Payment for environmental services

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|Module : Environmental Economics |

Who can make money with payments for environmental services?

Robin Coinus and Jérémy Garcia

Supagro Montpellier


Payments for environmental services (PES) are becoming increasingly popular to protect ecosystems: purchasers ofenvironmental services are willing to pay them from those who can provide or maintain them. PES are often defended as a way to subsidize the poor. But PES can also increase the poverty issue either because payments are too low or because they primarily target business interests. Differentiate PES according to who buys, or to the environmental objectives, allows us to identify several situation with differentpotential beneficiaries.

Payment for environmental services, Positive externalities, Opportunity cost, government financed programs, private financed programs, carbon sequestration, water, pro-poor targeting

Economic instruments and based on market mechanisms are used in the context of pollution prevention and ecosystem conservation for decades. In most cases, they try to preventnegative environmental externalities (pollution or habitat destruction) by means of green taxes, fees or other tools based on the principle of polluter pays. But over the past decade, new approaches focus on creating positive environmental externalities through the adoption of appropriate economic incentives, often in the form of grants or other environmental programs, such as agri-environmentschemes. PES is one of those new approaches that promote positive environmental externalities through the transfer of financial resources among the beneficiaries of environmental services (ES) and their providers or managers of environmental resources.


There is not real definition to PES. It can be describe through like
A voluntary transact where
1. a voluntary transaction where2. a well-defined ES (or a land-use likely to secure that service)
3. is being ‘bought’ by a (minimum one) ES buyer
4. from a (minimum one) ES provider
5. if and only if the ES provider secures ES provision conditionality.

In other words, land managers undertake a period determined to protect their own natural environment in exchange of compensation, who receive these services mustpay (Pagiola & Platais, 2005). The nature of compensation (monetary or kind of individual or group, etc…) and conservation methods is specified in a contract. Thus, these benefits are internalized.

What is considered like PES / Different kind of PES

There are four types of environmental services that are the subject of markets for environmental services (Mayrand & Paquin, 2004),each litter at different scales, according to buyers and products made with the money collected. Currently four ES are stand out:
- Carbon sequestration and storage
- Biodiversity protection
- Watershed protection
- Landscape beauty

Criteria for PES evaluation

Like any economic instrument, the PSE must be weighed against the three traditional criteria of evaluation are 

Efficacy:the ability to meet agreed targets, additionality is a condition that must be checked

Performance: ratio between the efficiency achieved and the investment, transaction costs associated directly or indirectly to the conclusion of contracts and monitoring.

Equity: means to refer to a theory of justice, most sensitive issue because it involves judgments with regard to ethicalprinciples.

Different PES types

These conservation tools are internally a quite diverse family, three distinctions can be made

First, PES schemes differ from the vehicles used to achieve conservation or restoration effects. The most common type is area-based schemes, where contracts stipulate land- and/ or resource-use caps for a pre-agreed number of land units. The other is product-based...