While environmental protection is vital, a fundamental problem facing conservation is finance – especially for the vast amount of the planet’s biodiversity that lies outside of protected areas. New market-based mechanisms that encourage biodiversity and resource conservation are a promising set of tools to help take conservation and sustainable natural resource management to global scale and significance while simultaneously benefitting the guardians of those services – the often marginalized forest communities.
Quote- In the words of Prof Ranil Senanayake, “Primary Ecosystem Services are those produced by the photosynthetic activity of plants. These are: production of Oxygen, sequestration of Carbon Dioxide, cleaning water and providing ambient cooling. They help us breathe, have drinking water, food, and protect from excessive heat. The value of PES is about $2000-3000. Per acre per year if Sri Lanka capitalized these values we could escape from out debt trap in two years.”
How does it work?
Ecosystems—forests, mountains, wetlands, agricultural land, freshwater—provide a variety of services that are economically valuable: fresh water supply for human settlements (e.g. by filtering the water from contaminants); irrigation and power generation; or storm protection and pollination.
Potential in monetary terms
The World Resource Institute has estimated the value of ecosystem services to be US$33 trillion a year, but these values remain largely on paper. The largest PES is found in water and carbon sequestration (carbon markets are profiled as a separate solution). In its broadest definition also ecological fiscal transfers, payments for an agricultural conservation easement, and biodiversity offsets can be broadly profiled as PES.
The provision of such services might require communities living in the proximity of the ecosystem to undertake or not to undertake certain activities. The Payments for Ecosystem Services (PES) is the mechanism that governs these payments. In other words, PES involves a series of payments to land or other natural resource owners in return for a guaranteed flow of ecosystem services or certain actions likely to enhance their provision over-and-above what would otherwise be provided in the absence of payment.
When is it feasible?
Legal and/other feasibility requirements
The feasibility assessment for a PES should look at (or produce when missing): 1. the economic valuation of ecosystem services; 2. the legal and institutional framework for PES transaction; 3. the level of organization of stakeholders; and 4. the capacity to pay of beneficiaries and providers.
Minimum investment required and running costs
The running costs of the PES scheme include financial transaction costs, measuring, reporting and verification (MRV) and regulatory oversight. These might also include communication, negotiation, enforcement costs, and provisions for legal risks. There is evidence that transaction costs are often higher than anticipated in the design.
In what context/when it is more appropriate
PES are most likely to appear in situations where clearly identifiable actions that can increase the supply of a service are identified and/or when there is a clear demand for the service(s) in question, whose provision is commercially viable. On the contrary, PES should not be established when no beneficiary of the ecosystem services can be clearly identified or where the actions to be compensated cannot clearly be connected with their impact on the flow of ecosystem services.
Sri Lanka should seriously consider implementing this programme to correct the exploitation of natural resources and its owners, induce sustainable environmental practices and practice sound economics. Most importantly as Ranil Senanayake states, there is a transfer of wealth to rural areas which crucially enable life in urban areas.
The preparatory process of establishing a PES can be described in the subsequent steps which are followed by the negotiation of the agreements, the actual legal structuring, the financing and the implementation. These are:
1. Identification of the ecosystem services and geographical boundaries;
2. Identification of the sellers/providers and buyers/beneficiaries;
3. Definition of the market and of the price;
4. Determination of the governance, institutional and legal arrangements;
5. Collection of the biophysical data baseline data for the monitoring system.
Stakeholders
1. The buyer/beneficiary of an ecosystem service: the entity, either an individual/company or the Government that directly benefits from the existence of an ecosystem and is willing/capable to pay for its preservation.
2. The seller/provider of an ecosystem service: Any individual or community whose land use or other decision can influence the provision of ecosystem services. She/he will obtain a payment to undertake or not to undertake (e.g. not exercising certain economic rights) certain activities to preserve the provision of ecosystem services. The payment can thus compensate for a lost income (reduced gains from agriculture) or human labour and capital investment (e.g. planting trees).
3. Public authority: the public authority (often a local entity) might disburse payments and collect mandatory fees and taxes. PES often requires the issuance of a law or Government decree/regulation if intermediated or paid by public resources. If PES is negotiated among private parties, the Government usually acts as a broker or facilitator.
4. Affected community: Everyone who benefits from the provision of an ecosystem service. This refers to the larger population who might benefit from ecosystem services but, for a number of reasons, is not formally participating in the PES as a beneficiary or provider of services.
What are the main risks and challenges?
Pros
Flexible instrument compared to command-and-control regulation, allowing high customization to local circumstances.
Behavioural changes are promoted with positive incentives rather than coercion, more likely leading to transformational change.
PES can help to correct market failures by pricing conservation efforts.
PES provides opportunities for cash income in rural areas where poverty might be concentrated.
Rural communities can benefit from increased knowledge of sustainable resource use practices that are usually connected to PES through the provision of training and technical assistance.
Cons
The economic valuation of ecosystem services is a difficult and still costly process, despite innovations in techniques and technology.
PES implementation might be costly due to the specifics of design, negotiation and implementation of the programme.
PES are not designed to reduce poverty but primarily to offer economic incentives to foster the conservation of ecosystem services. Additional measures need to be enforced to make PES pro-poor.
The efficacy of PES implementation is partially connected to the availability of data on land property, which is a known challenge in many developing countries.
PES might result in limiting the flexibility of local government and communities in making decisions on their own development particularly where easements or long-term contracts specify a narrow range of alternatives.
The Vittel experience is most likely to be replicable in places where land cannot be purchased and set aside for conservation, and where the risk to business is high while the link between ecosystem health and farming practices is well understood and expected benefits are sufficiently high to justify the investment. Vittel mineral water originates in ‘Grande Source’ (‘Great Spring’) located in the town of Vittel at the foot of the Vosges Mountains in north-eastern France. In 1854, the spring was purchased by the Bouloumié family and a spa developed in the town of Vittel. Rapidly the reputation of ‘Grande Source’ spread and people travelled from all over Europe to drink its waters. The idea of bottling and marketing the water developed and in 1882, the Société Générale des Eaux Minérales de Vittel (SGEMV) and the Vittel brand were created. By 1898, one million bottles had been sold. A century later, one billion bottles of Vittel mineral water are sold every year, in 70 countries. Vittel waters are characterised by a total absence of nitrites and a particularly low level of nitrates. To be labelled ‘Vittel’, the water cannot contain more than 4.5 mg of nitrates per litre and must not contain pesticides.
Extensive hydro-geological modelling was conducted in the perimeter and showed that ensuring a nitrate rate of 4.5mg/l in Grande Source required maintaining nitrate levels at the root zone (up to 1.5 meters below the surfacee) at 10mg/l.
A four step methodology was developed:
1. Understand the farming systems and why farmers do what they do.
2. Analyse the conditions under which farmers would consider changing farming behaviour.
3. Identify, test, and validate in farmers’ fields the management practices necessary to reduce the nitrate threat.
4. Provide financial and technical support to farmers willing to enter the programme.
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