Defra has extended its catchment management pilot scheme following two successful rounds of its Payments for Ecosystem Services (PES) pilot projects – Defra said the pilots have strengthened the case for catchment-based investment by water companies.

The comments come in a review and analysis of a range of 11 PES pilot projects commissioned by  Defra during 2011 and 2013 to test out how it would work in practice at a cost of £274,000. Defra has now commissioned a third round of the PES pilot fund in 2014-15 to continue to develop proof of concept and application of PES. Pilot projects funded in the first two rounds of the PES scheme were:

• Cotswolds Catchment project.
• Fowey River
• Hull flood risk;
• Leeds-Liverpool Canal;
• Peatland Code;
• Poole Harbour catchment;
• Pumlumon;
• River Lea in Luton;
• South Pennines;
• Tortworth;
• Visitor Giving Schemes.

The review concludes that many of the pilot projects were able to demonstrate “preliminary proof of concept” and have made an important contribution to the growing body of evidence on how PES can deliver cost effective environmental outcomes in the UK.

Defra said the pilot projects have shown potential for the application of PES in many contexts, including catchment-based approaches to improving water quality, maintaining cultural and recreational services, and flood risk management.

The review has concluded that in general, the catchment-based projects have shown the most potential for PES applications, for example by delivering cost effective water quality improvements, and can be considered closer to ‘market’ stage.

PR14 will see a significant increase in catchment-based schemes from £60m invested in PR09

The review cites water catchment schemes, United Utilities’ SCaMP and South West Water’s Upstream Thinking as well known examples. Defra said that the Ofwat Price Review for 2015-2020 (PR14) is expected to see a significant increase in catchment-based schemes from the £60m invested in PR09.

The water companies continue to be interested and active in PES development, according to the review. South West Water funded the Fowey pilot auction as part of its Upstream Thinking Programme. Yorkshire Water see SUDS-related PES in Hull as an opportunity to reduce the need to invest in sewer capacity whilst at Tortworth Wessex Water look to avoid expensive chemical dosing techniques for wastewater treatment in order to meet new discharge requirements. Within the Cotswold pilot, Thames Water are active partners and see the project as a way of engaging directly with farmers regarding concerns of water quality and how to reduce levels of particular chemicals.

Lack of understanding impact of chemicals like metaldehyde a key challenge

The review flags up the testing of water quality within the Cotswold pilot as of particular interest – the pilot highlighted the lack of understanding as to how chemicals like metaldehyde behave in the natural environment and what impact land management activities have on their levels in the water body. The issue is among a number of technical and scientific challenges to be addressed which  the review says is critical to the success of PES schemes.

Evidence gap must be addressed in order to make clear business case

Defra also says that a common evidence gap identified by the review relates to the wider participation of purchasers in PES mechanisms. “It is only likely to be possible if strong scientific and economic evidence can be presented to those purchasers making a clear business case for their participation.”

Defra has now commissioned research on ‘Developing the Evidence Base on PES Beneficiaries in England’, which will address some of these issues and provide recommendations for PES approaches in both the private sector and local authorities. Findings from the study are due to be published this year.

Potential for PES schemes to address local authority flood issues

The review has also flagged up the potential for PES schemes to address local authority flood issues.

In the Hull pilot, 1644 houses in the study area were exposed to flood risk to the tune of £44m damages for a 1 in 100 year flood event. In the Cotswold pilot recent flooding instances have increased the level of engagement from local authorities regarding what PES can offer in this area.

Next steps

The review said the pilot projects have demonstrated many different applications of the PES concept, ranging from projects that focussed on payments for a narrow range of ecosystem services (e.g. the Hull Flood Risk project and projects focussing primarily on water quality in the Fowey River and Poole Harbour) to landscape-scale “place-based” PES schemes.

Defra said that looking further ahead, the pilots have left a legacy for further related projects to build on across a range of areas, including:

• The pilots have strengthened the case for catchment-based investment by water companies
• Renewed interest in reverse auctions in agri-environment contexts
• The Canal & River Trust is exploring the potential for PES across national waterways network
• The Tortworth project has raised the profile of integrated constructed wetland (ICW) solutions to wastewater treatment in Environment Agency, water industry and Ofwat

Click here to download the review