Payments for Environmental Services to Promote Climate-Smart Agriculture? Potential and Challenges

Abstract

Payments for environmental services (PES) have gained wide popularity as an approach to promote environmentally friendly land use or agricultural production practices. Yet academics have also voiced caveats against seeing PES as a panacea. This article discusses whether PES is an appropriate and promising approach to promote so-called ‘climate-smart agriculture’ (CSA), which has been defined as agricultural production practices that contribute to CO2 emission reductions and/or removals and provide benefits to farmers via increased productivity and profits and reduced vulnerability to climate change. We start by providing basic background knowledge on PES, and then review its main promises and evidence on the realities of fulfilling these promises. The core of this article presents a number of guiding questions and corresponding answers for the discussion of whether PES is an appropriate tool to promote CSA. We conclude that PES appears most promising for the promotion of CSA activities in settings of small-scale farming with relatively low incomes. Effective design, however, will require solid estimates of the flow of costs and benefits from CSA adoption over time, and accounting for differences in socio-economic and ecological conditions, and will need to address the risk of leakage. Core funding for such PES will likely have to come from public sources, and seems most promising where synergies with other objectives such as agricultural development, food security and climate adaptation or other environmental services exist. The potential of alternative approaches for CSA support such as taxation with rebates for CSA activities, CSA-related investment support such as micro-credits, and hybrid approaches such as conditional microcredit should be further investigated.