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Environment & Poverty Times

06 2009

Business opportunities and green jobs

Payment for Ecosystem Services in East & Southern Africa

By Alice Ruhweza

Markets and payments for ecosystem ser- vices are gaining momentum in Africa, but government support is vital for scaling up.

Payments for Ecosystem Services (PES) is an arrangement whereby those who ben- efit from services provided by ecosystems – such as water supply and filtration, flood control, erosion protection, biodiversity conservation and carbon sequestration – can pay for them, while those who provide the services can secure financial benefits from their efforts. Markets for ecosystem services – some regulatory and others voluntary – now exist, the most common being those related to greenhouse gases (otherwise known as the carbon markets), water, and even biodiversity. The innova- tion that differentiates PES from previous paradigms or approaches is that the pay- ments are contingent on the ecosystem service provider maintaining continuity of the specified ecological service.

In Africa, markets and payments for eco- system services have been growing steadily. Two inventories of PES schemes by the Katoomba Group in 2005 and 2008 show growth from 45 to 68 PES and PES-like initiatives, an increase in money exchang- ing hands and considerable diversity in the projects and different types of payments being made (See Table 1). However, the in- ventories also report long gestation periods and lack of assurance that some projects will move from design to implementation. Few legal and policy changes have been made in the region to accommodate PES. However, this has not been a major constraint to the development of pilot projects. Last but not least, most countries reported increasing interest from buyers to purchase carbon off- sets from Africa, but organizing sellers and being able to provide the quality of credits that meets the buyers’ requirements is still a problem. For example, most buyers want certification to certain standards (such as the Voluntary Carbon Markets and the Climate Community and Biodiversity standards), which sellers cannot afford.

Markets and payments for ecosystem services are gaining

buyers of ecosystem services (consumers, businesses, utilities, government agencies at all levels) are often unaware of their de- pendence on ecosystem services. In addition, potential sellers are not aware of ecosystem service payments and markets and few know how to find potential buyers. Further com- pounding the situation, few policymakers and regulators are knowledgeable about the policy requirements and implications of pay- ments for ecosystem services. Finally, there is a shortage of service providers and project developers to assist with nascent PES deals. As a result of these information gaps, most of the projects in the countries inventoried are ad hoc, decentralized and do not follow any uniform guidelines.

Technical barriers: Most countries inven- toried lack individuals and organizations with the requisite knowledge to organize, design and implement payments for eco- system services (PES) effectively. Even where sellers and buyers may be aware of the ecosystem services there is often a lack of readily available technical skills needed for PES, such as experience with methods for calculating the financial value of these services and assessing the price that buyers would be willing to pay and sellers willing to receive. In addition, best practices have not yet been established through extensive on-the-ground experience and examples in the region. This gap increases the risks for buyers, both in terms of reputation and re- turn on investment. For prospective sellers – including land and resource owners as well as environmental stewards – the technical barriers are significant. Few have access to the specialized skills needed to assess the market potential of their resources and the resource management options that might be available to help them focus on restoring and maintaining ecosystem services. Also, PES models that clearly work for extremely low-income communities are few and often unproven. And if low-income community members wish to go beyond carbon or wa- ter deals, in particular to consider bundled multiple ecosystem services, they find that robust and proven models for biodiversity payments are especially lacking.

momentum in Africa, but government support is vital for scaling up.

PES assessments carried out by the East and Southern Africa Katoomba Group find the following challenges to markets and pay- ments for ecosystem services in the region, which can be divided into • Information barriers • Technical barriers • Policy and regulatory barriers • Institutional barriers

Information barriers: Most sellers of ecosys- tem services do not understand the market. For example, they do not understand the Kyoto Protocol’s CDM guidelines or even the voluntary market and how it works, and whether or not they would qualify. Potential

Policy and regulatory barriers: In many cases there is confusion about appropriate government roles in the development and operation of specific types of PES. Some- times problems have arisen from insistence by government officials that flows of funds should go through particular agencies. More fundamentally, there are conflicts over delivery of ecosystem services as pri- vate goods as opposed to public goods, over existing rights to ecosystem services and the flow of benefits from their sale, and over eq- uity issues for low-income buyers or sellers of ecosystem services. Policy confusion also exists. Misunderstandings are also related to whether ecosystem service payments should be bundled so as to ensure that the full set of ecosystem objectives are met, or whether payment or market systems should focus on particular ecosystem services val- ued by interested buyers. The lack of policy support is felt more at the expansion stage, and, in some cases, it reduces the price buyers are willing to pay. Thus, without clear policy and regulatory arrangements, potential PES buyers hesitate, since the legal standing regarding purchases and the enforceability of contracts is uncertain. Private sector buyers may also be unsure about the political and public acceptability

Table 1: Inventory of PES schemes by Katoomba Group in Uganda, Kenya, Tanzania and South Africa

Total number of projects re- corded in 2005

Biodiversity Carbon Water

Bundled Total

18 17 10


Total number of projects re- corded in 2008

19 27 16 6


Number of projects where payments had exchanged hands in 2005

2 5 2 0 9

Number of projects where payments had exchanged hands in 2008


10 4


Source: The Katoomba Group. The full national inventories for South Africa, Kenya, Uganda, Tanzania, and Malawi are accessible online at

Figure 1: An example of institutions required for PES schemes

of their role in PES. In addition, both buyers and sellers may be uncertain about under- lying tenure rights for land and resources, thereby increasing the risks of long-term ecosystem service agreements.

Institutional barriers: Most African coun- tries lack the necessary institutions – such as certification bodies, financial intermediaries, national registries for ecosystem services – across the value chain from seller to buyer. This increases current PES transaction costs (see Figure 1 below). In most of the CDM projects, for example, to actually achieve ecosystem service benefits a company would have to cover a larger area. Most single companies are not willing to do this. Cur- rently, most PES support in the countries inventoried is provided by the international public sector or by conservation NGOs still in the early stages of the PES learning curve, rather than by business leaders or seasoned leaders in PES development.

A role for governments? Very few of the PES schemes inventoried by the Katoomba Group in 2005 and 2008 are driven by government and, moreover, very few legal or policy changes have been made by governments to accommodate PES. Conversations with policy makers during Katoomba meetings in Uganda (2005), South Africa (2006) and Tanzania (2008) revealed a great interest in PES, but also a lingering scepticism – particularly around whether PES schemes are compatible with or can support poverty reduction, which is the overriding objective of governments. The concerns continuously raised by government officials are the low price of carbon credits, high transaction costs and the prohibitive opportunity cost for many farmers engaging in carbon projects.

The Katoomba Group believes that govern- ment can and should play a key role in facili- tating PES by investing in the development of designated institutions that can serve

as centres of excellence, PES information hubs or facilitators of PES schemes, or that can fulfil the role of honest brokers. This includes institutions to facilitate the aggre- gation of carbon crediting amongst a large number of smallholders, certification and verification bodies, registries, contract ne- gotiators and monitoring and enforcement organizations that can ensure that projects are delivering the ecosystem services. Invest- ing in such local institutions would reduce the transaction costs of hiring international experts to do the same job. Related to this is a need for capacity-building of home-grown service providers and project developers.

Governments should also play a role in clarifying tenure and property rights where they are not clear and agreements must be reached on who has rights to payments for ecosystem services. There are many cases where poor communities are stewards of eco- systems and should be paid for such services. However, they do not have property rights.

Furthermore, governments should set up clear rules and guidelines for PES: what the services are, what buyers should pay for, at what price, and so on. This would reduce risks and assure interested buyers (particu- larly the private sector) that they are indeed getting what they are paying for.

Last but not least, Government can put in place an enabling legal and policy framework that links communities to ecosystem service markets and facilitates the flow of conserva- tion finance from private and public sectors to communities.

About the author: Alice Ruhweza is a private consultant with expertise spanning the areas of trade, telecommunications, health, and the en- vironment with a special emphasis on payments for ecosystems services (PES). She coordinates the East and Southern Africa Katoomba Group (, a regional working group of individuals interested in advancing environmental markets.

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