Synthesis reports on Payment for Ecosystem Services design

Farmers, other landowners and managers typically face an opportunity cost in deciding to conserve or enhance biodiversity on their land. This means that value-based incentives need to be created to encourage land managers to undertake such actions, something which has long been recognised within Pillar 2 mechanisms of the CAP, and in Payment for Ecosystem (PES) schemes globally (Hanley et al, 2012, Wunder et al, 2020). This research draws together the evidence base on how landowners and managers can be incentivised to include biodiversity values in their decision-making and identifies priorities for future research in this area.  For AES schemes, we focus on policy design aspects which are important to successfully implement ideas within the Dasgupta review and further develop biodiversity conservation policy in the UK, namely collective participation, payments-for-results, and conservation auctions. Our work reviews the existing state of knowledge and identifies important research gaps. To achieve this we used a scoping review approach to synthesise the literature on the subject. A scoping review is a systematic literature review approach that seeks to represent, evaluate, and describe the contents of various previous studies to understand the evidence presented while identifying potential knowledge gaps (Arksey and O’Malley, 2005).

We provide a series of synthesis reports on each of the policy design aspects below, as well as an Excel database of the literature selected under the review protocol.

You can download an Excel Database of all references literature here: Data Extraction Sheet

Collective participation schemes

Collective participation schemes direct financial incentives for enrolling in conservation land management programmes at groups of farmers, rather than at individual farmers. Experience in applying such schemes in the field is growing (Westerlink et al, 2017), whilst a small academic literature on the use of economic incentives to motivate collective participation is also now beginning to emerge (Banerjee et al, 2021).

You can download the final report here: NERC: Collective Payment Schemes

Payments for results schemes

Payments for results schemes offer land managers payments which depend on measured or estimated environmental outcomes from (changing) land management, rather than payments for actions which are designed to produce these outcomes. Economists have argued that such policy designs can internalise the value of conservation gains in a more efficient manner than policies which pay for management actions, since farmers can make use of private, local information to produce biodiversity gains rather than having to comply with a standardised set of measures. Moreover, society gains by paying for what it values (biodiversity), rather than the actions designed to produce it. However, payment for results schemes transfers risks from the buyer (typically the state) to farmers, and thus may result in lower participation rates. There has been a gradual increase in the use of payment for outcome schemes in Europe (Vainio et al, 2019), and the UK has launched two trial schemes (in Yorkshire and Norfolk).

You can download the final report here: NERC: Payment for Results

Conservation auctions

Conservation auctions offer, in principle, a cost-effective means of securing AES contracts. Land managers consider the costs to them of improving the conservation status of their land, and then make bids to a buyer (typically the state) who ranks bids based on how much each landowner is asking for the deliver the target environmental outcome, weighted by some index of environmental quality for each bid. The spectrum of bids received by the buyer reflect the costs to land managers of delivering conservation outcomes; the more competitive the auction, the closer these bids are to true opportunity costs. Conservation auctions thus offer the potential to deliver higher value for money for the state than fixed-price subsidy schemes which typify most AES schemes. Despite this, the use of conservation auctions in the real world has been largely limited to the US and Australia (Rolfe et al, 2017; Hellerstein, 2017). Whilst the UK has implemented a number of experiment auction schemes (such as NatureBid), much needs to be learned about how best to design conservation auctions to deliver biodiversity outcomes.

You can download the final report here: NERC: Conservation Auctions

This work has been funded by the Natural Environment Research Council: Rewarding landowners and land managers for conserving biodiversity 2022.