Approaches to cost-effectiveness of payments for tree planting and forest management for water quality services

Abstract

The evaluation of the cost-effectiveness of Payments for ecosystem services (PES) in fostering positive environmental outcomes has been central to the scientific debate on their implementation. PES cost-effectiveness can be affected by a myriad of environmental, institutional and socio-economic factors operating at different spatial and temporal scales. Moreover, it can be affected by synergies and trade-offs in the provision of ecosystem services (ES). Planting trees is increasingly considered an effective measure to provide water-related ES. It can enhance watershed services such as nutrient retention, erosion control, stream flow regulation, protection against extreme events (e.g., floods and landslides), and lead to a permanent change in land use, replacing agricultural activities that give rise to diffuse pollution. Very few studies currently exist on the cost-effectiveness of tree planting for water quality benefits PES schemes in Europe. Including both review and research elements, this paper highlights challenges in undertaking such assessments. It develops a conceptual framework to help underpin future studies, with its application to three case studies in Denmark explored. Particular attention is given to the estimation of environmental effectiveness in the provision of water quality services and the importance of co-benefits. In the case where we exclude co-benefits from the analysis, the financial cost-effectiveness is always above zero, with central estimates (without discounting environmental improvements) of €10/Kg N, and €0.36 to €0.50/mg pesticide. Once co-benefits are accounted for, however, the social cost-effectiveness is negative (except for under the low estimates) as the value of the co-benefits exceeds the costs, with central estimates of -€28/Kg N, and -€0.34 to -€0.23/mg pesticide. The paper discusses the implications and lessons for PES cost-effectiveness analysis, and identifies research gaps. Increased knowledge of forest water benefits and the cost-effectiveness of woodlands for water schemes would help underpin future incentives to enhance the provision of these ES.