Keeping Costa Rica Green: The Profitability of Ecomarkets

December 7, 2006

Forests provide an array of vital services and products to a country, ranging from foods and medicines to biodiversity conservation to water purification and watershed protection. Forests also furnish hours of enjoyment and exploration for residents and tourists alike. Unfortunately, forest owners usually only receive payments for their forests when the trees are chopped down.

To rectify this situation, Costa Rica has established an innovative “payments for environmental services program” (Programa de Servicios Ambientales in Spanish or PSA). This successful effort is enlisting private landowners to maintain and protect their forests. In 2001, The GEF and the World Bank initiated the Ecomarkets Project to expand and refine the PSA.

The Ecomarket Project recently concluded in 2006 and is being followed up by the Mainstreaming Market-based Instruments for Environmental Management Project. The main trust of the Ecomarket Project was to foster biodiversity conservation and preserve forest ecosystems through conservation easements on privately owned lands outside of protected areas in the Mesoamerican Biological Corridor (MDC). The project directly supported the implementation of Costa Rica’s forestry law by providing financial incentives to forest owners for providing environmental services relating to biodiversity conservation, carbon sequestration, hydrological services, and scenic beauty.

The Ecomarkets Project has successfully fulfilled, and in most cases, exceeded its principal objectives and goals.

• More than 130,000 ha incorporated into the priority areas selected for biodiversity conservation. The project’s target was 50,000.

• An additional 81,000 ha contracted to privately owned lands within other conservation areas identified as priorities in the MDC.

• In 2000, 22 women landowners participated in the PSA. Currently, there are 474. This represents over 2,000 percent increase versus the target of 30 percent.

• In 2000, 2,850 ha of indigenous community-owned lands were included in the PSA. Currently, there are 25,125 ha, representing an 882 percent increase compared with the original target of a 100 percent increase in indigenous participation.
“The realization of the alarming rate of deforestation prompted real action,” says Gunars H. Platais, a task manager of the Ecomarkets Project. “This involved the creation of the first forest incentives program and the first national forest development plan, which eventually led to the Forestry Law 7575.” This law set the stage for Costa Rica, a country where 60 percent of the forest is privately owned, to pay for the services provided through the preservation of forestland.

The Ecomarkets project has enabled Costa Rica to more effectively preserve its globally significant biodiversity by creating linkages between geographically isolated protected areas and other areas with high concentrations of biodiversity. More than 70 percent of PSA resources are now focused on priority biodiversity corridors.

Another achievement of the Ecomarket’s Project is strengthening the National Forestry Financing Fund (FONAFIFO’s) institutional technical capacity, thereby increasing the effectiveness and efficiency of the entire PSA, making it a model for other countries to emulate. The FONAFIFO receives revenues from a 5 percent gas tax paid by Costa Rican consumers in recognition of forests’ importance in sequestering the carbon generated by burning fossil fuel.

The private sector plays an important role in the PSA. In addition to the gas tax, payments are made to the PSA by manufacturing and other companies for the direct benefits received from well-kept forests. A good example is the $53 per hectare that the national power and light company contracted to pay, through the FONAFIFO, to a forest owner in the company’s area of operation. In exchange, the forest owner protects the watershed so that the forest keeps supplying water for the company’s hydroelectric plant in the district. Similarly, beer and soft-drink manufacturers need reliable supplies of pure water. Florida Ice and Farm, a bottling company, was among the first enterprises to pay for this link between the physical environment and the business bottom line.

The PSA and the Ecomarket Project have attracted widespread international interest, spurring several replication efforts. FONAFIFO has hosted official delegations from many countries wanting to study the PSA.

At the GEF, the success of the Ecomarket project has inspired a similar project in El Salvador. In addition, the Ecomarket projects complements the GEF’s silvio-pastoral project in Colombia, Costa Rica, and Nicaragua, which is demonstrating and measuring the effects of payment incentives for environmental services to farmers to adopt integrated silvo-pastoral farming systems in degraded pasture lands.

The follow-up to the Ecomarket Project, Mainstreaming Market-based Instruments for Environmental Management Project will seek to secure the long-term sustainability of the PSA by developing and using new financing sources, including a new water tariff, carbon emission reductions sales, and other complementary measures.

The GEF thanks Frank Campbell for contributing this story.