EnvJustice

In the broadest sense, the term Payments for Ecosystem Services (PES) refers to a system of incentives to preserve ecosystems and biodiversity through recognition of the vital services provided for human survival.

Types of Schemes

According to Greiber (2011) there are different types of PES schemes, namely:

a) Private schemes: direct payments by service beneficiaries to service providers, in which both providers and beneficiaries are private entities (individuals, groups of individuals, private companies); the government can participate only as an intermediary.

b) Public schemes: based on fiscal instruments (such as taxes or subsidies), relies on user fees, a government-driven system is established in which the public entity can play either as a provider or as a beneficiary.

c) Trading schemes: Government- and market- driven. It is based on a cap (aggregate maximum amount) for pollution or conversion of ecosystems, or extraction of natural resources and the allocation of permits (for pollution, conversion or extraction) which divide allowable overall total among users).

In the past decade, PES schemes have represented a growing trend in conservation policy, developing rapidly in both developed and developing countries around the world (Wunder et al., 2008), mainly around three groups of environmental services:

• water quality and quantity, often including soil conservation measures in order to control erosion and sediment loads in rivers and reservoirs and to reduce the risk of land slides and flooding;
• carbon sequestration (and in some cases protection of carbon storage) to respond to demand from the voluntary and regulatory greenhouse gas emissions markets;
• biodiversity conservation, by sponsoring the conservation of areas of important biodiversity (in buffer zones of protected areas, biological corridors or even in remnant patches of native vegetation in productive farms) and protecting agricultural biodiversity.

PES is sometimes referred to as a ‘market-based instrument’ or a ‘market for ecosystem services’, since it is basically a new type of subsidy, but unlike traditional subsidies, which are financed by taxpayers at large, payments can be financed directly and voluntarily by the beneficiaries (users) of the ecosystem services PES help maintain.

They are applied at different scales, ranging from micro-watersheds to entire watersheds that may cut across state, provincial, or national boundaries. WWF is exploring the possibility of a transboundary scheme for the Danube River. In Costa Rica, a country-wide program has been implemented since 1997. A government agency is in charge of this program as a representative of the beneficiaries. All landowners that produce one of the ecosystem services listed in the law are potential participants of the program. In other places, small scale programs have been developed to solve specific problems such as water provision (Echaverria et al., 2004): water consumers in a locality pay landowners upstream to protect watersheds.

Issues

PES should not be seen as an end in itself, but it is a policy tool with several advantages (as described in the UNEP website):

• potential to raise awareness of the values of biodiversity and ecosystems;
• opportunity to engage previously uninvolved actors (especially in the private sector) in conservation activities;
• opportunities for communities to improve their livelihoods through access to new markets;
• potential platform to integrate conservation and climate efforts into a common policy framework;
• potential to increase collaboration amongst Multilateral Environmental Agreements, in the international context; and
• it facilitates the transition from an economy of production to an economy of stewardship.;

While the principles are clear, however, designing and implementing a system of payments for environmental services in practice is often difficult. PES programs in place differ substantially, reflecting the adaptation of the basic concept to very different ecological, socioeconomic, or institutional conditions, as well as design options, sometimes as a consequence of mistakes or the need to accommodate political pressures. PES can be viewed from ‘urban-rural‘, ‘upstream- downstream‘, ‘North-South‘ and ‘core-periphery‘ perspectives.

Echavarria et al. (2004) describe a PES development process in ten steps, which may not be sequential:

1. Identify a situation where there is a ‘seller’ and ‘buyer’ of an environmental/ecological service;

2. Create the institutional capacity to implement a market mechanism;

3. Develop inter-institutional links;

4. Know what is going to be sold;

5. Develop and implement a negotiation strategy with the political decision-makers;

6. Develop environmental education projects for the communities;

7. Develop a formal and transparent organisational structure for decision-making and implementation;

8. Establish an appropriate payment system;

9. Monitor and evaluate the process;

10. Make corrections and reinforce successful measures.

Gómez-Baggethun et al. (2010) point out that the focus on monetary valuation and payment schemes has contributed to attract political support for conservation, but also to commodify a growing number of ecosystem services and to impose the market logic to tackle environmental problems. In this context, some problems are referred in the literature in both the demand and the supply sides (Wunder, 2007; Kosoy et al., 2007).

It is also argued that PES may become counterproductive. Assume that the service (for instance, water supply from the highlands) was supplied as a matter of course and as a social obligation for free. When a system of payment is introduced to guarantee quantity and quality of water, the logic has changed. If the payments are now seen as insufficient, appeals to social obligation will be useless.

A critical dimension of PES systems concerns their impact on the poor. According to Pagiola et al. (2005), PES may reduce poverty by making payments to poor natural resource managers. Although PES programs are not designed for poverty reduction, there can be important synergies when program design is well thought out and local conditions are favourable. However, payment mechanisms are limited for addressing issues of equity (Echavarria et al., 2004). They may eventually lead to changes in property rights against the poor or against indigenous groups.

Previous experience with incentive-based approaches suggests it is unlikely a PES approach will always be able to simultaneously improve livelihoods, increase ecosystem services, and reduce costs. Potential tradeoffs among these goals can arise and must be assessed (e.g. Kosoy et al., 2007).

References:

Echavarria, M., Vogel, J., Albán, M., Meneses, F. (2004) The impacts of payments for watershed services in Ecuador – emerging lessons from Pimampiro and Cuenca.

Gómez-Baggethun, E., de Groot, R., Lomas, P., Montes, C. (2009) The history of ecosystem services in economic theory and practice: From early notions to markets and payment schemes, Ecological Economics , doi:10.1016/j.ecolecon.2009.11.007.

Greiber, T. (2011) Enabling conditions and complementary legislative tools for PES, in Payment for ecosystem services and food security, Food and Agriculture Organization of the United Nations, pp. 205-225. Available online at: http://www.fao.org/docrep/014/i2100e/i2100e.pdf. Last accessed: 13/05/2013.

Kosoy, N., Martínez-Tuna, M., Muradian, R., Martínez-Alier, J. 2007. Payments for environmental services in watersheds: insights from a comparative study of three cases in Central America, Ecological Economics, Vol. 61, 446-455.

Pagiola, S., Arcenas, A., Platais, G. (2005) Can payments for environmental services help reduce poverty? An exploration of the issues and the evidence to date from Latin America. World Development 33 (2) 237-253.

Wunder, S. (2007) Efficiency of Payments for Environmental Services. Conservation Biology, 21(1), February 2007.

Wunder, S., Engelb, S., Pagiola, S. (2008) Taking stock: A comparative analysis of payments for environmental services programs in developed and developing countries, Ecological Economics, 65(4): 834-852.

Useful Websites:

The UN’s Food and agriculture Organisation (FAO) contains many PES resources, for example, this resource on farmers and designing effective payments for environmental services: ftp://ftp.fao.org/docrep/fao/010/a1200e/a1200e06.pdf

The website of the Convention on Biological Diversity also has many links to a range in international schemes and initiatives.  http://www.cbd.int/financial/payment.shtml

This glossary entry is based on a contribution by Rui Santos

EJOLT glossary editors: Hali Healy, Sylvia Lorek and Beatriz Rodríguez-Labajos