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Great bear markets : the interface of finance, forestry and conservation in BC's Great Bear Rainforest Norden, Andrew; Tansey, James 2011

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   ANDREW NORDEN AND JAMES TANSEY ISIS, Sauder School of Business, University of British Columbia Prepared for Sustainable Prosperity, a national research and policy network based at the University of Ottawa             08 Fall	  GREAT BEAR MARKETS: THE INTERFACE OF FINANCE, FORESTRY AND CONSERVATION IN BC'S GREAT BEAR RAINFOREST  FALL 2011    Photo Credit: Jim Maloney ISIS | Great Bear Markets | Andrew Norden and James Tansey | 1           Many individuals and groups supported the Green Commercial Real Estate: Retrofitting Vancouver’s Existing Building Stock project over the course of its design, development and implementation. We are grateful to all that believed in the vision and helped make it a reality including:   Project Leads Neil Thomson, ISIS, Sauder School of Business   Author Andrew Norden, Graduate Fellow, ISIS, Sauder School of Business   Advisors, Contributors & Supporters James Tansey, ISIS, Sauder School of Business Chris Kantowicz, ISIS, Sauder School of Business   Funding Partners Sustainable Prosperity  ISIS | Great Bear Markets | Andrew Norden and James Tansey | 2   EXECUTIVE SUMMARY Human population growth and infrastructure development are putting unprecedented pressure on global ecosystems. Many government efforts to “command and control” the protection of ecosystems have met with limited success at best. The introduction of market-based mechanisms for embedded ecosystem services is a contemporary solution to protect and preserve some of the precious and pristine wilderness areas. This paper explores some of the market-based mechanisms for ecosystem services in the Great Bear Rainforest (GBR), located on the North and Central Coast of British Columbia in western Canada.   Carbon offsets, are used to combat climate change, have been generated from the GBR. By preventing the forest from being harvested, carbon is removed from the atmosphere and stored in the wood. Additional stored carbon can be monetized and sold to greenhouse gas emitters to offset their carbon footprint. A number of challenges were overcome to generate this carbon offset project, most notably the ownership related to unextinguished rights and title from indigenous land claims. The new nature of the market meant it was very much a learning experience for project developers and other stakeholders but also posed challenges for marketing efforts since potential buyers remain cautious due to regulatory uncertainty of greenhouse gas emission liabilities.  More traditional market-based instruments are also existent in the Great Bear Rainforest. Ecotourism, hunting, logging and fishing licenses are all used extensively throughout the area. However, the price of these licenses appears to be far below true value. The proliferation of public land and provincial economic policies suppress market activity for such licenses, and appear to be the driving force behind such market imperfection.       ISIS | Great Bear Markets | Andrew Norden and James Tansey | 3   TABLE OF CONTENTS EXECUTIVE SUMMARY 1 1.0 INTRODUCTION 4 2.0 METHODOLOGY 5 3.0 MARKETS: CARBON 6 3.1 Uncertain Ownership 6 3.2 Benefit Distribution 6 3.3 First Nations Capacity 7 3.4 Project Size 8 3.5 Risk and Buffer Deductions 9 3.6 Marketing Strategy 10 3.7 Carbon Standards 12 3.8 Governance 12 3.9 Learning by doing 13 4.0 WATER 14 4.1 Application of Traditional Theory 14 4.2 Payments for Fish Habitat 15 4.3 Hydroelectric Power 17 5.0 BIODIVERSITY 19 5.1 Hunting 19 5.1.1 Non-resident Hunting in BC and the GBR 19 5.1.2 Resident Hunting in BC and the GBR 20 5.2 Ecotourism 21 5.3 Mitigation and Habitat Banking in BC 22 5.4 Fishing licenses 24 5.5 Non-timber forest products 27 5.6 Forest Harvesting Licenses 27 6.0 CONCLUSION 29 7.0 REFERENCES 31 8.0 APPENDICES 33  LIST OF FIGURES Figure 1. First Nations Populations In The GBR 7 Figure 2. A First Nations Workshop On Carbon Market Opportunities 8 Figure 3. EUA Carbon Price In 2011 9 Figure 4. The Charisma Of A Spirit Bear Cub 11 Figure 5. Salmon Spawning Habitat Requires Regular Flow And Low Turbidity 15 Figure 6. Salmon Sport Fishing Is A Popular Activity On The Skeena River 16 Figure 7. Small Scale Hydro 18 Figure 8. Annual Resident Hunting And Fishing License Sales In BC 21 Figure 9. Ducks Unlimited Projects In The GBR 24 Figure 10. Sockeye Salmon Runs In The Fraser River 26 Figure 11. AAC Reductions In The GBR 28  ISIS | Great Bear Markets | Andrew Norden and James Tansey | 4   1.0 INTRODUCTION The Great Bear Rainforest (GBR) conservation project, on the west coast of Canada, has been described as “the most complex conservation effort ever undertaken”.1 In 2009 the provincial Government of British Columbia announced the protection of the largest area of coastal temperate rainforest in the world. The unique sanctity, ecology and cultural history of the GBR combined with a challenging political situation combined to make it a high profile showcase for potential future conservation projects.  The key socio-political characteristic of the GBR situation is the prevalence of First Nation communities. First Nations have unextinguished rights and title on their traditional lands Their traditional territories, where they hunted, fished, gathered wild berries and created cultural sites, were taken over by the Crown following the colonial invasion in the late 19th century  and many areas were heavily logged with associated environmental degradation. The GBR agreements in 2006-2009 was a chance for them to establish government to government processes and joint management decisions  over lands where First Nations  have lived for 10,000 years. The GBR agreements gave formal and legal recognition to First Nation governments to negotiate directly with the provincial government on matters pertaining to resource use and extraction within their traditional territories. The GBR agreements were a paradigm shift in not only their political standing but also their influence on natural resource use in BC.  Generating sustainable income and development for resident communities is essential for any conservation project. Without the buy in of local communities, numerous detrimental activities may take place such as illegal logging, overharvest of game or bush meat, environmental degradation and even pollution. The success of EBM and the project therefore rested on its ability to generate environmentally friendly businesses and income streams to ensure the economic and social wellbeing of the communities that live in the GBR.   Conservation projects lend themselves to the generation of environmental market-based instruments (MBIs). Market-based instruments are “regulations that encourage behavior through market signals rather than through explicit directives regarding pollution control levels or methods”.2 The most relevant of these are tradable permits, either for the consumption of ecosystem services or the emission of pollution. The key advantage of a market-based system is that it displays more transparency than decisions made by political systems.  Specific MBIs relevant to the GBR case include hydroelectric permits, carbon offsets, biodiversity offsets as well as more traditional examples such as hunting, fishing and ecotourism tenures and licenses. The purpose of this paper is to identify and review the market case for a variety of ecosystem services in the hope that lessons can be learned for similar future projects.                                                         1 Burns, S, personal communication 2 Stavins, 2003 ISIS | Great Bear Markets | Andrew Norden and James Tansey | 5   2.0 METHODOLOGY Data and information pertaining to MBI in the GBR was collected through a combination of literature review and expert opinion.  Practitioners who are working in the MBI field were identified and contacted for interview. Specific questions relevant to their field of expertise were prepared although generally interviews were only semi-structured. This enabled flexibility which was crucial due to the novel nature and lack of documented knowledge on the subject. Where identified experts did not manage to answer all the questions posed of them, snowballing or referral was employed to reach the most suitable experts.  Data was also collected from government sources. The well-resourced BC and Canadian governments keep a plethora of data relevant to this research project. The specialized nature of the data requirements for this research meant much of the data needed to be requested as it was either not publicly available or required formatting, filtering or manipulation. Some of the government databases, for example, contain confidential fields that needed to be removed before being made available for use in public research. ISIS | Great Bear Markets | Andrew Norden and James Tansey | 6   3.0 MARKETS: CARBON The largest and most immediate potential for MBIs in the GBR is in carbon offsets. Carbon offset fungibility is a key obstacle in the development of carbon markets, with many jurisdictions forbidding the use of external offsets. The Alberta Specified Gas Emitters Regulation (SGER), for example, only allows the use of greenhouse gas offsets derived from projects within Alberta.  Formal (compliance) carbon markets commenced in BC in 2009 through the Pacific Carbon Trust (PCT) which seeks to assist BC government departments fulfill their carbon neutral obligations. Informal (voluntary) carbon markets had been operating long before that through a number of privately negotiated transactions for corporate social responsibility. Although there had been talk for several years about the possibility of developing carbon offsets from the GBR, it was not until September 2009 that Carbon Credit Corp was hired to develop, register and market the project. A number of unique challenges and obstacles have been navigated in order to progress this project to the validation and verification stage, whereupon the carbon assets can be monetized. The purpose of this section is to describe some of the key project characteristics and challenges identified during our research on GBR carbon markets.  3.1 OWNERSHIP Only three First Nations in BC have completed a treaty settlement with the province and none are in the GBR. Given the unknown timelines and outcomes of GBR First Nation treaty negotiations, land ownership and carbon rights were impossible to accurately quantify at the project onset. It would have been impractical to await settlement before developing the carbon project and therefore the project commenced with uncertainty to ownership. A highly significant Atmospheric Benefit Sharing Agreement (ABSA) was negotiated and signed in late 2010 between the provincial government and the coalition of First Nations bands, whose traditional territories are located in the GBR. The ABSA decrees that, after transaction costs, revenues from GBR carbon sales are to be split 50/50 between the BC government and the coalition of First Nations. Negotiation and formulation of the ABSA involved communities, policymakers and legal experts and addressed revenue sharing, ownership, accountability, review mechanisms, multi-year sales and dispute resolution procedures. The crucial feature of the ABSA is that it allows revenue distribution to be amended in light of future land claim settlements.  3.2 BENEFIT DISTRIBUTION A number of factors could contribute to the equity of carbon ownership and benefit distribution. Under the ABSA, a formulaic First Nations benefit distribution system was generated to remove subjectivity and ambiguity. The formula incorporated traditional territory size, population, amount of carbon and also community capacity in calculating how the proceeds from carbon sales would be divided up. There was also a slightly biased weighting in favor of the smaller First Nations with lower capacity. This didn’t present a problem for the Nations involved as they recognized the benefits of working together and the cost efficiencies that were achieved.  ISIS | Great Bear Markets | Andrew Norden and James Tansey | 7     Figure 1. First Nations populations in the GBR.3   3.3 FIRST NATIONS CAPACITY Carbon offsets are a new and unique product and First Nations were understandably suspicious and skeptical at the beginning of the project. A number of initiatives and workshops were implemented to build capacity and explain the potential benefits of forest carbon offsets. Carbon was a driver to implementing full EBM in 2009. Carbon was expected to pay for the conservation activities once EBM was in place. The workshops provided a lot of information regarding carbon markets, the project and current status at the community level, however, the leadership had a significant role and vision for their communities to benefit from carbon project as a result of EBM. Leadership passed board resolutions in 2005/6 regarding carbon projects. Workshop facilitators were careful not to use complex financial language, particularly after the 2008 financial crisis. The capacity building process culminated in the creation of a document entitled “Forest Carbon Offsets: Economic Revenue for Forest Conservation” that was publicly released in November 2010 to all First Nations communities.4                                                        3 Source: First Peoples Language Map of British Columbia 4 See Coastal First Nations http://www.coastalfirstnations.ca/files/PDF/CFN_Carbon_Document_V4_4_pgFINAL.pdf 0 500 1000 1500 2000 2500 3000 First Nation Populations in GBR ISIS | Great Bear Markets | Andrew Norden and James Tansey | 8     Figure 2. A First Nations workshop on carbon market opportunities.5    3.4 PROJECT SIZE Recent scenarios suggest a potential inventory of 1 million tonnes per year for the first 30 years, although final figures will not be released until the project validation is completed most likely in early 2012. A project of this size is extremely uncommon and comparable, if not larger than, the majority of most REDD projects in tropical rainforests.6  Developing such a large project has a number of unique challenges. Accurately measuring and forecasting forest stands over this area requires enormous volumes of data. Fortunately, accurate forest records have been kept by the BC Ministry of Forests for several decades. Such records were kept in order to calculate forest supply and harvest schedules as part of its sustainable forest management policy. Detailed inventory information includes species type, age class, growth rates and productivity, regeneration, silvicultural activities, disturbance history and regime7 and harvesting history. This information was used to establish the baseline scenario i.e. what the forest harvest activity would have been on the project area in the absence of the project and EBM. Project developers were then able to input this data into two computer models, SELES8 and CBM,9 to predict how the trees would grow under forest conservation strategies. The baseline scenario was then deducted to find the net carbon additionality.                                                          5 Source: Carbon Credit Corp 6 The Juma project in Brazil expects to generate 3.6 million tonnes of CO2 per year, but all other major REDD projects are in the 300,000-750,000 tonne per year bracket 7 Forest disturbances are the umbrella term for events that alter the structure and composition of a forest stand. Disturbances include fire, windthrow, pests, diseases, landslides and earthquakes. 8 SELES, or Spatially Explicit Landscape Event Simulator, is a model used to predict impacts of changing forest management practices 9 CBM, or Carbon Budget Model, is a model developed by Natural Resources Canada to monitor and model the Canadian forest carbon stocks for Kyoto reporting purposes ISIS | Great Bear Markets | Andrew Norden and James Tansey | 9   An added complication was that the computer models could not handle such large volumes of data. Project developers split the project into three sub projects – North and Central-Mid Coast, South Central Coast and Haida Gwaii – which were modeled, calculated and validated and verified separately.  One key advantage of the project size is the reduction in transaction costs. First Nations are not financially well resourced but were also unwilling to offer an equity stake to project developers, which is relatively unusual compared to other forest carbon offset projects. By collaborating and aggregating the GBR project, First Nations were able to garner significant reductions in individual transaction and project development costs. For the smaller Nations this certainly made the difference between a profitable and unprofitable outcome.  The project size also shaped the marketing strategy. A single buyer for such a large volume would have been impossible to find given the fledgling nature of the carbon market. Typical sizes for wholesale customers range between 30,000 to 100,000 tonnes per transaction.10 Marketing will be addressed in section 3.6.  3.5 RISK AND BUFFER REDUCTIONS Marketing and price risk is a factor that could affect the total revenue from the project. Although First Nations communities are aware that the price of carbon and hence benefits conferred will vary, the stakeholders and marketing material appear to significantly underestimate how much the carbon price can change.11 A review of the EU carbon futures contract shows that the carbon price has potentially enormous variations.12    Figure 3. EUA carbon price in 2011.13                                                         10 Based on a review of trades by industrial emitters under the comparative Alberta Specified Gas Emitters Regulation 11 This is a broader risk to the project but does not effect VCS validation. 12 Note there are many potential differences in the price dynamics of a GBR carbon offset compared to contracts trading on the EU ETS. This example is merely for illustrative purposes.  13 Source: Bloomberg.com Date Price (EUR per tonne) ISIS | Great Bear Markets | Andrew Norden and James Tansey | 10    Political risk is a primary contributor to the medium and long term price risk. The uncertain regulatory environment regarding carbon emissions, as well as ongoing uncertainty of the various standards, creates significant demand uncertainty. Such situations cause a “buyers market” whereby supply potentially outstrips demand and hence prices are low and buyers are in a better position to dictate transaction terms than sellers.  An important feature of all forest carbon projects is a buffer account. Buffers are essentially a reserve of carbon that is held back against perceived risks of the project. However, the GBR project as a whole has a number of features that make it a low risk forestry project and therefore should result in only a small buffer being required.   Carbon standards identify three main categories of risk that require buffering:  a) Quantification risk, as previously identified, is very low for the GBR due to extensive historical inventory data.  b) Disturbance risk is also low for the GBR. The moist climate results in very infrequent forest fires and the low risk of pests and diseases is the result of high biodiversity in the region. c) Governance risk has been reduced due to the solid government and First Nation agreements. The lack of illegal logging also compares favorably to other large scale forestry projects.  3.6 MARKETING STRATEGY The large size and complexity of the project has resulted in a more complicated marketing strategy than with other forestry projects in BC. Early marketing efforts identified two groups of buyers, namely the Pacific Carbon Trust (PCT) and voluntary market participants. As a result the project required development to two different standards but this was not a major issue as it had already been split into three sub-regions for modeling purposes. The project areas were therefore developed to the BC Forest Carbon Offset Protocol (FCOP) standard with a view of marketing to the PCT. The Projects will be further developed to become validated to the Verified Carbon Standard (VCS) with a view to selling to both local and international voluntary market buyers.  In the short term, project stakeholders appear to have underestimated the extent of the “buyers market” effect. The services of a broker were not initially used in this project because the project had not yet been developed and there is not a liquid and transparent market. The seller was seeking a higher value over-the-counter transaction that would pay a premium for a charismatic project. It is unlikely a broker could access these buyers and the sales team does include staff who are able to broker sales. Under the compensation model agreed as part of the sales agreement, the project developer is compensated on the basis of a commission fee that is higher than conventional brokerage arrangements but offers limited room for other intermediaries and counterparties. While this strategy is not completely consistent with other financial markets where a professional broker is paid to identify multiple counterparties and negotiate a price, often by playing one counter-party against another, the option to broker a deal in this way is one of a number of strategies that have been developed.  ISIS | Great Bear Markets | Andrew Norden and James Tansey | 11   The GBR marketing strategy also contains a significant hope of realizing extra value from the “charisma”14 of the project. Marketing material and project stakeholders specifically stated that they expect to be able to sell the carbon offsets for higher than competing projects due to the co-benefits of First Nations development and biodiversity protection. Whilst such a strategy might make sense in theory, it creates a specialized niche and restricts the number of potential buyers as not everyone would be willing to pay extra for such non-quantifiable and non-core benefits. The PCT, for example, specifically stated that they pay for the carbon and nothing more and therefore would not pay higher than a similar project without the co-benefits.    Figure 4. The charisma of a spirit bear cub.15   Project developers had talked about the potential of signing option contracts with potential buyers. Option contracts are highly prevalent in financial markets and would allow the option holder the right but not the obligation to purchase GBR offsets at a predetermined price at a predetermined date in the future. Although there was no evidence that such contracts had been signed, it is a proactive marketing solution to the uncertain regulatory framework and the large project size.                                                         14 Charismatic offsets refer to projects that deliver appealing co-benefits such as ecosystem protection or enhancement of social capital 15 Photo Source: http://www.flickr.com/photos/20406121@N04/2221828047/sizes/z/in/photostream/ ISIS | Great Bear Markets | Andrew Norden and James Tansey | 12   3.7 CARBON STANDARDS Both VCS and FCOP standards had challenges that project developers needed to overcome.   Uncertain aboriginal title and ownership ambiguity meant that a new VCS methodology needed to be created. A new draft protocol incorporating the land claims needed to be developed and then submitted for peer review and approval. This added significant time to the GBR carbon project development. The initial draft methodology was submitted on 6th January 201016 and is still under review at this current time. Offsets cannot be officially registered to VCS standards until the methodology is approved, although in theory they can be sold via option or forward contracts. Marketing experts familiar with carbon projects suggested forward purchase agreements signed before project approval would fetch significantly lower prices than approved offsets as buyers overestimate the project delivery risk.  FCOP approval was also not without challenges. BC had been trying to develop a forest carbon offset protocol for several years but a string of delays meant that the official version was not formally approved until August 2011,17 following a draft version18 in November 2010 and public consultation ending in January 2011. Clearly it is very challenging to develop a project to an unknown standard, although GBR and other BC forest carbon project developers suggested unofficial draft versions had been made available prior to the official release of FCOP documents and information. Much of the content was therefore well telegraphed other than the default leakage calculation which, at 55.3% of overall sequestration,19 was deemed by many to be extremely conservative. Essentially this meant that half of the carbon generated from a project is immediately deemed ineligible for sale.   Thus far the only project to successfully register to FCOP was by Timberwest on private land on Vancouver Island. They successfully managed to reduce the 55.3% default leakage deduction,20 although by how much is not publicly available due to commercially sensitive supply and demand curves pertaining to their business. GBR project developers have also applied a project specific leakage approach, as permitted by FCOP; however, information is considered commercially sensitive and will not be made available for public review.  3.8 GOVERNANCE The governance structure in the GBR is world leading given the common conservation interests, yet different approaches to regional planning taken by the stakeholder groups. This has been recognized by the regulators in terms of the potentially low buffer deduction held against the project.                                                          16 VCS 2010  17 See BC MOE online at: http://www.env.gov.bc.ca/cas/mitigation/pdfs/Director-Order-FCOP.pdf 18 See BC MOE online at: http://www.env.gov.bc.ca/cas/mitigation/pdfs/FCOP_Final-(22nov2010)-for_public_review.pdf 19 BC Forest Carbon Offset Protocol p. 123 20 See Markit Registry online at: http://mc.markit.com/br-reg/public/project.jsp?project_id=100000000000706 ISIS | Great Bear Markets | Andrew Norden and James Tansey | 13   Development of the current governance structure has been a long process for which there is a vast academic literature.21 The salient events started with the green campaigns in the early 1990s, initially at Clayoquot Sound, aiming to halt logging of old growth and remove the decision-making powers of the large logging corporations. The almost simultaneous decision by the BC government to create Land Resource Management Plans (LRMPs) across all forest districts in BC initiated the inclusion of First Nations and local communities in forest resource decision-making. In the late 1990s, the Coast Information Team (CIT) was set up as a scientific body to develop a framework for resource management in the GBR. Following on from this was the 2001 government to government (First Nations to provincial government) negotiation framework that provided First Nations with increased decision making over resource management in their traditional territories in collaboration with BC Government. This culminated in the formation of Ecosystem Based Management (EBM) in the GBR.  3.9 LEARNING BY DOING Developing a carbon project in the GBR has been a new experience for not only the First Nations but also many of the other project development stakeholders. The constantly evolving carbon market, including carbon standards, has meant project developers have constantly needed to build capacity in peripheral stakeholders. Underestimation of such capacity has been a key cause of delay according to project developers. Project developers have also had to build their own capacity while dealing with the highly complex nature of the project, both factors that resulted in delays in implementation.  The GBR carbon project will generate capacity amongst stakeholders as well as help to streamline processes such that other projects can gain from the experience. The latest projections suggest that after leakage and other deductions 500,000 tonnes of carbon can be marketed per year for the next 25 years. Assuming an average price of $8 per tonne after development costs, the project will generate $4 million per year which is split 50/50 between the First Nations and local government.                                                        21 See for example Howlett et al 2009, Dempsey 2011 ISIS | Great Bear Markets | Andrew Norden and James Tansey | 14   4.0 WATER No active water trading systems have been identified within the GBR. A review of water quality trading systems in other jurisdictions identifies three prerequisites for a trading system to be successful.  The first prerequisite for water trading is a negative property or characteristic of water, such as pollution or flooding. Secondly, various standards such as maximum allowable pollution concentrations need to be implemented.  Thirdly water trading needs a desire and mechanism to enter trading agreements, either through legal or voluntary obligations.  4.1 APPLICATION OF TRADITIONAL THEORY The low population density of the GBR area counts heavily against the potential for water quality trading activities. The lack of industrial or agricultural activity in the GBR area results in a lack of pollutants at significant concentrations. The low population density results in a lack of demand or capacity to pay for pollution reductions. The Skeena River contains guidelines but not legal targets for maximum pollution concentrations. In some tributary systems the level of nitrates and phosphates are so low that DFO artificially fertilizes streams and lakes to increase salmon fry carrying capacity!  The growth of the mining industry in the area, spurred by global commodity prices, has the potential for moderate impacts within the GBR area although the majority of mineral deposits are not located within the coastal area (the GBR agreement does allow for limited mineral exploration within a portion of certain protected areas).  Turbidity, or water clarity, is another area of potential for water trading. The forest industry used to be a large contributor to stream sedimentation which had a correspondingly detrimental effect on salmon habitat and population. However, the implementation of EBM has dramatically reduced the potential for stream sedimentation and with it the capability for a unique trading system. It must also be remembered that salmon spawning habitat is highly localized and therefore does not suit the concept of cross watershed pollution exchange.  ISIS | Great Bear Markets | Andrew Norden and James Tansey | 15     Figure 5. Salmon spawning habitat requires regular flow and  low turbidity.22  Flooding is an area of concern within the populated areas of the GBR. Human impact from flooding on the Skeena River has occurred five times in the last 12 years.23 24 25 Although the government has spent millions of dollars on dikes and other downstream flood prevention techniques, many of the floods have been caused by rain on snow events and not, as is the case with many urban floods, anthropogenic disturbances. Several jurisdictions have implemented upstream ecological solutions such as afforestation and improved forest management projects to mitigate downstream flooding but such a mechanism is not entirely appropriate in the GBR.   Rain on snow events are difficult to resolve with upstream ecological solutions. It must also be remembered that flooding is part of a natural biological process and attempts to change flooding regimes will have undesired effects on the local ecology.26 The low level of urbanization and unique cause of the floods therefore make it difficult to envisage any significant ecological flood protection systems being successfully introduced.  4.2 PAYMENTS FOR FISH HABITAT Potentially the most commercially valuable use of water in the GBR is for salmon spawning habitat. A similar contemporary example of such a project is being set up in West Virginia, where offsets are generated for brook trout habitat. The Bay Bank seeks to regulate stream temperature, increase riparian buffers and remove exotic species to enhance the habitat for native brook trout. A habitat quantification formula is then applied to determine how many offsets are eligible for sale.27 28 Similar stream habitat protection and restorations schemes have occurred in the US                                                        22 Photo source: flickr.com/toddbarden 23 Terrace Daily 2011 24 CBC News Canada 2009  25 NG News 2007 26 Fremier, 2004  27 Ecosystemmarketplace 2011  28 The Bay Bank, nd  ISIS | Great Bear Markets | Andrew Norden and James Tansey | 16   and pay farmers and landowners on a per linear foot of stream bank basis as opposed to the more complex habitat quantification formula at Bay Bank.29  The Skeena and Nass Rivers are home to 20% of the worlds’ wild salmon and a significant industry is formed from harvesting the surplus population. Headline economic figures suggest that the BC commercial salmon fishing industry was worth $215 million in 2005, with the recreational fishing industry being worth slightly more at $230 million.30 One might initially assume that such large numbers would be able to generate significant market based payments for salmon spawning habitat in the GBR, but this assumption is far from the truth.   The BC commercial salmon industry is in very poor financial health despite five separate federally funded license buyback programs between 1970 and 2000, costing over $400 million in 2011 terms. Such buybacks were designed to reduce overfishing and competition but the rise of the aquaculture industry has depressed the price of fish such that profits are hard if not impossible to generate. The fishing industry simply cannot afford to pay to preserve, restore or improve fish habitats through a direct market based system. Annual license revenues across BC amounted to $1.8 million for commercial and $6.3 million for recreational sectors.31     Figure 6. Salmon sport fishing is a popular activity on the Skeena River   and significantly contributes to the local economy.32  Despite the limited direct revenues from licensing, DFO spends an annual average of $30 million on the Salmonid Enhancement Program (SEP).33 The SEP seeks to increase the productivity of salmon bearing streams using a combination of fish hatcheries, habitat restoration and education. Within the Skeena watershed but upstream of the                                                        29 Speciesbanking.com 2010  30 MMK Consulting 2011 31 Fisheries and Oceans Canada 2011 32 Photo credit: Andrew Norden 33 Treasury Board of Canada Secretariat 2011 ISIS | Great Bear Markets | Andrew Norden and James Tansey | 17   GBR, the Pinkut spawning channel has raised an average of 47.7 million sockeye salmon fry per year since 1964. The Snootli River hatchery is the largest hatchery within the GBR and in recent years has produced in excess of 11 million salmon fry per year, primarily chum and Chinook.34 Although the majority of the hatcheries are operated directly by DFO, some smaller scale non-governmental hatcheries are also in operation. The SEP policy contains a clause for payments of up to $1 million for non-competitive supply contracts,35 again demonstrating a non-market based approach.  Although DFO has an exclusive mandate over migratory salmon, trout and other species fall under provincial jurisdiction. Quasi-market mechanisms for habitat conservation have occurred through the BC Habitat Conservation Foundation (HCTF). Steelhead, a migratory sub-species of rainbow trout, are much revered by sport anglers and the Skeena river is one of the most productive rivers in the world for this fish. Fishermen targeting steelhead are required to pay $25 for a steelhead stamp in addition to the basic fishing license. Revenues from the sales of steelhead stamps are directly transferred to the HCTF who implement conservation projects to protect the species in question. In 2011 two steelhead conservation projects were initiated on the Skeena, totaling $93,000.36  4.3 HYDROELECTRIC POWER  Approximately 90% of electricity generated in BC is derived from hydroelectric power. Water is therefore an extremely important resource in BC. The majority of this is produced in the Peace and Columbia watersheds in the eastern interior part of BC. The generation and transmission infrastructure is owned and operated by BC Hydro, a crown corporation. In light of increasing demand, BC Hydro has adopted four strategies to manage its obligations to supply energy to BC residents.37 The most controversial is to expand operations at Site C in the Peace River, with potentially large environmental effects. A second option is to upgrade existing facilities, a not unreasonable but sometimes expensive option. BC Hydro has also mandated to help customers reduce demand through implementing energy efficiency measures. The final strategy is to increase generation capacity through purchasing clean energy from independent suppliers.   Independent suppliers now contribute 9% of the generation capacity in BC. In 2002-03, BC Hydro put out a call for independent power producers. By the 2006 project deadline 16 successful EPAs had been signed. The call for independent power producers has encouraged entrepreneurship in the BC power production industry spurring vast numbers of applications in recent times. Currently there are 68 approved independent power producers supplying 3.2 gigawatts of power, but only two of these are located within the GBR.38 Ocean Falls in Bella Bella and Brown Lake in Prince Rupert produce 15MW and 7MW of power respectively, less than 0.1% of the total private power capacity in                                                        34 Fisheries and Oceans Canada not dated 35 Fisheries and Oceans Canada 2009 36 HCTF 2011 37 BC Hydro 2009  38 BC Hydro 2011  ISIS | Great Bear Markets | Andrew Norden and James Tansey | 18   BC. The sparse population density within the GBR means an electricity grid is economically unviable, with six of the nine First Nations in the GBR being off grid and relying on diesel electric power generation.39    Figure 7. Small scale hydro.40  In general, many of the IPP proposed projects do not gain the relevant approvals and are shelved.    Recent statistics suggest that in fact only 24% of IPP license applications are successful.41 There are currently 466 small scale hydro power projects under application in BC.42 Currently IPPs generating power through hydro are required to pay the BC MOE $0.01 per 1000 cubic metres of water,43 meaning a largely symbolic annual water fee. A 25MW small scale hydro plant, for example, would pay under $9,000 per year for water use,44 compared to potential revenue of $4 million from electricity sales.45                                                            39 AANDC not dated  40 Photo credit: geograph.co.uk 41 PPW 2007 42 ILMB 2011  43 Calculated from BC MOE Water Rent Estimator. Online: http://www.env.gov.bc.ca/wsd/water_rights/water_rental_rates/calculator/index.html 44 Renewable Energy World 2005 45 Based on $0.05 per KWH sale price ISIS | Great Bear Markets | Andrew Norden and James Tansey | 19   5.0 BIODIVERSITY  The enormous size and productive capacity of the GBR imply a vast suite of ecosystem service markets falling under the loose affiliation of biodiversity. The purpose of this section is to identify some of the more unique opportunities and challenges of generating markets and payments for biodiversity related services within the GBR.  5.1 HUNTING  Hunting is a consumptive resource use that has a potentially powerful economic and financial driving force. Whilst many green groups abhor the concept of consumptive wildlife use, it can be practiced in a sustainable manner and generate revenues for future conservation. Aldo Leopold, the father of modern conservation, was an active hunter and thus the disciplines of hunting and conservation have been intertwined for many decades.   5.1.1 NON-RESIDENT HUNTING IN BC AND THE GBR Unlike many other states and provinces in North America, BC has very stringent licensing rules for non-residents hunting on publicly owned land. Hunters whose primary residence is not in BC are legally required to be accompanied by a licensed guide for hunting all big game animals. Guiding tenures, with the associated annual quotas of big game animals, can be extremely expensive to purchase. This is not surprising given that the price for a two week stones sheep hunt in BC is frequently in excess of $40,000,46 for which a significant royalty fee is directly paid to the government.   Raincoast, a non-hunting ENGO, recently bought a hunting tenure in the GBR with the specific intention of retiring it from hunting purposes. In 2005 they launched a successful fundraising campaign to garner the $1.35 million required to purchase the 24,700 square kilometer hunting territory on the mid-coast area of the GBR. They have recently announced the successful purchase of a further $370,000 hunting territory further north in the GBR.47  The interesting part of these deals is that under BC law, hunting territories that do not pay any royalties for two years should revert back to the government. Royalties are paid from outfitters to government on all harvested big game and range from $25 for a wolf up to $1000 for a grizzly bear. Royalties are separate and additional from the hunters’ license and the annual maintenance fee for the guiding license.   However, in this case Raincoast successfully negotiated with the former BC MOE Director of Wildlife to not revoke the license after two years. It has been suggested that strong pressure from First Nations helped with this landmark legal exemption.48 A second feature of BC law is that the species quota should get reallocated to resident hunters if the non-                                                       46 This figure, including tax, gratuities, transport and accommodation, was gathered from the websites of several hunting guide outfitters 47 Raincoast 2011 48 Tony Hamilton, pers. comm. ISIS | Great Bear Markets | Andrew Norden and James Tansey | 20   resident quota is not filled. Again this was exempted by the former Director of Wildlife. It is unclear at this stage whether such exemptions will be upheld for their latest purchase.  A further interesting feature of this deal is the deceptive marketing and fundraising campaign practiced by Raincoast. In this example Raincoast makes the claim that buying up the hunting tenure will save the Kermode bear from extinction. Such a claim is invalid for several reasons. Firstly it has been illegal to hunt white phase bears for over 100 years.49 Secondly, purchasing the tenure will not prevent resident hunters from accessing and hunting in the area. Thirdly, a simple genetic analysis would show that hunting only bears that do not display the double recessive gene would actually increase the proliferation of white bears.   Guided hunts still occur in other parts of the GBR. North Coast Adventures (NCA) offers hunting for grizzly bears, black bears, mountain goats, blacktail deer and wolves in the territory that includes the southern tip of the GBR. The remote coastal area, with large salmon populations and minimal human disturbance, result in grizzly bears growing significantly larger than other parts of BC. So called trophy hunters are very competitive about the size of animal they hunt, with various scoring systems and record books in operation to judge such animals. NCA claims to have harvested the largest ever Canadian grizzly bear, according to the Safari Club International record book.  NCA sells a total of eight hunts per year and claims to have a two year waiting list of customers willing to pay in excess of $20,000 to partake in grizzly hunting activities. Contrary to ENGO claims, there is evidence that selective harvesting of older male bears is actually beneficial to grizzly populations. Research suggests aggressive older males practice infanticide when populations are at carrying capacity. Removing such males increases infant survival and hence allows populations to grow.50 51 To support such a theory, it is crucial that hunters selectively harvest only the older males. MOE policy dictates that if human induced female mortality is above 30% of total mortality then hunting authorizations will be reduced.  5.1.2 RESIDENT HUNTING IN BC AND THE GBR Resident hunters who are not obliged to use the services of a guide operate under two separate hunting schemes. The area specific General Open Season (GOS) is available to all BC residents who purchase a license for that particular species. It is generally used for medium sized game that has very healthy populations such as mule deer. The Limited Entry Hunt (LEH) is a lottery-based scheme whereby hunters enter a draw for the right to hunt a certain species of animal in a certain area. Larger sized game, which have more sensitive life cycles, as well as species whose populations are not flourishing are more appropriate for this mechanism. Elk and moose in most areas of BC are accessed via the LEH system as well as the very tightly controlled grizzly bear hunts.                                                          49 See page 14 of BC Hunting Regulations. Online at: http://www.env.gov.bc.ca/fw/wildlife/hunting/regulations/1012/docs/Hunting-TrappingSynopsis_1012Part1.pdf 50 Tony Hamilton, pers. comm.  51 Miller et al 2003 ISIS | Great Bear Markets | Andrew Norden and James Tansey | 21   Quotas for all game are set by biologists at the MOE who have the most accurate and up to date population and threat information. Despite the claims of many ENGOs, all hunting in BC is sustainable according to the science. Management plans try to keep mortality below 6% of any given grizzly population. Other than guiding for non-residents, there is minimal commercial interest in hunting as it is illegal to sell the meat of wild game animals in BC. As a result political influence is far less likely to affect quotas than that observed in the fishing industry,52 particularly since wild meat cannot be legally sold regardless of the harvester or harvest method.  Data specifically pertaining to the GBR was unavailable, although a comprehensive set for the entire province of BC was obtained. The data, shown in figure 8, suggests a recent surge in the number of hunting licenses sold as well as associated revenues. The data also shows a decline in the number of non-resident fishing licenses, primarily due to the decline of the US economy. US citizens make up the majority of fishing tourists in coastal BC. It is interesting to note that revenues from resident hunting licenses are now over 50% greater than saltwater fishing licenses for residents and non-residents combined. For more details on hunting license revenues, please see appendix 1.   Figure 8. Annual resident hunting and fishing license sales in BC.53   5.2 ECOTOURISM While ecotourism is a non-consumptive resource use, it is not entirely without influence on animal populations. Research and evidence is mixed as to whether wildlife benefit from ecotourism. Intentional or unintentional feeding of                                                        52 See for example Sumalia 2010 53 Source: DFO and BC MOE 0 20000 40000 60000 80000 100000 120000 140000 160000 180000 200000 0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 2005 2006 2007 2008 2009 2010 Revenue / $ per year Year Fishing and hunting participation in BC Resident hunting license revenue Saltwater fishing revenue (resident and non resident) Hunter numbers Resident fishing numbers Non resident fishing numbers ISIS | Great Bear Markets | Andrew Norden and James Tansey | 22   wildlife creates a human dependency that is highly detrimental to animals.54 In particular, bears that become familiar and tolerant of humans are more likely to cause a threat to human safety and property.55 Problem bears are very common in BC and in many cases wildlife officials are left with no option other than to destroy the animal in question. Data on human-wildlife conflicts is available in appendix 2. Specific research on grizzly bears has suggested that in small doses ecotourism may be of benefit and reduce infanticide as male bears tend to be more scared of human activity.56 Ecotourism guides must therefore ensure that human – wildlife interactions are kept to a minimum if it is to become a success.  Many supporters of ecotourism paint an overly optimistic picture of the finance and economics. As with hunting and fishing tenures and licenses, the license fees for ecotourism permits are far below the real cost. BC government policy appears to assume that BC benefits most from the economics of ecotourism as opposed to direct revenues from permits. In the Khutzymahteen Grizzly sanctuary in the northern part of GBR, tour operators with exclusive guiding rights to the central viewing area pay a $150 per person levy. Even if both operators sell out their entire annual tours, Parks BC could expect no more than $41,850 which would not even cover the cost of the Ranger stationed at the Khutzymahteen during the summer. Having spoken to the tour operators during the course of this research, it was evident that they had significant spare capacity during the entire season. Similarly, the often cited example of Glendale in Knight Inlet pays $600 per year for exclusive bear viewing ecotourism rights yet generates $3.6 million per year in turnover.  5.3 MITIGATION AND HABITAT BANKING IN BC The federal Canadian Species at Risk Act (SARA) is fundamentally flawed as it only applies to federal land such as national parks and post offices. At a provincial level there is capacity to create legislation to protect threatened or endangered species but BC and Alberta are the only two provinces to have opted not to implement such laws. The proliferation of compliance based habitat banking and biodiversity trading systems is contingent on such endangered species legislation. The GBR is the largest intact temperate coastal rainforest in the world. This unique ecosystem hosts a notable amount of biodiversity, including 25 of BC’s red listed species and 26 of BC’s blue listed species. If the aforementioned legislation was in place, however, funding efforts for endangered species would be more efficiently allocated to regions such as BC’s gulf islands or Okanagan valley that have a plethora of endangered mosses, birds, insects amphibians and lichens.  During the research period of this project, five systems loosely related to mitigation and habitat banking were identified:  a) BC Hydro fish and wildlife compensation program BC Hydro, the crown power generation corporation, has an annual budget of $5.9 million for fish and wildlife habitat restoration. The scheme focuses on the three main geographic regions where BC Hydro operates, namely the Lower                                                        54 Isaacs 2000 55 See BC Bear Aware, online at: http://www.bearaware.bc.ca/safety 56 Nevin and Gilbert 2005 ISIS | Great Bear Markets | Andrew Norden and James Tansey | 23   Mainland, the Peace and the Columbia River basins. No restoration projects in the GBR have been funded as BC Hydro does not have any operations there (other than a gas fired power plant in Prince Rupert).  b) DFO mitigation legislation Under the federal Fisheries Act Section 35(1) any harmful alteration, disruption or destruction (HADD) of fish habitat is prohibited. Section 35(2) provides an exception to 35(1) if mitigation and net gain can be demonstrated. In BC, this legislation has been applied to aquaculture operations, foreshore developments such as the Richmond Oval and port expansion in Delta. Although the legislation does not go into detail on how impacts are quantified, the key word appears to be “net gain” as opposed to “no net loss.”    c) Provincial policy  Construction and development projects in BC currently face a regional planning process. Environmental impacts need to be addressed and potentially mitigated in planning applications. The potential for subjectivity has resulted in inconsistent decisions being made which benefit neither the province nor companies who operate in more than one region. The BC MOE are currently in the process of reviewing and developing policy to obtain a consistent province wide approach to mitigation,57 although this has drawn criticism from both industry and ENGO groups.58 59 60  d) Private voluntary transactions Although there are doubtlessly many private voluntary transactions protecting biodiversity, their over the counter (OTC) nature makes them hard to identify and analyze. Potentially the most transparent transactions are practiced by Ducks Unlimited Canada (DUC). DUC is the ENGO that specializes in wetland preservation and restoration and uses a combination of outright land purchases and 30 year conservation easements to improve habitat for migratory waterfowl in BC. Although prices are not disclosed, they vary considerably based on strategic value of the project, ecological value of the project and landowner willingness. Funding requirements also have a significant effect on pricing as some of their acquisitions are tied to government matching grants or bequests from members. DUC currently has 540 projects operational in BC,61 of which only 5 are within the GBR. This makes up less than 0.25% of their BC portfolio. Although specific records of their BC operations are not available, federal tax records show that they received $86,978,127 of funding in 2009-1062 making them better funded than even the widely known Nature Conservancy of Canada. DUC states that 84.5% of their funding is spent on research, operations and land acquisition with the remaining 15.5% on fundraising and administration.                                                         57 BC MOE 2010  58 See Association of Professional Biology response at: http://www.apbbc.bc.ca/userfiles/APB%20response-proposed%20BC%20Environmental%20Mitigation%20and%20Offset%204Feb2011.pdf 59 See Business Council of BC response at:  http://www.bcbc.com/Documents/EN_20110131_Submission_MitigationOffsetting.pdf 60 See coalition of Environmental NGOs at: http://www.env.gov.bc.ca/emop/feedback/docs/phase1/letters/MOPJointLetter_110204.pdf 61 Ducks Unlimited, not dated  62 Canada Revenue Agency 2011 ISIS | Great Bear Markets | Andrew Norden and James Tansey | 24     Figure 9. Ducks Unlimited projects in the GBR.63   Unfortunately none of these four examples are particularly applicable to the GBR for several reasons. Habitat banking is only applicable in relatively highly populated areas facing development pressure. Primarily commercial interest is required to generate sufficient habitat disturbance and associated funds. There is potential for mitigation opportunities in mining and also if the proposed Enbridge pipeline is completed but these would unlikely be species specific.  e) Aboriginal Funds for Species at Risk (AFSAR)  Environment Canada offers grants for Aboriginal groups to protect threatened species and habitats as well as build capacity. AFSAR was created in 2004 in response to the federal Species at Risk Act (SARA) that prescribes the need for aboriginal traditional knowledge to be incorporated into species assessment and recovery plans. It has a federal budget of $3.3 million per year and supported eight BC projects in 2011-12.    5.4 FISHING LICENSES In terms of fish, the primary value for the GBR is in salmon habitat. The financial and biological aspects of salmon habitat have been described in section 4.2. Other important fish species do exist in the GBR but their commercial and hence financial value is hard if not impossible to ascertain. Eulachon, for example, are a small migratory fish extensively used on a subsistence basis by First Nations due to their high oil content. First Nations do not require a license to catch and retain fish for subsistence purposes hence the concept of market based instruments is somewhat moot.                                                        63 Photo source: Ducks Unlimited ISIS | Great Bear Markets | Andrew Norden and James Tansey | 25    Commercial fishing licenses have recently adopted an interesting market mechanism for quota allocation and transfer. So called individual transferable quotas (ITQs) were initially introduced for halibut but are now being used to manage some of the salmon fisheries on the BC coast. There has been much debate on the merits of ITQs for British Columbian halibut fisheries.64 65 66 ITQs are proposed to be an economically efficient vehicle by which catch quotas are optimally re-allocated through a market based mechanism. Critics of Canadian fisheries policy suggest that the implementation and lack of regulation in the ITQ halibut fishery actually results in lower economic efficiency.67 A total of 8 different salmon fisheries on the West Coast are now managed on an ITQ system. As yet there has been no formal academic analysis of the ITQs for salmon fisheries.   Traditionally fishing fleets on the BC coast were managed on a derby system. Fisheries and Oceans Canada (DFO) would set a Total Annual Catch according to scientific estimates of sustainable harvest rates. A season opening would then be calculated based on expected harvest efficiency. The errors and political influence in sustainable harvest calculation68 69 combined with potentially more significant errors in harvest efficiency and catch per unit effort have the potential for a badly managed fishery. The competitive nature of derby fisheries also encouraged capital stuffing,70 leading to a potential tragedy of the commons.71  The unique life cycle of Pacific salmon potentially makes an ITQ fishery more appropriate than a derby in many cases. Pacific salmon have a life cycle of between two and five years, depending on species, and die after spawning. This differs from other anadromous fish such as Atlantic salmon, cutthroat trout and steelhead which usually spawn at least twice during their standard life cycle. As a result, Pacific salmon have multiple isolated breeding populations.72 Research has suggested that British Columbia has no less than 8171 different salmon populations.73 Therefore extreme variations in annual total allowable catch (TAC) will be observed depending on the strength of the annual runs. Figure 10 shows the escapement74 of Fraser sockeye salmon, which have a 4 year life cycle.                                                        64 Pinkerton and Edwards 2009 65 Turris 2010 66 Davidson 2010 67 Davidson 2010 68 Pilkey and Pilkey-Jarvis 2007 69 Sumalia 2010 70 Capital stuffing refers to excessive technological investment to generate and maintain competitive advantage over other fishers 71 Heal and Schlenker 2008 72 Healey 2009 73 Slaney et al 1996 74 Escapement refers to the estimate of the number of salmon that return to spawn. It is therefore the returning population minus the TAC. Given that low population years have a proportionately lower TAC, the actual population trends would be more volatile.  ISIS | Great Bear Markets | Andrew Norden and James Tansey | 26     Figure 10. Sockeye salmon runs in the Fraser river.75   The perceived advantages of an ITQ fishery include the following: • Improved safety for crew – lower intensity fishing means crews work shorter shifts with more time to repair faulty equipment • Reduced overages – annual catch does not require accurate estimates of catch effort • Economic efficiency – the most efficient boats will buy quota from the least efficient boats • Reduced fishing costs – potentially smaller crews through lower intensity, although some economists would argue lower employment rates are a disadvantage to an industry • Less incentive for capital stuffing and tragedy of the commons  Opponents of ITQ fisheries cite the following perceived disadvantages: • Highgrading76 – fishermen may illegally return smaller or lower quality fish if restricted to a set number of fish (although less relevant to salmon where the fish are of a more uniform size) • Potential for market manipulation77 78 – inefficiencies in the quota transfer process deters new entrants and rewards more established license holders   ITQs have been described as analogous to tradeable pollution permits.79 80 Essentially both systems involve cap and trade, although the use of offsets in an ITQ system is clearly impractical! A detailed analysis is beyond the scope of this report but for more information there are several academic studies tackling the subject. 81 82                                                        75 Source: Cohen Commission 2011 76 Anderson 1994 77 Anderson 1991 78 Pinkerton and Edwards 2009 79 Hatcher 2005 The four sockeye salmon populations of the Fraser River ISIS | Great Bear Markets | Andrew Norden and James Tansey | 27   5.5 NON-TIMBER FOREST PRODUCTS (NTFPS) NTFPs are often inherently used for subsistence purposes and therefore markets are either non-existent or at best highly opaque and unregulated. In BC there is wide ranging demand for NTFPs including berries, floral greens, essential oils, mushrooms and traditional medicines.83 Despite there being over 200 consumable NTFPs in British Columbia, the only major markets are for chanterelle and pine mushrooms and salal, all of which are prevalent in the GBR. The inefficiency of these markets results in a wide range of estimates of their annual value but a good estimate is $27.5 million for wild mushrooms and $38 million for salal.84    As yet the BC government does not have any regulations on the collection and sale of NTFPs. Although admittedly hard to enforce, moderate license revenues could be expected from pickers of NTFPs. In Oregon and other US states licenses are required by pickers and traders. Wholesalers and intermediaries of morel mushrooms in Nepal are also required to pay a government fee. In Japan annual auctions are held for exclusive pine mushroom harvesting rights, with the proceeds being donated to local villages.85 This is one area of study that requires further investigation, particularly if and when First Nations land claims are settled giving them authority to implement NTFP collection tariffs, or revenue sharing agreements such as the ABSA can be negotiated.  5.6 FOREST HARVESTING LICENSES Forests in BC are separated into 37 timber supply areas (TSAs), of which 4 cover the GBR. Each TSA has an Annual Allowable Cut (AAC), or quota, of the maximum volume of harvested wood. The BC Chief Forester will review the AAC within each TSA every 10 years and adjust as necessary to optimize the economic value under sustainable forest management conditions. Tree Farm Licenses and Forest Licenses in BC are essentially option contracts. Forest product companies pay an annual fee to have exclusive rights to harvest a certain amount of timber from a certain area at a predetermined price. AACs established for an area must be met or the forest licensee runs the risk of volume lost for underharvest. Tenures for forest licenses are 20 years in duration but, almost without exception, are renewed every five years. In many aspects they fulfill the definition of a perpetual option, a financial contract that is often hypothesized but very infrequently observed.   Of the four TSAs in the GBR namely north coast, mid coast, south central coast, and Kingcome, there has been a reduction of over 2 million m3 of AAC since the GBR agreement. A review of the TSA documentation86 shows very limited mention of the GBR agreement and associated forest protection and preservation, however, changes in available harvesting landbase which resulted from the GBR agreements are mentioned. In addition, all forest                                                                                                                                                                                                         80 Anderson 1991 81 Hatcher 2005 82 Newell et al 2005 83 See BC Ministry of Forests http://www.for.gov.bc.ca/ftp/Het/external/!publish/web/non_timber_forest_products/qcismf~1.pdf 84 Mitchell and Hobby 2010 85 Norden 2011, unpublished data 86 See BC Ministry of Forests: http://www.for.gov.bc.ca/hts/aactsa.htm ISIS | Great Bear Markets | Andrew Norden and James Tansey | 28   stewardship plans that are developed by the forest licensees prior to harvesting must reflect all required legislation and regulations prior to proceeding.   The major impact of the GBR agreement on the forest industry has been the increased harvesting cost. The introduction of EBM in the GBR essentially put an end to achieving the same economies of scale for clear-cut harvesting of old growth that historically occurred in coastal BC. The Coast Information Team (CIT) developed the scientific and economic framework for EBM between 1999 and 2004. The objective of EBM is to “maintain ecosystem processes and functions…. the natural diversity of species habitats and genes…. And protect and restore underrepresented, degraded or endangered ecosystems”.87 Economically, the CIT predicted EBM to be very expensive with up to two thirds of forestry jobs in the GBR being lost as a direct result of EBM implementation.88 Forest companies performed their own independent analysis and saw not only economic but also political challenges from possible ENGO campaigns.   As yet there have been no ex-post studies of the financial or economic costs of the GBR agreement on the forest industry.                                                            87 See Coast Information Team: http://www.citbc.org/c-ebm-hdbk-fin-22mar04.pdf 88 See Coast Information Team: http://www.citbc.org/c-egsa-timb-26Aug04.pdf ISIS | Great Bear Markets | Andrew Norden and James Tansey | 29   6.0 CONCLUSION British Columbia’s greatest strength is also its greatest challenge when it comes to environmental finance. The vast swathes of publicly owned land are managed for the greater good of the people and therefore based on an economic rather than financial priority. Traditional MBIs such as hunting or ecotourism tenures involve paying essentially a token fee under the premise of creating local employment and economic growth. Economic assumptions are inherently complex and beyond the scope of this paper, however the lack of transparency in the efficiency of such policies has to remain questionable. A number of government studies were reviewed on the matter and the use of economic models and proposed tax revenues seems to vastly exaggerate the actual value of industries that use the licenses and tenures of “public” ecosystem goods.  Public land has a second complexity in terms of being subject to unextinguished aboriginal rights and title. As the GBR example has pointed out, unextinguished aboriginal land claims have hampered efforts to develop environmental markets. Although the GBR case has highlighted some of the strategies for reducing or overcoming the effect of uncertain title, the issue will remain significant until such a time when the land claims are settled.   Another highlight of the GBR case is the marketing and lobbying by green groups. They painted a picture of the GBR as being ecologically sacred, threatened logging companies active in the area and ultimately the government gave in to their pressure and instigated a protection policy. In reality, there are a fewer threatened or endangered species in the area than is often publicized. Ultimately this lack of threatened species has the potential to dent the GBR’s ability to benefit from many of the new market-based mechanisms for biodiversity protection (although voluntary markets may be developed).  Biodiversity protection opportunities are further limited by the extremely remote location and low population density. The vast majority of contemporary biodiversity protection and restoration schemes in the environmental finance literature succeed due to infrastructure development threats which would only be minimally relevant to the GBR. The one caveat to this assertion is if oil and natural gas pipelines receive approval to cross the boundaries of the GBR.  Environmental markets need conducive government policy to succeed. BC has signaled its desire to embrace the global climate change issue through enforcing carbon neutrality within the provincial and municipal governments. A regional cap and trade scheme, the Western Climate Initiative (WCI), is planned but ultimately the success of such a scheme rests on external buy in by larger jurisdictions. At this time, BC’s commitment to the WCI is still too uncertain for financial entrepreneurs and investors to seize carbon opportunities in BC. So while the GBR carbon project has met with moderate success, the long-term opportunities are primarily exogenous.  The sheer size and scale of the GBR poses significant challenges and great opportunities from a marketing perspective. The supply of carbon is very large for a fledgling market that will depress the price until fungibility options are explored with other jurisdictions. Although transaction costs for project development can benefit from these ISIS | Great Bear Markets | Andrew Norden and James Tansey | 30   economies of scale, the project is well telegraphed and financial markets will lower their buying prices accordingly. From a marketing perspective, medium sized projects are probably optimal as they can be digested more easily without telegraphing to all market participants.       ISIS | Great Bear Markets | Andrew Norden and James Tansey | 31   7.0 REFERENCES Aboriginal Affairs and Northern Development Canada. Not dated. Aboriginal and Northern Off-Grid Communities. Online at: http://www.aadnc-aandc.gc.ca/eng/1100100034456 Anderson, L.G. 1991. A Note on Market Power in ITQ Fisheries. Journal of Environmental Economics and Management 21(3) 291-296 Anderson, L.G. 1994. An Economic Analysis of Highgrading in ITQ Fisheries Regulation Programs. Marine Resource Economics 9 209-236 BC Hydro. 2009. Independent Power Producers in BC. Online at: http://www.bchydro.com/news/press_centre/hot_topics/hot_topics_features/hot_topic__independent.html BC Hydro. 2011. Independent Power Producers Supplying Power to BC Hydro. Online at: http://www.bchydro.com/etc/medialib/internet/documents/planning_regulatory/acquiring_power/2011q2/IPP_Supply_List.Par.0001.File.IPP-Supply-List-20110401.pdf BC Ministry of Environment. 2010. Towards and Environmental Mitigation and Offsetting Policy for British Columbia: A Discussion Paper. Online at: http://www.env.gov.bc.ca/emop/docs/EMOP_DiscussionPaper.pdf CBC News Canada. 2009. Northern BC Residents Brace for Flooding. Online at: http://www.cbc.ca/news/canada/british-columbia/story/2009/06/05/bc-skeen-river-flooding.html Canada Revenue Agency. 2011. Charities Listing: Ducks Unlimited Canada. Online at: http://www.cra-arc.gc.ca/ebci/haip/srch/t3010form21sched6-eng.action?b=118888957RR0001&e=2010-03-31&n=DUCKS+UNLIMITED+CANADA+-+CANARDS+ILLIMITES+CANADA&r=http%3A%2F%2Fwww.cra-arc.gc.ca%3A80%2Febci%2Fhaip%2Fsrch%2Ft3010form21-eng.action%3Fb%3D118888957RR0001%26amp%3Be%3D2010-03-31%26amp%3Bn%3DDUCKS%2BUNLIMITED%2BCANADA%2B-%2BCANARDS%2BILLIMITES%2BCANADA%26amp%3Br%3Dhttp%253A%252F%252Fwww.cra-arc.gc.ca%253A80%252Febci%252Fhaip%252Fsrch%252Fbasicsearchresult-eng.action%253Fs%253Dregistered%2526amp%253Bk%253Dducks%2526amp%253Bp%253D1%2526amp%253Bb%253Dtrue Cohen Commission. 2011. Technical Report 3. Evaluating the Status of Fraser River Sockeye Salmon and Role of Freshwater Ecology in their Decline. Online at: http://www.cohencommission.ca/en/pdf/TR/Project3-Report.pdf#zoom=100 Davidson, A. 2010. The Cost-Benefit of Quota Leasing. Marine Policy 34(5) 1115-1116 Dempsey, J. 2011. The Politics of Nature in British Columbia’s Great Bear Rainforest. Geoforum 42(2) 211-221 Ducks Unlimited. Not Dated. Western Region Highlights. Online at: http://www.ducks.ca/province/bc/pdf/bcfacts.pdf Ecosystem Marketplace. 2011. How Brook Trout Credits May Support Clean Cows. Online at: http://www.ecosystemmarketplace.com/pages/dynamic/article.page.php?page_id=8483&section=news_articles&eod=1 Fisheries and Oceans Canada. 2007. Evaluation of the Salmonid Enhancement Program. Online at: http://www.dfo-mpo.gc.ca/ae-ve/evaluations/09-10/6b105-eng.htm Fisheries and Oceans Canada. Not Dated. Salmonid Enhancement Project Information. Online at: http://www.canbcdw.pac.dfo-mpo.gc.ca/ows/reports/releaseReport.asp?IDValue=140 Fisheries and Oceans Canada. 2011. Recreational Licensing Statistics. Online at: http://www.pac.dfo-mpo.gc.ca/fm-gp/rec/licence-permis/stat-eng.htm  Fremier, A.K. 2004. Stream Ecology: Concepts and Case Study of Macroinvertibrates in the Skeena River Watershed, British Columbia. University of California Davis. Online at https://www.geology.ucdavis.edu/~shlemonc/html/trips/skeena_river/documents/initial_reports/AKFremier.pdf Habitat Conservation Trust Foundation. 2011. Approved Project List 2011-2012. Online at: http://www.hctf.ca/News/newsrelease/APPROVED%20HCTF%20PROJECT%20LIST%202011-12.pdf Heal, G. and Schlenker, W. 2008. Economics: Sustainable Fisheries. Nature 455 1044-1045 Healey, M.C. Resilient Salmon, Resilient Fisheries for British Columbia, Canada. Ecology and Society 14(1) 2 Howlett, M., Rayner, J. and Tollefson, C. 2009. From Government to Governance in Forest Planning? Lessons from the Case of the British Columbia Great Bear Rainforest Initiative. Forest Policy and Economics 11, 383-391 Integrated Land Management Bureau of BC. 2011. Applications and Reasons for Decision. Online at http://www.arfd.gov.bc.ca/ApplicationPosting/index.jsp?keyword=&Client=&Purpose=WATERPOWER&SubPurpose=&Region=&FileNumber=&PrimaryStatus=pending&Submit=Subm ISIS | Great Bear Markets | Andrew Norden and James Tansey | 32   Isaacs. J.C. 2000. The Limited Potential of Ecotourism to Contribute to Wildlife Conservation. Wildlife Society Bulletin 28(1) 61-69 Kimmins, J.P. 1993. Ecology, Environmentalism and Green Religion. The Forestry Chronicle 69(3) 285-289 Miller, S.D., Sellers, R.A. and Keay, J.A. 2003. Effects of Hunting on Brown Bear Cub Survival and Litter Size in Alaska. Ursus 14(2) 130-152 MMK Consulting. 2007. Economic Impacts and Prospects of the Salmon Farming and Wild Salmon Industries in British Columbia. Prepared for the Legislative Assembly of British Columbia Special Committee on Sustainable Aquaculture. Online at: http://www.saveoursalmon.ca/files/Rpt-AQUACULTURE-38-3-Volume2-2007-MAY-16.pdf Mitchell, D. and Hobby, T. 2010. From rotations to revolutions: Non-timber forest products and the new world of forest management. BC Journal of Ecosystems and Management 11(1&2):27–38 Nevin, O.T. and Gilbert, B.K. 2005. Perceived Risk, Displacement and Refuging in Brown Bears: Positive Impacts of Ecotourism? Biological Conservation 121(4) 611-622 Newell, R.G, Sanchirico, J.N. and Kerr, S. 2005. Fishing Quota Markets. Journal of Environmental Economics and Management 49(3) 437-462 NG News. 2007. Flooding Eases in Northwestern BC but Melting Snow Pack Still a Concern. Online at: http://www.ngnews.ca/News/2007-06-10/article-317586/Flooding-eases-in-northwestern-B.C.-but-melting-snow-pack-still-a-concern/1 Pilkey, O.H. and Pilkey-Jarvis, L. 2007. Useless Arithmetic: Why Environmental Scientists Can’t predict the Future. New York: Columbia University Press. Pinkerton E. and Edwards D. N. 2009. The Elephant in the Room: The Hidden Cost of Leasing Individual Transferable Fishing Quotas. Marine Policy 33(4) 707-713 Private Power Watch. 2007. Water Power License Applications. Online at: http://www.ippwatch.info/w/ Renewable Energy World. 2005. Canada Opens New Run-of-River Hydro Facility. Online at: http://www.renewableenergyworld.com/rea/news/article/2005/11/canada-opens-new-run-of-river-hydro-facility-38716 Raincoast. 2011. Spirit Bear Hunting Territory: August Update. Online at: http://www.raincoast.org/media/announcements/announcements-bears/hunting-territory-update/ Speciesbanking.com. 2010. US Bank Dataset. Online at: http://global.speciesbanking.com/documents/files/2010_us_bank_dataset.pdf Slaney, T. L., K. D. Hyatt, T. G. Northcote, and R. J. Fielden. 1996. Status of Anadromous Salmon and Trout in British Columbia and Yukon. Fisheries 21(10):20-35. Stavins, R.N. 2003. Market-Based Environmental Policies: What Can We Learn from U.S. Experience (and Related Research)? Discussion Paper 03-43. Resources for the Future. Washington, D.C. 26 pp. Sumaila, U.R. 2010. A cautionary note on individual transferable quotas. Ecology and Society 15(3): 36 Terrace Daily. 2011. Skeena River Rising as Kalum Level Stabilizes. Online at: http://www.terracedaily.ca/go8070a/SKEENA_RIVER_RISING_AS_KALUM_LEVEL_STABILIZES The Bay Bank. Not dated. Habitat Conservation. Online at: http://www.thebaybank.org/education/habitat_conservation Treasury Board of Canada Secreteriat. 2011. The Government Expenditure Plan and The Main Estimates. Online at: http://www.tbs-sct.gc.ca/est-pre/20112012/me-bpd/docs/me-bpd-eng.pdf Turris, B. A Rejoinder to E. Pinkerton et al., the Elephant in the Rom: The Hidden Costs of Leasing Individual Transferable Fishing Quotas. Marine Policy 34(3) 431-436 Voluntary Carbon Standard. 2010. Improved Forest Management on Lands Subject to Unextinguished Indigenous Rights and Title. Draft Methodology. Online at: http://v-c-s.org/sites/v-c-s.org/files/Methodology%20for%20IMF-LtPF%20on%20Indeginous%20Lands%2C%20Carbon%20Credit%20Corp%2C%206%20JAN%202010.pdf       ISIS | Great Bear Markets | Andrew Norden and James Tansey | 33   8.0 APPENDICES 8.1 APPENDIX 1: HUNTING LICENSE SALES IN BC   2005 2006 2007 2008 2009 2010 Resident hunter 72,273 73,051 73,269 75,656 76,847 79,570 Senior hunter 11,895 12,605 12,820 13,550 13,805 14,440 Junior hunter 1,465 1,524 1,633 1,661 1,583 1,668 TOTAL NO OF LICENSES 85,633 87,180 87,722 90,867 92,235 95,678  Bison 88 118 236 276 358 308 Black bear 14,362 14,762 15,601 17,294 17,487 19,135 Bob cat 331 372 375 388 397 484 Caribou 1,145 1,145 1,217 1,226 1,212 1,192 Cougar 920 960 1077 1159 1297 1402 Elk 15,847 17,425 19,236 21,302 22,384 24,502 Grizzly bear 1,074 1,242 1,520 1,545 1,609 1,518 Lynx 380 343 424 468 455 450 Moose 35,465 35,883 35,920 36,242 38,867 39,369 Mountain goat 1,857 1,928 1,954 2,086 2,319 2,223 Mountain sheep 1,724 1,829 1,954 2,124 2,173 2,204 Mule deer 70,112 71,488 73,987 75,241 74,164 77,029 QCI deer 2,976 2,333 2,601 2,758 2,785 2,942 Whitetail deer 33,365 35,364 37,505 40,563 42,010 49,505 Wolverine 100 107 117 132 77 112 TOTAL NO OF TAGS 179,746 185,299 193,724 202,804 207,594 222,375  Fraser Valley 1,902 1,889 1,946 2,149 2,269 2,305 Gulf Islands 357 325 358 385 390 368    LEH 164,945 164720 163,560 177,301 180,427 176,909 Sheep LEH 1,466 2,772 2,009 1,589 1,772 19 TOTAL NO OF LEH 166,411 167,492 165,569 178,890 182,199 176,928  Appendix 1 shows the number of resident hunting licenses and tags sold by the BC Ministry of Environment for the period 2005-2010. A hunting license is required by all persons wishing to hunt on public land in BC for any game species. Furthermore, hunters wishing to hunt waterfowl are required to also purchase a federal waterfowl hunting license. Big game hunters need to buy a “tag” or species license in advance for each species of big game animal they tend to hunt. License sales therefore significantly exceed actual animal harvests as not all hunters are successful.  ISIS | Great Bear Markets | Andrew Norden and James Tansey | 34   LEH refers to the Limited Entry Hunting, or hunt lottery. Hunters buy a $6 entry card for a specific species in a specific area and are then put into a draw. The successful applicants then need to purchase a tag or species license before conducting any hunting operations.  Status First Nations do not need any form of hunting license to harvest animals on their “traditional territory.” In most cases, First Nations do not declare harvests to the MOE and they are therefore not included in any AAH calculations. This is a significant difference to salmon harvesting. First Nations hunting outside their “traditional territories” must follow the same rules as other resident hunters.  The revenues from resident hunting licenses are shown in the table below.    2005 2006 2007 2008 2009 2010 Resident hunter $2,312,736 $2,337,632 $2,344,608 $2,420,992 $2,459,104 $2,546,240 Senior hunter $83,265 $88,235 $89,740 $94,850 $96,635 $101,080 Junior hunter $10,255 $10,668 $11,431 $11,627 $11,081 $11,676 Bison $6,160 $8,260 $16,520 $19,320 $25,060 $21,560 Black bear $287,240 $295,240 $312,020 $345,880 $349,740 $382,700 Bob cat $2,648 $2,976 $3,000 $3,104 $3,176 $3,872 Caribou $22,900 $22,900 $24,340 $24,520 $24,240 $23,840 Cougar $27,600 $28,800 $32,310 $34,770 $38,910 $42,060 Elk $396,175 $435,625 $480,900 $532,550 $559,600 $612,550 Grizzly bear $85,920 $99,360 $121,600 $123,600 $128,720 $121,440 Lynx $3,040 $2,744 $3,392 $3,744 $3,640 $3,600 Moose $886,625 $897,075 $898,000 $906,050 $971,675 $984,225 Mountain goat $74,280 $77,120 $78,160 $83,440 $92,760 $88,920 Mountain sheep $103,440 $109,740 $117,240 $127,440 $130,380 $132,240 Mule deer $1,051,680 $1,072,320 $1,109,805 $1,128,615 $1,112,460 $1,155,435 QCI deer $29,760 $23,330 $26,010 $27,580 $27,850 $29,420 Whitetail deer $500,475 $530,460 $562,575 $608,445 $630,150 $742,575 Wolverine $800 $856 $936 $1,056 $616 $896 Fraser Valley $19,020 $18,890 $19,460 $21,490 $22,690 $23,050 Gulf Islands $714 $650 $716 $770 $780 $736 LEH $989,670 $988,320 $981,360 $1,063,806 $1,082,562 $1,061,454 Sheep LEH $21,990 $41,580 $30,135 $23,835 $26,580 $285  TOTAL VALUE $6,918,398 $7,094,787 $7,266,265 $7,609,492 $7,800,418 $8,091,864    ISIS | Great Bear Markets | Andrew Norden and James Tansey | 35    The remote nature of the GBR makes hunter access difficult. Hunter numbers and associated revenues are therefore somewhat limited. The table below summarizes the results of the LEH from areas within the GBR. LEH in the GBR is for moose and grizzly bear, although the latter attracts proportionately far more entries than the former.    2005 2006 2007 2008 2009 2010 Number of applications 111 111 190 179 203 179 Number of authorizations 676 716 2460 1040 891 765 Revenue $13,810 $14,052 $30,436 $20,182 $20,267 $16,547        ISIS | Great Bear Markets | Andrew Norden and James Tansey | 36   8.2 APPENDIX 2: HUMAN-WILDLIFE CONFLICTS Data for human-wildlife conflicts by region or area was not available. Data pertaining to BC as a whole for the year 2010-2011 is in the table below: COMPLAINT SPECIES ATTENDED DESTROYED BY COS DESTROYED BY OTHER TOTAL DESTROYED TRANS-LOCATED CUB TO REHAB Black Bear 2,630 645 165 810 110 24 Grizzly Bear 197 30 20 50 10 6 Cougar 214 38 19 57 1   Wolf 26 2 20 22 1   Coyote 62 17 8 25     Moose 159 48 57 105 2   Elk 20 7 4 11     Deer 479 236 143 379 13   Sheep 11 3 4 7     Other 156 11 13 24 10   TOTAL 3,954 1,037 453 1,490 147 30                       ISIS | Great Bear Markets | Andrew Norden and James Tansey | 37   Historical data for grizzly and black bear complaints is shown in the table below. What is clear from the data is that a significant number of bears have been killed as a result of human conflict and complaints. Over the 19 years, Conservation Officers have attended an annual average of 153 incidents involving grizzly bears and 2,227 involving black bears. Of the cases where action is taken, relocation is used approximately 25% of the time compared to 75% humane destruction.    	   GRIZZLY BEAR BLACK BEAR Year Complaints Attended Killed Relocated Rehab Complaints Attended Killed Relocated Rehab 1992 286 154 31 33   7,558 2,746 831 421   1993 233 162 42 49   6,524 2,160 690 258   1994 289 181 47 71   9,771 2,999 937 257   1995 454 310 89 51   6,635 2,228 797 195   1996 315 151 36 19   10,914 2,769 991 287   1997 308 144 38 27   7,037 2,152 956 100   1998 244 112 36 30   11,734 3,274 1,619 109   1999 370 194 84 49   10,316 2,476 1,138 83   2000 278 124 52 11   8,373 1,973 690 69   2001 319 127 41 19   7,625 1,815 681 31   2002 303 110 42 06   5,614 1,372 620 18   2003 254 98 49 09   11,589 1,999 867 33   2004 339 125 58 16   16,093 1,537 713 146   2005 261 114 37 17   9,357 1,507 443 140   2006 430 142 33 12   16,271 2,518 690 87   2007 532 167 35 30   18,071 2,631 590 135   2008 527 197 48 25   20,646 2,186 627 121   2009 301 92 33 7 0 11,986 1,280 339 68 16 2010 615 195 51 10 6 22,625 2,683 823 111 30                        This report was published due to the ongoing support from:  The Swift Family  The Lalji Family   © ISIS Research Centre  Sauder School of Business  University of British Columbia  452 – 2053 Main Mall, Vancouver, BC, Canada, V6T 1Z2  604 568 8433  www.isis.sauder.ubc.ca 

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