3.2.3 Incentive or finance mechanisms Compensation for the provisioning of ecosystem functions and services comes in several ways (Figure 4), and incentives generally fall into one of two categories: direct and indirect. Direct incentives provide monetary support to protect, restore, enhance, or improve natural resources and land management practices; create an immediate impact on individuals and/or the community, either because they are given directly in cash (sum of money) or in-kind (provide transferable benefit that clearly improves everyday life) (de Camino Velozo, R. 1987). Direct incentives can be delivered in-cash — as in the case of payment for ecosystem services (PES) — cooperative/cost-share agreements, implementation grants, loans, loss adjustment, or land acquisitions/easements. In-cash compensation also includes marketable permits, which provide tradable credit for maintaining environmental impacts beyond a certain predefined baseline. These are often seen in the case of various mitigation banks for carbon or pollution. Direct incentives can also be delivered in-kind , as in the case of facility and/or infrastructure redevelopment or by providing access to tools and equipment. On the other hand , indirect incentives are intended to protect, restore, enhance, or improve natural resources and land management practices without the transfer of direct monetary value. This includes fiscal support through certain tax abatements/credits, in-lieu fees, or certification based on the implementation of certain conservation activities or sustainable practices. Indirect incentives also include services , such as technical assistance and technical education, which provide access to medium- to upper-level technical staff or access to instruction free of charge. In addition, social benefits, whether through partnership programs aimed at harnessing the advantages of organized operations or preferred vendor programs, are also considered forms of indirect incentives.
Figure 4. Water Funds are an example of a collaborative ecosystem service incentive program. “Upstream” water providers are allocated funding to enhance or restore water quality best management practices, paid by “downstream” water users that directly receive benefit fr om upstream practices.
Photo Credit: The Nature Conservancy, Water Funds Toolbox
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