7-8 October, 2010 Workshop-seminar Payment for Ecosystems Services in Kazakhstan: Best Practices and Lessons- learned in Watershed Management in the U.S. and Central Asia Simon Charré and Mariya Genina

I) What are Payments for Ecosystem Services?

Payment for Ecosystem Services is based on the concept of Ecosystem Services Definition of the United Nations: “ES are the benefits that ecosystems provide to humans”. 4 types of ES have been identified, they concern: – provision (production of food and water) – regulation (control of climate and disease) – Support (nutrient cycles and crop pollination) – Culture (spiritual and recreational benefits)

Forests Agricultural lands What are the ES provided in the case of water resources? Upstream land uses can be: agriculture Industry forestry They affect the quantity, quality, and timing of water flows. Downstream beneficiaries can be: Domestic water use Irrigated agriculture Fisheries Recreation Downstream ecosystems

Outcomes of this situation: Upstream land are beneficiaries from the situation. Their practices are not sustainable but they are the less expensive for them. Downstream population face problems with water resources, which impacts their standard of living. Benefits to land users Costs to downstream populations Current situationNew practices → A change in practices affects positively downstream populations, but decrease the benefits of upstream land users, that’s the reason why they are often not really willing to change without incentive.

How to solve this situation? The Payment for Ecosystem Services mechanism is a win-win answer to this situation. A financial relation between ES providers (sellers) and beneficiaries (buyers) is developed on a voluntary basis: Buyers pay an incentive to the sellers if they commit themselves to change their practices toward more sustainable ones.

Upstream land users = Ecosystem Services sellers Downstream water users = Ecosystem Services buyers Ecosystem Services flow Payment flow Payment flow Agricultural lands Forests

The Payment of the PES can have different natures according to the situation: mainly cash or in-kind. In any case, to be sustainable, it must: Be affordable for the buyer Covers the cost of changing practices and provide an incentive for the seller Be repeated every year, as long as the Ecosystem Services are provided Benefits to land users (sellers) Costs to downstream populations (buyers) Current situation New practices + payment Payment

Who are the stakeholders involved in the PES?

…and those involved in the mechanism itself, i.e. buyers, sellers and the intermediate organization can be: Governmental bodies Private companies The population, from small farmers to inhabitants of important cities The stakeholders designing and implementing the PES scheme can be… Non-governmental organizations such as NGOs or associations Governmental bodies, at the local or national level Private companies

Types of PES Depending on the stakeholders involved as buyers and sellers, the PES is considered as: Public-Public e.g., a state-owned hydropower plant pays the national forest agency to increase reforestation in a watershed; Public-Private e.g., a city administration pays farmers to adopt environmentally friendly practices in order to ensure a good quality of water; Private-Private e.g., a private company that needs clean water pays private land users to encourage them to change their practices.

The essential role of governmental bodies To be implemented and work efficiently, the PES needs to be developed in a favorable institutional framework. Thus, governmental bodies have to act at global or local level in order to: Allow the creation of a fund thanks to the money collected among sellers Allow the financial transaction buyers/sellers Allow the establishment of a contract between public and private stakeholders

Necessary conditions for the sustainability of PES schemes:

– The institutional framework allows this type of mechanism – The payment is affordable for buyers and covers sellers expenses (opportunity cost): need to conduct scientific assessments – Transaction costs are as low as possible – The financial support is mainly provided by buyers and other local organizations and not by NGOs or external donors – The conditions of the PES are established after a multi- stakeholders negotiation and are written down in a formal contract – Capacity building and awareness raising for stakeholders These conditions must be met to ensure the sustainability of the PES scheme.

II) Key steps of design and implementation of a PES scheme:

STEP 1 Identification of a pilot territory where: – The geographic situation allow the implementation of this kind of mechanism – Local authorities are involved in the local development – Economic activities are highly dependent of the furniture of one or several ES – Populations are willing to pay for the provision of ES

STEP 2 First discussions with local stakeholders: – Presentation and clarification of the concept of PES – Discussions on the interest of the mechanism in the territory – Creation of a coordination committee to lead the design of the PES The awareness of local stakeholders and their willingness to be involved in the scheme is crucial for having positive results

STEP 3: Identifying Ecosystem Services ES Demand: What specific services? Type of measurement? Who benefits from these services? How much benefit do they receive? ES Supply: How are these services generated? How much more or less of these services would they receive if land use changed? Who generates these services? Need a multidisciplinary work

ES have to be evaluated at several levels What is the influence of the land uses on water resources? What is the link between water resources and the welfare of downstream population? What new land use practices could improve the welfare of downstream population? The answers to these questions need the intervention of specialists in: biology, hydrology, economy, sociology These assessments, because they are objective, strengthen the trust of local stakeholders in the scheme

Finally, scientific assessments have to show the two limits of the possible payment: Benefits to land users Costs to downstream populations Current situation New practices New practices + payment Payment Minimum payment Maximum payment The Opportunity Cost (minimum acceptable payment for sellers) The Value of Benefits (maximum acceptable payment for buyers)

The monitoring has two impacts on the PES operation: Ensures confidence in the system Allows to adjust the scheme if the environmental situation or the relation between buyers and sellers change This monitoring is a key point for the sustainability of the system and has to be elaborated before the implementation of the scheme, in consultation with all the participants.

STEP 4 Training activities: – Disseminate new practices and monitoring among the upstream land users – Give them important information for the next activity, i.e. the negotiation of the contract (price of change of practices, different natures for the payment) Example: Training to disseminate new pasture use practices among farmers.

STEP 5 Negotiation of the contract: This step establishes the relation between buyers and sellers (conditionality, payment, monitoring) – It brings together buyers, sellers and the intermediate organization – The output is the agreement and signature of the PES contract

Content of the PES contract Nature, amount and recurrence of the payment Conditionality of the payment Nature and recurrence of the monitoring Conditions for the extension or renegotiation of the contract

STEP 6 Monitoring: The monitoring, realized by independent experts, aims to: –Show the effectiveness of the chosen practices: Do changes in land use generate the desired services? –Show the Impact on participants: is the welfare of participants improved? –Verify that ES sellers are following the conditional practices

STEP 7 Extension or reevaluation of the contracts: –The monitoring shows whether the characteristics of the contract are adapted to the local situation –After the end of each contract, a meeting present the results of the monitoring –During this meeting, according to the results of the monitoring and the remarks of the participants, the contract can be amended – Contracts can be extended as long as ES are provided

Conclusion The PES tool is adaptable to a large range of natural, economic and social contexts It deals both with nature protection and development of economic activities It ensures a long term provision of Ecosystem Services beneficial for buyers It ensures long-term incomes for sellers It relies on multistakeholder cooperation The PES tool is therefore an interesting opportunity for Central Asia to protect natural resources and support rural development

References The figures were taken from the presentation of Mr. S. Pagiola “PES for Dummies”