Markets for Environmental Services Case Studies

February 2000 and July 2001

The project explores how market-based approaches to environmental management can help reduce poverty, as well as satisfying economic and environmental aims.

Governments around the world increasingly rely on market-based policy instruments (MBIs) for environmental management, e.g. pollution taxes, water user fees, eco-tourism concessions to private firms, etc. Private sector participation in supplying environmental goods and services is also growing in the South.

The implications of these trends for poor countries, and for poor groups within countries, are unclear. Methods to assess the poverty impacts of market-based environmental policy are not well developed or widely used. Likewise, it is not clear how to ensure that MBIs and new markets for environmental services contribute positively to poverty reduction. Thus there is an urgent need for practical guidance.

Building on previous work on private sector participation, IIED aims to develop and test a general framework for analysing the environmental and poverty impacts of market-based approaches to environmental protection. It will point to possible win-win solutions, including through such enterprises as carbon trading, bio-prospecting, watershed protection contracts, eco-tourism, etc.

The framework focuses initially on forest, water and wildlife resources. In 2001 IIED completed a global review of markets for forest environmental services.

Project objectives

The aim of this project is to explore how market-based approaches to environmental management can help reduce poverty, as well as satisfying economic and environmental aims. The focus is on recent initiatives to develop markets and other financial compensation mechanisms for environmental benefits (services) in rural areas of the developing world. Research findings are targeted at developing country governments, private firms, donor agencies and other organisations working in the area.

Developing markets for watershed protection services and improved livelihoods

EEP is working with IIED's Forestry and Land Use Programme on this DFID-sponsored project to promote the maintenance of watershed services that support local livelihoods. The purpose is to increase understanding of the potential role of market-based approaches in promoting the provision of watershed services for improving livelihoods in developing countries.

The project has three main components:

  • Diagnostics were completed in the earlier inception phase in four sites: India, Indonesia, South Africa and the Caribbean.
  • Case study research has been completed in Costa Rica and Ecuador aimed at learning from contexts where experiences are particularly advanced and instructive and build up a knowledge base on what works under what conditions.
  • Networking, developing guidance and dissemination takes place throughout the project. An international network of interested, informed and action-oriented agencies is steadily being built through: local learning groups in the action-learning sites, exchanges between case-study and action-learning sites, and international workshops. Information is also disseminated through working papers, case studies, policy briefings, diagnostics, and a final synthesis report. Further details

Markets for environmental services in the Philippines, Brazil, Costa Rica, Ecuador and Bolivia

Support from the Shell Foundation, Danida and SDC was valuable in allowing EEP to extend our focus beyond watershed markets to a broader set of services. The work has involved collaborative research with partners in Brazil, Costa Rica, Ecuador and the Philippines to assess local experience with markets for environmental services and explore how to improve on-going initiatives (see Markets for Environmental Services Series below). These countries were selected on the basis of the relative maturity of market initiatives, and thus the likelihood of obtaining sufficient empirical data to assess their impacts, as well as the commitment and capacity of local partners to contribute to both the research and potential follow-up. This work has included field-testing methods to assess the equity impacts of markets.

The results were published by IIED in 2002 under the title: Silver Bullet or Fools' Gold? A global review of markets for forest environmental services and their impacts on the poor. A summary of the case study database is also available in PDF format. Several other outputs on pro-poor markets for environmental servcies have been produced, including a volume of 12 case studies entitled Selling Forest Environmental Services: Market-based Mechanisms for Conservation and Development, edited by Stefano Pagiola, Joshua Bishop and Natasha Landell-Mills.

Additional resources

Silver Bullet or Fools' Gold: A global review of markets for forest environmental services and their impact on the poor, Natasha Landell-​Mills, Ina T Porras (2002), IIED Report

Markets for Enviromental Services Series: EEP has launched a new series on Markets for Environmental Services, which includes reports on the case studies from Brazil, Bolivia, Costa Rica, Ecuador and the Philippines, and a literature review on initiatives in Costa Rica.


The Danish International Development Agency (Danida) 

The Swiss Agency for Development and Cooperation 

The Shell Foundation Sustainable Energy Programme

Additional support for this work was provided under another IIED project "Instruments for sustainable private sector forestry", funded by the UK's Department for International Development and the European Commission.


Costa Rica - CINPE Ecuador - EcoDecision Philippines - REECS