How Governments and Businesses Value Payments of Ecosystem Services

Despite the fact that payment for ecosystem services sounds like a crazy treehugger pipe dream, a recent article published by Worldwatch Institute's Vital Signs Online found that governments and businesses engage in payments for ecosystems services (PES). Will Bierbower, author of the article, defines PES as "financial arrangements and schemes designed to protect the benefits that the natural environment provides for human beings."

Currently, according to the article, the primary markets for ecosystems services are payment schemes for watersheds and biodiversity. Those markets had an estimated combined global value of at least $11 billion in 2008. In 2008, payments for watershed services were estimated to have at least a $9.25 billion global value. China has the largest market for watershed services at $7.8 billion in 2008, a $1 billion increase from 2004. The U.S. has the second largest market with a $1.4 billion value in 2008.

Payments for biodiversity protection, restoration and management in 2008 had an estimated global value of $1.8 to $2.9 billion. In 2010, the estimated global value was $2.4 to $4.0 billion. In the U.S., payments totaled $1.5 to $2.4 billion annually in 2010. At least 45 payments for biodiversity were operational globally and 27 programs were in development in 2010, up from 39 operating programs and 25 in development in 2008.

Carbon sequestration projects in forests had an estimated combined global value of $37 million in 2008, up from $7.6 million in 2006, but a decrease from $40.5 million in 2007, However, the volume of transactions increased in 2008 from 5.1 to 5.3 megatons of carbon.

A government or third party, Bierbower states in the article, "can provide payments for securing services in tandem with complimentary regulations." Bierbower used the used example of China's Sloping Land Conversion Program in which the Chinese government paid farmers, starting in 1999, to restore the vegetation in mountainous areas that had been stripped to convert the areas into farmland. The program is now one of the biggest PES schemes in the world. During the first seven years of the program, farmers received $7.7 billion in payments.

"China’s Sloping Land Conversion Program is a good example of a government-backed PES scheme that was enacted in tandem with regulations," said Bierbower. "In 1999, the government started paying farmers to restore land to its original ecological state, following decades of mismanagement that had led to topsoil erosion and downstream flooding."

"Nearly 60 percent of all ecosystem services are being degraded or used in an unsustainable manner," said Alexander Ochs, Director of Climate and Energy at Worldwatch. "With PES, we can put a monetary value on these important services, from water filtration to carbon sequestration, to ensure that they are being properly sustained for the benefit of both people and the planet."