The new EU Forest Strategy to 2030 recognises that Forest owners and managers need drivers and financial incentives to provide ecosystem servicesIn response to this need, the Commission will in 2023 published Guidance on the development of public and private payment schemes for ecosystem services in forests (PFES) to support Member States in their establishment.

What are ecosystem services and why are forests crucial?

Ecosystem services are defined as the benefits that people derive from ecosystems, and “the direct and indirect contributions of ecosystems to human well-being”. Although many of these are provided “for free” (e.g. air and water quality regulation, flood control), the degradation of natural capital due to human activities limits their provision. Forests and forest ecosystems are key because they provide a wide range of these services, including:

• Supply services: wood, fresh water, non-fruit forest products.
• Regulatory and maintenance services: air quality regulation, carbon sequestration, water purification, pollination, flood control, erosion prevention and soil quality regulation.
• Cultural services: recreational opportunities, aesthetic and spiritual values.

It is estimated that in 2012, forests and woodlands in the EU-28 accounted for 47.5 % of the total economic value of measured ecosystem services, exceeding EUR 80 billion, with nature-related recreation contributing more than EUR 30 million. The public also considers forests important for providing habitats for plants and animals, aesthetics, air quality and carbon sequestration.

PFES Principles

According to the European Commission's guidance, PFES should meet five key principles:

1. Voluntary commitment: The parties enter into the agreement voluntarily.
2. Well-defined ecosystem services: Services are clearly specified.
3. Payee pays: Payments come from those who use ecosystem services.
4. Direct payments to forest owners/managers: Payments go directly to service providers.
5. Conditionality: Payments are conditional on the delivery of ecosystem services. However, it is important to note that not all existing schemes in the EU meet all of these principlesFor example, the fee in Croatia for non-regulatory forest functions is a mandatory tax, not a voluntary payment.

Funding and examples of PFES in Europe

Successful PFES depend on the availability and continuity of funding. Funding includes the costs of establishment and operation, as well as compensation for foregone income to forest owners/managers. Payments should be primarily focused on results (e.g. increased biodiversity), not just on activities performed.

EU funds play a role in supporting PFES, in particular through pilot and research projects within the programmes Horizon Europe, LIFE and Interreg, which explore funding mechanisms and stakeholder engagement. An example is the project SINCERELY in Denmark, which tested reverse auctions for biodiversity protection, or the project TROCO2 in Spain and Portugal, which created a cross-border market for carbon credits. Common Agricultural Policy (CAP), although it does not directly address ecosystem services in forests, it allows for compensation to forest owners for lost income or management costs beyond legal obligations. For example, in Czech Republic CAP funds are used for "forest environment payments" which incentivize tree species diversification and habitat maintenance.

National and private schemes They are funded by public or private sources and often support long-term activities including forest management, certification costs and income support. Examples include:

• ECS Climate Forest (Austria) a Tree.ly (Austria): private schemes aimed at selling carbon credits, with forest managers receiving 75-85% of the revenue.
• Foresta Italia (Italy): a non-profit campaign funded by private companies on public land that focuses on afforestation, forestry, and biodiversity conservation. They have planted over 100,000 trees since 2022.
• Natural values (Finland): an online marketplace that connects buyers and sellers of natural assets, enabling the emergence of various PFES agreements.

Challenges and recommendations

Despite the growing number of PFES, these schemes face various challenges:

• Financial sustainability: Uncertainty of financing after initial costs and insufficient compensation for forest owners.
• Administrative burden: Complicated procedures and extensive regulation discourage small forest owners.
• Stakeholder engagement: Differences in priorities and lack of transparent communication can lead to scheme failure.
• Policy and legal frameworks: Lack of consistency and clarity in legislation creates uncertainty (e.g. missing Italian carbon credit registry).
• Credibility: Difficulties in quantifying ecosystem services and the risk of "greenwashing".

Based on these findings, it is recommended:

• Promote long-term and sustainable financing, which focuses on results (e.g. increased biodiversity), not just area.
• Create robust and coherent legislative frameworks at national and sub-national levels, which will provide clarity and legal certainty.
• Support monitoring, assessment, certification and registration of PFES beyond carbon regulation, with an emphasis on biodiversity benefits.
• Use technical support for national and subnational authorities to improve the development of PFES.
• Share knowledge and exchange best practices from existing PFES to encourage collaboration and upscaling of successful initiatives.

By implementing these recommendations, EU Member States can ensure that forests continue to provide their vital ecosystem services, promote resilience to climate change and contribute to sustainable forest management for future generations. Spring

Full report:  Payment schemes for forest ecosystem services - Supporting the implementation of the new EU Forest Strategy to 2030

Glossary of key terms

• ASETRANSPO: Provincial Association of Entrepreneurs in Discretionary Freight Transport of Pontevedra.
• BfN (Bundesamt für Naturschutz): Federal Agency for Nature Conservation (Germany).
• Eco-point: A unit of measure for the ecological improvement of an area in Germany that can be sold on the compensation market.
• BKompV (Bundeskompensationsverordnung): Federal Compensation Ordinance (Germany).
• BNatSchG (Bundesnaturschutzgesetz): Federal Nature Conservation Act (Germany).
• BNG (Biodiversity Net Gain): Increase in net biodiversity.
• CAP (Common Agricultural Policy): The EU's Common Agricultural Policy.
• CEE (Central and Eastern Europe): Central and Eastern Europe.
• CEPF (Confederation of European Forest Owners): Confederation of European Forest Owners.
• CICES (Common International Classification of Ecosystem Services): Common international classification of ecosystem services.
• CIMAT (Comunidade Intermunicipal do Alto Tâmega): Intermunicipal community of Alto Tâmega (Portugal).
• CLIMARK: A project in Spain focused on forestry projects for climate change mitigation/adaptation.
• CO2: Carbon dioxide.
• CONSOLE (CONtract SOLutions for Effective and lasting delivery of agri-environmental-climate public goods by EU agriculture and forestry): Project focused on contractual solutions for the efficient and sustainable provision of agri-environmental and climate public goods by EU agriculture and forestry.
• COPA-COGECA: Committee of Professional Agricultural Organisations – General Confederation of Agricultural Cooperatives of the European Union.
• DKK: Danish krone.
• EAFRD (European Agricultural Fund for Rural Development): European Agricultural Fund for Rural Development.
• ECS Climate Forest: Austrian scheme focused on carbon credits.
• Ecocells: Designations of forest areas in Slovenia for biodiversity protection and ecological functions.
• ELY: Centres for Economic Development, Transport and Environment (Finland).
• eNGO (environmental Non-Governmental Organisation): environmental non-governmental organization.
• ERDF (European Regional Development Fund): European Regional Development Fund.
• ESG (Environmental, Social and Governance Standards): Environmental, social and governance standards.
• ETS (Emissions Trading Scheme): Emissions trading scheme.
• EU CRCF (EU Carbon Removal Certification Framework): EU framework for carbon removal certification.
• EUR: Euros.
• fLPIS (Farm Land Parcel Identification System): Agricultural land identification system.
• Foresta Italia: An Italian scheme managed by Rete Clima that connects companies with forestry PFES projects.
• FSC (Forest Stewardship Council): Forest Management Council.
• GHG (Greenhouse gas): Greenhouse gas.
• ha: Hectare(s).
• HRK: Croatian Kuna.
• INCA (Integrated Natural Capital Accounting): Integrated natural capital accounting.
• IRSNC (Institute of the Republic of Slovenia for Nature Conservation): Institute of Nature Conservation of the Republic of Slovenia.
• ISO (International Organization for Standardization): International Organization for Standardization.
• JRC (Joint Research Centre): Joint Research Centre.
• Compensation market: German market-oriented scheme for ecological improvement (biobody).
• KPI (Key Performance Indicator): Key performance indicator.
• LEADER (Liaison Entre Actions de Développement de l'Economie Rurale): Linkage between rural economic development activities.
• LIFE CO2PES&PEF (LIFE CO2 Payment for Ecosystem Services & Product Environmental Footprint): LIFE CO2 payment for ecosystem services and product environmental footprint.
• LIDAR (Light Detection and Ranging): Remote sensing technique.
• LU (Landscape Unit): Country unit.
• LULUCF (Land Use, Land Use Change and Forestry): Land use, land use change and forestry.
• Natural values: Finnish service and marketplace for market-oriented nature conservation and biodiversity promotion.
• MAFF (Multi-Annual Financial Framework): Multiannual financial framework.
• MEA (Millennium Ecosystem Assessment): Millennium Ecosystem Assessment.
• METSO: Forest biodiversity programme for southern Finland.
• MRV (Monitoring, Reporting and Verification): Monitoring, reporting and verification.
• MS (Member State): Member State (EU).
• MTK (Maa-ja metsätaloustuottajain Keskusliitto): Central Union of Agricultural Producers and Forest Owners (Finland).
• NBS (Nature-Based Solution): Natural solution.
• NGO (Non-Governmental Organisation): Non-governmental organization.
• OKFŠ (Fee for the use of očeškorisnih funkcija šuma): Fee for general utility functions of forests (Croatia).
• PEFC (Programme for the Endorsement of Forest Certification): Forest certification approval program.
• PFES (Payment Schemes for Forest Ecosystem Services): Payment schemes for forest ecosystem services.
• PSK (Plans of Joint Cultivation): Joint cultivation plans (Czech Republic).
• Climate Network: The company managing the Foresta Italia scheme in Italy.
• SINCERELY: A project in Denmark that includes a case study of a biodiversity auction.
• SINCERE (Joint Initiative for Forestry Solutions in Europe): Joint initiative for forestry solutions in Europe.
• SITRA: Finnish Innovation Fund.
• SME (Small and Medium-sized Enterprise): Small and medium-sized enterprise.
• SPA (Special Protection Area): Specially protected area.
• tCO2e (Tons of CO2 Equivalent): Tons of CO2 equivalent.
• TEEB (The Economics of Ecosystems and Biodiversity): Economics of ecosystems and biodiversity.
• TIM (Telecom Italia Mobile): Former name Telecom Italia.
• Tree.ly: Austrian scheme based on carbon credits.
• TROCO2 (Mercado transfronterizo de intercambio de carbono): Cross-border carbon trading market (Spain and Portugal).
• UNB (Untere Naturschutzbehörde): Lower nature conservation authority (Germany).
• UNESCO MAB (United Nations Educational, Scientific and Cultural Organization Man and the Biosphere): United Nations Educational, Scientific and Cultural Organization – Man and the Biosphere.