iiier encuentro presentacion pagiola
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Selling Environmental Servicesto help Finance Reforestation
Stefano Pagiola
Environment Department
World Bank
Symposium on
Financing Reforestation in Latin America
Panama, November 21, 2003
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Why reforest?
On-site benefits
Off-site benefits
Watershed protection
Biodiversity conservation
Carbon sequestration
Often insufficient
High initial cost
Long wait for returns
Benefits toothers,
not to forestmanagers
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Payment for Environmental Services
(PES)
PES develops mechanisms to capture
environmental externalities and bring them into
the marketplace
Basic principles:
Beneficiaries of environmental services pay for their
provision
Providers of environmental services get paid toprovide them
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The logic of payments for
environmental services
Costs to
downstream
populations
Continued
use for
pasture
Reforestation
Payment
Reforestation
with payment
for service
Benefits to
land users
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Payments for environmental services:
World Bank support
Projects under implementation:
Costa Rica: Ecomarkets Project ($33 million WB + $8 million GEF)
Colombia/Costa Rica/Nicaragua: Regional Silvopastoral Management Project ($4.5
million GEF) Guatemala: Western Altiplano Natural Resources Management Project (US$32
million, incl. US$2 million pilot PES component)
Projects under preparation:
Mexico: Technical support to national PES program
Venezuela: Canaima National Park Project
South Africa: Cape Action Plan for the Environment (CAPE)
Dominican Republic, Ecuador, El Salvador: Pilot PES projects
Developing carbon markets: Prototype Carbon Fund (PCF)
BioCarbon Fund (BioCF)
Research: Case studies, hydrological aspects, valuation methods
Capacity building: Courses in Ecuador, Venezuela, Panama, Per, Mexico, SouthAfrica, Senegal
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Developing payments for
environmental services
and the economics1. Understanding
the science
3. Paying service providers2. Capturing benefits
Payment
Reforestation
Hydrologicaleffects
Carbon
buyers
Welfare ofwater users
Welfare of
beneficiaries
CERs
Ecosystem
services
Waterservices
Carbon
sequestration
Biodiversity
conservation
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Identifying environmental services
Demand:
What specific services?
Who benefits from these services?
How much benefit do they receive?
Supply: How are these services generated?
How much more or less of these services wouldwe receive if land use changed?
Who generates these services?
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Water services
Supply of services:
Upstream land uses affect the
quantity, quality, and timingof water flows
Demand for services:
Possible downstreambeneficiaries:
Domestic water use
Irrigated agriculture HEP
Fisheries
Recreation Downstream ecosystems
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Water services: key characteristic
Water flows downhill
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Substantial potential
payments
Minimal
potential
payments
Ro NizaoRo Ocoa
Caribbean
Dominican
Republic
HydropowerProduction
98MW
52MW
64MW
6 m3/sec
Potable
waterIrrigation
San Jos
de Ocoa
Water services vary substantially
F h d l i l li k
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Forest-hydrological links:
Myths and realityMyth: Forests increase precipitationReality: Minor effect, except at continental scale
Myth: Forests slow runoff
Reality: True
Myth: Forests increase total annual water flowReality: Because of increased evapotranspiration, forests usually reduce
total annual water flow.Exception: Cloud forests
Myth: Forests increase water flow in the dry seasonReality: Unclear
Myth: Forests reduce floodingReality: True at small scales, not at large scales
Myth: Forests reduce erosion
Reality: Depends on use that is made of deforested areas
Id tif i t i b fi i i
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Identifying water service beneficiaries
Example: Municipal water supply
What do they need?
Minimum quantity
Depends on size of the population
Needs will increase over time if the population is growing
Constant flow year-round
Minimum quality
What alternatives do they have?
Reducing consumption
Increasing the efficiency of distribution
Obtaining water from other sources Treating water to improve its quality
How could part of this value be captured? Water tariff rates
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Costa Rica: Payments by water users
103,000La EsperanzaLa Manguera SA
10
42
42
42
10/30
10
10
Payment
($/ha/year)
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.
1,0003,870Ro SegundoFlorida Ice & Farm
9001,259Lago Cote
6,00018,926Ro Balsa
5,0009,515Ro AranjuezCNFL
1,8003,129Ro PlatanarPlatanar SA
1,8182,404Ro San Fernando
2,4933,466Ro VolcnEnerga Global
Contract
area (ha)
Watershed
size (ha)WatershedFirm
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Costa Rica: Payments to participants
Amount Distribution of payments (year)
Contract ($/ha) 1 2 3 4 5Reforestation 538 50% 20% 15% 10% 5%
Forest conservation 210 20% 20% 20% 20% 20%
200,000ha contracted, more than 800,000ha pending
83% of contracts for forest conservation
Only 7% of contracts for reforestation
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Carbon sequestration services
Supply of services:
Forests fix carbon, helping
reduce the greenhouse effect
Demand for services:
Global community
Kyoto Protocol/CDM National laws
Individual (retail) demand
CO2
CO2CO2
CO2
CO2
CO2
Demand for carbon seq estration
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Demand for carbon sequestration
services
Kyoto Protocol Only reforestation and afforestation in areas deforested by 1990
are eligible Limited quantities
Not yet ratified
Many implementation problems Incrementality
Permanence
Avoiding spillage
Retail demand Many eligible activities
Limited demand
Example: Scolel T (Mxico)
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Carbon prices: Not as high as hoped
30
Prices at or
above $5/t
have delivery
guarantees
25
5
10
15
US$/tCO2 20
0Annex II
other
CDM
to
2012
JI
to
2012
UK
auction
UK
market
Denmark Retail:
early
vintages
Source: World Bank Carbon Finance
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Carbon Finance at the World Bank
PCF as the flagship: US$180 million
Netherlands - Clean Development Facility
US$140 million in 2002-2005
Community Development Carbon Fund(CDCF) Launched WSSD, implemented from June 2003 -
US$40-50 million
BioCarbon Fund Just approved - US$30-40 million
World Bank Carbon-Neutral Policy Initiated March 2003
Other initiatives being negotiated
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The BioCarbon Fund
Extending carbon financing to agriculture and forestry
Applying the PCF learning by doing principle to
generating emissions reductions from land use andforestry activities
Two windows:
A: Kyoto-eligible projects under Art. 6 (JI) and Art. 12 (CDM)
B: Explore potential for wider range of sink activities (not
currently eligible under Kyoto) Public and private sector participants
US$30-40 million
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Biodiversity conservation services
What are biodiversity conservation services?
Who are the beneficiaries?
Who will buy them?
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How does one buy biodiversity?
Cannot ask land users to sell biodiversity
Can pay for more biodiversity-friendly land uses
But not all land uses equally biodiversity-friendly
Create index of biodiversity benefits by land use
Regional Silvopastoral Project:
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Regional Silvopastoral Project:
Biodiversity indexPoints per hectareLand use
1.0Primary forest
0.9Secondary forest (>10m2)
0.8Riparian forest
0.5Bamboo (guadua)
0.4Commercial tree plantation
0.4 monocrop, 0.6 diverseFodder bank0.6Shaded coffee
0.3 monocrop, 0.4 diverseFruit crops
0.0 without trees, 0.3 30 treesImproved pasture
0.0 without trees, 0.3 with treesNatural pasture
0.2Perennial crops (plantain, unshaded coffee)
0.0Crops (annual, grains, and tubers)
+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
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Profitability of silvopastoral practices
-500
-250
0
250
500
750
1,000
1,250
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Year
Current practices
Silvopastoral practices
Note: 20ha farm in Nicaragua
11.8%IRR
US$439NPV (50 yrs, 10%)
Returns to silvopastoral practices
Impact of PES on profitability of
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Impact of PES on profitability of
silvopastoral practices
-500
-250
0
250
500
750
1,000
1,250
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Year
Current practices
Silvopastoral practicesSilvopastoral practices with PES
Note: 20ha farm in Nicaragua
17.6%11.8%IRR
US$1,301US$439NPV (50 yrs, 10%)
With PESWithout PESReturns to silvopastoral practices
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From theory to practice: Main steps
Getting the science right
Getting the institutions right
G i fi i
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Generating financing
Who benefits from environmental services?
How much do they benefit?
How can part of these benefits be captured to
help finance conservation? How should funds be managed?
G ti fi i
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Generating financing
Easiest when beneficiaries
Are easy to identify
Are already organized
Easier to negotiate agreements
Already have payment mechanisms
Are few
Receive well-defined benefits
G ti fi i
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Generating financing
Water services
Quantifying linkages the main stumbling block
Likely to be feast or famineCarbon sequestration
Well-defined market (assuming Kyoto ratified) The devil is in the details
Biodiversity conservation
Who are the beneficiaries?
Hard to capture benefits
Existing mechanisms not suited for long-term payments
I iti l l
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Initial lessons
Not a universal solution
One size does not fit all
Identify the services being provided clearly Understand and document the links between
forests and services Begin from the demand side, not the supply side
Monitor effectiveness
Design flexible mechanisms
Mix and match with other mechanisms
Ensure the poor can participate
C l i
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Conclusions
Developing new financing mechanisms is a
promising approach, but not universally
applicable
Going from theory to practice is challenging; the
World Bank is working to help its clients learn
how to do so