Payment for ecosystem services

Payment for ecosystem services

Payment for Ecosystem Services (PES) programmes promote the conservation of natural resources in the marketplace. PES programs provide incentives for the private sector to incorporate sustainable practices into production and resource management.

Payment for Ecosystem Services programs are voluntary and mutually beneficial contracts between consumers of ecosystem services and the suppliers of these services. The party supplying the environmental services holds the property rights over an environmental good that provides a flow of benefits to the demanding party in return for compensation. The beneficiaries of the ecosystem services are willing to pay a price that is lower than their welfare gain due to the services. The providers of the ecosystem services are willing to accept a payment that is greater than the cost of providing the services.

PES programs are practical examples of the Coase theorem. According to the Coase Theorem, environmental externalities can be solved through private bargaining between people who are willing to pay in order to reduce an environmental hazard and people willing to accept compensation in order to reduce the activity that generates the environmental burden.

Applications

In Jesús de Otoro, Honduras, the Cumes River is the town’s main source of clean water. Coffee producers were dumping their waste into the river upstream, polluting the source and directly affecting the consumers downstream. To solve this problem, the local Council for Administration of Water and Sewage Disposal (JAPOE) created a payment program to benefit coffee producers upstream and the town’s inhabitants that lived downstream. The villagers downstream paid around $0.06 per household per month to JAPOE, who redirected the money towards the upstream farmers. The farmers complied with various guidelines, such as construction of irrigation ditches, proper management of waste, and use of organic fertilizers.

In Jamestown, Rhode Island, United States, farmers usually harvest the hay in their fields twice a year. However, this practice destroys the habitats of many local grassland birds. Economists from the University of Rhode Island and EcoAssets Markets Inc. raised money from residents of Jamestown who were willing to help the birds. The range of investments was between $5 and $200 per person for a total of $9,800. This money was enough to compensate three Jamestown farms for the cost of reducing their yearly harvests and getting their hay from another source. In this way, the birds have sufficient time to nest and leave the grounds without being subject to a hay harvest. In this example, the farmers benefit because they only have to harvest their fields once a year instead of two and the contributors benefit because they value the lives of the birds more than the money they contributed to the project.

The Scolel Té program in Chiapas, Mexico, aims to create a market for positive externalities of shade-growth coffee plantations. Designed by the University of Edinburgh’s Institute of Ecology and Resource Management along with the Edinburgh Centre for Carbon management, Scolel Té is a PES program under which farmers agree to responsible farming and reforestation practices in exchange for payment for carbon offsets. The NGO Ambio manages Scolel Té. Farmers submit their reforestation plans to Ambio, which then judges their financial benefits and the amount of carbon sequestration associated with each plan. The farmers then receive payments from the Fondo BioClimatico, managed by Ambio. Funding for the Fondo BioClimatico comes from the sale of Voluntary Emission Reductions (VERs) to private groups at a price of $13 per ton of Carbon sequestered.

Pico Bonito Forests, near La Ceiba, Honduras, is a mission-driven, for-profit venture between the Pico Bonito National Park Foundation and the Ecologic Development Fund. Carbon credits are generated by planting native trees to capture, or sequester, carbon dioxide. The credits are then sold though the World Bank’s BioCarbon Fund to countries aiming to meet their carbon emissions reduction targets. The project offers a unique business model because it is owned jointly by investors and the communities located near the park. Community members earn income and share profits from implementing the sustainable forestry practices that capture carbon. By 2017, the project is expected to sequester from .45-.55 Mt of carbon through reforestation and agroforestry and up to an additional .5 Mt of carbon through avoided deforestation as destructive practices are replaced with sustainable practices.

References

  • Callan, Scott J., Thomas, Janet M., Environmental Economics and Management, Thompson South-Western, Mason, OH, 2007
  • Cacho, Oscar; Marshall, Graham; Milne, Mary. “Smallholder Agroforestry Projects: Potential for Carbon Sequestration and Poverty Alleviation” ESA Working Paper #03-06, (2003).
  • Keohane, Nathaniel O, and Olmstead, Sheila M., Markets and the Environment, Island Press, Washington, DC, 2007.
  • Sanchirico, James, and Juha Siikamaki, “Natural Resource Economics and Policy in the 21st Century: Conservation of Ecosystem Services,” Resources, 165 (2007): 8-10.

http://www.rff.org/rff/Documents/RFF-Resources-165.pdf

  • University of Rhode Island, "First U.S. test of Ecological Services Payment Underway." MongaBay.com June 27, 2007 .
  • Wexler, Mark. "The Coffee Connection." National Wildlife 41.1 (2003): 37.
  • Honduras: Pico Bonito Forest Restoration. .
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