Reply to Phelps et al: Liability rules provide incentives to protect natural capital.

Pursuit of multiple avenues can speed incorporating the value of natural capital and ecosystem services into operations of individuals and institutions, such as businesses, government, development banks, nongovernmental institutions, and households. As Phelps et al. (1) rightly point out, the PNAS Special Feature (2) and much of the existing literature have not focused extensively on incorporating impacts on ecosystem services into liability for environmental damages. Like Payment for Ecosystem Services schemes, liability for damages caused to ecosystem services creates incentives to protect natural capital. Liability mechanisms may be more effective than Payment for Ecosystem Services and other policies in some circumstances, particularly in cases where accidents can cause significant damages to natural capital (e.g., oil spills) and where the responsibility for avoiding damages clearly rests with private entities. Work on incorporating the value of ecosystem services into liability rules has begun, but much work remains. As discussed by Schaefer et al. in the PNAS Special Feature (3), the National Oceanic and Atmospheric Administration and other US federal agencies are beginning to incorporate ecosystem services into Natural Resource Damage Assessments (NRDAs). NRDAs empower United States federal, state, local, and tribal officials to file claims on behalf of the public to recover damages from responsible parties to restore injured, destroyed, or lost natural resources. For example, from the outset of the response to the BP Deepwater Horizon oil spill disaster in 2010 in the Gulf of Mexico, the National Oceanic and Atmospheric Administration (who chairs the Deepwater Horizon NRDA Trustee Council) adopted an ecosystem service framework to assess damage to natural resources. In addition, Congress requested that the National Research Council provide an assessment of methods to account for long-term ecosystem service impacts (4). Both the actual Deepwater Horizon NRDA and the National Research Council review will provide useful experience and guidance upon which to build. We agree that liability rules are a potentially powerful tool for providing incentives to protect vital natural capital assets essential for maintaining flows of valuable ecosystem services. We recognize that national and international laws may vary in the ease of incorporating ecosystem service concepts. Our hope is that the PNAS Special Feature on natural capital will spur the research and policy communities to work on multiple approaches to incorporate ecosystem services in societal decision-making, especially for promising approaches that have not received adequate attention to date. Stephen Polasky, Anne D. Guerry, Jane Lubchenco, and Mary Ruckelshaus Institute on the Environment, University of Minnesota, St. Paul, MN 55108; Department of Applied Economics, University of Minnesota, St. Paul, MN 55108; The Natural Capital Project, University of Minnesota, St. Paul, MN 55108; The Natural Capital Project, c/o School of Environment and Forest Sciences, University of Washington, Seattle, WA 98195; Woods Institute for the Environment, Stanford University, Stanford, CA 94305; and Department of Integrative Biology, Oregon State University, Corvallis, OR 97331