Payments for ecosystem services (PES), also known as payments for environmental services (or benefits), are incentives offered to farmers or landowners in exchange for managing their land to provide some sort of ecological service. They have been defined as "a transparent system for the additional provision of environmental services through conditional payments to voluntary providers". These programmes promote the conservation of natural resources in the marketplace.
Concept overview
Ecosystem services have no standardized definition but might broadly be called "the benefits of nature to households, communities, and economies"James Boyd and Spencer Banzhaf, What Are Ecosystem Services? The Need for Standardized Environmental Accounting Units. Resources for the Future Discussion Paper or, more simply, "the good things nature does". Twenty-four specific ecosystem services were identified and assessed by the Millennium Ecosystem Assessment, a 2005 UN-sponsored report designed to assess the state of the world's ecosystems. The report defined the broad categories of ecosystem services as food production (in the form of crops, livestock, capture fisheries, aquaculture, and wild foods), fiber (in the form of timber, cotton, hemp, and silk), genetic resources (biochemicals, natural medicines, and pharmaceuticals), fresh water, air quality regulation, climate regulation, water regulation, erosion regulation, water purification and waste treatment, disease regulation, pest regulation, pollination, natural hazard regulation, and cultural services (including spiritual, religious, and aesthetic values, recreation and ecotourism). Notably, however, there is a "big three" among these 24 services which are currently receiving the most money and interest worldwide. These are climate change mitigation, watershed services and biodiversity conservation, and demand for these services in particular is predicted to continue to grow as time goes on. One seminal 1997 Nature magazine article estimated the annual value of global ecological benefits at $33 trillion, a number nearly twice the gross global product at the time. In 2014, the author of this 1997 research (Robert Costanza) and a qualified group of co-authors re-took this assessment – using only a slightly modified methodology but with more detailed 2011 data – and increased the aggregate global ecosystem services provisioning estimate to $125–145 trillion a year. The same research project also estimated between $4.3 and 20.2 trillion a year of losses to ecosystem services, due to land use change.
PES has also been touted as a tool for rural development. In 2007, the World Bank released a document outlining the place of PES in development. But the link between the environment and development had been officially recognized long before with the 1972 Stockholm Conference on the Human Environment and later reaffirmed by the Rio Conference on Environment and Development. However, PES programs are usually not designed to be primarily poverty alleviation schemes, although they may incorporate development mechanisms.
Some PES programs involve contracts between consumers of ecosystem services and the suppliers of these services. However, the majority of the PES programs are funded by governments and involve intermediaries, such as non-government organisations. The party supplying the environmental services normally holds the property rights over an environmental good that provides a flow of benefits to the demanding party in return for compensation. In the case of private contracts, the beneficiaries of the ecosystem services are willing to pay a price that can be expected to be lower than their welfare gain due to the services. The providers of the ecosystem services can be expected to be willing to accept a payment that is greater than the cost of providing the services. The monetization of soil is also progressively recognised as essential for sustainable land-use planning and policy-making.
Payments for Agrobiodiversity Conservation Services (PACS)
A related concept aims to adapt Payments for Ecosystem Services to support agrobiodiversity conservation by smallholder farmers.
Theoretical perspectives There are three main theoretical perspectives concerning PES. The first is that of environmental economics, the second of ecological economics, and the third of those who reject the very idea of ecosystem services.
Environmental economics The basic conceptualization of nature from the perspective of environmental economics is that manufactured capital can be used as a substitute for natural capital. The definition of PES provided by environmental economics is the most popular: a voluntary transaction between a service buyer and service seller that takes place on the condition that either a specific ecosystem service is provided or land is used in a way to secure that service. This definition is directly related to the Coase theorem, upon which PES is strongly based from the environmental economics perspective, which states that in a competitive market, in the absence of transaction costs and the presence of clear property rights, direct negotiation between private parties can lead to efficient outcomes. With this logic, a climate coalition can "buy coal" for conservation. However, in reality, transaction costs are virtually always present and the parties cannot always reach agreements on their own. One reason is that promising future payments are not time consistent. Another reason is the lack of sustained financing, which often leads governments to provide some type of funding assistance. The environmental economics theorists acknowledge that PES systems can resemble an environmental subsidy, complicating the strict Coasian backing.
Ecological economics The conceptualization of nature as understood by ecological economics is that manufactured capital and natural capital are not exclusive or substitutable, but rather complementary. PES as understood by ecological economics comprises three schematic components. The first surrounds the importance of the economic incentive. This idea concerns the relative weight an economic incentive may carry when understood in relation to social, moral, or other non-economic incentives. The second component is directness of the transfer, referring to the extent of interaction between ultimate buyers and sellers. The most direct program would occur between one buyer and one seller, with no intermediaries. A relatively indirect program would remove the buyers and sellers from each other, placing intermediaries between them, commonly in the form of NGOs and governments. The third and final component is the degree of commodification. This addresses the extent to which the environmental service (ES) being provided can be specifically and clearly assessed and measured. Some ES may be relatively easy to assess, such as tons of carbon sequestered, while others may prove difficult.
Rejection of ecosystem services Those who reject the idea of valuation of ecosystem services argue that nature should be conserved and valued for nature's sake, and that nature's value is impossible to quantify because its value is inherently infinite. They posit that the attempt to force the idea of ecosystem services into the market system leads to conservation only when it is deemed useful for human life, abandoning ideals environmental conservation when nature conflicts with human interest or simply does not affect human activity. PES programs have also been found to often rely on government or community engagement rather than operating solely as market mechanisms, complicating their classification as purely market-based instruments. There are also those who support the valuation of nature from a purely practical standpoint, expressed in the idea that "something is better than nothing." They realize and acknowledge the problematic nature of the quantitative valuation of nature but at the same time argue that practically, in a highly commodified society, it is a necessary measure.
Commodification of natural capital results in undervaluing ecological systems by not accounting for the innumerable wide-range services provided. PES may decrease in utility as 1) wealth becomes concentrated to the point that natural resource scarcity results in higher short-term value for unsustainable resource extraction, and 2) the long-term cost to engineer limited-range replacement services is externalized onto citizens. This occurs either through increased expense to the existing systems or as justification to privatize services for further profit. For example, a parent corporation can profit both from the exploitation of an ecosystem, and by engineering and operating the services formerly provided.
Organizations and motives for incentivizing production of ecosystem services
Though the goal of all PES programs is the procurement of some sort of ecosystem service, the reasons why organizations or governments would incentivize the production of these services are diverse. For example, the world's largest and longest running PES program is the United States' Conservation Reserve Program, which pays about $1.8 billion a year under 766,000 contracts with farmers and landowners to "rent" a total of what it considers "environmentally-sensitive land." These farmers agree to plant "long-term, resource-conserving covers to improve water quality, control soil erosion and enhance habitats for waterfowl and wildlife." This program has existed in some form or another since the wake of the American Dust Bowl, when the federal government began paying farmers to avoid farming on poor quality, erodible land.
In 1999, the Chinese central government announced an even more expensive project under its $43 billion Grain for Green program, by which it offers farmers grain in exchange for not clearing forested slopes for farming, thereby reducing erosion and saving the streams and rivers below from the associated deluge of sedimentation. Notably, some sources cite the cost of the entire program at $95 billion. Many less extensive nationally funded PES projects which bear resemblances to the American and Chinese land set-aside programs exist around the world, including programs in Canada, the EU, Japan and Switzerland.
Examples
North America
United States In Jamestown, Rhode Island, United States, farmers usually harvest the hay in their fields twice a year. However, this practice destroys the habitats of many local grassland birds. Economists from the University of Rhode Island and EcoAssets Markets Inc. raised money from residents of Jamestown who were willing to help the birds. The range of investments was between $5 and $200 per person for a total of $9,800. This money was enough to compensate three Jamestown farms for the cost of reducing their yearly harvests and getting their hay from another source. In this way, the birds have sufficient time to nest and leave the grounds without being subject to a hay harvest. In this example, the farmers benefit because they only have to harvest their fields once a year instead of twice, and the contributors benefit because they value the lives of the birds more than the money they contributed to the project.
Salt Lake City, Utah, United States has managed the majority of its watershed since the 1850s through multi-jurisdictional regulatory mechanisms such as specifying allowable uses (and restricting them), and purchasing land or conservation easements. This long-standing, legally-defensible, yet often-overlooked strategy preserves ecosystem services, while still allowing widely utilized recreation including skiing, snowboarding, hiking, mountain biking, and fishing. Existing uses of the land are generally unaffected, and commercial enterprises are restricted to no- or low-impact tourism-related activities.
Central and South America
Costa Rica