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are utilized by dedicated stakeholders at the local and regional
levels. These stakeholders develop concrete projects and imple-
ment them in cooperation with other players, involving the
actual service providers in the process from the outset. This
applies to the Gemeinschaftlicher Wiesenvogelschutz PES as
well as to the Grünland in der Eifel program. Seen in that light, it
is not the specific governmental program (PES) that is success-
ful, but a regional or local project that utilizes that govern mental
program. The main initiative in these examples of successful
governmental payments, then, comes not from government but
from committed conservationists with roots in the region.
The successful examples of this type, moreover, are
instances of public funding of pilot projects. Non-governmental
players develop pioneering solutions for the innovative design
of PES that can then be implemented together with the relevant
stakeholders. These include the Performancebased Environ
mental Policies for Agriculture Initiative, PEPA for short, and the
Florida Ranchlands Environmental Services Project, or FRESP.
The players in these examples are very dedicated people
who have been involved with PES for many years and want to
use this approach specifically to resolve environmental prob-
lems. After their successful implementation, the pilot projects
are then converted into governmental PES. Non-governmental
players with a pioneering spirit and good knowledge of govern-
mental funding options function here as PES developers.
The distinguishing feature of the two successful govern-
ment funded and initiated examples, Conservation Reserve
Enhancement Program in Vermont, CREP Vermont for short, and
the Niedersächsisches Kooperationsmodell Trinkwasserschutz
is that the farmers and landowners are actively approached as
service providers. For that purpose, civil society players rooted
with regard to this aspect as well, the real-life examples cannot
always be clearly distinguished, as we see from the Edwards
Aquifer Protection Program and the Niedersächsisches Koopera
tionsmodell Trinkwasserschutz in this book: Government acts
as a financier in both. The Edwards Aquifer Protection Program,
however, was considered to be a user-financed PES, since the
city serves as the intermediary for specific beneficiaries, namely
the inhabitants of the city, and residents regularly legitimize the
program by referendum. The city uses its capacity to organize
a PES with reasonable transaction costs by increasing tax reve-
nues. In the case of the Niedersächsisches Koopera tionsmodell
Trinkwasserschutz, however, government exercises public
authority. It initiated the program and determines the condi-
tions for payments in the context of this PES, e.g. in the form
of mandatory water withdrawal fees. As the examples show,
the theoretical boundaries cannot always be clearly drawn in
practice. Hence a narrow concept of PES purely as non-govern-
mental payments does not seem to us to make much sense.
When we look at the other constellations of players and the
objectives as well, we see parallels between non-governmental
and governmental payments. In both the Naturschutzgerechte
Bewirtschaftung von Grünland in der nordrheinwestfälischen
Eifel program and the Pumlumon Project, different stakehold-
ers work together with farmers and develop payment mecha-
nisms to guarantee sustainable grazing in their region and thus
ensure biodiversity and landscape diversity. In the first case,
only appropriate governmental programs are used to achieve
the objectives, while in the second case non-governmental and
governmental resources are used in combination.
In the examples of successful governmental PES, it is strik-
ing how often governmental (agri-environmental) programs
Players and motives
The transitions between non-govern-
mental and governmental PES are
blurred. At the regional level, the two
types may complement one another.
Dedicated regional players
specifically use governmental
agri-environmental schemes to
finance their projects.
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given circumstances to develop
and implement innovative PES.
Here, building on the experi-
ence from another PES, not
only was an individual ‘green’
solution developed for a con-
crete enterprise, but all those
involved had to be persuaded
that the use of ecosystem ser-
vices was more appropriate
and cost-effective than techni-
cal solutions. It is not surpris-
ing that it is not a commercial
stakeholder who steps up to
the plate here but a civil soci-
ety organization, convinced
that such approaches can accelerate progress in environmental
protection. With the relevant statutory standards, however, it
cannot be ruled out that more commercially oriented companies
will enter this market, as has already been the case in habitat
banking in the United States and in the context of the impact
mitigation regulation in Germany.
With that we come to two other examples, the Silvergate
Mitigation Bank and the Flächenagentur Brandenburg GmbH. In
these cases, professional providers of compensatory measures
were named as successful PES. Behind both examples there
are commercial companies that hope to make a profit but also,
perhaps even primarily, are highly motivated to improve the
state of the environment. This is shown by the history of the two
companies, and in the case of the Flächenagentur Brandenburg
it can be seen from the fact that one of the shareholders, the
in the region are deliberately included, as in CREP Vermont,
or cooperation is stimulated between the relevant local and
regional stakeholders.
All of these considerations clearly show one thing:
In the governmental PES as well, dedicated, highly motivated
non-governmental players at the regional and local levels
are essential for the success of programs and projects. And
committed individuals often play a prominent role.
Mandatory polluter-funded payments
In our research areas, it is only in Germany and the United
States that mandatory or regulation-motivated payment
approaches result from the current environmental legislation.
Some of the PES evaluated as successful belong to this pay-
ment category. Who are the stakeholders behind this? In the
first stage, the development of the PES was motivated by regu-
latory legislation. Building on this, however, certain stake-
holders on the supply side developed PES such as the Medford
Water Quality Trading Program and the Silvergate Mitigation
Bank. For the most part these are initiators who spring into
action knowing the legal framework: They know about the obli-
gation to compensate and the possibility companies have to
comply with environmental standards by investing in the green
rather than the gray infrastructure, and they use this as the
starting point to develop restoration measures and measures
to improve ecosystem services and biodiversity. They pay in
advance in developing the PES because the regulated market
gives them a certain degree of security as far as demand is
concerned.
The Medford Water Quality Trading Program shows how
much ecological expertise and commitment it takes under the
The government invests in the develop-
ment of innovative approaches and
uses the experiences of local projects
to introduce governmental programs.
Civil society organizations commit
themselves to utilizing green instead
of gray infrastructure.
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156
between green and gray infrastructure, the company decides vol-
untarily. As an immediate beneficiary dependent on the ecosys-
tem service, this buyer therefore has a major economic interest
in the actual provision of the ecosystem service. In the other
cases the situation is different. Here it is quite enough for the
paying project developers to comply with the legislation. So they
pay for the correspondingly required extent of the compensation
measures, but are not really interested in whether the ecosystem
services are delivered or the specified biodiversity objectives are
actually attained. Were this lack of interest in the actual ecosys-
tem service or the biodiversity objective on the part of the buyer
matched by a purely commercial interest on the part of the sup-
plier, there would be cause to doubt the ecological effectiveness
of the PES. In any case, the successful development of banks and
Flächenpools by solely commercial enterprises poses a major
challenge to the legislator. Here government has to have very
good control procedures to ensure that the ecosystem services
sold are delivered and the biodiversity objectives are achieved.
NaturSchutzFonds Brandenburg, is a foundation under public
law. Both companies can therefore be described as traditional
social entrepreneurs that have done pioneering work together
with governmental players in developing habitat banks and the
so called Flächenpools (land pools). In addition, the managing
directors of the two companies are still known throughout the
country as dedicated protagonists in this area.
The Forest Mitigation Banking in Maryland example also
shows how important it is for such an approach to be really
wanted and actively promoted by the relevant stakeholders.
Because in Maryland Forest Mitigation Banking is only success-
ful where it is explicitly promoted by the competent regional
agencies, the individual counties. The PES 100 Äcker für die Viel
falt is an example of a traditional nature conservation project
that uses in particular the payments of project developers as
one important funding source among others. The success of this
PES is due to the great commitment of dedicated scientists and
regional implementation. The high degree of motivation of the
scientists stems in part from the fact that ‘their’ object of study
is protected.
But what motivation is there on the part of the beneficiaries?
Here we have to distinguish between the situation in the Med
ford Water Quality Trading Program example and the motives of
the project developers in the Silvergate Mitigation Bank, Forest
Mitigation Banking in Maryland, Flächenagentur Brandenburg
and 100 Äcker für die Vielfalt PES, which are required to make
compensation payments: In the case of the Medford Water
Quality Trading Program the water treatment company is indeed
the beneficiary of the ecosystem service provided. So here we
have an ideal user-financed PES. With the legal requirements
in the background and above all due to the difference in cost
Social entrepreneurs act as service
providers on the offset market.
The beneficiaries of green infra-
structure have a considerable
economic self-interest in the
delivery of ecosystem services or
biodiversity.
Habitat Banks and Flächenagenturen
acting solely on a commercial basis
are a challenge for legislators.
Players and motives
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terms of both content and location. Many of them determine in
advance – some when the ecosystem services or the biodiver-
sity objective is being defined, some when suitable providers
are being identified – precisely which areas the PES will apply
to. Others, while leaving the choice of the individual areas to
the service providers, define the criteria for the selection in
detail.
In most of the examples, at the same time as the service
to be provided is being clearly defined, an attempt is made to
present the service as quantifiable, because if the service is
quantifiable it can be measured, directly or indirectly. The best
example of this is Gemeinschaftlicher Wiesenvogelschutz: The
goal is to preserve the meadow bird population on grasslands
in a flood plain. To what extent the individual farmer makes his
contribution is determined by counting all the nests where eggs
are successfully hatched on his land. Other examples, such as
Blühendes Steinburg, Upstream Thinking and FRESP, determine
the number of species surviving on the land, the water quality
in selected waters and the amount of water retained in the wet-
land by means of spot tests. PEPA and the Medford Water Qual
ity Trading Program calculate the service provided by means of
simulation models. In the case of Trinkwasserwald®, however,
values measured in comparable areas are extrapolated. The
principle is similar in the case of WCC. And in MoorFutures®,
scientifically-based indicators are used to determine the actual
performance: Conclusions can be drawn about the water level
and thus the amount of emissions reduced on the basis of spe-
cific plant communities.
Quantification of the agreed service is also what distin-
guishes PES like MoorFutures® from traditional donations for
nature conservation: The benefits that the paying person or
The initiators of all our PES had to deal with the various issues
around the organization and contractual structure of exchang-
ing money for ecosystem services. The following is a compila-
tion of the answers they found.
Definition of targets and their quantification
The first and most crucial point is the definition of the actual
service to be paid for in the context of the PES. When we look
at our examples, we notice that most of them are focused on
one service. In the Grünland in der Eifel program, as in Gemein
schaftlicher Wiesenvogelschutz, 100 Äcker für die Vielfalt,
Blühendes Steinburg and the Silvergate Mitigation Bank, the
idea is to preserve or promote and create habitats for certain
plant and animal species in clearly defined areas. In the exam-
ples dealing with water issues, the focus is often on certain
aspects of water quality: In the Niedersächsisches Kooperations
modell Trinkwasserschutz example the idea is to reduce the
levels of nitrate in the groundwater of regional drinking water
protection areas, CREP Vermont and PEPA want to reduce the
phosphorus levels in selected surface waters, the Medford
Water Quality Trading Program wants to reduce the thermal
load on certain rivers, and FRESP, in addition to lower phospho-
rus discharges, is concerned with the amount of water retained
in a selected area. The MoorFutures® and WCC PES as well are
not just generally geared towards carbon fixation but deal spe-
cifically with emission reductions or carbon storage on clearly
demarcated peatlands or afforestation sites. In the Westcountry
Angling Passport as well, what the buyer receives in exchange
for his payment is clearly formulated: the joy of fishing and
relaxation at locations selected by the buyer himself. As we
see, many of our examples endeavor to have a clear target in
Contract drafting
A clearly defined target in relation
to the ecosystem service to be
provided and the biodiversity
objective is crucial.
Quantified ecosystem services
are an essential prerequisite for
monitoring and hence for assessing
the conditionality. They are also the
ultimate basis for output-based
payment mechanisms.
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159
the goals. It makes clear to the service suppliers just what they
should produce. This corresponds more to the self-image of
many farmers, who are the service providers in almost all exam-
ples, than the implementation of prescribed measures.
The boundaries between input-based and output-based
payments are not categorical, however. Numerous transitional
forms can be observed. On a scale with a clearly input-based
arrangement at one end and a clearly output-based arrange-
ment at the other, many of our examples are more in the mid-
field and tending in one direction or the other. Overall, we
interpret 10 of our 19 examples as definitely being or tending to
be input-based. Conversely, that means that nearly half of the
examples are closer to the output-based end of the scale. Here
the payments are linked to the outcome, for example to the
number of species that ultimately can be found on the area or to
the amount of carbon that has been stored. This is noteworthy,
since on the whole output-based payments have rarely been
found in practice so far. The precise measurement of outputs in
the Gemeinschaftlicher Wiesenvogelschutz, however, has not
been duplicated in any of the other examples. The main reason
for this is the complexity of ecological systems. In some of the
examples, indicators or models are used to assess the outcome.
Nevertheless, payment is based on the output in these cases
and not on the measures implemented.
The German Gemeinschaftlicher Wiesenvogelschutz and
Blühendes Steinburg PES are very good examples of how
output-based payments can be arranged: In both, the service
is so defined that it is countable, and can be measured directly
for the total area or for a sample. There is a clear correlation
between the management measures of the service provider and
the result in both cases. Service providers can thus consciously
institution receives for himself or the relevant end users are
clearly defined and verifiable. The payer does not donate
€ 35 for the purchase of peatland to be restored, he pays
€ 35 so that exactly one ton of carbon dioxide will be retained
in the moor for 50 years and will not get into the atmosphere.
The present examples also demonstrate that the distinction
between donations or sponsorship and PES is blurred. So it is
quite legitimate to discuss to what extent the projects of the
Trinkwasserwald® association can be referred to as PES or
whether they are not rather traditional instances of conserva-
tion sponsorship. The association itself certainly sees them in
that light. The uniform calculation of the additional groundwa-
ter recharge regardless of site is worthy of critical discussion.
The fact that the association undoubtedly has an interest in
near-natural forest conversion comes to bear here. The quan-
tification of groundwater recharge is more an instrument for
soliciting donations, however. It works in this case because the
buyers are ultimately not the direct beneficiaries of the ground-
water. The benefit to the paying company lies rather in the con-
comitant image enhancement.
output-based payments
Quantification of the agreed service is not just a crucial
aspect for monitoring, it also affects how the payment can be
arranged. What exactly are the providers ultimately being paid
for – for the implementation of prescribed measures on a speci-
fied piece of land or output-based for the quantified service
delivered? Linking the payment with the specific quantified ser-
vice has many advantages: It directs the self-interest of the ser-
vice provider to the provision of the specific ecosystem service
or the biodiversity goal and allows for flexibility in achieving
The clear definition of the ecosystem
service or the biodiversity target is
what distinguishes a PES from a dona-
tion. In practice, the distinctions are
blurred.
In our examples an output-based
payment approach is seen relatively
often. It is plain to see what oppor-
tunities exist and what difficulties
are encountered in the process of
implementation.
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160
fluctuations into account for financial planning purposes. The
solution proposed for FRESP involved the development of a
model by means of which output could be calculated on the
basis of the average rainfall.
Use of models
Models play an important role in various successful exam-
ples when it comes to measuring the services provided and
the corresponding payment to the service providers. These
include PEPA and the Medford Water Quality Trading Program
as well as the German MoorFutures
®
example in addition to
FRESP. Models and computational tools are used there to
calculate output. The array of tools used is quite large: PEPA,
for example, uses the state phosphorus index, a fairly simple
table in Excel format, to calculate the phosphorus discharge
in the area. The index was not designed specifically for the
PEPA initiative, but it is known to the service providers from
their agricultural practice and they can use it themselves. The
model used in the Medford Water Quality Trading Program is
a long-standing science-based approach that has been tested
over a number of years and is recognized by government agen-
cies. The model, based on the Excel computer program, uses
GIS indicators and different field data. Using that model it is
possible to represent the current solar radiation on a body of
water and calculate how much that radiation and the associ-
ated warming can be mitigated by shading the water. Thus it
is possible to model for a specific period of time how many
kilocalories of heat from sunlight reach the waters every day,
depending on whether the bank is planted or not and with what
kind of vegetation. The Medford Water Quality Trading Program
uses the model to calculate the future shading effect of riparian
exert an influence, and they themselves decide in both
instances whether to take part in the PES and with what
measures. Both examples show that such payments improve
acceptance among farmers, and the motivation of the service
providers and their willingness to cooperate are high. The limits
and difficulties encountered in implementing output based
payments are discernible, however. They include, among other
things, the question of how to deal with external and hence
uncontrollable influences on the outcome. If they are known
but cannot be prevented, they have to be monitored and taken
into account when drafting the contract. In Gemeinschaftlicher
Wiesenvogelschutz the most important external influences take
the form of predatory foxes and martens. Here it is easy to prove
that the farmer is not responsible for the loss of eggs. If such an
eventuality occurs, the governmental financier bears the finan-
cial risk and pays despite non-delivery of the service. In other
cases, the external influences can be much more difficult
to identify and measure. This is shown, for example, by FRESP:
If the provision of the service depends not just on one‘s own
actions but also on other factors beyond one‘s control, the
implementation of output-based payments is significantly more
difficult. In the case of FRESP the problem had to do with the
annual amount of precipitation exerting a major, uncontrollable
influence on the amount of water retained. It was for this reten-
tion that the service providers were to receive output-based
payment, however. If output and payment were directly linked,
the large fluctuations in payments would have led to dissatis-
faction on the part of the service providers and may well have
reduced their acceptance of and participation in the PES. The
unforeseeable amount of the payment was problematic for the
governmental financier as well, because it is hard to take such
In some of the examples, models are
the least costly, most viable means for
quantifying the service provided.
Contract drafting
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161
tion of complexity. The chance to simplify and visualize
complex interrelationships is thus offset by the risk that
models can instead impede and complicate the process
of developing a PES. In this context, it is also mentioned that
the stake holders concerned must be involved in the develop-
ment of such an instrument so later they will trust the model
and accept it.
Amount of payment
A further essential aspect of contract drafting is the
amount of payment: How much must the service provider be
paid to get the desired output? In our first chapter, we estab-
lished that the payments that flow in the context of PES need
not reflect the economic and social value of the ecosystem ser-
vices or biodiversity concerned. Our examples show that the
value of an ecosystem service and biodiversity in most cases
has little or no impact on the amount of payment. Instead,
the opportunity cost and production cost to service providers
are especially crucial: Many of our examples, for instance the
Grünland in der Eifel program, CREP Vermont, Gemeinschaft
licher Wiesenvogelschutz, FRESP, and Niedersächsisches
Kooperationsmodell Trinkwasserschutz, compensate the
farmer or landowner for decreased or foregone revenues.
Payment is thus detached from the actual value of ecosystem
services and biodiversity. It is instead based on the market
price of traditional agricultural products which are produced in
reduced amounts or not at all due to the provision of ecosys-
tem services or biodiversity. In many examples, the payment
amount also depends on the cost actually incurred for the
provision of the agreed service, that is, the production cost,
which will be used for pricing, mostly in combination with the
veg etation. This is used for calculating the credits sold on the
one hand, and on the other hand for selecting the surfaces that
are to be planted and calculating the expected cost of this resto-
ration. The GESTmodel used in MoorFutures® is a science-based
ecological model. Specific plant communities which in turn are
related to the water level are used to calculate the amount of
emissions emanating from an area of peatland. First the actual
emissions prior to the project are determined with the aid of
the model. Then the development of the areas and their future
emissions within the project period of 50 years are predicted. As
in the Medford Water Quality Trading Program the certificates
are then calculated on the basis of the difference between the
current and target states.
Models are used in all these examples, because direct meas-
urement would be too complex or even impossible. Models are
therefore essential for calculating credits as in the Medford
Water Quality Trading Program and MoorFutures
®
. At the same
time, in many cases models are used to estimate where what
measures would be most appropriate ecologically and economi-
cally. This aspect is also in the foreground in the Landserver
model, developed in the Bay Bank context for Forest Mitigation
Banking in Maryland. Using the free web-based program, land-
owners can determine what ecosystem services are provided
by their properties. On the basis of information about the geo-
graphical location, various ecological data and information on
funding opportunities, the user learns what his chances are of
being paid for those services and whom to apply to for pay-
ment. The examples, and especially the interviews with PES
managers, also provide information about the risks associated
with models: Models can soon become too complex and too
large and thus fail to attain one of their objectives, the reduc-
The value of ecosystem services or
biodiversity seldom plays a role in
determining the payment amount.
Mostly it is the opportunity and
production cost that are crucial.
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