Evaluating Payments for Watershed Services Programs in the United States

Abstract

We review 15 forest watershed protection programs in the United States in which a local government agency or water provider collects payments from downstream service beneficiaries, such as water consumers, and pays upstream forest landowners for provision of watershed services. We describe the features of these Payments for Watershed Services (PWS) programs, focusing on funding sources, how the payment mechanisms work, and outcomes achieved. We also assess the extent to which the programs adhere to the economic principles that are associated with efficient or cost effective PWS schemes. In general, we find that payments in the programs do not closely reflect the marginal value of the service provided. Payments received by landowners mainly reflect the landowners’ opportunity costs. Fees paid by water consumers are set to yield revenue targets and/or reflect the avoided cost of additional water filtration and treatment. The programs appear to yield societal benefits, primarily through cost savings, but data from program outcomes is limited and more rigorous analysis of both the benefits and costs would be worthwhile.