Using Payments for Ecosystem Services to Achieve Conservation

and Development Objectives

Sara Scherr

Forest Trends

Ecoagriculture Partners

September 2005

Investing in “Natural Infrastructure’

The Forest Climate Alliance

Strategic Advice to National Policy Initiatives

Biodiversity Offsets

Carbon sequestration and storage

Soil formation and fertility

Decomposition of wastes Landscape beauty

Wilds species & habitat protection Plant pollination

Watershed protection and regulation

Air quality Pest & disease control

a) Self-Organized Private Deals

Private entities pay for private services

* Perrier-Vittel pays upstream landowners for improved agricultural practices and reforestation of sensitive infiltration zones (US$230/ha/yr)

* TNC, CI, WCS payments to farmers and communities for conservation management

Price of service typically negotiated, based on willingness to buy and sell (valuation studies may be an input for negotiation)

Public agency pays for service

•Public payments for watershed protection in Mexico ($60 mln in 2004)

•US pay landowners for wildlife conservation (EQUIP, Safe Harbor)

• Price of service either set by program (based on willingness to sell and valuation studies) or through auction

b) Public Payments to Farmers, Communities

c) Open Trading of Ecosystem Credits Under a Cap or Floor

Landowners either comply directly with regulations, or buy compliance credits

* Wetland banking in US allows developers to offset damage* The Kyoto-compliant carbon emission

offset market * Freshwater nutrient-trading

* Price of service is based on supply and demand for the service (with demand determined by regulation)

THE FOREST CLIMATE ALLIANCEd) Eco-labeled farm, forest, natural products

Consumers prefer certified sustainable supplies

* “Shade-grown coffee” in Mesoamerica (US$5 billion for sale in USA alone)

* Certified timber

* Eco-landscape source labels

* Price of service embedded as part of product price--usually by market (FSC), sometimes by negotiation (Starbucks)

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DRAFT – FOR INTERNAL DISCUSSION PURPOSES

Identify Ecosystem Services,

Buyers & Sellers

(includes assessment of both buyers’ and sellers’

goals / motivations to ensure that they are

complementary)

Create Supportive Legal / Regulatory

Context

(includes establishing tenure / rights)

LaunchMarkets & Payments

ForEcosystem Services

Adapted from Brand, David. 2002. “Investing in the Environmental Services of Australian Forests,” in S. Pagiola, J. Bishop, and N. Landell-Mills (editors). Selling Forest Environmental Services: Market-Based Mechanisms for Conservation and Development. London, U.K.: Earthscan Publications.

Establish Supporting

Organizations &Services

(includes verification services, etc.)

Develop the Rules for the Market

or Trading

(includes determining what is being sold, who is paying for what, etc.)

Building Blocks for Ecosystem Services Payments and Markets

Potential Benefits for Sustainable Development Poverty Reduction

New sources of finance for conservation, esp. outside Protected Areas Incentives for rational decision-making about resource use and management Income for rural communities with few other market opportunities (e.g., where no transport) Rewards rural communities for real benefits

they provide to others Financing for transition to sustainable agriculture, forestry and fisheries

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DRAFT – FOR INTERNAL DISCUSSION PURPOSES

Open Trading Self-Organized Private Deals

Public Payment Schemes

Standards and Guidelines for Ecosystem Service Payments or Markets

Identified Ecosystem Services(includes: ecosystem services for available for both current and future payments / markets)

Awareness of Ecosystem Service Values, Payments & Markets (among policymakers as well as potential sellers and buyers)

Engaged Local Communities & Stakeholders(includes: communities, NGO’s, financial institutions, businesses, government, etc.)

Support Services For Market Actors (such as: brokering, legal advice, measurement and valuation of ecosystem services,

3rd party verification, accounting, etc.)

Flow of Market Information

Technical Assistance(to sellers, buyers, and other market actors, which includes training, education, and advising)

Essential Components for Ecosystem Services Market Growth

Financing (for all needed components, including: ecosystem management costs, transaction costs, etc.)

Enabling Legal, Regulatory, & Administrative Context(includes: supportive context for ecosystem service payments and markets)

Component 1

Component 2

Component 4

Component 5

Component 6

Component 7

Component 8

Component 9

Component 10

Supporting Institutions(includes: public or private entities that facilitate / oversee public funds, regulate private trade, etc.)Component 3

Current Obstacles to Developing PES

Lack of technical and market information Potential buyers not organized High costs fo find, negotiate, monitor deals Lack of experience and capacity Inadequate legal and regulatory framework Political conflict over rights, responsibilities Distrust of markets for public goods

Potential Benefits & Risks for Community Sellers

Benefits* New, often more regular, flows of income (15-25% +)* Portfolio diversification* Catalyst for adopting better management practices * Asset appreciation (pest & disease control, high inventory)* Locally-valued ecosystem goods and services* Social investment, such as preserving cultural heritage

Risks* Loss of economic use options* Loss of land and forest ownership or access * Loss of local ecosystem services * Contractual obligations if services not delivered

Overcoming Obstacles for Community Producers

• Democratize information about ecosystem service markets

• Encourage broad participation in policy dialogue about the rules and shape of ecosystem service payments

• Reduce learning costs for new entrants to these markets; training programs and enterprise support; financial viable and appropriate business models

• Reduce transaction costs through institutional innovations like suitable intermediaries, ‘bundling’, large-area programs, integrate with economic activities

The Katoomba Group–Linking Global Innovators, Providing Policy Support

Are PES relevant for East and Southern Africa?

Critical need for new sources of confirmation finance

Many one-off projects being developed or in pipeline

Use models that fit local social and institutional conditions (“it’s all about design….”)

Be strategic about role of PES in national conservation and development strategy