Payments for Environmental Services Nancy, April 2012 Patrice Harou

Plan The context of environmental instruments The environmental instruments Command and Control Economic instruments Payments for environmental services at the global level Efficiency of the instruments

The context of environmental instruments Global context National Context Macro-economic Policy Sector Policies Environmental policies Resources limitation Efficiency of the instruments

Global and National context Global issues: Climate changes (KOF SEI) National decision in a global context: Macro Sector Decision in a National context: Sector Environmental decision through all the sectors: NEAP Investment decisions in all the sectors: Micro Budgeting for Sustainable development

Environmental Instruments Non-economic-Instruments Economic Instruments Other instruments

Command and Control Laws and regulations Environmental standards Technology standards

Voluntary instruments Eco-certification FLEGT Lacey EUTR

Economic Instruments Taxes (Pigou) Subsidies Market creations: (Cap and Trade Program) Payments for environmental services: see below

Other Instruments Extension Research Sharing information

Payments for Ecosystem Services Ecosystems services are the benefits that people obtain from the ecosystems: fresh water, protection from natural hazard, erosion control, global climate regulation (greenhouse gaz) but also timber, non-wood forest products, better agriculture yield. A payment for ecosystem services is a financial incentive offered to encourage the supply of a given ecosystem service.

Payments for Ecosystem Services For a transaction between a buyer and seller to be considered a payment for environmental services, that transaction must be voluntary, and must be for a well defined environmental service. Examples: payments to farmers to adopt conservation practice, convert cropland eroding soils, polluters pay farmers to sequester their emitted carbon, a change in land use, …

Payments for Ecosystem Services Stacking Payments above break-even point Proper marginal analysis: additionality You can stack payments up to the break-even point and no more for the program to respond to the additionality criterion and to be efficient Above that point, it is just a transfer with no corresponding benefits

PES of the GEF Problems with application at the global level Non-compliance Poor administrative selection of providers of environmental services Spatial demand spillovers Adverse self-selection: people would have done it anyway (most important problem)

Conclusions Instruments have to be chosen for a specific context Many different instruments exist PES is one economic instruments One of the problems of PES is the inefficiency resulting from adverse self-selection Monitoring of results is needed and much easier when only two agents are involved (Coase theorem)