Under what conditions can Payments for Environmental Services deliver sustainable improvements in welfare? Learning from a Randomized Control Trial

Wilson Maldondado watched his cattle die one by one. The 2010 Bolivian dry season was the worst in Wilson's memory, killing 200 cows in Villamontes and countless others across the Chaco. But it was not the first long drought. In 2004 more than 50,000 people were affected in Gutierrez, where more than 90 percent of the corn crop failed. In Gutierrez 20 communities had no drinking water, and even Villamontes town ran out. Wilson looked at the clouds gathering on the Sierra del Aguarague and wondered, with mountains so close, how the Chaco could be so dry.
Across Latin America, the watersheds that could provide users with clean water often have to support additional and sometimes conflicting functions, such as agriculture and forestry. Existing regulatory frameworks have often proved unable to reconcile these conflicting needs. Upper watershed farmers often have no economic alternative other than to deforest their land for agriculture. Upstream Water Factories are thus destroyed-often for a pittance-and cows enter streambeds to drink, forage, urinate and defecate. The subsistence agriculture of upper watershed farmers is unproductive and susceptible to climate change. Downstream municipal water sources are contaminated, children miss school with diarrhoea, sedimentation blocks pipes and dams, and waterholes supporting farmers like Wilson Maldonado dry up.

In 2003 in Los Negros, Bolivia, Fundación Natura Bolivia (Natura) helped initiate a new incentive based water conservation model: municipal payments for environmental services (PES). These projects are based on the twin axioms that 1) protecting upstream forests will help maintain water supplies in quantity and quality, and 2) downstream water users need to contribute to such forest protection. The key attributes of these schemes are the precautionary principle and local institution building and alignment. From humble beginnings in 2003, when 6 farmers agreed to protect 465 ha, more than 30,000 downstream users are now compensating 1,140 upstream families for protecting 35,000 ha of forest.

This research will identify conditions under which such small scale Payments for Environmental Services (PES) schemes can deliver sustainable improvements in welfare. We will use a series of Randomized Control Trials (RCT) to:

1. Explore how payments for ecosystem services can support poverty alleviation in the Bolivian Chaco. The Bolivian Chaco is hot and dry, poverty is widespread, the indigenous people's land is held communally, and drought is a major agricultural constraint. Conditions are thus not typical of Bolivia, and indeed are more like sub-Saharan Africa. We thus expect that lessons we learn will be applicable to less developed countries.

2. Take lessons and tools from Bolivia to other Andean countries, to evaluate the effectiveness of municipal-led PES, and the applicability of the RCT methodology for ecosystem service and poverty alleviation interventions. Taking advantage of an project that will train 200 municipal technicians from Peru, Colombia and Ecuador in how to set up small-scale PES schemes, we will undertake a controlled evaluation of the importance of external inputs and seed capital for PES development.

3. Develop and test an RCT evaluation toolkit that can support the Colombian Ministry of the Environment. We are will work with the Government's Direction of Forests and Ecosystem Services to help develop a monitoring and evaluation program for the national PES scheme which ensure that 1% of all municipal revenues are invested in upstream watershed protection.

The fundamental objective of this proposal is to assess under what conditions Payments for Environmental Services can deliver sustainable development. A secondary objective is to develop a series evaluation tools so that they can be applied globally, and which can help project developers quickly assess the effectiveness-and hence improve the impact-of their poverty reduction interventions.

One of the fundamental, albeit indirect, goals of our research is to influence and help develop government policies for forest conservation, watershed protection and sustainable development. A major stakeholder group, therefore, are government institutions, including Parks Services and Ministries for Rural Development. We will involve such institutions at all stages of the project, with the goal of providing data and research results that feed into new science-driven policies for flood mitigation and watershed management.

As an example of how ESPA research might lead to policy change, the state Government of Santa Cruz is currently debating PES scale-up both as a state law, and as a mechanism to protect the watersheds above the city of Santa Cruz de la Sierra (1.5 million inhabitants). Our research on what works at a municipal level (as opposed to communities) can help provide a legal basis, and finance, to develop municipal PES throughout Santa Cruz State (an area ~50% larger than the United Kingdom). Other Andean countries also offer significant potential for research uptake: for example Colombia's soon-to-be passed Ecosystem Services Law will annually provide $250 million for land purchases, compensations and RWA. Having helped set up RWA in the Colombian municipalities of Roncesvalles and Guasca, we have advised the government's Direction of Forests and Ecosystem Services on how to best define the national program. Similarly, the Government of South Africa sent a delegation to visit Bolivia and has since expressed interest in applying the lessons of small-scale reciprocal agreements to its Working for Water Program.

Given that we have already replicated our local PES model in two different ecological and cultural zones in Bolivia, have helped set schemes up in the different socio political situations of Ecuador and Peru, and have had colleagues from South Africa adopt parts of the model, we believe that this model of conservation of ecosystem services really can help alleviate poverty. The reseach we propose here-across four countries-will further elucidate whether there is potential for small-scale PES to be implemented globally, in any such areas where upstream land managers can influence the quality and quantity of water available, and downstream users are able to contribute to the provision of watershed services. Two of our project partners, Kelsey Jack and Julia Jones have extensive research programs in Malawi and Zambia and Madagascar respectively. If our research suggests that our model of municipal PES might well be useful outside Bolivia, our next step will be to promote such schemes in eastern Africa.

At the international policy level, Bolivia's Climate Change Negotiating Team is promoting small-scale, "non market based approaches, such as joint mitigation and adaptation approaches for the integral and sustainable management of forests" through the UNFCC Durban COP17 resolution "Outcome of the work of the Ad Hoc Working Group on Long-term Cooperative Action under the Convention"

Unlike REDD, which focuses on market based mitigation, the Bolivian proposal ("Sustainable Forest Life") is a non-market based mechanism for simultaneous mitigation, adaptation, restoration, and economic development. Small-scale PES are the best concrete Bolivian (and for that matter global) example of the "Sustainable Forest Life" concept. The results of our impact evaluation-on how well small-scale conditonal transfer schemes can simultaneously mitigate and adapt to climate change, and provide local development-will therefore feed directly into Bolivia's attempt to negotiate grassroots pro-poor alternatives to REDD into future international climate treaties.