Payment for Ecosystem Services

Payment for Ecosystem Services

The concept of Payment for Ecosystem Services is an economic tool which aims to support and
maintain the fl ow of a specifi ed ES in the long-term, in exchange for something of economic value.
According to S. Wunder (2005) PES is «a voluntary transaction for a well-defi ned environmental
service (or a land use likely to secure that service), purchased by at least one environmental service
buyer from at least one environmental service provider, if and only if the environmental service
provider meets the conditions of the contract and secures the environmental service provision».
Often, an intermediary organization plays an important role in the collection and redistribution of the
fund. It also coordinates the different assessments, meetings and the negotiation. This organization
plays a crucial role in the sustainability of the entire scheme as if the transaction costs are too
important, the entire system can collapse.

Thus, from this defi nition, the main conditions for the relevance of a PES project are (S. Wunder,
in Getting started – a Primer, 2008):

  • a voluntary transaction in which
  • a well-defi ned environmental service (ES), or a form of land use likely to secure that service
  • is bought by at least one ES buyer
  • from a minimum of one ES provider
  • if and only if the provider continues to supply that service (conditionality)

Applications of PES

Current PES schemes focus on water, carbon, or biodiversity and respond mainly to public,
but increasingly also to private interest in addressing an environmental problem through positive
incentives to land managers.

So far PES schemes have been developing mainly around three groups of environmental

  • water quality and quantity, often including soil conservation measures in order to control
    erosion and sediment loads in rivers and reservoirs (which decreases storage capacity and
    increases treatment costs) and to reduce the risk of land slides and fl ooding

Summary of recommendations for PES in the Republic of Kazakhstan

  • carbon sequestration (and in some cases protection of carbon storage) to respond to demand
    from the voluntary and regulatory greenhouse gas emissions markets (Kyoto Protocol,
    European Union Greenhouse Gas Emission Trading Scheme – EU ETS)
  • biodiversity conservation, by sponsoring the conservation of areas of important biodiversity
    (in buffer zones of protected areas, biological corridors or even in remnant patches of native
    vegetation in productive farms) and protecting agricultural biodiversity

The contract

The relation between buyers and sellers is established in the PES contract which is negotiated
between buyers and sellers. This document presents:

  • The conditionality: i.e. the practices sellers have to follow in order to receive the payment
  • The details relating to the payment: amount of the fi nancial transfer, payment frequency and
    nature (in-kind, cash, etc)

As explained before, the PES gives rise to a payment. The characteristic of this payment, i.e. its
nature and frequency are decided during a negotiation between buyers and sellers and depending
on their needs and wishes, it can be both cash and in-kind payment. In-kind payments can be
material such as roads repairing, beehives furniture, seed distribution for reforestation and different
incentives that can diversify the incomes of those who are involved.

Different types of contract

Different types of stakeholders can operate as buyers, sellers or intermediates in the frame
of a PES scheme. Broadly, these stakeholders belong to the public or the private sector. Thus
depending on the nature of the organizations or people concerned by the payment fl ow, the common
classifi cation on PES proposes three different schemes:

  • Public-public: In some places, public organizations are ES providers, while the services are
    bought by a public structure too. For instance, we can imagine a National Agency for Electricity
    facing problems with a dam because of a lack of water, due to lower water storage in the
    watershed. In this case, this public company could pay the Forest National Agency to reforest
    upstream lands, thus increasing water storage and solving the problem faced by the dam
  • Public-private: It is the most common type of PES. An interesting example is the National
    PES scheme set up in Mexico to protect forests in short watersheds. In this case, the
    Government pays on its own budget, more than US$ 20 million every year to forest owners
    that accept to avoid the transformation of their forests in agricultural lands
  • Trading scheme (private-private): This type of scheme is based on the willingness of private
    structures to create a benefi cial relation in order to improve the effectiveness of their activities.
    A famous private-private scheme was established by Vittel, a water company, to protect the
    spring and avoid pollution by pesticides used in agriculture