36
Payments for Environmental Services: Evolution Toward Efficient and Fair Incentives for Multifunctional Landscapes Meine van Noordwijk, 1 Beria Leimona, 1 Rohit Jindal, 2 Grace B. Villamor, 1,3 Mamta Vardhan, 4 Sara Namirembe, 5 Delia Catacutan, 6 John Kerr, 7 Peter A. Minang, 5 and Thomas P. Tomich 8 1 World Agroforestry Centre (ICRAF), Bogor 16880, Indonesia; email: [email protected], [email protected] 2 Department of Resource Economics and Environmental Sociology, University of Alberta, Edmonton, Alberta, Canada T6G 2H1; email: [email protected] 3 Center for Development Research (ZEF), University of Bonn, Germany 53113; email: [email protected] 4 Institute for Sustainable Energy, Environment and Economy, University of Calgary, Calgary, Alberta, Canada T2N 1N4; email: [email protected] 5 World Agroforestry Centre (ICRAF), Nairobi 00100, Kenya; email: [email protected], [email protected] 6 World Agroforestry Centre (ICRAF), Hanoi, Vietnam; email: [email protected] 7 Department of Community, Agriculture, Recreation and Resource Studies, Michigan State University, East Lansing, Michigan 48824; email: [email protected] 8 Agricultural Sustainability Institute, University of California, Davis, California 95616-8523; email: [email protected] Annu. Rev. Environ. Resour. 2012. 37:389–420 First published online as a Review in Advance on August 28, 2012 The Annual Review of Environment and Resources is online at environ.annualreviews.org This article’s doi: 10.1146/annurev-environ-042511-150526 Copyright c 2012 by Annual Reviews. All rights reserved 1543-5938/12/1121-0389$20.00 Keywords altruism, ecological economics, environmental governance, rights-based approaches, trade-off Abstract Payments for environmental services (PES), the non-provisioning part of ecosystem services, target alignment of microeconomic incentives for land users with meso- and macroeconomic societal costs and benefits of their choices across stakeholders and scales. They can interfere with or complement social norms and rights-based approaches at generic (land-use planning) and individual (tenure, use rights) levels; they interact with macroeconomic policies influencing the drivers to which individual agents respond. In many developing country contexts, com- munity scale factors strongly influence land users’ decisions, whereas unclear land rights complicate the use of market-based instruments. PES concepts need to adapt. Multiple paradigms have emerged within the broad PES domain. Evidence suggests that forms of “coinvestment in stewardship” (CIS) alongside rights are the preferred entry point. Commodification of environmental services (ES) and ES markets might evolve later on, but require strong government regulation to set and enforce rules of the game. We frame hypotheses for wider testing and “no-regrets” recommendations for practitioners. 389 Annu. Rev. Environ. Resourc. 2012.37:389-420. Downloaded from www.annualreviews.org by Royal Melbourne Institute of Technology (RMIT) on 10/02/13. For personal use only.

Payments for Environmental Services: Evolution Toward Efficient and Fair Incentives for Multifunctional Landscapes

Embed Size (px)

Citation preview

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

Payments for Environmental Services:Evolution Toward Efficient and FairIncentives for MultifunctionalLandscapesMeine van Noordwijk,1 Beria Leimona,1 Rohit Jindal,2

Grace B. Villamor,1,3 Mamta Vardhan,4 Sara Namirembe,5

Delia Catacutan,6 John Kerr,7 Peter A. Minang,5

and Thomas P. Tomich8

1World Agroforestry Centre (ICRAF), Bogor 16880, Indonesia;email: [email protected], [email protected] of Resource Economics and Environmental Sociology, University of Alberta,Edmonton, Alberta, Canada T6G 2H1; email: [email protected] for Development Research (ZEF), University of Bonn, Germany 53113;email: [email protected] for Sustainable Energy, Environment and Economy, University of Calgary,Calgary, Alberta, Canada T2N 1N4; email: [email protected] Agroforestry Centre (ICRAF), Nairobi 00100, Kenya;email: [email protected], [email protected] Agroforestry Centre (ICRAF), Hanoi, Vietnam; email: [email protected] of Community, Agriculture, Recreation and Resource Studies, Michigan StateUniversity, East Lansing, Michigan 48824; email: [email protected] Sustainability Institute, University of California, Davis,California 95616-8523; email: [email protected]

Annu. Rev. Environ. Resour. 2012. 37:389–420

First published online as a Review in Advance onAugust 28, 2012

The Annual Review of Environment and Resourcesis online at environ.annualreviews.org

This article’s doi:10.1146/annurev-environ-042511-150526

Copyright c© 2012 by Annual Reviews.All rights reserved

1543-5938/12/1121-0389$20.00

Keywords

altruism, ecological economics, environmental governance,rights-based approaches, trade-off

Abstract

Payments for environmental services (PES), the non-provisioning partof ecosystem services, target alignment of microeconomic incentives forland users with meso- and macroeconomic societal costs and benefitsof their choices across stakeholders and scales. They can interfere withor complement social norms and rights-based approaches at generic(land-use planning) and individual (tenure, use rights) levels; theyinteract with macroeconomic policies influencing the drivers to whichindividual agents respond. In many developing country contexts, com-munity scale factors strongly influence land users’ decisions, whereasunclear land rights complicate the use of market-based instruments.PES concepts need to adapt. Multiple paradigms have emerged withinthe broad PES domain. Evidence suggests that forms of “coinvestmentin stewardship” (CIS) alongside rights are the preferred entry point.Commodification of environmental services (ES) and ES marketsmight evolve later on, but require strong government regulation to setand enforce rules of the game. We frame hypotheses for wider testingand “no-regrets” recommendations for practitioners.

389

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

Contents

1. INTRODUCTION . . . . . . . . . . . 3902. PAYMENT FOR

ENVIRONMENTALSERVICE DEFINITIONSAND PERFORMANCECRITERIA . . . . . . . . . . . . . . . . . . . 395

3. BRIEF HISTORY OFCONCEPTS ANDAPPLICATION INDEVELOPINGCOUNTRIES . . . . . . . . . . . . . . . . 397

4. MULTIFUNCTIONALITY,SEGREGATION (SPARING),OR INTEGRATION(SHARING) . . . . . . . . . . . . . . . . . . 398

5. CRITIQUES OF PAYMENTFOR ENVIRONMENTALSERVICE THEORY ANDPRACTICE . . . . . . . . . . . . . . . . . . 4015.1. Missing Metrics for

Environmental ServicePerformance . . . . . . . . . . . . . . . 401

5.2. Motivation for Buyers:A Real Business Case . . . . . . . 402

5.3. Motivation forEnvironmental ServiceProviders and MotivationalCrowding Out . . . . . . . . . . . . . 403

5.4. Payment for EnvironmentalServices in the

Poverty-EnvironmentNexus . . . . . . . . . . . . . . . . . . . . . 403

5.5. Are Clear Property Rights aPrecondition for Paymentfor EnvironmentalServices? . . . . . . . . . . . . . . . . . . . 405

5.6. Is There Enough Paymentfor Environmental ServiceFunding for Applications atScale? . . . . . . . . . . . . . . . . . . . . . . 405

5.7. Can Reducing Emissionsfrom Deforestation andDegradation ProvideInternational Funding forLocal Payments forEnvironmental Service?. . . . . 406

6. DISCUSSION . . . . . . . . . . . . . . . . 4066.1. Challenges in Bridging

Across Temporal Scales andAssociated DiscountRates . . . . . . . . . . . . . . . . . . . . . . 406

6.2. From Value to Utilityand Prospects . . . . . . . . . . . . . . 408

6.3. A New ComprehensiveAltruism Framework and ItsApplications . . . . . . . . . . . . . . . . 410

6.4. Multiscale Framing ofIncentives for ReducingEmissions fromDeforestation andDegradation . . . . . . . . . . . . . . . 410

1. INTRODUCTION

The rise of agriculture coincided with the re-markable climatic stability of the Holocene (1),but land-use change and fossil-fuel use threatento get us back to the wilder fluctuations of thePleistocene and earlier periods in the geologicalhistory of our planet (2, 3). Much of agricultureand the dramatic change in human populationsize and social organization that it made possi-ble (4) were based on reducing dependency onnatural ecological processes for securing foodby finding effective technical substitutes to se-

cure growth and reproduction of plants and ani-mals with the most desirable properties throughdomestication (5). The “culture of land,” withagriculture as its shorthand, was contrasted withwild and uncontrolled nature. Its key featuresapart from genetic selection were modificationof the soil environment by tillage, breaking outof the constraints of the local nutrient cycle byuse of fertilizers, and controlling pests and dis-eases by chemical means (6). Manipulation ofthe water balance by irrigation and drainage,

390 van Noordwijk et al.

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

however, involved lateral flows (7) of water thatcreated new dependencies on the surroundingland and its watershed services.

The fossil record of the Neolithic revolu-tion that started agriculture suggests that ithad mixed effects on human well-being whenhealth and quality of life rather than demo-graphic growth are considered (8). In termsof the human brain, it required and furtherstrengthened the rational, reflective “system2” that can operate at discount rates that allowinvestment in activities that provide yield in afew months time, balancing with the intuitive,subconscious, direct “system 1” that seeksimmediate rewards (9) and dominated in ourhunter-gatherer history. The “system 3” thatresponds to and shapes social norms coevolvedwith societal organization. Current economictheory reflects only part of how our brains takedecisions in the face of opportunities and scarceresource (see sidebar Econs and Humans).

A primary measure of the success of agricul-ture was a social segregation when urban devel-opment became possible, as rural labor couldbe freed for other activities (10). Expansion ofagriculture also implied that “forest,” lands be-yond the perimeter of the villages, and “nature,”land without direct human influence, declinedin area (11). Urban lifestyles developed, withdifferent norms, aspirations, and expectations.Ironically, part of these expectations nowadaysrelates to a return to more natural forms offarming along with fairer trade relations (12),and part is for “ecoagriculture” landscapes astargets for recreation and leisure (13). The dra-matic success in increasing the goods that canbe derived from agro-ecosystems came at a costfor the regulatory and supportive ecosystemservices (ES∗) (14). Humankind may currentlyapproach planetary boundaries of safe operat-ing space (15): clean water, clean air, flora andfauna, and more recently the gas compositionof the atmosphere that affects climate. The ur-ban segment of the population started to at-tach value to the natural capital and ES∗ andregretted their loss; they even became willingto pay moderate amounts of money to havesecure access to such ES∗. By paying, some

ECONS OR HUMANS

Thaler & Sunstein (16) posited that we deal with two “species”:econs and humans. Economics, as the term suggests, is good atpredicting the decisions made by econs, but the science of de-cision making by humans remains largely unexplored territoryand needs to build on the advances in psychology, neuroscience,and behavioral economics of the past two decades. Econs arethe efficient calculators imagined in economic theory, able toweigh multiple options, forecast all the consequences of each,and choose rationally. Humans are ordinary people who fall wellshort of Homo economicus: They are neither fully rational (as mostanalyses of economic downturns and crashes imply) nor com-pletely selfish, and their tastes are anything but stable. Call-ing ourselves Homo sapiens, however, stretches the concept ofwisdom beyond how it is currently understood and may well re-flect the cognitive illusion and overconfidence that is hardwiredin our brains. The literature on PES was initially focused onbringing environmental issues into the framework of efficiency-oriented econs but has gradually incorporated more realistic per-spectives on human behavior and its ability to deal collectivelywith threats and pressures.

System 1: brainfunction that is rapid,intuitive,subconscious, andsynthetic and thatleads the primaryresponse of humans toopportunities andchoices

System 2: brainfunction that is slow,rational, conscious,and analytical and thatleads problem analysisand rationalization ofchoices made

System 3: brainfunctioncomplementingsystems 1 and 2 andreflecting social normsto which an individualcomplies

might even feel less guilty about their patternsof consumption and the global consequences oftheir consumption. The social, cultural, polit-ical, and economic differences between thoseable to provide or enhance environmental ser-vices (ES) and those interested in supportingsuch activities have become substantial, and theinteraction has required a framing that referredto both fairness (a system 3 concept) and effi-ciency (a system 2 concept) to bridge that gap.Analysis of system 2 (micro)economics sug-gested that the discount rates used were toohigh to justify investments in environmentalqualities that operate on decadal rather thanannual timescales. Lowering the apparent dis-count rates might nudge decision makers to-ward decisions enhancing health, wealth, andhappiness with greater public cobenefits, and assuch justified public coinvestments (16). Deal-ing with intergenerational equity and expectedscarcity of global ecosystem functions requiressystem 3 brain functions that operate at zeroor negative discount rates, complementing the

www.annualreviews.org • Payments for Environmental Services 391

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

Ecosystem services(ES∗): the benefitshumans derive fromecosystems; usuallycategorized asprovisioning,regulating, cultural,and supportivefunctions

PES∗: payments forecosystem services

PES: payments forenvironmentalservice(s) (a subset ofecosystem services)

Environmentalservice(s) (ES):ecosystem service(s)minus the provisioningservices for whichmarkets can beexpected to balancesupply and demand

Rights-basedapproach: balancingprivate and publicinterests within legalpluralism throughbundles of resourceuse rights forindividuals andcommunities

system 1 and system 2 functions, which hadmuch more time to evolve (9). Low or evennegative discount rates may seem surprisingto conventionally trained economists, but theconventional discounted cash flow analysis as-sumes complete markets (including markets forinsurance and risk) as well as reversibility ofasset transactions. Yet, missing and imperfectmarkets, prospects of extinctions, other essen-tially irreversible contingencies, and prospectsfor only limited (if any) substitution among ma-jor asset classes—say between some forms ofnatural and financial capital—mean that someimportant resources really will be scarcer in thefuture, entailing very costly adjustments.

Where markets have been generally ac-claimed for linking demand and supply of goodsand nudging producer decisions toward ef-ficient use of resources, threats to ES∗ (14,17) became associated with “market failure”and “externalities” (18–20). Two types of solu-tions have been tried to address this imbalance:(a) The first was to restrict market functions ongoods provision by regulation of resource accessto secure conservation of natural capital andES∗, and (b) the second was to bring market effi-ciency to the supply of ES∗ by making increasedprovision of such services pay at a level such thatthe trade-offs between goods and services canbe managed at the level of farmer or land man-ager. The latter approach is conventionally,but not very accurately as we describe below,described as payments for ecosystem services(PES∗) or payments for environmental services(PES). Although the regulatory approach is as-sociated with “sticks,” the incentive-based ap-proaches are referred to as “carrots,” with “ser-mons” as the third policy instrument referringto suasion and the hope that internalization ofvalues will lead to self-limitation (system 3).

Started some three decades ago in Europeand North America (21), the PES approachhas been advocated and tested in the tropicsfor over a decade now. ES in the tropics areconsiderably diminished by the developmentand spread of land-use practices that profitthe land user but reduce the regularity andquality of water flows, habitat quality of the

landscape for globally threatened biota, carbonstorage capacity, and landscape beauty (22,23). Market-based instruments that make thecontinued provision of ES more profitable havebecome an active area of experimentation andlearning over the past two decades (24–26), aspurely regulatory approaches that exclude ruralpopulations from forests have a negative impactby perpetuating forest-related poverty (27, 28).

PES is one of multiple feedback mech-anisms by which stakeholders affected bychanges in land use can try to influence theagents/actors directly deciding on transforma-tions of the landscape and/or the underlyingdriving forces to which they respond (29). Abroad categorization (Figure 1) distinguishesrules/rights-based approaches from economicincentive approaches, each with entry pointsat two scales. A further distinction can be thedegree to which the response and feedbackoptions are channeled through public- and/orprivate-sector entities. In this classificationand figure, PES stands for B2 approachestargeting the microeconomic level of decisionmaking. Its effectiveness is contingent on theway it interacts with macroeconomic incentivestructures (B1) and rights to use land (A1, A2).

The language of PES refers primarily to theefficiency of quid pro quo (in this case, moneyfor services), but as we discuss in this review,the fairness side deserves at least equal atten-tion, as is gradually rediscovered for the rest ofthe economy (30). The nature of both the quidand the quo is often not as clear as it appearsto be, with additionality, leakage, and perma-nence concerns (31, 32) that straddle temporaland spatial scales and require complementarytypes of economic analysis. The emerging PESliterature deals with the five following scales ofeconomic analysis, only two of which (micro-and macroanalysis) have been conventionallystudied:

� Picoeconomics (33) (or neuroeconomicsunderpinning behavioral economics), in-cluding individuals and their brainsynapses (pico), which involve decisionmaking, interpretation of observations,

392 van Noordwijk et al.

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

Figure 1Payments for environmental services (PES) represent one (B2) of four categories of response and feedbackmechanisms that allow those who experience the environmental service (ES) consequences of changes inland cover and land use to influence the generic drivers (A1 and B1) or actors/agents (A2 and B2) of land-usechange in specific places to modify behavior and decisions via spatial regulation and rights (A, sticks) oreconomic incentive structures (B, carrots). The suasion (sermon) category modifies the response ofactors/agents to drivers (modified from Reference 28). Abbreviations: ES, environmental services; GHG,greenhouse gas; LU, land use; mngmnt, management.

and construction of perceived causalmechanisms;

� Microeconomics, including householdand farm enterprises with the cash flowsand investment issues at that scale, asinfluenced by market function and the to-tality of taxes, subsidies, and regulations;

� Mesoeconomics (34), including land-scape, community, and local governancescales as well as private-sector actors,where determinants of ES∗ interact withthe paradigms of integrated rural devel-opment;

� Macroeconomics, including nation-statesas part of regional cooperation arrange-ments at the interface of world markets,political ambitions for development, andthe economic decisions of subnationalactors, which respond to taxes, subsi-dies, regulations, and public investmentin physical infrastructure; and

� Gigaeconomics, including earth systemmanagement and the rediscovery that hu-mans can care about their broader contextif appropriately primed and motivated byconcepts such as “footprint” (35).

Picoeconomics: thestudy of the way thehuman brain (atsynapse level)processes newlyacquired information,memory, andaccumulated valuejudgments

Gigaeconomics: thestudy of managementoptions and decisionmaking on use and/orconservation of scarceresources at global(supranational) scale

PES discussions usually focus on the roleof positive incentives (carrots) at the inter-face of meso- and microeconomics, but theinvolvement of other scales is increasinglyrecognized, as is the close link with sticks andsermons (or suasion) targeting picoeconomicsand the putative system 3. Yet, the macroeco-nomic context of national development and,increasingly, the gigaeconomic scale of globalissues are of direct relevance as well. PESis usually framed within an environmentaleconomics framework that accepts the statusquo of macro- and microeconomic analyses andassociated policies but aims at internalizing theenvironmental externalities of current decisionmaking. In contrast, the ecological economicstradition has articulated more fundamentalcritiques of the status quo and has beenmore open to the emerging pico-, meso- andgigaeconomic scales, which may set normative(sustainability) and pragmatic constraints tomicro- and macroeconomic scales. Within theenvironmental economics framing, the ups anddowns of the global economy (at gigascales)with more than proportional impacts on“carbon markets” have been a major concern.

www.annualreviews.org • Payments for Environmental Services 393

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

Compensation:government-mediatedpayments to offset theopportunity

Commodification:derivation anddefinition ofstandardized units ofES for trade withinregulated marketsand/or association ofverifiable ES withbranded commoditiescosts for (voluntarilyor mandated) forgonelegally alloweddevelopment optionsthat would decreaseES functions

Commodification ofenvironmentalservices (CES):CES1, ES as such;CES2, ES packagedwith brandedcommodities

COS: compensationfor opportunitiesskipped

Coinvestment instewardship (CIS):investment by localplus externalstakeholders acrossasset types (capitals) inland-use trajectoriesthat enhanceecosystem services

As PES praxis has evolved, its relation withtheory has changed. Although most of PESis still perceived in a decision support systemmode of natural resource management, wherebetter informed managers can take betterdecisions and PES can involve negotiationsof prices and contract details but not of itsfundamentals, the more complex reality maybe better understood if approached from a“negotiation support” perspective (36, 37),where multiple knowledge and value systemsinteract in shaping a negotiation platform andits outcomes. Further complications derivefrom the way temporal scales are included inthe analysis: Beyond a sustainability timescalethat emphasizes persistence, a “sustainagility”timescale (38) may be needed that balances thiswith a continued-change perspective (39).

As a broad delineation of the topics for thisreview, we discuss emerging PES praxis in thecontext of these five scales of economic analy-sis, the five capitals (assets) of the livelihoods’approach (40) [although alternative formula-tions (41) also have found followers], and threeaspects of human brain function (systems 1, 2,and 3). In our view, these all need to be recon-ciled to understand how individual behaviorsand choices interact with local actions, theirglobal consequences, and the opportunities foreffective feedback mechanisms (Figure 2).

PES can be conceived and implementedby a government-mediated institution withoutexplicit reference to markets. Adjustmentsof levels of compensation to what taxpayersare willing to pay will, over time, provide acoarse feedback mechanism adjusting supplyto demand. Much of the PES literature, how-ever, suggests that market-based schemes toenhance ES will be more efficient and requiremonetizing or commoditizing biodiversityconservation, watershed protection, and car-bon sequestration (42). PES schemes dependon funds derived from direct beneficiaries ofsuch services (in the case of commodification),and/or an increased public interest in support-ing conservation (in the case of compensation).In the latter case, funds are used to compensatefor involuntary or voluntary restrictions on

land use. They aim to be sufficient to offset theopportunity costs of forgoing private benefitsfrom legal activities with negative environmen-tal effects (43). In a market-based approachto enhancing environmental quality throughfreely negotiated forms of PES, one’s bargain-ing position is crucially important (44). Wherepotential supply of ES delivery contracts isless than demand, ES providers can negotiatefor price levels beyond the compensation foropportunity costs; if demand for such contractsis less than potential supply, the market maysettle on a price that is just about at a break-even level for ES providers. Commodificationwith price levels reflecting current supply anddemand can work where the time lags forincreasing supply are less than the timescalesat which demand varies and where productiondecisions are reversible. Few, if any, ES meetthese requirements, and the mechanisms to setprice levels must reflect longer-term societalvalues, rather than the economic mood ofthe day. Although this may generally pointtoward a government-mediated compensationapproach rather than market-based commod-ification, a third paradigm (coinvestment) hasbeen recognized in PES literature and praxis.Primarily on the basis of the conditionality ofcontracts, a distinction has been suggested (45)between commodification of ES (CES), com-pensation for opportunities skipped (COS) andcoinvestment in environmental stewardship(CIS).

Much of the literature on PES focuses onidentifying the payment level needed to changeland use (46), targeting land users, structuringpayments and contracts (25), creating effectivepublic-sector and private-sector arrangements(47), and designing public policy (48). Fewempirical studies so far have described themedium-term impact of PES on (a) the landmanagers, (b) the social system they are part of,and (c) the ES targeted (49). Some of the firstPES efforts in Southeast Asia and Africa arenow reaching a point where these issues can bestudied empirically, and most of the authors ofthis review are directly involved in such studies.

394 van Noordwijk et al.

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

We focus this review on various types ofPES applications in the context of developingcountries, but also explore the way paradigms,concepts, and approaches have been influencedby the experience in countries with differenthistories of land-use patterns, land ownershipand tenure regimes, rural population densities,and degree of market integration. Financialincentives can both support and underminesocial norms compatible with ES enhancement.External coinvestment, e.g., through incen-tives from programs to reduce emissions fromdeforestation and degradation (REDD) andecocertification, needs to synergize with localefforts by understanding local dynamics andconditions for free and prior informed consent.

In this review of recent literature, we1. Analyze the different interpretations of

PES in segregation perspectives on land-scape functions and those based on inte-gration in multifunctional landscapes;

2. Discuss PES definitions and their rela-tionship to realistic, conditional, volun-tary and pro-poor performance criteriaand evolving paradigms;

3. Provide a brief history of PES conceptsand their application in developing coun-tries;

4. Position PES in the debate about themultifunctionality of landscapes; and

5. Summarize the following critiques ofPES theory and the questions arisingfrom emerging PES practice:� What are the missing metrics for ES

performance?� Is there a real business case?� What are the motivations for buyers

and for ES providers?� How does motivational crowding out

apply?� How can PES improve the poverty-

environment nexus?� Are clear property rights a precondi-

tion for PES?� Is there enough PES funding for ap-

plications at scale?� Can international funding for reduc-

ing emissions from deforestation and

REDD+: reducingemissions fromdeforestation and(forest) degradationplus forest stockenhancement

(forest) degradation plus forest stockenhancement (REDD+) support lo-cal PES?

In the discussion, beyond reviewing publishedliterature, we provide a new comprehensivealtruism framework and discuss its applications.We end with a set of tentative conclusions andframe hypotheses for the interface of praxisand research.

2. PAYMENT FORENVIRONMENTAL SERVICEDEFINITIONS ANDPERFORMANCE CRITERIA

Early work on the interface of giga- andmacroeconomics (50) tried to quantify the sus-tainable part of national and global economicsystems (roughly 50%) (47) by focusing on theloss of ES associated with economic growthas conventionally measured (51). ES functionswere defined as the possible human uses oftheir natural and biophysical surroundings. Fornational accounting, the concept of flows (ser-vices) was linked to stocks (capital). Analysesin the 1990s thus emphasized natural capitalas essential for development (52). In 2000, itsderivative in the form of services (53) becamethe key concept for the Millennium EcosystemAssessment, but was relabeled as ES∗ (14).It expanded the domain of environmentalconcerns to all benefits that humans gain fromecosystems, ranging from provisioning servicessupplying tangible value to people (such asfood, fuel, and other consumable goods) toregulating services (such as air and waterpurification, climate buffering), other habitator supporting services (e.g., breeding groundsfor fish, regeneration of soil fertility), and cul-tural and amenity services that give intangiblebenefits to human well-being (54). Originallyintended to focus on the value of nature (53),there was no logical demarcation along thenatural-managed-system continuum, and theconcept came to include all of managed forestsand agricultural landscapes. By including theprovisioning services that support commodityproduction and market function, the concept

www.annualreviews.org • Payments for Environmental Services 395

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

of ES∗gained public attention; however, the“externality” argument and market failure donot apply to these provisioning services, al-though the clarification of property rights maybe an issue. We use ES for all ES∗ except forprovisioning, following References 18, 21, 24,26, and 41. Current literature, however, is splitover ES∗ or ES as part of the PES acronym.

The most highly cited definition of a PES re-mains (24, p. 3) “a voluntary, conditional trans-action where at least one buyer pays at least oneseller for maintaining or adopting sustainableland management practices that favor the pro-vision of well-defined environmental services.”The definition applies binary, qualitative stan-dards to the concepts of conditionality, well-defined ES, and voluntarily agreed contracts atthe level of individual buyers and sellers. Strictapplication of the definition may lead to theconclusion that PES does not currently existin pure form but that there are PES-like ap-proaches that approximate the ideal to variousdegrees. The same may be true for the majorityof economic concepts (16), but the binary defi-nitions can also be replaced (55) by sliding scalesof the degree to which realistic, conditional, andvoluntary contracts of the provision of well-defined ES are negotiated and implemented,with additional attention for the fairness dimen-sion of “pro-poor” approaches. On the basis ofvariations in the way the criteria are met, threecomplementary paradigms can coexist within abroad PES framework (45), with (a) commod-ification of well-defined ES so that buyers andsellers can negotiate prices [closest to Wunder’s(24) definition], (b) compensation for opportu-nities forgone voluntarily or by command andcontrol decisions, and (c) coinvestment in envi-ronmental stewardship as key features.

In the basic PES concept, payments (flowsof financial capital) are the primary vehiclethrough which the buyers can express theirappreciation for the ES. As long as the sellerskeep producing the ES, it is up to them howthey use this financial capital: to invest innatural capital, quality of houses, means oftransport, or savings accounts or to pay forschooling of children, healthcare, amenities,

and luxuries of life or any other expenditure. Inpractice, however, buyers may be disappointedif they don’t see the sellers invest a considerableshare of payments into direct enhancements ofnatural capital; they expect a “multiplier effect”(56). Buyers of ES are not willing to forgo theircontrol, at least partly, because indeed the pro-duction function of ES as emergent propertiesof complex landscape systems remains poorlyunderstood.

Efficiency can be considered from theperspective of the buyer, the seller, or theprocess as a whole, including its intermediariesand longer-term dynamics (sustainability). Akey economic concept here is that of Pareto ef-ficiency, where an equilibrium has been foundwhen no further transactions can increase thewell-being of any actor without making anyoneelse worse off (57). Like laws of physics thatignore friction, Pareto efficiency can be mosteasily be perceived in a world with perfect in-formation to all, fully rational decision makingabout the true interests of all agents, and in theabsence of transaction costs. In the real world,however, transaction costs exist, as do interme-diaries who serve as brokers to provide informa-tion and influence decisions. These third-partybrokers also have their own longer-terminterests and business models that need to beunderstood. Efficiency considerations for thebuyer consist of effectiveness and costs, weighedagainst alternative opportunities to satisfy theirES demand. Efficiency considerations for theseller require understanding of the productionfunction for ES, as well as how the provisionof the ES fits into the production function foragricultural and other goods of the farm or localeconomy.

Wunder’s PES definition (24) referredto at least one buyer and seller exchangingES for money (Figure 3a), with Paretoefficiency determined by the relative shortageof ES and surplus of financial capital on thebuyer side, and reverse endowments on theseller side. In practice, most of the currentlyknown PES applications in the tropics (58–62)involve linkages of complex systems in buyerand seller communities, involving exchanges

396 van Noordwijk et al.

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

of multiple asset types (Figure 3b). Contractsinvolve investments and linkages in socialcapital and individual human capital. Theinitial currency may be recognition and respectas social capital exchanges, rather than money(63). When taken to its full consequences, thisimplies that the buyers and sellers becomecoinvestors in cross-linked systems.

3. BRIEF HISTORY OF CONCEPTSAND APPLICATION INDEVELOPING COUNTRIES

After the initial excitement of PES approachingthe “silver bullet” status (21), the promise andperils of PES formed the title of reviews in both2005 (64) and 2011 (20). Both reviews assertedthat PES experiences had already demonstratedthat investing in natural capital rather than builtcapital can make both economic and policysense but that markets for ES or ES∗ create chal-lenges, including moral hazards, rent-seekingbehavior, free riders, and perverse incentives.Lack of market reflection of the full social costof ES production can lead to incorrect measuresof the scarcity of some ES and no measures forthe rest.

Early literature on PES classified the formsof PES in practice and recognized at least fourtypes of PES schemes, differentiated by thedegree of government intervention in adminis-tration of the schemes, by the characteristics ofthe buyers and sellers, and by the source of pay-ments (65, 66). By pointing out the weaknessesof indirect environmental interventions, suchas integrated conservation and developmentprograms (ICDPs), others (67) argued that PEScan create a direct incentive scheme between ESsellers and buyers and thus might better achieveboth conservation and development objectivesby improved targeting and lowering transactioncosts. PES concepts were tested as a possibleway to increase effectiveness in environmentalprotection and reduced (public) conservationbudgets in Latin America, the United States,and Europe (21, 46, 68). It appears that thecoinvestment paradigm seeks a middle ground

between ICDP and PES concepts, with partialconditionality and escape from a project cycle.

Costa Rica became a pioneer in PESin developing countries on the basis of its1996 forest legislation, which provided apublicly funded incentive scheme for privatelandowners to maintain or enhance forests asproviders of valuable ES. Payments to CostaRican landowners are made for the provisionof four types of ES: (a) carbon sequestrationand storage (mitigation of greenhouse gasemissions), (b) watershed protection (hydro-logical services), (c) biodiversity protection(conservation), and (d ) landscape beautification(for recreation and ecotourism). Landownersreceive direct payments for the ES their landsare assumed to produce by adopting sustainableforest management techniques that do not havenegative impacts on the forest cover and thatmaintain quality of life (69). The Governmentof Costa Rica acted as the buyer/investor, seek-ing international stakeholder buyers for carbonsequestration services and domestic ones forexpected hydrologic services. This combi-nation of domestic and international salestogether with tax revenue, international loans,and donations was used to finance ES provision(70). The country made substantial progress in(involuntarily) charging the captive audienceof water users and more limited progress incharging beneficiaries of the biodiversity andcarbon sequestration users (71). Strong “pathdependency” in the way payments to serviceproviders originated in previous forest subsidyschemes, however, involved considerable roomfor improvement in the efficiency with which itgenerated ES (71). Although the initial successand visibility of the Costa Rican program haveencouraged experimentation elsewhere (72),a more critical literature on the Costa Ricancase (73) and its followers (28, 74–77) is nowemerging that suggests a reframing of the wayincentive-based mechanisms are perceivedas well as a deeper analysis of the social andpsychological dimensions of human decisionmaking in response to external signals (45, 68,78). Approaches that support collective actionat local community levels and address issues of

www.annualreviews.org • Payments for Environmental Services 397

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

conflict over land-use rights are now seen asessential to achieve success (see Section 5.4).Proponents of fairness dimensions as elementsthat need to be added to effectiveness andefficiency prefer the use of the broader conceptof rewards for ES (RES) rather than PES (32,45, 79). The notion of RES focuses on the“multiple goals of ecological sustainability,just distribution and economic efficiency andfavors a variety of payment mechanisms toachieve these goals, both market and non-market” (80, p. 2060). RES further involvesthe integration of pro-poor elements intoeconomic instruments to enhance ES with thebasic argument that poverty alleviation hasto be included into any portfolio to protectthe environment, especially in developingcountries (81, 82). This contrasts with the viewthat poverty alleviation can be a positive sideeffect, which can be included as long as it doesnot imply efficiency losses (83). PES schemesare likely to change (and sometimes reinforce)existing power structures, inequalities indecision making, and access to resources, withsignificant equity implications (82, 84). Whilethe primary decision-making power may be inthe hands of the buyers, their lack of knowledgeof local conditions and opportunity costs isa disadvantage. Procurement auctions were

designed to reduce the incentive for sellers toinflate their contract prices (85).

Swallow et al. (43) introduced “compen-sation and rewards” for ES to refer to arange of mechanisms linking ecosystem stew-ards and environmental service beneficiaries,including the mechanisms normally includedunder PES∗. They noted that the relation-ships between ecosystem stewards, ES benefi-ciaries, and intermediaries may be more com-plex than a simple transaction, with agreementsthat are not wholly voluntary and paymentsthat are not wholly conditional. On the basis ofthese enriched concepts, recent studies of PES(86) tested multiple paradigms and hypothe-ses. Many of the conclusions of the past decadesupport the earlier assertion that environmen-tal functions do not lend themselves to markettransactions (87).

4. MULTIFUNCTIONALITY,SEGREGATION (SPARING), ORINTEGRATION (SHARING)

Other interpretations of the term PES exist(88), however, and inform part of the literature(Figure 4a). They relate to alternative views onhow multifunctionality of land can be achievedby spatial segregation or integration.

Figure 4Two ways the term environmental services is understood in the payments for ecosystem services literature: (a) Environmental servicesare the sustenance or enhancement of natural capital linked to land use and are the basis for ecosystem services of all types (88).(b) Environmental services are ecosystem services beyond provisioning and are influenced by land use that primarily targetsprovisioning services (18, 21, 24, 26, 41). Abbreviation: MA, Millennium Ecosystem Assessment.

398 van Noordwijk et al.

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

In the use of market-based instrumentsto increase ES∗, as applied in Australia(Figure 4a) (88), the ES∗ production functionis dominated by the natural capital of an areaand is best served by a segregation approachin which agricultural intensification on the bestland can lead to “land sparing,” aided by in-centives to take marginally productive land outof production. In contrast, the integration andland-sharing perspective of Figure 4b suggestthat the various services can be obtained withina land-use system, with PES incentives modify-ing the internal trade-offs between provisioningand other ES∗.

The contrasting definition and perceptionof ecosystem and ES of (Figure 4a,b) can beunderstood in response to the types of land-scape in which they apply and the perspectiveon the sparing versus sharing debate that re-framed the segregation versus integration issue(89, 90). Land sparing by reduction of the areaneeded for food, feed, and fiber productionthrough forms of agricultural and silviculturalintensification (the Borlaug hypothesis) is asso-ciated in a paradigm that remains popular in theconservation world as well as in the agriculturalindustry, with expectations of high levels ofES that can be provided on the land takenout or not needed for agricultural or forestryproduction. In the land-sparing paradigm, theprimary trade-offs are between how much landcan be taken out of production, at what cost,and what quantity of services this land will thenprovide. Land sharing, by contrast, is based onthe concept of optimizing land productivity interms of provisioning, regulating, and support-ing cultural functions in integrated systems,rather than for provisioning alone. In the land-sharing paradigm, the primary trade-off in thisperspective is internal to the land use: Whatlevel of services can be coproduced with trad-able goods, and how do economic incentivesfor ES modify the optimum point for the localdecision maker. The land-sparing approachmay focus on generic instruments A1 and B1 ofFigure 1, and the sparing approach requiresthe more specific targeting of instruments A2and B2.

Part of the PES literature is about tak-ing land out of production (91), ecologicalrestoration, and nature management. Anotherpart is about marginal changes in intensity ofagriculture and use of inputs, where ES arecoproduced with tradable goods. In terms ofdecision making, the first case deals with dis-crete options and a drastic shift in the primaryfunction of parcels of land with relatively sim-ple compliance checks; the second deals withcontinua with thresholds and the need to createsufficient performance criteria for contracts.The first situation refers to a segregation oflandscape functions, and the second to inte-gration in multifunctional landscapes (56, 57).

The Tinbergen principle (92–94), firstformulated in 1952, follows the basic matrixalgebra principle whereby the number of equa-tions has to match the number of unknownsfor a problem to be solvable. Accordingly,the number of policy objectives and numberof policy instruments also have to match. Asattractive as multipurpose policies may seem,they require strong correlations in the realworld between the targets. As carbon stocksand biodiversity in tropical forest marginsare only partially related, optimization forreduced carbon emissions does not give thesame results as optimization for biodiversityconservation, and an additional, correctivepolicy instrument may be needed. Similarly,poverty and environmental issues can becorrelated over part of the space-time domain,but they are not sufficiently causally linked toexpect pro-poor PES to maximize efficiencyof (short-term) ES enhancement (94). The EUagri-environment scheme has only partiallyachieved its goals (95), as additional goals wereadded in its design beyond enhancement of ES.

The fully segregated and fully integratedlandscape function options are extremes ofa wide range of partial integration solutions(Table 1). In the upper part of the table,a highly reduced matrix shows that eachpolicy-relevant objective has its own part of thelandscape. Synergy between objectives in sucha configuration is minimal, but policy makerscan rapidly switch land-use allocations if

www.annualreviews.org • Payments for Environmental Services 399

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

Table 1 Relationship between land-use category and policy objectives under fully segregated (only diagonal cells arenonzero) and fully integrated (no cells are zero) extremesa; a multifunctionality advantage exists if there is a set of f (i ) forwhich Σf (i ) < [f (a) + f (b) + f (c) + f (d) + f (e)]

Policy objective

a b c d eLand-usecategory

Resourceextractionb

Economicgrowth

Center-basedwelfare

Decentralizedwelfare

Environmentalintegrity

Segregated land-use planA f (a) 0 0 0 0B 0 f (b) 0 0 0C 0 0 f (c) 0 0D 0 0 0 f (d ) 0E 0 0 0 0 f (e)

Integrated land-use plan

1 f (1,a) f (1,b) f (1,c) f (1,d ) f (1,e)2 f (2,a) f (2,b) f (2,c) f (2,d ) f (2,e)3 f (3,a) f (3,b) f (3,c) f (3,d ) f (3,e)4 f (4,a) f (4,b) f (4,c) f (4,d ) f (4,e)5 f (5,a) f (5,b) f (5,c) f (5,d ) f (5,e)

Total Σ f (i,a) Σ f (i,b) Σ f (i,c) Σ f (i,d ) Σ f (i,e)Equivalencerequirement

Σ f (i,a) = f (a) Σ f (i,b) = f (b) Σ f (i,c) = f (c) Σ f (i,d ) = f (d ) Σ f (i,e) = f (e)

aModified from Reference 90.bf , fraction of land area.

objectives change in weight. In the lower halfof the table, all land-use types potentially con-tribute to all objectives, and land-use planninghas to find a solution that satisfies the mini-mum requirements for each function and thatmaximizes the aggregate benefit beyond thisminimum condition. Under certain parameterconditions, a multifunctional approach, as inthe lower part of the table, can achieve moreoverall functionality on the same land area; thetable provides a formal criterion for such anoutcome. Configurations in the lower half ofthe table can be strongly interlinked; in this caseall functions may be buffered, but the flip sideof this may be that the status quo is too resilient.

As posited by various authors independently(55, 96), the conditions where segregation orintegration is superior and/or where sparing orsharing would work best depend on the convexor concave shape of the trade-off curve betweenmultiple functions. In reality, however, suchtrade-off curves as the one between productiv-ity and biodiversity may have convex as well as

concave parts. Regardless of the detailed shapeof the curve, a graphic representation can ex-plore under what conditions mixed systems canbe superior, depending on the level of rewardsfor ES. Figure 5 explores the plausible relationsbetween flows (e.g., provisioning services) andstocks of an (agro)ecosystem. If all the utilityfor users depends on the flow, the system will bedriven toward the maximum flow, regardless ofthe shape of the curve, as long as it is monotone.However, if economic value can be assigned tothe secondary function (y-axis) relative to theprimary function (x-axis) before optimization,mixed systems may be superior. For concavecurves, there is no such solution, and optimalityimplies a choice between the two functions; forconvex curves, intermediate solutions exist forany nonzero value of the value ratio. Addingincome value to landscape-level, carbon and/orbiodiversity stocks effectively means tilting they-axis of the biplot (income = flow + P∗stock)and may shift the point of maximum economicreturn to a higher carbon stock trajectory.

400 van Noordwijk et al.

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

Figure 5(a) Concave and convex shapes of trade-off curves between flow (harvestable yield and other services) andstock (e.g., biodiversity, land health, or carbon stock) of land-use systems. (b) Total income based on theflows plus P times the stock, for concave and convex trade-off curves; arrows indicate income-maximizingsolutions and the upward shift of stocks at income-maximizing land-use choices.

Depending on the ratio between stock andderived income stream and the shape of thestock-flow trade-off curve, reward systems forES related to carbon or biodiversity stockscan be expected to shift farmer decisions onlywhere convex trade-off curves are involved.

5. CRITIQUES OF PAYMENT FORENVIRONMENTAL SERVICETHEORY AND PRACTICE

5.1. Missing Metrics forEnvironmental Service Performance

In order to get ES into the domain of marketfunctions, the spatial and temporal scalesat which performance can be measured areimportant for the way conditionality can be in-cluded in contracts (23, 24, 45, 97). For goods,there typically is a value chain in which theprice per unit substance shifts with processing,transport, quality control, and branding, butthere is a clear relationship between the unitsin which end users buy or consume goods andthe way they are produced. For most ES, sucha relationship is lacking (98). What is one unitof watershed function apart from water quality(99, 100)? What is one unit of biodiversityapart from the populations of specific, flagship

species (101)? Carbon stocks and greenhousegas emissions are relatively easy to quantify, asthey scale with area, in contrast to watershedfunctions and biodiversity, which have fractaldimensions on a length scale other than the 2.0of area-based scaling (7). Most PES arrange-ments cannot deal with the actual services buthave to accept proxies, such as the condition ofland cover that is supposed to enhance ES; inother cases, they have to go a step further backtoward the human actions taken that affect thecondition of the land (45). In many cases, treesand forests are associated with perceptions ofES, but the evidence on which this is basedmay be relatively weak when held to scientificscrutiny (102, 103). Also, the contrast betweenforest and nonforest agricultural lands in termsof tree cover is less than often perceived (104).However, the type of trees and lack of the“right tree at the right place” concepts may bea limitation to actual ES enhancement wheretree cover is used as proxy (105–107).

An interesting alternative to direct com-moditizing of ES [the CES paradigm (45) maybe split into CES1 and CES2, accordingly] isto tie ES to existing commodity flows. Eco-certification in its various forms is doing justthat (108). It usually implies an aggregated ESconcept rather than sharply defined separate

www.annualreviews.org • Payments for Environmental Services 401

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

ES and leaves the details to interactions be-tween producers (farmers) and the design andquality control agency of the certification pro-cess, but multiple standards tend to compete forconsumer attention and introduce a market el-ement in the shaping of operational rules forcertification.

Even for carbon, performance metrics re-main contested. Concerns over global climatechange have resulted in the creation of partialmarkets for “carbon credits,” but their exchangebetween trading systems (such as the Europeanand American markets) has been constrained bylack of political agreement on how to tackle theissue at a global scale. Partial successes in emis-sion reductions within Annex B countries of theKyoto protocol may well have been negated bythe shift of high-emission production sectors tocountries outside the reach of the agreements.Emissions embodied in trade have not yet beenaddressed by agreements and are a rapidlyrising share of the total anthropogenic emis-sions. Credibility of national-scale accountingof land-use and land-cover change in industrial-ized countries is still so low that this sector [cur-rently about 9% of global CO2 emissions (3) buta larger share for nitrous oxides and methane]is excluded from the Kyoto protocol. To cre-ate credible results, the voluntary VerifiedCarbon Standard and similar approaches havecreated protocols that are so heavy in data re-quirements that transaction costs may take upa major share of market value of the result-ing credits. This is the case even when localcommunities are involved in data collection andmanagement (109) and even with the types ofpublic funding subsidies that have characterizedthe field so far.

An interesting aspect of the CES2 ap-proach is that it links area-based ES conceptsto product-based markets and value chains.Productivity links these two modes of expres-sion, and some of the newer ecocertificationapproaches, such as those for cacao (110),indeed have minimum standards for productionper hectare to reduce the leakage risk that lo-cally ES-friendly but low-productivity land usesmay otherwise have.

5.2. Motivation for Buyers:A Real Business Case

The profile of companies on pollution preven-tion has been found to correlate with firm-levelfinancial performance after controlling forvariables traditionally thought to explain suchperformance (111). Reduction in emissionsof toxic chemicals, within the legal limits,was associated with a substantial increase inmarket value with the magnitude of the effectsvarying across industries. This correlation mayreflect that good management practices thatreduce the environmental loading can also,independently, increase asset value. Data suchas these have already led to reduced costsof borrowing for “clean” companies frombanks—an indirect but potentially importantaspect of the business case for environmentalmanagement in polluting industries.

What about the business case for PES? Awell-quoted example of the early PES literaturerefers to the New York drinking water companyand its interactions with the Catskills catch-ment. Rather than spending $8–$10 billion onmandated water purification installations, thecity engaged in preventive actions and nego-tiated with local governments in the Catskillswatershed to enact land-use restrictions thatwould protect the water supply (112). Althoughin general this case demonstrated that preven-tion can be cheaper than cure, the business casearose in a well-regulated environment wherethe city could avoid costs imposed by rules thatwere themselves preventive. Similarly, a sur-vey of the business case of existing PES in thePhilippines (113) with in-depth interviews ofpublic and private enterprises engaged in PESbrought to light that most companies saw aclear business case for them to make such pay-ments, but the business case consisted largely ofthe need to maintain relations with governmentauthorities whose consent they needed to con-tinue operating permits. Early investors in PESin Kenya include flower growers in the LakeNaivasha area whose business case depends onexport markets and associated customer percep-tions in European markets. In this sense, ES

402 van Noordwijk et al.

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

probably relate to customer loyalty in the sameway as other service dimensions via an aggre-gate corporate image in the system 1 brain ofcustomers (114).

5.3. Motivation for EnvironmentalService Providers and MotivationalCrowding Out

The roles of social motivation and persuasionas the third part of the carrot, stick, and sermontriangle (115) are only gradually entering thedebate on environmental and resource manage-ment (116, 117). The interface of social moti-vation and monetization of ES is not trivial, andan economic ceteris paribus assumption thatPES should enhance the supply of such serviceshas been challenged both by laboratory evi-dence from behavioral economists (118–120)and emerging experience in the context of ruraldevelopment (61, 121–123). Numerous exper-imental studies have found that a monetaryincentive crowds out alternate sources of moti-vation to perform a task or engage in prosocialbehavior. These studies have found that smallpayments can actually reduce levels of desiredbehavior relative to a baseline (118) and that,when payments end, the level of the desiredbehavior reduces to a level below its baseline be-fore payment was introduced (124). This bodyof research, which is largely outside the realm ofnatural resource management, raises the ques-tion of how the utilitarian framing of ecologicalconcerns and market strategies can modifythe way humans perceive and relate to nature.Additional studies are needed in the realm ofconservation to help gain a better understand-ing of the extent to which monetary incentivesare more likely to have positive or counter-productive effects regarding conservation aims(125).

Concerns about motivation crowding outalso are relevant where collective action isrequired to protect natural resources that com-munity groups manage as common property.The theoretical literature on PES cited inthis review tends to ignore the challenges of

eliciting collective action in a group contract;there is an implied assumption that collectiveaction will take care of itself if the paymentis well calibrated (126). However, researchon management of the commons and on thepsychological foundations of motivation givestrong reasons to anticipate difficulties in theuse of monetary incentives for ES derivedfrom common property. Commons literatureargues that groups must build trust graduallyto function (127, 128). In addition, in manycases prosocial motivations among individualsare rooted in intrinsic motivators, such aslong-standing traditions or norms that favorcollective action (129, 130) or concern aboutself image (131) or public image (132). Wherecollective action is driven by social, nonpe-cuniary norms, the introduction of monetaryincentives can undermine the social norms andthus weaken instead of strengthen collective ac-tion (133). Although such studies were not un-dertaken specifically in the context of PES, theypoint to a need for more research to understandhow monetary or other incentive types interactwith prosocial motivation and collective action.

The emerging experience with auctions ofES contracts in a developing country contextsuggests that these are social interactions of arather complex nature, rather than simple ex-perimental procedures to establish a correctprice (134–136).

5.4. Payment for EnvironmentalServices in the Poverty-EnvironmentNexus

PES literature often highlights a potential com-patibility between environmental conservationand poverty reduction, especially when poorhouseholds are contracted to receive paymentsin return for their conservation efforts (21, 137).An important reason behind this premise isthat, in many developing countries, landscapeswith high potential to provide ES are also in-habited by a high proportion of poor people.However, it would be simplistic to assume thatthe poor can easily participate in such PES

www.annualreviews.org • Payments for Environmental Services 403

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

projects or that they will benefit significantlyonce incentive payments are disbursed (138).In some projects, researchers have found thatpoor households are able to participate (79),whereas in others participation seems to havebeen limited to relatively well-off land owners(75). Indeed, there are strong barriers that mayrestrict the extent to which poor householdscan access PES projects. These include lack ofclear tenure, lack of land, high transaction costs,and high up-front investments needed to adoptnew land-use practices (26, 94). The poor of-ten do not have secure land title, which maybar them from obtaining PES contracts. Thisis especially true for carbon sequestration ser-vices, where payments are tied to the intendedpermanence of the service. Without a clear landtitle, it may be difficult for those without title toconvince buyers that they can ensure the flowof services in the future (139). Landless poor orthose without title may in fact be ineligible toparticipate in such PES programs. Similarly, inthe case of rented land, tenants cannot promiseanything about long-term land use without in-put from the landowner. Also, if the possibilityof ES payments makes the land more valuable,the landowner may either increase the rent ordiscontinue the lease, possibly disrupting therenter’s livelihood (140).

Transaction costs (here interpreted as costsof negotiating, implementing, monitoring, andenforcing PES contracts) are generally inde-pendent of the size of the contract involved,which means PES programs that contractmany smallholders face more costs per unitof land and services than those that contractwith only a few large landowners. Thus, PESarrangements focused on individual landhold-ings may be less viable where there is a highconcentration of very small farms. Service buy-ers may try to contract with large landholdersrather than small ones, which would excludethe poor. For instance, to limit transactioncosts the PROFAFOR carbon project inEcuador signed individual carbon contractsonly with farmers owning at least 50 hectaresof land, thus restricting the participation of thelocal smallholders in project activities (104).

Similarly, initial investment costs (buyingseedlings or hiring labor), opportunity costs(loss of benefits from existing land use thatneeds to be replaced), and risks associatedwith potential benefits from new land use allaffect the participation by the poor (141). Itis possible to pay an additional sum to coverthe additional costs for poor households toparticipate; empirical estimates of what such anapproach would cost for a tree-planting projectin Tanzania are available (142). However, it ishard to imagine that all buyers of ES would bewilling to pay this premium.

The second related issue is the actual impacton households once they do participate in PESprojects. Evidence of economic benefits fromPES is mixed. In one of the first studies onlocal impacts of forest carbon projects (143),the Scolel Te project in Mexico was found tohave a positive effect on household incomes inthe project area. In contrast, an evaluation ofthe Noel Kempff project in Bolivia had a mixedeffect, with net benefits for the large majorityof local people, but a large proportion of com-munity members expressed dissatisfaction withthe project as it had not met their expectations(144). Managing expectations is a challenge inall such efforts; an initial hype phase helps toget attention but may lead to disappointmentlater on. In a more comprehensive impact study(145) of PES payments in a local communityin Mozambique, effective levels of per capitapayment and impacts were found to be smallwhen compared to increased employmentbenefits from developmental activities of theproject. By contrast, provision of rewards inthe form of long-term tenure security forlocal farmers in Indonesia has had a positiveimpact on the households’ livelihoods (146).The interaction of PES with poverty is there-fore still far from well understood, and moreempirical research is needed to understand thepoverty-environment nexus.

Gender dimensions of the poverty-environment nexus have been studied in termsof gender-differentiated roles in interactingwith water and land resources (147). Perspec-tives on relative male or female poverty depend

404 van Noordwijk et al.

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

on the criteria and methods of assessment (148).Where PES contracts are negotiated at thecommunity scale, it may be hard for outsidersto challenge existing gender roles and biaseswithout introducing an additional objective toan already complex set of social norms (149).

5.5. Are Clear Property Rightsa Precondition for Paymentfor Environmental Services?

Skewed land distribution often compels thepoor to survive by cultivating marginal land,such as erosion-prone slopes, or by usingmethods that cause other environmentalproblems. Without tenure, and often with onlypassing claims on the land they cultivate, thepoor are less likely to make investments toprotect natural resources (36). Looking backat Figure 1, the PES arrow (B2) is contingenton the right to use (A2), and the rights forindividual households are constrained byoverall land-use policies (A1), just as PES isconstrained by overall economic policies (B1).For Indonesia, where large tracts of forestland are underperforming in terms of ESbut remain claimed by the state, the forestryregulatory framework may (over some parts ofthe domain) have to be replaced by an agrarianone (150). Conflicting claims are the primarybottleneck to any carbon-related PES in thepeat lands of central Kalimantan (151). Yet,positive examples exist where resolution ofconflicts and implementation of communityforest management, with certain conditionalitywith regard to maintenance of ES, have allowedlocal ES-friendly investment in land uses (152).In other cases, formal recognition was notrequired (153) when the generally positive per-ception of ES-friendly land use allowed farmersto reclaim their de facto land-use rights fromthe state. In other situations, resolving tenureissues has been a precursor to other forms ofPES (154). The coinvestment paradigm (45)allows such steps to be discussed under the wideumbrella of PES, rather than putting tenuresecurity as a precondition for PES efforts anddisqualifying a large part of the rural poor.

5.6. Is There Enough Paymentfor Environmental Service Fundingfor Applications at Scale?

Most of the PES literature so far has looked atspecial cases where a high local interest in ESwas the starting point of PES experiments. Tocheck how special those situations must be, a re-cent study (65) considered the supply/demandrelationship and the relative income additionsthat upland people might obtain from supplyingwatershed services to their downstream neigh-bors. The per capita benefits possible in theuplands, RPu , were found to be

RPu = (Ad /Au)(Id /Iu)(Pd /Pu)βd (1−T )(1−αu).1.

Equation 1 consists of a number of dimension-less ratios of values upstream (subscript u) anddownstream (subscript d ): area (A), income (I ),population density (P), the willingness to pay bydownstream beneficiaries (βd) relative to theirincome, transaction costs (T ), and the offset-fraction αu of what is received in upstream areas.If a tentative threshold for RPu is set as a 5% in-come increase before upstream land users mighttake notice of the opportunity and respond, theresults are off by at least a factor of 4, when datafor Indonesia are used. This implies that thistype of financial transfer can hardly be expectedto make a dent in rural poverty in the uplands,but it can be significant in a non-negligible sub-set of situations.

Nonfinancial payment potentially opens ac-cess to critical livelihood capitals that might belacking within the ES provider communities.This type of payment is usually considered asindirect and patronizing, whereas cash paymentis frequently seen as more flexible and allowsES providers to convert it to local goods andservices. Case studies in Asia (63) and LatinAmerica (61) indicated that a nonfinancialpayment was preferred by some of the localcommunities involved for several reasons, suchas limited capability of local communities forsavings, investment, and entrepreneurship.Observations in developing countries revealthat both financial and nonfinancial paymentsmight face complex bureaucratic and highly

www.annualreviews.org • Payments for Environmental Services 405

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

contagious collusion because the PES gover-nance is still unclear, formally and informally.However, this situation might be contextual asan Indonesian case in the Cidanau watershed(60) showed that a cash payment had beensuccessfully transformed into an independentsmall-scale business and infrastructure (i.e.,public access to clean water by developing asimple piping system).

5.7. Can Reducing Emissionsfrom Deforestation and DegradationProvide International Funding forLocal Payments for EnvironmentalService?

The potential for internally generated PESfunding may be limited, once expressed on aper capita basis, but the Costa Rica case pre-sented an early example of international fundssupporting a domestic policy for ES-orientedincentives. At the start of the internationaldebate on REDD+, the focus was on national-scale efforts. As the preceding avoideddeforestation had shown, leakage cannot becontained in a piecemeal project-by-projectapproach. To achieve the REDD+ goals, atgigaeconomic scale, a multiscale, layered effortis needed that reaches down to micro- andpicoeconomic aspects. In the international ne-gotiations, issues of pride and sovereignty havebeen at least as important and hard to deal withas issues of carbon price and data collection tosupport realistic performance-based systems.As soon as expectations of funding for addi-tional efforts were raised, existing norms fornational forest policy appeared to be crowdedout. Yet, international efforts to bring trans-parency to sectors known for corruption andhigh-level support for illegal logging seemedto require a full commoditization: If the samecurrencies (money and carbon stock changes)are used across the value chain, elite capturecan be more easily quantified and reported.

Early claims on perverse incentives withPES applications in the context of tropicalforests, suggesting that direct payments forES spell doom for sustainable forest manage-

ment in the tropics, can still be easily dismissed(155). Because of the complexity of multiscaledrivers of change in forest extent and condi-tion and in socio-ecological-economic systems(156) and because of the contested nature oftenure and ownership of large tracts of forest,the claimants for a piece of the pie are many,and the negotiations are complex. Many at-tempts were made to bypass local and/or na-tional governments in linking international fi-nance to local action to protect forests andclaim emission reductions, and they may all bebound to fail. A nested, multiscale approachmay well have to be polyparadigmatic, changingface between, but synergizing, CES, COS, andCIS paradigms (157). In countries with existingpublic-sector payment schemes for forest man-agement, REDD+ can be added to the bundleof services rewarded at relatively low transac-tion costs, as long as the correlations betweenforest carbon stocks and other services aresufficiently tight (158–161).

6. DISCUSSION

6.1. Challenges in Bridging AcrossTemporal Scales and AssociatedDiscount Rates

PES was conceived as an alternative or comple-ment to government programs, giving a greaterstake to local communities and land users, witha simple way to convey the relative merit ofvarious alternative land uses through the detailsof the conditionality clauses in a contract. Wemay have, however, come full circle back to theconcept of Investing in Natural Capital: The Eco-logical Economics Approach to Sustainability (162).The financial transfers that have so far been ef-fectuated (49, 163) are far below the “true valueto society” that studies such as TEEB (19) aredocumenting (164). This might imply that thecurrent framing of ES is less universally sharedamong stakeholders than assumed and that itneeds to be further contextualized (165). Inthe meso-American countries Costa Rica andMexico that pioneered the PES approach atnational scales, the link between measurement,value, and payment is far from resolved (166).

406 van Noordwijk et al.

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

Table 2 Comparison across five scales of economic analysis of the apparent discount rates

Economics Decision makingDiscount rate for goods

and human/social services Environmental service issuesa

Picoeconomics Brain synapse Goods: >100%/daySocial: ∼0%

Crowding out social normsSuasion efforts for internalization for ES producersFeel-good social status motivation for buyers

Microeconomics Household ∼20%/year PES operational domain, adaptation to global climatechange, dealing with invasives, and biodiversity lossMesoeconomics Landscape, enterprise ∼10%/year

Macroeconomics Nation ∼5%/yearGigaeconomics Global natural

resources<0% Future natural capital scarcity, conventions to reduce

biodiversity loss, mitigation of global climate change

aAbbreviations: ES, environmental service; PES, payments for environmental services.

The gap between payments and assumedvalue may also imply that the interactionbetween government policies and PES mech-anisms has not been fully understood (167).The crowding out of social norms at the com-munity and government levels may reduce theeffectiveness of the funds spent (picoeconomicleakage). The concepts of altruism and proso-cial behaviors have emerged as key to a deeperunderstanding of these feedback mechanisms.

Referring back to the five scales of economicanalysis, we have so far seen that PES wasinitially perceived as primarily aiming to bringmicroeconomic decision making at individual,household, or farm level in line with thelonger-term interests at meso- or macroeco-nomic levels. Much of the discussion so far hasbeen on the recent advances in picoeconomicsof decision making when humans are offeredchoices. From the other side of the scale,gigaeconomics, an equally important challengearises as future resource scarcity needs tobe properly weighted; if temporal scaling(discount rates) differ as much as suggested inTable 2, it is unrealistic to expect any singleprice to emerge as reflecting a true value.

Differential timescales and discount ratesmake adaptation a more tangible entry pointfor discussions on climate change than mitiga-tion, even though trees and forests can play arole in both (107, 168).

Two main differences between pico- andmicroeconomics can be summarized in the

way future options are discounted. Althoughmicroeconomics (system 2 brain functions) op-erates at apparent discount rates that relate tothe costs and risks of borrowing money, system1 goes for instant rewards, preferring what isin front of one’s eyes over almost any promiseof larger amounts in a near future. At thesame time, picoeconomics responds stronglyto social norms (tentatively labeled as system 3here), which appears to operate at near-zerodiscount rates, as lifetime values appear to beat play; the interactions with systems 1 and 2require further study. Financial motivationstend to win out when social and financialmotivations are mixed in experimental settings(169), and the way pico- and microeconomicspheres interact is incompletely understood.

In micro- as well as macroeconomics, im-portant categories of human-mediated servicesare considered as equivalent to goods, with mar-kets approximating a price (exchange rate) thatreflects options for producers to switch betweenways to earn a living. Macroeconomic scales dif-fer in discount rates, linked to lower levels ofperceived risk for aggregated entities, such asnation-states or large companies, compared tohouseholds—especially if the latter do not havesecure ownership or resource use rights. Thedifference between private and social discountrates is an important part of the policy anal-ysis matrix approach (170, 171), and can havesubstantial consequences for micro- and macro-economics of tree-planting efforts (172).

www.annualreviews.org • Payments for Environmental Services 407

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

However, by focusing on the current bene-fits derived, the ES concept, as a positive fram-ing, may have failed to appeal to those withrisk aversion to loss of natural capital. Urbanconsumers face a larger diversity in their foodchoices and more security in drinking watersupply than probably at any time in humanhistory (101); although they can fully saturatetheir appreciation of existence value by whatthey see on television, they can easily ignore themessages about loss of ES∗.

6.2. From Value to Utilityand Prospects

As discussed by Kahneman (9), current under-standing of human decision making on the pi-coeconomic to microeconomic interface acrossthe intuitive, emotional system 1 and the con-scious, rational system 2 can be built up from asequence of concepts, which as yet need to beincorporated in the PES literature.

1. Expected net effect is the probabilityof possible outcomes, weighted by theirlikelihood.

2. Value requires a common financial modeto express the effects.

3. Utility means a value relative to the cur-rent endowment; this may imply differentutilities of the same value for multiple ac-tors. Bernoulli’s 1738 equation proposeda proportionality that remained virtuallyunchallenged for more than 250 years.

4. Prospect is recognizing the strong asym-metry (hysteresis) in the emotional re-sponse between gains and losses, as a sys-tem 1 feature that modifies the system 2utility concept (173). There appear tobe clear patterns in the conditions un-der which risk taking can be expected[i.e., (a) “hope to avoid loss,” perceivedhigh probability of loss but small chanceto get bailed out; and (b) “hope of largegain,” perceived as a low probability ofsubstantial net gain without risk of loss],and when risk avoidance may prevail [(c)fear of disappointment, high probability,but no certainty, of net gain; and (d ) “fear

of large loss,” low probability of substan-tial loss]. Where the portrayal as loss orgain depends on the anchoring or bench-mark, rather than objective effect, shiftsfrom risk taking to risk avoidance canbe under the influence of communicationstyles.

Prospect theory allows much of the gainsin economic equations to be retained bymerely replacing utility by prospect. The fram-ing of issues, however, suggests incompletereversibility.

PES instruments generally try to reduce thegap between the overall prospects for the deci-sion maker (at a specific scale) and the prospectsas evaluated at other scales. Internalization ofexternalities is fully achieved when the prospectevaluations have become independent of scale;maybe it helps if the words weakly internalizedreplace externality to indicate space for quanti-tative, gradual shifts. PES relates financial ben-efits for private or corporate decision makers tooptions that minimize environmental damagefor other scale levels. Such financial transfers,however, are part of a complex cross-scalecross-value exchange and cannot assume ceterisparibus as the financial transfers can involvebroader interactions. We may, however, haveto go one step further if we want to bring pico-to gigaeconomics into a single framework. Thebounded rationality concept implies that, incontrast to the assumption that there is perfectinformation and unlimited intellectual capacity,we must take into account that landowners mayfail to find the optimal adoption of their landuse in the presence of complicated spatial eval-uation rules (172–175). In a generic framework,decision making at any scale can be analyzedto be the outcome of a weighing (by brainsystems 1, 2, and 3 in different and still poorlyunderstood ways) of options based on thefollowing:

1. a set of options,2. a set of criteria (compare Table 1),3. expectations of how the various options

will perform against these criteria overtime,

408 van Noordwijk et al.

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

Table 3 Classification of prospects of gain and loss over capital types x and accounting stance levels i, with associateddiscount rates and affinity vector as used in Equation 2

Sums of discounted gains minus lossa

Accounting stance(scale of economicanalysis)

Affinity(A)

Scale-dependent

discount rateterm (r)

Financialcapital(Fin)

Humancapital(Hum)

Socialcapital(Soc)

Naturalcapital(Nat)

Infrastructure(Inf )

ρFin ρHum ρSoc ρNat ρInf

Private (pico, micro):priv

Apriv rpriv εbFin,priv,εcFin,priv

εbHum,priv,εcHum,priv

εbSoc,priv,εcSoc,priv

εbNat,priv,εcNat,priv

εbInf ,priv,εcInf ,priv

Local (pico, micro):loc

Aloc rloc εbFin,loc ,εcFin,loc

εbHum,loc ,εcHum,loc

εbSoc,loc ,εcSoc,loc

εbNat,loc ,εcNat,loc

εbInf ,loc ,εcInf ,loc

Downstream (meso):downs

Adowns rdowns εbFin,downs,εcFin,downs

εbHum,downs,εcHum,downs

εbSoc,downs,εcSoc,downs

εbNat,downs,εcNat,downs

εbInf ,downs,εcInf ,downs

Corporate (meso):corp

Acorp rcorp εbFin,corp,εcFin,corp

εbHum,corp,εcHum,corp

εbSoc,corp,εcSoc,corp

εbNat,corp,εcNat,corp

εbInf ,corp,εcInf ,corp

National (macro): nat Anat rnat εbFin,nat,εcFin,nat

εbHum,nat,εcHum,nat

εbSoc,nat,εcSoc,nat

εbNat,nat,εcNat,nat

εbInf ,nat,εcInf ,nat

Global (giga): glob Aglob rglob εbFin,glob,εcFin,glob

εbHum,glob,εcHum,glob

εbSoc,glob,εcSoc,glob

εbNat,glob,εcNat,glob

εbInf ,glob,εcInf ,glob

Universal (infinitetime scales)

Auniv Religion-mediated concerns beyond capitals apply at scales beyondglobe

aAbbreviations: ρ, asset-dependent discount rate term; ε indicates perceived estimate of all losses (c, cost) and gains (b, benefits) terms rather than the truevalue.

4. incomplete information on merits (orcosts and benefits),

5. a way of summarizing time-based perfor-mance into a single attribute,

6. an operational weighing of the criteria,and

7. an allocation of resources across one ormore of the options (176).

Using Table 3, we can conceptualize thata simple prospect function for each account-ing stance i could be an affinity-weightedsum of expected gains (benefits) and losses(costs) across the various asset types (capi-tals) x, and across all other scales (account-ing stances) i, each discounted with an appro-priate discount rate and weighting factor inEquation 2:

Prospecti = Σi Ai Σx wx,I Σt(εbx,i,t − εc x,i,t)/

(1 + rxρi )t, 2.

where Σ represents sum, A represents affinityacross scales, w is weighting over asset types, x

is an index for asset types, εb is expected futurebenefits in terms of the various asset types, εcis expected future costs in terms of the variousasset types, and rxρ i is the applicable discountrate.

In practice, many terms will have negligi-bly small values for many of the agents/decisionmakers, but we can see that there are multi-ple entry points for nudging decisions towardgreater ES performance via ε, A, w, r, and ρ:ε, increasing knowledge of costs and benefitsto others of actions and decisions by the focalagent; A, increasing affinity and sense of be-longing; w, modifying the implicit weightingfactors across capital types; r, varying the dis-count rate component reflecting the scale andits associated risk aggregation, and ρ, varyingthe discount rate component reflecting the typeof capital.

A number of parallel approaches have beenproposed that can be seen as simplifications ofthis generic scheme:

www.annualreviews.org • Payments for Environmental Services 409

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

1. “Valuing environmental services” isaimed at finding the exchange rates (wx,i)across the five asset types (capitals) andexpressing all in financial terms (19);however, this approach is challenged bythe intrinsically different discount ratesand institutional contexts that tie anyspecific conversion factor to an a priorichoice of time frame, along with an evolv-ing science-based understanding of ESdynamics.

2. Carrots (positive incentives leading toan increase in εbFin,priv, the expected pri-vate scale financial benefits) and sticks(enforced regulations leading to an in-crease in εcFin,priv, the expected privatescale financial costs) interact with ser-mons, which enhance the affinity vector(A) for other scales, reduce the discountrates for capitals other than financial andscales other than private, and increaseknowledge of expected costs and benefitsbeyond private financial gains.

3. Crowding out social motivation whereεbFin,priv − εcFin,priv (expected financialbenefits minus costs at private scale), in-teract with εbSoc,priv − εcSoc,priv , the ex-pected social benefits minus costs at pri-vate scale; preferences expressed in a so-cial (group) context may differ from thoseexpressed individually (175, 177).

4. CES forms of PES, e.g., from nationalto private scales, translate the (εbNat,nat −εcNat,nat − εbNat,priv + εcNat,priv) differentialinto εbFin,priv − εcFin,priv terms, with marketmechanisms determining the right pricethat apparently expresses the value forexternal stakeholders.

Figure 6George Price (178) clarified in 1968 that a covariance matrix betweenindividual and aggregate benefits can reconcile altruism and selfish genes.

5. COS forms of PES do the same as in item4 but with prices determined at broadernegotiation tables and with a broaderrange of interactions with rules.

6. CIS forms of PES/RES can take ina much broader range of values anddiscount rates.

6.3. A New Comprehensive AltruismFramework and Its Applications

In the simplified form of two levels, privateand other, and a uniform relative weighting ofthe various capitals, Equation 2 (see Figure 6)resembles the equation George Price (178) de-veloped for the emergence of altruism as prob-lem in evolutionary biology. In a sense, Price’sequation for altruism (subordinating privateutility to that of a broader group) specifies con-ditions for “internalization of externalities,” asit shows that the best interests of the individualcan match those of a broader group, as long asthe benefit-minus-cost differential is balancedby the social cohesion term. The affinity param-eter is scaled between −1 and +1 and includesfoes as well as friends.

6.4. Multiscale Framing of Incentivesfor Reducing Emissions fromDeforestation and Degradation

Coming back to the multiscale institutionalframing of the REDD+ agenda, a multi-paradigmatic approach appears to be logical: Atthe national scale, property rights are clear (na-tional borders); performance measures at thisscale have absorbed most of the cross-landscapeleakage; and permanence can focus on continu-ity of accounting rules at aggregated levels. ACES paradigm of cross-national carbon trade isfeasible. Between a national scale and its subna-tional entities (sector-based or geographicallydefined), a COS paradigm of compensating forchoices on the development/environment pos-sibility frontier is appropriate. At the local level,a CIS paradigm is appropriate and can be usedto create comanagement regimes and greaterclarity in resource use rights. A key challenge,

410 van Noordwijk et al.

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

however, is to maintain transparency in such amultiparadigmatic approach, given the tenden-cies to elite capture, low accountability (corrup-tion), and election-cycle political biases. In theFuture Issues Section, we therefore put theseideas in hypothesis format; there is some ev-idence that supports the ideas, but a criticalglobal comparison is needed.

Finally, at the gigaeconomic scale, the con-cerns for planetary boundaries (179) and theneed for more targeted, more rapid, more trans-parent, and more innovative feedback loops re-main urgent, as current feedback does not keepup with the rate of change in the planet earthsystem. The expectation that PES could pro-vide flexible, effective, and fair feedback loopshas only partially been met. Some 20 years be-

fore the 1992 Rio conference, advice to theClub of Rome called for “Reshaping the In-ternational Order (RIO)” (180). Two decadeslater, that call is as urgent as it was then. Un-less global agreements and policies set the paceand clarify the boundaries, market-based ES ap-proaches will only serve subsystems and maymake things worse for others. We thus end ona rather pessimistic note on the prospects forPES to serve as a panacea for the alignmentof ecology and economics. The optimist willnote how far we have progressed from the StoneAge economics (181) at the start of the Anthro-pocene (182) and be less concerned that we stillhave a way to go. The realist will appreciate theprogress made but will see the pace as too slow(183).

SUMMARY POINTS

1. Conditionality, degree of voluntary engagement, and degree of realistic targeting of ESenhancement are sliding scales rather than binary, qualitative properties as inferred inthe most commonly used PES definitions and allow multiple PES paradigms to coexist.

2. Rewards for ES targeting individuals or communities can only be fair and efficient if theysynergize with rights-based approaches at the same scale, generic land-use planning,and generic macroeconomic incentive structures, requiring an integrated governanceapproach.

3. Financial incentives to individuals can lead to crowding out social motivation and canhave negative effects on ES delivery, although empirical evidence for full-scale PES isstill missing.

4. Coinvestment paradigms may be applicable in the absence of clear property rights andalso can contribute to conflict resolution and articulation of rights, paving the way forfurther ES performance-based contracts. They are not a silver bullet either, and high-conflict agriculture-forest frontiers may require rule-based governance as a start.

5. Apparent altruism can, in some cases, be reconciled with long-term self-interest acrossmultiple asset types and across scales once a perceived affinity parameter is specified; thismay well be the primary target of internalization efforts of (initially) externally supportedES rewards.

6. PES practice needs to be understood as an interface of pico-, micro-, meso-, macro-, andgigaeconomics, where multiple discount rates, efficiency concepts, and brain systemsinteract. The language and paradigm used may have deeper psychological impacts thanhave been realized so far, and what pulls in one audience repels another.

7. Commodification of ES is more likely to be based on linking ES value to existing com-modity flows, rather than creating tradable ES units, but the motivation and dynamicsof buyers may be akin to a compensation paradigm.

www.annualreviews.org • Payments for Environmental Services 411

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

8. Combinations of PES paradigms may be unavoidable in relating local realities to globalconcerns over ES and natural capital, but specific attention is required for the nodesthat connect across scales that have to transparently manage the exchange rates betweencurrencies of multiple asset types and the divergent discount rates.

FUTURE ISSUES

The following set of issues at the interface of PES praxis and interdisciplinary research mayguide future research efforts:1. Cross-scale mechanisms for fair and efficient enhancement of ES (be they water, bio-

diversity, or climate related) need to acknowledge differences in clarity of rights andperformance measures between local, subnational, and national scales that reshape fair-ness and efficiency concepts at scale transitions.

2. At national borders, an international form of commoditized ES carbon trade is feasible;it would link performance on verifiable emission reductions below internationally agreedreference levels to financial flows (CES1 paradigm).

3. In response to consumer concerns over the consequences of current modes of produc-tion, international trade will increasingly include voluntary and mandatory standards foremissions reduction and biodiversity conservation, linked to commodity value chainsthat provide incentives for reduced emission land use and reducing biodiversity threats(CES2 paradigm).

4. From national to subnational entities, a form of compensating for opportunities skippedis appropriate, using proxies, such as forest cover in relation to human population density,and combining biodiversity, watershed concerns, and greenhouse gas emissions (COSparadigm).

5. At the local level, property rights and outcome-based performance criteria are a challengeto a “dollars per ton CO2” exchange; coinvestment in ES (interpreted across water,biodiversity, and carbon stocks) and the human and social capital that support them isappropriate as a start (CIS paradigm); it will generally combine adaptation and mitigationapproaches to climate change issues.

6. Transparency with free and prior informed consent can be achieved despite shifts incurrency, language, time frame, and conditionality between scales, associated with theparadigms used.

7. Crowding out social norms for good environmental and land-use practice by introduc-tion of financial incentives that are not embedded in the local context is an empiricallydemonstrable risk that can effectively undermine PES mechanisms.

8. The picoeconomic consequences of risk management strategies depending on the an-choring of losses and gains can be integrated into PES praxis and communicationstrategies.

DISCLOSURE STATEMENT

The authors are not aware of any affiliations, memberships, funding, or financial holdings thatmight be perceived as affecting the objectivity of this review.

412 van Noordwijk et al.

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

ACKNOWLEDGMENTS

The authors appreciate the comments from, and discussions with, Sven Wunder, Ujjwal Pradhan,Diana Liverman, participants in the traveling workshop in Sumatra in January 2012, and ananonymous reviewer who helped shape this review. The CGIAR Research Program on Forests,Trees and Agroforestry supports the underlying research effort of the World Agroforestry Centre.

LITERATURE CITED

1. Costanza R, Graulich LJ, Steffen W. 2005. Sustainability or Collapse: An Integrated History and Future ofPeople on Earth, Dahlem Workshop Reports. Cambridge, MA: MIT Press

2. Canadell JG, Le Quere C, Raupach MR, Field CB, Buitenhuis ET, et al. 2007. Contributions to acceler-ating atmospheric CO2 growth from economic activity, carbon intensity, and efficiency of natural sinks.Proc. Natl. Acad. Sci. USA 104:18866–70

3. Peters GP, Marland G, Le Quere C, Boden T, Canadell JG, Raupach MR. 2012. Rapid growth in CO2

emissions after the 2008–2009 global financial crisis. Nat. Clim. Change 2:2–44. Dow GK, Reed CG, Olewilerm N. 2009. Climate reversals and the transition to agriculture. J. Econ.

Growth 14:27–535. Fuller DQ. 2007. Contrasting patterns in crop domestication and domestication rates: recent archaeo-

botanical insights from the old world. Ann. Bot. 100:903–246. Francis CA. 1990. Sustainable agriculture: myths and realities. J. Sustain. Agric. 1:97–1067. Van Noordwijk M, Poulsen J, Ericksen P. 2004. Filters, flows and fallacies: quantifying off-site effects

of land use change. Agric. Ecosyst. Environ. 104:19–348. Wells S. 2010. Pandora’s Seed: The Unforeseen Cost of Civilization. New York: Random House. 230 pp.9. Kahneman D. 2011. Thinking, Fast and Slow. London: Lane

10. Pointing C. 2007. A New Green History of the World: The Environment and the Collapse of Great Civilizations.London: Penguin Books. 452 pp.

11. Williams M. 2003. Deforesting the Earth: From Prehistory to Global Crisis. Chicago: Univ. Chicago Press.689 pp.

12. Raynolds LT. 2000. Re-embedding global agriculture: the international organic and fair trade move-ments. Agric. Hum. Values 17:297–309

13. Scherr SJ, McNeely JA, eds. 2007. Farming with Nature: The Science and Practice of Ecoagriculture.Washington, DC: Island Press

14. Millenn. Ecosyst. Assess. 2005. Ecosystems and Human Well-Being: Synthesis. Washington, DC: IslandPress

15. Rockstrom J, Steffen W, Noone K, Persson A, Chapin FS III, et al. 2009. Planetary boundaries: exploringthe safe operating space for humanity. Ecol. Soc. 14(2):32

16. Thaler R, Sunstein CR. 2009. Nudge: Improving Decisions about Health, Wealth, and Happiness. London:Penguin Books

17. Costanza R, d’Arge R, de Groot R, Farber S, Grasso M, et al. 1997. The value of the world’s ecosystemservices and natural capital. Nature 387:253–60

18. Tomich TP, Thomas DE, van Noordwijk M. 2004. Environmental services and land use change inSoutheast Asia: from recognition to regulation or reward? Agric. Ecosyst. Environ. 104:229–44

19. Sukhdev P, Wittmer H, Schroter-Schlaack C, Nesshover C, Bishop J, et al. 2010. The Economics ofEcosystems & Biodiversity: Mainstreaming the Economics of Nature: A Synthesis of the Approach, Conclu-sions and Recommendations of TEEB. Geneva: TEEB, UN Environ. Program. http://www.teebweb.org/TEEBSynthesisReport/tabid/29410/Default.aspx

20. Kinzig AP, Perrings C, Chapin FS, Polasky S, Smith VK, et al. 2011. Paying for ecosystem services—promise and peril. Science 334:603–4

21. Landell-Mills N, Porras IT. 2002. Silver Bullet or Fool’s Gold? A Global Review of Markets for ForestEnvironmental Services and Their Impact on the Poor. London: Int. Inst. Environ. Dev.

22. Murdiyarso D, van Noordwijk M, Wasrin UR, Tomich TP, Gillison AN. 2002. Environmental benefitsand sustainable land-use options in the Jambi transect, Sumatra. J. Veg. Sci. 3:429–38

www.annualreviews.org • Payments for Environmental Services 413

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

23. Van Noordwijk M. 2005. RUPES typology of environmental service worthy of reward. RUPES Work. Pap.,World Agrofor. Cent. (ICRAF), Southeast Asia Reg. Program, Bogor, Indones.

24. Wunder S. 2005. Payments for environmental services: some nuts and bolts. CIFOR Occas. Pap. 42, Cent.Int. For. Res., Bogor, Indones.

25. Engel S, Pagiola S, Wunder S. 2008. Designing payments for environmental services in theory andpractice: an overview of the issues. Ecol. Econ. 65:663–74

26. Grieg-Gran M, Porras I, Wunder S. 2005. How can market mechanisms for forest environmental serviceshelp the poor? Preliminary lessons from Latin America. World Dev. 33:1511–27

27. Angelsen A, Wunder S. 2003. Exploring the forest-poverty link: key concepts, issues and research implications.CIFOR Occas. Pap. 40, Cent. Int. For. Res., Bogor, Indones.

28. Lele S, Wilshusen P, Brockington D, Seidler R, Bawa K. 2010. Beyond exclusion: alternative approachesto biodiversity conservation in the developing tropics. Curr. Opin. Environ. Sustain. 2:94–100

29. Van Noordwijk M, Lusiana B, Villamor GB, Purnomo H, Dewi S. 2011. Feedback loops added tofour conceptual models linking land change with driving forces and actors. Ecol. Soc. 16:1, Response 1.http://www.ecologyandsociety.org/vol16/iss1/resp1

30. Akerlof GA, Shiller RJ. 2009. Animal Spirits: How Human Psychology Drives the Economy and Why It Mattersfor Global Capitalism. Princeton, NJ: Princeton Univ. Press

31. Murray B, Sohngen B, Ross M. 2007. Economic consequences of consideration of permanence, leakageand additionality for soil carbon sequestration projects. Clim. Change 80:127–43

32. Van Noordwijk M, Chandler F, Tomich TP. 2004. An introduction to the conceptual basis of RUPES:rewarding upland poor for the environmental services they provide. RUPES Work. Pap., World Agrofor.Cent. (ICRAF), Southeast Asia Reg. Program, Bogor, Indones.

33. Ainslie G. 1992. Picoeconomics: The Strategic Interaction of Successive Motivational States within the Person.Cambridge, UK: Cambridge Univ. Press

34. Mamalakis MJ. 1996. Poverty and inequality in Latin America: mesoeconomic dimensions of justice andentitlements. J. Interam. Stud. World Aff. 38:181–99

35. Wackernagel M, Rees WE. 1997. Perceptual and structural barriers to investing in natural capital:economics from an ecological footprint perspective. Ecol. Econ. 20:3–24

36. van Noordwijk M, Tomich TP, Verbist B. 2001. Negotiation support models for integrated naturalresource management in tropical forest margins. Conserv. Ecol. 5(2):21

37. Clark WC, Tomich TP, van Noordwijk M, Guston D, Catacutan D, et al. 2011. Boundary work forsustainable development: natural resource management at the Consultative Group on InternationalAgricultural Research (CGIAR). Proc. Natl. Acad. Sci. USA. In press

38. Jackson LE, van Noordwijk M, Bengtsson J, Foster W, Lipper L, et al. 2010. Biodiversity and agriculturalsustainagility: from assessment to adaptive management. Curr. Opin. Environ. Sustain. 2:80–87

39. Folke C, Hahn T, Olsson P, Norberg J. 2005. Adaptive governance of social-ecological systems.Annu. Rev. Environ. Resour. 30:441–73

40. Carney D. 1998. Implementing the sustainable rural livelihoods approach. In Sustainable Rural Livelihoods:What Contribution Can We Make? ed. D. Carney, pp 3–23. London: Dep. Int. Dev

41. Bebbington A. 1999. Capitals and capabilities: a framework for analyzing peasant viability, rural liveli-hoods and poverty. World Dev. 27:2021–44

42. Pagiola S, Bishop J, Landell-Mills N, eds. 2002. Selling Forest Environmental Services: Market-BasedMechanisms for Conservation and Development. London: Earthscan

43. Swallow BM, Kallesoe MF, Iftikhar UA, van Noordwijk M, Bracer C, et al. 2009. Compensation and re-wards for environmental services in the developing world: framing pan-tropical analysis and comparison.Ecol. Soc. 14(2):26

44. Perrot-Maıtre D. 2006. The Vittel Payments for Ecosystem Services: A “Perfect” PES Case? London: Int.Inst. Environ. Dev.

45. Van Noordwijk M, Leimona B. 2010. Principles for fairness and efficiency in enhancing environmentalservices in Asia: payments, compensation, or co-investment? Ecol. Soc. 15(4):17

46. White D, Minang P, Agus F, Borner J, Hairiah K, et al. 2010. Estimating the Opportunity Costs of REDD+:A Training Manual. Washington, DC: World Bank

414 van Noordwijk et al.

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

47. Wunder S, Engel S, Pagiola S. 2008. Taking stock: a comparative analysis of payments for environmentalservices programs in developed and developing countries. Ecol. Econ. 65:834–52

48. Jack BK, Kousky C, Sims KE. 2008. Designing payments for ecosystem services: lessons from previousexperience with incentive-based mechanisms. Proc. Natl. Acad. Sci. USA 105:9465–70

49. Pattanayak SK, Wunder S, Ferraro PJ. 2010. Show me the money: do payments supply environmentalservices in developing countries? Rev. Environ. Econ. Policy 4(2):254–74

50. Tinbergen J, Hueting R. 1991. GNP and market prices: wrong signals for sustainable economic successthat mask environmental destruction. In Population, Technology, Lifestyle: The Transition to Sustainability,ed. R Goodland, H Daly, S El Serafy, pp. 52–56. Washington, DC: Island Press

51. Hueting R, Reijnders L, de Boer B, Lambooy J, Jansen H. 1998. The concept of environmental functionand its valuation. Ecol. Econ. 25:31–35

52. Costanza R, Daly HE. 1992. Natural capital and sustainable development. Conserv. Biol. 6:37–4653. Daily GC, Alexander S, Ehrlich PR, Goulder L, Lubchenco J, et al. 1997. Ecosystem Services: Benefits

Supplied to Human Societies by Natural Ecosystems. Washington, DC: Ecol. Soc. Am. http://www.wms.org/biod/value/EcosystemServices.html

54. De Groot RS, Alkemade R, Braat L, Hein L, Willemen L. 2010. Challenges in integrating the conceptof ecosystem services and values in landscape planning, management and decision making. Ecol. Complex.7(3):260–72

55. Van Noordwijk M, Leimona B, Emerton L, Tomich TP, Velarde SJ, et al. 2007. Criteria and indicatorsfor environmental service compensation and reward mechanisms: realistic, voluntary, conditional and pro-poor.ICRAF Work. Pap. 37, World Agrofor. Cent., Southeast Asia Reg. Program, Bogor, Indones.

56. Courtney P. 2010. Socio-economic impacts and benefits of agri-environment schemes in England. Presented atSoc. Dimens. Market-Based Environ. Incent. Int. Forum, Charles Darwin Univ., Darwin, Aust., 18–19Nov.

57. Boardman AE, Greenberg DH, Vining AR, Weimer DL. 2001. Cost-Benefit Analysis: Concepts and Practice.Upper Saddle River, NJ: Prentice Hall

58. Ash N, Blanco H, Brown C, Garcia K, Henrichs T, et al., eds. 2010. Ecosystems and Human Well-Being:A Manual for Assessment Practitioners. Washington, DC: Island Press

59. Gomez-Baggethun E, de Groot R, Lomas PL, Montes C. 2010. The history of ecosystem services in eco-nomic theory and practice: from early notions to markets and payment schemes. Ecol. Econ. 69(6):1209–18

60. Leimona B, Pasha R, Rahadian NP. 2010. The livelihood impacts of incentive payments for watershedmanagement in Cidanau watershed, West Java, Indonesia. In Payments For Environmental Services, ForestConservation and Climate Change. Livelihoods in the REDD?, ed. L Tacconi, S Mahanty, H Suich, pp. 106–29. Cornwall, UK: MPG Books Group

61. Asquith NM, Vargas MT, Wunder S. 2008. Selling two environmental services: in-kind payments forbird habitat and watershed protection in Los Negros, Bolivia. Ecol. Econ. 65(4):675–84

62. Wilson MA, Howarth RB. 2002. Discourse-based valuation of ecosystem services: establishing fair out-comes through group deliberation. Ecol. Econ. 41(3):431–43

63. Leimona B, Joshi L, van Noordwijk M. 2009. Can rewards for environmental services benefit the poor?Lessons from Asia. Int. J. Commons 3:82–107

64. Salzman J. 2005. The promise and perils of payments for ecosystem services. Int. J. Innov. Sustain. Dev.1:5–20

65. Scherr SJ, Bennett MT, Loughney M, Canby K. 2006. Developing Future Ecosystem Service Paymentsin China: Lessons Learned from International Experience. Washington, DC: For. Trends, Ecoagric.Partn./Peking Univ. Coll. Environ. Sci.

66. Smith M, de Groot D, Perrot-Maitre D, Bergkamp G. 2006. Pay—Establishing Payments for WatershedServices. Gland, Switz.: IUCN

67. Ferraro PJ, Simpson RD. 2002. The cost-effectiveness of conservation payments. Land Econ. 78(3):339–53

68. Pagiola S, Landell-Mills N, Bishop J. 2002. Market-based mechanisms for forest conservation anddevelopment. See Ref. 42, pp. 1–13

69. Ortiz E, Kellenberg J. 2001. Program of payments for ecological services in Costa Rica. Work. Pap.,FONAFIFO, San Jose, Costa Rica

www.annualreviews.org • Payments for Environmental Services 415

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

70. Chomitz K, Brenes E, Constantino L. 1999. Financing environmental services: the Costa Rican experi-ence and its implications. Sci. Total Environ. 240:157–69

71. Pagiola S. 2008. Payments for environmental services in Costa Rica. Ecol. Econ. 65:712–2472. FAO. 2007. The State of Food and Agriculture 2007. Paying Farmers for Environmental Services. Rome:

FAO73. Miranda M, Porras IT, Moreno ML. 2003. The Social Impacts of Payments for Environmental Services in

Costa Rica: A Quantitative Field Survey and Analysis of the Virilla Watershed. London: Int. Inst. Environ.Dev.

74. Porras I, Grieg-Gran M, Neves N. 2008. All That Glitters: A Review of Payments for Watershed Services inDeveloping Countries. London: Int. Inst. Environ. Dev.

75. Neef A, Thomas D. 2009. Rewarding the upland poor for saving the commons? Evidence from SoutheastAsia. Int. J. Commons 3(1):1–15

76. Forsyth T. 2003. Critical Political Ecology: The Politics of Environmental Science. London: Routledge77. Pagiola S, Rios AR, Arcenas A. 2008. Can the poor participate in payments for environmental services?

Lessons from the Silvopastoral Project in Nicaragua. Environ. Dev. Econ. 13:299–32578. Pascual U, Muradian R, Rodriguez LC, Duraiappah AK. 2009. Revisiting the relationship between equity

and efficiency in payments for environmental services. Ecosyst. Serv. Econ. Work. Pap. 1, Div. Environ.Policy Implement., UNEP, Nairobi, Kenya

79. Gouyon A. 2003. Rewarding the upland poor for environmental services: a review of initiatives from developedcountries. RUPES Work. Pap. 2003-6, World Agrofor. Cent. (ICRAF), Southeast Asia Program, Bogor,Indones.

80. Farley J, Costanza R. 2010. Payments for ecosystem services: from local to global. Ecol. Econ. 69(11):2060–68

81. Muradian R, Corbera E, Pascual U, Kosoy N, May PH. 2010. Reconciling theory and practice: an alter-native conceptual framework for understanding payments for ecosystem services. Ecol. Econ. 69(6):1202–8

82. Pascual U, Muradian R, Rodrıguez LC, Duraiappah A. 2010. Exploring the links between equity andefficiency in payments for environmental services: a conceptual approach. Ecol. Econ. 69:1237–44

83. Pagiola S, Arcenas A, Platais G. 2005. Can payments for environmental services help reduce poverty?An exploration of the issues and the evidence to date from Latin America. World Dev. 33(2):237–53

84. Corbera E, Kosoy N, Martinez-Tuna M. 2007. The equity implications of marketing ecosystem servicesin protected areas and rural communities: case studies from meso-America. Glob. Environ. Change 17:365–80

85. Ferraro P. 2008. Asymmetric information and contract design for payments for environmental services.Ecol. Econ. 65(4):810–21

86. Leimona B. 2011. Fairly efficient and efficiently fair: success factors and constraints in payment and reward forenvironmental schemes in Asia. PhD thesis. Wageningen Univ. Res. Cent., Wageningen, Neth. 176 pp.

87. Gustafsson B. 1998. Scope and limits of the market mechanism in environmental management.Ecol. Econ. 24:259–74

88. Greiner R. 2010. Payments for environmental services (PES): contribution to indigenous livelihoods.In Third International Conference on Environmental Economics and Investment Assessment, Cyprus, ed. KAravossis, CA Brebbia, 3:163–74. Southampton, UK: WIT Press

89. Van Noordwijk M, Tomich TP, de Foresta H, Michon G. 1997. To segregate—or to integrate? Thequestion of balance between production and biodiversity conservation in complex agroforestry systems.Agrofor. Today 9(1):6–9

90. Van Noordwijk M, Tata HL, Xu J, Dewi S, Minang P. 2012. Segregate or integrate for multifunction-ality and sustained change through landscape agroforestry involving rubber in Indonesia and China. InAgroforestry—The Future of Global Land Use, ed. PKR Nair, DP Garrity. Dordrecht, Neth.: Springer Sci.

91. Uchida E, Xu J, Rozelle S. 2005. Grain for green: cost-effectiveness and sustainability of China’s con-servation set-aside program. Land Econ. 81:247–64

92. Preston AJ. 1974. A dynamic generalization of Tinbergen’s theory of policy. Rev. Econ. Stud. 41:65–7493. Aoki M. 1975. On a generalization of Tinbergen’s condition in the theory of policy to dynamic models.

Rev. Econ. Stud. 42:293–96

416 van Noordwijk et al.

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

94. Hughes-Hallett AJ. 1989. Econometrics and the theory of economic policy: the Tinbergen-Theil con-tributions 40 years on. Oxf. Econ. Pap. 41:189–214

95. Kleijn D, Baquero RO, Clough Y, Dıaz M, De Esteban J, et al. 2006. Mixed biodiversity benefits ofagri-environment schemes in five European countries. Ecol. Lett. 9:243–54

96. Balmford A, Green RE, Scharlemann JPW. 2005. Sparing land for nature: exploring the potential impactof changes in agricultural yield on the area needed for crop production. Glob. Change Biol. 11:1594–605

97. Swallow BM, Leimona B, Yatich T, Velarde SJ. 2010. The conditions for functional mechanisms ofcompensation and reward for environmental services. Ecol. Soc. 15(4):6

98. Boyd J, Banzhaf S. 2007. What are ecosystem services? The need for standardized environmental ac-counting units. Ecol. Econ. 63:616–26

99. Bruijnzeel LA. 2004. Hydrological functions of tropical forests: not seeing the soil for the trees?Agric. Ecosyst. Environ. 104:185–228

100. Ma X, Xu J, van Noordwijk M. 2010. Sensitivity of stream flow from a Himalayan catchment to plausiblechanges in land-cover and climate. Hydrol. Process. 24:1379–90

101. Swift MJ, Izac AMN, van Noordwijk M. 2004. Biodiversity and ecosystem services in agricultural land-scapes: Are we asking the right questions? Agric. Ecosyst. Environ. 104:113–34

102. Van Dijk AIJM, van Noordwijk M, Calder IR, Bruijnzeel S, Schellekens J, Chappell NA. 2009. Forest-flood relation still tenuous. Comment on Bradshaw CJA, Sodi NS, Peh KSH, Brook BW. Global evidencethat deforestation amplifies flood risk and severity in the developing world. Glob. Change Biol. 15:110–15

103. Laso Bayas JC, Marohn C, Dercon G, Dewi S, Piepho HP, et al. 2011. Influence of coastal vegetationon the 2004 tsunami wave impact in west Aceh. Proc. Natl. Acad. Sci. USA 108:18612–17

104. Zomer RJ, Trabucco A, Coe R, Place F. 2009. Trees on farm: analysis of global extent and geographicalpatterns of agroforestry. ICRAF Work. Pap. 89, World Agrofor. Cent., Nairobi, Kenya

105. Tran P, Marincioni F, Shaw R. 2010. Catastrophic flood and forest cover change in the Huong Riverbasin, central Vietnam: a gap between common perceptions and facts. J. Environ. Manag. 91:2186–200

106. Verbist B, Poesen J, van Noordwijk M, Widianto, Suprayogo D, et al. 2010. Factors affecting soil lossat plot scale and sediment yield at catchment scale in a tropical volcanic agroforestry landscape. Catena80:34–46

107. Van Noordwijk M, Hoang MH, Neufeldt H, Oborn I, Yatich T, eds. 2011. How Trees and People Can Co-Adapt to Climate Change: Reducing Vulnerability through Multifunctional Agroforestry Landscapes. Nairobi,Kenya: World Agrofor. Cent. (ICRAF). 133 pp.

108. Teisl MF, Roe B, Levy AS. 1999. Ecocertification: why it may not be a “field of dreams.” Am. J. Agric.Econ. 81:1066–71

109. Skutsch M, Vickers B, Georgiadou Y, McCall M. 2011. Alternative models for carbon payments tocommunities under REDD+: a comparison using the Polis model of actor inducements. Environ. Sci.Policy 14:140–51

110. Le Coq JF, Soto G, Hernandez CG. 2011. PES and ecolabel: a comparative analysis of their limits andopportunities to foster environmental services provision. See Ref. 166, pp. 237–64

111. Konar S, Cohen MA. 2001. Does the market value environmental performance? Rev. Econ. Stat.83(2):281–89

112. Appleton AF. 2002. How New York City used an ecosystems services strategy carried out through anurban-rural partnership to preserve the pristine quality of its drinking water and save billions of dollars.A Pap. For. Trends, Tokyo, Nov. http://ecosystemmarketplace.com/documents/cms_documents/NYC_H2O_Ecosystem_Services.pdf

113. Villamor GB, van Noordwijk M, Agra F, Catacutan D. 2007. Buyers’ perspectives on environmental services(ES) and commoditization as an approach to liberate ES markets in the Philippines. ICRAF Work. Pap. 51,World Agrofor. Cent., Bogor, Indones.

114. Andreassen TW, Lindestad B. 1998. Customer loyalty and complex services: the impact of corporateimage on quality, customer satisfaction and loyalty for customers with varying degrees of service expertise.Int. J. Serv. Ind. Manag. 9(1):7–23

115. Bemelmans-Videc ML, Rist RC, Vedung E, eds. 1998. Carrots, Sticks, and Sermons: Policy Instruments andTheir Evaluation. New Brunswick, NJ: Transaction

www.annualreviews.org • Payments for Environmental Services 417

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

116. Sterner T. 2003. Policy Instruments for Environmental and Natural Resource Management. Washington,DC: Resour. Future

117. Vatn A. 2005. Institutions and the Environment. Cheltenham, UK: Edward Elgar118. Frey B, Oberholzer-Gee F. 1997. The cost of price incentives: an empirical analysis of motivation

crowding-out. Am. Econ. Rev. 87:746–56119. Reeson AF, Tisdell JG. 2008. Institutions, motivations and public goods: an experimental test of moti-

vational crowding. J. Econ. Behav. Organ. 68:273–81120. Cardenas J, Stranlund CJ, Willis C. 2000. Local environmental control and institutional crowding out.

World Dev. 28(10):1719–33121. Martinez-Alier J. 2002. The Environmentalism of the Poor. Cheltenham, UK: Edward Elgar122. Soma K. 2006. Natura economica in environmental valuation. Environ. Values 15:31–50123. Kosoy N, Corbera E. 2010. Payments for ecosystem services as commodity fetishism. Ecol. Econ. 69:1228–

36124. Deci EL. 1971. Effects of externally mediated rewards on intrinsic motivation. J. Personal. Soc. Psychol.

18(1):105–15125. Peterson MJ, Hall DM, Feldpausch-Parker AM, Peterson TR. 2010. Obscuring ecosystem function with

application of the ecosystem services concept. Conserv. Biol. 24:113–19126. Kerr J, Vardhan M, Jindal R. 2012. Prosocial behavior and incentives: evidence from field experiments

in rural Mexico and Tanzania. Ecol. Econ. 73:220–27127. Dietz T, Ostrom E, Stern PC. 2003. The struggle to govern the commons. Science 301:1907–12128. Meinzen-Dick R. 2007. Beyond panaceas in water institutions. Proc. Natl. Acad. Sci. USA 104:15200–5129. Cleaver F. 2000. Moral ecological rationality, institutions and the management of common property

resources. Dev. Change 31(1):361–83130. Ostrom E. 1990. Governing the Commons: The Evolution of Institutions for Collective Action. Cambridge,

UK: Cambridge Univ. Press131. Andreoni J. 1989. Giving with impure altruism: applications to charity and Ricardian equivalence.

J. Polit. Econ. 97:1447–58132. Gachter S, Fehr E. 1999. Collective action as a social exchange. J. Econ. Behav. Organ. 39:341–69133. Fehr E, Falk A. 2002. Psychological foundations of incentives. Eur. Econ. Rev. 46:687–724134. Jack BK, Leimona B, Ferraro PJ. 2008. A revealed preference approach to estimating supply curves for

ecosystem services: use of auctions to set payments for soil erosion control in Indonesia. Conserv. Biol.23(2):358–67

135. Jindal R, Kerr JM, Ferraro PJ, Swallow BM. 2012. Social dimensions of procurement auctions forenvironmental service contracts: evaluating tradeoffs between cost-effectiveness and participation by thepoor in rural Tanzania. Land Use Policy. In press

136. Ajayi OC, Jack BK, Leimona B. 2012. Auction design for the private provision of public goods indeveloping countries: lessons from payments for environmental services in Malawi and Indonesia.World Dev. 40:1213–23

137. Wunder S, Alban M. 2008. Decentralized payments for environmental services: the cases of Pimampiroand PROFAFOR in Ecuador. Ecol. Econ. 65:685–98

138. Huang M, Upadhyaya SK, Jindal R, Kerr J. 2009. Payments for watershed services in Asia: a review ofcurrent initiatives. J. Sustain. For. 28(3–5):551–75

139. Gutman P, ed. 2003. From Goodwill to Payments for Environmental Services: A Survey of Financing Optionsfor Sustainable Natural Resource Management in Developing Countries. Washington, DC: World Wide FundNat.

140. Kerr J, Foley C, Chung K, Jindal R. 2006. Sustainable development under clean development mechanism:opportunities and concerns. J. Sustain. For. 23(1):1–18

141. Jindal R, Kerr J. 2007. USAID PES Sourcebook: Lessons and Best Practices for Pro-Poor Payment for EcosystemServices. Blacksburg, VA: Off. Int. Res., Educ., Dev.

142. Jindal R, Swallow B, Kerr J. 2008. Forestry-based carbon sequestration projects in Africa: potentialbenefits and challenges. Nat. Resour. Forum 32(2):116–30

143. Tipper R. 2002. Helping indigenous farmers to participate in the international market for carbon services:the case of Scolel Te. See Ref. 42, pp. 223–33

418 van Noordwijk et al.

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

144. Asquith NM, Vargas Rıos MT, Smith J. 2002. Can forest-protection carbon projects improve rurallivelihoods? analysis of the Noel Kempff Mercado Climate Action Project, Bolivia. Mitig. Adapt. Strateg.Glob. Change 7:323–37

145. Jindal R. 2010. Livelihood impacts of payments for forestry carbon services: field evidence from Mozam-bique. In Livelihoods in the REDD? Payments for Environmental Services, Forest Conservation and ClimateChange, ed. L Tacconi, S Mahanty, H Suich, pp. 185–211. Cheltenham, UK: Edward Elgar

146. Suyanto S, Khususiyah N, Leimona B. 2007. Poverty and environmental services: case study in WayBesai watershed, Lampung Province, Indonesia. Ecol. Soc. 12(2):13

147. Caizhen L. 2010. Water policies in China: a critical perspective on gender equity. Gend. Technol. Dev.13(3):319–39

148. Caizhen L. 2010. Who is poor in China? A comparison of alternative approaches to poverty assessmentin Rural Yunnan. J. Peasant Stud. 37(2):407–28

149. Chen X, Lupi F, He G, Liu J. 2009. Linking social norms to efficient conservation investment in paymentsfor ecosystem services. Proc. Natl. Acad. Sci. USA 106:1812–17

150. Fay C, Michon G. 2005. Redressing forestry hegemony: when a forestry regulatory framework is replacedby an agrarian one. For. Trees Livelihoods 15(2):193–209

151. Galudra G, van Noordwijk M, Suyanto S, Sardi I, Pradhan UP, Catacutan D. 2011. Hot spots ofconfusion: contested policies and competing carbon claims in the peatlands of Central Kalimantan,Indonesia. Int. For. Rev. 13(4):431–41

152. Akiefnawati R, Villamor GB, Zulfikar F, Budisetiawan I, Mulyoutami E, et al. 2010. Stewardship agree-ment to reduce emissions from deforestation and degradation (REDD): Lubuk Beringin’s Hutan Desa,Jambi Province, Sumatra as the first formal and operational ‘village forest’ in Indonesia. Int. For. Rev.12:349–60

153. Kusters K, de Foresta H, Ekadinata A, van Noordwijk M. 2007. Towards solutions for state versus localcommunity conflicts over forestland: the impact of formal recognition of user rights in Krui, Sumatra,Indonesia. Hum. Ecol. 35:427–38

154. Pasha R, Leimona B. 2011. PES and multi-strata coffee gardens in Sumberjaya, Indonesia. In Paymentsfor Ecosystem Services and Food Security, ed. D Ottaviani, NE Scialabba, pp. 275–81. Rome: FAO

155. Wunder S. 2006. Are direct payments for environmental services spelling doom for sustainable forestmanagement in the tropics. Ecol. Soc. 11(2):23

156. Lambin EF, Meyfroidt P. 2010. Land use transitions: socio-ecological feedback versus socio-economicchange. Land Use Policy 27:108–18

157. Minang PA, van Noordwijk M. 2012. Design challenges for reduced emissions from deforestation andforest degradation through conservation: leveraging multiple paradigms at the tropical forest margins.Land Use Policy. In press

158. Corbera E, Schroeder H. 2011. Governing and implementing REDD+. Environ. Sci. Policy 14:89–99159. Hoang MH, Do TH, Pham MT, van Noordwijk M, Minang PA. 2012. Benefit distribution across scales

to reduce emissions from deforestation and forest degradation (REDD+) in Vietnam. Land Use Policy.In press

160. Corbera E, Soberanis CG, Brown K. 2009. Institutional dimensions of payments for ecosystem services:an analysis of Mexico’s carbon forestry programme. Ecol. Econ. 68:743–61

161. Alston LJ, Andersson K. 2011. Reducing greenhouse gas emissions by forest protection: the transactioncosts of implementing REDD. Clim. Law 2:281–89

162. Jansson AM, Hammer M, Folke C, Costanza R, eds. 1994. Investing in Natural Capital: The EcologicalEconomics Approach to Sustainability. Washington, DC: Island Press

163. McAfee K. 1999. Selling nature to save it? Biodiversity and green developmentalism. Environ. Plan. D17(2):133–54

164. Pascual U, Muradian R, Brander L, Gomez-Baggethun E, Martın-Lopez B, et al. 2010. The economicsof valuing ecosystem services and biodiversity. See Ref. 184, pp. 183–256

165. Tomich TP, Argumedo A, Baste I, Camac E, Filer C, et al. 2010. Conceptual frameworks for ecosystemassessment: their development, ownership, and use. See Ref. 58, pp. 71–115

166. Rapidel B, DeClerck F, Le Coq JF, Beer J, eds. 2011. Ecosystem Services from Agriculture and Agroforestry:Measurement and Payment. London: Earthscan. 414 pp.

www.annualreviews.org • Payments for Environmental Services 419

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

167. Kumar P, Brondizio E, Elmqvist T, Gatzweiler F, Gowdy J, et al. 2010. Lessons learned and linkageswith national policies. See Ref. 184, pp. 285–306

168. Verchot LV, van Noordwijk M, Kandji S, Tomich TP, Ong CK, et al. 2007. Climate change: linkingadaptation and mitigation through agroforestry. Mitig. Adapt. Strateg. Glob. Change 12:901–18

169. Heyman J, Ariely D. 2004. Effort for payment: a tale of two markets. Psychol. Sci. 15:787–93170. Monke EA, Pearson SR. 1995. The Policy Analysis Matrix for Agricultural Development. Ithaca,

NY/London: Cornell Univ. Press171. Tomich TP, Cattaneo A, Chater S, Geist HJ, Gockowski J, et al. 2005. Balancing agricultural devel-

opment and environmental objectives: assessing tradeoffs in the humid tropics. In Slash and Burn: TheSearch for Alternatives, ed. CA Palm, SA Vosti, PA Sanchez, PJ Ericksen, ASR Juo, pp. 415–40. NewYork: Columbia Univ. Press

172. Martin FS, van Noordwijk M. 2011. Is native timber tree intercropping an economically feasible alter-native for smallholder farmers in the Philippines? Aust. J. Agric. Resour. Econ. 55:257–72

173. Kahneman D, Tversky A. 1979. Prospect theory: an analysis of decision under risk. Econometrica47(2):263–92

174. Hartig F, Drechsler M. 2010. Stay by thy neighbor? Social organization determines the efficiency ofbiodiversity markets with spatial incentives. Ecol. Complex. 7:91–99

175. Hartig F, Drechsler M. 2009. Smart spatial incentives for market-based conservation. Biol. Conserv.142:779–88

176. Villamor GB, van Noordwijk M, Le QB, Lusiana B, Mathews R. 2011. Diversity deficits in modelledlandscape mosaics. Ecol. Inform. 6:73–82

177. Villamor GB, van Noordwijk M. 2011. Social role-play games versus individual perceptions of conser-vation and PES agreements for maintaining rubber agroforests in Jambi (Sumatra), Indonesia. Ecol. Soc.16(3):27

178. Harman O. 2011. The Price of Altruism: George Price and the Search for the Origins of Kindness. London:Random House

179. Leemans R, Asrar G, Canadell JG, Ingram J, Larigauderie A, et al. 2009. Developing a common strategyfor integrative global environmental change research and outreach: the Earth System Science Partnership(ESSP). Curr. Opin. Environ. Sustain. 1(1):4–13

180. Tinbergen J. 1976. Reshaping the international order (RIO). Futures 8(6):553–56181. Sahlins MD. 1972. Stone Age Economics. New York: Aldine182. Steffen W, Persson A, Deutsch L, Zalasiewicz J, Williams M, et al. 2011. The Anthropocene: from global

change to planetary stewardship. AMBIO 40:739–61183. Chapin FS III, Kofinas GP, Folke C, Carpenter SR, Olsson P, et al. 2009. Resilience-based stewardship:

strategies for navigating sustainable pathways in a changing world. In Principles of Ecosystem Stewardship:Resilience-Based Natural Resource Management in a Changing World, ed. FS Chapin III, GP Kofinas,C Folke, Part 3:319–37. New York: Springer-Verlag

184. Kumar P, ed. 2010. The Economics of Ecosystems and Biodiversity: Ecological and Economic Foundations.London: Earthscan

420 van Noordwijk et al.

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

Figure 2The five capitals (assets) of the livelihood approach (38) interact with three subsystems of the human brain[system 1 and system 2 of Kahneman (9) plus a system 3 shaping and responding to social norms],influencing five scales of economic analysis (pico, micro, meso, macro and giga) of human decisions aboutgovernance, resource use, and development. Abbreviation: LU, land use.

www.annualreviews.org • Payments for Environmental Services C-1

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37CH15-vanNoordwijk ARI 6 October 2012 17:12

Figure 3(a) Payments for environmental services are interpreted as the exchange of financial capital for environmentalservices (ES), usually between parts of society that are short in natural capital (N) but have financial capital(F) to spare, and also in communities where the balance is the other way around and where the ES sellers arefree to use the financial capital obtained according to their own priorities as long as the ES contractualobligations are met. (b) Coinvestments in ES are exchanges that involve relationships in terms of humancapital (H), social capital (S), and/or infrastructure (I) (45).

C-2 van Noordwijk et al.

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37-Frontmatter ARI 29 August 2012 16:48

Annual Review ofEnvironmentand Resources

Volume 37, 2012 Contents

Preface � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �v

Who Should Read This Series? � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �vii

I. Earth’s Life Support Systems

Global Climate Forcing by Criteria Air PollutantsNadine Unger � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1

Global Biodiversity Change: The Bad, the Good, and the UnknownHenrique Miguel Pereira, Laetitia Marie Navarro, and Ines Santos Martins � � � � � � � � � � �25

Wicked Challenges at Land’s End: Managing Coastal VulnerabilityUnder Climate ChangeSusanne C. Moser, S. Jeffress Williams, and Donald F. Boesch � � � � � � � � � � � � � � � � � � � � � � � � � � �51

II. Human Use of Environment and Resources

Geologic Disposal of High-Level Radioactive Waste:Status, Key Issues, and TrendsJens Birkholzer, James Houseworth, and Chin-Fu Tsang � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �79

Power for Development: A Review of Distributed Generation Projectsin the Developing WorldJennifer N. Brass, Sanya Carley, Lauren M. MacLean, and Elizabeth Baldwin � � � � � � � 107

The Energy Technology Innovation SystemKelly Sims Gallagher, Arnulf Grubler, Laura Kuhl, Gregory Nemet,

and Charlie Wilson � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 137

Climate and Water: Knowledge of Impacts to Action on AdaptationMichael Kiparsky, Anita Milman, and Sebastian Vicuna � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 163

Climate Change and Food SystemsSonja J. Vermeulen, Bruce M. Campbell, and John S.I. Ingram � � � � � � � � � � � � � � � � � � � � � � � � 195

Pest Management in Food Systems: An Economic PerspectiveGina Waterfield and David Zilberman � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 223

viii

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.

EG37-Frontmatter ARI 29 August 2012 16:48

Searching for Solutions in Aquaculture: Charting a Sustainable CourseDane Klinger and Rosamond Naylor � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 247

Municipal Solid Waste and the Environment: A Global PerspectiveSintana E. Vergara and George Tchobanoglous � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 277

Social Influence, Consumer Behavior, and Low-Carbon EnergyTransitionsJonn Axsen and Kenneth S. Kurani � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 311

III. Management, Guidance, and Governance of Resources and Environment

Disaster Governance: Social, Political, and Economic DimensionsKathleen Tierney � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 341

Multiactor Governance and the EnvironmentPeter Newell, Philipp Pattberg, and Heike Schroeder � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 365

Payments for Environmental Services: Evolution Toward Efficientand Fair Incentives for Multifunctional LandscapesMeine van Noordwijk, Beria Leimona, Rohit Jindal, Grace B. Villamor,

Mamta Vardhan, Sara Namirembe, Delia Catacutan, John Kerr,Peter A. Minang, and Thomas P. Tomich � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 389

Toward Principles for Enhancing the Resilience of Ecosystem ServicesReinette Biggs, Maja Schluter, Duan Biggs, Erin L. Bohensky, Shauna BurnSilver,

Georgina Cundill, Vasilis Dakos, Tim M. Daw, Louisa S. Evans, Karen Kotschy,Anne M. Leitch, Chanda Meek, Allyson Quinlan, Ciara Raudsepp-Hearne,Martin D. Robards, Michael L. Schoon, Lisen Schultz, and Paul C. West � � � � � � � � � � � 421

Environmental InformaticsJames E. Frew and Jeff Dozier � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 449

IV. Integrative Themes

The Public Trust Doctrine: Where Ecology Meets Natural ResourcesManagementRaphael D. Sagarin and Mary Turnipseed � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 473

Indexes

Cumulative Index of Contributing Authors, Volumes 28–37 � � � � � � � � � � � � � � � � � � � � � � � � � � � 497

Cumulative Index of Chapter Titles, Volumes 28–37 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 501

Errata

An online log of corrections to Annual Review of Environment and Resources articles maybe found at http://environ.annualreviews.org

Contents ix

Ann

u. R

ev. E

nvir

on. R

esou

rc. 2

012.

37:3

89-4

20. D

ownl

oade

d fr

om w

ww

.ann

ualr

evie

ws.

org

by R

oyal

Mel

bour

ne I

nstit

ute

of T

echn

olog

y (R

MIT

) on

10/

02/1

3. F

or p

erso

nal u

se o

nly.