Payment for Environmental/Ecosystem Services

Ecosystems provide services to humanity such as clean water, climate stabilization and protection from storms and erosion. Ecosystem services refers to the many natural processes by which ecosystems, and the species that make them up, sustain and fulfil human life, generating benefits for people, including commodities and regulating, supporting, and cultural services. The type, quality, and quantity of services provided by an ecosystem can be affected by the resource use decisions of individuals and communities. When the benefits of an ecosystem service flow primarily to others than those who make management decisions, public interests and the interests of the resource manager may be misaligned. Payments for ecosystem services‘‘ (PES) have emerged as a policy solution for realigning the private and social benefits that result from decisions related to the environment. The goal of this instrument is to make landowners and resource managers internalize the benefits that they generate for society. Think of a highland landowner that allows cattle near the water sources – the PES will compensate him for the opportunity cost of foregoing having cattle in those areas.

Implementation
PES is an incentive-based mechanism, whose approach is based on a theoretically straightforward proposition: pay individuals or communities to undertake actions that increase levels of desired ecosystem services. A formal definition has been given by Wunder (2007): A PES scheme, simply stated, is a voluntary, conditional agreement between at least one seller‘ and one buyer‘ over a well defined environmental service - or a land use presumed to produce that service‘‘. A simplified representation of PES schemes can be found at http://www.fao.org/ES/ESA/ pesal/aboutPES5.html. The common aspects in several definitions refer to voluntary transactions where:
1. a service provider is paid by or on behalf of service beneficiaries, for agricultural land, forestry, coastal or marine management practices,that are:
2. expected to result in continued or improved service provision beyond what would have been provided without the payment.

PES schemes encompass a diversity of mechanisms ranging from voluntary compensation schemes for forest maintenance or agro-silvopastoral practices in Central America, to non-voluntary compensation for reforestation in China and Vietnam, and sometimes agro-environmental subsidies and certification schemes in the European Union and the United States. Latin America (Costa Rica, Ecuador, Mexico and Colombia) has been particularly receptive to this approach (Pagiola et al, 2005). In Europe, a PES initiative was developed and implemented by Vittel (Nestlé Waters) in North-Eastern France. REDD and other forms of carbon trade may be understood as PES.

Types of Schemes
According to FAO (http://www.fao.org/ES/ESA/pesal/aboutPES5.html) there are different types of Payments for Environmental Services schemes, namely:
a) Direct payment schemes: the government pays landowners, on behalf of civil society, and sometimes with contributions from the private sector, to adopt improved land management options and thus address a particular environmental problem.
b) Product-based PES schemes: consumers pay a "green premium" in addition to the market price of a product or service, in order to ensure an environmentally friendly production process and the protection of environmental services, which is verified through independent certification.
In the past decade, payment for ecosystem service (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
Payments for ecosystem services should not be seen as an end in itself, but it is a policy tool with several advantages (see, for example, 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.
- 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 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 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