IIIer Encuentro Presentacion Pagiola

8/2/2019 IIIer Encuentro Presentacion Pagiola

1/30

Selling Environmental Servicesto help Finance Reforestation

Stefano Pagiola

Environment Department

World Bank

Symposium on

Financing Reforestation in Latin America

Panama, November 21, 2003


2/30

2Stefano Pagiola, World Bank, 2003

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


3/30


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


4/304Stefano Pagiola, World Bank, 2003

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



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



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



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?


8/30


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


9/30


Water services: key characteristic

Water flows downhill


10/30


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


11/30


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


12/30


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


13/30


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


14/30


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


15/30


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


16/30


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)


17/30


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


18/30


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


19/30


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


20/30


Biodiversity conservation services

What are biodiversity conservation services?

Who are the beneficiaries?

Who will buy them?


21/30


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:


22/30


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


23/30


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


24/30


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


25/30


From theory to practice: Main steps

Getting the science right

Getting the institutions right

G i fi i


26/30


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


27/30



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


28/30



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


29/30


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


30/30


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

IIIer Encuentro Presentacion Pagiola

Documents

Transcript of IIIer Encuentro Presentacion Pagiola