Payment for Environmental Services
Blanca Rodríguez-Chaves Mimbrero
The valuation of environmental services or positive environmental externalities of natural resources, and especially of ecosystems, is a key tool in the transition towards a climate-neutral economy, that is, an economy capable of avoiding or reducing greenhouse gas emissions as much as possible, so that only unavoidable emissions need to be offset. Europe has set the objective of achieving “environmental neutrality” by 2050.
This underlines the importance of forests as the only carbon sinks that can be managed by humans and that offset those greenhouse gases which, despite all available technology, inevitably have to be emitted. For this reason, forests are the only sector explicitly mentioned in the Paris Agreement (2015). Along these lines, the report of the Committee on Agriculture and Rural Development of the European Parliament (“On the European Forest Strategy – The Way Forward” [2019/2157, INI]) states, with the aim of promoting multifunctional forests, that ecosystem services such as CO₂ sequestration, biodiversity protection or soil improvement “are not adequately remunerated.” In this respect, it notes that “forest managers who focus on transforming their forests in this direction may currently be managing their forests at a loss, despite providing essential ecosystem services.” Consequently, the report calls on the Commission and the Member States to “examine options to incentivise and adequately remunerate ecosystem services related to climate, biodiversity and others, with a view to achieving an economically viable forest transition.” Among these options for remunerating environmental services is payment for environmental services (PES) (Pascual and Corbera, 2011; Rodríguez-Chaves Mimbrero, 2013; Rodríguez de Francisco, 2015).
Payment for environmental services (hereinafter PES) is a market-based solution that was initially proposed within the field of environmental economics and later incorporated into the legal domain. Its foundation lies in the application of the environmental law principle “the polluter pays” (originating in the OECD in 1972 and incorporated into Directive 2004/35/EC on environmental liability with regard to the prevention and remedying of environmental damage) and, correlatively, “those who reduce pollution are paid.” At the same time, PES systems are based on the theoretical concept that goods can be directly exploited in economic activities, while also providing environmental services to productive systems.
Through PES, the objective is to achieve the internalisation of environmental externalities (García López, 2011), that is, the fair and efficient allocation of the costs of ecosystem services. As long as markets fail to perform the role expected of them, public action must establish systems to compensate for the market failure represented by the lack of remuneration to producers for the provision of public and private benefits (Coase Theorem; Farber, Costanza & Wilson, 2002). To this end, various economic and legal instruments have been used, such as public subsidies and the application of different commercial or financial mechanisms. PES schemes move away from subsidy-based approaches, characterised by the unilateral assumption of environmental costs, and instead adopt a negotiated nature, typical of contractual arrangements. PES address both environmental goods and the environmental services they provide. Through PES, nature’s services, which were previously excluded from possible exchange, are incorporated into the market, linked to the price system, and cease to be perceived as free public goods.
The core idea of PES is that the external beneficiaries of environmental services pay, directly, contractually and conditionally, landowners and local workers for adopting practices that ensure the conservation and restoration of ecosystems. The most widely accepted definition of a PES scheme is that of a voluntary contract between a provider of one or more explicitly defined environmental services (or a land use that ensures such services) and a beneficiary who pays for them (a buyer). Payment is made only if these environmental services are actually provided—this is the principle of conditionality—and if they are additional to those that existed prior to the implementation of the PES scheme. In other words, for a PES scheme to be effective, improvements in environmental services must be verifiable, understood as increases in quantity and quality, continuity, and additionality compared to the baseline scenario, that is, the absence of the PES scheme. The most important element of PES is conditionality. Conditionality implies that payments (economic incentives) are received insofar as participants achieve the objectives established by the PES programme in question.
Over the past twenty years, there has been growing interest in PES, not only at the theoretical level but also in practice. Today, there are valuable examples of PES at all levels: local, regional, national, and international. An emblematic example of the application of PES systems at the international level is the REDD+ mechanism, which seeks to combat emissions reductions derived from deforestation and forest degradation.
Latin America has been a pioneer in the implementation of large-scale PES schemes, usually financed or operated by governments. The governments of these countries have recognised the significant potential of PES to mobilise additional long-term funding from the private sector in support of enhanced natural resource management programmes, using the incentives of “the user pays” and “benefit sharing.” PES systems have been applied primarily as a means to achieve better management of water and forest resources. Costa Rica (Rodríguez Zúñiga, 2003; Pagiola, 2008) was the first country in the world to implement a PES system (FONAFIFO, https://www.fonafifo.go.cr/es/). Mexico (CONAFOR, 2003), Nicaragua and Colombia have also been pioneers, closely linking PES schemes by law to peace-building processes and the substitution of illicit crops (Law No. 1,819 of 2016).
PES systems were first introduced into European law through the Common Agricultural Policy (CAP), Regulation (EC) No. 1698/2005, which provides for the conclusion of “territorial farming contracts” as one of the instruments enabling compensation for the environmental services generated by livestock farmers, farmers and forest managers. In subsequent CAP programming periods, PES-type systems have been introduced under different terminology. In the 2015–2020 CAP, all direct payments (basic payment) were subject to environmental cross-compliance; in addition, a green or ecological payment was regulated for farmers applying practices beneficial to climate and the environment (Greening). Environmental cross-compliance requires, on a mandatory basis, that all farmers and forest managers receiving direct payments comply with “statutory management requirements” in accordance with applicable EU legislation. The Greening or Green Payment (FEAGA Fund) was an annual per-hectare payment, complementary to the basic payment, conditional on compliance with measures beneficial to climate and the environment that went beyond cross-compliance (or the mandatory ecological component of direct payments). In the 2023–2027 CAP, cross-compliance is maintained, but Greening or the Green Payment has been replaced by eco-schemes (Rodríguez-Chaves Mimbrero, 2019).
In Spanish domestic positive law, two instruments are structured as PES systems: Territorial Contracts (Law 45/2007 on the sustainable development of rural areas, implemented by Royal Decree 1336/2011, regulating territorial contracts as an instrument to promote sustainable rural development: Amat Liombart, 2011; Rodríguez-Chaves Mimbrero, 2011; Rodríguez-Chaves Mimbrero, 2012; Cantó López, 2012; Lozano Cutanda and Rábade Blanco, 2013; Muñoz Amor, 2017; García Asensio, 2020) and Land Stewardship, provided for in Article 3.9 of Law 42/2007 on Natural Heritage and Biodiversity, which defines it as “a set of legal strategies or techniques through which landowners and land users are involved in the conservation and use of natural, cultural and landscape values and resources.”
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