Compromising the environment in Payments for Environmental Services?

This study has examined how the scheme of Payments for Environmental Services (PES) has been implemented in collaboration with existing local resource management institutions, particularly community forestry, to try to achieve both environmental and developmental goals. Through a case study approach, this study has analyzed the institutional dynamics of hydroelectricity revenue sharing mechanisms in Kulekhani watershed of Nepal. Results indicate that payments to upstream communities are made in the form of conservation and development projects, most of which are spent on rural electrification and road construction, putting less emphasis on the environment itself. The analysis has found three fundamental design problems of PES institutions. First, construction of road, which is often done using bulldozer, has accelerated soil erosion posing a threat to the environmental services. Second, since the mechanism has excluded the local resource management institutions like Community Forest User Groups (CFUGs), it has failed to provide incentives to resource managers. Finally, the mechanisms have undermined the role of principal beneficiary of environmental services, Nepal Electricity Authority, which has affected the monitoring and compliance of the rules. Analysis of the institutional dynamics of the PES has revealed that such disappointing results are due to three main institutional factors. First, the design process has been heavily influenced by the Makawanpur District Development Committee (DDC), while marginalizing the role of other important actors, particularly CFUGs and the Nepal Electricity Authority. Second, due to lack of a separate policy for PES in Nepal, the rules have drawn heavily from the Local Self Governance Act (1999), which has reinforced the role of the DDC and marginalized that of other resource management institutions. Finally, because of weak monitoring mechanisms, the procedural rules have not been put into practice effectively. Based on this analysis, I argue that, although the PES in Kulekhani has provided a mechanism for transferring hydroelectricity revenue to the local communities to support rural development, it has not transformed existing resource management structures and institutions to demonstrate the effectiveness of enhancing environmental outcomes. The lessons of this research are that politics are driving the design of PES mechanisms, and that its interplay with local institutions can hinder the performance. Moreover, this research suggests that PES schemes do not necessarily result in cooperation among local institutions or the achievement of both ecological and social outcomes.