The new generation of watershed management

Types of payment schemes

Payments for watershed services may take various forms, depending on the characteristics of the service, the scale of relevant ecosystem processes, and the socio-economic and institutional context. These forms range from informal, community-based initiatives, to more formal voluntary contractual arrangements between individual parties, and complex arrangements among multiple parties, facilitated by intermediary organizations.

In the latter category, payments to landowners may be in the form of:

• direct compensation (subsidies) to stakeholders, for restrictions on their use of land and other natural resources;
• transfer to stakeholders of tradable pollution assets (e.g., transfer of carbon sequestration bonds to stakeholders conserving forests);
• certification that producers have adhered to specified management practices (indicated to consumers through labelling), which may increase the market share of a product, and/or result in a price premium.

Potential sources of funds are user or licensing fees, taxes and donations. Generally, user and licensing fees are more feasible when it is possible to limit services to those who pay for them, such as domestic and industrial water uses. Taxes and donations are usually necessary to cover more generalized benefits and political objectives, such as maintaining biodiversity or promoting equity.

There are several different roles that the government can play, ranging from enforcing contractual agreements, to creating regulatory caps, monitoring compliance, contracting with service providers, providing technical assistance, and identifying priority conservation areas. Some of these roles are often filled by non-governmental organizations (NGOs), which may have the advantage of greater flexibility and the ability to act more expediently and independently.

As a rule, benefits tend to be more tangible, and contractual arrangements more feasible, at smaller scales, where property rights and stakeholders can be defined more clearly. At larger scales, in which it is harder to link causes and effects and to define rights and responsibilities, there will be greater need for the involvement of government and/or other intermediaries.