When threatening an ecosystem becomes a business

In 2007, B. Kelsey Jacka, Carolyn Kouskya and Katharine R. E. Simsa published in the Proceedings of the National Academy of Sciences of the U.S.A. a paper on the design of policies of payment for ecosystem service.

The generally accepted definition of PES was given by Sven Wunder of CIFOR:

A payment for environmental services scheme is:
1. a voluntary transaction in which
2. a well defined environmental service (ES), or a form of land use likely to secure that service,
3. is bought by at least one ES buyer
4. from a minimum of one ES provider,
5. if and only if the provider continues to supply that service (conditionality)

Jacka, Kouskya and Simsa frame the role of PES in terms of internalizing environmental externalities. The classic argument goes like this:

  • The type, quality, and quantity of services provided by an ecosystem are affected by the resource use decisions of individuals and communities
  • when the benefits of an ecosystem service flow primarily to others, such as with water purification or climate stabilization, public interests and the interests of the resource manager may be misaligned
  • This basic logic may explain much of the decline of important ecosystem services as a result of human pressures
  • Recently, ‘‘payments for ecosystem services’’ (PES) has emerged as a policy solution for realigning the private and social benefits that result from decisions related to the environment.
  • They argue that a PES policy can be evaluated against three objectives: environmental effectiveness, cost effectiveness and equity. They then go on to explore how different elements of context (environmental context, socio-economic context, political context and context dynamics) can affect the outcome of a PES scheme in relation to these objectives. Among these, the following are of particular relevance.

    The greater the heterogeneity in costs (essentially opportunity costs) for those providing ecosystem services, the greater the potential for PES to deliver.
    This is the basis for using PES to alleviate poverty as the rural poor typically have the lowest opportunity costs (they often have little capital to invest in alternative land-uses). The political legitimacy of PES was born of its potential role in alleviating rural poverty. However, targeting the rural poor involves high transaction costs (with the risk of intermediaries getting involved to their own benefit) and could result in patchy environmental outcomes. To achieve, environmental effectiveness and cost-effectiveness, PES naturally tend to favour large-scale operations with large land-holders. This is a trend that leads to big business capturing the benefits of what was initially aimed at fighting poverty while preserving ecosystems. This is an important point made by Romain Pirard, Raphaël Billé and Thomas Sembrés in their recent paper on PES.

    PES can encourage innovation to lower the costs of ES provision. With this in mind, it is better to give recipients freedom to select which methods to use to achieve the environmental goals (hence the importance of selecting appropriate proxys). Pirard and his colleagues also argue that PES should aim to stimulate innovations in management practices but not for improving cost-efficiency. Rather, they argue that PES should aim to make sustainable, ES-compatible, use of ecosystems economically viable without PES support! This is because by design, PES are dependant on external payers, who generally cannot project their involvement in the long term. Such a change in goals amounts to making PES financing tools for classic rural development initiatives. They call this “asset-building” PES, in contrast to “use-restricting” PES.

    Pirard and his colleagues suggest changing Wunder’s defintion to:

    1. a voluntary transaction in order
    2. to preserve or enhance at least one well-defined environmental service, between
    3. at least one provider,
    4. who clearly cannot be subject to the polluter pays principle
    5. and at least one buyer
    6. who offers a payment over a limited period
    7. as a means for investment in locally productive and sustainable activities.

    PES can generate ransom seeking behaviour whereby land-owners can argue for increasing opportunity costs in order to increase PES payments. This point is also raised by Pirard and his colleagues who are particularly critical of corporations who hold concessions to exploit natural resources on public lands (for example for forestry) and raise the stakes for PES. Shouldn’t sustainable management be included in the concession contract? This issue questions the compatibility of PES with the more general polluter-pay principle: The very fact of threatening an ecosystem will become a business.

    Ransom-seeking behaviour poses serious risks not only to PES through the inevitable rise in opportunity costs it will drive but also to the polluter-pay principle where it is currently applied.

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