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PES is an incentive-based mechanism for sustainable resource management, another income stream to conservation. It is a new system for generating private and public revenues, and can be used to identify new sources of funding for private landowners as well as government.
Implementation of PES can provide direct financial and economic incentives for ecosystem conservation by providing new systems for generating private and public revenues. Ecosystem services are the provision of natural resources and healthy functioning ecological systems that produce environmentally and economically valuable goods and services. The core principles of PES are that those who provide ecosystem services should be compensated or rewarded for doing so, and those who use the services should pay for their provision. For example, the downstream water users who benefit from the watershed protection services provided should compensate upland farmers for sustainable land use management practices. Some form of payment (either cash, or some other direct benefit such as in-kind contributions, preferential credit, lower tax rates, employment, etc) is paid to the ecosystem service provider, and financed by the ecosystem service user. The user is the buyer of the ecosystem service, and the provider is the seller of it. Initially there is a lot of emphasis on cash and the payment must provide tenure security. In order for PES to provide a meaningful incentive, the payments the sellers receive must be equivalent to the opportunity costs of foregoing alternative land use practices (minimum payment). Opportunity costs are the value of foregone opportunities or alternatives because the diversion of time or money towards some other option.
For more information: http://cmsdata.iucn.org/downloads/hanoi_pes_workshop_report_300608.pdf
Read about PES: http://www.unep.org/pdf/PaymentsForEcosystemServices_en.pdf