Linus Hasselström Enveco Ltd.

1. Markets for Ecosystem Services: An examination of alternative Payment for Ecosystem Services (PES) structures for MuiCa Mau National Park Linus Hasselström Enveco Ltd. 2013-10-15, Hanoi

2. Key questions Why do we want markets? What is the role of policy? What are the necessary preconditions? What is the potential for markets in Mui Ca Mau? What could be some promising options for wetland PES in Vietnam?

3. FORES 2012 Report • Reportfocuses on howtoexpand the use of markets • Published in June 2012 • Was basis for a 90 minute roundtable discussion at the UNCSD (Rio+20) Conference Scott Cole scott@eesweden.com +46702532883 www.eesweden.com Linus Hasselström linus@enveco.se +46704987820 www.enveco.se Fanny Engkvist fanny.engkvist@fores.se +46701482835 www.fores.se Tore Söderqvist tore@enveco.se +46704937473 www.enveco.se

4. OUR PROJECT: Piloting a model on payment for coastal wetland ecosystems of the Mui Ca Mau National Park in the context of climate change and contribute to reducing poverty for local community PARTNERS: BCA ISPONRE MONRE FORWET FORES EnviroEconomics Sweden (Enveco subcontracted by EES) Daxam

5. Markets – whatarethey? Transactionsbetweenbuyers & sellersthat benefit both Twokeyfeatures: Voluntary Alignsincentives

6. Habitat/Conservation Banking in California (Madsen et al 2010) • BUYER: Developer that must compensate for environmental injuries (e.g., wetlands) • SELLER: Entrepreneur that invests in wetland restoration and sells the ”compensation credit” to developer or other organization

7. Market to address eutrophication in the Baltic Sea (Zandersen et al 2009) • BUYER: Wastewater treatment plant that must reduce Nitrogen emissions • SELLER: Mussel farmer that contributes to nitrogen uptake

8. Market for clean water in France (Perrot-Maitre, 2006) • BUYER: Mineral water producer that wants to avoid contaminated water sources • SELLER: Farmers that change their farming practices

9. Market for Forest Ecosystem Services (Lam Dong Province, Vietnam) • Payers: Hydropower, water supply, tourism industries • Service providers: Local landowners

10. Overview of policy instruments Directregulation Information Support for research & development Incentive-based instruments (”economic instruments”) • Markets for ecosystem services fall under Category 4. • …are one of many possible policy instruments • …and should complement rather than replace other instruments

11. Why markets? • Economicreasons • Rewards those who improve ES (e.g., planting trees) • Penalizes those who damage ES (cutting trees) • Provides environmentalprotection at lowestcosttosociety • Politicalreasons in Vietnam • Biodiversity Law, 2008 • Decree 99 prefers market-basedapproaches, 2010 • Vietnam’sBiodiversityStrategyto 2030

12. What creates and drives markets? What creates and drives markets?

13. What creates and drives markets? • Compliance-driven • e.g., Habitat banking California, PFES in Vietnam • Based on gov’t regulations • Heavily dependent on level of env. objective set by the government

14. What creates and drives markets? • Kravuppfyllande • ex: Biodiversitetsmarknader i Kalifornien • Bygger på regleringar • Starkt beroende av de mål som sätts • Compliance-driven • e.g., Habitat banking California, PFES in Vietnam • Based on gov’t regulations • Heavily dependent on level of env. objective set by the government • Taxpayer-financed • e.g., subsidized mussel farming. • Heavily dependent on taxpayer funding

15. What creates and drives markets? • Kravuppfyllande • ex: Biodiversitetsmarknader i Kalifornien • Bygger på regleringar • Starkt beroende av de mål som sätts • Compliance-driven • e.g., Habitat banking California, PFES in VIetnam • Based on gov’t regulations • Heavily dependent on level of env. objective set by the government • Skattefinansiering • ex: blåmusselodlingar som subventioneras. • Starkt beroende av tillgängliga skattemedel • Taxpayer-financed • e.g., subsidized mussel farming. • Heavily dependent on taxpayer funding • Voluntary • e.g., drinking water in France • Dependent on that an ecosystemservice provides a private profit • Or benevolence & charity

16. Conclusions – Market pre-conditions • The report’s various conclusions underscore the importance of • Measurability • Clear markets rules (”social acceptance”) • Institutional capacity • Property rights

17. Policy Recommendations • Governments must clearly define market structure – both market goals and rules of the game .. Butletmature markets workwithouttoomuch intervention. • Report identifies 10 key things governments can do, including: • Stimulate Demand/Supply • Help reduce transaction costs • Maintain other regulatory policies • Inform market participants (about ES and about markets) • Create pilot studies/markets and evaluate outcomes before scaling up

18. Description of the project Develop a livelihood model (20 HH) Develop a PES mechanism Improve capacity building & public awareness Create long-term partnership

19. Partner Contributions FORWET (Vietnam) • Develop livelihood model & PES model FORES (Sweden) • Critic PES model & suggest PES alternatives • Identify ecosystem services & their value • Identify benefits of markets • Focus on MCMNPwith International PES experience

20. FORES’ Project Deliverables • Capacity assessment (Activity 3.1) • Land use (Act 2.8) • Desk study of climate change impacts (Act 2.1) • Ecosystem service assessment (Act 2.6) • Valuation of ecosystem services (Act 2.7) • International PES case studies (Act 2.3) • Alternative PES Structures Report (Act 2.12) Draft  late Oct Final  Nov

21. Alternative PES Structures Report Objectives Propose alternative PES structures in MCMNP Identify economic criteria to evaluate PES Assess PES alternatives with criteria Provide recommendations for next phase in MCMNP

22. How to identify alternative PES structures?

23. Our 4 Alternative PES structures: • PES #1a – Aquaculture & Agriculture livelihood • PES #1b – Eco-tourism/Homestay livelihood • PES #2 – Traditional with state as buyer • PES #3 – Carbon market • PES #4 – Eco-labeling

24. Why these 4 PES alternatives? • IllustratePES possibilities • Illustratebuyer&sellerpossibilities • Cover manyEcosystem Services in MCMNP • Cover many different geographicscales • Local • National • Global • Illustratepossibilitiestocombine/layer PES structures

25. PES #1a – Aquaculture & Agriculture

26. PES #1b – Ecotourism/homestay

27. PES #2 – Traditional: State as buyer

28. PES #3 – Carbon market

29. PES #4 – Eco-labeling

30. Is PES #1a sufficient? Seller Buyer Payment: Forest Protection • LUR to farmer • Tech assistance • Trees to plant • Small wage Ecosystem Services (ES)

31. Is PES #1a sufficient? Seller Buyer Payment: Forest Protection • LUR to farmer • Tech assistance • Trees to plant • Small wage A good livelihood model … but: 1. Many more beneficiaries out there … 2. Need buyers who can can/will pay 3. Sufficient incentive/income for HHsto protect forest?

32. Let’s introduce a new buyer …

33. Buyer Buyer / Seller Seller PES Input #2: Knowledge Livelihood Ecosystem Services (ES) Eco-Label Shrimp Input #1: ES Now  HH has better economic incentive to protect forest

34. Conclusions and Recommendations(1) • MCMNP is a strong candidate for PES • All PES structures should be “tested – evaluated – improved” repeatedly • Some PES structures more likely to succeed than others. Key criteria to be met: • Voluntary transactions • Additionality • Include maximum number of beneficiaries

35. Conclusions and Recommendations(2) • PES #1b Eco-tourism • Should be expanded to include additional HHs • Strong focus on innovative marketing strategies • Potential effects on ES should be further discussed and evaluated • PES#2 (coastal protection) and PES #3 (carbon) • Suggest a PES structure that includes “layering” to improve income possibilities for HHs

36. Conclusions and Recommendations (3) • Combine PES #1a and PES#4 • PES#1a is a good first step but is expensive • PES#4 Eco-labeling is the logical next step, as it identifies more potential buyers and creates improved incentives for HHs to protect the forest. • Eco-labeling is promising because: • Current shrimp production already meets “eco” standards – very important (!) • Can rely on existing contracts between HHs & NP • Good opportunity for piloting this PES #4 in 2014 when re-newing contracts • Self financing (after initial investment)

37. Recommended next steps • Review PES #1a and #1b pilot before proceeding to next stage • Consider piloting our PES #4 alternative • Further investigation need for PES #2 and PES #3 • Given trade-offs between PES alternatives, should consider the top policy priority: • Raising gov’t revenue? • Reducing poverty? • Improving ecosystem services?

38. Thank you! Linus Hasselström Enveco Ltd. Sweden linus@enveco.se +46 70 498 78 20