Payment for Ecosystem Services: Comparison
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Please note this is a comparison between Version 3 by Conner Chen and Version 2 by Conner Chen.

Payment for ecosystem services (PES) is a market-based policy approach intended to foster land use practices, such as forest conservation or restoration, that protect and improve the social benefits from healthy, functioning ecosystems. While PES programs are used globally, they are an especially prominent environmental policy tool in Latin America, where the vast majority are payment for hydrological services (PHS) programs. PHS programs incentivize the conservation and restoration of ecosystems associated with water production and clean water for clearly defined water users, such as household water users, industries and farmers. As a market mechanism, PHS approaches involve a transactional relationship between upstream water producers and downstream water users who are connected by a shared watershed.

  • ecosystem services
  • public participation
  • environmental governance
  • payment for ecosystem services
  • environmental policy

1. Background

PHS is a type of economic tool for conservation that incentivizes forest conservation and sustainable agricultural practices in water production-related zones by offsetting the opportunity costs of foregoing destructive land uses such as intensive agriculture, cattle ranching, and logging [1][2][3]. PHS consists of “the use of payment (or compensation) mechanisms to create economic incentives for protecting forests and their hydrologic services that are equal to or greater than the opportunity costs foregone by limiting land use options” [3] (p. 25).
Several international organizations, environmental non-profits, and governments have promoted the use of PHS programs worldwide with the assumption that they produce social benefits such as additional income to small landowners, poverty alleviation, and social capital, alongside environmental benefits [4][5][6][7][8]. A review of the literature in PHS found that there are at least 387 PHS programs currently functioning worldwide [9]. PHS is a mainstream environmental policy grounded in ideas of neoliberal conservation that seeks to address the economic drivers of deforestation and forest degradation through economic means [10][11][12][13].
PHS has received criticisms from critical scholars due to its narrow economic approach, top-down structure and lack of involvement of PHS program stakeholders in decision making [5][14][15][16][17][18]. Critical scholars and advocates of alternatives to market-based conservation often call attention to the ways global environmental policies expand neoliberal programs and the commodification of nature [12][13]. Based on criticisms of PHS as a neoliberal tool for conservation, yet acknowledging the role of local actors in resisting international environmental policies, recent publications have called for an investigation into how local actors (PHS stakeholders) shape neoliberal programs to meet local needs [19][20][21]. Through case study research, social scientists have highlighted some of the institutional, cultural, and economic patterns that influence the adaptation of PHS policies to local contexts [16][20][22][23][24][25].

2. Local Matching Funds Payment for Hydrological Services Programs in Central Veracruz, Mexico

Facing persistent urban problems associated with water scarcity and low water quality, the Mexican government launched a federal PHS program named Programa de Pago por Servicios Ambientales Hidrológicos in 2002 that sought to incentivize forest conservation in areas of high deforestation risk [26][27][28][29]. Mexico’s federal PHS program was initially managed by the National Forestry Commission, Comisión Nacional Forestal, or CONAFOR, with funding from Mexico’s Federal Rights Law, the Mexican Forest Fund, and additional funding from the Federal Congress [26][28].
After subsequent revisions due to criticism by local scholars and NGOs, the federal government launched the Local Matching Funds PHS (LMF-PHS) schemes, Mecanismos Locales de Pago por Servicios Ambientales a través de Fondos Concurrentes, in 2008 to increase local commitment to the program and secure its long-term sustainability by conditioning CONAFOR’s support to the financial contribution of local stakeholders, such as municipalities, water utilities, and companies [7][18][20]. In LMF-PHS programs, a local organization administers the program, discusses PHS program eligibility with CONAFOR, signs agreements with landowners, monitors landowners’ compliance with contract conditions, and communicates results to the local and federal government and the broad public [7][18][26].
Mexico’s 20-year experience with federal and local PHS schemes has been recognized as a model in Latin America of successful PHS implementation [29] and has received great attention from biophysical and social science scholars [30][31][32][33][34][35][36]. According to Pfaff et al. (2019), by 2016 the vast majority of the 157 market-based schemes for conservation in Mexico were PHS programs. LMF-PHS programs have been used to tackle land use changes in places such as central Veracruz, Mexico, an area with one of the highest rates of deforestation in the country [31][3].
The Central Veracruz area is of high conservation priority given that it hosts several endangered tropical ecosystems, such as the humid montane forest and tropical oak forest, and has great plant endemism [37]. A recent study in Mexico shows that the conversion of land cover in the tropical moist forest of Veracruz is driven mainly by pasture expansion [38]. In a 21-year study period (1993–2014) of land cover change in Central Veracruz, Gómez-Díaz et al. (2018) found that the area covered by remnant vegetation was reduced overall by 57%, though there was a slight recovery between 2000 and 2014. Deforestation and degradation of the forest in Central Veracruz contribute to historic environmental problems in the area, such as low water quality, water shortages, and lowland flooding [3].
Our Veracruz case studies focus on two separate PHS programs in the cities of Coatepec (85,000 population) and Xalapa (425,000 population), located in La Antigua River watershed. Coatepec’s PHS program is one of the first experiences in PHS implementation in Mexico [28][35]. The program started in 2002 following the PHS federal model, but it was revised and adapted to the LMF-PHS model after 2008 [28][29]. The program is administered by a local trust fund called Fideicomiso Coatepecano del Agua para los Servicios Ambientales Hidrológicos or FIDECOAGUA and has strong participation from the City of Coatepec [32].
The program has a governing body where key governmental organizations and big corporations can influence decision-making [35]. The program receives funding from CONAFOR, the City of Coatepec, and the Municipal Water Commission (Comisión Municipal de Agua Potable y Saneamiento de Coatepec or CMAS Coatepec) [35]. A small water fee is charged to water users through the water bill and the cost is stratified according to the nature of the users (i.e., household or industry) [35]. The program budget is formally part of the city budget.
FIDECOAGUA payments for forest conservation covers around 1548 ha in the Gavilanes sub-watershed [35]. Most of the program beneficiaries are private landowners, yet there is participation of some ejidatarios, community members who have usufruct rights in communal lands known as Ejidos. This type of communal land was established by the federal government in response to agricultural land petitions by landless peasants between the 1930s and 1980s [39].
Xalapa’s PHS program called Acuerdos por Nuestra Agua (ANA) (formerly known as Programa de Compensación de Servicios Ambientales del río Pixquiac or PROSAPIX), was launched in 2008 following the LMF-PHS model to cover Pixquiac sub-watershed [40]. The program is administered by a local non-profit Senderos y Encuentros para un Desarrollo Autónomo Sustanable (SENDAS) and has a governing body (Comité de Cuenca del Río Pixquiac or COCUPIX) with greater participation in decision-making from local stakeholders, including private landowners, ejidatarios and water users [35][40]. It is important to highlight the participation of ejidatarios from the Ejido San Pedro Buenavista and Ejido Agua de Los Pescados [35].
Xalapa’s LMF-PHS receives funding from CONAFOR, the City of Xalapa, and CMAS Xalapa. Water users contribute to the program through the water bill which is either paid to CMAS Xalapa or through direct voluntary contributions to the program [35]. However, the program budget is negotiated annually as it is not formally entitled in the city budget (as of 2020). The program currently covers an area of about 1098 ha [35].
The annual compensation in both programs is about $1100 MXN/ha (~50 USD/ha in 2019) for forested lands only [35]. SENDAS offers technical assistance to enrolled landowners in addition to the cash payment [40]. Landowners are required to do forest conservation practices that include fencing, fire control, harvest prevention, and restoration [32]. No other land uses are allowed in PHS program paid areas besides forest conservation [32][35]. However, SENDAS has a broader approach that includes “environmental restoration, productive reconversion or the development of production alternatives with an orientation towards sustainability” [40] (p. 83). FIDECOAGUA launched the program Adopt a Hectare, Adopta una Hectárea, in 2011 to look for additional support for forest restoration from local companies [35]. Both programs enroll private landowners and communal-land landowners, but SENDAS’ approach has greater involvement of these actors (and water users) in planning and decision making [35][40].

3. Reciprocal Water Agreements (RWA) in Central Valle del Cauca, Colombia

Deforestation and forest degradation in Colombia due to industrial agriculture, pastures for cattle, mining, and development projects are of great concern for conservationists and governmental institutions, given that the forest area has been significantly reduced [41][42][43][44]. For instance, the tropical dry forest covers less than 1% of its original area and is considered threatened in the plains and Central Andes [45]. The rate of deforestation has increased in the last decades [46][47] due to economic activities incentivized by the national government [44][45] and illegal armed groups [25][41][42].
It is worth noting that, unlike other tropical countries in the region, Colombia faces a long-time social conflict between the Colombian army, left-wing guerrillas, right-wing armed groups, and local and foreign drug traffickers [48] that has shaped the patterns of deforestation and conservation strategies [25][41][42]. Illegal armed groups have historically controlled the economic activities and type of actors that can access and use forested areas and national parks [41][48]. Across different regions, conservation activities and the exploitation of natural resources are dependent on who the armed actor is and if there has been a settlement between armed actors that allows for the exploitation of natural resources [48].
To counteract deforestation and forest degradation, the national government has issued forest use restrictions, established natural parks of local and national interests, controlled deforestation through the environmental agencies at the local, state, and national level, and incentivized conservation through payment for ecosystem services schemes [25][45]. The use of market-oriented schemes in conservation started in the late 1990s in Colombia [45], yet there had not been a state policy to guide the use of PHS-like schemes until mid-2017, after the peace agreement was signed between the government and one of the left-wing guerrillas [49]. The Peace Accord between the Colombian government and Fuerzas Armadas Revolucionarias de Colombia–Ejército del Pueblo or FARC-EP, addressed a legislative gap on the use of PHS-type schemes and allowed the implementation of schemes reducing legal and administrative barriers for those tenants and landholders with no land title [50].
There have been several government and non-profit efforts to implement PHS-like schemes in Colombia [25][49][51][52]. Although the traditional cash payment is still the most used tool in the country (and the world), an innovative approach was developed by the international non-profit RARE [53]. Reciprocal Water Agreements, Acuerdos Recíprocos por el Agua or ARA, were proposed as a mechanism to incentivize conservation of forests through non-cash, in-kind payments including farm materials, agricultural inputs, and household assets [54].
By using non-cash, in-kind payments, PHS program administrators seek to achieve “crowding in” forest conservation and sustainable agricultural practices while avoiding “crowding out” intrinsic motivations for conservation [53]. This model has been used in other countries such as Ecuador [54], Bolivia [55], Peru [56], and India [57] with noteworthy outcomes in community cohesiveness, social capital, and community governance. The ARA model was initially implemented in at least 18 locations in Colombia between 2012 and 2015, yet few schemes are still functioning [52][53].
The City of Guadalajara de Buga (110,000 population), located in Central Valle del Cauca, has two ARA programs called (1) Programa de Incentivos para la Conservación de Bosques del Río Guadalajara (PICB Buga) and (2) Acuerdos Recíprocos por el Agua de la Cuenca del Río Sonso (ARA Sonso), which have been functioning since 2012 and 2013 respectively. The first program, PICB Buga, is administered by the local water utility organization, Aguas de Buga, and the program covers the Guadalajara River sub-watershed. The second program, ARA Sonso, is administered by the state environmental agency, Corporación Autónoma Regional del Valle del Cauca or CVC, and the program covers the Sonso River watershed.
To fulfill our interest in comparing the different types of PHS program administrations, we focus on PICB Buga whose administration consists of a mixed private-public ownership organization. The corporate governance of Aguas de Buga has representation from the City of Buga and private shareholders in the General Assembly of Shareholders (GAS), yet the local government has strong participation in program budget allocation. Buga’s ARA program receives funding from a surcharge on water bills in the City of Buga.
The program currently covers an area of about 11.62 ha of conservation and 63.19 ha in integral management in the Guadalajara River sub-watershed (Bug03). It is important to highlight that we did not consider the scale of the programs (i.e., program coverage) to match the case studies in Mexico, as our focus was on the administration of PHS and the participation of PHS stakeholders in program decision making. The annual compensation is about 350,000 COP/ha (~100 USD/ha in 2020) for forested lands and reforestation, which is paid in farm supplies, materials for forest restoration, or household assets. No technical assistance is offered with the program payment, but technical studies are offered (e.g., topographical land studies).
Buga’s ARA program enrolls private landowners only and they are required to isolate and protect enrolled lands with improved land management practices, such as barbed wire and fencing [53]. Contracts are “signed between the local institution and landowners through a one-on-one negotiation where commitments from both sides are clearly established” [53] (p. 31). Non-cash, in-kind transactions, enrolled areas in the program, and farm activities are agreed upon between the program administrator and the landowner. Table 1 summarizes the case studies.
Table 1. Main PHS program characteristics in the three case studies.
  Coatepec–Mx Xalapa–Mx Buga–Co
Population 85,000 425,000 110,000
Sub-watershed Gavilanes Pixquiac Guadalajara
Environmental challenges High deforestation rates, droughts High deforestation rates, droughts High deforestation rates, droughts, land slides
PHS program Fideicomiso Coatepecano para la Conservación del Bosque y el Agua (FIDECOAGUA) Acuerdos por Nuestra Agua (ANA) Programa de Incentivos para la Conservación de bosques del Río Guadalajara (PICB Buga)
Began operations in 2002 2008 2012
Program administrator FIDECOAGUA

(local government)		 SENDAS

(non-profit)		 Aguas de Buga

(water utility)
Area in PHS program 1548 ha 1098 ha 11.62 ha conservation

63.19 ha integral manag.
Payment per hectare MXN 1100 (USD 85) MXN 1100 (USD 85) COP 350,000 (USD 100)
Type of payments Cash Cash, in-kind transactions, training, technical assistance In-kind transactions, technical studies
Eligibility criteria Amount of forest, confirmation of property right by land title, type of ecosystem Amount of forest, confirmation of property right by land title, type of ecosystem Amount of forest, area for reforestation, confirmation of property right by land title
Eligible land uses Forest conservation, forest restoration Forest conservation, forest restoration, sustainable agriculture, shade-grown coffee Forest conservation, forest restoration
Monitoring by FIDECOAGUA SENDAS & community Aguas de Buga

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