Reverse Auctions for PES in Tanzania. Photo: Rohit Jindal · benefits (Figure 12.1). For example,...

2 | PES In multifunctional landscapes:Assessment of socio-economic feasibility for synergy in land use

Reverse Auctions for PES in Tanzania.

Photo: Rohit Jindal

Suggested Citation:

Jindal R, Vardhan M. 2017. PES in multifunctional landscapes:

Assessment of socio-economic feasibility for synergy in land use. In:

Namirembe S, Leimona B, van Noordwijk M, Minang P, eds. Co-

investment in ecosystem services: global lessons from payment and

incentive schemes. Nairobi: World Agroforestry Centre (ICRAF).

Chapter 12 | 1

CHAPTER 12 PES in multifunctional landscapes: Assessment of socio-economic feasibility for synergy in land use

Rohit Jindal and Mamta Vardhan

Highlights • Why are multifunctional landscapes hard to manage?

• Main challenges in managing multifunctional landscapes through PES.

• Variety of methods to assess social and economic feasibility of PES.

• Case studies from the field: PES in Viet Nam, Tanzania, and Kenya.

12.1 Ecosystem services from multifunctional landscapes

From a landscape perspective, land is seen to “…simultaneously provide food security, livelihood

opportunities, maintenance of ecological functions such as species diversity, and fulfill cultural,

aesthetic, and other recreational needs”1. This holistic perspective recognizes the dynamic

nature of human-natural capital interactions, and that land use can be managed for multiple

benefits (Figure 12.1). For example, agroforestry stresses on the multi-dimensional

interactions that exist between farmers and their lands, including trees on agricultural farms,

farming in forests, and managing land to protect species diversity. This can take the form of

spatially segregated plots – each producing a different output, or integrated plots with

multiple land uses2. Irrespective of the spatial structure, each agroforestry system helps to

generate several different ecosystem services that are valued locally (erosion control,

hydrological balance, and biodiversity) and globally (biodiversity, carbon sequestration).

PES is one of the ways to conserve vital ecosystem services (ES) by aligning the interests of

land owners with service users. It involves paying cash or in-kind rewards to land owners for

voluntarily adopting land use practices that help to conserve or produce vital ecosystem

services such as carbon sequestration from the atmosphere (by planting new trees and

conserving old ones), maintaining water quality (by controlling soil erosion), and conserving

biodiversity (by protecting endangered flora and fauna). PES programs worth millions of

dollars exist in many parts of the world, and have become the key focus for promoting land

based climate change mitigation strategies3. For example, in Mozambique local communities

around Gorongosa National Park receive cash ($400-$800 per ha over 7 years) and in-kind

(infrastructure development, training) incentives for emission reduction through forest

conservation4.


Figure 12.1 Multifunctional Landscape in Bac Kan, Viet Nam

Some researchers like to ascribe PES as a market based approach, though many others

disagree. They point out that in many cases, PES contracts are unique either in terms of the

land unit that is contracted or the ES that is being produced5. Hence there is no real

competition amongst buyers or even sellers of the ecosystem service unit. Similarly, when

governments include PES as part of environmental regulation, participation may not be

voluntary anymore. Therefore, it may be more appropriate to consider PES as a broad set of

practices that include provision of some kind of incentive for promoting environmental

conservation.

12.2 Challenges in promoting PES in multifunctional landscapes

PES works on the principle of conditionality – the payment or reward to service providers is

dependent on them securing the desired ecosystem service6. From a theoretical perspective,

the size of payment to land owners (or service providers) should equal or exceed the

opportunity cost of changing their land use7. When this payment is made, land owners should

willingly enter into service provision contracts that require them to supply a specified level of

ecosystem services. However, in practice, economic feasibility of PES is rarely such

straightforward. Cause and effect between land use practices (such as afforestation) and their

ecological impacts may be unknown or at best uncertain. Similarly, conditionality may be

difficult to enforce, particularly where property rights are unclear or local governance systems

see the PES approach as a way to subsidize a particular kind of land use system. In the

following sections, we focus our attention on challenges pertaining to adoption of PES

approach on a landscape basis and on some possible field based methods to address these

challenges. The discussion is focused both on policy makers and field practitioners.

12.2.1 Paying for ES versus land use change?

Land owners or service providers ensure the provision of an ES by taking up following specific

land use practices in their area. When these land use practices can be directly linked with the

level of ES being generated (growing trees sequestering atmospheric carbon into their

Chapter 12 | 3

biomass), and the ES is readily measurable (tons of atmospheric carbon sequestered by a

landscape), it is possible to pay land owners on the basis of ES being generated7. However,

when the relationship between land use and ES production is tenuous (maintaining

hydrological balance), or it is difficult to measure and quantify an ecosystem service (scenic

beauty), an ES based payment system becomes difficult to implement. The alternative is to

pay on the basis of the extent of recommended land use changes that local farmers have

adopted. However, the cost of monitoring such a system is much higher particularly if the land

parcels are highly fragmented across the landscape. As a result many PES programs specify

simple land use changes that are easy to monitor, but the challenge for program managers

remains in terms of linking these land uses with the ES that is of interest.

12.2.2 Complementary versus substitutable ES?

Often ecosystem goods and services produced by multifunctional landscapes are

complementary, when one is produced another is generated simultaneously6. For example,

tropical rain forests not only provide timber and fuelwood, they also conserve valuable

biodiversity and sequester significant amount of atmospheric carbon at the same time. If the

users of such services are different (or geographically segregated), the challenge is to decide

who will pay for the much higher upfront cost of setting up the system versus much lower

cost of maintaining it later. Some PES projects address this challenge by bundling the different

ES together and setting up contracts with land owners that require them to follow specific

land use practices. This practice has been followed in Costa Rica’s national PES program

where the government pays local farmers (about $43/ha or $3,000 per household with an

average ownership of 76 ha) to implement recommended land use practices which yield

different ecosystem services (carbon sequestration, scenic beauty) that are then sold in

relevant markets (carbon in international markets, scenic beauty among eco-tourists)8.

However, many ES also act as substitutes of each other. In such cases, program managers

may be tempted to promote ES that can earn higher revenue from potential users. This can

be problematic if it leads to degradation of other ecological functions that the landscape

performs. For example, while fast growing monocultures are good for yielding carbon

sequestration, such landscapes may lose their species diversity and may even have a

detrimental effect on the local hydrology. The challenge in managing landscapes that produce

such multiple ES is balancing economic considerations with ecological perspectives. One

potential alternative is to pay land owners according to ecological matrices that give

appropriate weight to different ES, as has been done in a PES project in Nicaragua9. Another

option is to ban land uses that may produce an ES but are deemed highly detrimental for the

entire landscape, for example excluding exotic monocultures from carbon projects.

12.2.3 How much to pay?

PES requires program managers to estimate how much to pay to service providers10. If the

payment is too low, land owners will remain under-compensated implying that many

potential suppliers will opt out of the project. If the payment is too high, service producers will

claim all the surplus from the transaction and the project will fail to deliver an adequate level

of environmental service. Often, program managers may also need to determine a specific

payment level because many projects either include onetime contracts or are of long duration

whereby renegotiation of the contract is costly once it has begun. Therefore, the terms of the

project, including the payment level, have to be clearly laid out ex ante in order to obtain a

long term commitment from the suppliers. If these terms are changed in the middle of the

project, land stewards may discontinue their conservation efforts.

One of the challenges of using PES approach is that in the absence of competitive markets for

many ES such as biodiversity and watershed conservation, it is hard to determine the price or


payment to offer to land stewards as suppliers. When markets do exist, they can be so

differentiated that there is no single price that can be paid, as is the case as with voluntary

markets for carbon sequestration credits. Moreover, it is difficult to directly transfer cost

estimates from one project to another since the cost of implementing a new land use practice

is often site (and farmer) specific. When measuring production costs is expensive, especially

on new project sites, ES providers may have little incentive in revealing their true costs. This is

because only the farmers know a large proportion of this opportunity cost (e.g. change in

labor inputs), thereby creating an information asymmetry between the farmer and the project

manager11.

It is also important to note that existence of a price does not translate automatically into

existence of a market for ES5. For ES suppliers, the price may reflect the local cost of adopting

a new land use practice, while for ES buyers or financiers, it may reflect the monetary value of

the environmental benefit they perceive from conserving a landscape.

12.2.4 Would payments make a difference – additionality, leakage, permanence

concerns?

An important feature of PES approach is conditionality – payments or rewards are contingent

on landowners or service providers ensuring the security of an ES (or the adoption of a

specified land use). This implies that the payment should lead to a larger provision of ES from

a service provider than business as usual (BAU) – also known as additionality. Leakage, on the

other hand, refers to loss of additionality at the landscape level. In figure 12.2, the line

segment 1 represents the level of ES from an individual service provider (say to provide

carbon sequestration through afforestation), while segment 2 represents the level of ES

supply from the entire landscape. The level of ES supplied by an individual service provider

contracted under the project (line 1a) should be more than the business as usual (BAU)

scenario before the start of the project, i.e., the level of ES available if there were no PES

project (line 1b). The difference between segment 1a and segment 1b represents the net

additionality of ES created under the PES project. At the landscape level (segment 2), the level

of ES supply after the start of the project should ideally increase to line 2a, which is equal to

the additional ES created by individual landowners who have been contracted across this

landscape. However, if the level of ES from the landscape remains equal to line 2b, this implies

that even though the contracted landowners are implementing recommended conservation

practices on their private plots, some of them are involved in resource exploitation in other

parts of the landscape (say by chopping down trees on village common lands). The area L1,

which is the difference between segments 2a and 2b represents the leakage that is taking

place at the landscape level: even though landowners are increasing ES supply from their

individual plots, the buyers or service users do not experience any additional availability of ES

from the landscape. If the amount of resource exploitation at the level of landscape (line 2c) is

more than the additional ES created by individual service providers, the PES project may result

in a lower level of ES than BAU. The area L2 which is the difference between lines 2b (or the

BAU at the landscape level) and 2c represents excessive leakage at the level of the landscape –

service users are now subsidizing resource exploitation at the landscape level.

Chapter 12 | 5

Figure 12.2 Pictorial representation of Additionality and Leakage under PES

Permanence refers to the continued availability of ES even after the end of the project. In figure

12.3, the level of ES available from the landscape increases from the BAU level after the start

of the project. As the PES project ends, the level of ES from the landscape may fall back to the

BAU level (i.e. line segment 2), which implies that the ES created by the project was temporary

in nature. Thus, in case of carbon sequestration service from afforestation, all the new trees

that were established under the project are now cut, which means that the amount of carbon

sequestered from growing trees has been lost back to the atmosphere (say by burning of the

trees as firewood). However, if the level of ES available from the landscape after the end of the

project is higher than BAU, i.e. it is equal to line segment 1, this indicates that the PES project

has been able to create some level of permanence of long-term sustainability of the ES. A

project may also have a perverse effect on service providers, after the payments end, the level

of ES may be lower (line segment 3) than at the beginning of the project (BAU). This indicates

that over the long term, the PES project resulted in a net loss of ES from a landscape.

Figure 12.3 Pictorial representation of Permanence under PES


To ensure additionality, sufficient level of permanence, and that no leakage is taking place, the

challenge for a PES project is to not only monitor individual service providers but also the

entire landscape. This monitoring needs to be done at all stages of implementation, i.e. before

the start of the project, during implementation, and after the completion of project activities

(Table 12.1). In some cases, such kind of monitoring can be done through remote sensing

(such as carbon sequestration through afforestation and reforestation), while in others field

based monitoring is essential (biodiversity conservation).

Table 12.1 Challenges in monitoring additionality, leakage, and permanence

Before Project Status

During Project Status

After Project Status

Additionality Individual Level ES Permanence

Leakage Landscape Level ES Permanence

12.2.5 Enrolling a minimum number (threshold) of land holders for viable ES?

Another challenge with managing multifunctional landscapes is that many ecosystem services

such as erosion control and hydrological balance require sufficiently large proportion of the

local area being under a similar land use without which these services cannot be produced12.

However, the actual land within these landscapes could be owned by different people as

smaller parcels with completely different land use practices. So unless these landowners

collaborate together to adopt synergy in land use, the landscape cannot produce these

services6. Even when land is commonly owned, as in the case of community owned forests in

many developing countries, the heterogeneous nature of resource users (herders interested

in grazing their animals versus households that would rather grow timber trees) makes it

difficult to agree to one particular land use. In such a case, having the same PES contract for

everyone will likely result in under-enrollment. On the other hand, having lots of different

kinds of contracts for different households will require extensive monitoring, thus making it

difficult for managers to contain project costs.

This becomes even more problematic when the opportunity costs of different landowners are

vastly different and are difficult to estimate for project managers. For example, different

sections of a landscape may differ by the depth of top soil, average slope, and their suitability

for new land use practices. When combined with differences among landholders in terms of

their socio-economic status, it can be difficult to determine ex ante what land use contracts

would work best for the area. There is thus an information asymmetry between service

providers and service users or project managers, which can result in loss of efficiency gains for

a PES project11. In such cases, potential options include: (i) setting up a menu of contracts that

vary by requirements regarding conservation effort and potential paymenta, (ii) having a

standard contract with a uniform payment levelb, and (iii) offering agglomeration bonuses for

landholders that decide to pool their lands for enrollment in a PES project13.

a An example is a menu of contracts offered by the Nhambita Community Carbon Project in Mozambique. b However, this would result in lower cost providers being over-compensated as compared to landowners with

higher opportunity costs.

Chapter 12 | 7

12.2.6 Impact of payments on existing norms?

In many landscapes, there may already exist local norms or arrangements for resource use

and conservation. On the island of Bali for example, local landowners have developed norms

regarding use of surface runoff for irrigation on private lands. Local norms also exist around

common property resources such as forests and grasslands in many developing countries

where neighboring communities have developed institutions that regulate the amount of

timber or grass that a household can partake. When implementing PES projects across such

landscapes, an important challenge for project managers is to identify norms that already

exist in the area, and understand how best to design new incentive structures that do not

create any perverse impact.

Research from psychology and behavioral economics shows that human behavior is driven by multiple sources of motivation. Existing norms for resource management constitute what are

called as intrinsic motivators, as they provide a sense of satisfaction to local landowners for

doing the right thing for their community15. In contrast, payments under PES type

arrangements mainly act as extrinsic motivators, as they provide an economic incentive for

people to adopt a particular set of land use practices. However, there is a risk that new incentive structures such as cash payments may “crowd-out” a community’s intrinsic motivation to look-after a landscape without the need for external regulation. When this happens, the outcome may be worse after the implementation of a PES project than before it. This is indicated by the possibility of excessive leakage as shown in figure 12.2 (line 2c), or perverse outcome in figure 12.3 in the form of lower level of ES after the end of PES payments than before it (line 3). This is an evolving area of research where field evidence is still patchy. In one of the few studies that look at this phenomenon, Kerr et al. (2012)14 conducted field experiments in Mexico and Tanzania that showed that cash payments helped raise participation in community based resource conservation where people were otherwise uninterested, but in areas with strong norms towards resource management, local participation remained high irrespective of external incentives. In addition, cash payments reduced peoples’ satisfaction from contributing towards a collective resource conservation project than the satisfaction they derived in absence of external compensation. If such a phenomenon is observed in other PES projects then the long term viability of ES provision through external payments will be open to challenge. While more research is being conducted, possible alternatives include providing non-cash incentives where cash payments may lead to perverse outcomes. In case of landscapes requiring collective effort from a community, PES projects will need to focus on strengthening local institutions before instituting new incentive structures15.

12.3 Potential ways to address PES challenges

While a PES approach has several potential advantages over conventional integrated

conservation development projects6,9; the above discussion shows that project managers face

several important challenges when taking PES to the field, especially when implementing

activities with a landscape perspective. Many of these challenges pertain to informational

gaps that need to be addressed before a project can be implemented on ground. In recent

years, much research has focused on identifying methods that can help in bridging these

information gaps. These include using a production function approach to estimate cost of

supplying PES16, conducting choice experiments to identify preferences of local communities

regarding PES contracts17, and undertaking benefit-cost analysis of adopting new land use

practices18. In the following sections, we discuss three such methods that we have used in the

field to address some of the information challenges in PES.


12.3.1 Group deliberations: Structured decision making in Bac Kan, Viet Nam

PES often requires complex decision making by stakeholder groups who may have very

different perspectives regarding resource conservation and expected outputs. Group

deliberations are helpful in highlighting these perspectives and in identifying tradeoffs that

each group may need to make in order to arrive at a common set of program activities for a

given landscape. Structured Decision Making (SDM) is a group deliberation method that helps

program managers understand specific objectives and concerns of stakeholders for effective

decision making. The method involves open-ended interviews and workshops with key

stakeholder groups to: (1) define the decision problem, (2) identify objectives from

stakeholders’ perspectives and performance measures to determine the extent of success of

a program, (3) identifying alternatives for achieving program objectives, (4) forecasting the

consequences of implementing these different alternatives, and (5) helping stakeholder

groups recognize key tradeoffs when selecting among different alternatives19.

The SDM method was used in Viet Nam to identify stakeholder preferences under the United

Nations’ REDD (UN REDD) program. The UN REDD has been piloted in Viet Nam from 2009

onwards and aims to reduce national greenhouse gas emissions through sustainable forest

management. The SDM study in Viet Nam was conducted in collaboration with ICRAF’s

country office in Hanoi. Since forest landscapes are put to multiple uses (timber logging, local

fuel wood needs, ecotourism), and are inhabited by diverse communities, it is important to

reconcile local preferences with national level priorities regarding REDD. Therefore, the study

was carried out at two levels: a series of workshops with 10 national level stakeholders

representing government agencies, research institutions, international donor organizations,

local NGOs, and representatives from the Viet Nam’s UN REDD office; and another series of

workshops with local communities from four villages in Bac Kan province. Bac Kan was one of

the provinces selected by the national policy makers for detailed REDD activities, which made

its choice really appropriate for the SDM study. The workshops with national level

stakeholders focused on management objectives regarding REDD, and related performance

measures. At the local level, the workshop facilitators helped people to state their specific

objectives and performance measures, and preferences regarding key programmatic areas.

The SDM workshops showed that national level stakeholders had four main objectives

regarding REDD: protecting valuable ecosystem services, improving local livelihoods, poverty

reduction, and climate change mitigation. Related performance measures were mostly

technical and included percent tree cover, and tons of carbon sequestered by forested

landscapes. At the village level in Bac Kan, local participants articulated three objectives that

were similar to national level stakeholders – protecting ES, improving local livelihoods, and

poverty reduction, and another fourth one related to promotion of democratic governance.

Performance measures were also mostly local in scope and included quality of relationships

between villagers, water quality, and presence of useful tree species. Program alternatives

articulated by people included a i) a preference for bottom-up design process through

collaboration between REDD officials and local participants, ii) mix of cash payments for

individuals (in the form of goods such as fertilizers, seeds, building materials), and in-kind

benefits at the community level (improved roads, school rooms, irrigation infrastructure), iii)

allowance for limited use of forests such as fuel wood, iv) local level management and

monitoring of REDD activities handled jointly by village leaders, village forest boards, and

individual participants, and v) limited conditionality so that people are not penalized for

naturally occurring calamities such as fire and flood19. The SDM method therefore helped in

understanding and articulating stakeholder preferences regarding a potential REDD program

including key elements such as management structure, payment system, and monitoring and

verification system.

Chapter 12 | 9

12.3.2 Household survey: Case study from Lake Victoria Basin, Kenya

Sediment flow into Lake Victoria due to large scale soil erosion in its catchment has several

harmful effects on water quality including reduced fish catch from the lake and escalation in

maintenance costs for hydroelectric turbines in downstream areas. The Global Environment

Facility funded Western Kenya Integrated Ecosystem Management (WKIEM) project aims to

reverse this ecological deterioration through forestry activities in the upper catchment. For

the program to have a significant effect on the amount of silt flowing into the lake, a high

proportion of farmers in the river basins needed to be willing to plant trees on their farms.

The present study aimed to assess the feasibility of such a forestry program by assessing the

impact of economic incentives on the number of farmers who would be willing to plant

additional trees on their farms20. It was conducted in collaboration with ICRAF’s Western

Kenya office, which was one of the implementing organizations for the project.

The study took the form of a household survey in which the respondents were asked to elicit

the kinds of tree species and the number of additional trees they would be willing to plant

under a potential PES program in the area. They were given three hypothetical scenarios: one

where they would receive free seedlings, two where they had to pay 10 Ksh (Kenyan Shillings)c

per seedling, and three where they received 10 Ksh per seedling. To make these scenarios

realistic, respondents were told that payments would only be made six months after the

seedlings were planted and on the basis of the actual number of surviving seedlings.

The survey covered 277 households across Nyando and Yala river basins. Survey results

showed that when buying seedlings, farmers would plant an average of 44 seedlings per

household. Demand increased to 203 seedlings if farmers received free seedlings, and further

to 245 seedlings/household if they were paid 10 Ksh for planting each seedling. Also,

respondents in Yala River Basin were willing to plant more trees than farmers in the Nyando

River basin. These results showed that although the economic incentives had a significant

effect on farmers’ willingness to plant trees, the overall effect was low. Taking a planting

intensity of 2.5m X 2.5m, a household was willing to put less than 0.5 acres of farm land under

tree plantations even when it received a payment of 10ksh/seedling along with free seedlings.

This could be due to shortage of farmland that was already under food crops. To achieve any

meaningful impact at the level of the entire basin would therefore require rigorous targeting

and increasing the size of economic incentives for local farmers. The program could start its

activities from the Yala basin where farmers were more willing to plant trees. Finally, many

local households were interested in planting fast growing exotic trees, which was not the best

option from an ecological viewpoint. Therefore, the local NGOs needed to take up

environmental campaigns to inform people about the need for planting indigenous trees and

the program could incorporate higher incentives for farmers that were willing to plant

indigenous trees on their farms.

12.3.3 Market simulations: Reverse auctions in Uluguru Mountains, Tanzania

As discussed above, a constraint with the PES approach is the need for ex ante determination

of payment level for service providers. One possible alternative is to create market like

conditions through reverse auctions; the roles of buyers and sellers (or service providers) are

reversed in these auctions and successful bids from potential service providers are decided

on the basis of how low they are. Such an auction was used to allocate PES contracts among

local farmers in the Uluguru Mountains in Tanzania.

The Uluguru Mountains provide several valuable ES that are under threat due to rapid

deforestation. Many research organizations including ICRAF have been promoting tree

c The exchange rate at the time of the study was 75 Ksh = 1US$.


planting as a way to revitalize the local ecosystem. Reverse auctions were carried out in the

area in 2009 to estimate the level of payment necessary to compensate farmers to change

their land use from cash crops to trees21. Participating farmers bid for PES contracts in terms

of minimum payment they would be willing to receive for planting 80 trees over 0.5 acres, and

for protecting these trees for at least three years. There were two auction rounds, one for

planting Khaya anthoteca and Tectona grandis, and the other for Khaya anthoteca and

Faidherbia albida tree species. 251 valid bids were received in each of the two rounds. As a

result, 23 lowest bidders received three-year PES contracts – 14 winners from round one

received TSH 30,000 each, while 9 winners from round two received TSH 20,000 eachd. In all,

1,840 trees were planted on 11.5 acres of land as a result of the contracts allocated through

the auction.

The auction bids also provided cost estimate for implementing a PES project in the entire

area. For a low-enrollment target of one-third of the eligible area, a PES project would need to

pay TSH 100,000 per contract (per 0.5 acre). For the catchment as a whole, this would enroll

about 184 acres (or 368 local households) at a total cost of TSH 36,800,000 (US$28,976). For a

high-enrollment target of 80%, the project would need to pay TSH 200,000 per contracte and

491 acres of private land (982 households) would enroll at a cost of TSH 196,400,000. In terms

of participation of the poor, auction bids showed that while some poor households had low

opportunity costs (and were thus the first ones to be contracted), many others reported much

higher opportunity costs (possibly due to shortage of land that could be put under trees). This

implies additional budgetary requirements in case project managers wanted to contract poor

households.

A monitoring exercise in January 2011 found high rates of compliance with the terms of the

contracts. Of the 23 farmers who won the carbon contracts, 18 had duly complied with the

contract requirements, with 63% of the trees surviving on their farms almost two years after

they were planted. The contract outcomes were similar across the two sets of carbon

contracts, though the survival rates varied by tree species, (83% for Khaya anthoteca, 44% for

Tectona grandis, and 36% for Faidherbia albida). This variation was due to higher familiarity

with Khaya anthoteca than Faidherbia albida, and failure of the short rains which led to higher

mortality of Tectona grandis. In a group discussion during the monitoring visit, many farmers

said that they liked the transparent way in which the auction process had identified recipients

of the tree planting contracts. They expressed their satisfaction that unlike in other projects

with which they were familiar, prominent villagers did not receive contracts (because their

bids were too high). Farmers also expressed satisfaction with the payment they had received,

which helped them recover the cost of labor and other inputs in planting the new trees.

12.4 Conclusion

While PES has become a useful strategy to promote conservation including land based

emission reduction, this chapter identifies important constraints that need to be addressed

when designing new projects, especially when following a landscape approach. A

multifunctional landscape may help in bringing together service providers and potential

service users, but it also throws up new challenges in the form of ascertaining whether a PES

project results in additional provision of the ES being considered, and that this ES has a

desirable level of sustainability or permanence. Project managers also need to check leakage

as contracted service providers may exploit natural resources from other parts of the

d The exchange rate at the time of auctions was TSH 1270 = 1US$. e This total excludes the cost of supplying tree seedlings and other project administrative costs.

Chapter 12 | 11

landscape. Often, a landscape approach also entails contracting a high proportion of the local

households (or a certain threshold land area) for the ES to be viable. This becomes even more

difficult to manage when a landscape is inhabited by heterogeneous land owners with vastly

different opportunity costs and contract preferences. In absence of competitive markets for

most ES, it becomes paramount for project managers to identify the appropriate level of

payment that would voluntarily induce conservation behavior from local farmers. However,

recent research suggests that external incentives in the form of payments may not always

lead to conservation effort. In areas where communities have evolved their own norms for

resource management, or where cooperation among community members is essential for

managing common pool resources, PES projects need to identify additional kinds of incentives

that will work. Not all PES projects may come up against these constraints, but when aiming

for synergy in land use through a landscape approach such as in REDD, it is likely that these

constraints will need to be addressed for ensuring successful project outcomes.

Group Deliberations, Viet Nam. Photo: Rohit Jindal

Though our objective is to draw attention to these key constraints, we also identify some

potential methods that have only recently been considered for PES based scenarios. As we

show through the case study from Bac Kan, Viet Nam, group deliberation such as SDM can be

very useful in identifying and reconciling preferences of various stakeholder groups. The

method is helpful in assessing what kinds of collaborative networks already exist in the area

and what kinds of incentive structures would be most effective. Similarly, the household

survey involving demand elicitation in Lake Victoria basin in Kenya points out the approach

that can be taken to assess what proportion of local households would be willing to join a PES

program. The survey also helps in assessing the socio-economic status of the local

households for more effective PES targeting. Finally, reverse auctions create market like

conditions that have only recently been tested in developing countries. ICRAF has taken a lead

in this regard by collaborating on most of the existing auction studies involving PES projects.

As the results from the Uluguru Mountains in Tanzania reveal, auctions are not only useful in

estimating the local supply curve for providing ES (and thus the level of payment at different

levels of ES provision), they are also seen as transparent and fair by the participants. An

important strategy in this regard is to pay a uniform price to the winning bidders rather than

following discriminatory pricing. While these methods point out potential ways to address

challenges in designing effective PES programs, in the end, the choice of field method will

depend on the local context and the project team’s comfort level with a method.


Acknowledgements

This chapter is based on field research conducted in collaboration with ICRAF on their various

PES sites across East Africa and Asia. We wish to thank all the research teams and ICRAF

scientists who have helped us in carrying out this research. In particular, we acknowledge

Meine van Noordwijk, Brent Swallow, John Kerr, and Delia Catacutan, and an anonymous

reviewer for their support and feedback. We also acknowledge the grant support from

University of Alberta and MacEwan University (RSACAF Project Grant) in carrying out fieldwork

on some of our project sites.

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