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

Payment for Environmental Services: Not so Simple


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


Why PES?

• Response to earlier failed NR protection efforts

• Incentive-based• Addresses opportunity cost of conservation• Appeals to an interest in helping the poor


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)


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


www.fonafifo.com


Payments for what services?

• Carbon sequestration• Watershed protection• Biodiversity conservation• Scenic beauty• Others


2. GETTING WHAT YOU PAY FOR


How do typical markets work?


What about environmental markets?


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


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


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


3. CAN PES HELP POVERTY ALLEVIATION?


Transaction costs favor working with large landholders

• Cost is similar for 10 hectares or 10,000 hectares


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


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


• 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


Marginal lands become more valuable

• Landowners may evict squatters or renters• Powerful people may grab land with insecure

property rights


4. CONDITIONALITY & COLLECTIVE ACTION


Collective action

• PES may require group contracts• Transaction costs• Threshold effects

– Watersheds, biodiversity

• Community-managed resources


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


Motivations for collective action

• Individual rational utility maximization• Social rational utility maximization

– Reciprocation– Look after those close to us– Pure altruism

(Vatn 2007)


Social norms

• Part of a social cost-benefit calculus?• Or do they have independent motivating

power? (Cleaver 2000)


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)


EFFECTS OF MONETARY INCENTIVES ON COLLECTIVE ACTION


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)


Money may not be a good way to initiate collective action

• Indian watersheds (Kerr 2002)

• World Bank Community Driven Development


Different if money is the basis for collective action


Implications for PES

• What if money interferes with collective action?

• Can we find alternative incentive types that: – Promote collective action?– Are consistent with conditionality?


Types of payments

• Cash• Land tenure security• In-kind services & development support

– training, employment, market access, infrastructure

• Implications for conditionality?


Cash

• Straightforward and simple• Facilitates annual payments• Divisible and direct

– Good for individual-based systems– Possible problem if group contract


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


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


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


5. SOME RESEARCH FINDINGS FROM GROUP-BASED PES IN INDONESIA AND MEXICO


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?


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


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


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


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


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


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


Other group:

• Stronger history of local management• Sawmills with intensive management• Very important to village economy


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


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


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


Who gains?

• Distribution within villages is limited


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


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


How do people respond to cash incentives?


Community work experiment

• Tradition of voluntary community work


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


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


% who participated in village cleanup under different incentives, by village


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


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


% who participated in village cleanup under different incentives, by village


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

payment for environmental services: not so simple

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