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Using Payments for Ecosystem Services to Achieve Conservation and Development Objectives Sara Scherr Forest Trends Ecoagriculture Partners September 2005 Investing in “Natural Infrastructure’ Air quality Pest & disease control The Forest Climate Alliance Watershed protection and regulation Strategic Advice to National Policy Initiatives Wilds species & habitat protection Biodiversity Offsets Plant pollination Carbon sequestration and storage Soil formation and fertility Decomposition of wastes Landscape beauty a) Self-Organized Private Deals Private entities pay for private services * Perrier-Vittel pays upstream landowners for improved agricultural practices and reforestation of sensitive infiltration zones (US$230/ha/yr) * TNC, CI, WCS payments to farmers and communities for conservation management Price of service typically negotiated, based on willingness to buy and sell (valuation studies may be an input for negotiation) b) Public Payments to Farmers, Communities Public agency pays for service •Public payments for watershed protection in Mexico ($60 mln in 2004) •US pay landowners for wildlife conservation (EQUIP, Safe Harbor) • Price of service either set by program (based on willingness to sell and valuation studies) or through auction c) Open Trading of Ecosystem Credits Under a Cap or Floor Landowners either comply directly with regulations, or buy compliance credits * Wetland banking in US allows developers to offset damage * The Kyoto-compliant carbon emission offset market * Freshwater nutrient-trading * Price of service is based on supply and demand for the service (with demand determined by regulation) d) Eco-labeled farm, forest, THE FOREST CLIMATE ALLIANCE natural products Consumers prefer certified sustainable supplies * “Shade-grown coffee” in Mesoamerica (US$5 billion for sale in USA alone) * Certified timber * Eco-landscape source labels * Price of service embedded as part of product price--usually by market (FSC), sometimes by negotiation (Starbucks) Building Blocks for Ecosystem Services Payments and Markets DRAFT – FOR INTERNAL DISCUSSION PURPOSES Create Supportive Legal / Regulatory Context (includes establishing tenure / rights) Identify Ecosystem Services, Buyers & Sellers (includes assessment of both buyers’ and sellers’ goals / motivations to ensure that they are complementary) Develop the Rules for the Market or Trading (includes determining what is being sold, who is paying for what, etc.) Launch Markets & Payments For Ecosystem Services Establish Supporting Organizations & Services (includes verification services, etc.) Adapted from Brand, David. 2002. “Investing in the Environmental Services of Australian Forests,” in S. Pagiola, J. Bishop, and N. Landell-Mills (editors). Selling Forest Environmental Services: Market-Based Mechanisms for Conservation and Development. London, U.K.: Earthscan Publications. 0 Potential Benefits for Sustainable Development Poverty Reduction New sources of finance for conservation, esp. outside Protected Areas Incentives for rational decision-making about resource use and management Income for rural communities with few other market opportunities (e.g., where no transport) Rewards rural communities for real benefits they provide to others Financing for transition to sustainable agriculture, forestry and fisheries DRAFT – FOR INTERNAL DISCUSSION PURPOSES Essential Components for Ecosystem Services Market Growth Public Payment Schemes Open Trading Self-Organized Private Deals Identified Ecosystem Services Component 1 Component 2 Component 3 Component 4 (includes: ecosystem services for available for both current and future payments / markets) Enabling Legal, Regulatory, & Administrative Context (includes: supportive context for ecosystem service payments and markets) Supporting Institutions (includes: public or private entities that facilitate / oversee public funds, regulate private trade, etc.) Engaged Local Communities & Stakeholders (includes: communities, NGO’s, financial institutions, businesses, government, etc.) Component 5 Flow of Market Information Component 6 Technical Assistance (to sellers, buyers, and other market actors, which includes training, education, and advising) Component 7 Component 8 Component 9 Component 10 Financing (for all needed components, including: ecosystem management costs, transaction costs, etc.) Support Services For Market Actors (such as: brokering, legal advice, measurement and valuation of ecosystem services, 3rd party verification, accounting, etc.) Standards and Guidelines for Ecosystem Service Payments or Markets Awareness of Ecosystem Service Values, Payments & Markets (among policymakers as well as 2 potential sellers and buyers) Current Obstacles to Developing PES Lack of technical and market information Potential buyers not organized High costs fo find, negotiate, monitor deals Lack of experience and capacity Inadequate legal and regulatory framework Political conflict over rights, responsibilities Distrust of markets for public goods Potential Benefits & Risks for Community Sellers Benefits * New, often more regular, flows of income (15-25% +) * Portfolio diversification * Catalyst for adopting better management practices * Asset appreciation (pest & disease control, high inventory) * Locally-valued ecosystem goods and services * Social investment, such as preserving cultural heritage Risks * Loss of economic use options * Loss of land and forest ownership or access * Loss of local ecosystem services * Contractual obligations if services not delivered Overcoming Obstacles for Community Producers • Democratize information about ecosystem service markets • Encourage broad participation in policy dialogue about the rules and shape of ecosystem service payments • Reduce learning costs for new entrants to these markets; training programs and enterprise support; financial viable and appropriate business models • Reduce transaction costs through institutional innovations like suitable intermediaries, ‘bundling’, largearea programs, integrate with economic activities The Katoomba Group–Linking Global Innovators, Providing Policy Support Are PES relevant for East and Southern Africa? Critical need for new sources of confirmation finance Many one-off projects being developed or in pipeline Use models that fit local social and institutional conditions (“it’s all about design….”) Be strategic about role of PES in national conservation and development strategy