1. 1
ImportantBackground to PES
The ongoing and efficient balanceof natural ecosystems is
essential to the health of the planet and all who liveon it.
“Nature” provides us with essential services which support,
provide, regulate and culturally maintain our way of life.
Researchers are evidencingdaily thatecosystems globally are
under increasingpressure.Irreversibledamageis being
caused to these essential systems.The IPCC (2007) predicts
impacts from climatechange will seeglobal average
temperatures rise, patterns of rainfall change,extreme
weather events become more frequent and severe, sea
levels riseand other environmental changes occur.
Biodiversity will beadversely affected.
Figure 1: PES unlocks the value in ecosystem services
UNIVERSITY OF BIRMINGHAM
IDD Student Policy Brief
April 2016
Note: this is an assessed student assignment and not an official UoB
publication
Making PES schemes work in developing countries:
A Crucial role for Intermediaries
Stephen M Baines
Key Messages
1. Despite some localisedsuccesses,widespreadevidence suggeststhatexistingmechanismsforglobal
environmental protectionare not gainingsufficienttractionandthatthe battle toavoidirreversible damage
to essential ecosystemsisprogressivelybeinglost.
2. PES (andPES style schemes) have enormouspotential tobe a freshmechanismforpreventingirreversible
damage throughcrystalizingthe value of the ecosystemservicesnature providesandatthe same time
providingsustainable livelihoodsforlocal people.
3. Widespreadadoptionof PESschemes“onthe ground”requiresanumberof thornychallengestobe
overcome.
4. The use of trusted and authoritative PESIntermediariescanprovide the essentiallinkinnavigatingthese
challengesandfacilitatingamuch broadertake-upof PESschemesglobally.
5. Community,INGOandFaithBasedOrganisations(FBOs) are exceptionallywell-placedtoperformthis
Intermediaryrole withinlocal contexts.Inordertoperformthisfunction,stakeholderscanbuildon
experience gainedbybothCivil SocietyOrganisations(CSOs) andCommunityBasedNatural Resource
Management(CBNRM) organisations.

2. 2
Payment for EcosystemServices(PES)
schemes
PES schemesare one of a portfolioof policyoptions
whichare aimedatmanagingthisrisk.PES schemesdo
thisby contractuallylinkinganecosystemservice
provider/sellerwithanecosystemservice user/buyer.
The financial paymentfrombuyertoselleris
conditional onthe ongoingsupplyof the ecosystem
service.
In financially incentivizingenvironmental protection, PES
schemes also havesignificantpotential to be an effective
lever to liftlocal communities outof poverty. PES schemes
are provingeffective in the areas of: Carbon sequestration,
Biodiversity protection,Watershed protection and Landscape
beauty.
Figure 2: The Scope of Ecosystem Services
Uneven PES take-up
The take-up of PES programmes has however been patchy.
Cash-based schemes have worked well in Latin America
where local and national Governments have encouraged
small-holder and community participation.However, despite
isolated successes,such conditional payments have yet to
develop a critical massin the African context (Porras &
Nhantumbo 2015). This Briefingexamines the practical
barriers to PES implementation and recommends actions for
enablinglarge-scalePES roll-outacross developingcountries.
“ArguablyPESis the most promisinginnovationin
conservationsinceRio 1992”
(Source:Wunder 2005 page 3)
PES – a central place within a portfolio of
ecological interventions
Of course,PES is not the only policy option for decision
makers attempting to preserve vital ecosystem services.It
fits within a portfolio of other interventions.These include:
 Government environmental regulation (incl.
creation of protected zones/areas set asidefor
conservation)
 Promotion of SustainableAgriculture/Forest
management practices
 Environmentally motivated taxes/subsidies
 Integrated Conservation & Development Projects
(ICDPs)
 Product certification leadingto ecological price
premiums
 Land Acquisitions for conservation
Research suggests that PES works best in scenarios wherea
limited financial incentivewill havea decisiveeffect on a
landowners’land-usedecision (i.e.where land-useeconomic
viability options arefinely balanced).
Case Study: Equitable Paymentsfor Watershed
Servicesprogramme (EPWS),Tanzania
The Ruvu rivernetworkoriginatinginthe Uluguru
mountainsisthe majorsource of freshwaterforthe 4
millionresidentsof Dares Salaam.The local Water
SupplyandSewerage Corporation(DAWASCO)spent
US $2 millionannuallyinwatertreatmentcostsdue to
increasedsedimentinthe riversystem.The EPWS
programme now ensuresthe qualityandflowof water
for downstreamusersbycompensatingupstream
farmerto engage inlanduse practiceswhichcontribute
to waterflow andpurity.
(Source:http://www.watershedmarkets.org/casestudies)
Obstacles to Wider PES Adoption
Despite the potential, there are several significantpractical
obstacles to PES adoption and the delivery of sustainablePES
Management Plans.These can be categorized into 5 key
areas:
Biophysical Obstacles - These are predominantly linked to
location and the type of land useactivities required by the
buyers. Are smallholders located in the right areas and can
they deliver the services required?
Legal Obstacles - Landowners often have only informal or
unclear land rights.Multiplesmallholders may nothave the
capacity to negotiate, implement or enforce collective
contracts with servicebuyers.Knowledge of the dynamics of
the ecosystem services supplied and the institutional
preconditions/frameworks governingthe “market” mean

3. 3
that local communities areoften cut off from this
opportunity.
Economic Obstacles - PES schemes often involvehigh up-
front transaction costs (mostpressingwhere numerous
smaller landholders each havehigh,fixed legal set up costs).
PES may involveup-front capital expenditurefor landowners
(i.e. fencing off land) at a point when returns from the
scheme may still behypothetical/unclear.Buyers and sellers
may be risk aversewith concern centring over capacity of
buyers to guarantee fundinginto the longterm.
Technical Obstacles - PES schemes require stakeholders to
be ableto access new skillssets.These include
agency/introduction services,brokerageof contracts,
financial intermediation,assessmentof optimum PES price,
data collection & evaluation,monitoringof outputs achieved
againstcounterfactual projected baselines and enforcement
& compliance.These aretechnical functions requiring
specialistexpertise.
Information/Education Obstacles - Understanding and
confidence in the working of PES can present a
communication barrier for both policy-makers and potential
stakeholders.Links between the land useand the provision
of the ecosystem serviceneeds to be sufficiently understood
for the model to be appreciated.
Many ofthe aboveobstaclesdistil downto issuesof
understandingandcruciallytrust between parties. To
enable a muchwider take-up ofPES there is a clear
and urgent role foran “honestbroker” to employtheir
reserves of“social capital” to facilitateschemes which
have the potential to be beneficial bothforthe
environmentand for local livelihoods
PES Example: REDD+ (Reducing emissions fromdeforestation
and forest degradation) is perhaps the highest profilePES
scheme in the international context.
Figure 3: REDD+ logo
The Crucial Role of the PES Intermediary
 PES Intermediaries are actors who play a vital
connecting role between users (buyers) and
providers (sellers).Their role ranges from traditional
agency roles to additional technical services where
Intermediaries have remained an integral partof
project implementation and delivery. In current
carbon marketplaces there are over 200 bodies
actingas brokers,wholesalers,retailers or
developers of carbon credits (Peters-Stanley et al
2011).
 Intermediaries have traditionally been from the
followingsectors:Government agencies
(national/local),Local community groups,
NGOs/INGOs and PrivateSector.
However they are best defined by the roles they perform
rather than by their organisational characteristics(Moss etal
2009).Intermediaries enable win-win scenarios by:
 Matching Sellers with Buyers. Crucially this normally
involves coordinatingumbrella arrangements linking
many small landholders into a coherent contractual
entity with legal rights.
 Buildingon existingreputation,skillsets and community
trust to establish a legitimacy and credibility for the
project. This may involvethe Intermediary performing
roles as certifier,legal arbiter in contractnegotiations,
provider of insuranceand robustrisk management and
key link with donors,agencies and Government.
 Helping small-scale producers adaptto required
changes to land use.This may involvefacilitating
external loan/grantsupportto cover set up costs.
 Informing programme design through developing a
knowledge of market actors,processes and values.This
may involveestablishingmethods for payment and
distribution,reviewprocesses and quality accreditation.
 Bulking ecosystem services/credits (such as biodiversity
and emissions reduction) to obtain the optimum
premiums for the services provided.On occasion this
involves the Intermediary takingon financial risk and
purchasingcredits in advanceof selling on.Obtainingthe
best pricefrequently involves Intermediaries in
marketing to prospectivebuyers – setting out the extra
benefits (co-benefits) of supportingthe ecosystem in
question. This requires an intermediary to be able to
“package and sell a good story” (Porras & Nhantumbo
2015)
 Ongoing & Authoritative Monitoring/Verification of
management systems and outputs to retain confidence
of buyers.
 Networking, representation & mediation to promote
access to the market for buyers and sellers.
 Administration & Project Coordination. This involves
project administration,managingcontracts and
administeringprogramme funds
 A hub for Information Exchange. Intermediaries often
hold important information on legislation,bestpractice,
up to date technologies and markets as well as potential
sources of financing.This is particularly importantwhere
issues of applicanteligibility and a project’s ecological
requirements/standards may be frequently subjectto
regulatory change

4. 4
Selection of Intermediary
Recent research demonstrates (Costa Rica;Bosselmann &
Lund 2013) that the identity of the Intermediary affects the
shapeand potential for success of the PES project. The
choiceof intermediary matters to issues of inclusiveness,
efficiency and the targeting of projectbenefits. Different
Intermediaries bringdifferent networks of local contacts and
have different valuesystems. The roleperformed by an
Intermediary may be heavily influenced by Government or
buyer requirements. In the comparativestudy above an
NGO, a Producer Cooperative and a County Agricultural
centre each performed their Intermediary roles in
contrastingways.
Case Study: PES in Costa Rica
In CostaRica in 2009 there were 18 intermediaries
administeringPESschemes.More than50% of all PES
contracts signed2005-2009 were facilitatedbyan
intermediary.Keyrolesprovidedbyintermediaries
includedsortinglegaldocuments&landtitles,
navigatingapplicationprocesses(enablingwider
participation),conductingfieldstudiesandmonitoring
contract compliance.
(Source:Bosselmann& Lundpage 53)
In the longer term Privatesector intermediaries areseen as
being likely to play a key role in this market. Privatesector
actors may be content to manage a higher risk profile,havea
strong knowledge of the financinglandscapeand have a
good network of potential buyers. However, concerns have
been raised aboutthe primacy of shareholder/owner returns
over environmental benefits, the degree to which they may
respond to market volatility and the potential for unethical
behaviour.
PES inVietnam:
“Intermediaries acted as bridge-builders,mediators,
arbitrators,equalizers,developersof standards,
representatives andwatchdogs”
(Source: Pham et al 2010 page 26)
Practical Best Practice Innovations in
community intermediation
 Keeping Transaction costs low –through use of group
contracts,collectiveaction and group enforcement.
 Keeping Transaction Costs lowalongthe valuechain –
through simpleand effective monitoring,not expensive
accreditation.
 Attracting PricePremiums - through clearly linking
produce to sustainableagricultural practices.
 SharingRisk – through upfront sales of credits,sharing
costs of inputrequirements, soft loans and co-finance
mechanisms.
 Adding Value for Communities – through establishing
formal tenure rights,community capacity buildingand
transparentand equitable intra-community distribution
of PES revenues.
 Reducing the impactof transaction costs –through
negotiating standard legal template documents and
clear rules of engagement.
 Levering Sustainablelongterm PES funding – through
establishinglongterm partneringrelationshipswith
buyers of ecosystem services.
 Tacklingrisk aversion –through developing simpleand
well explained models of PES interaction and actively
publicisingsuccessful schemes in policy,businessand
community circles.
Conclusion& Policy Recommendations
This Briefing recommends that:
1. The indispensable role of PES Intermediaries in
enabling PES implementation and effective
ongoing PES management is widely understood
as an essential element of PES design.
2. PES Intermediary “Best Practice” is widely
disseminated to add extra value to existing and
proposed PES schemes.
3. Community-based organizations and FBOs are
encouraged to acknowledge the significant
potential environmental and social benefits of
PES schemes. They are further encouraged to
recognise their unique position to utilize “social
capital” locally to act as a trusted and
authoritative “honest broker” to facilitate PES
take-up and effective ongoing management.
4. Caution is exercised in engaging with private
sector PES Intermediaries.
Further Study
 BosselmannAS & Lund J F (2013) Do intermediary institutions
promote inclusiveness in PES programs? The caseofCosta Rica
Geoforum, 2013, Vol.49,pp.50-60
 Ferraro P & Simpson R (2002) Thecost effectiveness ofconservation
payments LandEconomics78 (3) 339-353
 Pham Tet al (2013) Approachesto benefitsharing: A preliminary
comparative analysisof13 REDD+countries CIFOR
 Porras I & NhantumboI (2015) Linking smallholdersto PES/REDD+
IIED Issue Paper, London
 Wunder, S (2005) Paymentsfor environmental services: Some nuts
and bolts CIFOR Occasional Paperno.42
Contact us: Stephen Baines c/o International Development Department
University ofBirminghamEdgbastonBirmingham B15 2TTUnited Kingdom
idd@bham.ac.uk.About IDD: TheUniversity ofBirmingham’s multi-
disciplinary International Development Department(IDD) has been
providing knowledge andconsultancy services to theinternational
development sector since 1964.