payment for environmental services: not so simple
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© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Payment for Environmental Services: Not so Simple
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Outline
• PES: why, what and how• Getting what you pay for• PES and poverty alleviation• Possible perverse outcomes
– Conditionality, collective action, and the type of “payment”
• Some evidence from Indonesia and Mexico
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Why PES?
• Response to earlier failed NR protection efforts
• Incentive-based• Addresses opportunity cost of conservation• Appeals to an interest in helping the poor
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
What is PES?
1. a voluntary transaction where2. a well-defined ES (or a land-use likely to
secure that service)3. is being ‘bought’ by a (minimum one) ES
buyer4. from a (minimum of one) ES provider5. if and only if the ES provider secures ES
provision (conditionality).(Wunder,
2004)
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
How PES Works
Source: Stefano Pagiola, World Bank
Benefits to land users
Costs to downstream populations
NR degradation Conservation
Conservation with payment for
service
Payment
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
www.fonafifo.com
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Payments for what services?
• Carbon sequestration• Watershed protection• Biodiversity conservation• Scenic beauty• Others
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
2. GETTING WHAT YOU PAY FOR
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
How do typical markets work?
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
What about environmental markets?
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Will we get environmental services if we offer money for them?
• Scenario:– Forest area with many owners– Lots of deforestation– Government considering PES to stop it
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
High transaction costs
• Identify, monitor, negotiate, establish contracts, enforce, pay.
• Transaction costs for CDM carbon sequestration projects ranged from $1.48 to $14.78 per tCO2 (Michaelowa and Jotzo, 2005)
• Since 2004 Chicago Climate Exchange prices have ranged From $0.10 to $7.50 per tCO2
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Moral of the story
• Even the simplest aspects are complicated• Much easier on a tiny scale where you really
know what’s going on• Not necessarily the best option
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
3. CAN PES HELP POVERTY ALLEVIATION?
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Transaction costs favor working with large landholders
• Cost is similar for 10 hectares or 10,000 hectares
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
PES may not be profitable for subsistence farmers
• Subsistence farmers need food• Easier to set aside half your land for PES if you
have 2000 hectares than if you have 2 ha
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Evidence
Costa Rica study: • Nonparticipants’ avg. farm size: 35 ha• Participants’ avg size: 85-200 ha (depending
on type of contract) (Zbinden and Lee 2005)
• 10 additional hectares 27% greater likelihood of participating
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
• May be difficult to operate under common property or where land rights aren’t clear
• Contracting party might be hesitant• May be high transaction and monitoring costs
within the grou• Costa Rica program: land ownership is
normally required for participation
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Marginal lands become more valuable
• Landowners may evict squatters or renters• Powerful people may grab land with insecure
property rights
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
4. CONDITIONALITY & COLLECTIVE ACTION
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Collective action
• PES may require group contracts• Transaction costs• Threshold effects
– Watersheds, biodiversity
• Community-managed resources
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Reducing Emissions from Deforestation and Degradation (REDD)• 22% of developing country forests are
community owned• Groups will initiate new collective action for
the prospect of earning money• They will absorb many transaction costs
internally
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Motivations for collective action
• Individual rational utility maximization• Social rational utility maximization
– Reciprocation– Look after those close to us– Pure altruism
(Vatn 2007)
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Social norms
• Part of a social cost-benefit calculus?• Or do they have independent motivating
power? (Cleaver 2000)
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
New groups vs. old groups
• Common property theory focuses mainly on old groups– Ostrom’s design principles (Ostrom 1990, 2005)
– These groups often operate on basis of norms
• But what about new groups or new collective action?– Happens slowly (Meinzen-Dick 2007)
– Must build trust (Dietz et al. 2003)
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
EFFECTS OF MONETARY INCENTIVES ON COLLECTIVE ACTION
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Norms & intrinsic motivation may not mix well with monetary incentives
• Crowing out intrinsic motivation (Deci 1971)
• Swiss nuclear facility (Olberholzer & Gee 1997)
• Israeli day care center (Gneezy & Rustici (2000)
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Money may not be a good way to initiate collective action
• Indian watersheds (Kerr 2002)
• World Bank Community Driven Development
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Different if money is the basis for collective action
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Implications for PES
• What if money interferes with collective action?
• Can we find alternative incentive types that: – Promote collective action?– Are consistent with conditionality?
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Types of payments
• Cash• Land tenure security• In-kind services & development support
– training, employment, market access, infrastructure
• Implications for conditionality?
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Cash
• Straightforward and simple• Facilitates annual payments• Divisible and direct
– Good for individual-based systems– Possible problem if group contract
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Conditional land tenure security
• Used on illegally settled land• Eviction if service not delivered• It’s indivisible – useful for • group PES systems• Does not facilitate annual • payments• Challenges to conditionality:
– May be difficult to revoke in long term even if ES not sustained
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
In-kind services/development support
• Could be a form of payment• Questions about enforcing conditionality
– Can it be revoked?– Ethical concerns– Could it bring in-migration?
• Hypothetical: bonuses and fines on a local development budget
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
How to go forward on a large scale?
• Advantages and disadvantages of both cash and noncash
• Community development in advance of cash incentive seems important– Feasible?
• Need further research with controlled tests of different payment/reward mechanisms
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
5. SOME RESEARCH FINDINGS FROM GROUP-BASED PES IN INDONESIA AND MEXICO
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Specific research questions
• Do group members understand their contractual obligations and benefits?
• What impact on land use and income?• Do group-level social capital and collective
action affect outcomes?• Who gains and who loses?• How do people respond to different incentive
types?
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
In 2000: community forestry program (HKm):
• Secure tenure through long term lease contracts with farmer groups in protected forest land
• farmer groups must:– Plant multi-story coffee agroforestry – Implement soil and water conservation measures– Protect remaining forest area
• 16 farmer groups have received 5-year HKm contracts so far in Sumberjaya
• 5,200 participants in18 groups on 11,000 ha
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Data sources
• Community survey– All 21 villages in Sumberjaya with government
forest land eligible for HKm
• Key informant interviews with government officials
• Household survey– Stratified random sample of 640 plots and
their operators
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Findings• Leaders mostly understand program, many others do
not• More investment in land• People expect land values and incomes to rise• People value being legitimate in eyes of government• Everyone gains so far
– Future: can’t say• Tenure security is the reward
– Has teeth now, but later?– Development budget?
• Group internalizes some of the transaction costs
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Puebla, Mexico
• Mexico has 2nd highest deforestation rate in Latin America
• Many forests are considered hydrologically important
• Most managed by ejidos in high-poverty areas
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Payment for Hydrologic Environmental Services (PSAH)
• Government program since 2003• Operates through ejidos• Annual cash payments to employ people to
guard forests• Puebla: PSAH operates in 70 of 700 ejidos• Ejidos in study villages have ~100-300
members
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Puebla forest ejidos in PSAH: two stylized types
• One group:– Paper mill concession, small royalty to ejidos, no
local management – Illegal logging after paper mill closure
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Other group:
• Stronger history of local management• Sawmills with intensive management• Very important to village economy
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Data• Case studies of 10 ejidos participating in
program– 2 with sawmill– 6 in old paper mill concession area– 1 in between– 1 very close to city
• Survey of ~25 people in each one• Experimental activity re: willingness to
participate in community work under different incentives
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Findings: Awareness and Benefits
• 25% of ejido members had not heard of the program
• 15% of respondents had gained employment under the program
• Additional 35% knew someone who had gained employment
• low awareness, apparently skewed benefits
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Deforestation
• Still awaiting data• Anecdotal evidence according to PSAH
officials:– Sawmill villages protect forest aggressively– More deforestation in old paper mill forests and
near the city
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Who gains?
• Distribution within villages is limited
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Overall initial findings
• Villages that cooperate for business seem to absorb PES very easily– But they would protect the forest anyway
• Villages with less tradition of collective action share the money less and appear to protect the forest less – Still need confirmation from data
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Conclusion
• Not clear how to go forward on a large scale– Advantages of both cash and noncash
• Community development in advance of cash incentive seems important
• Feasible?
• Need further research with controlled tests of different payment/reward mechanisms
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
How do people respond to cash incentives?
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Community work experiment
• Tradition of voluntary community work
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Would you be willing to work for two hours to help pick up trash in the
village?• Three different invitations:
– No pay (voluntary)– Payment of prorated daily wage– Equivalent of prorated daily wage contributed to
village
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Three villages
Village Community work frequency
% received PSAH pay for forest work
% who say it’s common to have a good
leader
1 Weekly 67 85
2 Monthly 55 22
3 Annually 14 0
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
% who participated in village cleanup under different incentives, by village
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Initial finding
• A bit more participation without pay in village with:– Better leadership– More inclusion in program– Stronger tradition of communal work
• Participation for pay: opposite
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Similar experiment in Tanzania
• Would you be willing to work for two hours to help plant trees in the schoolyard?– No pay (voluntary)– Payment of prorated daily wage– Equivalent of prorated daily wage contributed to
village
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
% who participated in village cleanup under different incentives, by village
© 2010 Michigan State University. This work by John Kerr is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.Original at http://latinamericalearning.org
Implication
• Not clear that giving groups money can achieve forest protection where there wasn’t already
• Or perhaps forest protection with PES benefits captured by elite
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