payments for environmental services from theory to practice · stefano pagiola, world bank, 2009....

Stefano PagiolaWorld Bank1818 H Str NWWashington DC [email protected]

The opinions expressed in this presentation are the author’s own and do not necessarily represent those of the World Bank Group.

The materials in this presentation may be freely reproduced with appropriatecredit to the author and the World Bank.

Stefano PagiolaLatin America and Caribbean Sustainable Development DepartmentWorld Bank

Market-based instruments and Payments for Environmental Services in forestryBarcelona, Spain – 17 December 2009

Lessons learnt from existing Payments for Environmental Services schemes

mailto:[email protected]

Stefano Pagiola, World Bank, 2009 2

World Bank support to Payments for Environmental Services

Completed projects:Costa Rica: EcomarketsColombia/Costa Rica/Nicaragua: Regional Integrated Silvopastoral Ecosystem Management

Projects under implementation:Brazil: Sao Paulo Riparian ZonesBrazil: Espírito Santo Biodiversity and Watershed RestorationCosta Rica: Mainstreaming Market-Based Instruments for Environmental ManagementMexico: Environmental ServicesPanama: Consolidation of the Atlantic Mesoamerican Biological CorridorWorldwide: LULUCF carbon projects

Projects under preparation:Colombia: Mainstreaming Sustainable Cattle RanchingBrazil: Sao Paulo Sustainable Rural DevelopmentKenya: Agricultural Productivity and Sustainable Land Management

Capacity building: Courses in Colombia, Dominican Republic, Ecuador, El Salvador, Mexico, Panama, Peru, Venezuela

Research: Case studies; Hydrological aspects; Poverty links; Valuation


2. Charging service users

… and the economics1. Understanding the science…

From theory to practice

3. Paying service providers

Payment

Irrigation

Land users

Hydrological effects

Farmers

Hydropowerproduction

Domestic water supply

Electricity users

Water users

Water usersassociation

Hydropowerproducer

Water company

4. Establishing the institutional framework


1. Identifying and valuing environmental services


What services are needed?

Data source: CESAN

Carapina Water Treatment Station, Vitória, Espírito Santo, Brazil


Water services: key characteristic

Water flows downhill


High potential payments

Low potential payments

Irrigation

Hydroelectricproduction

98MW

52MW

64MWPotable water

6 m3/sec

Río Nizao

Río Ocoa

Dominican Republic

Water services vary substantially


Guatemala: Watersheds with hydroelectric power plantsGuatemala: Watersheds with large-scale irrigationGuatemala: Watersheds with domestic water use (>1000 hhs)

Where are the services?

Source: Pagiola, Zhang, and Colom, 2007

Guatemala: Watersheds with significant potential for water PES

1.9 million ha


Targeting within a watershed

HRU18

HRU02

0609

12

2203

19

Eros

ion

(t/h

a/ye

ar)

0 5 10 15 20 25Area (ha)

130

50

0

100

Erosion in critical areas of Mishquiyacu watershed, Peru

Source: Quintero, Wunder, and Estrada, 2009

Others

• 23 Hydrological Response Units (3% of the watershed) produce 26% of total sediment

• 1 HRU(1% of the watershed) produces 17% of total sediment


Links between forests and water services: Myths and reality

Myth: Forests increase precipitationReality: Minor effect, except at continental scale

Myth: Forests slow runoffReality: True

Myth: Forests increase total annual water flowReality: Because of increased evapotranspiration, forests usually reduce total

annual water flow. Exception: Cloud forests

Myth: Forests increase water flow in the dry seasonReality: Unclear

Myth: Forests reduce floodingReality: True at small scales, not at large scales

Myth: Forests reduce erosionReality: Depends on use that is made of deforested areas


Links between land use and water services: How much do we know?

ServiceQualitative

understanding Ability to quantify

Total water quantity Good Medium

Dry season water flow Poor Poor

Flood risk Medium Poor

Water quality Good Poor

Sediment loads Good Medium/high


2. Charging

service users


Financing requirements

Up-front costs of creating the mechanismIdentifying and quantifying services

Creating payment arrangements

Payments to service providersPayments usually need to be long-term

Transaction costs of running the mechanismContracting, monitoring, administration, etc

Must be paid by service users


Charging service users

Easiest when beneficiariesAre easy to identifyAre already organized

Easier to negotiate agreementsAlready have payment mechanisms

Are fewReceive well-defined benefits


Why should service users pay?

Data source: CESAN

• Paying for conservation must be cheaper than the best alternative

• Users must think so

Additional investment

Additional operating costs+ Cost of interruptions

Carapina Water Treatment Station, Vitória, Espírito Santo, Brazil


Water users do pay

Hydropower producer

Domestic water supplyBottler

Irrigated agricultureHotel

10

15/30

40

45+22

45

(US$/ha/yr): Total 18,000haca US$500,000/year

40

40

45

45

Energía Global

Platanar S.A.

CNFL/Río Aranjuez

CNFL/Río Balsa

CNFL/Río Laguna Cote

Florida Ice & Farm y Heredia ESPH

Azucarera El Viejo

Hidroeléctrica Agua Zarcas

Misc

0ha 2,000 ha 4,000 ha 6,000 ha

Renewed 2002

Renewed 2004


Country CaseCharged a

new fee?

Costa Rica: Water users with contracts with FONAFIFOHeredia ESPH

NoYes

Ecuador: EMAAP-Q and EEQ: contributions to FONAGETAPA: Management of Cajas NPPimampiro

NoYesNo

El Salvador: San Francisco de Menéndez, Yamabal No

México: México PSAHCoatepec

NoYes

Venezuela: CVG-Edelca: payments for conservation of Río Caroní No

Who is actually paying?

In most cases, existing revenues are used to make payments


How much should service users pay?

Maximum: value of the benefit

Benefits to land users

Costs to downstream populations

Deforestation and use for

pasture

Conservation Conservation with payment

for service

Payment

Maximum payment(including transaction costs)


3. Paying service providers


Who should be paid?

Río Blanco-Quimiagirrigated area 2400ha

Río Chambo

Río Blanco

Río Collanes

El Toldo

Diversion dam

Río Blanco HEP Plant 98MW

Quimiag

• Infiltration• Avoid contamination

• Regularity of flow• Avoid sedimentation

Mapping of critical areas in the Río Blanco watershed, Ecuador


Paying service providers: Principles

Payments should be continuous and open-ended

Payments should be targeted

Avoid perverse incentives


Paying service providers: Contract design issues

Require additionality?More benefits per dollar spentRisk of perverse incentives

Costa Rica PSA: No additionality requirementNicaragua/Costa Rica/Colombia Silvopastoral Project: Baseline payment + payment for incremental service provisionMexico PSAH: High deforestation risk increases likelihood of selection


Paying service providers: Contract design issues

Types of contracts:Fixed priceProcurement auctions

All developing country PES mechanisms are fixed-priceFear of complexity of auction approachPerceived potential for manipulationTrade-off with social concerns

Improving the efficiency of fixed-price approaches:Limits on eligible areas (usually benefit-based)Point systems for ranking applications (benefit and cost-based)Differentiating payments (benefit and cost-based)


How much should service providers be paid?

Minimum: their opportunity costs

Minimum paymentBenefits to land users

Costs to downstream populations

Deforestation and use for

pasture

Conservation Conservation with payment

for service

Payment

Maximum payment


4. Establishing the

institutional framework


Components of a payment system

Environmental services

Land users

Serviceuser

$

$

$

$ $

Supervision mechanism

Financingmechanism

Paymentmechanism

Serviceuser

Serviceuser

Technical Governance



Land users

Serviceuser

$

$

$


Financingmechanism

Serviceuser

Serviceuser



Functions:• Collects payments• Manages fundsNeeds:• MBAs• Accountants



Land users

$


Paymentmechanism



Functions:• Promotion• Contracting with land users• Monitoring implementationNeeds:• Extension agents




Land users

Serviceuser

$

$

$

$ $


Financingmechanism

Paymentmechanism

Serviceuser

Serviceuser


Logistically hardest task• Build on existing institutions• Trust• Logistics in place



Land users

$


Paymentmechanism



Technical functions:• Identifying services• Identifying eligible land uses• Monitoring impact on services• Periodically adjusting eligible land usesNeeds:• Analysts (hydrologists, economists, etc)



Serviceuser

$

$

$


Financingmechanism

Serviceuser

Serviceuser



Governance functions:• Negotiating agreements• Resolving disputesNeeds:• Stakeholder representatives


Monitoring needs to be done at 3 levels

ImplementationDo land users undertake the contracted land use?

Impact on servicesDo changes in land use generate the desired services?

Impact on participantsIs the welfare of participants improved?


Medium/Low

Very high

Medium/Low

High/Medium

Applying PES to different services

High

Medium/Low

Depends primarily on local conditions

Biodiversity conservation

Carbon sequestration

1. Understandingthe science

2. Charging serviceusers

3. Paying providers

Difficulty of application

WaterservicesStep


Do you need a law?

For national policy, yesFor local mechanisms, no

Law imposes rigiditiesMay need law to remove obstacles (eg allow public utilities to spend money on conservation)

When have multiple actors, law can helpBut it can also become a cop-out


Initial lessons

Not a universal solutionOne size does not fit allIdentify the services being provided clearlyUnderstand and document the links between land uses and servicesBegin from the demand side, not the supply sideMonitor effectivenessDesign flexible mechanismsMix and match with other mechanismsEnsure the poor can participate


For more informationwww.worldbank.org/environmentaleconomics

http://www.worldbank.org/environmentaleconomics

payments for environmental services from theory to practice · stefano pagiola, world bank, 2009....

Documents