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2012-06-15 | story

Should the squeaky wheel get all the oil?

Payments for ecosystem services in Costa Rica: Does it matter who gets paid and why for the efficiency of payments for ecosystem services (PES) programs aimed to reduce deforestation and forest degradation? This is being studied by EfD Central America researchers. They are also studying the socioeconomic impacts of the PES program in Costa Rica. Since 1996 this national program has attracted international attention, and today it is regarded as a model for REDD+ credits.

Payments for ecosystem services (PES) is an environmental policy instrument that gives the owner of a natural resource direct incentives to manage it in society's best interest. Today Costa Rica’s PES program is paying forest landowners for ecosystem services, since they conserve forests. But if this payment program is to create additionality, that is, benefits for society that would not be there in the absence of the program, then payments should target landowners at high risk of deforesting their land and those who would not have planted trees without the program.

Juan Robalino,“The problem is to identify who is at high risk for deforestation, which is expensive; it requires a deforestation model and lots of information. Policymakers in charge of the program are typically not convinced that targeting high risk landowners will pay off. There are two broad justifications for policymaker’s reluctance to focus solely on high risk landowners. First, they frequently argue that leaving forest guardians (that is landowners with no or very little risk of deforestation under current conditions) outside of the payment program is unfair to them and might lead to changes in their behavior. A second aspect is that targeting based on high deforestation risk makes sense as long as the objective is to reduce deforestation and forest degradation. As soon as you have additional objectives, such as reduced poverty and improved livelihood of landowners, then targeting based on risk of deforestation becomes just one part of a larger equation,” says Francisco Alpizar (below), senior research fellow and director of EfD Central America.

Together with EfD researchers Juan Robalino, Alexander Pfaff and Anna Nordén, Alpizar is conducting interviews and economic experiments with around 400 households of landowners living all over Costa Rica. The study is supported by the Tinker Foundation. The findings will be presented at the next EfD Policy Day in Costa Rica in connection with the annual meeting of EfD in 2012.

“In our experiments we study the responses of people who receive payments and people who don´t in order to evaluate how different selection rules affect their behavior. Our preliminary results support the hypothesis that if you pay only the landowners at high risk of deforesting their lands, then some forest guardians will react negatively. We observe people reacting angrily at beingexcluded from payments because of their already good behavior,” says Alpizar.

Targeting based on risk of deforestation and fairness considerations is needed

One important conclusion from the study will be that a combination of incentives that includes both targeting and fairness considerations is needed. If implemented separately, the efficiency of the PES program will be endangered.

For this study, the EfD Center in Central America is cooperating with the National Forestry Financing Fund (FONAFIFO), which is the government institution that implements the PES program in Costa Rica.

In 1996 Costa Rica was the first country in the world to implement a national program for payments for ecosystem services. The program immediately became a common focus of research around the world, and many of the researchers´ suggestions have been implemented by policy makers in different countries, for instance in Mexico.

But the pioneering Costa Rican program was not perfect. It was for example criticized for its narrow focus on forestry and its exclusion of the role of agriculture. Not targeting land owners at high risk of actually deforesting their land was also seen as a problem. And it still is. The program, which is mainly funded through fuel taxes, also receives funding from the World Bank, which together with evaluators has pushed for better targeting.

Both additionality and targeting of PES in Costa Rica have been studied for a long time by EfD researchers Juan Robalino and Alexander Pfaff. In essence they have found that additionality is low, but there is a capacity for improvement through improved targeting.

Study on socioeconomic impacts of PES will feed into policy

The World Bank has also requested that FONAFIFO explore the socioeconomic impacts of the PES program. the EfD initiative is funding part of this new study, of which the results will feed directly into policy. It is conducted by EfD researchers Laura Villalobos, Juan Robalino, and Francisco Alpizar. Among the factors that will be studied are income, schooling, and infrastructure. The data comes from around 400 household interviews conducted by EfD. Census data will also be used.

The principal researchers of this field study are very proud because it emerged from a simple discussion to become an innovative project that turned out to be attractive enough to call the attention of the Tinker Foundation out of many others seeking financial support. The actual field experiments and the survey technique used to collect data have never been applied in Costa Rica before: In this way, this is a groundbreaking study in the country for its use of elements of game theory in a natural field experiment and because it included a payment to the participants and voluntary donations to a public cause.

Francisco Alpizar says that when and if REDD+ (a carbon trading system based on reducing emissions from deforestation and forest degradation) becomes a policy of the world community, it might look very similar to FONAFIFO´s program for ecosystem services in Costa Rica.

“It‘s not simple. Costa Rica has a history of good environmental stewardship, strong institutions and little corruption and still achieving credible credits through reduced greenhouse gas emissions from deforestation and forest degradation (REDD+) in Costa Rica will be difficult. Imagine how much so will it be in countries with a high level of corruption, weak institutions, and no history of protecting nature.”

By Karin Backteman

About REDD and REDD +
Since 2005, the effort to create incentives for reducing emissions from deforestation and forest degradation (REDD) has gained prominence as a way to reduce global greenhouse gas (GHG) emissions. In 2010, the UN climate conference in Cancun established an incentive mechanism for REDD+ (including conservation, sustainable management and enhancement of forest carbon stocks), and opened the door for countries to generate tradable emission reduction credits from forest carbon in the future. Source: Resources for the Future (RFF)