On June 5, 2014, the Peruvian Congress passed the Payment for Ecosystem Services Law (the "PES Law"), that aims to promote, regulate and supervise the Payment for Ecosystem Services schemes (the "PES schemes") to ensure the generation of economic, social and environmental benefits provided by ecosystems. To date, the PES Law is pending of enactment by the President, and consequently, of publishing in the Official Gazette[1].

Summary of the PES Law

  • Definition. Ecosystem services are defined as the direct and indirect economic, social and environmental benefits that people obtain from the correct functioning of ecosystems, such as watershed regulation, maintenance of biodiversity, carbon sequestration, among others.
  • Declaration of "national interest". The promotion of public and private investments for the conservation, restoration and sustainable use of the sources of ecosystem services is declared of national interest.
  • Ownership over ecosystem services. Ecosystem services are considered the "Patrimony of the Nation".
  • PES schemes. These are the mechanisms, tools, instruments and incentives applied to generate, channel, transfer and invest economic resources for the conservation, restoration and sustainable use of the sources of ecosystem services. The PES Law recognizes contractual freedom for the contributors and beneficiaries to agree on the PES scheme to be implemented. However, such mechanism proposal has to be assessed and approved by the Ministry of the Environment.
  • Ecosystem services "contributors". Are the (i) owners, possessors or titleholders of lands; (ii) those to whom the Peruvian Government has granted a title to use renewable natural resources; (iii) the NGOs holding Management Agreements over Natural Protected Areas; and, (iv) others recognized by Ministry of the Environment. For example, titleholders of forest concessions (timber, non-timber forest products, etc.) may benefit from PES schemes. Payment to contributors to ecosystem services is conditional to the performance of actions aiming to preserve, recover and sustainably use ecosystem services (this may imply a requisite of "additionally").
  • "Beneficiaries" for the provision of ecosystem services. Are the private or public, natural or legal persons that, obtaining a social, ecosystem or economic benefit, compensate the contributors for the ecosystem services they provide.
  • Creation of a PES schemes Registry. Ministry of the Environment is in charge of the management of the Registry of PES schemes, which has the purpose of validating the PES scheme agreed by both the contributor and the beneficiary, as well as to regulate and supervise it. Its implementation is progressive and it has to be conducted according to the provisions of the Regulation of the PES Law.
  • Role of regional and local governments. Subnational governments shall promote the implementation of PES schemes, pursuant to the decentralization process framework. For that purpose, these governments shall consider in their budgets, the funding of activities for the conservation, restoration and sustainable use of the sources of ecosystem services.
  • Authorization to public entities to raise economic funds. Public entities may raise economic funds and transfer them to the contributors of ecosystem services, in order for them to destine such funds to the fostering of PES schemes.
  • Regulation of the PES Law. Within a term of 120 calendar days as of the date the PES Law enters into force, the Executive Power shall approve its Regulation.

Key issues

  • Scope of the PES Law. This is a general framework for PES schemes in Peru (not exclusively REDD+). In this sense, the PES Law refers to not only to carbon but to other ecosystem services as well.
  • PES institutions. The PES Law has appointed the Ministry of the Environment as the PES national authority. However, specific functions still need to be phrased out through other legal instruments of lower rank (regulations, directives, etc.). Also, it establishes that subnational governments may promote the implementation of PES schemes, as well as fund these activities.
  • Legal concepts. Ecosystem services are defined as "Patrimony of the Nation" (hence, state-owned). However, the PES Law aims to compensate those who contribute to preserve, recover and sustainably use ecosystem services, which may be private parties. The PES Law does not refer to "carbon credits" or "carbon certificates"; these may fall under general provision of "compensation schemes or financing strategies" that are to be included in the design of PES schemes.
  • PES schemes. Parties are free to agree on the mechanisms to be implemented and activities, social, environmental and economic benefits, the ways of compensation, and financing structures related to PES schemes. However, the PES Law has established the obligation for the parties of a PES schemes to submit their proposal of scheme to the Ministry of the Environment. This may increase transaction costs and create red tape.
  • Profit sharing. The PES Law does not explicitly refer to the distribution of the benefits and co-benefits obtained from PES schemes.
  • Overlapping Rights. The PES Law does not solve existing overlapping rights in the Peruvian Amazon (forest areas, community property, timber concession, protected areas, mining concessions, among other kinds of tenure rights). Also, the PES Law does not complement PES schemes with other laws that regulate land use (i.e. Forest Law, Natural Protected Area Law, Mining Law, etc.).
  • Tax aspects. The PES Law has not established tax provisions or incentives to foster PES projects. Also, it has not set forth any provision regarding the tax impacts on the parties involved in the PES scheme.
  • Grandfathering provision. There is no grandfathering provision for ongoing projects. The PES Law does not aim to interfere or affect ongoing projects, but set a framework for future ones.

Although this PES Law recognizes the project developers of PES schemes, it does not tackle key problems they have to deal with in Peru, given its broad and general scope. For example, it does not refer to distribution of benefits and co-benefits obtained from PES schemes, overlapping issues, access to PES schemes, tax provisions, among others. The above issues may be solved in the future regulations of the PES Law, when approved, or through guidelines issued by the Peruvian Ministry of Environment.