yields demonstrably improved ecosystems. Without 

better ecosystem performance, the market concept 

would struggle to move forward with regulatory and 

conservation agencies. 

Another major benefit to emerge is the expected 

reduction in compliance costs, achieved by increasing the supply of providers. The establishment of 

markets and the ability to make money is expected 

to drive increased data collection, leading to a better 

understanding of ecosystem function and the inherent risk of certain actions. The concept also offers 

better tools for linking buyers and sellers and in addition provides upfront acceptance of market standards and performance measures by regulatory 

agencies, yielding faster permitting. 

Implementing Ecosystem Service 

Markets

There are many significant research challenges 

when implementing ESM. One challenge is how to 

effectively mitigate for slow-developing ecosystems, 

such as old growth forests or coral reefs that develop 

over thousands of years. Another is maintaining genetic diversity—when a species is reduced to a small 

number of individuals the genetic pool becomes extremely limited, which can result in the collapse of 

the remaining populations. Developing answers to 

these questions in a market context will greatly expand the ability to use markets for conservation. 

The Exploratory Advanced Research Program Fact Sheet: Scanning and Convening Activities

Ecosystem Service Markets Background

The fundamental concept of ecosystem service markets (ESM) is that many services an ecosystem provides can be valued then bought and sold on an open 

market. The long-term vision is that service providers 

and buyers can then meet in a virtual marketplace 

that is regulated and approved by agencies with legal 

authorities under legislation, such as the Endangered 

Species Act or the Clean Water Act. 

These services result in a tradable commodity, 

such as tons of carbon or phosphorus, or a risk management tool, such as insurance against extinction of 

a species. Such a compliance market already exists 

under the Clean Air Act for sulfur dioxide pollution, 

and the Chicago Climate Exchange currently operates 

a voluntary but legally-binding commodities market 

for greenhouse gases. In addition, mitigation banking 

for streams and wetlands already exists, but the market remains far from being as efficient as real estate, 

and farther still from markets trading stocks or commodities.

The Ecosystem Service Markets (ESM) workshop 

drew experts from Government agencies, universities, 

and regulatory and market agencies, who all reported 

on how the ESM concept is currently being designed 

and executed within laws, regulations, and policies. 

Benefits of ESM

One of the most important benefits of ESM is that it 

offers larger-scale, better prioritized mitigation that 

Harnessing the Value of Ecosystems

The Concept of Ecosystem Service Markets

Breakthrough Ideas for 

Highway Research

EXPLORATORY ADVANCEDR E S E A R C H

Buying and selling ecosystem services could ultimately lead to a more 

resilient and sustainable planet according to a recent workshop on the 

subject. Creating and developing markets to conserve, restore and protect 

was the focus of Ecosystem Service Markets and Associated Performance 

Measures, a Federal Highway Administration (FHWA) Exploratory Advanced Research (EAR) Program supported workshop held in January, 

2010, during the 89th Transportation Research Board (TRB) conference 

in Washington, DC.
During the workshop, several examples were provided to demonstrate different ways the ESM concept 

is currently being developed and implemented within 

laws, regulations, and policies;

One project featured was from The Freshwater 

Trust, showing how the organization uses the software platform StreamBank to help speed water conservation projects. The software cuts project completion time by simplifying the permitting process. 

Currently it takes 3 years to repair 1 mi (1.61 km) of 

stream, and there are 80,000 stream miles in the 

Trust’s territory. 

Participants were also presented with an example 

of a successful public cap and trade system from Virginia’s Nutrient Trading Program. In this case, dischargers of nitrogen and phosphorus along the State’s 

tributary system operate under a single permit to 

limit the damage to the Chesapeake Bay Watershed. 

Studying the monetary worth of coastal wetlands protection from hurricane damage was the focus of the 

University of Denver’s work. Its complex database 

and mathematical analysis demonstrates the high 

value of wetlands and the importance of location.

Another featured project came from Advanced 

Conservation Strategies. This example demonstrates 

an alternative for developing markets by focusing on 

outcomes and performance. Using hypothetical examples of endangered species, it is possible to see 

how bonds and derivatives can be used to shift the 

risk to the marketplace and align incentives of all involved parties. Finally, The Chesapeake Fund highlighted the complexity of ESM. Workshop participants 

were told that only through public policy changes can 

efficient and expedient markets be created to allocate 

risk appropriately. 

Developing a Valued Ecosystem

Advancing ESM could potentially provide the transportation industry an alternative means of compliance with environmental laws that results in faster 

permitting, as well as less expensive and better performing mitigation. Many issues of policy and science 

must be addressed before a one-stop shopping market will come to fruition that would work for both the 

regulatory and regulated communities. 

“Realizing the benefits of ESM will require 

straightforward, accurate systems to measure and 

track performance, and will potentially require revision of existing policies, regulations, and legislation,” says Steve Earsom at FHWA. “Valuation of 

the full suite of ecosystem services will remain controversial for the foreseeable future but the workshop certainly gave participants a better understanding of the ecosystem service components that 

have existing or developing markets, the major impediments to a market-based approach, and how 

industry leaders are developing tools to resolve 

these.”

Learn More

For more information or to discuss ESM, contact 

Steve Earsom at FHWA, at 202-366-2851 (email: 

steve.earsom@dot.gov).

Publication No. 

FHWA-HRT-10-075

HRTM-04/09-10(1M)E

Harnessing the Value of Ecosystems 

The Concept of Ecosystem Service Markets

Image other side:

© istockphoto.com/amygdala_

imagery

What Is the Exploratory Advanced 

Research Program?

FHWA’s Exploratory Advanced Research 

(EAR) Program focuses on long-term, 

high-risk research with a high payoff potential. The program addresses underlying 

gaps faced by applied highway research 

programs, anticipates emerging issues 

with national implications, and reflects 

broad transportation industry goals and 

objectives.

To learn more about the EAR Program, 

visit the Exploratory Advanced Research 

Web site at www.fhwa.dot.gov/advancedresearch. The site features information on 

research solicitations, updates on ongoing 

research, links to published materials, 

summaries of past EAR Program events, 

and details on upcoming events. For additional information, contact David Kuehn at 

FHWA, 202-493-3414 (email: david.

kuehn@fhwa.dot.gov), or Terry Halkyard 

at FHWA, 202-493-3467 (email: terry.

halkyard@fhwa.dot.gov).