Payment for Environmental Services (PES) has caught our collective imagination as a new tool for conserving forests, and rewarding the poor for their environmental stewardship. But in an essay recently published in Conservation Biology, CIFOR Scientist Sven Wunder warns that implementation of PES will present trade-offs between conservation efficiency and fairness. PES schemes will have to be efficient enough to provide real incremental benefits, yet also fair enough to be politically viable.

A PES scheme involves a voluntary, contingent agreement between a buyer and a seller of a well-defined environmental service. It is designed to bridge the gap between the private interests of landowners and the interests of other stakeholders–by compensating the former for foregone profits from less conservation-friendly landuses. For example, downstream beneficiaries of drinking water, hydro-electric power, or flood control services should be willing to pay upstream landowners in the watershed to conserve a standing forest — and thus control erosion that threatens each of these services.

Wunder predicts that the most efficient uses of PES may offend our sense of justice, as they must be targeted to those who pose a credible threat to the environment. If a community is living in harmony with the forest, it seems fair to reward them for their exemplary environmental stewardship. Unfortunately, such payments would not “buy” any additional conservation, nor produce extra services, and thus the community would have difficulty finding buyers. By contrast, a rancher already clearing the forest might change his behavior if payments were more attractive than the profits he would receive from converting the forest to pasture.

Wunder suggests that PES are most likely to succeed in places where expected profits from alternative landuses are relatively low. Where forests are threatened by conversion to farmland to produce high-value commodities, such as soybean or palm oil, PES incentives sufficient to make conservation economically attractive would quickly exhaust available funds.

High transaction costs may limit PES’s potential for poverty reduction. Wunder notes that transaction costs are highest when many smallholders are involved, property rights are weak, and the costs of information and service provision are high. Under such conditions, he suggests donors should subsidize the high start-up costs of PES, as per-hectare running costs may be low enough to justify the up-front investment.

Wunder’s findings are timely in light of the current climate change debate about payments for Reduced Emissions from Deforestation and Degradation (REDD). While such payments will likely serve both climate and forest-related objectives, they will present tough choices between efficiency and fairness. The ideal PES recipient is not the environmentally benign community too poor to do much harm to the forest, but rather the guy who had enough capital to buy a chainsaw, and is on the verge of putting it to work. Does that sound fair to you?