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This section provides examples of payment mechanisms in relation to hydrological services. The article of Virginia Reyes and co-authors starts with a brief introduction on the Costa Rican government programme for Payment of Environmental Services, and then focuses on the mechanism of voluntary agreements with hydro-electric power companies. Economic valuation is used to assist in the assessment of the amount of payment forest owners should receive for the maintenance of hydrological services. In The Philippines, hydro-electric power companies are also promoting reforestation activities of local communities, which is described by Danilo Mero. In Ecuador, the maintenance of the quality of drinking water is pursued by municipal water companies. In their article, Robert Hofstede and Montserrat Albán describe the mechanisms of water taxes and water funds for three Ecuadorian municipalities. Furthermore, we refer to the articles of Rob Hope and co-authors and of Diwakar Sinha (Section VII), in which maintenance of hydrological services also plays an important role.
By Virginia
Reyes1, Olman Segura1 & Pita Verweij2
1) International Center of Economic Policy for Sustainable
Development (CINPE), Universidad Nacional of Costa Rica
2) Copernicus Institute for Sustainable Development and Innovation, Utrecht
University, The Netherlands
In 1996 Costa Rica created Forest Law 7575 in order to accomplish new strategies to support the development of the forestry sector. This forest law evolved from a period of three decades of forest policies and introduced the concept of paying owners of forested property, or property in the process of reforestation, to compensate for the environmental services provided by their activities to society in general. The acknowledged environmental services include regulation of hydrological cycles, scenic beauty, carbon sequestration, and biodiversity conservation.
Payment
for Environmental Services
The implementation through a program of Payment for Environmental Services
(PES) comprises two types of mechanisms. Firstly, it includes monetary compensation
by Costa Rican society to private landowners either for maintenance of primary
forest, establishment of forestry plantations, or forest management. Secondly,
different types of voluntary agreement with hydropower companies were established
and they are in the process for a brewery company, several hotels and tourism
agencies.
From 1997 to end of 2000, the PES program included 251,226 hectares belonging to private landowners (4.9% of Costa Rican territory). Of these, 212,333 ha correspond to forest protection, 15,202 ha to forestry plantations and 23,691 ha to forest management. The forest owners receive payment from the National Forestry Finance Fund FONAFIFO that works with funds provided by the national government. Of the taxes collected from fossil fuels, 3.5% goes to FONAFIFO, which permits the compensation to private landowners. In addition, the existing voluntary agreements also provide financial resources, resulting in the payment of 17,611 ha.
Research
in support of PES
FONAFIFO needs a solid basis for negotiation of voluntary agreements. Both
the Forestry Law (1996) and Biodiversity Law (1998) define the criteria for
payment of environmental services but do not define the type of financial
instrument nor the monetary amount that should be paid. FONAFIFO should establish
these mechanisms on the basis of scientific studies, of which the following
is an example. The research project on "Parameters for the economic valuation
of the hydrological services provided by forest and forestry plantations in
Costa Rica" is currently developed by CINPE. This study reviews the Costa
Rican experience in the establishment of PES agreements for hydrological services
and develops economic valuation tools in order to create or renegotiate settlements
with private or governmental organisations.
Voluntary
agreements
Voluntary agreements can be classified into two categories. On one hand, there
are private agreements established between an NGO and a private company. An
example is the agreement since 1998 between the hydropower company La Esperanza
and the conservation organisation Asociación Conservacionista Monteverde,
where the company pays 10 US$/ha per year to the NGO for hydrological services
of forests in the Peñas Blancas watershed. On the other hand, FONAFIFO established
agreements with private companies. The following are three examples this kind
of settlements.
Fee on
drinking water
Another interesting case is the hydrological fee established in the year 2000
by the drinking water Company of Heredia in three minor watersheds in the
Central Valley of Costa Rica. There is no institutional agreement with FONAFIFO
or the Ministry of Environment. The company collects 0.0057 US$/m3 for consumed
water, to be reinvested in forest conservation and reforestation within the
same region.
Economic
valuation
The valuation study focuses on hydropower and domestic consumption, and aims
to estimate the value of the hydrological services provided by forests in
four watersheds: Peñas Blancas, Reventazón, Savegre and Pejibaye. The first
two rivers drain to the Atlantic coast and the other two to the Pacific coast
of Costa Rica. These watersheds are home to important communities, whose sources
of livelihood include coffee production, double-purpose and dairy cattle ranching,
forestry, and cultivation of flowers and ornamental plants. Furthermore, the
feasibility of setting up new hydropower plants is being evaluated for all
four rivers.
The study considers social, biophysical and economic aspects of valuation of environmental services. In order to estimate the economic value of the ecological services provided by forests, the costs of changing from the main agriculture activity to forest are assessed, as well as the costs of maintenance of forest cover. The opportunity costs include the costs and benefits of forestry activities and environmental education. Market prices are used as these are based on available and reliable data.
Valuation
results
A range of values has been estimated for the overall ecological services provided
by forests in the four watersheds. Based on replacement and maintenance cost,
these values (Note the values correspond to the present value
of the net benefits (discount 9.8%)) are estimated at 100 US$/ha per
year for Peñas Blancas, 133 US$/ha per year for Reventazón, 138 US$/ha per
year for Savegre, and 176 US$/ha per year for the Pejibaye watershed. This
implies that if the provision of hydrological services is to be guaranteed
in the long term, the landowners would have to receive at least 100 US$/ha
per year in terms of additional income in order to protect forest cover or
commit themselves to reforestation activities.
Of course hydropower companies would be willing to pay only for the hydrological services related to hydropower generation. If other forest ecological services would also be paid for, by means of benefits from ecotourism, carbon sequestration or biodiversity conservation, the amount could increase to meet the opportunity cost. However, in the case of Pejibaye watershed for instance, it should be questioned whether the internalisation of benefits from forest cover could form a competitive alternative to the current highly profitable coffee cultivation activities. There, it seems worthwhile to explore the possibilities of adaptation of the existing land use (e.g. by changing to coffee with shade trees).
Perspectives
The research will result in the description of proper mechanisms for implementation
of PES in relation to hydrological services. It will provide tools in support
of policy mechanisms that will encourage FONAFIFO negotiations with private
and governmental organisations that consume water. In a broader sense, it
will generate practical recommendations to policy makers of Costa Rica and
other countries involved in the development of financing instruments in order
to improve the effectiveness of local and national forestry strategies.
Comments
are welcome. For further information please contact:
Virginia Reyes or Olman Segura
Centro Internacional de Política Económica para el Desarrollo Sostenible (CINPE)
Universidad Nacional
P.O.Box 555-3000, Heredia, Costa Rica
E-mail: mreyes@una.ac.cr osegura@una.ac.cr
By Danilo C. Mero
In 1992, the National Power Corporation (NPC), a government operated and controlled corporation, secured funds for the development of about 1,000 hectares of tree farms within the Lake Lanao – Agus River watershed reservation in Lanao del Sur, Philippines. A financial contribution of about 1.1 million US$ was made by the Mindanao Association of Electric Cooperatives. This amount represents corporate investment of industries and utilities for the improvement of hydro-electric power generation. It was used to finance development activities in reforestation and environmental rehabilitation for improved water yield, in determined areas within the watershed reservation. A description of the highlights of the said project can probably lead to a better understanding of the socio-economic issues and concerns in watershed management.
Objectives
of tree farm development
The general aim of the reforestation project was to ensure stable hydro-electric
power generation of the Agus plants through improved water yield of the Lake
Lanao – Agus River watershed reservation on a sustainable basis. The specific
objectives of the project were:
NPC played a key role in the watershed management of the Lake Lanao – Agus River area. This role can be viewed from two different angles. In the first place, their interest was of course to sustain the operation of the six Agus hydro-electric power plants, which according to NPC was linked with an internal corporate drive towards environmental excellence. Secondly, they played a role as a catalyst in the process towards balanced overall development within the Lake Lanao – Agus River watershed and the Island of Mindanao. NPC's linkages with and active participation in the Lake Lanao Watershed Protection and Development Council proved to be elemental in achieving this.
Community
participation in reforestation
Community participation was ensured after six to nine months of social preparation
prior to the initiation of the project. More than 150 individual cooperators
representing their households participated by way of a contract for the development
of their area into tree farms. Technical support and assistance was provided
by the Paper Industries Corporation of the Philippines (PICOP). More than 1,500
hectares of private land were developed into tree farms and were planted with
Acacia mangium, Durio zibethenus and other indigenous tree species. Non-cooperators
requested seedlings from the project for their own reforestation activities,
thus supporting the project.
Post-project monitoring and evaluation of the established tree farms indicated a very high tree survival rate of 98 percent and favorable growth rates. In 1996, the project was transferred by PICOP to NPC who then continued the rehabilitation effort through internal funds. By the year 2001, most of the Acacia mangium trees are of harvestable age. NPC is in the process of assisting the tree farmers in the optimal utilization of their trees. This innovative experience in financing reforestation is much of a success story, overshadowing the government's performance related to efforts by the Department of Environment and Natural Resources.
For further
information, please contact:
Prof. Danilo C. Mero
College of Forestry and Environmental Studies, Mindanao State University
Marawi City 9700,
Philippines
Tel.: +63-063-520978, Fax: +63-063-520959
E-mail: danmero@eudoramail.com
By Robert Hofstede and Montserrat Albán
In Ecuador, a small country with a high biodiversity in the Northwest of the South American continent, almost the entire population of 12 million people depends on the environmental services provided by the Andean natural ecosystems. Particularly the fresh water supply, regulated by 30,000 km2 of remaining Andean forests and 12,600 km2 of high altitude páramo grasslands, is of utmost importance for irrigation, drinking water and electric power generation. Nevertheless, the pressure on the natural areas of the Andes is high and destruction of forests and páramos is a major threat to the sustainable production of areas downslope.
Different initiatives are being developed to provide local farmers with an alternative to unsustainable forest and páramo management. In three municipalities of different size, systems of payment for environmental services are being implemented. The purpose is to assure nature conservation for the regulation of water flows. Probably due to the differences in local reality (different size of the municipalities and different economical, historical and institutional contexts), each of the three mechanisms is unique and they have different levels of success and disadvantages.
In Quito, an estimated population of two million people benefits from the water that originates from the páramos in five protected areas around the city. Supported by several local NGOs, international donors and the Ministry of the Environment, the municipal water company (EMAAP-Q) identified the need for integrated and long-term management of these protected areas. The conservation of this so-called "Bioreserva del Condor" should be executed by local organizations and with participation of the landowners, according to a collectively developed management plan. The implementation of the management plan was to be financed by the interests of the "Fondo de Agua" or water fund created in 1998 (Echavarría & Granizo, 2000). This fund received an initial donation of international donors and is planned to increase by a levy of (on average) 1% on the price of drinking water and by voluntary donations of major water consumers in agriculture and industry. The structure of the water fund appears to be promising, efficient and transparent. Furthermore, the decision to invest into conservation activities instead of a direct payment to landowners for conservation is well chosen in this area. Nevertheless, the fund is still far too small to generate sufficient interest. A strong economic recession struck Ecuador shortly after the creation of the Fund, decreasing the willingness to pay of the city inhabitants and large consumers, and no agreement could be reached on the percentage of the raise.
In Cuenca, a city of 300,000 inhabitants in the South of the Ecuadorian Andes, the municipal water company (ETAPA) achieved an initial 7% raise of the gross water price in 1996, which was directed to their environmental unit. The money was used to purchase three areas of natural Andean forests and páramo grassland in the buffer zone of the El Cajas national park, which covers a large part of the catchment area for drinking water of Cuenca (Turcotte et al., 1999). The three reserves, comprising 9000 ha are fully protected, allowing only limited recreation activities. Since 2000, the Ministry of the Environment transferred the responsibility for management of the entire El Cajas national park to the Municipality of Cuenca. The management is executed by ETAPA. In this experience, the protection of natural areas appears to be assured, but voices of discontent among local inhabitants are notable due to the narrow focus on water resources and the status of absolute protection.
In the North of Ecuador, the small municipality of Pimampiro (22,000 inhabitants) did not have a proper drinking water system. Most inhabitants received water only during two hours every day. By digging a tunnel, water became available from a spring at a distance of 15 km, located in an Andean mountain forest. This increased the service to six hours per day. Meanwhile, the environmental division of the municipality created the "Fund for the Payment for Environmental Services", assisted by a local NGO for rural development (CEDERENA et al., 2001). This fund received an initial 15,000 US$ of international donations, and is growing through a 20% levy on the price of drinking water. The population's willingness to pay is high because of the strongly improved water service. The interest of the fund is divided among the landowners of the capture area, under an umbrella agreement defining a sustainable management scheme for the area. The payment equals to 1 US$ per month per hectare of forest, and 0.50 US$ per hectare of páramo grassland. The implementation of the system started in June 2001 and received many positive reactions. However, the fund is still not large enough to pay all farmers, and those who receive compensation complain that it is insufficient.
These three examples all represent initiatives in which charges on water consumption are directly invested into the conservation of forests and páramo grasslands in the watersheds concerned. The mechanisms differ in the way of financing (through a water fund versus direct revenues), the actors involved (international donors, NGOs, municipalities, Ministry of the Environment) and the destination of the money (conservation activities, purchase of land and direct payment to landowners). Probably, the mechanism of Quito is the most promising on the long term, that of Cuenca the most efficient in terms of actual conservation, and that of Pimampiro the most socially justified. The main lesson is that none of the systems is perfect but that each of the initiatives is adapted to a specific local reality: successful experiences are therefore only in part applicable to other areas.
For further
information, please contact:
Robert Hofstede Proyecto Paramo - University of Amsterdam
Últimas Noticias N37-78 y El Comercio
Quito, Ecuador
E-mail: ecopar1@uio.satnet.net
References:
CEDERENA, Municipio de Pimampiro, FIA, 2001. Unidad de Medio Ambiente y Turismo,
Boletín No. 1, Mayo 2001. Pimampiro, Ecuador.
Echavarría, M. & T. Granizo, 2000. Valoración del agua en los páramos. Pp. 174-175 in: J. Recharte, J. Torres & G. Medina (Eds.), II Conferencia electrónica sobre usos sostenibles y conservación del ecosistema páramo en los Andes. CONDESAN, Mountain Forum.
Turcotte, P., L. Medina, C. Díaz & A. Peralta, 1999. Metodologías aplicadas para el manejo y conservación de los páramos con énfasis en el recurso agua: la experiencia de ETAPA. Pp. 5-14 in: C. Josse, P. Mena & G. Medina (Eds), El páramo como fuente de recursos hídricos. Serie Páramo 3, GTP/Abya Yala, Quito, Ecuador.