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Payment for Ecosystem Services (PES)

Payments for ecosystem services (PES) have emerged as a solution to biodiversity conservation. It is a means to protect the environment, ecosystem, and habitat from degradation for continuous flow of environmental benefits while allowing poverty alleviation. It is an incentive-driven and voluntary transaction between two parties (providers & beneficiaries) and is based on the Beneficiary Pays Principle. This could take place at a village level or regional scale, with or without the involvement of the government or sometimes, both private and government arrangements. Valuation of the ecosystem services being delivered to the beneficiary is the crucial part of this PES policy design.

While the literature on PES is building to capture the intricacies and insights, certain challenges also need to be addressed for the model to prevail.

Complications/ Challenges

The challenges or gaps that are identified can be understood from the cases themselves. For instance, the PES mechanism in Costa Rica failed to include the vulnerable populace whereas other participants got disproportionately wealthier thus revealing that there is a need for the design of an efficient structure to gain equitable benefits. In the case of Guatemala, an NGO adopted the PES mechanism for small-scale farmers, however, the focus shifted away from small farmers to large landowners, funds were transferred for consultation instead of development works and auditors were paid off to ease the monitoring burden. Faulty auditing hampered the effectiveness of the system thereby questioning the integrity of PES design.

Among other challenges that the PES faces, there is one regarding its multi-pronged approach that often leads to low efficiency. When PES focuses on environmental services and poverty alleviation, the PES program achieves lower efficiency in obtaining the set-out objectives. Also, there is a matter of power equation in PES wherein large landholders may remove small landowners (service providers) from lands that offer diverse ecosystem services, to reap the benefits of the PES program and demand higher prices.

However, one of the most important challenges is the volatility of payments. Due to pressure on the ecosystem, the services it offers may change over time, thus prompting dissatisfied recipients to influence the payments. Along with it, there is a general hesitation among the private sector actors in getting involved in newer concepts related to ecosystem services, however, efforts need to be built based on success stories.


The solutions to complications arising in the PES mechanism can be resolved by designing a structure for equitable benefits. Such an approach would be based on goodwill, and equity for all landowners (ecosystem service providers). Accountability to deliver can be built by keeping a regular check on the commitments and combining it with a peer monitoring mechanism to legitimise the entire process.

Instead of the one size fits all approach, allowing room for more contribution from service providers would be useful. This may include, applying reverse auction where the service provider proposes both payments and actions, and bids are based on cost-effectiveness. Involvement of local government can bring steadiness and public regulation which can bring success to the model.

Vittel is one of the many successful cases where PES helped maintain business as well as ecosystem benefits. Being one of the largest bottlers of natural mineral water, Vittel estimated that the cost of conserving the water source is lesser than that of building the filtration facility or transferring to another location of the freshwater source. Hence, PES was adopted, and the local farmers were paid to adopt agricultural practices that aided in lesser run-off from their fields. In this manner, lesser pollutants ended up in the streams thereby improving the quality of water. The programme was financed with the support of the French National Agricultural Institute (INRA) and the French Water Agencies. The cost-benefit analysis proved that the project was economically viable (Perrot-Maitre 2007).

The PES mechanism needs to be more inclusive of funders/ parties willing to invest or looking for mitigating impacts from their supply chains. Allowing a private party to associate with community effort will attract more firms that seek to become more sustainable in low risk and high-impact model.