Payments for Ecosystem Services (PES)


Payments for Ecosystem Services (PES)

Innovative Approach to Finance Nature Conservation

Private entities that usually depend on nature’s benefits can ensure the long-term success of their operations, increase financial security, and make long-term savings if they consider natural resources in their plans and strategies. Still being relatively new to Armenia, Payments for Ecosystem Services (PES) schemes reveal a potential to increase the financing for the management of natural resources by drawing on public and private funds thus benefiting both businesses and communities alike. In the framework of IBiS programme, the RA Ministry of Environment jointly with GIZ, has explored the feasibility of Payments for Ecosystem Services (PES) scheme in Armenia, specifically for the case of Tsaghkadzor.

Text : IBiS



Disclosing the PES Scheme

As the pressure on biodiversity is increasing at a rapid rate worldwide so does the need for financing biodiversity. The term biodiversity financing refers to raising and managing financial resources and using financial incentives to support sustainable management and conservation of biodiversity. To meet the existing needs in biodiversity financing the past decade has given rise to various biodiversity finance approaches that also include innovative and non-traditional finance solutions. Public-private partnerships have become more common, and merged financing models from different sources such as public, private, official development assistance, are taking far better shape. Payments for Ecosystem Services (PES) is one of those innovative finance solutions. To understand PES, one needs to be familiar with the concept of “ecosystem services.” Ecosystem services are the benefits that we derive from nature. They include services such as the provision of fresh air, water and timber, eco-tourism opportunities, soil formation, pollination and carbon sequestration. The basic concept under payments for Ecosystem Services (PES) simply reflects the “user or beneficiary pays” principle meaning that beneficiaries or users of an ecosystem service pay the providers of that service, that is whoever conserves, improves or maintains the ecosystem service. For example, water users can pay to those who conserve the watershed thus providing good quality water supplies. Ecosystem services for which the users pay should be well-defined, and payments should be made for actions that go beyond those, which would normally be expected under the law.

There can be different types of PES schemes. In self-organized private schemes beneficiaries of ecosystem services can have a direct agreement with ecosystem service providers. In public schemes, the government pays land or natural resource managers to increase ecosystem services on behalf of the public. And in public-private schemes both government and private funds are used to pay for the delivery of ecosystem services. What is generally classified and accepted as PES has widened to the point where the term PES is often used very broadly to describe situations where some form of funding is provided to improve ecosystems.

Mr Arthur Ghavalyan, Head of Division of Economic Mechanisms, Standards and Technical Regulations of Environmental Protection at the RA Ministry of Environment and Head of the Ministerial Working Group, notes, “The core idea behind PES is the recognition, appreciation, and conservation of the ecosystem services we receive from nature, and the mobilization of new financial resources for this purpose. The crucial factor here is the willingness of certain entities to voluntarily provide finances. This has also to do with environmental awareness. If the person values nature, acknowledges its importance, and wants to conserve it, he might also be ready to pay for ecosystem services without any mandatory order.”

The concept of PES is quite new for Armenia. However, PES schemes can be useful in extending biodiversity conservation beyond the protected area network, by rewarding and making sustainable land use practices economically attractive. In this context, the promotion, piloting, and practical implementation of PES schemes in Armenia seems pertinent.


The Case of Tsakhkadzor PES Scheme

In the framework of IBiS programme, GIZ and the RA Ministry of Environment have jointly implemented a feasibility study of a pilot project in the framework of PES scheme focusing on the forest area of Tsaghkadzor. “Tsakhkadzor, in addition to having unique nature, is a top tourist destination in the region. The advantage of Tsaghkadzor for PES scheme, unlike other areas, is basically its longer seasonality for the tourists and the capacity to host tourists both in winter and summer months,” mentions Mr. Ghavalyan.

Tsakhkadzor forest PES scheme envisages that mostly the tourism businesses (mainly in the form of hotels) as well as Tsakhkadzor Municipality, the Armenian Government, and private donors could voluntarily pay for forest ecosystem services, in this case for ecological measures, reforestation and tourism infrastructure enhancement activities. The main potential provider of services could be “Hayantar” SNCO through its Hrazdan Forest Enterprise. They manage Tsaghkadzor forest and could be interested in increasing their services and contributions if provided with additional funds. Thus, the project would take the form of a public-private scheme focusing on Government as well as private funds for the provision of ecosystem services. To concretize the activities for the PES scheme, comprehensive activity packages have been developed that would ensure the delivery of ecosystem services that stakeholders are most interested in. The packages focus on (a) ecological improvements such as reforestation and forest rehabilitation; and (b) the development of tourism and recreation infrastructure in the form of four trail options and associated facilities such as benches, observation points, and signs. A 5-year financial model has also been developed to estimate the investment, management, and administrative costs of the packages and PES scheme.

The results of the feasibility study showed that the forests in Tsaghkadzor present a valuable asset for the tourism sector. The majority of the hotels in Tsakhkadzor confirmed that the existence of these forests helps to attract visitors. They also expressed their willingness, in principle, to participate in Tsakhkadzor forest PES scheme. On the whole, stakeholders have been positive about the outcomes of the assessment and their chances to collectively make a success of the scheme.

“The results of the study offer a specific roadmap for the scheme’s implementation where stakeholders both from private and public sectors can contribute to nature conservation. What is needed, is the proactiveness from the local key actors to jumpstart the initiative,” mentioned Ms. Alla Berberyan, Adviser at GIZ Armenia.

In general, PES has a voluntary or negotiated element, which separates it from strictly command-and-control or regulatory measures. It can thus reveal its best potential if it can be used in a broader sense applying “the user or beneficiary pays” principle thereby involving the private sector and community members more directly in improved ecological outcomes often in partnership with the Government.

Related Articles