This report describes an action-learning project led by the Caribbean Natural Resources Institute (CANARI) that strengthened the capacity of national and regional institutions to assess the potential of economic instruments to improve the quality and delivery of watershed services in the Caribbean. It focuses on project sites and case studies in Jamaica, Saint Lucia, Grenada, Trinidad and Tobago, and Saint Vincent and the Grenadines, while drawing on lessons of wider regional and international interest.

Where benefits and costs accrue at different scales, financial intermediaries are needed to facilitate relations between global-scale buyers and local-scale providers of carbon sequestration and storage. These intermediaries can help to collect and distribute payments and to promote the scheme to potential beneficiaries. The benefits distributed should compensate for the transaction, opportunity and implementation costs incurred by stakeholders for providing ecosystem services. Therefore, calculating the costs and understanding who incurs them are essential for benefit sharing. Targeting benefits according to a set of criteria that match the objectives of the specific mechanism increases the mechanism’s efficiency. As the level of performance-based payments may not be able to compete with the opportunity costs of highly profitable land uses, performance-related benefit-sharing mechanisms should be focused on areas with moderate opportunity costs. Benefits should be divided into upfront payments to cover startup costs and to give an initial incentive for participation, and payments upon delivery of ecosystem services to ensure adherence to conditionality.