Learning from the experience in Payments for Water Ecosystem Services in Latin America

November 18th, 2014

Dr. Julia Martin-Ortega (James Hutton Institute, UK) & Dr. Elena Ojea (Basque Centre for Climate Change, Spain)

Payments for Water Ecosystem Services (PWES) aim to reach mutually beneficial agreements between providers and users of ecosystem services, entailing a reward mechanism for ecosystem managers for maintaining or improving the provision of water services valued by beneficiaries. The growing policy interest in PWES schemes goes hand-in-hand with increasing attention in the scientific and policy oriented literature. This is happening for several reasons.

First, water services are involved in the majority of current Payment for Ecosystem Services (PES) schemes (for an explanation of PES see this short video).1 Second, the water cycle is an excellent context for illustrating various types of ecosystem services-based approaches,2 in which changes to the state of natural capital is looked at in terms of their impact on human well-being.3 Water related ecosystem services and their upstream-downstream dynamics are therefore often used to illustrate the principles of the PES notion.4

This research provides an in-depth and systematic regional analysis, including quantitative evidence, of PWS. We review 40 different PWS studies in Latin America, collecting 310 distinct PWS transactions (specific payments exchanges), dating from 1984 and published up to 2011. Studies were selected from both the peer-reviewed and the ‘grey’ literature, and cover 10 Latin American countries: Costa Rica, Ecuador, Bolivia, Brazil, Colombia, Mexico, El Salvador, Nicaragua, Guatemala and Honduras.

From the review of the observed and described evidence of PWS in Latin America, a conceptual model is developed (Figure 1). The conceptual model is built around three key PWS components and their relationships: stakeholders, service delivery and contract, which surround the central notion of payments. In the figure, those relationships that were consistently found in the reported practice are represented by solid arrows, while dashed arrows are used for relationships that are supposed to exist in theory, but that do not occur consistently in reality or for which a lack of clarity exists in the literature. Our systematic review has shown that these components interact at both national and local scales, but that the distinction between these scales is not straightforward. This is presented in the figure by a certain level of overlap between these scales.

Within the stakeholders component, sellers (essentially land managers) and buyers (essentially service users) can interact directly, but in practice often do so via an intermediary. The next component is service delivery. Our results provide quantitative evidence for Engel et al.’s (2008)5 assertion that most PES schemes base payments on the actions or inputs rather than on the services or outputs provided by those actions. This is true since many studies report actions but not services in their description of the PWS design and show that, in practice, conditionality takes a different form than prescribed by theory.

The third component in the conceptual model relates to the contract, and includes two sub-components: the ecosystem, which determines the services that are covered in the contract, and the format of the contract, which shapes the payments. The type of ecosystem (e.g. a forest), its ecological status, land use and very importantly, the area under contract, together with the type of action (e.g. reforestation) determine the price differentiation in the payments. Key elements of the contract format shaping the payments are the payment vehicle, the frequency of payments and the duration of contracts.

The analysis of these PWS components provide quantitative evidence on a number of issues:

It confirms some generally held views: that deforestation and forest management are at the heart of ongoing PWS schemes; or the crucial role played by NGOs;

It provides evidence of emerging critical views: there is frequently no real bargaining process between buyers and sellers, nor monitoring of service delivery compliance;

It reveals new facts: that sellers’ average receipts are 60% larger than buyers’ average payments; and that there is an ill definition of the service being paid for in a great number of cases.

We conclude that there is a miss-match between how PWES schemes are presented in theory and how they actually are in practice or how they are reported. This concerns issues at the core of the grounding principles of PES, namely: service-action conditionality, service definition and payment negotiation.

At this point of great policy interest, researchers and practitioners face real challenges related to both science and policy. On one side, the underpinning bio-physical processes and functions that ensure that a certain intervention or action does result in an improvement of service delivery needs to be further understood and incorporated into the schemes so that payments are conditional to service delivery. On the other side, policy practice needs to improve, by addressing questions such as what factors facilitate/hinder stakeholder participation in PWS schemes, or what enables/constrains equity.

References:

Locatelli, B., Vignola, R. (2009). Managing watershed services of tropical forests and plantations: Can meta-analyses help? Forest Ecology and Management 258, 1864-1870. Martin-Ortega, J., Jorda-Capdevilla, D., Glenk, K., Holstead, K. (2015). What defines ecosystem services-based approaches?. In: Martin-Ortega, J., Ferrier, R., Gordon, I., Kahn, S. Water ecosystem services: A global perspective. Cambridge University Press, Cambridge. Ojea, E., Martin-Ortega, J., Chiabai, A., 2012. Defining and classifying ecosystem services for economic valuation: the case of forest water services. Environmental Science and Policy, 19(20): 1-15. Porras, I., Grieg-Gran M., Neves, N., 2008. All that glitters: A review of payments for watershed services in developing countries. Natural Resource Issues 1.1. International Institute for Environment and Development. London, UK. Engel, S., Pagiola, S., Wunder, S., 2008. Designing payment for environmental services in theory and practice: an overview of the issues. Ecological Economics 65(4): 663-674.

Dr. Julia Martin-Ortega is Senior environmental economist at The James Hutton Institute in Scotland, United Kingdom. Her research focuses on the relationships between society and water systems and has a strong interdisciplinary and policy-relevant emphasis. Dr. Elena Ojea is a research fellow at the Basque Centre for Climate Change (BC3) in Bilbao, Spain. Her interests rely on the economics of ecosystem services and biodiversity, ecosystem-based adaptation and mitigation and social preferences towards climate policies. The full reference of this study is: Martin-Ortega, J., Ojea, E., Roux, C. (2013). Payments for Ecosystem Services in Latin America: a literature review and a conceptual model. Ecosystems Services, 6: 132-122. It can be downloaded from: http://www.sciencedirect.com/science/article/pii/S2212041613000818.

The views expressed in this article belong to the individual authors and do not represent the views of the Global Water Forum, the UNESCO Chair in Water Economics and Transboundary Water Governance, UNESCO, the Australian National University, or any of the institutions to which the authors are associated. Please see the Global Water Forum terms and conditions here.