1. John Dixon Galapagos 5-20071 The Galapagos – a unique and valuable resource John A. Dixon johnkailua@aol.com Introduction to Environmental Economics The World Bank, May 22, 2007

2. John Dixon Galapagos 5-20072 The Galapagos – islands of myth and magic Made famous by Charles Darwin (visited in 1835) and his book The Origin of Species (published in 1859). Developed theory of evolution; Volcanic in origin (formed by a “hot spot” and plate tectonics), 1000 km from coast of Ecuador, never linked to any other landmass; 11 main islands, 7970 km2; 3 main municipios; two main airports and several ports; Unique flora and fauna – giant tortoises, land and sea iguanas, Darwin finch(s), rich marine life (sea lions, turtles, sharks,..). Reptiles are the apex species.

3. John Dixon Galapagos 5-20073 Map of the Galapagos

4. John Dixon Galapagos 5-20074 The Economy of the Galapagos Small resident population – Ley Especial de Galapagos (1998) created “citizenship rights” and residency cards were issued – population is about 30,000 people now, maybe two thirds of which are legal “residents”. The main population center is Puerto Ayora on Santa Cruz. The provincial seat is on San Cristobal. Tourism, government, research and conservation, and fishing are the main economic activities. Well protected -- 97% of the total land area is under strict conservation, as well as most of the surrounding waters (PNG – National Park of the Galapagos manages both land and marine areas).

5. John Dixon Galapagos 5-20075 Tourism – the 800 lb gorilla in the local economy Tourism is the driver of the economy  A high-end, expensive tourism product;  Small in numbers, maybe 120,000 people per year, mostly international visitors. (In contrast Hawaii receives about 7 to 8 million visitors per year);  A worldwide market – aggressively sold in the US and Europe by “ecotour” operators and others;  Most tourism is still sea-based; tours of 3 to 4 days up to one week are the norm (at an average cost of $250 to $350 per person per day);  High-end scuba diving on “live aboards” also a significant sub-sector; limited capacity, high demand.

6. John Dixon Galapagos 5-20076 Table 1 Tourist Arrivals in the Galapagos YearNational visitors (‘000) Foreign visitors (‘000) Total (‘000) 1980 4.013.517.4 1985 6.311.617.8 199015.525.641.2 199515.540.355.8 200012.654.366.9 200119.857.977.7 2005 (est)115-120 2006 (est)120-130

7. John Dixon Galapagos 5-20077 A finely tuned fee structure: entrance and concession fees for PNG (US$ per person per entrance; paid at the airport by all visitors except those holding “residency cards”) Category of touristsUSD Foreign tourists100 Foreign tourists (under 12 years old)50 Foreign tourists from Andean Community or Mercosur countries 50 Foreign tourists from Andean Community or Mercosur countries (under 12 years old) 25 Citizen or resident of Ecuador6 Citizen or resident of Ecuador (under 12 years old) 3 Foreign tourists (non-resident) attending a national academic institution 25 National or foreign children under 2 years old No fee Type of Boat Category/ Class Amount per berth per year– “patente” (USD) CruiseA250 CruiseB200 CruiseC150 Day TourR250 Day TourE50

8. John Dixon Galapagos 5-20078 Distribution of entrance fees (about USD$8 to $10 million collected per year) RecipientDistribution of total fees collected Galapagos National Park40% Galapagos Marine Reserve5% Galapagos municipalities (municipios)20% Galapagos provincial government10% Ministry of the Environment5% Galapagos National Institute (INGALA)10% Quarantine and control system (SICGAL) 5% Ecuador National Navy5% TOTAL100%

9. John Dixon Galapagos 5-20079 There are two “Gold Cards” in the Galapagos – each confers rights and benefits “cupos” or permits for berths on sea-based cruise ships (cruceros); the primary way tourists visit the different islands  Some 1800 “cupos” at present used by a total of about 94 boats; growing concentration in ownership  Are cupos “para siempre”? or are they a government granted permit that can be withdrawn/ reallocated? Residency Cards – allows holders to live, work, and invest in the Galapagos  “set” as of 1998, with the new Special Law of the Galapagos; new Residency Card holders created by birth or marriage

10. John Dixon Galapagos 5-200710 Unique ecological resources generate economic rents The unique ecosystem of the Galapagos (especially the fauna), with many endemic species, has resulted in a worldwide interest in the islands. Most visitation is sea-based. Tourism, including nature tourism, scientific tourism, and adventure tourism, has grown rapidly in the past decade. The “cupos” are the Gold Card key to this business. Even with the high cost structure in the Galapagos, it appears that considerable economic rents exist. The full range of TEV components exist – direct and indirect use values, as well as non-use values.

11. John Dixon Galapagos 5-200711 Economic rents – like the “garua” in the Galapagos Economic rents are real money and one of three things can happen to them:  They can stay with the producer (PS) or with the user/ consumer (CS);  They can be “captured” by one group or another, often the producers (e.g. extra-normal / monopoly profits) or the government (e.g. park admission fees);  They can be “dissipated” – lost to the system and consumed without benefiting anyone/ or degraded by overuse or mismanagement.

12. John Dixon Galapagos 5-200712 Apart for the cruceros, other sectors of the economy have mixed economic and environmental impacts Fishermen – small in number (up to 1000 with permits, several hundred boats, a much smaller number fish full-time). Potentially large ecosystem impacts, and a very vocal sector. Over fishing of sea cucumbers and lobster; illegal shark fining. Land-based tourism -- smaller hotels, lower cost visits, the most rapidly growing part of the tourism industry (in numbers), concentrated in Puerto Ayora. Residency Card owners (another type of Gold Card) can extract economic rents here. Government services – many agencies are represented at both the provincial and the municipio levels. Overlapping authority and vested interests results in weak governance structure.

13. John Dixon Galapagos 5-200713 Research and conservation – a major sector in the Galapagos NGOs, Conservation groups, the Charles Darwin Research Station (CDRS), and international organizations constitute a major sector in the economy, with annual budgets in the millions of dollars, and special projects worth many millions more each year. The CDRS, for example, has a budget of over US$ 4 million per year. The PNG has an even larger budget (largely transfers from admission fees). At one level there is no shortage of money (e.g. money is not the issue); at another level, it is ALL about money and rent capture!

14. John Dixon Galapagos 5-200714 Estimates of gross economic flows per year in the Galapagos (million USD /yr) Sector or activity creating the economic flow “Guesstimate” of the gross economic flow (millions of dollars per year, ca. 2005) “Guesstimate” of present uncollected economic rents in the sector (millions of dollars per year) Where the money is predominately spent – international level (I), national level (N), or local level (L) Tourism International tourism (largely sea-based) $250 - $350$25 to $35 or moreN, I, L National tourism (largely land based) $10$1 to $2L, N Fishing$3-6Probably zero or negative L, N? Research and conservation *$10??L, N, I Public expenditures *$12-$15--L, N Investment projects($10-$15??) not included in total L,N TOTAL$285 - $391$26 - $37

15. John Dixon Galapagos 5-200715 Rents, rent capture and the sea- based tourism business +100 +200 Cost of a visit Number of visits Boat operator fee Transfer from int’l tourists to Ecuador Producer’s surplus Consumer’s surplus Visits based on the “cupos” available

16. John Dixon Galapagos 5-200716 Development versus Conservation The major management issue is how to control/ direct tourism to maximize economic benefits and minimize ecological impacts, but, economic benefits for whom? What about local job creation? Invasive species is the number 1 resource management problem – the more economic activity, the more danger of new invasive species. Therefore “tortugas o gente?” – tortoises or people – is the basic tradeoff/ management challenge

17. John Dixon Galapagos 5-200717 No simple solution – but many possibilities given the unique nature of the Galapagos Sea-based versus land-based tourism development? Increased rent capture per visitor? Increased rent capture from service providers (especially the cruceros) How should one use additional income from rent capture (conservation? quarantine services? education and training?) How to handle the problem of “illegal” workers/ illegal residents? The need for a high level “champion” to make changes!