Payment for Ecosystem Services: Institutional Roles & Development Carina Bracer Forest Trends & Katoomba Group

Ecosystem Services - Market Mechanisms? 1.Crisis in financial contributions to conservation 2.Limits of regulatory mechanisms 3.Innovative mechanisms emerging to incorporate the value of ecosystem services in the economy Strategies and advances in PES in next decade will impact investment and conservation patterns globally, and lead to better or worse outcomes for suppliers and communities.

PES Mechanisms and Types a) Self-Organized Private Deals Private entities pay for private services b) Public Payments to Farmers and Communities Public agency pays for service c) Open Trading under cap or floor Landowners either comply directly with regulations, or buy compliance credits d) Eco-labeled Farm, Forest, Natural products Consumers prefer certified sustainable supplies

4 Carbon Currently most developed market (Kyoto, European Emissions Trading) ETS estimated trading in 2005 around 362 mt CO2, around 400 mt in CDM Translates to total of around $11.3 billion Is essentially a cap-and- trade market Voluntary market is also growing strong 4

5 EU Market 362 MT $US25/tCO 2 e CCX 1 MT $US2/ tCO 2 e Local Regulation 5 MT $US3-7/ tCO 2 e Pre-Compliance/CDM (eg World Bank, Japan, Canada, USA) 397 MT $US5-7/ tCO 2 e Voluntary 2-10 MT $US1-38/ tCO 2 e NSW GGAS 7MT $US10/ tCO 2 e 5 Source: New Forests/Ecosystem Marketplace Other regulatory schemes (Canada, Japan) ?????

6 Carbon Market: It’s here Buy credits on E-bay!! There are carbon investment funds, carbon brokers, carbon hedge funds Credits bought and sold globally People in Uganda, Chile, etc. are getting paid to reduce emissions World Cup, SuperBowl carbon neutral 6

7 Water markets Much less developed Two possible kinds: Quality Quantity Quality likely to come in first as markets i.e. Nutrient trading 7

8 Other water markets Flood control? Paying for upstream watershed protection In many places (Mexico, Costa Rica, Ecuador) But often essentially a way to channel gov’t money Or one-off deals like Ecuador Problem: science still tricky Salinity, etc. 8

9 Even in biodiversity there is movement Wetland Banking and Conservation Banking Bio-banking Voluntary Biod. offsets Gov’t/ NGO/ Donor payments for biodiversity Such as Bush Tender, Eco-Tender, Bush Broker in Australia 9

10 Other existing or possible markets: Watching many, still in infancy: Pollination Disaster prevention Conservation Easements (and associated tax credits) Have a large list (matrix) 10

THE FOREST CLIMATE ALLIANCE Who Buys Ecosystem Services? Direct Beneficiaries Watershed protection –Industrial, agricultural water users – to secure stable supply, flow –Municipal water utilities, consumers (reduce costs, water quality) –Agencies managing environmental risks (e.g.,floods) Biodiversity conservation –Conservation agencies and organizations working on private lands –Tourist industry, for landscape beautify or protection of key species –Land developers (offsets for damage, or for amenity values) –Farmers (to protect pollinators, sources of wild products) Carbon emission offsets or avoided deforestation –Industries required to comply with carbon rules (offsets for emissions) –Agencies, municipalities seeking to improve air quality –Businesses providing carbon offsets

Potential Benefits of PES for Sustainable Development & Poverty Reduction Obtain new sources of finance for conservation, esp. outside Protected Areas Can promote incentives for rational decision- making regarding resource use and management Rewards rural communities for real benefits they provide to others, provides less cyclical stable income Financing for transition to sustainable agriculture, forestry and fisheries

Developing PES for Poverty Reduction Structure PES mechanism according to local abilities & realities Engage with prepared and knowledgeable ecosystem service providers who are able to provide services, understand potentials and risks Analyses of resource needs and uses should satisfy local needs first Note: conversion from production to conservation can be insufficient to cover opportunity cost

Potential size of ES Markets that can benefit the poor Ecosystem Service Philanthrop ic Buyers Voluntary- Businesses Public PES Regulatory Market Ecocertified products Carbon LULUCF XXXXX XXX Water Quantity and Flow xXX Xx Flood ControlXXXXXO Water QualityXXX XX BiodiversityXX X Landscape, recreation XXX O Research in conjunction with

2 DRAFT–FOR INTERNAL DISCUSSION PURPOSES Open Trading Self-Organized Private Deals Public Payment Schemes Standards and Guidelines for Ecosystem Service Payments or Markets Identified Ecosystem Services (includes: ecosystem services for available for both current &future payments / markets) Awareness of Ecosystem Service Values, Payments & Markets (among policymakers as well as potential sellers and buyers) Engaged Local Communities & Stakeholders (includes: communities, NGO’s, financial institutions, businesses, government, etc.) Support Services For Market Actors (such as: brokering, legal advice,measurement and valuation of ecosystem services, 3 rd party verification, accounting,etc.) Flow of Market Information Technical Assistance (to sellers, buyers, and other market actorswhich includes training, education, and advising) Essential Components for PES Schemes Financing (for all needed components, including: ecosystem management costs, transaction costs, etc. Enabling Legal, Regulatory, & Administrative Context (includes: supportive context for ecosystem service payments and markets) Component 1 Component 2 Component 8 Component 9 Component 10 Supporting Institutions (includes: public or private entities that facilitate / oversee public funds, regulate private trade, etc.) Component 3 Component 4 Component 5 Component 7 Component 6

PES Market: Institutional Functions and Roles Governments take on many roles and functions today –Fragmented experiences, few linkages and communication between them –Expect more coordination and sharing of lessons and eventual devolution of functions to other institutions Protections and needs of low income providers should be defined now

PES Projects: Institutional roles and functions Step 1: Assess Institutional and Technical Capacity Assess enabling laws and policies & rules for market trading; Review land tenure and property rights; Map available PES-support services and organizations Step 2: Identify Ecosystem Services and Potential Deals Assess environmental characteristics, define services & values Verify local institutional capacity and select support institutions Identify Buyers, Define Sellers Step 3: Structure Agreements Design a basic management and business plan Select suitable payment mechanisms Select contract type and terms of finance Step 4: Implement PES Transactions and Payments Initiate the PES project Verify service delivery and benefits Monitor and evaluate project

Study governance requirements and implement needed oversight Ensure long term sustainable structures don’t rely on donors or governments Mapping and analysis of ecosystem services – esp. biodiversity and water research Learning via transactions (markets are iterative, search for perfection can paralyze) Use political openings- build a carbon strategy that is pro-poor Strengthening PES for Poverty Reduction: Governments

Provide mapping and tools, map risks Advisory services to providers & buyers, engage in education and capacity building Act as certifiers, developing standards & norms with all stakeholders Build platforms & brokers of multiple stakeholders, help engage buyers Increase transparency (e.g. registries) Strengthening PES for Poverty Reduction: Civil Society

Gain expertise & experience in negotiating deals with communities Explore institutional options to finance low Y producers and undertake investment in services –Aggregate actions of sellers to reduce transaction costs Evaluate the business case & the benefits and communicate it Support socially responsible initiatives by developing standards & norms Strengthening PES for Poverty Reduction: Buyers, Brokers

Identify partners with record of pro-poor design and community support Gain access to technical assistance Learn the norms, rules of the game and legal context Incorporate learning experiences & build capacity within their institutions Leverage participation in policy making (e.g. ITTO) Strengthening PES for Poverty Reduction: Communities

Support gaps data on community projects and outcomes- shape actions Support cross-sectoral initiatives- catalyze funding to community ES Engage in portfolio of projects and joint learning (beware structures imposed) Information outreach for communities designed with them according to their needs Develop participatory platforms (host dialogues, standards, monitoring, social marketing premiums) Strengthening PES for Poverty Reduction: Donors

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