Payments for Ecosystem Services (PES) in Costa Rica Róger Madrigal-Ballestero EfD-Initiative- CATIE Latin American Chair of Environmental Decisions on Global Change Scotland’s Biennial Land Use and the Environment Conference XII 2018

Overview and trends Wunder 2005 Exchange of $$ for land management practices intended to provide or ensure ecosystem services.

Overview and trends Rapid growth in two decades: The annual value of PES in the world is between US$ 36-42 billion (Market value) (Salzman et al., 2018). 550 active programs (Salzman et al., 2018). 387 in Watersheds: US$24.7 billion in 62 countries in 2015 120 in biodiversity 45 in carbon sequestration The watershed PES sector is the most mature in terms of transaction value and and geographical distribution 1. REDD+ (Reducing Emissions from Deforestation and forest Degradation) 2. The largest PES are found in water and carbon sequestration (carbon markets are profiled as a separate solution). In its broadest definition also ecological fiscal transfers, payments for agricultural conservation easement, and biodiversity offsets can be broadly profiled as PES. 3. In 2015 an investment of US$25 billion flowed to nature-based solutions for the management of water and watersheds, rehabilitating and protecting more than 486 million ha of ecosystems. At least US$16 billion (64 per cent) of this value was used to compensate landowners for their conservation actions directly. The market is still dominated by public subsidy programmes that account for about 95 per cent of the funding. Mixed instruments such as collective action funds that can pool multiple resources have sprouted in Latin America, where water trust funds attracted more than US$120 million for watershed project finance. 4. The monetary value of PES vary widely based on the size/properties of the ecosystem and on the willingness and capacity of beneficiaries to pay for the ecosystem services. The value of global annual transactions of PES is estimated between US$36–42 billion.

1 million ha. forest protection in private lands Costa Rica National PES Program Created in 1996 Focuses on: Carbon sequestration Water protection Scenic beauty Biodiversity 1 million ha. forest protection in private lands PES success does not emerge in vacuum: A blend of enabling conditions Largely depends on a tax on fossil fuel PES success in Costa Rica does not emerge in vacuum, instead, is the result of a blend of enabling conditions including different policies and market incentives aligned to protected the environment. For instance, a large fraction of the Costa Rican economy depends on nature-based tourism, and the government is strongly promoting a transition towards a green economy.

But, there´s one problem… SUPPLY - $$ < DEMAND - $$ The budget accommodates only ~50% of program applicants Decarbonization threatens incomes from fuel tax The demand for PES surpases the supply that Fonafifo as an institution can meet, due mainly to budget allocations

Increasing private participation Stronger scientific evidence on benefits provided Moving from donor-based to investor-based approach What is being sold?  value for the money Scientific backstopping to build the “Business Case” One of the principal strategies that the government is trying to implement is to increase the part. Priv. sec. However, the principal challenge here is to move from a donor-based approach for funding that actually prevails for the participation of the private sector, to an investor-based approach. In other words, the government needs to move from a situation today where few companies pay little money on a voluntarily basis, mostly as a form of social corporate responsibility, to an scenario in a near future where many companies pay significant amounts of money for green investments. One of the key aspects to overcome this challenge is providing better scientific evidence of the benefits provided by these investments. This scientific backstopping can allow the government to demonstrate “business cases” to companies, that is, cases where a CBA could demonstrate companies the rationality of their investments in economic terms.

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