The Use of Market Instruments to Pay for Environmental Services in Costa Rica
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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. 800. 700. 600. 500. Coffee. Banana. Meat. 400. US$ Millions. Forestry. Tourism. 300. 200. 100. 0.

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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


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800 Services in Costa Rica

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



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Forest Cover (ha.) Services in Costa Rica

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


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Sustainable Development Challenges Services in Costa Rica

  • 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 $ervice$


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COSTA RICANS & THE Services in Costa Rica

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


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Determining Levels of Payment Services in Costa Rica

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


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Modalities & Services in Costa Rica

Distribution of Payment (2001)


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Types of Forest Services in Costa RicaConservation Contracts



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Results of the PES Services in Costa Rica

  • High demand and acceptance

  • Contributes to reduce & revert deforestation

  • Increases forest cover in private land


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Obstacles Services in Costa Rica

  • 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


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Alternative, Private Schemes Services in Costa Rica

  • Descentralized / local empowerment

  • Complementary, but independent

  • Upstream - downstream relation

  • Watershed management

  • Hydropower sector

  • Public utilities / water supply / industry


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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


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Watershed environmental service Public Utilities Company of Heredia. 1999


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Lessons Public Utilities Company of Heredia. 1999

  • 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


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A New Paradigm of Environmental Services Public Utilities Company of Heredia. 1999

  • 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


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