1. INTERNATIONAL UNION FOR CONSERVATION OF NATURE Economic valuation and Payment for Ecosystem Services Katharine Cross, IUCN IW Learn African Regional Workshop April 4 th, 2012

2. 2 INTERNATIONAL UNION FOR CONSERVATION OF NATURE Outline Importance of ES to human wellbeing Valuation of ecosystems What are Payment for Ecosystem Services? –How does PES work? –Types of PES schemes –Pro-poor PES? Examples from the region Barriers and Challenges Way forward: applying tools and processes Discussion questions

3. 3 INTERNATIONAL UNION FOR CONSERVATION OF NATURE Importance of ecosystem services to human wellbeing value for constituents of well-being Security Personal safety Secure resource access Security from disasters Basic material for good life Adequate livelihoods Sufficient nutritious food Shelter Access to goods Health Strength Feeling well Access to clean air & water Good social relations Social cohesion Mutual respect Ability to help others Freedom of choice and action Opportunity to be able to achieve what an individual values being and doing ecosystem services Supporting Nutrient cycling Soil formation Primary production etc. … Provisioning Food Fresh water Wood and fibre Fuel etc. … Regulating Climate regulation Flood regulation Disease prevention Water purification etc. … Cultural Aesthetic Spiritual Educational Recreational etc. … Millennium Ecosystem Assessment 2005

4. 4 INTERNATIONAL UNION FOR CONSERVATION OF NATURE Total economic value of ecosystems DIRECT VALUES production and consumption goods such as: fish, firewood, building poles, medicines, fodder, recreation, … etc... DIRECT VALUES production and consumption goods such as: fish, firewood, building poles, medicines, fodder, recreation, … etc... INDIRECT VALUES ecosystem functions and services such as: water quality and supply, nutrient cycling, flood attenuation, climate regulation, shoreline protection, … etc... INDIRECT VALUES ecosystem functions and services such as: water quality and supply, nutrient cycling, flood attenuation, climate regulation, shoreline protection, … etc... OPTION VALUES premium placed on possible future uses or applications, such as: industrial, leisure, pharmaceutical, agricultural, … etc... OPTION VALUES premium placed on possible future uses or applications, such as: industrial, leisure, pharmaceutical, agricultural, … etc... use values EXISTENCE VALUES intrinsic significance of resources and ecosystems in terms of: cultural, aesthetic, heritage, bequest, … etc... EXISTENCE VALUES intrinsic significance of resources and ecosystems in terms of: cultural, aesthetic, heritage, bequest, … etc... non-use values

5. 5 INTERNATIONAL UNION FOR CONSERVATION OF NATURE Economic values of ecosystem services Muthurajawela Wetland, Sri Lanka generates flood attenuation benefits worth $1,700/ha/yr, and waste water treatment benefits worth $600/ha/yr (Emerton 2005a) Balochistan mangroves, Pakistan provide nursery and breeding habitat on which half of off- shore commercial fish stocks depend, worth $900/ha/yr (Baig & Iftikhar 2007) Caribbean coral reefs value for shoreline protection ranges between $2,000 - $1 million/km, depending on population (WRI 2005) Bokor National Park, Cambodia forest watershed catchment protection saves $2 million for downstream Kamchay Hydropower Scheme (Emerton 2005b)

6. 6 INTERNATIONAL UNION FOR CONSERVATION OF NATURE Value and benefits of natural infrastructure

7. 7 INTERNATIONAL UNION FOR CONSERVATION OF NATURE ecosystem costs and benefits tend to be underpriced by the market, or not have any market price at all yet it is often these goods and services that are the most valuable as a result, ecosystem conservation is seen as having little economic benefit, and ecosystem degradation is seen as having little economic cost How under-valuation is a problem

8. 8 INTERNATIONAL UNION FOR CONSERVATION OF NATURE Responses to ecosystem loss regulation dictate particular behaviour mitigation remedy, reverse or replace lost services incentives direct financial or economic reward from conservation provide concrete and tangible benefits and funds, not just punishment and penalties reduce the need (and cost) to mitigate, raise funds for mitigation where required aim to overcome policy, market and price failures, thus tackling root causes of ecosystem loss

9. 9 INTERNATIONAL UNION FOR CONSERVATION OF NATURE What are Payments for Environmental Services? voluntary agreements … between buyers and sellers of ecosystem services … for cash or other rewards … creating markets for watershed services … which provide incentives and finance to land and resource managers … thereby strengthening conservation and livelihoods …

10. 10 INTERNATIONAL UNION FOR CONSERVATION OF NATURE PES as a response to market failures The market fails to: –reward on-site ecosystem service providers, or to compensate them for their costs (e.g. changing land use) –charge off-site users for the benefits they enjoy (e.g. clean water) PES create a market for natural resources (including water), making conservation a more profitable land-use proposition

11. 11 INTERNATIONAL UNION FOR CONSERVATION OF NATURE How does PES work? ecosystem service provider/ seller beneficiary/ buyer 1. Recognition of the goods and services provided by watershed for which a price can be agreed what ecosystem services are generated? which services are marketable? 2. Need buyers and sellers of these goods and services how much are buyers willing to pay? what are sellers’ needs for rewards? what type of payments do buyers want, and can sellers provide? 3. Ensure that property, access and use rights are well established

12. payment for watershed service greater than or equal to less than or equal to PES as a conservation incentive Regional Workshop on Payments for Environmental Services net cost of providing watershed services (e.g. reforestation) net benefit from receiving watershed services (e.g. clean water) ECOSYSTEM MANAGERS (Sellers) BENEFICIARIES (Buyers)

13. 13 INTERNATIONAL UNION FOR CONSERVATION OF NATURE Pro-poor PES? PWS is not designed to be a poverty reduction mechanism. The objective of PWS programs is to address environmental and natural resource management problems, by providing a mechanism to internalize externalities. However, PWS programs can affect the poor in a variety of ways— in particular, by providing an additional income source. BUT should not be used primarily as a poverty reduction mechanism. To apply pro-poor PWS: –Keep transaction costs low as many potential participants are poor, as they will be relatively more heavily affected. –Devise specific mechanisms to counter high transaction costs such as collective contracting. –Ensure that the social context is well understood, so that possible adverse impacts are anticipated and appropriate remedial measures can be designed.

14. 14 INTERNATIONAL UNION FOR CONSERVATION OF NATURE Types of PES Schemes Private payment schemes –private entities agree amongst themselves to provide payments or rewards in return for maintenance or restoration of a watershed service Cap-and-trade schemes, under a regulatory cap or floor –Cap is set either by a government agency or voluntarily. –Permits or credits must be allocated among resource users or polluters. –A market is developed for the exchange of permits and credits between buyers and sellers. Certification schemes for environmental goods –Transactions occur between private parties, but payment is embedded in the price paid for a traded product, such as certified timber, fish or organic produce Public payment schemes, including fiscal mechanisms –Service buyers in public schemes are public authorities motivated by the need to provide safe drinking water or regulation of river flows. Achieved through user fees, land purchase and land easement, which are rights to specific use of land owned by others

15. 15 INTERNATIONAL UNION FOR CONSERVATION OF NATURE Example – Working for Water, South Africa Problems of water scarcity and reduction in stream due to invasive alien plants that consume large amounts of water and cause other environmental problems such as flooding, fires, erosion, siltation and strain on native species. Main funding comes from the government’s poverty relief fund, but about 10–15% comes from water users. The water price charged by the Department of Water Affairs and Forestry to its users includes a “water resource management fee”. This fee covers clearing of alien invasive plants as well as planning and implementation, pollution control, demand management, water allocation and water use control. Some local governments also contribute with regular annual donations to fund the removal of alien invasive plants in the catchment areas where they derive their water

16. 16 INTERNATIONAL UNION FOR CONSERVATION OF NATURE Example – Equitable Payments for Watershed Services in the Uluguru Mountains, Tanzania Project managed and implemented by WWF, CARE and IIED An agreement between upstream poor communities (service providers or sellers) and downstream water service users or buyers Buyers: DAWASCO, a public-private corporation which provides water to Dar-es Salaam; Coca Cola; other private companies Sellers: Upstream communities in the Kibungo subcatchment Sellers are paid according to interventions undertaken to restore ecosystems in steep slopes and riparian zones –Amounts determined by a series of indicators –Payments dispersed through NGOs Endorsement of agreement by Ministry of Water Resources

17. 17 INTERNATIONAL UNION FOR CONSERVATION OF NATURE Challenges to PES Schemes Absent credible “proof”— that water quality or quantity is improving Enterprises that need reliable supplies of good quality water, for example bottling companies, brewing companies and hotels cannot afford to wait for an ecosystem driven solution. –Consequently, many have already invested infrastructure (bore-holes, tankers, purification plants) to reduce the business risk associated with a key input to their production process

18. 18 INTERNATIONAL UNION FOR CONSERVATION OF NATURE Barriers to PES Schemes in Eastern and Southern Africa Information: There is too little information on PES and that which does exist is often too generic to be of much use to policy makers. Technical barriers: There are too few people with the appropriate skills and knowledge to design and implement effective PES projects and programmes. Policy and regulation: Generally legal and policy frameworks for environmental and resource management are fragmented, outdated and often lack cohesion. Institutional barriers: In addition to the limited human skills and fragmented legal and policy frameworks, there are insufficient organisations, such as financial intermediaries, certification bodies, national registries etc. to support the development of PES in the region.

19. 19 INTERNATIONAL UNION FOR CONSERVATION OF NATURE Way forward: applying tools and processes Through demonstration compile “proof” of improved water quantity and quality by investing in catchment management –Need to consider added element of a changing climate which impacts water availability in time and space Engagement with the private sector Convene stakeholders to raise awareness on the benefits of investing in natural infrastructure Through WANI toolkits provide guidance to decision makers on how to use information on valuation of ecosystem services and mobilize innovative financing for water resource management –www.iucn.org/waterwww.iucn.org/water Enable learning and exchange of information on PES schemes between regions

20. 20 INTERNATIONAL UNION FOR CONSERVATION OF NATURE Discussion questions Have you experiences of valuation of ecosystem services in your project area? If so, how is this information being used? Is there scope to apply payment for ecosystem services in your projects areas? What about other economic tools? Private sector engagement?

21. 21 INTERNATIONAL UNION FOR CONSERVATION OF NATURE Acknowledgements Lucy Emerton – material from an IW Learn Regional workshop on Payments for Environmental Services Material from PAY and VALUE – WANI toolkits