Paying for Nature: Payments for Ecosystem Services

How paying landowners to protect forests, watersheds and wildlife turns nature's hidden services into income, with examples from Costa Rica and Uganda.

Forests clean water, store carbon, prevent floods and shelter wildlife. These benefits are called ecosystem services. But landowners usually earn nothing from providing them, while cutting trees for timber or farming earns money. Payments for ecosystem services, or PES, try to fix this.

The idea

PES programmes pay landowners or communities to protect or restore ecosystems. The payment makes conservation financially attractive, correcting a positive externality: the benefits of a standing forest flow to many people who don’t pay for them.

Costa Rica

In 1997, Costa Rica launched a national PES programme, funded partly by a fuel tax and water charges. Landowners receive payments for protecting forests, reforesting and managing land sustainably. Costa Rica’s forest cover recovered dramatically from the 1980s to more than half its land area, though economists debate how much the programme itself contributed compared with other factors.

Uganda experiment

A randomised trial in Uganda, published in 2017 by economist Seema Jayachandran and colleagues, paid private forest owners to not cut trees. Villages offered payments had substantially less tree cover loss than control villages, and the carbon benefits were worth more than the programme’s costs.

Other examples

Water funds: cities such as New York have paid upstream farmers to protect watersheds, which was cheaper than building water treatment plants.
India: the Green India Mission and compensatory afforestation funds support forest restoration, and some states have experimented with payments for protecting forests and watersheds.

Challenges

Additionality: are payments going to people who would have protected forests anyway?
Leakage: deforestation may shift to other areas.
Permanence: what happens when payments end?
Fairness: ensuring poorer communities and land users benefit.

The upstream farmer

A city's drinking water comes from a river fed by hills where farmers are clearing forest. Instead of building an expensive treatment plant, the city pays upstream farmers to keep forest on steep slopes. Water quality improves, and farmers gain steady income.

Thinking conservation always requires banning land use

Paying people to protect ecosystems can align economic incentives with conservation, often at lower cost than enforcement alone.

Key takeaways

PES pays landowners to protect or restore ecosystems.
It corrects the positive externality of ecosystem services.
Costa Rica's national programme and a Uganda trial showed promising results.
Additionality, leakage, permanence and fairness are key challenges.