Contracting for Ecosystem Service Supply: Transaction Design Mark Ellis-Jones CARE

1. Overview  What does a PES deal look like?  What is a PES contract?  What are the main considerations of the contract?  Getting hold of template contracts

2. What is PES?  Willing Buyer and Seller  Trading an ES service  Payment conditional

3. What does a PES deal look like? ES Supplier (Seller) Eg 1. Village Auth 2. Owner of land ES User (Buyer) PES Contract Seller Aggregator PES Contract Buyer Aggregator PES Contract

4. What does a PES contract look like?  Key terms:  Buyer: must be a “legal entity”, with power to enter into contract  Seller: ditto. This means the NRFC cannot be a buyer.  Seller Obligation: ES Supply or Land-Use Change associated with ES Supply.  Buyer Obligation: Payment  Term

5. It all looks pretty simple…and it is… But decisions will have to be made about:  What will you trade: ES provision or land-use associated with ES provision?  Contract term: you can only rent enhanced ES provision.  Contract price?

6. More decisions…  Rewards to good stewards  Treatment of fallowed land  Areas illegally cultivated  Timing and trigger of payments  Delivery risk: most problematic are delivery of raw materials

7. Getting hold of template contracts   4 precedent contracts:  Watershed services: with and without seller aggregator  C Sequestration / tree planting: with and without seller aggregator  Contract design brief – more detailed walk-through of the decisions market intermediaries / buyers / sellers will have to take.