Payments for Environmental Services (PES) in the public policy landscape: “Mandatory” spices in the Indonesian recipe

The underlying principle of Payments for Environmental Services (PES) is based on contractual payments to users of a natural resource, such payments being subject to the condition that PES maintain a pre-defined environmental service. They can be viewed as a way for private stakeholders to bypass public policies by contracting outside the policy framework, as long as the instrument is viewed as an application of the Coase theorem. For instance, some PES enable local users to be rewarded for abandoning illegal practices in place of law enforcement. But high transaction costs, institutional requirements for action, or the need to upscale the scheme tend to bring public bodies back into play. This can materialise in the issuance of regulations, the establishment of ad hoc entities to implement PES, the negotiation of contracts with resource users, and many other effects. In theory and according to the classical definition of the instrument, PES apply a “beneficiary pays principle”. With the policy framework potentially playing a central role in their future development, PES may be interpreted as a way to complement the “polluter pays principle” under the control of public bodies. Indeed, in contexts where those degrading an environmental service (“polluters”) are not eligible to be considered as payers, e.g. insolvent rural populations in developing countries that cannot afford to pay for their negative impacts, PES may eventually represent the vehicle to justify and finance public action. This analysis, built on a case study in Indonesia, downplays the statements presenting PES as market-based mechanisms aimed at filling the regulatory gap — i.e. the lack of prescriptive regulations for the environment – and enlarging the funding sources for conservation. We note also the promising emergence of a specific type of PES that relies on mandatory financial contributions by service beneficiaries, while keeping payments to service providers on a voluntary basis through contracts.

► Payments for Environmental Services (PES) reverse the polluter pays principle (PPP).
► PES have ambiguous relationships with public policies for the environment.
► The case study in Indonesia shows a strong convergence between PES and forest policies.
► PES can rely on mandatory financial contributions from beneficiaries to achieve positive outcomes.
► The involvement of public authorities remains necessary to effective PES implementation.