Environmental Governance and

Sustainability
Session-IV
Instructor: Nirmalya Choudhury
nirmalya1511@gmail.com
 MBIs: Tradable Pollution Permits
• Estimate total pollution load (e.g. 200 MB, MC
Units) from X number of polluters
MCS

• Set a target level of pollution (e.g. 100

Units) to be allowed, based on carrying PS Es MCP
capacity of a region/environmental E0
P0
media

• Issue permits up to the target level only

(i.e. 100 units of permits) MB
QS Q0 Quantity

• Remaining pollution will have to be

controlled

• Who will buy permits and who will

abate pollution?
 MBIs: Tradable Pollution Permits
• Suppose the average cost of controlling MB, MC
pollution is Rs.1.00 lakh per Unit; MCS
P2
• There are low-cost polluters who can
PS Es MCP
control pollution at Rs. 80,000 per Unit E0
P0
and others (high-cost polluters) can
control it at Rs. 1.2 lakh per unit. P1

MB
• High cost polluter would buy the QS Q0 Quantity
permits (priced Rs. 1.00 lakh per tone)
and low cost polluters would sell it!

• Pollution is controlled at least-cost and

therefore, market achieves efficiency in
pollution control!
Limits to Coasian Bargaining as a Solution

• Are Property rights well defined? Who has right to pollute? Who has
right to have healthy right? Are those enforceable?
• Who bargains with whom?
• Is negotiation costless or has high transaction cost?
• Is Bargaining at all possible?
Bauxite mining by a multinational company in a rainforest in eastern
ghats where the traditional forest dwellers are from primitive tribal
groups….

• What about APPROPRIATE SCALE?

• Is the value of gain and loss so readily available for all ecosystem
services?
 Ecosystem

• An ecosystem is a dynamic complex of plant,

animal, and microorganism communities and the
non-living environment interacting as a functional
unit.
• Ecosystems vary enormously in size:a temporary
pond in a tree hollow and an ocean basin can both
be ecosystems.
Humans are an integral part of ecosystems.

Millenium Ecosystem Assessment (2003). Ecosystem and Human Wellbeing A Framework for Assessment. World Resources Institute. Washington, Coveland, London:
Island Press.
 Ecosystem services

• Ecosystem services are the benefits people obtain

from ecosystems.
What kind of benefits?
• Provisioning services such as food and water
• Regulating services such as regulation of floods,
drought, land degradation, and disease
• Supporting services such as soil formation and
nutrient cycling
• Cultural services such as recreational, spiritual,
religious and other nonmaterial benefits
Millenium Ecosystem Assessment (2003). Ecosystem and Human Wellbeing A Framework for Assessment. World Resources Institute.
Washington, Coveland, London: Island Press.
 Valuation of Ecosystem Services

• Direct Use Value: Consumptive + Non Consumptive Uses (Provision

services)
• Indirect use Value: (Regulating and Supporting services)
• Non-Use Value: Bequest Value +Existence Value
• Option Value

Total Economic Value = Direct Use Value+ Indirect Use Value + Bequest
Value +Existence Value+ Option Value

TEEB (2010) The Economics of Ecosystems and Biodiversity: Mainstreaming the Economics of Nature: A synthesis of the approach, conclusions and recommendations of TEEB.
Valuation of Ecosystem Services

I. Market Based Valuation

https://www.youtube.com/watch?v=M0ZdV5WU5K4

II. Cost Based Valuation:

• Replacement Cost Method
https://www.youtube.com/watch?v=iTW05vFILXY&t=2s
• Avoided Cost Method
https://www.youtube.com/watch?v=hOX6WrR79Ao
• Travel Cost method
https://www.youtube.com/watch?v=AjcQpzIBu1I
Valuation of Ecosystem Services

III. Hedonic Pricing

https://www.youtube.com/watch?v=LkXVCQam5kw

IV. Willingness to Pay: Contingent Valuation Method

https://www.youtube.com/watch?v=__xzmIG4L8s

V. Choice Experiments
https://www.youtube.com/watch?v=txScPIsxyCM
 Payment for Ecosystem Services (PES) –An effective
MBI

• (1) voluntary transaction where

• (2) a well-defined ecosystem service (ES) (or corresponding land use) is

• (3) being ‘bought’ by a (minimum one) ES buyer

• (4) from a (minimum one) ES provider

• (5) if and only if ES provision is secured (conditionality)

Based on Prof.L.Venkatachalam,MIDS,Chennai
Importance of PES Scheme
1. It can also be seen as a mechanism for pricing services provided by
nature that have been formerly undervalued or unvalued, hence
creating economic markets for them.

2. This approach is expected to offer multiple advantages as it values

many ecosystem services commonly taken for granted, while at the
same time, raising awareness of service existence and human impacts,
and highlighting the social interdependence of providers and buyers.

3. The core idea of PES is that service providers, such as land owners and
farmers, can be compensated by resource users for providing these
services, and will therefore adapt their management strategies in a
sustainable way, to the benefit of buyers, sellers and nature itself.

Based on Prof.L.Venkatachalam,MIDS,Chennai
1. Public payment schemes for private land owners to maintain or enhance
ecosystem services

• These types of PES agreements are country-specific, where governments

have established focused programs (e.g. forest management in Mexico
and Costa Rica).
• While specifics vary by program focus and country, they commonly
involve direct payments from a government agency, or another public
institution, to landowners and/or managers

Based on Prof.L.Venkatachalam,MIDS,Chennai
Example of Public Payments

• The Public Redistribution Mechanism in Paraná, Brazil offers an example

of a public payment.

• The State allocated funds to municipalities to protect forested

watersheds and rehabilitate degraded areas.

• Also in Paraná, as well as in Minas Gerais, 5% of the revenues received

from the Circulation of Goods and Services (ICMS) — an indirect tax
charged on the consumption of all goods and services — is distributed
either to (1) municipalities with conservation units or protected areas or
(2) municipalities that supply water to neighboring municipalities.

• The State allocates more revenues to those municipalities with the

greatest amount of area under environmental protection.
Based on Prof.L.Venkatachalam,MIDS,Chennai
2. Regulator driven open trading

• Formal markets with open trading between buyers and sellers under a (i)
regulatory cap or floor on the level of ecosystem services to be provided,
(ii) voluntarily
• Regulatory ecosystem service markets are established through legislation
that creates demand for a particular ecosystem service by setting a ‘cap’ on
the damage to, or investment focused on, an ecosystem service.
• The users of the service, or at least the people who are responsible for
diminishing that service, respond either by complying directly or by trading
with others who are able to meet the regulation at lower cost.

Based on Prof.L.Venkatachalam,MIDS,Chennai
Regulator driven open trading
• Buyers are defined by the legislation, but are usually private-sector
companies or other institutions. Sellers may also be companies or other
entities that the legislation allows to be sellers and who are going beyond
regulatory requirements.
• Companies or organizations seeking to reduce their carbon footprints are
motivated to engage in the voluntary market to enhance their brands, to
anticipate emerging regulation, in response to stakeholder and/ or
shareholder pressure, or other motivations. Voluntary exchanges are also a
category of private payments

Based on Prof.L.Venkatachalam,MIDS,Chennai
 Example of Regulation-Driven Open Trading
• The best example is the international carbon market for carbon
dioxide emission reduction certificates, commonly called ‘the carbon
market,’ established by the Kyoto Protocol, which allows
industrialized countries to trade carbon credits in order to meet their
commitments at the lowest possible cost.
• Forestry activities which sequester carbon by promoting forest
establishment and growth are one mechanism for reducing emissions
within these markets.

Based on Prof.L.Venkatachalam,MIDS,Chennai
 3. Self-organized private deals in • Voluntary markets are a category of private payments for

which individual beneficiaries of ecosystem services.

ecosystem services contract • No formal regulatory markets (or none are anticipated in
directly with providers of those the near term) and where there is little (if any)
services government involvement.

• Buyers of ecosystem services may be private companies

or conservationists who pay landowners to change

Prof.L.Venkatachalam,MIDS,Channai
management practices in order to improve the quality of

the services on which the buyer wishes to maintain or is

dependent.

• The motivations for engaging in these transactions can

be as diverse as the buyers, as is explored further in the

step-by-step section that follows on finding buyers.

 The Case of Vittel Natural Mineral Water
BRIEF HISTORY:
1854: A spring was purchased by the Bouloumié family and a spa developed in the
town of Vittel in north eastern France - Water comes from a 6,000 ha aquifer 80m
below ground
1882: Société Générale des Eaux Minérales de Vittel (SGEMV) formed and Vittel
brand created
1898: Sales one million bottles
1903:French National Academy of Medicine declared the waters as good for public
health - SGEMV sells 3 million bottles of water
2003: Annual sales one billion bottles of Vittel mineral water
1969: The Nestlé group purchased 30% share
1992: the company (spa and bottling plant) was sold to Nestlé Inc
Subsequently Vittel is part of Nestle Waters – one of the top selling brands
Natural Mineral Water: well-protected specific underground source, stable
composition of the water and bottled at the source

Perrot-Maître, D. (2006) The Vittel payments for ecosystem services: a “perfect” PES case? International Institute for Environment and Development, London, UK.
 The Case of Vittel Natural Mineral Water
By 1980s: the catchment area was changing – increase nitrate and pesticide
leaching

Options for the Management:

• Doing nothing
• Relocate to new catchment where risks are lower
• Purchase all lands in the spring catchment
• Use legal action to ensure farmers change their practices
• Voluntarily transforming agricultural land into pastureland
• Provide incentives to farmers to voluntarily change their practices

1989: AGREV project launched to identify the agriculture practices-nitrate

relationship and search for an incentive
Initial focus on the history, the geography, and the sociology of the area and its
people – then science and technology
Action research: dialogue between Vittel and the farmers, compatibility between
farmers, sharing of Vittel’s objectives and exploring mutually beneficial partnership

Perrot-Maître, D. (2006) The Vittel payments for ecosystem services: a “perfect” PES case? International Institute for Environment and Development, London, UK.
 The Case of Vittel Natural Mineral Water
• No typical farmer – rather typologies of farmer - different livelihood strategies,
objectives and constraints, and varied willingness and capacity to adapt. [38
farms]
• Vittel decided to work with specific typologies: inter-generational continuation in
farming, displayed the entrepreneurial spirit and the technical capacity to adapt
to change and learn new practices [ land 50-130 ha and >130 ha]
• AGREV also explored possible scientific options to reduce nitrate and pesticide
application
• Labour( for organic manure) and capital (given the debt intensification was a
necessity) was a problem
• Ten years were necessary to complete the bargaining process and convince all
farmers
• What will be the basis of compensation - farmer’s costs or Vittel’s benefits?
• Farmers were in a good position to negotiate – strategic location of their farmland
gave them a strong bargaining position
• Farmer Union, Agriculture associations and larger farm interest V/s Vittle as an
employer in the basin

Perrot-Maître, D. (2006) The Vittel payments for ecosystem services: a “perfect” PES case? International Institute for Environment and Development, London, UK.
 The Case of Vittel Natural Mineral Water
Catalyzers:
• 1992: Agrivair, an intermediary responsible for negotiating and implementing the
programme
• Location of Agrivair: outside the town of Vittel and close to farmers and farmers’
associations
• Director of Agrivair: Worked on AGREV project and well known to the farmers and
stakeholders

• Finally an incentive package agreed between Agivair and the farmers – terms of
agreement discussed and decided with each farmer and adjusted accordingly.

• 2004: All 26 farms in the area had adopted the new farming system – for others
agrivair acquisitioned land

Conditionality/Monitoring: Shift to extensive agri-animal husbandry system,

application of manure controlled by labourers of Agrivair (and not farm owners) and
close monitoring of nitrate concentration, anmal stocking etc. by agencies.

Perrot-Maître, D. (2006) The Vittel payments for ecosystem services: a “perfect” PES case? International Institute for Environment and Development, London, UK.
The New York City–Catskill Watershed
Management Programme
• The Catskill and Delaware watersheds provide 90 per cent of the water
consumed by the city of New York.
• As the quality of water decreased in the 1990s, the United States
Environmental Protection Agency (EPA) required that all surface water be
filtered, unless safe water could be provided under natural conditions.
• It was estimated that building a filtration plant would cost US$ 6 billion to 8
billion and its yearly operation US$ 300 million to 500 million.
• Instead of building a filtration plant, the city authorities decided to invest
US$ 1.5 billion over 10 years in a watershed program to be administered by
the Catskill Watershed Corporation, a non-profit organization.
• The program is based on improvements in farm and forestry practices in the
upstream areas in order to reduce water pollution.
• The PES scheme was initiated with money from the city of New York, the
state of New York and the Federal Government.
• Now the scheme is financed by a tax included in New York water users’ bills

Prof.L.Venkatachalam,MIDS,Chennai
https://www.cbd.int/financial/pes/usa-pesnewyork.pdf
 PES for resource conservation: African
Elephants
• In Kenya, conflict between elephants and human beings resulted in killing
of elephants (8000 in 1980s)

• Hunting permits to kill X number of ‘rogue’ elephants to the community

(trophy hunting adopted in 23 sub-Saharan Africa)

Prof.L.Venkatachalam,MIDS,Channai
• Permits were sold to foreign tourists and revenue was shared among
villagers

• The elephant population started raising!

• https://www.youtube.com/watch?v=YUA8i5S0YMU
Land and water rights in Sukhomajri, Haryana
• In the early 1970s, the city of Chandigarh was confronted with
the rapid increase of siltation of Sukhna Lake, an artificial water
body that was of high recreational value to the people of
Chandigarh.
• The Central Soil and Water Conservation Research and Training
Institute (CSWCRTI), which was assigned by the city administration
to solve the problem, found that the heavily degraded mountain
land near Sukhomajri village accounted for 80-90% of the silt
flowing into the lake.
• Due to the degradation of their lands, the local villagers
themselves were constantly forced to clear more forest for
practicing agriculture and grazing of cattle and goats.
• Local families would have to be compensated in some way if they
should be motivated to give up free grazing and free tree felling in
the hills.

Based on Prof.L.Venkatachalam,MIDS,Chennai
Land and water rights in Sukhomajri, Haryana
• Two earthen dams for water harvesting during the monsoon
were built by the Chandigarh Administration
• The villagers were able to obtain enormous irrigation
benefits from the dam, and their agricultural production
increased fourfold.
• The water availability for irrigation marked an immediate
incentive for them to stop grazing in the hills and initiate
watershed protection work
• If they wanted the dam to deliver water, they would have to
prevent the dams from silting up by protecting the
vegetation cover of the surrounding area.
• The project led to the substantial reduction of siltation rates
in Sukhna Lake.

Based on Prof.L.Venkatachalam,MIDS,Chennai
Land and water rights in Sukhomajri, Haryana
• The investment made by the city of Chandigarh in the dams
can be seen as a payment for the watershed service that it
received.

• It must be noted, though, that for the Sukhomajri people,

the local benefits of irrigation water rather than an external
payment have been the main incentive for their watershed
protection activities

Based on Prof.L.Venkatachalam,MIDS,Chennai
Traditional irrigation systems (kuhls), Himachal
Pradesh
• The traditional community irrigation system of kuhls (channels for
water transfer from upstream to downstream) in the State of
Himachal Pradesh is a successful PES like management system.
• Upstream and downstream communities have developed precise
rules and regulations regarding the amount of water that is
released to different villages at certain times and of the labour
that downstream communities have to provide for maintaining
the upstream kuhls.
• The kuhls system is conceptually closer to a market-like system
than to a state-controlled regulatory framework.
• Being established between the villages on the base of
negotiations, Traditional institutions for the management of
irrigation infrastructure are therefore considered to be useful for
the development of other upstream-downstream transactions for
watershed services
MBIs: Deposit re-fund scheme
• Consumers pay surcharge when they buy a potentially polluting
product

• The surcharge is re-funded when the product is returned back for

recycling

• E.g. Bottles

Based on Prof.L.Venkatachalam,MIDS,Channai