Factors to Consider in Choosing Instruments to Promote Environmental Services

From the Workshop on Payment Schemes for Environmental Services in Beijing, China, this presentation describes the range of instruments available to promote environmental services of forests, including regulation and markets. Also, identifies advantages, disadvantages and conditions required for successful use of specific instruments.

Silver Bullet or Fools' Gold? Chapter 4: Markets for Carbon Offsets

"Silver Bullet or Fools' Gold?" is a research report reviewing the markets for forest environmental services and their impact on the poor. This chapter of 40 pages specifically looks at the market for carbon offsets. Dozens of cases from around the world are reviewed to draw out cross-cutting lessons relating to market form, drivers, processes, and impacts. Policymakers and practitioners seeking to address environmental and social problems in the forestry sector through market instruments could benefit from considering the insights offered by this review.

Environmental Service 'Payments:' Experiences, Constraints, and Potential in the Philippines

This paper reviews the form of incentives or rewards that have been provided to upland communities in a number of sites under different management leadership in the Philippines. It also discusses what the upland farmers have to do in return for these rewards. The goal of such a review is to evaluate what elements are present in these communities that will support an environmental reward system and in the process, assess the potential of the case study sites for inclusion in RUPES.

At Loggerheads? Agricultural Expansion, Poverty Reduction, and Environment in the Tropical Forests

World Bank Advises Better Forest Governance And Use of Carbon Markets to Save Tropical Forests

Available in: French, Spanish, Portuguese, Bahasa (Indonesian)

WASHINGTON, D.C., October 23, 2006 — Preserving the world's rapidly shrinking tropical forests and improving the economic prospects of millions of poor people requires an urgent strengthening of national forest governance. Globally, this calls for strong financial incentives, says a new World Bank policy research report, "At Loggerheads? Agricultural Expansion, Poverty Reduction and Environment in the Tropical Forests."

A majority of people in rural tropical areas — about 800 million — live in or around vulnerable forests or woodlands, depending on them heavily for survival. Yet deforestation at five percent a decade is steadily depleting this resource base, contributing to 20 percent of annual global CO2 emissions and seriously threatening biodiversity.

"Global carbon finance can be a powerful incentive to stop deforestation," said François Bourguignon, Chief Economist and Senior Vice President, Development Economics, the World Bank. "Compensation for avoiding deforestation could help developing countries to improve forest governance and boost rural incomes, while helping the world at large to mitigate climate change more vigorously."

In Latin America, dense tropical forest is often cleared to create pastures worth as little as $300 a hectare, while releasing large amounts of CO2. In Africa and Asia, some deforestation is equally unproductive. These forests may be worth five times more if left standing, providing carbon storage services, than if cleared and burned. If developing countries could tap this value, they could also stimulate more productive agriculture in degraded areas, while preserving the environmental services of forests.

But current carbon markets do not tap the potential benefits of forest carbon. The report reviews the obstacles impeding the use of global carbon finance to reduce deforestation, and offers workable solutions.

"Now is the time to reduce pressures on tropical forests through a comprehensive framework that integrates sustainable forest management into the global strategy for mitigating climate change and preserving biodiversity," said Katherine Sierra, Vice President, Sustainable Development, the World Bank.

Deforestation is driven largely by economic incentives to expand agriculture, with varying returns. In Madagascar, poor people clear forests for tiny, short-term gains. In Brazil, commercial farmers clear cerrado and forests for large profits. In both, the rate and profitability of deforestation are influenced by changes in agricultural prices.

"It is said that people destroy forests because they are poor, and that deforestation causes poverty-but generalizations are a poor foundation for policy," said Kenneth Chomitz, the report's lead author. "We find that deforestation is caused by both rich and poor people-and it can either destroy or create assets for poor people."

The report offers a simple framework for policy analysis by identifying three forest types-frontiers and disputed lands, lands beyond the agricultural frontier, and mosaiclands where forests and agriculture coexist. It collates geographic and economic information for each type that will help formulate poverty-reducing forest policy.

The report highlights distinct priorities for each forest type, where deforestation incentives, remoteness, forest rights, and environment interact differently:

In frontier and disputed areas, sorting out and guaranteeing forest rights is critical to mitigate deforestation, reduce conflicts, and improve rural livelihoods

In areas beyond the agricultural frontier, such as the Amazon and Congo basins, and the hearts of Borneo, New Guinea and Sulawesi, quick action to head off the social and environmental impacts of future agricultural expansion is the main challenge.

For often overlooked mosaiclands, where people and trees are most closely integrated, the report's suggestions include payments for environmental services programs. For example, a GEF-sponsored project in Colombia, Costa Rica, and Nicaragua pays farmers to maintain their forests and shift cattle from degraded pastures to agroforestry systems, which offer carbon and biodiversity benefits.

According to the report, the causes of forest poverty include remoteness, which often impedes forest dwellers from marketing forest products. Millions of forest dwellers lack forest rights, without secure tenure or access to forest resources, or live in degraded areas. Inadequate skills, technologies, or institutions can also depress forest incomes.

New technologies and institutions could help poor people to counterbalance powerful competing interests that tend to capture forest resources, and could help society harmonize environmental and regional development goals. For example, the proposed use of tradable forest protection obligations in Brazil could increase the biodiversity benefits of land use regulations while making it easier for landholders to comply.

Cameroon's reforms include transparent allocation of forest concessions and royalties, and the employment of independent observers who use remote sensing to detect illegal logging.

The report and associate material are available at:

When are payments for environmental services beneficial to the poor?

Payment for environmental services (PES) can encourage agricultural producers to reduce negative environmental impacts or produce positive outcomes. The impact of payment for environmental services (PES) on the poor varies, however, depending on the circumstances of the poor and the type of programme delivered.

This paper aims to develop a conceptual framework to analyse the conditions under which PES programmes can serve to reduce poverty. The paper models the impact of PES programmes on three categories of the poor – the urban poor, landless, and poor landowners. It considers the impact on these groups of two types of PES programs: programs where lands are diverted from agricultural production to other land uses; and those where lands remain in agriculture but production activities are modified to achieve environmental objectives.

The analysis concludes that there is a wide array of circumstances where PES can both promote environmental quality and reduce poverty. However, the impact on the poor will vary considerably depending on the local circumstances of the poor.

Selling Forest Environmental Services

This volume outlines a wide-ranging sample of cases in which ecosystem services are finding real markets and real revenue flowsí¢€ ¦ from Brazil to India, and Australia to the United States. The success stories laid out here í¢€ ¦ point to strategic directions that will carry us to a future that brings ecological, economic, and social approaches together and maintain forests in the landscape

Marco Normativo e Institucional de la Compensacion por SA en America

El articulo en las paginas 105-144 de este documento sintetiza el marco normativo e institucional actualmente vigente respecto de los diversos mecanismos de regulacion de la compensacion por servicios ambientales en varios paises de America Latina.
Su objetivo primordial es describir el marco legal de los diferentes esquemas que se encuentran en funcionamiento o que funcionaron anteriormente en la region, de modo que puedan ser utilizados como referencias para la implementacion futura de mecanismos similares en otros paises. Solo recoge y describe las experiencias, sin analizarlas.

Direct Payments for Biodiversity Conservation

The authors conclude that direct payment approaches are not "silver bullets" that can be applied immediately and easily in all situations. However, people will generally do what is in their own interest, particularly their short-term interest. If they can receive more benefits from clearing an area of habitat than they could from protecting it, they will clear it. The conservation community must reconsider its attempts to provide biodiversity through indirect means. If we want to get what we pay for, we must start tying our investments directly to our goals.

Biodiversity Benefits Toolkit

This biodiversity benefits toolkit has been developed for the New South Wales Environmental Services Scheme to assist landowners in assessing the benefits to biodiversity that are likely to result from a change in the way they use their land.

The Toolkit is a product of collaboration between key government departments and stakeholders in NSW and Victoria including DIPNR, DEC and DPI (Forests NSW). It has been designed to: 1) Score the current biodiversity value of a site 2) Estimate the magnitude and direction of change in biodiversity value resulting from land use change 3) Incorporate these current and potential values into a Biodiversity Benefits Index.

The toolkit is unique in that it has been designed to cover a wide range of alternative vegetation options, including commercial and environmental native tree plantings as well as other typical land use changes on farmland

Proceedings from the Workshop on Payment for Environmental Services: CCICED Task Force on Forests and Grasslands

On April 22nd and 23rd, 2002, the CCICED Western China Forest Grasslands Task Force co-sponsored a workshop on payment schemes for environmental services… The workshop was prepared in response to findings of case studies of the Cropland Conversion and Natural Forest Protection Programs conducted by the Task Force in 2001. These studies identified a number of design and implementation issues that merited further attention, including the targeting and level of payments, monitoring and evaluation of impact, as well as the sustainability of financing. The studies also raised the question of the relationship between these programs and the pilot "Forest Ecological Compensation Fund" under implementation by the State Forestry Administration (SFA). The purposes then of the workshop were to: (1) inform the SFA leadership and related researchers of experiences of other country governments in designing and implementing public payment schemes; (2) introduce them to optional public and private approaches to achieve conservation goals, such as carbon trading, and to generate recommendations for improving public payment schemes in China.

Payments for Environmental Services

The valuable environmental services provided by natural ecosystems are too often lost as a result of mismanagement and lack of incentives to preserve them. Helping countries find innovative solutions to such problems–which intersect with livelihood, vulnerability, and health issues–is a key element of the World Bank's Environment Strategy. The Bank's innovative work on payment for environmental services (PES) is an example of these efforts.

Nature: poor people's wealth, the importance of natural resources in poverty eradication

This publication describes the direct link between environmental degradation and rural poverty. Drawing on examples from a number of countries (including Chile, Cameroon, Ghana, El Salvador, Paraguay, East Timor, and Colombia), it details the cycle of over-exploitation of the environment, loss of cultural, political and economic self-determination, inequity, hunger and poverty. On the positive side, the report highlights cases in which community-based natural resource management has enabled people to gain access to and control over these resources, thereby realising the possibility of povery reduction.

Payments for environmental services: some nuts and bolts

This paper aims to help demystify PES for non-economists, starting with a simple and coherent definition of the term. It then provides practical 'how-to' hints for PES design. It considers the likely niche for PES in the portfolio of conservation approaches. It concludes that service users will continue to drive PES, but their willingness to pay will only rise if schemes can demonstrate clear additionality vis-í -vis carefully established baselines, if trust-building processes with service providers are sustained, and PES recipients' livelihood dynamics is better understood. PES best suits intermediate and/or projected threat scenarios, often in marginal lands with moderate conservation opportunity costs. People facing credible but medium-sized environmental degradation are more likely to become PES recipients than those living in relative harmony with Nature. The choice between PES cash and in-kind payments is highly context-dependent. Poor PES recipients are likely to gain from participation, though their access might be constrained and non-participating landless poor could lose out. PES is a highly promising conservation approach that can benefit buyers, sellers and improve the resource base, but it is unlikely to completely outstrip other conservation instruments.

Economic Aspects of Community Development in Sustainable Forest Management in Eastern and Southern Africa

This study investigates the extent to which communities have been provided with economic incentives to become involved in sustainable forest management in Eastern and Southern Africa. The study has a number of clear findings. If communities are to be willing, and economically able, to involve themselves in sustainable forest management they must receive greater economic benefits from conserving forests than from degrading them. Sustainable forest management must tangibly improve local economic welfare, and generate local economic benefits to sufficient levels and in appropriate forms to counterbalance the opportunity costs incurred by sustainable forest management.

Depend on nature: ecosystem services supporting human livelihoods

As the foundation of this document, the IUCN argues that investments in biodiversity conservation will help maintain the flow of ecosystem services and, in turn, will yield both immediate and long-term dividends to human wellbeing.

This paper argues that to deliver internationally-agreed development goals (such as the MDGs), three key challenges need to be addressed, and for each of these three challenges, IUCN proposes actions for implementation: 1) Improving governance of natural resources, 2) Increasing investment in sustainable management of those resources, and 3) Employing relevant technologies, specifically landscape-scale management

In addition, IUCN proposes some 'First Steps' that should be initiated now. Paramount among those first steps is making use of the many tools and efforts that are already in place.

No, Air, Don't Sell Yourself

This document argues that 'environmental services' (also known as ecosystem services) provide the means of taking privatisation to a new level – a means of privatising many things that have as-yet been unavailable for privatisation: air, water and all sorts of other ecological processes. This document asks: what has been undertaken so far in the name of environmental services, and what are the implications of turning such basic elements into commodities?

The concept of environmental services has become popular over the last decade and, the authors argue, has crept into our collective consciousness without setting off the alarm bells it should have done. Originally coined by economists the term now appears frequently in documents, including a legal and institutional framework, produced by governments, the World Bank and other international bodies, universities and business associations. It has also been adopted in the vocabularies of development agencies, NGOs and social organisations.

This document arguies that one of the most urgent tasks is to take the veil off the economic objective and the ideological underpinnings of environmental services.

The Value of Forest Ecosystems

This paper explains that the emerging values that reside in forests arise from the estimated rates of loss of forest area and, hence, in biological diversity. It argues that the notion of 'value' has been debated in philosophical circles for hundreds of years, and choses to focus on instrumental valueswhich derives from some objective function, i.e. the goal or purpose that is being sought. As an example, economic value relates to the goal of maximising human wellbeing.

Constructing Markets for Ecosystem Services

This paper examines the economics of development interventions in the peripheral areas of endangered ecosystems. The author argues that these interventions are flawed, and advocates paying individuals or communities directly for conservation performance.

Forest Carbon and Local Livelihoods: Assessment of Opportunities and Policy Recommendations

This report, jointly produced by CIFOR and Forest Trends, examines the potential benefits to local livelihoods from participation in forest carbon projects, as well as possible threats. Different project options such as multi-species, community-based reforestation and multiple-use agroforestry, are evaluated in terms of their capacity to meet CDM criteria for emissions offsets and sustainable development. The report distills lessons learned from experience in pilot carbon projects and social forestry on how carbon projects can enhance local benefits, and suggests conditions necessary for project success.

Communities & Climate Change: The Clean Development Mechanism and Village-Based Forest Restoration in Central India

This study explores the feasibility of a new environmental service financing initiative in India using carbon-offset credit programs that are being developed through ongoing international climate change negotiations. This report is a summary of the first phase of the study. Specifically, the report documents preliminary findings from Harda District, Madhya Pradesh in central India to demonstrate how the Clean Development Mechanism could be utilized as compensation to spread forest stewardship by increasing economic incentives for sustainable forestry.

Payments for Environmental services in German Financial Cooperation

This paper from Germany's KfW Bankengruppe looks at how to design and fund financial mechanisms that encourage landowners to manage their resources in a manner that benefits society. The paper reflects on the experiences of KfW in supporting such mechanisms in Latin America, a continent that has been particularly active in developing innovative approaches to conservation. It identifies three major challenges – the institutional requirements of setting up such mechanisms, the sustainability of impacts on the farm level, and the potential to expand environmental impacts by improving cost effectiveness.

Making forest carbon markets work for low-income producers

This "infobrief" provides key points for making forest carbon markets work for low-income producers, and recommendations for the Clean Development Mechanism. The brief outlines how forest carbon projects could potentially enhance the incomes and environment of hundreds of thousands, if not millions, of some of the world's poorest people, while providing real, climate-significant carbon offsets. However, the authors believe that this opportunity will only be realized by adopting suitable rules for the CDM, applying innovations by business and social entrepreneurs to lower transaction costs, and taking public action to reduce risks to both investors and communities.

How do CDM projects contribute to sustainable development?

This research paper aims to provide information that will help to ensure that the benefits of carbon forestry investments in the Kyoto Protocol's CDM and similar projects are more equitably shared between stakeholders at local, national, regional and international levels, and that the trade-offs between social, economic and environmental criteria can be rigorously assessed. The authors adopt a case study approach and utilize a multi-disciplinary, primarily qualitative methodology to evaluate these issues. Preliminary research in Bolivia and Brazil was used to identify a set of key questions and criteria which were then applied to projects in Mexico and Belize. The paper sets out to develop a framework for evaluating CDM forestry options, with special reference to local development perspectives and North-South issues.

Capturing the value of forest carbon for local livelihoods: opportunities under the Clean Development Mechanism

This policy brief from 2000 states that "Projects implemented as part of the Clean Development Mechanism (CDM) of the Kyoto Protocol will have the dual mandate of reducing greenhouse gas emissions and contributing to sustainable development. It is not yet clear what, if any, forestry activities will be eligible for CDM. Nor is it known what rules will guide the implementation of CDM projects. These decisions have important implications for poor people who live in and around forests in developing countries. Suitably designed CDM forestry projects can significantly benefit local communities by supplementing and diversifying income, increasing access to forest goods and services, improving land productivity, developing the local knowledge base and local institutions and increasing the energy efficiency of using forest products. In some cases there will be trade-offs between the amount of greenhouse gas reductions sought and direct benefits to local livelihoods. Without adequate safeguards, some CDM activities could have negative effects on local people, such as denying them access to resources they depend on for their livelihood. Pro-active efforts will be needed in some cases to ensure that community-based CDM forestry projects and local land uses can compete effectively in carbon trading markets with projects managed by large-scale operators. As this policy brief describes, however, CDM guidelines can be designed to not only minimize the likelihood of negative effects on local communities but to directly improve their livelihoods while achieving net greenhouse gas emissions reductions. Proposed measures include: explicitly including forest management and agroforestry in the CDM; implementing social impact assessments for all CDM projects; providing incentives for projects with multiple benefits; approving tonne-year carbon accounting; reducing transactions costs of community-based projects; and building capacity at local, national and international levels."