PAYMENTS FOR ECOSYSTEM SERVICES

Payments for Ecosystem Services

Payments for Ecosystem Services

Introduction

There has been increasing interest in the potential of market-based approaches to promote conservation. Over the last decade many Payments for Environmental Services (PES) schemes have been introduced or proposals developed. In PES schemes, land managers, typically forest owners or farmers, are paid to manage their land in ways that protect or enhance environmental services such as carbon sequestration, watershed protection and biodiversity conservation. In some cases payments are made by beneficiaries of environmental services, for example water users and hydropower companies; in others national or local government pay on behalf of beneficiaries.

Hypothesis

Null Hypothesis: Payment for ecosystem services, Can contribute to sustainable development.

Alternative Hypothesis: Payment for ecosystem services, Cannot contribute to sustainable development.

Literature Review

Payments for Ecosystem Services (PES), also known as Payments for Environmental Services (or Benefits) broadly defined, is the practice of offering incentives to farmers or landowners in exchange for managing their land to provide some sort of ecological service. These programmes promote the conservation of natural resources in the marketplace. Ecosystem services have no standardized definition, but might broadly be called “the benefits of nature to households, communities, and economies,”or, more simply, “the good things nature does." Twenty-four specific ecosystem services were identified and assessed by the Millennium Ecosystem Assessment, a 2005 UN-sponsored report designed to assess the state of the world's ecosystems. The report defined the broad categories of ecosystem services as food production (in the form of crops, livestock, capture fisheries, aquaculture, and wild foods), fiber (in the form of timber, cotton, hemp, and silk), genetic resources (biochemicals, natural medicines, and pharmaceuticals), fresh water, air quality regulation, climate regulation, water regulation, erosion regulation, water purification and waste treatment, disease regulation, pest regulation, pollination, natural hazard regulation, and cultural services (including spiritual, religious, and aesthetic values, recreation and ecotourism). Notably, however, there is a “big three” among these 24 services which are currently receiving the most money and interest worldwide. These are climate change mitigation, watershed services and biodiversity conservation, and demand for these services in particular is predicted to continue to grow as time goes on. One seminal 1997 Nature Magazine article estimated the annual value of global ecological benefits at $33 trillion, a number number nearly twice the then global gross product.

PES programs are voluntary and mutually beneficial contracts between consumers of ecosystem services and the suppliers of these services. The party supplying the environmental services holds the property rights over an environmental good that provides a flow of benefits to the demanding party in return for compensation. The beneficiaries of the ecosystem services are willing to pay a price that is lower than their welfare gain due to the services. The providers of the ecosystem services are willing to accept a payment that is greater than the cost of providing the services. These programs are practical examples of the Coase theorem. According to the Coase Theorem, environmental externalities can be solved through private bargaining between people who are willing to pay in ...