Valuing Nature's Services Today Is an Investment in the Future

Countries around the world are embracing "payments for ecosystem services" (PES) as a verifiable approach to protecting biological diversity and mitigating climate change, according to research conducted by the Worldwatch Institute for the publication Vital Signs Online. PES are financial arrangements designed to protect the many benefits that are provided by the natural environment. They include payments for projects that invest in biodiversity and watershed protection, ecosystem restoration, and carbon capture in forests.

"Nearly 60 percent of all ecosystem services are being degraded or used in an unsustainable manner," said Alexander Ochs, Director of Climate and Energy at Worldwatch. "With PES, we can put a monetary value on these important services, from water filtration to carbon sequestration, to ensure that they are being properly sustained for the benefit of both people and the planet." PES schemes aim to encourage a net increase in benefits that would not otherwise have occurred without the financial incentive, a concept known as providing "additionality."

At the international level, two initiatives-the United Nations' Reducing Emissions from Deforestation and Forest Degradation (REDD) Programme and the World Bank Forest Carbon Partnership Facility-were established in 2008 to assist in the development of a global PES scheme that would compensate developing countries for their efforts to conserve tropical forests, which act as important carbon "sinks." The international community has discussed scaling up REDD finance to $30 billion per year. Several wealthier governments, including Norway and Germany, are providing funds to help developing countries build the capacity to handle a REDD market as well as to provide financial incentives to the best performers.

In the absence of a fully defined REDD marketplace, the primary markets for ecosystem services are currently in the areas of watershed and biodiversity protection, with a combined global value of at least $11 billion in 2008. The largest national markets for services to protect and enhance water quality are China and the United States, respectively.

Worldwide, payments for biodiversity totaled $2.4 billion to $4 billion in 2010. Although PES growth has slowed in countries that already have programs in place for biodiversity protection, other countries are adopting new programs and policy frameworks for biodiversity payment mechanisms. "In 2010, at least 45 payment programs for biodiversity were operational across the world and 27 programs were in development," said Will Bierbower, the author of the article and a former Climate and Energy researcher at Worldwatch.

Factors driving the development of PES schemes include the scale of the ecosystem service being provided, the number of buyers and sellers involved, and the degree to which there is an immediate financial payoff. The design of a PES arrangement is shaped in part by the prevailing political, cultural, and institutional arrangements in a country or region; however, governments have typically been the key players in establishing most PES arrangements.

"China's Sloping Land Conversion Program is a good example of a government-backed PES scheme that was enacted in tandem with regulations," said Bierbower. "In 1999, the government started paying farmers to restore land to its original ecological state, following decades of mismanagement that had led to topsoil erosion and downstream flooding. In the first seven years, rural farmers received some $7.7 billion in payments and enrolled some 7.2 billion hectares of cropland in what has become one of the largest PES schemes in the world."

Further highlights from the study:

• Globally, payments for watershed services that protect and enhance water quality were worth an estimated $9.25 billion in 2008.
• Payments for biodiversity protection, restoration, and management were worth an estimated $1.8 billion to $2.9 billion in 2008. By 2010, these payments had reached $2.4 to $4 billion worldwide.
• PES carbon sequestration projects in the world's forests were worth an estimated $37 million in 2008, up from $7.6 million in 2006.
• The volume of transactions for carbon sequestration projects in forests increased from 5.1 megatons of carbon dioxide in 2007 to 5.3 megatons in 2008.
• In the United States, PES transactions total $1.5 billion to $2.4 billion annually.
• Deforestation, which occurs primarily in tropical forest regions, accounts for an estimated 12-20 percent of human-caused greenhouse gas emissions.