There are a variety of benefits that can be obtained from ecosystem services of the natural

environment. These include food supply, water, and timber ( which is an example of
provisioning service); the regulation of air quality, climate, and flood risk (an example of
regulating services); opportunities for recreation, tourism and education (cultural services); and
other important functions such as soil formation abd nutrient cycle ( supporting services).

Payment for ecosystem services (PES) occur when the beneficiaries or the users of the said
service pay the providers. Specifically, this is an action making a number of payments in
exchange for receiving ecosystem services.

This PES scheme constitutes two ways: 1. At least one set of stakeholders recognizes a
noticeable depletion in resources and or 2. identification of a certain objective.

Thus PES is based on the following ecosystem services:

1. carbon sequestration and storage
2. biodiversity protection
3. watershed protection
4. landscape beauty

PES have certain requirements to meet, as follows:

● Buyer must be identified
● Market conditions must be understood
● Service provider must be recognized

Meanwhile there are seven key principles in this kind of scheme:

Voluntary
Beneficiary pays
Direct payment
Additionality
Conditionality
Ensuring permanence
Avoiding leakage

and three further components to ensure its success

valuation
legal and institutional frameworks
organization of stakeholders

The above mentioned steps are also guidelines crucial to follow when working with a complex
environment.

Step 1 focuses on the need to identify what ecosystem service is going to be bought or
sold. By doing so, we get to know if the ecosystem service is a suitable PES project.
Moreover, it also highlights the important considerations in PES such as the issues and
threats to the ecosystem services and the behavioural change in the buyer and the seller.
This is to ensure that the purchased ecosystem service will provide the desired benefit and
instigates market mechanisms for the payment. Furthermore, it pinpoints the need to
consider other services offered by the ecosystem and not only to focus on one service only
to avoid misleading policies. On the other hand, Step 2 highlights setting clear boundaries.
This simply means that geographic boundaries for ecosystem services should be clear and
well-defined. Step 3 emphasizes the need of identifying the seller and the buyer of the
ecosystem services. This step discusses the importance of establishing ownership rights,
and eligibility. Knowing who owns the ecosystem service and who is eligible to sell it helps
avoid conflicts. Also, failure to establish ownership rights makes the PES not feasible. On
the other hand, this step pinpoints the need to know who the buyers of the ecosystem
services are. Establishing products or services, without a buyer, is meaningless. In fact,
buyers are the one that set conditions that the seller must meet especially in terms of
quality, monitoring, verification, and reporting, hence, the need to identify the buyers of the
ecosystem services.

Step 4 is to identify the market. Determining the accessibility of the market is an important
consideration in the PES scheme. Hence, research should be done beforehand. Moreover,
it also emphasizes the need to identify the rules governing the market. In the market, there
are important considerations and requirements that need to be met to avoid risks. On the
other hand, step 4 also highlights the ought to determine how prices are set. The prices are
determined through negotiations and market price. In negotiations, the buyer may influence
the price and payment may depend on the agreement by the buyer and seller. Meanwhile,
market prices can be influenced by sellers, payments may increase as long as the buyer is
willing to pay for the goods or services. In cases where market price undervalues the
service, economic valuation techniques are used to estimate the true value of the
ecosystem services. In line with this, there is also a need to assess potential risk of the
ecosystem services as it also determines the feasibility of the PES project. Step 5 highlights
the importance of identifying and understanding governance of the ecosystem services as
well as the risks related to it. It emphasizes that governance systems should be clear and
well-defined and existing rules for PES markets and deals are examined carefully.

Step 6 is another method under Governance and Institutional systems. The step identifies
institutional and administrative functions and frameworks, moreover the designated facilities
with the ownership right to the ecosystem service. These institutions may come in the form of
a local community group, an individual, a government agency or an intermediary such as
local Non-Government Office (NGO). Meanwhile, steps 7 and 8 talk about the importance of
baseline data and how to procure them. In step 7, this course of action is to create a
comparison and establish a business-as-usual and project scenario.The baseline thereof is
a prerequisite to PES projects as it predicts the outcome when there is a lack of PES
scheme. Likewise, the basis from the comparison will be measured, reported, and verified.
Because payments for providing an ecosystem service may be dependent upon
performance or the so-called performance-based payments. Apart from that Biophysical
data will also be assessed in step 8. Furthermore, the said step is responsible for identifying
the need for additionality or an improvement in the project. For which to pinpoint this need,
robust technical data is necessary to have a credible baseline in doing so. Succeeding the
steps responsible for establishing a sturdy baseline, are steps 9 and 10. These two
processes are for credibility, assurance, as well as sustainability. In step 9, a set of
requirements are assessed for further measuring, reporting, and verification (MRV).To put it
simply, it answers the question if the systems are capable of guaranteeing a quality service
provision. In addition, it also determines what kind of MRV will be used to prove the need for
additionality. MRV is important due to the fact that it only serves to back-up adequate
performance, to justify payments, and to maintain the credibility of the PES scheme.
However, the main point is that the buyer and seller must both agree upon what MRV
requires during negotiations. In order for the PES project to succeed, participation,
accountability and verification, community preparation, and intensive facilitation and
monitoring are needed. Moreover, step 10 is tilting towards equitable means of benefits
distribution, the step is programmed to develop pro-poor benefit-sharing mechanisms. This
step is to make sure that sustainability is attained by equal distribution of financial,
environmental and social gains from the provision of an ecosystem service. This is
especially true when a community or a collective of individuals expect an equal sharing of
rewards to avoid unnecessary conflict.Benefit-sharing mechanisms are different depending
on the kind of the payment may it be as cash, as non-cash or in-kind. However, if the
community provides the service, the payment can take the form of a disbursement of cash
to those who partake or of funding for a community education or healthcare program or
initiative.

These systematic steps are to follow for sustainability. An assurance of sustainability and
permanence, is anchored to the oath of long-term commitment of those who are involved.

What have we learned?

Payments for Ecosystem Service (PES) happens when users of an ecosystem service make
payments to the providers of that service. That meant that the whole PES scheme is all
about buyers and sellers with the commonality of ecosystem services. Upon negotiation,
they must reach an agreement of what price to pay. That is why willingness-to-pay of the
buyers must be considered by the sellers. Moreover, sellers may be price takers if their
product is uncommon to the market while they have the last say if their product is actually
existing in the market.
Reference

Fripp E. 2014. Payments for Ecosystem Services (PES): A practical guide to assessing the
feasibility of PES projects. Bogor, Indonesia: CIFOR