Carlos Muñoz Piña INSTITUTO NACIONAL DE ECOLOG ÍA

1. Program for the Payment of Hydrological Environmental Services of Forests: Implementation and targeting 2003-2007 Carlos Muñoz Piña INSTITUTO NACIONAL DE ECOLOGÍA

2. 50 million hectares of temperate and tropical forests in Mexico

3. Land use change in Mexico 1993-2000 - 5 4 3 2 Annual rate of change % 1 0 - 1 - 2 - 3 Temperate Forests Tropical Forests Shrubs Vegetación Otros tipos de Natural Grassland Induced pasture Crops hidrófila vegetación A country experiencing very fast deforestation

4. Deforestation in Mexico driven by land use changes Market signals (inputs and output prices) Decisions to change land use respond to: Short term horizon induced by poverty Costly cooperation in common property forestry

5. Market failures Less silting and better water quality in watershed and recharge areas in aquifers. The market does not pay for the environmental services of forests: • Biodiversity Conservation • Carbon sequestration

6. Overexploited Aquifers

7. Land use changesControl vs. Incentives • In Mexico, government’s control of land use changes is costly, not effective and potentially poverty increasing. • So, necessarily conservation = profitable forests for communal owners taking land use decisions Otherwise: regulatory taking on the poor

8. Assets Share of households whose income is less than the one needed to cover the basic basket of food, clothing, housing, health, transport and education. Households 46%Individuals 54% Households 19% Individuals 24% Nutrition Share of households whose income is less than the one needed to cover the basic basket of food according to INEGI-CEPAL 1 out of every 4 Mexicans is extremely poor Type of Poverty % of all households or individuals Capacities Share of households whose income is less than the one needed to cover the basic basket of food, health and education Households 25% Individuals 32% Fuente: Comité Técnico para la Medición de la Pobreza, SEDESOL, 2002.

9. Localities with high or very high marginality

10. Leveling the playing field Elements of the strategy: • Decouple subsidies (agrochemicals, water, “commercialization support”) • Keep supporting development of community forestry firms (Prodefor, Procymaf) • Pay for environmental services

11. A public policy niche

12. Program’s Objective • Stop the deforestation that threatens those forests critical for watershed-related environmental services in Mexico • Foster the development of local markets for environmental services By Paying land owners to preserve forest land and avoid its transformation for other uses, such as: agriculture and cattle raising.

13. Linking providers with those who benefit • Federal Fees Law reformed to introduce an earmarking of a portion of the water fee. Negotiations • Initial proposal 2.5% • Finance Ministry & National Water Commission want to exclude municipalities from payment, so fix amount to ~US$20 million.

14. Rules of Operation for PSAH (2003-2005) Forests important for water With potential future clients Good quality Forests & & Overexploited acquifers 80% cover Cities > 5K or High water scarcity zones Priority Mountains Providing other environmental services? or H related natural disasters Natural protected areas

15. Choosing how much to pay • Between two limits: • Value of the environmental service (measurement?) • Opportunity cost. How much would they earn in alternative activity? • Given a budget and an area, a price that would clear the market…

16. Corn OPORTUNITY COSTS Beans Sheep & Goats Cattle Source: Luis Jaramillo (2003) www.ine.gob.mx

17. Choosing how much to pay • A political economy mix, recommendation based on opp cost, combined with value of service & forestry lobby: • Cloudforests: $400 pesos (~US$37) per hectare per year • Rest of temperate and tropical forests: $300 pesos (~US$28) per hectare per year

18. Challenges for PES • Unexpected success: Three times as many applications as funds. (Excess demand) • Possibility of generating greater value to customers. • Who received the payments? • Lets look at the actual targeting…

19. Targetting: • By type of forests • By type of environmental service • By level of poverty • By risk of deforestation • Important: voluntary program implies self-selection.

20. Type of forest

21. Overexploited aquifers

22. Poverty and PSAH

23. Targetting poverty

24. SEEKING EFFICIENCY • Objetive: Maximize protection of environmental services through avoiding deforestation • Efficiency: Maximize value to fee-payers through avoiding maximum hectares deforested at minimum cost, within budget constraint.

25. How to measure real risk of deforestation? • Main driving force: land use changes. • More profitable agricultural and cattle ranching activities. • Short term horizon caused by poverty (Guevara:2002). • Specific patterns identified through econometrics: transport cost, slope, potential ag yields.

26. “All models are wrong, but some are useful.”(George Box, quoted by Kennedy 1992: 73; quoted by Kaimowitz & Angelsen: 1998; and here).

27. Sampling (50 km x 50 km)

28. Land use changes and distance to market 100% 80% 60% 40% 20% 0% 15 75 135 195 255 315 375 435 495 555 615 675+ MINUTOS Primario conservado Secundario regenerado Primario degradado Primario deforestado Secundario sin cambio Secundario deforestado

29. Land use changes and slope

30. Econometric model • Proxies for • Prices for alternative outputs & their inputs, • liquidity constraints, and • environmental regulation constraints • So exogenous variables are: • Slope • Distance to population centers • Average agricultural yields in vicinity (corn) • Marginality Index of nearest population center • Share of indigenous peoples in nearest village/town • Natural Protected Área status • Data: comparing land use changes in a grid of pixels (18k observations): conservation, degradation or deforestation

31. Results (primary forests) 18k obs * Significativo a niveles mayores a 90%; ** Significativo a niveles mayores a 99%,

32. Precision of the model 70% of deforested pixels correctly classified 68% of conserved pixels correctly classified

33. Resultados para Oaxaca modelo 1

34. Targetting: Risk of Deforestation 170 mil has ; 3.4 millones has

35. Targetting

36. Further steps… • Targetting criteria now explicit in selection process. Poverty and Scarcity have worked, need to modify use of Deforestation Risk index to maximize value to feepayers. • Need to assess and communicate the diverse benefits on the watersheds and aquifers • Starting local watersheds programs stage. Requires information and solving the public-good problem.

37. BRANCHING INTO OTHER Environmental Services • Money to start-up projects that will generate supply of environmental services: • Biodiversity-based business (US$ 2.5 million) • Ecoturism (lodges, trails) • Sports hunting areas • Wildlife inventories (future use?) • Carbon sequestration (US$ 2.5 million) • Supposedly following intnl standards • Purchasing some tons for gov´t, (mock mkt?)

38. Puntaje para calificar solicitudes 1

39. Puntaje para calificar solicitudes 2

40. Puntaje para calificar solicitudes 3