Economic tools

New markets for nature’s services

High-level political commitments are vital to make transboundary conservation agreements a reality. On the ground however, incentives are needed to put these agreements into practice.

Payments for Environmental Services (PES) are one way to encourage local people to protect – and benefit from – good stewardship of natural resources such as the Heart of Borneo tropical rainforests.




High-level political commitments are vital to make transboundary conservation agreements a reality. On the ground however, incentives are needed to put these agreements into practice.

Payments for Environmental Services (PES) are one way to encourage local people to protect – and benefit from – good stewardship of natural resources such as the Heart of Borneo tropical rainforests.

Natural ecosystems produce a wide range of environmental services. These include carbon sequestration of forests, regulation of water quantity and quality of watersheds, aesthetic values and biodiversity. But because we usually benefit from these products and services for free, there are few incentives to protect them effectively.

A more just equation

The basic principle of PES is that those who provide environmental services should be rewarded for doing so. This means mechanisms are put in place that transfer rewards from those who benefit from the environmental service to those who manage it.

Bringing PES to the Heart of Borneo

So how does this work in practice? One of the projects WWF is involved with in partnership with CARE, an organisation that works for the poor and vulnerable, and the International Institute for the Environment and Development (IIED), provides a good example of PES at work.

The project seeks to ensure a sustainable flow of services generated by a watershed in Kapuas Hulu, Kalimantan (Indonesian Borneo), to beneficiaries of these services through the establishment of payments mechanisms.

Reversing the situation in Kapuas Hulu

Natural resource degradation in  Kapuas Hulu district has increased over time, mainly because of mismanagement and the high intensity of unsustainable logging. The consequence? Increased flooding and erosion downstream. The figures are telling: in 2002, floods took place in 14 of 23 sub-districts and landslides in 5 sub-districts.

These problems are a strong incentive to manage natural resources responsibly so that problems of this kind are avoided in the future. But who will manage these resources? And how will these parties be paid for their efforts?

A simple plan…

This is where the PES scheme comes in. In Kapuas Hulu, potential buyers of watershed services (e.g. Public Water Service, district governments, industry) can pay a fee that supports watershed management activities.

And as long as good quality water continues to flow and benefit these buyers, they will have every reason to continue paying.

…challenging in practice

Such a scheme may sound simple, but setting it up is a major challenge.

Local governments need to agree and issue supporting legislation.
People living in the watershed area need to have the capacity to manage natural resources responsibly. A transparent system must exist to direct funds from buyers to an independent body that rewards the caretakers of water catchment areas.

And, most importantly, buyers need to agree to pay more for water services based on an agreed financial mechanism between provider and buyers.

Fortunately, getting the PES scheme going in Kapuas Hulu is no experiment. WWF has already successfully set up such a scheme on the Indonesian island of Lombok.

The lessons learned are now feeding into the organization’s work in Kapuas Hulu, and hopefully in other places in the Heart of Borneo in the future.