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Payment for and Management of Ecosystem Services

Issues and Options in the Nordic Context

image of Payment for and Management of Ecosystem Services

Payment for ecosystem services (PES) is a type of environmental policy instrument that gives the owner of a natural resource direct incentives to manage it in society's best interest. The report provides an overview of current theory and experiences from the use of PES. Several examples of PES already exist in the Nordic countries, most of which aim to preserve biodiversity or reduce nutrient runoff. The report shows that there is scope both to improve and expand the use of PES in the Nordic countries. Targeted and differentiated payments, for example by using competitive tendering where land owners have to reveal their compensation levels and ecosystem services they can offer, is a promising approach. The use of PES may also be expanded, for example into areas where regulation traditionally is perceived as very negative by land owners, or used in combination with existing regulation. The report was commissioned by the Working Group on Environment and Economics under the Nordic Council of Ministers

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Executive summary

This report analyses and describes the theoretical basis for and practical implementation of payment for ecosystem services (PES) with a focus on conditions of particular relevance to the Nordic countries. It is shown that PES is firmly embedded in the tool box of classical incentive-based policy instruments and yet offers a novel way to managing ecosystem services (ES) by providing a direct conditional way of buying conservation and integrating the demand and supply sides of ES. PES is found either in the form of nature conservation contracts or in the form of creation of new market products such as offset credits or eco-labelling. The report proposes to use a distinction between intermediate and final goods of nature in helping to set up efficient PES schemes. It identifies at an overall level the beneficiaries of ES; the distribution of rights between buyers and sellers of ES; the public-private good aspects of ES; and proposes a framework for integrating ecosystems and economic values. A number of examples of PES from OECD countries are presented to show the variety in PES contract designs and two in-depth case studies from Denmark and Finland illustrate different experiences in the Nordic countries with PES. The report concludes by arguing there is scope both to improve and expand the current use of PES in the Nordic countries.

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