USAID PES Policy Seminar, Oct. 4,2007

1. PES and Poverty Alleviation Sven Wunder Centre for International Forestry Research (CIFOR), Brazil USAID PES Policy Seminar, Oct. 4,2007

3. Center for International Forestry Research

4. Payments for Environmen-tal Services and Poverty Alleviation Sven Wunder Senior Economist

5. Structure I. Payments for Environmental Services (PES) - Definition II. Conceptualizing PES and Poverty III. Empirical Results IV. Conclusions

6. Payments for Environmental Services – Definition

7. CIFOR studies defined PES principle as: 1. a voluntary transaction where 2. a well-defined environmental service (ES) - or a land-use likely to secure it 3. is being “bought” by a (min. one) ES buyer 4. from a (min. one) ES provider who controls an environmental asset 5. if and only if ES provision is continuously secured (conditionality).

8. Other Economic Incentives “PES-like” Schemes PES Core PES definitions -- between hardcore and periphery PES Core 5 criteria Theory & some private PES “PES-like” Schemes PES Core PES Core “PES-like” Schemes: Some of 5 criteria Public agro-environmental schemes; community- based ecotourism, etc. Other Economic Incentives: Any “payment” for any “environmental service” by “anybody” ICDPs, park-ranger salaries, reforestation subsidies, etc.

9. Taking PES to a messy world (the tropics): • Insecure land tenure – or tied to “active” (ES degrading) land use? No environmental resource control => no PES feasible • Adding “carrots” (=PES) on pre-existing “paper sticks” (=defunct command-and-control land-use caps)? • Illegal resource uses (timber, charcoal game, …) Reward people to respect the law? • Weak governance: PES = “victim pays” principle. • challenge to avoid “perverse incentives”

10. II. Conceptualizing PES and Poverty

11. What welfare implications from PES? • PES enhance land/ resource uses previously not in the ‘best interest’ of landowners: forest conservation, wetland restoration, etc. • PES can turn conflict situations (“win-lose/ lose-win”) into “win-win” • a) provider criterion : payment > opportunity cost • b) user criterion : payment < service gain • PES requires an “environmental rent” to distribute, to make all participants better off – including those that are poor

12. Some ex-ante considerations • PES potentially provide additional and stable monetary income sources for poor peasants and communities • As voluntary deals, PES are unlikely to make ‘rational’ poor providers worse off – unless forced, cheated, or surprised by unanticipated effects • If PES does not deliver the service, they will remain low-scale - and not benefit the poor in the end

13. Four PES poverty questions: • Poor ES providers’ participation: What access have the poor to PES? 2)Effectson poor ES providers: When they get access, how does PES affect their livelihood? 3) Effects on poor ES users: How do ES users fare with PES? 4) Effects on other poor (non-participants): How are the landless, poor consumers, etc. affected?

14. Figure 2: Impacts of PES on the poor Poor ES sellers Poor ES buyers PES-derived effects Poor ES free riders Non-poor ES sellers Non-poor ES buyers Non-participant poor PES Scheme Demand Supply Land market Labor market Capital market Output markets Payments received Opportunity costs Non-income effects Improved ES Payments paid PES side effects on non-participants PES livelihood effects on ES sellers PES livelihood effects on ES buyers

15. Figure 1: Participation of the poor in PES “The poor” - Landholders? - Environmentally “strategic” land? - Formal prerequisites (tenure, size, income)? - Spatially targeted service? Eligibility? - Livelihood prospects favorable? - Low risk? - Trust vis-à-vis buyers / intermediary? Desire? - Production factor constraints: - Sufficient land, labor, capital, skills? - Communal organizational constraints? Ability? - Low opportunity costs/ low price bids (if PES rates are variable)? - Reliability as supplier? - Acceptably low transaction costs? Competitiveness Poor ES users Non-participant poor Poor ES sellers Yes No Yes No Yes No ? Yes No

16. III. Empirical results

17. Two caveats on PES-poverty data • Relatively low PES maturity: young schemes, small participant numbers (except for Costa Rica, China) • Poverty assessment: few systematic studies, no opportunity costs assessed – only gross effect

18. Access: pro- and anti-poor biases • Often insecure land tenure: Overlapping claims => low control over resource use => unreliable ES supplier 2. High transaction costs of dealing with many smallholders (Ex Kyoto) 3. …but they often occupy environmentally sensitive (marginal) lands producing ES 4. …lower opportunity costs (simple ag tech) => lower, competitive ES price bids

19. Provider impacts: Latin America • World Development – with IIED (2005): four countries (Bolivia, Brazil, Costa Rica, Ecuador), 6 carbon + 2 watershed projects • PES household income/spending share: 16% (Virilla, CR), 30% Pimampiro (Ecu) [C.Rica: for 25%, PES>10% off hh income. Osa Peninsula: PES=primary inc. source for 44% of hh] • Asset generation: carbon plantations (Huetar Norte, PROFAFOR: exp. return IRR=12-27% 30 yr) • Positive side effects beyond income: +tenure security, +community organization, +visibility vis-à-vis external actors

20. Targeting poverty – the Mexican PSAH

21. …but one may lose focus! kkkkkkkkkkkkkkkkkk

22. Is it good to give people cash? • “The best way to destroy a community is to give them a sack of money!” • “Give a household cash in hand, and the men will spend it all instantly on booze and women!” • Very true – but there are more clever ways to design cash transfers (e.g. small, regular amounts, transferred to women, using cell phones!)

23. Is it good to give people cash?(cont’d) • Experiences with other (non-env) conditional transfers – e.g. paying households for sending their kids to school – are encouraging • Trials with welfare transfers – e.g. to war veterans, drought areas (Mozambique, Malawi) – prelim results: good results (welfare target + local development) => PES are not always, but often in cash. The good news: good prospects of getting development returns from cash, if the transfer design is smart.

24. What about poor service users? • PES Villa de Leyva, Colombia: ~15 upstream farmers decide fate ~2,500 downstream water consumers – often neglected! • Most poor ES users do not become ES buyers because they lack organization (e.g. fishermen <=> mangrove deforestation) – most PES are buyer-led! • Many poor ES users become “free riders” – and often stand to benefit a lot: a) climate change b) urban non-metered water users => Poor service users stand to gain – though often more as free riders than as ES buyers

25. PES impacts on non-participants • Depends on derived effects from labour, capital, land, output markets. • Ex: Noel Kempff (Bolivia), national park extension financed by carbon + biodiversity interests; main losers: landless labourers losing timber jobs • Consumer effects (e.g. timber prices) – almost never quantified • Counter-ex: Environmental restoration (carbon or agroforestry) stimulate local employment => PES, like any other (effective) conservation action – can cost jobs. Variable possible derived effects, but seldom dominating.

26. IV. Conclusions

27. What poverty effects dominate? • Access: Some rules and structural constraints hamper the poor; others are in their favor • Provider impacts: Usually net positive – supplementary only, go to ‘moderately poor’ smallholders, non-income benefits • User impacts: Can be significant (global warming, water users) – as free riders • Non-participant impacts: usually positive for use-enhancing, negative for use-restricting – especially landless

28. Main effects - donor response options • Some access constraints hamper participation by the poor, others are in their favour => Help develop/ modify scheme design to curb/ subsidize transaction costs, (esp. start-up) • Net positive effects for ES sellers (often ‘moderately poor’ smallholders), including non-income benefits – but not huge gains => Oil the wheels to increase PES scale 3. ES users also benefit – incl. as free riders => Oil the wheels to increase PES scale 4. Other poor – side-effects (+/0/-) => Pre-diagnosticize, remedy if significant

29. Don’t put the (poverty) carriage before the (PES) horse! • Donors may legitimately choose to focus only on those PES that help poor people significantly • But putting non-env. objectives (poverty, gender, indigenous people, human rights…) centre stage will make PES ‘development projects in disguise’. • ….and PES scale would be restricted, as the private sector will remain behind => The best way to achieve pro-poor PES may be to focus on interventions that “grease the wheels”

30. Thank you!