REWARDING THE SERVICE PROVIDERS A P O L I C Y B R I E F

Compensating tropical forest dwellers, owners and managers for the environmental services their forests provide will enhance

livelihoods and improve forest management

R. Carrillo/ITTO

Baharaddin/ITTO

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WHAT POLICYMAKERS NEED TO KNOW AND DOWhat they need to know• Tropicalforestsprovide

criticalenvironmentalservices.Theyprotectvitalwatercatchmentsandbiodiversity,helpregulateregionalclimates,andaregiantcarbondioxide“vacuumcleaners”andmanufacturersofrenewablebiomass.

• Currently,however,mostpeopleandcompaniesbenefitingfromtropicalforestenvironmentalservicespaylittleornothingforthem.

• Byprovidingtropicalforestownersandmanagerswithincomeandincreasingtheeconomiccompetitivenessofsustainableforestmanagement(SFM),paymentsforenvironmentalservices(PES)schemescanhelp:

– Alleviateruralpoverty.

– Reducetropicaldeforestation.

– Stimulatetherehabilitationofdegradedforestlands.

– IncreasetheuptakeofSFM.

• TherearemanysuccessfulexamplesofPESschemesinthetropics.Overall,however,PESschemesarenothavingthedesiredimpactonreducingdeforestationandforestdegradationandarebenefitingrelativelyfewforestownersandmanagers.Actionisneeded,therefore,toexpandPESschemestomoretropicalforests.

What they need to do• StrengthenPESschemes

intropicalforestsby:

– Raisingawarenessoftheimportanceandvalueoftropicalforestenvironmentalservices.

– Developingpoliciestoincreasemarketdemandfortheenvironmentalservicesprovidedbytropicalforests.

– EnsuringthatPESschemesprotecttherightsofindigenouspeoples,localcommunitiesandvulnerablegroups.

– StrengtheninggovernanceandinstitutionstoenabletheeffectiveimplementationofPESschemes.

Aim of this briefTheaimofthispolicybriefistoincreaseawarenessamongpolicymakersandthegeneralpublicaboutthevitalroleoftropicalforestsinprovidingenvironmentalservicesandtheincreasingneedforbeneficiariestocompensateforestownersormanagersforthoseservices.ThebriefbuildsontheinsightsgainedattheInternationalForumonPaymentsforEnvironmentalServicesofTropicalForests,whichwasheldinSanJosé,CostaRica,inApril2014.Itsetsouttherationalefor,andtheconstraintsfacedby,PESschemes,andkeyrecommendationsforscalingthemup.

PES schemes should protect the rights of indigenous peoples, local communities and vulnerable groups

N. Kingman

Page 3 A P O L I C Y B R I E F

THE NEED TO COMPENSATE FOR TROPICAL FOREST ENVIRONMENTAL SERVICES Tropicalforestsprovidemanycriticalenvironmentalservices,especiallybyprotectingwatercatchments,sequesteringcarbonandharbouringbiodiversity.Butmanypeoplewhobenefitconsiderablyfromtropicalforestenvironmentalservices—suchasurbandwellers,bigindustryanddevelopedcountries—paylittleornothingforthem,withtheresultthattropicalforestsareoftenundervaluedcomparedwithalternativelanduses,leadingtoforestdegradationanddeforestation.

PESschemesattempttocorrectthismarketfailurebycreatingeconomicincentivesthatenablethetransferoffinancialresourcesfromthebeneficiariesofenvironmentalservices(the“users”)tothosewhoprovidetheservicesby,forexample,engaginginSFM.Theunderlyingprincipleistointernalizeenvironmentalbenefitsandcoststhatotherwisearenotincludedineconomicaccounts,withtheaimsofreducingandreversingforestdegradationanddeforestationandrewardingforestownersandmanagersforgoodforeststewardship.

Notallcompensationforenvironmentalservicesisfinancial.Someenvironmentalserviceprovidersmayobtaingreaterbenefitsfromincreasedtenuresecurity,forexample,orfromin-kindcompensationsuchassupporttoincreasefoodsecurity.PESalsooffersopportunitiesforpositive“branding”thatmighthavesufficientvalueforacompanyoracountrytojustifylong-terminvestmentinPESschemes.

TherearealreadymanyfunctioningPESschemesintropicalforests,includingsomenationalschemes.CostaRica’sschemearoseaftercatastrophicdeforestationhadreducedforestcoverto21%ofthenationallandarea.TheintroductionofaPESschemein1997,inwhichlandholdersreceivecompensationforretainingforestsfortheirenvironmentalservices,contributedtoanincreaseinforesttothecurrent52.4%ofthelandarea.InChina,thestatehaspaidmorethan32millionfarmerhouseholdsover7000yuan(US$1150)eachtoestablishorrestoreforests(includingasmallareainthetropics),withtheaimofreducingdesertification,soilerosion,sedimentationandflooding.PESschemesalsoexistatvariouslevelsofimplementationinseveralothertropicalcountries.

Overall,however,PESschemesarestillmostlyatarelativelysmallscale.Globally,thevalueofPESisdwarfedbytheincomegeneratedbytimberandagriculturalproducts.

What are forest environmental services?Theenvironmentalservices(alsocalledecosystemservices)offorestsarethebenefitspeopleobtainfromforestecosystems.Theyincludeprovisioningservices,suchasfoodandwater;regulatingservices,suchastheregulationoffloods,droughts,landdegradationanddisease;supportingservices,suchassoilformationandnutrientcycling;andculturalservices,suchasrecreational,spiritual,religiousandothernonmaterialbenefits.Forestenvironmentalservicesperformarangeoffunctions,suchas:moderatingweatherextremesandtheirimpacts;dispersingseeds;mitigatingdroughtandfloods;cyclingandmovingnutrients;protectingstreamandriverchannelsandcoastalshoresfromerosion;detoxifyinganddecomposingwastes;controllingagriculturalpests;maintainingbiodiversity;generatingandpreservingsoilsandrenewingtheirfertility;contributingtoclimatestability;purifyingairandwater;andpollinatingcropsandnaturalvegetation.Tropicalforestsprovidealltheseservicesandareoftenparticularlyimportantforcarbonsequestration,biodiversityconservation,theprotectionofwatershedsandtheregulationofregionalclimates.Sources: Ecological Society of America undated. Ecosystem services. Fact sheet. Washington, DC, USA; Hassan, R., Scholes, R. & Ash, N. 2005. Ecosystems and human well-being: current state and trends. Millennium Assessment. Island Press, Washington, DC, USA.

Tropical forest environmental services help control agricultural pests and ensure crop pollination

DGFRN

Page 4 R E W A R D I N G T H E S E R V I C E P R O V I D E R S

PES for SFMThereisoftenalargegapbetweentheincomethatcanbeearnedfromSFM—through,forexample,thesustainableharvestingofwoodandnon-woodproducts—andwhatcanbeearnedfromagriculturallanduses,suchasoil-palmplantationsandsoybeancrops.Thisgap,knownastheopportunitycost,ismadewiderbysubsidiesforagriculturalproduction.Forests,especiallynaturaltropicalforests,ontheotherhand,provideabroaderrangeofenvironmentalservicesandingreaterquantitiesthanagricultureorpossiblyanyotherlanduse.

Forestsneednotbe“lockedaway”toprovideenvironmentalservices.Thereisconvincingevidence,forexample,thatselectivewoodharvestingintropicalforestsappliedusingSFMprinciplescausesarelativelysmalllossofcarboncomparedwithdeforestationand“conventional”logging,especiallywhenthewoodisusedforlong-termpurposes,andthatthelostcarbonisquicklyreabsorbedbytheregrowingforest,indicatingasustainablesystemofcarbonstorage.Thereisalsostrongevidencethattheharvestingofwoodandnon-woodproductsappliedunderSFMconservesmostforestbiodiversityandprotectswatersheds.ProperlydevelopedforestmanagementplanscanbeeffectivemechanismsforSFM,andtheirimplementationintropicalforestscanhelpensurethemaintenanceofenvironmentalservices.

PESschemescanhelpreducetheopportunitycostofSFMcomparedwithotherlandusesbycompensatingforestownersandmanagersfortheprovisionofenvironmentalservices.PEScanthushelpincreasetheeconomiccompetitivenessofSFMbyassigningafinancialvaluetothepreviouslyunmarketedenvironmentalbenefitsprovidedbyforestsandtrees.

ForestmanagementcertificationaimstopromoteSFM,reducetropicaldeforestationandreassureconsumersthatforestproductsarenotenvironmentallydestructive.Itimpliesthattheforestsfromwhichcertifiedproductsareobtainedarebeingmanagedinsuchawaythat

theenvironmentalservicestheyprovidearebeingwellmaintained.Butthereissubstantialevidencethatmostconsumersareunwillingtopayasignificantpremiumforcertifiedtimber,placingsuchtimberatadisadvantagecomparedwithcheapertimberobtainedfromforeststhatarenotbeingsustainablymanaged(andwhereenvironmentalservicesarelikelytobedecliningduetopoormanagement).

PESschemesareapotentialwayofprovidingadditionalrevenuestreamsforcertified(orotherwisesustainablymanaged)foreststohelpcoverthecostsofmaintainingenvironmentalservices.ForestmanagementcertificationcancomplementPESschemesbyprovidingathird-partyassessmentofforestmanagementandtherebyreassuringPEScustomersthattheenvironmentalservicestheyarepayingforarebeingdelivered.

IncountrieswherePESschemesarealreadyimportantpolicytoolsforimplementingSFM,thereisevidencethatsuchschemesareproducingsignificantsocioeconomicoutcomes.Forexample,theyprovide“bridgefinancing”toenablecommunitiestopursueotherincome-generatingactivities.

Tropical forests maintain rich biodiversity, an important environmental service

R. Carrillo/ITTO

Page 5 A P O L I C Y B R I E F

CONSTRAINTSEventhoughtherearemanysuccessfulPESschemes,theyarenothavingthedesiredimpactsinthevastmajorityoftropicalforeststhatarevulnerabletodeforestationanddegradation.Mostexistingschemesoperateonlyatarelativelylocallevel,and,overall,theyarebenefitingonlyafewofthemanymillionsoftropicalforestdwellers,ownersandmanagers.ThefollowingkeyconstraintsareholdingbackthepotentialofPESschemes.

Lack of markets Theunderlyingcauseofalackofadequatemarketsfortropicalforestenvironmentalservicesisalackofawarenessamongbeneficiariesoftheneedtopay,or,ifsuchawarenessexists,alackofawillingnesstopay.Dealingwith“freeriders”—beneficiariesofenvironmentalserviceswhodonotpayfortheirusebutcannotbeexcludedfromsuchuse—isasubstantial

challenge.Poorcoordinationamongthevariousland-useandotherrelevantsectorsalsoconstrainsthedevelopmentofeffectivePESmarkets.Manycountriesdonothaveasupportivepolicyenvironmentforthesuccessfuldevelopmentofmarketsforenvironmentalservices.

Insufficient data and knowledgeTherearefewrobuststudiesontheeffectivenessofPESschemesinachievingconservationoutcomes,orontheeffectivenessandcostsofdifferentinstitutionalarrangementsforPES.Therearealsoknowledgegapsontheinterplayofbiophysicalandsocioeconomicparameters,whichcanmakeitdifficulttoestablishaclearcause-and-effectrelationshipbetweenforestmanagementinterventionsandthedeliveryofenvironmentalservices.Difficultiesinquantifyingtheenvironmentalservicesbeingrenderedbyagivenmanagementregimeor

areaoftropicalforestcanconstrainthedevelopmentandimplementationofPESschemes.

The risk of marginalizing forest peoplesThereisariskthatpoorlyconceivedorimplementedPESschemes,especiallytop-downschemes,willviolatetherightsofindigenouspeoplesandlocalcommunities.AlackofclarityontenureisamajorconstraintforPESschemesbecause,inmanycases,itisunclearwho

Top-down PES schemes could violate the rights of indigenous peoples and local communities

Knowledge gaps on the interplay of biophysical and socioeconomic parameters hinder PES scheme implementation

J. Malleux/ITTO

A. Freitas

Page 6 R E W A R D I N G T H E S E R V I C E P R O V I D E R S

islegallyprovidingagivenenvironmentalserviceandwhoshouldbecompensatedforit.Overlapsbetweenstatutoryandtraditionallandtenure,whicharecommonintropicalforests,createconfusionandincreasetheriskofinequitiesinthedistributionofbenefitsfromPESschemes.Evenwheretenureisclear,ariskremainsthatmarginalizedpeopleinlocalcommunities,includingwomenandyouth,willreceivefewofthebenefitsofPESschemes.

Formanytropicalforestcommunities,theriskofmarginalizationandrightsviolationsisincreasedbyalackofunderstandingoftheconceptofPES,alackoftechnicalcapacity,andalackoforganization.

Weak governance and institutional arrangementsEstablishingandmanagingviable,long-termPESschemesrequiresarobustgovernancestructureandstronginstitutionalsupport,butthesearelackinginmanytropicalcountries.Keyenablinginstitutionalelementsinclude:well-definedpropertyrights;codes,standardsandotherlegalstructuresthatreduceriskanduncertainty;inclusivepolicies;andappropriatemultistakeholderplatformsandinstitutionalstructuresthatallowPEStobemainstreamedinnationalplanningandfinancialdecision-making.Inmanytropicalcountries,forestlawsareinadequateorunenforced,foresttenureiscontested,forestagencieslackcapacity,intersectoralcoordinationispoor,andlegalframeworksimpedeorfailtoenablethedevelopment

ofPESschemes.Inthecaseofpaymentsfortheclimate-relatedservicesoftropicalforests,internationalarrangementsarestilluncertainandthemechanismsfortransferringpaymentsareyettobefullydeveloped.

Ingeneral,knowledgeisincompleteontheeffectivenessofdifferentinstitutionalarrangementsatvariousscales,andtheircosts.Manygovernmentsarecentralizingtenureandcontroloverenvironmentalservices,especiallygreenhousegasemissionreductions,butthishaspotentiallyseriousimplicationsforsocialcohesion,equityandtheeffectivenessofinterventions.

Tropical forests help purify the air and store vast quantities of carbon

Sarawak Forestry Department

Page 7 A P O L I C Y B R I E F

POLICY RECOMMENDATIONS FOR BOOSTING PES SCHEMESGivencontinueddeforestationandforestdegradationinthetropics,inlargemeasurebecauseoftheunremuneratedopportunitycostsofmaintainingforestcover,thereisanurgentneedtoestablishnew—andscaleupexisting—PESschemes.Doingsorequiresseveralenablingfactors,especiallythefollowing:

• Increasedawarenessoftheimportanceoftropicalforestenvironmentalservices.

• Strongdemandforenvironmentalservicesandawillingnessofbeneficiariestopayforthem.

• MechanismstoensuretheequitabledistributionofPESamongforestownersandmanagers.

• Anenablinginstitutionalandgovernanceframework.

Policyoptionsforachievingtheseenablingfactorsarepresentedbelow.

1 Raise awareness of the importance of environmental services Policyoptions

• Increaseawarenessoftheimportanceofenvironmentalservices,theroleoftropicalforestsintheprovisionofsuchservices,andtheneedforcompensation.Importantmessagestoconveyinclude:

– Tropicalforestssafeguardvitalwaterresourcesandbiodiversityandregulateregionalclimates.

– Tropicalforestscanmanufacturevast

amountsofrenewablebiomass,absorbinghugequantitiesofgreenhousegasesastheydoso.

– Tropicalforestsarelife-supportsystemsforpresentandfuturegenerations.

– SFMisameansofensuringthelong-termmaintenanceandenhancementofenvironmentalservicesintropicalforests.

• Supportscientificallysoundstudiestoassessthe:

– Quantityandvalueoftheenvironmentalservicesprovidedbytropicalforests.

– Conservationandsustainable-developmentoutcomesofPESschemes.

– EffectivenessandcostofdifferentinstitutionalarrangementsforPES.

• PromotecollaborationandexchangesonPESexperiencesandoptions,especiallysouth–southcooperation.

2 Develop policies to increase market demand for the environmental services provided by tropical forestsPolicyoptions

• Developaregulatoryenvironmentthatencouragesorcompels“freeriders”tobecomebuyersofenvironmentalservices.

• Promotethedevelopmentofequitablemarketsfortropicalforestenvironmentalservices,includingmarketsforforestcarbon.

• WorkwiththeprivatesectortoencouragePESasameansofachievingcorporatesocialresponsibilityobjectives.

• PromotepoliciesinothereconomicsectorstointernalizethecostsofenvironmentalserviceswiththeaimofincreasingthesizeofPESmarkets.

• Encourageinnovativeapproachestothemarketingofenvironmentalservices,forexamplein“bundles”ofservices,withtheaimsofincreasingrevenuesandreducingoroptimizingtransactioncosts.

• IncorporatePESschemeswithinasustainable-developmentmodelthatintegratesecological,poverty-reductionandeconomicobjectivesacrosssectorsandvaluechains.

3 Ensure that PES schemes protect the rights of indigenous peoples, local communities and vulnerable groupsPolicyoptions

• Transparentlyandfairlyresolveoverlapsbetweenstatutoryandtraditionaltenureoflandandforests.

• Buildsafeguardssuchastherighttofree,priorandinformedconsentintoPESschemesandhonourthem,includingbyapplyingtheVoluntaryGuidelinesfortheResponsibleGovernanceofTenureofLand,FisheriesandForestsintheContextofNationalFoodSecurity.1

• Involveindigenouspeoples,localcommunitiesandotherforestownersin

1www.fao.org/nr/tenure/voluntary-guidelines

Page 8 R E W A R D I N G T H E S E R V I C E P R O V I D E R S

PESschemesasresourceowners,rightsholdersandentrepreneursandpromotegenderequality,includinginpropertyrights.

• BuildcapacityintropicalforestcommunitiestoimplementPESschemes.

• Facilitatetheeffortsofindigenouspeoplesandlocalcommunitiestoformproducerorganizationsandothermechanismstomarkettheirenvironmentalservicesmoreeffectively.

• Assistindigenouspeoples,localcommunitiesandothertropicalforestownersandmanagerstodevelopandimplementforestmanagementplanstomaintainforestenvironmentalservices.

4 Strengthen governance and institutions to enable the effective implementation of PES schemesPolicyoptions

• Devolvethetenureoftropicalforestenvironmentalserviceswiththeaimofachievingwin–winoutcomesforgovernments,communitiesandtheprivatesector.

• EnsurethedevelopmentofappropriatemultistakeholderplatformsandinstitutionalstructuresthatallowPESschemes

tobemainstreamedinnationalplanningandfinancialdecision-making.

• CreateasupportivelegalframeworkfortheestablishmentofPESschemesbyremovinglegislativeandregulatorybarriers,providingclearlegalrecognitionoftheeconomicroleoftropicalforestenvironmentalservices,andminimizingtheopportunitiesforenvironmental-servicefreeriders.

• PromotethesynergiesbetweenPESschemesandforestcertificationincontributingtoSFMandassuringbuyersandregulatorsthatforestownersandmanagersaremaintainingorincreasingtheprovisionofenvironmentalservices.

• InsistonmeasurestoassesstheeffectivenessofPESinthedesignofPESprojects.

• AssistthedevelopmentofdiversefinancingmechanismsforPESschemeswithclearrules,transparentoversightandpoliticallegitimacy.

• Encourageintersectoralinteractionandcooperationinthedevelopmentofbroad,flexiblePESschemesthatencompass

theenvironmentalservicesprovidedbytropicalforests.

• ImprovethebusinessclimateforPESschemesby:

– Reducingtransactioncosts.

– Ensuringthatpaymentsaremadeinatimelymanner.

– Promotingentrepreneurshipalongthevaluechain.

– Providingappropriateincentivesforprivate-sectorinvestmentandparticipationinPESschemes.

– Continuallyprovidinginformationtosocietywiththeaimofincreasingpaymentsforforestenvironmentalservices.

TheInternationalForumonPaymentsforEnvironmentalServicesofTropicalForestswasco-organizedbytheInternationalTropicalTimberOrganization(ITTO),theFoodandAgricultureOrganizationoftheUnitedNations(FAO),andCostaRica’sNationalFundforForestFinance(FONAFIFO)andhostedbytheGovernmentofCostaRicainSanJosé,CostaRica,on7–10April2014.TheforumexploredhowpaymentsfortheenvironmentalservicesprovidedbytropicalforestscansupportforestownersandmanagerstoimproveincomesandsupportSFM.Morethan150peoplefrom60countriesattendedfromgovernments,regionalandinternationaldevelopmentpartners,civil-societyorganizationsandtheprivatesector.

Presentations, background information and the Forum summary can be found at: www.fao.org/forestry/84884.

Tropical forest communities require capacity-building to implement PES schemes

Sarawak Forestry Department