Costa Rica: Growing money on trees

Payments for Environmental Services (PES, PSA in Spanish) are one of the most innovative instruments to promote sustainable development to emerge this decade. Based on economic theory, the idea is that ecosystem resources can be better protected if landowners receive a financial payment for taking environmentally-friendly actions on their land. The benefits of protecting ecosystems reach far beyond the farmer, to everyone who benefits from, for example, cleaner water or air. And it is possible, and fair, to financially tap those people who are indirectly reaping the benefits, so the people who help protect the environmental services in the first place benefit too.

At the Fair Ideas conference in Rio we learned from one of the best examples of Payments for Environmental Services schemes in the world. Costa Rican politicians, practitioners and researchers came to share their practical experiences of putting the Green Economy model into practice.

“Back in Rio in 1992 we all did the talk, but it has been harder to do the work” said Rene Castro, Minister of Environment during the Fair Ideas Plenary session Better lives, smaller footprints. Waiting for the international community to take actions was not an option, he said. The rapid deforestation that had taken place in the country had begun to slow down, and actions were urgently needed to nurture this change.

With strong political and civil society support, the new Forest Law 7575 was drafted and passed forbidding further destruction of the country’s forests. The same law recognised that these forests carry out key environmental services, such as carbon sequestration and the protection of biodiverse life, water and important watersheds, and a beautiful forested landscape. It also allows forest owners to sell environmental services. It also created an institution (FONAFIFO) to broker deals – the crucial backbone of the system. And it gave it the financial resources to kick-start the process by allocating it with a percentage of fuel tax revenues.

“The fuel tax has given a minimum stability to the Programme, but we have been constantly exploring fresh sources. We quickly realized that as a small country we were not going to be able to compete under the original Kyoto and Clean Development Mechanisms, so we looked inside our own country instead”, said Oscar Sanchez, Director of the Environmental Services department at FONAFIFO. After consultations that began in 2002, a legal bill to increase the country’s Water Tax was passed in 2006. Of these resources, 25% go to pay for environmental services in key priority catchments. “Although insignificant, there has been a water charge since 1942. The new Water Tax raised it considerably, but still it remains low, and provides the resources desperately needed to manage the system. The tax is highly differentiated by categories of users. Interestingly, it has been the public sector that has been more difficult to bring on board,”said Maureen Ballestero, President of FUNDECOR.

This NGO has been key to exploring new sources of funding for payment for ecosystem services in Costa Rica from the beginning, brokering, for example, the first direct deal with a hydroelectric plant and local farmers, and exploring new ways to add value to forest activities that will benefit small and medium farmers. “There are many small and medium farmers in our region that find it difficult to enter the official PES Programme, either because of legal restrictions on their land, or because FONAFIFO is not capable of meeting the demand because of their limited funding, and for this we have designed an instrument to complement the national scheme, called PSA SOLIDARIO”, said Carlos Herrera, Executive Director of FUNDECOR. This instrument sells carbon credits to national industries under the voluntary carbon market created when Costa Rica announced its intention to achieve Carbon Neutrality by 2021.

“We saw a business opportunity here, providing a certified, transparent instrument linked to the national scheme, yet free from the straight-jacket that sometimes binds FONAFIFO because of the State regulation”, said Mr Herrera. While payments for protection from PSA SOLIDARIO are 20% lower than the national scheme, transactions are faster, with more chance of success because of less competition. The overall price per ton of CO2 remains around (US)$6, well within the range of prices provided by a scheme called “Reducing Emissions from Deforestation and Forest Degradation” (REDD). Unlike REDD, profits go almost entirely to the landowner rather than paying a chain of brokers in New York or London.

‘Green’ bank cards fund conservation

Creative new ways to fund conservation knows no limits in Costa Rica. Virginia Reyes, from CEDARENA, showed us her Green Bank Card, a debit card that gives money for conservation just as we collect air-miles or TESCO points. “The Green bank card is one of several instruments to help capitalise the Biodiversity Fund”, said Ms Reyes. This Trust Fund, created with seed capital from the German bank KfW, the Global Environmental Facility (GEF) and other groups like Conservation International, looks to provide FONAFIFO with long-term funding independent of the State. This fund will be used to protect biodiversity in areas that do not have downstream users who will pay for the ecosystem services they’ve received, such as in Costa Rica’s richly bio-diverse Osa Peninsula. According to Ms Reyes, the objective is to be able to offer long-term funding and payments to farmers committed to forest protection, and reduce the uncertainty created by the constant renewal process of contracts.

This is a key issue for farmers, especially those who are vulnerable to market fluctuations. Renewable short-term contracts are the ideal solution for them, and this is the objective of FONAFIFO. However, funding limitations mean that contract renewal is not guaranteed, and, while a nice idea, those protecting the forest can't rely on the payments carrying on forever.

“The PSA has most definitely helped increase the value of our forest, and our quality of life” says José Rafael León, from COOPESILENCIO. This Cooperative, formed during the land invasion riots in Costa Rica in the early 70s, now manages communal land, and their productive approach ensures that the funds received by FONAFIFO are invested in activities that add value to their resources. The timber produced in reforestation and agroforestry, for example, is used in their workshop to build furniture. Community eco-tourism provides jobs for women and young people. The Cooperative also facilitates contract applications for individual farmers, and the commission charged for this (up to 18% of the payments) is invested directly in a Wildlife Rescue Centre, run by themselves and a constant stream of volunteers from all over the world.

Trouble ahead

There is much to learn about the country’s PES Programme. It’s not all a win-win situation and hard choices need to be made all the time. The rising cost of land, which can grow extremely valuable crops, like pineapple,  spells trouble for sustainable management. “Small patches of forest in areas with high value crops are almost doomed to slowly disappear, law or not”, says Carlos Herrera from FUNDECOR. The reality is that a $64/ha/year payment, however generous in some places, can't compete against the $500/ha/year that a farmer can get by hiring out their land if they are located in areas used to produce pineapples. 

Costa Rica’s PES programme needs to clearly define its priority areas, and maximise alliances with other groups, individuals, and instruments, to be able to continue promoting green and sustainable development in this highly competitive new economy.

“Ways of living” protected

“When the PSA began people were confused," said Justa Romero, a midwife and community leader from ACOMUITA in Talamanca in the south-east of Costa Rica. "They thought that if we sold the air from the trees, it was a step from there to lose our land. Also, there were some who thought to benefit themselves by appropriating forest from the communal lands.”

Squabbles about the legitimacy to sign REDD and PES contracts in indigenous territories in the country are regulated by a law that recognises the official Indigenous association as the only official body to sign contracts. However, decisions are made by the group, about whether to sign contracts or not, and how to distribute the benefits. After much internal debate and capacity building, the association signed some contracts, and a solid internal system to allocate the benefits was put in place.

Now they see PES in a positive light. Money from the payments is one of the main cash injections in their local economy, and is used to strengthen productive and social development projects that will result in long-term benefits for all. From small cocoa enterprises for women, furniture workshops, scholarships for doctors and nurses who understand traditional and non-traditional medicine, and hanging bridges, the ability to stretch a small purse knows no limits. “The PES is helping us protect our own way of living,” said Justa. “Trees are land, land is water, water is life.”

Read a shorter version of this blog posted on the Guardian

Find out more: read our latest policy briefing on PES. Payments for environmental services in Costa Rica: from Rio to Rio and beyond

Speak Spanish? De Rio a Rio+ Lecciones de 20 años de experiencia en servicios ambientales en Costa Rica.

Further information on the PES Fair Ideas event