Treating the environment as a commodity.

• Author: Ellison, Katherine
• Position: Ecology - Experiments in conservation finance

IN 2000, Adam Davis showed us a business plan by which he sought to save the world and make his fortune doing it. However it was the method he proposed that caught our attention.

A committed environmentalist, Davis dreamed of quitting his Marin County, Calif., consulting job to launch a futuristic trading forum called the Conservation Exchange that would generate billions of dollars by restoring and protecting nature. On the Con Ex, as he called it, traders would buy and sell shares in new commodities based on the day-to-day activities of forests and rivers, as if those commodities were as tangible as pork bellies.

We have kept in touch with Davis as we've traveled the world since then, a journalist and an ecologist investigating how humanity might stop squandering the environmental capital on which our lives depend. In that time, to our surprise, his dreams have come to seem less fantastic.

Davis told us about the Con Ex when we met him at an environmentally oriented business conference in Australia, where he had come to debut the idea. He envisioned mothers, fathers, and moguls trading "water-purification credits," derived from the way healthy watersheds filter drinking supplies via fine roots and microorganisms hidden in the soil. "Carbon credits" would reap revenues from the way forests suck heat-trapping carbon dioxide from the air to help avert global warming. "Biodiversity credits" would fluctuate in value, based on how well a company maintained habitats on its property.

"I know these things are valuable," Davis said at a Sydney wharf-side cafe. "Not tree-hugging valuable, but economically valuable." His reasoning was based on that linchpin of traditional economic logic, the law of supply and demand. As the services provided by healthy ecosystems such as forests, wetlands, and coral reefs succumb to human appetites and grow rare, they become more precious, he maintained, just like fine works of art. So why not trade them?

We first saw the logic of the Con Ex in action on a trip to New York State's Catskill Mountains, where we started to realize that Davis' dream was no Enron-like scam or mere eco-illusion. There, a half-decade earlier, New York City had embarked on a historic experiment. Instead of building a costly water-filtration plant, as it had been ordered to do by the Environmental Protection Agency, the city lobbied for a plan to keep its water pure by restoring the health of rivers and forests that could do the same job. The...