Making Environmental Service Payments Work for the Poor

Maryanne Grieg-Gran

Environmental Service Payments for the Poor-Contributing to the Milennium Development Goals

IFAD Governing Council Side Event

20 February 2004

Some experiences from Latin America

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

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

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

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

Ecuador: Pimampiro

Pimampiro

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

Payment Mechanism

PES

FUND

20% increase in water

price

Seed capital

US$15,000 USD UMAT

CEDERENA

Payment to Nueva

America Association

Payment Categories

0Degraded Land

0Agriculture and Livestock

0.50New Secondary Forest

0.75Old Secondary Forest

0.50Intervened Primary Forest

1.00Primary Forest

0.50Intervened Paramo

1.00Primary Paramo and Forest

Payment ($/month/ha)Payment Categories

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

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

Northern RegionCosta Rica

Pre-1980 deforestationto create large farms

1980s: Land invasionsand land reform

1990s: promotion of forestry and PES

FONAFIFO/ Ministry of Environment

PooledDEMAND

SUPPLY

Carbon SalesHydrological services

Biodiversity Landscape beauty

Forest owners: public and private(payments per ha for 5 years contract)•$200 conservation•$500 reforestation•$300 forest management

Transfer Payments: FONAFIFO

IndependentMonitoring

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

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

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.

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

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

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

For more information on IIED’s case studies on environmental servicessee www.iied.org/eep or write tomaryanne@iied.org