12.2 Challenges in promoting PES in multifunctional landscapes · 2 | PES In multifunctional...

2 | PES In multifunctional landscapes:Assessment of socio-economic feasibility for synergy in land use

Reverse Auctions for PES in Tanzania. Photo: University of Alberta, Canada/Rohit Jindal

Suggested Citation: Jindal R, Vardhan M. 2017. PES in multifunctional landscapes:

Assessment of socio-economic feasibility for synergy in land use. In:

Namirembe S, Leimona B, van Noordwijk M, Minang P, eds. Co-investment in ecosystem services: global lessons from payment and

incentive schemes. Nairobi: World Agroforestry Centre (ICRAF).

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CHAPTER 12 PES in multifunctional landscapes: Assessment of socio-economic feasibility for synergy in land use

Rohit Jindal and Mamta Vardhan

Highlights • Why are multifunctional landscapes hard to manage? • Main challenges in managing multifunctional landscapes through PES. • Variety of methods to assess social and economic feasibility of PES. • Case studies from the field: PES in Viet Nam, Tanzania, and Kenya.

12.1 Ecosystem services from multifunctional landscapes

From a landscape perspective, land is seen to “…simultaneously provide food security, livelihood opportunities, maintenance of ecological functions such as species diversity, and fulfill cultural, aesthetic, and other recreational needs”1. This holistic perspective recognizes the dynamic nature of human-natural capital interactions, and that land use can be managed for multiple benefits (Figure 12.1). For example, agroforestry stresses on the multi-dimensional interactions that exist between farmers and their lands, including trees on agricultural farms, farming in forests, and managing land to protect species diversity. This can take the form of spatially segregated plots – each producing a different output, or integrated plots with multiple land uses2. Irrespective of the spatial structure, each agroforestry system helps to generate several different ecosystem services that are valued locally (erosion control, hydrological balance, and biodiversity) and globally (biodiversity, carbon sequestration).

PES is one of the ways to conserve vital ecosystem services (ES) by aligning the interests of land owners with service users. It involves paying cash or in-kind rewards to land owners for voluntarily adopting land use practices that help to conserve or produce vital ecosystem services such as carbon sequestration from the atmosphere (by planting new trees and conserving old ones), maintaining water quality (by controlling soil erosion), and conserving biodiversity (by protecting endangered flora and fauna). PES programs worth millions of dollars exist in many parts of the world, and have become the key focus for promoting land based climate change mitigation strategies3. For example, in Mozambique local communities around Gorongosa National Park receive cash ($400-$800 per ha over 7 years) and in-kind (infrastructure development, training) incentives for emission reduction through forest conservation.4


Figure 12.1 Multifunctional Landscape in Bac Kan, Viet Nam

Some researchers like to ascribe PES as a market based approach, though many others disagree. They point out that in many cases, PES contracts are unique either in terms of the land unit that is contracted or the ES that is being produced5. Hence there is no real competition amongst buyers or even sellers of the ecosystem service unit. Similarly, when governments include PES as part of environmental regulation, participation may not be voluntary anymore. Therefore, it may be more appropriate to consider PES as a broad set of practices that include provision of some kind of incentive for promoting environmental conservation.

12.2 Challenges in promoting PES in multifunctional landscapes

PES works on the principle of conditionality – the payment or reward to service providers is dependent on them securing the desired ecosystem service6. From a theoretical perspective, the size of payment to land owners (or service providers) should equal or exceed the opportunity cost of changing their land use7. When this payment is made, land owners should willingly enter into service provision contracts that require them to supply a specified level of ecosystem services. However, in practice, economic feasibility of PES is rarely such straightforward. Cause and effect between land use practices (such as afforestation) and their ecological impacts may be unknown or at best uncertain. Similarly, conditionality may be difficult to enforce, particularly where property rights are unclear or local governance systems see the PES approach as a way to subsidize a particular kind of land use system. In the following sections, we focus our attention on challenges pertaining to adoption of PES approach on a landscape basis and on some possible field based methods to address these challenges. The discussion is focused both on policy makers and field practitioners.

12.2.1 Paying for ES versus land use change?

Land owners or service providers ensure the provision of an ES by taking up following specific land use practices in their area. When these land use practices can be directly linked with the level of ES being generated (growing trees sequestering atmospheric carbon into their

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biomass), and the ES is readily measurable (tons of atmospheric carbon sequestered by a landscape), it is possible to pay land owners on the basis of ES being generated7. However, when the relationship between land use and ES production is tenuous (maintaining hydrological balance), or it is difficult to measure and quantify an ecosystem service (scenic beauty), an ES based payment system becomes difficult to implement. The alternative is to pay on the basis of the extent of recommended land use changes that local farmers have adopted. However, the cost of monitoring such a system is much higher particularly if the land parcels are highly fragmented across the landscape. As a result many PES programs specify simple land use changes that are easy to monitor, but the challenge for program managers remains in terms of linking these land uses with the ES that is of interest.

12.2.2 Complementary versus substitutable ES?

Often ecosystem goods and services produced by multifunctional landscapes are complementary, when one is produced another is generated simultaneously6. For example, tropical rain forests not only provide timber and fuelwood, they also conserve valuable biodiversity and sequester significant amount of atmospheric carbon at the same time. If the users of such services are different (or geographically segregated), the challenge is to decide who will pay for the much higher upfront cost of setting up the system versus much lower cost of maintaining it later. Some PES projects address this challenge by bundling the different ES together and setting up contracts with land owners that require them to follow specific land use practices. This practice has been followed in Costa Rica’s national PES program where the government pays local farmers (about $43/ha or $3,000 per household with an average ownership of 76 ha) to implement recommended land use practices which yield different ecosystem services (carbon sequestration, scenic beauty) that are then sold in relevant markets (carbon in international markets, scenic beauty among eco-tourists).8

However, many ES also act as substitutes of each other. In such cases, program managers may be tempted to promote ES that can earn higher revenue from potential users. This can be problematic if it leads to degradation of other ecological functions that the landscape performs. For example, while fast growing monocultures are good for yielding carbon sequestration, such landscapes may lose their species diversity and may even have a detrimental effect on the local hydrology. The challenge in managing landscapes that produce such multiple ES is balancing economic considerations with ecological perspectives. One potential alternative is to pay land owners according to ecological matrices that give appropriate weight to different ES, as has been done in a PES project in Nicaragua9. Another option is to ban land uses that may produce an ES but are deemed highly detrimental for the entire landscape, for example excluding exotic monocultures from carbon projects.

12.2.3 How much to pay?

PES requires program managers to estimate how much to pay to service providers10. If the payment is too low, land owners will remain under-compensated implying that many potential suppliers will opt out of the project. If the payment is too high, service producers will claim all the surplus from the transaction and the project will fail to deliver an adequate level of environmental service. Often, program managers may also need to determine a specific payment level because many projects either include onetime contracts or are of long duration whereby renegotiation of the contract is costly once it has begun. Therefore, the terms of the project, including the payment level, have to be clearly laid out ex ante in order to obtain a long term commitment from the suppliers. If these terms are changed in the middle of the project, land stewards may discontinue their conservation efforts.

One of the challenges of using PES approach is that in the absence of competitive markets for many ES such as biodiversity and watershed conservation, it is hard to determine the price or


payment to offer to land stewards as suppliers. When markets do exist, they can be so differentiated that there is no single price that can be paid, as is the case as with voluntary markets for carbon sequestration credits. Moreover, it is difficult to directly transfer cost estimates from one project to another since the cost of implementing a new land use practice is often site (and farmer) specific. When measuring production costs is expensive, especially on new project sites, ES providers may have little incentive in revealing their true costs. This is because only the farmers know a large proportion of this opportunity cost (e.g. change in labor inputs), thereby creating an information asymmetry between the farmer and the project manager.11

It is also important to note that existence of a price does not translate automatically into existence of a market for ES5. For ES suppliers, the price may reflect the local cost of adopting a new land use practice, while for ES buyers or financiers, it may reflect the monetary value of the environmental benefit they perceive from conserving a landscape.

12.2.4 Would payments make a difference – additionality, leakage, permanence concerns?

An important feature of PES approach is conditionality – payments or rewards are contingent on landowners or service providers ensuring the security of an ES (or the adoption of a specified land use). This implies that the payment should lead to a larger provision of ES from a service provider than business as usual (BAU) – also known as additionality. Leakage, on the other hand, refers to loss of additionality at the landscape level. In figure 12.2, the line segment 1 represents the level of ES from an individual service provider (say to provide carbon sequestration through afforestation), while segment 2 represents the level of ES supply from the entire landscape. The level of ES supplied by an individual service provider contracted under the project (line 1a) should be more than the business as usual (BAU) scenario before the start of the project, i.e., the level of ES available if there were no PES project (line 1b). The difference between segment 1a and segment 1b represents the net additionality of ES created under the PES project. At the landscape level (segment 2), the level of ES supply after the start of the project should ideally increase to line 2a, which is equal to the additional ES created by individual landowners who have been contracted across this landscape. However, if the level of ES from the landscape remains equal to line 2b, this implies that even though the contracted landowners are implementing recommended conservation practices on their private plots, some of them are involved in resource exploitation in other parts of the landscape (say by chopping down trees on village common lands). The area L1, which is the difference between segments 2a and 2b represents the leakage that is taking place at the landscape level: even though landowners are increasing ES supply from their individual plots, the buyers or service users do not experience any additional availability of ES from the landscape. If the amount of resource exploitation at the level of landscape (line 2c) is more than the additional ES created by individual service providers, the PES project may result in a lower level of ES than BAU. The area L2 which is the difference between lines 2b (or the BAU at the landscape level) and 2c represents excessive leakage at the level of the landscape – service users are now subsidizing resource exploitation at the landscape level.

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Figure 12.2 Pictorial representation of Additionality and Leakage under PES

Permanence refers to the continued availability of ES even after the end of the project. In figure 12.3, the level of ES available from the landscape increases from the BAU level after the start of the project. As the PES project ends, the level of ES from the landscape may fall back to the BAU level (i.e. line segment 2), which implies that the ES created by the project was temporary in nature. Thus, in case of carbon sequestration service from afforestation, all the new trees that were established under the project are now cut, which means that the amount of carbon sequestered from growing trees has been lost back to the atmosphere (say by burning of the trees as firewood). However, if the level of ES available from the landscape after the end of the project is higher than BAU, i.e. it is equal to line segment 1, this indicates that the PES project has been able to create some level of permanence of long-term sustainability of the ES. A project may also have a perverse effect on service providers, after the payments end, the level of ES may be lower (line segment 3) than at the beginning of the project (BAU). This indicates that over the long term, the PES project resulted in a net loss of ES from a landscape.

Figure 12.3 Pictorial representation of Permanence under PES


To ensure additionality, sufficient level of permanence, and that no leakage is taking place, the challenge for a PES project is to not only monitor individual service providers but also the entire landscape. This monitoring needs to be done at all stages of implementation, i.e. before the start of the project, during implementation, and after the completion of project activities (Table 12.1). In some cases, such kind of monitoring can be done through remote sensing (such as carbon sequestration through afforestation and reforestation), while in others field based monitoring is essential (biodiversity conservation).

Table 12.1 Challenges in monitoring additionality, leakage, and permanence

Before Project Status

During Project Status

After Project Status

Additionality Individual Level ES Permanence Leakage Landscape Level ES Permanence

12.2.5 Enrolling a minimum number (threshold) of land holders for viable ES?

Another challenge with managing multifunctional landscapes is that many ecosystem services such as erosion control and hydrological balance require sufficiently large proportion of the local area being under a similar land use without which these services cannot be produced12. However, the actual land within these landscapes could be owned by different people as smaller parcels with completely different land use practices. So unless these landowners collaborate together to adopt synergy in land use, the landscape cannot produce these services6. Even when land is commonly owned, as in the case of community owned forests in many developing countries, the heterogeneous nature of resource users (herders interested in grazing their animals versus households that would rather grow timber trees) makes it difficult to agree to one particular land use. In such a case, having the same PES contract for everyone will likely result in under-enrollment. On the other hand, having lots of different kinds of contracts for different households will require extensive monitoring, thus making it difficult for managers to contain project costs.

This becomes even more problematic when the opportunity costs of different landowners are vastly different and are difficult to estimate for project managers. For example, different sections of a landscape may differ by the depth of top soil, average slope, and their suitability for new land use practices. When combined with differences among landholders in terms of their socio-economic status, it can be difficult to determine ex ante what land use contracts would work best for the area. There is thus an information asymmetry between service providers and service users or project managers, which can result in loss of efficiency gains for a PES project11. In such cases, potential options include: (i) setting up a menu of contracts that vary by requirements regarding conservation effort and potential paymenta, (ii) having a standard contract with a uniform payment levelb, and (iii) offering agglomeration bonuses for landholders that decide to pool their lands for enrollment in a PES project.13

a An example is a menu of contracts offered by the Nhambita Community Carbon Project in Mozambique b However, this would result in lower cost providers being over-compensated as compared to landowners with

higher opportunity costs

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12.2.6 Impact of payments on existing norms?

In many landscapes, there may already exist local norms or arrangements for resource use and conservation. On the island of Bali for example, local landowners have developed norms regarding use of surface runoff for irrigation on private lands. Local norms also exist around common property resources such as forests and grasslands in many developing countries where neighboring communities have developed institutions that regulate the amount of timber or grass that a household can partake. When implementing PES projects across such landscapes, an important challenge for project managers is to identify norms that already exist in the area, and understand how best to design new incentive structures that do not create any perverse impact.

Research from psychology and behavioral economics shows that human behavior is driven by multiple sources of motivation. Existing norms for resource management constitute what are called as intrinsic motivators, as they provide a sense of satisfaction to local landowners for doing the right thing for their community15. In contrast, payments under PES type arrangements mainly act as extrinsic motivators, as they provide an economic incentive for people to adopt a particular set of land use practices. However, there is a risk that new incentive structures such as cash payments may “crowd-out” a community’s intrinsic motivation to look-after a landscape without the need for external regulation. When this happens, the outcome may be worse after the implementation of a PES project than before it. This is indicated by the possibility of excessive leakage as shown in figure 12.2 (line 2c), or perverse outcome in figure 12.3 in the form of lower level of ES after the end of PES payments than before it (line 3). This is an evolving area of research where field evidence is still patchy. In one of the few studies that look at this phenomenon, Kerr et al. (2012)14 conducted field experiments in Mexico and Tanzania that showed that cash payments helped raise participation in community based resource conservation where people were otherwise uninterested, but in areas with strong norms towards resource management, local participation remained high irrespective of external incentives. In addition, cash payments reduced peoples’ satisfaction from contributing towards a collective resource conservation project than the satisfaction they derived in absence of external compensation. If such a phenomenon is observed in other PES projects then the long term viability of ES provision through external payments will be open to challenge. While more research is being conducted, possible alternatives include providing non-cash incentives where cash payments may lead to perverse outcomes. In case of landscapes requiring collective effort from a community, PES projects will need to focus on strengthening local institutions before instituting new incentive structures.15

12.3 Potential ways to address PES challenges

While a PES approach has several potential advantages over conventional integrated conservation development projects6,9; the above discussion shows that project managers face several important challenges when taking PES to the field, especially when implementing activities with a landscape perspective. Many of these challenges pertain to informational gaps that need to be addressed before a project can be implemented on ground. In recent years, much research has focused on identifying methods that can help in bridging these information gaps. These include using a production function approach to estimate cost of supplying PES16, conducting choice experiments to identify preferences of local communities regarding PES contracts17, and undertaking benefit-cost analysis of adopting new land use practices18. In the following sections, we discuss three such methods that we have used in the field to address some of the information challenges in PES.


12.3.1 Group deliberations: Structured decision making in Bac Kan, Viet Nam

PES often requires complex decision making by stakeholder groups who may have very different perspectives regarding resource conservation and expected outputs. Group deliberations are helpful in highlighting these perspectives and in identifying tradeoffs that each group may need to make in order to arrive at a common set of program activities for a given landscape. Structured Decision Making (SDM) is a group deliberation method that helps program managers understand specific objectives and concerns of stakeholders for effective decision making. The method involves open-ended interviews and workshops with key stakeholder groups to: (1) define the decision problem, (2) identify objectives from stakeholders’ perspectives and performance measures to determine the extent of success of a program, (3) identifying alternatives for achieving program objectives, (4) forecasting the consequences of implementing these different alternatives, and (5) helping stakeholder groups recognize key tradeoffs when selecting among different alternatives.19

The SDM method was used in Viet Nam to identify stakeholder preferences under the United Nations’ REDD (UN REDD) program. The UN REDD has been piloted in Viet Nam from 2009 onwards and aims to reduce national greenhouse gas emissions through sustainable forest management. The SDM study in Viet Nam was conducted in collaboration with ICRAF’s country office in Hanoi. Since forest landscapes are put to multiple uses (timber logging, local fuel wood needs, ecotourism), and are inhabited by diverse communities, it is important to reconcile local preferences with national level priorities regarding REDD. Therefore, the study was carried out at two levels: a series of workshops with 10 national level stakeholders representing government agencies, research institutions, international donor organizations, local NGOs, and representatives from the Viet Nam’s UN REDD office; and another series of workshops with local communities from four villages in Bac Kan province. Bac Kan was one of the provinces selected by the national policy makers for detailed REDD activities, which made its choice really appropriate for the SDM study. The workshops with national level stakeholders focused on management objectives regarding REDD, and related performance measures. At the local level, the workshop facilitators helped people to state their specific objectives and performance measures, and preferences regarding key programmatic areas.

The SDM workshops showed that national level stakeholders had four main objectives regarding REDD: protecting valuable ecosystem services, improving local livelihoods, poverty reduction, and climate change mitigation. Related performance measures were mostly technical and included percent tree cover, and tons of carbon sequestered by forested landscapes. At the village level in Bac Kan, local participants articulated three objectives that were similar to national level stakeholders – protecting ES, improving local livelihoods, and poverty reduction, and another fourth one related to promotion of democratic governance. Performance measures were also mostly local in scope and included quality of relationships between villagers, water quality, and presence of useful tree species. Program alternatives articulated by people included a i) a preference for bottom-up design process through collaboration between REDD officials and local participants, ii) mix of cash payments for individuals (in the form of goods such as fertilizers, seeds, building materials), and in-kind benefits at the community level (improved roads, school rooms, irrigation infrastructure), iii) allowance for limited use of forests such as fuel wood, iv) local level management and monitoring of REDD activities handled jointly by village leaders, village forest boards, and individual participants, and v) limited conditionality so that people are not penalized for naturally occurring calamities such as fire and flood19. The SDM method therefore helped in understanding and articulating stakeholder preferences regarding a potential REDD program including key elements such as management structure, payment system, and monitoring and verification system.

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12.3.2 Household survey: Case study from Lake Victoria Basin, Kenya

Sediment flow into Lake Victoria due to large scale soil erosion in its catchment has several harmful effects on water quality including reduced fish catch from the lake and escalation in maintenance costs for hydroelectric turbines in downstream areas. The Global Environment Facility funded Western Kenya Integrated Ecosystem Management (WKIEM) project aims to reverse this ecological deterioration through forestry activities in the upper catchment. For the program to have a significant effect on the amount of silt flowing into the lake, a high proportion of farmers in the river basins needed to be willing to plant trees on their farms. The present study aimed to assess the feasibility of such a forestry program by assessing the impact of economic incentives on the number of farmers who would be willing to plant additional trees on their farms20. It was conducted in collaboration with ICRAF’s Western Kenya office, which was one of the implementing organizations for the project.

The study took the form of a household survey in which the respondents were asked to elicit the kinds of tree species and the number of additional trees they would be willing to plant under a potential PES program in the area. They were given three hypothetical scenarios: one where they would receive free seedlings, two where they had to pay 10 Ksh (Kenyan Shillings)c per seedling, and three where they received 10 Ksh per seedling. To make these scenarios realistic, respondents were told that payments would only be made six months after the seedlings were planted and on the basis of the actual number of surviving seedlings.

The survey covered 277 households across Nyando and Yala river basins. Survey results showed that when buying seedlings, farmers would plant an average of 44 seedlings per household. Demand increased to 203 seedlings if farmers received free seedlings, and further to 245 seedlings/household if they were paid 10 Ksh for planting each seedling. Also, respondents in Yala River Basin were willing to plant more trees than farmers in the Nyando River basin. These results showed that although the economic incentives had a significant effect on farmers’ willingness to plant trees, the overall effect was low. Taking a planting intensity of 2.5m X 2.5m, a household was willing to put less than 0.5 acres of farm land under tree plantations even when it received a payment of 10ksh/seedling along with free seedlings. This could be due to shortage of farmland that was already under food crops. To achieve any meaningful impact at the level of the entire basin would therefore require rigorous targeting and increasing the size of economic incentives for local farmers. The program could start its activities from the Yala basin where farmers were more willing to plant trees. Finally, many local households were interested in planting fast growing exotic trees, which was not the best option from an ecological viewpoint. Therefore, the local NGOs needed to take up environmental campaigns to inform people about the need for planting indigenous trees and the program could incorporate higher incentives for farmers that were willing to plant indigenous trees on their farms.

12.3.3 Market simulations: Reverse auctions in Uluguru Mountains, Tanzania

As discussed above, a constraint with the PES approach is the need for ex ante determination of payment level for service providers. One possible alternative is to create market like conditions through reverse auctions; the roles of buyers and sellers (or service providers) are reversed in these auctions and successful bids from potential service providers are decided on the basis of how low they are. Such an auction was used to allocate PES contracts among local farmers in the Uluguru Mountains in Tanzania.

The Uluguru Mountains provide several valuable ES that are under threat due to rapid deforestation. Many research organizations including ICRAF have been promoting tree

c The exchange rate at the time of the study was 75 Ksh = 1US$


planting as a way to revitalize the local ecosystem. Reverse auctions were carried out in the area in 2009 to estimate the level of payment necessary to compensate farmers to change their land use from cash crops to trees21. Participating farmers bid for PES contracts in terms of minimum payment they would be willing to receive for planting 80 trees over 0.5 acres, and for protecting these trees for at least three years. There were two auction rounds, one for planting Khaya anthoteca and Tectona grandis, and the other for Khaya anthoteca and Faidherbia albida tree species. 251 valid bids were received in each of the two rounds. As a result, 23 lowest bidders received three-year PES contracts – 14 winners from round one received TSH 30,000 each, while 9 winners from round two received TSH 20,000 eachd. In all, 1,840 trees were planted on 11.5 acres of land as a result of the contracts allocated through the auction.

The auction bids also provided cost estimate for implementing a PES project in the entire area. For a low-enrollment target of one-third of the eligible area, a PES project would need to pay TSH 100,000 per contract (per 0.5 acre). For the catchment as a whole, this would enroll about 184 acres (or 368 local households) at a total cost of TSH 36,800,000 (US$28,976). For a high-enrollment target of 80%, the project would need to pay TSH 200,000 per contracte and 491 acres of private land (982 households) would enroll at a cost of TSH 196,400,000. In terms of participation of the poor, auction bids showed that while some poor households had low opportunity costs (and were thus the first ones to be contracted), many others reported much higher opportunity costs (possibly due to shortage of land that could be put under trees). This implies additional budgetary requirements in case project managers wanted to contract poor households.

A monitoring exercise in January 2011 found high rates of compliance with the terms of the contracts. Of the 23 farmers who won the carbon contracts, 18 had duly complied with the contract requirements, with 63% of the trees surviving on their farms almost two years after they were planted. The contract outcomes were similar across the two sets of carbon contracts, though the survival rates varied by tree species, (83% for Khaya anthoteca, 44% for Tectona grandis, and 36% for Faidherbia albida). This variation was due to higher familiarity with Khaya anthoteca than Faidherbia albida, and failure of the short rains which led to higher mortality of Tectona grandis. In a group discussion during the monitoring visit, many farmers said that they liked the transparent way in which the auction process had identified recipients of the tree planting contracts. They expressed their satisfaction that unlike in other projects with which they were familiar, prominent villagers did not receive contracts (because their bids were too high). Farmers also expressed satisfaction with the payment they had received, which helped them recover the cost of labor and other inputs in planting the new trees.

12.4 Conclusion

While PES has become a useful strategy to promote conservation including land based emission reduction, this chapter identifies important constraints that need to be addressed when designing new projects, especially when following a landscape approach. A multifunctional landscape may help in bringing together service providers and potential service users, but it also throws up new challenges in the form of ascertaining whether a PES project results in additional provision of the ES being considered, and that this ES has a desirable level of sustainability or permanence. Project managers also need to check leakage as contracted service providers may exploit natural resources from other parts of the

d The exchange rate at the time of auctions was TSH 1270 = 1US$ e This total excludes the cost of supplying tree seedlings and other project administrative costs

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landscape. Often, a landscape approach also entails contracting a high proportion of the local households (or a certain threshold land area) for the ES to be viable. This becomes even more difficult to manage when a landscape is inhabited by heterogeneous land owners with vastly different opportunity costs and contract preferences. In absence of competitive markets for most ES, it becomes paramount for project managers to identify the appropriate level of payment that would voluntarily induce conservation behavior from local farmers. However, recent research suggests that external incentives in the form of payments may not always lead to conservation effort. In areas where communities have evolved their own norms for resource management, or where cooperation among community members is essential for managing common pool resources, PES projects need to identify additional kinds of incentives that will work. Not all PES projects may come up against these constraints, but when aiming for synergy in land use through a landscape approach such as in REDD, it is likely that these constraints will need to be addressed for ensuring successful project outcomes.

Group Deliberations, Viet Nam. Photo: University of Alberta, Canada/Rohit Jindal

Though our objective is to draw attention to these key constraints, we also identify some potential methods that have only recently been considered for PES based scenarios. As we show through the case study from Bac Kan, Viet Nam, group deliberation such as SDM can be very useful in identifying and reconciling preferences of various stakeholder groups. The method is helpful in assessing what kinds of collaborative networks already exist in the area and what kinds of incentive structures would be most effective. Similarly, the household survey involving demand elicitation in Lake Victoria basin in Kenya points out the approach that can be taken to assess what proportion of local households would be willing to join a PES program. The survey also helps in assessing the socio-economic status of the local households for more effective PES targeting. Finally, reverse auctions create market like conditions that have only recently been tested in developing countries. ICRAF has taken a lead in this regard by collaborating on most of the existing auction studies involving PES projects. As the results from the Uluguru Mountains in Tanzania reveal, auctions are not only useful in estimating the local supply curve for providing ES (and thus the level of payment at different levels of ES provision), they are also seen as transparent and fair by the participants. An important strategy in this regard is to pay a uniform price to the winning bidders rather than following discriminatory pricing. While these methods point out potential ways to address challenges in designing effective PES programs, in the end, the choice of field method will depend on the local context and the project team’s comfort level with a method.


Acknowledgements

This chapter is based on field research conducted in collaboration with ICRAF on their various PES sites across East Africa and Asia. We wish to thank all the research teams and ICRAF scientists who have helped us in carrying out this research. In particular, we acknowledge Meine van Noordwijk, Brent Swallow, John Kerr, and Delia Catacutan, and an anonymous reviewer for their support and feedback. We also acknowledge the grant support from University of Alberta and MacEwan University (RSACAF Project Grant) in carrying out fieldwork on some of our project sites.

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17 Kaczan D and Swallow BM. 2013. Designing a payments for ecosystem services (PES) program to reduce deforestation in Tanzania: An assessment of payment approaches. Ecological Economics 95:20–30.

18 Wiskerke WT, Dornburg V, Rubanza CDK, Malimbwi RE, Faaij APC. 2010. Cost/benefit analysis of biomass energy supply options for rural smallholders in the semi-arid eastern part of Shinyanga Region in Tanzania. Renewable and Sustainable Energy Reviews 14(1):148–165.

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21 Jindal R, Kerr J, Ferraro P, Swallow B. 2013. Social dimensions of procurement auctions for environmental service contracts: Evaluating tradeoffs between cost-effectiveness and participation by the poor in rural Tanzania. Land Use Policy 31:71–80.

PES in multifunctional landscapes: Assessment of socio-economic feasibility for synergy in land use12.1 Ecosystem services from multifunctional landscapes12.2 Challenges in promoting PES in multifunctional landscapes12.2.1 Paying for ES versus land use change?12.2.2 Complementary versus substitutable ES?12.2.3 How much to pay?12.2.4 Would payments make a difference – additionality, leakage, permanence concerns?12.2.5 Enrolling a minimum number (threshold) of land holders for viable ES?12.2.6 Impact of payments on existing norms?

12.3 Potential ways to address PES challenges12.3.1 Group deliberations: Structured decision making in Bac Kan, Viet Nam12.3.2 Household survey: Case study from Lake Victoria Basin, Kenya12.3.3 Market simulations: Reverse auctions in Uluguru Mountains, Tanzania

12.4 ConclusionAcknowledgements

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