1. Creating Markets for Ecosystem Services Economic Commission for Europe Seminar on the Role of Ecosystems as Water Suppliers Geneva, 13-14 December, 2004 Gonzalo Castro Head, Biodiversity Team Global Environment Facility

2. GEF Biodiversity Portfolio Summary (FY91-FY03) Number of Projects:336 GEF Funding:US$1.54 Billion Co-funding:US$3.24 Billion Number of Countries:140

3. Lessons Learned (Independent OPS-2) STRENGTHS: Excellent Ecosystem Representation Wide Coverage Innovative Financing (Trust Funds, PES, etc) Impact on Capacity Building Strong Stakeholder Participation Addresses Cross-Cutting Issues Includes Science and Technology Issues

4. Lessons Learned (Independent OPS-2) WEAKNESSES: Fails to Address Root Causes Weak Sectoral Linkages (mainstreaming) Weak Sustainability Weak Private Sector Participation Poor Capacity to Measure Results

5. Change in Paradigms From:How to make project sustainable? To:How to sustain conservation? From:Project success To:Changing behavior of societies and economies From:Short-term projects To:Long-term programs

6. GEF-3 Strategic Priorities US$3.1 Billion (ca. US$800 Million for BD) 1.Catalyzing Sustainability of Protected Areas (US$400M) 2.Mainstreaming Biodiversity in Production Landscapes and Sectors (US$250M) 3.Capacity Building for the Implementation of the Cartagena Protocol on Biosafety (US$80M) 4.Generation and Dissemination of Best Practices for Addressing Current and Emerging Biodiversity Issues (US$70M)

7. MAINSTREAMING BIODIVERSITY OBJECTIVE To integrate biodiversity conservation in agriculture, forestry, fisheries, tourism and other production systems and sectors to secure national and global environmental benefits

8. Water services Supply of services: Upstream land uses affect the Quantity, Quality, and Timing of water flows Demand for services: Possible downstream beneficiaries: Domestic water use Irrigated agriculture HEP Fisheries Recreation Downstream ecosystems

9. 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

10. Example 1 Silvo-Pastoral Systems (Central America, Colombia)

11. Expansion of livestock production is a major cause of habitat loss in Latin America Deforestation in Nicaragua, 1983-2000

12. Much of this expansion is in lands unsuited to it, quickly degraded Quindío, ColombiaEsparza, Costa Rica

13. Silvopastoral systems Combine trees with livestock production  Use of trees in pastures  Cut-and-carry systems  Live fencing

14. Benefits of silvopastoral systems  On-site benefits:  Promote soil fertility  Provide shade  Provide fodder  Provide additional products (timber, fruit, etc)  Biodiversity benefits:  Host larger number and wider variety of species  Help connect remaining natural habitats  Carbon benefits:  Sequester more carbon in soil and biomass  Water benefits:  Higher infiltration  Improved water filtration Often insufficient to justify adoption Ignored by land users

15. Profitability of silvopastoral practices from land users’ perspective Returns to silvopastoral practices NPV (50 yrs, 10%)US$440 IRR12% Note: 20ha farm in Nicaragua

16. Biodiversity index Land usePoints per hectare Crops (annual, grains, and tubers)0.0 Perennial crops (plantain, unshaded coffee)0.2 Natural pasture0.0 without trees, 0.3 with trees Improved pasture0.0 without trees, 0.3 30 trees Fruit crops0.3 monocrop, 0.4 diverse Shaded coffee0.6 Fodder bank0.4 monocrop, 0.6 diverse Commercial tree plantation0.4 Bamboo (guadua)0.5 Riparian forest0.8 Secondary forest (>10m 2 )0.9 Primary forest1.0 +0.1 for multiple species (>5); +0.1 for multiple shade species; +0.1 for multi strata; +0.1 for connectivity; +0.2 with understory; +0.3 with species enrichment; +0.1 if riparian; +0.1 with species enrichment

17. Finca Putumayo (Quindío, Colombia)

18. Finca Putumayo: Land use plan Land useUnitsBaseline Year 1234 Degraded pastureha3.2 Unimproved pasture without treesha2.2 Improved pasture without treesha6.1 Improved pasture with low tree densityha8.5 Fodder banksha2.2 Diversified timber plantationha0.8 Guadua plantationha1.3 Riparian forestha1.5 Total areaha14.3 Live fenceskm2222

19. Finca Putumayo: Payments under RISEMP Land useBaseline Year Total 1234 Total points7.415.8 Incremental points8.4 Payment per point (US$)1075 Payments (US$)74630 2,594 PV of payments (US$, 10%)745825294814372,100

20. Impact of PES on profitability of silvopastoral practices Returns to silvopastoral practicesWithout PESWith PES NPV (50 yrs, 10%)US$440US$1,450 IRR12%19% Note: 20ha farm in Nicaragua

21. Primary Forests Total US$102/ha/year (Constantino and Kishor, 1993) Example 2 Ecomarkets (Costa Rica)

22. Costa Rica Forestry Law - Pays landowners $40/ha/year - Same hectare Market Creation Creation of Ecomarkets Over 500,000 ha under system!

23. Example 3 Biodiversity-Friendly Shade Coffee (El Salvador)

24. Coffee grown under shade: The forest is structurally complex and provides some degree of habitat richness Coffee grown in the sun: The forest is gone and the value of this plantation for biodiversity is very marginal

25. Certified Coffee - Better taste - Less volatile prices - Ecosystem Conservation - Water Conservation

26. Water services: Key characteristics Water flows downhill

27. High value = Substantial potential payments Low value = Minimal potential payments Río NizaoRío Ocoa Caribbean Dominican Republic Water services vary substantially Hydropower Production 98MW 52MW 64MW 6 m 3 /sec Potable water Irrigation San José de Ocoa

28. Canaima NP Venezuela: Canaima NP Project N Caracas Maracaibo VENEZUELA COLOMBIA BRASIL CARIBBEAN Pto. Ordaz MACAGUA CARUACHI TOCOMA GURI TAYUCAY AURAIMA ARIPICHI CIUDAD PTO. ORDAZ SAN FELIX BOLIVAR RIO CARONI RIO PARAGUA RIO ORINOCO EUTOBARIMA DAM Río Caroní watershed

29. Venezuela: Canaima NP Project N INSTALLED CAPACITY MACAGUA I 360 MW MACAGUA II MACAGUA III 2376 MW 164 MW CARUACHI 2160 MW TOCOMA 2160 MW GURI II 6600 MW GURI I 3000 MW RIO ORINOCO MACAGUA I EL. 54,5 -II Y III 100 150 200 250 300 0 50 110100 908070 6050403020100 DISTANCE (Km) ELEVATION (masl) CARUACHI EL. 91 TOCOMA EL. 128 EL. 270 II EL. 215 GURI MACAGUA CARUACHI TOCOMA GURI RIO ORINOCO

30. Can we actually get people to pay? Costa Rica: Payments by water users FirmWatershed Watershed size (ha) Contract area (ha) Payment ($/ha/year) Energía GlobalRío Volcán3,4662,49310 Río San Fernando2,4041,81810 Platanar SARío Platanar3,1291,80010/30 CNFLRío Aranjuez9,5155,00042 Río Balsa18,9266,00042 Lago Cote1,25990042 La Manguera SALa Esperanza3,00010 Florida Ice & FarmRío Segundo3,8701,00010 Source: S. Pagiola, 2002. “Paying for Water Services in Central America: Learning from Costa Rica.” In S.Pagiola, J. Bishop, and N. Landell-Mills, eds, Selling Forest Environmental Services. London: Earthscan.