World Bank Supports Costa Rica Forestry Program

by Amanda Banks, Tax-News.com, London

15 June 2006

The World Bank is co-financing with Costa Rica a US$80m project to continue the push to experiment with new market-based approaches to sustainable financing of environmental management under the country's well-regarded PSA (Payment for Environmental Services) program.

The project, entitled 'The Mainstreaming Market-Based Instruments for Environmental Management Project' enhances the provision of environmental services significant at the national and global levels, and secures their long-term sustainability through a scaled-up payment for environmental services system in Costa Rica. There are three project components. Component 1 develops new sustainable financing mechanisms for the Payment for Environmental Services (PSA) Program through a water tariff, a Conservation Trust Fund, carbon sequestration, and voluntary markets for biodiversity conservation. Component 2 supports the National Forestry Financing Fund in implementing an expanded PSA Program through institutional strengthening and payments to participating land users. Component 3 support the National Forestry Financing Fund's efforts to remove barriers for medium- and small-holder participation in the PSA Program; through technical assistance, capacity building, and secure land rights.

The World Bank says that Costa Rica is at the forefront of biodiversity conservation and natural resources management. Despite being small – 51,100 square kilometers – the Central American country is one of the most biodiversity-rich countries in the world. Because of its location between the Atlantic and Pacific oceans and its various geographic and climatic systems, it has more than 500,000 plant and animal species, a number of which are endemic or near-endemic.

In addition, says the Bank, Costa Rica is one of the world’s leaders in the development and application of market-based instruments for environmental management. Once known as having one of the world’s highest deforestation rates, Costa Rica achieved negative net deforestation in the early 2000s. This is due in part to Costa Rica’s innovative payments for environmental services (Pago por Servicios Ambientales, PSA) program, which over the past decade has supported forest conservation on privately-owned lands in priority watersheds and key areas within Costa Rica’s portion of the Mesoamerican Biological Corridor.

The project seeks to further this effort by putting into practice the lessons of this decade of experimentation. This involves consolidating and mainstreaming the PSA program: ensuring its long-term sustainability in particular by developing new financing sources from the users of environmental services; improving its efficiency; and expanding its coverage.

The central principles of the Payment for Environmental Services approach are that those who provide environmental services should be compensated for doing so, and that those who receive the services should pay for their provision. The PES approach works by establishing a mechanism to connect service users (e.g., water users) to service providers (e.g., landholders), thus internalizing what had been externalities. By charging service users, PES generates additional financing for natural resources management. Properly implemented, PES mechanisms can be highly sustainable, as they do not depend on the whim of donors or government decisionmakers but rather on the self-interest of those who wish to secure or improve their access to services and of landholders who are contracted to provide those services.

Costa Rica’s PSA Program is widely considered the most successful application of the environmental services approach worldwide. For more than a decade, it has been administered by the National Forestry Financing Fund (Fondo Nacional de Financiamiento Forestal, FONAFIFO). The PSA Program currently compensates landholders for three conservation activities (‘modalities’): natural forest conservation, reforestation (mainly through sustainable plantations), and agroforestry. By October 2005, the PSA Program had approximately 250,000 ha under contract, of which 95 percent are natural forests under conservation, 4 percent are forest plantations, and 1 percent is sustainable forest management (a modality discontinued in 2003).

Recommended