Payments for Ecosystem Services in Kulekhani Watershed of Nepal: An Institutional Analysis of Mechanisms for Sharing Hydroelectricity Revenue

Abstract

"This paper examines how the scheme of Payments for Ecosystem services (PES) has been implemented in collaboration with existing local resource management institutions, particularly community forestry, to try to achieve both environmental and developmental goals. Through a case study approach, this paper has analyzed the institutional dynamics of hydroelectricity revenue sharing mechanisms in Kulekhani watershed of Nepal. Results indicate that the performance of the Kulekhsni PES scheme is limited in terms of fostering ecosystem services. The analysis shows that the performance has been determined by the deficiencies in the design of institutions and interaction of the PES with other existing local resource management institutions. Similarly, it has also been affected by weak monitoring and enforcement. Based on this analysis, it is argued that, although the PES in Kulekhani has provided a mechanism for transferring hydroelectricity revenue to the local communities to support rural development, it has not transformed existing resource management structures and institutions to demonstrate the effectiveness of enhancing environmental outcomes. The lessons of this research are that politics are driving the design of PES mechanisms, and that its interplay with local institutions can hinder the performance. Moreover, this research suggests that PES schemes do not necessarily result in cooperation among local institutions or the achievement of both ecological and social outcomes."