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Best Practice in PES Design

A presentation explaining the design and implementation of PES mechanisms.  


Una presentación que explica el diseño e implementación de mecanismos de pagos por servicios ambientales.                      

Steps in the Design of Payments for Environmental Services Mechanisms

  1. Main steps in the design of Payments for Environmental Services Mechanisms

1.  Main steps in the design of Payments for Environmental Services Mechanisms

While the principles are clear, however, designing and implementing a system of payments for environmental services in practice is often difficult.

The process of designing a system of payments for environmental services can be broken into several steps:

Pes Design

Identifying and Quantifying Environmental Services - What environmental services does a given land use generate? How much of that service is generated? And how much is the service worth?

  1. Charging Service Users - How can payment systems be financed?
  2. Paying Service Providers - How are payments actually to be made in order to achieve the desired change inland use sustainability efficiently?
  3. Creating An Appropriate Institutional Framework - What are the institutional preconditions for the payments to be possible?

The answers to these questions will of course be largely country-specific in their details. Indeed, the nature, extent, and value of environmental services are likely tp be not just country-specific, but site-specific within a country. Flood protection benefits, for example, depend on what is being protected in any given watershed and on the size and characteristics of the watershed. Within this diversity, however, there is probably a great deal of commonality across countries in the same region - especially if one could develop a typology of watersheds.                                                                                                                              

2.  Identifying and Quantifying Environmental Services?

Both qualitatively and, especially, quantitatively, we know much less about the environmental services generated by different kinds of land uses than we often think we do. This is partly a reflection of the diversity of conditions encountered: hydrological benefits will depend on the rainfall regime, on the type of soil, on topography, for example. It also depends on the objectives being sought: efforts to regulate waterflows to avoid flooding and dry season deficits may require different interventions than efforts to maximize total water volume, and the measures required to conserve biodiversity may be different from either.


Moreover, even if the kind of benefit that a given land use generates is known, one must also know how much of that benefit is being generated. Changing land uses is not costless; it imposes opportunity costs from the foregone land use, and may also impose direct costs (for example, for reforestation). Without estimates of the amounts of benefits that would be generated, it is difficult to determine whether these costs are worth bearing.

Some of the benefits typically sought from changes in land use include (but are not limited to):

  • Hydrological Benefits - Controlling the timing and volume of water flows, and the quality of water.
  • Reducing Sedimentation - Avoiding damage to downstream reservoirs and waterways and hence their uses (hydro-electric power (HEP) generation, irrigation, recreation, fisheries, domestic water supplies) arising from sedimentation.
  • Disaster Prevention - Preventing flooding and landslides.
  • Biodiversity Conservation - Land uses can be more or less friendly to biodiversity.

3.  Charging Service Users  

For systems of environmental service payments to survive, they must have secure sources of financing. This is especially important if payments must be on-going, as discussed in the previous section. How can beneficiaries be made to pay for environmental services? This is primarily a financial question, which affects the sustainability of payments mechanisms.

There are already some examples of efforts to do this:


·        A few municipalities downstream or El Imposible National Park in El Salvador have agreed to make a financial contribution to park management as payment for watershed services


·        In Colombia, many water user groups pay for watershed services – sometimes by buying the entire watershed.


·        Also in Colombia, power companies must by law pay a percentage of their revenues from HEP to regional corporations that are responsible for watershed management (although whether these funds are actually used for watershed management seems doubtful).


4.  Paying Service Providers


For environmental service payments to have the desired effect, they must reach the land users and do so in a way that motivates them to change their land use decisions. This is not as easy as it sounds. The historical record is replete with examples of efforts to induce land users to adopt particular land use practices, for a variety of reasons and using a variety of payment mechanisms. Most have very little to show for their efforts.


In general, two principles are clear:

  • Payments need to be on-going. The benefits being sought are generally on-going benefits, which will be enjoyed year after year as long as appropriate land uses are maintained. For this to occur, land users must receive payments as long as they maintain the land use. All too often, payments have been frontloaded into a few years, with the expectation that land users would continue with the desired land use long after payments cease. Predictably, however, once payments cease any leverage over land users' behavior also ceases.
  • Payments need to be targeted. Environmental services depend on both the kind of land use and its location. An undifferentiated payment system that pays everyone the same will be much more expensive than a targeted scheme. It will also make it difficult to tailor interventions to the particular requirements of given situations. At the same time, there is clearly a trade-off between the benefits of a targeted scheme and its administrative costs.

5.         Creating an Appropriate Institutional Framework  

Designing and implementing systems of payments for environmental services may require changes in the legislative and regulatory framework.



Last updated: 2010-05-13

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Payment for Environmental Services