Payments for Ecosystem Services I

In this short post, I will introduce the concept of payments for ecosystem services. 

Payments for Ecosystem Services (PES)

PES is a market-based mechanism to translate external values of ecosystem functioning by financial incentives to the provision of ES by local actors. The basis of PES lies within the economic theory of market failure when public goods and services are not delivered or provided in sufficient quantity/quality/efficiency (Derissen and Lohmann 2013). PES schemes are often voluntary with financial transactions for the services provided by a well-defined, often singular ecosystem function. The central economic theory behind PES schemes are one of non-rivalry, that the benefit and consumption by one user does not affect benefts and consumption by another (Engel et.al. 2008). This, obviously, is not true in reality and may often lead to complex power dynamics as seen from the commodification of water in the last post and will be discussed further in the WfW programme in South Africa.  

Characteristics of PES:

1. Presence of buyers - users of ES or governments/NGOs, either user-financed or government-financed through central organizations
2. Sellers - stakeholders in position to protect, maintain and assist ES delivery, often land owners or government
3. Payments offered to sellers (ecosystem managers) must exceed benefits they would otherwise receive from land conversion or alternative use 

Disadvantages:

1. Inefficient if ES are spatially dispersed and distributed with widespread impact areas
2. Non-rivalry often not realistic - eg. Commodification of water (see previous post) - water rights holder hold power to prioritize beneficiaries 
3. Payments may be insufficient to cover costs and leads to continued undesirable land uses
4. Inefficient if payments are made to convert land use but land conversion would have been adopted without payments anyways

In the next post, I will discuss in detail the WfW programme.