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How should society pay for services ecosystems provide?

Over the past 50 years, 60 percent of all ecosystem services have declined as a direct result of the conversion of land to the production of foods, fuels and fibers.

This should come as no surprise, say seven of the world's leading environmental scientists, who met to collectively study the pitfalls of utilizing markets to induce people to take account of the environmental costs of their behavior and solutions. We are getting what we pay for.

"The best things in life are free, including nature", says author Stephen Polasky, professor of applied economics and ecology, evolution and behavior. "But without a price for nature's services we don't maintain the environment in ways necessary to sustain these valuable services." Polasky is also a resident fellow in the university's Institute on the Environment (IonE).

Their report, "Paying for Ecosystem Services: Promise and Peril," is published in the Nov. 4 issue of the journal Science.

Society pays for the products of agriculture, aquaculture and forestry, and has developed well-functioning markets for these products, these experts say

However, author David Tilman, Regents Professor in the College of Biological Sciences and IonE fellow, notes "We also need market mechanisms that reward farmers for the quality of the water that leaves their lands, and for other important ecosystem services." These services include watershed protection, habitat provision, pest and disease regulation, climate regulation and storm buffering.

The problem is that many ecosystem services are public goods. Some lie outside the control of any one government, and the science for others is still only poorly understood. There is no one-size payment mechanism that fits all cases. And bad payment mechanisms can be worse than no payment mechanisms at all, the study's authors warn, pointing to the lessons learned from four decades of agricultural subsidies. Subsidies encouraged the overuse of fertilizers and pesticides, two of the main reasons for the growing number of dead zones in the world's oceans.

A similar lesson can be found in the first generation of cap-and-trade systems, they say. The first U.S. markets for sulfur dioxide emission rights collapsed because of faulty design: They failed to take into account the interactions between multiple pollutants across state boundaries.

Establishing markets and payment for ecosystem services can provide incentives for sustainable supply of these services. Examples of successful approaches to environmental markets include cap-and-trade policies to limit pollution and certification for sustainably made products. But environmental markets need to be designed carefully. Doing it wrong could be worse than not doing it at all.

The scientists' report is timely, given the growing enthusiasm for the use of Payments for Ecosystem Services (PES) schemes that allow governments and non-governmental organizations to pay for environmental public goods. For example, carbon sequestration is being paid for through the United Nations' Collaborative Program on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries, or REDD, scheme. The scheme pays countries to not cut down their forests, which in turn puts the brakes on loss of biodiversity, in addition to curbing carbon emissions.


Contact: Jeff Falk
University of Minnesota

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