Compensation for Ecosystem Services in the Developing World

Climate Forests Investments Jan 1, 2001
Jennifer Austin

The Ecosystem Marketplace listens in on a recent meeting in Nairobi for find out what challenges are facing those interested in Compensation for Ecosystem Services schemes in the developing world. The green, bird filled campus of the World Agroforestry Center in Nairobi offers a stark contrast to the jammed metropolitan center of Kenya's capitol city. The forested expanse is a pleasant respite from the bustle of downtown Nairobi, making it an appropriate setting for a recent Africa regional meeting about Compensation for Ecosystem Services (CES). Held between 22-24 May 2006, the conference brought together stakeholders from around Eastern and Southern Africa to explore the conservation strategy, linking economic incentives to the conservation of valuable ecosystems, while simultaneously promoting pro-poor development throughout the developing world. The conference included members from environmental NGOs, government agencies and the private sector. Participants shared their experiences with CES projects through case study presentations, a panel discussion, presentations of research papers, group discussions and debates. Compensation for Ecosystem Services, also called Payment for Ecosystem Services or PES, is an evolving method for formally valuing ecosystem services and inducing those who benefit from their natural services to pay to protect them. Ecosystems provide many valuable services on which humans depend. However, because these services are often used free of charge, the true value of most ecosystems is underestimated, and ecosystem degradation goes unchecked, leading to losses that threaten the natural environment and undermine economic and human development. The UNEP Millennium Ecosystem Assessment, released in 2005 found a distressing 60% decline in ecosystem services worldwide. The recognition of this as a serious problem has helped bring CES/PES to the forefront as a possible solution. As growing populations and the spread of development put ever increasing pressure on nature's resources, finding innovative ways to link environmental conservation with development and growth is crucial to helping conservation efforts succeed. Showing the positive linkage between environmental conservation and economic development, by identifying and assigning value to the services that ecosystems provide, can help the two objectives succeed in harmony. The workshop in Nairobi was one of three regional workshops about CES in developing countries being held around the world this year as part of an IDRC-funded scoping study aimed at evaluating CES/PES mechanisms and their impact on rural poverty and environmental degradation.

What's in a Name?

As CES/PES emerges as a popular mechanism for promoting pro-poor conservation in developing countries, it is important to define the concept and terms involved clearly to allow practitioners and policy makers from across the world to learn from each other's experiences using a common language. Dr. Brent Swallow, of the World Agroforestry Center, opened the conference by presenting a draft framework that could be used when thinking about and implementing PES programmes to help facilitate the conference discussions and evaluations of when and where PES can be successful. The fact that the name itself is still not universally agreed upon shows how new the concept is and underscores the importance of inter-regional coordination. The group spent some time discussing which terms were most appropriate and accurate: 'compensation' or 'payment' and 'environmental services' or 'ecosystem services.' There was the question of whether or not different terms should be used to distinguish between programs that reward good behavior, versus those that punish bad practices and those that reimburse people for damage caused by others, or if they should all fall under the same heading. The idea was not to get bogged down in semantics, but to ensure that the topic is not confused by too many names and acronyms that could be seen to limit or confuse the scope of future projects.

Cautious Optimism

While the conference had an air of optimism, attendees realized that PES, like anything, has its limitations. Conference participants repeatedly reminded themselves and each other about the need to evaluate the shortcomings as well as the benefits of PES and to make sure that it is not treated as a silver bullet solution. PES will not be effective under all circumstances and cannot be treated as a blanket replacement for all other conservation or development efforts. It was specifically noted that if poor public land management is the root of the problem, then PES could only be a small part of the solution. Primarily, poor management policies need to be reformed and improved so that the value of public land is maintained. It was agreed that PES cannot be viewed as a complete substitute, and cannot be seen as an excuse for governments or regulators to shirk their standard regulatory duties. Nonetheless, government ministries will need to be actively involved in promoting PES programs. In one presentation, Gabriel Elisante from CARE-Tanzania suggested a model for how countries could coordinate responsibilities among ministries for establishing and coordinating PES programs. This could help solve the problem that others reported encountering, in which PES programs were stalling out in the planning phases because of non-cooperation and infighting between ministries or regulatory bodies over responsibility for programs and appropriate uses of newly generated revenues.

Finding a Niche

Designing PES to compliment regulatory programs without undermining enforcement or otherwise conflicting with regulatory structures is a necessary step for mainstreaming PES. A critical issue that arose was how PES can work with or alongside customary laws pertaining to natural resource management. As Brent Swallow, conference coordinator from ICRAF phrased it, "care must be taken that PES doesn't allow people to, in effect, hold donors or regulators hostage, forcing them to pay people or companies to comply with rules and regulations that they should already be following." The possibility of monetary rewards for some conservation behavior should not absolve people of their pre-existing duties to manage and use natural resources responsibly. Land laws and property rights are also closely linked to the success of PES programs. Where land ownership is unclear or not verifiable, it is hard to know who to pay or charge for services, and signing and enforcing contracts about land use or service provision becomes difficult. This is particularly relevant in developing countries where land tenure systems are often not clearly developed or well documented. The complexity of many landscapes involves many land users- owners, managers, and tenants, who must be recognized within the PES structure. Ownership of water, particularly underground water flows, was identified as even more complicated. Since water flows through many people's properties, ownership of water is hard to define, though land use practices and waste disposal have a clear effect on water quality and quantity available in watersheds and for downstream users. The obvious and universal value of clean water makes it potentially a good place to utilize PES systems for conservation if the challenge of establishing ownership can be overcome.

Show Them the Money

While the main push for ecosystem services markets has come from conservationists and environmentalists, the economic side of the equation is vitally important. The conference discussion revealed a general level of discomfort with some economic valuation methods, and an overall concern that turning over the environment to economists would result in the 'selling of nature.' However, participants agreed that despite these challenges, it is critical that environmentalists join together with economists and the private sector to develop a strong business case for successful and sustainable projects. Tow Owino, the executive director of the Environmental Cost Management Centre, stressed that experience has shown a compelling business case with clear cause and effect relationships is necessary to attract buyers and sellers and ultimately to make programs successful and sustainable. Programs that are 'bankable' provide clear economic incentives to motivate the desired conservation behavior. A good business case is at the heart of PES, which strives to show the true value of the ecosystem services, so that not just nature lovers, but all people can see the benefit of conservation. Though the ultimate goal may be primarily environmental protection, it was suggested that more focus on the payment part and less on the ecosystem part of PES would help programs take-off more successfully. But the idea of placing a monetary value on ecosystem services, and then just handing over conservation to the mercy of market forces is something that many environmentalists are not willing to do. Incentive structures do not build themselves and market forces do not operate in a vacuum, meaning that the design of the PES market will influence the success of the conservation. Clearly, the design of pro-poor ecosystem service markets needs to be done with the dual goals of conservation and economic development in mind in poor countries. Working for Water in South Africa, an often-cited success story, shows how programs can be successfully designed to achieve specific goals. Working for Water was designed to promote water conservation and to create jobs, tackling two major problems in South Africa. This program's success has brought a lot of positive attention to CES/PES and is evidence that a well-designed program can be targeted at addressing multiple issues. This has been a good foot in the door for PES in South Africa, spurring a number of spin-off projects; Working for Fire, Working for Watersheds and Working for Woodlands.

Finding the Money

One assumption that will affect the design and success of ecosystem service markets for poverty alleviation is the assumption that ecosystem modifiers, who would be paid or compensated for conserving, are poor, and that those who need ecosystem services and would be the buyers, are able to pay. This is not necessarily the case, as many poor people depend very heavily and directly on natural resources, but would be unable to pay for their conservation. This and other, sometimes hidden assumptions, need to be identified and studied to ensure that the theoretical framework being developed at the policy level is in sync with on the ground realities. An important step in 'creating' a market is to ensure widespread access to market information and an easy connection between buyers and sellers. If transaction costs are too high the success of the market is limited, because many individuals are unable to participate. Because ecosystems are integrated dynamic systems whose conservation often leads to many benefits, it was suggested that bundling or stacking services could help maximize the payments generated from one conservation project. Carbon PES has been identified as a place where carbon credit payments generated by conservation activities could provide financing for conservation projects. However, even the Clean Development Mechanism, the part of the Kyoto Protocol that caters to carbon mitigation development projects in under-developed countries, has a dizzying array of requirements and conditions that must be met, making it a challenge for small projects or inexperienced countries to get in the door. The delayed timing of payment for carbon credits also limits how helpful the carbon money is in getting a project off the ground. Often by the time carbon payments are being made, much of the initial work in getting the project approved and started has been done, meaning almost full financing must be secured elsewhere.

Capacity Building

The need for capacity building was identified by the group as a key to PES becoming more widely understood and implemented. Insufficient knowledge and capacity at all levels is an obvious barrier, though the question of where to start building was unclear. Some advocated for going ahead with projects to get on the ground experience, while others thought the policy level should be tackled first, to create an atmosphere conducive to PES success. The overall consensus was that there be a bottom up and top down approach that complement each other, though funding and time were identified as limiting factors. Nonetheless all agreed that capacity building must be an ongoing process not a one-time event as it is often made to be. Effective education and capacity building is key to enabling community participation, as people cannot be expected to participate in something they do not know anything about. In places where the concept of PES has been clearly explained, the communities have enthusiastically embraced it. Beyond teaching about how markets work and how ecosystems can be preserved, capacity building requires raising the general level of awareness among buyers and sellers about the value of the ecosystem services so that local communities can begin to identify and design PES projects for themselves.

Climate Change

Though the conference was not specifically about climate change, the enormity of the predicted effects of climate change hung over the whole discussion. Climate change is likely to have an enormous effect on many ecosystems and could make targeted ecosystem preservation or restoration efforts futile. Climate change could also impact the success of PES payment structures. The question of when and how payments should be made is complicated by the potential impact of climate change, raising the question: Are payments made based on the results of conservation, or are people paid for taking actions that should lead to conservation, regardless of whether or not external factors such as global warming undermine or limit the success of those efforts? If climate change does in fact begin to impact all areas of environmental conservation, then, it was suggested, perhaps money generated from PES should be directed towards financing climate change adaptation initiatives for communities vulnerable to the effects of global warming. Though climate change is not necessarily a direct consideration in all PES projects, it is a major cross cutting issue whose impact on the success of all PES projects cannot be ignored. The three-day conference raised these and many other issues relevant to PES policy makers and implementers, prompting lively and fruitful discussions among the stakeholders gathered from across southern Africa. The conclusions and questions from this conference combined with the results of the Asia and South America regional conferences held earlier in the year will be compiled in a report to IDRC and will provide a broad and important foundation for the development of Payment for Ecosystem Services projects and policies cross the developing world. Jennifer Austin may be reached at First published: July 21, 2006 Please see our Reprint Guidelines for details on republishing our articles.