Payments for environmental services: Some nuts and bolts

Payments for environmental services (PES) is an emerging economics based methodology of conservation management. The basic principle of PES is that external environmental services (ES) beneficiaries make direct, contractual and conditional payments to local landholders and users in return for adopting conservation and restoration practices. This paper, based on primary and secondary data from Latin America and Asia, aims to demystify PES for non-economists. It addresses the following questions:

• how is a PES scheme defined, and how does it differ from other conservation approaches?
• how can one evaluate to what extent an ES has been delivered or not?
• is PES likely to suit some land-use scenarios better than others?
• is there a tradeoff between efficiency and fairness?
• who should be paid?
• should payments be in cash or kind?
• is PES useful for poverty reduction?

• the gains of PES include non-income benefits, often in particular for moderately poor smallholders;
• some access rules and structural constraints impede participation by the poor, while others are in their favour;
• PES has mixed effects on impoverished non-sellers, but the landless poor engaged in environmentally degrading activities could lose out significantly;
• the small scale of PES application generally also constraints poverty alleviation.