Keeping the Monster Alive: Environmental Capitalism and Payment for Ecological Services

Author: DeLaine Mayer, 2018.

“Capitalism is increasingly accepted as both the problem and solution to 21^st century issues of scarcity and sustainability…”

Image from Pixabay under Creative Commons.

Capitalism is increasingly accepted as both the problem and solution to 21^st century issues of scarcity and sustainability. In the context of hunger and development, capitalism is expressed in industrialized agriculture, commodification of food, food aid as a tool in foreign policy, and increasingly in efforts to move towards more sustainable systems of production. This commodification of nature, including increasing privatization of natural public resources, has contributed to unsustainable land use practices, consumptive behavior, and production systems. This paper will explore concepts of natural and traditional capitalism amidst a background of increasing scarcity. The examination of the Payment for Ecosystem Services model will highlight how even so-called sustainable solutions to inefficient and destructive land use practices have been co-opted by capitalist ideology and further contribute to the greater tragedy of the commons.

Natural Capitalism

The overuse and mismanagement of natural capital is affecting countries’ development trajectories, energy and economic security, food consumption and production, and land and water use practices. Natural capital is declining. “Natural capital includes all the familiar resources used by humankind: water, minerals, oil, trees, fish, soil, air, et cetera. But it also encompasses living systems, which include grasslands, savannahs, wetlands, estuaries, oceans, coral reefs, riparian corridors, tundras, and rainforests” (Hawken, Lovins, and Lovins 4). Industrial capitalism generally fails to account for all the resources used in the production chain, namely, natural capital. By failing to include payment for natural capital within a capitalist system, the value of resources and living systems are assumed as profit, meaning the true cost of production is obscured. The payment for human, financial, and manufactured capital, but neglect of payment for natural capital, leads to unsustainable consumption and production. Producers can squeeze every last resource out of an environmental system, absorb it into the system as profit, leaving consumers misinformed about the true cost of their goods.

Before one can assign capitalistic value to natural systems however, these natural ecological systems must be commodified and priced. By breaking down ecological systems into the services provided, those services can be more easily priced than the existence of a natural system alone. Examples of ecosystem services include hydrological benefits, reduced sedimentation, disaster prevention, biodiversity conservation, and carbon sequestration (Pagiola and Platais). These services vary, depending on the context and conditions of an area. For example, offshore mangroves act as coastal barriers during hurricanes, old-growth forests sequester carbon, and rivers provide natural flood protection. “Land users typically receive no compensation for the [ecosystem] services their land generates for others, and therefore have no economic reason to take these services into account in making decisions about land use” (Pagiola and Platais). This disconnect between producing value from traditionally valueless systems fuels unsustainable practices. Further, the typical government-administrated options, like regulating land use or imposing corrective measures (for example, constructing concrete barriers to protect coastal communities from ecological or climatic events) have not incentivized sustainable production and land use practices, which is why valuing ecological services has become a part of the conservationist strategy (Pagiola and Platais).

However, assigning monetary value to natural resources and systems is an incomplete exercise. Many of the services rendered to us by natural systems are not replaceable (or the substitution, through a geo-engineered process, comes at a great financial and energy-intensive cost.) This includes water filtration, flood prevention, oxygen production, and more. It is challenging to accurately price these environmental services, in part because of the preventative form these services take, but also because of the interconnectedness of ecological systems. Within a capitalist framework, however, these services must be commodified to be valuable (Hawken, Lovins, and Lovins 5).

Payments for Ecosystem Services

The ecosystem services concept has existed for millennia, but entered prominently into political and scientific thinking only in the last four decades. Literature on ecosystem services seeks “to measure, assess, and value aspects of societal dependence on nature” (Lele, Springate-Baginski, Lakerveld, Deb, and Dash). The Payment for Ecosystem Services (PES) model acknowledges that within capitalism, for something to have value, it must have a price. “With global ecosystem services in decline, there is an increasing demand for payments for environmental services schemes. Recent work has suggested that provision of ecosystem services that behave as public goods can be improved using payments” (Zhang). Today, the PES models operate all over the world, with potential market size in the billions by 2020 (numbers vary based on PES program) (Carroll and Jenkins).

PES is a market-based financing concept meant to bankroll ecological protection. Its goal is to incentivize land users to apply natural resource management practices, which will maintain or improve ecological services, so society can benefit from the provision of those services (Fletcher and Büscher). The program itself, at least in localized iterations, must be contextualized to match the ecological and economic needs of land users and neighboring communities. Examples of PES include protection of hydrological services, maintained carbon sequestration, and alternative land use. For example, in 2009, a PES system in Peru covered the investment needed to encourage farmers to change production systems, from burning maize pastures to growing shade-grown coffee, which increased farmers’ incomes, cut sedimentation in downstream water sources, and avoided deforestation. This maintained local biodiversity, sustained carbon sequestration, and avoided public health issues associated with tree clearing. In this system, farmers needed upfront investments of $268/hectare for the first two years, at which point the system would be self-sustaining and more profitable than before, assuming coffee prices remained viable. In this case, downstream water users raised the investment cost in only two months (Lipper and Bernardete).

While PES was effective in this case, several issues with PES’ structure become apparent: the transitional period between production systems must come with an alleviation of risk, especially because low-income communities may not be able to finance alternative land use practices if the upfront cost and risks are too high. First, one of the major barriers to adoption of a PES program is lack of insurance or financing to support the transitional period (Lipper and Bernardete). In the case of Peru, were investments not raised upfront, the farmers would be forced to survive on lower incomes for two years, during which time risks would multiply. Further, if coffee prices dropped during the two-year period, the transition may leave them with lower incomes than if they had continued to employ slash-and-burn practices in maize pastures, despite the adverse effects on local land and water. The need to incorporate risk insurance, for both farmers and investors, is not insignificant. All parties must feel confident that the long-term transition is worth the initial risk.

Second, if low-income communities cannot cover the upfront cost of the investment for the transitional period, decisions about land use will be made without their input, and business-as-usual practices will continue. PES programs are highly context-specific, varying in community size, collective willingness to participate, ecological impact, and more. “Farming systems (and possibly farmers themselves) can be left worse off if forced into a cookie-cutter approach that ignores local conditions” (Zhang). If ecological service users cannot afford to change the production system of the land user, an outside funder, like the government or a private monetary fund, may need to step in.

Concerning Commodification

The goal of this article is not to critique the programmatic areas of PES, but rather to understand its widespread implementation in the context of free trade, open markets, and private property rights – the features of classic global liberalism. PES offers important opportunities for communities to collectively coordinate use of ecological systems, but a number of underlying concerns about commodification of natural resources and subservience of nature to human development, including even the linguistic frame of “ecological services,” should give PES programmers and conservationists pause. The following five issues are meant to highlight the underlying capitalistic features of PES to reframe the conversation about this kind of market-based conservation tactic.

First, the effects of resource extraction or land and water use are not localized, which underlines an oversimplification of the tragedy of the commons concept built into the PES model. PES programs operate with narrow ecological systems in mind: the relationship between upstream producers and downstream water users or common-pool resource management of a single aquifer or watershed, for example.

“Hardin’s tragedy of the commons occurs under open-access regimes when usage is rival or congestible, resulting in overconsumption or overuse. The tragedy of ecosystem services occurs when non-rival or non-consumptive services are underprovided by private-property owners…A failure to develop common-property institutions often leads to depletion or degradation of funds of natural capital and diminished flows of vital ecosystem services” (Lant, Ruhl, and Kraft).

In the absence of shared environmental regulatory institutions or collective property ownership mechanisms, ecosystem services are regulated through market-based incentives, meaning ecosystem services are easily exploitable in the absence of common property organizations. Without common property management and ownership of even localized ecological systems, let alone vast ecological systems whose degradation impacts one community while simultaneously existing in another’s sphere of influence or ownership, these ecosystem services are vulnerable. The localized, small-scale type of PES programs that operate well in a locality face significant ownership challenges when scaled up or considered across multiple natural boundaries.

Second, in the absence of collective property ownership, who has the right to sell the service of an ecosystem? Put another way, who has the right to profit off ownership of an ecosystem because one part of that ecosystem has higher market value? With current property ownership laws, the legal right goes to the owner of the parcel of land or water in question, but an ecosystem in and of itself includes not just the functionality upstream but the totality of the environmental system. Referring to Figure 1, PES typically puts onus on the downstream users to protect the whole of the ecosystem because they are the beneficiaries of the ecological service, while upstream producers are considered the providers of the service. This dualistic property arrangement reinforces traditional capitalistic power structures between producers and consumers, creating opportunities for the former to exploit the latter, even within a conservation framework.

Third, in the absence of financial incentives (in the form of subsidies or tax breaks), can private ownership truly encourage sustainable behavior? “Biodiversity or ecosystem services… [are] tradable commodities,” with taxes and subsidies built “to enhance ecosystem values” (Fletcher and Büscher). By associating environmental policy with “commodification, privatization, and retreat of the state,” neoliberal policies and market economic incentives become increasingly entrenched with the goal of environmental preservation (Fletcher and Büscher). In profit-oriented policy, ecological conservation takes a secondary role, as the primary motivation for land use change comes from financial motivations.

Fourth, in the PES model, the onus for good sustainable behavior must come from potentially disconnected and uneducated consumers, instead of the profit-driven producer whose production system is asked to change. Unless an outside agency with knowledge of ecologically degrading activities is able to organize a localized PES system, environmentally sustainable activities may not be incentivized until the problem has become so bad that it is physically visible to environmental service users that are geographically distant. As shown in Figure 1, PES set-ups assume downstream consumers have enough of an understanding of upstream activity to coordinate monetary policy, which will incentivize change in upstream production systems. PES also assumes downstream consumers understand ecosystem services and have no vested interest in the upstream activity. This puts responsibility on environmental service users to understand local or global markets (depending on the PES model in place) and anticipate changes in the financing structure of the PES model, so as to ensure subsidies or taxes for environmental preservation are more profitable than market rates for alternative, degrading ecological uses. Put another way, PES assumes individual and collective rationality in line with game theory. “Fully rational individuals are presumed to know (1) all possible strategies available in a particular situation, (2) which outcomes are linked to each strategy given the likely behavior of others in a situation, and (3) a rank order for each of these outcomes in terms of the individual’s own preferences as measured by utility” (Ostrom).  Determining these values collectively further assumes that downstream users are a monolithic group with uniform interests. For example, if the upstream activity is a logging plant that employs members of the downstream population, downstream users will find their interests pitted against one another.

Fifth, perverse incentives are embedded into PES systems that integrate profit margins and conservation. Perverse incentives within PES models include property owners “receiving payments for land use change that already is forced by law” (Hack), fertilizer and pesticide subsidies [which] encourage overuse (Lipper and Bernardete), genetically-modified trees planted to better sequester carbon, and “payments for reforestation can encourage land users to cut down standing trees so as to qualify” (Pagiola and Platais). In the absence of guidelines on how to scale up projects, service users will be forced to take over the role of the state by subsidizing conservation efforts or lobbying for environmentally-oriented tax systems. Meanwhile, landowners may be incentivized to threaten to participate in negative ecological practices to receive payment for doing nothing.

These issues highlight the PES model’s capitalist orientations: markets are best left to regulate themselves, so looser state-led conservation efforts and more market-based financing schemes will solve the tragedy of the commons. This trust in markets to create or maintain healthy social and ecological environments underscores basic classic capitalist functions, most importantly of which is the competition between labor and capitalists (Oatley 70) or, in the PES model, service users and landowners.

Neoliberal Conservation

Many have argued that PES is a form of neoliberal conservation.

“Neoliberalism is … a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets and free trade… If markets do not exist (in areas such as land, water, education, health care, social security, or environmental pollution) then they must be created, by state action if necessary. But beyond these tasks the state should not venture” (Harvey).

A key feature of neoliberalism is trust in the market to regulate itself, so state intervention should be minimized. This has led to “deregulation, privatization, and withdrawal of the state from many areas of social provision,” all of which are increasing trends within the environmental space (Harvey). Favoring individual property rights also belies confidence that collective action of individuals can alter behavior of landowners, modeling an assumption that services and service users will self-regulate.

PES systems assume an absence of collective action problems for service users. A collective action problem is a series of issues that arise when a group of individuals must work collectively to achieve a common goal. Individuals will not invest their own time, energy, or money in a collective action because there is a strong incentive to free ride on the time, energy, or money expended by others (Oatley 371). Further, landowners can more easily organize and lobby in pursuit of the land use option that will return the highest economic profit. In some instances, with well-organized populations or external PES implementers, highest profit may be yielded through PES systems. In others, service users may be further disconnected from their environmental services.

PES as a form of environmental governance intends to replace “state-centered command-and-control policies” with “market-based instruments” (Fletcher and Büscher). PES assumes sustainable resource management will operate in the absence of direct regulation. “Even if on-the-ground implementation of PES often lacks substantial neoliberal mechanics,” Fletcher and Büscher argue that PES is contradictory in its attempt to achieve conservation objectives and exacerbates socioeconomic inequality by reifying neoliberal capitalist functions (Fletcher and Büscher).

What PES reinforces is not a rethinking of power relations between producers and consumers, nor nuanced dissections of private property ownership in relation to ecological services. Instead, PES commodifies the services it purports to protect and reinforces bilateral power structures between ecological service producers and service users. Neoliberal markets maintain their position as “the optimal institution for the production and exchange of private goods,” instead of encouraging collective and collaborative ownership or ecological systems and services (Ostrom). By “[keeping] the monster alive…the conceit is that PES constrains our imagination from being able to constructively address what we are seeing in the mechanism’s evolution in practice: that ‘public concerns’ can and should never be relegated to ‘side objectives’ but should always already be inherently integrated in our diverse relations to nature and its conservation” (Fletcher and Büscher). In its reliance on liberal capitalist ideology and market-oriented methodology, PES fails to offer socially inclusive or environmentally holistic mechanisms for sustainable resource management. It is in this ironic failure that capitalism as the source of environmental degradation becomes the service provider for sustainability.

Works Cited

Carroll, Nathaniel, and Michael Jenkins. “The Matrix: Mapping Ecosystem Service Markets.” Innovative Markets and Market-Like Instruments for Ecosystem Services: The Matrix. Ecosystem Marketplace, 2013. http://www.ecosystemmarketplace.com/wp-content/uploads/2015/09/the_matrix.pdf

Fletcher, Robert, and Bram Büscher. “The PES Conceit: Revisiting the Relationship between Payments for Environmental Services and Neoliberal Conservation.” Ecological Economics 132 (2017): 224-31.

Hack, J. “Payment schemes for hydrological ecosystem services as a political instrument for the sustainable management of natural resources and poverty reduction – a case study from Belén, Nicaragua.” Advances in Geosciences 27 (2010): 21-27.

Harvey, David. 2005. A Brief History of Neoliberalism. Oxford: Oxford University Press. http://neamathisi.com/new-learning/chapter-4-learning-civics/david-harvey-a-brief-history-of-neoliberalism

Hawken, Paul, Amory B. Lovins, and L. Hunter Lovins. Natural Capitalism: creating the next industrial revolution. Boston: Back Bay, 1999. Page 4

Lant, Christopher L., J. B. Ruhl, and Steven E. Kraft. “The Tragedy of Ecosystem Services.” BioScience 58.10 (2008): 969.

Lele S, Springate-Baginski O, Lakerveld R, Deb D, Dash P. Ecosystem Services: Origins, Contributions, Pitfalls, and Alternatives. Conservation & Society, Vol. 11, Issue 4, 2013; 11:343-58. Page 343-358.

Lipper, Leslie, and Bernardete Neves. Payments for environmental services: What role in sustainable agricultural development? Working paper no. 11-20. Food and Agriculture Organization of the United Nations, 2011. Agricultural Development Economics Division.

Oatley, Thomas H. International Political Economy. London: Routledge, 2016. P. 70

Ostrom, Elinor. “Beyond Markets and States: Polycentric Governance of Complex Economic Systems.” Nobel Prize Lecture. Aula Magna, Stockholm University, Stolkholm. Speech.

Pagiola, Stefano, and Gunars Platais. Payments for Environmental Services. No. 3. World Bank Environment Department, 2002. Environment Strategy Notes.

Zhang, Wei. “Experimental games test efficacy of subsidies to encourage farmers to invest in natural ecosystem services.” IFPRI research Blog. IFPRI, 13 Jan. 2017.