Newsletter No 2 June 2010

Professorial lecture: Payments for Ecosystem Services: Making Money Talk

Professor dr. Roy Brouwer

On April 15th 2010 Roy Brouwer gave his inaugural lecture as Professor of Economic Valuation of the Environment at the Institute of Environmental Studies at VU University in Amsterdam. In his presentation, he drew on a review of environmental economics concepts to make a plea for a much broader application of the ecosystem services concept in water and environmental policy, paying special attention to Payments for Ecosystem Services (PES).

eejune10bBrouwer is happy about the increasing attention paid to PES, but considers a lot of the recent work a renaming and repackaging of ongoing ecosystem valuation research initiated a few decades ago. He started his presentation off by critically referring to the (in)famous 1997 paper by Constanza et al. in Nature. In this paper, it was suggested that the world’s ecosystem services and natural capital, most of which are not traded in economic markets, are worth almost twice the value of the world’s gross national product.

After discussing the role of economic valuation in environmental damage assessment related to the European Environmental Liability Directive, he focused more specifically on payments for watershed services. Brouwer considers the interpretation of water services in the European Water Framework Directive too narrow and restrictive. He showed how responsive different water users are to water pricing based on empirical evidence, arguing that water pricing is too often dismissed by policy makers on the incorrect perception that water use is non-responsive to water pricing. As a result, water allocation and water pollution rights remain traditionally ruled by technical standards and engineering solutions.

Brouwer believes that financial incentives can be used as a complement to traditional command and control to change the way households and companies use ecosystem services which are used otherwise free of charge. Companies already pay in some countries for permits issued by the government to abstract or pollute water. Allowing some degree of market functioning where these permits can be traded is expected to stimulate more efficient water use.

He also argued for a more prominent role for existing agri-environmental agreements in water policy. These existing agreements can be used at relatively low transaction costs given their long implementation history and institutional embedding across European Member States to stimulate the reduction of pesticide and nutrient emissions to water. This would provide an important step forwards to reach the environmental objectives of the European Water Framework Directive.

Brouwer finished his presentation discussing his future research ambitions. These are related to the further development of choice experiments and their role in facilitating improved understanding of the specific goods and services provided by ecosystems, and informing the design of economic instruments, like PES.

More information: Lecture
Contact information: Prof. dr. R. Brouwer