This article studies the implications of innovative funding instruments for forest restoration, acknowledging that an increasing proportion of lands are degraded in the tropics [1
] and that private and market-oriented approaches are acknowledged for their potential ability to address environmental issues [2
]. Admittedly, a number of economic approaches for natural resource management as a whole have been in existence for a long time (e.g., with incentives provided through fiscal policies, see [3
] for an ambitious analysis that embraces a multitude of instruments), and land degradation is not a new phenomenon. However, the scale has changed dramatically and effective policies are today required more than ever. The search for these policies for forest and land management is influenced by a pervasive context of discourses presenting environmental services [4
] as the way forward [5
]. Thus, Payments for Environmental Services (PES), a direct application of the latter concept combined with market-oriented approaches, became the subject of many experiments [6
] and the center of attention of scientists, practitioners and policy-makers. It essentially involves voluntary payments by the beneficiaries of a service to its providers, so long as pre-agreed conditions are met, hence relying on individual incentives to account for externalities in land-use decisions.
There are many ways to study their implications for forest restoration [7
], e.g., effectiveness [8
], equity [10
], sustainability of funding [12
] or even the risks of disappearing intrinsic motivations for the preservation of nature [13
], to single out only a few examples among a rapidly growing literature. In this article, we are interested in the implications specifically related to governance [15
], which is the focus of this special issue. Governance refers here to the number, nature and interactions of the stakeholders that are involved in the programs, and to the institutional arrangements that are put in place for funding and spending among land users. It is therefore as much a matter of participation and local politics as it is a matter of technical arrangements to make sure that funding is sustained and spending leads to effective outcomes for land management.
Previous research has emphasized the risks and challenges of forest restoration in Asia-Pacific when based on large-scale governmental programs [16
]. Taking a political economy approach, the authors identified a number of governance challenges that might impede an effective implementation of forest restoration initiatives. Among these they cite the control of state agencies and the political connections of the main corporate actors, the existence of corruption practices and ultimately the risk that reforestation activities prioritize lands with natural forest cover (and hence forest conversion before reforestation). They conclude that “tree-planting programs have been guided by forest rent distribution practices of state forest bureaucracies and by corporate accumulation strategies
” (p. 9).
We add to this analysis by looking at reforestation and forest restoration efforts from a different angle, with a focus on small-scale and privately-funded experiments based on the PES rationale. The latter payment schemes are indeed presented by some as particularly effective when applied to restoration purposes [17
]. On the one hand, PES schemes are reported to enable investors and practitioners to face high up-front capital needs and labor costs associated with tree plantations [19
]. On the other hand, these schemes are assumed to provide farmers with technical assistance and economic incentives, which guarantee local participation in reforestation activities over time [20
] and orient farmers’ behavior towards forest restoration [19
]. Besides, it is contended that PES will also be a critical new source of funding generated by public and private demand for ecosystem services [21
] so as to financially support restoration activities [22
Our study is a contribution to this debate about the compared merits of “traditional” vs.
“innovative” approaches to forest restoration, from a governance perspective. It starts from the assumption that innovative instruments might provide better solutions for addressing the risks of embezzlement or corruption, as opposed to public programs, especially when the latter involve rent-seeking industrial corporate actors, as suggested by [16
]. The distinction between these broad categories is somehow artificial and may not always be reflected by practice, but it still provides us with a starting point to conduct an investigation into the impacts that we can reasonably expect from any attempts to innovate funding and incentives in this domain.
The primary intent of our analysis is to answer the research question: “Do PES improve the governance of forest restoration programs as a basis for sustainable outcomes on the ground?”. To investigate the impacts and added value of PES programs, we study the characteristics of their governance. This research question is addressed through the analysis of two assumptions: first, that a defining feature of PES compared to public programs is the key role given to multi-stakeholder agencies in terms of fund management, which is important from a governance perspective and creates the conditions for all views to be expressed including those of environmental NGOs and local residents; and second, that another crucial PES feature is the specific contracts that involve land users and assign objectives to them in the form of conditions for payments. These specific contracts result from service beneficiaries being attentive to effective service provision due to their direct, if not vital, interest in success, and they might provide more guarantees for sustained impacts on the ground.
A major problem for this analysis is the confusion around the term PES
itself, and the diversity of understandings and experiments that the term encompasses. This “category” of policy instruments includes various types with contrasting characteristics, some of which are reported to match the characteristics of public subsidy programs [24
]. This finding was further documented in [25
], who made the point that many PES schemes could also be studied from the perspective of traditional public policies except for their underlying justification based on the remuneration of environmental services. Besides which, in many cases PES schemes tend to refer to the way that funding is secured for a given forest restoration initiative, notably through trust funds, rather than to the way that land users are involved through contracts [26
]. Hence, we see that no black and white situation exists and the multidimensionality of all these policies and policy instruments tends to disqualify any attempts to make rigorous distinctions.
We have attempted to bypass these methodological hurdles in two ways. First, by studying two cases that illustrate the other end of the spectrum from public and national restoration programs, in that they are local and privately funded. Second, by looking at both sides of the table, namely funding (how financial resources are collected) and incentive distribution (how financial resources are spent). These two sides are complementary and involve governance challenges of equal importance for success. Funding determines the sustainability and scale of forest restoration efforts and can follow various paths from mandatory taxes to voluntary contributions; while incentive distribution determines the effectiveness of a scheme and can also take different forms, ranging from individually tailored contracts to flat subsidies.
Another source of confusion is the role of public authorities in “PES schemes”. Clearly all depends on the scope of these policy instruments and what schemes this category encompasses. The evidence so far suggests that public authorities keep a firm grip and maintain a central role in many of the market-based instruments for environmental services, which runs counter to the common belief of a “rolling-back” of the state [27
]. This fact also provides justification for our investigation and empirical documentation of the changes—if any—of governance induced by new mechanisms for forest restoration, which can certainly not be taken for granted.
Before proceeding with the analysis, we need to make one additional remark concerning the forest restoration activities that are studied in this article. While being justified by their positive contribution to water services, their actual effect on ground water is complex and controversial. The “more trees more water
” myth is discussed and challenged in the literature [28
], yet some recognize that forest cover might have positive impacts on infiltration in smaller scale catchments [33
] with steep [34
] and degraded soils [31
]. Examples of improved groundwater storage are indeed documented in tropical forests [31
]. The scope of our article is limited to the governance of a few restoration activities that are assumed by stakeholders to provide water services; it does not include a discussion of the impacts of forest cover on water. We only observe that forest restoration activities are undertaken based on their assumed capacity to increase the availability of groundwater in the dry season, which is an assumption that runs counter to some evidence in the literature [29
In order to assess the reality of institutional changes in PES-related restoration schemes, we undertook field research in two of Indonesia’s most prominent PES experiments, one in the Banten province west of Java (Cidanau) and the other in the island of Lombok in the eastern part of the country. The next section provides details about the chosen case studies and our analysis methods before presenting and discussing results.
4. Discussion: Do PES Improve the Governance of Forest Restoration?
Our objective is not to position large-scale governmental programs and PES as opposite ends of a scale of policy instruments for forest restoration; rather we find a continuum of situations in practice. Policy instruments are multi-dimensional: governmental programs can deliver incentives while PES can be designed and implemented by governments. Nonetheless, as a starting point for our analysis, we used the reported weaknesses in terms of governance of traditional public programs for forest restoration in Asia-Pacific [16
Therefore, instead of comparing two large groups of policy instruments that are artificially separated from one another along the lines of public, traditional and large-scale versus private, innovative and local, our study looks at the governance implications of PES through the investigation of two assumptions. The first is that multi-stakeholder agencies as PES intermediaries represent an institutional innovation, positioned between the collection of funds and the distribution of incentives (as opposed to top-down land rehabilitation programs); while the second assumption is that specific individual (or collective) results-oriented contracts with associated conditions attached to payments (as opposed to corporate subsidies or daily salaries) are essential to the success of PES programs.
4.1. First Assumption: PES Intermediaries Represent an Institutional Innovation
Regarding the first assumption, a key governance feature that is present in both Indonesian PES cases is the creation and influential role of a multi-stakeholder agency, which has responsibility for the management of the distribution of incentives among service providers. However, there are striking differences between the two cases. In Lombok, the multi-stakeholder agency was presented as a means to make the tax more palatable to water users in a context where there is mistrust in the government’s ability to manage public money. This was the main justification for the creation of the scheme, along with good prospects for a high standard of fund management. However, it appeared that the forest agency benefited from the uneven distribution of power among stakeholders, and was in a position to promote its own priorities using PES financial resources in a context of low budgets allocated to forest agencies. As a consequence, the water distribution company decided to create a parallel scheme that would put environmental services at the center again. By taking this step, the water company no doubt intended to raise its profile and reputation as well as to challenge the power of the forest agency, in addition to addressing other factors such as the high transaction costs.
The non-linear process is the crux of the matter and the most interesting part of the story: early embedment of the PES into public policies with a reliance on regulation to set a specific tax on water users with the creation of the multi-stakeholder agency; followed by a de-embedment, through the creation of a financing mechanism that is fully integrated into the business model of the water supply company. This de-embedment process is expected to strengthen the effectiveness of financial expenditure for the purposes of service provision, or at least address cost-effectiveness issues. Indeed, some observations indicated that fund management by the existing multi-stakeholder agency (PES 2) had weaknesses: the number of contracts finalized so far is limited, and the agency recently decided to allocate to the district budget the share of the collected taxes previously earmarked for covering the implementation costs. It might indicate the temptation of embezzlement that arises in certain contexts when public administrations take the lead, which is precisely the reason why new PES-like experiments are highly praised, as opposed to more traditional governmental programs. Therefore, in this particular case study, the creation of a multi-stakeholder agency might not be a guarantee for better governance.
The situation in Cidanau tells us a different story; here the multi-stakeholder agency remains the principal and widely recognized actor in the area. The agency is also seemingly dominated by one stakeholder from civil society which has a great influence owing to its past accomplishments. Yet another important layer exists at the interface between the agency and individual farmers, namely the farmer group leaders, and it was this layer that was a focus of our study in Cidanau. Our field observations showed that these farmer group leaders played a vital role in the scheme, a finding that was confirmed by the two instances of breach of contract, both of which could have been avoided with appropriate action on their side. The problem is that there is much variability in the management abilities among the farmer group leaders. Governance in the Cidanau situation depends a great deal on the capacities of these farmer group leaders, and the intermediary agency neither guarantees good governance nor has a negative impact in this regard. On the whole, the internal governance of the farmer groups appears to be decisive for the sustainable effectiveness of forest restoration efforts.
Another key observation is the inability of this governance structure to ensure the satisfactory targeting of lands for restoration. Having a multi-stakeholder set up provides no guarantee that participants will be identified and selected in a neutral way and that decisions will be based only on scientific information with regard to the provision of environmental services. Social connections were favored as a criterion for farmer enrollment (and hence land selection), which in our opinion constitutes a weakness of the scheme as it puts effectiveness at risk. In other words, land with the highest potential contribution to environmental services provision is probably not more likely than other land to be earmarked for forest restoration. This result is consistent with other empirical cases of small-scale watershed projects. In Central America, it was demonstrated that the choice of PES participants results from a complex social process rather than a rational technical assessment [47
]. These authors conclude that payments only provide complementary “support” for activities that farmers would have carried out for social and cultural reasons. In Peru and Ecuador, it was contended that better spatial targeting could be achieved in two watersheds in order to include genuinely critical areas [48
At a larger scale, our finding also complements the aforementioned observation that large-scale governmental forest restoration programs in Asia-Pacific have sometimes resulted in forest conversion prior to planting [16
], which is another hazardous method of land targeting from the perspective of forest restoration.
4.2. Second Assumption: Results-Oriented Contracts Are an Essential Aspect of PES
Regarding the second assumption under investigation, the results-oriented conditions that constitute a key feature of PES as a new approach to forest restoration are not particularly strong. While their full impact remains to be demonstrated, the two case studies examined here provide lessons that differ from our assumption. In Lombok, few (if any) PES 2 conditions are enforced, and it is not yet clear whether PES 3 will be any better at putting pressure on farmers to carry out effective land-use changes. Besides which, the contracts are at an early stage and cannot compete with larger scale intensive reforestation programs financed by regional and provincial forest administrations. That said, the three successive versions of the scheme are assumed to have the potential to eventually tackle causes of deforestation owing to their capacity to change local perceptions and habits. They rely on the active participation of farmers to make proposals and are not perceived as top-down public policies; as a consequence, they are thought to have an indirect leverage effect that may exceed the direct corrective effort of more “traditional” restoration programs. The latter usually involves the payment of salaries to local laborers who are hired to plant trees but have little stake in their maintenance in subsequent years.
In Cidanau, these conditions are more stringent, which is demonstrated by the fact that infringements led to the breaching of two contracts. The credibility of the threat to withhold payments is also a central element of PES governance and one that is seen as a step towards greater effectiveness compared to traditional governmental programs because it generates better results than salaries paid to locals in return for daily labor, or the opaque distribution of subsidies to well-connected corporations. In this regard, despite many examples of individuals having a poor understanding of these conditions and their implications for future payments, we could indeed observe a certain level of achievement. Yet we also observed a tendency to enroll farmers who might not have dramatically changed their business-as-usual activities, which means limited additionality and a low level of threat with the conditions. In addition, farmer group leaders have a certain amount of latitude to prevent the breaching of contracts when conditions are not met.
Overall, the two sites exhibit the same characteristic that is detrimental to effectiveness: most stakeholders have a vested interest in the perpetuation of the scheme, whatever its level of success in terms of sustaining the provision of environmental services. In other words, NGOs, local authorities, research institutions, and even private companies—as service beneficiaries when they use funds from Corporate Social Responsibility budgets—prefer to avoid apparent failure at any cost. In practical terms, failure is understood as the cessation of payments rather than a lack of service provision, which is clearly a controversial view. The problem is that, regardless of the degree of stringency for conditions, effectiveness is eliminated whenever additionality is absent or the targeting of service providers is irrelevant. Therefore, a “winning” strategy (for a number of stakeholders but certainly not from an environmental point of view) would be for payers and intermediaries to demonstrate that strong conditions are attached to sustained payments, while at the same time involving the most easily targetable service providers. This typically implies that farmers do not attempt to change their activities and there is no guarantee that the right farmers are brought on board.
This article discusses the capacity of innovative policy instruments such as PES to improve the governance of forest restoration activities compared to more traditional large-scale governmental programs. To do so, two assumptions were investigated, the first regarding the establishment of multi-stakeholder agencies as intermediaries and fund managers; and the other concerning the inclusion of conditions in the contracts with service providers. Both of these assumptions are believed to enhance forest restoration efforts.
An initial finding was that intermediary bodies are certainly not sufficient to guarantee success. As shown in different ways by the two cases under investigation, outcomes were greatly dependent on the internal governance of these bodies. While virtually all local stakeholders were represented, in each case we found that about one was able to dominate the decision-making process: the forest agency in Lombok and a local NGO in Cidanau. Interestingly, the main service beneficiaries in each case study adopted opposite strategies in reaction to this domination by another actor: the public water company in Lombok moved on and created its own scheme, whereas the private water company in Cidanau decided to keep the ball rolling, its expectations being little more than the nurturing of its image. The situation in Cidanau might however deserve a more positive appraisal given that the local NGO involved understands the difficulty in achieving a high degree of effectiveness but is making incremental changes towards improvement. For instance, the somewhat shaky governance of many of the farmer groups is identified as one area of reform for the future. Reforms are probably more difficult to undertake in Lombok where the intermediary body is de facto controlled by local administrations. It remains to be seen whether stakeholders can improve the scheme based on its existing format, instead of creating an alternative, as PDAM has done.
A second conclusion is that even when conditions exist, they do not guarantee success. Not only because they can be applied to the wrong participants in the sense that their business-as-usual activities remain unchanged, but also because there is a common interest among many stakeholders to keep the schemes alive and visible. Since the service beneficiaries do not have any alternative options, they must find ways to ensure that forest restoration takes place on the ground, even if it means ignoring (temporary) failures when the wrong plots are targeted and there is no additionality. In this context, conditions can be seen as a means to raise awareness among service providers and to increase the chances of success in future rounds. Another interpretation would be that conditions are designed in response to local capacities and not the other way around; in other words these conditions would encourage rather than strictly regulate service providers.
Although our results reveal the limited effectiveness of the schemes that aim at promoting forest restoration despite innovations in their governance owing to PES schemes, either because the scale is too small, additionality is not proven or targeting is flawed, our overall conclusion is that local stakeholders have a great ability to adapt and make progress. In both case studies, processes were initiated by international actors eager to replicate the PES model as conceptualized in foreign institutions: the London-based IIED coordinated the project in Cidanau in the early stages, and international organizations such as the Ford Foundation, USAID and UNDP were influential at the very beginning of the process in Lombok. Yet directions have largely diverged over time, and it is undeniable that a sense of ownership has developed among local stakeholders. While one case exhibited a very dynamic evolution with three successive versions of PES and an unstable reliance on regulation and public policies (Lombok), the other example has proven to be more resilient in design with a classical “private beneficiary-intermediary-land users” set up (Cidanau). This finding is interesting because both schemes were influenced by the international discourse advocating new ways to foster good forest management, and both schemes addressed the same water services in a same country. Therefore, having such diversity in terms of governance is a key issue: rules, modalities of intermediation and participation, fund collection, conditions, and payments, are all elements that differed in order to adapt to the local context.
Ultimately, and despite the limited scale of forest restoration activities and a lack of evidence for the effectiveness of these PES schemes with respect to service provision, we find optimism in the future possibilities for these new ways to govern forest restoration in a developing country context. Lessons from past failures in governmental programs—or at least assumed failures—are in the minds of local proponents of innovations in governance for forest restoration initiatives. Innovations can deliver and yield positive results, despite resistance from local administrations or state agencies that are used to taking advantage of opportunities for embezzlement and thus want these opportunities to continue. Yet these public actors will remain indispensable for the provision of these public goods, and it might prove to be more productive to find enabling conditions for their positive participation, rather than just trying to bypass them.