In recent years, payment in ecosystem services (PES) and other market measures for conservation has gained popularity as market measure of pollution prevention and conservation particularly for use in the developing world. In the industrialized world, financial mechanisms such as carbon tax and emissions cap and trade are used as methods of pollution control to supplement environmental command and control regulation. However, in the context of the developing world, where environmental regulation may be weak due to weak rule of law, financial mechanisms may function as alternative methods of pollution control while better regulation is developed. Yet, this is challenging to implement as market mechanisms can only properly function with proper regulation.
For developing countries, a nationalized PES scheme, has features which may allow it to be the ideal market instrument to pilot better environmental regulation. It is ideal for environmental policymaking due to its policy and financial benefits. In financing, PES is beneficial because it is an incentive mechanism with low transaction costs. The services flow directly from the provider to the user thereby reducing transaction costs. The government only acts as an intermediary body role in the market. Second, the development of a comprehensive PES structure allows the government to identify regulatory gaps. In implementing PES schemes, the government can identify gaps in existing laws, the needs of stakeholders, baseline data and generally see how regulation will play out.
Furthermore, at the second day of the COP’20 was stablished by the Center for International Forestry Research (CIFOR) that the user fees in Costa Rica and Vietnam are similar in their design yet different in their regulatory backgrounds. Costa Rica is experienced in environmental policymaking and using environmental market instruments for conservation while Vietnam is formative on these fronts. Despite the differences in governance, both countries have relied upon PES to improve regulation.
Incorporation into existing regulatory schemes too could be a solution for when the government is in the process of developing more robust environmental regulation. Being part of the licensing process may encourage participation and compliance from more firms. Currently, compliance within the voluntary PES schemes are dependent on market demand for sustainable investment and the goodwill of the investor.For instance, the user fees in Costa Rica and Vietnam, similar in their design yet different in their regulatory backgrounds. Costa Rica is experienced in environmental policymaking and using environmental market instruments for conservation while Vietnam is formative on these fronts. Despite the differences in governance, both countries have relied upon PES to improve regulation.
The concept of PES to pilot regulation is not new. Developing countries can look to case studies of others who have used PES to implement better environmental safeguards. As in any PES scheme, land tenure and high transaction costs remain to be issues. These issues need focused attention and through PES, developing countries can pilot better environmental regulation for long term environmental protection.