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Re: Payments for environmental services (PES) in theory and practice: Lessons learned and way forward

Philipp Aerni and Bernardete Neves Facilitators of the discussion,
25.03.2013
FSN Forum

PES FSN discussion, closing summary

Dear colleagues, many thanks to all for sharing your experience, views and advice on PES with us over the past three weeks. We are very happy to see that this discussion received contributions from both PES hopefuls and sceptics around the World- both have made very important points. The results of this discussion will help guiding the ongoing FAO project, dedicated to capturing evidence on when and how PES and other flexible incentive and non-market mechanisms can be effective in supporting the multi-functionality of agriculture, in developed and developing countries.

The most common issue raised was the importance of participatory design of projects (Helena, Brazil; Rodolfo, Mexico). Many of your examples focused on forest conservation and the many shortcomings that have prevented them from achieving the necessary environmental benefits (Claudia, Italy), thus wasting funds; while causing no improvements (Silenou, Cameroon), or even harming the communities depending on these ecosystems (Bhubaneswor, Nepal; David, Uganda: Gill, UK and Assan, South Africa). We are very pleased that the Forum can be a platform for this type of critically important and outspoken debate; we will follow up on some of these issues directly with you over the coming weeks.

In connection to this, several contributions also discussed the types of incentives that should be offered to farmers and forest managers for their conservation efforts. In the first week, Emmanuel (Cameroon) highlighted the need for off-farm employment, rural finance etc. In cropland, Timo (Germany) and Josephat (Kenya) noted the importance of offering the right combination of short and long-term incentives for adopting and sustaining better practices. Timo reported good results in Indonesia, combining short-term agroforestry benefits with long-term carbon revenues from forest carbon. Josephat highlights the need for quick gains from in-situ benefits as motivation for continued investment in long-term downstream benefits.

Nearly all contributions speak about experience from development projects designed at national level, with donor funding. This could also be partly because, as Shiney from the Institute for Agriculture and Trade Policy (USA) says, many of the public funded conservation projects are now considered PES. In the second week, Tina (New Zeeland) gives us an encouraging example of a different set up. The Maori tribal grouping of Ngati Porou, took control of their own indigenous resources framing their activities in a way that they can become a local economic player. But if afforestation of degraded lands can improve water conditions, why aren’t those water users more willing to co-fund this environmental service provision? It seems that even with a strong indigenous community, an investor for the product (lumber), the environmental service benefit it is still not an easy sell. Adam’s (Italy) work on payments for agrobiodiversity conservation services is exploring a range of private and public funding opportunities that could/should be explored to broaden the funding base of these schemes.

While there is good work in progress, engaging the beneficiaries of improved environmental services remains PES most important challenge. Without this, PES will not deliver its key promise -attracting new funding or support services from the private sector - and likely to remain a short-lived public-funded investment (Simone, Paraguay), with mixed goals and fuzzy results. One major problem may be that sellers are not necessarily the only providers of environmental services (often they are enabled to do so through organisations that provide them with the necessary assistance and in-kind payments) and buyers do not necessarily represent the beneficiaries only. In fact, downstream industries often invest a substantial amount to make their own businesses more sustainable and come closer to complying with regulation (more efficient use of resources, ecological restoration, wetland construction, water cleaning stations etc.) and thus contribute to the improvement of ecosystem services. This indicates that what might look like a business case in PES theory may not be one in practice.

Another key challenge seems to lie in the relationship between PES and regulation. Existing environmental regulation can be an opportunity. PES could be used as an incentive to help farmers comply with existing, but partly unenforced environmental protection regulation, helping them to deliver the mandated environmental improvements (cross-compliance to fulfil the polluter-pay principle: Hans-Jörg, Switzerland; Timo, Germany) and asking them to deliver additional environmental improvements, beyond those required by law (provider-gets principle). While some of our members consider that PES can be used to combine both benefits, others believe it should be applied only to the latter (Helena, Brazil). But if we want to target sensitive areas like those Rodolfo (Mexico) mentions, a combination of both instruments may be required to make a difference. On the other hand, budgetary regulations and conflicting sectoral policies can block PES development. In some countries, existing tributary regulations do not allow for municipal financial transfers across administrative boundaries, undermining local creativity in addressing ecosystem scale problems. At national level, compartmentalized sectoral policies may contradict each other too (Assan, South Africa). In some cases, legislation can block PES development. In Kenya, Josephat mentions a common problem: water use fees and their share earmarked for water resources management exist and are being collected to some extent, but their investment in not traceable. Their existence hampers any further efforts of PES to negotiate for re-directing existing or capturing additional funding for watershed management.

Perhaps the way forward lies in a more systemic approach, and PES is already piloting it. Rogerio (Brazil), Peter (Australia) and Andrew (Italy) make us look to the future and consider the extent to which natural resources are consumed and wasted, its impacts to producers (Rogerio) and consumers (Peter). Andrew calls for a gradual rise in food (and water) prices, that includes funding the adequate protection of the environmental services that allow for the provisioning of these goods. Perhaps one of the virtues of PES lies in highlighting these linkages between providers and users of environmental goods and services. Ecolabeling schemes bring both sides closer together, local PES initiatives are leading to revisions of water tariffs to include a new charges for, or earmark existing revenues, to watershed management. These approaches, automatically capture all private sector, include us: the final users of all these goods and services.

But to mainstream this we need to demonstrate the need for improved ecosystem management and we cannot do that if our pilot projects fail to deliver environmental benefits. Impact assessment is seriously needed and John’s (UK) cost-effective approach to measuring impacts is very encouraging. We should aim to developing similar approaches in all “development” and conservation projects, be they through PES or other investment mechanisms.

While our discussion here comes to an end this week, we will continue pursuing some of these main lines of reflection on how to: 1) diminish the gap between theory and practice of PES, 2) ensure participatory design of projects that are demand-driven with realistic long-term funding strategies, 3) provide alternatives to resource use-restriction and balanced packages of short and long-term incentives for adoption of improved practices, 4) measure the impacts our work and 5) communicate that to engage the private sector in a long-term and substantial manner and 6) eventually mainstream that into government policy.

Once again, we thank you for sharing your honest opinion, your experience and related documents. Should you like to elaborate further on any of these issues please write to us. We will also include you in our project mailing list and welcome feedback on the direction we take, and the added value of our work over the coming two years.

Best wishes to all

Nanete Neves, technical advisor (Bernardete.Neves@fao.org)
Philipp Aerni, project coordinator (Philipp.Aerni@fao.org)