The Use of Market Instruments to Pay for Environmental Services in Costa Rica presented by Luis Gamez Advisor, Ministry

1. The Use of Market Instruments to Pay for Environmental Services in Costa Rica presented by Luis Gamez Advisor, Ministry of Environment of Costa Rica Beijing, China April 22, 2001

3. 800 700 600 500 Coffee Banana Meat 400 US$ Millions Forestry Tourism 300 200 100 0 1950 1956 1959 1962 1965 1971 1974 1977 1980 1986 1995 1953 1968 1983 1989 1992 Year Export values from forestry and selected agricultural products. Tourism revenues.Costa Rica 1950-1997 Adaptado de: Watson, V etal. Making space for butter forestry. Policy that works for forest and people. No. 6. CCT, IIED, JUNCAFORCA.1998

4. Loss of Dense Forest Cover in Costa Rica 1940-1990

5. Forest Cover (ha.) 4000 Protected Areas (ha.) Population (No. habit.) 3500 • 1941 Laws for landuse change • 1960 Extensive cattle-raising for exports • 1969 Forestr Law (4465) • 1977 Ntl. Park Service Law (6084) • 1979 Forestry Incentives • 1986 Creation of Min. Environment • 1989 ECODES e INBio • 1990 II Forestry Law (7174); (Forestry Action Planl) • 1992 Wildlife Law (7317) • 1995 Envionment Law (7554) • 1996 New Forestry Law & Environmental Services (7575) • 1998 Biodiversity Law (7788) 3000 2500 2000 Hectares w/ no. inhabitants X 1000 1500 1000 500 0 1940 1950 1960 1970 1980 1990 2000 Years Source: - MIDEPLAN. Principales indicadores de Costa Rica. San José. Costa Rica. 1998 - Watson, U. etal. Making space for better forestry. Policy that works for forest and people. No 6. CCT, IIED, JUNAFORCA.1998 - MINAE - FONAFIFO, Costa Rica hacia la sostenibilidad de sus recursos forestales.1998 Evolution of Trends

7. Sustainable Development Challenges • Appropriate legal & institutional framework • Consolidation of well established national system of protected areas (state) but, how to induce change in behavior to conserve forest in private lands? • Forestry: sustainable management, reverse deforestation & increase forest cover • involve & increase private sector and civil society participation in cost & benefits of conservation • Economic instruments: value of environmental $ervice$

11. COSTA RICANS & THE GLOBAL COMMUNITY FONAFIFO SINAC ENV. SERVICES IDENTIFICATION OF PRIORITY AREAS CONTRACT MONITORING FINANCIAL INSTRUMENT IN BNCR LAND OWNERS REFORESTATION FOREST MANAGEMENT FOREST PROTECTION MINISTRY OF FINANCE PAYMENTS GASOLINE TAX VOLUNTARY AGREEMENTS

12. Determining Levels of Payment Based on the Opportunity Cost of Land Payment >= OCL • Grazing land is the major competitor to forest conservation • What is the OCL for dairy and cattle ranching? • Measure ~ cost of rental 1 Ha. for pasture • Market value = acceptable income / Ha. of benefits foregone

13. Modalities & Distribution of Payment (2001)

14. Types of Forest Conservation Contracts

15. Total Area and Number of Contracts by Modality and Year

17. Results of the PES • High demand and acceptance • Contributes to reduce & revert deforestation • Increases forest cover in private land

18. Obstacles • Financial “bottlenecks” • subject to central government administration by the Ministry of Finance (‘detoured’) • only one third of dedicated fuel tax revenues are assigned yearly • Evaluation & targeting: competing conservation vs. forestry sector goals limited participation possibilities / transaction costs • Monitoring • understaffed / overload of duties • certification problems / corruption

19. Alternative, Private Schemes • Descentralized / local empowerment • Complementary, but independent • Upstream - downstream relation • Watershed management • Hydropower sector • Public utilities / water supply / industry

20. Structure of the Environmentally adjusted water fee for the Public Utilities Company of Heredia. 1999 (¢/m3) Exchange rate: 1 US$= 334 colones Additional revenues raised for reinvesting into local catchment area Low financial impact on end user Low cost investment/ high benefit Locally supported and funded

21. Watershed environmental service

22. Lessons • PES can become driver for positive impacts • Increase & protect forest cover in private land while generating additional revenues for landowner • Stimulates management and reforestation • Shows potential in economic opportunities for public-private partnerships in achieving conservation goals. • Drives public interest and awareness in conservation • Increases perception of the economic value of environmental services • Enables interest and participation in payments & compensation • Creative sources of funding

23. A New Paradigm of Environmental Services • Public and Private PES schemes are highly complementary and not mutually exclusive. • Therefore coexistance must be enabled but coordinated. The role of the government environmental authority is as promotor. • Direct payment schemes assist in local solution of conservation problems by sharing costs & benefits with end-users of environmental services like water. • Success dependent upon for political openess to NGO and private sector participation. • Major weaknesses are related to complex and centralized government financial management • PES should be conceived within a wider environmental finance strategy, but not as substitute