4 AUGMENTING NATURE’S INCOME STREAM: PAYMENT FOR ENVIRONMENTAL SERVICES

When the poor engage in good ecosystem stewardship, they create the conditions for higher productivity and greater direct environmental income for themselves. But they also safeguard ecosystem services whose benefits extend beyond their immediate surroundings. By maintaining a healthy forest cover, for example, they are helping to preserve watershed services like flood control, continuous water supply, and erosion control that landowners downstream will benefit from. In the past, these services have been considered “public goods” and available for free, but in recent years it has become clear that many of these ecosystem services have a quantifiable economic value. If people downstream are being regularly flooded, the ability of the intact forest to moderate stream flows and lessen the flood risk will be worth something to them, and they may be willing to pay the upstream forest owners to preserve and protect this service—or even to restore it.

In the last decade or so, markets based on this kind of interchange— called payment for environmental services (PES)—have begun to develop worldwide. (See Table 4.2.) The most common environmental services marketed so far have been associated with forests and fall into four categories: watershed services like those described above, carbon storage, biodiversity conservation, and preservation of landscape beauty. Since the poor are the stewards of many rural ecosystems, it makes sense that they should be able to tap these payments for environmental services (PES) as an additional source of environmental income—another element of their “nature portfolio.” In a few cases, they have been successful in doing so. But for the most part, the markets for environmental services, which are still in their infancy, do not yet serve the poor well.

Deals involving PES range in scale from local to international and are undertaken by a range of actors, including private companies, NGOs, communities, and state governments. Private businesses that depend on natural resources are sometimes willing to pay for protection of ecosystems, usually following signs that a resource is threatened or already in decline. In one promising example in Colombia’s Cauca Valley, downstream sugarcane growers hurt by flooding paid upland communities— predominantly poor—to change their land management practices to protect the watershed. This evened out the water supply on the valley sugarcane farms and reduced crop damages, while bringing public benefits—clean water supply, sanitation, and other economic development projects—to the upland communities. (See Box 4.4.)

Payments for preserving biodiversity and landscape beauty often come from conservation NGOs or local businesses involved in ecotourism. For example, Rainforest Expeditions, a private company in southeastern Peru, signed a 20-year agreement with the local Infierno community, splitting profits and management of the business in return for preservation and access to the forest and wildlife on the community’s lands (Landell-Mills and Porras 2002:166).

Governments often act as originators or participants in PES schemes. In 1996 the Costa Rican government became a leader in PES when it established the first national program to dispense payments to farmers willing to maintain or restore forest ecosystems and their services. The program pays landowners to reforest their lands or conserve forest lands they already own, rather than convert them to pasture. By 2004, more than 450,000 hectares were included in the program, and the government had dispensed over US$100 million to farmers (Rodriguez 2004:13). The government has used a number of strategies to finance payments, including a national fuel tax, international sales of carbon credits, payments from private utilities and industry, and funding from the World Bank and GEF (Rosa et al. 2003:16).

In Brazil, the government took a different approach in the state of Acre, where it had set aside large extractive reserves for indigenous rubber tappers. To preserve the economic viability of the extractive reserves, it directly subsidized the rubber tapping industry, with the subsidy amounting to an indirect PES program to maintain the natural forest cover of the reserves. In Colombia, the government is experimenting with a regulatory approach, requiring hydroelectric utility companies to transfer a percentage of their earnings to support good land management in upstream communities, thus reducing reservoir siltation and preserving water flows (Tognetti 2001:17).