Creating Markets for Ecosystem Creating Markets for Ecosystem ServicesServices

Economic Commission for EuropeEconomic Commission for Europe

Seminar on the Role of Ecosystems as Water SuppliersSeminar on the Role of Ecosystems as Water Suppliers

Geneva, 13-14 December, 2004Geneva, 13-14 December, 2004

Gonzalo CastroGonzalo Castro

Head, Biodiversity TeamHead, Biodiversity Team

Global Environment FacilityGlobal Environment Facility

GEF Biodiversity Portfolio Summary

(FY91-FY03)

Number of Projects: 336

GEF Funding: US$1.54 Billion

Co-funding: US$3.24 Billion

Number of Countries: 140

Lessons Learned(Independent OPS-2)

STRENGTHS:

• Excellent Ecosystem Representation

• Wide Coverage

• Innovative Financing (Trust Funds, PES, etc)

• Impact on Capacity Building

• Strong Stakeholder Participation

• Addresses Cross-Cutting Issues

• Includes Science and Technology Issues

Lessons Learned(Independent OPS-2)

WEAKNESSES:

• Fails to Address Root Causes

• Weak Sectoral Linkages (mainstreaming)

• Weak Sustainability

• Weak Private Sector Participation

• Poor Capacity to Measure Results

Change in Paradigms

From: How to make project sustainable?To: How to sustain conservation?

From: Project successTo: Changing behavior of societies and economies

From: Short-term projectsTo: Long-term programs

GEF-3 Strategic Priorities US$3.1 Billion (ca. US$800 Million

for BD)

1. Catalyzing Sustainability of Protected Areas (US$400M)

2. Mainstreaming Biodiversity in Production Landscapes and Sectors (US$250M)

3. Capacity Building for the Implementation of the Cartagena Protocol on Biosafety (US$80M)

4. Generation and Dissemination of Best Practices for Addressing Current and Emerging Biodiversity Issues (US$70M)

MAINSTREAMING BIODIVERSITY

OBJECTIVE

To integrate biodiversity conservation in agriculture, forestry, fisheries, tourism and other production systems and sectors to secure national and global

environmental benefits

Water services

Supply of services:

Upstream land uses affect the Quantity, Quality, and Timing of water flows

Demand for services:Possible downstream

beneficiaries:• Domestic water use• Irrigated agriculture• HEP• Fisheries• Recreation• Downstream ecosystems

The logic of payments for environmental services

Benefits to land users

Costs to downstream populations

Deforestation and use for

pasture

Conservation

Payment

Conservation with payment

for service

Important!This logic is repeated every year

Need annual payments

Example 1Silvo-Pastoral Systems (Central

America, Colombia)

Expansion of livestock production is a major cause of habitat loss in Latin America

Deforestation in Nicaragua, 1983-2000

Much of this expansion is in lands unsuited to it, quickly degraded

Quindío, Colombia Esparza, Costa Rica

Silvopastoral systems

Combine trees with livestock production

Use of trees in pastures

Cut-and-carry systems

Live fencing

Benefits of silvopastoral systemsOn-site benefits:

Promote soil fertilityProvide shadeProvide fodderProvide additional products (timber, fruit, etc)

Biodiversity benefits:Host larger number and wider variety of speciesHelp connect remaining natural habitats

Carbon benefits:Sequester more carbon in soil and biomass

Water benefits:Higher infiltrationImproved water filtration

Often insufficient to justify adoption

Ignored by land users

Profitability of silvopastoral practices from land users’ perspective

Returns to silvopastoral practices

NPV (50 yrs, 10%) US$440

IRR 12%

-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

Net

farm

inco

me (

US

$)

Current practices

Silvopastoral practices

Note: 20ha farm in Nicaragua

Biodiversity indexLand 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, 0.6 >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) 0.9

Primary forest 1.0+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

Finca Putumayo (Quindío, Colombia)

Finca Putumayo:Land use plan

Land use Units Baseline

Year

1 2 3 4

Degraded pasture ha 3.2

Unimproved pasture without trees ha 2.2

Improved pasture without trees ha 6.1

Improved pasture with low tree density ha 8.5 8.5 8.5 8.5

Fodder banks ha 2.2 2.2 2.2 2.2

Diversified timber plantation ha 0.8 0.8 0.8 0.8

Guadua plantation ha 1.3 1.3 1.3 1.3 1.3

Riparian forest ha 1.5 1.5 1.5 1.5 1.5

Total area ha 14.3 14.3 14.3 14.3 14.3

Live fences km 2 2 2 2

Finca Putumayo: Payments under RISEMP

Land use Baseline

Year

Total1 2 3 4

Total points 7.4 15.8 15.8 15.8 15.8

Incremental points 8.4 8.4 8.4 8.4

Payment per point (US$) 10 75 75 75 75

Payments (US$) 74 630 630 630 630 2,594

PV of payments (US$, 10%) 74 582 529 481 437 2,100

Impact of PES on profitability of silvopastoral practices

Returns to silvopastoral practices Without PES With PES

NPV (50 yrs, 10%) US$440 US$1,450

IRR 12% 19%

-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

Net

farm

inco

me (

US

$)

Current practices

Silvopastoral practices

Silvopastoral practices with PES

Note: 20ha farm in Nicaragua

Primary ForestsTotal US$102/ha/year

(Constantino and Kishor, 1993)

Carbon

Biodiversity (Existence)

Water

Ecotourism

Example 2Ecomarkets (Costa Rica)

Costa Rica Forestry Law

- Pays landowners $40/ha/year Carbon

Scenic Beauty

Water

BiodiversityHabitats

- Same hectare

Market Creation

Creation of Ecomarkets

Over 500,000 ha under system!

Example 3Biodiversity-Friendly Shade Coffee

(El Salvador)

Coffee grown undershade: The forest is structurally complex and provides some degreeof habitat richness

Coffee grown in the sun:The forest is gone and thevalue of this plantation forbiodiversity is verymarginal

Certified Coffee

- Better taste- Less volatile prices- Ecosystem Conservation- Water Conservation

Water services: Key characteristics

Water flows downhill

High value = Substantial potential

payments

Low value = Minimal potential

payments

Río NizaoRío Ocoa

CaribbeanDominican Republic

Water services vary substantially

HydropowerProduction

98MW

52MW

64MW

6 m3/secPotablewaterIrrigation

San Joséde Ocoa

Canaima NP

Venezuela: Canaima NP ProjectN

CaracasMaracaibo

VENEZUELAVENEZUELA

COLOMBIA

BRASIL

CARIBBEAN

Pto. Ordaz

MACAGUACARUACHI

TOCOMA

GURI

TAYUCAY

AURAIMA

ARIPICHI

CIUDAD

PTO.ORDAZ

SANFELIX

BOLIVAR RIOCARO

NI

RIO

PA

RA

GU

A

RIO

ORINOCO

EUTOBARIMA

DAM

Río Caroní watershed

Venezuela: Canaima NP ProjectN

INSTALLED CAPACITY

MACAGUA I 360 MW

MACAGUA II

MACAGUA III

2376 MW

164 MW

CARUACHI 2160 MW

TOCOMA 2160 MW

GURI II 6600 MW

GURI I 3000 MW

RIOORINOCO

MACAGUA IEL. 54,5

-II Y III100

150

200

250

300

0

50

110 100 90 80 70 60 50 40 30 20 10 0

DISTANCE (Km)

ELE

VA

TIO

N (

mas

l)

CARUACHIEL. 91

TOCOMAEL. 128

EL. 270

II

EL. 215

GURIMACAGUA

CARUACHI

TOCOMA

GURI

RIOORINOCO

Can we actually get people to pay? Costa Rica: Payments by water users

Firm WatershedWatershed size (ha)

Contract area (ha)

Payment ($/ha/year)

Energía Global Río Volcán 3,466 2,493 10

Río San Fernando 2,404 1,818 10

Platanar SA Río Platanar 3,129 1,800 10/30

CNFL Río Aranjuez 9,515 5,000 42

Río Balsa 18,926 6,000 42

Lago Cote 1,259 900 42

La Manguera SA La Esperanza 3,000 10

Florida Ice & Farm Río Segundo 3,870 1,000 10

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.