Payments for Environmental Services: The Need for Redefinition?

As an alternative to the "command-and-control" approach, increasing enthusiasm for market-based instruments (MBI) in environmental management arose in the early 80s. It was hoped that MBI, including packaging taxes, effluent taxes and charges, capital or operation subsidies, tradable permits, deposit-refund schemes, performance bonds, liability instruments, and many others, would reduce the cost of achieving environmental goals and distribute resources in more efficient ways. The 1992 Rio Declaration on Environment and Development endorsed the use of MBIs as an important component of sustainable development. The principles behind MBI attempt to capture the financial value of environmental services through so-called 'payments for environmental services' (PES). Four types of PES schemes can be distinguished and differentiated by the degree of government intervention in administration of the schemes, by characterising the buyers and sellers, and by the source of payments: (1) private payment schemes; (2) cap-and-trade schemes, under a regulatory cap or floor; (3) certification schemes for environmental goods; (4) public payment schemes, including fiscal mechanisms. Over the past decades, a range of payment mechanisms for environmental services have been operating in Latin American, the US and Europe.