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Payment for environmental services

Definition



Payment for environmental services (PES) is a market-based approach to conservation based on the twin principles that those who benefit from environmental services (such as users of clean water) should pay for them, and those who generate these services should be compensated for providing them. In a PES mechanism, service providers receive payments conditional on their providing the desired environmental services (or adopting a practice thought to generate those services). Participation is voluntary.
 
The PES approach is attractive in that it generates new financing, which would not otherwise be available for conservation;  it can be sustainable, as it depends on the mutual self-interest of service users and providers and not on the whims of government or donor funding; and it is efficient if it generates services whose benefits exceed the cost of providing them.

 

Areas of application



Most PES schemes in developing countries have focused on retaining forests, but interest is growing in applying the approach to agricultural areas.
 
Water
Water users are the most significant current source of funding for PES schemes, mainly through decentralized, watershed specific schemes. Water users paying for watershed conservation through PES mechanisms are domestic water supply systems, hydroelectric power producers, irrigation systems, and bottlers. The potential for watershed payments can significantly expand with a better understanding of the effects of upstream land use changes on downstream water services.


CO2
Carbon payments – under the Clean Development Mechanism or the voluntary market – are another large potential source of funding for PES. Smallholder farmers can benefit from carbon sequestration payments, but this requires strong local community organizations capable of developing adequate monitoring and verification systems. Many barriers, including high transaction costs and the need to coordinate the activities of many small farmers to generate meaningful amounts of carbon sequestration, limit participation of smallholders in this market.

Conservation
PES has also the potential to be used for biodiversity conservation. Agricultural biodiversity is largely an undervalued resource. If appropriate valuation methods can be developed to assess its total value, along with associated incentive mechanisms and policy support, local communities can be supported to carry out de facto conservation. The ability of “payment for agrobiodiversity conservation services” (PACS) schemes to permit the “capture” of public conservation values at the farmer level, thereby creating incentives for the conservation of agrobiodiversity and supporting poverty alleviation, appears to be well-worth exploring.