The Environment, Food and Rural Affairs (EFRA) Committee has recommended an approach whereby landowners and farmers are paid to provide ecosystem services as a cost-effective way of protecting the environment.

The Committee has also recommended that Defra make the requirement of water companies to deliver benefits to the environment.

Launching the report of an inquiry into the Natural Environment White Paper published today, Committee Chair, Anne McIntosh MP, said:

"Our natural environment supplies us not only with food and materials but also with vital services that ensure society’s well-being, such as clean air and water, soil nutrients and recreational spaces. These ecosystems services are worth billions of pounds to the UK economy and we cannot afford to let government policies ignore them."

Ms McIntosh added:

"It should not be solely the preserve of the public sector to protect and enhance nature. Significant funding can be harnessed from the private sector, for example to help prevent flooding and to provide clean water supplies. But Government must act now to set up the right regulatory frameworks to support such payments."

MPs are concerned that, more than one year on from publication of the Natural Environment White Paper, The Natural Choice, Defra has failed to set out clear plans to deliver its commitment to ensure that government decision-making fully values the services nature provides.

Of particular interest in the report is the proposal of a ‘payments for ecosystems services’ (PES) approach, whereby farmers and landowners are paid for providing ecosystems services.

Commenting further, Anne McIntosh said:

"We heard of some successful examples of payments for ecosystems services that reduce the need to build costly infrastructure to clean up polluted water resources such as the United Utilities project which manages 20,000 hectares of land in North West England. But there are too few examples in the UK of the use of such payments to improve the environment. The National Ecosystem Assessment provides a wealth of evidence which must now be used to help sectors develop such schemes."

In the report the EFRA Committee recommended that the ‘payments for ecosystems services’ approach, as opposed to traditional hard engineering, was viable in the water sector.

“The need to meet regulatory environmental standards in water supply, combined with an industry structure based on geographic areas, predispose this sector to a PES approach,” the report reads. “Large-scale schemes can be adopted, particularly on a river catchment basis, where a cost-benefit analysis of different approaches can establish whether it is cheaper to adopt upstream ecosystems solutions rather than construct hard infrastructure downstream.”

The Committee believes that Defra must give Ofwat clear guidance on how it can encourage water supply companies to adopt an ecosystems management approach, including the use of payments to land managers for implementing schemes that improve and protect water quality. It recommends Defra and Ofwat ensure that within ten years the default approach to water quality improvement is the use of catchment improvements wherever practicable rather than 'end of pipe' solutions.

The Committee has also recommended that Defra commissions, and publishes within 12 months, an assessment of the possibility of requiring licensed water supply companies to deliver specific benefits to the natural environment. These should include commitments to water quality standards in river catchments, biodiversity improvements, carbon emissions reductions and improved water flow management.

The PES approach can also be applied to flood control, according to the report. Slowing upstream water flow can be “more effective and cheaper” than installing hard flood defences downstream. The report recommends that Defra commissions further research on the development of schemes where the flow of water can be regulated more effectively by the use of ecosystems management.

“These should include a focus on the potential for payments for ecosystems services to encourage landowners and farmers to adopt management practices which reduce the impacts of flooding on local communities,” says the report.

However, witnesses told the committee that the PES approach was largely still at a theoretical stage and that much more work needed to be undertaken to develop robust practical measures. Chris Knight, of PricewaterhouseCoopers said that a “translation from the theory of economic value of nature into economic instruments and financial incentives that get companies on board in delivering solutions to protect nature" was needed.

Some witnesses had suggestions for how the use of PES could be encouraged. Research Councils UK proposed "practical demonstration and feasibility projects". The organisation considered that these should involve businesses, local authorities, environmental organisations, farmers, landowners, citizens and schools with tool-kits developed by those who understand these sectors' needs and can provide a link between research and its application.

Environment minister Richard Benyon considered that government and regulators can drive and create a market for ecosystems services but, on the other hand, governments can sometimes "create more problems than they solve" in creating markets.

The Committee has recommended that the Government should establish staging posts towards a widespread adoption of payment for ecosystems services approaches.

For the White Paper as a whole, the report also tells Cabinet Office and Treasury Ministers that they must lead a cross-Government campaign to ensure that all government policy fully values natural capital. Government Ministers must also:

- Publish an action plan with a timetable to deliver each of the White Paper's 92 commitments

- Give planners and developers guidance on how the National Planning Policy Framework can be used to protect Nature Improvement Areas.

- Fully assess the benefits as well as the costs of environmental regulation, to prevent a perception that environmental protection imposes a drag on the UK economy.

- Publish the Government’s response to advice from the Natural Capital Committee and require the NCC to make an annual report to Parliament.