Stefano Pagiola Environment Department World Bank

1. Payments for Environmental Services and the Poor:Initial Lessons and Guidelines(a work in progress) Stefano Pagiola Environment Department World Bank Workshop on Environmental Services for Poverty Reduction and Food Security FAO, Roma 30-31 May, 2005

2. The logic of Payments for Environmental Services (PES) Conservation with payment for service Payment Costs to downstream populations Deforestation and use for pasture Conservation Benefits to land users Payments for environmental services and the poor • PES payments are payments to land use • Participation is voluntary

3. World Bank PES projects Projects under implementation: • Costa Rica: Ecomarkets Project (US$33 million WB + US$8 million GEF) • Colombia/Costa Rica/Nicaragua: Regional Integrated Silvopastoral Ecosystem Management Project (US$4.5 million GEF) • South Africa: Cape Action Plan for the Environment (CAPE) (US$9 million GEF) Projects under preparation: • Bolivia: Support for the National Protected Areas System Project • Costa Rica: Sustaining and Mainstreaming Ecomarkets Project • El Salvador: Environmental Services Project • Mexico: Environmental Services of the Forest Project • Panama: Rural Poverty and Natural Resource Management II Project • Venezuela: Canaima National Park Project Capacity building: • Courses in Colombia, Dominican Republic, Ecuador, El Salvador, Mexico, Panama, Peru, Senegal, South Africa, Venezuela Research: • Case studies • Hydrological aspects • Valuation Payments for environmental services and the poor

4. Poverty and PES • PES is not intended as a poverty reduction mechanism • Hope that it will do so • Spatial correlation between poor areas and areas that provide environmental services • Payments to poor land users provide them with additional income • Fears that it may do some harm • Exacerbate tenure problems • Impact on non-participants Payments for environmental services and the poor

5. Factors that affect household participation in PES programs PES program characteristics Household characteristics Yes In target part of the watershed? Yes Eligible to participate In target watershed? Degree of targeting Location of plots Payments for environmental services and the poor Source: Pagiola et al., 2005

6. Factors that affect household participation in PES programs PES program characteristics Household characteristics Payment offered Opportunity cost of land Transaction costs imposed on participants Yes Household strategy Fits in farming system? Characteristics of PES practice Size of holding Current land use practices Yes Want to participate Eligible to participate Yes PES practice profitable? (with payment) Payments for environmental services and the poor Source: Pagiola et al., 2005

7. Factors that affect household participation in PES programs PES program characteristics Want to participate Household characteristics Yes Security of tenure Time horizon of PES practices Yes Investment requirements of PES practices Assets, savings, other income, remittances Able to invest? No Land title, other collateral Yes Access to credit? Yes Technical difficulty of PES practices Able to undertake PES practices? Experience Education No Access to TA? Yes Yes Able to participate Has secure tenure? Payments for environmental services and the poor Source: Pagiola et al., 2005

8. Poverty and PES: Key questions • Who are actual and potential participants in PES, and how many of them are poor? • Are the poor able to participate in PES? • Household’s constraints • Program’s constraints • What are the impacts of PES? • On participants • On non-participants Payments for environmental services and the poor

9. Who are actual and potential participants in PES? • Upstream service providers • Receive payments • Many are poor • Downstream service users • Make payments • Tend to be better off Payments for environmental services and the poor

10. Poverty and PES: Research hypotheses Payments for environmental services and the poor

11. Eligibility to participate • Are the poor in areas that provide environmental services? • At the watershed scale? • Within watersheds? Payments for environmental services and the poor

12. Guatemala:Poverty rate by watershed Payments for environmental services and the poor Source: Colom and Pagiola, 2005, based on Nelson and Chomitz, 2002

13. Guatemala:Watersheds with hydropower plants Payments for environmental services and the poor Source: Colom and Pagiola, 2005

14. Guatemala:Watersheds with irrigation Payments for environmental services and the poor Source: Colom and Pagiola, 2005

15. Guatemala:Watersheds with significant domestic water use Payments for environmental services and the poor Source: Colom and Pagiola, 2005

16. Guatemala:Watersheds with protected areas Payments for environmental services and the poor Source: Colom and Pagiola, 2005

17. Guatemala:Poverty rate in watersheds with Hydropower Payments for environmental services and the poor Source: Colom and Pagiola, 2005

18. Guatemala:Poverty rate in watersheds with irrigation Payments for environmental services and the poor Source: Colom and Pagiola, 2005

19. El Salvador:Lago Coatepeque: Targeting within a watershed • Average poverty rate low • Rich villa owners • Coffee estates • Most areas that need conservation are farmed by poor households Payments for environmental services and the poor

20. Eligibility to participate • Are the poor in areas that provide environmental services? • Watershed scale: Very little correlation between poverty and areas that provide water services • Within watersheds: Depends on the service sought Payments for environmental services and the poor

21. Can the poor participate in PES programs?Evidence from the Silvopastoral Project Income level of program participants Matiguás-Río Blanco, Nicaragua Payments for environmental services and the poor Source: Silvopastoral project data

22. Can the poor participate in PES programs?Evidence from the Silvopastoral Project PES program participants Matiguás-Río Blanco, Nicaragua Payments for environmental services and the poor Source: Silvopastoral project data

23. Can the poor participate in PES programs?Evidence from the Silvopastoral Project Establishment costs of selected silvopastoral practices Matiguás-Río Blanco, Nicaragua Payments for environmental services and the poor Source: Gobbi, 2005

24. Can the poor participate in PES programs?Evidence from the Silvopastoral Project Land use change in Matiguás-Río Blanco, Nicaragua Payments for environmental services and the poor Source: Silvopastoral project data

25. Indirect impacts on non-participants • PES are payments to land use, so landless will not benefit directly • If conservation practices encouraged under PES are less labor-intensive, landless may be harmed • Costa Rica PSA: Focus on forest conservation may reduce labor demand • WB/GEF Regional Silvopastoral Project: Silvopastoral practices more labor-intensive than extensive grazing Payments for environmental services and the poor

26. How much do participants benefit from PES?Limited empirical evidence to date • Costa Rica: • Cordillera Volcánica Central: Most participants urban dwellers, payments are <10% of income (but: biased sample) • Huetar Norte: Most participants poor • Ecuador: • Pinampiro: payments US$21/month/household • Silvopastoral project: • Projections show income increase, but too early to confirm Payments for environmental services and the poor

27. How much do participants benefit from PES?Projections in silvopastoral project Payments for environmental services and the poor Note: 20ha farm in Nicaragua Source: Pagiola et al., 2004

28. How much do participants benefit from PES? Benefit to payees Benefits to land users Minimum WTA Costs to downstream populations Maximum WTP • Need better studies • Measure benefits, not payments • Population sample frame rather than participants Deforestation and use for pasture Conservation Conservation with payment for service Payments for environmental services and the poor Payment

29. Poverty and PES: Preliminary Conclusions • Important: PES are not poverty reduction programs • Trying to make them be poverty reduction programs can undermine them • But can try to maximize positive impacts/minimize adverse impacts • Many land users are poor and payments can improve their welfare • Extent to which PES affects the poor, the impact on their livelihood, are empirical issues, likely very case-specific • Need to ensure that the poor can participate • Appropriate contract design • Support to participants • Worry about: tenure, labor market impacts Payments for environmental services and the poor

30. Guidelines for PES:Ensure the poor can participate • Design contracts appropriately • Don’t impose high transaction costs on participants • Design low-transaction cost contracting and monitoring • Front-load payments when investment required • Beware case-specific hurdles • Provide support to smallholders • Overcome high transaction costs (eg thru organization) • Technical assistance • Access to credit, inputs • Support in resolving tenure problems • Fund community-level activities? • Reduce labor market impacts Payments for environmental services and the poor