The ecosystems in the Hindu-Kush Himalaya (HKH) region are endowed with rich biodiversity, immense and unique beauty; and are important watersheds and sinks of carbon. The services provided by these ecosystems are important and can be linked to provision of food, energy and other essential services for the wellbeing of humans and nature both upstream and downstream. The ‘Himalayan water tower’, as it’s known, is a lifeline to nearly 1.3 billion people. The people living in these mountains protect watersheds, biodiversity and forests. However, there are limited economic and institutional incentives to the local communities who manage these important ecosystems. There are numerous examples from Nepal and India that reflect the potential of payments for environmental services’ schemes to improve the management of natural resources, such as local schemes in the hills where downstream communities and water consumers in towns and villages make regular payments (in cash or kind) to community forestry groups upstream for protecting water sources and supply. However, policies that are required to mainstream environmental rewards’ schemes in resources management and development initiatives are almost non-existent among all the HKH countries (Afghanistan, Pakistan, India, Nepal, Bhutan, China, Bangladesh, Myanmar) where RUPES’ partner the International Centre for Integrated Mountain Development (ICIMOD) operates.

In the early days, in collaboration with Winrock International, RUPES implemented a project in Kulekhani watershed. It set out to develop an appropriate rewards’ mechanism for the communities living in the catchment to support their environmental service of reducing siltation in the reservoir of the Kulekhani hydropower plant and increasing dry season flows in streams.

Different awareness-enhancing and community-mobilization activities led to successful negotiations with the government for using some of the hydropower royalty money as an incentive for upland communities. An environmental management special fund was established under the Makwanpur District Development Committee that facilitates the allocation of a higher proportion of the royalty budget for the upstream villages. National policies related to hydropower revenue were reviewed and the perspectives of the local people about payments for environmental services’ mechanisms were also explored.

In Sundarijal catchment of Shivapuri Nagarjun National Park in Kathmandu valley, an assessment of the socioeconomic situation of the villagers residing inside the park, land-use changes and potential payments for environmental services’ mechanisms was carried out. The results showed the high value of water services to state-owned companies (public water company and hydropower plant) and the cost of the national park’s existence being borne by the villagers. Based on the review, a framework of a potential mechanism was developed. This framework proposes incentives to local communities for their role in conservation and the revenue is collected through state-owned companies, private companies and national park visitors into a local environment fund to be used for poverty-alleviating activities and park management. The framework can also be an effective local financing mechanism  for managing protected areas that are usually managed with limited state funding. An assessment of the national buffer zone policy indicates potential for integrating environmental services’ principles into policy on protected areas. The current buffer zone policy allows benefit sharing from protected areas with local and surrounding communities.

Key findings

  • Working through appropriate government agencies in pilot programs can lead to developing policies favourable to the implementation of payments for environmental services’ mechanisms.
  • Existing policies can be improved to make them pro-payments for environmental services.
  • Local politics and conflict between groups can constrain proper implementation of environmental services’ schemes.
  • It is necessary to increase awareness among all stakeholders (local people, government officials, hydropower companies and community-based organizations) for effective implementation.
  • Local institutions can be used to manage funding from environmental services’ schemes and to determine community activities to support them.
  • In the context of poor governance and local politics, there is a big risk of environmental services’ money being diverted to fund activities that can reduce ecosystem services.
  • The strategy of building pressure  from the bottom up is good for raising awareness and developing a consensus about ecosystem services.
  • In the context of environmental services’ schemes in protected areas, there is potential for conflict between national park authorities and local communities.
  • Lack of policies about ecosystem services and payment mechanisms severely hampers efforts to develop schemes. 

Policy influenced 

Based on the work of RUPES in Kulekhani, the Hydropower Royalty Distribution and Use Directive (2005) was issued by Makwanpur District Development Committee, allocating 50% of royalties it receives from the central government to the Village Development Committee where  the hydropower plant is located. A significant portion of this money is provided to villages in the upstream area for conservation activities. This directive was circulated to all districts in the country to adopt a similar approach of paying a higher proportion of hydropower royalties to upstream communities.