Payments for Environmental Services

What are Payments for Environmental Services?

Payments for Environmental Services or PES are voluntary transactions between service users and service providers that are conditional on agreed rules of natural resource management for generating offsite services.[1]

Let me illustrate this complex definition with a visual example. In the illustration on the right, we have downstream water users, who depend upon upstream farming communities to be able to access clean water. A PES scheme can be created whereby the water users pay for the farming communities to restore riparian areas, reduce pesticide and fertilizer use, so that they can benefit from continued access to clear water. PES should thus create a ‘double win’ both for farming communities and service providers.

What can Payments for Environmental Services help achieve?

Payments for Environmental Services are often implemented in the South with two objectives in mind. Firstly, PES provide farmers with an incentive to preserve or restore the environment in the region they are operating in. Secondly, these schemes can also improve farmers’ livelihoods.[2]

While several schemes have been tested, well designed studies on the impact of PES are still lacking at the moment[3].

Are Payments for Environmental Services relevant in cocoa?

Payments for Environmental Services are becoming increasingly considered as a useful scheme to increase the uptake of agroforestry by cocoa farmers. PES are for example included in the REDD+ strategy in Cote d’Ivoire[4], as a tool to incentivize tree planting on cocoa farms, for enhanced carbon storage. The REDD+ strategy in Cote d’Ivoire mentions PES as a means to involving small producers and local communities in the implementation of the National REDD+ Strategy activities. Next to this, PES schemes are also part of the Cocoa & Forests Initiative Framework for Action, and CFI signatory companies are asked to report on the PES programs they contribute to.  As such, the initiative has reported that in 2020 alone, companies supported over 9000 farmers to receive payments for environmental services (PES).

Have Payments for Environmental Services been piloted in cocoa?

Two pilots have started up in cocoa and were used by the Ivorian Government to collect learnings. In 2017, the Nawa PES pilot project was launched in Côte d’Ivoire by the Ministry in charge of the Environment and Mondelēz International, as part of its Cocoa Life sustainability program. The project aims to reduce deforestation in Mondelēz’s cocoa supply chain through the implementation of a PES scheme focusing on individual and collective payments to support agroforestry, reforestation and forest conservation.

The Mé REDD+ project which was implemented by the NGO Nitidæ and the Permanent Executive Secretariat for REDD+ (SEP-REDD+), and funded by the French Development Agency, tested an agroforestry premium for organic cocoa producers under shade. This premium was financed by the carbon neutrality target of the cocoa buyer, Alter Eco. These two projects were then analyzed in a very insightful study[5]. Some of the learnings include:

• The intrinsic motivation of the farmers to introduce or maintain trees in their plots, particularly for their shading effects, seems sufficient to secure the sustainability of the investment and limit the duration of the PES-agroforestry contracts to the period corresponding to the initial planting investments.
• The choice of on-farm trees is the result of a trade-off between agronomic, social and economic considerations. Participatory diagnosis is essential to know the preferences of the farmers.
• The sustainability of PES-related investments requires the transfer of skills and responsibilities to local actors, such as cooperatives or community-based organizations.

What are the conditions for success?

There is certainly a need for more research on the conditions that are needed for PES to efficiently promote cocoa agroforestry and to enhance farmer incomes. For now, pilots have shown that the necessary time and effort needs to be invested in creating a participatory process. Building trust with farmer communities and landing on a mutually acceptable set of incentives are crucial. Clarifying land tenure, through land certification also appears to be an important success factor.

What is IDH working on?

In 2020, Mondelez International, CIAT, Olam and the Sustainable Food Lab launched the project ‘landscapes for cocoa Livelihoods’ in the Atwima Mponua district in Ghana. The project is co-funded under IDH’s Beyond Chocolate program. This Belgian partnership for sustainable cocoa aims to achieve a living income for all cocoa farmers supplying to the Belgian sector and end cocoa related deforestation linked to this sector.

The project proposes to develop and test a mechanism for managing landscapes that provides living income opportunities for cocoa farmers by addressing two barriers: low yields and a lack of a market for positive environmental externalities for shade grown and deforestation-free cocoa. The project is segmenting the landscape into priority intensification and conservation zones based on ecosystem services. The project has now completed its conservation priorities assessment, illustrating the zones with highest off-site provision of ecosystem benefits to communities in the landscape. More information on the project can be found here.

In addition, through the IDH landscapes program a new project in the Cote d Ivoire Cavally region is under design, on enabling finance for a transition to cocoa agroforestry, which includes a carbon finance and PES component. More information on these projects will be shared in 2022.