Payments for environmental services in Costa Rica

Costa Rica pioneered the use of the payments for environmental services (PES) approach in developing countries by establishing a formal, country-wide program of payments, the PSA program. The PSA program has worked hard to develop mechanisms to charge the users of environmental services for the services they receive. It has made substantial progress in charging water users, and more limited progress in charging biodiversity and carbon sequestration users. Because of the way it makes payments to service providers (using approaches largely inherited from earlier programs), however, the PSA program has considerable room for improvement in the efficiency with which it generates environmental services. With experience, many of these weaknesses are being gradually corrected as the PSA program evolves towards a much more targeted and differentiated program. An important lesson is the need to be flexible and to adapt to lessons learned and to changing circumstances.     

Paying for the environmental services of silvopastoral practices in Nicaragua

Agricultural landscapes can provide many valuable ecosystem services, but many are externalities from the perspective of farmers and so tend to be under-produced. This paper examines an effort to make direct payments for ecosystem services (PES) in an agricultural landscape. The Regional Integrated Silvopastoral Ecosystem Management Project is piloting the use of PES to induce adoption of silvopastoral practices in the Matiguás-Río Blanco area in Nicaragua. Silvopastoral practices could substantially improve service provision while retaining agricultural production, but they have found only limited acceptance among farmers. The Silvopastoral Project seeks to increase their adoption by paying farmers for the expected increase in biodiversity conservation and carbon sequestration services that these practices would provide. The Project developed an ‘environmental services index’ (ESI) and pays participants for net increases in ESI points. Although the Silvopastoral Project is still underway, it already appears to have succeeded in inducing farmers to increase substantially the use of practices that generate higher levels of ecosystem services. In the project's first two years, over 24% of the total area experienced some form of land use change. The area of degraded pasture fell by two thirds, while pastures with high tree density increased substantially, as did fodder banks and live fences. On-going monitoring indicates that these land use changes are in fact generating the desired services. Questions remain about the long-term sustainability of the approach, however. To ensure sustainability, long-term payments are likely to be needed, raising the question of how they will be financed. Payments by water users and by carbon buyers provide a partial answer to this challenge, but still leave many gaps.     

Designing payments for environmental services in theory and practice: An overview of the issues

Payments for environmental services (PES) have attracted increasing interest as a mechanism to translate external, non-market values of the environment into real financial incentives for local actors to provide environmental services (ES). In this introductory paper, we set the stage for the rest of this Special Issue of Ecological Economics by reviewing the main issues arising in PES design and implementation and discussing these in the light of environmental economics. We start with a discussion of PES definition and scope. We proceed to review some of the principal dimensions and design characteristics of PES programs and then analyze how PES compares to alternative policy instruments. Finally, we examine in detail two important aspects of PES programs: their effectiveness and their distributional implications.PES is not a silver bullet that can be used to address any environmental problem, but a tool tailored to address a specific set of problems: those in which ecosystems are mismanaged because many of their benefits are externalities from the perspective of ecosystem managers. PES is based on the beneficiary-pays rather than the polluter-pays principle, and as such is attractive in settings where ES providers are poor, marginalized landholders or powerful groups of actors. An important distinction within PES is between user-financed PES in which the buyers are the users of the ES, and government-financed PES in which the buyers are others (typically the government) acting on behalf of ES users. In practice, PES programs differ in the type and scale of ES demand, the payment source, the type of activity paid for, the performance measure used, as well as the payment mode and amount. The effectiveness and efficiency of PES depends crucially on program design.     

Taking stock: A comparative analysis of payments for environmental services programs in developed and developing countries

Payments for environmental services (PES) are an innovative approach to conservation that has been applied increasingly often in both developed and developing countries. To date, however, few efforts have been made to systematically compare PES experiences. Drawing on the wealth of case studies in this Special Issue, we synthesize the information presented, according to case characteristics with respect to design, costs, environmental effectiveness, and other outcomes. PES programs often differ substantially one from the other. Some of the differences reflect adaptation of the basic concept to very different ecological, socioeconomic, or institutional conditions; others reflect poor design, due either to mistakes or to the need to accommodate political pressures. We find significant differences between user-financed PES programs, in which funding comes from the users of the ES being provided, and government-financed programs, in which funding comes from a third party. The user-financed programs in our sample were better targeted, more closely tailored to local conditions and needs, had better monitoring and a greater willingness to enforce conditionality, and had far fewer confounding side objectives than government-financed programs. We finish by outlining some perspectives on how both user- and government-financed PES programs could be made more effective and cost-efficient.     

Selling two environmental services: In-kind payments for bird habitat and watershed protection in Los Negros, Bolivia

Marketing several environmental services from a single area can help access diverse sources of funding and make conservation a more competitive land use. In Bolivia's Los Negros valley (Department of Santa Cruz), bordering the Amboró National Park, 46 farmers are currently paid to protect 2774 ha of a watershed containing the threatened cloud-forest habitat of 11 species of migratory birds. In this payment for environmental services (PES) scheme, annual contracts prohibit tree cutting, hunting and forest clearing on enrolled lands. Farmer-landowners as service providers submit to independent yearly monitoring, and are sanctioned for non-compliance. Facilitated by a local NGO, Fundación Natura Bolivia, one service buyer is an international conservation donor (the US Fish and Wildlife Service) interested in biodiversity conservation. The second service users are downstream irrigators who likely benefit from stabilized dry-season water flows if upstream cloud forests are successfully protected. Individual irrigators have been reluctant to pay, but the Los Negros municipal government has on their behalf contributed ~ US$4500 to the scheme. The negotiated payment mode is annual quid pro quo in-kind compensations in return for forest protection. Predominantly, payments are made as “contingent project implementation”, transferring beehives supplemented by apicultural training. With regard to service provision, environment committees and education programs have increased awareness in downstream communities of the probable water-supply reduction effect of continued upstream deforestation. External donors have funded subsequent studies providing basic economic, hydrological and biodiversity data, and covered PES start-up (~ US$40,000) and running transaction costs (~ US$3000 per year over the last three years). The greatest challenges in the development of the PES mechanism have been the slow process of building trust between service buyers and providers, and in achieving clear service-provision additionality.     

Payments for environmental services as an alternative to logging under weak property rights: The case of Indonesia

Decentralization reforms in Indonesia have led to local communities negotiating logging agreements with timber companies for relatively low financial payoffs and at high environmental cost. This paper analyzes the potential of payments for environmental services (PES) to provide an alternative to logging for these communities and to induce forest conservation. We apply a game-theoretical model of community-firm interactions that explicitly considers two stylized conditions present in the Indonesian context: (i) community rights to the forest remain weak even after decentralization, and (ii) the presence of logging companies interested in the commercial exploitation of the forest. Intuition may suggest that PES design should focus on those communities with the lowest expected payments from logging deals. However, we show that these communities may not be able to enforce a PES agreement, i.e., they may not be able to prevent logging activities by timber companies. Moreover, some communities would conserve the forest anyway; in these cases PES would not lead to additional environmental gains. Most important, the introduction of PES may increase a community's expected payoff from a logging agreement. A failure to consider this endogeneity in expected payoffs could lead to communities opting for logging agreements despite PES, simply allowing communities to negotiate better logging deals. Our results indicate that PES design is a complex task, and that the costs of an effective PES system could potentially be much higher than expected from observing current logging fees. Using data collected in Indonesia on actual logging fees received by communities, we illustrate how the theoretical results could be used in empirical analysis to guide PES design. Our results are likely to be useful in other cases where local people make resource use decisions but have weak property rights over these resources, and where external commercial forces are present. The results highlight the importance of understanding the details of the local context in order to design PES programs appropriately.     

Towards a unified scheme for environmental and social protection: Learning from PES and CCT experiences in developing countries

Environmental protection and poverty alleviation in the developing world are usually heralded as joint objectives. However, these two goals are often associated with different sectoral policy instruments. While so−called payments for environmental services (PES) are increasingly being promoted for environmental protection, poverty alleviation is increasingly addressed by conditional cash transfers (CCT) program. These instruments although aimed to achieve distinct objectives have a number of similarities and challenges in their design and implementation phases. This paper elaborates on these similarities and develops a unifying generic framework that is used to discuss the extent to which both approaches could be unified.     

Payments for agrobiodiversity conservation services for sustained on-farm utilization of plant and animal genetic resources

This paper discusses the potential application of Payment for Ecosystem Services-like schemes to tackle market failures associated with the public good characteristics of agrobiodiversity conservation services. So called payments for agrobiodiversity conservation services (PACS) would increase the private benefits from utilizing local plant and animal genetic resources on-farm through voluntary reward mechanisms, so as to sustain their on-farm conservation. Theoretical and applied insights about PACS are discussed and attention drawn to some of the challenges to be overcome in implementing PACS. In particular, these relate to the identification of potential buyers, the complex institutional setting in which PACS might operate and the articulation of a meaningful conservation goal based on a safe minimum standard approach. The latter is urgently needed, so as to ensure that additional agrobiodiversity services are generated. Relative to a fixed pricing approach, PACS schemes that seek to overcome information asymmetries through the use of conservation auctions may be associated with significant efficiency gains. However, potential trade-offs between ecological effectiveness, economic efficiency, and social equity considerations need to be carefully evaluated.     

Asymmetric information and contract design for payments for environmental services

In contractual relationships involving payments for environmental services, conservation buyers know less than landowners know about the costs of contractual compliance. Landowners in such circumstances use their private information as a source of market power to extract informational rents from conservation agents. Reducing informational rents is an important task for buyers of environmental services who wish to maximize the services obtained from their limited budgets. Reducing informational rents also mitigates concerns about the “additionality” of PES contracts because low-cost landowners are least likely to provide different levels of services in the absence of a contract. Paying low-cost landowners less thus makes resources available for contracts with higher opportunity cost landowners, who are more likely to provide substantially different levels of services in the absence of a contract. To reduce informational rents to landowners, conservation agents can take three approaches: (1) acquire information on observable landowner attributes that are correlated with compliance costs; (2) offer landowners a menu of screening contracts; and (3) allocate contracts through procurement auctions. Each approach differs in terms of its institutional, informational and technical complexity, as well as in its ability to reduce informational rents without distorting the level of environmental services provided. No single approach dominates in all environments. Current theory and empirical work provides practitioners with insights into the relative merits of each approach. However, more theoretical work and experimentation in the laboratory and the field are necessary before definitive conclusions about the superiority of one or more of these approaches can be drawn.     

Paying for the hydrological services of Mexico's forests: Analysis, negotiations and results

Mexico faces both high deforestation and severe water scarcity. The Payment for Hydrological Environmental Services (PSAH) Program was designed to complement other policy responses to the crisis at the interface of these problems. Through the PSAH, the Mexican federal government pays participating forest owners for the benefits of watershed protection and aquifer recharge in areas where commercial forestry is not currently competitive. Funding comes from fees charged to water users, from which nearly US$18 million are earmarked for payments of environmental services. Applicants are selected according to several criteria that include indicators of the value of water scarcity in the region. This paper describes the process of policy design of the PSAH, the main actors involved in the program, its operating rules, and provides a preliminary evaluation. One of the main findings is that many of the program's payments have been in areas with low deforestation risk. Selection criteria need to be modified to better target the areas where benefits to water users are highest and behavior modification has the least cost, otherwise the program main gains will be distributive, but without bringing a Pareto improvement in overall welfare.     

The working for water programme: Evolution of a payments for ecosystem services mechanism that addresses both poverty and ecosystem service delivery in South Africa

A payments for ecosystem services (PES) system came about in South Africa with the establishment of the government-funded Working for Water (WfW) programme that clears mountain catchments and riparian zones of invasive alien plants to restore natural fire regimes, the productive potential of land, biodiversity, and hydrological functioning. The success of the programme is largely attributed to it being mainly funded as a poverty-relief initiative, although water users also contribute through their water fees. Nevertheless, as the hydrological benefits have become apparent, water utilities and municipalities have begun to contract WfW to restore catchments that affect their water supplies. This emerging PES system differs from others in that the service providers are previously unemployed individuals that tender for contracts to restore public or private lands, rather than the landowners themselves. The model has since expanded into other types of ecosystem restoration and these have the potential to merge into a general programme of ecosystem service provision within a broader public works programme. There is a strong case for concentrating on the most valuable services provided by ecosystems, such as water supply, carbon sequestration, and fire protection, and using these as ‘umbrella services’ to achieve a range of conservation goals. The future prospects for expansion of PES for hydrological services are further strengthened by the legal requirement that Catchment Management Agencies be established. These authorities will have an incentive to purchase hydrological services through organisations such as WfW so as to be able to supply more water to their users.     

The environmental effect of car-free housing: A case in Vienna

A case-control study of the car-free model housing project in Vienna was conducted to evaluate whether people living in this settlement have more ‘sustainable lifestyles’ than people living in comparable buildings in Vienna. Another aim was to identify the lifestyle characteristics and household activities which significantly influence the environmental impact of the residents of the car-free housing project and a control group. The control group, referred to as the reference settlement, was chosen from a nearby building complex, with similar characteristics, but without the car-free feature. Household consumption patterns were estimated based on interviews in combination with data from the Austrian consumer expenditure survey and the national accounts. The evaluation of household environmental impacts uses emissions estimates from the Austrian national accounting matrices including environmental accounts and data from life-cycle assessments. Households from the car-free settlement have substantially lower environmental impacts in the categories of ground transportation and energy use; their CO₂ emissions of these two categories are less than 50% of those living in the reference settlement. The households in the car-free settlement have somewhat higher emissions in the categories air transport, nutrition, and ‘other’ consumption, reflecting the higher income per-capita. As a result, the CO₂ emissions are only slightly lower than in the reference settlement, but the emissions intensity is 20% lower. Both household groups have significantly lower environmental impacts than the Austrian average reflecting less car use and cleaner heating energy in Vienna.     

流域生态补偿的支付意愿及影响因素——以南水北调中线工程受水区郑州市为例

基于支付卡式(PC)条件价值法(CVM)对南水北调中线工程受水区郑州市进行问卷调查,利用Tobit模型考察了受水区居民使用南水北调中线工程水源区水质和水量生态服务的支付意愿(WTP)。结果表明:在302个有效样本中,受水区居民具有正支付意愿的比例为84.44%,其中89.8%的居民支付意愿值为10元/月及以下。根据两类WTP评估方法得出的郑州市居民支付意愿为5~8.09元/月。居民异质性是支付意愿的重要影响因素,收入水平、教育水平、年龄和偏好的影响显著;从居民对水源产权的认知看,受访者默认拥有清洁水源使用权,支付意愿决策具有较强的自利动机;从居民支付意愿决策背景看,水量和水质变化影响了居民的效用水平,从而改变了居民参与流域生态补偿的支付意愿。应建立生态服务使用方直接参与的流域生态补偿机制,根据受水区居民真实支付意愿对水源区进行生态补偿。     

A science-driven market-based instrument for determining the cost of environmental services: A comparison of two catchments in Australia

An auction-based approach (or MBI for “market-based instrument”) was used to purchase environmental services from landowners and to establish a long-term economic resource (forest plantations) in two catchments in the state of Victoria (Australia). The policy goal of the MBI was to encourage the conversion of cleared land to forest plantations. It was desired to achieve this while also reducing the amount of land affected by dryland salinity with minimum impact on water available for irrigation. Operationally, interested landowners identified areas on which they would be willing to establish forest plantations, and stated the amount of money they would require from the government to undertake plantation establishment; this constituted a landowner bid. The proposed planting area associated with each bid was processed through a quantitative hydrological model to estimate off-site impacts on dryland salinity and the change in water yield resulting from the conversion of individual non-forested areas to forest plantations. Landowner bids were then accepted or not based on the economic trade-offs among dollars requested by a landowner, reduction in water yield, and decrease in dryland salinity. To enable a comparison of costs, the MBI was independently trialled in two catchments. For both, the cost to government of a hectare of plantation and/or a hectare of salinity benefit was calculated a number of ways. Assuming the existence of a calibrated hydrological model, costs associated with distributing money via such an MBI were publicity, fieldwork, processing the bids through the model, probity, legal, and administration. In the Gippsland catchment, the total cost to establish forest plantations was $5340 per ha whereas it was $1635 per ha in the Corangamite catchment. No salinity benefit was obtained in Gippsland, but in Corangamite, if considered in isolation of the economic forest plantation benefit, the cost per hectare of salinity benefit was $5020.Operational aspects of the MBI are presented and discussed and a comparison is made to the expected costs of a conventional, non-science driven approach to landowner incentives.     

Risk-Cost Analysis for the Regulation of Airborne Toxic Substances in a Developing Context: The Case of Arsenic in Chile

Most developing countries are just beginning to takeenvironmental protection seriously. In some cases it is common tocopy regulations from developed countries; however, determininghow much protection is required is difficult, ideally requiringthat the costs and risks be considered to propose a realistic andeffective policy. Chile has serious problems with arsenicpollution associated to emissions from its copper smelters. Toregulate these emissions, a strict ambient concentrationstandard, applicable to the whole country, is being proposed thatreduces risks to an acceptable level. However, little is knownabout the exposure and health effects associated to currentemission levels, and the corresponding costs of reducingemissions. The results of a three-year project that combinesengineering, economics and health information sheds light onthese costs and risks for different values of ambient standards.These show that there are ``win--win' options that obtainsignificant health improvements at low, even negative, costs.However, costs quickly increase as the concentration standardbecomes more stringent, with few additional health benefits. Inmany locations naturally high background levels of arsenic makeit very costly or even impossible to reach the desired goal.These results make it necessary to examine the use of a case-by-caseregulation for each source, rather than a general one basedon a unique ambient quality goal. They also suggest that copyingstandards or risk criteria used in developed contexts can beextremely expensive.     

Examining the global environmental impact of regional consumption activities — Part 2: Review of input-output models for the assessment of environmental impacts embodied in trade

This paper offers a detailed review of recently described single- and multi-region input-output models used to assess environmental impacts of internationally traded goods and services. It is the second part of a two-part contribution. In Part 1 [Turner, K., Lenzen, M., Wiedmann, T. and Barrett, J. in press. Examining the Global Environmental Impact of Regional Consumption Activities — Part 1: A Technical Note on Combining Input-Output and Ecological Footprint Analysis; Ecological Economics.] we describe how to enumerate the resource and pollution content of inter-regional and inter-national trade flows with the aim to illustrate an ideal accounting and modelling framework for the estimation of Ecological Footprints.A large number of such environment-economic models have been described but only in the last few years models have emerged that use a more sophisticated multi-region, multi-sector input-output framework. This has been made possible through improvements in data availability and quality as well as computability. We identify six major models that employ multi-sector, multi-region input-output analysis in order to calculate environmental impacts embodied in international trade. Results from the reviewed studies demonstrate that it is important to explicitly consider the production recipe, land and energy use as well as emissions in a multi-region, multi-sector and multi-directional trade model with global coverage and detailed sector disaggregation. Only then reliable figures for indicators of impacts embodied in trade, such as the Ecological Footprint, can be derived.     

The determinants of tendering periods for PPP procurement in the UK: an empirical analysis

The procurement of infrastructure projects via public–private partnerships (PPPs) is rising globally. PPPs are, however, often characterized by lengthy tendering periods, defined as the difference between contract notice and financial close. Tendering periods are important because they account for a significant proportion of overall project delivery time. Slow tendering deters bidders and thus reduces competition for contracts. We source data on 670 PPP projects in the United Kingdom and use a duration analysis model to empirically examine factors that impact tendering period duration. Our results reveal significant sectoral variation with projects in the health and housing sectors taking significantly longer to reach financial close. We also show that, after controlling for other factors, projects with higher capital values and projects that overlap with the timing of general elections are associated with significantly longer tendering periods. We further examine the impact of the competitive dialogue procurement method and find evidence that tendering periods have increased since 2006; the year competitive dialogue was introduced. We do, however, observe a significant reduction in the time between appointment of preferred bidder and financial close post-2006. This suggests that competitive dialogue is effective in reducing the scope for negotiations by preferred bidders holding quasi-monopoly advantages.