'Marketing' Environmental Services: Lessons Learned in German Development Cooperation

Abstract

"Along with disenchantment over lacking effectiveness and efficiency of traditional policy instruments in natural resources management comes growing interest in alternative approaches. One of these is Payments for Environmental Services (PES): Economic incentives instead of command and control. The concept is intuitively appealing: by offering payments to private land owners as compensation for providing positive externalities like clean water, the public can change the financial rationale behind land use decisions that would otherwise be based only on private costs and benefits.

"The logic behind payments for environmental services is not new. For decades farm subsidies have been justified by real or perceived environmental benefits from agriculture. Development agencies have provided subsidies to farmers for afforestation or similar projects. What is new is the explicit use of the concept of payments for environmental services (PES) in developing countries, particularly in Latin America. The increasing recognition of the environmental functions of forests, and the services their owners provide to the public at the local, national and global level, has led to great expectations. At the same time scarce resources have increased pressure to fine-tune PES for improved efficiency and effectiveness.

"In German Development Co-operation, funded by the Federal Ministry for Economic Development and Cooperation (BMZ) and implemented by both the German Development Bank KfW and GTZ, the German Agency for Technical Co-operation, a number of such programs have been operational in Latin America since the mid-1990s. In this paper, we will be looking at experiences with this programme portfolio in the forest and water sectors and will be discussing a set of issues that seem to be determining success and/or failure in this kind of programme.

"Based on our analysis creating win-win situations is not as straightforward as the appealing World Bank definition suggests '...that those who provide environmental services should be compensated for doing so and that those who receive the services should pay for their provision.' (Pagiola and Platais, 2002) 'Double dividends' in terms of environmental benefits combined with poverty reduction as a result of payments for environmental services are not easily achieved. Trade-offs exist and ask for maximum clarity in the hierarchy of objectives. Aiming to further improve the effectiveness of PES and based on the results of our assessment, we will be intensifying the dialogue with partner countries targeting its use more clearly and defining more specifically the role development co- operation should play."