Tim Chen has covered ecosystem services as they relate to ecotourism; below I’ve written some additional information on how the process might work on the market.
As developing countries increasingly convert natural ecosystems to areas controlled by humans, ecosystem services (e.g., waste absorption, water purification, soil conservation) are being lost. In order to prevent these shifts, people who live in urban areas or have no close relationship with, for example, their sources of drinking water are often willing to pay people who do have direct impacts on the watersheds. Payment for ecosystem services (PES) has become a measure by which higher-resource groups can induce lower-resource communities or individuals to protect local wetlands, forests, or other areas in order to maintain the ecosystem services that support a particular standard of living. Before such payment schemes can be established, however, certain scientific analyses must be carried out to determine the most efficient allocation of resources and facilitate the selection of the right service providers.
It costs less to preserve an ecosystem’s integrity than to restore it after damage. Costanza et al., in their research on the global value of annual ecosystem services, show that the services “provide an important portion of the total contribution to human welfare on the planet” (1997). Taking preventative measures to retain key services such as nutrient cycling, pollination, and climate regulation, all of which heavily influence human “success” in sectors such as agriculture, is more rational than scrambling to fix problems in the future. The economist P.J. Ferraro puts the logic of PES succinctly: “the cheapest way to get something you want is to pay for what you want” (2002), by this Ferraro means that trying to incentivize certain behavior indirectly is inefficient. It is also easier to negotiate payment for something like forest conservation before profits from deforestation have been experienced, since one pays for conservation rather than reforestation and is preempting deforestation profits rather than replacing them.
Companies might even doubly benefit from making payments for ecosystem services: the French water bottler Vittel pays all the dairy farmers in its source watershed “Grande Source” to adopt low-impact practices, and in doing so not only ensures the highest standards in aquifer water quality but also enjoys positive publicity for improving the “Grande Source” river basin and local dairy-farms. Vittel is also a good example of an ES buyer that diversifies its payment options: on a farm-by-farm basis, farmers receive a combination of cash, technical services, reimbursements for some agricultural labor costs, and usufructuary land rights. Diversified payment can increase the appeal for both sides of a PES-agreement and improve the chances of returns on investment.
But how can those willing to make payments for ecosystem services determine what areas provide certain services, or whom to pay for them? A very important measure that ecological sciences can provide to a PES feasibility-study is the counterfactual baseline, which projects what might happen without a PES scheme in place. In other words, a baseline of the pre-PES ecosystem services is necessary to predict what impact the payments will have. Wunder, who gives a very holistic and detailed report of PES, classifies baselines as “deteriorating,” “improving,” or “static,” and explains that the type of baseline significantly affects the perceived efficiency of a PES scheme (2005). For example, if an improving-baseline community already protects their rainforest, Wunder wonders, then why pay them for ecological services they already provide for free? It does seem that, with a limited amount of resources for global PES, priority should be given to areas more at risk, such as intensive agricultural portions of China’s Sloping Land Conversion Program or forests of Brazil’s Mato Grosso.
The best people to pay for ES are those who have a direct impact on land-use and whose compliance can be monitored. To assess these factors, payers for ecosystem services require certain ecological information: the permanence of whatever is being paid for (e.g., will the forests being conserved over soy farms be cut down the following year?); the leakage of behavior being discouraged (e.g., are forests being cut down elsewhere to replace the trees being bought into conservation?); and the consistency of ES-sellers in complying with ES-buyers’ requirements. Compliance monitoring can be done yearly on-site by comparing present ecosystem services with the baseline; paying ES-sellers according to annual results would be the best way to ensure fair play, but in many cases this is not feasible due to the sellers’ often unsure income.
In the current “market” for ecosystem services, sellers receive payments for choosing more sustainable behavior, buyers can ensure the protection of services they receive from certain ecosystems, and valuable environments are conserved. Establishing a market for ecosystem services might take heavy restructuring of operational norms, but harnessing such financial power for conservation would be greatly beneficial to all parties involved. Ecosystem services, which are currently undervalued but would probably cost a number double the global GNP (US$33-54 trillion) were they in a structured market, are only going to grow more expensive as resources become more scarce (Costanza et al., 1997); hasty but diligent action is needed to move towards a system where PES is facilitated and encouraged.