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What are “payments for environmental services”?

Payments for environmental services (PES) are a class of economic instruments designed to provide incentives to land users to continue supplying an environmental (ecological) service that is benefiting society more broadly. In some cases, payments may be made to land users to adopt landuse practices that will produce the required service from scratch (e.g. growing trees for carbon sequestration). These payments have five defining features.

First, PES is a voluntary, negotiated agreement, not a command-and-control measure. Potential services providers must have real landuse choices, with the land use providing the service usually not being the one most preferred by the land user. Second, what is being bought must be well-defined − either a measurable service (e.g. tons of carbon stored) or a cap on land-use, limiting it to those practices likely to provide the service (e.g. forest conservation providing clean water). Third, there should be a transfer of resources from at least one ES buyer to, fourth, at least one provider, directly or through an intermediary. Finally, payments by the buyers must be truly contingent on the service being provided continuously for the duration of the contract period. This last prerequisite is important as it establishes conditionality between service provision and payment: no provision, no pay. Ideally, payments ahould be made on a sliding scale based on the amount or quality of the ES that is supplied, at least up to some mutually agreed maximum. Payments may be in cash or kind (e.g. providing materials and training for an economic enterprise such as beekeeping, as in the case of payments being made to some upland farmers in Bolivia). Buyers of ES normally monitor compliance, e.g. has hunting or deforestation really been contained in the way stipulated in the contract? If not, payments will either be suspended or stop completely.