Abstract
Conventional markets can underprovide ecosystem services. Deliberate creation of a market for ecosystem services [e.g., a payments for ecosystem services (PES) scheme] can close the gap. The new ecosystem service market alters behaviors and quantities of ecosystem service provided and reveals prices for the ecosystems service: a market-clearing equilibrium. Assessing the potential for PES programs, which often act as ecological infrastructure investment mechanisms, requires forecasting the market-clearing equilibrium. Forecasting the equilibrium is complicated, especially at relevant social and ecological scales. It requires greater disciplinary integration than valuing ecosystem services or computing the marginal cost of making a land-use change to produce a service. We conduct an ex ante benefit–cost assessment and forecast market-clearing prices and quantities for ecological infrastructure investment contracts in the Panama Canal Watershed. The Panama Canal Authority could offer contracts to private farmers to change land use to increase dry-season water flow and reduce sedimentation. A feasible voluntary contracting system yields a small program of about 1,840 ha of land conversion in a 279,000-ha watershed and generates a 4.9 benefit–cost ratio. Physical and social constraints limit market supply and scalability. Service delays, caused by lags between the time payments must be made and the time services stemming from ecosystem change are realized, hinder program feasibility. Targeting opportunities raise the benefit–cost ratio but reduce the hectares likely to be converted. We compare and contrast our results with prior state-of-the-art assessments on this system.
Highlights
Ex ante benefit–cost assessment of a payments for ecosystem services (PES) program needs to be conducted within the context of the likely market, at appropriate and feasible ecological and social scales, and conditional on data about that system to forecast the marketclearing equilibrium
One reason why studies forecasting market-clearing equilibria are rare is that it remains challenging to assemble the necessary expertise to integrate the multiple dimensions of PES programs to forecast the prices and quantities in equilibrium
We forecast the market-clearing prices and quantities of an ecological infrastructure investment project in the Panama Canal Watershed (PCW), which informs the feasibility of the marketbased PES mechanisms for this system
Summary
Ex ante benefit–cost assessment of a PES program needs to be conducted within the context of the likely market, at appropriate and feasible ecological and social scales, and conditional on data about that system to forecast the marketclearing equilibrium. Such empirical estimates capture market imperfections and barriers to participation likely to persist following PES implementation. This contrasts with current state-ofthe-art assessments, which are conducted as if a central planner could fully internalize ecosystem services from ecological infrastructure investments and assuming away of other market imperfections or barriers
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