Criteria and indicators for ecosystem reward and compensation mechanisms: realistic, voluntary, conditional and pro-poor

Working markets are by definition realistic, voluntary and conditional. Their effects on poverty and human well-being are mixed. Many environmental problems and the increasing scarcity of ecosystem services are linked to ‘market failures’. Time lags, complex cause-effect linkages, and multiple layers of rights and responsibilities, make many environmental ‘service’ considerations externalities of decision-making processes focussed on ‘marketable goods’. Which combina tion of characteristics is needed for mechanisms that internalize the costs and bene fits of ecosystem utilization enough to avoid environmental degradation beyond thresholds of sustainability Can market-based mechanisms be pro-poor We set out to identify mutually – beneficial opportunities fo r the ‘modifiers’ and ‘beneficiaries’ of environmental services to develop agreements and contracts as an alternativ e to a purely regulatory approach to environmental management. We do not ignore regulation, but rather see regulations as defining the domain for voluntary and conditional rewards for environmental services (ES). Inputs into the analysis are derived from theory and emerging practice in action research sites and pilot a pplication schemes. Theoretical insights are drawn from social welfare theory (developmen t and environmental economics and project appraisal), institutional economics (principal agent problems, game theory) and integrated natural resource management. We present a general framework to clarify th e multiple pathways between poverty and mechanisms for compensation and reward for environmental services (8 identified so far) and a set of criteria and indicators for evaluating those mechanisms. Two main classes and six main crite ria are formulated. The first class relates to the effectiveness, efficiency and sustainability of compensation and reward for environmental services (CRES) institutions, with environmental services as the primar y target. The criteria in this class relate to three questions that predominate in the scoping, stakeholde r analysis and negotiation, and implementation stages of establishing a compensation and reward mechanism, respectively: Will rewards be realistic Will they be voluntary What conditionality will apply The sec ond class of three questions is aimed at the equity dimension. Is poverty linked to environmental services Who is/will be excluded from the mechanism Are the rewards ‘pro-poor’ A total of 12 sub-criteria with a range of possible indicators are proposed under the overall headings of realistic, conditional, voluntary a nd pro-poor. The paper also presents hypotheses about the way that various stakeholders will perceive and negotiate assessment criteria in particular circumstances. The paper concludes with a discu ssion of the possibility of a middle ground for negotiating voluntary reward mechanisms that are site-specific and ye t have affordable transaction costs.

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