Putting Payments for Environmental Services in the Context of Economic Development

Paying for the provision of environmental services (ES) is a recent policy innovation attracting much attention in both developed and developing countries. Linking payments for environmental services (PES) to economic development and poverty reduction is important since they may represent a new source of finance to developing countries that are potentially important suppliers of global ES. In this chapter we apply concepts from natural resource and environmental economics to a wide range of issues associated with the introduction of PES programs in the context of economic development. We introduce an economic typology of PES, showing how they can provide a solution to externalities and public good problems within the bounds of political economic constraints. Secondly, we focus on the problem of who should, and will, pay for ES. Third, we will turn to issues of program design. We assess the issue of targeting payments to achieve their objectives efficiently, with attention to the equity implications of PES programs. The final section addresses issues of monitoring and enforcement of PES contracts, and we summarize the key findings in the conclusion.