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

Section 3: A Step-by-Step Approach to Developing PES Deals
What are the key elements of PES
contracts / agreements?
PES agreements should clearly lay out:
• who will pay transaction costs as well as ongoing management and monitoring
costs
• who is responsible for what actions
• what ecosystem service results are expected
• how results will be demonstrated and who will be responsible for monitoring,
evaluating, verifying, and certifying them
• who will receive what amount of money in what specifi ed time frame
• which criteria will be used to evaluate the fairness of the PES deal
• how risks (particularly around unexpected natural events) will be handled and
even shared between buyers and sellers
Overall, key elements of PES agreements include:
• Terms and type of payment specifying when, how much, how often, to whom,
and other details, such as: cash to one person, to a community group, to a
vendor of a community service (e.g., builders of a school) as well as whether the
payment is in the form of cash, in-kind technical assistance, in-kind materials for
building a community building, etc.
• Timing of payments in terms of when the ecosystem service activities are
carried out by the seller, when the buyer ensures that monitoring of the action
occurs, or a combination of both.
• Requirements that need to be met for payment, such as periodic monitoring,
reporting and verifi cation needs.
• Managing risks, particularly those beyond a seller’s control (such as
unexpected natural events) through specifi c clauses in agreements detailing
how certain risks are shared between sellers and buyers, or even insurance
(provided it is available, cost-effective and feasible).
• Signatories to the contract should be directly affi liated with the buyer (or
group of buyers) and the seller, though it may be useful to have provisions for
specifi c roles of support institutions, as well as details on the exact payment
that will be made for services rendered by the intermediary.
BOX 26
Amending Contracts & Introducing Performance Clauses
While contracts can be amended if both parties agree, long-term contracts should specify dates when the contract will be
reviewed and potentially amended. Contract adjustments can be administratively diffi cult, so adjustments to existing contract
terms are only practical every two to fi ve years. New contracts, however, should incorporate best available knowledge that
improves ecosystem services while still attracting willing sellers.
When buyers have specifi c concerns about project performance, contracts can include verifi cation procedures to assess
performance. For example, contracts can include a rating system that is the basis for increasing payments for outstanding
performance and decreasing payments for underperformance.
Source: Jeremy Sokulsky, Environmental Incentives, LLC.
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