Mainstreaming Payment for Environmental Services

Mainstreaming Payment for Environmental Services

Indonesia - 17 July, 2020

Environmental/ecosystem Services (ES) is the benefits people obtain from the natural ecosystem (natural forest and tree cover). This could be provisioning services (food, water, wood, etc.), regulating services (water purification, biological control, pollination, and climate regulation), cultural services/ non-material benefits (ecotourism, aesthetic appreciation, and inspiration for culture, landscape beauty, spiritual experiences) and supporting services (habitat for species, nutrient cycling, and maintenance of genetic diversity).

The broad umbrella for market-based mechanism of ES is called Payment for Environmental services or PES. It is a voluntary transaction where a well-defined environmental service is being bought by a minimum of one service buyer from a minimum of one service provider if and only if the service provider secures service provisions.

PES implementation has been initiated by NGOs since the 1990s, however, the past implementation was not so promising. The frequent bottlenecks are the long uncertainty and high transaction cost due to NGOs’ limited power and negotiation capacity and limited support from the government. Private sectors generally have a poor interest to incentivize ES protections within and surrounding their concession areas. The PES payment is not so attractive to the village government and the local community.

Apart from the limited best practices, the PES scheme as market-based mechanisms of ES remains relevant for this country. Industrial areas or water user communities in the downstream should provide incentives to communities, who protect forests in the upstream areas. The community who protect peat swamp forests have saved carbon stock and save the Kawasan Hidrologi Gambut (hydrological peatland areas) from fire hazards.

The government should take serious actions to establish enabling conditions on PES implementation.
In November 2017, President Joko ‘Jokowi’ Widodo signed Government Regulation (GR) No. 46/2017 on Environmental-Economic Instruments (Instrumen Ekonomi Lingkungan Hidup). The regulation is the mandate of Article 42 paragraph 2 letter c of Law No. 32/2009 on Environmental Protection and Management aimed as a legal regulatory framework for other sectoral provisions within the relevant ministries/agencies. The GR adopted PES (Imbal Jasa Lingkungan Hidup) scheme as one of the 17 economic instruments.

The GR is a new key milestone in mainstreaming PES. First, the key designated champions to initiate and implement PES is the government. Second, the GR urged land-based investment/industry to allocate resources to protect ES. Third, the PES scheme can be developed between the central and regional (province/district) government, between regional governments and between individuals/organizations as well as between the local government and individuals. This will potentially attract wider PES actors, including local and village government and community at the grass-root level.The Ministry of Environment and Forestry (KLHK) is currently developing ministerial regulations as technical guidance of GR 46/2017 on PES implementation.

Key strategic ways to mainstream PES should address the following:
The government should enforce the private sectors to empower the local community surrounding their concession as ES providers and involve the local community to manage ES within their concession and act as ES buyers. Best practice showed by West Kalimantan Governor which issued Decree No. 6/2018 on sustainable land-based management Investments, where land-based concession should allocate at least 7% out of their concession as protected areas to conserve ES.

Historically, the conservation of natural ecosystems has been financed through government budgets, philanthropy, donations, and bilateral assistance. Considering the private sectors have largely involved in transforming ES in rural landscapes, so they should be responsible in protecting ES either for their business sustainability or community livelihoods. So far, environmental, social, and economic costs of ES loss is largely treated as external cost and not linked to commodity production. This should be reversed, the private sectors should responsible to protect and maintain ES within and surrounding concession, for example, through restoration and conservation from their operation cost and not from their CSR fund.

The government should standardize the valuation of the incentive payment. Refer to the GR 46/2017, the PES payment covers conserve ecosystem functions, community empowerment, and collaborative efforts to establish the PES scheme. Within ecosystem function, the valuation should cover opportunity cost if the ES is converted to other uses and considering the management cost to protect the ES.

The government should be aggressive to conduct lobby and advocacy to initiate and facilitate PES transactions among potential actors. NGOs must be active to provide reliable information on ES spatial distribution and valuation and collaborate with government and other ES stakeholders to mainstream PES. The village government and communities should be intensively involved since the beginning of the PES process to achieve the community’s sustainable livelihoods that are integrated into conservation.

Author : Edi Purwanto is Director of Tropenbos Indonesia and Nur Hasanah is a PhD graduate from Environmental Science Systems, ETH Zurich, Switzerland