POLICYMIX - Payments for ecosystems services

Payments for ecosystem services (PES) are one of the principal ways in which a market for ecosystem services can be established. They can essentially be defined in terms of payments to land managers and other stakeholders to undertake actions that increase the quantity and quality of desired ecosystem services, which should benefit specific or general users. In this sense, PES can be argued to fit within the broad category of market-based (economic) instruments which include taxes and charges, subsidies and tradable permits. PES are seen as voluntary trade between a seller and a buyer. In practice, public bodies often act as ‘buyers’ and the money involved are created on the basis of taxes or fees. Hence, PES are sometimes distinguished between market-based and publicly-based payment systems, depending on how the financial basis for the trade is created.

The volume of PES is estimated to be approximately 1,460 million USD/year (2010). Of this, about 87% is used in developed countries. As much as 99% of payments derive from public sources (97% for developing countries). High transaction costs seem to be a core explanation for the extensive involvement of public authorities. Several developing countries have established Conservation Trust Funds to operate as intermediaries between ‘buyers’ and ‘sellers’, with the aim of attracting private funds. However, public funds dominate even in these cases. So while firms and individuals do engage, the level of engagement apparently remains relatively marginal. Little information exists on the effectiveness of PES on biodiversity conservation and sustainable use.

New varieties of financial mechanisms, such as PES procurement auctions,
ecological fiscal transfers (EFT) and habitat banking (HB), may potentially play a greater role in the future mix of instruments used to increase financing for conservation, and potentially create more appropriate incentives. These instruments have, alongside the conventional PES, been evaluated by the Policymix project in cooperation with the Department of International Environment and Development studies (Noragric in Norway).


Vatn, Arild, David N. Barton, Henrik Lindhjem, Synne Movik, Irene Ring and Rui Santos: Can markets protect biodiversity? An evaluation of different financial mechanisms. Noragric Report No. 60 (June 2011)