Markets and payments for environmental services

Payments for environmental services (also known as payments for ecosystem services or PES), are payments to farmers or landowners who have agreed to take certain actions to manage their land or watersheds to provide an ecological service. As the payments provide incentives to land owners and managers, PES is a market-based mechanism, similar to subsidies and taxes, to encourage the conservation of natural resources.


This approach recognises the important role that the environment plays in contributing to our wellbeing and economic prosperity, and the potential of market-based approaches to promote conservation and address environment-related market failures.

In PES schemes, people managing and using natural resources, typically forest owners or farmers, are paid to manage their resources to protect watersheds, conserve biodiversity or capture carbon dioxide (carbon sequestration) through, for example, replanting trees, keeping living trees standing or by using different agricultural techniques.

In some cases payments are made by the beneficiaries of the environmental services, such as, for example, water users and hydropower companies. In other cases, national or local governments pay on behalf of their citizens, who are indirect beneficiaries. The role of the private sector is typically growing among PES schemes at both international and local levels. While the scheme is widely used on land, it is only just gaining momentum in coastal and marine ecosystems.

PES is an increasingly popular conservation and resource management tool in developing countries. IIED works with Southern country partners, particularly in Costa Rica, Brazil, Vietnam and Uganda, to explore the extent to which PES can help reduce poverty, and satisfy economic and environmental objectives. 

But the insecure land and resource tenure of many poor people remains a key obstacle to them participating in and benefiting from PES schemes. Other obstacles many PES schemes face are the complex and often bureaucratic project procedures and high project transaction costs.

IIED’s research findings are targeted at developing country governments, private firms, donor agencies and other organisations working in the field of PES so they can learn from the knowledge we have gained through our hands-on action research approach with poor and marginalised groups in the south. 

Learning lessons from Costa Rica’s PES scheme

Costa Rica’s pioneering programme of payments for environmental services (PES), which began in the 1990s, was a unique experiment in developing countries at that time. Farmers who owned forests could receive payments for the benefits their forests produced, and people who benefited from those services were expected to pay for them.

How has the scheme evolved over time? What challenges has it faced? And who really benefits and loses from these programmes? What are the social impacts of PES on people? A clearer understanding of these issues in PES-type projects is becoming increasingly important for the design of large-scale projects such as REDD+, in Costa Rica and elsewhere.

The results of our in-depth study looking at the social impacts of the programme shows that payments tend to go to relatively large farms and private companies. More needs to be done for PES to have genuine social and economic benefits for the poor. The publication recommends steps that could be taken to help make this happen.

Read Spanish? Read this Spanish translation.

This short briefing paper reflects on the experiences and lessons learnt from Costa Rica’s PES programme and identifies four key areas for future action to expand on and improve existing efforts.

This paper explains how focused data on poor farmers will help get payments for protecting forests where they will count the most.

Paying for watershed services: an effective tool in the developing world

Payments for watershed services (PWS) are an increasingly popular conservation and water management tool in developing countries. Yet financing PWS schemes remains a challenge because the actual evidence for their effectiveness is still scanty — it is hard to prove that they actually work to benefit both livelihoods and environments.

Getting more direct and concrete data on costs and benefits will be crucial to securing the long-term future of PWS schemes, particularly given the considerable expansion in the number of schemes and proposals for PWS.

Visit this microsite to find environmental services case studies from across the world.

The marine sector and PES

Coastal and marine resources provide millions of impoverished people across the global South with livelihoods, and provide the world with a range of critical ‘ecosystem services’. Yet across the world, these resources are fast-diminishing.

Traditional approaches to halt the decline of fisheries and other marine resources focus on regulating against destructive practices, but to little effect.

A more successful strategy could be to establish PES schemes, or incorporate an element of PES into existing regulatory mechanisms. Examples from across the world suggest that PES can work to protect both livelihoods and environments.

But to succeed, these schemes must be underpinned by robust research, clear property rights, equitable benefit sharing and sustainable finance.

Read this briefing or this blog to find out more.

Paying local landowners for ecosystem services to protect chimpanzee forests in Uganda

Chimpanzees in Uganda are under threat as their habitat is lost to agriculture and human settlements. Central to this problem is the attitude of most farmers that chimpanzees and forest habitat conservation are a threat to their own livelihoods.

IIED aims to show how an equitable and financially sustainable payment scheme can compensate local landholders for conserving and restoring forest habitats and for protecting chimpanzee populations.