A2X Consulting

We have heard of carbon taxes that citizens in some countries pay for greenhouse gas emissions. Carbon taxation I think is good for the environment and possibly makes people climate conscious. But what if people had to pay for everything they owe mother nature – air, water, coral, fish, forest, etc? Not too bad. Costa Ricans have been doing it for over a decade. Once known for the world’s highest deforestation, Costa Rica today is the world leader in conservation policy and ecotourism. Costa Rica achieved this remarkable environmental conservation through its policy called Payment for Environmental Services (PSA in Spanish).

In his article (No) drill, baby drill, Thomas Friedman describes how Costa Rica has reversed its deforestation with the government’s forest conservation program PSA.

Costa Rica lost much of its bio-diverse rainforests in two decades – 1960 & 1970 – due to clearing of land for cattle pasture and agriculture. It had the highest rate of deforestation and lost about 35-40% of its forest cover. To stop environmental degradation, in 1997, the Costa Rican government launched a country-wide program of payments, the PSA program. The success of the country’s economic growth under PSA demanded the protection of its environment. As per PSA, any business that uses resources from nature has to make “payments for environmental services.” The PSA program is managed by a semi-autonomous agency with independent legal rights called National Fund for Forest Financing, FONAFIFO. Due to its success, the PSA program provides payments to more than 4,400 farmers and forest owners for sustainable activities such as reforestation, forest conservation and forest management.

How PSA works

The main objective of the PSA program is to connect environmental service users with environmental service providers such that service users compensate service providers. For example: water users compensate landowners that maintain the water quality. The PSA program is primarily a fund transfer system:

• From – businesses that benefit from environmental services, e.g. tourism operators
• To – Businesses that produce environmental services such as forest owners that preserve bio-diversity

Here’s how the systems works:

• The landowners develop a sustainable forest development plan and get it certified by a licensed forester.
• The FONAFIFO negotiates payments with water service users.
• Another agency SINAC pays and monitors the development plan implementation.

Payments are made over a five year period in the following categories:

• Conservation: $519/acre
• Reforestation: $1326/acre
• Forest management: $327/ha

PSA Financing

The PSA program is funded by a national tax on fuel, international donations and forests’ environmental services. The fund now receives:

• 3.5% fuel tax revenue
• Payment for watershed services by with hydro-electric companies
• Carbon trading
• World Bank loan
• Global Environmental Facility grant

PSA Success

Costa Rica has created a national market for environmental services such as bio-diversity, water, climate and recreation with the help of legislative measures in the PSA program. However, the success of the PSA program is difficult to gauge due to lack of reliable qualitative and quantitative data. The general consensus is that the PSA program has greater impact on deforestation rather than reforestation. According to Congresswoman Elsa Grettel Ortiz Alvarez, 520 thousands hectares of private land comes under the PSA Program (10% of the total territory). Social effects of the program, direct as well as indirect, are significant. Direct social benefits include financial compensation and incentives given to landowners. Indirect social benefits include non-financial benefits that affect the community as a whole. New jobs have been created for forest managers, intermediaries and researchers.

Conclusion

Clearly, Costa Rica’s PSA program has successfully created a support system for sustainable forest management and conservation. Government’s role in preserving its ecosystem is beautifully demonstrated by the PSA program. The concept of direct payment to landowners for environmental services is a lesson for other countries to adopt.