2. Development of PES conceptDevelopment of PES concept Development of PES programDevelopment of PES program ImplementationImplementation OperationOperation Results: First two yearsResults: First two years Lessons learnedLessons learned Future research agendaFuture research agenda OUTLINE

3. Development of the PES Concept NGO’s PES Program appeared after it had a legal framework.PES Program appeared after it had a legal framework. Successful examples (FOCAT, Scolel-Té) Planning Tools (SFP 2025) Environmental Agency (SEMARNAT) Forest Law with PES Concept (2002) Forest Agency CONAFOR

4. Development of the PES program 2001 NEW ADMINISTRATION Objectives Crusade for Forests and Water Environmental Education 2002 Link Projects for Rural Sustainable Development Environmental Services Strategy NEGOTIATION TEAM: TECHNICAL TEAM PES PROGRAM (18.2 M US$) PROCAMPO Ecológico (2.5 M US$) The negotiation team tried to link different programs with “common” objectives and to add financial supportThe negotiation team tried to link different programs with “common” objectives and to add financial support

5. Actors in the final negotiation End of 2002 SEMARNAT Environmental Services Strategy TREASURY and CNA Failed negotiation of program characteristics CONAFOR Negotiation CONGRESS CNA Technical group INE RESOLUTION ON PES ▫ The payment should be Considered a Subsidy Program ▫ CONAFOR is designed the Operational Agent ▫ Budget obtained from Municipal Water Use Fees Final lobbying required the intervention of strong political actors.Final lobbying required the intervention of strong political actors. Fail to include important actors in the negotiation originated additional constraints for the program.Fail to include important actors in the negotiation originated additional constraints for the program.

6. Financing PES Water Use Fees (Treasury) Investment In Infrastructure (Municipalities) Strategic Planning & Water administration (CNA) 2.5% of the Budget to PES-H (Fixed to US$18.2M) Private Sector Municipality Budget to PES-H + Water Users The PES program is managed by Government agencies but the money comes from the private sectorThe PES program is managed by Government agencies but the money comes from the private sector

7. Implementation Rules of Operation Negotiation Evaluation and selection of applications PES-H Promotion Processing of Satellite images Design and Operation of The Forestry Trust Fund Sign Contracts & make Payments 2003 Long negotiation to derive rules of operation due to unclear instrument, many objectives and the presence of several interest groups with negotiation power.Long negotiation to derive rules of operation due to unclear instrument, many objectives and the presence of several interest groups with negotiation power. Implementation by the operational agency did not defined a special team. Promotion was done with traditional agency’s clients and without clear objectives.Implementation by the operational agency did not defined a special team. Promotion was done with traditional agency’s clients and without clear objectives. Many implementation tasks were rushed and there was no standard procedure. Hence there were misinterpretations and delays.Many implementation tasks were rushed and there was no standard procedure. Hence there were misinterpretations and delays.

8. Operation (I) : Targeting Criteria Pilot program with an Experimental Design Focused on water services Beneficiaries ejidos and comunidades located in priority watersheds Overexploited Serving large populations Other selection criteria: Forest cover Clear property rights Ecosystem type Marginalization Priority given to forest with high deforestation Original Proposal (SEMARNAT/INE)Final Targeting (SEMARNAT/CONAFOR) Nation wide program Rules of operation Establishment of a Trust Fund Focused on water services Beneficiaries augmented to include private owners Added selection criteria Priority mountains Availability of satellite image Protected areas Subtracted selection criteria Marginalization Deforestation risk

9. Operation (II) : Contract Five year contract with a cap (200 ha for commercial forest and 4,000 for a noncommercial forest). For some regions the contract included the conservation of the total forest area. Mesophylic forest paid more (US$37/ha vs US$27/ha). Payments only given to hectares with more than 80% of forest cover. Must keep forest cover in the same condition as the date the contract is signed. No obligation for conservation activities. Contingencies possible under supervision by the agent. Participants should receive the payment ahead before deliver the service.

10. Results: First Two Years (Negative) 77% of payments given to temperate forests while only 23% went to tropical forests where the highest deforestation is observed. Mesophylic forest obtained a proportionally larger share. 50%-70% given to hectares with low risk of deforestation 70-80% given to areas with high, but not the highest, poverty rates Most of the participants not located in areas with high priority according to water scarcity criteria.

11. Demand for the program bigger than supply (only 29% of applications accepted). Rejected applications often did not meet technical and monitoring requirements. Ejidos and comunities account for 47% of the applications but for 93% of the area under contract. Almost 20% of participants invested payments in conservation activities and equipment. 20%-30% of participants complained about restrictions on harvesting or land use change. Results: First Two Years (Positive)

12. Results: First Year Poverty There is a coincidental overlap between PES program and povertyThere is a coincidental overlap between PES program and poverty

13. Lessons learned (I) Design Clearly defined and measurable service. Clear Legal background for program implementation is essential. Clearly defined program (objective, instrument). Avoid lobbying/promotional activities w/o a good design. Include most of the important agents in the design. Implementing agency’s (provider) objectives must be aligned with program objectives. Private sector participation must be considered in the design

14. Lessons learned (II) Operation Objectives must be clear for clients Prepare operational team implementing program Eligibility criteria must be clearly defined and interpreted by the provider Clearly defined accountability mechanisms

15. Lessons learned (III) Financing Ensuring budget for “long term” contracts is important. Sustainability must be guaranteed without public funding. Link between source of budget and incidence of benefits is important. Targeting Eligibility criteria must be aligned with single objectives and monitoring strategy slippageDevelop a well defined contract to avoid slippage

16. Future Research Agenda  How to design PES contracts with Forest Communities (Ejidos).  Impact Analysis on ongoing PES program o Develop a GIS observatory o Follow up surveys  Calibration of payments o Contingent evaluation o Experimentation