PES ESPH Heredia Costa Rica

Internalization and Payment of Watershed Environmental Services: Pragmatical Lessons for Success

By

Luis Gamez*

Public Utilities Company of Heredia (ESPH) Ph. +506 8385-9360 Telefax +506 2262-5891/5894; Email: gamezch@racsa.o.cr or lgamez@esph-sa.com  Apdo. 581 Heredia 3000, Costa Rica

A pioneer initiative in Heredia, Costa Rica was motivated by the concern of a local public utilities company (ESPH) for the urgent need to protect the city water supply and its catchment area from the risk posed by urban sprawl and changes in landuse in the upper watershed. Acknowledging the threat of degradation of the catchment area, a valuable social and economic benefit obtained a very low cost, the ESPH creatively applied economic instruments to address expedite field actions. A local and financially self sufficient environmental services payment scheme supported by water company customers, was developed specifically to protect and conserve the catchment area and water sources.

To make this scheme operative, adjustments were introduced in March 2000 to the water service monthly bill in order to make all categories of end-users, contribute directly to finance the cost of protection and maintenance an adequate forest cover in strategic areas for infiltration and recharge of ground water. An additional amount of approximately US $ 0.3/m³ is charged in the monthly water bill to all categories of endusers of water services. This stream of fresh revenues is earmarked to offer a direct and tangible monetary compensation to private landowners for forest protection and restoration in key points of the watershed used for water supply. Participating landowners receive a payment close to US $ 120 /hectare/yr. for protecting forest around ESPH’s water sources. This amount represents the opportunity cost of landuse (mainly marginal dairy farming and abandoned grasslands) to generate the quality water environmental service.

In 2011, the ESPH scheme will cover 1191 hectares of forest and reforestation in public and private land.

The financial contribution of end users in Heredia to compensate for the costs borne by the national park and landowners for forest conservation, responds to a high benefit - low cost investment strategy based on a social equity and  the user-pays-principle. This initiative is fully independent in administration and self-sufficient in funding, and does not rely on government or international aid for its operation. This case study can provide some sense of what is achievable in terms of stimulating operative markets for environmental services through direct and tangible willingnes-to-pay in a developing tropical country.