The RISEMP project demonstrates that direct contracts for biodiversity conservation in agricultural landscapes are not just a theoretical curiosity. Such contracts are possible, if the link between land use and biodiversity is known. Specific details depend on the economics of the system being promoted.
It will be some time before the effectiveness of the mechanisms discussed in this paper can be determined. The intensive monitoring being undertaken will allow a very detailed analysis of this effectiveness, including consideration of numerous exogenous factors that might affect it. This project will thus allow both an overall conclusion on the effectiveness of the approach and provide data for its refinement. Already, however, a number of key questions can be identified, some specific to the particular approach used in the RISEMP, some that apply more broadly to PES approaches in general, and some that bear to the potential for replicating the approach on a wider scale.
Will the desired land use changes be induced? The extent to which the desired land use changes are induced depends in part on the payment level being sufficient to ‘tip the balance’ between current and improved practices. The appropriate level of the payment was a subject of intense debate. The higher the payment offered, the greater adoption is likely to be. However, higher payments also militate against the cost-effectiveness of the approach. Moreover, a higher payment per point also increases the risk that participants will adopt otherwise un-profitable practices only temporarily, so as to receive the payment, with the intention of abandoning them later. The payment level was initially set at US$50 per environmental service index point, but was raised to US$75 after field staff reported that participants considered US$50/point insufficiently attractive to justify widespread adoption of silvopastoral practices. Given the novelty of the approach, there is also a potential credibility problem of the project’s promise to pay for environmental services. The baseline payments probably played an important role in this sense, over and above their benefits in avoiding perverse incentives.
Will changes in land use be sustainable? The RISEMP project is based on the hypothesis that silvopastoral practices, once adopted, are more profitable to land users than current practices. If this hypothesis is correct, then adoption should be sustainable with no further assistance. To test this hypothesis some participants are being paid over a two-year rather than a four-year period.
Will improvements in biodiversity conservation be significant? Baseline studies show that there is some pre-existing biodiversity in each of the project areas. The challenge for the project will be to demonstrate whether it has improved this biodiversity significantly. The project will monitor changes in biodiversity levels closely.
Will the poor benefit? If the farm models prepared for the project (illustrated in Figures 1 and 2) are correct, the project has the potential of increasing the net income of participating households quite substantially. Whether this will occur is being closely monitored. Constraints that might prevent poorer households from participating, and hence from obtaining these income increases, are also being examined closely.
How cost-effective is the PES approach in terms of biodiversity conservation? Both the cost and the effectiveness of this approach remain to be determined. The two are to some extent inversely related. Payments will be high if land users adopt practices with high point values, and low if they adopt practices with low point values. The transaction costs of implementing the project must also be considered. Some have argued that an incremental conservation dollar would be most effectively spent on other approaches, such as protected areas. Certainly protected areas are likely to have much lower transaction costs than the approach discussed here. But their implementation costs may well be higher. Establishing a protected area would require buying the land from its current owners. That is, it would require compensating them for the loss of the entire flow of benefits it might generate in its most profitable use. The PES approach only requires compensating them for the difference between the net benefits they obtain under the conservation use and the most profitable use. Moreover, buying the land outright requires paying for the entire present value of the future flow of benefits up-front. In contrast, a PES approach makes payments over time. PES will also attract lower-opportunity cost lands, while a protected area approach usually privileges conservation benefits and thus may include higher-opportunity cost land. The PES approach is likely to be particularly advantageous if, as may be the case in the RISEMP, a short-term payment is sufficient to result in sustainable adoption of the desired land uses. Finally, buying land outright may simply not be politically feasible, or may entail undesirable social consequences because of the need to relocate the landowners. In the case of the Costa Rica Ecomarkets Project, the PES approach was found to be much more cost-effective than establishing a protected area of the same size (World Bank, 2000).
PES may be the cheaper way to conserve a given area, but the level of conservation is likely to be lower. If the land were bought outright and placed in a protected area, it could be managed optimally from the conservation perspective. Under a PES approach, land use is determined by the combination of conservation benefits (as reflected in the payment) and land user preferences; in many cases, this will lead to a compromise result. Moreover, some of the reasons that make PES cheaper may also lead to lower conservation benefits: lower opportunity cost land is not necessarily the most desirable from a conservation perspective, for example.
How can transaction costs be reduced? The transaction costs involved in implementing a PES approach are a key determinant of its cost-effectiveness, its sustainability, and its replicability. They also play a critical role in the extent to which poorer land users can participate (Pagiola and others, 2003). Because of its pilot nature, the RISEMP has relatively high costs for detailed monitoring and other activities that would not necessarily be needed in a scaled-up project. The environmental service index used in the RISEMP allows a very fine-tuned targeting of payments to expected benefits, but it also imposes relatively high monitoring costs. There is a need to find proxy indicators that are highly correlated with biodiversity conservation but are easy and cheap to monitor, ideally using remote sensing. If forest cover provides an adequate proxy, for example, it would be relatively cheap to observe. The current environmental services index cannot be monitored solely from remote sensing, as it includes elements of the type and quality of vegetative cover. A crucial question which needs to be explored is that of the tradeoff between the precision of the index and the transaction costs involved in implementing it.
How can the approach be made sustainable? Most of the discussion in this paper would be broadly applicable to PES approaches that address benefits other than biodiversity. Where biodiversity services differ, however, is in the long-term sustainability of payments. Emerging lessons indicate that payments under PES programs usually have to be made on a long-term basis if the desired services are to be generated sustainably (Pagiola and Platais, 2003, forthcoming). The specific practices promoted by the RISEMP project may not require a long-term payment, but this is likely to be the exception rather than the rule. In the more general case in which the systems with the highest external benefits are not the most profitable to land users, the short-term payment approach used in the RISEMP is unlikely to result in sustainable adoption of the desired land uses. Rather, longer-term, probably indefinite payments will be needed. In turn, this means that sustainable long-term financing sources will be required. Even if only short-term payments are sufficient, substantial additional funding flows will be required if the approach is to be extended beyond the pilot areas. For water services, potential sources for such financing can readily be identified—although capturing them can be difficult. Moreover, funding streams for water services can in principle be very sustainable, as they are tied to services that will continue to be used indefinitely (Pagiola and Platais, forthcoming). All available financing sources for biodiversity conservation, however, including the GEF, tend to focus on relatively short-term projects. Placing funds into a trust fund so as to generate a stream of future revenues is one option (GEF, 1999), but it requires substantial up-front financing. Because of the greater ease of generating long-term payment streams for water services, basing payments on water service provision may appear to be an attractive option. The municipality of Matiguás, for example, is interested in using this approach to protect its water supply. This approach should certainly be exploited as much as possible, but two constraints need to be borne in mind: first, water services are very site-specific, and so many areas would not be eligible for payments. The project areas near Matiguás, for example, are downstream of the water intakes for the municipal water supply system and so would not be included in a water service-based PES program. Second, the most desirable activities from the perspective of generating water services are not necessarily the same as those that generate the biodiversity and carbon sequestration services sought in the RISEMP project. Basing payments on water services, therefore, will require additional scientific research to improve the understanding of how land use affects water services. In general, therefore, water-based payments will not generate all the desired biodiversity and carbon sequestration benefits, and the need for separate financing for this purpose will remain.