Payments for ecosystem services (PES), also called payments for environmental services, are rewards given to farmers or landowners for managing their land in ways that help protect the environment. These programs are described as "a clear way to pay people who choose to help protect the environment by taking care of their land, but only if they meet certain conditions." They encourage the protection of natural resources through market-based actions.
Concept overview
Ecosystem services do not have a single, clear definition but can be described as "the benefits of nature to homes, communities, and economies" or "the good things nature does." In 2005, the Millennium Ecosystem Assessment, a United Nations-sponsored report, identified and studied 24 specific ecosystem services. These services were grouped into broad categories, including food production (such as crops, livestock, fish, and wild foods), fiber (like timber, cotton, hemp, and silk), genetic resources (such as medicines and chemicals from nature), fresh water, air quality, climate regulation, water management, erosion control, water purification, disease prevention, pest control, pollination, natural disaster reduction, and cultural services (including spiritual, recreational, and aesthetic values). Among these 24 services, three are currently the most valued and studied globally: climate change mitigation, watershed protection, and biodiversity conservation. Demand for these services is expected to increase over time. A key study published in 1997 in the journal Nature estimated the annual value of global ecological benefits at $33 trillion, nearly twice the total global economic output at that time. In 2014, the same researcher, Robert Costanza, and a team of experts updated this estimate using more recent data, raising the total value of ecosystem services to $125–145 trillion per year. The same study also calculated that ecosystem services lose between $4.3 and $20.2 trillion annually due to changes in land use.
Payments for Ecosystem Services (PES) have been promoted as a way to support rural development. In 2007, the World Bank released a report explaining PES’s role in development. However, the connection between the environment and development was recognized earlier, such as at the 1972 Stockholm Conference on the Human Environment and the 1992 Rio Conference on Environment and Development. It is important to note that PES programs are usually not designed to directly reduce poverty, even though they may include development strategies.
Some PES programs involve agreements between people who benefit from ecosystem services and those who provide them. Most PES programs are funded by governments and use intermediaries, such as non-profit organizations. The person providing the environmental service typically owns the natural resource that benefits the other party in exchange for payment. In private agreements, the people who benefit from the service may pay less than the value they gain, while the providers may accept a payment higher than their costs. Assigning a monetary value to soil is increasingly seen as important for planning and making decisions about land use.
Payments for Agrobiodiversity Conservation Services (PACS)
A related idea aims to use Payments for Ecosystem Services to help smallholder farmers protect agrobiodiversity.
Theoretical perspectives
There are three main views about Payment for Ecosystem Services (PES). The first is from environmental economics, the second from ecological economics, and the third from those who believe ecosystem services should not be valued in economic terms.
Environmental economics sees nature as something that can be replaced by man-made resources. It defines PES as a voluntary agreement between someone who pays for an ecosystem service and someone who provides it, based on the condition that the service is delivered or land is used in a way that protects it. This idea is linked to the Coase theorem, which suggests that when people can negotiate directly without extra costs and have clear ownership rights, they can reach fair agreements. For example, a group might pay for conservation efforts instead of using a resource. However, in practice, costs often make agreements difficult. Future payments may not be reliable, and long-term funding is often needed from governments. Environmental economics experts note that PES can act like a subsidy, which makes it harder to fully apply the Coase theorem.
Ecological economics views nature as something that works with, not instead of, man-made resources. From this perspective, PES has three key parts. First, it considers how much weight an economic incentive has compared to other reasons, like social or moral values. Second, it looks at how directly buyers and sellers interact. The most direct form happens when one person pays another directly, while less direct forms involve groups like governments or NGOs. Third, it examines how easily an ecosystem service can be measured, such as how much carbon is stored in forests.
Some people argue that nature should be protected for its own value, not for what it can provide for humans. They believe nature’s worth cannot be measured because it is infinite. They also say that trying to sell ecosystem services in the market only helps conservation when it benefits humans, not when it conflicts with human interests. Others agree that measuring nature’s value is difficult but believe it is still useful in a society that relies heavily on buying and selling things.
Treating natural resources as products to be bought and sold can lead to undervaluing ecosystems because it ignores the many services they provide. PES may become less helpful in two situations: 1) when wealth becomes very uneven, making it more valuable to take resources in the short term even if it harms the environment, and 2) when the long-term costs of replacing ecosystem services are passed to the public. This can happen by raising costs for existing systems or by privatizing services for profit. For example, a large company might benefit from both destroying an ecosystem and creating artificial services to replace it.
Organizations and motives for incentivizing production of ecosystem services
The goal of all PES programs is to obtain some type of ecosystem service. However, the reasons why organizations or governments support these programs vary. For example, the United States' Conservation Reserve Program is the world's largest and longest-running PES program. It pays about $1.8 billion each year through 766,000 contracts with farmers and landowners. These contracts allow the government to "rent" 34,700,000 acres (140,000 km²) of land that is considered environmentally sensitive. Farmers participating in the program agree to plant long-term, resource-conserving covers to improve water quality, control soil erosion, and create better habitats for waterfowl and wildlife. This program has existed in some form since after the American Dust Bowl, when the federal government began paying farmers not to farm on poor-quality, erodible land.
In 1999, China's central government launched a large project under its $43 billion Grain for Green program. This initiative gives farmers grain in exchange for not clearing forested slopes for farming. This helps reduce erosion and prevents large amounts of soil and dirt from washing into streams and rivers. Some sources estimate the total cost of the program to be $95 billion. Similar, though smaller, nationally funded PES programs exist in other countries, including Canada, the European Union, Japan, and Switzerland. These programs share similarities with the American and Chinese land set-aside initiatives.
Examples
In Jamestown, Rhode Island, United States, farmers typically harvest hay from their fields twice each year. However, this practice harms the homes of many local grassland birds. Economists from the University of Rhode Island and EcoAssets Markets Inc. collected money from Jamestown residents who wanted to help the birds. Each person contributed between $5 and $200, raising a total of $9,800. This money was used to pay three farms in Jamestown to reduce their yearly hay harvests and source hay from other places. This change allows the birds enough time to nest and leave the area without being disturbed by harvesting. Farmers benefit because they now harvest their fields only once a year, and contributors benefit because they value the birds’ survival more than the money they gave.
Salt Lake City, Utah, United States has managed most of its watershed since the 1850s using rules that involve different areas or groups. These rules include setting limits on how land can be used, buying land, or creating agreements to protect it. This strategy helps protect natural services, such as clean water and healthy ecosystems, while still allowing activities like skiing, hiking, and fishing. Existing land uses are usually unchanged, and businesses are limited to activities that have little impact on the environment.
Costa Rica’s PES program, called Pagos por servicios ambientales (PSA), began in 1997 and was the first of its kind on a national scale. It was created after a 1996 law that prioritized protecting the environment over activities like logging. This law also established a fund to support forest conservation, called FONAFIFO. The PSA program followed earlier efforts to protect the environment, such as the Forest Credit Certificate in 1986 and the Forest Protection Certificate in 1995. A main goal of the PSA was to change how conservation support was given, by offering payments for environmental services. The program recognized four types of services: reducing greenhouse gas emissions, managing water resources, protecting biodiversity, and preserving scenic beauty. From 2001 to 2006, the program was funded by a loan and grant from the World Bank and the Global Environment Facility. From 2007 to 2014, the World Bank continued supporting the program through a new project. This support also helped create FONAFIFO’s Sustainable Biodiversity Fund, which focuses on helping small landowners, Indigenous communities, and communities with limited development.
The PSA program was initially funded in part by a tax on fuel, which was used to support ecologically important areas. In 2006, a water fee was added to provide more money for the program. This fee applies to fewer areas than the fuel tax. People who have rights to use water pay fees, part of which is used for the PSA program only within the watershed where the money was collected. This method has been criticized for focusing funding on areas that are not the most ecologically important.
FONAFIFO acts as a middle organization between people who pay for environmental services and those who provide them. By 2004, FONAFIFO had agreements with 11 companies in agriculture, energy, water supply, and tourism to pay for water services they