Payments for Ecosystem Services: Getting Started. A Primer - UNEP

Section 3: A Step-by-Step Approach to Developing PES Deals
Whatever payment mechanism is selected, all stakeholders must agree to it in the
early stages of project design. Choosing the appropriate payment types will ensure
more durable transactions between buyers and sellers. Similarly, in the case of
community-owned resources, payments for services from communally-managed lands
have the potential to be more long-lasting if they are managed transparently and in a
way that is appropriate to the local circumstances, where local people affected are
pleased with the outcomes over time.
What are potential criteria for considering fairness, equity
and distribution issues associated with agreements?
We have alluded extensively to the importance of making sure that PES agreements
are both fair and fl exible, and it needs to be reiterated again, as these are practical
concerns. (Please see boxes on “Tips for Designing Fair and Effective Contracts” and
“Potential Criteria to Consider for Assessing Pro-Poor PES.”)
BOX 24
Tips for Designing Fair and Effective Contracts
“Designing clear and effective contracts that avoid the exploitation of the seller by the buyer (and vice versa) is of crucial
importance as PES programs are intended to be long-term programs where the buyer will want to maintain existing contracts
and sign new contracts over time.
Fairness of agreements by sellers may be an important determinant of future outcomes, and buyers will want to make
every effort to ensure that contracts are both fair and effi cient. Fairness often is in the eyes of the beholder. However, if
asymmetries of information or power lead to the acceptance of contracts by sellers that make them worse off (i.e. payments
that are less than the sellers opportunity costs) then the contract is unfair. Likewise if such asymmetries lead to the buyer
paying above the value of the expected hydrological services the contract is unfair. In both these cases the contract is not
only unfair but ineffi cient.
Property rights for specifi c hydrological services produced by land management do not generally exist. Therefore,
contracts typically call for the seller to undertake a specifi c land use and/or land management activity. An alternative is to
specify indicators of performance in terms of downstream services. As maintenance of forest cover and land management
activities are the cause of the desired effect (hydrological services) these are contracts not for services but for the
performance of activities that cause (or produce) the services.”
Excerpted from: Asquith et al 2007; B. Aylward. March 2007.
The unfairness of a deal often emerges after implementation has begun, so sellers
should propose clauses that not only allow for re-negotiation under clearly-defi ned and
pre-determined circumstances, but also ensure that sellers have the know-how (or
access to technical assistance related) to re-negotiate. Such clauses may, for example,
provide for the adjustment of prices paid over time or allow for a reevaluation of service
value either as new information arises or at periodic, pre-set intervals. This approach
would ensure that communities do not get locked into one price for decades.
If a buyer is not amenable to these terms, however, the seller must simply consider the
offer and decide whether they are willing to enter into the PES agreement or not. This
issue is explored in more detail below.
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