Designing Payments-for-Ecosystem Services in Meghalaya

 Keywords: PES Programs, Additionality, Ecosystem, Meghalaya, Deforestation, Conservation

Date: 12th August, 2024

Payments for Ecosystem Services (PES) programs are an increasingly common tool to combat the global challenges of deforestation and ecosystem destruction. PES schemes follow a simple economic logic: compensate landowners, often in low- or middle-income countries, for conserving ecosystems with global benefit. This model ties climate change mitigation and ecosystem conservation to economic development, providing sustainable sources of income that do not rely on the exploitation of forest land.

Central to designing effective PES programs is ensuring that they yield “additionality,” or conservation that would not have occurred without payments. In other words, additionality measures the extent to which PES programs have impact by increasing forest cover and improving conservation outcomes.

Ensuring additionality involves a trade-off central to all PES programs: any dollar of PES payments must go to one of two groups: those we might call “stable conservers” or those we might call “at-risk conservers.” Stable conservers are those who have been conserving their land for many years, and will continue to do so even in the absence of PES payments. In contrast, at-risk conservers are those who would choose to degrade or deforest their land in the absence of PES incentives to conserve.

PES additionality rests crucially on which of these two groups enrolls and thus receives PES payments, because only enrollment of at-risk conservers generates additionality. Payments to at-risk conservers change their behavior, thus increasing conservation and producing climate benefits. In contrast, enrollment of stable conservers does not generate conservation benefits, since these landowners would have conserved even in the absence of payments. However, payments to stable conservers do reward these responsible, long-time stewards of natural resources.

In differentially attracting one of these two groups, PES programs then function either to reward good past conservation behavior or to achieve additionality and true conservation impacts. While past work in economics has shown that PES programs can yield additionality (Jayachandran et al. 2017, Izquierdo-Tort et al., 2024), whether any particular PES program does so, depends crucially on which group of enrollees it attracts.

Today, ensuring that PES programs achieve additionality is central to accessing international climate-financing that can provide them with long-term funding. Much of the funding for forest-conservation programs like PES comes from the global voluntary carbon market (VCM), where buyers purchase carbon offsets that fund emissions reductions elsewhere in the world. In 2023, the VCM was rocked by allegations that many forest-conservation programs funded by carbon offsets were not yielding actual reductions in greenhouse gas emissions (The Guardian 2023; West et al., 2020).

Prices and offset purchase volumes fell, and calls quickly arose for stricter standards and verification of additionality. The Integrity Council for the Voluntary Carbon Market (ICVCM) has since issued a series of 10 “Core Carbon Principles” focused on verifying emissions impacts, and new private-sector buyer coalitions, like Symbiosis, have committed to funding projects with stricter additionality standards. As these VCM standards coalesce, ensuring additionality is critical to ensure that PES programs qualify for international climate funding.

Designing PES for additionality: Meghalaya’s Green PES

During the last month in Meghalaya, members of our research team have worked closely with leaders of a state-wide PES program called GREEN (Grassroot Level Response Towards Ecosystem Enhancement and Nurturing) Meghalaya. Meghalaya’s Green PES is one of the largest and early PES programs in India, and thus can serve as a model for similar programs across the country.

The Government of Meghalaya launched Green PES in collaboration with the World Bank in June 2022. Since then, it has grown rapidly, enrolling a total of about 54,000 ha of natural forest across all of Meghalaya. The program is implemented by the Meghalaya Basin Development Authority, which employs a dedicated team of Green Field Associates (GFAs) to manage enrollment and verification in each block.

Green PES works as follows. GFAs raise awareness about PES in villages, after which either individuals or communities can approach them to enroll land. Village community facilitators (VCFs) map the GPS coordinates of the land under application, then send these coordinates to an MBDA GIS facility that confirms plot eligibility, based on total area and forest density. Under the PES contracts, enrollees commit to conserving the enrolled land for 30 years, during which any destructive forest use is prohibited.

Enrollees receive PES payments every year for the first 5 years of the contract, with payment amounts set per hectare. Certain kinds of land, such as that with very dense forest or that is registered as a community reserve, receive a higher per-hectare payment. Depending on the year of the program, some share of these payments must be spent on forest-conservation investments, like reforestation, demarcating a forest boundary, and clearing a forest-fire line.

Like payments in any PES program, the Green PES payments create an incentive to comply with conservation requirements: VCFs evaluate plots’ compliance with contract restrictions each year, and any violations will mean reductions in the following year’s payment.

Green PES has many strengths. The program leadership and GFA staff are highly dedicated, and they have managed to enroll a sizable share of Meghalaya’s rich forest cover in only a short time. Moreover, our many interviews with PES participants suggest that most current enrollees are highly satisfied with their participation. Many care deeply about the future of Meghalaya’s forests, and Green PES has provided them with resources and education on how to do just that.

However, the deep commitment to conservation shared by many residents of Meghalaya also creates a challenge for achieving additionality in Green PES: many enrollees appear to be “stable conservers,” or those who would plan to continue preserving their forest land even in the absence of PES payments. Because PES payments do not change these participants’ conservation behavior, enrolling them may not improve forest health in Meghalaya.

Our team at Yale University is working closely with MBDA’s excellent leaders, such as Shri Sampath Kumar and Shri Gunanka D.B., to find ways to make Meghalaya’s PES program a national leader in achieving additionality and accessing international carbon markets.  

First, several changes in PES payment structure and design may go a long way in helping to enroll “at-risk” conservers whose enrollment would strengthen Meghalaya’s forests. To do so, PES payments must both pay for required forest investments, like construction of forest boundaries, and any income that participants would have earned by deforesting or degrading their land. To make sure that payments compensate for these opportunity costs, MBDA could consider reducing the share of payments that must be spent on forest investments, allowing more of the payment to offset lost income.

Moreover, the current structure of requiring conservation for 30 years but issuing guaranteed payments for only 5 years, likely makes PES contracts unattractive to any participants who would otherwise gain income by degrading their forest in years 6 through 30. MBDA could consider requiring commitments only to conserve for 5 years while payments are guaranteed through that period.

Second, we are working with MBDA to pilot a novel model to predict the land that may be at highest risk of upcoming deforestation. We use convoluted neural networks, a form of artificial intelligence, to predict the risk of deforestation at a granular spatial scale across Meghalaya, using spatial maps on past deforestation, forest cover, road networks, and economic activity. Enrolling the land with the highest predicted risk may then increase PES additionality.

We will work with MBDA in the coming months to test whether it is possible to incorporate these risk predictions into Green PES payment structures, by offering higher-value contracts to recruit land at the highest predicted risk. We look forward to these collaborations, which will help to make Green PES as impactful as possible in helping to protect Meghalaya’s extensive forest ecosystems.

Lucy Page is a Postdoctoral Associate within the Inclusion Economics research initiative at the Yale Economic Growth Center and Macmillan Center. Dr Page studies environmental economics and has been undertaking a research project on designing payments-for-ecosystem services in Meghalaya.

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