The new generation of watershed management
Payment for watershed services
Watershed management is a long-term endeavour. Most watershed management programmes are funded by governments or donors. Unfortunately, owing to frequent changes in the political composition of governments and administrations, many watershed management initiatives are disrupted or discontinued after a four- to five-year start-up programme.
Local tariffs are sometimes enforced to recover the costs of delivering basic watershed management services (particularly water). This, however, does not account for the total value of the environmental services the watershed provides as externalities (see Political economy of watersheds).
Market-based financing of collaborative watershed management through payment for environmental services (PES) schemes has been diffused in recent years as a promising complement to public sector funding. Industrialized countries’ experiences of mechanisms for transforming the environmental services produced by watersheds (e.g., water, power and carbon sequestration) into cash for collaborative management processes are of particular interest. The potential for tapping and enhancing PES in developing countries is still unclear, however.
Watershed trust funds are another interesting alternative. These capital asset funds are established through central government allocations, donor grants and/or local tax revenue, and are invested in financial markets. Capital disinvestment is restricted by the trust fund holder (generally the government), but collaborative watershed management institutions receive a rent based on the interest generated by the fund, which is used to operate the programme. Some countries have already established environmental or forest trust funds, which they use to finance watershed management activities.
In theory, market-based approaches, in which payments are contingent to achieving desired outcomes, can lead to more efficient allocation of resources and more cost-effective solutions. In practice, there are a number of challenges encountered in the implementation of such approaches that may make them impractical. One such challenge is the difficulty in demonstrating and quantifying the actual benefits of services to those who are asked to pay for them. This implies the need to understand complex ecosystem processes over time in specific places, to identify effective management actions for maintaining these processes, and to provide buyers with reasonable assurance that they will have access to the future benefits.