Payments for Freshwater Ecosystem Services : A Framework for Analysis

Water is vital for supporting life and welfare. Worldwide, water resources are under high pressure and freshwater ecosystems have been degraded and even lost. These pressures are likely to be aggravated by climate change. To tackle ecosystem service degradation and loss, Payment for Ecosystem Services (“PES”) arose in the environmental policy arena to address positive externalities, using a “carrot” rather than a “stick.” Nevertheless, much confusion remains regarding its concept and application since the theory has been built based upon different site-specific schemes applied throughout the world. This paper seeks to provide an overview of the key elements that characterize the theory of payments for ecosystem services, translated to watershed protection. It also aims to explore under which general situations the use of this policy is appropriate, as well as its potentials and constraints. The research was based on an extensive review of the existing literature on PES that analyzes payment schemes in detail, in both developed and developing countries. The conclusions indicate that PES entails hard tradeoffs and is appropriate for a limited set of conditions. Despite being limited in scope, PES can effectively fill the gaps where other policies are failing. Overall, PES is gaining momentum not because it is a catchphrase but because there is a real need for better ecosystem service management