Payments for ecosystem services - ESCAP · Ecosystem services are. the benefits that people obtain. from ecosystems - Millennium Ecosystem Assessment. Ecosystems as natural capital:

Payments for ecosystem services

Hitomi RankineEnvironmental Affairs Officer

UN Economic and Social Commission for Asia and the Pacific (ESCAP)

UN-Water Regional Expert Consultation on Water Security in Asia-Pacific9-10 November 2015

Ecosystem services arethe benefits that people obtainfrom ecosystems

- Millennium Ecosystem Assessment

Ecosystems as natural capital:

“Both built and natural infrastructure are needed to meet the multiple and complex goals of water resource management.”

- IUCN Water Programme

Ecosystems as providers of services - a powerful concept

Payments for ecosystem services- basic investment flow

Buyers – ES beneficiaries

Supply“providers”

- Land managers

$$$

ImprovedEcosystem

m’gmt+

EcosystemServiceBenefits

Governance structure

Water security issues and ecosystem services

• Degraded watersheds• Variable water flows• Lack of investment in “natural infrastructure”• The benefits of ecosystem services

internalized in markets

PES as a policy tool• Internalization of ecosystem service values in

the “real” economy• More equitable solutions to conflict over

watershed management• Innovative alliances can be built• Economic and environmental objectives can

be aligned• Support to multiple Sustainable Development

Goals

The potential investors and partnerships are multiplied … e.g.

Traditional management (for timber) • Private sector (plantations)• Local governments • Local communities

Management for service provision• Ecotourism operators• Local governments• Water utilities• Hydropower companies• Water users• Energy users• Beverage producers• Agro-industries• Local communities• Farmers

Examples (forest values)Location Scale Investor/ buyerUSA- NY Catskills Watershed Water utility, water users

Viet Nam National Hydropower, water utilities, ecotourism operators

Costa Rica National & local HP, water utilities, ecotourism, water users (HH), public (individuals), citizens, schools etc.

Republic of Korea Provincial/district

Downstream water users, gov’t

Indonesia – Lombok island

Municipal/district

Water users – households businesses

Indonesia – Aceh province

Provincial/district

Water utilities

Beneficiaries are involved as investors

“ Governments invest mainly in the production function of forests [but it’s not enough]. We need help from other stakeholders to invest in the other functions of forests ”- National Planning Commission official, ESCAP policymakers forum

Environment ministries are empowered

“the cross-sectoral support to the economy provided by forests is a powerful argument for increased investment in forests, which should be better used by line ministries to justify their budget requests”

- Ministry of Finance official, ESCAP policymakers forum on investment in forest environmental services, Bangkok, May

2007

Action points for investments in ecosystem services

• Use ecosystem service concepts to identify potential partnerships and investment flows

• Foster policy change:– Mandatory payments for large/intensive

ecosystem service users (hydropower, water)– Give land-users the legal right to manage non-

private lands (especially state lands)– Recognize ecosystem services in law– Others..

Regional cooperation

• Use PES approach to mitigate conflicts around transboundary water security issues – e.g. in Central Asia

• Share experiences, in particular around legislative and policy change need to scale up good regional experiences

THANK YOU

Example 1 – New YorkFederal government and water users as investors

New York Times, 22 Jan., 1997“NEW YORK BEGINS SPENDING TO SAVE CITY'S RESERVOIRS

- five-year program to cut the flow of pollution into .. reservoirs and avoid the need for a $4 billion filtration plant.”

“[water users to fund the protection of ] thousands of acres of land around the reservoirs, upgrade more than 100 aging sewage treatment plants, and support economic development projects in the Catskills”

Example 2 – Republic of KoreaDownstream water users as investors• Deteriorating water quality since 1960s• End of pipe investments (sewage treatment facilities – US$29

billion by 2005) unable to meet demand for clean water• 1998-2001: Comprehensive Water Quality Mng’t Measures -

Huan River, Nakdong River, Kum River and Youngsan River – agreement between upstream & downstream residents– riparian buffer zone - government land purchases & forest

conservation measures on private lands in upstream basin– Financing: additional water use fee (110-113 won/ton) paid

by downstream residents– Supportive regulation: Total Maximum Daily Load Mngt

System, as additional complementary measure

Example 3 - Costa Rica• 1996 Forestry Law - recognized 4 ES• Protects 10% of land area (approx. 500,000 ha)• Demanders buy CSA’s or make special contracts to secure

specific areas. Private sector payments – approx. US$7 million

• New water concession fee• Special programmes for women, indigenous communities

without formal land tenure• NGOs contracted to assist with monitoring, promotion of

the programme, assist landowners with contracts etc.• Works together with national protected areas system

(SINAC) to prioritize area coverage

Costa Rica FESP programme –private sector participation

• Private sector and water/hydropower utilities as buyers• Special contracts or purchase of tax deductable certificates of

environmental services (CES/CSA), confers right to use logo• Total payments from 2003-2007 – over US$7 million, over US$5

million from four buyers alone• Paid to landowners for SFM - private sector can specify areas for

protection• Investments/donations received online• High investor confidence and motivation – “real” demand & CSR

Example 4: Viet Nam Hydropower plants, water utilities, ecotourism operators as investors

• Context: High population densities, vulnerability to drought and floods, degrading forests, high dependence on hydropower

• Strong government leadership (support by Asia Regional Biodiversity Conservation Programme, IUCN, ESCAP, others).

• Mandatory payments from hydropower plants, water utilities, ecotourism operators

• PM’s decision 380/QD-TTg, 30 April 2008 piloted PES in two areas• Per kWh payment by HP plant, per m3 water payment for water utility

(not able to recover through users)• High volumes of funds – US$5,170,000 for 2008-2009

Example 4: Viet Nam continuedImpact• Payments of $14-15/ha per year, with average of

25.4 ha of forest land managed per household• Illegal logging incidents reduced by 50% and

poverty rates reduced by 15% • High levels of awareness

Viet Nam – cont’dParticipation:• 203,335 ha of forest contracted• High levels of participation from ethnic households• Future plans

– Increased forest area allocation– Increased payment levels– Application of IT to strengthen monitoring of improvements– Refine fund management and targeting mechanisms(source: Vice Chair of the PPC of Lam Dong Province, 21 Jun

2010)

Example 5 - Rinjani conservation, Lombok

• Context: drought, conflict between water users –agriculture, households, upland communities

• Valuation revealed willingness to pay, but agreement difficult

• WWF supported collaboration with water utility • Voluntary action by water utility and community• Mandatory payments from water users –

domestic and commercial• Intermediary institution - water users,

community, water utility

Example 6 - Aceh river watershed, Aceh province, Indonesia

• BAPEDAL-ESCAP-led project, with WWF, ICRAF RUPES, others

• Context: Aceh Governor Irwandi’s logging moratorium, rebuilding activity after the tsunami

• Special Autonomy (LOGA)- Provides high level of autonomy over land classification and NR management

• Moratorium on logging of natural forests- Reduction in deforestation- Redesign of forest management sector- Reforestation

• Post-conflict and post-tsunami reconstruction- Information access greatly improved- Reconstruction assistance can support poverty reduction

Aceh province• Policy development (including cross-sectoral

policy strengthening – spatial law, environmental management law)

• 2 pilot project areas - Aceh watershed, Peusangan watershed

• Aceh watershed – single buyer (water utility) funds to be managed by community forum

• Peusangan – joint management plan by 5 districts to form basis for action, several buyers online, but Rapid Hydrological appraisal shows that traditional PES may not be feasible

Aceh province• Shows how conditions can differ, even in one

province• Trust building needed – stepwise approach• High buy-in because water issues evident

(sedimentation and quantity issues)• Constraints – limited water service

connections in rural areas, state land ownership, governance, fear of privatisation -misunderstandings

Comparing voluntary and mandatory payments…

Mandatory – national/provincial Voluntary Example Green fee on electricity, fuel taxes, or

water concession fee – used to create a fund and make payments in targeted area – e.g. as in Costa Rica

Water company paying communities in watershed directly

Transaction costs

High, but Gov’t better able to partly absorb, will require legislative arrangements and capable and motivated institutions, good coordination

High but manageable - flexible

Fund raising potential

High – benefits from scale and potential to aggregate many users

Low – limited numbers of interested investors

Effectiveness Depends on governance arrangements Better targeting to problem areas, can be defined in more flexible ways,

Side benefits Wider societal awareness – if there is a good communication strategy

Builds social capital

Buyers perspectives

A closer look at the investors

Traditional management (for timber) • Private sector (plantations)• Local governments • Local communities

Management for env. services• Ecotourism operators• Local governments• Water utilities• Hydropower companies• Water users• Energy users• Beverage producers• Agro-industries• Local communities

Who are potential investors ?• Can be either “direct” beneficiaries, or

“indirect” beneficiaries– Direct beneficiaries – have commercial interest– Indirect beneficiaries – enjoy the service via an

intermediary – commercial interest or institution facilitating the use of the service

• Require different kinds of payment mechanisms and policy support to capture investments

ES – direct & indirect beneficiariesForest

ecosystem service

Direct beneficiaries/users Indirect beneficiaries/users

Hydrological services

• Water utilities • Hydropower producers

• Intensive water users – all economic sectors and households

• Hydropower users – all economic sectors and households

Scenic/landscape beauty

• Enterprises providing eco-tourism and nature-based tourism-related services

• Tourists

Biodiversity support

• Bioprospecting interests • International conservation

interests • Enterprises providing eco-

tourism and nature-based tourism-related services

• Drug purchasers • Individuals • Tourists

Climate regulation services

• Carbon market investors brokers/intermediaries

• Greenhouse gas emitters • Energy-intensive industries

• Carbon offset purchasers • Non-hydropower, non-

renewable energy users in all sectors

• Global community

Why pay ?• Absence of land use regulations• To be seen to be doing the “right” thing• For private benefit (satisfaction) or commercial

benefit (eco-labelling)• To mitigate risk - if there is a threat to a

commercial interest – e.g. water utility, ecotourism operations

• To avoid/mitigate conflict – e.g. where upstream forest use is threatening downstream water supply

Why pay ?• Willingness to invest often higher than expected • Philippines study of 25 gov’t & private companies

>> 84 % convinced of the business case• Valuation can help reveal demand

– Da Nhim HP plant in Viet Nam – to lose $3.75 million per year in added operating and plant costs if 45,000 ha of pine forests in the watershed converted to agricultural use

– Water users in Ho Chi Minh city willing to pay– Philippines – community support for marine park

Securing buyer confidence• Revealing the value of ES, linking with specific

ES needs and issues• Stepwise commitments - e.g. Aceh Indonesia• Bridging finance policies – can take a long time

to secure benefits - e.g. tax support• Transparency in the use of funds• Conflict resolution+ redress mechanisms

Making it easy to buy..• Water/electricity users pay through utility bill – green

fee - Lombok, Indonesia; Heredia, Costa Rica• Publicly-accessible payment points – e.g. internet,

banks, service kiosks• Creating “units” of ecosystem service so it’s easy to see

what we are paying for– ICRAF –RUPES – river care project– Costa Rica national PES scheme - certificate of protection

– one “standard”, unit of “service”– International carbon markets – carbon emission reduction

units– Hydropower plants, water utilities – relate to production

inputs – water (per m3 charge)

Some buyer perspectives• Viet Nam hydropower plant:

– Fees are too high – The economic valuation – was it

correct ?– We only get the benefits of

reduced sedimentation in several years, but we have to pay now !

– We are starting to invest in monitoring sedimentation to see if we are getting what we are paying for …..

Some buyer perspectives

• Pak Ayoub, Aceh water utility director:

– We want to pay first for controlling illegal logging

– We will increase our commitments to cover the costs of sustainable forest management if all goes well in the coming years

Government perspectives

Gov’t –“demander” and supplier

of ES

Ministry/others

Ecosystem service demanded

Industry Carbon sequestration

Energy + water Hydrological cycle regulation, aquifer recharge, water quality maintenance

Tourism Scenic/landscape beauty

To capitalize on growing ES demand, national governments will need

• explicit national policies and legislation re ES, while considering synergy between ES policy and national development plans

• ES finance strategy, based on both international and local demand for ES

• To empower local governments• Recognize local communities as ES managers (e.g.

communities living inside national parks)• Induce payments or other forms of investment from key

stakeholders, e.g. fiscal policy support for CSR

Challenges for line ministries– How to meet and finance rising demand for FES

(international and local?) –

implicit demand explicit demand

– Need to ensure that economic sectors adequately supported by secured flow of FES – planning for ES in sectoral planning

– Need environmental finance strategy engaging each sector - PES policy should be conceived within a wider environmental finance strategy, not on its own

.. for the forestry sector• Changing role as managers of multiple services, also

timber and NTFPs • More urgent need to develop a clear idea of what

constitutes sustainable use and legislate so that multiple services can be recognized (possible?)

• Promote clear understanding of which land uses and forest types secure which ES

• Plan forest investments based on services as well as goods provided by forests – to maximise investment return from forest protection and management

• Use ES concepts in communicating impact of work• Engage in strategic planning and management in the

water sector

… for ministries of finance• Designing fiscal policy to encourage action by both

demanders and suppliers of FES• Local government fiscal policy to support role as

suppliers/demanders of ES• Designing financial mechanisms to link demanders and

suppliers and increase investments• Designing policies to facilitate investments from several

stakeholders• Encouraging forest managers to take into account and

report non-use values of forests (accounting rules)

Policy support is needed• Recognition of ecosystem services in law• Giving users the legal right to manage non-private

lands (especially state lands)• Recognition of intermediary institutions as joint

managers (stakeholder groups) • Flexibility for direct beneficiaries to recover costs from

users if needed (water and energy price regulatory framework affected)

• Land use planning, ideally based on ecosystem service functions – not just traditional

• To facilitate cooperation across administrative boundaries

Bundling services Forests don’t only provide water-related services

• Multiple ES provided by one ecosystem – Example – Costa Rica’s national airline sells offsets to ticket buyers, makes

payments to CR national PES fund• To provide complementary financing – e.g. meeting high start up costs

(biodiversity investors) v.s running costs (water users)– Example – Costa Rica – bilateral donor and GEF biodiveristy fund investment

supported establishment and improvements, water concession and fuel taxes fund ongoing costs

• To better compensate where there are high opportunity costs• To reduce transaction costs• Issue with carbon – additionality difficult to prove if bundled with other

services

“An increase in forest cover is not a satisfactory indicator of return on investment – we need to know what services are increased as a result”

- Ministry of Finance official, UN ESCAP policymakers forum on investment in forest environmental services, Bangkok, May 2007