Defining Payments for Environmental Services

Even though there is no global definition of PES schemes, there is a series of classifications based on environmental services, structure, approaches, types of payments, and others which help define it. The lack of a global definition reflects the vast diversity of models, yet the lack of clarity generates confusion about which mechanisms should be considered payments for environmental services. PES schemes are commonly classified by type of services provided; they also can be classified according to the type of transactions they involve.[i]

 All PES schemes share an objective: providing environmental services that are undersupplied due to the lack of compensatory mechanisms. They provide a mechanism through which services can be provided in a cost efficient manner. PES schemes seek to formulate a certain value to environmental services and establish appropriate pricing, institutional and redistribution systems that will lead to sustainable and socially optimal land use practices. These schemes tend to work best when the value of environmental services is high for beneficiaries and the cost of providing the services is low.[ii]

Pagiola (2004) refers to payments for ecosystem services as a method of internalizing the positive externalities associated with a given ecosystem or a specific resource use[iii]. According to Wunder (2005), PES can be defined as [iv]:

a.       a voluntary transaction where

b.       a well-defined environmental service (ES) (or a land-use likely to secure that service)

c.       is being ‘bought’ by a (minimum one) ES buyer

d.       from a (minimum one) ES provider

e.       if and only if the ES provider secures ES provision conditionally.

 While each PES scheme is unique, most have a common basic structural design (see Figure 1). This model is conceptually appealing for both its simplicity and its flexibility in various socioeconomic and environmental conditions. However, its application in real-world situations faces challenges that are identified by a closer analysis of existing PES schemes.[v] 

Among the challenges that remain to be addressed, the following are included:

1.       Lack of knowledge concerning the links between ecosystem management, service provision and economic activity;

2.       the absence of enabling policies and institutions to capture willingness-to-pay, resulting in limited effective demand for ecosystem services;[vi] and

3.       limited capacity to design and implement PES schemes, especially in developing countries.[vii]


Figure 1. General Structure of PES Mechanisms[viii]


[i] Mayrand K. and M. Paquin. 2004. Payments for Environmental Services: A Survey and Assessment of Current Schemes. Unisfera International Centre for the Commission of Environmental Cooperation of North America, Montreal, p. 5-6

[ii] Ibid p.6

[iii] Pagiola, S. et. al. 2004. Paying for Biodiversity Conservation in Agricultural Landscapes. The World Bank, Washington, D.C.

[iv] Wunder, S. 2005. Payments for Environmental Services: Some Nuts and Bolts. CIFOR, Occasional Paper No.42

[v] Mayrand K. and M. Paquin. 2004. op cit p. 6

[vi] Wunder, S. 2005. Payments for Environmental Services: Some Nuts and Bolts. CIFOR, Occasional Paper No.42

[vii] UNEP. 2006. Developing International Payments for Ecosystem Services: Technical Discussion (Background Paper). Geneva, p.6


[viii] Pagiola, S. 2003. Paying for Water Services. World Conservation, No. 1. World Bank, Washington, D.C.
















This page was last updated on Wednesday December 20, 2006.