Payments for Ecosystem Services

Robert Spencer, Business Line Director – SustainabilityURS Infrastructure & Environment UK Limited

Oxford Green Breakfast | 6th November 2013

Outline

Background to Ecosystem ServicesIntroduction to PESExisting PES Schemes and Case StudiesFive step PES process

Background to Ecosystem Services

Ecosystem services

“The benefits that people obtain from ecosystems”

Millennium Ecosystem Assessment, 2005

Ecosystem services include:Provisioning services – provision of food, water, timber, and fibreRegulating services – regulation of climate, water quality, and flood riskCultural services – opportunities for recreation, tourism, and cultural development Supporting services – nutrient cycling, soil formation, and biodiversity

Provision of FreshwaterProvision of Freshwater

Regulation of PollinationRegulation of Pollination

Recreation OpportunitiesRecreation Opportunities

Biodiversity ServicesBiodiversity Services

What is the ecosystem approach?

Ecosystems are made up of key processes and structures such as trees

which give rise to supporting services such as photosynthesis and soil

formation)

These underpin the services that provide benefits to people such as timber

and lower flood risk

The values people place on services reflect the benefits they receive

The ecosystem approach requires that these benefits are included in

decision making so that policy better reflects people’s values

Ecosystem or land cover type

Biophysical structure or process

Supporting services  

Final services Benefits Values

Woodland Trees Water storage Flow regulation Lower flood risk Reduced damage

Traditional scenario

Cut down trees – gain value from giving over land to development and some timber production

Preserve woodland –less value to landowner

Timber

Value for development

Ecosystem services scenario

Preserving the woodland provides habitat for wildlife, carbon sequestration, recreation, noise attenuation, local climate control etc.

Timber

Habitat for wildlife

Recreation

Carbon sequestration

Air quality regulation

Noise attenuation

What’s the problem?

In 2005, the Millennium Ecosystem Assessment concluded that the majority of global ecosystem services have been degraded

In 2010, The Economics of Ecosystems and Biodiversity report concluded that many ecosystems have been degraded to such an extent that they are nearing critical thresholds

In 2011, the UK National Ecosystem Assessment concluded that around 30% of services are currently declining and many others are in a reduced or degraded state

Ecosystem services: a growing agenda

Rio +20 ‘Green Economy’

ICMM ‘Good practice guidance for mining and biodiversity’

The Economics of Ecosystems and Biodiversity (TEEB)

Intergovernmental Platform on Biodiversity and Ecosystem Systems (IPBES)

Nagoya ‘Aichi Biodiversity Targets’

International Finance Corporation requires client projects to “maintain the benefits from ecosystem services”

EU target to halt the loss of biodiversity and the degradation of ecosystem services in the EU by 2020 and restore them in so far as feasible

UN Decade on Biodiversity

US, Brazil, and Australian legislation mandate biodiversity offsets

Ecosystem services: closer to homeNatural Environment White Paper (2011) “We must go beyond that, working together to safeguard ecosystem services and restore degraded ecosystems through more cost-effective and integrated approaches”

National Planning Policy Framework (2012) “The planning system should contribute to and enhance the natural and local environment by recognising the wider benefits of ecosystem services”

A Living Wales (2010)“Ensure that Wales has increasingly resilient and diverse ecosystems that deliver economic, environmental and social benefits”

Defra Ecosystems Approach Action Plan (2010) “Ensure that the value of ecosystem services is fully reflected in policy and decision making in Defra and across Government at all levels”

Revised European EIA Directive (2012)“A description of the aspects of the environment likely to be significantly affected by the proposed project, including, in particular… biodiversity and the ecosystem services it provides…”

Applying an Ecosystem Approach in Scotland: A Framework for Action (2010)“An ecosystem approach implies…a change in the way that human activities affect ecosystems by integrating ecosystem values into the drivers of these activities”

Drivers for engagement

Financial risks Environmental risks and assets increasingly affecting share price and ability to secure funding

Regulatory risks Penalties from new policies such as pollution taxes and moratoria on natural resource extraction

Reputational risks Exposure from media and NGO campaigns, shareholder resolutions and changing customer preferences

Operational risks Increased scarcity and cost of raw materials, disruptions to business caused by natural hazards

Competitive advantages Growing markets for certified sustainable products, efficiency improvements, increased supply chain resilience

“Declines in biodiversity and ecosystems could have a $10bn to $50bn impact on business”

UNEP 2010

Ecosystem approach for business

Ecosystem services playing an increasingly important role in the private sector

“The world's biggest corporations responsible for $2.15 trillion in environmental costs in 2008…institutional

investors with a $100m holding in a typical diversified equity fund could ‘own’ $5.6m in external costs”

UNEP

Corporate level e.g. Puma’s Natural Environment Accounting

Operations level e.g. impact and risk assessments to meet growing lenders standards

Introduction to PES

Ecosystem markets

“Understanding the links between biodiversity and a wider range of ecosystem services is rapidly improving…and we are increasingly able to place values on such services… The urgent and logical next step is to develop markets that enable these values to be realised for services such as water quality, flood risk management, climate regulation and other benefits”

Making Space for Nature: A review of England’s Wildlife Sites and Ecological Network (the ‘Lawton Review’)

‘Environmental policy toolkit’

RegulationProvision of services by Government (e.g. publicly owned green infrastructure)Voluntary efforts by business, communities and individualsIncentive or market-based mechanisms

Charges (e.g. taxes and user fees)Tradable permits (e.g. emissions trading)Certification schemes (e.g. eco-labels)Payments for Ecosystem Services (PES)

Jack, B.K., Kouskya, C. and Simsa, K.R.E. (2008). Designing payments for ecosystem services: Lessons from previous experience with incentive-based mechanisms. PNAS 105(28): 9465-9470.

What does PES look like?

Graphic © Forest Trends

‘beneficiary pays principle’

Land or resource managers

Service

beneficiaries

Services

Payments

Definition

A PES is:a voluntary transaction wherea well-defined ES (or a land-use likely to secure that service)is being ‘bought’ by an (minimum one) ES buyerfrom a (minimum one) ES providerif and only if the ES provider secures ES provision (conditionality)

Wunder S. (2005). Payments for environmental services: Some nuts and bolts. CIFOR Occasional Paper No. 42, Centre for International Forestry

Research, Bogor, Indonesia

Key PES principle – ‘additionality’

“Payments should typically be for actions that are additional to what is usually expected of landholders – they should not be compensated for obeying the law, but rather for actions that society considers beyond the landholder’s responsibility”

RSPB (2010). Financing nature in an age of austerity

How PES works

Scale of PES

PES can be developed at a variety of spatial scales, e.g.

International, e.g. REDD+, Green Development Mechanism, Ecuador Yasuni ITT Trust FundNational, e.g. Agri-environment schemes (tend to be public-financed)Catchment, e.g. downstream water users paying for watershed management on upstream land (tend to be private-financed)Local, e.g. residents collectively funding an NGO to manage local green space for biodiversity

Existing PES Schemes and Case Studies

Existing PES schemes

“PES programmes are now being increasingly applied across developed and developing countries. There are today more than 300 PES programmes implemented worldwide, most of which have been set up to promote biodiversity, watershed services, carbon and landscape beauty” (OECD, 2010)

PES schemes: examples

Pago de Servicios Ambientales, Costa RicaPago por Servicios Ambientales Hidrológicos, MexicoConservation Reserve Program (CRP), USEnvironmental Stewardship, UKCatskills Long-Term Watershed Protection Program, USVittel Payments for Ecosystem Services, FranceLake Naivasha Watershed Management Project, KenyaBEF’s Water Restoration Certificates, USYasuni ITT Trust Fund, Ecuador Tasmanian Forest Conservation Fund

www.dse.vic.gov.auhttp://mptf.undp.org/yasuni

Upstream ThinkingBuyer = South West Water (private water company)Sellers = Farmers in target catchmentsIntermediate = Westcountry Rivers Trust (charity)ES = water quality (plus water quantity, biodiversity)

Encourages and/or incentivises farmers to implement land management actions to improve raw water quality, with many management measures locked into 10 or 25 year covenants

South West Water and the Westcountry Rivers Trust worked together to develop an action plan for three target catchments

PES actors

Buyers (individuals, communities, businesses or governments acting on their behalf)Sellers (land or resource managers whose actions can potentially secure production of the beneficial service)Intermediaries (‘honest brokers’ who can assist with scheme design and implementation)Knowledge providers (e.g. resource management experts, land use planners, economists, regulators and legal advisors who can facilitate scheme development)

‘Packaging’ ecosystem services

Adapted from Lau, Winnie W.Y. (2012). Beyond carbon: Conceptualizing payments for ecosystem services in blue forests on carbon and other marine and coastal ecosystem

services. Ocean and Coastal Management (April 2012).

PES: A Best Practice Guide

5 Step PES Process

Five phase approach to PES

Are there specific land management actions that have the potential to increase the supply of a particular

service (or services)?

• A clear relationship exists between land or resource management intervention (cause) and ecosystem service provision (effect)

• Changes in the level of service provision can either be directly measured or assumed to have taken place based on the interventions made

• At present the cause and effect pathway is well understood for some interventions and ecosystem services, while for others there is more uncertainty

1. Identify a saleable ecosystem service and prospective buyers and sellers

1. Identify a saleable ecosystem service and prospective buyers and sellers

Is there a clear demand for the service in question and is its provision financially valuable to one or more

potential buyers?Beneficiary Analysis• Who are the potential beneficiaries that

could be turned into buyers? • How many of them are there and how are

they connected? • Do they have sufficient capital to support

land or resource management changes? • To what extent are they engaged in the

issues?• How reliant are they on the ecosystem

service? Private EstatesWater UtilitiesNational Trust

Bottled water Companies

Recreational fisheries

Wildlife Trusts

Local Authorities

Com

mun

ity G

roup

s

Hydro-power

Marine Conservation Society

Insurers

RSPB

Environment Agency

Developers

Woodland

Trust

Tourists

Local

Businesses

BUYERS

1. Identify a saleable ecosystem service and prospective buyers and sellers

1. Identify a saleable ecosystem service and prospective buyers and sellers

Beneficiary analysis

• Is it possible to discern which land or resource managers are providing the ecosystem service you are interested in?

• How complex is the pattern of land or resource ownership and could consensus be established between managers?

• What scale might the PES scheme need to operate over in order to effectively secure the service(s) in question?

Is it clear whose actions have the capacity to increase supply of the service in question?

1. Identify a saleable ecosystem service and prospective buyers and sellers

1. Identify a saleable ecosystem service and prospective buyers and sellers

Establish the business case

Consider how the scheme will be financed

• Short-term design and capacity building costs

• Longer term implementation costs • Transaction costs involved in

delivering the PES scheme• Do payments need to be

‘frontloaded’?

Assess the prospects for trade

1. Identify a saleable ecosystem service and prospective buyers and sellers

Establish PES scheme principles

2. Establish PES scheme principles 

and resolve technical issues

2. Establish PES scheme principles 

and resolve technical issues

Ecosystem service(s): Eg water quality, climate regulation, habitat for wildlife, landscape aesthetics

Buyer(s): Eg Private company, government agency, environmental NGO

Seller(s): Eg farmers, private woodland owners

Intermediary (where applicable): Eg environmental NGO, government agency

Key knowledge providers: Eg regulator, research centres

Geographical scale: Eg catchment, sub-catchment

Contractual period: Eg ten years

Agreed interventions: Eg buffer strips, hedgerows, tree planting, waste storage

Measures to minimise trade-offs: Eg monitoring framework

Any ‘packaging’ of ecosystem services: Eg bundling, layering

Type of payment approach: Eg input- or output-based payments, uniform or differentiated payments

• The geographical area covered• The baseline• Land ownership and property rights • Opportunities assessment • Risk assessment• Identifying the right interventions • Spatial targeting• Building trust

Resolve technical Issues

2. Establish PES scheme principles 

and resolve technical issues

2. Establish PES scheme principles 

and resolve technical issues

Identifying the right interventions

Negotiate payments and implement agreements

• Negotiate payments: – Basis for payments– Nature of payments– Level of payments– Timing of payments

• Draw up agreement • Implement agreement

3. Negotiate and implement agreements

3. Negotiate and implement agreements

Ecosystem service

Measurable parameter Direct measurement

Modelling Indicator (‘proxy’)

Water quality Nitrate levels in water supplyBuffer strips to slow run-off and intercept sedimentEcological status of water bodies (eg abundance of indicator species)

Flood risk regulation

Riparian trees plantingSynchronisation of water flowsFlow ratesFloodplain water storage capacitySoil water storage capacity

Climate regulation

Fluxes in atmospheric gases (CO2, CH4, etc)Tree plantingThe Woodland Carbon Code carbon lookup tablesTree measurement

Habitat for wildlife

Wetland creationSpecies richness and diversity

Tourism and recreation

Visitor numbersSpending on nature-related tourism

4. Monitor, evaluate and review 

implementation

4. Monitor, evaluate and review 

implementation

5. Consider opportunities for 

multiple‐benefit PES

5. Consider opportunities for 

multiple‐benefit PES

Adapted from Lau, Winnie W.Y. (2012). Beyond carbon: Conceptualizing payments for ecosystem services in blue forests on carbon and other marine and coastal ecosystem

services. Ocean and Coastal Management (April 2012).

Opportunities for PES

where there is a deficit in the supply of an ESwhere the supply of an ES is under threatwhere there is opportunity to increase supply of an ESwhere the science of ES provision improves and ‘cause-and-effect’ becomes clearwhere a beneficiary has a clear dependency on an ESwhere the costs of an alternative means of securing the supply of an ES exceed the costs associated with PESwhere a change in government policy or regulation increases the demand for an ESwhere new means emerge to aggregate buyers and/or sellers of ES

Opportunities for PES

Further opportunities for PES to emerge:Catchment Based ApproachNature Improvement AreasLocal Nature PartnershipsSpatial planning for ecosystem services

http://ecosystemservicesplanning.co.uk/