Payment for ecosystem services
Encyclopedia
Payments for Ecosystem Services (PES), also known as Payments for Environmental Services (or Benefits) broadly defined, is the practice of offering incentives to farmers or landowners in exchange for managing their land to provide some sort of ecological service. These programmes promote the conservation of natural resources
in the marketplace
. Ecosystem services have no standardized definition, but might broadly be called “the benefits of nature to households, communities, and economies,” 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 then global gross product.
PES programs are voluntary and mutually beneficial contracts between consumers of ecosystem services
and the suppliers of these services. The party supplying the environmental services holds the property rights over an environmental good that provides a flow of benefits to the demanding party in return for compensation. The beneficiaries of the ecosystem
services are willing to pay a price that is lower than their welfare gain due to the services. The providers of the ecosystem services are willing to accept a payment that is greater than the cost of providing the services. These programs are practical examples of the Coase theorem
. According to the Coase Theorem, environmental externalities can be solved through private bargaining between people who are willing to pay in order to reduce an environmental hazard and people willing to accept compensation in order to reduce the activity that generates the environmental burden.
The Various 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 currently pays about $1.8 billion a year under 766,000 individual contracts with farmers and landowners to “rent” a total 34700000 acres (140,426 km²) 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 2000, the Chinese central government announced an even more expensive project under its $43 billion Grains 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. 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.
, Honduras
, the Cumes River is the town’s main source of clean water. Coffee producers were dumping their waste into the river upstream, polluting the source and directly affecting the consumers downstream. To solve this problem, the local Council for Administration of Water and Sewage Disposal (JAPOE) created a payment program to benefit coffee producers upstream and the town’s inhabitants that lived downstream. The villagers downstream paid around $0.06 per household per month to JAPOE, who redirected the money towards the upstream farmers. The farmers complied with various guidelines, such as construction of irrigation ditches, proper management of waste, and use of organic fertilizers.
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 two and the contributors benefit because they value the lives of the birds more than the money they contributed to the project.
The Scolel Té program in Chiapas
, Mexico
, aims to create a market for positive externalities of shade-grown coffee plantations. Designed by the University of Edinburgh
’s Institute of Ecology and Resource Management along with the Edinburgh Centre for Carbon management, using the Plan Vivo System, Scolel Té is a PES program under which farmers agree to responsible farming and reforestation practices in exchange for payment for carbon offsets. The NGO Ambio manages Scolel Té. Farmers submit their reforestation plans to Ambio, which then judges their financial benefits and the amount of carbon sequestration associated with each plan. The farmers then receive payments from the Fondo BioClimatico, managed by Ambio. Funding for the Fondo BioClimatico comes from the sale of Voluntary Emissions Reduction
(VERs) to private groups at a price of $13 per ton of Carbon sequestered.
Pico Bonito Forests, near La Ceiba
, Honduras, is a mission-driven, for-profit venture between the Pico Bonito
National Park Foundation and the EcoLogic Development Fund
. Carbon credits are generated by planting native trees to capture, or sequester, carbon dioxide. The credits are then sold though the World Bank’s BioCarbon Fund to countries aiming to meet their carbon emissions reduction targets. The project offers a unique business model because it is owned jointly by investors and the communities located near the park. Community members earn income and share profits from implementing the sustainable forestry practices that capture carbon. By 2017, the project is expected to sequester from .45-.55 Mt of carbon through reforestation
and agroforestry
and up to an additional .5 Mt of carbon through avoided deforestation as destructive practices are replaced with sustainable practices.
Costa Rica
has started programs under FUNDECOR (an NGO) and the Ministry of Environment and Energy in order to protect natural resources. It began to develop in 1996 with the Costa Rican Forestry Law. The Costa Rican government implemented laws to ensure that a new concept could become a part of their market place; the idea that market incentives can be implemented to protect natural resources, because ecosystem services have inherent value. The Law 7575 took into account the value of carbon fixation, hydrological services, biodiversity protection, and provision of scenic beauty. People were able to receive tax breaks for protecting services through the new laws. The Private Forestry Project was created, forming Costa Rica's first project to reward carbon sequestration on private land. The Protected Areas project created the ability to transfer private land into parkland. FUNDECOR worked with the National Fund for Forestry Financing (FONAFIFO) to set up an institution that could manage small and medium sized forests. Some of the main goals are to create programs for the smaller farmers through advanced payment for woods, sustainable forest harvesting, reforestation projects, getting farmers the best prices for their wood, performing environmental education, and helping to develop property rights of forest workers by registering their properties on the National Register Property (fundecor.org). Since in this particular case, the PES project sets up systems for those with little money to get land titles and use natural resources to join the economy in a sustainable manner, it has proved successful in creating a pathway out of poverty for many individuals (by giving them property rights). It does require that the country has a stable government in order to implement these types of plans, but it is an affective way to include natural resources into the price of markets, giving people incentives to protect their environment.
Natural Resources
Natural Resources is a soul album released by Motown girl group Martha Reeves and the Vandellas in 1970 on the Gordy label. The album is significant for the Vietnam War ballad "I Should Be Proud" and the slow jam, "Love Guess Who"...
in the marketplace
Marketplace
A marketplace is the space, actual, virtual or metaphorical, in which a market operates. The term is also used in a trademark law context to denote the actual consumer environment, ie. the 'real world' in which products and services are provided and consumed.-Marketplaces and street markets:A...
. Ecosystem services have no standardized definition, but might broadly be called “the benefits of nature to households, communities, and economies,” 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
Livestock
Livestock refers to one or more domesticated animals raised in an agricultural setting to produce commodities such as food, fiber and labor. The term "livestock" as used in this article does not include poultry or farmed fish; however the inclusion of these, especially poultry, within the meaning...
, capture fisheries, aquaculture
Aquaculture
Aquaculture, also known as aquafarming, is the farming of aquatic organisms such as fish, crustaceans, molluscs and aquatic plants. Aquaculture involves cultivating freshwater and saltwater populations under controlled conditions, and can be contrasted with commercial fishing, which is the...
, and wild
Wild
The term wild generally refers to:* Wildlife, all non-domesticated plants, animals, and other organisms* Wilderness or Wilderness area, a natural environment on Earth* Wildness, the quality of being wild or untamedWild may also refer to:...
foods), fiber
Fiber
Fiber is a class of materials that are continuous filaments or are in discrete elongated pieces, similar to lengths of thread.They are very important in the biology of both plants and animals, for holding tissues together....
(in the form of timber
Timber
Timber may refer to:* Timber, a term common in the United Kingdom and Australia for wood materials * Timber, Oregon, an unincorporated community in the U.S...
, cotton
Cotton
Cotton is a soft, fluffy staple fiber that grows in a boll, or protective capsule, around the seeds of cotton plants of the genus Gossypium. The fiber is almost pure cellulose. The botanical purpose of cotton fiber is to aid in seed dispersal....
, hemp
Hemp
Hemp is mostly used as a name for low tetrahydrocannabinol strains of the plant Cannabis sativa, of fiber and/or oilseed varieties. In modern times, hemp has been used for industrial purposes including paper, textiles, biodegradable plastics, construction, health food and fuel with modest...
, and silk
Silk
Silk is a natural protein fiber, some forms of which can be woven into textiles. The best-known type of silk is obtained from the cocoons of the larvae of the mulberry silkworm Bombyx mori reared in captivity...
), genetic
Genetics
Genetics , a discipline of biology, is the science of genes, heredity, and variation in living organisms....
resources (biochemicals, natural
Natural
Natural is an adjective that refers to Nature.Natural may refer too:In science and mathematics:* Natural transformation, category theory in mathematics* Natural foods...
medicines, and pharmaceuticals), fresh water
Water
Water is a chemical substance with the chemical formula H2O. A water molecule contains one oxygen and two hydrogen atoms connected by covalent bonds. Water is a liquid at ambient conditions, but it often co-exists on Earth with its solid state, ice, and gaseous state . Water also exists in a...
, air quality regulation
Regulation
Regulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
, climate
Climate
Climate encompasses the statistics of temperature, humidity, atmospheric pressure, wind, rainfall, atmospheric particle count and other meteorological elemental measurements in a given region over long periods...
regulation
Regulation
Regulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
, water
Water
Water is a chemical substance with the chemical formula H2O. A water molecule contains one oxygen and two hydrogen atoms connected by covalent bonds. Water is a liquid at ambient conditions, but it often co-exists on Earth with its solid state, ice, and gaseous state . Water also exists in a...
regulation
Regulation
Regulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
, erosion
Erosion
Erosion is when materials are removed from the surface and changed into something else. It only works by hydraulic actions and transport of solids in the natural environment, and leads to the deposition of these materials elsewhere...
regulation
Regulation
Regulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
, water purification
Purified water
Purified water is water from any source that is physically processed to remove impurities. Distilled water and deionized water have been the most common forms of purified water, but water can also be purified by other processes including reverse osmosis, carbon filtration, microfiltration,...
and waste treatment
Waste treatment
Waste treatment refers to the activities required to ensure that waste has the least practicable impact on the environment. In many countries various forms of waste treatment are required by law.-Solid waste treatment:...
, disease
Disease
A disease is an abnormal condition affecting the body of an organism. It is often construed to be a medical condition associated with specific symptoms and signs. It may be caused by external factors, such as infectious disease, or it may be caused by internal dysfunctions, such as autoimmune...
regulation
Regulation
Regulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
, pest regulation
Regulation
Regulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
, pollination
Pollination
Pollination is the process by which pollen is transferred in plants, thereby enabling fertilisation and sexual reproduction. Pollen grains transport the male gametes to where the female gamete are contained within the carpel; in gymnosperms the pollen is directly applied to the ovule itself...
, natural hazard
Natural hazard
A natural hazard is a threat of a naturally occurring event that will have a negative effect on people or the environment. Many natural hazards are interrelated, e.g. earthquakes can cause tsunamis and drought can lead directly to famine. It is possible that some natural hazards are...
regulation
Regulation
Regulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
, and cultural services (including spiritual, religious, and aesthetic values, recreation
Recreation
Recreation is an activity of leisure, leisure being discretionary time. The "need to do something for recreation" is an essential element of human biology and psychology. Recreational activities are often done for enjoyment, amusement, or pleasure and are considered to be "fun"...
and ecotourism
Ecotourism
Ecotourism is a form of tourism visiting fragile, pristine, and usually protected areas, intended as a low impact and often small scale alternative to standard commercial tourism...
). 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 then global gross product.
PES programs are voluntary and mutually beneficial contracts between consumers of ecosystem services
Ecosystem services
Humankind benefits from a multitude of resources and processes that are supplied by natural ecosystems. Collectively, these benefits are known as ecosystem services and include products like clean drinking water and processes such as the decomposition of wastes...
and the suppliers of these services. The party supplying the environmental services holds the property rights over an environmental good that provides a flow of benefits to the demanding party in return for compensation. The beneficiaries of the ecosystem
Ecosystem
An ecosystem is a biological environment consisting of all the organisms living in a particular area, as well as all the nonliving , physical components of the environment with which the organisms interact, such as air, soil, water and sunlight....
services are willing to pay a price that is lower than their welfare gain due to the services. The providers of the ecosystem services are willing to accept a payment that is greater than the cost of providing the services. These programs are practical examples of the Coase theorem
Coase theorem
In law and economics, the Coase theorem , attributed to Ronald Coase, describes the economic efficiency of an economic allocation or outcome in the presence of externalities. The theorem states that if trade in an externality is possible and there are no transaction costs, bargaining will lead to...
. According to the Coase Theorem, environmental externalities can be solved through private bargaining between people who are willing to pay in order to reduce an environmental hazard and people willing to accept compensation in order to reduce the activity that generates the environmental burden.
The Various 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 currently pays about $1.8 billion a year under 766,000 individual contracts with farmers and landowners to “rent” a total 34700000 acres (140,426 km²) 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 2000, the Chinese central government announced an even more expensive project under its $43 billion Grains 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. 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.
Additional examples
In Jesús de OtoroJesús de Otoro
Jesús de Otoro is a municipality in the Honduran department of Intibucá.Coordinates: 14°29'7.37"N 87°58'45.76"W...
, Honduras
Honduras
Honduras is a republic in Central America. It was previously known as Spanish Honduras to differentiate it from British Honduras, which became the modern-day state of Belize...
, the Cumes River is the town’s main source of clean water. Coffee producers were dumping their waste into the river upstream, polluting the source and directly affecting the consumers downstream. To solve this problem, the local Council for Administration of Water and Sewage Disposal (JAPOE) created a payment program to benefit coffee producers upstream and the town’s inhabitants that lived downstream. The villagers downstream paid around $0.06 per household per month to JAPOE, who redirected the money towards the upstream farmers. The farmers complied with various guidelines, such as construction of irrigation ditches, proper management of waste, and use of organic fertilizers.
In Jamestown, Rhode Island
Jamestown, Rhode Island
Jamestown is a town located in Newport County, Rhode Island, in the United States. The population was 5,405 at the 2010 census. Jamestown is situated almost entirely on Conanicut Island, the second largest island in Narragansett Bay.-History:...
, United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, 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 two and the contributors benefit because they value the lives of the birds more than the money they contributed to the project.
The Scolel Té program in Chiapas
Chiapas
Chiapas officially Estado Libre y Soberano de Chiapas is one of the 31 states that, with the Federal District, comprise the 32 Federal Entities of Mexico. It is divided in 118 municipalities and its capital city is Tuxtla Gutierrez. Other important cites in Chiapas include San Cristóbal de las...
, Mexico
Mexico
The United Mexican States , commonly known as Mexico , is a federal constitutional republic in North America. It is bordered on the north by the United States; on the south and west by the Pacific Ocean; on the southeast by Guatemala, Belize, and the Caribbean Sea; and on the east by the Gulf of...
, aims to create a market for positive externalities of shade-grown coffee plantations. Designed by the University of Edinburgh
University of Edinburgh
The University of Edinburgh, founded in 1583, is a public research university located in Edinburgh, the capital of Scotland, and a UNESCO World Heritage Site. The university is deeply embedded in the fabric of the city, with many of the buildings in the historic Old Town belonging to the university...
’s Institute of Ecology and Resource Management along with the Edinburgh Centre for Carbon management, using the Plan Vivo System, Scolel Té is a PES program under which farmers agree to responsible farming and reforestation practices in exchange for payment for carbon offsets. The NGO Ambio manages Scolel Té. Farmers submit their reforestation plans to Ambio, which then judges their financial benefits and the amount of carbon sequestration associated with each plan. The farmers then receive payments from the Fondo BioClimatico, managed by Ambio. Funding for the Fondo BioClimatico comes from the sale of Voluntary Emissions Reduction
Voluntary Emissions Reduction
Voluntary Emission Reductions or Verified Emission Reductions are a type of carbon offset exchanged in the voluntary or 'Over-the-Counter' market for carbon credits...
(VERs) to private groups at a price of $13 per ton of Carbon sequestered.
Pico Bonito Forests, near La Ceiba
La Ceiba
La Ceiba is a port city on the northern coast of Honduras in Central America. It is located on the southern edge of the Caribbean, forming part of the south eastern boundary of the Gulf of Honduras...
, Honduras, is a mission-driven, for-profit venture between the Pico Bonito
Pico Bonito
Pico Bonito National Park is located on the north coast of Honduras, in the mountain range called Cordillera Nombre de Dios, to the southwest of the city La Ceiba. It is part of the Mesoamerican Biological Corridor ....
National Park Foundation and the EcoLogic Development Fund
Ecologic Development Fund
EcoLogic, a 5013 nonprofit organization with a Four Star Charity Navigator Rating, based in Cambridge, Massachusetts, advances conservation of critical natural resources in rural Latin America by promoting sustainable livelihoods and strengthening community participation in environmental stewardship...
. Carbon credits are generated by planting native trees to capture, or sequester, carbon dioxide. The credits are then sold though the World Bank’s BioCarbon Fund to countries aiming to meet their carbon emissions reduction targets. The project offers a unique business model because it is owned jointly by investors and the communities located near the park. Community members earn income and share profits from implementing the sustainable forestry practices that capture carbon. By 2017, the project is expected to sequester from .45-.55 Mt of carbon through reforestation
Reforestation
Reforestation is the natural or intentional restocking of existing forests and woodlands that have been depleted, usually through deforestation....
and agroforestry
Agroforestry
Agroforestry is an integrated approach of using the interactive benefits from combining trees and shrubs with crops and/or livestock.It combines agricultural and forestry technologies to create more diverse, productive, profitable, healthy and sustainable land-use systems.-Definitions:According to...
and up to an additional .5 Mt of carbon through avoided deforestation as destructive practices are replaced with sustainable practices.
Costa Rica
Costa Rica
Costa Rica , officially the Republic of Costa Rica is a multilingual, multiethnic and multicultural country in Central America, bordered by Nicaragua to the north, Panama to the southeast, the Pacific Ocean to the west and the Caribbean Sea to the east....
has started programs under FUNDECOR (an NGO) and the Ministry of Environment and Energy in order to protect natural resources. It began to develop in 1996 with the Costa Rican Forestry Law. The Costa Rican government implemented laws to ensure that a new concept could become a part of their market place; the idea that market incentives can be implemented to protect natural resources, because ecosystem services have inherent value. The Law 7575 took into account the value of carbon fixation, hydrological services, biodiversity protection, and provision of scenic beauty. People were able to receive tax breaks for protecting services through the new laws. The Private Forestry Project was created, forming Costa Rica's first project to reward carbon sequestration on private land. The Protected Areas project created the ability to transfer private land into parkland. FUNDECOR worked with the National Fund for Forestry Financing (FONAFIFO) to set up an institution that could manage small and medium sized forests. Some of the main goals are to create programs for the smaller farmers through advanced payment for woods, sustainable forest harvesting, reforestation projects, getting farmers the best prices for their wood, performing environmental education, and helping to develop property rights of forest workers by registering their properties on the National Register Property (fundecor.org). Since in this particular case, the PES project sets up systems for those with little money to get land titles and use natural resources to join the economy in a sustainable manner, it has proved successful in creating a pathway out of poverty for many individuals (by giving them property rights). It does require that the country has a stable government in order to implement these types of plans, but it is an affective way to include natural resources into the price of markets, giving people incentives to protect their environment.
Further reading
- Callan, Scott J., Thomas, Janet M., Environmental Economics and Management, Thompson South-Western, Mason, OH, 2007
- Cacho, Oscar; Marshall, Graham; Milne, Mary. “Smallholder Agroforestry Projects: Potential for Carbon Sequestration and Poverty Alleviation” ESA Working Paper #03-06, (2003).
- Keohane, Nathaniel O, and Olmstead, Sheila M., Markets and the Environment, Island Press, Washington, DC, 2007.
- Sanchirico, James, and Juha Siikamaki, “Natural Resource Economics and Policy in the 21st Century: Conservation of Ecosystem Services,” Resources, 165 (2007): 8-10.http://www.rff.org/rff/Documents/RFF-Resources-165.pdf
- University of Rhode Island, "First U.S. test of Ecological Services Payment Underway." MongaBay.com June 27, 2007
- Wexler, Mark. "The Coffee Connection." National Wildlife 41.1 (2003): 37.
- Ward, Frank A., Environmental and Natural Resource Economics, Prentice-Hall, 2006.
External links
- Ecosystem Marketplace breaking news and features on payments for ecosystem services
- Plan Vivo is a standard used to certify PES projects and provides guidance on developing a PES programme