To achieve the promises associated with ecosystem service markets (ESMs), such as efficiency or an overall reduction in the cost of environmental improvement, it is necessary to displace specific environmental impacts. More precisely, ESMs are based on the idea that it is possible, and even beneficial, to locate compensatory actions away from the point of impact, for example, by planting trees upstream of the discharge of warm water from a treatment plant. This means that operating at a large geographical scale is often one of the basic goals of ecosystem service market creation, since this brings down transaction costs and guarantees a sufficiently competitive “supply” of credits. For example, if a water treatment utility is allowed to purchase “shade credits” from a large area upstream of its point of discharge, the prices of those credits are likely to be lower than when only a few miles of stream are eligible. If more landowners can generate revenue from the sale of those credits, the price of a credit is likely to be lower, as the logic of supply and demand dictates.

The areas, or locations, from where ecosystem service credits can be bought and sold is a central challenge in creating markets for ecosystem services, primarily because of the importance many people attach to place. People care deeply and for a variety of reasons about specific locations. So, when markets for ecosystem services treat places as essentially the same, and allow exchanges to happen between them as if all places are fungible, people get upset. For example, a market might allow the discharge of warm water into a salmoncarrying stream to be compensated by planting trees that cast a cooling shade over that river upstream of the water treatment plant. In purely ecological terms, such compensation is noncontroversial. The trade-off benefits the environment; average water temperature is reduced along the entire length of the river. But for people living right next to a water treatment facility or adjacent to a tree-planting project, the impacts will differ dramatically. Such differences can lead to strong opposition, even if a market exchange produces net benefits.