Collective payments for ecosystem services: a promising policy tool to reduce deforestation?

Aerial view of the Amazon river, near Manaus, the capital of the state of Amazonas in Brazil. CIAT/Neil Palmer

Payments for Ecosystem Services (PES) programmes are often used as a tool to reduce deforestation and forest degradation in tropical countries.

Such programmes offer monetary or in-kind payments to individual landowners or forest users who voluntarily reduce deforestation or increase their forest-conservation activities, thereby, increasing the forest’s ecosystem services.

CIFOR-led research under the Global Comparative Study on REDD+ suggests that PES programmes have positive, albeit small, effects on forest conservation and rural livelihoods.

A central question arising from this finding is how to design and implement PES programmes so that they can achieve high outcomes for both forest conservation and rural livelihoods at minimal cost.

One possibility is to design programmes in such a way that they give the monetary or in-kind compensation payments to a group of forest users rather than to individual users.

When a PES payment is given to a group rather than to an individual it is called a “collective PES”. The participants may use this collective payment for local projects or choose to distribute the proceeds among themselves.

Collective PES have many advantages. They can reduce implementation costs because the same PES agreement will involve multiple, diverse forest users, allowing them to register larger areas of land for conservation.

Collective PES are promising when spatial coordination of conservation activities is important, such as for watershed protection or biodiversity corridors.

Collective PES might also be necessary when land is owned collectively, for example, by indigenous communities.

The free-riding problem in collective PES

However, the main disadvantage of collective PES is that it creates a “free-riding” problem among the individuals who participate in the programme. Free-riding occurs because the benefits that individuals receive are only partly related to their individual conservation actions.

Consider this example. In a collective PES programme, a group of six forest users are paid $24 for each hectare of avoided deforestation. If this payment is divided equally, each member will only receive $4. However, everyone could earn $10 if they converted one hectare of forest to pasture or cropland. The individual who deforests would earn $6 net ($10 – $4) while the entire group would lose $14 ($24 – $10).

Individuals who want to maximize their income will therefore gain more by free-riding and deforesting, such as in this example, causing other members of the group to lose income from the conserved areas.

This tension between the interests of the group and those of the individual is the main reason why collective PES is expected to be less effective than individual PES contracts.

Increasing the effectiveness, efficiency and equity of collective PES

So how can the free-riding problem of collective PES programmes be reduced and what are the implications in terms of their effectiveness, efficiency and equity?

In our recently published article in the journal, Global Environmental Change, we explore this question. The study uses an experiment to test three different strategies that policymakers can use to reduce free-riding. During the experiment, we presented a hypothetical forest management situation to forest users, using the same numbers cited in our example above.

We then asked 720 forest users in 24 communities in Para (Brazil), Central Kalimantan (Indonesia) and Ucayali (Peru) to respond on how much of the forest they would like to conserve or deforest.

The first strategy we tested was to introduce individual-level monitoring. Under individual-level monitoring, each individual participating in the PES was allowed to observe each other’s deforestation choice. The second strategy was to introduce monetary sanctions by the Government.

Participants received a sanction if they were monitored by the Government (one-third chance of that happening) and had engaged in deforestation.

The third and final strategy was to introduce community sanctions. In this case, participants could impose monetary sanctions on other members of the group at a cost to themselves, without any Government intervention.

The key conclusions and lessons from our study are the following.

• Effectiveness (was deforestation reduced?): Monetary sanctions were better in reducing deforestation than just introducing individual-level monitoring. Individual-level monitoring did not reduce deforestation in the Brazilian site, which is linked to the fact that in Brazil PES participants have individual land ownership and, compared to Peru and Indonesia, they have no communal institutions in which they collectively decide on land use and forest management.
• Efficiency (did participants’ net income increase?): Individual-level monitoring and Government sanctions increased the income of participants, as deforestation was reduced and thus the group benefits were maximized. Community sanctions, on the other hand, did not increase participants’ earnings because they had to pay to sanction their peers; the increased group income from conservation did not compensate for the costs of sanctioning the other participants in the agreement.
• Equity (did the income distribution improve?): Overall, inequality in the earnings among PES participants decreased when there was individual-level monitoring but not when there were community or Government sanctions. The main reason why there are no positive distributional effects of monetary sanctions is that the punishment patterns were not always targeting the participants who were deforesting more. Nevertheless, PES participants perceived Government sanctions to be fairer than community sanctions.

While overall our study shows that there are no silver bullets that can simultaneously increase the effectiveness, efficiency and equity of collective PES, it hints at the importance of good community and environmental governance to achieve this desired triple outcome.

Individuals who deforest the most must be adequately targeted by sanctions so that the conservation, equity and rural poverty alleviation impacts of collective PES are maximized, enabling collective PES to achieve its aims.