March 31, 2022

Three types of Nature Markets

A three-way classification of nature markets to help highlight the breadth and diversity of what the Taskforce is referring to as nature markets. The three types include: Intrinsic Nature Markets, Offset Nature Markets and Derivative Nature Markets.

A tree diagram showing how nature and nature markets are at the centre of the economy

There is a broad literature about the nature-market nexus that offers a diverse set of definitions and categories. According to Millennium Ecosystem Assessment (2005), Ecosystem Services can be grouped by function: 

  • Regulating - includes climate and carbon store, pollination, water purification, and flood control.
  • Provisioning - includes food, fibre, weed, water, and medical.
  • Cultural - includes inspiration, recreation, education, and aesthetic.
  • Supporting - a function that feeds into all three above categories; includes soil formation, biodiversity, primary production, and habitat.

Nature markets have two essential characteristics.

  1. That a monetary value can be specifically attributed to nature, or more often to its functions, i.e. the services it can provide. 
  2. Nature markets also require nature-specific revenues to be generated as an integral part of the trade. 

Drawing on our two-feature definition of nature markets, we offer up three types of particular interest: 

  • Intrinsic nature markets concern first and foremost the trade of nature itself. Most obvious is food, but we may also think about nature-based medical products, wood products, and indeed the sale of sand, earth and of course minerals. These markets include embedded nature markets: consider the nature value of tourism, for example, through the use value of a park or beach, the tradable value of a nearby hotel, home or restaurant may be enhanced by their proximity to these natural assets. 
  • Offset nature markets concern investments and/or trade in aspects of nature to offset a negative impact elsewhere. As in the case of carbon, nature markets can be, and are created to offset the effect of an economic actor on nature elsewhere in time or/and space. These markets include carbon-linked nature markets - those that trade carbon sequestration attributes of nature. Today, carbon offset markets are the most powerful nature-linked revenue-generating machine. 
  • Derivative nature markets concern those markets that trade instruments that reflect the value of nature embodied in the underlying economic assets and enterprises. Fo example, financial instruments and markets that consider nature-related risks and opportunities as a basis for valuing and trading financial assets, from sovereign debt to nature intensive and dependent companies. Valued representations of nature, such as non-fungible tokens (NFTs) are included in this type of market. 
Diagram showing 4 key types of the ecosystsem services- Supporting, Regulating, Provisioning, Cultural
Image: Ecosystem Services Table: Millenium Ecosystem Assessment, 2005

This proposed three-way classification of nature markets is a work-in-progress. Notably, there are overlaps between the definitions, and many nature markets may well fit into more than one of the categories. That said, the classification hopefully helps to highlight the breadth and diversity of what we are referring here to as nature markets, and so also some of the challenges in both understanding what is going on already, and figuring out what can be done to shape them going forward.

Read more about the Nature Markets in the Future of Nature Markets white paper.