Final project for Financing for Development Course

1. Payments for ecosystem
services:
an innovative financial tool to
contribute to financing SDGs
Nelly Papazova
Financing for Development Course
Final Project
8 December 2015

2. What are ecosystem services?
 Long before engineers developed air conditioning and technologies to
purify water and air, nature has provided such “services” through the
shade of trees, wetlands and forests. Pollination by bees is а service
from nature, which still cannot be substituted.
 Ecosystems maintain the balance in nature. When they function
properly, they bring many benefits to humans. These benefits are
called ecosystem services.
 The most obvious ecosystem services are provisioning: the food by
agriculture ecosystems; timber, game, wild fruits by forests; water
and fish by rivers. In addition, however, ecosystems provide vital
regulating and maintaining services, such as water and air
purification, carbon capture, soil fertility maintenance. They also
provide cultural services: attractive landscapes and nature closeness,
which we use for sports and recreation.

3. What are Payments for Ecosystem
Services (PES)?
 Nature provides all these services for free, but we have to make sure ecosystems
are protected, so that they continue to provide food, clean water and air and
aesthetic value.
 The Payments for Ecosystem Services are such financial mechanism, which puts
economic value on ecosystems services and defines their users and providers. Then
a contract is concluded between providers and users, where a given ecosystem
service is provided for a price, and the financing is used for protection of the
ecosystem.
 For example, a mineral water company depends on the water quality, which is the
core of its business. It has interest to pay the owners and managers of land and
forests in the watershed for water protection through agricultural practices, which
do not pollute or through preservation of forests instead of cutting them.
 The Payments for ecosystem services are measures where the users of ecosystem
services pay through subsidies or market payments to the land managers, whose
lands provide the protection of river basins or forests, carbon capture or maintain
the beauty of the landscape.

4. Payments for Ecosystem Services and
Sustainable Development Goals
 The use of PES schemes is a creative smart solution that can mobilize
additional resources (both private and public) for efficiently financing some
SDGs
 It is particularly relevant to the following SDGs:
 End hunger, achieve food security and improved nutrition and promote sustainable
agriculture
 Ensure availability and sustainable management of water and sanitation for all
 Ensure sustainable consumption and production patterns
 Take urgent actions to combat climate change and its impacts
 Conserve and sustainably use the oceans, seas and marine resources for sustainable
development
 Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably
manage forests, combat desertification, and halt and reverse land degradation and
halt biodiversity loss

5. Example 1: Private voluntary PES scheme for
watershed protection in Bulgaria (WWF
Bulgaria)
Source: WWF Bulgaria
- Local problem with decreased quantity
and quality of water due to
deforestation in private forests in the
watershed
- Local businesses and a national raw-bars
producing business, who wants to
minimize its impact on water, create a
fund for financing reforestation of the
watershed
- The businesses are the buyer of the
forest ecosystem service “maintenance
of water quantity and quality”
- A local NGO is attracted as the supplier
of the ecosystem services, which carries
out reforestation of the watershed
- The system is set up with the support of
WWF-Bulgaria

6. Example 2: Private voluntary PES scheme for
restoration of grasslands (WWF Bulgaria)
Problem of
abandonment of
grasslands and
services provided
by them in a
Nature Park in
Bulgaria
A restaurant chain
who wants to
support sustainable
agri-food systems
on which its
business depends
provides financing
Meals
prepared
through
traditional
recipes from
the Park are
served in the
restaurants
Part of the
revenues go
for purchasing
local breed of
sheep to graze
on the
grasslands
Grasslands are
restored;
Economic
opportunities
are created
for local
people;

7. Main conclusions
 Payments for Ecosystem Services is an innovative financial mechanism, which
can contribute to financing at least 6 of the SDGs;
 It is particularly important for developing countries, which have preserved
ecosystems, providing vital ecosystem services globally; Latin America is a
good example of wide use of PES schemes;
 It is an efficient instrument for use of limited financial resources, as it targets
the protection and maintenance of ecosystem services, rather than dealing
with consequences of destroyed or damaged ecosystems – e.g. it is much
wiser and cheaper to protect watersheds through sustainable land
management practices, rather than investing in heavy infrastructure for
water purification once it’s polluted.
 It is able to mobilize both private and public finance in innovative PES
schemes that reward sustainable practices of local people, thus contributing
to their social and economic welfare.