II�2�4� CAP „greening” in the PES framework

Member States would be free to design their own ones, subject to approval by the Commission.

Agri-environment-climate measures

In the AECM scheme beneficiaries are compensated for the costs incurred and income foregone resulting from the commitments made. As opposed to eco-schemes, which incentivises farmers, under AECM payments it was allowed to make payments to both farmers, as well as other beneficiaries. As regards voluntary AECM, several intervention measures in the Rural Development Regulation would be collapsed into a single scheme in the new simplified system.

II�2�3� CAP „greening” in the PES framework

The PES concept

In the academic literature PES is the acronym for Payments for Ecosystem Services, or Payments for Environmental Services.

PES is a program of voluntary

transactions between buyers and providers of ecosystem services, or land-use practices that lead to the services. The orginal definition, broadly accepted by the scholarly community, is attributed to Wunder (W^undeR, s. 2005). A Payment for Environmental Services scheme is:

1. A voluntary transaction, where

2. A well-defined ecosystem service (or land-use likely to secure that service)

3. Is being ‘bought’ by a (minimum one) buyer

4. From a (minimum one) ecosystem services provider 5. If and only if the provider

secures the ecosystem services provision (conditionality).

II�2�4� CAP „greening” in the PES framework

PES, an economic instrument, is supposed to align with the underlying ecological processes.

These processes are conceptualized as ecosystems and ecosystem services represented with the cascade model (Figure 2):

¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯

Figure 2: Cascade model of ecosystems and ecosystem services Source: h^aines-y^oung, R. – p^otschin, m. 2010

Conceptually, the biophysical structure, i.e. ecosystems, with complex functioning provide ecosystem services to beneficiaries.

In the PES scheme the beneficiary is willing to pay for the ecosystem service and the provider of the service (with a title to the land where the biophysical structure is located) is willing to accept the payment and deliver the service. With broad academic consensus, ecosystem functions and services are grouped in four categories: provisioning (e.g. supply of wood, fish, etc.),

regulating (e.g. carbon absorption, water retaining, etc.), cultural (e.g.

touristic sites, etc.) and supporting services, this latter supports all other services. The biophysical and financial flows in the PES scheme is shown in Figure 3. The essence of the PES scheme is that payment is made to initiate the conservation, or improvement of the biophysical structure that would entail improved supporting functioning, finally resulting in improved provisioning, regulating and/or cultural services.

81 Figure 3: PES scheme – biophysical and financial flows

Source: author’s design

The PES program can be organized and the services bought directly by the beneficiary, or by an intermediary, such as the government. User-financed programs typically focus on benefiting from a single ecosystem service, for instance improved quality of waters enjoyed by the population of a downstream settlement. A reforestation program by the government can provide benefits indirectly to people in large distances, as well.

The concept of Payments for Environmental Programs in developing countries was developed by World Bank economists as a means to shift international aid to environmental investments. The first PES program, a construction on World Bank loan and ODA funding, was implemented in

Costa Rica, aiming at reducing deforestation (pagiola, s. 2008).

As information and experience accumulated from programs around the world, the number of academic writings has been growing and beyond analyzing individual programs, research shifted on empirical analysis and drawing conclusions on structuring, design, governance, implementation and operational issues (engel, s. 2016).

Schomers and Matzdorf suggest that pooling research findings and experience both from developed and developing countries would result in research synergies for all (s^chomeRs, s. – m^atZdoRF, B. 2013). This article argues for moving beyond this proposition and use research findings on PES effectiveness in CAP Strategic Planning, outside the classic

domain of PES.

CAP ‘greening’, as a PES scheme

With reference to Matzdorf and Meyer, it is argued that the CAP

‘greening’ component, an agri-environmental policy instrument, is conceptually a PES scheme (matZdoRF, B. – meyeR, c. 2014), as it fulfills all the conceptual requirements for PES, as defined by Wunder:

1. farmers can voluntarily apply for direct payment, including the greening component;

2. the land-use, or land-use change (the subject of the transaction) is defined: crop diversification, maintaining permanent grasslands and ecological focus areas in the current CAP and eco-schemes in the upcoming CAP;

3. The buyer of the land-use service is the government of the Member State – indirectly the EU;

4. The service provider is the farmer – all eligible farmers in the EU can apply;

5. Conditionality: In principle, if the service is not provided, payment is withdrawn and penalty levied.

This argument is supported

by another article by Matzdorf, ascertaining that around the world PES commonly refers to government lead payment schemes that cover territories at national level (schomeRs, s. – matZdoRF, B. 2013).

This applies to CAP ‘greening’, too, as the implementation of CAP is managed on a member state level. This classification leads to the proposition that findings related to PES programs globally would serve references to assessing CAP ‘greening’, as well. Figure 4 presents the logic of the CAP green intervention in the PES conceptual framework. The Member State government is the service buyer, the farmers are the service providers. CAP payments are made for the services provided:

diversifying crops, maintaining permanent grasslands and meeting the requirements in terms of EFA.

It needs to be emphasized that the CAP payments are made for the actions that lead to ecological (socio-economic) outputs, not for the additionalities in ecosystem services, per se. Therefore, conditionalities of payments are linked to monitoring the actions by the farmers’, and not for ecological improvements, which is an important feature of the CAP model, addressed further in the Discussion section.

83 Figure 4: The 2014-2020 CAP in the PES conceptual framework

Source: author’s design

The outcome of the CAP implementation is measured using the outcome, result and impact indicators, set in the CMEF. Also, the outcome can be assessed using measures of improved ecosystems and ecosystem services additions.

This can lead to linking the outcome of the CAP with ecosystems accounting, the global, United Nations lead program, which aims at integrating environmental assets and services in the national statistical systems (K^ovács a. F.

2018).

Research on the effectiveness of PES programs

Due to the differences and availability of data, comparative analysis of PES programs is difficult and complex, nevertheless several recent studies report on analytic

works at higher abstractions, using meta-data, primarily sourced from related academic papers (schomeRs, s. – m^atZdoRF, B. 2013). Recent research works on PES highlight that effectiveness would largely depend on the specific features of each PES program. Börner and others, using the approach of change theory, synthetize 30 influencing factors of PES effectiveness, classified in three groups: context ~, design ~ and implementation factors, and along five dimensions: costs, additionality (compared to the counterfactual), spill-over (indirect effects on lands not in the program), link-conditions (e.g. monitoring costs) and welfare effects (e.g. equity) (BÖRneR, j. et al. 2017). As each PES program is a unique institution with specific governance system, Meyer and others apply qualitative comparative institutional analysis to investigate the governance

structures of PES programs in Germany and China, respectively.

This research suggests that in each case (i.e. Germany and China) the preferred, effective institutional arrangements are dominated by a combination of factors (m^eyeR, c. et al. 2018). Overall, scholarly articles highlight three main factors, which are key to the outcome and effectiveness of PES programs: (1) geographic targeting, (2) payment differentiation and (3) conditionality.

Geographic targeting Geographic, or spatial targeting means the method of allocation of financial resources over a selected geographic area on a costs-benefit basis. In practical terms, it is a payment scheme aiming at yielding the most significant increase in environmental service delivery (WünscheR, t. et al. 2008).

A comparative scenario analysis showed that targeting, using spatial data, would lead to higher efficiency outcomes (ibid.).

Payment differentiation As opposed to lump-sum payments per area, payments can be differentiated on the basis of provisioning costs (cost of providing the service), or on the

basis of environmental benefits (paying higher amounts to sites that provide higher benefits) (e^ngel, s.

2016).

Conditionality

Conditionality refers to the idea that payments are made if and only if the ecosystem service is provided or an activity is implemented that is clearly linked to provisioning the service (e^ngel, s. 2016). Payments can be made ex-ante, or ex-post. Implementation of conditionality requires monitoring compliance and sanctioning non-compliance.

It is concluded by various authors that applying these three conditions is very data-demanding and can significantly increase PES implementation costs, while the risks associated with the program’s outcome remains high, due to other influencing factors. Nevertheless, Engel references cases, when 50-100% increase in biodiversity benefits could be attained combining the tools of spatial targeting and payment differentiation, which could compensate for an increase of about 70% in costs (e^ngel, s.

2016).

II�2�5� Discussion

In this article, it is argued

that CAP is a PES-like program, therefore, research findings on PES effectiveness can serve useful references to studying the effectiveness of the CAP, but more importantly, designing the measures in the new CAP, i.e. the CAP Strategic Planning by Member States.

Research on PES effectiveness identified three key factors that drive effectiveness: conditionality, geographic targeting and payment differentiation. It is reasonable to propose that the potentials for improved effectiveness of the new CAP should be searched within the context of these three factors.

In particular, the subject for investigation is the following: to what extent the choices of Member States offered by the flexibilities in the new CAP can direct the CAP mechanisms towards improved conditionality, geographic targeting and payment differentiation – so that to induce improved effectiveness of CAP?

As pointed out, enhanced conditionality is the foundation for every measure, both in Pillar I and Pillar II. It is assumed that monitoring and evaluation would largely advance through the new Performance Monitoring and Evaluation Framework. Indicators would be chosen aligned with the CAP strategic objectives, and a

major change, compared with the current CMES, is the intent to select a limited, but more targeted set of indicators that reflect whether the supported intervention contributes to achieving the objectives versus an established baseline.

Apart from the advanced monitoring system for the overall performance of CAP, the success of conditionality depends on the mechanism if individual farmers’

practices meet the requirements, and payment is made accordingly.

The author has not found evidence on reduced, or rejected payments due to non-performance regarding the current CAP. In the PES context, conditionality would mean payment conditional to action, therefore the real effect of conditionality on effectiveness in the new CAP would depend on a mechanism of payment conditionality in place at the MS level. It is not yet clear how such conditionality would be made operational by the member states, supervised by the EC.

In the proposed regulation of the new CAP, improving the targeting of payments refers to payments targeting farmers. This seems to be a socio-economic goal and not an environmental one that would influence environmental effectiveness of the new CAP. The PES context suggests geographic targeting, rather than targeting the

farmers, meaning that payments should be focused on geographic locations with foreseen higher ecological impact. The new CAP would allow Member States to draw-up eco-scheme alternatives that could account for different ecological impacts in different geographic locations. This could, in principle, drive the new CAP towards environmental effectiveness. Likewise, payments for agri-environment-climate measures should be differentiated depending on geographic locations.

Or, alternatively, payment for such measures would be offered for farmers in areas with the highest potential output, i.e. ecological improvement. It has to be noted that some elements of geographic focusing already exist in the current CAP. For example, payments for certain agricultural or forestry practices in Natura 2020 regions.

Finally, payment differentiation is a very problematic

issue. As discussed in the section on the PES concept, in most PES programs, including the CAP, payments are made for measures, or acts that lead to improved ecological status. However, the same agricultural measure in one geographic location would result in different ecological outcome in another location. Environmental economics would suggest that in

such cases payments should be differentiated, likewise, when the cost structures of the measures vary in different locations. Nevertheless, from a political perspective it would be difficult to effectuate differentiated payments for the same measures within a given Member State.

II�2�6� Conclusion

In this article it is proposed that CAP can be seen as a PES program and findings on PES effectiveness would apply in case of the new, upcoming CAP. It was presented that elements, that regard the key drivers of environmental effectiveness, are embedded in the EC’s proposal for new CAP regulation, nevertheless, there seems to be a gap between how the concepts of conditionality, ecological targeting and payment differentiation are conceptualized by researchers in the PES framework, and the system of interventions in the CAP. PES findings could support further research on the intervention logic and measures both regarding the current and the upcoming CAP, so that Member States’ ambitions could be underlined by creativity and innovative approaches in their CAP Strategic Planning, aimed at a new, innovative CAP with enhanced

environmental effectiveness.

Acknowledgement

The author acknowledges and give thanks to the Corvinus

University of Budapest and the Pallas Athene Domus Educationis Foundation for their joint grant support to the author’s research work including writing this article.

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II.3. Industry 4.0 and the circular economy

In document Contemporary global challenges in geopolitics, security policy and world economy (Pldal 80-92)