Ecosystems can be described as the combined interactions of biological components of the environment and physicals or non-living components. Examples of ecosystems include forests, coral reefs, deserts, marine, and tundra, among others. Ecosystems around the world have provided humans with goods and services since life was formed. We all depend on natural resources to meet our basic needs, such as food, water, climate regulation, and disease control. Nature also provides aesthetic benefits and spiritual fulfillment to millions around the world. According to the Millennium Ecosystem Assessment report, the benefits or services we obtain from the ecosystem can be classified into provision services, regulating services, cultural services, and supporting services. Provisioning services include freshwater, food, fiber, genetic resources, and medicine. Regulating services include air quality regulation, water regulation, pest control, climate regulation, among others. Cultural services include aesthetic value, recreation, and ecotourism, as well as spiritual and religious values. Supporting services consist of soil formation, photosynthesis, and nutrient cycling.
The Decline Of Ecosystems
In the recent past, ecosystems have been changing so rapidly. The growing human population, coupled with increased consumption per capita, is putting a significant amount of pressure on most ecosystems in different parts around the world. Habitat destruction for resettlement and agriculture, overexploitation of natural resources, and hunting are among some of the human activities that are currently threatening our environment. The degradation of ecosystems is, in some instances, so severe that ecosystems are now unable to provide adequate resources to human populations. Historically, Environmental funds have played an essential role in enabling biodiversity conservation across the world. Payment for ecosystem services scheme pushes for the attainment of similar objectives while rewarding local communities and individuals for their efforts. They incentivize land users to manage the properties through agreed practices that conserve the natural environment, thus maintaining the flow of ecosystem services.
Definition Of Payment For Ecosystem Services
Payment for ecosystem services (PES) is a suite of economic tools developed to reward entities and individuals for the conservation of ecosystem services. PES arrangements have, in recent years, been on the rise due to increased interest from the public agencies, businesses, and non-profit organizations in addressing particular environmental issues. Such programs provide the income needed for conservation, restoration, land management, and suitable activities that improve ecosystem services. According to Sven Wunder, payment for environmental services scheme is a voluntary transaction in which at least one ES buyer buys a well-defined ecological service (ES), or form of land use likely to deliver that service from at least one ES provider. PES programs can be both monetary and non-monetary transactions. The main characteristic of such deals is the focus on preserving the flow of a particular service such as carbon sequestration, clean water, or biodiversity habitat in exchange for some with economic value. In all instances, the payment has to be the cause of the occurrence of a particular benefit.
Payment for ecosystem services (PES) schemes is increasingly becoming a method of choice in environment improvement worldwide. In 2007, the World Bank highlighted payment for ecosystem services as a tool that could be used in rural development under poverty alleviation programs. While PES schemes are not aimed at poverty alleviation, they do offer an economic model that fosters development. PES schemes involve contractual arrangements between suppliers of the services and the customers. The beneficiaries of ecosystem services are usually willing to pay a price that is significantly lower than the value gained from ecosystem services. Suppliers, on the other hand, are only willing to accept payment that is higher than the cost of providing the services. The majority of PES programs are funded by governments and non-governmental organizations. There are currently five types of PES schemes. They include public payment schemes for private landowners, formal markets with open trading, Self-organized private deals, tax incentives, and certification programs.
Public Payment Schemes For Private Landowners
Public payment schemes for private landowners are country-specific. Such arrangements involve mainly a public institution or government agency providing payments to rural landowners to manage their land in ways that will generate ecosystem services. Payments in such a scheme can either be standardized or negotiated individually. For example, in 2008, the Conservation Reserve Program in the US paid $1.7 billion to farmers for them to protect endangered wildlife habitats, wetlands, and open spaces. Other countries that have implemented the program include China, which has a multi-billion-dollar scheme to control erosion. In South Africa and Mexico, payments are channeled to stewards of watershed services.
Formal Markets With Open Trading
Formal markets with open trading are classified into two, and they include regulatory ecosystem service markets (RESMs) and voluntary markets. RESMs are established mainly through legislation that creates demand for a specific ecosystem service through the setting of a "cap" in the investment and damage to an ecosystem service. The beneficiaries of the service and the people responsible for the decline of the service then respond by either directly complying or trading with other parties who can meet the set standards and regulations at a lower cost. Sellers are companies or entities that breach regulatory requirements or those allowed by legislation to assume the role of sellers. Buyers are primarily private-sector companies and other entities that are defined in the legislation. The European Union Emissions Trading Scheme is an example of a regulatory ecosystem market. It applies to large emitters of carbon dioxide and other greenhouse gases in the European Union that go beyond specified emission levels. China currently has the largest environmental subsidies program in the developing world. The Sloping Land Conversion Program is a scheme that encourages Chinese farmers to replant trees on erosion-prone land in exchange for grain and cash subsidies.
Voluntary markets, on the other hand, serve primarily organizations and companies that want to reduce their carbon emissions due to shareholder or stakeholder pressure. Other motivations might include the need to enhance their brands and anticipation of regulation.
Self-organized Private Deals
Self-organized private deals are typically reached by individual beneficiaries of ecosystem services and the providers of the services. The programs are mainly voluntary. Buyers of ecosystem services can include conservationists or private companies that pay landowners to improve or alter their land management practices to improve the quality of services flowing to the buyer. The motivations behind such arrangements can be diverse due to the varying needs of each buyer. For example, in France, Perrier Vittel's bottled water (currently owned by Nestle) was found to contain benzene in 1990. The company, therefore, decided to invest in the conservation of farmlands in areas surrounding its aquifers as it was significantly cheaper compared to building a filtration plant. The company purchased sensitive habitat and entered into long-term conservation contracts with farmers for them to adopt environmentally-friendly farming practices.
Tax incentives are considered indirect compensation by governments to landowners for protecting ecosystem services. Individuals are awarded tax breaks for committing resources to steward ecosystem services. In the United States, tax incentives are used to encourage landowners to place their land under conservation easements.
Certification programs are designed to reward manufacturers and other producers who channel resources to the preservation of ecosystem services. Such schemes have been developed for companies producing products such as coffee, paper, wood, and food. Customers who then purchase certified products not only pay for the product but also environmentally friendly ways in which they are produced. Since the production and transportation of certified products, is often costly, price premiums for certified goods can be considerable. Customers who choose to purchase such products, in essence, decide to pay for the conservation of ecosystem services. For example, the Forest Stewardship Council, an international non-governmental organization, has established a labeling system that considers forest management practices and specific timber extraction guidelines. The Rainforest Alliance and Sustainable Agriculture Network issue certification for coffee, oranges, bananas, and other products are grown in high-biodiversity-value areas. The organization has, in the past, had sales of up to US$5 billion in the United States.
Quality control of ecosystem services provided by sellers in PES transactions often requires sufficient monitoring and verification. It is, therefore, important that sellers are seen to maintain ecosystem structures and functions that are accountable. Such a mechanism ensures that the buyer receives adequate satisfaction for the service that they procure. Transactions are not considered payments for ecosystem services where there are no specific requirements that need to be met or actions that need to be carried out by the recipient of the funds. For example, if a community allows a conservation organization to manage a property that is historically commonly owned for wildlife preservation and revenue sharing that would not necessarily translate to payment for ecosystem service. The reason is, in that particular scenario, the community is not taking specific action to conserve specific ecosystem services. It would, however, be a payment for an ecosystem service transaction if there was a well-stipulated agreement between the parties that requires the community to limit activity in the ecosystem in a way that preserves the quality of a particular ecosystem service in exchange for compensation.
About the Author
Benjamin Elisha Sawe holds a Bachelor of Arts in Economics and Statistics and an MBA in Strategic Management. He is a frequent World Atlas contributor.
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