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Policy Analysis

Policy Brief - Markets for ecosystem services: A potential tool for multilateral environmental agreements (MEAs)

By Anantha K. Duraiappah on July 25, 2007
Multilateral environmental agreements can facilitate the development and use of markets for ecosystem services (MES), an environmental conservation instrument that can also help alleviate poverty. Markets for provisioning ecosystem services--such as those for timber, agriculture products and so on--which are mainly privately owned, already exist. They allow people to trade and allocate resources through a price mechanism determined by supply and demand. The paradox is that the assignement of property rights over these provisioning services has been a key driver in the declines of other important ecosystem regulating and cultural ecosystem services such as water purification and pollination. While multi-million dollar markets already exist for carbon, wetlands and biodiversity, for example, such market-based approaches may not be feasible or even desirable for all ecosystem services. Even so already-operating MES illustrate several critical factors to consider when designing MES: jurisdiction, environmental effectiveness, economic efficiency, demand and supply distributional effects, harmonization with other instruments, incentives, competitiveness and institutional efficiency. In addition such markets for ecosytem services, when linked to the Millennium Development Goals, provide considerable scope for the development of pro-poor MES.