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Stefano PagiolaEnvironment DepartmentWorld Bank1818 H Str NWWashington DC [email protected]
The opinions expressed in this presentation are the author’s own and do notnecessarily represent those of the World Bank Group.
The materials in this presentation may be freely reproduced with appropriate credit to the author and the World Bank.
Introduction to payment for environmental services
Stefano PagiolaEnvironment Department, World BankUSAID Policy Seminar: Pro-Poor Payments for Ecosystem ServicesVirginia Tech, Northern Virginia Center, October 4, 2007
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Sasumua water treatment plant, Kenya
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Sasumua water treatment plant, Kenya
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What’s the problem?
Clearing siltfrom water intakes:
$50,000/year
Treating forcontamination:$100,000/year
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The problem
Benefits to land users
Costs to downstream populations
Deforestation and use for
pasture
Conservation
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Past responses have largely failed
Direct government intervention ‘Demonstration’ approaches Regulatory approaches Short-term subsidies (in cash or in kind)
Low adoption rates Adoption followed by abandonment
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The logic of payments for environmental services
Benefits to land users
Costs to downstream populations
Deforestation and use for
pasture
Conservation
Payment
Conservation with
payment for service
Important!This logic is repeated
every year
» Need annual payments» Need sustained financing
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Definition of PES
A mechanism to improve the provision of indirect environmental services in which
Those who provide environmental services get paid for doing so (‘provider gets’)
Those who benefit from environmental services pay for their provision (‘user pays’)
Payments are conditional Participation is voluntary
Service providers Service users
Service
Payment
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What makes payments for environmental services attractive?
Generates it’s own financing: Brings new financing not previously available for conservation
Efficient: Focuses efforts where benefits of conservation highest and costs lowest
Potentially very sustainable: Not based on whims of donors, NGOs, but self-interest of service users
and providers
For this to work, need to: Base payments to providers on payments by users
Actually deliver services: getting the science right is critical
Tailor mechanism to specific local conditions
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Special case: ‘Supply-side PES’
A mechanism to improve the provision of indirect environmental services in which
Those who provide environmental services get paid for doing so (‘provider gets’)
The government (or another third party) pays for their provision
Payments are conditional Participation is voluntary
Service providers
Service usersService
PaymentGovernment
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Generates it’s own financing: Brings new financing not previously available for
conservationEfficient:
Focuses efforts where benefits of conservation highest and costs lowest
Potentially very sustainable: Not based on whims of governments, donors,
NGOs, but self-interest of service users and providers
For this to work, need to: Base payments to providers on payments by users Actually deliver services: getting the science right is
critical Tailor mechanism to specific local conditions
What makes supply-side PES attractive?
?
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Colombia Cauca Valley water user associations
Costa Rica FONAFIFO/Pagos por Servicios Ambientales (PSA)
Heredia: Environmentally adjusted water tariff
Ecuador Quito: FONAG Cuenca: ETAPA Pimampiro
El Salvador Tacuba, San Francisco de Menéndez, Yamabal
Mexico Pago por Servicios Ambientales del Bosque (PSAB)
Coatepec
Venezuela CVG-Edelca payments for conservation of Río Caroní
South Africa
Working for Water Program: payments from Hermanus and George
Examples of PES mechanisms
Capital cityMid-size townSmall rural town
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Costa Rica: Payments by water users
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!
Renewed!
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World Bank support to PESCompleted projects: Costa Rica: Ecomarkets Project (US$33 million WB + US$8 million GEF)
Projects under implementation: Colombia/Costa Rica/Nicaragua: Regional Integrated Silvopastoral Ecosystem Management Project
(US$4.5 million GEF) South Africa: Cape Action Plan for the Environment (US$9 million GEF) Mexico: Environmental Services Project (US$83 million WB + US$15 million GEF) Costa Rica: Mainstreaming Market-Based Instruments for Environmental Management Project
(US$30 million WB + US$10 million GEF)
Projects under preparation: Brazil: Forests for Life Project Colombia: Sustainable Livestock Management Project Ecuador: Management of Chimborazo’s Natural Resources Project Venezuela: Canaima National Park Project Kenya: Agricultural Productivity and Sustainable Land Management Project Worldwide: LULUCF carbon projects (US$30 million BioCarbon Fund)
Capacity building: Courses in Colombia, Dominican Republic, Ecuador, El Salvador, Kenya, Mexico, Panama, Peru, Senegal, South Africa, Venezuela
Research: Case studies; Hydrological aspects; Poverty links; Valuation
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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
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Key problems
Getting the science right
Getting the institutions right
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Poverty and PES
1. PES is not intended as a poverty reduction mechanism
2. Hope that it will help the poor Spatial correlation between poor areas and areas that provide
environmental services Payments to poor land users provide them with additional
income
3. But maybe it won’t Can the poor participate?
4. Fears that it may do some harm Exacerbate tenure problems Impact on non-participants
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Factors that affect household participation in PES programs
Eligible to participate
Yes
PES programcharacteristics
Householdcharacteristics
Degree oftargeting
Locationof plots
In target part of the watershed?
Yes
In target watershed?
Source: Pagiola et al., 2005
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Factors that affect household participation in PES programs
PES programcharacteristics
Householdcharacteristics
PES practice profitable?(with payment)
Fits in farming system?
Yes
Yes
Eligible to participate
Paymentoffered
Opportunitycost of landTransaction
costs imposedon participants
Characteristicsof PES practice
Current landuse practices
Size of holding
Householdstrategy
Want to participate
Yes
Source: Pagiola et al., 2005
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Factors that affect household participation in PES programs
PES programcharacteristics
HouseholdcharacteristicsYes
Want to participate
Security oftenure
Time horizon ofPES practices
Assets, savings, other income,remittances
Investmentrequirements of
PES practices
ExperienceEducation
Technicaldifficulty of
PES practices
Land title, othercollateral
Able to participate
Yes
Yes
Access to TA?
No
Yes
Able to undertakePES practices?
Yes
Access to credit?
No
Yes
Able to invest?
Has secure tenure?
Source: Pagiola et al., 2005
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Can the poor participate in PES?Key questions
1. Are the poor potentially eligible to participate?
a. Are potential service suppliers poor?
b. How many of the poor are potential service suppliers?
2. Are eligible poor households able to participate?
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Guatemala:Watersheds with significant potential for PES
Source: Pagiola, Zhang, and Colom, 2007
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Guatemala:Poverty rate in water supply areas
Source: Pagiola, Zhang, and Colom, 2007
High poverty rate in water supply area
Low poverty rate in water supply area
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Guatemala:Poverty rate in water supply areas
Source: Pagiola, Zhang, and Colom, 2007
0
5
10
15
20
25
300
-10
10
-20
20
-30
30
-40
40
-50
50
-60
60
-70
70
-80
80
-90
90
-10
0
Poverty rate (%)
Nu
mb
er
of w
ate
rsh
ed
s
Average poverty rate 44% (sd 21%)
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Relationship between poverty rate and importance of water supply areas
Source: Pagiola, Zhang, and Colom, 2007
0
20
40
60
80
100
0 5 10 15 20Importance for HEP generation (kW/ha)
Po
vert
y ra
te (
%)
0
20
40
60
80
100
0 1 2 3 4 5 6 7
Importance for domestic water supply (hhs/ha)
Po
vert
y ra
te (
%)
0
20
40
60
80
100
0.00 0.20 0.40 0.60 0.80
Importance for irrigation (irrig ha/ha)
Po
vert
y ra
te (
%)
0
20
40
60
80
100
0 5 10 15 20
Importance for coffee production (quintals/ha)
Po
vert
y ra
te (
%)
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Guatemala:Poverty density in water supply areas
Source: Pagiola, Zhang, and Colom, 2007, based on Nelson and Chomitz, 2002
Many poor in water supply
area
Few poor in water supply
area
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0
10
20
30
40
50
60
70
80
0-1 1-2 2-3 3-4 4-5 >5
Poverty density (poor/ha)
Nu
mb
er
of w
ate
rsh
ed
s
Guatemala:Poverty density in water supply areas
Source: Pagiola, Zhang, and Colom, 2007
Average poverty density 0.95/ha (sd 1.1)
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Guatemala:Poverty density in water supply areas
Total number of poor: 1.7 million
Share of country’s poor*: 27% (* excluding Petén)
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PES and poverty
Potential for local impact varies
Some areas with significant PES potential have high poverty rates, but not all
Potential for national impact is significant but limited
Max 27% of country’s poor may be able to participate
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Can eligible poor households participate in a PES program?
Regional Integrated Silvopastoral Management ProjectMatiguás-Río Blanco, Nicaragua
Piloting use of PES to promote silvopastoral practices in degraded pastures, to improve biodiversity and carbon sequestration
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A tough test:Most participants are poor...
Income level of program participants, Matiguás-Río Blanco, Nicaragua
0
5
10
15
20
25
30
35
40
< 0 0 - 2,950 2,950 -5,650
5,650 -9,000
9,000 -12,000
12,000 -15,000
15,000 -18,000
18,000 -21,000
21,000 -24,000
24,000 -27,000
27,000 -30,000
30,000 -33,000
> 50,000
Reported annual household income / per person (C$)
Nu
mb
er
of h
ou
seh
old
s
Non-poorExtremely
poor Poor
Source: Pagiola, Rios, and Arcenas, 2007
Participating households:
• 20% poor
• 46% extremely poor(national poverty line)
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A tough test:… and participation requires expensive investments
Establishment costs of selected silvopastoral practicesMatiguás-Río Blanco, Nicaragua
Source: Gobbi, 2005
0 100 200 300 400 500 600 700 800 900
Improved pasturewithout trees
Improved pasture withlow tree density
Improved pasture withhigh tree density
Fodder bank withwoody species
Fodder bank withleguminous species
(C$/ha)
Land use only
+ live fence
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-480 -400 -320 -240 -160 -80 0 80 160
Annual crops
Degraded pasture
Natural pasture without trees
Improved pasture without trees
Semi-permanent crops
Natural pasture with low tree density
Fodder banks
Improved pasture with low tree density
Natural pasture with high tree density
Diversified fruit crops
Monoculture timber plantation
Improved pasture with high tree density
Scrub habitats (tacotales)
Secondary and riparian forest
Net land use change (ha)
Extremely poor households
Poor households
Non-poor households
Were the poor able to participate? Yes!Land use change in Matiguás-Río Blanco, Nicaragua
Source: Pagiola, Rios, and Arcenas, 2007
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Were the poor able to participate? Yes!
Source: Pagiola, Rios, and Arcenas, 2007
0 10 20 30 40
Extremely poor
Poor
Non-poor
Change in land use (% of farm)
0 10 20 30 40
Extremely poor
Poor
Non-poor
Change in environmental services/ha (%)
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Can the poor participate in PES? Important: PES are not poverty reduction programs
Trying to make them be poverty reduction programs can undermine them But can try to maximize positive impacts/minimize adverse impacts
A small but significant portion of the poor are potential participants in PES
When the poor are eligible to participate, their ability to participate may be greater than assumed Transaction costs a bigger obstacle than household characteristics
Appropriate PES design can help Appropriate contract design Low transaction costs Support to participants
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Guidelines for Pro-poor PES PES is not a poverty reduction mechanism
Poverty cannot be used as a criterion for participation A pro-poor PES program is one that maximizes its potential
positive impact and minimizes its potential negative impact. Keep transaction costs low
Devise specific mechanisms to counter high transaction costs. Ensure that the social context is well understood Avoid implementing PES programs in areas of insecure
land tenure Provide targeted assistance to overcome problems that
impede the participation of poorer households Seek external funding for additional costs of pro-poor
programs
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For more information
www.worldbank.org/environmentaleconomics