Tropical forests are disappearing fast, while the number of people depending on them grows steadily. Tropical forests provide many environmental services, from clean water to absorbing some of the carbon emissions that contribute to climate change. Setting aside large new public Protected Areas is no longer a practical approach to conservation. Solutions that retain or revive tropical forests while contributing to local livelihoods are being explored. One of these is payment for environmental services. However, growth in environmental service markets raises complicated questions of who owns what, who must buy, who can sell, and how markets work.

Tropical forests are essential to environmental and human health. Despite this, forests are cut down because forested land is less valuable than timber and agricultural land. Environmental services are often seen as public goods, so no financial value is attached and they are taken for granted. However, as they become degraded and users are affected, those users may be willing to pay for them. A recent study from Forest Trends, USA, assessed payments for environmental services in tropical forests. Currently, the main markets for ecosystem services are:

• Watershed protection. Many tropical forests are in highly populated areas and many people depend on them for water supply. This market depends on those downstream being directly affected by degradation upstream.
• Biodiversity markets. These include ‘eco-labelled’ products (for example timber, coffee or forest plants used for medicine), ecotourism and payments for conservation of wildlife habitat. These are usually paid for by international buyers.
• Carbon sequestration. International buyers pay for planting new trees that absorb carbon, which, under regulatory and voluntary schemes, offset the buyers’ carbon emissions.

For all services, there are a number of different markets. In most cases, the role of government is important. Governments both buy and sell services, but also regulate private markets. Governments can also oblige other sectors to pay for services. These markets continue to grow, but their economic value is still small compared with traditional forest industries like timber. However, for the poor, the value of selling services can be significant. Payment systems can benefit poor communities financially and provide the skills and power necessary to access these markets successfully.

While watershed protection payments are usually made by domestic industries, irrigation districts or municipalities, most carbon and biodiversity service buyers are currently from industrialised countries,. Consequently, expertise in the markets is also found there, and in the private sector. For tropical forest communities to benefit, certain needs must be met:

• Property and resource use rights must be clarified. Without rights, the poor will not benefit and can even lose existing rights. Policy makers require information on appropriate legal systems to enforce the rights of local communities.
• Information on the links between land use, land management and environmental services is required.
• Ways to measure and monitor services are required so that costs and benefits to producers and buyers can be quantified.
• Technical assistance and the sharing of experience will help to assess the risks and opportunities of entering various markets and the costs to producers.

Governments, businesses and communities are beginning to accept the need to pay for environmental services and markets are developing, especially in the industrialised world. However, most tropical forests are in developing countries, many of which currently lack capacity to develop markets for environmental services. Furthermore, a lack of legal frameworks and institutions mean that the poorest, who depend on forest resources, may be excluded. Local expertise must be developed to help the poor access markets, while producers must take a more pro-active role in shaping these emerging markets.

Source(s):
‘For services rendered. The current status and future potential of markets for the ecosystem services provided by tropical forests’, ITTO Technical Series No. 21, International Tropical Timber Organisation (ITTO), 2004. Full document.

Funded by: International Tropical Timber Organisation (ITTO)

id21 Research Highlight: 17 February 2005

Further Information:
Sara Scherr
Director, Ecosystem Services
Forest Trends
1050 Potomac Street NW
Washington, D.C
20007
USA

Tel: +1 (0) 202 298 3000
Fax: +1 202 298 3014
Contact the contributor: sscherr@forest-trends.org

Forest Trends

Other related links:
'Protecting forests for water management'

'Private sector involvement in China’s forests: sustainable forestry?

'Carbon trading and forests – opportunities for local development'

Financing Environmental Services: The Costa Rican Experience And Its Implications' World Bank

'The Future of the Brazilian Amazon' The Large Scale Biosphere-Atmosphere Experiment in Amazonia INPA

'International Institute for Environment and Development (IIED)', UK

'Watershed Development, Environmental Services, and Poverty Alleviation in India' Michigan State University,