The document discusses ecosystem services and payments for ecosystem services (PES). It defines ecosystem services as benefits derived from nature and PES as payments made by beneficiaries of ecosystem services to providers. The document outlines key types of ecosystem services and principles of PES, including that PES must be voluntary, provide additionality, and ensure permanence of ecosystem service provision. It also discusses financing, payment mechanisms, and practical steps to assess PES feasibility.

2. The term “ecosystem services” refers to the diverse benefits that are
derived from the natural environment.
Payments for ecosystem services (PES) occur when the beneficiaries
or users of an ecosystem service make payments to the providers of that
service.

3. Provisioning
Services
Products obtained from
ecosystems.
• Energy
• Seafood
• Biomedial
• Transportation
• National defense
Regulating
Services
Benefits obtained from the
regulation of ecosystem
processes
• Flood prevention
• Climate regulation
• Erosion control
• Control of pests and
pathogens
Cultural
Services
Nonmaterial benefits
obtained from
ecosystems.
• Educational
• Recreational
• Heritage
• Spiritual
Supporting Services
Services necessary for the production of all other ecosystem.
• Biological diversity maintenance
• Nutrient recycling
• Primary productivity.

4. What constitutes PES?
According to Savy and Turpie (2004), a PES scheme can develop in one of two
ways
 Either at least one set of stakeholders recognizes a noticeable depletion in
resources, leading to true demand, or a particular aim is identified, usually in
relation to protection or
 Management of national resources and a PES system is introduced to create a
market for the service.
PES programs are based on the following ecosystem services or bundles:
 Carbon sequestration and storage.
 Biodiversity protection/bundled services
 Watershed protection
 Landscape beauty (for example, for ecotourism)

5. Seven Key Principles of PES
1) Voluntary: Stakeholders enter into PES agreements on a voluntary basis.
2) Beneficiary pays: Payments are made by the beneficiaries of ecosystem services (individuals,
communities and businesses or governments acting on behalf of various parties).
3) Direct payment: Payments are made directly to ecosystem service providers (in practice,
often via an intermediary or broker).
4) Additionality: Payments are made for actions over and above those that land or resource
managers would generally be expected to undertake.

6. 4) Conditionality: Payments are more often based on the implementation of
management practices.
5) Ensuring permanence: Ensuring continued service provision.
6) Avoiding leakage: Leakage referring to the situation where securing an ecosystem
service in one location leads to the loss or degradation of ecosystem services
elsewhere.
Contd…

7. Financing for a PES scheme:
The Defra PES Best Practice Guide defines three broad types of payment for PES schemes:
 Public payment schemes – Government pays.
 Private payment schemes – beneficiaries will pay directly
 Public–private payment schemes – Both Govt. and private pay.
For PES to work, it must provide a “win–win” opportunity for both the supplier and
the buyers of the service.

8. When establishing the business case for PES, two categories of costs must be
considered:
1. Short-term design and capacity-building costs:
• Research, data collection for the baseline, stakeholder engagement and
contract preparation.
• Front-loaded payments may be required to cover sellers’ upfront costs.
1. Longer-term implementation costs:
• To generate additional ecosystem service provision
• To cover transaction costs
• All costs of measuring, reporting and verification (MRV).
Consideration of the costs:

9. As shown in Figure, the payment must be high enough to fully cover all costs,
incentivize the seller to provide the service over the long term and ensure income
from alternative land uses is offset.

10. Payment Mechanisms for PES Schemes
Two main mechanisms for PES:
1. Performance-based payments: Based on actual provision of the ecosystem
service. Eg: A measured increase in biodiversity.
2. Input-based payments: Based on certain land or resource management practices
being implemented, for example the creation of buffer strips along watercourses.

11. Practical steps to assess the feasibility of PES

12. Payments for Ecosystem Services (PES) in India from
the Bottom-Up
- Supriya Singh, Centre for Science and Environment (CSE), India

13. In the Himalayas, in order to preserve a small dam, a downstream village decides to pay
an upstream village to cease the grazing that causes soil erosion and the accumulation
of silt. In economics, this is an example of “payment for environmental services” (PES).
Kuhan is tucked far away in the hills of Himachal Pradesh’s Kangra district. It is typical
of this region that receives high rainfall and yet faces water shortages due to lack of
storage facilities.
In 2003 the village pooled resources and with some help from a
watershed development project and constructed a checkdam on Gulana Khad, a nullah
(creek) that ran across the village.
Its fortune changed overnight. With irrigation now available crop
production was able to increase by six times; it became possible to grow vegetables and
fruits for cash.

14. By 2005 the reservoir had collected silt and its capacity halved. The worried villagers looked
for a lasting solution. There was no quick formula they could apply here. With help from
Winrock International, a non-profit organization, the villagers diagnosed the problem and
came up with a unique prescription.
Most of the silt came from the grazing land of Ooch village, high up the nullah, something had
to be done about it. How? Why should villagers of Ooch work or sacrifice anything to solve
Kuhan’s problems?
.
No sacrifice was needed. Both villages discussed matters related to saving the dam and
reached a formal agreement. This is a case of Coasian bargaining. Ooch banned grazing for
eight years on its four-hectare common land and planted saplings of fruit, fodder bearing
trees as well as bamboo and elephant grass.
In exchange, Kuhan paid for the saplings and even worked out an arrangement to sell
irrigation water to Ooch as and when required. The silt load in the nullah reduced and the
villagers rejoiced again.

15. Conclusion:
 In all cases, an appropriate ecosystem service must be identified, based on
solid scientific data.
 But a payment for the ecosystem service can only be established if the value
of this service is recognized by both a buyer and a seller and the appropriate
transaction infrastructure (marketplace) is established.