Crunching the Numbers on Environmental Markets in Canada

Two weeks ago, SP released our second annual Survey, Environmental Markets in Canada: 2013, in which we classify, count and consider environmental markets.

For a full definition of what an “environmental market” is, see the report or Michelle’s blog. As a quick summary, at SP we define environmental markets as markets that have been created to improve the environment in some way. They work by financially rewarding positive environmental actions or by penalizing environmentally damaging activities.

The report shows the 2 ways in which we sliced and diced them, in order to understand what’s behind that total value range.

First, we grouped environmental markets in 3 categories: air and carbon, water and habitat and biodiversity.

Air and Carbon markets are markets that involve the trading of rights to emit a certain amount of air pollution or the trading of credits created from reducing air pollutant emissions. An example is theAlberta Greenhouse Gas Emissions trading system.

[[{"type":"media","view_mode":"media_original","fid":"1548","attributes":{"alt":"","class":"media-image","style":"width: 75px; height: 75px; float: left;","typeof":"foaf:Image"}}]]Water markets are markets that trade in rights to emit pollution into water, or in rights to withdraw water from its source. An example is the South Nation River Total Phosphorus Management trading system.

[[{"type":"media","view_mode":"media_original","fid":"1549","attributes":{"alt":"","class":"media-image","style":"width: 75px; height: 79px; float: left;","typeof":"foaf:Image"}}]]Habitat markets are markets that make sure habitat is protected from development (such as through conservation easements) or which seek to offset any habitat and biodiversity that is lost because of specific projects. Habitat markets also include programs where industries, particularly small agriculture operators, are compensated for adopting management practices that are beneficial for biodiversity. An example is the Ontario Species At Risk Farm Incentive Program.

When we categorized environmental markets into these three categories, we found that the markets aren’t equally distributed across them. While our survey finds that there are 52 distinct markets in Canada, habitat and biodiversity markets have the largest share of the total – both in number and value. 
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We also broke down environmental markets into two sub-categories: “established markets” and “payment programs”. Like the traditional markets we see in the economy, environmental markets can be established markets — with multiple buyers or sellers, a tangible asset being traded, and significant volumes being traded. Or, environmental markets can be considered more like payment programs, which are different from established markets because they are more simply structured and are generally at an earlier stage of development.

When we looked at environmental markets this way, we found most of the established markets are in the air and carbon category. Emissions allowance markets, emissions reduction credit markets (and also some water markets) fall under this category. We also found that there are more payment programs than established markets. 
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Because SP has defined environmental markets in a clear way with three environmental categories (air and carbon, water, and habitat and biodiversity) and two market type sub-categories (established markets and payment programs), we can continue to track their development through future iterations of our annual survey. The number range that represents the total value of environmental markets in Canada is very important – but as policy makers, program operators, regulators, investors, business operators, citizens and interest groups, we need to watch the trends in the different types of environmental markets to see where the current action is and where the future possibilities are. We look forward to tracking these changes – and sharing them with you