The purpose of this paper is to help innovators — be they forest owners, investors, policy makers or those who are suffering the off-site effects of degradation — understand the basic opportunities and issues posed by direct investment in forest services. The paper complements the work of others who have reviewed innovative tax policies and other fiscal approaches to forest services. It draws on the combined experience of The Katoomba Group, a collection of international experts engaged in developing markets for forest services. The paper first describes the principle ecosystem services provided by forests and how market approaches can assist in conserving these services. The types of financial mechanisms currently in practice, the ways in which these mechanisms develop and the key questions used to evaluate these markets are then presented. The conclusion provides perspective on the steps needed to fully develop and expand markets for forest services.
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