economic assessment of the contribution...mentefactura 2014. figure 2: tourism revenue projection in...

Economic Assessment of the Contribution of the National System of Protected Areas:

Tourism and Hydroelectricity

Executive Summary

Economic Assessment of the Contribution of the National System of Protected Areas: Tourism and Hydroelectricity

©Ministry of Environment, 2015

Sour

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ica M

uñoz

Sumaco Napo Galeras National Park

This publication has been developed under the framework of the Financial Sustainability Project (PSF) for the National System of Protected Areas (SNAP), which is an initiative of the Ministry of Environment of Ecuador (MAE), which has the technical assistance of the United Nations Development Programme (UNDP) and the Global Environment Fund (GEF).

The main objective of PSF is to implement a financial operational framework institutionalized and tested in practice, to achieve an expanded and sustainable National System of Protected Areas (SNAP) of Ecuador.Produced by: Grupo consultor Mentefactura.

Produced by:

Grupo consultor Mentefactura.

Design: Manthra Comunicación integral y Producción editorial

Layout: h2ostudio. Carla Aguas

Cover Photos:

Tapir Lodge and Ministry of Environment

Editing and proofreading: Luis Miguel Casas de la Peña

Made in Ecuador, First edition, October 2015

ISBN: 978-9942-22-0424

This document should be cited in the following manner: Ministry of Environment (2015). Economic Assessment of the Contribution of the National System of Protected Areas to the New Productive Matrix of Ecuador: Tourism and Hydroelectricity. Quito – Ecuador

The opinions expressed here belong to the authors and do not necessarily represent the opinions of UNDP and GEF.

Complete or partial reproduction requires the authorization of MAE and UNDP

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Executive summary

Historically, the Ecuadorian economy has been characterized by the export of raw materials and unprocessed agricultural products, as well as the import of goods and services with high value added. Faced with this reality, the Government promotes the transformation of the development model of Ecuador, for which two major national priorities are defined and they lead to a New Productive Matrix (NMP, by its acronym in Spanish ) and a New Energy Matrix (NME, by its acronym in Spanish) .

For the Ministry of Environment (MAE, by its acronym in Spanish ), protected areas are an essential element of the development vision of the country for their strategic contributions to the preservation of biodiversity, carbon sequestration and the provision of a range of environmental services that, despite their lack of knowledge and distance, form the basis of multiple supply chains and support the lifestyle of hundreds of communities and the country itself, being the source of many raw materials that enable the generation of hydroelectric power and provide unique inputs for potential industries such as pharmaceuticals and food.

In this context, these studies are part of the goal set by the MAE, which aspires to become an ally and strategic partner of the NMP and NME. The Ministry of Environment intends to add value to the prioritized productive chains and promote new economic opportunities based on the sustainable use of environmental goods and services from the National System of Protected Areas (SNAP, by its acronym in Spanish ). The strategic importance lies in making visible the contribution of SNAP to the national economy, so it can justify public policy and new investments to meet two major objectives such as conserving biodiversity and maximizing the potential to generate economic benefits for the population.

Economic AssEssmEnt of thE contribution of thE nAtionAl

systEm of ProtEctEd ArEAs: tourism And hydroElEctricity Executive Summary

The main objective of this institutional effort is to estimate the economic contribution of SNAP to two key areas for the NME and NMP of Ecuador. On one hand, this effort describes and estimates the contribution of tourism activities in protected areas, and on the other, it estimates the contribution of Protected Areas (PA) to hydroelectric generation projects. Both economic activities would not be possible without the contribution of environmental services generated by the SNAP.

Tourism sector results

First, it is important to know and appreciate the great contribution that protected areas make to tourism in Ecuador, both for its enormous economic value as well as for being based on the enjoyment of values that are not consumed, such as the landscape and culture. For this reason, a study was carried out in the framework of this topic; “The Economic Valuation of the Contribution of Protected Areas to the New Productive Matrix of Ecuador: Tourism Sector”.

The results of this study confirm that SNAP is the main attraction and tourist destination in the country, with more than 1.77 million visitors in 2014. In the last five years, tourism in protected areas grew seven times faster than the average growth of tourism at the national level. By 2014, one in twelve Ecuadorians had visited the SNAP, compared with 2010 when barely one in forty-nine Ecuadorians had this opportunity.

The SNAP generates annual revenues around USD 527 million, which represent approximately 35.0% of the tourism revenues in Ecuador. From this value, the Galapagos National Park recorded a contribution equivalent to 20.0% of the tourism economy in the country, while the remaining 15.0% is generated in the continental protected areas (PAs).

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This study confirmed that the SNAP attracts tourists with greater purchasing power. Foreign visitors arriving to the SNAP spend an average of USD 2,797 in their visits, approximately USD 1,200 more than the average foreign tourist visiting other destinations in Ecuador such as the sun and beach, culture, etc. It should also be noted that these same tourists stay over five nights more in the country than the average foreign tourist aforementioned.

The study concludes that the PA conservation is an excellent destination for public investment in the country. The USD 21 million invested annually in the continental areas generated in tourism alone, added benefits to the economy approaching USD 213 million in 2014. This means that every dollar invested in the continental areas, generated a return of USD 10. It can be noted that through MAE investment in infrastructure and improvement of tourism, between 2011 and 2014 the average time spent by visitors in PA increased. In just four years, this indicator went from 6.9 to 11.4 hours average per visit.

Few investments coming from the public sector could have such performance, considering that in SNAP the benefits are distributed to less fortunate and remote sectors of society along a surface that equals to 20% of the national territory. These results confirm that the SNAP is a strategic sector for the NMP because of its dynamic effect on rural economies and the articulation with the main products and touristic circuits of the country.

Also, this study was able to establish differences in the average spending of domestic visitors versus foreign visitors in the SNAP. A foreign visitor spends an average of USD 147 per person per day to SNAP, compared to an expense of USD 110 spent by the national tourist. Foreign visitors to the AP not only stay longer in the country, but also have a daily spending considerably higher than other segments of tourism that visit Ecuador such as the sun and beach tourism for example.

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According to the Register of Tourist Establishments (MINTUR, 2013), there are 1,341 establishments that provide tourist services in the vicinity of the 5 PA involved in the study (Machalilla National Park, Cotopaxi National Park, Cotacachi Cayapas Ecological Reserve, Cuyabeno Wildlife Reserve and Marino Costera Puntilla Santa Elena Wildlife Reserve); these establishments generated 5,735 jobs in 2013. However, most tourist establishments mentioned are of the second and third category, which is normally associated with limited operating standards and quality of services. The results suggest that visitors return with money they cannot spend within PAs or in surrounding populations, due to the limited range of products offered by the existing supply.

In this study two possible scenarios for the evolution of tourism in the SNAP for a period of 20 years are evaluated. On the one hand, Business As Usual is presented – BAU (in Spanish “No Change”), which assumes that the current conditions are maintained without any changes in the supply of tourist services in the SNAP. This scenario predicts that the number of visits will peak in late 2016 and then start a slow deceleration.

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On the other hand, Sustainable Ecosystem Management – SEM (in Spanish “Manejo sostenible de ecosistemas”), in which the number of tourists increases at the rate of 0.11% per month, due to the changes made in the tourism of SNAP through the implementation of ecotourism centers1. By applying the SEM scenario throughout the system, it is estimated that in 20 years the tourism income of SNAP will be 6.3 times larger, so the SNAP contribution of tourism to the economy would be around USD 1.2 billion in 20332. Additionally, the articulator effect between supply and demand that generated ecotourism centers, could expect to harvest an increase of the average visitor expenditure of the order of 54% to 30% for foreigners and domestic visitors.

1 Resorts (CE, as the Spanish acronym) adopt the principles of sustainability (economic, socio-cultural and environmental) as essential pillars to develop tourism experiences that take advantage of high natural and cultural diversity of protected areas of Ecuador. CE are located in (five) strategic sites of SNAP, and although their offers and individual characteristics vary, the general concept of the CE is to offer a variety of adventure experiences, nature, reading, sports, ecotourism, and cultural experiences from a modular physical space for visitors within the protected area.

2 Expressed in current values

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Given the complex and sensitive nature of tourism activities in PA, it is essential to maintain and strengthen the institutional capacity to adequately manage the environmental impacts of an economic operation that must necessarily be compatible with the conservation objectives of SNAP. It is also essential to meet quality and friendliness services for about 1,6 million visitors that arrived in 2014. This implies the mobilization of additional and extraordinary resources to implement ecotourism centers in at least 5 AP, and in general to generate the tools to structure labor teams and management models that optimize the development of sustainable tourism.

It is also important to promote strategic alliances with the neighboring communities, private tourism companies and other stakeholders to implement standards of operation and quality tourism services, as well as mechanisms to increase the reputation of the different destinations to encourage investment.

Hydropower sector results

The second study, titled Economic Contribution of the National System of Protected Areas for the New Energy Matrix of Ecuador: Hydroelectric Sector, contains the elements to quantify the savings that conservation of natural ecosystems allows in the production of hydroelectric power. This study focused on measuring the contribution of SNAP in changing the energy matrix of Ecuador, whose main objective is to reduce the heavy dependence on oil that exposes the country to volatile and speculative international market conditions. Additionally it seeks to increase, in an optimal and sustainable manner, the primary sources for the domestic production of renewable energy by creating a solid foundation for economic development.

The results of this study confirm the strategic nature of the investment in the conservation of SNAP, upon which establishes the sustainability of major

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investment projects in the country’s history, such as the Coca Codo Sinclair project. It was possible to effectively identify that there are 75 hydroelectric plants in operation or construction, which nowadays are supplied from the watershed of SNAP. Within a few years when they come into operation, all this hydropower will account for 55% of the total installed capacity in the country, and they will cover more than 80% of the total national electricity demand.

The fundamental contribution of protected areas (PAs) to the hydroelectric sector consists in ensuring a steady and stable flow of water, a resource without which the operation of these projects would be very unlikely. Another key service provided by the SNAP is to ensure water quality, through control of sediment produced by deforestation and changes in soil use, since the amount of sediment in the water is crucial in the cost structure of a hydroelectric project, because it lowers the lifespan of the projects; involves higher maintenance and repair of machinery costs; and affects the number of days that these projects can operate per year.

All these problems translate into higher operating costs that ultimately impact electricity generation for the country; which is why conservation of SNAP has a key role not only in the structure of project costs, but also in the importance of ensuring that these investments will continue to function over time. From a holistic perspective, the existence of SNAP ensures a lower risk to the viability

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of the projects, and therefore should influence better in credit conditions, and lower insurance costs.

For these reasons, the environmental authority has considered relevant to undertake a study of economic valuation, which allows transparency in the contribution of protected areas to the hydropower sector. This challenge raises a number of methodological challenges, primarily in terms of access to information on the current cost structure of different hydropower projects. Likewise, there are difficulties in accessing quality information about the rate of water flow, sedimentation, precipitation, and many other biophysical indicators that are crucial to measuring productivity and performance of the basins.

Given this starting point, and difficulties in accessing information which permits assessing the various contributions of SNAP to the hydropower sector, the economic value of the contribution of SNAP to environmental services to reduce maintenance costs of hydropower projects has been limited. This involves the comparative analysis of the impact of different levels of vegetation coverage in the generation of sediment and maintenance costs. To exemplify, three case studies outlining different behavior based on the percentage of PA coverage that exists in each basin were selected:

` Coca Codo Sinclair, with a projected annual revenue of USD 62,600,517 from the sale of energy. 80% of the watershed is in the SNAP (Cayambe Coca National Park, Antisana Ecological Reserve, and Sumaco Napo Galeras National Park).

` Hidropaute, with annual revenues of USD 50,746,019 from energy sales. Two PA (Cajas National Park and Sangay National Park) cover 20% of the basin.

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` Marcel Laniado, with annual revenues of USD 16,942,823 from energy sales. This basin does not have any coverage under the protection of SNAP.

The main lesson to be drawn from the selected cases is the quantification of the relationship between the degree of degradation of the basin and the costs assumed by the hydroelectric projects to mitigate the effects of sedimentation on their turbines at a higher level of plant cover or reduced degradation, costs per unit area of maintenance are lower. Therefore, the existence of forest ecosystems—inside and outside protected areas—helps reduce maintenance and operating costs of hydroelectric projects related to sedimentation processes.

In this study, two possible scenarios within 20 years are evaluated. On one hand, the scenario called Business as Usual—BAU (in Spanish “sin cambios”) includes the current state of protection in the basins of the three hydroelectric projects and costs associated with these. In the alternate scenario, called Sustainable Ecosystem Management—SEM (in Spanish “Manejo Sostenible de Ecosistemas”), includes the development of conservation and restoration activities to improve the supply of environmental services to the hydropower sector.

In the BAU scenario the incidence of vegetation coverage within the watershed is determined, at the level of costs hydroelectric projects can sustain. Thus protected areas located in the basins, where the Coca Codo Sinclair and Hidropaute projects are located, avoid altogether maintenance costs of about USD 3.8 million per year. The projection data show that over time maintenance costs in the case of Hidropaute will be doubled, due to changes in soil use and intrinsic pressure of areas that are not under conservation schemes in SNAP. Interestingly Marcel Laniado shows dredging costs and higher maintenance costs, due to having lower

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vegetation coverage and being supplied with a basin that is completely outside of SNAP.

With the gradual implementation of restoration and conservation activities planned for the SEM scenario, a direct impact on maintenance costs was foreseen, although at different levels. Marcel Laniado can lower costs by 18%; i.e., USD 2.45 million per year, which is due to the elimination of deforestation and the recovery of vegetation coverage in key areas to the conservation of water regimes and erosion control in the watershed areas. In the case of Coca Codo Sinclair, in the SEM scenario maintenance costs decreased almost 70% to around USD 63,862 per year, which is due to the identification of a relatively large area of PA within the basin that requires restoration and recovery of vegetation coverage. In the case of Hidropaute annual costs decreased almost 20%, USD 115 thousand per year, which is mainly due to the recovery of degraded areas within the upstream watershed.

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systEm of ProtEctEd ArEAs: tourism And hydroElEctricity

Source: cElEc, 2014. By: mentefactura.

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Executive Summary

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Source: CELEC, 2014. By: Mentefactura.

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It is concluded that hydroelectric production, which is planned in the coming years to cover 90% of the country’s demand, depends on the state of conservation and soil use in the watersheds that supply the hydroelectric projects. Indeed, the state of vegetation coverage directly influences sediment loads that affect the quality and quantity of water available for hydroelectric production. These results suggest new opportunities to expand the area under conservation in the country, promote new ecological corridors, and take advantage of existing mechanisms under the National System of Environmental Incentives.

The results generated through this study identify opportunities of mutual benefit to the MAE and the hydropower sector for the purpose of designing and implementing mechanisms to facilitate financing schemes for management of the SNAP. In addition to the costs avoided by the hydropower sector, one must consider the positive externalities that benefit other users of the basin, such as water companies that can also reduce production costs due to an improvement in water quality.

Finally, the evidence presented throughout these two studies demonstrates the strategic importance of SNAP for tourism and hydroelectric sectors. SNAP allows the preservation of large tracts of land in an efficient manner, which in turn impacts lower operating costs and ensures the sustainability of hydropower investment, while providing the raw material of ecotourism: natural areas in good condition of conservation that meet the needs of its people, preventing their conversion to other soil uses.

In this regard, for the Ministry of Environment (MAE), the incorporation of protected areas to the NMP and the NME is a strategic priority requiring development of inter- and multi-sectoral policies, in order to ensure that the SNAP continues to provide benefits to society and generate new sources of competitive advantage for the country. Its results help to assess

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the profound effort that the Ecuadorian government has done to promote sustainable development.

We hope your reading and dissemination of this study contribute to a better understanding and justifying the need to invest in conservation, restoration and extension of our protected natural areas as one of the cornerstones of change towards a better future for all Ecuadorians.



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Abbreviations

PA Protected Area

BAU Business as Usual. (for its acronym in English)

BEP Barrel of Oil equivalent

CAT Register of Tour Operators

CE Ecotourism Center

CELEC Electric Corporation of Ecuador

CEPAL Economic Commission for Latin America and the Caribbean

CET Register of Tour Operators

MNUCC United Nations Framework for Climate Change Convention

ONELEC National Electricity Council

DNB National Biodiversity Dirección

ENCC National Strategy on Climate Change

EP Public Company

GAD Decentralized Autonomous Governments

GLP Liquefied Petroleum Gas

GEF Global Environmental Fund (for its acronym in English)

NAMHI National Institute of Metereology and Hydrology

INERHI National Institute of Hydraulic Resources

INER National Institute of Energy Efficiency and Renewable Energies

MAE Ministry of the Environment of Ecuador

MAGAP Ministry of Agriculture, Livestock, Acuaculture and Fisheries

MCI Internal Combustion Engine

MCPEC Coordinator Ministry of Production, Employment and Competitiveness

MEER Ministry of Electricity and Renewable Energies

MTOP Ministry of Transport and Public Works

NMP New Productive Matrix

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PANE Natural State Heritage Areas

Proyecto PANE

Physical Demarcation and Development of Sustainable Tourism in the Natural State Heritage Areas – PANE

PNBV National Plan for Good Living

PMST Practices of Sustainable Land Management

PNC Cotopaxi National Park

PNM Machalilla National Park

PNUD United Nations Development Programme

PSF-SNAP Financial Sustainability Project for the National System of Protected Areas

RECC Cotacachi Cayaps Ecological Reserve

REDO Reducing Emissions from Deforestation and Degradation

RETANP Special Regulations for Tourism in Protected Natural Areas

RGP Pululahua Geobotanic Reserve

RPFCH Chimborazo Wildlife Production Reserve

RPFC Cuyabeno Wildlife Production Reserve

REMACOPSE Marina Puntilla de Santa Elena Wildlife Production Reserve

SEM Sustainable Ecosystems Management (by its acronym in English)

SENAGUA National Water Secretariat

SENPLADES National Planning and Development Secretariat

SIB Biodiversity Information System

SNAP National System of Protected Areas

SUIA Single System of Environmental Information

TG Turbogas

TSA Trial Sequential Analysis (by its acronym in English)

TV Target Scenario Analysis

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economic assessment of the contribution...mentefactura 2014. figure 2: tourism revenue projection in...

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