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Payments for Ecosystem Services and Offsetting

What are PES and Offsetting schemes?

Payments for Ecosystem Services (PES) are mechanisms which allow the private and public sector to fund environmental enhancement or conservation initiatives. They create financial incentives for farmers and other landowners (“sellers”) to contribute to improving the environment above and beyond the minimum standard required by law or regulation. The enhanced ecosystem service delivery brings direct or indirect financial benefits to industry, developers, and the public (“buyers”), incentivising them to invest in these projects.

Offsetting schemes are similar to PES schemes, except that they are driven by regulatory or voluntary caps on environmental degradation, incentivising buyers to invest in projects that deliver additional environmental gain.

Hundreds of schemes are in place worldwide, including a number in the UK, delivering benefits for water quality and quantity, flood risk, carbon, biodiversity, pest management and recreation. This is a growing market with a number of economic, regulatory, and environmental drivers. 

 Key Drivers for PES and Offsetting schemes

  • Economic: Direct financial benefits to buyers and indirect financial benefits to society; Sellers receive a secure, alternative income source for their land.   
  • Regulatory: Meet local, national, and international targets for water, carbon, biodiversity and other environmental factors.  
  • Environmental: Deliver enhancements above and beyond minimum legal and regulatory standards.

What services can ADAS provide?

ADAS offers a breadth of technical expertise in land management, catchment management, environmental modelling, economic analysis and on-farm advice. ADAS uses these to develop PES and offsetting schemes in the following ways:    

  • Market Research: Matching buyers and sellers through site finding and site evaluation.
  • Brokerage: Intermediation between buyers and sellers. Ensuring agreements deliver value to both parties.
  • Design and Implementation: Ensuring schemes will achieve environmental and economic objectives through good design and practical advice, backed by scientific evidence and experience.
  • Evaluation and Audit: Application of robust environmental monitoring tools to measure scheme performance, identify and address issues, and improve the overall design. 
  • Policy Advice: Advising policy-makers and regulators to help progress, improve and initiate new schemes.

Case studies

The following schematic shows a simplified version of a PES scheme aimed at improving water quality before and after implementation. This type of scheme could also potentially deliver benefits to biodiversity, greenhouse gas emissions, flood risk management, and recreational access.

PES Scheme:

Before.  Farm emissions of sediment, pesticide and nutrients to watercourse are in line with minimum requirements. Water company bears cost of treatment to potable standards through end-of-pipe methods.

After.  Water company pays landowners to change management/land use. Sediment, pesticide, and nutrient loading of watercourse caused by farms decreases. Cost of end-of-pipe treatment reduces. Other benefits may be realised.


Case Study: Nutrient Offsetting Schemes in Wales

In one catchment, ADAS synthesised environmental and economic evidence from previous water quality PES and offsetting schemes to develop a new nutrient banking framework. Existing sources of pollution were then identified and evaluated, and a selection of land management approaches to alleviate the problem were produced.

In another catchment, ADAS used “Farmscoper” tool to monitor and evaluate the effectiveness of an existing nutrient offset scheme operated by farms supplying a local creamery. This tool improved the quality of the metrics and identified potential issues with scheme implementation. ADAS continues to evaluate and monitor the nutrient offset as part of a permit compliance condition for the creamery. 

  • Scheme framework improved by review of previous work
  • Innovative nutrient banking scheme developed
  • A state-of-the-art scientific tool to identify pollution sources and select appropriate land management changes
  • Detailed monitoring and evaluation helps prove scheme effectiveness

Case study:  Scoping the strengths and weaknesses of different auction and PES mechanisms for Countryside Stewardship

ADAS provided strategic advice to DEFRA on alternative mechanisms for allocating agri-environment contracts to help achieve a more cost-effective use of public funds.  ADAS explored the use of reverse auctions whereby farmers opt into a bidding process, offering to manage their land under prescribed management options at a price that reflects their cost of doing so. ADAS explored opportunities for the private sector to participate by offering match funding for agri-environmental schemes where there are common goals and mutual benefits for private firms and society. 

Client Benefits

  • Reverse auction approach offers increased competition and cost savings to the government.
  • Options for public/private funding for agri-environmental schemes identified and may be piloted

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