Silver bullet or fool's gold?: a global review of markets for forest environmental services and their impact on the poor

This report discusses the spreading phenomenon of markets for environmental services in the forestry sector. For a growing number of policy-makers, non-governmental organisations and academics, markets for carbon sequestration, biodiversity conservation, watershed protection and landscape beauty offer a new and exciting opportunity to promote responsible forestry, raise economic efficiency and reduce government spending. Yet such enthusiasm is often not matched by understanding of what such markets entail or how they will impact on people.Based on a global review of over 280 instances of payments for forest environmental services, this report examines 6 central questions:what form do markets take?why do markets evolve?how do markets evolve?what does market development mean for human welfare?what do markets mean for poor people?what are the key constraints to market development?While emphasising the enormous diversity of experiences throughout the world, the report also draws out the following cross-cutting lessons relating to market form, drivers and processes:different commodities work in different contexts. The central challenge is ensuring that payments for the commodity translate into payments for the serviceefforts to promote markets should seek to involve all stakeholders and avoid alienating particular groups that may block market developmentcompetitiveness is difficult to establish in nascent marketsalthough markets are still immature, advanced payment mechanisms are becoming more common. However, their sometimes high costs need to be weighed against benefitsgovernance – as determined by the political and economic framework in which markets evolve - is critical to market form and geographical scopemarkets should not replace, but live alongside non-market institutionseffective drivers to stimulate market development include: awareness-raising, reducing transaction costs and trading risks, providing secure property rights and raising environmental standardsthe development of markets is an iterative and often slow process. Steps will differ between contexts to take account of local power relations, policies, regulations, culture and history.Based on its examination of market impacts for marginalised groups, the report also emphasises the need to target support for “pro-poor markets”. The report offers seven possible steps for moving forward:formalise forest service property rights held by poor peopledefine appropriate, simple and flexible commodities that can be self-enforced and that suit local livelihood strategiesdevise cost-effective payment mechanisms that will work in areas where regulatory capacity is weak, trading skills in short-supply and market infrastructure under-developed (e.g. communication, information systems, transport, monitoring)strengthen cooperative institutions to allow poor landowners and service beneficiaries to share the costs associated with market participationinvest in training in marketing, negotiation, management, financial accounting, contract formulation and conflict resolution to support participationestablish a market support centre that offers free access to market information, a contact point for potential buyers, sellers and intermediaries, and an advice bureau to support the design and implementation of contractsimprove access to finance by offsetting credit market failures often afflicting poorer areas in developing countries.Policy-makers and practitioners seeking to address environmental and social problems in the forestry sector through market instruments are called on to consider the insights offered by this review. [author]