Green Finance, 2019, 1(3): 221-236. doi: 10.3934/GF.2019.3.221.

Research article Special Issues

Export file:


  • RIS(for EndNote,Reference Manager,ProCite)
  • BibTex
  • Text


  • Citation Only
  • Citation and Abstract

Payment for ecosystem services: could it be sustainable financing mechanism for watershed services in Nepal?

1 Ministry of Industry, Tourism, Forests and Environment, Sudoorpaschim Province, Dhangadhi, Nepal
2 International Centre for Integrated Mountain Development, Post Box #3226, Kathmandu, Nepal
3 Department of Forests and Soil Conservation, Government of Nepal, Babarmahal, Kathmandu, Nepal
4 CARE Nepal, Post Box # 4/288-Samata Bhawan, Dhobighat, Lalitpur, Nepal

Special Issues: Finance and Sustainability

As a stewardship for watershed services, an incentivizing mechanism of payment for ecosystem services (PES) has been increasingly discussed in global policy arena. In this context, various models of incentivizing mechanisms have been implemented as a pilot program. This study assesses the existing financing mechanisms for watershed services at the national level and examines the pilot PES programs that have been implemented in four different sites of Nepal. Using various participatory and qualitative research methods; this study analyses institutional arrangement, operational procedures and implementation practices from the study sites. Our findings reveal that the pilot PES programs have shown fairly satisfactory outcomes in watershed management. Based on our findings, we argue that the PES mechanism can be a promising approach in financing sustainable watershed management in Nepal. Nevertheless, PES mechanism should be flexible and contextual in terms of institutional arrangement and needs to be strengthened with a strong linkage between service providers and service users, through a regulatory mechanism. An intermediary role of the local government is found to be utmost important to institutionalize the PES mechanism as a sustainable financing mechanism for ensuring watershed services in Nepal.
  Article Metrics

Keywords payment for ecosystem services; watershed management; sustainable financing; ecosystem services; institution; intermediaries

Citation: Kishor Aryal, Laxmi Dutt Bhatta, Prakash S. Thapa, Sunita Ranabhat, Nilhari Neupane, Jagannath Joshi, Kanchan Shrestha, Arun Bhakta Shrestha. Payment for ecosystem services: could it be sustainable financing mechanism for watershed services in Nepal?. Green Finance, 2019, 1(3): 221-236. doi: 10.3934/GF.2019.3.221


  • 1. Achet SH, Fleming B (2006) A watershed management framework for mountain areas: Lessons from 25 years of watershed conservation in Nepal. J Environ Plan Manage 49: 675–694.    
  • 2. Agrawal A (2003) Sustainable Governance of Common-Pool Resources: Contexts, Methods, and Politics. Ann Rev Anthropol 32: 243–262.    
  • 3. Agrawal A (2001) Common property institutions and sustainable governance of resources. World Dev 29: 1649–1672.    
  • 4. Basnet GB (2007) Water of Discord, Water of Unity: An Ethnographic Study of the Struggle for Water Rights in Upper Mustang, Nepal. Graduate Faculty of the University of Georgia, Athens, In press.
  • 5. Bhandari BS, Grant M (2007) Analysis of livelihood security: A case study in the Kali-Khola watershed of Nepal. J Environ Manage 85: 17–26.    
  • 6. Bhatta LD, Shrestha A, Neupane N, et al. (2019) Shifting dynamics of nature, society and agriculture in the Hindu Kush Himalayas: Perspectives for future mountain development. J Mt Sci 16: 1133–1149.    
  • 7. Bhatta LD, Khadgi A, Rai RK, et al. (2018) Designing community-based payment scheme for ecosystem services: a case from Koshi Hills, Nepal. Environ Dev Sustain 20: 1831–1848.    
  • 8. Bhatta LD, van Oort BEH, Rucevska I, et al. (2014) Payment for ecosystem services: possible instrument for managing ecosystem services in Nepal. Int J Biodivers Sci Ecosyst Serv Manage 10: 289–299.    
  • 9. Bremer LL, Brauman KA, Nelson S, et al. (2018) Relational values in evaluations of upstream social outcomes of watershed Payment for Ecosystem Services: a review. Curr Opin Environ Sustainability 35: 116–123.    
  • 10. CIFOR (2005) Payments for Environmental Services: Some nuts and bolts. CIFOR Occasional Paper, 42: 3–4.
  • 11. Coase RH (2000) The Problem of Social Cost, In: Gopalakrishnan, C., Classic Papers in Natural Resource Economics, Ed., UK, London: Palgrave Macmillan, 87–137.
  • 12. Coontz N (1991) Water Market Reforms for Water Resource Problems: Invisible Hands of Domination in Disguise? In: Dinar, A., and Zilberman, D., The Economics and Management of Water Resource and Drainage in Agriculture, Eds., MA, Boston: Springer, 759–777.
  • 13. de Groot RS, Alkemade R, Braat L, et al. (2010) Challenges in integrating the concept of ecosystem services and values in landscape planning, management and decision making. Ecol Complexity 7: 260–272.    
  • 14. Dillaha TA, Ferraro PJ, Huang M, et al. (2008) Payments for Watershed Services in Developing Countries, in: 21st Century Watershed Technology: Improving Water Quality and Environment Conference Proceedings, 29 March–3 April 2008, Concepcion, Chile.
  • 15. Echavarria M (2002) Water User Associations in the Cauca Valley, Colombia: A voluntary mechanism to promote upstream-downstream cooperation in the protection of rural watersheds. Land-Water Linkages Rural Watersheds Case Stud Ser. Roma: FAO, 2002.
  • 16. Engel S, Pagiola S, Wunder S (2008) Designing payments for environmental services in theory and practice: An overview of the issues. Ecol Econ 65: 663–674.    
  • 17. European Observatory of Mountain Forests, et al. (2006) The new generation of watershed management programmes and projects: A resource book for practitioners and local decision-makers based on the findings and recommendations of an FAO review (Review), FAO Forestry Paper, Food and Agriculture Organization.
  • 18. Fauzi A, Anna Z (2013) The complexity of the institution of payment for environmental services : A case study of two Indonesian PES schemes. Ecosyst Serv 6: 54–63.    
  • 19. Gurung P (2014) Freshwater Scarcity and Sustainable Water Management in the Hindu Kush-Himalayan (HKH) Region. Hydro Nepal: J Water Energy Environ 15: 42–47.    
  • 20. Hausknost D, Grima N, Singh SJ (2017) The political dimensions of Payments for Ecosystem Services (PES): Cascade or stairway? Ecol Econ 131: 109–118.    
  • 21. Howarth RB, Farber S (2002) Accounting for the value of ecosystem services. Ecol Econ 41: 421–429.    
  • 22. Khanna SA, Shrestha KL, Maskey RK, et al. (2016) Integrated Water Resource Management (IWRM): A Case Study of Durlung Watershed, Bagmati Zone, Nepal. Hydro Nepal 1: 47–54.
  • 23. Kosoy N, Martinez-Tuna M, Muradian R, et al. (2007) Payments for environmental services in watersheds: Insights from a comparative study of three cases in Central America. Ecol Econ 6: 446–455.
  • 24. Kurkalova LA (2015) Cost-Effective Placement of Best Management Practices in a Watershed: Lessons Learned from Conservation Effects Assessment Project. J Am Water Resour Assoc 51: 359–372.    
  • 25. Leimona B, Lusiana B, Noordwijk M, et al. (2015) Boundary work : Knowledge co-production for negotiating payment for watershed services in Indonesia. Ecosyst Serv 15: 45–62.    
  • 26. Lusiana B, Widodo R, Mulyoutami E, et al. (2008) Assessing Hydrological Sitation of Kapuas Hulu Basin, Kapuas Hulu Regency, West Kalimantan. Working Paper No. 5, Bogor, Indonesia.
  • 27. Merz J, Nakarmi G, Shrestha SK, et al. (2003) Water : A Scarce Resource in Rural Watersheds of Nepal's Middle Mountains. Mt Res Dev 23: 41–49.    
  • 28. Mishra A, Agrawal NK, Gupta N (2017) Building mountain resilience: solutions from the Hindu Kush Himalaya, Building mountain resilience: solutions from the Hindu Kush Himalaya, Kathmandu: ICIMOD.
  • 29. Muradian R, Arsel M, Pellegrini L, et al. (2013). Payments for ecosystem services and the fatal attraction of win-win solutions. Conserv Lett 6: 274–279.    
  • 30. Namirembe S, Bernard F (2018) Sustainable financing and support mechanisms for Payments for Ecosystem Services in low income countries, In: Namurenbe, S. Leimona, B. van Noordwijk, M. Minang, P. Co-investment in ecosystem services: global lessons from payment and incentive schemes, Eds., CTA: World Agroforestry Centre (ICRAF).
  • 31. Nepal S, Neupane N, Shrestha H, et al. (2017) Upstream-downstream linkages for catchment level Water Use Master Plans (WUMP) in the mid-hills of Nepal. ICIMOD Working Paper Paper 2017/23. Kathmandu: ICIMOD.
  • 32. Neupane N (2011) Political-economy of water distribution in the trans-Himalayan region of Nepal. In: Doppler, W., and Bauer, S., Farming and Rural Systems Economics, Eds., Germany, Margraf Publication.
  • 33. North DC (1994) Institutional change: a framework of analysis. Soc Rules, 189–201.
  • 34. NPC (2017) Fourteenth three-year periodic plan 2016/17–2019/20. Government of Nepal, Kathmandu, Nepal.
  • 35. Nuppenau EA (2000) Public Preferences, Statutory Regulations and Bargaining in Field Margin Provision for Ecological Main Structures. Agric Econ Rev 1: 19–32.
  • 36. Ostrom E, Gardner R, Walker J (1994) Rules, games, and common-pool resources, University of Michigan Press.
  • 37. Ostrom E, Gardner R (1993) Coping with Asymmetries in the Commons: Self-Governing Irrigation Systems Can Work? J Econ Prespect 7: 93–112.    
  • 38. Ostrom E (1990) The evolution of institutions for collective action, Edición en español: Fondo de Cultura Económica, México.
  • 39. Patterson T, Bhatta LD, Alfthan B, et al. (2017) Incentives for Ecosystem Services (IES) in the Himalayas; A 'Cookbook' for Emerging IES Practitioners in the Region. ICIMOD, GRID Arendal CICERO.
  • 40. Paudyal K, Baral H, Bhandari SP, et al. (2018) Design considerations in supporting payments for ecosystem services from community-managed forests in Nepal. Ecosyst Serv 30: 61–72.    
  • 41. Porras IT, Grieg-Gran M, Neves N (2008) All that Glitters: A Review of Payments for Watershed Services in Developing Countries, IIED.
  • 42. Rai RK, Shyamsundar P, Nepal M, et al. (2018) Financing Watershed Services in the Foothills of the Himalayas. Water 10: 965.    
  • 43. Randhir TO, Lee JG (1996) Managing Local Commons in Developing Economies: An Institutional Approach. Ecol Econ 16: 1–12.    
  • 44. Reddy VR, Saharawat YS, George B (2017) Watershed management in South Asia: A synoptic review. J Hydrol 551: 4–13.    
  • 45. Saleth RM, Dinar A (2005) Water Institutional Reforms: Theory and Practice. Water Policy 7: 1–19.    
  • 46. Shelley BG (2011) What should we call instruments commonly known as payments for environmental services? A review of the literature and a proposal. Ann N Y Acad Sci 1219: 209–225.    
  • 47. Shen Z, Zhong Y, Huang Q, et al. (2015) Identifying non-point source priority management areas in watersheds with multiple functional zones. Water Res 68: 563–571.    
  • 48. Simpson RD, Sedjo RA (1996) Paying for the conservation of endangered ecosystems: a comparison of direct and indirect approaches. Environ Dev Econ 1: 241–257.    
  • 49. Van Noordwijk M, Leimona B, Emerton L, et al. (2007) Criteria and indicators for environmental service compensation and reward mechanisms: realistic, voluntary, conditional and pro-poor. ICRAF working paper no. 2, Nairobi, Kenya: World Agroforestry Centre.
  • 50. West AJ, Arnold M, AumaÎtre G, et al. (2015) High natural erosion rates are the backdrop for present-day soil erosion in the agricultural Middle Hills of Nepal. Earth Surf Dyn 3: 363–387.    
  • 51.Wunder S (2015) Revisiting the concept of payments for environmental services. Ecol Econ 117: 234–243.    
  • 52.WWF Nepal (2014) PES Implementation and Monitoring Plan in Phewa Watershed (Final Report). WWF Nepal-Hariyo Ban Program, Kathmandu, Nepal.


This article has been cited by

  • 1. Kishor Aryal, Rajendra Dhungana, Thakur Silwal, Understanding policy arrangement for wildlife conservation in protected areas of Nepal, Human Dimensions of Wildlife, 2020, 1, 10.1080/10871209.2020.1781983

Reader Comments

your name: *   your email: *  

© 2019 the Author(s), licensee AIMS Press. This is an open access article distributed under the terms of the Creative Commons Attribution Licese (

Download full text in PDF

Export Citation

Copyright © AIMS Press All Rights Reserved