Payments for Environmental Services: An Introduction

Stefan o Pagi ol a En vi ron m en t Departm en t Worl d Ban k 1818 H Str N W Wash i n gton DC 20433 USA spagi ol a@worl dban k.org Th e opi n i on s expressed i n th i s presen tati on are th e au th or’s own an d do n ot n ecessari l y represen t th ose of th e Worl d Ban k Grou p. Th e m ateri al s i n th i s presen tati on m ay be freel y reprodu ced wi th appropri ate credi t to th e au th or an d th e Worl d Ban k.

Stefano Pagiola Environment Department, World Bank 2006

Payments for environmental services : An Introduction

Sasumua water treatment plant, Kenya

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Payments for environmental services : An Introduction

Sasumua water treatment plant, Kenya

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Payments for environmental services : An Introduction

What’s the problem?

Treating for contamination: $100,000/year

Clearing silt from water intakes: $50,000/year

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Payments for environmental services : An Introduction

The problem Deforestation and use for pasture

Conservation

Benefits to land users

Costs to downstream populations

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Payments for environmental services : An Introduction

Past responses have largely failed    

Direct government intervention ‘Demonstration’ approaches Regulatory approaches Short-term subsidies (in cash or in kind)

 Low adoption rates  Adoption followed by abandonment

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Payments for environmental services : An Introduction

The logic of payments for environmental services Deforestation and use for pasture

Conservation with payment for service Payment

Benefits to land users

Costs to downstream populations

Important! This logic is repeated every year » Need annual payments » Need sustained financing Stefano Pagiola, World Bank, 2 006

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Payments for environmental services : An Introduction

Definition of PES A mechanism to improve the provision of indirect environmental services in which  Those who provide environmental services get paid for doing so (‘provider gets’)  Those who benefit from environmental services pay for their provision (‘user pays’)  Payments are conditional  Participation is voluntary Service

Service providers

Service users Payment

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Payments for environmental services : An Introduction

What makes payments for environmental services attractive?  Generates it’s own financing:  Brings new financing not previously available for conservation

 Efficient:  Focuses efforts where benefits of conservation highest and costs lowest

 Potentially very sustainable:  Not based on whims of donors, NGOs, but self-interest of service users and providers

 For this to work, need to:  Base payments to providers on payments by users  Actually deliver services: getting the science right is critical  Tailor mechanism to specific local conditions Stefano Pagiola, World Bank, 2 006

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Payments for environmental services : An Introduction

Examples of PES mechanisms Colombia

 Cauca Valley water user associations

Costa Rica

 FONAFIFO/Pagos por servicios ambientales (PSA)  Heredia: Environmentally adjusted water tariff

Ecuador

 Quito: FONAG  Cuenca: ETAPA  Pimampiro

El Salvador

 Tacuba, San Francisco de Menéndez, Yamabal

Mexico

 Pago por servicios ambientales Hidrológicos (PSAH)  Coatepec

South Africa

 Working for Water Program

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Payments for environmental services : An Introduction

Costa Rica: Payments by water users Total 18,000ha ca US$500,000/year

(US$/ha/yr): 10 15/30 40

Energía Global Platanar S.A. CNFL/Río Aranjuez

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CNFL/Río Balsa

40 45+22 45

CNFL/Río Laguna Cote Florida Ice & Farm y Heredia ESPH Azucarera El Viejo

45 45 0ha

Hidroeléctrica Agua Zarcas Misc 2,000 ha

4,000 ha

Hydropower producer Bottler Domestic water supply Irrigated agriculture Hotel 6,000 ha Stefano Pagiola, World Bank, 2 006

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Payments for environmental services : An Introduction

World Bank support to PES Projects under implementation:  Costa Rica: Ecomarkets Project (US$33 million WB + US$8 million GEF) 

Colombia/Costa Rica/Nicaragua: Regional Integrated Silvopastoral Ecosystem Management Project (US$4.5 million GEF)

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South Africa: Cape Action Plan for the Environment (US$9 million GEF) El Salvador: Environmental Services Project (US$5 million WB + US$5 million GEF)

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Mexico: Environmental Services Project (US$83 million WB + US$15 million GEF) Costa Rica: Mainstreaming Market-Based Instruments for Environmental Management Project (US$30 million WB + US$10 million GEF)

Projects under preparation:  Venezuela: Canaima National Park Project 

Kenya: Agricultural Productivity and Sustainable Land Management Project

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Panama: Rural Poverty and Natural Resource Management II Project Worldwide: LULUCF carbon projects (US$12 million in sales already signed; expected to reach US$30 million by early 2007)

Capacity building: Courses in Colombia, Dominican Republic, Ecuador, El Salvador, Kenya, Mexico, Panama, Peru, Senegal, South Africa, Venezuela Research: Case studies; Hydrological aspects; Poverty links; Valuation Stefano Pagiola, World Bank, 2 006

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Payments for environmental services : An Introduction

From theory to practice 1. Understanding the science…

Land users

Hydrological effects

… and the economics Irrigation

Water users association

Farmers

Hydropower production

Hydropower producer

Electricity users

Domestic water supply

Water company

Water users

Payment

2. Charging service users 3. Paying service providers 4. Establishing the institutional framework Stefano Pagiola, World Bank, 2 006

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Payments for environmental services : An Introduction

Key problems  Getting the science right  Getting the institutions right

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Payments for environmental services : An Introduction

For more information

www.worldbank.org/environmentaleconomics

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