Payment for Ecosystem Services PES in Tropical Forests: RUPES Experiences, Opportunities and Constraints

1. Payment for Ecosystem Services (PES) in Tropical Forests: RUPES Experiences, Opportunities and Constraints Emma P. Abasolo ENR Financing Forum September 23, 2009Crown Plaza Hotel

2. Presentation Outline What are ecosystem services? What is PES? What is RUPES? Procedure, benefits, risks, challenges and opportunities: Carbon sequestration and storage � CDM (Kalahan) Watershed protection services � hydropower (Bakun)

3. What are ecosystem services (ES)? the benefits from the functioning of ecosystems provided by natural processes/ components to satisfy human needs (de Groot 1992) consist of flows of materials, energy, and information from stocks to produce human welfare (Costanza et al, 1997) The importance of ecosystems have long been recognized for the many and varied ecosystems services upon which life is based� the benefits that people obtain from the functioning of ecosystems provided by natural processes and components to satisfy human needs directly or indirectly (de Groot 1992) consist of flows of materials, energy, and information from natural capital stocks that combine manufactured and human capital services to produce human welfare (Costanza et al, 1997) A number of these services extend way beyond the local level and have global reach. The importance of ecosystems have long been recognized for the many and varied ecosystems services upon which life is based� the benefits that people obtain from the functioning of ecosystems provided by natural processes and components to satisfy human needs directly or indirectly (de Groot 1992) consist of flows of materials, energy, and information from natural capital stocks that combine manufactured and human capital services to produce human welfare (Costanza et al, 1997) A number of these services extend way beyond the local level and have global reach.

4. ES Classification Carbon stocks tree cover/forest carbon Watershed functions water flows, water quality Biodiversity functions conservation Human health and landscape beauty ecotourism Carbon stocks have global function while the other services provides local servicesCarbon stocks have global function while the other services provides local services

5. Are ES important to US? Used as raw materials for the economy; Offer benefits that cannot be provided elsewhere; Indispensable for reproducing additional goods and services. Collados and Duane (1999) Ecosystem services are not only of direct value to us, they offer indirect benefits too by supporting and promoting the natural resource base upon which our economic activities are founded. They are used as raw materials in the production of human-made goods for the economy; They offer benefits to humans that cannot be provided elsewhere; and They are indispensable for reproducing additional goods and services. Ecosystem services are not only of direct value to us, they offer indirect benefits too by supporting and promoting the natural resource base upon which our economic activities are founded. They are used as raw materials in the production of human-made goods for the economy; They offer benefits to humans that cannot be provided elsewhere; and They are indispensable for reproducing additional goods and services.

6. Why are ES Declining? In the Philippines, forests are severely degraded 1990s �21 M ha 2004 � 6 M ha Ecosystems are under valued or worse not valued at all! market failure nature of property rights policy failure Yet despite the importance and the tremendous value of goods and services provided, ecosystems and their constituent resources continue to decline at an alarming rate. A major underlying economic reason for this state of affairs is that ecosystems - or for that matter the many services ecosystems provide - are often under valued or worse not valued at all. market failure - failure to reflect the full/ true cost of goods or services. because the market fails to reveal values, upstream poor are not compensated for the benefits that ecosystems provide to others (e.g., downstream water quantity and quality improvement or maintaining flood control), and thus the true value of such benefits is generally not taken into account in land use decisions. nature of property rights - rights of local communities are either unrecognised or are unenforceable. property rights over watershed ecosystems are often ambiguous and contested (government was bestowed the property rights to manage the ecosystems but the communities residing in owned the customary rights). . In such a situation, where watershed ecosystems themselves de facto becomes open access (or free for all), no one has a clear incentive to protect the ecosystem - everyone takes whatever he or she can thereby generally damaging ecosystem services. policy failure � sectoral economic policies has come at the expense of natural resources This in turn implies that the environment is ignored when government budgets are allocated. In such a situation, the poorly financed and under-staffed environment and resource sectors comes up short of effective management of these resources, which leads to further degradation.Yet despite the importance and the tremendous value of goods and services provided, ecosystems and their constituent resources continue to decline at an alarming rate. A major underlying economic reason for this state of affairs is that ecosystems - or for that matter the many services ecosystems provide - are often under valued or worse not valued at all. market failure - failure to reflect the full/ true cost of goods or services. because the market fails to reveal values, upstream poor are not compensated for the benefits that ecosystems provide to others (e.g., downstream water quantity and quality improvement or maintaining flood control), and thus the true value of such benefits is generally not taken into account in land use decisions. nature of property rights - rights of local communities are either unrecognised or are unenforceable. property rights over watershed ecosystems are often ambiguous and contested (government was bestowed the property rights to manage the ecosystems but the communities residing in owned the customary rights). . In such a situation, where watershed ecosystems themselves de facto becomes open access (or free for all), no one has a clear incentive to protect the ecosystem - everyone takes whatever he or she can thereby generally damaging ecosystem services. policy failure � sectoral economic policies has come at the expense of natural resources This in turn implies that the environment is ignored when government budgets are allocated. In such a situation, the poorly financed and under-staffed environment and resource sectors comes up short of effective management of these resources, which leads to further degradation.

7. What is Payment for Environmental Services (PES)? A voluntary transaction where a well-defined ES (or a land-use likely to secure that ES) is being �bought� by an ES buyer (s) from a seller (s) if and only if the provider secures continuous provision of the environmental service (or protection of land use) -conditionality (Wunder 2005) conditionality that paymentconditionality that payment

8. PES Framework Scoping Identifying the environmental service(s) and baseline Modelling scenarios Identifying the buyers and sellers and assessing their motivation to engage in PES Stakeholder analysis Selecting the service seller(s) Selecting the service buyer(s) One, identify the environmental services and determine the baseline. Two, assess plausible future scenarios that impact (in a negative or positive direction) on the provision of the environmental service, and three identify the buyers and sellers and ascertain their motivations for engaging in a PES scheme. Before economic valuation of environmental services makes much sense it is necessary to identify which environmental services are actually being provided - to whom and by whom - under different land uses Ascertaining a baseline is integral to modelling future scenarios (with and without PES). The key question - when modelling the scenarios - is to what extent the provision of environmental service(s) will be impacted by plausible land use changes. In order to ascertain the viability of a PES scheme, it is important to identify the buyers and sellers in the scoping stage, and assess their motivation in engaging in the scheme. Would sellers be Willing to Accept (WTA) compensation to maintain or improve the environmental service and would the buyers be Willing to Pay (WTP) for the environmental service? If the PES scheme is deemed viable, under the brokering phase the main objective is to bring the potential buyers and sellers closer together and to gain further insight as to the potential of reaching a PES agreement. what is however important is the ability to link land use management with environmental service provision thereby pinpointing the providers eligible for compensation. buyers can be both public and private parties. However, a key consideration would be to start by selecting buyers that would enter the PES scheme voluntarily and then target the more difficult buyers through awareness raising. In the case of instituting non-voluntary PES schemes, this aspect does not arise. One, identify the environmental services and determine the baseline. Two, assess plausible future scenarios that impact (in a negative or positive direction) on the provision of the environmental service, and three identify the buyers and sellers and ascertain their motivations for engaging in a PES scheme. Before economic valuation of environmental services makes much sense it is necessary to identify which environmental services are actually being provided - to whom and by whom - under different land uses Ascertaining a baseline is integral to modelling future scenarios (with and without PES). The key question - when modelling the scenarios - is to what extent the provision of environmental service(s) will be impacted by plausible land use changes. In order to ascertain the viability of a PES scheme, it is important to identify the buyers and sellers in the scoping stage, and assess their motivation in engaging in the scheme. Would sellers be Willing to Accept (WTA) compensation to maintain or improve the environmental service and would the buyers be Willing to Pay (WTP) for the environmental service? If the PES scheme is deemed viable, under the brokering phase the main objective is to bring the potential buyers and sellers closer together and to gain further insight as to the potential of reaching a PES agreement. what is however important is the ability to link land use management with environmental service provision thereby pinpointing the providers eligible for compensation. buyers can be both public and private parties. However, a key consideration would be to start by selecting buyers that would enter the PES scheme voluntarily and then target the more difficult buyers through awareness raising. In the case of instituting non-voluntary PES schemes, this aspect does not arise.

9. Continuation� Negotiation Defining and agreeing on the reward Implementation and monitoring of agreements Setting in place an agreed transfer mechanism Developing a monitoring system Transferring the actual reward During the negotiation the intermediary has a very important role to play in building trust between the actors, and in agreeing on the form and of the reward as well as deciding on a transfer mechanism. When deciding on an appropriate reward it is important to remember that the actual transfer should be linked to an actual proven provision of the environmental service(s). It is imperative that the buyer feels confident he is receiving what is paid for � the payment is in exchange for compliance. The issues of creating an enabling institutional and legal environment necessary to implement a functioning PES scheme is something to be considered throughout the four phases mentioned here. Monitoring is essential to the smooth operation of a PES scheme and in revealing compliance. It is therefore important to periodically collect data and monitor and assess the supply of environmental services over time. During the negotiation the intermediary has a very important role to play in building trust between the actors, and in agreeing on the form and of the reward as well as deciding on a transfer mechanism. When deciding on an appropriate reward it is important to remember that the actual transfer should be linked to an actual proven provision of the environmental service(s). It is imperative that the buyer feels confident he is receiving what is paid for � the payment is in exchange for compliance. The issues of creating an enabling institutional and legal environment necessary to implement a functioning PES scheme is something to be considered throughout the four phases mentioned here. Monitoring is essential to the smooth operation of a PES scheme and in revealing compliance. It is therefore important to periodically collect data and monitor and assess the supply of environmental services over time.

10. ES Compensation and Incentives: Payments/rewards direct payments financial incentives payments in kind provision of infrastructure market preference planting materials health and educational services skills training, technical assistance land tenure security

11. What is RUPES? �Rewarding the Upland Poor for Environmental Services they Provide (RUPES)� Phase 1: 2005 � 2008 - Local pilot projects Aims to enhance the livelihoods and reduce the upland poverty while conserving the environment Rewards for, Use of and Shared Investment in Pro-poor Environmental Services Phase 2: 2009 � 2011 - National policy-making and institutional support An Asia wide initiative to develop approach for Aims to enhance the livelihoods and reduce the poverty of upland poor in Asia while supporting environmental conservation at the global and local levels An Asia wide initiative to develop approach for Aims to enhance the livelihoods and reduce the poverty of upland poor in Asia while supporting environmental conservation at the global and local levels

12. Why RUPES? Benefits and costs of conserving ecosystems providing ES are borne unevenly beneficiaries do not pay providers do not get compensated costs are borne by disadvantaged groups in cases where payments are made, they do not reach the poor providers

13. Which ES? RUPES Action Research Sites