2. 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

4. 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

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

6. 1940 0 500 1000 1500 2000 2500 3000 3500 4000 195019601970198019902000 Forest Cover (ha.) Protected Areas (ha.) Population (No. habit.) Hectares w/ no. inhabitants X 1000 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  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) Evolution of Trends

8. 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 $ervice$

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

13. 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 Determining Levels of Payment Based on the Opportunity Cost of Land Payment >= OCL

14. Modalities & Distribution of Payment (2001)

15. Types of Forest Conservation Contracts

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

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

19. 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

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

21. Structure of the Environmentally adjusted water fee for the Public Utilities Company of Heredia. 1999 (¢/m 3 ) 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

22. Watershed environmental service

23. 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

24. 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