Ensuring that the poor benefit from payments for environmental services

Systems of Payments for Environmental Services (PES) are being increasingly used to finance conservation in Costa Rica, Ecuador, Colombia, and elsewhere. A critical dimension of these systems concerns their impact on the poor. This paper reviews the main linkages that have been hypothesized to exist between PES systems and poverty, drawing on data from the main on-going and planned PES systems in Latin America, and particularly on those supported by the World Bank. The main poverty-reduction impact of PES is likely to come from payments made to often poor natural resource managers in upper watersheds. The extent to which this will occur depends on how many potential participants in PES programs are in fact poor, and on the amount of the payments. There are, however, also some potential threats. Dealing with many small, poor land users can impose high transaction costs, thus threatening to cut the poor off from participating in PES systems. Careful design of the system is needed to avoid this problem, as in Costa Rica's development of collective contracting mechanisms to reduce transaction costs. Where property rights are insecure, the poor who depend on forests and other natural ecosystems for their livelihood may be displaced as PES increases the value of those ecosystems. This seems to have been an issue in Colombia's Cauca Valley, for example. The landless poor may find themselves affected, either positively or negatively, by labor market and other changes induced by the establishment of PES systems (for example, they may be harmed if the conservation practices encouraged by PES systems are less labor intensive than the practices they replace). It is in many cases too early to provide conclusive answers to these questions. The paper focuses on clearly identifying several concrete research hypotheses to be studied in a two-year research program we are undertaking, and reviewing available evidence for any initial lessons.