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Payment for Ecosystem Services

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    Ecosystem service is a new term in the context of our country. The concept of payment to environmental services is a broad umbrella for the conservation of watershed. Watershed is the important part in the livelihood of people. With the watershed people survive and help it thrive. People here are the makers as well as destroyers. Within the watershed there are upstream dwellers that mainly provide the service to the dwellers living downstream.

    Hence this project is for the conservation of watershed which is mainly based on the payment mechanism where the downstream dwellers receiving the services are paying to the upstream dwellers that provide services. The intention is to encourage upstream farmers, pastoralists and land managers to maintain practices that ensure and improve environmental services. Incentives can include both direct monetary payments as well as other indirect benefits such as secure land tenure and targeted development aid. Such incentive mechanisms are often referred to as Payment for Environmental (or Ecosystem) Services or PES.

    Phewa watershed is a serene and beautiful place which annually attracts hundreds of thousands of tourists. There are multiple benefits to the downstream dwellers with tourism, hotel, irrigation, hydropower etc. but there is constant degradation of watershed and with that the Phewa lake which is the heart of Pokhara is also decreasing. If this trend continues then Phewa Lake shall be a history to our children. Hence by establishing the relation between upstream and downstream for conservation purpose we will be able to restore the natural landscape of the watershed.

    The study was conducted using Contingent valuation method (willingness to pay/accept) for environmental services. On that basis 83% of the respondents were ready to accept and 75% were ready to pay 0. 5- 2 % of their income. Hence with this WTP and WTA we found that the establishment of conservation council was supported by most of the people for the proper regulation of Phewa Catchment Area.


    Background Nature has provided various kinds of services to mankind. Natural capital provides both ‘direct’ ecosystem services and “indirect” ecosystem services. Such as the provision of food and raw materials are some of the direct ecosystem services and services such as carbon sequestration, watershed protection, aquifer recharge and biodiversity habitat provision are indirect ecosystem services. (United Nation, 2009) These services have major role in running an economy of a nation or even the world.

    In last few years the world has slowly realized the linkage of economy and nature. Hence, there has been movement of greening the economy. There has been use of economic and market based instrument like eco-taxes, polluter-pays principle, for pollution prevention and ecosystem conservation.

    But most of them are focused on internalizing negative externalities where as now the new approach on environmental conservation is to focus on internalizing the positive externalities through appropriate economic incentives. (Kelly J. Wendland, 2010)Payment for Environmental Services (PES) is one of these new approaches which internalize the positive environmental externalities.

    According to Wunder (2005), PES is defined by five criteria;

    • they are a voluntary transaction
    • hey involve a well-defined environmental service
    • the service is “bought by at least one buyer
    • the service s “provided” by at least on provider
    • the transaction is conditional on provision of that service

    To further explain above points, PES is any voluntary service where a well defined environmental service is purchased by at least one buyer to least one environmental service provider with a payment being conditional on the service being provided environmental service can be defined in terms of air, water or any character those environment posses.

    At its core, PES aims to mimic the characteristics of market mechanisms to succeed in managing watersheds where other policy and management tools have not. To do so requires establishing the conditions needed to make markets work; for example, establishing a relationship between a buyer and a seller, developing monitoring systems so that environmental services can be traced to land use changes, ensuring that potential service providers are legally able to do so, and keeping transaction costs low. The degradation of environmental resources is entraining day by day.

    Since the environmental amenities don’t have any monetary value, it’s the psychology of people to degrade what doesn’t belong to them. These services need to obtain monetary value and people would be more willing to save than to degrade when they have to pay for something. Hence, for the conservation purpose economists have found the new way of valuing the ecosystem where Payment for Ecosystem Services plays major role around the globe. It is the voluntary transaction in an watershed where the upstream land users or say the service providers are paid by downstream service takers.

    Direct public payments, direct private payment, tax incentives, cap and trade markets, voluntary markets and certification programs are some of the PES tools that are being practiced in different parts of the world. (Kelly J. Wendland, 2010) Rationale of the Study PES is considered as a promising new approach to protect biodiversity and ecosystem goods and services. Developing countries still have limited number of PES projects are in practice. (Kelly J. Wendland, 2010) In case of Nepal, PES has been introduced through Kulekhani implemented by RUPES program of ICRAF.

    Though there has been lot of lesson learn from the project, the payment remains as whom to whom and much more of the political concern and yet it stands in the global circle as one of the success stories for PES in Nepal. There has been a common practice in Nepal where community are paid for the conservation efforts for e. g. cases of drinking water supply in Dhulikhel in turn for the forest conservation practices, in Gorkha as well there is incentive been provided for urban water supply, in case of Chiwtan there is also a recreational purpose for which the entry fee is used as a fund for conserving the forest at Bagmara community forest.

    Hence, many initiatives have been taken knowingly and unknowingly for the purpose of conserving ecosystem and the service it provides. These payments are being done directly as well as indirectly. PES is generating lots of attention among the conservation because they have potential to create new funding opportunities for biodiversity protection and other ecosystem services that contribute to human well being. (Kelly J. Wendland, 2010) The issue is the extent to which these activities meet all the five criteria of PES and how systematically the mechanism has been implemented.

    In case of Phewa watershed, the watershed quality is degrading. Forest within the catchment is a source of several streams but without recognition of people effort or contribution to the watershed management, random cutting down and other activities is degrading the quality of watershed resilience in the recent years. These activities cause the main feeder sources of water mainly Harpan Khola and Adheri Khola to dry. Some other impacts that are seen are flood, soil erosion which causes the catchment area of Phewa Lake to decrease further decreasing the volume of the lake.

    The catchment area of Phewa watershed was 10 Sq Km during 1956 AD. Then when its area was measured at 1976 AD the area was about 5 Sq Km. in 1998 the area of the Phewa lake was only 4. 4 Sq. Km. , It depict that the lake will die after 2150 AD (Maskey, 2010). The main problem that people in the area people are already facing is the erosion and siltation which is decreasing the catchment area and the lake prone to further drying. In 1997 Fleming studied the area and found that erosion from forest land at 8 Mt/ha/yr was five to ten times greater than that from natural forests because of grazing activity and intensity of rainfall.

    The estimated soil loss from shrub land was even higher at 15 Mt/ha/yr (Fleming, 2009). The most critical category was grazing land. If the similar trend continues, the boatmen will have no customers as the lake will get dry off, the future the water source will dry along with that the livelihood also gets affected. No fishes shall be available for the fishermen. The local vendors who survive on the tourist influx like trekking agencies and village tourism will have to search for alternatives.

    If people are not made aware of the facts and the future consequences along with the way they can secure their livelihood, this watershed area will eventually dry off. Therefore, determining conservation effort is important to establish PES for conservation actions and sustainability. Thus, in case of Phewa watershed this method shall be an initiative for the conservation in monetary context. According to each of the personnel interviewed, many of the organizations have come for the conservation but each one leaves after a certain interval of time.

    So, this study aims to cover the interval after certain year since it involves conservation effort from people of community itself. Consequently, the study will analyze opportunities and challenges and eventually derive recommendations for the application of PES in Phewa watershed. The study will eventually help to fill the gaps between the theoretical concept of PES and the practical implementation in the field. At the end of the thesis, the author will provide practical recommendations for the design of PES schemes for the conservation of Phewa watershed. Objectives


    PES is generating a lot of interest among conservationists and land use manager because they are considered a promising new approach to protect biodiversity and ecosystem goods and services, such as climate change regulation, water filtration and nutrient retention, which contribute to human wellbeing.

    The principal objective of PES is to buy as much environmental services and associate human wellbeing gain as possible for scare public or private funding. It is an important mechanism for linking conservation outcomes to market based incentives approach. In the present study, environmental services from the Phewa Taal Catchment Area to the downstream community were identified. Such identified environmental services understanding and awareness of those services were survey among upstream and downstream communities.

    Willingness to Pay (WTP) by downstream community for such environmental services was surveyed.  For effective implementation of any PES mechanism stakeholders have a very crucial roles to play, hence some of the key stakeholders were indentified and their roles for implementing PES in Phewa Taal Catchment Area were identified. Based on above findings we have conceptualized PES model(s) for Phewa Taal Catchment Area.

    Key Findings The major findings of all the above work is: Upstream community are practicing good conservation activities like community forest, agriculture group etc. Despite that positive intervention for further environment conservation/protection through agro forestry, silviculture and other eco-friendly technology activities.

    If the upstream communities are not supported for their conservation work we can see that there is possibility of discontinuity in the existing conservation activities. Downstream community is well aware about the role of upstream community for the conservation of the Phewa Taal Catchment Area and especially Phewa Taal.

    There is WTP for environmental services by upstream community. Potential stakeholders show their awareness for role of environmental services by upstream community and are ready to facilitate for implementing this PES mechanism. For PES there should be potential beneficiary who is willing to pay and supplier who are ready to provide the service. In case of Phewa Taal Catchment Area both the prerequisite are achieved so there is opportunity for PES mechanism at the PTCA.


    Suitable and locally applicable scientific methodology for the valuation of environmental services needs to be established. But these methodology and technology should not put additional financial burden (transaction cost) in implementing PES mechanism. PES mechanism is necessary for the sustainable commoditization of Phewa Taal and tourism development of Pokhara. PES should not solely establish as a mechanism for conservation or environmental protection, there should be the same concern for social co-benefit bundled with the model.

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    Payment for Ecosystem Services. (2016, Oct 02). Retrieved from

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