Abstract
The concept of payments for environmental services (PES) has its theoretical roots in neoclassical welfare economics. The concept suggests that the degradation of environmental resources is linked to the fact that these resources are considered to be for free. By assigning a monetary value to environmental services, sufficient incentives for market players would be created to protect, trade and invest in the provision of environmental services. The implicit assumption that once you assign such a value, a market would automatically evolve with buyers and sellers of the environmental service does however hardly work in practice because it is based on a comparative-static rather than a dynamic understanding of sustainability. This chapter illustrates that a flourishing market of environmental goods and services cannot be merely designed and funded by an external agent. It requires instead active local entrepreneurs that generate revenues through innovation.
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Notes
- 1.
For more information see: http://www.thegef.org/gef/sites/thegef.org/files/publication/PES_english.pdf
- 2.
This does not mean that there would be no genuine problems resulting from global change that needed to be urgently addressed and no citizens that really have the public interest at heart. But there is also opportunism in movements of resistance often resulting in unholy alliances between those who benefit from the status quo (e.g., subsidized farmers or a subsidized coal industry) and advocacy groups that need support for their radical opposition to technological and economic change.
- 3.
Often, the purpose of PES goes far beyond the effective and sustainable management of ecosystem services to include many other objectives such as poverty reduction, improved food security, preservation of cultural landscapes, ensuring decentralized settlement and increasing the quality of life of farmers in remote areas.
- 4.
A recent online discussion on the Global Forum on Food Security run by FAO revealed that there is growing discontent among PES practitioners because they feel that the classic PES schemes are not working and that hardly any of the failures have ever been properly evaluated and documented: http://www.fao.org/fsnforum/forum/discussions/pes
- 5.
Coase argued that if we lived in a world without transaction costs and clearly defined property rights, people would bargain with one another to produce the most efficient distribution of resources, regardless of the initial allocation. In such a situation externalities will be internalized in the form of side payments that reflect the cost of the perceived externality. Rising transaction costs and uncertain property rights will make it more difficult to internalize the externality in a voluntary agreement between the producer of a negative externality (e.g., polluter) and those affected by it. The consequence would be to resort to the law to discourage the polluter from offloading the social costs of his economic activities on the public at large (e.g., polluter pays principle).
- 6.
E.g. a company downstream that depends on clean water and is forced by regulation to limit the amount of untreated waste water produced may invest in a private wetland or a waste water treatment plant; it thus also becomes a provider of an environmental service.
- 7.
E.g. a farmer upstream may improve the sustainability of his or her agricultural practices and thus provide a particular environmental service to people that depend on clean water further downstream. But this does not change the fact that the farmer is first of all a user of environmental services (and thus should also be regarded as a potential buyer in consideration of the polluter pays principle).
- 8.
In this context, the term ‘innovation’ should not be understood as a mere idea or invention but as the process by which such an idea or invention is translated into a good or service for which people are willing to pay.
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Aerni, P. (2016). Payments for Environmental Services: Revisiting the Theoretical Baseline Assumptions. In: The Sustainable Provision of Environmental Services. CSR, Sustainability, Ethics & Governance. Springer, Cham. https://doi.org/10.1007/978-3-319-19345-8_2
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