Types of Payments/Transactions

i.                     Self-Organized Private Deals:

In this type of transaction private entities pay directly for private services. The prices of these services are typically negotiated based on willingness to buy and sell.  Valuation studies may be an input for negotiation.[i] Instruments include the purchase of development rights to land and direct payment schemes for ecosystem services. For example, a bottled water selling company may pay upstream landowners to use better management practices on their land to ensure their supply of good water quality. Government agencies may play a minor role in facilitating this type of deal through appropriate contract law. [ii]

ii.                   Public Payments to Farmers and Communities

In this system, public agencies pay for a service. The price of services is either set by programs based on willingness to sell and valuation studies or through auction. [iii] Governments determine what ecosystem services are priorities for protection, and pay landowners or managers directly to manage their land and forest for this purpose. Examples of public payment instruments include permanent conservation easements (guarantees that such land will not be logged or farmed), contract farmland set-asides for conservation, programs to co-finance investments in afforestation or sustainable forest management, and payments for the presence of endangered wildlife species. Generally, payments are made to individual landowners, but may also be paid to common property forest owner groups or organized watershed users. Payments may be standardized or negotiated individually.[iv]

iii.                  Open Trading of Ecosystem Credits under a Cap or Floor

In this system, landowners either comply directly with regulations or buy compliance credits. The price of service is based on supply and demand for the service.[v] Government regulation creates demand, but independent buyers and sellers can respond flexibly by trading with one another. An example is carbon emission offset trading, where carbon polluters face a regulatory cap on emissions that they can meet either by reducing their own emissions or by paying others to do so or to sequester an equivalent amount of carbon.[vi]

iv.                 Eco-labeled farm, forest, natural products

This system focuses on payments for ecosystem services through certified sustainable supplies. The price of service is embedded as part of product price usually by market and sometimes by negotiation.[vii] Producers sell forest or farm products produced under management systems certified to improve forest ecosystem services. Products are sold to consumers who prefer to support suppliers who are good environmental managers. For example, ‘salmon-safe’ labeled products from farmers in the northwest US that maintain forest protection of waterways important for salmon.[viii]


[i] “Africa Biodiversity Collaborative Group” available online at <www.abcg.org> (hereafter “ABCG”)

[ii] Scherr, S., A. White and Arvind Khare. 2004. For rendered services: The current status and future potential of markets for the ecosystem services provided by tropical forests. ITTO Technical Series 21, July. International Tropical Timber Organization, Yokohama, p. 28-29

[iii] ABCG, op cit

[iv] Scherr et al. 2004. op cit p. 28-29

[v] ABCG, op cit

[vi] Scherr et al. 2004. op cit p. 28-29

[vii] ABCG, op cit

[viii] Scherr et al. 2004. op cit p. 28-29





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