national economist report costa rica

7/28/2019 National Economist Report Costa Rica

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COSTA RICA CASE STUDY:

THE IMPORTANCE OF BIODIVERSITY ANDECOSYSTEM SERVICES FOR ECONOMIC GROWTH

AND EQUITY IN COSTA RICA

NATIONAL ECONOMIST REPORT

Jaime Echeverria, MSc

San Jos, Costa Rica

February 2010


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Table of Contents

1 INTRODUCTION ................................................................................................................51.1 CONTEXT............................................................................................................................... 61.2 OBJECTIVE ............................................................................................................................. 7

1.3 BIODIVERSITY IN COSTA RICA .................................................................................................... 7

2 SECTOR ANALYSIS: THE IMPACT OF BIODIVERSITY AND ECOSYSTEM SERVICES ONECONOMIC GROWTH AND EQUITY .........................................................................................8

2.1 TOURISM S IMPACT ON THE ECONOMY AND POVERTY ................................................................... 82.1.1 Income / foreign exchange revenues .......................................................................... 92.1.2 Tax Revenues ............................................................................................................ 102.1.3 Jobs and Poverty Reduction ...................................................................................... 122.1.4 W ......................................................................... 13

2.2 BIODIVERSITY PROTECTION..................................................................................................... 142.2.1 Conservation of public protected areas .................................................................... 142.2.2 Economic Contribution of the National Parks and Biological Reserves to Costa Rica

202.2.3 The use of biodiversity in the development of pharmaceutical and agriculturalproducts ................................................................................................................................. 22

2.3 AGRICULTURAL SECTOR ......................................................................................................... 26

3 ANALYSIS OF EXISTING OR POTENTIAL ECONOMIC INSTRUMENTS AND THEIR IMPACT .... 293.1 ECOLOGICALLY ADJUSTED WATER USE FEE ................................................................................. 293.2 WASTEWATER DISCHARGE FEE ............................................................................................... 303.3 ENVIRONMENTAL SERVICES PAYMENT PROGRAM....................................................................... 313.4 DEBT FOR NATURE SWAPS ..................................................................................................... 33

4 CONCLUSIONS ................................................................................................................ 35

5 REFERENCES AND LITERATURE REVIEWED ...................................................................... 37

6 ANNEX 1. SECTORS PROPOSAL ....................................................................................... 39

List of Tables

Table 1. Sustainable Environmental Management vs Business as Usual ........... 6

Table 2. Costa Rica: Foreign exchange income from tourism and tourism relatedto exports. 1999-2008 (millions of U.S. dollars) ........................................... 10

Table 3. Costa Rica: Budgeted and actual revenues from the Costa RicanTourism Institute (ICT). 2005 -2008. $ Million. ............................................. 11

Table 4. Costa Rica: Measuring poverty among employees (individual incomefrom a main job) .......................................................................................... 13


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Table 5. Costa Rica: National Conservation Areas System Comparative income2004-2006 ($ millions) ................................................................................. 17

Table 6 Costa Rica: the Economic Impact of National Parks and Biological

Reserves Estimation. ($ millions for 2002). ................................................. 20Table 7 INBio bioprospecting projects-inactive .................................................. 24

Table 8. Costa Rica: INBio budget for 2002. ..................................................... 25

Table 9. Costa Rica: farm and livestock products exports. 2004-2008. (inthousands of US$). ...................................................................................... 27

Table 12 Costa Rica: Output from main agricultural crops. In metric tons. 2004-2008 ............................................................................................................ 28

Table 14. Costa Rica: Water use fee ($/m3) according to water use ................. 29

Table 15. Costa Rica: Estimated revenues for discharge fees in $ dollars ........ 31

Table 16. Costa Rica: Amounts paid per hectare and per tree for PES bymodality for a five-year contract, 2009. (U.S. dollars) .................................. 32

List of Figures

Figure 1. Costa Rica: percentage distribution of tourist arrivals ........................... 9

Figure 2 Costa Rica: International tourist arrivals from 1999 to 2008 ................... 9

Figure 3 Costa Rica: Foreign exchange earnings from tourism .......................... 10

Figure 4 Costa Rica: Estimated inFRPHIURPWRXULVWVDLUGHSDUWLQJWD[,Q86GROODUV......................................................................................................... 12

Figure 5 Costa Rica: Conservation Areas and Biological Corridors.................... 14

Figure 6 Costa Rica: National System of Conservation Areas. GeneratedRevenue. National Park Fund-($ millions) ................................................... 17

Figure 7. Costa Rica: Forest Fund / National Conservation Areas System. Shareof Revenue Generated by source. ............................................................... 19

Figure 8. Costa Rica. Value added of different sectors ($ millions) .................... 26


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Figure 9 Costa Rica: Projection of the amount collected as fees for water use,according to expected demand. -Millions of dollars ..................................... 30

Figure 10. Costa Rica: FONAFIFO budgetary allocation for payment of CAF and

PSA by source of funding, 2000 - 2008-Thousands of dollars ..................... 32Figure 11. Costa Rica: Distribution and number of hectares under for

Environmental Services Payment, by year and type, 2000 2008 ............. 33


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1 Introduction

The importance of biodiversity often goes unnoticed by those making decisionsthat affect the economy. Since most of these benefits are of a public nature,dispersed in space and not traded in markets, it is often difficult to quantify theirimportance. However, the fact is that the global economy depends upon theSODQHWVELRORJLFDOUHVRXUFHVDQGWKHKHDOWKRIWKHV\VWHPVWKDWVXSSRUWLW

In some sectors of the economy this is more evident. For example, fishing is aglobal industry that depends almost entirely on a biological resource thatreproduces itself, but that at the same time GHSHQGVRQWKHHFRV\VWHPVEDODQFH

And though the interest of the industry is on a single species, such as forexample tuna fish, its existence depends upon the health of the ecosystem as awhole. In the case of tourism, or more specifically, ecotourism, this relationship isquite clear in the case of Costa Rica: hundreds RIWKRXVDQGVRIWRXULVWVDUULYHeach year interested in exploring the biodiversity contained in the protected areassystem, including National Parks, Biological Reserves and other categories.

Even so, usually the contributions that biodiversity represents to the country'seconomy are usually overlooked by those who make decisions and draw publicpolicy. Usually the country's protected areas are subject to budget cuts, or atbest, a freeze on spending levels. This occurs despite of the importance of theservices obtained from these areas.

This study provides useful information to demonstrate the great importance of

ELRORJLFDOGLYHUVLW\IRUWKHFRXQWU\VHFRQRP\XVLQJVHYHUDOVHFWRUVDVH[DPSOHVAspects related to revenue generation for the economy in tourism, water use andprotected areas, are presented to illustrate the economic relations that dependon biodiversity.

The point being made throughout the document is that in these sectors, CostaRica, has been using a sustainable environmental management approachtowards biodiversity, not business-as-usual. For example, it is the only country inCentral America that directs revenues from an eco-tax on petrol and water-use-fees towards the protection and conservation of forests on private and publicland. The case of water-use fees is a good example. In most of Central

America, business as usual means not even paying a volumetric fee for water.The information provided here should be useful to make a comparison acrosscountries, using these sectors as indicators and Costa Rica as an example ofhow a sustainable environmental management approach works; at least, in somesectors of the economy. (See next table)


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Table 1. Sustainable Environmental Management vs Business as Usual

Sector/Issue BAU SEM (Costa Rica Example)National Parks Sparse independent units.

Poor financing.Little research.Unsecure land tenure.

Cohesive and integrated

system of protected areas.Good research facilitiesPartnerships withUniversities and otherresearch centers.

Secure land tenure.

Payment forenvironmentalServices

Isolated and very limitedlocal schemesLack of legal framework

Problems assigning andcollecting resources.

National system, based ona law,Secure sources of

revenue.Extensive know-howPrivate sector support andengagement

Water Limited, or lack of,legislationUse fees do not cover themanagement costResistance to meteringUsers are not registered

Extensive legislation thatconsiders a use-fee on avolumetric basis, for thedifferent types of wateruse.Integrated Water

Management Costs areincluded in water use fees.Metering is common andmost users are registered.

1.1 Context

As part of the Regional Program for Latin America and the Caribbean (LAC)2008-2011, UNDP adopted a regional initiative in order to inform policy-makers inthe region about the need to incorporate biodiversity and ecosystem services(BES) in local strategies, considering the role they could play in meeting

development and equity the objectives. To support this initiative, UNDP, incollaboration with UNEP, ECLAC and the Secretariat of the Convention onBiological Diversity (CBD), has initiated a dialogue with political and economicleaders and Latin American and the Caribbean environmental experts to preparea report that presents convincing arguments about the need to invest to maintainbiodiversity and ecosystem services.


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1.2 Objective

The terms of reference indicate that the objective of this document includes:

"... A review of relevant data and evidence from the existing literature as well asprojects and case studies in Costa Rica, which may allow the construction ofconvincing arguments to make decision makers reconsider their investmentdecisions and ensure the transition from a business as usual (BAU) approach tonatural resources management, to a sustainable environmental management(SEM) approach."

1.3 Biodiversity in Costa Rica

Costa Rica is located in Central America, between Nicaragua and Panama. Itcomprises a land area of 51,100 km2 and a marine component of 568,000 km2.Several mountain ranges cross the country from side to side, providing a huge

variety of climates and microclimates. Significant differences in conditionsbetween the Caribbean and the Pacific make this country rich in biodiversity.Costa Rica is ranked among the richest countries in biodiversity per unit of areain the world and shares about 80% of its biological wealth with other Central

American countries (SINAC, 2009).

Furthermore, it has RI WKH ZRUOGV UHSRUWHG marine species, includinginvertebrates and microorganisms. Regarding vertebrates and plants, thenumber of described species is approximately 95%, and 100% for freshwater fishDFFRUGLQJ WR 6,1$& %DVHG RQ WKH +ROGULGJHV /LIH =RQH 6\VWHP(bioclimatic units) Costa Rica has 12 life zones and 12 transition areas, its basal

tropical forests and the premontane are the largest, representing a 44.8% and43,34%, respectively.

Costa Rica has 4.5 million inhabitants (INEC, 2010), of which about 80,000belong to the indigenous population. They are located mostly in 24 indigenousterritories in Talamanca, that represent 7% of the national territory (about400,000 ha), near the buffer zone of the country V largest protected area, La

Amistad International Park (PILA).

According to the National Biodiversity Report, Costa Rica has made significantprogress towards achieving the 2010 CBD goals. The national system of

protected areas, along with programs such as payment for environmentalservices and sustainable tourism certification are contributing to this end.However, there are still challenges such as the coordination of different efforts.


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2 Sector analysis: The impact of biodiversity andecosystem services on economic growth and equity

2.1 7RXULVPVLPSDFWRQWKHeconomy and poverty

According to ECLAC (2007), tourism is an economic activity that contributes tothe growth and development of economies, and has a high potential for povertyreduction. The "Tourism Enriches" campaign implemented by the World TourismOrganization (WTO, emphasizes that this activity generates substantial economicbenefits. International tourism is the mayor world export sector, and an importantfactor in reducing the trade deficit in for many countries. It generates employmentfor millions of people around the world, opportunities in rural areas andencourages the establishment of tourism enterprises in the less developed

regions. It also LQFUHDVHV LQYHVWPHQW LQ LQIUDVWUXFWXUH JRYHUQPHQWV UHYHQXHsthrough tourism taxes, and environmental conservation through the visitation tonational parks, historical monuments and archaeological sites. Tourism canpromote development and alleviate poverty as the WTO highlighted in its 2002campaign called "Sustainable Tourism - Eliminating Poverty" (http:/ /www.unwto.org / sdt / index.php).

Costa Rica is the country that captures the largest amount of tourists in CentralAmerica, 25% of the total. Figure 1 shows the origin of tourist arrivals to thecountry. The average spending by international tourists visiting the country wasestimated at between $ 800 and $ 1,000 per visitor in 2004. The main reason to

visit the country is tourism and recreation, followed by business purposes(ECLAC, 2007). Those who visit the country for recreation represent 60% andvisit at least two national parks (Arias, 2010). Tourism generates about110,000 direct jobs in the country, representing approximately 9% of total jobsgenerated by the private companies in Costa Rica. If the recent growing pace oftourism is kept, by 2015 the tourism sector could become the largest employer inCosta Rica. Another important fact is that 56% of these jobs are generated inrural areas, mostly in Guanacaste, the Pacific and Atlantic coasts.


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Figure 1. Costa Rica: percentage distribution of tourist arrivals

Source: Costa Rican Tourism Institute, 2009.

2.1.1 Income / foreign exchange revenues

Tourism is a major source of foreign exchange for Costa Rica. Since 1999, thearrival of international tourist has doubled from 1 million to over 2 million in 2008,mainly from North America, Central America and Europe, as shown in Figure 2.The 2 million tourists that entered the country in 2008, generated income of U.S.$ 2,144 million (Table 2), equivalent to 22.6% of WRWDOH[SRUWVHDUQLQJV (CostaRican Tourist Institute, 2009).

Figure 2 Costa Rica: International tourist arrivals from 1999 to 2008

Source: Costa Rican Tourist Institute, 2009.

46.744%

31.045%

13.851%

5.462% 2.898%

AMRICA DEL NORTE AMRICA CENTRAL EUROPA

AM RICA DEL SUR OTRAS ZONAS*

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Numberoftourists


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Table 2. Costa Rica: Foreign exchange income from tourism and tourism relatedto exports. 1999-2008 (millions of U.S. dollars)

Year Total ExportsIncome from

Tourism*Ratio:

Tourism/Exports

1999 6.662,1 1.036,1 15,62000 5.848,7 1.229,2 21,0

2001 5.021,0 1.095,5 21,8

2002 5.263,5 1.078,0 20,5

2003 6.101,2 1.199,4 19,7

2004 6.301,7 1.358,5 21,6

2005 7.027,2 1.570,1 22,3

2006 8.199,8 1.620,9 19,8

2007 9.337,0 1.927,4 20,6

2008 9.503,7 2.144,2 22,6*/ These figures do not include cruise information.Source:Costa Rican Tourism Institute (ICT), 2009.

Figure 3 Costa Rica: Foreign exchange earnings from tourism

Source: Costa Rican Tourism Institute (ICT), 2009.

2.1.2 Tax Revenues

The Costa Rican Tourism Institute (ICT) is the institution in charge of promotingintegrated tourism development in Costa Rica. Expected revenues for 2008 werea total of $ 33.3 million. However, real revenues were almost $50 million. (seeTable 3). Currently tax revenues are the largest funding source for ICT,generating 47% of total revenues each year. These taxes include a:

00

500

1,000

1,500

2,000

2,500

2000 2001 2002 2003 2004 2005 2006 2007 2008

Divisas(millones $)

Ao


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3% tax on lodging ($ 9.93 million in 2007). (Law N 2706, Art. 7).

5% on international airfares ($9.73 million in 2007). It applies to tickets sold inCosta Rica for any kind of international travel. Revenues belong to ICT and

are used to fulfill its duties (Law 1917, art. 46).Non-tax revenues came primarily from securities investments and rents fromland and buildings. Surplus revenues have shown significant growth between2005 and 2007, from $ 9.17 million to $ 14.9 million; these are invested ingovernment securities (Legislative Assembly, 2008).

Table 3. Costa Rica: Budgeted and actual revenues from the Costa RicanTourism Institute (ICT). 2005 -2008. $ Million.

Source: (Legislative Assembly, 2008)* Approved Budget for ICT to 21 August 2008.** Actual revenue.

Additionally, there is another tourism-UHODWHG WD[ 7KH DLUSRUW WD[ JHQHUDWHVmore than US$50 million per year from international tourists. It has steadilyincreased, in parallel to visitation, from $43.6 million in 2005 to $54.3 million in2008. Each tourist pays $ 26.00 and must be paid by all who leave by air (LawNo. 8316). $12.15 goes to the Central Government and $13.85 to the Civil

Aviation Technical Council (CTAC), and both are used to finance generalexpenditures (Legislative Assembly, 2008).


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Figure 4 &RVWD5LFD(VWLPDWHGLQFRPHIURPWRXULVWVDLUGHSDUWLQJWD[,Q U.S.GROODUV

Source: based on ICT data for international tourists departing Costa Rica.

In summary, the three existing taxes directly related to tourism generated anestimated $ 76.5 million in 2008.

Recently, the Law for Strengthening the Development of the Tourism Industrycreated two new taxes. A $15.00 tax is assigned to the promotion, trade,planning and the sustainable development of the country as a tourist destination.This specific assignation is wider than the tax it eliminated, for it allows majorflexibility in the use of these resources. This new tax will generate an estimated

average per year of $500 thousand. A 5% tax on tickets sold outside thecountry, and that have Costa Rica as departure point, created to complement tothe already existing 5% tax that is applied to all air tickets sold in Costa Rica. It isexpected to generate some $7.48 million. Since the approval of this Law, the 3%tax on lodging was eliminated with the derogation of the Law N 2706, which waspart of the tax basis on which the sales tax is applied, therefore, the collection ofthe sales tax is reduced on lodging services.

2.1.3 Jobs and Poverty Reduction

It is also important to consider that there are other activities that depend upontourism for development, such as agriculture, transportation, construction and

commercial activities. According to the World Tourism Organization (WTO)tourism indirectly produces 4 indirect jobs for each direct job. This means thataround 550,000 people in Costa Rica depend directly or indirectly on tourism(Rodriguez, August 2005).

When it comes to education levels, the preparation of tourism workers largelyreflects the education characteristics of each country. Costa Rica has a staff with


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higher education levels than the other countries in the region and this is alsoreflected in the tourism sector. In Costa Rica, 45% of the employees of the touristsector have had at least primary school; 54% have high school or universitydiplomas. These values are similar for the other sectors of the economy (CEPAL,

2007).According to CEPAL (2007), the poverty incidence among employees in CostaRica is 7.1%. However, it is only 3.6% for the tourism sector. Other variablessuch as the depth and severity of poverty behave in the same way. (see Table4).

Table 4. Costa Rica: Measuring poverty among employees (individual incomefrom a main job)

Sector Incidence Depth Severity

Tourism 0,036 0,013 0,006

All sectors 0,071 0,030 0,016Source: (CEPAL), 2007

2.1.4 Pro

All of the above has relevance for biodiversity because a significant part of thetourism industry strictly depends upon the national system of protected areas.

According to Monestel DeShazo and Luis Vega (1999) of Harvard Universitystudied the protected areas role in the development of foreign and domestictourism in Costa Rica, but found little evidence in quantitative terms. They found

however that:

Foreigners visit 4.5 public places during their stay of 16 days in the country.

Foreigners invest between 50% and 70% of their visiting time in protectedareas and their surroundings.

The national tourist makes 4.8 trips per year to visit 9.9 sites.

Domestic and foreign tourists with higher incomes spend a higher proportionof their time visiting protected areas.

A UHGXFWLRQ IURP WR LQ WKH JRYHUQPHQWV EXGJHW IRUmaintenance and infrastructure investment of protected areas, might affectthe increase of foreign and domestic tourism in the mid term:


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DeShazo and Vega (1999) conclude, that from any point of view, public protectedareas are and will be one of the main engines of growth for the tourism sector inCosta Rica.

In Section 2.2.2 a broader analysis of the economic impact of protected areas ispresented.

2.2 Biodiversity Protection

2.2.1 Conservation of public protected areas

Costa Rica is usually considered a worldwide leader in the development ofmarket mechanisms for environmental management. However, barriers havebeen identified that prevent the National System of Conservation Areas (SINAC),established in 1995 (Figure 5), from fully implementing its national biodiversitystrategies. For this reason, SINAC and UNDP are implementing a GEF-financed

project entitled 2YHUFRPLQJ%DUULHUVIRUWKH6XVWDLQDELOLW\RI3URWHFWHG$UHDVLQ&RVWD5LFDwith the objective of generating the capacities needed to ensure thatthe system achieves its goals, generating local and global benefits (for moredetails see http://www.sinac.go.cr/proyectobig.php).

Figure 5 Costa Rica: Conservation Areas and Biological Corridors

Source: http://www.corredoresbiologicos.go.cr/documentacion.html


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Using a scenario approach, Mark Adamson (2006) studied the economic andfinancial sustainability of the Protected Areas System. He assessed a total of132 possible options (3 management alternatives, 11 revenue cases, and 4expenditures including alternatives). The economic analysis included generation

of hydrological services, and the value of environmental functions recognized bythe national system of payment for environmental services (PES). The financialanalysis assesses revenues including only the income generated by theprotected areas through visitation, taxation, and surplus transferred; it does notconsider externalities.

According to the study, the Protected Areas System is providing the country witheconomic benefits in excess of the expenses associated with its existence.Results show that the system is sustainable in economic terms and for allscenarios. This means that if SINAC successfully collects its tax revenues andvisitation fees, and visitation and revenues maintain its current trend, the totaleconomic benefits produced by the ASP exceed their expenses, based on adefinition of economic efficiency or inter-temporal dynamics. This does notexclude the possibility that in economic terms the system could be more efficient.

It was not possible, however, to determine the cost-effectiveness of the systembecause 6,1$&Vaccounting is not done E\cost centers%XW, considering thepossible scenarios for tax revenue collection, surplus transfers and incomeopportunities from visitation, there is economic evidence that the system couldsubstantially increase its efficiency; both increasing revenues and reducingexpenditures.

The author concludes that the system is sustainable from an economic point of

view (i.e. economic benefits outweigh its costs in a planning horizon up to 2020).Net present values are positive for the three scenarios considered ($182.48million in the baseline, $293.39 million in the middle, and $476.33 million in theoptimist scenarios). Financially, including only direct profits, the system reducesits sustainability and cannot cover all their expenses. Thus, the financialsustainability of the system depends on the internalization of the economicbenefits generated by the ASP, which rests upon a political decision. The mainopportunity for this being the financial resources the new water use fee willgenerate, 25% of which will be directed towards SINAC. Therefore, making thecase about thHV\VWHPVEHQHILWVIRUWKHHFRQRP\LVYHU\LPSRUWDQW

The financial sustainability of the system however, depends upon theassumptions used to estimate it. SINAC and The Nature Conservancy (TNC)(2007) used the Convention on Biological DiversityV JRDOV Ds guidelines. Afinancial gap analysis was carried out using information from 2004 to 2006. ItLQFOXGHG DOO UHYHQXH VRXUFHV DGPLQLVWHUHG E\ 6,1$&V UHJXODU EXGJHW WKUHHspecial funds (National Parks, Forestry and Wildlife funds), development aid and


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private and resources. Currently the main funding sources of SINAC are (Valerio,2010):

Central Government. Through its ordinary and extraordinary budgets,

currently is the largest source of revenue for6,1$&VDQQXDOEXGJHWNational Parks Fund. Includes admission fees, other Protected Area sservices and the National Parks mail stamp).The Forestry Fund and the Wildlife Trust, which represents the thirdsource of revenue for the System.Wildlife fund.25% of the ecologically adjusted water use fee.Royalties and research projects of INBio bioprospecting.Donations, conventions from national and international agencies.Loans, with international financial organizations.Interests generated on the transitional investments from the Heritage Fund

of the Conservation Areas.Revenue from concessions services of the Protected Areas (ASP).Permits fees for using the ASP.Deposits / fines resulting from the reconciliations and settlement of legalproceedings for environmental damages.Fines for infringement of the forestry, wildlife and protected areaslegislation.

The next table shows sources of income for three years and the relevantcontribution of each. Notice the important increase suffered by the approvedbudget, from $17 million to almost $28 million and the reduction in the difference

between the received and the budgeted amount. The Government budgetcovers approximately 75% of the total costs while resources from other sourcescover the rest.


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Table 5. Costa Rica: National Conservation Areas System Comparative income2004-2006 ($ millions)

2004 Real Approved Difference

Regular budget 7,8 7,8 0Parks Fund 8,7 6,6 2,1Forestry Fund 1,7 0,54 1,1Wild Life Fund 0,22 0,035 0,19Private Resources 2,1 2,1 0Total 20,5 17 3,5

2005

Regular budget 11,6 11,6 0Parks Fund 9,05 9,04 0,01Forestry Fund 1,4 0,28 1,1Wild Life Fund 0,26 0,13 0,13

Private Resources 4 4 0Total 26,4 25,1 1,3

2006

Regular budget 12,44 12,44 0Parks Fund 9,6 10,7 -1,02Forestry Fund 0,15 1,4 0,12Wild Life Fund 0,26 0,13 0,13Private Resources 3,3 3,3 0Total 27,2 27,9 -0,78Source: (SINAC/TNC, 2007)

In the case of the 1DWLRQDO3DUNV)XQGLWVPDLQLQFRPHLVIURPWKHSURQDWLRQDOSDUNV stamp and the parks entrance fees, as shown in Figure 6 below:

Figure 6 Costa Rica: National System of Conservation Areas. GeneratedRevenue. National Park Fund-($ millions)

0

2,000

4,000

6,000

8,000

10,000

12,000

2004 2005 2006

Surplus

Transfers

Financial

revenuesOther income

Entrance fees


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Source: Prepared based on (SINAC / TNC, 2007).

The pro-national parks stamp amount ($0.4) was updated in the Biodiversity LawNo. 7788, and revenues from it are managed by the Banco Credito Agricola deCartago, a national bank, and collected by the Immigration Office, the NationalProperty Registry, and the Ministry of Foreign Affairs. The funds are thentransferred to the Central Bank of Costa Rica (BCCR) and subsequentlydeposited in WKH0LQLVWU\RIWKH(QYLURQPHQWVaccount.

However, it is important to mention that these mechanisms have only very fewcontrols and verification systems. As a result it is difficult to determine if theDPRXQWVFROOHFWHGDUHFRQVLVWHQWZLWKWKRVHGHSRVLWHGLQ6,1$&VDFFRXQWThesame situation happens with Local Municipalities, which have to collect a 2%over patents and an $8.7 stamp duty for the right to allow alcoholic beveragesconsumption in commercial establishments (SINAC / TNC, 2007).

The Forestry Fund was created in 1996 (Forest Act 7575) and obtains resourcesfrom the forestry tax and non-tax income, such as the sale of forms, applications,and guides. The forestry tax is 3% of the market value of logs/timber sent to itsprimary industrialization and imported logs/timber. Wood pays a sales tax equalto the general sales tax of 13%, minus a 3%, which is the forestry tax. However,its collection has been hampered by different legal interpretations, a situation thatmust be resolved. Taxes on imported wood are collected through various tariffitems and at different ports of entry (SINAC/TNC, 2007).

As shown in Figure 7, the surplus amounts of the Forestry Fund are quiteimportant. However, the procedure to include these funds in 6,1$&VEXGJet is

very complicated. Even though the law established the amounts, SINACrequires legal amendments to be able to access them.


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Figure 7. Costa Rica: Forest Fund / National Conservation Areas System. Shareof Revenue Generated by source.

Source: Prepared based on (SINAC / TNC, 2007).

Finally, the Wildlife Fund is entrusted with the collection of its wildlife-stamp,which is a kind of tax associated with the import and export of flora and fauna,entrance fees from wildlife refuges and related activities such as research feesand permits, hunting and fishing licenses. This fund makes the smallestcontribution to 6,1$&VEXGJHW. And worse of all, it entails high administrationcosts because accessing these funds is a complex process.

Even though SINAC has been able to diversify its funding, available resourcesfavor the "normal" functioning SINAC. This is insufficient to meet otherconservation needs, such as development, institutional strengthening,sustainable use and conservation of resources, and biodiversity, in accordancewith the duties and responsibilities that the legislation entrusted the institutionwith (Valerio, 2010). Luckily, the situation is expected to improve once its shareof the ecologically adjusted water fee starts to flow in.

To reduce further these funding gaps, SINAC proposes to develop mechanismssuch as (Valerio, 2010):

Adjusting the admission fees and other services provided to visitors and usersof the wilderness areas.

Granting contracts for non-essential services in the protected areas.

Establishing and implementing cooperative agreements with NGOs.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2004 2005 2006

Surplus

Transfers

Other income

Assets sales

Financial revenues

Goods and Services

Government Budget


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Monitoring and ensuring proper collection of revenues from all of the differentsources typified by the legislation.

2.2.2 Economic Contribution of the National Parks and Biological Reserves to

Costa Rica

In a study by CINPE-UNA, Furst, Moreno, Garcia, & Zamora (2004), estimatedthe contribution of national parks and biological reserves to the national economyin $815 million per year (Table 6). For illustrative purposes, that amount is 40WLPHVJUHDWHUWKDQ6,1$&VEXGJHWIRU. However, in the end probably theV\VWHPVFRQWULEXWLRQLVODUJHUsince there are many goods and services that arenot considered in the study. In the case of tourism, activities such as lodging,transportation and food were included.

Table 6 Costa Rica: the Economic Impact of National Parks and BiologicalReserves Estimation. ($ millions for 2002).

Economic activity Estimated revenue (millions ofUS$)

Tourism (national benefits) 708,47Availability of good quality water for power generation 87,00Resources for conservation of protected areas 9,16Contributions to INBio contributions 5,60Visitation to PNRB 2,70Employment and wages generation 1,31Land purchase 0,71Payment for environmental services (FONAFIFO) 7,53Total 814,96Source: (Furst, Moreno, Garca, & Zamora, 2004)

In a different study, the International Center for Economic Policy and SustainableDevelopment at the Universidad Nacional de Costa Rica (CINPE-UNA) analyzedthe economic and development contribution of three protected areas: Chirripo,Cahuita and Poas Volcano. The authors quantified these benefits using "clusteranalysis", by which they estimated the contribution of socio-economic activitiesinduced by productive chains around the protected areas. The protected areasstudied have become development poles that also make an environmentalcontribution, preserving biodiversity resources and providing many goods andservices. They also promote the development of new economic activities, such

as scientific research and tourism, related to the existence of the protected area.

The CINPE-UNA estimated that Cahuita, Chirripo and Poas Volcano contributed$6.41 million to the tourism sector. Additionally, these areas generated almost $1million in park entrance fees. In the case of Chirripo, the development of tourismrelated services such as hotels, restaurants, transportation, rental equipment andrelated activities like fishing and hot springs were analyzed. These activities


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currently generate $183,426 in revenues for San Gerardo and surroundingcommunities because of the 6,300 tourists per year that visit the area.

In the case of Cahuita National Park, the park's existence promotes income-

related activities such as food services, fishing guides, handcraft production andsale and other commercial businesses that produced $1.87 million in 2002.Finally, in the case of the Poas Volcano National Park, activities related to theprotected area generated revenues of $ 4.36 million the same year. In this park,important activities include non-traditional agriculture, specifically strawberriescultivation, processing and marketing, and ferns for export.

([WUDSRODWLQJ WKH UHVXOW WR WKH SDUNV V\VWHP DV D ZKROH WKH SDUN V\VWHPgenerates about $900 million in added value, an amount equivalent to a 5.5% ofthe Gross Domestic Product (GDP) for 2002.

A different study by Juan Antonio Aguirre from the Sustainable Development

Center, measured the economic impact of tourist spending in the neighboringcommunities of Poas Volcano National Park. In this study the author determineda multiplier effect of 1.56, which implies that every dollar spent on directpurchases, generated another $0.56 in revenues for indirect purchases in andoutside the community.

He estimated sales multipliers with respect to the impact of tourist expenditure inthe area and determined no significant differences between the types of businessanalyzed (souvenir shops and restaurants). The only difference was the amountof investment needed to establish a business, $33,323 in the case of restaurantsand $9,800 in the case of souvenir shops. They receive an average of 44

customers per day who spend on average $28.76 per person.

The park had to be closed completely for one week and partially for two in 2006due to crater eruptions of the volcano. According to the studyWKH3DUNVFORVXUHas a result of the eruptions meant a 72% reduction in visitation to the area. Thismeant foregone income for the community of $42,108, $5,474 in uncollectedVDOHVWD[DQGLQUHGXFHGSDUNHQWUDQFHIHHV

All of these examples illustrate the role that national parks play in promotingdevelopment in Costa Rica. Clearly, the system generates benefits beyondSURWHFWLQJ ELRGLYHUVLW\ IRU IXWXUH JHQHUDWLRQV ,W LV DQ HQJLQH RI JURZWK WKDW

brings a steady flow of foreign visitors, who engage in different activities andgenerate many indirect benefits. Scientific research, and other high added valueactivities, including significant aid programs from the international community.


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2.2.3 The use of biodiversity in the development of pharmaceutical andagricultural products

Since 1991 The National Biodiversity Institute (INBio) through its bioprospecting

program

1

, has established research and collaboration agreements nationally andinternationally with over 30 companies in the pharmaceutical and agriculturalindustries. By 2004 this program had contributed with $600,000, whichcorrespond to 10% of research funds, to the conservation of protected areas,through the Ministry of Energy and the Environment (MINAE).

Additionally INBio has contributed with more than $1.5 million for theconservation of protected areas and research projects with public universitiesand invested about $ 1.7 million in training national scientists, equipmentpurchases and infrastructure (Tamayo, Guevara, & Huertas, 2009).

Although INBio has signed agreements with different companies worldwide the

case that set the stage for the development of such agreements was signed withMerck & Co in 1991 ,W ZDV FDOOHG D shared benefits agreement. Thisagreement provided access to a number of plant samples, insects andmicroorganisms for pharmaceutical product development. Part of the researchshould be carried out locally and the company would cover research costs.Furthermore, it included a clause by which MINAE would receive 50% of thefunds during the discovery and development phases. It also provided theseorganizations with a percentage of the profits (which would be decided later),

joint intellectual property rights, technology transfer and knowledge to developscientific capacity in Costa Rica (Tamayo, Guevara, & Gamez, BiodiversityProspecting: The INBio Experience, 2004).

INBio has entered into at least 22 other agreements from 1991 to 2005 that havealready been completed, which are summarized in Table 7. These researchprojects contemplate chemistry and biotechnology with human healthapplications, veterinary, agriculture, fragrances and essences development,insecticides, nematicides, ecological control, biopesticides, and Chagas disease.

Although the products developed are not yet on the market, Merck & Co had filedfor 27 patents by the year 2004, mainly related to anti-bacterial ingredients,antiprotozoal, antifungal, inhibiting fat activity in HIV and the development of anatural nematicide component, 2R, 5R-dihydroxymethyl-3R, 4R-

dihydroxypyrrolidine (DMDP), isolated from a leguminous tree, which is one ofthe most advanced projects. The fact that some projects are classified as inactive

1Bioprospecting is defined as the systematic search for genes, compounds and organisms that might havea potential economic use and assisting the development of a product (Tamayo, Guevara, & Gamez,Biodiversity Prospecting: The INBio Experience, 2004).


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does not mean that the agreements with the companies on compensation, profitsharing, or intellectual property rights are complete.


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Table 7 INBio bioprospecting projects-inactiveProject Name Number of

agreements,including the

number of

renewals -

Project Partners

Chemical prospectingSearch for sustainable usesfor biodiversity of Costa Rica

4 Merck & Co, Inc. WhitehouseStation, NJ USA

Supply and implementation ofDMDP (2.5-didydroxy-methyl-3 ,4-dihydroxypyrrolidine)

1 British Technology Group(BTG), London, UK

Chemical Prospecting inconservation areas in CostaRica

1 Briston-Myers Squibb Company(BMS), Walling Ford, CT USA yCornell University, Ithaca, NYUSA

Fragrances and aromas 2 Givaudan Roure, NJ USAInsecticides Components 1 University of Massachussetts,

Boston, MA USADevelopment of a naturalnematicide -Tropical Programfor assessing theeffectiveness of DMDP

1 Ecos S.A.-La Pacfica, San Jos& Guanacaste, Costa Rica

Search for plant componentswith antibacterial and antiviralproperties

2 Indena S.p.A, Milan, Italia

Human Health 1 Strathclyde University,Stathclyde, Scotland

Search for new plantcompounds

1 Eli Lilly & Co. Indianapolis, INUSA

Search for plants with

antiparasitic activity

1 Swiss Tropical Institute, Basel,

SwitzerlandPotential drugs little known inCosta Rica

1 Institute of Chemistry and CellBiology, Harvard MedicalSchool, Boston, MA USA

Biotechnology ProspectingSearch extremophileorganisms enzymes

1 Recombinant BioCatalysis, Inc,San Diego, CA, USA

Gene Prospection - Fase 1 1 Diversa Corporation, San Diego,CA USA

Prospecting of genes withpotential nematicidal activity

1 Akkadix Corporation, La Jolla,CA, USA

Search biologically activecomponents in tissue cultureof the Costa Rican flora

1 Phytera Inc, Worcester, MA,USA

Development of protocols formicro-organisms withpotential biological control

1 Compaa Agrcola La GavilanaLtda, San Jos, Costa Rica

Development of protocols formicropropagation of potentialornamental plants

1 Agrobiot S.A. Alajuela, CostaRica

Source: (Tamayo, Guevara, & Huertas, Research Collaborative Agreements and Bioprospecting in CostaRica: Scientific, Technological and legal impacts, 2009)


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According to Tamayo, Guevara & Gardens (2009) INBio is involved with theUniversity of Alabama leading the search for a Chagas disease vaccine or cure.Other organizations involved in this case include the School of Agriculture of theHumid Tropical Region (EARTH), National University of Costa Rica, Universidad

de Santiago de Chile and Universidad de la Republica de Uruguay.Additionally, other projects with national and international partners, with the mainobjective of finding a cure for cancer. These projects are funded by agencies likethe Organization of American States (OAS), the National Cancer Institute and theU.S International Fogarty Center. In addition, with financing from the Inter-

American Development Bank (IDB) / FOMIN, INBio developed an initiative todevelop pharmaceutical products from popular medicinal plants. This companyODXQFKHG LQ DQG LQ WZR SURGXFWV NQRZQ DV Qassia & Style ERWKderivatives, the firsWIURPWKHSODQWNQRZQDVBig Man DQG the second from aSODQWFDOOHG Justicia Pectoralis DQGZKRVHSURILWV DUHVKDUHGZLWK ,1%LRDQGMINAET to be used on Costa Rican sustainable biodiversity.

Among other active biotechnology exploration projects, INBio develops studieswith other local partners such as BioTcnica Anlisis Moleculares S.A to controldiseases that attack crops. Two other active projects with internationalorganizations include one carry out gene exploration in collaboration with DiversaCorporation. INBio processes the samples and Diversa searches for enzymesand structural proteins that can be used for industrial biotechnology, cropprotection and pharmaceutical applications. Already released, the first product isa fluorescent protein and enzyme helpful in cotton processing, and whose profitsare also shared with MINAET for the conservation of protected areas.

,1%LRV VXFFHVV at developing bioprospecting projects with national andinternational companies and multi-donor support is a clear indication about thevalue of biodiversity used in a sustainable and strategic way, as a source ofknowledge and resources for conservation. For example, INBio's 2002 budget of$5.65 million came mainly from bilateral and international organizations, its ownresources and agreements with different companies (see Table 8).

Table 8. Costa Rica: INBio budget for 2002.Source of Funds 2002

($ millions) %Bilateral 1,26 22,4CR-USA Foundation 0,29 5,2NGO`s 0,048 0,8

Agreements with Companies 0,34 6,1International Organizations 1,19 21,1Own resources 2,09 37,0

Agreements with International Universities 0,4 7,2Other sources 0,008 0,15Total 5,65 100%Source: Adapted from (Furst, Moreno, Garca, & Zamora, 2004).


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2.3 Agricultural Sector

Agriculture as well as tourism is a major source of foreign exchange andindirectly benefits from the existence of protected areas. The agriculture, forestry

and fisheries sectors value added is estimated at $1,865 millions in 2009,representing 7.6% of GDP. Nevertheless, its share has been declining in recentyears, at the expense of other sectors such as industry, trade, restaurants, hotelsand other services (see Figure 8Error! Reference source not found.). Despiteall of this, the sector still remains an important source of revenue for the country,and provided 224,322 direct jobs in 2009, or 11.5% of total employment in thecountry.

Figure 8. Costa Rica. Value added of different sectors ($ millions)

Source: (SEPSA, 2010)

In 2008 Costa RicaV total exports of bananas, pineapples and coffee wererespectively $689 million, $572.7 million and $308 million. Relative to totalexports these represent 20.1%, 16.7% and 9% (see Table 9,Error! Referencesource not found., and Table 10). Companies planting these three crops haveseen their output increase, but at the same time have shown interest inimplementing good agricultural practices, such as integrated pest managementprograms.


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Table 9. Costa Rica: farm and livestock products exports. 2004-2008. (inthousands of US$).


Regarding the legal framework, in April 1997 the Phytosanitary Protection Actwas established, which includes international agreements with the World TradeOrganization on sanitary and phytosanitary aspects for the export of agriculturalproducts. The Phytosanitary Department was created, and currently works as a

decentralized body of the Ministry of Agriculture and Livestock (MAG). This lawprovides a wide range of applications including plant protection, pesticides,organic farming and creates the Biosafety Commission (Murillo, Hernandez, &Sanchez, 2008)

A study done by ICSTD-CINPE (Murillo, Hernandez, & Sanchez, 2008), analyzesthe sanitary and phytosanitary control measures of the major export products ofCosta Rica, such as bananas, pineapple and melon and their economic impact.Banana production is the agricultural product that generates more jobs, mainly inthe Atlantic region of the country, it is estimated that 91 of every 100 workers aredirectly or indirectly related to banana production. As mentioned above, totalbanana exports in 2008 amounted to $ 689.3 million, consistent with an averageof 100 million boxes per year (1.8 million cubic meters).

The banana exports are mainly in the hands of foreign companies such asChiquita, Dole, Fiffes and Del Monte. Many individual farmers have contractswith these companies who provide them with all standards and regulations inorder to buy the product.

2004 2005 2006 2007 2008 a/

Banano 545.179 481.940 638.580 682.141 689.388 1,1% 20,1%

Pia 256.210 324.144 436.866 489.190 572.723 17,1% 16,7%Caf oro 197.596 232.601 258.715 308.225 308.048 -0,1% 9,0%

Otras preparaciones alimenticias 140.570 146.664 158.223 186.367 220.825 18,5% 6,4%

Los dems jarabes y concentrados para la

preparacin de bebidas gaseadas

16 75.085 131.108 155.335 185.060 19,1% 5,4%

Aceite de palma 60.318 64.623 19.813 77.731 103.958 33,7% 3,0%

Plantas ornamentales 71.033 70.495 76.426 81.800 83.808 2,5% 2,4%

Follajes, hojas y dems 61.508 65.919 73.280 73.282 76.704 4,7% 2,2%

Salsas y preparaciones 44.353 50.558 56.249 69.107 71.485 3,4% 2,1%

Meln 71.630 73.923 82.534 85.920 67.968 -20,9% 2,0%

Productos de panadera fina 26.211 31.525 41.628 51.848 67.806 30,8% 2,0%

Alcohol etlico 34.279 37.120 92.608 106.684 66.454 -37,7% 1,9%

Purs de frutas 45.080 52.823 43.509 60.633 65.576 8,2% 1,9%

Yuca 34.474 43.093 35.855 42.048 64.006 52,2% 1,9%

Filetes y dems carnes de pescado 35.729 35.033 16.925 31.559 48.987 55,2% 1,4%

Carne de bovino 27.393 32.248 31.170 32.152 45.220 40,6% 1,3%

Azcar 38.058 29.671 42.562 48.717 34.361 -29,5% 1,0%

Palmito 20.046 20.223 21.887 28.010 26.673 -4,8% 0,8%

Jugo de naranja s in congelar concentrado 17.630 25.344 32.836 62.989 21.557 -65,8% 0,6%

Pescado fresco o refrigerado 28.093 30.228 30.896 23.451 20.370 -13,1% 0,6%

Chayotes 8.220 8.221 8.222 8.223 13.508 64,3% 0,4%

Otros 493.436 455.156 449.490 489.113 583.112 19,2% 17,0%

Total 2.257.063 2.386.638 2.779.381 3.194.524 3.437.597 7,6% 100,0%

% Participacin

2008Descripcin

Variacin %

2008/07


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A good example is the case of Chiquita, which has programs to supportindependent producers and is designed to meet the socio-environmental rulesestablished by The Rain Forest Alliance and EurepGAP. The adoption ofinternational standards and certification involves a high economic cost that the

banana industry is assuming; it implies substantial investments in their packingfacilities such as lighting, ventilation, safety and health. It is intended to reducethe risk of contamination and to generate a FKDQJHLQWKHLUHPSOR\HHVSUDFWLFHVwhich means a new learning process. An example of adopting good agriculturalpractices is the Talamanca Small Producers Association, formed by 1200farmers (90% of whom are indigenous) export dehydrated banana to Canadaand England, and are Fair Trade and Organic certified ( FLO-CERT GmbH).

Table 10 Costa Rica: Output from main agricultural crops. In metric tons. 2004-2008



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3 Analysis of existing or potential economicinstruments and their impact

As part of the Water Department initiatives for institutional strengthening andfinancial viability within MINAE, two water resource charges or fees have beenrecently implemented.

Ecologically updated water resources use fee.Wastewater discharge fee.

3.1 Ecologically adjusted water use fee

This fee was recently updated to reflect not only changes in the cost of living but

also to include the watershed protection cost component. It must be paid by allwater users, on a volumetric basis, as shown in Table 11.

Table 11. Costa Rica: Water use fee ($/m3) according to water use

Use Fee ($/m3)

Surface Water GroundwaterHuman consumption 0,002 0,003Industrial 0,005 0,006Commercial 0,005 0,006

Agro industrial 0,003 0,004Tourism 0,005 0,006

Agricultural 0,002 0,002Aquaculture 0,0002 0,0003Hydraulic Force 0.0002 ---

Source: (Decreto Ejecutivo No.32.868-MINAE)

The funds raised will allow the State to secure financing for the administrativemanagement of water resources, financing of public policies aimed atguaranteeing the quality and quantity of available water, and its efficient use. Itwill also contribute to the conservation of forests in private and public protectedareas through the payment for environmental services national program (detailedin Section 3.3.

In 2007 MINAEV :DWHUDepartment raised $1.2 million in fees. These areallocated 50% towards integrated water management, 25% towards payment forenvironmental services in private areas and 25%, or $300 thousand, weretransferred to SINAC for the conservation of protected areas.

The National Management Plan for Integrated Water Resources forecastsincome from this fee up to 2010, assuming that it is updated progressively


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starting in 2006 (Ministry of Environment, Energy and Telecommunications(MINAET) and Inter-American Development Bank (IDB)-Netherlands IntegratedWater Resources Management (INWAP), 2008). Figure 9 shows the projectedamounts to be collected through the fee for the years 2010, 2015, 2025 and

2030, and under those scenarios the amount that corresponds to SINAC.Figure 9 Costa Rica: Projection of the amount collected as fees for water use,according to expected demand. -Millions of dollars

Source: Ministerio de Ambiente, Energa y Telecomunicaciones (MINAET) y Programa deAlianza Banco Interamericano de Desarrollo (BID)-Pases Bajos para la Gestin Integrada deRecursos Hdricos (INWAP), 2008)

3.2 Wastewater Discharge Fee

The discharge fee is based on the "polluter pays" principle, which seeks tointernalize the costs associated with waste discharges into rivers, lakes and otherwater bodies. It seeks to charge polluters by kilogram of chemical oxygendemand (COD). It is administered by the Environmental Quality Department atMINAE and it is just starting to rake in funds. However, the implementationprocess has been slow, because of operational difficulties. During the first yearof implementation, this fee is expected to collect between $1.0 and $1.4 millionas shown in Table 12 below. However, in year 6, when the full amount will be

recovered, the collected amount should be between $5 and $6 million.


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Table 12. Costa Rica: Estimated revenues for discharge fees in $ dollars

Case Total Estimation (year 1) in $ US-

Domestic Productive

Activities

Total

Case 1: All registered entities meet the dischargelimits

402.607 559.754 961.821

Case 2: All registered entities do NOT meet thedischarge limits

402.607 1.026.186 1.428.079

Source: Ministerio de Ambiente, Energa y Telecomunicaciones (MINAET) y Programa de Alianza BancoInteramericano de Desarrollo (BID)-Pases Bajos para la Gestin Integrada de Recursos Hdricos (INWAP),2008)

3.3 Environmental Services Payment Program

The Payment for Environmental Services Program (PSA) was created in 1996

through the Forestry Act 7575, and is administered by the National ForestryFinancing Fund (FONAFIFO), a decentralized institution. PSA is a kind ofcompensation to the owners and holders of forests, forest plantations andagroforestry systems for the environmental services they provide to societylocally, nationally or internationally. Owners must be willing to comply withcertain requirements.

Environmental services recognized for the PSA payment are scenic beauty,water, biodiversity and carbon sequestration for different uses. For example,biodiversity protection for conservation and sustainable use, scientific andpharmaceutical use, research and genetic improvement, ecosystems and lifeforms protection, as well as natural scenic beauty for tourism and scientificpurposes (www.fonafifo.go.cr).

The program evolved from a classic forestry incentive scheme to a payment forenvironmental services scheme that was mainly funded by a tax on fuel.However, it has sought for alternative funding sources to ensure its long-termsustainability, and reduce its dependence on only one source. Figure 10, showsthe amounts allocated from PSA since 2000 to 2008, and the process of sourcediversification promoted by FONAFIFO. Despite these efforts, in 2006 funds fromthe central government began to increase again and the pursuit of new economicinstruments for the long-term sustainability of the program became a priority. Aclear example of this effort is the creation of the Biodiversity Fund, which has

$7.5 million of co-financing from GEF and aims to create an endowment that willallow the long-term sustainability of the system.

The first agreements signed in 1998 were with companies such as Global EnergyHydroelectric Power Plant and Hidroelctrica Platanar, the Compania Nacionalde Fuerza y Luz and Florida Ice & Farm Company, a beverages business. From2001 to 2006, a loan came into effect between the Costa Rican government and


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the World Bank for institutional strengthening of the PSA program, which greatlyreduced the Central Government contribution during those years.

Considering the different financing sources, it is estimated that FONAFIFO since

its inception has invested close to $133 million in five-year-contracts, accordingto the amounts presented in Table 13 for forest protection, protection withinprotected areas, water resources protection, protection in conservation gaps,pasture regeneration, natural regeneration and trees outside forests inagroforestry systems.

Figure 10. Costa Rica: FONAFIFO budgetary allocation for payment of CAF andPSA by source of funding, 2000 - 2008-Thousands of dollars

Source: Prepared based on information provided by FONAFIFO, 2010.

Table 13. Costa Rica: Amounts paid per hectare and per tree for PES bymodality for a five-year contract, 2009. (U.S. dollars)

Modality Payment ($)Forest Protection 320Protection in Wildlife Protected Areas 320Water Resources Protection 400

Protection for Conservation Gaps 375Reforestation 980Regeneration in Kyoto pasture land or carbon 320Pastures Regeneration 205Natural regeneration with productive potential 205

Agroforestry systems by tree 1,30Source: FONAFIFO, 2009

0

5,000

10,000

15,000

20,000

25,000

2000 2001 2002 2003 2004 2005 2006 2007 2008

PSA (CSA)

PSA (Hydroelectric)

PSA (Florida Ice & Farm)

PSA (CNFL)

PSA (Pres. KFW)

PSA Ecomarkets

PSA

CAF


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From 1997 to 2008, 8,345 contracts have been established, covering 671,278hectares, distributed in the different modalities mentioned above. Of the total,some 56,870.7 hectares were contracted to indigenous territories. As shown inFigure 11, more resources have been allocated for the protection of areas

considered as priorities, with the objective of conserving biological corridors, orhighly threatened areas. Furthermore, 2.6 million trees have been planted inagroforestry systems, contributing to the connectivity of key ecosystems.

Figure 11. Costa Rica: Distribution and number of hectares under forEnvironmental Services Payment, by year and type, 2000 2008

Source: Prepared based on information provided by FONAFIFO, 2010.

There are different opinions about the environmental services program ability to

reduce poverty. A study by (Camacho, Reyes, Miranda, & Segura, 2002),conducted a multiple criteria analysis that determined that the PSA program hasinfluenced and improved the communities organizational capacity. However, itshowed that it contributes little to improve the quality of life in those communities.This is in part due to the fact that it is usually non-profitable for small farmers.

The PSA thus, should be seen as a complementary activity for small farmers, butnot a main single activity. Moreover, the study by (Miranda & Porras, 2002) forthe Virilla river basin determined that those entering the PSA program in areasnear the Central Valley, with small holdings fewer than 10 ha, on average areworking professionals to whom PSA payments represents only 4% of theirincome. Such study suggests that the primary objective should be theconservation of natural resources; and that the allocation of funds should bemade based on conservation priorities not income distribution issues.

3.4 Debt for Nature Swaps

A debt for nature swap between Costa Rica and the United States was signed inSeptember 2007. It led to the modification of the Costa Rican debt with The

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Natural

RegenerationPlantations

Reforestation

Forest

Management


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34

United States Government. The Government of Costa Rica contributes 80% ofthese funds ($ 12.6 million dollars) and non-governmental organizations such asThe Nature Conservancy (TNC) and Conservation International (CI) provide theother 20% of the exchange $2.5 million for a total of $15.1 million (Dobles, 1997).

The resources are managed by INBio and will be invested for a period of 16years by grassroots organizations, Costa Rican NGOs or Universities(Matamoros, 2010).

These funds are intended to finance and strengthen the policy building capacityrelated to social participation around protected areas, planning and effectivemanagement of these processes, and promote local conservation. Proposedpriority areas include Osa, Amistad, Tortuguero, Maquenque and Guanacaste.The thematic priority areas are groundwater recharge, integrated watershedmanagement, biological corridors, ecosystem restoration, and socio-economicaspects related to the surrounding areas of influence areas, among others.(Dobles, 1997)


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4 Conclusions

Costa Rica's economy has always relied on the exploitation of biologicalresources. Initially, to support a subsistence oriented economy, based onexchanges at a local level. Then as part the global system of trade, initially inthe international commodities market for meat, coffee and bananas. Recentlyhowever, it has shifted to a services based economy that heavily relies oneco-tourism as a main driver of development.During the past 10 to 15 years, the country has taken a series of small stepsthat have led to the understanding that protected areas, and biodiversity, areeconomic uses of the territory that generate multiple benefits. They are notonly costs to society. Rather, they support a series of high-value addedeconomic activities that benefit the people and increase human development.

They represent the main attraction of a tourism sector that takes moreimportance every day, provides significant employment and fuels othersectors such as real estate development. Marine protected areas allow thereproduction of commercial species of fish, while land areas provide indirectbenefits to industry, agriculture and the services sectors in many differentways.Many economic studies, carried out by the government, NGOs anduniversities have shown the relationship between biodiversity conservationand economic activity. These, have turned out to be compelling argumentsfor politicians and the public at large. Some of this studies may havegenerated the political will to charge water users for the ecological services

provided by watershed protection. Also, to the allocation of a proportion of thefuel tax for payment of environmental services in private areas. Thepopulation has been willing to support both ideas, because it has seen thebenefits of forest conservation in Costa Rica.Benefits occur in many ways through a variety of interactions and so it is hardto capture all of them. Some of the pathways are not understood, or could bemisinterpreted as a result of partial information. For example, the role ofbiodiversity and the national system of protected areas in building a country-brand that has given Costa Rica a green image. This has attracted otherknowledge-based businesses and information technology companies.In the nineties, eco - tourism emerged as a very important new economic

activity, showing the population that preserving nature provided tangibleeconomic benefits to society. Additionally, scientific studies that highlightedthe economic impacts of biodiversity, significantly increased interest inpreserving it.

At present, there is ample evidence that biodiversity has provided the countrymany economic benefits. As a result,it was for example willing to ban


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offshore oil exploration on the Caribbean coast since 2002. This policy hasbeen basically maintained to date.The use of two economic instruments for financing conservation providesmore weight to the idea that Costa Rica has been following a sustainable

environmental management, or SEM, approach towards development. A taxon fuel allows for funding the national system of payment for environmentalservices (or PES) through the National Forestry Fund (FONAFIFO). This flowZLOOEHFRPSOHPHQWHGE\IUHVKIXQGVFRPLQJIURPWKHHFRORJLFDOO\DGMXVWHGZDWHUIHH which is just starting to become operational.Both cases confirm that people are willing to invest and spend to protectnature, and that there is an underlying demand for environmental protection.However results must be shown and the conservation benefits are sometimesovershadowed by an ageing infrastructure, and lack of personnel in some keyprotected areas.


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5 References and Literature Reviewed

(CEPAL), C.E.(2007). Tourism and social conditions in Central America:Experiences in Costa Rica and Nicaragua. Mexico: CEPAL.

Arias, M. (2010, February 3). Sustainable Tourism Program SINAC. (V. R.Gatjens, Interviewer)

Camacho, M. A., Reyes, V., Miranda, M., & Segura, O. (2002). Localmanagement and participation around the payment for environmental services:Study Case from Costa Rica. Costa Rica: PRISMA.

Dobles, R. (07 May 1997). Presentation Speech: Debt for Nature. San Jose,Costa Rica.

Executive Decree No.32.868-MINAE. (no data). Costa Rica.

Furst, E., Moreno, M. L., Garca, D., & Zamora, E. (2004). Development andconservation in interaction: How and how much benefit the economy andcommunity wildlife areas in Costa Rica? Heredia: INBio-CINPE.

INEC. (February 12, 2010). INEC. Retrieved from INEC: http://www.inec.go.cr/

/HJLVODWLYH$VVHPEO\6WXG\RQWKHLPSDFWRQSXEOLFILQDQFHVRIWKH/DZfor Strengthening the DevelopmeQWRIWKH7RXULVP,QGXVWU\5HSRUW'$3-I-28-

09-2008. San Jose.Matamoros, A. (February 11th, 2010). Debt for Nature. (V. Reyes Gatjens,Interviewer)

Ministry of Environment, Energy and Telecommunications (MINAET) AllianceProgram and Inter-American Development Bank (IDB)-Netherlands IntegratedManagement of Water Resources (INWAP). (2008). National IntegratedManagement of Water Resources Plan. San Jose: MINAET

Miranda, M., & Porras, I. (2002). The social impact of payment for environmentalservices in Costa Rica. London: IIED.

Murillo, C., Hernndez, G., & Snchez, R. (2008). Case Study on Trade effectsof SPS and TBT Measures on selected Tropical Products in Costa Rica. Heredia:ICSTD-CINPE.

Quiros, M. (2010, January 22). ICT Finance Department. (V. R. Gatjens,Interviewer)


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Rodriguez, W. (August, 2005). Tourism reality in Costa Rica. DigitalParliamentary Review.

SEPSA. (2010). INFOAGRO. Retrieved on February 12 2010, Agricultural

Statistics Bulletin: http://www.infoagro.go.crSINAC / TNC. (2007). Revenue administration analysis of the NationalConservation Areas System. San Jose.

SINAC. (2009). Republic of Costa Rica: IV Country Report to the Convention onBiological Diversity. San Jose.

Tamayo, G., Guevara, L., & Gamez, R. (2004). Biodiversity Prospecting: TheINBio Experience. Microbial Diversity and Bioprospecting, 445-449.

Tamayo, G., Guevara, L., & Huertas, A. (2009). Collaborative Research

Agreements and Bioprospecting in Costa Rica: Scientific, Technological andlegal impacts. In T. Y. (Editor), Contracting for ABS. The Legal and ScientificImplications of Bioprospecting Contracts. (p. 308). Gland, Switzerland: IUCN.

Valerio, R. (2010, February 10). AFE Assistant Executive Director. (V. R.Gatjens, Interviewer)


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6 ANNEX 1. Sectors Proposal

Sector Justification & indicators

Tourism and protected areas Tourism is a major source of foreignexchange in Costa Rica; in 2008 2million tourists arrived, generating22.6% of foreign exchange in relationto exports ($ 2144.2 million) (CostaRican Tourism Institute, 2009).

Indicators

7RWDOYLVLWDWLRQLQUHODWLRQWRSURWHFWHG

areas visitation.

-REVJHQHUDWHGE\WKHWRXULVPVHFWRU

7KHLPSDFWRISURWHFWHGDUHDVWRXULVPin the local economy (Case ofTalamanca and Poas Volcano).

0XOWLSOLHUV 7KH LPSDFW of protectedareas on the gross domestic product.

7D[HV DQG H[LVWLQJ UDWHV WR ILQDQFHthe tourism sector and its relationshipto protected areas.

Agriculture Agriculture as well as tourism is amajor source of foreign exchange andbenefits from the existence of protectedareas. In 2008 Costa Rica exported $305 million in coffee, $ 689 million inbanana and $ 572.9 million inpineapples, as major non-traditionalproducts, which involves implementingagroforestry programs, organic farming,good agricultural practices andintegrated pest management programs.

Indicators

$UHDVXQGHUDJULFXOWXUDOSURGXFWLRQ


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(PSOR\PHQWJHQHUDWHGE\WKHVHFWRU

2UJDQLFSURGXFWLRQ

5HYHQXHJHQHUDWHGE\WKHVHFWRUDQGits participation in the nationsaccounting.

&DVHVRf integrated pest managementand the implementation of goodagricultural practices.

Forest Protection (Payment forEnvironmental Services)

Costa Rica developed in 1996 theprogram of Payment for EnvironmentalServices, which prioritizes the

investment depending on the areas ofgreatest biodiversity in the country,priority buffered zones of protectedareas. The Ecomarkets Project initiatedthe process of developing theBiodiversity Fund, which will be formedas a public foundation which willchannel the funds of internationalcooperation for payment forenvironmental services in prioritybiological corridors, from mid 2010. The

country has a seed fund of $ 15 millionfrom GEF.

Indicators

$UHDV XQGHU 36$ DQG QXPEHU RIbeneficiaries.

,PSDFWRI36$RQIDPLO\LQFRPHDQGthe local economy,

0XOWLSOLHU HIIHFW RI 36$ RQ LQFRPH

generation for the pharmaceuticalindustry.

,QFRPH JHQHUDWLRQ IRU WKeconservation of economic instrumentssuch as water use fee.


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,PSDFWRI36$RQWKHJURVVGRPHVWLFproduct.

6WXG\RI&DVHV

national economist report costa rica

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