Report

Bridging the Policy and Investment Gap for Payment for Ecosystem Services: Learning from the Costa Rican Experience and Roads Ahead

At a Glance

Publication Date October 2016
Format pdf
Country Costa Rica
Thematic Area Sustainable Landscapes

GGGI recently published a report titled, ‘Bridging the Policy and Investment Gap for Payment for Ecosystem Services: Learning from the Costa Rican Experience and Roads Ahead’. This report provides findings based on the Costa Rican experiences that are beneficial for other countries around the world interested in developing Payment for Ecosystem Services (PES) schemes. The report also highlights the importance of an innovative ecosystem marketplace beyond PES, where public and private sector actors collaborate dynamically in mutually beneficial ways to value and invest in the ecosystem services, which will ultimately create economic, environmental, and social returns.

The Paris Agreement sent a strong and unprecedented message that valuing and investing in forests and ecosystems services is critically important for the new global climate regime. Costa Rica’s PES program has been globally recognized as an innovative blend of economic and regulatory instruments that can serve as a model for the international community to learn from. One of the many successes from Costa Rica’s experience is demonstrated by a significant increase in forest cover from less than 30% in the 1980s to 54% of its territory today.

Against this backdrop, this report presents an analysis of Costa Rica’s PES scheme through reviewing all major aspects of Costa Rica’s PES experience, from program design and implementation to the steps it has taken to open up new avenues of financing. Starting with a strong rationale for why valuing ecosystem services has significant implication in the economic, environmental, and social context, this analysis unpacks the lessons learned from the Costa Rican PES experience. By analyzing what has worked and what hasn’t, the report provides insights and practical guidelines to readers in developing countries. Also, the valuable insight from this report will contribute to GGGI’s continued work in the land-use sector in Costa Rica and in other member countries, as well.

 

Key findings:

  • A PES scheme does not emerge in a vacuum; it requires a set of enabling conditions to be successfully implemented. A standard recipe for PES does not exist, as these types of programs should adapt to each country’s (and, sometimes, region’s) specific needs and realities. To guarantee sustainability, PES schemes should be flexible, dynamic, and capable of both learning-by-doing and of adapting to changing political, social, and environmental contexts.
  • Part of Costa Rica’s success in establishing a vibrant, oversubscribed PES system has been due to willingness to get underway and to experiment. Experimentation and incrementalism can help reduce risks, allow policymakers to tailor programs for their own countries social and political conditions, and permit regimes to evolve along with the changing global landscape for financing.
  • PES provides powerful financial incentives for ecosystem services that are not usually monetized and paid for in the traditional market. However,it is important to remember that PES is not an end goal in itself, but rather a tool that enables better ecosystem conservation while enhancing social inclusion.
  • The private sector is a key potential funding source for filling the conservation financing gap. It is noted in the report that if private investors allocate as little as 1% of their capital to integrated ecosystem management, they can address the foreseeable annual gap for the conservation sector, amounting to USD 200–300 billion. For Costa Rica’s PES program, current financial dependency on tax revenue makes the program vulnerable to changing political and macroeconomic conditions, which led Costa Rica to look for private sector investment. This sector is among the new, emerging sources of ecosystem financing that, if tapped properly with an innovative business model, could result in benefits for the environment along with profits for businesses.
    • A key first step is for environment ministers to constitute a working group consisting of all external stakeholders. Working groups should define how the value of nature can be more strongly embedded in investor guidelines, taxation policy, CSR/CSV, and profitable financial products, and to define distinctive roles to collaborate with each other. This kind of activity can help “prime the pump” and get information flowing – a critical piece of the enabling conditions that will allow PES experiments to take place and flourish.

This report was shared with the President of the Republic of Costa Rica, Luis Guillermo Solís Rivera on October 14, 2016. Additionally, the Environmental Bank Foundation (FUNBAM) and GGGI hosted a workshop on November 28, 2016 in San José, Costa Rica, to celebrate an official launch of the report, with the support from the Ministry of Environment and Energy (MINAE) and the National Forestry Financing Fund (FONAFIFO).

As one of the founding members of GGGI, Costa Rica’s government is continuing its collaboration with the institute to develop innovative financing mechanisms that enhance capital for ecosystem services and biodiversity. The Ministry of Environment and Energy (MINAE), and Forestry Financing Fund (FONAFIFO), are working together with GGGI to develop national finance vehicles such as the country’s recently established Environment Bank Foundation (FUNBAM).