Meeting Forest Futures with Payments for Ecosystem Services? Assessing Payment for Ecosystem Services’ potential for co-financing forest biodiversity preservation and climate change mitigation in Germany.

Abstract: German forests are in a deteriorating state. The effects of climate change are increasingly showing and presenting society, and also forest owners, with the challenge of restructuring forests to become more climate resilient. At the same time there is a need to halt forest biodiversity loss and to further provide renewable resources that can be used to decarbonise its economy. At present forests’ climate mitigation function and their importance as sources of biodiversity are undervalued and thus insufficiently translated into policy goals. This thesis explores how a novel economic policy instrument, Payments for Ecosystem Services, could be designed to restructure Forest Ecosystem Service governance in Germany and provide stimuli to transform forestry, forests and forest management practices to be better aligned with climate protection and biodiversity goals. With the help of an analytical framework a new policy proposal for the introduction of a Payments for Ecosystem Services scheme developed by the Thünen Institute (Elsasser et al. 2020a) is analysed and discussed. This framework builds on a recently emerged consensus of crucial design principles for PES and a Theory of Change (Wunder et al. 2020) perspective in an analytical framework to assess the policy proposal’s potential to incentivise a sustainable and balanced provision of three Forest Ecosystem Services: biodiversity preservation, carbon sequestration and raw timber provision. Moreover, it compares the proposal to a well-known Finnish PES scheme for forest biodiversity preservation (METSO). The thesis demonstrates why it is essential to combine remuneration for biodiversity preservation with financial rewards for carbon sequestration in privately-owned forests to achieve the potential of the PES scheme at hand, but also to stimulate a restructuring of current forestry governance for a highly needed improved provision of biodiversity preservation. It discusses these findings in the light of the public debate around the need for preserving high-value biodiversity forest areas. It also points to the limitations of PES programmes, highlights the necessity for developing the policy proposal further and to complement its implementation with an effective policy mix to achieve its goals.