Is there a risk of an ‘ecosystem service curse’?

Jakub Kronenberg
June 19, 2013

Payments for ecosystem services (PES) are typically presented as an opportunity to protect the environment and alleviate poverty at the same time. However, PES may also lead to negative socio-economic consequences.

Similar to when abundant natural resources in developing countries are often associated with a so-called 'resource curse' - in certain circumstances PES may lead to an ‘ecosystem service curse’.

To avoid these problems, the institutional setting within which PES are developed requires particular attention.

In a recent paper1 we looked at the different manifestations of the resource curse which illustrate how resource-abundant countries and locations struggle to benefit from resource revenues. At the root of their problems lies poor quality of institutions which are not able to ensure that the revenues translate into development opportunities. Instead, in light of poor legal systems, badly defined property rights and unaccountable authorities, revenues are often captured by elites or lead to overconsumption and underinvestment.

By reviewing a number of PES case studies, we realised that similar problems are likely to affect countries and communities which receive relatively significant flows of capital related to ecosystem services. In particular, their seeming economic opportunities may be undermined by rent seeking, unequal bargaining power, and volatility of payments.

Rent seeking emerges when new actors take over rents, often by manipulation, corruption or force, from those who would have been entitled to receive those rents in normal circumstances. As PES increase the value of land from which ecosystem services originate, and as PES are usually tied to land ownership, these payments may lead to further concentration of wealth. This may not only exclude poorer land users from the land they have been using, but in some circumstances it may also lead to conflicts.

Unequal bargaining power links to the fact that some PES are negotiated between experienced ecosystem service buyers and inexperienced ecosystem service providers. This creates a moral hazard situation within which buyers might exploit their position to the detriment of the providers’ interest. Alternatively, if not exploited, smallholders may be excluded from participation in PES schemes due to higher transaction costs of organisation and inclusion. Intermediaries may use different opportunities to capture a disproportional part of benefits.

The value of PES may vary significantly over time, due to various primarily external reasons. Ecosystem services change over time, as do the pressures on ecosystems, properties of ecosystems, and the preferences and needs of society. In addition, service recipients may not be satisfied with the service or they may find a more cost-effective way of acquiring the same service elsewhere.

Finally, knowledge about the importance of certain ecosystem services may change, diverting attention of buyers to different services and thus impacting upon ecosystem service providers. These dynamics may influence price fluctuations similar to those experienced in other natural resources-related markets. Volatility of payments would translate into volatility of income for ecosystem service providers. Had a given community specialised in one type of ecosystem services, its vulnerability and dependency on PES would increase.

These problems are likely to become more serious with the growth of PES. If PES increased in scale with new international conservation initiatives using this instrument, and if these payments reflected the ‘real value’ of ecosystem services, they would generate significant revenue streams particularly in the case of poorer but environmentally well-endowed countries.

At least to some extent the above problems can be mediated by proper design of PES and thus, they should attract the attention of all stakeholders responsible for developing this instrument. Indeed, all of these risks refer to governance structures, including institutional frameworks, monitoring, communication, and participation. Strengthening institutions emerges as the most important issue; this includes enforcement of regulations and decentralisation of resource revenues. Targeting providers directly and studying the socio-political situation in regions in which important ecosystem services exist prior to offering PES to those regions might prevent rent seeking.

Ensuring the transparency of this system will also require tight controls in order to avoid exertion of undue bargaining power. In poorer communities PES schemes need to introduce capacity building mechanisms to ensure that these communities can absorb the funds. A good system of PES should help to diversify the economies of poor countries and communities so that they do not depend exclusively on PES but still manage their ecosystems in a sustainable way.

Jakub Kronenberg is a lecturer in the Department of International Economics at the University of Lodz, Poland Email: kronenbe [at] uni.lodz.pl

Further Reading:

1 Kronenberg, J., and K. Hubacek. 2013. Could payments for ecosystem services create an "ecosystem service curse"? Ecology and Society 18(1): 10.
http://dx.doi.org/10.5751/ES-05240-180110

Comments

The socio-economic impact of ecosystem services need to be better understood. This article raises some crucial questions that need more research, particularly around governance and land rights. This summary of the natural capital debate in this blog might be useful "Will valuing natural capital protect the environment?" http://whygreeneconomy.org/will-valuing-natural-capital-protect-the-environment/

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