Scientific Contributions to the Ecosystem Service Approach and PES Debate

July 7, 2016

This blog is a summary of the contributions of the Doctoral Dissertation of Dr. Brent Matthies, who recently joined the Climate Change and Ecosystem Services Team at Indufor Oy. He provides an overview of his ecosystem service research results, and discusses the implications for the PES debate.

The topic of internalizing negative impacts in forestry and agriculture sectors’ value chains and networks, especially related to climate change mitigation and biodiversity conservation, has received considerable support from both public and private sectors recently. The Paris Agreement and the recently renewed Sustainable Development Goals (SDGs) both highlight the growing interest in these issues, along with private efforts to promote sustainability in commodity value chains.

Forests play an important role in climate change, as they represent a cost-effective means to mitigate climatic impacts and are important stores of biological diversity. Recently I defended my doctoral thesis: A service-dominant perspective on payment for ecosystem service offerings. In my research I found that, the co-benefits or win-win approach promoted by politicians will be difficult to achieve by analyzing the trade-offs between climate regulation and biodiversity conservation in forestry. Recognizing ecosystem service value through payment for ecosystem service (PES) schemes, or related mechanisms, is widely promoted by many environmental economists to address environmental impacts. Furthermore, there is increasing interest in the flow of that value through value networks and value co-creation in the context of the service economy. I provide an example of this in Figure 1.

Figure 1. An example of a service-dominant value network in the forestry sector, where the (a) carbon is sequestered and stored away from the atmosphere and (b) utilized by firms, individuals, and society to improve their well-being and allow for the utilization of other ecosystem service offerings such as (c) regulating service (e.g., stored carbon) is embedded within timber where knowledge and skills are applied to create (d) further value potential value co-creation opportunities by (e) facilitating the use of wood through: the exchange of the table and customer interactions. Various ecosystem service value potentials are then embedded in the table and realized over spatial and temporal scales with regard to their impact on (f) the natural environment and the customer’s perception of those impacts.

In theory, PES schemes should provide sellers with an incentive to managed for a prescribed ecosystem service or set of service offerings for the buyer (i.e. society, government, private sector). In practice, they can often create a transfer of risks to the seller from the buyer, incentivize adverse trade-offs, or exclude certain other important interactions (e.g. focusing only on carbon benefits over other radiative forcing components). In my research I looked at all three of these interactions.

In my first paper Risk, reward, and payments for ecosystem services: A portfolio approach to ecosystem services and forestland investment (Matthies et al. 2015), we examined how financial risks are transferred when sellers chose to participate in a PES scheme. The results indicated that schemes need to be structured differently than has previously been promoted by economists, to avoid transferring further economic risks to sellers. Low-cost and socially efficient schemes may not provide sellers with an opportunity to diversify their incomes through participation (as is noted by the lack of diversification potential of these schemes in Figure 2). This poses a risk to other PES-related objectives like poverty alleviation and improvement of livelihoods.

Figure 2. The efficient frontier for a portfolio of financial assets and different forest management units with some managed for Business-As-Usual (without PES scheme payments) and others including income from PES schemes.

The second paper, Nudging service providers and assessing service trade-offs to reduce the social inefficiencies of payments for ecosystem services schemes(Matthies et al. 2016), looked at how trade-offs between management incentives for biodiversity conservation and climate change regulation emerge under different PES schemes. We found that these two objectives are not always co-benefits and involve important trade-offs, and potentially important impacts, for decision-makers to consider. An example of this is the often quoted co-benefits of biodiversity conservation and climate change mitigation, which actually carry trade-offs according to the management prescriptions for both objectives. Furthermore, we demonstrated how nudging sellers to managed for an ecosystem service could be beneficial in achieving more value for money in terms of benefits and costs to society.

The third paper Optimal forest species mixture with carbon storage and albedo effect for climate change mitigation (Matthies and Valsta 2016), analysed the trade-offs further. The carbon-only approach to PES schemes has long been a controversial issue in forest economics research. We considered the albedo impacts of forest management, along with carbon sequestration, to demonstrate how these impacts affect the recommended management and development of PES schemes for climate change mitigation. The results showed that inclusion of other climatic interactions (e.g. albedo effect and carbon storage) is an important consideration when determining the appropriate recommendations to forest managers.

After writing the third article, I noticed that the heavy focus on the ‘exchange-only’ approach to internalization of impacts was flawed. In daily life from grocery shopping to driving to work, our actions affect the environment positively and negatively to create trade-offs and consequences. These impacts are then reflected in how we approach the opportunities to create value within our economies, so-called value co-creation. Although exchange-based approaches are currently the focus of much interest, namely through sustainability certification and PES schemes, there needs to be a wider debate about how these impacts are accounted for and recognized within our own social and economic value structures. Society and individuals may be unwilling to pay extra for a lower impact on the environment, but knowledge about adverse impacts could lead us to exclude some choices (e.g. by choosing only certified sustainably managed commodities). The fourth paper An ecosystem service-dominant logic? – integrating the ecosystem service approach and the service-dominant logic (Matthies et al. 2016), and the first paper in my dissertation, began the discussion about including those choices. With the fourth paper, we were hoping to build on the service-dominant literature by adding the voice of natural sciences to the debate about the inclusion of ecosystem services into new economic models and platforms. The result was the service-dominant value creation (SVC) framework presented in Figure 3.

Figure 3. A service-dominant value creation (SVC) framework for ecosystem service offerings in value co-creation within the socio-ecological system (Adopted from Matthies et al. 2016).

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