A public entity acts as the primary buyer of an ecosystem service, as well as administering and executing the scheme. Typically, public schemes target water-related services to secure water supply (water-quality and water-quantity services), flood protection, and erosion control through the provision of financial compensation or incentives to induce land users to refrain from changing practices or to change to specific practices.
Public schemes may operate at the local or national level. Local public schemes are PES schemes in which municipalities or local governments fund, administer, and pay for ecosystem services in a specified “local” part of a basin that will yield specific water-related benefits. National public schemes are equivalent to subsidy mechanisms of national governments, under which the financial incentives for the ecosystem service is not tied to a specific locality. As such, national public schemes tend to be river-basin independent.
Both buyers and sellers are private entities (companies, non-governmental organizations, farmers’ associations or cooperatives, private individuals). Private (self-organized) schemes are typically local schemes where the buyers and sellers have been able to identify an agreed ecosystem service and negotiate and settle upon an agreed price. The buyers make payments on a voluntary basis to the stipulations of the agreed contract.
The distinguishing feature of private schemes is the manner in which the PES contract and funds are administered and disbursed. In private schemes, this is typically taken care of by a PES administration (or management) entity (either registered as an NGO or trust fund) that has been established specifically to manage the PES. These PES management units administer the PES contracts with buyers and sellers, collect the funds from buyers, disburse the funds to sellers, and hold them accountable for their service provision.
Public-private schemes, a specific subset of private schemes, in principle have the same features as a private scheme, except that the buyer (or one of the principal buyers) is a public utility (such as a municipal water-supply company or a public power utility). The feature which distinguishes public-private schemes from local public schemes is the role of the participating public utilities in public-private schemes. This role is limited to that of providing funds to the PES schemes in the role of a service buyer, just as any other private buyer would do. This means that the utility is not involved in the administration and management of the PES contract, as in local public schemes, but participates as a contracting party of service buyers. In public-private schemes, the PES contract is thus administered by a third-party PES management entity in the same manner as in private schemes.
Trading schemes refer to the establishment of markets on which established rights (or permits) and/or quotas can be exchanged, sold, or leased. For example, environmental pollution quotas for nitrate, phosphorus, and/or salt discharges may be sold or traded by low-polluters to high-polluters. Also within the realm of water management, trading schemes can be very promising mechanisms for effectively trading, banking, or leasing water quantities among urban/industrial, agriculture, and ecosystem users/uses. A prerequisite for trading schemes is a strong, well-defined and working legal and regulatory framework that (a) clearly defines the pollution quotas or water rights/permits; and (b) allows and enables the (economic) transfer, whether temporarily or permanently, of these among different users and uses, including nature or ecosystems.
This article is adapted from Recommendations on Payments for Ecosystem Services in Integrated Water Resources Management, adopted by the Parties to the United Nations Economic Commission for Europe (UNECE) Convention on the Protection and Use of Transboundary Watercourses and International Lakes.