economic valuation and payment for ecosystem services

INTERNATIONAL UNION FOR CONSERVATION OF NATURE

Economic valuation and Payment for Ecosystem Services

Katharine Cross, IUCN

IW Learn African Regional Workshop

April 4th, 2012

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Outline

• Importance of ES to human wellbeing• Valuation of ecosystems• What are Payment for Ecosystem Services?

– How does PES work?– Types of PES schemes– Pro-poor PES?

• Examples from the region• Barriers and Challenges• Way forward: applying tools

and processes• Discussion questions

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Importance of ecosystem services to human wellbeing

valuefor

constituents of well-beingSecurity• Personal safety• Secure resource access• Security from disasters

Basic material for good life• Adequate livelihoods• Sufficient nutritious food• Shelter• Access to goods

Health• Strength• Feeling well• Access to clean air &

water

Good social relations• Social cohesion• Mutual respect• Ability to help others

Freedom of choice and action

Opportunity to be able to achieve

what an individual values being and

doing

ecosystem services

Supporting• Nutrient cycling• Soil formation• Primary

production• etc. …

Provisioning• Food• Fresh water• Wood and fibre• Fuel• etc. …Regulating• Climate

regulation• Flood regulation• Disease

prevention• Water purification• etc. …Cultural• Aesthetic• Spiritual• Educational• Recreational• etc. …

Millennium Ecosystem Assessment 2005

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Total economic value of ecosystems

DIRECT VALUESproduction and

consumption goods such as:

fish, firewood, building poles,

medicines, fodder, recreation,

… etc ...

DIRECT VALUESproduction and

consumption goods such as:

fish, firewood, building poles,

medicines, fodder, recreation,

… etc ...

INDIRECT VALUESecosystem functions

and services such as:

water quality and supply, nutrient cycling,

flood attenuation, climate regulation,

shoreline protection,

… etc ...

INDIRECT VALUESecosystem functions

and services such as:

water quality and supply, nutrient cycling,

flood attenuation, climate regulation,

shoreline protection,

… etc ...

OPTION VALUESpremium placed on

possible future uses or applications,

such as:

industrial, leisure, pharmaceutical,

agricultural,

… etc ...

OPTION VALUESpremium placed on

possible future uses or applications,

such as:

industrial, leisure, pharmaceutical,

agricultural,

… etc ...

use values

EXISTENCE VALUES

intrinsic significance of resources and ecosystems in

terms of:

cultural, aesthetic,heritage, bequest,

… etc ...

EXISTENCE VALUES

intrinsic significance of resources and ecosystems in

terms of:

cultural, aesthetic,heritage, bequest,

… etc ...

non-use values

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Economic values of ecosystem services

Muthurajawela Wetland,Sri Lanka

generates flood attenuation benefits worth $1,700/ha/yr, and waste water treatment benefits worth $600/ha/yr

(Emerton 2005a)

Balochistan mangroves, Pakistan

provide nursery and breeding habitat on which half of off-

shore commercial fish stocks depend, worth $900/ha/yr

(Baig & Iftikhar 2007)

Caribbean coral reefs

value for shoreline protection ranges between

$2,000 - $1 million/km, depending on population

(WRI 2005)

Bokor National Park, Cambodia

forest watershed catchment protection saves $2 million for downstream Kamchay

Hydropower Scheme(Emerton 2005b)

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Value and benefits of natural infrastructure

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• ecosystem costs and benefits tend to be underpriced by the market, or not have any market price at all

• yet it is often these goods and services that are the most valuable

• as a result, ecosystem conservation is seen as having little economic benefit, and ecosystem degradation is seen as having little economic cost

How under-valuation is a problem

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Responses to ecosystem loss

regulationdictate particular behaviour

mitigationremedy, reverse or

replace lost services

incentivesdirect financial or economic

reward from conservation

provide concrete and tangible benefits and

funds, not just punishment and penalties

reduce the need(and cost) to mitigate,

raise funds for mitigation where required

aim to overcome policy, market and price failures, thus tackling root causes

of ecosystem loss

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What are Payments for Environmental Services?

• voluntary agreements …

• between buyers and sellers of ecosystem services …

• for cash or other rewards …

• creating markets for watershed services …

• which provide incentives and finance to land and resource managers …

• thereby strengthening conservation and livelihoods …

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PES as a response to market failures

• The market fails to:

– reward on-site ecosystem service providers, or to compensate them for their costs (e.g. changing land use)

– charge off-site users for the benefits they enjoy (e.g. clean water)

• PES create a market for natural resources (including water), making conservation a more profitable land-use proposition

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How does PES work?

ecosystemecosystem serviceservice

provider/seller

provider/seller

beneficiary/buyer

beneficiary/buyer

1. Recognition of the goods and services provided by watershed for which a price can be agreed• what ecosystem services are

generated?• which services are marketable?2. Need buyers and sellers of these goods and services• how much are buyers willing to

pay?• what are sellers’ needs

for rewards?• what type of payments do

buyers want, and can sellers provide?

3. Ensure that property, access and use rights are well established

payment for watershed

service

greater than or equal to

less than or equal to

PES as a conservation incentive

Regional Workshop on Payments for Environmental Services

net cost of providing watershed services (e.g. reforestation)

net benefit from receiving

watershed services (e.g. clean

water)

ECOSYSTEM MANAGERS (Sellers)

BENEFICIARIES (Buyers)

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Pro-poor PES?

• PWS is not designed to be a poverty reduction mechanism. The objective of PWS programs is to address environmental and natural resource management problems, by providing a mechanism to internalize externalities.

• However, PWS programs can affect the poor in a variety of ways—in particular, by providing an additional income source. BUT should not be used primarily as a poverty reduction mechanism.

• To apply pro-poor PWS:– Keep transaction costs low as many potential participants are poor,

as they will be relatively more heavily affected. – Devise specific mechanisms to counter high transaction costs

such as collective contracting. – Ensure that the social context is well understood, so that possible

adverse impacts are anticipated and appropriate remedial measures can be designed.

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Types of PES Schemes

• Private payment schemes– private entities agree amongst themselves to provide payments or

rewards in return for maintenance or restoration of a watershed service

• Cap-and-trade schemes, under a regulatory cap or floor– Cap is set either by a government agency or voluntarily. – Permits or credits must be allocated among resource users or polluters. – A market is developed for the exchange of permits and credits between

buyers and sellers.

• Certification schemes for environmental goods– Transactions occur between private parties, but payment is embedded in

the price paid for a traded product, such as certified timber, fish or organic produce

• Public payment schemes, including fiscal mechanisms– Service buyers in public schemes are public authorities motivated by the

need to provide safe drinking water or regulation of river flows. Achieved through user fees, land purchase and land easement, which are rights to specific use of land owned by others

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Example – Working for Water, South Africa

• Problems of water scarcity and reduction in stream due to invasive alien plants that consume large amounts of water and cause other environmental problems such as flooding, fires, erosion, siltation and strain on native species.

• Main funding comes from the government’s poverty relief fund, but about 10–15% comes from water users.

• The water price charged by the Department of Water Affairs and Forestry to its users includes a “water resource management fee”.

• This fee covers clearing of alien invasive plants as well as planning and implementation, pollution control, demand management, water allocation and water use control.

• Some local governments also contribute with regular annual donations to fund the removal of alien invasive plants in the catchment areas where they derive their water

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Example – Equitable Payments for Watershed Services in the Uluguru Mountains, Tanzania

• Project managed and implemented by WWF, CARE and IIED• An agreement between upstream poor communities (service

providers or sellers) and downstream water service users or buyers

• Buyers: DAWASCO, a public-private corporation which provides water to Dar-es Salaam; Coca Cola; other private companies

• Sellers: Upstream communities in the Kibungo subcatchment• Sellers are paid according to interventions undertaken to restore

ecosystems in steep slopes and riparian zones– Amounts determined by a series of indicators– Payments dispersed through NGOs

• Endorsement of agreement by Ministry of Water Resources

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Challenges to PES Schemes

• Absent credible “proof”— that water quality or quantity is improving

• Enterprises that need reliable supplies of good quality water, for example bottling companies, brewing companies and hotels cannot afford to wait for an ecosystem driven solution.

– Consequently, many have already invested infrastructure (bore-holes, tankers, purification plants) to reduce the business risk associated with a key input to their production process

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Barriers to PES Schemes in Eastern and Southern Africa

• Information: There is too little information on PES and that which does exist is often too generic to be of much use to policy makers.

• Technical barriers: There are too few people with the appropriate skills and knowledge to design and implement effective PES projects and programmes.

• Policy and regulation: Generally legal and policy frameworks for environmental and resource management are fragmented, outdated and often lack cohesion.

• Institutional barriers: In addition to the limited human skills and fragmented legal and policy frameworks, there are insufficient organisations, such as financial intermediaries, certification bodies, national registries etc. to support the development of PES in the region.

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Way forward: applying tools and processes

• Through demonstration compile “proof” of improved water quantity and quality by investing in catchment management

– Need to consider added element of a changing climate which impacts water availability in time and space

• Engagement with the private sector• Convene stakeholders to raise awareness on the

benefits of investing in natural infrastructure • Through WANI toolkits provide guidance to decision

makers on how to use information on valuation of ecosystem services and mobilize innovative financing for water resource management

– www.iucn.org/water

• Enable learning and exchange of information on PES schemes between regions

http://www.iucn.org/water

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Discussion questions

• Have you experiences of valuation of ecosystem services in your project area?

• If so, how is this information being used?• Is there scope to apply payment for ecosystem services in your

projects areas?• What about other economic tools?• Private sector engagement?

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Acknowledgements

• Lucy Emerton – material from an IW Learn Regional workshop on Payments for Environmental Services

• Material from PAY and VALUE – WANI toolkits

economic valuation and payment for ecosystem services

Documents

ecosystem conservation

sellers of ecosystem

conservation of nature

international union

conservation of nature

watershed services

ecosystem degradation

environmental services