Introduction

During the mid-1980s, the concept of integrated conservation and development gained momentum in many countries in Asia and southern Africa with the goal of conserving biodiversity and supporting rural livelihood. This approach combined social development goals and biodiversity conservation, with an assumption that local livelihood practices are important threats to the biodiversity and that diversifying local livelihood options will reduce human pressures on biodiversity, leading to improved conservation (Hughes and Flintan 2001). However, many integrated conservation and development projects (ICDPs) failed in achieving the ecosystem conservation goals as these projects were unable to understand the complexity of socio-ecological systems, especially the interdependency that exists between the resources and people living around them. Although ICDPs were envisaged to be the best option for conserving biodiversity, they suffer from conceptual flaws that limit their appropriateness, especially in reconciling an increasing human demand and inherently unstable wildlife populations (Barrett and Arcese 1995). Many ICDPs could not take into account external factors such as a growing market demand for forest and biodiversity products, demographic pressures, and local social and economic realities. Illegal activities such as logging, mineral extraction, and ranching further aggravated the failure of ICDPs, which were often overlooked while designing these initiatives. One serious criticism of ICDPs is that the poorest and most marginal households have hardly benefited from these approaches. Further, most ICDPs were collapsed immediately after the technical and business support services disappeared once the initiative ended. Many researchers later questioned the viability of ICDPs, especially linking it with local communities and resource management initiatives across diverse geographic conditions and economic situations (Barrett and Arcese 1998; Gunatilake 1998).

More innovative forms of conservation strategies have gradually emerged in the past decade in response to the failure of ICDPs. These new strategies intend to provide direct economic incentives for land stewards for environmental services such as forest management, watershed protection, and biodiversity conservation. The concept has attracted unprecedented attention because natural and human-managed ecosystems produce environmental externalities (a situation where certain actions of producers or consumers have unintended external [indirect] effects on other producers and/or consumers) and that internalizing these externalities through incentive-based mechanisms will encourage individuals to take into account the effects of their actions on others, which could lead to an efficient outcome. Among these instruments, market-based approaches to environmental management such as payments for environmental services (PES) gained popularity both in developed and developing countries for maintaining and ensuring the provision of ecological services and improving the conditions of local inhabitants. The concept of PES represents a new and more direct conservation paradigm in which producers of environmental services receive direct compensation from beneficiaries of the ecosystem services for the benefits they receive from the producers (Landell-Mills and Porras 2002). Wunder (2005: 24) defines PES as “a voluntary transaction where a well-defined environmental service (ES) (or a landuse likely to serve that service is being “bought” by a (minimum one) environmental service buyer from a ES provider and the ES buyer does so if and only if the ES provider over time secures the conditional provision of that service.” PES is rooted in the theory that direct economic incentives for landowners are more effective than indirect means of financing and command-and-control regulation for better land stewardship (Ferraro and Kiss 2002) and that the incentives help internalize the ecological externalities associated with the use of ecosystem services. PES usually covers four types of environmental services: watershed protection, biodiversity conservation, landscape beauty, and carbon sequestration.

Landowners manage forests and vegetative cover to generate a variety of environmental services, but they usually do not receive any compensation for such crucial services. As a consequence, forest conservation and watershed management makes little sense to landowners as they receive fewer benefits from such land uses compared to other practices (i.e., conversion of forestland to cropland or pastures). As a result, upstream landowners impose costs on downstream resource users in terms of decreased supply of water, sedimentation, and reduced fish catch or diminishing supply of other biodiversity-related goods and services. This can lead to socially sub-optimal land-use decisions. In such situations, payments by ecosystem service users to producers help to make conservation efforts more attractive (Engel and Palmer 2008). Payments also make land-use options with conservation more attractive to local land users or ecosystem managers. They may be better off because of the greater local benefits of the forest conservation option than that of land conversion. Downstream populations are also better off as payments to land users are less than costs that would actually be required to pay if upstream landowners opted for conversion of forest land to cropland or pastures. The payment must be more than the additional benefit to land users of the alternative land use and less than the value of the benefit to downstream populations (Pagiola and Platais 2002). It should be noted that potential payments under a PES scheme for the continued or increased supply of environmental services includes not only direct cash payments. Payments can be comprised of more innovative options such as the recognition of indigenous rights to local resources and tenure security, wages for services rendered, health and education infrastructure for local inhabitants, improved delivery of services such as education, skill training, and mechanisms for reducing vulnerability of poorer households through enhancing social safety nets, among others.

While advances in market-based instruments for environmental services help access diverse sources of funding and make conservation a more competitive land use (Asquith, Vargas, and Wunder 2008), very few empirical studies examine the factors influencing landowner decisions to participate (with the exception of Pagiola, Landell-Mills, and Bishop 2002; Zbinden and Lee 2005; Huberman and Leippraud 2006). Moreover, not much research has been done towards defining the necessary conditions of the successful design and adoption of environmental service markets so that the environmental conservation and development objectives can be achieved simultaneously (Grieg-Gran, Porras, and Wunder 2005). While several recent studies provide some useful insights on PES mechanisms (FAO/REDLACH 2004; Huang and Upadhaya 2007; Leimona and Lee 2008), there is a need to scrutinize these claims more rigorously by collating and analyzing the available body of knowledge in this area.

Researchers have put forward a number of factors influencing landowner decisions to participate in PES schemes such as household and community characteristics (Zbinden and Lee 2005), enabling national and international conditions (Leimona and Lee 2008), political willingness on the part of national and local governments to develop policies in support of environmental service markets (Huang and Upadhaya 2007), and land use and service supply (FAO/REDLACH 2004). Yet, it remains unclear how and to what extent factors such as property rights and tenure security, transaction costs, and household and community characteristics influence the adoption of PES schemes by landowners, which are described as being crucial elements in the PES literature (Grieg-Grann and Bann 2003; Swallow, Meinzen-Dick, and van Noordwijk 2005; Pagiola, Artcenas, and Platais 2005). To date, little research has successfully addressed the knowledge gaps with regard to the adoption potential of environmental services markets in Asia.

This study relies on a review of eight existing case studies of ongoing PES initiatives in Asia. PES is a relatively new concept and has only recently begun to gain ground in most of the countries considered in this study. We therefore tried to select cases which fulfill the criteria required for a full-fledged PES as closely as possible or those that contain basic fundamentals of PES and have applied basic market-based instruments in developing reward mechanisms for environmental services provision. The PES case studies we will review here are largely exploratory and descriptive and allow us to examine the issues discussed earlier. In the following section, we will present a synthesis of the findings of the case studies. The third section will analyze and discuss the findings from these case studies. The fourth section will provide the major conclusions.

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