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The Livelihood Impacts of Payments forEnvironmental Services and Implicationsfor REDD+Luca Tacconi a , Sango Mahanty a & Helen Suich aa Crawford School of Public Policy, The Australian NationalUniversity , Canberra , Australian Capital Territory , AustraliaPublished online: 03 Jan 2013.

To cite this article: Luca Tacconi , Sango Mahanty & Helen Suich (2013) The Livelihood Impacts ofPayments for Environmental Services and Implications for REDD+, Society & Natural Resources: AnInternational Journal, 26:6, 733-744, DOI: 10.1080/08941920.2012.724151

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Insights and Applications

The Livelihood Impacts of Payments forEnvironmental Services and Implications

for REDDþ

LUCA TACCONI, SANGO MAHANTY, ANDHELEN SUICH

Crawford School of Public Policy, The Australian National University,Canberra, Australian Capital Territory, Australia

International discussions on reducing emissions from deforestation and forestdegradation (REDDþ) foresee payment for environmental services (PES) schemesas an important mechanism to provide local incentives for the conservation andenhancement of carbon stocks. There are concerns, however, about the potentialimpacts of REDDþ and PES on local livelihoods. This article assesses the livelihoodimpacts of seven existing PES schemes using a comparative case study approach,and reviews lessons for the design of REDDþ. It finds that PES schemes providedsome livelihood benefits to participants, particularly in terms of building individualparticipants’ and community institutions’ capacity, and in some cases contributing toincome. Insights for the design of PES for REDDþ schemes are derived in relationto the issues of the role of intermediaries, individual versus collective contracts,payment schedules and amounts, conditionality and permanence, and property andaccess rights.

Keywords deforestation, livelihoods, payments for environmental services,REDDþ

Recent negotiations under the United Nations Framework Convention on ClimateChange have resulted in an agreement to establish a mechanism for reducingemissions from deforestation and forest degradation to enhance carbon stocks, con-serving and sustainably managing forests (REDDþ). A REDDþ mechanism wouldprovide developing countries with financial incentives to conserve and enhance car-bon stocks in their forests (Angelsen et al. 2009). To implement REDDþ initiativeseffectively and equitably, the consideration of livelihood issues is critical. This is

Received 7 June 2011; accepted 13 June 2012.This research was supported by funding from the Australian Development Agency for

International Development through the Australian Development Research Awards, projectEFCC083, ‘‘Assessing the livelihood impacts of incentive payments for avoided defores-tation.’’ We thank three anonymous reviewers for their insightful comments.

Address correspondence to Luca Tacconi, Crawford School of Public Policy, TheAustralian National University, J. G. Crawford Building (Blg 132), Canberra 0200, ACT,Australia. E-mail: luca.tacconi@anu.edu.au

Society and Natural Resources, 26:733–744Copyright # 2013 Taylor & Francis Group, LLCISSN: 0894-1920 print=1521-0723 onlineDOI: 10.1080/08941920.2012.724151

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especially important given the high proportion of forest lands that are held undercommunal and private tenure—up to 80% in some highly deforesting countries(FAO 2010)—and the contested nature of state ownership of forests in othercountries (e.g., Contreras-Hermosilla and Fay 2005).

Distributive mechanisms to share REDDþ income at the local scale are integralto the equity and effectiveness of REDDþ, as evidenced for example by the draftguidelines on REDDþ Social and Environmental Standards.1 Payments for environ-mental services (PES) schemes could be used within REDDþ programs to linknational-level REDDþ payments to subnational resource management activities(Wunder 2009) and to provide incentives to conserve and enhance carbon stocks.PES schemes are supposed to provide direct payments conditional on the provisionof a specified environmental service (Tacconi 2012). PES schemes have been imple-mented in developing countries since the 1990s following many fraught attempts atproviding indirect incentives to stem the loss of biodiversity (Ferraro and Kiss 2002).The conditionality of PES (i.e., disbursing payments only if the environmental ser-vice is provided) differentiates it from these earlier approaches, where benefits wereonly indirectly linked to the conservation of specific habitats or provision of services.

The potential use of PES as a distributive mechanism for REDDþ calls, there-fore, for a clear understanding of the livelihood impacts of existing PES schemes sothat critical lessons can inform the development of REDDþ mechanisms and guide-lines. There is an urgent need to learn from past and present PES schemes, parti-cularly given concerns about how such initiatives might impact the rights andlivelihoods of local resource users and managers. Engel et al. (2008) noted the needto understand how PES schemes affect the poor, given the limited empirical evidenceon livelihood impacts. The overlap between the environmental services targeted byPES schemes and areas of high poverty incidence also points to the need to considerthe livelihood impacts of PES schemes (e.g., Grieg-Gran et al. 2005; Pagiola et al.2005; Engel et al. 2008), which are clearly relevant for REDDþ.

This article contributes to filling this knowledge gap and derives implicationsfor the design of REDDþ activities. The article addresses the following questionsdrawing on seven PES cases in Africa, Asia, and Latin America:

. What have been the impacts of PES schemes on livelihoods?

. Based on this experience, what are the implications for the design of incentivemechanisms for REDDþ at the local level?

Methods

Amultiple case study approach (Yin, 2009; Eisenhardt and Graebner, 2007) was usedto assess livelihood impacts across case studies of PES schemes (Table 1). Followingan open call for expression of interest through several listservs dealing with forestryand development issues, we received 44 PES case-study submissions. Cases werechosen based first on the criterion that projects had to have been operational for asufficient number of years to enable assessment of impacts on livelihoods. The qualityand relevance of available data in relation to the research questions were thenconsidered together with the widest possible range of PES scheme designs, tenure,and geographic spread in order to maximize the potential lessons from PES-for-REDDþ in diverse contexts. There was no explicit targeting of ‘‘successful’’ projects(e.g., the Filipino case study reports on a discontinued scheme). It is not known how

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Table

1.Characteristics

ofcase

studies

Case

study(author)

Environmentalservices

targeted

Scale

ofschem

e=interm

ediary=

contract

party

Key

featuresofpayments=contract

length

(CL)=paymentschedule

(PS)=paymentamounta

(PA)=basis

ofpayment(BP)

Ownership

ofland

Brazil�

(Bartelset

al.2010)

Bundle—reduceddeforestation,

carbonsequestration,

biodiversity

conservation,

hydrologicalfunctions,fire

managem

ent

Subnational(ninestatesoftheAmazon

region)

Communityagents,technicalextension

agents,governmen

t,civilsociety

organizationsandnongovernmen

tal

organizations(N

GOs)

as

interm

ediaries

Collectivecontracts

CL:na

PS:tw

icein

2006

(monthly

payments

were

anticipated)

PA:$US282

BP:na

Private

Indonesia

�

(Leimonaet

al.2010)

Watershed

protection

Subnational(w

atershed

spanningtw

oregencies

andsixsubdistricts)

Multistakeh

older

watershed

forum

(includingNGOsandgovernmen

trepresentatives)asinterm

ediaries

Individualcontracts

CL:5years

PS:year1:signing30%

6months:

30%

12months:

30%

Then

biannually(40%

and60%)

PA:$US42b

BP:inputcosts

Private

Mexico�

(Corbera

2010)

Carbon(alsohydrologicalservices

andbiodiversity)

National

NGO,consultantandtechnical

organizationsasinterm

ediaries

Collectiveorindividualcontracts

CL:5years

PS:na

PA:$US33–508

BP:na

Common

property

Mozambique

(Jindal

2010)

Carbon

Subnational(smallscale)

University

andprivate-sector

interm

ediaries

Collectiveandindividualcontracts

CL:100years

PS:sm

allinitialbaselinepayment

andthen

year130%;years

2–6:

12%

each;year7:10%

PA:Agroforestry

$US793;

Microenterprise

$US515

Common

property

(Continued

)

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Table

1.Continued

Case

study(author)

Environmentalservices

targeted

Scale

ofschem

e=interm

ediary=

contract

party

Key

featuresofpayments=contract

length

(CL)=paymentschedule

(PS)=paymentamounta

(PA)=basis

ofpayment(BP)

Ownership

ofland

BP:market

prices(voluntary

carbonmarkets)

Nicaraguaand

Colombia

(Riosand

Pagiola

2010)

Biodiversity

conservation,carbon

sequestration

Subnational(smallscale)

NGO

interm

ediary

Individualcontracts

CL:4years

PS:na

PA:na

BP:unclear

Private

Philippines

�

(Soriagaand

Annawi

2010)

Watershed

protection

Subnational(spanningmultiple

local

governmentunits)

Governmentas

interm

ediaries

Localgovernmentunitcontracts

CL:3years

d

PS:totalpaymentdisbursed

followingmonitoring

PA:na

BP:available

budget

of

congressionalrepresentative

State

Uganda

(Germanet

al.2010)

Carbon

Subnational(smallscale)

NGO

asinterm

ediary

Individualcontracts

CL:25–50years

PS:year0:30%;year1:20%;year

3:20%;year5:upto

20%;year

10:upto

10%

PA:$US250e

BP:na

Private

and

state

Note.Asteriskindicatesthatthesecountrieswerein

thetop20deforestingcountries(FAO,2006)andcanbeexpectedto

behighpriority

forREDDþ.

na:Nodata

available.

aEstim

atedannualincometo

participatinghouseholds.

bCalculatedonthebasisof$US120=ha�averagefarm

size

of0.2–0.5ha(0.35ha).

c Thisfigure

represents

anaveragebasedonthepaymentschedule

described.

dNotactuallyawritten

contract.

e Thisfigure

represents

theyear1paymentfrom

thepaymentschedule

aspreviouslydescribed.

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representative these cases are with respect to all PES schemes. It is possible that thisanalysis misses some potential lessons due to the exclusion of relevant schemes. Thisgap could only be addressed if a registry of all PES schemes were available, generatingknowledge on the structure of the ‘‘population’’ of PES schemes and enabling theselection of a representative sample, or a comparative case study including all relevantschemes. That approach may be possible as more REDDþ are implemented andrequire an evaluation after a certain period of operation.

Case-study authors were asked to review existing literature and use existing datasets from ongoing research to determine the schemes’ impacts on the biophysicalenvironment, on the five livelihood asset categories (financial, human, natural,physical, and social) (Chambers and Conway 1991) of participants and of nonparti-cipants, and, where possible, on different wealth strata. Each case study was peerreviewed at least twice. A cross-case comparative analysis was then conducted, usingthe qualitative data analysis package NVivo to code case-study material and enablesystematic comparison of findings against the relevant questions.

While the subtleties of the original case studies are missed in a comparativeanalysis, the purpose of this comparison is to draw out critical cross-cutting lessonswith respect to how the design of these schemes can influence the (positive and nega-tive) livelihood impacts. Context from the cases is provided where necessary for clar-ity, and the case studies are published in full in Tacconi et al. (2010).

Impacts of PES Schemes on Livelihoods

Financial and Physical Capital

The findings on both financial and physical assets are discussed together due to thelinkages between them. The relative contribution of PES to household income—anissue that has so far received limited research attention—was quite varied (Table 2).In some cases, the income was considered important because the lump-sum nature ofpayments enabled investments (e.g., in land or home improvements) and=or the pay-ment of debts to be made, and facilitated access to medical services.

The overall impact of payments was higher where there was a collective paymentcomponent, for example, where part of the PES income was retained in a collectivefund that could be used for credit to individual households or for community levelinvestments. Collective payments to established community institutions enabledinvestments in infrastructure that would not have occurred if only household-levelpayments had been used (for a fuller discussion see Mahanty et al. in press).

Such infrastructure investments occurred in four cases (Table 2), in facilities forwater supply, roads, irrigation works, and improving or building new communityfacilities (e.g., schools and clinics). Unusually, smallholders at one site of the Indo-nesian PES scheme chose to invest 5% of their individual payments toward a com-munity water supply system. This may have been linked to high levels of localsocial capital, as the site also had an active farmers’ organization to coordinate thisexpenditure. In the Filipino case, the community had maintained the irrigation sys-tem built through the scheme for 10 years, indicating a high degree of communityownership of this infrastructure. A key determinant of effective investment incommunity infrastructure is the existence of a local organization that is capable ofmanaging funds and facilitating collective decisions: in short, enjoying the trust ofthe community members.

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PES-related employment—for example, for infrastructure construction and for-est patrolling—was the second major use of collective PES income (e.g., for forestguard salaries). In general, employment opportunities associated with PES schemeswere short-term and the criteria for the distribution of these opportunities were nottransparent. In contrast, investment in social services (e.g., education and health pro-vided in the Mozambican case) appeared to be more widely accessible.

Payments from PES schemes were typically based on input costs and=or the esti-mated market value of the environmental service, rather than on calculations ofopportunity and transaction costs. When payments were front-loaded to cover part-icipants’ startup costs, they were often fully disbursed well before the end of the con-tract period. Declining cash flow was addressed by planting useful species (e.g., fruittrees) to supplement PES income without diminishing the environmental service.

Transaction costs—the time and money involved in the informed negotiation ofPES contracts—were substantial in all cases. They were commonly addressed by pro-viding subsidies, channeled through intermediaries (e.g., nongovernment organizations)who then provided information and other assistance for participants. Where such sub-sidies were not available, or they declined over time, the intermediaries retained a shareof PES income to pay for their services. This reduced the payments received by theenvironmental service sellers and thus the positive livelihood impacts of the payments.

Human Capital

Capacity-building activities on technical and governance aspects of PES contractsand benefits were undertaken by intermediary organizations in all the cases.However, there was little evidence of the long-term impact of capacity-building activi-ties, or of the extent to which new knowledge and skills were applied in practice.

Farmers’ persisting confusion about the details of their PES contracts suggeststhat capacity-building outcomes were weak. For instance, in Mozambique, the factthat payments were to end in year seven of a 100-year contract was not fully under-stood by many of the participants, increasing the risk of noncompliance or the aban-donment of the agreement by participants who felt that sufficient benefits were notsustained. This risk was amplified by the fact that PES payments did not measure upto the participants’ opportunity costs.

Table 2. Key results from case studies

Case studyRelative importance of PES

income to householdInfrastructureinvestment

Primary criteria forsite selection

Brazil High No SocialIndonesia Low Yes (at

one site)Environmental

Mexico High Yes SocialMozambique Medium Yes SocialNicaragua andColombia

na No Environmental

Philippines Low Yes EnvironmentalUganda Medium No Environmental

Note. ‘‘Low,’’ ‘‘medium,’’ and ‘‘high’’ income significance are judged according to case-studyauthors’ assessments, rather than an independent benchmark. na: No data available.

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The lack of skills and knowledge of some intermediaries was also found in somecases to have diminished their ability to design workable projects and to effectivelymanage revenue flows (e.g., Mexico). This in turn contributed to conflict betweencommunity members and intermediaries at those sites.

Social Capital

Strong social capital is likely to help to reduce the transaction costs of PES schemes(Bond et al. 2009) and provide other social benefits. Where collective contracts wereused, existing community institutions were typically the contracting party, and thePES schemes often involved activities to strengthen their local resource managementand social coordination capacity. Even where schemes involved individual contracts,they often worked with coordinating bodies such as farmer groups, thus strengthen-ing existing local coordination capacity, rather than developing new institutions.

The expansion of farmers’ networks beyond the community—bridging socialcapital—was also facilitated by several of the PES schemes working with andstrengthening existing community level institutions. This occurred through the inte-gration of participants into other state projects and development initiatives, greatercommunity engagement with local government, stronger local participation in plan-ning processes, and greater negotiating capacity or political voice among participat-ing groups.

Conflict was observed in two of the cases, and was emerging in a third. At oneMexican site, conflict occurred within communities over the distribution of PES ben-efits, and more broadly across the scheme there was conflict between intermediariesand communities over questions of design and benefit sharing. In Indonesia, the riskof conflict between participants and nonparticipants was observed. In Brazil, issuessuch as the spread of fire were an emerging point of tension between participants andnonparticipants.

Natural Capital

In two cases, the implementation of PES projects resulted in changes in access tocertain resources. Changed management regimes led to a loss of pasture due to chan-ged fire regimes in the Filipino case, and informal rights of nonparticipants to landwere lost in Uganda.

Most case studies noted improvements to the status of natural resources,although the scale of impact was usually small, and the relationship to PES activitieswas unclear or indirect. The little environmental monitoring that was undertakenfocused on proxies (e.g., land use) for the environmental services being targeted,which reflected only one of a range of factors that might influence the provisionof the environmental service. Furthermore, the local scale at which monitoring tookplace often made it difficult to assess whether displacement of activities wasoccurring.

Participation in PES Schemes

Of the six case studies for which information was available, each reported someparticipation by poor households in PES schemes, though such participation wasconstrained by high transaction and implementation costs. In three cases that had

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notably high levels of participation by poor households, social criteria were used tofocus activities in areas of high poverty (Table 2).

Where environmental criteria were prioritized in site selection, the provision ofadditional support to households for new land management practices—including theprovision of credit and technical assistance and a choice of land management optionsto suit household labor and financial constraints in Nicaragua=Colombia—was criti-cal to facilitating high levels of participation by poor households.

Earlier research indicates that clear property rights, often interpreted as privateproperty, have been a common condition of participation in PES schemes, constrain-ing access by the poor (Pagiola et al 2008; Wunder 2008). However, this research alsodemonstrates that PES schemes can be implemented on both state and communallands with clear property rights, and even on state land where communities holdinformal use rights such as in the Filipino case.

Insights for the Design of PES for REDDþ Programs

The implications of the results just presented for using PES as a distributive mech-anism for REDDþ are presented next. Institutional and contractual aspects of PESschemes have significant impacts on both the livelihood and environmental out-comes of such schemes. Elements of PES scheme design—including the contractedparties, contract length, payment schedules, and size of payments—determine thelevel of benefits derived at the household level, and thus the incentive to participatein such schemes. The implementation context—focusing on issues of tenure, condi-tionality, and permanence—is also critical to the potential of PES schemes to impactpositively on livelihoods and environmental outcomes.

Payment Schedules and Amounts

The front-loading of payments has been used as a mechanism in PES schemes tooffset the up-front costs of participation in such schemes, as discussed earlier.However, this front-loading has created a mismatch between payment schedulesand the contract duration, which raises serious questions of viability and sustainabil-ity of PES schemes over the long term. Designing payment streams that last for theduration of the contract would provide a more sustained incentive effect and couldalso create better prospects for enforcing conditionality. Further, if payment sche-dules matched contract length and kept up with opportunity costs, payments—orinfrastructure investments followed by appropriate maintenance—would contributeto the financial and physical capital of the future generations in cases with a verylong contract duration.

Payment streams could be designed to involve ‘‘lumping’’ of some years (e.g.,two or three years) if preferred by the environmental service providers. As shownearlier, lump sums often have greater livelihood impacts, but may present condition-ality risks.

In terms of the total amount paid to environmental service providers, if paymentamounts fail to cover the opportunity costs of land use restrictions and the trans-action costs involved in participation in the scheme, negative financial impacts onlivelihoods will be generated and noncompliance with contracts is likely to occur.To avoid these social and environmental risks, it is imperative that REDDþ activitiesassess opportunity and transaction costs.

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Group contracts are one way of reducing transaction costs, thus possiblyincreasing financial benefits. Group contracts were used in schemes on private lands,on common property, and on state lands. Working with local institutions as a focalpoint for coordinating and implementing PES activities can strengthen the capacityof those bodies and contribute to greater social capital. However, the scope for col-lective payments will be diminished unless local institutions can be developed andstrengthened. Questions of whether collective payments can be effectively managedin the absence of such bodies are important for REDDþ, which will likely focus onstate-owned and common property lands, where the bulk of forests in the developingworld are located (FAO 2010). Working with local institutions will also requireconsideration of existing inequities within those institutions, as noted next.

Contracted Parties and Intermediaries

Collective contracts are one way of reducing transaction costs, potentially increasingthe financial benefits received by environmental service providers. This research alsoindicates that collective contracts generated greater investments in both communityinfrastructure and the provision of community services compared to individual con-tracts. This finding warrants further investigation to assess whether it is supportedby other case studies, as it implies that livelihood benefits may be maximized usingcollective contracts.

The scope for collective contracts depends largely on local institutional capacity.Whether collective contracts could be effectively managed in the absence of existinginstitutions is an important question for REDDþ schemes. However, viable localinstitutions are also relevant to individual contracts, as these institutions are ofteninvolved in coordinating the activities of individual service providers.

Additionally, working with local institutions to coordinate and implement PESactivities can also strengthen the capacity of these bodies and contribute to greatersocial capital, further magnifying the positive outcomes of PES schemes. However,working with local institutions also requires consideration of existing power struc-tures and inequities within them, because of their implications for benefit distri-bution. Promising approaches to addressing inequities are emerging, emphasizingfinancial transparency and democratic governance and decision making (e.g.,McDermott and Schreckenberg 2009).

While important in facilitating implementation and providing capacity buildingactivities, the involvement of intermediaries has its costs. The costs faced by theintermediaries (transaction costs) are often transferred to the environmental serviceproviders, reducing their total PES income. Intermediaries should aim, therefore, todeliver their services as efficiently and cheaply as possible in order to maximize pro-viders’ PES income. In some cases intermediary organizations also require capacitybuilding. This need, and the associated costs, should be taken into account in thedesign of PES schemes because of their effect on the income paid to environmentalservice providers, and therefore their incentive to participate.

Conditionality and Permanence

PES schemes have to date undertaken limited monitoring and enforcement ofagreements. Whilst this might have some positive implications for livelihoods (giventhat environmental service providers could receive payments even if they were not

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providing a service), it has serious implications for the maintenance of naturalcapital. As permanence is fundamental to REDDþ activities, the establishment ofbaselines and the monitoring of carbon stocks will be integral to PES schemes forREDDþ. Whether PES schemes will actually be able to ensure permanence is anopen question, depending on human as well as natural events, such as wildfires.Where carbon-emitting events are beyond the control of the individuals or communi-ties involved in the scheme, it would be inappropriate to attempt to recover pay-ments from them. Ways of insuring against risks to permanence (e.g., bufferreserves) need to be implemented carefully so as not to create moral hazard—forexample, forests being cleared with intentionally lit fires that are made to appearaccidental.

Property and Access Rights

This research has demonstrated that PES schemes can be implemented on state andcommunal lands, where clear property rights exist. In many tropical forest countriesthere are conflicting claims over ownership and use rights over state forests. Tenurereform has been advocated, therefore, as a precondition for effective, equitable, andefficient implementation of REDDþ (Sunderlin et al. 2009). Such reforms couldinclude changes in the ownership of land or in the use and=or management rightsover forests and their products (Streck 2009). While the transfer of land rights wouldbe a better option from the perspective of rural communities, the devolution of morelimited use and management rights, including carbon rights, may be a morepolitically feasible approach in some countries.

Changes in access to natural capital arising from some PES schemes raisescautionary issues for PES for REDDþ schemes focusing on state forest lands, wherealtered resource access is likely to be relevant. Changed access to resources can gener-ate significant negative impacts on livelihoods, often on nonparticipants of PESschemes. Informal use of these areas and the multiple values associated with them needto be assessed in order to minimize the potential for negative livelihood impacts.

Conclusion

While the livelihood impacts across the seven schemes reviewed here are mixed, thestudy highlights the central role of contract design and the institutional context,particularly tenure and collective choice institutions, in mediating livelihood out-comes. These are priority areas for attention in applying PES as a distributivemechanism for REDDþ.

Note

1. http://www.redd-standards.org/files/pdf/lang/english/REDD_Social_Environmental_Standards_06_01_10_final -English.pdf.

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