This document discusses payment for ecosystem services (PES) schemes. It begins by outlining the importance of ecosystem services to human well-being and different types of ecosystem services. It then discusses how undervaluing ecosystem services can lead to their degradation. PES schemes are proposed as a response by creating markets that incentivize conservation. The document provides examples of PES schemes in South Africa and Tanzania and discusses challenges to implementing PES schemes. It concludes by recommending demonstration projects to prove the benefits of conservation, private sector engagement, and guidance tools to help decision-makers implement PES.

1. INTERNATIONAL UNION FOR CONSERVATION OF NATURE
Economic valuation and Payment for
Ecosystem Services
Katharine Cross, IUCN
IW Learn African Regional Workshop
April 4th, 2012

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Outline
• Importance of ES to human wellbeing
• Valuation of ecosystems
• What are Payment for Ecosystem Services?
– How does PES work?
– Types of PES schemes
– Pro-poor PES?
• Examples from the region
• Barriers and Challenges
• Way forward: applying tools
and processes
• Discussion questions

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Importance of ecosystem services to human
wellbeing
value
for
constituents of well-being
Security
• Personal safety
• Secure resource access
• Security from disasters
Basic material for good life
• Adequate livelihoods
• Sufficient nutritious food
• Shelter
• Access to goods
Health
• Strength
• Feeling well
• Access to clean air & water
Good social relations
• Social cohesion
• Mutual respect
• Ability to help others
Freedom of choice
and action
Opportunity to be
able to achieve
what an individual
values being and
doing
ecosystem services
Supporting
• Nutrient cycling
• Soil formation
• Primary production
• etc. …
Provisioning
• Food
• Fresh water
• Wood and fibre
• Fuel
• etc. …
Regulating
• Climate regulation
• Flood regulation
• Disease prevention
• Water purification
• etc. …
Cultural
• Aesthetic
• Spiritual
• Educational
• Recreational
• etc. …
Millennium Ecosystem Assessment 2005

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Total economic value of ecosystems
DIRECT VALUES
production and
consumption goods
such as:
fish, firewood,
building poles,
medicines, fodder,
recreation,
… etc ...
INDIRECT VALUES
ecosystem functions
and services such as:
water quality and
supply, nutrient cycling,
flood attenuation,
climate regulation,
shoreline protection,
… etc ...
OPTION VALUES
premium placed on
possible future uses or
applications,
such as:
industrial, leisure,
pharmaceutical,
agricultural,
… etc ...
use values
EXISTENCE
VALUES
intrinsic significance of
resources and
ecosystems in
terms of:
cultural, aesthetic,
heritage, bequest,
… etc ...
non-use values

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Economic values of ecosystem services
Muthurajawela Wetland,
Sri Lanka
generates flood attenuation
benefits worth $1,700/ha/yr,
and waste water treatment
benefits worth $600/ha/yr
(Emerton 2005a)
Balochistan mangroves,
Pakistan
provide nursery and breeding
habitat on which half of off-
shore commercial fish stocks
depend, worth $900/ha/yr
(Baig & Iftikhar 2007)
Caribbean
coral reefs
value for shoreline
protection ranges between
$2,000 - $1 million/km,
depending on population
(WRI 2005)
Bokor National Park,
Cambodia
forest watershed catchment
protection saves $2 million
for downstream Kamchay
Hydropower Scheme
(Emerton 2005b)

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Value and benefits of natural infrastructure

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• ecosystem costs and benefits
tend to be underpriced by the
market, or not have any market
price at all
• yet it is often these goods and
services that are the most
valuable
• as a result, ecosystem
conservation is seen as having
little economic benefit, and
ecosystem degradation is seen
as having little economic cost
How under-valuation is a problem

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Responses to ecosystem loss
regulation
dictate particular behaviour
mitigation
remedy, reverse or
replace lost services
incentives
direct financial or economic
reward from conservation
provide concrete and
tangible benefits and
funds, not just
punishment and penalties
reduce the need
(and cost) to mitigate,
raise funds for mitigation
where required
aim to overcome policy,
market and price failures,
thus tackling root causes
of ecosystem loss

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What are Payments for Environmental
Services?
• voluntary agreements …
• between buyers and sellers of
ecosystem services …
• for cash or other rewards …
• creating markets for watershed
services …
• which provide incentives and
finance to land and resource
managers …
• thereby strengthening
conservation and livelihoods …

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PES as a response to market failures
• 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 (including water),
making conservation a more
profitable land-use proposition

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How does PES work?
ecosystem service
provider/
seller
beneficiary/
buyer
1. Recognition of the goods and
services provided by watershed
for which a price can be agreed
• what ecosystem services are
generated?
• which services are marketable?
2. Need buyers and sellers of
these goods and services
• how much are buyers willing to
pay?
• what are sellers’ needs
for rewards?
• what type of payments do
buyers want, and can sellers
provide?
3. Ensure that property, access
and use rights are well
established

12. payment for
watershed
service
greater than
or equal to
less than or
equal to
PES as a conservation incentive
Regional Workshop on Payments for Environmental Services
net cost
of providing
watershed
services (e.g.
reforestation)
net benefit
from receiving
watershed
services (e.g. clean
water)
ECOSYSTEM MANAGERS
(Sellers)
BENEFICIARIES
(Buyers)

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Pro-poor PES?
• PWS is not designed to be a poverty reduction mechanism.
The objective of PWS programs is to address environmental and
natural resource management problems, by providing a
mechanism to internalize externalities.
• However, PWS programs can affect the poor in a variety of ways—
in particular, by providing an additional income source. BUT should
not be used primarily as a poverty reduction mechanism.
• To apply pro-poor PWS:
– Keep transaction costs low as many potential participants are poor,
as they will be relatively more heavily affected.
– Devise specific mechanisms to counter high transaction costs
such as collective contracting.
– Ensure that the social context is well understood, so that possible
adverse impacts are anticipated and appropriate remedial measures
can be designed.

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Types of PES Schemes
• Private payment schemes
– private entities agree amongst themselves to provide payments or
rewards in return for maintenance or restoration of a watershed service
• Cap-and-trade schemes, under a regulatory cap or floor
– Cap is set either by a government agency or voluntarily.
– Permits or credits must be allocated among resource users or polluters.
– A market is developed for the exchange of permits and credits between
buyers and sellers.
• Certification schemes for environmental goods
– Transactions occur between private parties, but payment is embedded in
the price paid for a traded product, such as certified timber, fish or organic
produce
• Public payment schemes, including fiscal mechanisms
– Service buyers in public schemes are public authorities motivated by the
need to provide safe drinking water or regulation of river flows. Achieved
through user fees, land purchase and land easement, which are rights to
specific use of land owned by others

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Example – Working for Water, South Africa
• Problems of water scarcity and reduction in stream due to invasive alien
plants that consume large amounts of water and cause other
environmental problems such as flooding, fires, erosion, siltation and
strain on native species.
• Main funding comes from the government’s poverty relief fund, but about
10–15% comes from water users.
• The water price charged by the Department of Water Affairs and Forestry
to its users includes a “water resource management fee”.
• This fee covers clearing of alien invasive plants
as well as planning and implementation, pollution
control, demand management, water allocation
and water use control.
• Some local governments also contribute with
regular annual donations to fund the removal of
alien invasive plants in the catchment areas
where they derive their water

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Example – Equitable Payments for Watershed
Services in the Uluguru Mountains, Tanzania
• Project managed and implemented by WWF, CARE and IIED
• An agreement between upstream poor communities (service
providers or sellers) and downstream water service users or
buyers
• Buyers: DAWASCO, a public-private corporation which provides
water to Dar-es Salaam; Coca Cola; other private companies
• Sellers: Upstream communities in the Kibungo subcatchment
• Sellers are paid according to interventions undertaken to restore
ecosystems in steep slopes and riparian zones
– Amounts determined by a series of indicators
– Payments dispersed through NGOs
• Endorsement of agreement by Ministry of Water Resources

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Challenges to PES Schemes
• Absent credible “proof”— that
water quality or quantity is
improving
• Enterprises that need reliable
supplies of good quality water,
for example bottling companies,
brewing companies and hotels
cannot afford to wait for an
ecosystem driven solution.
– Consequently, many have
already invested infrastructure
(bore-holes, tankers,
purification plants) to reduce
the business risk associated
with a key input to their
production process

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Barriers to PES Schemes in Eastern and
Southern Africa
• Information: There is too little information on PES and that which
does exist is often too generic to be of much use to policy makers.
• Technical barriers: There are too few people with the appropriate
skills and knowledge to design and implement effective PES
projects and programmes.
• Policy and regulation: Generally legal and policy frameworks for
environmental and resource management are fragmented,
outdated and often lack cohesion.
• Institutional barriers: In addition to the limited human skills and
fragmented legal and policy frameworks, there are insufficient
organisations, such as financial intermediaries, certification bodies,
national registries etc. to support the development of PES in the
region.

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Way forward: applying tools
and processes
• Through demonstration compile “proof” of improved
water quantity and quality by investing in catchment
management
– Need to consider added element of a changing climate
which impacts water availability in time and space
• Engagement with the private sector
• Convene stakeholders to raise awareness on the
benefits of investing in natural infrastructure
• Through WANI toolkits provide guidance to decision
makers on how to use information on valuation of
ecosystem services and mobilize innovative
financing for water resource management
– www.iucn.org/water
• Enable learning and exchange of information on PES
schemes between regions

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Discussion questions
• Have you experiences of valuation of ecosystem services in your
project area?
• If so, how is this information being used?
• Is there scope to apply payment for ecosystem services in your
projects areas?
• What about other economic tools?
• Private sector engagement?

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Acknowledgements
• Lucy Emerton – material from an IW Learn Regional workshop on
Payments for Environmental Services
• Material from PAY and VALUE – WANI toolkits