Healthy ecosystems provide a variety of such critical goods and services. Created by the interactions of living organisms with their environment, these “ecosystem services” provide both the conditions and processes that sustain human life. The awareness of ecosystem services’ importance in human life styles started more than 2500 years ago. Economists have developed different ways to measure the economic value of the nature, all of which required extrapolation or assumptions.
Ignorance, Institutions and Market Failure are the main reasons to the under-protected status of Ecosystem Services. The environment provides critically important services. Some of these are captured by markets, but many are not. They are positive externalities that are therefore regarded by the beneficiaries as free. As a result, many ecosystem services tend to be both under-conserved and undervalued. If beneficiaries had to pay for explicit service provision, however, governments would think differently about their policies and property owners would think very differently about sustainable land management practices. In basic economic terms, payments for ecosystem services (PES) seek to “get the incentives right” by capturing the positive externalities, by providing accurate signals to both service providers and users that reflect the real social benefits that ecosystem services deliver.
Voluntary agreements between buyers and sellers of ecosystem services for cash or other rewards creating markets for ecosystem services which provide incentives and finance to land and resource managers and thereby strengthening conservation and livelihoods are called as PES.
Wide range of potential buyers and sellers are available depending on the ecosystem service. When the market fails to reward on-site ecosystem service providers, or to compensate them for their costs (e.g. changing land use) charge off-site users for the benefits they enjoy (e.g. clean water) PES create a market for natural resources making conservation a more profitable land-use proposition. Information, technical barriers, policy and regulation and institutional barriers are the major challenges in implementing PES.
Creating economic incentives that encourage PES schemes, including environmental taxes and subsidies, transferable discharge permits and environmental labelling, developing specific PES projects with farmers, foresters and/or fisher folks in their region, or their watershed and providing incentives for the private sector to engage in PES schemes are some recommendations for a better PES system.