• Avoiding 1% of catchment's forest loss reduces chemicals use by 0.026% in Costa Rica.
• Improving the turbidity by 1% decreases 0.005% aluminum sulfate needed at the water plants.
• The value of water purification service by forests is USD 9.5 per hectare per year.
• The contribution of forest (per ha) becomes larger as the size of the catchment decreases.
Forest cover improves surface water quality by minimizing soil erosion, reducing sediment in the water, and trapping or filtering water pollutants in forest litter. Because the amount of chemicals needed to produce potable water depends on the quality of intake water, upstream forest cover protection may help reduce the extent and cost of water treatment downstream. However, many other drivers exist for the cost of water treatment, so the magnitude and relevance of the influence of forest cover on water treatment cost is an empirical question. We analyze the impact of forest cover on the quality of raw water and the extent of water treatment required at the water treatment plants in Costa Rica, using monthly panel data in 2008–2014 from the drinking water treatment plants managed by the national public utility. We find that forest cover change during the study period statistically significantly affected the chemical use by water treatment plants. In economic terms, the estimated value of water purification services provided by forests is USD 9.5 per hectare per year. Depending on the discount rate, this results in a net present value of water purification service ranging between USD 315.4 and USD 113.9 per hectare. The results indicate that the economic value of the water purification service of the forest is 1.7% of the value for recreational services; between 3.2% and 1.1% relative to the value of forest carbon sequestration typical in Costa Rica, depending on the discount rate; and around 13% of the payments for watershed protection program by the National Forest Financing Fund. The results also show that the marginal contribution of the forest, on a per hectare basis, on water quality becomes larger as the size of the catchment decreases.
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