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Annexes

Annex 1. Summaries of presentations

The presentations have been arranged by subject according to the workshop programme.

FUNDAMENTAL ASPECTS OF PES IN WATERSHEDS

Land-water linkages in rural watersheds: implications for payment schemes for environmental services

Often it is assumed that land use practices have significant impacts on water resources and affect the downstream population in the watershed. Payments by the downstream population to the upstream population for "hydrological services", such as a good quality of water, less sediments or a more regular flow regime are discussed as mechanisms to internalize these impacts. However, there is much controversy on the direction and extent of such impacts, their influence in the relations between the different resource users in the watershed and the mechanisms to distribute costs and benefits among the various users. To address these subjects, the FAO Land and Water Development Division initiated the programme called "Land-water linkages in rural watersheds".

The effects of land use on water resources vary according to local conditions. The assessment is difficult due to large delays between cause and effect and the interference between anthropic and natural impacts caused by, e.g., climatic changes. These limitations make it difficult to draw general conclusions about the relations between land and water use in watersheds. However, some experiences show that land management impacts on watershed hydrology and sedimentation are observed more clearly in small-scale watersheds of about tens of square kilometres. Some land management effects on water quality can be observed also at larger scales.

The gathering of reliable information on interactions between land use and water-related services in watersheds is expensive and it can be obtained only in the long term. There are some generalizations about these poorly reliable interactions, which are obtained from, e.g. extrapolations of experimental results from the farm scale to the watershed scale.

The results underline the need of a careful assessment and monitoring of land-water relations for the implementation of payment systems for environmental services in watersheds. Two recent experiences with the assessment land-water relations in Latin America are presented.

Jean-Marc Faurès
Food and Agriculture Organization of the United Nations (FAO)
Viale delle Terme di Caracalla, 00100 Rome, Italy
jeanmarc.faures@fao.org

Environmental service payments: initial lessons from practical experiences

Ecosystems provide a whole range of valuable environmental services, such as water services, biodiversity conservation or carbon sequestration. However, these services are usually lost or deteriorated since landowners often do not receive any compensation for providing them and, therefore, they are ignored in decisions related to the land use.

The concept of payment for environmental services (PES) is a promising solution to this problem, which has caused significant interest over the last years. However, putting theory into practice is not an easy task. The World Bank has been working with several of its member countries to develop markets for environmental services in tropical forests. Various projects adopting this perspective are being executed in Costa Rica, Colombia, Nicaragua and other countries. Besides, there are other projects undergoing the preparation phase in the Dominican Republic, Ecuador, El Salvador, Guatemala, Mexico and Venezuela. These projects are focused on the creation of markets for water functions, but they also include efforts to establish market mechanisms for functions to conserve biodiversity and carbon sequestration.

Some initial lessons are emerging from these experiences about the PES concept. The first lesson is that the specific service provided by a given ecosystem must be identified and quantified clearly. This depends not only on the ecosystem characteristics, but also on the user characteristics, which may be the most important ones. Hydroelectricity producers, for instance, do not use water as municipal services of drinking-water supply do. One of the major obstacles faced by PES systems is the establishment of linkages between the ecosystems and the users of their services. The second lesson shows the need to put mechanisms in place in order to use payments made by users to compensate landowners providing the services. While considerable efforts have been made to collect the user payments, the compensation of forest owners has not been duly considered to change their behaviour towards the desired direction, which may cause the generation of perverse incentives.

The initial experiences of PES schemes, as well as lessons from similar interventions such as reforestation or soil conservation programmes, provide clear principles which must rule the payment systems, including permanent payments instead of one-time payments and the differentiation of payments according to the land use and location. Finally, PES schemes involve various political economy-related issues, where the most important one may be the assurance of the participation and benefit of the poor. The involvement of a large number of small-size landowners may turn out to be very difficult due to the high transaction costs involved.

Stefano Pagiola
Environment Department, The World Bank, Mail Stop MC5-511, 1818 H Str NW
Washington DC 20433, USA
spagiola@worldbank.org

ECONOMIC VALUATION FOR PES SCHEMES

Economic valuation for the environmental service of water regulation, Southern Sierra de las Minas, Guatemala

The study intends to estimate a water tariff (US$/m3) for the water regulation service or "sponge effect" of forests. The study is focused on the generation of basic information to formulate compensation policies and a programme on environmental service payments. The study was conducted in the Southern part of the Reserva de la Biosfera de la Sierra de Las Minas (RBSM), Guatemala and contracted by the Programme on Strengthening Institutions in Environmental Policy (FIPA/AID).

The model uses data from the forest water production obtained from a GIS hydrologic model, which determines flow changes assuming that the annual total water volume produced in the watershed is constant, and that fluctuations occur during the year due to changes in the forest cover.

The value is established based on two scenarios: the minimum price for water regulated by the existing forest cover and the additional marginal cost for water regulated by reforestation on the uplands of the Sierra de Las Minas. The water value in the first scenario - current cover - must compensate the forest owners/managers for the land opportunity cost and the protection work cost of the current cover; on the other hand, the calculation considers positive externalities for the forest, in terms of preventing economic impacts caused by damages to the road infrastructure. The second scenario - marginal water cost - reflects the reforestation costs and implications in areas of water recharge.

The methodology determined the flows during summer and winter as a function of changes in the forest cover and made financial projections at a twenty-year term. The information allows the estimation of an average tariff for one cubic meter of water during summer of US$0.03 corresponding to US$188.30/ha/year.

Juan Carlos Méndez, Oscar Hernández, Carlos Roberto Cobos, Ariel Ortiz
FIPA/AID, Reserva Biosfera Sierra de Las Minas, Guatemala
jcmendez@fipagt.com

Water service payments: service measurement and valuation

Environmental service payments for watershed protection (PES) are becoming increasingly popular. In May 2002, the International Institute for Environment and Development (IIED) published a review with 61 examples of environmental service markets for watershed protection. New initiatives have arisen since then and are in proposal stages; they are being considered as a new opportunity for the watershed development. It is expected that these examples will provide ideas about the best mechanisms for the design of these markets; however, this is not an easy task, since unlike markets for carbon sequestration, the watershed protection services are locally restricted. According to experts, the watershed cannot be too large, or too small to be able to identify the service physically, relating the point of origin of the services and its value to users downstream. It is important to keep in mind that, economically speaking, the existence of watershed protection system does not guarantee the existence of a market. Apart from providers, it is required to have service users willing to pay for them. The mechanisms to be used will depend on each particular situation and the payment amount will depend ultimately on the willingness to pay of the service users and on the upstream landowners willingness to accept compensation payments.

A very important element of the market creation process for watershed protection is the "commoditization" of the services to be traded. Watershed protection can be understood as seasonal flow regulation, water quality control, erosion and sedimentation control, salinity reduction, water table control, and the maintenance of aquatic habitats. Specific actions required to ensure the service provision will depend, as usual, on each particular situation.

This leads us to another essential issue: do these actions guarantee an improved service level? The PES payment must be measured in marginal terms, i.e., the additional value of soil management actions to provide the service in demand. The water service measurement is one of the most critical issues where there is little consensus. What is the value added by forests, wildlands, or improved forestry/pasture systems to watershed protection in terms of water?

This is the major question of a study conducted in Monteverde, Costa Rica, funded by DFID, and executed by the Free University of Amsterdam, the Newcastle University and IIED. A team of hydrologists is measuring the contribution made by cloud forests in terms of water flows, especially during dry seasons, compared to other land uses such as grazing. The model generated can be calibrated and used in other watersheds with cloud forest in other parts of the world. The Newcastle-IIED team is developing a methodology of socio-economic analysis aiming at finding out how forests and environmental services are being valued by the various actors, and suggesting mechanisms and quantities of compensation to be used. The project intends to provide a support system for decision-making assisting the development of market instruments and policies for Costa Rica and other countries.

Ina T. Porras
International Institute for Environment and Development, IIED, 4 Hanover St.
Edinburgh, EH2 2EN, UK
ina.porras@iied.org

Economic valuation of environmental goods and services of high Andean grasslands in Peru: policies for sustainable management[3]

The High Andean grasslands represent 32 percent of the Sierra region of Peru - 14.3 million ha; 84 percent of which belong to 5 000 communities of farming families under extremely poor conditions. The grasslands are fragile ecosystems located in upper catchment areas and perform an important function in the water cycle. They support livestock, which has expanded largely in the Peruvian Andes. They also constitute a source of biodiversity harboring plants and animals endemic to the High Andean ecosystems.

As a consequence of overexploitation and the lack of government policies and an appropriate institutional mechanism for the sustainable planning and management of grasslands, the ecosystem has been degraded increasingly by the pressure of the farming population which constantly demands more land for agriculture. By means of an economic valuation of the environmental goods and services of the High Andean grasslands it is possible to contribute to formulate policies and a conservation strategy for such ecosystems.

This presentation includes the results obtained by a research conducted in Sihuas, Ancash, Peru. The total economic valuation of the biological diversity and environmental services of the High Andean grasslands is conducted in two scenarios:

1. without project: traditional management of High Andean grasslands in the community "14 Incas";

2. with project: the "Recovery and management of palatable forage species on 2 500 hectares of natural grasslands in the community "14 Incas" project is taken as a reference, which was implemented in the area with IRG/BIOFOR/USAID funds in 2000/2001.

Oscar Ventura Quezada
CIDIAG. Av. 28 de Julio 339, Sihuas - Ancash, Peru
oventura@qnet.com.pe

Assessment of the water provision potential in La Amistad - An economically significant environmental service for communities

La Amistad is a bi-national region, which is part of a World Heritage site located in the Talamanca uplands of Costa Rica and Panama; it protects the largest undisturbed area of upland watersheds and forests in Southern Central America. The area is very important due to its water resources and includes several watersheds, serving as freshwater sources for populations located at lowlands of the Talamanca coast. Freshwater and diversity of the region have turned La Amistad into a priority site in the Central American eco-regional portfolio of The Nature Conservancy (TNC). While Talamanca uplands remain untouched, the Area Conservation Plan (CAP)[4] has identified growing threats to the region due to land tenure issues, forest clearing, agriculture and infrastructure.

The project intends to quantify the value and extent of water benefits provided by the La Amistad area. The approach is based on a production level - instead of a consumer level - to prove the hypothesis that protected watersheds supply vigorous environmental services to the local productive activities. The research combines a hydrologic model with applied microeconometrics to value the complex services of the ecosystem, such as the benefits related to the increase in flows for hydroelectric purposes or other productive uses or drought mitigation provided by afforested tropical watersheds to the farming communities.

Two basic components, the hydrologic and the econometric components constitute the structure of the research project. The forest hydrology component will establish a model to compute water supply from the catchment or ecological indexes, which will provide indicators to define the environmental service of interest or the present externality. When conducting the data analysis, base information will be obtained for those hydrologic variables - rainfall, flow level, forest effects such as evaporation and transpiration, among others, which will form the model. The economic component is based on a bio-economic model, which measures changes in the efficiency of the production activity of interest based on the hydrologic indicator. The results will generate a productivity analysis of the activity to know the marginal benefits of the change in water variables. This will be useful to estimate the local economic value of hydrologic services provided by protected forest watersheds by analysing the willingness to pay through surveys.

Felipe Carazo
The Nature Conservancy, Apartado 230-1225, Plaza Mayor, San José, Costa Rica
fcarazo@tnc.org

Proposal for a system of payment for environmental services (PES) to protect the Río Arenillas watershed, El Oro Province, Ecuador

Environmental protection of watersheds is a very important factor for the generation of environmental services (ES). The lack of economic resources for protection of the watersheds has contributed to their continuous deterioration. Since the Río de Janeiro Summit on Environment and Development (1992), PES systems are being taken into consideration with the main objective of valuing the ES is to determine the economic and legal mechanisms for watershed protection.

To analyse the possibility of implementing a PES scheme, the Río Arenillas Watershed was chosen as a pilot watershed. It is located in the El Oro Province, Ecuador, upstream of the Tahuin dam. As a result of the biophysical characterization, it was determined that one of the major problems is erosion in the uplands. Natural vegetation in the uplands only cover 3.5 percent of the upland area, which causes the increase of sediments to the reservoir and the reduction of its capacity, influencing in the amount and regularity of the flow and the water quality.

Therefore, to generate and value sediment control ES it was determined that the most favourable scenario is investing in a reforestation activity around the reservoir and increase forestry and pasture cover in the upland watershed, generating future savings in dredging costs of US$32.7 per ha and year. This figure represents the value of the potential ES in the Río Arenillas watershed. This intervention would be supported by the Water Law (paragraph: conservation and maintenance of dams and reservoirs) and managed by regional and local institutions in the study area.

María Virginia Ribadeneira
Independent consultant, Quito, Ecuador
mariavirginia50@hotmail.com

Remigio Galárraga Sánchez
Department of Water Sciences. Escuela Politécnica Nacional. Quito, Ecuador
remigala@server.epn.edu.ec

METHODOLOGICAL TOOLS AND BIOPHYSICAL ASPECTS FOR PES SYSTEMS

The CONDESAN watershed analysis methodology: an alternative to correct deficiencies in the implementation of payment for environmental services in Andean countries

Payment for Environmental Services is one of the novel mechanisms to generate social and environmental benefits having an impact on the use of land as well as on poorest producers welfare. One example is the resource transfers (6 percent gross energy sales) from the hydroelectricity sector (5 million families) to municipalities and Regional Corporations for Development (Corporaciones Regionales de Desarrollo - CRD) in Colombia. The CRD must allocate 50 percent of this amount (US$135 million between 1994-2000) for investments in watersheds where the energy is generated. CRD should have Watershed Management Plans as a compulsory planning tool. However, the Treasury Inspector s Office reported that a great deal of these transfers is used in overheads or new contracts which are not related to investments for watershed protection.

The major weakness is related to the absence of management plans and/or to the fact that these plans are not based on priorities according to the current environmental and socioeconomic situation, priorities of the community, as well as their management capacities. Furthermore, the plans lack impact indicators which could direct rural investment to guarantee that the resources are invested in the areas where the externality occurs, to achieve agreed environmental impacts and the transfer of direct or related economic benefits to local producers.

The suggested methodology aims to counteract the major weaknesses identified. The first phase includes five main steps which analyse the potential of environmental externalities potential as a development generating mechanism. The steps are the following: 1) estimate of environmental externalities of current land use; 2) estimate of new land use impact; 3) early feedback of investment impact on production systems and farms; 4) evaluation of changes in employment generation, and 5) design and set-up of strategic alliances with a view to implementing the alternatives. The above-mentioned steps are consolidated through a participatory planning process of land use which involves the following stages:

1. Description of different actors desirable conditions.

2. Comparison between current conditions, desirable ones, and trends observed regarding the use of land and development, identifying the limiting factors (diagnosis).

3. Undertaking necessary actions to attain desirable conditions and requests to top management levels or partners who, until now, have not been consulted.

4. Definition of priorities, assistance and requests, as well as responsibilities and mechanisms for its accomplishment.

5. Setting goals for every action, taking into account restrictions and costs.

6. Definition of indicators to follow up actions and compare present conditions with goals and initial conditions, and

7. Definition of criteria to permanently update goals in terms of progress made and external factors.

Rubén Dario Estrada
CONDESAN/CIAT, Cali, Colombia
r.estrada@cgiar.org

Marcela Quintero
International Center for Tropical Agriculture CIAT, A.A. 6713, Cali, Colombia
m.quintero@cgiar.org

Watershed environmental services and water production: concepts, valuation, experiences and possibilities for their application in Peru

The presentation examines research on the most important recent experiences in Latin America and other parts of the world on consideration and payment for environmental services (PES) in watersheds with regard to regular production of good quality water to meet the needs of the population. Conceptual basic aspects of water production in watersheds, possible impact of various land uses, and changing natural conditions during this process are discussed. Certain mechanisms used for valuation and monitoring of water resources are presented, along with considerations to apply PES in Peru given the current conditions, and taking into account the positive attitude towards new participatory and equitable alternatives for raising local benefits regarding sustainable management of natural resources. The main current limitations that should be overcome in this country to attain optimal use of PES are pointed out. Among these limitations are the accurate measurement of water supply and demand; expectations of beneficiaries; common conceptual errors in water management; legal and institutional deficiencies, among others. It is assumed that these are surmountable deficiencies. With some resources and the harmonized effort of some key institutions, different experiences reviewed in this presentation could be successfully validated in Peru.

Carlos A. Llerena
Forestry Science School. Universidad Nacional Agraria La Molina, Lima, Peru
callerena@lamolina.edu.pe

Equity account for water resources in the Lerma-Chapala watershed (Querétaro region)

Concepts and experiences presented in the presentation:

Objectives and fields of activity:

Results attained and the most significant conclusions for the Forum:

There is a marked trend towards the loss of natural capital valued at 185.7 million Mexican pesos which is the "savings account" of groundwater. This is also the result of existing inefficiencies in the reutilization of waste water which amounts to 859 million m3 and which could compensate the 93.4 million m3 deficit currently covered by groundwater depletion.

The current price policy does not help to attain a correct allocation as it contributes to the inefficient use of the water resource which, in turn, hampers the operating body s capacity to attract greater investment for the improvement of water infrastructure.

Alejandro Angulo Carrera
Ministry of the Environment and Natural Resources, Boulevard Bernardo Quintana No. 29
Col. Álamos, Querétaro Qro, México
aanguloc@prodigy.net.mx

Ivonne Valdez Muciño
Universidad Autónoma de Querétaro, Centro Universitario, Cerro las Campanas s/n
Querétaro Qro., México

Environmental goods and services from pine tree thinning in watersheds

Results from 20 years of research on the influence of forestry interventions in subwatersheds covered by Pinus caribaea and Pinus tropicalis with riparian forest or broad leaved forestry strip in the margins of Alturas de Pizarras rivers are reported. This report summarizes water yield as well as erosion and quality of water fl owing towards downstream reservoirs.

Forestry interventions consisted of a complete clear felling and immediate reforestation of subwatersheds and, after 15 years, 43 percent thinning of Pinus caribaea plantations

Results showed that forestry interventions lead to abrupt disruptions in the water indices of the subwatershed but, as vegetation grows old, water indices are restored.

It is concluded that it is possible to obtain 1 623.89 Cuban pesos/ha net profit for timber logging after thinning and water contribution from a subwatershed of 8.9 ha to a downstream reservoir for irrigation purposes. When considering thinning of 100 similar subwatersheds, the resulting profit from irrigation of 26 ha cropland is 4 680 pesos for that particular year.

Arsenio Renda Sayou, Tomás Plasencia Puentes, Juan Herrero Echevarría, Doralys Ponce Barroso, Alberto Vidal Corona y Ariel Pérez Pirino
Forestry Reasearch Institute
La Habana, Cuba
iif@enet.cu

PRACTICAL EXPERIENCES: IMPLEMENTATION OF PES SYSTEMS

Payment for environmental services (PES) in PROCARYN - pooling national and international funds for water resource conservation in the Dominican Republic

PROCARYN[5] is a project of the Environment and Natural Resources Ministry which began implementation in 2001. It is technically and financially supported by German Cooperation Agencies (KfW, GTZ, DED) and addresses the development of ecologically and economically viable forestry, agriforestry and agricultural systems along with participatory measures for community development and securing land tenure arrangements.

Over the last years, the growing national awareness of the importance of water for sustainable development in the Dominican Republic has been translated into water sector reforms and nationwide discussions on PES with a focus on water resource valuation. Within this context, the Dominican Electricity Corporation (Corporación Dominicana de Electricidad - CDE) voluntarily offered funds to set up natural resources protection measures for one of the most important watersheds in the country: Northern Yaque River Upper Basin. The PROCARYN project is, at present, including additional measures to be funded by CDE. To this end, the following principles should be followed: a) new measures should mainly address erosion and sediment reduction in water courses and should be complementary to the current ones, and b) the new measures should be supported - with no additional cost - by the current project infrastructure. In this way, CDE funds will be mostly net investments in practical measures having impact in the field. Impacts on water resources to ensure project cost-benefit transparency and continue optimizing the efficiency of measures, are going to be analysed, monitored, and researched through a comprehensive system.

Within the broad scope of PROCARYN s activities the following final goals are expected to be attained:

Thomas Heindrichs
Natural Resources Management Programme, German Technical Cooperation (GTZ)
Santo Domingo, Dominican Republic
ThomasHeindrichs@aol.com

Payment for environmental services: an alternative for water availability and quality in Tungurahua, Ecuador

Water availability in a catchment depends on the ecosystem s capacity to intercept, collect and store water, proper management of grasslands, as well as types and intensity of water consumption. Water "collection" is an environmental service which benefits society. Deterioration of the ecosystems directly affects water supply and the population s quality of life. The Tungurahua province has water demands which surpass the supply by 40 percent, creating serious supply and maintenance problems for the natural ecosystems in terms of water supply. This proposal aims at improving water availability and service, optimizing administration, management, distribution, access and the use of water resources. PROMACH has developed integral watershed management strategies in order to balance water supply and demand so that this resource is conserved and can improve the population s social welfare. This includes the implementation of economic alternatives which allow for sustainable development of resources by means of a payment for environmental services (PES) Fund. The strategy includes PES implementation. Tariffs are determined by a multidisciplinary and participatory methodology. The region s socio-economic and cultural context is considered for PES implementation to adjust the scheme to the characteristics of the place, strengthening the weakest socio-economic sectors. At the same time, a political strategy is created to facilitate the necessary institutional conditions so that economic instruments could function efficiently and contribute to an equal distribution of benefits. The diverse social structure in the area, strong interests of some political sectors and a lack of information made intensive work necessary in order to clarify the PES concept to the actors and support the creation of a fund to ensure that the communities themselves will benefit most from the programme.

Rafael Maldonado Vásquez and Marina Kosmus
Integral Management of the Río Ambato Watershed, PROMACH, German Technical
Cooperation (GTZ). Av. Mirafl ores 1153 y Las Retamas. Ambato, Ecuador
Marina.Kosmus@gtz.de

Payment for hydrological services at a municipal level and its impact on rural development: the PASOLAC experience[6]

PASOLAC s mission is to increase small- and medium-scale producers incomes in the hillside regions of El Salvador, Honduras and Nicaragua. The Programme s working goal is to promote the adoption of sustainable soil and water management on farms owned by small-scale producers, its principal clientele. In pursuit of its objectives, PASOLAC works with over 50 institutions which include groups of producers, districts, NGOs, GOs and higher education centres. As of the year 2000, PASOLAC has been implementing pilot actions for the payment of hydrological services (PHS) in El Salvador, Honduras and Nicaragua through municipalities interested in developing these mechanisms. By means of this perspective, the Programme seeks to develop local markets with environmental supply and demand with an emphasis on hydrological services.

Ten PES pilot actions are currently being executed in the three countries. Of these, seven pilot projects are executed with the leadership of municipal governments or corresponding municipal water companies. In Nicaragua, PES actions are being carried out in the Districts of Achuapa, San Pedro del Norte, Río Blanco and Estelí (El Regadío). In El Salvador with the districts of Tacuba, La Palma/San Ignacio and the districts of Sensembra, Guatajiagua and Yamabal. In Honduras with the Barrio Municipal Water Board and the Municipal Water Board of Jesús de Otoro. In addition, in Nicaragua a PES scheme is being implemented by a consortium which involves the Esteli National Water and Sewer Company, the District, the National Forestry Institute (INAFOR) and a private development organization. The overall area under management with a PES scheme is potentially about 15 000 manzanas and to date direct interventions have been made for 500 manzanas. In this intervention area several techniques have been introduced to contribute to the sustainable management of soil and water. Among the techniques introduced are the elimination of burning, the management of stubble, natural forest regeneration through selected thinning, coffee cultivation management, conservation of the regenerated forest, the introduction of living barriers with different species and the composting of coffee pulp to avoid the contamination of water sources by coffee production. To date, agreements have been signed between producers from upland areas and institutions in charge of PES administration in San Pedro del Norte (Nicaragua), Tacuba (El Salvador) and in Campamento and Jesús de Otoro (Honduras).

Carlos J. Pérez
Regional Coordinator for PASOLAC and Intercooperation Representative in Central
America, Managua, Nicaragua
cperez@cablenet.com.ni

Programme for the Conservation and Recovery of Microwatersheds (PROCUENCAS) in the province of Heredia, Costa Rica

Although we all accept the fact that our everyday welfare is based on natural resources, we do not all collaborate to maintain and protect these resources. The availability of good quality water is necessary in order to guarantee the protection of forests which provide this benefit.

In accordance with these premises, national environmental legislation in Costa Rica (Forestry Act 7575, ARESEP Law, the Biodiversity Act, among others) recognizes water protection for urban, rural and hydroelectrical use as an environmental service provided by forests to Costa Rican society. This service must be economically appraised and charged to users in the drinking water bill as a social equity principle.

Law 7789 on the Transformation of the Heredia Public Services Company (ESPH S.A.) dated 23 April 1998, assigns responsibilities related to the protection and rational use of the region s resources.

The ESPH programme for the protection and recovery of micro-watersheds in Los Ciruelos, Segundo, Bermúdez, Tibás y Pará is in charge of promoting activities for the protection of existing natural forest, natural forest regeneration and reforestation in the upland microwatersheds. The landowners who join the programme receive a payment for water environmental services which is financed by resources from the "water tariff" added to the monthly water bill of consumers. The programme is backed and supported by the Ministry of the Environment and Energy (MINAE) through the Central Volcanic Mountain Range Conservation Area (ACCVC).

Water tariffs represent a contribution from Heredia s community to enable the development of PROCUENCAS which promotes protection and forest recovery activities in watersheds that supply drinking water to ESPH clients and to another important sectors of the Metropolitan Area.

Water tariffs contribute towards helping society realize that water is a social economic commodity, and to integrate watershed and user interests. In this way, water users compensate service providers who are responsible for protecting and recovering the forest which in turn protects the water resource.

Main objective of the programme is to conserve and recover drinking water sources managed by ESPH in order to support the region s development towards a model that will make economic growth, social development and environmental conservation all compatible.

Juan Diego Bolaños Picado
Environmental Office, Heredia Public Services Company
caforsa@costarricense.cr

Contribution to the integral management of watersheds in Peru s coastal valleys through the creation of markets for environmental goods and services from the water resources on lands protected by vegetative cover in upland watersheds

Forestry ecosystems are the world s most important providers of environmental services such as maintenance of the hydrological cycle and soil fertility, among others. Protected lands with vegetative cover in upland watersheds are among the most important providers of water resources for human use in Peru, due to the great concentration of the population in the valleys. In this presentation, taking the existing legal framework as a baseline, it is proposed that a market be created for the environmental services of lands located upstream of coastal valleys as a policy to reduce deforestation and the degradation through a payment plan which is to be drawn up making use of participatory methodology among the actors involved. This programme will cover three aspects related to integrated watershed management a) the management of natural resources; b) management of the administrative aspects and, c) environmental education as a cross-cutting issue. It is noteworthy to state that payment for environmental services does not constitute the only solution for encouraging conservation, since this must include other aspects such as research, economic valuation and the identification of critical forest areas.

Bertha Alvarado Castro
Instituto Nacional de Recursos Naturales INRENA. Calle Diecisiete Nº 355, Urb. El Palomar,
San Isidro, Lima 27, Peru
calandria289@hotmail.com

ANALYSIS AND IMPACTS OF PES SYSTEMS IN THE REGION

Experiences with payment for environmental services in Costa Rican Watersheds

Costa Rica has acquired a certain amount of experience in payment for environmental services (PES) provided by forestry ecosystems in watersheds. The Forestry Act establishes the recognition of four environmental services provided by forests and forestry plantations. The Biodiversity Act establishes the possibility of charging users for water resources, in order to pay landowners in aquifer recharge and water protection areas. Finally, a recent executive decree recognizes the PES provided by agro-forestry systems.

In the case of watershed services, several voluntary agreements have been signed with private and State companies which will provide funds ranging from US$10-53 per ha and year for protection, reforestation or management of watersheds in which their commercial activities or projects are located.

The Public Service Regulating Authority has recently authorized the inclusion of a water tariff for drinking water services set at a fixed amount to be allocated to watershed protection. To this end, a public company has requested a study from CATIE on the creation of an environmentally-adjusted electrical tariff enabling the management of Birrís River watershed.

The Government of Costa Rica is preparing a decree to establish a system of fees for wastewater discharges which pollute water sources. The funds collected must be allocated to the financing of actions oriented towards the improvement or restoration of water bodies in watersheds or subwatersheds where the decree is applied.

F. Jiménez, J.J. Campos, F. Alpízar, G. Navarro
Department of Natural and Environmental Resources, Centro Agronómico Tropical de
Investigación y Enseñanza, CATIE, Apartado Postal 7170, Turrialba, Costa Rica
fjimenez@catie.ac.cr

Some lessons about the application of payment for water protection in Colombia and Ecuador

Payments for the protection of vegetative cover to guarantee water flow and quality has been the foundation of different PES initiatives presently underway in Colombia and Ecuador. In order to provide elements for discussion, some lessons are presented which identified the same, recognizing that these years of experience are still incomplete.

1. One must talk about payments for the protection of environmental services, not payments for the services themselves.

2. Water, being a common resource which is vital for the population, is very politically sensitive and the application of a payment mechanism requires the decisive support of principal decision makers.

3. Water must be seen as a right and a commodity.

4. Payments cannot be applied in all cases; ignoring the cultural and socio-economic context in which a market operates can have detrimental effects. However, payment for the protection of a hydrological service can mean interesting income for rural communities.

5. Transaction costs can be significant.

6. Hydrological information is scarce.

Marta Echavarría
Ecodecisión, Calle La Pinta 236 y La Rábida, Edificio Alcatel - Local 8, Quito, Ecuador
Mechavar@ecnet.ec

Management of environmental services and natural areas in Andean watersheds

The North Andean countries are home to a great paradox: they are part of the most humid land on the planet and at the same time water is very scarce. Part of the reason behind this problem is the destruction of natural vegetation in upland watersheds - grassland (páramo) and Andean forests - which has led to soil erosion, faulty regulation of water flows and water pollution. Another cause, perhaps even more important, is the lack of coordination in water resources management, which has produced inefficient collection and distribution systems, large-scale water losses and insufficient resources for adequate service provision.

In response to both aspects of the water problem in Andean watersheds, several organizations are developing environmental service management systems, in which water users in the urban and agricultural part of watersheds organize and help each other out in different ways to safeguard water services provided by natural ecosystems in upland areas. These ways include financial compensation, collaboration in conservation activities or legal and fiscal incentives for forest landowners.

In Ecuador, several management models are presently being implemented at different levels. These vary from the case of a big city to a provincial capital in which urban inhabitants contribute to the direct protection of natural areas through the purchase of forests and wastelands to cases in which a rural community directly pays the neighbouring community for the conservation of water sources. Each model analysed has its advantages and disadvantages. The most important lesson learned to date is that each biophysical and socio-economic situation needs its own model, since all actors have different answers to the central questions of this kind of management, such as: How much do we earn or lose - in monetary, ecological and social terms - when we conserve a natural area? To what extent are society and the State willing to pay for the maintenance of these services and how can this willingness be increased? Who should collect the payments? Who should be charged? What role should governments, communities, development agencies and scientists play in this process? How can the perception of the urban population be changed so as to support and ensure these services which are so important? How can we ensure that the funds really reach those in need and deserve it, and that the payment system will not cause more social and cultural inequality?

Robert Hofstede
EcoPar/University of Amsterdam, Casilla 17-11-6706, Quito, Ecuador
robert@paramo.org

DESIGN OF SUCCESSFUL PES SYSTEMS IN WATERSHEDS

Assessing the efficacy of financing systems for watershed ecosystem services

Initiatives for the development of payment systems for ecosystem services in watersheds (PES), have mainly focused on the identification of potential buyers and on mechanisms for payment collection. However, even though these services have characteristics of public goods, payment disposal depends on trust in the efficacy of actions carried out in order to ensure the provision of and access to these goods and services to consumers. The key aspects behind efficiency are:

Given the extended period between the multiple causes and effects which happen in large watershed areas, the effectiveness of a management activity is uncertain and depends on a number of location-specific factors. A continuous evaluation process is therefore critical, but often absent from PES initiatives in watersheds. Therefore, a better definition of services provided for specific watershed ecosystems is necessary in order to provide the foundation for the appropriate selection of responses to threats and monitoring to determine if the objectives are met. In the absence of an adequate evaluation, initiatives are often based on myths or inadequate generalizations. A draft of a general evaluation guidebook (currently being prepared) is presented which aims to encourage the development of PES initiatives. Focus of the presentation is on evaluation aspects, inviting the Forum s participants to provide feedback as to the usefulness and relevance of this guidebook, particularly people involved in PES initiatives.

Sylvia S. Tognetti*, Guillermo Mendoza, Douglas Southgate
Bruce Aylward, Luís García
*Independent Consultant
7004 Sycamore Ave., Takoma Park, MD 20912, USA
Stognetti@mindspring.com

Annex 2. Programme

Monday, 9 June 2003

11:30 - 12:30

Opening ceremony
Programme presentation and workshop dynamics

12:30 - 14:30

Lunch

14:30 - 16:30

Session 1: Fundamental aspects of PES in watersheds
Moderator: Ina Porras
Secretary: Ivonne Valdez

Keynote Presentation 1:
"Land-water linkages in watersheds: implications for PES schemes"
Jean-Marc Faurès, FAO

Keynote Presentation 2:
"Payment for environmental services in Latin America: initial lessons from practical experience"
Stefano Pagiola, World Bank

Open discussion:
· Member expectations
· Definition of key issues to be discussed

16:30 - 17:00

Coffee -Break

17:00 - 19:00

Group work
· Group 1: Economic evaluation and methodological instruments for PES schemes in watersheds
· Group 2: Implementation of PES schemes in watersheds


Issues:
· Discussion of fundamental aspects and difficulties
· Elaboration of a framework to analyse cases presented in sessions 2 - 5

Tuesday, 10 June 2003

Parallel Sessions

10:30 - 12:30

Session 2: Economic appraisal for PES
Moderator: Carlos Llerena
Secretary: Marcela Quintero

Session 4: Practical experiences:
Implementation of PES systems
Moderator: Marta Echavarría
Secretary: Francisco Jiménez


· Guatemala: Economic appraisal of the environmental service of water regulation, Southern Sierra de las Minas. Carlos Roberto Cobos, FIPA/AID.
· Costa Rica: Water service payments: service measurement and valuation. Ina Porras, IIED.
· Peru: Economic appraisal of environmental goods and services in the High Andean grasslands in Peru. Oscar Ventura, CIDIAG.
· Panama/Costa Rica: Appraisal of La Amistad's potential for water provision. Felipe Carazo, TNC.
· Ecuador: Proposal for a PES system for the protection of the Rio Arenillas watershed - Provincia del Oro. Maria Virginia Ribadeneira y Remigio Galárraga, EPN.

· Dominican Republic: Payments for environmental services in PROCARYN - pooling national and international funds for the conservation of water resources. Thomas Heindrichs, PROCARYN/GTZ Project.
· Ecuador: PES as an alternative to ensure availability and quality of water in Tungurahua. Marina Kosmus, Rafael Maldonado, GTZ/PROMACH.
· Nicaragua/Honduras/El Salvador: Payments for water services at a municipal level and their impact on rural development: The PASOLAC experience. Carlos Pérez, PASOLAC.
· Costa Rica: Programme for the conservation and recovery of microwatersheds (PROCUENCAS) in Heredia province. Juan Diego Bolaños, Empresa de Servicios Públicos, Heredia.
· Peru: Contribution to the integrated management of watersheds along the Peruvian coast through the creation of markets for environmental goods and services. Bertha Alvarado, INRENA.

12:30 - 14:30

Lunch


Parallel Sessions

14:30 - 16:30

Session 3: Methodological tools and biophysical aspects of PES
Moderator: Felipe Carazo
Secretary: Oscar Ventura

Session 5: Analysis and impacts of PES systems in the region
Moderator: Marina Kosmus
Secretary: Juan Bolaños


· Colombia: CONDESAN watershed analysis method. Marcela Quintero, Rubén Estrada, CIAT.
· Peru: Watershed environmental services and water production: Possibilities for their application in Peru. Carlos Llerena, Universidad Agraria, La Molina, Peru
· Mexico: Water Resource Equity Account in the Lerma-Chapala watershed. Alejandro Angulo, Ivonne Valdez, Universidad Autónoma, Querétaro.
· Cuba: Environmental goods and services from pine tree thinning in watersheds. Arsenio Renda et al., IIF.

· Costa Rica: Experiences in payment for environmental services in watersheds. Francisco Jiménez, CATIE.
· Colombia/Ecuador: Some lessons about the application of payment for water protection in Colombia and Ecuador. Marta Echavarría, ECODECISIÓN.
· Ecuador: Management of environmental services and natural areas in Andean watersheds. Robert Hofstede, ECOPAR.
· Costa Rica: The social effects of PES markets. Ina Porras, IIED.

16:30 - 17:00

Coffee-Break


17:00 - 19:00

Working groups:
Discussions on cases presented in sessions 2 and 3.
Conclusions and recommendations for the implementation of watershed PES systems.
Identification of criteria for a proper watershed PES programme execution.
Conclusions and recommendations for the economic assessment of watershed PES systems.

Wednesday, 11 June 2003

Field visits organized by Watershed Congress

Thursday 12 June 2003

10:30 - 12:30

Session 6: Formulation of successful watershed PES programmes

Moderator: Stefano Pagiola
Secretary: Berta Álvarado

Presentation: Assessing the efficacy of funding systems for watershed ecosystem services.
Sylvia Tognetti, Consultant, World Bank.

Working groups:
Conclusions and recommendations, preparation to 'Exposé of Ideas '.

12:30 - 14:30

Lunch

14:30 - 16:30

Session 7: Conclusions and recommendations

Moderator: Robert Hofstede
Secretary: Arsenio Renda

'Exposé of Ideas':
Presentation and Discussion of conclusions and recommendations from the working groups in the Plenary Session.

16:30 - 17:00

Coffee-Break

17:00 - 18:00

Plenary Session:
Opportunities for watershed PES systems in the Region.
Closing Ceremony.

Annex 3. List of participants[7]

Name

Institution

E-mail

Address

Country

Alejandro Angulo

Secretaría de Medio Ambiente y Recursos Naturales

aanguloc@prodigy.net.mx

Secretaría de Medio Ambiente y Recursos Naturales, Boulevard Bernardo Quintana no. 29 col. Alamos, Querétaro Qro

Mexico

Bertha Alvarado Castro

INRENA

calandria289@hotmail.com

Instituto Nacional de Recursos Naturales, INRENA, Calle Diecisiete Nº 355, Urb. El Palomar, San Isidro, Lima 27

Peru

Juan Diego Bolaños Picado

ESPH S.A.

caforsa@costarricense.cr

Empresa de Servicios Públicos de Heredia S.A., Heredia

Costa Rica

Felipe Carazo

TNC

calfaro@tnc.org

The Nature Conservancy, Apartado 230-1225, Plaza Mayor, San José

Costa Rica

Carlos Cobos

FIPA/AID

jcmendez@fi pagt.com

Reserva Biosfera Sierra De Las Minas

Guatemala

Marta Echavarría

Ecodecisión

mechavar@ecnet.ec

Ecodecisión, Calle La Pinta 236 y La Rábida, Edifi cio Alcatel - Local 8, Quito

Ecuador

Rubén Estrada

CONDESAN

r.estrada@cgiar.org

Consorcio para el Desarrollo Sostenible de la Ecorregión Andina CONDESAN

Colombia

Jean-Marc Faurès

FAO

jeanmarc.faures@fao.org

Food and Agriculture Organization of the United Nations (FAO), Viale delle Terme di Caracalla, Roma

Italy

Remigio Galárraga

EPN

remigala@server.epn.edu.ec

Departamento de Ciencias del Agua, Escuela Politécnica Nacional, Quito.

Ecuador

Thomas Heindrichs

GTZ-PROCARYN

thomasheindrichs@aol.com

Programa Gestión de Recursos Naturales, Cooperación Técnica Alemana (GTZ), Santo Domingo

Dominican Republic

Robert Hofstede

ECOPAR - U Amsterdam

ecopar1@uio.satnet.net
robert@paramo.org

EcoPar, Casilla 17-11-6706, Quito, Ecuador

Ecuador

Francisco Jimenéz

CATIE

fjimenez@catie.ac.cr

Departamento de Recursos Naturales y Ambiente, Centro Agronómico Tropical de Investigación y Enseñanza, Apartado Postal 7170, Turrialba

Costa Rica

Benjamin Kiersch

FAO

benjamin.kiersch@fao.org

FAO Ofi cina Regional, Casilla 10095, Santiago

Chile

Marina Kosmus

GTZ-PROMACH

marina.kosmus@gtz.de

Av. Amazonas y Eloy Alfaro. Ed. MAG piso 8. Quito

Ecuador

Carlos Llerena

Universidad La Molina

callerena@lamolina.edu.pe

Facultad de Ciencias Forestales, Universidad Nacional Agraria La Molina, Lima

Peru

Rafael Maldonaldo

GTZ-PROMACH

promach@andinanet.net

Av. Mirafl ores 1153 y las Retamas. Ambato

Ecuador

Roldan Muradian

University of Tilburg

rolmu@yahoo.com

Development Research Institute, Tilburg University, P.O. Box 90153, 5000 LE Tilburg

The Netherlands

Stefano Pagiola

World Bank

spagiola@worldbank.org

Environment Department, The World Bank, Mail Stop MC5-511, 1818 H Str NW, Washington DC 20433

United States of America

Carlos Pérez

PASOLAC

cperez@cablenet.com.ni

PASOLAC, Managua

Nicaragua

Ina Porras

IIED

Ina.porras@iied.org

IIED, 4 Hanover St., Edinburgh, EH2 2EN

United Kingdom

Marcela Quintero

CIAT

m.quintero@cgiar.org

Centro Internacional de Agricultura Tropical CIAT, A.A. 6713, Cali

Colombia

Arsenio Renda

IIF

iif@enet.cu

Instituto de Investigaciones Forestales, La Habana

Cuba

María Virginia Ribadeneira

Entrix, Inc.

mariavirginia50@hotmail.com

Quito

Ecuador

Sylvia Tognetti

World Bank, Consultant

stognetti@mindspring.com

7004 Sycamore Ave., Takoma Park, MD 20912

United States of America

Ivonne Valdez

Universidad Autónoma de Querétaro

aanguloc@prodigy.net.mx

Centro Universitario, Cerro las Campanas s/n, Querétaro Qro.

Mexico

Oscar Ventura Quezada

CIDIAG

oventura@qnet.com.pe

CIDIAG, Av. 28 de Julio 339, Sihuas - Ancash

Peru

FAO TECHNICAL PAPERS

FAO LAND AND WATER DISCUSSION PAPERS

1. A perspective on water control in southern Africa - support to regional investment initiatives, 2003 (E)

2. On-farm composting methods, 2003 (E)

3. Payment schemes for environmental services in watersheds/Sistemas de pago por servicios ambientales en cuencas hidrográficas, 2004 (E/S)

Availability: March 2004

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Back cover

Payment schemes for environmental services in watersheds

Payment schemes for environmental services (PES) are innovative instruments for natural resources management which are increasingly being applied in Latin America. In a watershed context, PES schemes generally involve the implementation of market mechanisms to compensate upstream landowners in order to maintain or modify a particular land use that is affecting the availability and/or quality of the water resources for downstream users. The Regional Forum on Payment Schemes for Environmental Services in Watersheds was held during the Third Latin American Congress on Watershed Management (Arequipa, Peru, 9-13 June 2003) to exchange experiences with these schemes in Latin America and to formulate recommendations for the economic valuation of water-related services, as well as the design and execution of PES schemes in watersheds. This report summarizes the lessons and recommendations of the forum. The complete documentation, including 19 papers, 22 presentations and case studies, is included on the CD-ROM that accompanies this publication.


[3] The presentation is based on the research on “Economic Valuation of the Biologic Diversity and Environmental Services in High Andean Grasslands: Case Study on Traditional Management v/s Sustainable Management of High Andean Grasslands in the Farming Community 14 Incas”, Sihuas, Ancash, Peru, conducted in 2001 and financed by INRENA - IRG/BIOFOR. The author was co-researcher.
[4] The Area Conservation Plan (CAP) is the methodology used by TNC to identify objects of conservation, pressures, pressure sources, successful measures and strategies for a priority site.
[5] Natural resources management and conservation project for the upper Northern Yaque River Basin
[6] The Programme for Sustainable Agriculture on Hillsides in Central America is a Programme of the Swiss Development and Cooperation Agency, executed by Intercooperation. http://www.pasolac.org.ni.
[7] This list includes only the organizers and those participants who made a presentation at the Forum. The full list of participants is available on the CD-ROM that accompanies this publication.

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