Payment for Ecosystem Services (PES)

1. Payment for Ecosystem Services (PES) Jeremy Potter

2. An intro to PES • A market based mechanism to encourage the conservation of natural resources • An environmental policy instrument that facilitates the exchange of value for land management practices intended to provide or ensure ecosystem services • 550 active programs around the globe with an estimated $42 billion in annual transactions • Central component of China’s nationwide environmental protection strategy • “making trees worth more standing than cut down”

3. Watershed Market • The watershed PES sector is the most mature and largest in terms of transaction value • There are currently 387 watershed PES programs • Threat from poor land management upstream to the water quality and flooding downstream makes it easier to gain support from beneficiaries to providers • Institutions for transactions already exist • Market dominated by China

4. Biodiversity and Habitat Market • Least developed in terms of geographical scope and most challenging for countries to put into place • More diffused benefits from preserved biodiversity than watersheds • No institutions to collect payments • The practice of offsets is controversial in conservation circles • Mitigation banks

5. Forest and Land-Use Carbon Market • A policy instrument to combat climate change, this market receives the most attention • Since 2009, $2.8 billion dollars have been spent on forestry and land use practices that sequester carbon • A variety of funding options have emerged throughout the globe • Voluntary exchanges • International treaty mechanisms • International funding mechanisms • State mandates

6. How are carbon emissions offset by responsible land use? • Reforestation and afforestation • Improved forest management • Sustainable agricultural land management • Reduced emissions from land use and forest degradation (REDD) • California has the most successful program with 65% of carbon offsets coming from forestation and land use

7. Who finances the markets? • User-financed PES • Users of ecosystem services agree to compensate landholders for activities that maintain or enhance the delivery of ecosystem services • Users may be individuals, companies, or NGOs that are direct beneficiaries of ecosystem services • Government-financed PES • Third parties acting on behalf of users compensate landholders • Buyer is a public entity that does not directly use the ecosystem service

8. Who finances the market? • Compliance PES • Parties facing regulatory obligations compensate other parties for activities that maintain or enhance comparable ecosystem services • Includes water quality trading, wetlands mitigation banking, and the European Union’s emissions trading scheme for greenhouse gases • Discussion: Currently there is a greater supply of carbon offsets from forestation than there is demand. Meaning there are not enough buyers. Do you think that demand for environmental quality could ever be high enough that people would pay out of their own pocket to reduce/offset carbon emissions?

9. Critiques of PES System • Supply far exceeding demand for voluntary forest carbon • Limited impact of compliance carbon markets • Conservationists argue that it “greatly” undervalues environmental goods • PES does not capture existence values, option values and other public good benefits • Transfers to much power to corporations and the very rich • Global Enforcement

10. Discussion • Lets say you’re an environmentally friendly US Senator. A freshwater source in your district is being polluted by unsustainable farming practices. You are trying to decide between a policy that would spend 20 million on river cleanup and a policy that would institute a government funded PES market (20 million) that would pay farmers in your district to use sustainable farming techniques. Which policy would you choose? • As a policy maker, would you be concerned about a PES system giving to much control to corporations?