and enforce the newly established property right at reasonable cost.

The schemes analysed in the paper include tradeable permits to control saline water discharges (Hunter River Salinity Trading Scheme); auctions for biodiversity conservation grants (Victorian BushTender pilot); and offset arrangements to limit the net loss of wetlands (US wetland banks).

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Cover, Copyright, Contents, Acknowledgments, Abbreviations, Key messages, Overview

1 Introduction

2 Conceptual framework
2.1 Why create markets?
2.2 Different forms of market creation
2.3 Conditions under which creation is more likely to be effective

3 Biodiversity, salinity and climate change
3.1 Threats to biodiversity
3.2 Salinity and water quality
3.3 Climate change
3.4 Implications

4 Existing and proposed markets
4.1 Tradeable schemes without offsets
4.2 Tradeable schemes with offsets
4.3 Non-tradeable schemes without offsets
4.4 Non-tradeable schemes with offsets
4.5 Summary

5 Concluding comments
5.1 Scientific uncertainty
5.2 Market liquidity of tradeable schemes
5.3 Regulation