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Payment for ecosystem services (PES) is recognized as a tool for sustaining ecosystem service flows while also contributing to the livelihoods of resource-dependent communities. PES is mostly described as a free market based approach to conservation, wherein consumers of ecosystem services pay to the producers/managers. However, a ‘true’ free-market-based PES is difficult to establish. Further, there are arguments against purely market-based PES schemes, pertaining to the commoditization of nature – an approach that does not necessarily benefit the poor segments of populations. Instead, an incentive-based mechanism is advocated for to ensure benefits to mountain communities for their efforts in conservation and ecosystem management.
The issue
The HKH features unique biological and cultural diversity. The region harbours diverse ecosystems that provide numerous goods and services to about 210 million mountain inhabitants and 1.5 billion living in the surroundings and downstream areas.
However, global environmental changes (including climatic and other forms of changes) directly impact an ecosystem’s ability to supply goods and services, ultimately having negative livelihood and socioeconomic consequences for local communities. Additionally, the growing populations and economies in the HKH further aggravate an ecosystem’s deteriorating health and its ability to supply services.
PES is thus recognized as tool for sustaining ecosystem services flow while also contributing to the local livelihoods of resource-dependent communities. But ICIMOD’s research suggests moving away from a purely market-based mechanism to an incentive-based mechanism to ensure benefits to mountain communities for their efforts in conservation and ecosystem management. It is argued that incentive mechanisms, if embedded properly in a policy instrument, can be effective in ensuring a long-term supply of ecosystem services in the Himalaya.
The solution
The incentive mechanism needs proper institutional arrangements among stakeholders, including buyers, sellers, and the local government. A tripartite institutional arrangement (Figure 1) has been tested and found to be effective in implementing the incentive mechanism.
For the effective implementation of this mechanism, mediation and facilitation by the local government is crucial. When consumers of any particular ecosystem service, such as water, agree to provide incentives to upstream communities (or producers), this not only encourages upstream communities to conserve the upstream ecosystem but also provides support for alternative livelihood options.
While developing the incentive mechanism for ecosystem services, it is important to understand the economic value of particular ecosystem services (Figure 2). The value of any particular service in terms of consumers’ willingness to pay (WtP) for the services helps in negotiations and agreements. However, the individual WtP may not be the same as the collective WtP, which mostly determines the incentive for upstream communities. In Shardukhola Watershed in Nepal, the total WtP for water services is USD 118,000 per annum to support watershed management activities, where individual household WtP per month is USD 3.48, which is 18 percent more than the present water tariff. Similarly, in Baitadi, Nepal, the total WtP for doubling the water availability is about USD 4,500 per year. In both cases in Nepal, water consumers agreed to provide incentives to upstream communities under an institutional framework and agreement.
Impact and uptake
Incentives for ecosystem services is a solution that can effectively engage communities in managing their resources, while ensuring the long-term supply of ecosystem services. In collaboration with various partners in its member countries, ICIMOD has been working on exploring ways to establish incentive mechanisms for ecosystem services, which include understanding the economic value of ecosystem services, bringing stakeholders together for an effective agreement and institutional arrangement, and providing evidence-based policy support at the central and provincial governments. In Nepal, a PES policy has been drafted, and the provincial government of GB in Pakistan endorses PES in their development programme.
Contributors
Laxmi Dutt Bhatta, ICIMOD
Rajesh Kumar Rai, SANDEE
Erica Udas, ICIMOD
Further reading/information
Bhatta, L. D., van Oort, B. E. H., Rucevska, I & Baral,
Rai, R.K., Shyamsundar P., Bhatta, L., & Nepal, M. (2016). Designing a payment for ecosystem services scheme for the Sardukhola Watershed in Nepal. SANDEE Working Paper 108-16, Kathmandu: South Asian Network for Development and Environmental Economics.
