Payment for Ecosystem Services:Institutional Roles & Development

Carina Bracer

Forest Trends & Katoomba Group

Ecosystem Services - Market Mechanisms?

1. Crisis in financial contributions to conservation2. Limits of regulatory mechanisms3. Innovative mechanisms emerging to incorporate

the value of ecosystem services in the economy

Strategies and advances in PES in next decade will• impact investment and conservation patterns

globally, and• lead to better or worse outcomes for suppliers

and communities.

PES Mechanisms and Types

a) Self-Organized Private Deals

Private entities pay for private services

b) Public Payments to Farmers and Communities

Public agency pays for service

c) Open Trading under cap or floor

Landowners either comply directly with regulations, or buy compliance credits

d) Eco-labeled Farm, Forest, Natural products

Consumers prefer certified sustainable supplies

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CarbonCurrently most developed market (Kyoto, European Emissions Trading)ETS estimated trading in 2005 around 362 mt CO2, around 400 mt in CDMTranslates to total of around $11.3 billionIs essentially a cap-and-trade marketVoluntary market is also growing strong

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EU Market362 MT

$US25/tCO2e

CCX1 MT$US2/ tCO2e

Local Regulation5 MT

$US3-7/ tCO2ePre-Compliance/CDM (eg World Bank, Japan,

Canada, USA)397 MT

$US5-7/ tCO2e

Voluntary2-10 MT$US1-38/ tCO2e

NSW GGAS7MT

$US10/tCO2e

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Source: New Forests/Ecosystem Marketplace

Other regulatory schemes (Canada,

Japan)?????

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Carbon Market: It’s here

Buy credits on E-bay!!

There are carbon investment funds, carbon brokers, carbon hedge funds

Credits bought and sold globally

People in Uganda, Chile, etc. are getting paid to reduce emissions

World Cup, SuperBowl carbon neutral

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Water markets

Much less developed

Two possible kinds:

Quality

Quantity

Quality likely to come in first as markets

i.e. Nutrient trading

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Other water marketsFlood control?Paying for upstream watershed protection

In many places (Mexico, Costa Rica, Ecuador)But often essentially a way to channel gov’t moneyOr one-off deals like Ecuador

Problem: science still trickySalinity, etc.

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Even in biodiversity there is movementWetland Banking and Conservation BankingBio-bankingVoluntary Biod. offsetsGov’t/ NGO/ Donor payments for biodiversity

Such as Bush Tender, Eco-Tender, Bush Broker in Australia

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Other existing or possible markets:

Watching many, still in infancy:

Pollination

Disaster prevention

Conservation Easements (and associated tax credits)

Have a large list (matrix)

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THE FOREST CLIMATE ALLIANCEWho Buys Ecosystem Services? Direct Beneficiaries

• Watershed protection– Industrial, agricultural water users – to secure stable supply, flow– Municipal water utilities, consumers (reduce costs, water quality)– Agencies managing environmental risks (e.g.,floods)

• Biodiversity conservation– Conservation agencies and organizations working on private lands– Tourist industry, for landscape beautify or protection of key species– Land developers (offsets for damage, or for amenity values)– Farmers (to protect pollinators, sources of wild products)

• Carbon emission offsets or avoided deforestation– Industries required to comply with carbon rules (offsets for emissions)– Agencies, municipalities seeking to improve air quality– Businesses providing carbon offsets

Potential Benefits of PES for Sustainable Development & Poverty Reduction

• Obtain new sources of finance for conservation, esp. outside Protected Areas

• Can promote incentives for rational decision-making regarding resource use and management

• Rewards rural communities for real benefits they provide to others, provides less cyclical stable income

•Financing for transition to sustainable agriculture, forestry and fisheries

Developing PES for Poverty Reduction

• Structure PES mechanism according to local abilities & realities

• Engage with prepared and knowledgeable ecosystem service providers who are able to provide services, understand potentials and risks

• Analyses of resource needs and uses should satisfy local needs first• Note: conversion from production to conservation can be insufficient to cover opportunity cost

Potential size of ES Markets thatcan benefit the poor

Ecosystem Service

Philanthropic Buyers

Voluntary- Businesses

Public PES

Regulatory Market

Ecocertified products

Carbon LULUCF

XX XXX XXX XX X

Water Quantity and Flow

x XX XX X x

Flood Control X X XX X O

Water Quality X XX XX X X

Biodiversity XX XX XX X XX

Landscape, recreation

X XX XX O XX

Research in conjunction with

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DRAFT – FOR INTERNAL DISCUSSION PURPOSES

Open Trading Self-Organized Private Deals

Public Payment Schemes

Standards and Guidelines for Ecosystem Service Payments or Markets

Identified Ecosystem Services(includes: ecosystem services for available for both current & future payments / markets)

Awareness of Ecosystem Service Values, Payments & Markets (among policymakers as well as potential sellers and buyers)

Engaged Local Communities & Stakeholders(includes: communities, NGO’s, financial institutions, businesses, government, etc.)

Support Services For Market Actors (such as: brokering, legal advice, measurement and valuation of ecosystem services,

3rd party verification, accounting, etc.)

Flow of Market Information

Technical Assistance(to sellers, buyers, and other market actorswhich includes training, education, and advising)

Essential Components for PES Schemes

Financing ( for all needed components, including: ecosystem management costs , transaction costs, etc.

Enabling Legal, Regulatory, & Administrative Context(includes: supportive context for ecosystem service payments and markets)

Component 1

Component 2

Component 8

Component 9

Component 10

Supporting Institutions(includes: public or private entities that facilitate / oversee public funds, regulate private trade, etc.)Component 3

Component 4

Component 5

Component 7

Component 6

PES Market: Institutional Functions and Roles

• Governments take on many roles and functions today– Fragmented experiences, few linkages and

communication between them– Expect more coordination and sharing of lessons

and eventual devolution of functions to other institutions

• Protections and needs of low income providers should be defined now

PES Projects: Institutional roles and functions

Step 1: Assess Institutional and Technical Capacity Assess enabling laws and policies & rules for market trading;Review land tenure and property rights;Map available PES-support services and organizations

Step 2: Identify Ecosystem Services and Potential Deals Assess environmental characteristics, define services & valuesVerify local institutional capacity and select support institutionsIdentify Buyers, Define Sellers

Step 3: Structure AgreementsDesign a basic management and business plan Select suitable payment mechanismsSelect contract type and terms of finance

Step 4: Implement PES Transactions and PaymentsInitiate the PES projectVerify service delivery and benefitsMonitor and evaluate project

• Study governance requirements and implement needed oversight

• Ensure long term sustainable structures don’t rely on donors or governments

• Mapping and analysis of ecosystem services – esp. biodiversity and water research

• Learning via transactions (markets are iterative, search for perfection can paralyze)

• Use political openings- build a carbon strategy that is pro-poor

Strengthening PES for Poverty Reduction: Governments

• Provide mapping and tools, map risks

• Advisory services to providers & buyers, engage in education and capacity building

• Act as certifiers, developing standards & norms with all stakeholders

• Build platforms & brokers of multiple stakeholders, help engage buyers

• Increase transparency (e.g. registries)

Strengthening PES for Poverty Reduction: Civil Society

• Gain expertise & experience in negotiating deals with communities

• Explore institutional options to finance low Y producers and undertake investment in services– Aggregate actions of sellers to reduce

transaction costs

• Evaluate the business case & the benefits and communicate it

• Support socially responsible initiatives by developing standards & norms

Strengthening PES for Poverty Reduction: Buyers, Brokers

• Identify partners with record of pro-poor design and community support

• Gain access to technical assistance

• Learn the norms, rules of the game and legal context

• Incorporate learning experiences & build capacity within their institutions

• Leverage participation in policy making (e.g. ITTO)

Strengthening PES for Poverty Reduction: Communities

• Support gaps data on community projects and outcomes- shape actions

• Support cross-sectoral initiatives- catalyze funding to community ES

• Engage in portfolio of projects and joint learning (beware structures imposed)

• Information outreach for communities designed with them according to their needs

• Develop participatory platforms (host dialogues, standards, monitoring, social marketing premiums)

Strengthening PES for Poverty Reduction: Donors

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