Fitting Payments for Ecosystem Services into the Legal Framework

Financiers, scientists, farmers, and policymakers from around the world are meeting at the 17th Katoomba Meeting next week in Hanoi to hash out ways of bringing the value of nature’s services into our economy.   Unfortunately, even as interest in payments for ecosystem services (PES) grows, laws are not evolving to accommodate them. Ecosystem Marketplace examines the challenge of implementing PES schemes in Southeast Asia.  

16 June 2010 | In theory, it seems so easy: if you want to save the world’s environmental systems, you simply have to identify the economic value of water regulation, climate control, and other services provided by the planet’s living ecosystems, and then make sure the people who benefit most from those services pay the people who do the most to keep them going.

That’s the premise of payments for ecosystem services (PES) schemes, but there’s a hitch, and it’s a big one: these schemes don’t fit into most legal systems.

It goes beyond the fact that PES schemes only work if there’s a regulatory driver, and most legal systems lack one.   Even where a driver exists, it’s usually embedded in a legal system that evolved over decades or even centuries of disputes over how best to exploit natural resources, and not how to preserve them.

It’s tempting to call for an overhaul of the legal system, but the legislative and regulatory process moves at a snail’s pace, and PES-specific legislation may still be a long time coming.   In the meantime, a central issue for the successful use of PES will be determining how existing laws and regulations apply to these innovative economic arrangements.

Assessing the Here and Now

Making this determination isn’t easy.   Existing laws and regulations reflect a certain set of legislative priorities that may be outdated and at odds with the very heart of the matter when it comes to PES.   In general, traditional land management laws were written to facilitate natural resource extraction and maximize mining, timber, or oil and gas revenues — not the preservation or conservation of existing ecosystems.

The inquiry is further complicated by politics.   The ministry that has authority on paper, for example, may not exercise jurisdiction in practice, and coordination between ministries at the federal level or between federal and provincial authorities may be non-existent.   Determining what the law says on paper is just the beginning; at the most basic level, lawmakers will also have to consider enforcement capacity, corruption, the likelihood of civil unrest interfering with investment activities, and the likelihood and effect of disrupting vested interests.

Who Has Jurisdiction?

Depending upon the specific type of PES (water, biodiversity, or carbon), the setting (forest, farmland, marine/coastal, watershed, etc.), and the national circumstances, an inquiry into jurisdiction over PES begins by looking at who has control over:

• Agricultural land rights and management;
• Forest rights and management;
• Land rights and management;
• Rural, community, or indigenous issues and development;
• Natural resource extraction and use;
• Habitat preservation and protected areas;
• Fisheries rights and management;
• Watershed management;
• Water rights and allocation.

Payments for ecosystem services are directly tied to the land — making it unsurprising that nearly all of the regulatory topics listed above involve land and natural resources management.   Jurisdiction over these issues may be vested with a variety of national and provincial government bodies, from environmental and agricultural ministries to dedicated land, forest, or mining agencies.   In many countries, substantial responsibility over the issues above are divided between the agricultural and environmental ministries.

Southeast Asia

The next Katoomba Meeting takes place in Southeast Asia, and a number of countries there have dedicated land-management ministries.   Forest management, however, appears more likely to fall within the realm of the agriculture or, occasionally, environmental ministry.  

For example, Vietnam’s Ministry of Agriculture and Rural Development, Thailand’s Ministry of Agriculture and Cooperatives, Lao’s Ministry of Agriculture and Forestry, and Cambodia’s Ministry of Agriculture, Forestry, and Fisheries each has a Department of Forestry to implement forestry regulations.   Indonesia has a dedicated Forestry Ministry, but it is among the minority that we are aware of.

Habitat preservation and protected areas are likely to be under the oversight of the environmental ministry.   However, natural resource management and use is usually vested elsewhere –with the agriculture ministry, mining, or other natural resource ministry – creating jurisdictional conflicts.   In Thailand, for example, the Ministry of Natural Resources and Environment has jurisdiction over managing protected forests, but the Ministry of Agriculture and Cooperatives has jurisdiction over logging and forest resource exploitation.   This has resulted in ongoing inter-agency conflicts over illegal logging and other forest issues.

Watershed and water allocation can also present tricky jurisdictional questions, potentially involving not only land use and allocation as it affects a watershed, but also water pollution, aquaculture and fisheries, and marine and coastal ecosystems.   This may lead to split or shared jurisdiction among ministries – such as the case in China, where water pollution regulation falls to the Ministry of Environment, while regulation and allocation of the water itself falls to the Ministry of Water Resources.   Southeast Asian countries are evenly divided in terms of whether they have a separate ministry for water issues or entrust water regulation to the environmental ministry.

Where PES involves local communities or indigenous peoples, it will also be important to take into account any government bodies responsible specifically for rural development or indigenous issues.

What Laws Apply?

Although applicable laws and regulations vary substantially from country to country, the inquiry into applicable law will revolve around the same central questions:

• Who has legal rights in the project area?
• Is an environmental impact assessment (EIA) required, and what must an EIA contain?
• What licenses or permits will be required for project activities?
• Must foreign entities that are involved in the project register with a government body?
• What reporting requirements apply, if any?
• What taxes apply?

Specific places to begin looking for answers include the country’s framework laws for forest management and use, agricultural land uses, protected areas, environmental impact assessments, and taxes.

Of the questions above, the first might be both the most important and the most difficult to answer.   Overlapping but separate possession and use rights can complicate the inquiry as to who has the right to sell ecosystem services in a given area.   An additional difficulty is the existence and effect of unofficial use or possession rights in a project area.   Traditional communities may have lived in the area and used natural resources for subsistence for years, or even generations, without formal recognition from the government.   Although their rights do not appear in any government records, they must be taken into account through the process of project planning and regulation formation.

Other regulations such as EIA requirements, permits and licenses, foreign entity registration, reporting requirements, and taxes are often more straightforward.   However, these technical regulations can still pose enormous hurdles for PES, mainly in terms of added complexity and transaction costs.   This is because (1) technical regulations for PES may be unclear, making extensive government consultation a prerequisite for a PES project, and (2) duplicative or contradictory requirements for PES projects exist at the national level, or between national and provincial level authorities.   For example, the ongoing process of decentralization in Indonesia has created uncertainty about whether natural resources are under the regulatory power of the federal or provincial governments.

Government officials that are looking at these issues will want not only to find clarity on technical regulations, but also to think about how different ministries can work together to streamline applicable requirements.   They can merge reporting requirements, for example, or harmonize separate licensing and permitting systems and environmental impact assessment requirements.   Forming an inter-ministerial committee, made up of officials from the relevant ministries, is one way to facilitate this kind of cooperation, which can be expected to reduce transaction costs for PES projects.

Conclusion

Regulation of PES under existing law is not a straightforward matter.   Even the seemingly simple questions of who has jurisdiction and what laws apply can become convoluted upon closer inspection.   Yet, it not impossible.   On the contrary, reinterpretation of existing law to accommodate changing circumstances has occurred more or less with success since the dawn of regulation.

Slayde Hawkins is a Virginia-licensed lawyer who leads the Katoomba Group’s Legal Initiative. In addition to directing Forest Trends’ efforts to develop legal guidance related to payments for ecosystem services, she provides general legal and policy support to the Forest Trends Family of Initiatives. Her publications include a scholarly note concerning the legality of a greenhouse gas based trade restriction, published in the Fall 2008 issue of the Georgetown International Environmental Law Review, and an article about a Seattle greenhouse gas offsets lawsuit, co-written with Laura Kosloff and published in the May 2006 issue of Environmental Law Reporter. She can be reached at shawkins(at)forest-trends.org.

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