Payments for Environ. Services

Payments for Environ. Services - PaymentforEnvironmental...

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Unformatted text preview: PaymentforEnvironmental ServicesII Aspects of Design and Implementa3on and Lesson from past experience DeepakRajagopal Recap WhatisESandwhyPES? Whopaysandhow? ExamplesofPES PotenAalbenefitsofPES PESandPovertyreducAongoals Today:Someofthenutsandboltsissuesof designingandimplemenAngPES Logic of PES DeforestaAon andconversion topasture ConservaAon ConservaAon withPES Benefitsto landusers Minimum Payment(WTA) Payment Coststo downstream populaAons andothers Reducedwater service Biodiversityloss Carbonemission Maximum Payment includingtransacAon costs(WTP) It is necessary that WTP taking into account transaction and other additional costs for long-term performance exceed the WTA Consider 22 different farmers, A ... V Rank their potential private net returns from the new practices (in $/ha, in PV over a suitable time horizon) from smallest to highest Compare to the private net returns from current practices $/ha Current practices A B C D E F G H I J K L M N O P Q R S T U V Courtesy: Stefano Pagiola, World Bank, 2005 We can divide the farmers into three groups: Farmers Q-V have such high private returns they'll adopt the new practice with no support Farmers M-P have marginal private returns to adoption (eg because of high initial costs); so we may need to "tip the balance" Farmers A-L have such low private returns they won't adopt sustainably without on-going support $/ha Not privately profitable: Won't adopt sustainably Marginally profitable: May need to "tip the balance" Privately profitable: No need for support Current practices A B C D E F G H I J K L M N O P Q R S Short-term payment will change land use T U V Short-term payment may result in short-term adoption, but farmers will revert to current land use when payments end Payment not needed from Stefano Pagiola, World Bank, 2005 Now let's add the external benefits of the new land uses: Biodiversity benefits $/ha Biodiversity benefits A B C D E F G H I J K L M N O P Q R S T U V Courtesy: Stefano Pagiola, World Bank, 2005 Now let's add the external benefits of the new land uses: Carbon sequestration benefits (these depend on net biomass additions, so if everyone is implementing the same practice, they all get the same addition) $/ha Carbon sequestration benefits A B C D E F G H I J K L M N O P Q R S T U V Courtesy: Stefano Pagiola, World Bank, 2005 Now let's add the external benefits of the new land uses: Water benefits (these are often large, but only in very specific areas; elsewhere they are likely to be very small/zero) $/ha Water benefits A B C D E F G H I J K L M N O P Q R S T U V Courtesy: Stefano Pagiola, World Bank, 2005 Adding all external benefits of the new land uses: $/ha Biodiversity benefits Carbon sequestration benefits Water benefits Current practices A B C D E F G H I J K L M N O P Q R S T U V Courtesy: Stefano Pagiola, World Bank, 2005 Impacts depend on correlation between environmental benefits of land and wealth ES benefits $/ha Agricultural benefits A B C D E F G H I J K L M N O P Q R S T U V POOR LAND QUALITY HIGH If poor farmers own land with high ES value they may gain Elementsofdesignand implementaAonofPESprograms Measurement (conditionality, benefits and costs) etc. Targeting (Heterogeneity, Correlation, ability of household to participate) Monitoring, enforcement and sanctions Bundling or Unbundling (transaction cost and multiple ES) Mechanism of financing (user, government or donor) Facilitating intermediaries and institutions (NGOs, government) Measurement Buyersandsellersneedtoknow Whatisdeliveredwhenforwhatprice DeliverablescanbeoutcomesoracAons Mustbeeasilymeasurable SimplicityandcommonsenseareessenAal ESiscontrolledbytheworkerinthefield NotthescienAstisthelab. CleveruseofnewITcanimprovemeasurement accounAngandmonitoring LinkbetweenlanduseandES TargeAngcriteria AcreagemaximizaAonBuythelandswiththelowest Costperacre(regardlessofbenefits)giventhe budget BenefitstargeAngPurchasethehighestqualitylands (landswithhighestbenefitperacre)withinbudget Benefit/costTargeAngPurchaselandswiththe highestB/C(highestbenefitcostraAo)giventhe budget TargeAng Benefits per acre Benefit max Cost Minimization Benefit/cost ratio=1 Cost per acre AnexampleofPEStargeAng Average Water Erosion Value of Seller Acreage farm # of quality reduction ES in $/ bid $/ (acre) size farmers potential potential acre acre 500 300 400 250 300 500 250 450 350 250 500 400 350 50 25 50 10 20 20 50 10 2 5 20 10 50 10 12 8 25 15 25 5 45 175 50 25 40 7 8 3 5 6 2 6 9 6 3 2 3 6 8 6 9 7 4 9 4 5 6 7 8 6 7 8 14 12 12 10 11 10 14 12 10 10 9 13 16 9 8 9 6 7 7 9 6 4 5 7 6 9 Benefits Cost 7000 3600 4800 2500 3300 5000 3500 5400 3500 2500 4500 5200 5600 4500 2400 3600 1500 2100 3500 2250 2700 1400 1250 3500 2400 3150 Benefitcost ratio 1.56 1.50 1.33 1.67 1.57 1.43 1.56 2.00 2.50 2.00 1.29 2.17 1.78 Total program budget $24,000 Value of water quality = $1 /acre Value of carbon and biodiversity = $1 /acre Anexample:DistribuAonof landholding 200 180 Numberoflandholders 160 140 120 100 80 60 40 20 0 0 10 20 30 40 50 60 Averagesizeoflandholding Anexample:ESandlandvalueas funcAonoffarmsize 18 10 9 8 7 6 10 5 8 4 6 4 2 0 0 10 20 30 40 50 60 3 2 1 0 ValueofEnvironmentalService ($/acre) 16 14 12 Averagesizeoflandholding Landvalue(sellerbid)$/acre Anexample:CorrelaAonbetweenES andLandvalue 18 16 14 ESvaluein$/acre 12 10 8 6 4 2 0 0 1 2 3 4 5 6 7 8 9 10 Landvalue(=sellerbid)$/acre TheimplicaAonoftargeAng BenefitcosttargeAngisopAmalMaximizing ESgivenbudget CosttargeAngmaximizeacreage&preferred bylandowners. Benefitmaximizingresultinlowestacreage reducAonbestforconsumers CorrelaAon TheimportanceofcorrelaAon:Whenlow costlandshavehighES(negaAvecorrelaAon ofenvironmentalbenefitsandcosti.e., currentlandvalue)thewelfarelossofcost targeAngissmall.ItisbigincaseofposiAve correlaAon. MonitoringandEnforcement ESarefrequentlygeneratedonlargeparcelsoflandover longperiodofAme Farmerscaneasilycutcorners InspecAonbackedbyacAonwillleadtoimprovedES quality jusAfyhigherprices CanbepartofcerAficaAonprogram Monitoringallowsestablishingbuyersinsuranceplans (GuaranteeingdeliveryandcompensaAon) MayRequireregionalcooperaAonforpoortoparAcipate ThereasonsforESproductstandards (BeingcommodiAesnotuniqueproducts) Buyerswant toknowwhattheybuy Tosellitwhentheywant(liquidity) CerAficaAonbytrustedagency AllassociatedwithhavingESmeeAngstandards.Also LowtransacAoncost Highvolumeoftrading IncreasedinvolvementofsmallerfarmersinESmarket ESmarketsallowsellingbundlesofES AfieldmaygeneratevarioustypesofES PotenAalbuyermaybeinterestedinonlypartofthe package TheLandowner'sgainwillincreaseIftheycansell differenttypesofEStotodifferentbuyers AwellfuncAoningESmarketresultsinapricingof individualESthatwillincreasetheflexibilityofthe buyersandsellers Unintendedconsequences DesignersofESprogramsneedtobeawareof SlippageifoutputdemandisinelasAc,PESprogramincreaseag pricesleadingtofarmingofpreviouslyidlelands(slippage)This mayleadsomeAmestoreducAonofbenefitsthusPESmayneed topayforkeepinglandswithhighESoutofproducAon PurchasingfundsthataresolebuyermaypaymonopolisAc pricingandshortchangethelandowner LandownersmaygainfromESbutoperatorsandotherlose, includinggovernmentiflowerproducAonreducetaxrevenueto government. WorkinglandprogramsbegerthanreArementprogramsinthisregard FactorsaffecAngeffecAvenessand efficiency Enrollment Compliance AddiAonality LinkbetweenlanduseandES Leakage Permanence Costofprovision Opportunitycost,monitoringcostandtransacAon cost FactorsaffecAnghousehold parAcipaAoninPES Dependson Eligibility WillingnesstoparAcipate AbilitytoparAcipate Eachofthesefactorsdependontheprogram characterisAcsandhouseholdcharacterisAcs FactorsaffecAnghousehold parAcipaAoninPES FactorsaffecAnghousehold parAcipaAoninPES FactorsaffecAnghousehold parAcipaAoninPES ExamplesofPESinpracAce DesignfeaturesofESprograms LessonsforPEScasestudies Cleardifferenceinscalebetweenuser financedandgovernmentfinanced GovernmentfinancedembracemulApleES butuserfinanced Conclusion ReceivingconsiderableagenAoninrecentyears AgracAvebecausebuyerscompensatesellers directlycondiAonaloftheprovisionofES UserfinancedarethemostcosteffecAvebut someAmesnotpossiblewhentheESisapublicgood. Governmentfinancedcanbenefitfromeconomiesof scale Ifnotgovernmentfinanceditopensupan addiAonalstreamoffinancingnotpreviously availableforpreservingtheenvironment Conclusion PESprogramsdifferfromoneanother dependonecological,socioeconomicand insAtuAonalcontext Atpresentmostprogramssufferfrompoor targeAngandadoptaonesizefitsallapproach. LigleassessmentofaddiAonality Anotherchallengeistofindwaystocreate smalleruserfinancedprogramsthatpreserve theeconomiesofscalebenefitsoflarge programs ...
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