The rapid deterioration of the upper Akaki catchment natural environment has led to an increasing impact not only on the watershed ecosystem but also the livelihood and the general well-being of the local community. As a result, the water supply is becoming a problem for Addis Ababa and its surrounding residents. This may lead to a greater willingness to pay and cooperate in initiatives to protect the watersheds. Therefore, a market-based instrument and participatory arrangements are critical for resolving socioecological problems. This research aimed to demonstrate a need for an incentive-based watershed conservation approach that can be used to support nature conservation through long-term financial investments in the central watersheds and elsewhere. To support the market-based intervention, sealable ecosystem services and cost-benefit analysis, as well as relevant stakeholders, institutions, and legal frameworks, were assessed. The prime factors for designing market-based approaches to halt biodiversity loss and reversing ecological processes are discussed. A domestic water tariff increase of ETB 1 per m3 (US$ 0.08) could raise approximately US$ 3.24 million annually for watershed management, which could compensate smallholder farmers' annual opportunity costs for crop and livestock forage loss. Furthermore, the practice could help to abate biodiversity loss, improve the local economy, and accelerate the implementation of global biodiversity targets. Integr Environ Assess Manag 2023;00:1-10. © 2023 SETAC.
Keywords: Addis Ababa; Ecosystem services compensation; Ethiopia; Watershed.
© 2023 SETAC.