Nov., 2015 Journal of Resources and Ecology J. Resour. Ecol. 2015 6 (6) 420-426 DOI:10.5814/j.issn.1674-764x.2015.06.010 www.jorae.cn Vol.6 No.6 Eco. Compensation Payments for Ecosystem Services: Market Mechanism or Diversified Modes? LIU Yanhong1 and GUO Chaoxian2* 1 Graduate School of Chinese Academy of Social Sciences, Beijing 102488, China; 2 Institute of Industrial Economics, Chinese Academy of Social Sciences, Beijing 100836, China Abstract: Payment for ecosystem services is a concept of environmental protection and method of environmental management that has “purchasing conservation” as a major feature and has grown around the world since the 1990s. It is stressed by the school of environmental economics that as a voluntary mechanism of exchange between ecological service providers and demanders, payments for ecosystem services can help to increase inputs and improve efficiency. Ecological economics holds that the ecological system and the complexity of the policy environment restrict the functional space of market mechanisms. The negative influence of the objective of giving priority to efficiency on environmental protection and social fairness cannot be neglected; therefore, the exchange mechanism is just one type of eco-compensation models. Here, we posit that payments for ecosystem services is a good tool for environmental protection and increases inputs and efficiency. Although payment for ecosystem services is confronted with challenges in application, it is playing an increasingly important role in the field of ecological services with a relatively high degree of commodification. Payments for ecosystem services can also increase the cost effectiveness of publicly managed environmental projects with the cooperation of other policy tools. Key words: payments for ecosystem services; market mechanism; diversified modes; environmental economics; ecological economics 1 Introduction Appendix: Payments for ecosystem services (PES). As a tool of environmental management featuring “purchasing conservation”, payments for ecosystem services (PES, see Appendix) has rapidly developed around the world, especially among developing countries, since the 1990s (see Appendix). According to an all-year search of ISI Web of Knowledge by Schomers & Matzdorf (2013), the number of papers on PES was only 41 in 2004 and increased to 457 in May 2011, an increase of 11 times within seven years. In China, PES is in a narrow sense regarded as a market-based instrument for ecological compensation (Yu and Ren 2008) and not enough attention has been paid to controversies existing within international academia on the concepts, policy goals and instruments of payments for ecosystem services. This paper attempts to elaborate upon the theoretical advantages of PES as a market mechanism and the restrictions in its application by exploring major PES can also be referred to as payments for environmental services. Wunder (2005) believes that environmental services assume that various services provided by ecological systems are separable while ecological service emphasizes that ecological system services cannot be separated. There are no pragmatic differences between these two definitions. According to Murandian et al. (2010), ecological services are subordinate to environmental services as the former mainly refers to the benefits humans obtain from the ecological system while the latter also contains benefits from the ecological system with the active intervention of humans such as green agriculture and rural landscape. The UN Millennium Ecosystem Assessment (2005) defines ecological service as the human benefits obtained from ecological systems which can be divided into four functions. According to practices around the world, PES is focused on four types including carbon sink, biodiversity protection, watershed protection and natural landscapes. A detailed exploration of the relationship between ecological services and environmental services has been done by Derissen & Latacz-Lohmann (2013). Received: 2015-10-26 Accepted: 2015-11-18 Foundation: the National Science and Technology Support Program (2013BAC03B05) ; Monographic study of Graduate School of Chinese Academy of Social Sciences “Research of Eco-Compensation Experience in Developed Countries”. * Corresponding author: GUO Chaoxian. Email: [email protected]. LIU Yanhong and GUO Chaoxian: Payments for Ecosystem Services: Market Mechanism or Diversified Modes? disputes between the school of environmental economics (hereinafter referred to as SENVE) and ecological economics (hereinafter referred to as SECOE). We believe this work is conducive to China’s establishment of an ecocivilization and the construction of a diversified system for ecological compensation in particular. 2 Theoretical advantages of PES As an innovative measure of environmental management, PES is different from traditional environmental policy. An important aspect of PES, compared to environmental subsidies, is that the former tries to provide a more direct positive incentive mechanism by establishing the connection of provider and demander of ecological service, in which the buyer pays the seller according to the actual increment of ecological service. Except for the political environment that accepts market-based policy tools, there are at least two other reasons for why the incremental method of environmental management with clear directness has attracted global attention. First, under the situation of increasing human populations and diminishing resources, people have gradually realized that in order to provide sustainable support for economic growth and welfare improvements through natural resources, restriction and reduction of waste of resources and environmental disruption as well as restoration of damaged environments are far from enough to meet requirements. Of further importance is increasing the output of natural resources and ecological services. As a positive incentive mechanism with the goal of increasing output, PES has obvious advantages compared with negative restriction mechanisms with the target of restricting or reducing pollution and damage. It tries to increase inputs to the ecological system while meeting specific demands and increasing ecological output while improving social welfare by establishing more direct connections between demander and supplier of ecological services to realize benign interactions and win-win outcomes for the environment and society. Second, from a positive point of view, although many countries have intensified input of eco-compensation and ecological construction, the contradiction between public input and ecological requirements cannot be alleviated effectively in a short period of time. Besides, the funding projects of many governments have multiple policy targets (for example, environmental protection programs in many developing countries usually contain other policy targets like poverty alleviation and employment) and have problems in project management such as simple compensation standards and methods and a lack of supervision. However, as a ‘tailored’ mode of environmental protection, PES is closer to market demands and has higher requirements for output and supervision of the project, and thus it has advantages in terms of input and output efficiency. In other words, PES offers a new idea for solving the 421 sustainability of ecological construction when traditional methods cannot effectively settle the rebuilding of ecological systems and the problem of sustainability although they restrict environmental destruction. That is, PES realizes higher environmental investment efficiency than the public sector while solving the problem of capital sources of ecological construction by developing the market demand of ecological services (payment by the beneficiary). The two theoretical advantages as well as the possible effect of poverty alleviation to ecological service provider in less developed areas will undoubtedly attract the attention of policy makers. Stated in Developing the Potential for Payments for Ecosystem Services: an Action Plan which is the guidance document of the UK government to encourage the development of PES projects, “Payment for Ecosystem Services (PES) is about identifying practical ways to deliver new and additional investment in the natural environment as well as seeking better targeting and value for money of existing funding streams” (UK DEFRA 2013). 3 A market instrument and the design principles Wunder first proposed a normative definition of PES in a research report for The Center for International Forestry Research (CIFOR) in 2005 based on the target of increasing input and improving efficiency. That is, “A PES scheme, simply stated, is a voluntary, conditional agreement between at least one ‘seller’ and one ‘buyer’ over a well-defined environmental service — or a land use presumed to produce that service” (Wunder 2005). This definition not only sets the property of PES as an exchange mechanism but also regulates that an efficiency-oriented PES model should have the following three conditions. (i) A clear trading target, which is the precondition for the realization of ecological service exchange. Demanders of ecological services will only have the willingness of payment or trading under the condition of value for money. (ii) Voluntary service exchange, that is, the supplier and demander of ecological services reach a trade agreement according to voluntary principles. Voluntary trading not only means that both sides of trading benefit from it but also ensures that they have the rights to enter or exit trading when conditions change so as to help effective allocation of resources. And (iii) conditionality of compensation payment. The precondition for the supplier of ecological service to get rewards is that they effectively offer ecological services according to the agreement. That is, they provide additional output at the primary level of ecological service, and the output cannot be mixed with the legal duty (for example, prohibition of disafforestation) of ecological service providers. The requirement of conditioned payment is to overcome the deficiency of ‘going for cultivation and ignoring harvest’ of traditional environmental subsidy projects and to increase the output effect of investment. 422 The definition on PES given by Wunder shows the proposition of the property rights on the settlement of environment externality problems represented by Coase: external problems can be settled through autonomous negotiation by relevant parties under certain conditions (clear definition of property and nearly zero cost of transaction)(Engel et al. 2008). Wunder acknowledges that it is difficult to find cases that completely meet the above three conditions (clearness, voluntary and conditionality) in existing projects due to restrictions of complexity of ecological system and economic system. However, he insists that these three principles not only reflect the feature of PES different from other environmental policy tools but are also requirements to ensure maximum benefit of environmental protection. Therefore, the normative definition functions as the reference to existing PES projects and helps test its effectiveness in practice. 4 Limitations and effects of a market mechanism The school of environmental economics as represented by Wunder has defined PES as the market mechanism with the objective of realizing maximum environmental output and input. This definition ends the confused situation on the definition and property of PES theoretically, and provides clear standards and guiding principles for the operation of PES projects. PES is thus labeled as market based instruments, and the three conditions proposed by Wunder in order to ensure efficiency of environmental protection have been taken as important bases for judging the design of existing projects (Wunder et al. 2008). It can be seen from the operation of global PES projects that market mechanism advocated by SENVE is only one of the eco-compensation models and by no means mainstream. Its non-mainstream position is demonstrated by two aspects: on one hand, projects that completely suit the three design principles proposed by Wunder are extremely rare in the real world; on the other hand, even socalled user-financed programs which are closer to the above principles do not have universality due to small sizes and limited cases (Wunder et al. 2008). Research on the types of PES projects in the world indicates that the number of PES projects dominated by the government far exceeds that of PES projects dominated by the market (Coasean model of PES) (Schomers & Matzdorf 2013). In fact, due to the particularity and complexity of ecosystems, a great number of environmental management projects are usually a mixed model combining the forces of government, market and local communities (Muradian & Rival 2012). Based on the gap of theoretical construction by SENVE and reality of PES, SECOE has put forward various criticisms and advice for the market management principle solely based on efficiency-oriented policy targets, analyzed the limitation of simple market mechanisms in application as well as the possible negative effects of excessive market Journal of Resources and Ecology Vol.6 No.6, 2015 mechanisms. 4.1 Limitations of market mechanism According to SECOE, clear property rights and zero (low) cost of exchange are preconditions for the settlement of externality problems in the trade of ecological services, the feasibility of market trading of ecological services will be greatly restricted in reality as the two preconditions usually do not exist due to the complexity of ecological and economic systems. Farley & Costanza (2010) point out that the physical property of the ecosystem determines that the great majority of ecological services provided come from “fund service” of ecosystems, and thus it has the typical attribute of public goods. The non-exclusive attribute of public goods determines that the demander has relatively low willingness for voluntary payment, and so many supplies of ecological service can only resort to collective mechanisms like compulsory tax instead of market mechanisms of voluntary trading. Even in a few types of ecological service that suit market mechanisms, such as clean water source and carbon sink, traders are usually confronted with huge costs of information caused by uncertainty of ecological service outputs. In terms of uncertainty, there is not yet solid scientific foundation for the expected outcome generated by human intervention on nature, and many causal relationships are only based on faith rather than science. Even though there is a causal relationship between human intervention and environmental results, human efforts may probably fail due to non-human factors affecting the environment. For example, although it is generally believed that increasing forest cover of upper streams will help maintain the quantity and quality of water downstream, torrential floods caused by rainstorms seriously contaminate water quality downstream. Existing uncertainties increase the decision-making cost and hinder the smooth realization of exchange (Wunder 2005). Factors influencing the cost of trading also include number of people for negotiation, building of trust of trading partners, execution costs of agreement (conditional payment usually has the precondition of measureable output increment while the inalienability of eco-system generates technical obstacles in the application of the measure of output increment and supervision of environmental management, and at the same time, cost of supervision will be increased).The above factors further increase trading barriers and the exchange market of ecological services in reality. Under this situation, intermediate sectors including the government seem to play an indispensable or sometimes dominant role in the operation of projects (Muradian et al. 2010). 4.2 Possible negative effects 4.2.1 Influence on environmental protection Muradian & Rival (2012) point out that market mechanisms LIU Yanhong and GUO Chaoxian: Payments for Ecosystem Services: Market Mechanism or Diversified Modes? separate ecological functions with market value such as clean water and carbon sinks from the ecological system out of efficiency consideration and commercializes them. This separation as well as its relevant land and resource interventions are short-term demands based on market trading, while the ecological system obviously has its own rules in providing and restoring various ecological functions over a long-term process. Therefore, protective intervention of ecological functions may probably cause the negative effects of attending to one thing and losing another and “protecting while destroying”. For example, the large number of projects of forest protection and restoration because of the demand of carbon sinks will probably generate the risk of fire and wipe out previous efforts in a single day; excessive input in forest ecology may destroy the structural balance of the whole ecological system. The crowding-out effect of utilitarian concept of environmental protection on public awareness of environmental protection is another manifestation of a negative effect of the market mechanism. Vatn (2010) testifies by quoting empirical research results that economic incentive measures unexpectedly reduce people’s willingness to support public interest fields including blood donation, charitable donations and acceptance of nuclear power equipment. In terms of environmental protection, research by Zikos (2008) found that publicity of environmental protection awareness and regulation together effectively reduced water consumption in Athens from 1989 to 1993; on the contrary, the introduction of price mechanism afterwards led to the rise of water consumption markedly. This indicates that price mechanisms, especially when there is unobvious price fluctuation, has limited influence on variation of behavior, especially in the rich. Moral persuasion may be more effective when there is unobvious marginal income or loss because moral education encourages people to care about public interest while price mechanisms guide people to consider individual interests. If price mechanisms occupy the dominant position in the field of eco-compensation, unexpected negative effects will be generated on the environment once capital source interrupts and people lose their original environmental virtues. 4.2.2 Influence on social fairness S E N V E s t r e s s e s e ff i c i e n c y - o r i e n t e d c o n c e p t o f environmental protection for the purpose of improving efficiency of environmental protection. They consider the possibility of promoting social fairness by PES under the precondition of realizing efficiency, and take social fairness as the by-product in the process of pursuing maximum environmental output. Therefore, when it comes to social fairness, they are mainly concerned about whether or not or how poor people can become effective providers of ecological services, and partially measure the redistribution and effect of poverty alleviation of PES from the perspective of income growth. SECOE holds that the 423 utilitarian concept of social fairness has neglected its longterm influence on the distribution of social resources and structure of rights. In terms of the long-term influence of efficiency-oriented model on social fairness, even though the poor involved in PES projects win in the competition and become more effective providers of ecological service due to lower opportunity costs for participating in equal activities of environmental protection, benefits to them (such as the increased income) from projects will not necessarily improve their welfare in the long run. For example, the Grain for Green program reduces local food supplies and increases the risk of food safety. Variation in working methods caused by environmental protection demands may lead to the degeneration or even loss of non-material civilizations that cannot be measured by economic value, such as cultural features of an ethnic group, and its ability to resist against the outside world by its resources. On the contrary, poor people who become specialized providers of ecological services by participating in PES projects may be locked in this simple mode of production and lose freedom to choose other land uses and opportunities for development. If we measure welfare improvement of the individual and society from the multi-dimensional views of freedom of selection and diversified modes of life, it is questionable whether or not the method of poverty alleviation that locks the poor into providing ecological services can really generate welfare improvement (Murandian et al. 2010). In terms of the principle of “the beneficiary pays” advocated by PES, this leads to the re-distribution of rights and obligations between different subjects of society or different countries and regions. The new structure of rights and obligations may give rise to the result of less developed regions paying for global public goods (van Hecken & Bastiaensen 2010). From the perspective of the ecological service provider, the principle of “the beneficiary pays” has the precondition of acknowledging that the land steward has the right of development as well as the right to contaminate the environment for individual development and meeting the demand of the market. It not only weakens the internal impetus to protect the ecological environment and natural resources, but may assist the practice of destroying the environment for eco-compensation (Vatn 2010). From the perspective of ecological service demanders, it is required by PES that the direct beneficiary of ecological services pays for basic ecological services such as clean air and water that are originally obtained for free. It not only deprives the public’s right to enjoy basic ecological services, but also exempts the responsibility of environmental protection of terminal demanders that destroy the environment, such as demanders of non-environmental luxuries like premium leather ware and solid wood furniture. From the perspective of fairness of global right of economic development and obligation of environmental protection, the “beneficiary pays principle” advocated by PES may further transfer 424 5 Alternative concept frameworks Given the possible negative effects in environmental protection and social fairness caused by simple or excessive application of a market mechanism, although the market model does not occupy a dominant position in the application of PES projects, it warrants close attention and criticisms theoretically. It should be pointed out that criticism of market mechanisms by the ecological economics school does not mean total denial of its value; instead, it is believed that the principle of simple market management proposed by the environmental economics school based on the efficiency goal cannot fully cover and reflect the diversity and complexity of PES mechanism in operation. Under the situation of various environments of project implementation, simplified standards not only go against adaptation to local conditions and institutional innovation, but tend to mislead projects to some extent. On the contrary, recognition of diversity and complexity of ecosystems as well as economic and social systems will help explain various types of PES projects in reality. Various models can draw on each other’s strength and strike a balance among diversified policy goals. The school of ecological economics has put forward new conceptual frameworks so as to reflect the diversified feature of PES in operational mechanisms. For example, Murandian et al. (2010) posit that as ecological services involved in PES projects are usually public goods and the main task of PES should be regulating the behavioral modes of relevant subjects through incentive mechanisms so as to better provide public goods. They define PES as “A transfer of resources between social actors, which aims to create incentives to align individual and/or collective land use decisions with the social interest in the management of natural resources (Murandian et al. 2010)”. PES projects can be divided into different types according to three dimensions including degree of importance of economic incentive, degree of directness of transfer (payment) and commodified degree of ecological service, covering various project types from market mechanism playing a role to more complicated institutional arrangement that is suitable for public resource management (Fig. 1). According to this conceptual framework, the market model of PES defined by Wunder is just one type of PES models. This model is suitable for ecological service types (such as carbon sinks) with clear relation of input and output, high degrees of commodification, incentive mechanisms in the easiest way, and direct payment mechanisms for compensation. According to the combination of three indicators, this type Directness of the transfer is proportional to the size of the circle Importance of economic incentives the obligation of environmental protection to local users of ecological service; however, terminal demanders that mainly come from developed countries will escape from their responsibility of environmental protection while enjoying cheap goods and services from developing countries. Journal of Resources and Ecology Vol.6 No.6, 2015 A B C D Degree of commodification Fig. 1 Classification of PES projects based on the degree of commodification of ecological service, the importance of economic incentives and the directness of payment (Murandian et al . 2010). of project is located in A of Fig. 1. It is believed by Vatn (2010) that because many PES projects concern government intervention and public expenditure, PES should be taken as a concept with wider extension that contains markets for ecosystem services (MES). Because the market needs payment mechanisms, and public sectors or local communities could also make use of payment mechanisms including revenue, subsidy or regional compensation. Therefore, it is narrow-minded for SENVE to equate payment mechanisms of ecological services to market mechanisms. Tacconi (2012) offers a conceptual framework on the basis of combining the views of SENVE and SECOE and that is wider in coverage than the former and clearer (in target and method) than the latter. He advocates that “A PES scheme is a transparent system for the additional provision of environmental services through conditional payments to voluntary providers” (Tacconi 2012). This indicates that the author hopes to increase the cost effectiveness of environmental input to the largest extent while maintaining openness and diversity of the system; however, at least the provider of ecological services should conform to the voluntary principle in order to realize the above targets accommodating social fairness, and at the same time, the principle of conditioned payment should be insisted in outputs and payments. Tacconi has provided a direction for future development of PES projects around the world, especially in developing countries. While most PES projects still depend on government funding and public management, policy researchers, makers and executors in the field should shift the emphasis to(by properly introducing market mechanisms) improving the cost effectiveness of public management projects. 6 Conclusion Eco-compensation is regarded as a two-way incentive mechanism by academic and policy research circles in LIU Yanhong and GUO Chaoxian: Payments for Ecosystem Services: Market Mechanism or Diversified Modes? China, that is, on one hand, environmental destruction will be reduced by “payment by polluters”, and on the other hand, ecological protection and construction will be promoted by “payment by the beneficiary” (Mao et al. 2002; State Environmental Protection Administration (SEPA) [2007] No. 130). As a positive incentive mechanism promoting ecological protection, eco-compensation functions the same way and has the same functional mechanism as PES. The eco-compensation mechanism is defined by SEPA in Instructions on Pilots of Ecocompensation (issued by SEPA [2007] No. 130) as “environmental economic policy that regulates interests of relevant parties of ecological environmental protection and construction by comprehensively using administrative and market measures based on ecological service value, cost of ecological protection and cost of development opportunity with the purpose of protecting ecological environment and promoting harmony between human and nature”. It can be seen from this definition that the policy circle’s view towards eco-compensation is closer to the definition proposed by Murandian whereby eco-compensation is taken as a coordination mechanism of multiple interests, emphasizing diversity of policy goals and implementation methods. In terms of practicality, since the implementation of projects including natural forest protection and Grain for Green from the end of last century, China has the largest eco-compensation program in the world, with accumulated investment in eco-compensation exceeding one trillion CNY. However, “mechanism of eco-compensation has not fundamentally established in China”; capital source and compensation method mainly depend on transfer payment from state revenue; and there has no diversified methods of compensation because eco-compensation had a late start in China. There is great diversity of eco-systems as well as complex institutional environments, and there are incomplete knowledge preparation and supporting systems (Report on Construction of Eco-compensation Mechanism by the State Council, http://www.npc.gov.cn/ npc/xinwen/2013-04/26/content_1793568.htm). In order to bring the active role of eco-compensation mechanisms in promoting ecological civilization construction, two measures are stressed in exploring diversified methods of eco-compensation in Decision of the CPC Central Committee on major issues concerning comprehensively deepening reform. The first is to build a regional horizontal system of eco-compensation; the second is to develop an environmental protection market, promoting systems of amount of energy saving, carbon emission permits, dumping rights and water rights transactions, and establish market mechanisms to attract social capital in ecological environmental protection (Decision of the CPC Central Committee on major issues concerning comprehensively deepening reform, http://www.sn.xinhuanet.com/201311/16/c_118166672.htm). This indicates that in ecological 425 service fields such as water source and carbon sinks with higher levels of commercialization, equal consultation on the basis of equality and voluntary trading mechanisms among various market subjects have become an important policy tool. Due to the fact that most ecological services are public goods and these ecological services mainly start from less developed regions in central and western China, the pattern of eco-compensation relying on government funds and public management will last a relatively long period of time in China. Empirical studies show that major projects of ecological restoration in China such as natural forest protection and Grain for Green have great spaces to improve environmental protection effects (Yin et al. 2014). We can learn from the experience of implementing similar national projects in the agricultural environment in Europe and the USA. For example, the Conservation Reserve Program (CRP) which has been carried out since 1985 by United States Department of Agriculture has significantly improved environmental protection of the project through methods such as Environment Benefit Index (EBI) and reverse auction. In addition, developing countries such as Costa Rica and Mexico have introduced market elements in order to improve the management effect of public environmental projects and this deserves further attention and research. Although PES is confronted with many restrictions in application, it is playing an increasingly important role in the field of ecological services with a relatively high degree of commercialization. PES can also help improve the cost effectiveness of publicly managed environmental projects when cooperating with other policy tools. 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Urban water dilemmas under the multi-dimensional prism of sustainability. Transactions on Business and Economics, 8 (5): 413-422. 生态服务付费:市场机制还是多元模式? 刘艳红1,郭朝先2 1 中国社会科学院研究生院,北京 102488; 2 中国社会科学院工业经济研究所,北京 100836 摘 要:生态服务付费是20世纪90年代在世界各地逐渐兴起的一种以“购买生态服务”为主要特征的环保理念和环境管理 办法。环境经济学派强调生态服务付费,作为生态服务供给者和需求者之间的一种自愿交易机制,有助于增加投入和提高效 率。生态经济学派则认为生态系统自身及政策环境的复杂性不仅会制约市场机制的作用空间,而且不应忽视效率优先目标对环 境保护和社会公平造成的负面影响,因而主张交易机制只是诸多生态补偿模式中的一种。本文认为,生态服务付费作为一种基 于市场的以增加投入、提高效率见长的环保工具,虽然在现实运用中面临较多的制约条件,但其在可商品化程度较高的生态服 务领域的确发挥着越来越重要的作用。在与其他政策工具相配合的情况下,生态服务付费还能帮助提高公共管理环境项目的成 本效益。 关键词:生态服务付费;市场机制;多元模式;环境经济学;生态经济学
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