The Future of Payments for Environmental Services

by Paul J. Ferraro

Dec 1, 2011
In high-income nations, the concept of PES has gained traction largely because it complements ongoing efforts to redirect agricultural subsidies toward public goods through conservation payment schemes. In low- and middle-income nations, PES has become popular for 4 reasons (Pattanayak et al. 2010). First, weak institutions render regulations, indirect development strategies, and incentive-based quantity strategies (e.g., tradable development rights) difficult. Second, governments prefer subsidies to achieve policy objectives and are increasingly receptive to applying conditionality and performance metrics in the distribution of aid and subsidies. Third, policy makers, practitioners, and donors believe PES can achieve both poverty alleviation and ecosystem protection. Fourth, and perhaps most importantly, practitioners and international aid donors believe PES programs can become self-financing with short-term investments in PES start-up costs and ecosystem valuation (how the public-good nature of the services can be resolved by these investments has not been explained clearly). In other words, PES is perceived as more than just a tool for conservation investment. It is also perceived as a tool for conservation financing. Unfortunately, the reasons that motivate the global popularity of PES also constrain its effectiveness in achieving environmental and social objectives.

I describe what is known about the environmental and social effects of PES and I outline new directions for PES research. I emphasize two points. First, greater use of PES is unwarranted unless new or expanded systems are designed explicitly to measure PES's environmental and social effects and to explore competing notions of effective contract design. Second, efforts to value ecosystem services separate from policies designed to deliver them are wasted. Estimates of the benefits of ecosystem services have no policy relevance unless they are estimated in the context of real conservation effects from real conservation programs.
The Future of Payments for Environmental Services

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