Markets in environmental governance. From theory to practice

- A series of obstacles exists against establishing markets for ecosystem services.
- Markets with intermediaries dominate.
- Public authorities moreover dominate strongly as intermediaries in PES.
- Only a minor fraction of these PES can be categorized as markets.
- Public authorities are crucial in formulating and controlling cap-and-trade schemes.

The aim of this paper is to clarify what is meant by 'markets for ecosystem services (ES)'. The defining characteristic of markets is interaction through trade. Two main dimensions are identified as basis for classifying markets in ES. Firstly, we have markets with and without intermediaries. Secondly, some markets for ES are created by defined liabilities like caps on emissions while other trades come about voluntarily. Altogether six forms of markets are identified, with two being incomplete. The paper also offers an analysis of the most important existing markets for ES using the developed classification. Regarding payments for ecosystem services (PES), most are not markets, not even incomplete. This is so as most resources are raised through taxes or fees - command not trade. Moreover, most payments are best characterized as subsidies. Cap-and-trade systems like those for carbon qualify as markets, but depend crucially on the politically defined cap. Moreover, it is this cap that protects the environment. While the idea with markets in ES is to 'escape' command and control, it is observed that C&C is essential for these markets to work.