Scoping the strengths and weaknesses of different auction and PES mechanisms for Countryside Stewardship

Abstract

The majority of farmers in England currently receive a fixed fee for managing their land under an agrienvironment scheme (Environmental Stewardship), which is based on an estimate of the typical income forgone by participating. The aim of this research is to explore alternative mechanisms for allocating agri-environment contracts with a view to achieving a more cost-efficient and effective use of funds. The focus is on reverse auctions, whereby farmers opt into a bidding process, offering to manage their land under prescribed management options at a price that more closely reflects their cost of doing so. The researchers have used a combination of laboratory experiments, simulation modelling and farmer workshops to consider the opportunity for efficiency gains, aspects of auction design and farmer responses to auctions. A secondary objective of the work is to explore opportunities for the private sector to engage in agrienvironment actions by leveraging match-funding where there are common goals and mutual benefits for private firms and society. This has entailed a review of the payment for ecosystem services (PES) literature and consultations with a number of relevant private firms. A particular focus for the latter has been the water companies, as they have already established some initiatives on PES around improving water quality.