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Introduction to Payments for Ecosystem Services (PES)

Introduction to Payments for Ecosystem Services (PES). Topic 5, Section B. USAID-CIFOR-ICRAF Project Assessing the Implications of Climate Change for USAID Forestry Programs (2009). Learning outcomes.

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Introduction to Payments for Ecosystem Services (PES)

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  1. Introduction to Payments for Ecosystem Services (PES) Topic 5, Section B USAID-CIFOR-ICRAF Project Assessing the Implications of Climate Change for USAID Forestry Programs (2009)

  2. Learning outcomes • In this presentation you will learn about the central concepts of Payment for Ecosystem Services and how carbon finance fits into that framework. • You will also learn about PES design features and performance-based carbon financing. Topic 5, Section B, slide 2 of 35

  3. Outline • Logic of PES • Definition and scope • Bundling approaches • PES and carbon finance • Lessons from PES for carbon finance (Reducing Emissions from Deforestation and Forest Degradation (REDD)) Topic 5, Section B, slide 3 of 35

  4. 1. The logic of PES Conversion to pasture Forest conservation Benefits to ecosystemmanagers Reduced water services Problem: when conservation costs are greater than benefits, forest conservation is not profitable. Costs to downstream populationand others Loss of biodiversity Carbon emissions Source: Engel, Pagiola & Wunder, 2008 Topic 5, Section B, slide 4 of 35

  5. 1. The logic of PES Conversion to pasture Forest conservation Benefits to ecosystemmanagers Min. payment Payments Reduced water services Costs to downstream populationand others Loss of biodiversity Payment for service Carbon emissions Max. payment Source: Engel, Pagiola & Wunder, 2008 Topic 5, Section B, slide 5 of 35

  6. 1. The logic of PES • Idea: • Those who provide ecosystem services get paid for doing so (provider gets) • Those who benefit from ecosystem pay for provision (user pays) • PES are popular for perceived simplicity and cost-effectiveness • PES is a new paradigm for contractual conservation Topic 5, Section B, slide 6 of 35

  7. Example from Costa Rica Source: http://eltucan.co.cr Topic 5, Section B, slide 7 of 35

  8. 2. Definition and scope of PES At CIFOR, PES are defined through five criteria: • voluntary transactions in which • a well-defined ecosystem service (or a land use likely to secure that service) • is bought by a (minimum of one) buyer • from a (minimum of one) provider • if and only if the provider continuously secures the provision of the service (conditionality) • Four areas of application: carbon, watershed, biodiversity and landscape beauty Source: Wunder (CIFOR), 2005 Topic 5, Section B, slide 8 of 35

  9. PES definitions Other economic Incentives PES core 5 criteria Theory and some private PES PES-like schemes “PES-like” schemes: Some of 5 criteria Public agro-environmental schemes; eco-labels,ecotourism PES core Other economic incentives: Any “payment” for any “environmental service” by “anybody” ICDPs, park-ranger salaries, reforestation subsidies, etc. Source: Wunder 2008 (CIFOR) Topic 5, Section B, slide 9 of 35

  10. Economic precondition of PES PES only useful for strategic sub-spectrum of ecosystem service types and ecosystem service-producing areas Environmental services (ES) ES = externality(water quality, carbon emissions) ES = truly threatened WTP > WTA + TC Topic 5, Section B, slide 10 of 35

  11. Types of PES schemes (categories of ES buyers) Source: adapted from Wunder et al. 2008, SI Ecol Econ. Topic 5, Section B, slide 11 of 35

  12. Costs of PES • Opportunity costs (+ land owner’s protection costs) • Transaction costs Topic 5, Section B, slide 12 of 35

  13. 3. Direct and ‘bundled’ payments Direct payments • are targeted specifically to environmental services of interest • have the potential to tap new funds from the private sector • exist for water and carbon services, less for biodiversity Topic 5, Section B, slide 13 of 35

  14. 3. Direct and “bundled” payments Selling few environmental services may not cover OC of forest conservation  scope for bundling? Source: USAID 2007, PES Sourcebook Topic 5, Section B, slide 14 of 35

  15. 1. BUNDLING: A bundle of services is sold to the same single buyer (e.g. government-financed scheme) Package of services (bird and watershed conservation) 2. LAYERING: A group of services is sold to different buyers(e.g. Costa Rica) Bird conservation services Watershed protection services 3. PIGGY-BACKING: One service is ‘free-rider’ or only temporary component in a bundled PES scheme Watershed protection services No payment or start-up cost-sharing by biodiversity beneficiaries Topic 5, Section B, slide 15 of 35

  16. Direct and bundled payments Bundled payments: • Three variants: bundling, layering, piggy-backing • Coordination and free-riding challenges • Despite attractiveness, few examples in practice • New opportunities with carbon markets, notably Reducing Emissions from Deforestation and Degradation (REDD), such as joint carbon-biodiversity payments? Source: Wunder and Wertz-Kanounnikoff (forth.), Journ. f Sust. Forestry Topic 5, Section B, slide 16 of 35

  17. 4. PES and carbon finance • Carbon = environmental services • Biological carbon sequestration (afforestation and reforestation, Clean Development Mechanism) • Reduced carbon emissions from land use and forestry (REDD) • Carbon investors = buyers of carbon service • PES and carbon finance seek output-based performance contracts (voluntary, conditional deals) • Carbon finance adds international dimension: international PES (I-PES) Topic 5, Section B, slide 17 of 35

  18. International buyers of carbon services(compliance/voluntary markets, aid) ER ER $$ $$ $$ ER $$ $$ ER ER Deal with projects (CDM)or sub-national entities (REDD?) Deal with countries(REDD?) Deal with countries and projects (REDD?) Topic 5, Section B, slide 18 of 35

  19. “Ideal REDD” = multi-level PES Source: Angelsen and Wertz-Kanounnikoff, 2008ˆ Topic 5, Section B, slide 19 of 35

  20. 5. Study: lessons from PES for REDD • Study by IIED-WRI-CIFOR, conducted in 2008, commissioned by the Government of Norway • Review of 13 PES schemes with features relevant to REDD • The report can be downloaded from http://www.iied.org/pubs/pdfs/13555IIED.pdf Topic 5, Section B, slide 20 of 35

  21. Selected PES and CBNRM programmes Topic 5, Section B, slide 21 of 35

  22. Characteristics of Amazon cases Topic 5, Section B, slide 22 of 35

  23. Finding: Design features • Payments • Theory: at minimum, payments need to meet opportunity costs (plus transaction costs) • Our study finds: great diversity in payment levels (negotiated, administratively set) and forms (e.g. conditional land tenure) • Conditionality • Theory: key criterion for performance-based schemes • Our review finds: except for 1 case (Pimampiro, Ecuador), little evidence that fully applied Topic 5, Section B, slide 23 of 35

  24. a. Can PES be effective? • Promising tool, with regional differences (PES mainly in LA, emerging in SEA and Africa) • But, effectiveness difficult to assess because • Many schemes still too recent • Insufficient baseline data (no control area) • Few analyses based on solid monitoring and evaluation methods • Performance payments (PES) = key for REDD , but upfront conditions needed To address DD drivers, PES = promising, but not sufficient  need governance investments & extra-sectoral transfers Topic 5, Section B, slide 24 of 35

  25. Regional distribution of PES schemes in 2007 In total 145 PES schemes, 15 with unclear status (excluded in graph) Source: adapted from USAID 2007, PES Sourcebook Topic 5, Section B, slide 25 of 35

  26. Topic 5, Section B, slide 26 of 35

  27. Preconditions for PES Source: Wunder 2008, RFF paper Topic 5, Section B, slide 27 of 35

  28. b. Can PES improve livelihoods? • Concerns: • Weakening of land and resource rights of indigenous and forest dependent communities • Equity in opportunities to participate as sellers of carbon • Equity in payment levels and terms – vulnerable communities may be subjective to exploitative contracts • Local economy impacts which affect non-participants Topic 5, Section B, slide 28 of 35

  29. Can PES improve livelihoods? • Study findings: • PES schemes have not led to weakening of land tenure, and in some cases have strengthened it • Direct evidence from our case studies on the impact on livelihoods is limited • Even if initially access constraints for poor, subsequent corrections occurred (Costa Rica) • Despite seemingly low payment levels, PES is popular with farmers (Costa Rica, Mexico) • Little evidence of local economy impact on prices and employment Topic 5, Section B, slide 29 of 35

  30. PES and poverty To enhance livelihood/equity outcomes: • ‘no-harm’ approach • Narrow focus on environmental goal • Undesired livelihood/equity side-effects are mitigated (e.g. ‘collective contracting’-provision in Costa Rica PSA) • ‘pro-poor’ approach • Poverty reduction objectives are explicit side-objectives (e.g. in areas where rural poverty is pervasive) • participation of the poor is actively pursued (e.g. RUPES – rewarding upland rural poor for ES) Topic 5, Section B, slide 30 of 35

  31. …but possible trade-offs poverty vs environment Topic 5, Section B, slide 31 of 35

  32. Summary • Carbon finance (CDM, REDD) = I-PES • PES = new contractual conservation paradigm, can provide important lessons for notably REDD scheme design including accompanying policies • Poverty alleviation is important side-objective, but should not become primary goal • Payments for REDD provides new opportunities for securing other ES via ‘bundling’, notably biodiversity Topic 5, Section B, slide 32 of 35

  33. References • Angelsen A. and Wertz-Kanounnikoff, S. 2008 What are the key design issues for REDD and the criteria for assessing options? In: Angelsen, A. (ed.) Moving ahead with REDD – Issues, Options and Implications. CIFOR, Bogor. • Angelsen A. et al. 2008 What is the right scale for REDD? The implications of national, subnational and nested approaches. Infobrief 15, CIFOR, Bogor. • Bond et al. 2008 Incentives to sustain forest ecosystem services: A review and lessons for REDD. IIED, CIFOR, WRI (http://www.iied.org/pubs/pdfs/13555IIED.pdf) • Engel S., Pagiola S. and Wunder, S. 2008 Designing payments for environmental services in theory and practice: An overview of the issue. Ecological Economics 65: 663-674. • Wertz-Kanounnikoff S. and Wunder, S. 2007 Les paiements des services environnementaux. In: Jacquet, P. and Tubiana, L. (eds.) Regards sur la Terre 2008. L’annuel du développement durable, Presses de Science Po, Paris. • Wertz-Kanounnikoff, S. 2006 Payments for Environmental Services – A solution for biodiversity conservation? Idées pour le Débat 12/2006 (Institut du développement durable et des relations internationales, Paris). • Wertz-Kanounnikoff, S., Kongphan-Apirak, M. and Wunder, S. 2008 Reducing forest emissions in the Amazon Basin: A review of drivers of land-use change and how payments for environmental services (PES) schemes can affect them. Working Paper No. 40, CIFOR, Bogor. • Wunder, S. 2008 Necessary conditions for ecosystem service payments. Paper presented to the conference Economics and Conservation in the Tropics: A Strategic Dialogue. Moore Foundation/CSF/RFF, San Francisco, Jan 31 – Feb 1. Conference Paper Series. • Wunder, S. 2008 PES presentation in Oslo. • Wunder, S. and Wertz-Kanounnikoff, S. 2009 Payments for ecosystem services: a new way of conserving biodiversity in forests. Journal for Sustainable Forestry 28: 573-593. Topic 5, Section B, slide 33 of 35

  34. Further reading • USAID PES Sourcebookhttp://www.oired.vt.edu/sanremcrsp/menu_research/PES.Sourcebook.Contents.php • World Bank - Introduction to PES http://siteresources.worldbank.org/EXTEEI/Resources/IntroToPES.pdf?&resourceurlname=IntroToPES.pdf • CIFOR – PEShttp://www.cifor.cgiar.org/pes/_ref/home/index.htm • Rewarding Upland Poor for Environmental Services http://www.worldagroforestrycentre.org/sea/Networks/RUPES/index.asp • The Katoomba Group (Regional Network for China and East-Asia)http://www.katoombagroup.org/ • Ecosystem Marketplacehttp://www.ecosystemmarketplace.com/ Topic 5, Section B, slide 34 of 35

  35. Thank you for your attention

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