Who will pay for ecosystem services?

Payments for ecosystem services have the potential to promote healthier ecosystems and fairer deals for smallholders. This is all very good, but where will the money for such schemes come from?

Sensible land use is not a utopian dream. Many small farmers and communities support their families through their local livelihoods while coexisting with forests and other natural ecosystems.

Indigenous communities and small farmers in Chiapas, Mexico, have been engaging in improved agroforestry, reforestation and forest management since 1997. In Bolivia, farmers living in mountainous, cloud forests agreed to stop cutting trees down and to restrain their cattle from entering rivers and creeks that provide water for downstream communities.

In south-western Uganda, small-scale farmers integrate tree planting with livelihood activities to improve food security and protect biodiversity, from beetles to elephants. Important efforts are underway in Bangladesh to promote better artisanal fishing strategies to ensure that fish are sustainably harvested. In Costa Rica, private landowners have been actively and successfully involved in conservation and reforestation activities since 1997.

It makes perfect sense: a healthy ecosystem is better equipped to benefit people, especially those who depend on it to support their families. The environmental benefits include cleaner water, more biodiverse habitats and climate regulation, thanks to the carbon the trees stores in their wood. So, why does this seem the exception and not the rule?

There are many reasons for this, including patchy land rights, corrupted governments and lack of local knowledge, skills and resources. But for now, I want to focus on the more straightforward issue of money.

Sustainable funding for smallholders will always be the wobbly leg on the PES negotiation table. While some exciting examples show how finance can be tapped, care needs to be in place. Deals must be fair, with meaningful incentives to farmers for changing their land practices

Incentives for farmers — what is new?

Farmers in Costa Rica receive US$60 per hectare each year for conserving land. In Bolivia, they receive beehives and apicultural training. In the Amazon, the Bolsa Floresta programme gives cash and other rewards to engage in better land practices.

Incentives for farmers are nothing new — governments around the world use subsidies to such effect. What makes ‘payments for ecosystem services’ (PES) different is the other end of the equation: the people, governments and business willing to pay because they gain from the changes farmers make to their land use practices. It is their money that makes its way back to the farmers. Strategies for small farmers to defray costs via PES, and bottlenecks to reach funding are what we will be discussing at a forthcoming meeting in Edinburgh.

Tapping into the money

In 2012, the forest carbon markets were valued at US$216 million. Funding for biodiversity and ecosystem services in 2010 is estimated to have been over US$50 billion. Even with reservations and despite volatility there are options for funding if only they can be reached.

Policies boosting private demand for ecosystem services, like carbon-neutral pledges and international agreements on climate change and biodiversity are also slowly creating funding opportunities but most of the action comes from the bottom-up. For example, successful strategies to help smallholder and community projects reach international carbon markets include:

  • Accessing creditable standards to increase trust along market chain and reduce boiler room scams. Examples include the Plan Vivo Standard, the Verified Carbon Standard (VCS) or the Climate, Community and Biodiversity Alliance (CCBA) Standard
  • Ex-ante crediting, which has been instrumental in getting projects off the ground in poorer countries for the Plan Vivo Standard, adequately backed and buffered to reduce risk of non-compliance
  • A stronger focus on the co-benefits of such programmes, to help them fetch better prices in ecosystem-friendly products, through ‘responsible’ carbon or shade coffee. This includes local narratives to demonstrate how communities benefit.

Other farmers have found local markets more within their reach and their liking. Bolivian farmers living in cloud forest by the Los Negros Watershed and downstream farmers worried about water supply for their crops developed a reciprocal agreement to protect the watershed in 2003, through the Fundación Natura. Since that initial agreement the Foundation has successfully promoted reciprocal agreements for watershed management involving upstream farmers and local municipalities and water utilities in Bolivia and Peru.

National programmes in Costa Rica or Mexico have earmarked revenues from water or fuel taxes to fund their efforts to protect watersheds, biodiversity and lock carbon away in trees to limit climate change. Public/private/donor partnerships and trust funds, like the Sustainable Biodiversity Fund in Costa Rica and the FONAG Fund in Quito Ecuador, are proving to be a popular approach as they allow these programmes  to pool resources at different times and scales.

Carefully does it…

The research and practitioner communities are increasingly working together to find practical solutions, for example understanding the trade-offs in terms of people and the environment, or working on simplified monitoring methodologies that reduce transaction costs and increase proportion of payment reaching the communities.

But sustainable funding for smallholders will always be the wobbly leg on the PES negotiation table. While some exciting examples show how finance can be tapped, care needs to be in place. Deals must be fair, with meaningful incentives to farmers for changing their land practices. Up front commitments from farmers need to be backed with longer-term funding. Reassurances on the provision of the ecosystem services along the value chain need to exist but the uncertainty farmers face and the flexibility they need to overcome this – critical for smallholders’ livelihoods – must equally be acknowledged.

And above all, local food security cannot be threatened at the expense of cheap deals for poor farmers under the banner of ecosystem services for the society.

Ina Porras is a senior researcher in IIED’s sustainable markets group (ina.porras@iied.org). This post originally appeared here.

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