Making Environmental Service Payments Work for the Poor

1. Making Environmental Service Payments Work for the Poor Some experiences from Latin America Maryanne Grieg-Gran Environmental Service Payments for the Poor-Contributing to the Milennium Development Goals IFAD Governing Council Side Event 20 February 2004

2. Outline • How payments for environmental services might reduce poverty • The constraints • Some positive examples from Latin America • Watershed services • Pimampiro, Ecuador • Carbon sequestration • Northern region, Costa Rica • Biodiversity conservation • ICMS ecologico, Brazil

3. How PES might reduce poverty • Direct • Payments increase household income • Other more indirect channels • Generation of new productive activities and employment • Reducing the cost for the poor of meeting basic needs • Increasing the asset base of the poor – natural, social, human, physical capital • Reducing vulnerability • Increasing government revenue for expenditure on the poor

4. The Constraints • Insecure land and resource tenure • May affect eligibility • Pressures for expropriation • Small and dispersed producers • High transaction costs • Little bargaining power • Market access • Lack of skills, education, finance, information • Little voice in the formulation of rules

5. Whether environmental service payments reduce poverty depends on: • The context in which they are introduced • The driving motivation behind them • How they are designed • The package of accompanying measures

6. Ecuador: Pimampiro

7. Pimampiro

9. Pimampiro Municipality • Population of 17,000 - 6,000 live in town • Motivations for the Payment Scheme: • Problems of water shortages for town supply • Estimated 13,000ha of forests lost since 1985 • Decentralisation of environmental management • Pilot scheme: Nueva America Association • 27 families with an average of 2-3 ha of agricultural land and 20 ha of forest or paramo • Aim: protect forest in the headwaters of the municipality´s water system

10. Payment Mechanism 20% increase in water price Payment to Nueva America Association PES FUND Seed capital US$15,000 USD UMAT CEDERENA

11. Payment Categories Payment ($/month/ha) Primary Paramo and Forest 1.00 Intervened Paramo 0.50 Primary Forest 1.00 Intervened PrimaryForest 0.50 Old Secondary Forest 0.75 New Secondary Forest 0.50 Agriculture and Livestock 0 Degraded Land 0 Payment Categories

12. PES and poverty reduction in Pimampiro • Mainly through raising income • Mean payment of US$21 per family per month • Equivalent to 30% of monthly household expenditure • Benefits from projects accompanying PES • Formalisation of land tenure • Technical assistance and training • Agricultural productivity • Improved access to NTFP markets • eg:medicinal plants

13. Some key issues • Early to judge success • Payments started in 2001 • Institutional sustainability • Supporting project will finish soon • Improvements to water supply infrastructure helped acceptability

14. Northern RegionCosta Rica Pre-1980 deforestation to create large farms 1980s: Land invasions and land reform 1990s: promotion of forestry and PES

16. Hydrological services Biodiversity Landscape beauty Carbon Sales Transfer Payments: FONAFIFO Pooled DEMAND Independent Monitoring FONAFIFO/ Ministry of Environment SUPPLY • Forest owners: public and private • (payments per ha for 5 years contract) • $200 conservation • $500 reforestation • $300 forest management

17. PES and Poverty Reduction in Northern Region • Mainly through making a new activity viable: • Main benefit is from sale of thinnings and timber • Other benefits • Employment creation in wood processing • Human capital • forestry skills, intermediary skills (monitoring, training, support, etc) • Social capital • encouraged the creation and strengthening of community associations

18. Room for improvement • Inadequate returns for some farmers • Lack of information about costs involved • Considerable “learning-by-doing” • Losses for early participants discredited the system. • Restriction of access to other public funds • PES participants not eligible for housing bonus or bank credit until recently • Lack of government coordination • Land reform beneficiaries ineligible for PES • Physical capital adversely affected • roads are deteriorating through increased use

19. ICMS Ecologico Brazil • Sharing of state sales tax revenue • Criteria for distribution between local governments typically: • Favours LGs with high economic production • Discriminates against LGs with protected areas • Paraná introduced an ecological criterion • area, status and quality of management of conservation units • 10 other states in Brazil have followed.

20. ICMS and Poverty Reduction • Increased revenue for some poor municipalities • Marlieria (Minas Gerais) had 2000% increase in share of ICMS revenues 1995-1998 • Enables increased expenditure on basic services • eg: Alto Caparão (MG)- electrification • Enables support to communities living in and around conservation units • Eg: NW Paraná –well-drilling, tractors

21. Room for improvement • Effect on distribution depends on which other criteria are reduced • 40% of counties with conservation units in Rondonia were worse off with the ICMS • Revenue may not benefit those most affected by land use restrictions

22. Conclusions • PES can benefit the poor if: • They are designed for this purpose • The context is favourable or effort is made to overcome constraints • Many PES schemes are being introduced in Latin America eg: Mexico • It is important to ensure that these emerging schemes do not exacerbate poverty

23. For more information on IIED’s case studies on environmental services see www.iied.org/eep or write to maryanne@iied.org