Payment for Ecosystem Services in the Philippines- A Market-Based Mechanism

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Willy Brandt School’s own Prathima Nalabolu reports on strategies to address the “Tragedy of the Commons”:

As first-year students at the Brandt School, we learned about the “Tragedy of the Commons” in Professor Aragón’s course “Economic Modelling.”  The Tragedy of the Commons occurs because markets are not fully capable of protecting the environment. The difficulty in regulating common resources such as clean air and water results in excessive pollution and environmental degradation. In the Philippines, the Payment for Ecosystem Services (PES) project implemented by the World Bank, the Department of Environment and Natural Resources (DENR) and other stakeholders in the Mt. Kalatungan region of Bukidnon Province on Mindanao Island is attempting to address this problem.

Located in the south, Mindanao is the second largest island in the Philippines. This region also has the highest percentage of indigenous people in the country (67 percent). The Cagayan River basin in Mindanao extends from the upland areas of Bukidnon Province where indigenous people live, into the city of Cagayan de Oro, a bustling business center. Over the decades, large scale deforestation by multi-national corporations in Bukidnon Province has resulted in soil erosion and siltation of the Cagayan River.



The Cagayan River Basin


Connecting the Ridge to the Reef

The PES was conceived after the typhoon Sendong (internationally known as Washi) hit Mindanao in 2011. The flooding of the Cagayan River during typhoon Sendong caused the loss of thousands of lives and destruction of property in Cagayan de Oro. The lack of tree cover in the Mt. Kalatungan range resulted in massive siltation of the Cagayan River, raising the riverbed and flooding Cagayan de Oro downstream in a matter of minutes. This was a man-made, rather than natural disaster. The realization of the impact of indiscriminate use of resources of the Ridge (upland), on the Reef (lowland) prompted the various stakeholders involved in the PES project to follow an integrated approach that connects the entire ecosystem from the forests, water, and land to the coastal areas.



The deforestation in Mt. Kalatungan, from which Cagayan River flows down to Cagayan de Oro

PES is a market-based climate adaptation mechanism that designates clean drinking water, flood control, and climate change adaptation as ecosystem services and places a monetary value on these services. It treats the indigenous people conserving the forests in the upland areas as “sellers” of ecosystem services, and the corporations consuming these services as “buyers” of ecosystem services. The sellers engage in reforestation and protection of the upland forests. The buyers pay for the ecosystem services that are a result of the sellers’ reforestation activities. Through this buyer-seller relationship, the livelihoods of the indigenous people are guaranteed. The NGO Xavier Science Foundation acts as a fund manager in order to support the indigenous peoples’ engagement with the corporations involved. Xavier Science Foundation receives the payments from the buyers and ensures the sellers engage in reforestation.


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The PES project in Mt. Kalatungan has been implemented since 2014 within the Ancestral Domain land of the Talaandig indigenous people. The Talaandig have a legal community ownership title for the 11,367 hectares of their Ancestral Domain. In the Philippines, Ancestral Domain is legally defined as an area of land that an indigenous community has been protecting and using for several generations. For several decades, the lack of land rights of the indigenous people in their Ancestral Domain has made them vulnerable to exploitation by businesses and resulted in the destruction of their forests. With a legal tenurial right, the community can protect the forests within their Ancestral Domain and engage with businesses on equal terms.

Placing a Monetary Value on Ecosystem Services

The valuation of the ecosystem services for this PES project follows a simple approach. The Talaandig community has prepared a plan for reforestation and protection of its Ancestral Domain and operates through an association called Milalittra. The Milalittra has identified 1,648 hectares of denuded forest within their ancestral lands for reforestation. The total amount of money required to conduct reforestation and protection of the denuded forest within a period of 5 years is divided by the total number of hectares required to be reforested. Companies that are benefiting from the above ecosystem services are identified. They are then given the option of buying ecosystem services by paying for reforestation of a certain number of hectares.

Companies such as Shell, Del Monte and cooperatives located in Cagayan de Oro that are using the land and water resources of the Cagayan River basin have purchased ecosystem services from the Milalittra. For example, Shell has invested 662,858 Pesos for reforestation of 13.79 hectares. This area then is geotagged and monitored after the plantation of saplings of an endemic variety. Additionally, Del Monte—which extracts large amounts of water from the Cagayan River for its pineapple plantations—has contributed saplings and 13,257 Pesos. Previously, companies were exploiting resources from the upland areas, but were conducting reforestation activities only in urban areas within Cagayan de Oro city limits. This resulted in a lack of environmental justice to the indigenous people living in the upland areas from which the corporations extracted resources. The PES project made the companies aware of the impact of their actions in the Ridge-Reef ecosystem, prompting their involvement in the reforestation of the Mt. Kalatungan region.

Addressing the Challenge of Buyer Engagement

This project is only 3 years old and is already facing several challenges. PES is a voluntary transaction in which the buyer values the services that the seller provides. But depending on voluntary contributions poses a threat to the sustainability and scalability of the project. The community development plan prepared by the Milalittra requires an investment of 164.8 million Pesos for 5 years to conduct reforestation operations. As of May 30th, 2017, buyers have only contributed around 4 million Pesos and only about 60 hectares of the 1,648 hectares have been reforested. Hence, funds on a much larger scale would be required than what is currently being contributed by the buyers.

As the post-disaster shock is waning, companies interest in investing in PES is dying. From the first year to the third year of implementation, the investment from buyers has reduced from over 1 million Pesos to 300,000 Pesos. Moreover, the scale of deforestation in the Philippines is so massive that just 3% of forest cover is remaining. This raises some important questions. Given the immediate need to take action and the large scale of reforestation required to prevent another disaster like the Sendong floods, can the PES remain a voluntary market-based transaction? One option to expedite the reforestation process would be for the local government to pass an ordinance that requires all companies located in the lowland areas and extracting resources from the upland areas to contribute to the reforestation and protection of the upland forests.


The PES is a very promising initiative that links land rights and livelihoods of indigenous people with protection of common resources like forests and rivers. It can protect the environment and the lives of thousands of people through flood control and climate change adaptation. The PES implementation in the Philippines is still in a nascent stage. Support by different stakeholders of the efforts made by the indigenous people—government through legislation, businesses through increased engagement, and NGOs through facilitation—will be imperative to ensure the sustainability of the project and the prevention of further man-made disasters like the Sendong floods.

Images used in this article have been taken or modified by the author to comply with copyright regulations. Original image can be found here:

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Prathima Nalabolu is a second year student of the Brandt School specializing in conflict studies and management. Before joining the Brandt school she worked with the Ministry of Rural Development, Government of India. She has worked extensively on indigenous peoples land rights in remote parts of the world like the conflict region of central India and the mountains of southern Philippines.