Paying for the provision of environmental services is a recent policy innovation attracting much attention in both developed and developing countries. This innovation, referred to as ‘payments for ecosystem services’ (when the emphasis is on enhancing ‘nature’ services) or ‘payments for environmental services’ (when amenities provided by the built environment are also included) is referred to here as PES. PES programs aim to harness market forces to obtain more efficient environmental outcomes. Since so many opportunities for PES programs could involve farmers in poor regions, international aid agencies and private donors, looking for a double dividend, increasingly consider using PES programs as a potential way of meeting both social and environmental objectives.

Since modification of agricultural production choices in developing countries often provides positive environmental externalities to people in developed countries, payment for environmental services (PES) has become an important topic in the context of economic development and poverty reduction. We consider two broad categories of PES programs, land-diversion programs, where lands are diverted from agriculture to other uses, and working-land programs, where agricultural production activities are modified to achieve environmental objectives. PES programs are generally good for landowners. The distribution of land and land quality is critical in determining poverty impacts. Where ES and agricultural productivity are negatively correlated and the poor own lands of low agricultural quality, they stand to gain from PES programs. Consumers and wage laborers may lose where food supply is inelastic and programs reduce labor demand. Working-land programs may have better distributional effects than diversion programs.

Based on observations from all three tropical continents, there is good reason to believe that poor service providers can broadly gain access to payment for environmental services (PES) schemes, and generally become better off from that participation, in both income and non-income terms. However, poverty effects need to be analysed in a conceptual framework looking not only at poor service providers, but also at poor service users and non-participants. Effects on service users are positive if environmental goals are achieved, while those on non-participants can be positive or negative. The various participation filters of a PES scheme contain both pro-poor and anti-poor selection biases. Quantitative welfare effects are bound to remain small-scale, compared to national poverty-alleviation goals. Some pro-poor interventions are possible, but increasing regulations excessively could curb PES efficiency and implementation scale, which could eventually harm the poor. Prime focus of PES should thus remain on the environment, not on poverty.

This paper uses data from a Payments for Environmental Services (PES) project being implemented in Nicaragua to examine the extent to which poorer households that are eligible to participate are in fact able to do so, an issue over which there has been considerable concern. The study site provides a strong test of the ability of poorer households to participate, as it requires participants to make substantial and complex land use changes. The results show that poorer households are in fact able to participate – indeed, by some measures they participated to a greater extent than better-off households. Moreover, their participation was not limited to the simpler, least expensive options. Extremely poor households had a somewhat greater difficulty in participating, but even in their case the difference is solely a relative one. Transaction costs may be greater obstacles to the participation of poorer households than household-specific constraints.

This paper explores the potential impacts of payments for agricultural soil carbon sequestration on poverty of farm households and on the sustainability of agricultural systems, using economic theory combined with evidence from three case studies in Kenya, Peru, and Senegal. The case studies indicate that the likely impact of carbon contracts will be to raise rural incomes and reduce the rate of soil carbon loss. In some cases, carbon contracts may be able to stabilize soil carbon stocks at a higher level than would otherwise be economically feasible. These findings suggest that carbon payments could have a positive impact on the sustainability of production systems while also reducing poverty. The analysis indicates that payments for environmental services are most likely to have a positive impact when they are implemented in an enabling economic and institutional environment.

We explore poor farmers' incentives to adopt production systems that increase soil carbon sequestration, focusing on the impact of risk. A dynamic optimization model of conservation agriculture adoption is presented, where farmers optimize over expected utility of profits from agriculture and carbon sequestration. Adoption impacts on agricultural productivity are modeled as a combination of the technological effects of the new system, and productivity effects of changes in soil carbon on agricultural output. Comparative static results indicate increases in soil carbon sequestration price and the discount rate have unambiguous impacts on equilibrium soil carbon levels; the former leading to higher, and the latter to lower, carbon levels. Increases in the price of agricultural output and risk aversion have ambiguous impacts, depending on the relative strength of the productivity and technology effects. The paper concludes with a discussion of designing soil carbon payment mechanisms to benefit low income farmers.

This paper discusses the gain in efficiency from including deforestation risk as a targeting criterion in payments for environmental services (PES) programs. We contrast two payment schemes that we simulate using data from Mexican common property forests: a flat payment scheme with a cap on allowable hectares per enrollee, similar to the program implemented in many countries, and a payment that takes deforestation risk and heterogeneity in land productivity into account. We simulate the latter strategy both with and without a budget constraint. Using observed past deforestation, we find that while risk-targeted payments are far more efficient, capped flat payments are more egalitarian. We also consider the characteristics of communities receiving payments from both programs. We find that the risk-weighted scheme results in more payments to poor communities, and that these payments are more efficient than those made to non-poor ejidos. Finally, we show that the risk of deforestation can be predicted quite precisely with indicators that are easily observable and that cannot be manipulated by the community.

Traditional grazing grounds near Amboseli National Park (Kenya) are being rapidly converted to cropland – a process that closes important wildlife corridors. We use a spatially explicit simulation model that integrates ecosystem dynamics and pastoral decision-making to explore the scope for introducing a ‘payments for ecosystem services’ scheme to compensate pastoralists for spillover benefits associated with forms of land use that are compatible with wildlife conservation. Our break-even cost analysis suggests that the benefits of such a scheme likely exceed its costs for a large part of the study area, but that ‘leakage effects’ through excessive stocking rates warrant close scrutiny.

We develop a bioeconomic model to gain insight into the challenges of Payments for Environmental Services (PES) as applied to protect endangered species given wildlife-livestock disease risks and habitat fragmentation. We show how greater connectivity of habitat creates an endogenous trade-off. More connectedness both (i) ups the chance that populations of endangered species will grow more rapidly, while (ii) simultaneously increasing the likelihood diseases will spread more quickly. We examine subsidies for habitat connectedness, livestock vaccination, and reduced movement of infected livestock. We find the cost-effective policy is to first subsidize habitat connectivity rather than vaccinations – this serves to increase habitat contiguousness. Once habitat is sufficiently connected, disease risks increase to a level to make disease-related subsidies worthwhile. Highly connected habitat requires nearly all the government budget be devoted to disease prevention and control. The result of the conservation payments is significantly increased wildlife abundance, increased livestock health and abundance, and increased development opportunities.