Paying for Biodiversity Services

8/5/16

Paying for Biodiversity Services: Mixing Domestic and International Financing

Stefano Pagiola Environment Department World Bank

International Financing for Biodiversity Conservation in Developing Countries University of California, San Diego December 5-6, 2003

Paying for Biodiversity Services: Mixing Domestic and International Financing

1.  Payments for Environmental Services (PES) 2.  Making PES work 3.  Applying PES to biodiversity: the Regional Integrated Silvopastoral Management Project 4.  Financing constraints 5.  Mixing domestic and international financing

Stefano Pagiola, World Bank, 2003

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Payments for environmental services

The problem Deforestation and use for pasture

Conservation

Benefits to land users

•  Loss of water services

Costs to others

•  Loss of biodiversity •  Loss of carbon sequestration


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The logic of PES Deforestation and use for pasture

Conservation with payment for service Payment

Benefits to land users

Costs to others

Important! This logic is repeated every year •  Need annual payments •  Need sustained income flow Stefano Pagiola, World Bank, 2003

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The principles of PES !  Those who provide environmental services get paid for doing so (‘provider gets’) !  Those who benefit from environmental services pay for their provision


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National initiatives Colombia:

!  Cauca Valley water user associations

Costa Rica:

!  FONAFIFO/Pagos por servicios ambientales !  Heredia: Environmentally adjusted water tariff

Ecuador:

!  Quito: FONAG !  Cuenca: ETAPA

El Salvador:

!  Mesa permanente de servicios ambientales !  Tacuba, San Francisco de Menéndez

Mexico:

!  Pago por servicios ambientales bosques-agua !  Coatepec pilot

Venezuela:

!  CVG-Edelca payments for conservation of Río Caroní (includes Canaima NP)

South Africa:

!  Working for Water Program Stefano Pagiola, World Bank, 2003

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World Bank support !  Projects under implementation: !  Costa Rica: Ecomarkets Project ($33 million WB + $8 million GEF) !  Colombia/Costa Rica/Nicaragua: Regional Integrated Silvopastoral Ecosystem 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

!  Research: !  Case studies !  Hydrological aspects !  Valuation

!  Capacity building: !  Courses in Ecuador, Venezuela, Panama, Perú, Mexico, South Africa, Senegal Stefano Pagiola, World Bank, 2003

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Making payments for environmental services work

Main steps 1. Understanding the science…

Land use

… and the economics Hydrological effects

Water services

Welfare of water users

Carbon sequestration

CERs

Carbon buyers

Biodiversity conservation

Ecosystem services

Welfare of beneficiaries

Payment 2. Capturing benefits 3. Paying service providers


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Applying PES to different services Difficulty of application Water services

Step 1. Understanding the science 2. Capturing benefits

3. Paying providers

High

Carbon sequestration


Medium/Low Medium/Low

Medium/Low High/Medium

Very high

Depends primarily on local conditions Stefano Pagiola, World Bank, 2003

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Regional Integrated Silvopastoral Management Project (RISEMP) !  Pilot use of PES to promote silvopastoral practices !  Pilot sites: !  Quindío, Colombia !  Esparza, Costa Rica !  Matiguás-Río Blanco, Nicaragua

!  Financed by GEF ($4.5 million), implemented by World Bank, prepared with assistance of LEAD !  Field implementation by local NGOs: !  CIPAV, Colombia !  CATIE, Costa Rica !  Nitlapan/UCA, Nicaragua


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Regional Integrated Silvopastoral Management Project

Context: Degraded pastures !  Expansion of livestock production a major cause of deforestation in Latin America "  Considerable loss of biodiversity !  Much of this expansion in lands unsuited to it, quickly degraded !  Some are reverting to forest, but most cannot "  Large areas of biodiversity-poor land Quindío, Colombia 11



Solution: Silvopastoral systems !  Combine trees with livestock production !  Use of trees in pastures !  Cut-and-carry systems !  Live fencing

Paiwas, Nicaragua

Quindío, Colombia 12


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Benefits of silvopastoral systems !  On-site benefits: !  !  !  ! 

Promote soil fertility Provide shade Provide fodder Provide additional products (timber, fruit, etc)

!  Biodiversity benefits: !  Host larger number and wider variety of species !  Help connect remaining natural habitats

!  Carbon benefits: !  Sequester more carbon in soil and biomass

!  Water benefits: !  Increased infiltration (but higher evapotranspiration) !  Improved water filtration Stefano Pagiola, World Bank, 2003

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Why are silvopastoral systems not used? !  Need for technical assistance !  High investment requirements !  Marginal profitability for farmers !  Tenure insecurity


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Profitability of silvopastoral practices 1,250

Net farm income (US$)

1,000 750 500 250 Current practices

0

Silvopastoral practices

-250 -500 0

1

2

3

4

5

6

7

Note: 20ha farm in Nicaragua

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9 10 11 12 13 14 15 16 17 18 19 20 Year

Very marginal

Returns to silvopastoral practices NPV (50 yrs, 10%)

US$439

IRR

11.8%

On-site benefits only! Stefano Pagiola, World Bank, 2003

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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


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Biodiversity index Land use

Points per hectare

Crops (annual, grains, and tubers)

0.0

Perennial crops (plantain, unshaded coffee)

0.2

Natural pasture

0.0 without trees, 0.3 with trees

Improved pasture

0.0 without trees, 0.3 30 trees

Fruit crops

0.3 monocrop, 0.4 diverse

Shaded coffee

0.6

Fodder bank

0.4 monocrop, 0.6 diverse

Commercial tree plantation

0.4

Bamboo (guadua)

0.5

Riparian forest

0.8

Secondary forest

(>10m2)

Primary forest

0.9 1.0

Notes:

+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 Source: Pagiola and others, 2003. Stefano Pagiola, World Bank, 2003 17


Paying service providers !  Compute initial points from baseline land use !  Pay baseline points $5/point !  Monitor land use change Finca Putumayo, Quindío, Colombia

!  Compute incremental points !  Pay incremental points $50/ point/year, for 4 years 0.6mx0.6m image = US$0.25/ha


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Impact of PES on silvopastoral profitability 1,250


1,000 750 500 250

Current practices Silvopastoral practices

0

Silvopastoral practices with PES

-250 -500 0

1

2

3

4

5

6

7

Note: 20ha farm in Nicaragua

Returns to silvopastoral practices

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9 10 11 12 13 14 15 16 17 18 19 20 Year

Without PES

With PES

NPV (50 yrs, 10%)

US$439

US$1,301

IRR

11.8%

17.6% Stefano Pagiola, World Bank, 2003

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So what’s the problem? !  Who’s going to pay? !  How can we make annual, indefinite payments?


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Financing constraints

Who’s going to pay? Capturing benefits is easiest when beneficiaries !  Are easy to identify !  Are already organized !  Easier to negotiate agreements !  Already have payment mechanisms

!  Are few !  Receive well-defined benefits


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Who’s going to pay? Water services

Biodiversity services

Easy to identify?

√

X

Already organized?

√

X

Few?

√

X

Receive well-defined benefits?

√

X

Are service users…


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Need for annual payments !  In most cases PES need to be made annually, and indefinitely !  Water services: easy to do, as people will keep using water indefinitely

!  Most biodiversity conservation financing mechanisms (GEF, NGOs) not set up to make long-term payments !  Exception: Conservation Trust Funds (CTFs) !  But: expensive Stefano Pagiola, World Bank, 2003

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Why do we need annual payments? What if on-site returns to silvopastoral practices look like this? 1,250


1,000 750 500 250

Current practices Silvopastoral practices

0

Silvopastoral practices with PES

-250 -500 0

1

2

3

4

5

6

7

8

9 10 11 12 13 14 15 16 17 18 19 20 Year Stefano Pagiola, World Bank, 2003

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Solving the conundrum !  Mixing domestic and international financing


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Applying PES to different services Difficulty of application Water services


1. Understanding the science

High Hard to start

Medium/Low Easy to start

2. Capturing benefits

Medium/Low Sustainable

Step

3. Paying providers

Potential synergies

Very high Unsustainable

Depends primarily on local conditions Stefano Pagiola, World Bank, 2003

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Solving the conundrum !  Mixing domestic and international financing !  Use short-term international financing to create payment mechanism !  Domestic water payments take over long-term financing burden


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El Salvador National Environment Management Project

Project design Project Components

GEF

2. PES

3. Natural area management

Other critical areas

Corridors

4.

Monitoring

WB loan

Institutional Strengthening

Financing 1.

Natural areas

Outputs

•  Reduced vulnerability to floods •  Improved water quality •  Reduced sedimentation •  Other…

•  Biodiversity conservation


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PES Component Project Components

GEF

2. PES



Corridors

4.

Monitoring

WB loan


Financing 1.

Natural areas

Outputs




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Natural area management component Project Components

GEF

2. PES



Corridors

4.

Monitoring

WB loan


Financing 1.

Natural areas

Outputs




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Synergy between components Project Components

GEF

2. PES



Corridors

4.

Monitoring

WB loan


Financing 1.

Natural areas

Outputs




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Watershed protection service Origin of water flows PES-eligible activities in the watershed •  In riparian zones

Water users

•  On steep slopes Stefano Pagiola, World Bank, 2003

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Biodiversity corridors Biodiversity corridor

Core zone Buffer zone

Protected area 2 Core zone

Buffer zone

Protected areas are small and isolated: not viable Biodiversity corridors help make them viable

Protected area 1 Stefano Pagiola, World Bank, 2003

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Biodiversity corridors Biodiversity corridor

Core zone Buffer zone

Core zone

Buffer zone

PES-eligible activities in Protected area 2 the corridor •  Very biodiversity-friendly

•  Biodiversity-friendly

Protected area 1 Stefano Pagiola, World Bank, 2003

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Targeting: Different areas A

C

B PES-eligible activities in the watershed •  In riparian zones

PES-eligible activities in the corridor •  Very biodiversity-friendly

•  On steep slopes

•  Biodiversity-friendly

PES-eligible activities •  Area A •  Area B •  Area C Stefano Pagiola, World Bank, 2003

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Problem solved? !  How much overlap between biodiversity and water service priorities? No overlap, but need for biodiversity-specific funding is reduced

!  Geographically? A B

C

A

No/limited biodiversity benefits from conservation


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Can water services help finance Bolivia’s protected areas? !  How much potential? !  Most PAs downstream of users, so no/limited potential !  Limited potential in specific cases Tunari NP (municipalities, HEP) Cordillera de Sama (irrigation, HEP)

Aguarague NP (municipalities, irrigation) Stefano Pagiola, World Bank, 2003

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Problem solved? !  How much overlap between biodiversity and water service priorities? !  By type of land use? A

How much overlap? B

PES-eligible activities in the watershed

C PES-eligible activities in the corridor

A PES-eligible activities •  Area A •  Area B •  Area C Stefano Pagiola, World Bank, 2003

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Conclusions !  Possible to contract for biodiversity conservation !  Need to understand link between land use and biodiversity !  Need to understand economics of land use decisions

!  Key issues: !  Sustainability of funding !  Transaction costs (especially for involvement of poor)

!  Possible synergies between domestic and international financing !  Extent of synergies needs to be determined, will be case-specific !  Even if few synergies, effective domestic financing of conservation can reduce need for international financing Stefano Pagiola, World Bank, 2003

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