Although ecosystem services (ES) are essential for human wellbeing and all life on earth, they are deteriorating at an alarming rate. According to the Millennium Ecosystem Assessment (2005), nearly two-thirds of the world's environmental services are currently under threat.

While ecosystem services are under greatest threat, they are at the same time in growing demand, especially in rapidly growing economies such as in Asian. Water services from forest ecosystems, including those related to natural disaster mitigation and ecosystem services that support tourism activity are seen as being of most urgent concern at the national level. At the same time, there is growing international demand for ecosystem services provided by forests such as biodiversity and carbon.

Payments for ecosystem services (PES) have been identified as promising means of financing the preservation or generation of the services humans derive from ecosystems. The notion of PES consists of external ES beneficiaries making direct, contractual and conditional payments to local land users in return for adopting practices that secure ecosystem conservation and restoration. In this way, land users receive a direct incentive to make land use decisions that secure the supply of ES, which should ideally result in more socially optimal land uses than would occur in the absence of such payments. Cultural and other sensitivities (particularly in Asia), have led to the use of terms such as "rewards" or "compensation" to encompass the idea that payments or incentives in a such schemes can take various forms, such as tax credits, or more secure tenure.

The concept of PES is being explored and implemented at an increasing scale, especially in developed countries, but more and more also in developing countries especially in Latin America (e.g. Costa Rica and Mexico). There is increasing interest in PES concepts in Asia (China, Viet Nam, Indonesia, Nepal and the Philippines) and Africa (Kenya, South Africa). Moreover, interest emerges to further explore the potential of PES as mechanism for the international coordination of global public goods (biodiversity and climate regulation) such as pursued in the current debate on ?avoided deforestation.?

Adequately designed and consequently enforced institutions and policy-frameworks are a precondition for effective transactions between providers and supplies of ecosystem services, at both local and international level. In Asia, despite the growing demand for ES from the public and stakeholders in the private sector, governments are currently the most important investors in ecosystem services. However, governments face serious challenges regarding the capacity of existing policy, legislation and institutions to encourage and facilitate these much-needed investments. Meeting these challenges is all the more important in the context of climate change and the consequent increase in demand for ecosystems services both for mitigation of, and adaptation to, climate change.

PES internalize the costs of provision of these services, and are therefore an important financial innovation that allows governments and other stakeholders to make decisions that recognize the value of environmental services. The application of ecosystem services concepts to planning and financing of natural resources management also expands the number of stakeholders in natural resources management, thereby expanding the investor base.

Taking into account the above context and issues, IDDRI and Environment and Sustainable Development Division of the UN Economic and Social Commission for Asia and the Pacific (UNESCAP) has agreed to conduct a joint study that will support the efforts of countries of the region to:

1. operationalize ES and PES concepts to secure ecosystem services which are of importance in the national development context of Asian case-study countries; and

2. capitalize on growing international demand for forest environmental services (FES) such as biodiversity conservation and carbon sequestration.

The study will focus on at least one case-study country, and will be conducted from September to December 2007. The outcome will be a joint publication.