The Global Environmental Facility and Payments for Ecosystem Services

A Review of current initiatives and Recommendations for future PES support by GEF and FAO programs

ByP. GutmanandS. Davidson

WWF Macroeconomic for Sustainable Development Program Office –WWF-MPO

2007

Paymentsfor Ecosystem Services

From Agricultural Landscapes

Makin

g S

ure th

e Rural Po

or B

enefit

PESAL is a project funded by the FAO Netherlands Partnership ProgrammeAgriculture and Development Economics DivisionUN Food and Agriculture Organization- FAO

PESAL Papers Series No. 1

The Global Environmental Facility and Payments for Ecosystem Services

A Review of current initiatives and Recommendations for future PES support by GEF and FAO programs

ByP. GutmanandS. Davidson

WWF Macroeconomic for Sustainable Development Program Office –WWF-MPO

2007

Paymentsfor Ecosystem Services

From Agricultural Landscapes

Makin

g S

ure th

e Rural Po

or B

enefit

PESAL is a project funded by the FAO Netherlands Partnership ProgrammeAgriculture and Development Economics DivisionUN Food and Agriculture Organization- FAO

PESAL Papers Series No. 1

The Global Environmental Facility and Payments for Ecosystem Services A Review of current initiatives and Recommendations for future PES support by GEF and FAO programs Pablo Gutman and Sarah Davidson 2007 WWF Macroeconomic for Sustainable Development Program Office –WWF-MPO

This report was produced under the FAO project Payments for Ecosystem Services from Agricultural Landscapes- PESAL. Funding was provided by the FAO Netherlands Partnership Programme. Agriculture and Development Economics Division UNITED NATIONS FOOD AND AGRICULTURE ORGANIZATION- FAO Suggested citation: FAO. 2007. The Global Environmental Facility and Payments for Ecosystem Services. A Review of current initiatives and recommendations for future PES support by GEF and FAO programs. By P. Gutman & S. Davidson, WWF Macroeconomic for Sustainable Development Program Office. Report commissioned by FAO for Payments for Ecosystem Services from Agricultural Landscapes- PESAL project, PESAL Papers Series No.1 Rome

Background 1 Executive summary 2 Section I. Analysis 1. What are PES? 4 2. To PES or not to PES? 6 3. An Overview of the GEF PES Portfolio 6 3.1. Which are the PES projects in the GEF portfolio? 6 3.2. Size, regional distribution, thematic, age and PES focus 7 3.3. The PES implementing agencies 7 3.4. Who pays and where does the GEF money goes 8 3.5. Who is paid? To do what? To deliver what ecosystem services? 8 3.6. The agricultural sector and businesses in the PES portfolio 9 3.7. Leveraging resources 9 4. Looking into more detail in some ongoing projects 9 4.1. Costa Rica PES 9 4.2. Mexico PES 11 4.3. Nicaragua, Costa Rica, Colombia, Integrated Silvo-pastoral project 12 4.4. The Global Institutionalizing PES project 12 5. A synthesis of the GEF PES portfolio experience thus far. 13 5.1 Overview 13 5.2 The projects’ impact 14 5.3 Financial Sustainability 14 5.4 PES and the Private Sector 15 5.5 Dissemination, scaling-up and replication potential 15 5.6 Main Findings 16 6. Comparing the GEF PES portfolio with other PES experiences around the world 16 7. Doing businesses with PES 18 8. A taxonomy of PES Opportunities 20 9. Some PES areas where the FAO/IFAD may want to grow 21 10 Some PES areas where the GEF may want to grow 21 11. Suggestions for a follow-up consultancy 23

Tables in Section I Table 1. A Sample of GEF Projects with PES component(s) (as of March 2007) 25 Table 2. Number of PES- related projects in the GEF’s portfolio, per region 27 Table 3. Which are the projects with strong PES focus? 27 Table 4. Funding for PES projects by region 27 Table 5. Size of projects 28 Table 6. Number of PES projects by status 28 Table 7. Number of PES projects by GEF focal area 28 Table 8. Number of projects by GEF role 29 Table 9. Number of PES projects by implementing agency 29 Table 10. Who pays for the ecosystem services? 30 Table 11. Who would receive the payments? 30 Table 12. Payments to do what? 30 Table 13. To deliver which ecosystem services? 31 Table 14. PES projects around the world 31

Section II Project Profiles Ecomarkets 32 Maloti-Drakensberg Conservation and Development Project 35 Ecuador National Protected Areas System 36 Regional Integrated Silvopastoral Approaches to Ecosystem Management 37 Bolivia Removing obstacles to private sector participation in in-situ biodiversity conservation 39 South Africa C.A.P.E. biodiversity conservation and sustainable development project 40 Dominican Republic Demonstrating sustainable land management in the Upper Sabana Yegua 41 El Salvador Environmental Services Project 42 Regional Conservation of the biodiversity of the Páramo in the Northern and Central Andes 43 Panama Second rural poverty, natural resources management Mesoamerican Biological Corridor 44 Venezuela Biodiversity conservation in the productive landscapes of the Venezuelan Andes 46 Kenya Agricultural productivity and sustainable land management 47 Mexico Environmental services project 48 Colombian national protected areas conservation trust fund 50 Costa Rica Mainstreaming market-based instruments for environmental management project 51 Venezuela Expanding partnerships for the national parks system 52 Global Institutionalizing payments for ecosystem services 53 South Africa National grasslands initiative 54 Peru Strengthening biodiversity conservation through the national protected areas program 55 Brazil Sustainable Land Management in the Semi-Arid Sertão 56 Brazil Ecosystem Restoration of Riparian Forests in São Paulo 58 Brazil Rio de Janeiro Integrated Ecosystem of the North-Northwestern Fluminense 59

References 61

1

Foreword

The Agricultural and Development Economics Division (ESA) of the FAO initiated a project in 2006 on Payments for Environmental Services from Agricultural Landscapes (PESAL) with funding from the FAO Netherlands Partnership Programme. One of the main objectives of the project is to provide information on the potential demand and willingness to pay for environmental services - such as climate change mitigation, biodiversity conservation and watershed protection – supplied by agricultural producers, with a particular focus on poor rural communities. Under the project, a set of four studies have been conducted related to the demand for environmental services, they are listed in the back cover of this publication These studies are currently in the process of finalization and will be made available in the Fall of 2007 on the ESA website: http://www.fao.org/es/esa/. The study presented in this report is the result of a one month desk review of GEF’s PES related portfolio, commissioned by FAO to WWF Macroeconomic for Sustainable Development Program Office (WWF-MPO). The FAO, who in recent years has become one (of seven) GEF Executing Agencies, wanted this review to take stock of GEF PES portfolio and suggest possible ways forward, particularly in relation to PES potential to mainstream biodiversity into production landscapes and as a way to engage businesses. Additionally, the GEF biodiversity focal area was interested in PES potential to diversify revenue sources to ensure sustainable financing for national protected area systems. The Terms of Reference (ToR) for the assessment are attached at the end of this document (Annex 1). The assessment was conducted by Pablo Gutman and Sarah Davidson. This document has two sections. The first section “Analysis” provides the bulk of the review discussion and findings. The second section “Project Profiles” presents 1 to 3 pages of information on each of the projects under review. In a several week review, there is always the possibility of having overlooked some important project, or some important report on a particular project. Below is a brief disclosure of the references that were available for this review:

• Yoko Watanabe, at the GEF Secretariat Biodiversity Program, prepared the initial list of projects to be analyzed in this review, and gave us many tips and support trough our work. A few more projects were suggested by Leslie Lipper at FAO, who also sent us other information available from FAO and IFAD.

• Main source of information for all project were the GEF and the World Bank projects’ database. UNDP and UNEP databases are not accessible to the public.

• As for the three GEF implementing agencies (1) Stefano Pagiola, at the World Bank, sent us valuable documents and suggestions, but only one World Bank task manager answered our requests for further information; (2) Charlotte Stanton at UNEP headquarters confirmed that only one UNEP PES project had begun and no additional information on it was available; (3) No one at UNDP provided information based on our request. do we want to ‘take to task’ these non-responders so harshly?

• The draft version of this report - circulated March 30, 2007-- elicited over 100 comments, questions and editing suggestions, from staff of the GEF Secretariat and FAO. To the extent possible these comments were addressed in this revised version.

2

Executive Summary

Agricultural ecosystems sustain human life. They maintain a library of genetic resources, fix nitrogen and carbon, recycle nutrients, control floods, pollinate crops, filter pollutants, preserve and regenerate soils, and supply food and drinking water. Over half of the World’s population depends on them for their livelihoods, including three quarters of the World’s poorest. The agricultural, forestry, land and water use decisions made by farmers, fishermen and forest dwellers are a key driver of the health of agricultural ecosystems and their ability to generate services in the form of livelihood support as well as environmental benefits.

Payments or other forms of support may be channeled to these communities in return for the environmental services they can provide. It is through this mechanism that benefits could/will be generated in the form of additional income and improved food security as well as protection and enhancement of global and regional ecosystems, enabling and enhancing environmental goods and services.

The Global Environment Facility (GEF) is the main source of international public sector funding for the environment, and thus has a central role in the development of payments for the provision of globally important environmental services. This document analyzes the experience of the GEF in PES programs so far, and its contribution towards sustainable agricultural, rural development, and biodiversity conservation.

In the PES arena, the GEF has thus far been instrumental in acting as the glue for other institutions to come around, increasing incentives for the recipient country and bringing in funds for institutional development and capacity building. It has been the promoter of new ideas and approaches.

GEF’s PES portfolio is young and small, with only one project completed as of 2007. GEF supports 22 projects with explicit PES component (less than 3% of GEF 1991-2005 cumulative investment) most of them under the Biodiversity Program, with only three classified as land degradation projects and one classified as a multi-focal project. Geographically, GEF PES projects are heavily concentrated in Latin America, much like other international and national level public sector funded PES programs.

The aim of these projects has been to initiate an innovative financial mechanism such as PES to ensure a sustainable supply of environmental services, focusing on biodiversity conservation. Projects where the PES component is central look promising, innovative and make a valuable addition to the GEF portfolio.

The main source of funding for PES programs is the national governments: the GEF and World Bank project funds may be a major a source of payments during the project life, but since these PES schemes began before and will continue after the GEF involvement, the preeminence of government financing holds.

GEF grants have been used to support the capacity and institutional building necessary to establish PES mechanisms as well as a source of payments for ecosystem services, and to the extent that they are paying for ecosystem services of global significance, this is in line with the GEF

3

instruments. Because the GEF project funds tend to be the principal source of money for payments in several small scale PES projects, this raises concerns about sustainability beyond the projects’ end.

Private sector participation in GEF PES projects has been high on the supply side (considering farmers as private sector businesses), but it has been very low on the demand side. In a majority of GEF PES schemes, the ecosystem service providers are rural producers, mainly farmers, but also foresters and ranchers. International buyers of carbon sequestration, local water companies and hydropower plants have also been sources of financing, but on a small scale thus far. Nevertheless, there are high expectations that businesses may become a key player in the PES arena, as buyers and sellers of ecosystem services and as market developers and innovators.

GEF projects have been and will be important for developing institutional frameworks and capacity building in the participant countries as well as for improving the design, management and delivery of the pre-existing programs and bringing in co-financing. Nonetheless, their country-wide direct impact will probably be minimal either in terms of biodiversity conservation, mainstreaming conservation in productive landscapes, or sustainable agriculture if they are not scaled-up.

4

Section I Analysis 1. What are PES? In recent years, payments for ecosystem (or environmental) services - PES for short- have become a buzzword. The idea looks straightforward: those who benefit from ecosystem services (ES), like climate regulation, water quality, protection against natural and human made hazards, soil formation, biodiversity conservation, natural recreation, and so on should pay those who provide these services. In this way, money and market-like efficiency would flow towards conservation --chronically under funded-- and towards sustainable agriculture, which is usually shunned by farmers that see in it additional costs and minimal benefits. Even if the terms “ecosystem services” and “payments for ecosystem services” look new, the idea behind them —that natural environments provide valuable services to humankind — is anything but new, and can be found in ecology and economic textbooks of 20 years ago (Odum, Erlich, Pearce, Oates, Freeman, and others come to mind). What may be new is that some recent efforts to track the flow of ES -particularly the Millennium Ecosystem Assessment-- have brought a sense of urgency to the issue, underlining that the supply of many ecosystem services is in jeopardy. At the same time, the emergency of new arrangements for the provision of ES (e.g. conservation easements, conservation concessions, payments for carbon sequestration, payments for watershed protection, wetland banking, eco-tourism, etc) have raised expectations that there may be new ways of paying for conservation, in addition to the more traditional, and still dominant, public budget allocation, international aid, and private charity. To note, the issue is far from settled and the PES field is full of disputes. Among the supporters, some see it as a new panacea of market-driven conservation, others look at it mostly as a way to increase the efficiency of public expenditure in conservation, and still others are skeptical of how far this new fad will go either in the private or the public sector. Among PES opponents, some shun the whole idea of “payments” or even of “services,” considering them forerunners of the privatization of the environment or the further disfranchisement of the poor. Others are concerned with its political implications. For example, in India, lowland states oppose PES, fearing that it will make them debtors of upstream Himalayan states. Still others point that PES may run against the “polluter pays principle” (PPP), a cornerstone of European environmental policy, and wonder if PES may not open the door to rent seeking, bribes or even blackmail by the would-be providers: the “pay me or else” scenario. In the environmental movement, some conservationists argue that nature is invaluable, and some ecologists are weary that market unbundling of ES may pitch one ecological function against the other (e.g. managing for maximum carbon capture may reduce water availability). PES supporters answer the above concerns pointing to, among other things, (a) that the purpose of the polluter pays principle is to internalize the bad: you pollute, you pay; while on the other hand the purpose of PES would be to internalize the good: you improve the environment, you get paid; 1 (b) that ES are already being traded, usually at a zero price, resulting in over-consumption and undersupply; (c) that payments would be due for improvements over a baseline, (d) that equity, property rights and bundling-unbundling issues can be factored into the design of PES schemes; and (e) that far from hurting the poor, PES could become a new way for the rural poor to increase their incomes through nature’s stewardship. 1 Unfortunately reality is messier than definitions would have it. If a factory buys ecosystem services to compensate for its pollution, is this a PPP? A PES ? Both or neither?

5

With so many contrasting views at stake, it is no wonder that most PES meetings begin with animated discussions on what is or is not a true PES, and after some time decide to move on without having achieved a consensus (see Poats, 2006). Without any expectations of solving the “what is a PES?” debate, we present below several of the better known PES definitions and their pros and cons as a frame for this review of the GEF PES portfolio. • Let’s begin with the basics on which everyone agrees: “in a PES scheme those who benefit from

ecosystem services (ES) pay those who provide those services.” There is no problem here, but since nature always provides ecosystem services, with this definition every single dollar spent in conservation could be labeled PES. Clearly, this definition is too ample to be of much use and most PES definition discussions focus on how to narrow it down. For example:

• PES experts at the World Bank narrow PES to transactions that bring together the direct providers and

direct beneficiaries (the water company, the farmer down river, the firm that needs to buy carbon offsets).2 Only in this way –they hypothesize— would PES bring to conservation the allocation efficiency of private markets. Note that this approach would leave out of PES a big chunk of the environment: most public goods or quasi-public goods and services for which there is no or too little private demand (and this includes most of biodiversity!). Even more is left out because the WB experts only consider ES those rendered ex-situ (e.g. carbon sequestration, erosion control, water quality, etc) but deny the ES label to in-situ services (e.g. the entrance to a national park, community based conservancies in Africa auctioning annual permits for safaris in their lands, etc.)

• Sven Wunder, a CIFOR expert, has popularized a PES definition where the emphasis is not in private

buyers and sellers but in voluntary and conditional transactions.3 The conditionality clause means that, should the seller fail to deliver the ecosystem service in question, the buyer can stop the payment. The point is well taken, although one should note that because of the complexity and randomness of natural systems, a multiyear approach is required and in many cases the buyers actually pay not for the ecosystem service itself, but for land use changes associated with the ecosystem service. The voluntary clause is more problematic, considering that some of the largest markets for ecosystem services –e.g. carbon sequestration, wetland banking, biodiversity offsets-- are driven by government regulations (e.g. cap and trade). In these cases, any particular transaction would be voluntary, in the sense that the buyer can buy from this or that provider. But, the fact that he is in the market looking to buy ES is not voluntary at all.

• Many in the conservation movement favor a broader definition of PES where the buyers may be either

(a) the direct beneficiaries of the ecosystem services in question (e.g. consumers, businesses); or (b) a private or public intermediary that passes the costs on to final consumers (e.g. a private or public water company pays for watershed conservation and includes the cost in the water bills); or (c) the government procuring ES on behalf of society, as is the case with many other public goods (education, security, culture, social security etc.). In this approach, what makes a PES a PES is that in any payment arrangement those who pay are aware that they are paying for an ecosystem service that is valuable to them or to their constituencies—and those who receive the payments engage in meaningful and measurable activities to secure the sustainable supply of the ecosystem services in question.4 Some critics consider this definition too broad, and find little gain in now calling PES what previously was known as certification schemes, park entrance fees or conservation grants. Supporters answer that even for traditional finance schemes, adopting a PES approach may improve the procurement and delivery of conservation, as it makes both parts more aware of what are they paying and being paid for.

2 See Pagiola (2005) 3 See Wunder (2005) 4 See Gutman (2007)

6

2. To PES or not to PES? The payment for ecosystem services wave has aroused expectations that PES may become the silver bullet of conservation, so it is worth underlining that even in the best possible scenario PES would be one of many approaches needed to foster sustainable development. PES approaches are particularly suitable to promote conservation in rural areas. First as a way to compensate farmers and rural communities for the costs of adopting sustainable land uses that improve the flow of ecosystem services, and second (and probably to a lesser degree), to pay for part of the costs of managing public protected areas (see more on this in points 6 through 10 below). But, a voluntary PES approach would be too slow to address an environmental emergency, or too unreliable to save a species or a habitat on the brink of extinction. PES also will not be appropriate to tackle most urban pollution problems, where the polluter pays principle seems more appropriate. The table below depicts where PES approaches would fit in the broader sustainability agenda. The urban sustainable development agenda

• Increase efficiency, reuse, recycle • Move to renewable energy and organic

products • Change lifestyles and consumption away

from over-consumption and pollution

Appropriate approaches

• Internalize the bad: the polluter-pays principle

• Include environmental costs into prices. • Education, persuasion • PES, mostly as buyers

The rural sustainable development agenda

• Set aside a sizable sample of the world’s ecosystems

• Protect nature’s regeneration capacity (e.g., stop overfishing)

• Ensure ecological flows (e.g., ecological river flows)

Appropriate approaches

• Build a representative system of protected areas

• Sustainable rural production • Internalize the good: the payment-for-ES

principle. PES as sellers and buyers

3. An Overview of the GEF PES portfolio 3.1. Which are the PES projects in GEF portfolio? First things first, to assess the GEF PES portfolio one should be able to identify which are the said GEF PES projects. Alas, neither the GEF nor its implementing agencies (nor for that matter any agency we know of) has guidelines stating when a project should be considered a PES project. It is mostly self-selection: any project that mentions PES as one of its components may be considered a PES project. Unfortunately there is no search engine in the GEF project database to help locate the PES word in the 2,100 plus GEF projects. 5 So the list of 22 projects with PES and PES-like components that will be discussed here (see Table 1) has been put together mostly by staff from the GEF Secretariat, through a

5 The GEF project database has a “search word” only for the project title. Using it, there is only one GEF project that has the words PES in its title.

7

word search of individual projects, with a few additions suggested by FAO staff, and is based solely in these staffs’ expert- knowledge of the GEF portfolio. With such ad-hoc selection criteria we may have overlooked some worthwhile projects, but most probably we are erring in the other direction. 6 3.2. Size, thematic, regional distribution, age and PES focus GEF’s current PES portfolio is small in number - fewer than 25 projects in a GEF overall portfolio that by early 2007 encompassed over 2,100 projects (see Table 2). The PES portfolio is small in money, too – less than 3% of GEF’s 1991-2005 cumulative investment has gone to these projects (see Table 4). In terms of project size, the total budget of most projects is between 25 and 100 US$ million. In six cases, GEF project grants were over 10 million USD (see Table 5)7. Regarding GEF’s five focal areas (Biodiversity, Climate Change, International Waters, Land Degradation and Persistent and Organics Pollutants), almost all PES projects are part of the GEF biodiversity portfolio (see Table 7), with only three classified as land degradation projects and one classified as a multi-focal project. But when you look at what the project documents say regarding the ecosystem services they would deliver (Table 12), most of them mention more than biodiversity, including carbon sequestration, watershed management for water quantity and quality, forest conservation and landscape conservation. It seems that all PES projects in the GEF portfolio are actually multipurpose or “bundled” and hence could be labeled in different ways (carbon sequestration, multipurpose, watershed protection, biodiversity conservation, etc). The fact that most have been assigned to the GEF biodiversity focal area has more to do with GEF organization than with the type of ecosystem services they provide. GEF PES projects are heavily concentrated in Latin America (Table 2), and this is also true, though to a lesser degree, for PES projects outside the GEF (see Table 14). There is no clear explanation for this regional bias; although it should be noted that Latin America has been an environmental financing innovator before, having the largest number and some of the earliest debt-for-nature swaps and environmental funds. The portfolio is also very young, with only one project completed as of 2007, a majority of projects approved during GEF3 and a very short pipeline (see Tables 1 and 6). Among the projects reviewed, less than half have a strong PES focus, where either PES is the project’s central purpose or one of its main components. In the rest of the cases, PES is a marginal component. Several projects are a traditional conservation project in which project funds will be spent mostly in improving protected areas and PES is just among several sources of financing that will be explored during the project’s life (see Table 3). 3.3. The PES Implementing Agencies

Until recently and according to its bylaws, the GEF acted through three Implementation Agencies --the World Bank, the UNDP and the UNEP. More recently the GEF incorporated seven other “Executing Agencies” - the four regional development banks plus FAO, IFAD and UNIDO.

The original arrangements called for the World Bank to be the preferred window for GEF country-level grants associated with investment projects; for the UNDP to take the lead in multinational projects; and for UNEP to take the lead in science-focused projects. Since GEF members have always directed the majority

6 For example, in the list that we have assembled for this review, there are 17 World Bank projects; yet the World Bank’s PES website page lists only 9 of those as World Bank-GEF Projects with a PES component. 7 We have used for comparison the whole GEF portfolio as follows: (a) the number of projects as reported in the GEF online project database ( 2,140 as of March 2007) and (b) the GEF cumulative investment as reported in the latest available GEF annual report. (GEF, 2005)

8

of GEF budget to country level projects, the above distribution of responsibilities enabled the World Bank’s leading role on most of the investment-type of projects, including PES portfolio, where the World Bank accounts for more than 2/3 of the PES projects number (see Table 9) and 4/5 of their budget (see Table 1) . This, plus the fact that the World Bank is the only implementing agency that has full time staff dedicated to PES, has positioned the World Bank as a world leader in the matter.

It should be noted that there is a strong and healthy regional and country lead by Latin America, given that (a) most of the projects in the GEF PES portfolio are in Latin America, which was a world leader in PES before; and (b) the largest GEF PES projects (Costa Rica and Mexico) are in support of PES programs initiated by these countries’ governments, years before the GEF came on board. 3.4. Who pays and where does the GEF money go? Considering the long run - before, during and after projects in country-wide PES programs - the main source of money for PES programs is national governments, either through the earmarking of specific revenues (e.g. a fuel tax or a water fee) or from budgetary allocations. The GEF and World Bank project funds may be a major a source of payments during the project’s life, but since these PES schemes began before and will continue after the GEF involvement, the preeminence of government financing holds. In addition to which, the World Bank co-financing are loans that the recipient country will have to repay from the public budget. On the other hand, the GEF project funds tend to be the principal source of money for payments in several small scale PES projects, and this raises concerns about sustainability beyond the projects’ end. In the GEF’s overall portfolio, most PES projects indicate that GEF funds will be used (a) to pay for institutional development and capacity building and (b) to directly pay for the part of conservation that is of global significance. International buyers of carbon sequestration, local water companies and hydropower plants have also been sources of financing, but in a small scale thus far. Several projects are very vague about who would actually pay for the ES, simply stating that would-be buyers will be identified down the road. In these cases, many potential buyers are listed, including all previous ones, plus tourism operators, buyers of organic products and others. In most cases, the payments go first to an agency or an environmental fund that then pays ES providers. In some cases, moneys go to capitalize an Environmental Fund that then uses its income (or capital) to pay the providers of ES. In these cases however only projects in designated or regulated protected areas qualify. An endowment fund to conduct biodiversity conservation initiatives in sites other than protected areas, including the wider production landscape, e.g. buffer zones, corridors, agricultural lands, has not been eligible for GEF finance. 3.5. Who is paid? To do what? To deliver what ecosystem services? The providers of ecosystem services in the GEF portfolio are: (a) landowners, land users, or communities in rural areas, (b) the same, in or near protected areas or surrounding buffer zones, and (c) protected areas authorities or managers (see Table 11). In Table 13, we list the ecosystem services they are asked to provide. Almost all projects list ecosystem services related to (a) natural forests conservation, (b) biodiversity conservation, (c) carbon sequestration, and (c) watershed and aquifer quantity and quality. A smaller number of projects mention landscape protection for tourism and ecotourism. Still, monitoring the actual flow of most ecosystem services may be difficult, either due to lack of clear baseline, or due to time lags and random fluctuations in natural cycles. So, in most cases ES providers are

9

asked to deliver a land use change that is associated with the increased flow of the desired ES. According to Table 12 such land use changes in the GEF PES portfolio include (a) protection of natural forests, (b) reforestation, (c) silvopastoral land management, (d) agroforestry land management, (e) sustainable agriculture land management, (f) protected areas management, and (g) buffer zones management. 3.6. The agricultural sector and businesses in the PES portfolio In a majority of PES schemes, the ecosystem service providers are rural producers (see Table 11), including farmers (crops, e.g. Mexico, Kenya), to a lesser extent foresters (e.g. forestry in Costa Rica), and in a few cases ranchers (livestock, e.g. the Integrated Silvo-pastoral project in Nicaragua, Costa Rica and Colombia). In several cases, the provider is a National Park, or the protected area agency (Venezuela, Ecuador). There is no case of PES in the fishery sector. The number of people and the area involved is only available for a few projects – Costa Rica, Mexico, Silvo-pastoral—and they are discussed further below. But for a majority of the PES, goals in terms of people and areas are not spelled out in the project document. As for businesses’ participation (see Tables 10 and 11), one needs to distinguish between participation as sellers or buyers. Since most sellers are farmers and farms are private businesses (the majority being small businesses), then, business participation on the providers’ side is high. But on the buyers’ side, participation is low. So far business buyers of ecosystem services –water companies, carbon offset buyers, ecotourism companies- are few in number and small in the amount of ES the pay for. 3.7. Leveraging resources The leverage ratio of the PES portfolio --$3,86 of co financing for each $1 of GEF grant (Table 4) is similar to the GEF overall portfolio.8 But there are little innovations on the sources of co-financing, which mostly come from government and World Bank loans. Additionally, some star projects like Costa Rica have attracted significant grant money from bilateral donors. As stated before, private sector financing has been small. Furthermore, private payments are usually a project goal and not a starting point, so they are seldom included in the project documents’ budgets. As an exception, the new Costa Rica PES project sates that of its 90 US$m budget, 2.7US$m (3%) is expected to come from the sale of carbon offsets through the CDM (Clean Development Mechanism of the Kyoto protocol). 4. Looking into more detail in some ongoing projects9 4.1. Costa Rica PES The Costa Rica PES program (PSA in Spanish) was initiated in 1997, becoming one of the first country-wide PES programs in the world and surely the first to adopt the terminology of environmental services and PES. Since its inception, it has become a point of reference for environmental authorities and practitioners around the world and is one of the pillars of Costa Rica’s image as a “green” and sustainably developed country. The program was fostered by the 1996 changes in the Forest Law that created the legal framework to pay landowners for the provision of four types of ecosystem services (a) carbon sequestration, (b) watershed protection, (c) biodiversity conservation, and (d) provision of scenic beauty for recreation and ecotourism. Originally, Costa Rica’s government expected a large influx of foreign

8 Actually, leverage is somewhat better - $ 3,35 of co-financing for each $1 of GEF grant in the overall GEF 1991-2005 GEF portfolio. But the comparison may not be significant in that the PES portfolio is younger than the overall GEF portfolio and, according to GEF staff the leverage ratio has been growing lately for all kind of projects. 9 Please see Project Profiles in Section II for more information on individual projects.

10

payments through the selling of carbon sequestration and biodiversity prospecting. But, neither materialized and, while there are still high expectations for the former, the latter has been almost abandoned. Nevertheless, the Costa Rican government pressed ahead, earmarking for government payments a 3.5% tax on fuels and putting in place the program management agency National Forestry Financial Fund (FONAFIFO). FONAFIFO designates the areas that qualify for PES contracts, calls for applications from landowners (every year there have been more applications from landowners than available funds) and signs the contracts with the landowners - either for forest conservation, reforestation or agro-forestry. Contracts are for 20 years divided in 5-year renewable segments. Since its inception in 1997, nearly 500,000 hectares (ha) of privately owned land have participated in the project. As of October 2005, approximately 250,000 ha were under contract: 95% of contracted hectares were for protection of natural forests and 4 % for reforestation activities. Besides the fuel tax and the GEF-World Bank projects, Costa Rica’s PSA program received 11.2US$m from Germany for the protection of forests and recovery of forest lands, and 2US$m from Norway for carbon sequestration. Additionally, by 2005 public and private water users were paying about 0.5US$m a year for watershed conservation through forest protection. Payments to providers were between 40 to 45 US$/ha/yr. The recently closed GEF project (Ecomarkets) has been highly praised by participants and external reviewers alike. It is credited with helping Costa Rica direct the PES toward priority conservation areas; increase the participation of indigenous populations, poor farmers and women that was originally low; and improve the system’s management and monitoring. The follow-up GEF project “Mainstreaming Market Based instruments for Environmental Management Projects” will aim to (a) further increase the area under contract, (b) put in place and capitalize a Biodiversity Conservation Fund, (c) increase private payments for watershed related services, (c) increase private payments for carbon sequestration, and (d) increase the participation of smallholder ES providers. Because of its pioneering character, the Costa Rican PES program has been the subject of a dozen studies, evaluations, papers in academic journals, even PhD theses. Some of the lessons these studies point to are: • Who benefits? Almost all studies consider Costa Rica’s PES program a success in terms of forest

conservation, a modest source of rural incomes in general, and an even more modest source of income for the rural poor.

• Biodiversity targeting: the original PES design promoted forest conservation in private lands but with little targeting to priority conservation areas. This was significantly improved through the first GEF project.

• Social targeting: the original PES design favored the participation of medium and large landowner providers. Costa Rica made efforts during GEF 1, to be continued during the second GEF project, to reduce the transaction costs for poor farmers, indigenous population and women. Their participation has already increased significantly. Still, even with zero transaction costs, the fact remains that those who have little land are probably better off engaged in agriculture than taking 40 to 45 US$/ha/year to keep the land under forest.10

• Monitoring: establishing baselines and monitoring outcomes has been weak (and in some cases can be quite complicated). As a result, although no one disputes the overall benefits of the projects, many question its efficiency and efficacy, regarding for example, (a) opportunity costs - are PES of 40 to 45 US$/ha/year too much or too little? (b) environmental benefits - with more forest cover, is biodiversity improving or not? Is water quality improving or not? (c) spill-over effects - has deforestation increased in areas that are not under PES contracts?

10 This point was made by Manrique Rojas in a presentation entitled, “PES: The Costa Rica Case,” made at the 2006 Quito, Ecuador workshop on Latin American experiences with PES, see Poats 2006.

11

• Sustainability: On the one hand, the Costa Rica PES program has a solid base in the fuel tax and the recent legislation to include a conservation fee in the water tariffs. On the other hand, both sources may not be enough to expand the program as desired.

• Private sector engagement has proved elusive. Some PES practitioners (particularly the World Bank) believe that a “true” PES needs to be paid by the private users of ecosystem services and are uncomfortable with the fact that in Costa Rica the main buyer is the government. That explains the title of the second GEF project and the fact that one of the project’s four key indicators reads, “By the end of the project at least half of the newly contracted area is financed by funding from service users.” Yet, the World Bank’s evaluation of the GEF 1 project lists as Lesson 2 – “Efforts to induce the private sector to enter into voluntary agreements to pay for environmental services may be a useful way of strengthening the private sector’s awareness and understanding of the system of payments for ecosystem services, but are unlikely to generate significant amounts of funding to support a national-level PSA program.”

4.2. Mexico PES The Mexican PES program has many points of contact with the Cost Rica experience. It, too, is a government-driven program of country-wide scale, and it is paid from public moneys (initially from a fee charged to federal waters users that collects approximately 18 US$m a year, to which the government has recently added some 9 US$m a year from the general budget that will go to carbon sequestration and agroforestry payments). Some differences with the Costa Rica case are: (a) the Mexican PES program has strong social targeting, focusing on ejidos (peasant communities that own land in common-property structures) in the most poor rural areas of Mexico, (b) it focuses on the “hydrological services” of Mexico’s natural forests, particularly regarding watershed protection and aquifer recharging; and (c) payments are made to the community, not to individual peasants. The Mexican team in charge of designing the PES scheme undertook a quite sophisticated analysis, including (a) selection of priority areas taking into account type of forests, water scarcity, state of aquifers, and drivers of land use changes; (b) fine tuning the level of payments to take account of opportunity costs of alternative agriculture uses, and (c) analyzing social indicators for social targeting. For the period 2003-2006, payments for the conservation of natural forests have been between 27 and 38 US$ per ha per year, based on five year contracts. During these same years, approximately 300 ejidos per year have singed on to the program, bringing an additional 150,000 hectares per year into the program. The Mexico PES program design calls for just five years of commitment, with the expectation that the attained land use changes will hold on after the 5th year even in the absence of payments, or that local level PES schemes will substitute for the federal moneys. No one knows what could actually happen when the contracts end. The GEF Mexico Environmental Service Project, approved in late 2006, comes precisely to fill that void. With a 170 US$m budget, this is by far the largest PES project in the GEF portfolio (The GEF grant of 15 US$m is also one of the two largest grants in the portfolio). While 75% of the project money will go to pay for ES, 90% of the GEF money will go to (a) try to develop new market based sources of PES, mostly for carbon sequestration, water regulation and tourism related conservation, (b) capacity building; and (c) capitalize a Biodiversity Conservation Endowment Fund. The Mexican national PES program started in 2003, so available lessons are few. An interesting lesson relates to the ecosystem and social efficiency of the payments. Studies conducted on the two first years of PES contracts found that a significant portion of these contracts were paying for the protection of forests that actually faced low deforestation risks. This follows basic economics that predicts that landowners’ interest in a PES contract will be high when there are few other ways to make money from the forest (low

12

opportunity costs). A way out of this problem is to better target the areas and fine tune the payments to the real opportunity costs of landowners. Unfortunately, while this path increases the ecosystem benefit per dollar it may reduce its social targeting. 4.3. Nicaragua, Costa Rica, Colombia, Integrated Silvo-pastoral project Different from the Costa Rica and Mexico country-wide PES projects, the Integrated Silvopastoral project is a small project, both in moneys –some 8 US$ million dollars in total--- and in scope --attaining land use change in a few thousand hectares in each of the three participant countries. Nevertheless, it has many innovative features, including that: • It was developed with support of FAO’s Livestock, Environment and Development Initiative (LEAD)

and its local implementing agencies are NGOs. • While the Costa Rica and Mexico PES programs are focused on forest protection, the Silvopastoral

project is focused on conservation in productive landscapes. • In the designated local areas the project pays ranchers for changes in land use, away from current

ranching in degraded pastures and towards silvo-pastoral practices, encompassing different combinations of livestock, fodder crops and perennials (trees, fruits, live fences etc.).

• Four-year contracts are offered and payments per hectare are plot-specific based on a point system that assigns different points to different land cover.

• The project has a strong training component. It also has a strong evaluation component with detailed baseline information, monitoring of control groups outside the program, monitoring of carbon sequestration gains and monitoring of biodiversity gains.

By late 2006, after 3 years of operation, and adding the three countries, there were approximately 400 landowners and some 2,000 hectares enrolled in the project. Close monitoring is rendering valuable information too, sometimes questioning the initial project design. For example, the project’s four year PES payment scheme was based on the assumption that silvo-pastoral practices have initial costs that deter ranchers from adopting them, but, that if those costs are defrayed – in this case by the four years of PES—then ranchers will adopt the silvo-pastoral model and continue even after the PES end because maintaining the new silvo-pastoral land uses would be more profitable than going back to ranching in degraded pastures. Yet, yearly monitoring has shown that landowners do switch back to ranching on degraded lands. This finding has raised doubts about the sustainability of the land use changes if PES stops after the projected four years. 4.4 Institutionalizing Payments for Ecosystem Services The “Institutionalizing Payments for Ecosystem Services” will be one of the newest projects in GEF-3. It is a global initiative with UNDP as the implementing agency. What sets this project apart is that, unlike Mexico, Costa Rica and the Integrated Silvo-pastoral projects, all of which focus on specific on-the-ground PES activities, this project aims to scale-up the use and PES impacts solely through capacity building, information development and dissemination. The three main objectives of the Institutionalizing PES project are:

1. To deliver timely information on ecosystem markets; 2. To build capacity of national PES practitioners and policymakers through the creation of regional

networks; 3. To design and test new biodiversity conservation PES models.

13

These objectives are intended to increase the number of buyers of ecosystem services globally, and particularly from the private sector. Overall, the project aims to directly improve the biodiversity outcomes on at least one million hectares in Tropical America and Eastern/Southern Africa and to directly affect 30 projects. Several stand-out features of the project includes: 1. Communication/capacity building and market development is the central organizing point, 2. Most components include engaging rural/marginalized communities, 3. The project will work both on productive/agricultural landscapes to increase biodiversity as well as

forest protection/forest enterprises, 4. Eastern and Southern Africa, which so far have few GEF PES projects, are two of three regions that the

project will focus. 5. Also, new ways to use PES for improving coastal and fishery management will be explored. Because this project has recently been approved by the GEF Council and is yet to be implemented, it is not possible to evaluate in terms of measuring or assessing its goal of improving one million hectares and 30 PES projects. However, the project does have the potential to contribute an international institution-building perspective that was absent in the GEF PES portfolio. In this way, it may be an important complement to boost the “learning by doing” of most GEF PES projects, adding a wide dissemination platform on which to share real-time lessons and information. 5. A synthesis of the GEF PES portfolio experience thus far Is the GEF PES portfolio ready to be assessed? Clearly not. Only one project has ended. Among the active ones, most are in their early stage and few progress reports are available. Many others have been approved but have not yet started. So, there is very little on-the-ground performance and results on which to base an assessment. In most cases, there is even very little to review in the project design, considering that, with few exceptions, project documents limit the description of the PES component to a few lines. So what follows is not an assessment but a stock taking. 5.1 Overview Projects in the current GEF PES portfolio fall into one of the following three categories:

1. Support for country-wide PES schemes (Costa Rica, Mexico). These programs are country driven, using public moneys to pay farmers and rural communities for natural forest protection in private or communal lands outside public protected areas. The ecosystem services of interest generally are watershed protection, biodiversity, carbon sequestration and landscape conservation for tourism. GEF projects in support of these programs look to (a) diversify sources of payment away from government and towards private or local users, (b) improve environmental and social targeting, and (c) increase participation of the rural poor as providers of services.

2. PES schemes as source of incomes for protected areas and/or buffer zone management (Peru, Ecuador, Lesotho/South Africa, Bolivia, Colombia, Venezuela). Only in a few projects (Venezuela, Canaima NP; Lesotho/South Africa) do the PES component appear to be central to the project and are well defined in the project document. In most cases, PES is simply mentioned in one paragraph of the project document, among several sources of funding that the project will explore.

3. Local level PES schemes to pay farmers and other land owners or managers for ecosystem services associated with sustainable agricultural practices (e.g. Silvo-pastoral project,

14

Dominican Republic, Kenya, Venezuelan Andes). As in the above group, only a few cases –the Silvo-pastoral project—are PES schemes central to the project and well defined from the beginning. In most other cases PES is simply mentioned in one paragraph of the project document, among several sources of funding that the project will explore.

5.2 The projects’ impact Although based on the limited monitoring and evaluation information available to date due to lack of mature projects, GEF projects have been and will be important for developing institutional frameworks and capacity building in the participant countries. To begin with, PES is a rather new concept in the world, and many of the PES projects in the GEF portfolio are the first PES case for the country involved. Even when the recipient country had previous PES experience (e.g. Costa Rica, Ecuador, Mexico), GEF projects have been important to improve the design, management and delivery of the pre-existing programs as well as for bringing in co-financing. Regarding country level impacts, this is a small collection of projects, and with the exception of Costa Rica, their country-wide direct impact will probably be minimal either in terms of biodiversity conservation, mainstreaming conservation in productive landscapes, sustainable agriculture, or rural social indicators. Take, for example, the case of the two country-wide programs. In Costa Rica after 10 years of paying landowners to conserve natural forests, the area under contract is significant: some 15% of the country’s natural forests; yet the annual payments –some 10 million dollars a year—represent less than 0.6% of the country’s rural income. In the case of Mexico, which so far has spent 20 to 30 million dollars per year in its PES program, the area under contract by late 2006 was less than 0.1 % of the country’s natural forests and the annual budget for PES was less than 1% of the rural subsidies annually distributed by the Federal Secretary of Agriculture. So, in most cases only successful replication and scaling-up will deliver significant impacts (see below point 5.5) 5.3 Financial Sustainability Regarding long-term financial sustainability, the issue is clearly discussed in all projects, but it is far from resolved. Costa Rica and Mexico’s country-wide projects are currently financed through earmarking of federal taxes (fuel tax in Costa Rica) or tariffs (water tariffs in Mexico) and one could argue that this gives these projects a financial sustainability floor. Still, the World Bank is uncomfortable with government-driven payments and would like to see them substituted by: (a) carbon offset payments for aforestation or avoided deforestation, (b) local payments from water users, (c) ecotourism related payments, and (d) a biodiversity fund –capitalized by donors—to pay for biodiversity conservation that fails to find private clients. The jury is out, and it is too early to answer if it is possible to get there. On the one hand one can agree that there are yet-to-be tapped market opportunities at hand (see points 6 and 7 below). On the other hand, many practitioners, including these reviewers, see nothing wrong with public procurement of public goods. So, the agenda could be not one of eliminating public PES but one of increasing its efficiency, as is the case with government expenditures in other public goods, like education, health or security. 5.4 PES and the Private Sector Businesses participation in GEF PES projects has been high in the selling side, if we agree that farmers are businesses; but it has been very low in the buying side. Even when there are some commercial companies as buyers – water and hydropower companies—they are usually public companies. In this regard the GEF PES portfolio falls way below the world average (see point 6 below). Some of the reasons for this below-average performance may have to do with the fact that GEF projects are negotiated with governments. This is not to say that engaging the private sector in PES is a simple task. On the contrary, it is quite complicated, and it needs either a compelling business case, or a regulatory framework in place to bring

15

businesses around (e.g. an environmental offset regulation). Still we think there are opportunities that have not yet been tapped, and we refer to this in points 7 through 10 below. 5.5 Dissemination, replication and scale-up potential To a good extent the GEF core PES projects have become a dissemination success. Costa Rica, in particular, is the darling of the sustainable development crowd and its experience with PES is discussed in many environmental forums and in many country agencies considering PES. On a more modest scale, this is also true of the Mexico PES program and a few of the most innovative recent GEF PES projects like the Silvo-pastoral project.11 The outreach success is the result of the true pioneering character of these experiences, and the fact that they have committed and able speakers in the governments of Costa Rica and Mexico and at the World Bank. Regarding the first group of country-wide experiences, namely Costa Rica and Mexico, the chances for replicating in other countries the model of PES driven by government payments are clearly good in middle (and high) income countries. Several middle income countries (Brazil, China) already are experimenting with similar programs. Unfortunately, this government driven PES approach has no appeal for low income countries that have little budgetary or tax leeway to draw on. Chances for scaling up also look good in middle (and high) income countries. In Costa Rica and Mexico, the current World Bank - GEF projects look to scale up by diversifying the demand to include local and international private buyers. Clearly this is one way to go; but another obvious way to scale-up would be to increase government payments, based on new or increased environment-related fees (e.g. on energy, water, pollution, etc.) or, even more attractive, based in redirecting part of current rural subsidies towards PES programs. In this way, government payments still would go to foster rural incomes, but in addition they would deliver rural conservation.12 Regarding the second group of PES projects in support of protected areas, the GEF portfolio is too new and in most cases the project’s design is too vague to judge its replicability and scale-up potential. In point 10 below, we elaborate further on the potential of PES to finance protected areas. The third group of projects, local level PES schemes to pay farmers and other land owners or managers for ecosystem services associated with sustainable agriculture practices, is new and, as in the previous group, some projects are ill defined. Even in the better documented project in this group --the Silvo-pastoral project-- replicability and scale up potential looks dim. Most of the projects in this group are based in government and GEF money but, different from the country-wide programs above, there is no commitment from the government (or the GEF) to go beyond the projects deadline, and much less to expand or replicate them. So a completely different arrangement would have to be found to support the replicability and scaling up of these projects. 5.6 Main Findings Thus far, GEF’s role in the PES arena may be relatively new in several ways, by (a) acting as the glue for other institutions to come around, (b) increasing incentives for the recipient country, (c) bringing in funds for institutional development and capacity building, and (d) being the promoter of new ideas and

11 The team and experience behind the Institutionalizing PES project --Forest Trends/Katoomba Group, are also a well known experienced and resource in the PES field; but this has to do with their previous work, not with their GEF supported project that began only in late 2006. 12 Recall that in point 5.3 we mentioned that the Mexico annual budget for rural subsidies is 100 times greater than the PES budget!

16

approaches. GEF grants have also been used as a source of payments for ecosystem services, and to the extent that they are paying for ecosystem services of global significance, this is in line with the GEF instruments. The GEF PES portfolio is young and small. The core projects, those where the PES component is central, look promising, innovative and a valuable addition to the GEF portfolio. However, with some exception, all other projects are so small that at best they will deliver local benefits and country lessons. Their social or environmental impact at a country scale will be minor if they are not scaled-up. The portfolio offers some examples with potential to disseminate, replicate and scale-up elsewhere, but mostly in middle (and high) income countries. Beyond a half-dozen well-developed PES projects, the other projects that make reference to PES in the project documents do not elaborate on the PES component very clearly. Some positive PES development may come out of this second group, but there is no way to know in advance. 6. Comparing the GEF PES portfolio with other PES experiences around the world There are currently several hundred PES (and PES-like) schemes around the world, both public-driven and private-driven. Table 14 presents information on some 300 PES projects reviewed by Landell-Mills and Porras in 2000-2001. The sample is probably old in a field that is moving as fast as PES, particularly regarding carbon sequestration, but no similar exercise has been undertaken since.13 Comparing Table 14 with what we have learned about the GEF portfolio, both similarities and differences emerge: • Regarding regional distribution of projects, Latin America is still the leader, but the regional

distribution is much more balanced in the global sample, with Asia/Pacific accounting for 25% of the total number of projects. Africa is still minimally represented.

• Most projects in the world sample tend to be single-purpose: they focus on and pay for a single ecosystem service. On the other hand, most GEF PES projects tend to be multi-purpose. This probably has to do with who the buyers are (private buyers are more focused on a single issue).

• Regarding what type of ecosystem services: the panorama is quite similar in both groups, but carbon sequestration is more represented in the world sample. This is probably due to the fact that, up to now, most bio-carbon deals have been outside the Kyoto protocol, and the GEF can only grant money to carbon projects that follow the Climate Change Convention mandates.14

• Regarding who are the buyers of ES: private companies and NGOs are the dominant buyers in the world sample; governments come way behind in a third place. Still, this predominance is measured in number of projects, and it would change if the size/financing of the projects were considered (but that information is not available).

• Regarding where the buyers are: as could be expected, most buyers of watershed related ES live in the watershed in question. For all other ES in the Landell-Mills survey (carbon, biodiversity, landscape), the majority of buyers were international: foreign businesses, foreign NGOs and foreign donors.

Around the world PES schemes are too recent to derive best practices from them, yet they are numerous enough to deliver lessons of interest to GEF, its implementing and executing agencies; below we lit some of those lessons

13Landell-Mills and Porras (2002). Scherr, S et al (2006) give a good update on markets for ecosystem services, but the information is on ES markets and their dollar size, not in terms of projects and places. 14 This may change in the near future, with the post Kyoto 2012 negotiations that many experts believe will give more opportunities to bio-carbon sequestration and may accept avoided deforestation.

17

• PES are anything but easy; to have an operative PES scheme in place has taken anything between 5 and 10 years.

• Almost always the critical step is finding the willing buyers. • Most voluntary, private-driven PES schemes (e.g. water companies in Ecuador cities paying farmers

for watershed conservation) are small (a few dozen participants, a few hundred ha), they take years to negotiate and hence have high transaction costs and deliver modest rural incomes and little conservation gains.

• On the other hand, government driven PES schemes (e.g. the Grains for Green program in China, the

ecological value added tax in Brazil, PES programs in Costa Rica) are larger by several orders of magnitude. They may be deployed faster and be able to deliver significant change, but in many of them, design, targeting and monitoring limitations make it difficult to assess their social and environmental benefits.

• Between the voluntary, private-driven PES and the government-driven PES, there are the regulatory

driven / private buyer PES, the carbon offset, wetlands offset, etc. There are high expectations that the that developing countries may become important sellers of ES in these markets, but thus far most of trade is happing in wealthy countries (US wetlands banking, EU carbon trade).

• Regarding environmental and social benefit: most evaluations show them to be positive but modest. • All practitioners agree that to prosper, PES schemes need supportive legal and institutional

frameworks, property rights clarification and assistance to small farmers and rural communities so that they can become providers of ES.

• As for the future of PES, most practitioners agree that the field is facing a “growth crisis” and is in

need of a new wave of big “success stories” to move it forward. Opinions differ on where these may come from. Some bet on the carbon sequestration market and the growth of similar cap-and-trade environmental regulations, which would create (or enlarge) an array of other environmental offset markets (e.g. for wetlands, nutrient discharges, biodiversity, etc.). Others look more to the development of ecosystem services and payments for ecosystem services as the approach to do conservation both publicly and privately.15 Of course one alternative does not exclude the other and in any case, the jury is out regarding which way PES will develop and how far it will go.

7. Doing businesses with PES16 Many companies rely on natural resources, and securing the flow of ecosystem services may be directly related to the company’s bottom line. Water companies need functioning ES to maintain water quality. Tourism companies want to preserve the landscapes and wildlife that attract their clients. Other businesses 15 Forest Trends and several associated institutions are champions of the offset markets approach (see www.foresttrends.org In the conservation movement IUCN has bet in this direction too (Bishop et al 2006). Resources for the Future’s Boyd and Banzhaf’s work (2006) has focused more on PES as a way to increase the size and efficiency of public procurement of ecosystem services. WWF has moved more in the alternative direction (see Gutman 2007). 16 This point has been extracted from a forthcoming WWF publication entitled “Ecosystem Services and Payments for Ecosystem Services. Why should businesses care?” Dollar figures in models 1 and 4 are from Scherr, S. et al (2006)

18

have negative environmental impact or produce significant harmful emissions; and they may find that paying to increase the flow of ES (e.g., carbon offsets or biodiversity offsets) is an economical way to neutralize their negative environmental impacts or emissions. Insurance companies and coastal area developers may find that increasing the provision of ES is the cheapest way to reduce the risk of natural hazard, and so on. There are high expectations that businesses may become a key player in the PES arena, as buyers and sellers of ecosystem services as well as market developers and innovators. Table 14 shows that, according to the Landell-Mills and Porras 2000-2001 survey of PES projects, businesses were the leading buyer in a majority of them. Below we summarize several emerging PES business models. PES Business Model 1: Regulation Compliance A model for businesses that buy and sell ecosystem services to comply with cap-and-trade environmental regulations, such as carbon offsets to comply with mandated reductions of carbon and other greenhouse gas emissions, or wetlands restorations to compensate for wetlands lost to development. This is the realm of carbon sequestration markets. Following the Kyoto Protocol, world carbon trading is already big, amounting to some $22 billion in 2006. The share of ecosystem-based greenhouse gas sequestration (reforestation, agro-forestry, avoided deforestation) is currently relatively low, at some $100 million a year. But things are changing fast, and ecosystem-based carbon markets are expected to grow to some $1.5 billion in the next decade—and to keep growing. The wetland compensation market in the United States recently amounted to $1 billon of business in a year. PES Business Model 2: Cost Saving A model for businesses that buy or sell ecosystem services that actually reduce costs. Examples are water companies paying for upstream ES that reduce the need (and expense) for water treatment, farmers adopting organic agricultural practices that save inputs, and hydropower companies paying for upstream conservation practices that reduce erosion and increase a dam’s lifespan. In France, two of the world’s largest mineral water companies, Nestle-Vittel and Danone-Evian, have developed sophisticated PES schemes in their water source areas to pay farmers who adopt sustainable agricultural practices that avoid water pollution. In the United States, the New York City water utility pays farmers to reduce pollution in the Catskill basin. In Venezuela, the operators of Guri hydro dam (the world’s third largest) pay for conservation and surveillance in the adjacent Canaima National Park to reduce risks of deforestation, which could trigger soil erosion resulting in siltation of the dam’s reservoir. (this program will be extended with a GEF PES project reviewed here, see in Section II, “Venezuela, Expanding partnerships for the national park system project”).

19

PES Business Model 3: Value-Added Goods and Services A model for businesses that buy and sell goods and services that have ecosystem services embedded in them, such as ecotourism, shade-grown coffee, organic foods, or certified wood products. In this model, consumers pay for what they consume, plus they voluntarily pay a premium (the PES) for the assurance that the goods or services they are buying have been produced in a way that maintains or enhances the environment and the flow of ES. With world sales of organic food at $30 billion in 2005 and 100 million hectares of certified forest, green, organic, and sustainably produced food and fibers may become the largest source of PES. So far, however, only a small fraction of the final price goes back to the farmers to pay for their conservation efforts. But with organic and certified markets growing at 10 percent a year, the future looks promising to use this PES business model to increase both conservation and farmers’ incomes. PES Business Model 4: Voluntary PES Why would businesses spend money to buy ecosystem services that neither increase their profits nor reduce their costs, if they are not required to do so by law? The fact is that an increasing number of businesses do. It could be that companies are positioning themselves for anticipated regulations—as in the case of the voluntary carbon market in the United States. It could be that companies consider their investment in social and environmental activities to be an important component of their market image and social acceptability. Or it could simply be that some businesses are self-motivated to embrace high environmental standards. Whatever the reason, buying (and selling) ES in the voluntary market is growing. In the United States alone, the voluntary carbon forestry market is estimated at $15 million annually, and voluntary biodiversity offset projects amount to some $20 million a year. But this is just the tip of the iceberg, because charitable contributions to environmental conservation by businesses and business-based foundations in the United States alone amount to some $1 billon a year. PES Business Model 5: Selling ES to Government Agencies

As is the case for many public goods (health, education, and security, for example), governments will probably take the lead in procuring many ecosystem services to meet society’s demands. Governments already play a major role in initiatives such as biodiversity conservation, ocean conservation, and caring for the global commons. Additionally the “greening” of even a fraction of Governments’ procurement of goods and services could have an enormous impact in the demand for environmental services. World-wide Governments spend some $2 billion annually in payments for watershed-related ES and another $3–4 billion in payments for biodiversity-related services (mostly in protected areas). Again, this is just the tip of the iceberg. Right now the European Union, the United States, and other wealthy countries are trying to change rural production subsidies (more than $600 billion a year) into income support and environmental payments (a.k.a. PES). Additionally, with public expenditures representing approximately 40 percent of the world gross domestic product, a very small shift toward greening public procurement (the UK government recently announced its intention to move that way) would represent billions and affect all types of producers and markets.

20

8. A taxonomy of PES Opportunities We can summarize a lot of what has been said in the previous points into a taxonomy of PES opportunities that may help us understand what the GEF PES portfolio is doing and where there are untapped opportunities that FAO and GEF may want to grow on.

Local and country level buyers International buyers Opportunities to use PES to fund A. Public B. Private C. Public D. Private Mainstreaming biodiversity into production landscapes (MB) ES sold I. Carbon sequestration (low to medium) II. Watershed & other natural resources protection (low to high) III. Biodiversity (low) IV. Sustainable produced food and fibers (high)

A.1.Difficult in low income countries for all I through IV A.2 Better chances in middle (and high) income countries for II and III

B.1.Difficult in low income countries for all I through IV B.2 Better chances in middle (and high) income countries for II and IV

C.1 Limited funds (GEF, bilateral donors) in the short run for I through III. But it may grow if mainstreaming is associated with other MDGs

D.1 Large expectations on the regulation induced demand for I D.2 Large potential for the voluntary private demand for IV D.3 Some potential for voluntary buyers of III (individuals, NGOs, businesses) when associated with other MDGs

Biodiversity protection in private lands (BPL) ES sold I. Carbon sequestration (low to high) II. Watershed & other natural resources protection (medium to high) III. Biodiversity in situ and ex-situ (low to medium)

A.3.Difficult in low income countries for all I through III A.4 Better chances in middle (and high) income countries for II and III

B.3 Difficult in low income countries. But there can be some rich buyers willing to pay for II (dams, cities) B.4 Better chances in middle (and high) income countries for voluntary and regulation-driven demand.. For II, still needs to be in the vicinity of rich buyers

C.2 Limited funds (GEF, bilateral donors) in the short run for I through III But it may grow if associated with other MDGs

D.4 Large expectations on the regulation induced demand for I (carbon) D.5 Potential for voluntary buyers (individuals, NGOs, businesses) of III

Biodiversity protection in public protected area systems (BPAS) ES sold I. Carbon sequestration (low) II. Watershed & other natural resources protection (high) III. Biodiversity in-situ and ex-situ (medium to high)

A.5 Governments are already paying for PAS. Adopting a PES perspective (e.g. valuing the ES of PAS) may increase governments willingness to spend in conservation and the efficiency of the expenditure

B.5 Difficult in low income countries. But there can be some rich buyers willing to pay for II (dams, cities) B.6 Better chances in middle (and high) income countries for voluntary and for regulation induced demand. For II, still needs to be in the vicinity of rich buyers

C.3 GEF and bilateral donors are already financing PAS, but not in a PES format. Adopting a PES perspective (e.g. valuing the ES of PAS) may increase the willingness to fund conservation and the efficiency of the expenditure

D.6 Moderate expectations on the regulation induced demand for I (avoided deforestation; other biodiversity offsets) D.7 Higher potential for voluntary buyers (individuals, NGOs, businesses) of III

21

Of course the above is just one of many possible PES taxonomies.17 But, it helps us identify where the GEF PES portfolio currently is and is not. For example in Mainstreaming Biodiversity the GEF portfolio is mostly composed of A.2 – C1 with expectations of adding or moving towards B.2- / C.1. Still many countries -- middle income countries in Asia and low income in countries the world around (A.1 – B.1) are not represented. Also not represented are several important PES options like D.2 and D.3. The above table is also good framework to place the suggestions of the next two points, regarding where the PES portfolio of GEF and FAO may want to grow. 9. Some PES areas where the FAO /IFAD may want to grow As noted at the beginning of this paper, FAO and IFAD have recently become GEF Executing Agencies and this review was commissioned by FAO to take stock of GEF current PES portfolio, to explore where PES approaches could be further used to mainstream biodiversity conservation into production landscapes, and to engage the private sector. In this regard and stemming from the previous discussion, here are some PES opportunities that FAO/IFAD may want to pursue, in association with GEF and /or other conservation and development partners,

• PES programs or projects focusing on developing what we have called in point 7 “The business of value-added goods and services.” Namely, helping to steer the burgeoning market for organic, green and fair-trade food and fiber towards rewarding rural producers for engaging in sustainable production practices. There are several different but related areas of investment here, including (1) developing standards and certifications for sustainable agriculture, forest and fishery products, (2) working with businesses and consumer associations to raise market awareness, demand and price premium for these products, (4) helping farmers in developing countries access these markets and increase the price margin that goes back to pay for rural conservation, and (6) monitoring that the production of organic, green or sustainable rural products actually benefits rural biodiversity and rural communities. 18

• PES as a way of “greening” agricultural subsidies in high, middle income (and in some low

income) countries. Transforming harmful production-based subsidies into PES would represent both an economic and environmental improvement; and funds are huge not only in rich countries but in many middle income countries too.19

• PES as a component of land/ landscape restoration projects. Land restoration projects (e.g. in arid

or degraded land) tend to be expensive; and while that is good for job creation, it often does not pay back to the farmers. Including a PES component, such as payments for carbon sequestration, may increase the short and long term profitability of land conservation and sustainable land management.20

• PES as a component of the incentives offered to rural dwellers in exchange for reducing their

pressure on over-exploited ecosystems (fisheries, bush meat and wildlife hunting, deforestation).

17 See other PES opportunities taxonomy in Scherr, 2006 18 MB IV / B.2 / C.2 in the PES taxonomy 19 MB I through IV A.2 and C.1; MBL I through III A.4 C.2 20 MB I, II and BPL I, II In low income countries mostly with external support/demand; in middle income countries with a mix of country and international support

22

Depending on the case (particularly the size of the population involved and the global value of the ecosystem services in danger), PES may be an important component of such a deal. 21

10. Some PES areas where the GEF may want to grow During the review of the draft version of this report, the GEF requested the addition of a separate point of recommendations for the GEF, particularly regarding the potential for PES to diversify revenue sources to ensure sustainable financing for national protected area systems, and more generally regarding PES potential for the achievement of the GEF biodiversity strategy for 2006-2009. In this regard, the recently circulated GEF Focal Area Strategy for Biodiversity for GEF4 (FY06-FY09) put forward PES as a way to achieve two of its three strategic objectives: SO1 Catalyzing Sustainability of Protected Area Systems; and SO2 Mainstreaming Biodiversity in Production Landscapes/Seascapes and Sectors. Regarding the former, PES is mentioned as one of several approaches to achieve the financial sustainability of protected areas. Regarding the latter, PES is proposed as one of the two strategic programs to deliver biodiversity mainstreaming. On the one hand, PES approaches can be an important way for delivering on the GEF Biodiversity goals, and below we submit several suggestions to help in that direction. On the other hand, it would be advisable to reduce short-term expectations, since PES are difficult to negotiate and take a long time to be operational. Hence we are skeptical of how much can be achieved by PES projects in the framework of the GEF4, which is already one third of the way through still and has only 2 projects in the pipeline.22 With this caveat in mind, here are some suggestions that the GEF may want to consider to grow its PES portfolio: • Comparing the GEF PES portfolio with a sample of PES around the world (point 6 above) it is clear

the latter has a more even geographical distribution and a much higher participation of the private sector, particularly from foreign buyers of ES. There is no reason to think that the GEF cannot do the same - extending its PES activities to Asia and Africa and further engaging the private sector, both nationally and internationally.23

• In terms of mainstreaming biodiversity into production landscapes, the four ideas proposed to

FAO/IFAD, in point 9 above, may also be of interest to GEF. • The GEF could also explore mainstreaming biodiversity in association with (or piggybacking on) other

GEF focal area programs, other international conventions and other development agendas of member countries and of the international community (MDG). Because combating land degradation, reducing greenhouse emissions from forest and soils and protecting international waters will usually result in increased biodiversity, there are good opportunities for joint programs where PES can pay for the incremental costs (if any) of doing it in a biodiversity enhancing way. The same approach could be applied to partnering with other agencies and programs pursuing other MDGs, (although in these cases the additional biodiversity costs are probably higher and at some point both programs may be better served going separately).24

21 MB IV / B.2 / C.1 and MPL II A.4 C.2 22 The same could be said regarding PES capacity to deliver on the CBD 2010 targets. There is simply not time. 23 Columns B and D in the PES taxonomy 24 C1 and C2 in the PES taxonomy.

23

• Regarding the potential of PES to finance protected area in private lands, the larger projects in the GEF PES portfolio are of this type, and provide a model that the GEF may want to replicate in other middle income countries. Still, there is a catch here. In the case of Costa Rica, which has a high, across the board, environmental performance, such a program may make a lot of sense. But, for other countries one could wonder if it makes sense to spend government money to pay for the management of private protected areas when there is not enough money to pay for the management of public protected areas? There could be good reasons to do so, for example when the money comes from sources that cannot be used to increase the public protected area system budget; when there may be large employment or income distribution gains; when an ecosystem of critical significance is in private hands and buying the lands is not an option, etc. Still, the question is worth asking each time a project of this type is tabled.

• Regarding the potential of PES to finance public protected areas systems we see three possible

approaches:

• The first and more traditional approach is to use a PES approach to charge for in-situ ecosystem services. Protected areas have a long tradition of charging visitors, charging business concessions inside the park, selling right of way for private or public infrastructure, and so on. There is room for improvement here, and the example of South Africa, where park entrances and tourism related activities makes up 80% of the national park system budget, comes to mind. Still, few protected area systems have the allure of South Africa’s mega fauna, and most practitioners will agree that there are little innovations along this line.25

• The second approach is to use a PES approach to charge country users for ex-situ ecosystem

services provided by protected areas (e.g. charging downstream farmers, water companies and hydroelectric dams for watershed protection services). A full one-third of the projects in the current GEF PES portfolio aim to do so. One needs to realize that this PES approach will only work where there are rich users to target --large infrastructures, large water companies, intensive agriculture, and so on. If there is little economic activity downstream the park, this PES scheme will find few potential buyers.26

• The third one is to use a PES approach to value and to manage the ES of protected areas and to

use this knowledge to stimulate national and international financing of biodiversity conservation both public and private, voluntary or mandatory (e.g. avoided deforestation, foot print or biodiversity offsets, adopt a park etc.). Considering how big the gap is between needs and funds for biodiversity conservation, this approach is worth exploring, both at a country level and at an international level; but is surely a long term endeavor.27

10. Suggestions for a follow-up consultancy The terms of reference for this review asked for recommendations on issues to tackle in a second phase of this consultancy: (a) “to recommend 2-3 projects for GEF to investigate more thoroughly to deepen analysis and understanding…” and (b) to “recommend 2-4 issues that could be addressed in the second phase of this project.” We do not find alternative “a” useful. There are only two GEF Projects advanced enough to merit detailed scrutiny --Costa Rica Ecomarkets, and the Nicaragua/Costa Rica/Colombia Silvo-pastoral project. All of 25 B6 and D7 in the PES taxonomy 26 B6 and D6 in the PES taxonomy 27 A5 , C3 and D7 in the PES taxonomy

24

the rest are just beginning. Because of their novelty and the attention they have attracted, both projects are already well-analyzed (see the references at the end of this report). The Silvo-pastoral project, still an ongoing project, already has its own shelf of reviews, including four 200+ page yearly progress reports, complete with on-the-ground monitoring, surveys, stakeholders meetings, and etc. It is difficult to see what a short term external consultancy could add to these. It seems to us more productive to direct the second phase of this consultancy towards a scoping exercise that would deliver a portfolio of PES project ideas to advance on-the-ground PES projects or programs in one or more of the areas suggested in points 8 and 9 above. With such a product, FAO/IFAD and GEF could pick up and pursue the projects/programs that seem more promising to them. The scoping exercise should include consultations with staff from GEF and its implementing agencies, businesses, country agencies, NGOs and PES experts. Based on those consultations, the scoping exercise would deliver (a) the identification of a suite of projects or project proto-types, (b) the identification of potential and interested participants and partners in those projects, (c) project profiles, (d) follow up steps.

25

GEF ID

Project Status as of 3/2007

(*)

Country Focal Area Project Title Agency Total GEF

Amount

GovtCo-

finance

Co-finance

Total Project Cost

GEF2 (FY98-01)

A 671 Completed Costa Rica Biodiversity Ecomarkets World Bank

8.33 31.9 20 60.23

B 762 Active Regional (Lesotho,

South Africa)

Biodiversity Maloti-Drakensberg Conservation and Development Project

World Bank

15.6 Lesotho 1.1

S. Af. 17.9

0 33.30

C 945 Active Ecuador Biodiversity National Protected Areas System World Bank

8.35 0.6 5.8 14.75

D 947 Active Regional Multi-focal Areas

Integrated Silvo-Pastoral Approaches to Ecosystem Management

World Bank

4.77 0.6 (all govts)

3.30 8.67

GEF3 (FY02-05)

E 1794 Bolivia Biodiversity Removing Obstacles to Direct Private-Sector Participation in In-situ Biodiversity Conservation

World Bank

0.71 N/A 0.43 1.14

F 1516 Active South Africa Biodiversity C.A.P.E. Biodiversity Conservation and Sustainable Development Project

World Bank/U

NDP

11.32 26.9 17.55 55.77

G 2512 Active Dominican Republic

Land Degradation

Demonstrating Sustainable Land Management in the Upper Sabana Yegua Watershed System

UNDP 4.6 21.6 3.9 30.1

H 1186 Canceled El Salvador Biodiversity Environmental Services Project World Bank

5.35 N/A 9.50 14.82

I 1918 Active Regional Biodiversity Conservation of the Biodiversity of the Paramo in the Northern and Central Andes

UNEP 8.86 N/A 10.53 19.39

J 2102 Panama Biodiversity Second Rural Poverty, Natural Resources Management and Consolidation of the

Mesoamerican Biological Corridor Project

World Bank

6.28 3 41.00 50.28

K 2120 Active Venezuela Biodiversity Biodiversity Conservation in the Productive Landscape of the Venezuelan Andes

UNDP 7.70 29.5 0 37.25

Table 1. A Sample of GEF Projects with Payment for Ecosystem Services Component (As of March 2007)

26

GEF

ID Project

Status as of 3/2007

(*)

Country Focal Area Project Title Agency Total GEF

Amount

GovtCo-

finance

Co-finance

Total Project Cost

L 2355 Active Kenya Land Degradation

Agricultural Productivity and Sustainable Land Management

World Bank

10.35 32.8 40 83.15

M 2443 Active Mexico Biodiversity Environmental Services Project World Bank

15.35 53.3 113.49 182.14

N 2551 Active Colombia Biodiversity Colombian National Protected Areas Conservation Trust Fund

World Bank

15.35 27.4 0 42.82

O 2884 Active Costa Rica Biodiversity Mainstreaming Market-based Instruments for Environmental Management Project

World Bank

10.00 47.5 2.7 60.2

P 2103 Active Venezuela Biodiversity Expanding Partnerships for the National Parks System

World Bank

6.35 14.75 3.77 24.87

Q 2589 Active Global Biodiversity Institutionalizing Payments for Ecosystem Services

UNDP 6.15 N/A 12.02 18.17

X 2373 Active Brazil Land Degradation

Sustainable Land Management in the Semi-Arid Sertão

IFAD 6.3 N/A 50.55 56.85

Y 2356 Active Brazil Land Degradation

Ecosystem Restoration of Riparian Forests in São Paulo

World Bank

7.1 3.4 11.9 19.5

Z 1154 Active Brazil Multifocal Rio de Janeiro Integrated Ecosystem Management in Production Landscapes

World Bank

7 1.7 8 15

GEF 4 (FY06-09)

R 2615 Pipeline South Africa Biodiversity National Grasslands Initiative UNDP 8.65 N/A 37.26 45.91 S 2693 Pipeline Peru Biodiversity Strengthening Biodiversity Conservation through

the National Protected Areas ProgramWorld Bank

15 N/A 15 30

(*) Pipeline are projects not yet approved; Active include ongoing projects and approved projects that may have not started yet.

Table 1. A Sample of GEF Projects with Payment for Ecosystem Services Component (As of March 2007)

27

Table 2. Number of PES- related projects in GEF portfolio, per region

Region Total GEF 1 GEF 2 GEF 3 GEF 4 (partial)

Africa (4) B, F, L, R,

(1) B

(2) F, L,

(1) R,

LAC ( 17) A, C, D, E, G, H, I, J, K, M, N, O, P,S, X Y, Z,

(3) A, C, D

(13) E, G, H, I, J,

K, M, N, O, P, X, Y, Z

(1) S,

Global (1) Q

(1) Q

Total 22 4 16 2 Note: As of March 2007. The letters identify the project in table 1 and in the project profiles

Table 3. Which are the projects with strong PES focus? Region Country wide

or global / PES focus

Local scale / PES focus

Country wide / PES a minor component

Local scale/ PES a minor component

Practically no PES component

Africa (2) F, L

(2) B, R,

LAC (5) A, H, J, M, O,

(4) D, E, G, P

(1) N

(6) I, K, S,, X, Y,

Z

(1) C

Global Q Total 6 6 1 8 1 Note: As of March 2007. The letters identify the project in table 1 and in the project profiles

Table 4. Funding for PES projects by region (in millions of current dollars) Region

GEF Co-financing Total

Africa

45.895 172.215 218.11

LAC

136.3 592.57 728.81

Global

6.15 12.02 18.17

Total

188.345 776.805 965.09

28

Table 5. Size of projects Region Project s

over 100 US$ M

Project from 25 to 100 US$ M

Projects from 10 to 25 US$ M

Projects from 2 to 10 US$ M

GEF MSP Projects

GEF grants over 10US$ M

Africa (3) F, L, R,

(1) B,

(1) C

(2) F, L,

LAC (1) M

(7) A, G, J, K, N, O, X

(5) I, P, S, Y, Z

(2) D, H,

(1) E

(3) M, N, O,

Global (1) Q

Total (1) (10) (7) (3) (1) (5) Note: As of March 2007. The letters identify the project in table 1 and in the project profiles. Columns 2 through 5 refer to the project total budget, including GEF grants and co-financing

Table 6. Number of PES project by status

Region Completed Canceled Active Pipeline Africa (3)

L, B, F (1) R

LAC (1) A

(1) H

(14) C, D, E, G, I, J, K, M, N,

O, P, X, Y, Z

(1) S

Global (1) Q

Total 1 1 18 2 Note: As of March 2007. The letters identify the project in table 1 and in the project profiles

Table 7. Number of PES project by GEF Focal Area

Region Biodiversity Land Degradation

Multi-focal areas Other Areas

Africa (3) B, F, R

(1) L

LAC (12) A, C, E, H, I, J, K,

M, N, O, P, S

(3) G, X, Y

(2) D, Z

Global (1) Q

Total 16 4 2 - Note: As of March 2007. The letters identify the project in table 1 and in the project profiles

29

Table 8. Number of projects by GEF role

GEF pays for Region/ GEF > 30% of total budget

Capacity building Part of the ecosystem services

Africa/ (1) B

(4) B, F, L, R

(4) B, F, L, R

LAC (9) C, D, E, H, I, N,

S, Y, Z

(17) A, C, D, E, G, H, I, J, K,

M, N, O, P, S, X, Y, Z

(17) A, C, D, E, G, H, I, J, K,

M, N, O, P, S, X, Y, Z Global (1)

Q (1) Q

Total 11 22 21 Note: As of March 2007. The letters identify the project in table 1 and in the project profiles. Some countries may not be included because of lack of information. Table 9. Number of PES projects by implementing agency

Region UNDP UNEP World Bank World Bank/UNDP

IFAD

Africa (1) R

(2) B, L,

(1) F

LAC (2) G, K,

(1) I

(13) A, C, D, E, H, J, M,

N, O, P, S, Y, Z

(1) X

Global (1) Q

Total 4 1 15 1 1 Note: As of March 2007. The letters identify the project in table 1 and in the project profiles

30

Table 10. Who pays for the ecosystem services? Region Government Large water

users / other local service users

Carbon sequestration buyers

The GEF project

Other, many are mentioned, few are clearly identified

Africa (4) B, F, L, R

(4) B, F, L, R,

(4) B, F, L, R

LAC (17) A(+), C, D, E, G, H, I, J, K, M (+), N, O, P, S, X, Y,

Z

(10) A(-), D, G, H, K, M(+) O, P,

X,

(7) A(-), D, M, G, H, O, X,

(17) A(-), C, D, E, G, H, I, J, K, M (-), N, O, P,

S, X, Y, Z

(14) C, D, E, G, H, I, J, K, N, P, S,, X,

Y, Z

Global Total 21 10 7 21 18 Note: As of March 2007. The letters identify the project in table 1, and in the project profiles Table 11. Who would receive the payments? Region Farmers Forest

Owners Ranchers Rural

communities Protected Areas’ agencies

Africa (4) B, F, L, R

(4) B, F, L, R

(4) B, F, L, R

(4) B, F, L, R

(2) B, F

LAC (12) A, E, G, H, I, J, K, M, O, X, Y, Z?

(7) A, E, G, H, M, O, Y

(7) A, D, E, G, H, O, Y

(6) A, M, N P, S, Z?

(5) C, J, N, P, S,

Global Total 16 11 11 10 7 Note: As of March 2007. The letters identify the project in table A-1 s and in the project profiles Table 12. Payments to do what? Region Protect

natural forests

Re-forestation

Silvo pastoral land mngt

Agro forestry land management

Sustainable Agriculture land mngt

Protected Areas mngt

Buffer zones mngt.

Africa (1) R

(1) R

(1) R

(2) L, R

(2) L, R

(2) B, F

(2) B, F

LAC (7) A, G, H, J, K, M, O

(7) A, G, H, K, M, O, Y

(1) D

(7) A, G, H, I, K, O, X

(9) G, H, I, J, K. P, X, Y, Z

(6) C, E, J, N, P, S,

(8) A, C, E, J, N, O, P, S

Global Total 8 8 2 9 11 8 10 Note: As of March 2007. The letters identify the project in table 1 and in the project profiles

31

Table 13. To deliver which ecosystem services? Region Increased

Natural forests

Carbon sequestration

Increased Biodiversity

Watershed/Aquifers quality / quantity

Improved landscapes for ecotourism

Other

Africa (4) B, F, L, R

(4) B, F, L, R

(4) B, F, L, R

(4) B, F, L, R

(2) B, F

(2) F, R

LAC (17) A, C, E, D, G, H, I, J, K, M, N, O, P, S, X, Y, Z,

(17) A, C, E, D, G, H, I, J, K, M, N, O, P, S, X, Y, Z,

(17) A, C, E, D, G, H, I, J, K, M, N, O, P, S, X, Y, Z,

(17) A, C, E, D, G, H, I, J, K, M, N, O, P, S, X, Y, Z,

(8) A, C, E, J, N, O, P, S

(1) Y

Global Total 21 21 21 21 10 3 Note: As of March 2007. The letters identify the project in table 1 and in the project profiles

Table 14. PES projects around the world (from a sample of 287 PES projects by Landell-Mills and Porras) Sector Total

No. Asia/

Pacific Africa

LAC NA Europe International

Businesses and

Agencies

Major Market for

the ES

Major Buyers

Biodiversity 72 (25%)

19 7 27 1 4 14 International. (73%)

1.NGOs 2.Private 3. Donors 4. Gov.

Carbon Seq. 75 (26%)

13 5 24 9 14 10 International (80%)

1. Private 2.Gov 3. NGOs

Landscape 51 (18%)

16 7 23 2 3 International (74%)

1. Private

Watershed 61 (21%)

17 5 18 20 1 In the basin (68%).

1. Private 2. Gov.

Bundled 28 (10%)

6 11 5 2 4

Total 287 (100%)

71 (25%)

24 (8%)

103 (36%)

37 (13%)

21 (7%)

31 (11%)

International (59%)

1. Private 2.NGOs 3. Gov

Figures are number of projects / Only the values in the shaded cells add to 287 (100%). Source: Landell-Mills and Porras, 2002

32

Section II - Project Profiles

The project information on the following profiles has been collated from the GEF Project Database (accessible at www.thegef.org ) and from project documents made available by staff from GEF, FAO, the World Bank, UNDP and UNEP. Each project profile provides information, as of March 2007, on GEF project ID number and project title GEF focal area Year when project began and is scheduled to end Project status as of March 2007 (canceled/ completed / active / pipeline) GEF grant amount: Other funding sources Total project budget Implementing agency: Local executing agency Project description Role of PES GEF’s role Financial mechanism(s): Who are buyers/sellers/users of the ecosystem services in question? Monitoring and evaluation (if available) Lessons learned (if available) References LATIN AMERICA (A) GEF ID 671, Costa Rica, Ecomarkets Focal Area: Biodiversity Began 2001 Ended 2005 Project Status as of March 2007: Completed GEF Funding Amount: 8.330 US$m Other funding sources: WORLD BANK 20 US$m / Govt Costa Rica 31.9$USm; significant co-financing from bilateral donors, including Germany KfW, Norway NORAD, and the Government of Japan. Total project budget: 60.230 US$m Implementing Agency: World Bank Local executing Agency: National Forestry Financing Fund (FONAFIFO) Project description

33

The overall project objective was to increase forest conservation in Costa Rica through a system of, mostly government, payments for their supply of environmental services provided by privately owned forests. Payments where made to forest owners; for the provision of environmental services relating to forest conservation, carbon sequestration and reduction of carbon emissions, biodiversity conservation, scenic beauty and hydrological services. Priority areas were buffer zones, interconnecting biological corridors contiguous to national parks and biological reserves. The program has always been a Costa Rica initiative. It was in place since 1997 and will continue after the end of this project. Its main source of funds is a 3.5% tax on fuels. Since its inception in 1997, the PSA program has been applied to a total of nearly 500,000 hectares (ha) of privately owned forests. Of this amount, the Ecomarkets Project (2001-2005) represents a cumulative total of about 212,000 ha, involving payments to nearly 2,400 landowners Role of PES This is a full PES project. GEF’s role GEF moneys were mostly allocated to (a) payments to landowners (paying for the global biodiversity values) (b) design and implementation of revenue capture mechanisms established in the new Environmental Services Law; (c) Strengthen local and regional NGOs (especially women’s organizations) and private sector associations in priority areas of the Mesoamerican Biological Corridor; (c) refining the system of financial controls and disbursements within FONAFIFO; (d) technical training for personnel within FONAFIFO and the National System of Protected Areas (SINAC); (e) field supervision of the program; and (f) field-based monitoring of compliance with existing environmental legislation relating to conservation of forest ecosystems. Financial Mechanism(s): As stated before, the principal source of funds for the PSA program has come from Costa Rica’s fuel tax, GEF, and several donors. Some money is also collected from a few large water users, and is directed to pay for forest based watershed protection. This latter source may increase in the future with the Cost Rican Government passing a law that will earmark part of the water bills for watershed protection. Additionally, the Costa Rican government has signed a few carbon sequestration contracts with foreign buyers, and this line of funding is also expected to grow in the future. On the other hand, initial expectations of rising significant funds through bio-prospecting contracts with international pharmaceutical companies didn’t materialize. The moneys are used to pay private landowners for (a) forest protection; (b) reforestation; (c) forest management (suspended in 2003) and (d) agro forestry (began in 2003). Payments are made annually and contracts are for 20 years on renewable 5-years sections. Payments go from 40-45 dollars ha/year for forest protection to three times that for reforestation Who are buyers/sellers/users? The main buyer is the Costa Rican Government through the program agency FONAFIFO. Smaller buyers include water users, international buyers of carbon sequestration, The GEF through this and a follow up project, and other international donors. Sellers are rural landowners. Users are local in the case of water protection and national and international in the case of biodiversity protection and carbon sequestration. M&E reports

34

The project has been extensively monitored and evaluated, and over a dozen publications are available, including World Bank evaluations, independent evaluations commissioned by the donors, PhD theses, academic papers and more (see References). Most reviews give the project high marks in terms of achievement of goals and also in terms of capacity to reorient the PES schemes to be more inclusive of poor farmers, indigenous people and women. Some discussions linger regarding the actual size of environmental and social benefits, possible slipovers (paying more or less than needed to achieve the desired conservation goals) and the long term sustainability of the program, but most of the reviews are optimistic. According to the World Bank-GEF evaluation, the Ecomarkets Project’s main achievement was not merely to provide additional financial resources for expanding the pre-existing Costa Rican PSA program, but to re-focus the entire PSA program on global and regional biodiversity conservation priorities, as well as on national social goals. The Ecomarkets Project’s other main achievement was to greatly strengthen FONAFIFO’s institutional and technical capacity. Again, according to the World Bank -GEF evaluation, the main lessons learned included: Lesson 1 – Significant amounts of international donor funding can serve as an essential (although not, by itself, sufficient) catalyst for inducing important institutional changes leading to more effective and efficient biodiversity conservation programs. Lesson 2 – Efforts to induce the private sector to enter into voluntary agreements to pay for environmental services may be a useful way of strengthening the private sector’s awareness and understanding of the system of payments for ecosystem services, but are unlikely to generate significant amounts of funding to support a national-level PSA program. Lesson 3 – The Ecomarkets Project’s focus on creating new markets for ecosystem services, as well as the Project’s substantial budget, appear to have facilitated a change in the mindset of key national stakeholders, including officials of the Ministry of Finance and private sector businesses. Lesson 4 – Evaluating the effectiveness of conservation programs is difficult when such programs are not designed to be tested and measured against a clear baseline or “control” case. References • GEF projects database. • World Bank projects database • Chomitz, K., Brenes, E., and Constantino, L. 1998. Financing Environmental Services: The Costa

Rican Experience and its Implications. • Hartshorn, G., Ferraro, P., and Spergel, B., Sills, E. 2005. Evaluation of the World Bank – GEF

Ecomarkets Project in Costa Rica. • Lee, D., and Zbinden, S. 2005. Paying for Environmental Services: An Analysis of Participation in

Costa Rica’s PSA Program. World Development. Vol. 33, No. 2. pp. 255-272. • Man de, M. 2004. Local Impacts of Effectiveness of Payments for Environmental Services in Costa

Rica: The Case of Payments for Forest Hydrological Services in Costa Rica’s Aranjuez Watershed. Universiteit Utrecht.

• Pagiola, S., Arcenas, A., and Platais, G. 2005. Can Payments for Environmental Services Help Reduce Poverty? An Exploration of the Issues and the Evidence to Date from Latin America. World Development Vol. 33, No. 2. pp. 237-253.

• Sierra, R. and Russman, E. On the Efficiency of Environmental Service Payments: A Forest Conservation Assessment in the Osa Peninsula, Costa Rica. Ecological Economics Vol. 59, pp. 131-141.

35

AFRICA (B) GEF ID 762 Regional, South Africa/Lesotho, Maloti-Drakensberg Conservation and Development Project Focal Area: Biodiversity Began ? Ends ? (a 5 year project) Project Status as of March 2007: Active GEF Funding Amount: 15.548 US$m Other funding sources: 17.700 US$m Total project budget: 33.9 US$m Implementing Agency: World Bank Local executing Agency: Ministry of Environment, Gender and Youth Affairs Project description Establish and effectively manage a transfrontier conservation area including Sehlabathebe National Park in Lesotho and the Natal Drakensberg National Park in South Africa. The project takes a regional approach to conservation and development, and serves to harness the potential of a trans frontier ecosystem. While the ecosystem shows similarities on both sides of the border, there are considerable legal, social, institutional and economic differences between the two countries. The secondary objective of the project is to contribute to community development through income generation from nature-based tourism, by capacity building for sustainable utilization of the natural and cultural heritage of the project area. In both countries, the project will provide new resources for trans frontier collaboration, project management and coordination. Major goals are to support for the establishment of viable conservation management institutions at local level to ensure community involvement, and planning and community-level training for nature-based tourism development. The main issues in Lesotho are (i) grazing pressure on rangelands containing globally significant biodiversity, (ii) lack of a protected areas system, (iii) lack of conservation management capacity, and (iv) poor utilization of the potential for nature-based tourism. In South Africa, tourism (both national and international) is well developed, much of it focused on national parks, but nature conservation has traditionally been the domain of a relatively privileged elite. This has left a legacy of distrust between local communities and conservation agencies, which are now in the process of being addressed. Regarding the ecosystem services provided by the project international and national visitors to the conserved areas will enjoy recreational and aesthetic use values, while non-users will derive option and existence value from their conservation. Role of PES: The role of PES in this project is not well defined in the project documents and appears as a minor component in the project. PES may arise from tourism operators paying local communities for the rights to use community lands and/or for conservation of the area. PES may be also apart the income generated by community businesses related to nature-based tourism. GEF’s role: The GEF grant will support all project major components. The project will provide training and opportunities for community entrepreneurs to become involved in developing small businesses related to biodiversity conservation such as ecotourism facilities and services, eradication of alien species etc., and methods of involving communities as direct shareholders in new tourism developments will be

36

investigated and applied. The conservation of globally significant biodiversity will benefit everyone concerned with the preservation of the natural heritage, in line with GEF objectives Financial Mechanisms In addition to the ecotourism developments envisaged in the project , a community trust and levy has been established, where all visitors making use of the protected areas in KZN contribute. During the past year approximately $0.6 million has been raised, and the issue now is to ensure the equitable allocation of these funds. The local board structure is an essential component of this. The project will strengthen these efforts in KwaZulu-Natal, Eastern Cape and the Free State, and promote community initiatives to find suitable ways of utilizing natural resources, while alleviating chronic unemployment problems. Who are buyers/sellers/users? Buyers: National and international tourists visiting the area, the national and international community through the financing of this project and future investment in the area. Sellers: Nature-based tourism development will benefit those directly employed in this diverse service industry as guides, hotel and restaurant employees, drivers, tourism agents, makers and vendors of crafts and so on. M&E reports: None available as of March 2007 References GEF projects database World Bank projects database LATIN AMERICA (C) GEF ID 945 Ecuador National Protected Areas System Focal Area: Biodiversity Began 2001 Ends 2006? Project status as of march 2007: active(?) GEF Funding Amount: 8US$m Co-financing: Interamerican Development Bank 5 US$m; Netherlands 2.3 US$m; Germany 8.3 US$m; TNC 3.2 US$m; local NGOs 2.5 US$m; Republic of Ecuador 4.9$USm ; Fondo Ambiental Nacional 2.5 US$m Total Project Budget: 36.7 US$m Implementing agency: World Bank Local Executing Agency: Ministry of Environment and National Environmental Fund Project description The proposed 4-year project, is the first phase of the National Protected Areas Plan and will specifically: (a) strengthen the legal and regulatory framework for the co-management of protected areas; (b) design and implement management plans for two priority protected areas (Machallila and Cotacachi-Cayapas), pilot concessions for services and develop participatory planning/management models in these areas; (c) consolidate a Protected Areas Trust Fund to cover the recurrent costs of up to nine priority protected areas; and d) consolidate the monitoring and information system for the NSPA. Two main goals are for the NSPA to be able to effectively protect ecosystems of global importance for biodiversity

37

conservation contained in the two selected protected areas, through the effective implementation of management plans and ensuring that local communities within and around the selected Protected Areas are actively involved and committed to PAs conservation. The existing legal framework does not recognize the existence of private property inside parks and reserves, however it recognizes the ancestral rights of Indigenous and Afro-Ecuadorian communities. Role of PES Not clear. The project mentions developing PES around protected areas (see below) but no details are provided in the project documents. GEF’s role The GEF grant will support all project’s major components Financial Mechanism(s): The project will develop a long-term strategy to achieve economic and financial sustainability of the PAs, focusing on mechanisms to value and charge for environmental goods and services, as well as regulations for concessions of visitors’ centers, services and management activities, and mechanisms to promote reinvestment in the NSPA. The private sector – enterprises and businesses especially of the tourism sector - that operate or seek to operate within the PAs , will become key partners in developing the concessions for services initiatives Who are buyers/sellers/users: N/A M&E reports: None available as of March 2007 References GEF projects database World Bank projects database LATIN AMERICA (D) GEF ID 947 Regional, Colombia, Costa Rica, Nicaragua , Integrated Silvo-Pastoral Approaches to Ecosystem Management Focal Area: Multi-focal areas Began: 2002 Ends: 2008 Project status as of march 2007: active GEF Funding Amount: 4.77$USm Other funding sources: 3.9$USm Co-financer/partner: LEAD-FAO Total Funding: 8.45 $USm Implementing agency: World Bank Local executing agency: CATIE Project Description The objective of this highly innovative pilot project is to improve ecosystem functioning of degraded pasture lands in Colombia, Costa Rica and Nicaragua, through the development of more intensive

38

silvopastoral systems that provide global environmental services and local socio economic benefits. The project aims to demonstrate and measure, at farm and community level, the benefits of an integrated ecosystems approach to the improvement of degraded pasture lands in terms of: (a) local environmental benefits through reduction in erosion and improvement in soil and water quality with increased production, income and employment in rural areas; (b) global environmental benefits, through improved biodiversity and carbon sequestration services: (c) initial experiences in the management of incentives required to produce global environmental benefits; and (d) the development of comprehensive guidelines for sector and environmental policies in terms of land use, environmental services and socio-economic development provided by the introduction of silvopastoral systems to rehabilitate degraded pastures. This is the first project in the GEF/World Bank portfolio that emphasizes rehabilitation of degraded ecosystems and use of silvopastoral activities, and that focuses on multiple ecological services. Main environmental benefits include: carbon sequestration, biodiversity conservation, water infiltration/watershed management, soil retention, soil productivity, economizing fossil fuels, reduction of emissions. Participants are mostly livestock producers, food crop producers; payments intended to reach ~ 300 small and medium size livestock farms Role of PES This is a full PES project. GEF’s Role: GEF funds will support all project components, including capacity building and partially paying for ecosystem services, as they comprise the conservation of global biodiversity values. GEF resources are critical for supporting the global incremental costs and for providing a platform for strengthening regional coordination in the monitoring of the environmental services provided by silvopastoral systems. Financial Mechanism(s): Each participating farmer in the selected watersheds would enter into a service-type contract with the relevant institution in its country to adopt silvopastoral land uses ad will receive a payment per hectare per year for four years. Payments will take into account a variety of land use changes. In Costa Rica, annual payments would be channeled through FONAFIFO, the National Forestry Financing Fund, which is already paying the environmental services for the Ecomarkets Project, and has a very good track record. In Nicaragua and Colombia, Nitlapan-UCA and CIPAV would pay directly for the eco-services.

Who are buyers/sellers/users Buyers of ES: The project funders, that is to say the country governments and the GEF through this project Sellers of ES: small and medium size landowners (with 10-80 ha farms). M&E reports This project is closely monitored, Some of the findings in recent annual reports, include: Participants made substantial land use changes during the Project’s first two years, affecting over 24% of total area. Changes ranged from minor changes such as sowing improved grasses in degraded pastures to very substantial changes such as planting high-density tree stands or establishing fodder banks. The area of degraded pasture was reduced by 68%, and that of annual crops by 52%. Pastures with low tree density experienced a net increase of 19%, and pastures with high tree density of 23%. The area devoted to fodder banks more than doubled, and the length of live fences increased by 160%. Moreover, these net figures understate the changes. Some existing pastures with low tree densities were upgraded to higher tree densities, for example. More traditional silvocultural practices such as timber plantations or fruit orchards found little favor, with farmers preferring to plant timber and fruit trees in pastures and along fence lines. Land use changes were more extensive in the first year: 467ha of degraded pasture were converted to other uses, compared to 121ha in the second year. Because the project only pays for four years,

39

participants have an incentive to undertake land use changes as early as possible. The second year did see a greater expansion of the more complex land uses. For example over half the net increase in the area of pastures with high tree density occurred in the second year. References • GEF projects database • World Bank projects database • Ibrahim, M. et al. August 2006. Enfoques Silvopastoriles Integrados para el Manejo de Ecosistemas;

Informe de Avance Annual No. 4, Agosto 2005 – Agosto 2006 (Progress Report on the Integrated Silvopastoral Project).

• Pagiola, S. et al. May 2004. Paying for Biodiversity Conservation Services in Agricultural Landscapes. The World Bank Environmental Economics Series, Paper No. 96.

___________________________________________________________________ LATIN AMERICA (E) GEF ID 1794 Bolivia, Removing Obstacles to Direct Private-Sector Participation in In-situ Biodiversity Focal Area: Biodiversity Began 2002? Ends 2006 ? (A 3 years project) Project Status as of March 2007: active GEF Funding Amount: 0.705 $USm Other funding sources: 0.428 $USm Total project budget: 1.2 US$m Implementing Agency: World Bank Local executing Agency: PROMETA Project description The objective of this project is to facilitate the development of private conservation initiatives in Bolivia that could contribute to globally-significant biodiversity conservation in high-priority eco-regions. This will be done through strengthening the regulatory and incentives framework, testing innovative conservation initiatives in four pilot sites, strengthening the technical capacity of private landowners, and disseminating the lessons learned throughout Bolivia and Latin America. Analyze and develop incentives, such as: user fees, payment structures for environmental services, direct payment for impact mitigation activities, access to donations, and market access for managed biodiversity products. Role of PES: PES is a minor component, and will be one among several “innovative financial mechanism” to be tested in pilot cases. GEF’s Role The GEF grant will support all project major components Financial Mechanisms: There are not specified in the project document that only state “, testing innovative conservation initiatives”

40

Who are buyers/sellers/users N/A M&E None available as of March 2007 References GEF projects database World Bank projects database World Bank, 2000. Bolivia: Sustainability of the National System of Protected Areas. Project Appraisal Document AFRICA (F) GEF ID 1516 South Africa, C.A.P.E. Biodiversity Conservation and Sustainable Development Focal Area: Biodiversity Began 2004 Ends 2010(?) (6 years) Project Status as of March 2007: active GEF Funding Amount: 11.32 $USm Other funding sources: World Bank 9US$m, UNDP 2$USm, govts 26.930$USm, Private Sector 17.2$USm Total project budget: 55.7 US$m Implementing Agency: World Bank / UNDP Local executing Agency: National Botanic Institute Project Description The Government of South Africa (GoSA) has developed an innovative program to protect the rich biological heritage of the Cape Floristic Region (CFR). The overall goal of this Program, entitled Cape Action for People and the Environment (C.A.P.E. Program) is that the natural environment of the Cape Floristic Region and adjacent marine environment will be effectively conserved, restored wherever appropriate and will deliver significant benefits to the people in a way that is embraced by local communities, endorsed by government and recognized internationally. Role of PES PES is mentioned in the project as one of several possible financial strategies GEF’s role GEF will provide both financing and capacity-building at the institutional and systemic levels, education and advocacy among decision makers and stakeholders at all levels, development of public-private-community partnerships for conservation Financial Mechanism(s)

41

WB is charged with undertaking studies to “establish the foundations of the biodiversity economy”; GEF is looking into Public-Private-Community Partnerships for conservation. three new financial mechanisms will be looked at to conserve the Cape Floristic Region, PES, tax rebates and transfer of development rights. Subject to the realization of a number of key performance indicators and triggers in Phase 1, the GoSA will prepare an application for further GEF support for Phase 2 of C.A.P.E. (there is however, no GEF commitment to this as yet), with the clear understanding that Phase 3 would be domestically financed, through investments from the public and private sectors and payments for environmental services (PES). Who are buyers/sellers/users N/A M&E reports None available as of March 2007 References GEF projects database World Bank projects database LATIN AMERICA (G) GEF ID 2512 Dominican Republic Demonstrating Sustainable Land Management in the Upper Sabana Yegua Watershed System Focal Area: Land Degradation Began 2005(?) Ends ? Project Status as of March 2007: Active GEF Funding Amount: 4.4 US$m Other funding sources: Kellogg Foundation .920US$m; Sur Futuro 3.4US$m; Government of Dominican Republic 21.2 US$m Total project budget: 29.9 US$m Implementing Agency: UNDP Local executing Agency: Fundación Sur Futuro (NGO) Project description The project will address the linkages between land degradation and poverty by promoting the protection of the natural capital on which local livelihoods depend, empowering communities and municipalities to respond to the multi-dimensional aspects of poverty, and promoting financial instruments which contribute directly to the generation of income and employment and the provision of basic services, thereby directly compensating investments in SLM and serving to reduce the impacts of poverty as a root cause of land degradation. Secondary benefits will be the reduction of GHG emissions through carbon sequestration, and protection of biodiversity through habitat restoration. Among the key strategies, the project plans to use a public-private partnership as a conduit between the Dominican government and the local level stakeholders. The project is expected to enhance sustainable land management directly on at least 9,000 ha of land during its life, with a total indirect effect on the management of the entire area for a total of 166,000 ha after the full implementation of a 15 years Master Plan

42

Role of PES PES is one important component to this project, (see below, financial mechanisms). GEF’s Role: GEF support will go to i) capacity building at the national and local levels in creation of political and financial mechanisms to support SLM, and in the implementation of sustainable land use and sustainable agriculture, grazing, and forestry practices, ii) on-the-ground investments in sustainable agriculture, grazing, and forestry models, and iii) investments in project management systems and inter-agency coordination mechanisms and capacities to implement SLM. Financial Mechanism(s) The project will facilitate sustainable land management in the Upper Sabana Yegua through the creation of policies, practices, and incentives for financially and environmentally sound activities in harmony with the recommended land use and bio-climatic conditions of the ecosystem. A key component of the project is the creation of environmental service markets that would provide financial incentives to hillside farmers and other land holders for adopting sustainable agricultural and other productive practices that would produce positive environmental externalities (GOES, 2004). The project would create a framework for the application of PES approaches on a decentralized basis, responding to local needs and conditions in particular watersheds. This PES scheme would be piloted in priority areas in at least two watersheds that provide and enhance hydrological services to downstream users and contribute to biodiversity conservation. Who are buyers/sellers/users: Buyers are not clearly identified in the project documents, Sellers would include hillside farmers and other landholders adopting sustainable agricultural practices. M&E: None available as of March 2007 References GEF projects database LATIN AMERICA (H) GEF ID 1186 El Salvador Environmental Services project Focal Area: Biodiversity Began Dec 2006 (?) Ends Jan 2012 (?) Project Status as of March 2007: Canceled GEF Funding Amount: 5.35USm Other funding sources: 9.50USm Total project budget: 14.85 US$m Implementing Agency: World Bank Local Executing Agency: MARN (Ministerio de Medio Ambiente y Recursos Naturales) Project Description The proposed project for El Salvador was to reduce land degradation, conserving forested areas, reverting marginal agricultural areas to forest, and encouraging more sustainable land use in agriculture. It included

43

creating PES mechanisms to provide incentives to hillside farmers and other landholders in at least two pilot areas. It would have also create a framework for application of PES approaches that could be applied to other areas on a decentralized basis, responding to local needs and conditions in particular watersheds. Role of PES This was a full PES project. GEF’s Role GEF funds were to be used to (i) pay the upfront costs of establishing PES systems, as this will help create a sustainable mechanism to generate environmental services, including globally important environmental services; and (ii) contribute to actual payments when that is desirable (the global benefits justify such intervention) In general, use of GEF resources was to complement those made by local service users, who will ultimately carry the burden of the payments over the long term. In those cases where local service payments are insufficient to induce the desired land use change, but biodiversity benefits would be substantial, the project will seek to develop sustainable long-term financing arrangements (e.g. using endowment funds). Financial Mechanisms

Followed to a large extent the Costa Rica PES model. Who are buyers/sellers/users Buyers: the government, local water users, carbon offset buyers, GEF, tourism Suppliers of ES - small farmers, most of them poor, M&E This project was canceled References GEF projects database World Bank projects database LATIN AMERICA (I) GEF ID 1918 Regional, Colombia, Ecuador, Peru and Venezuela - Conservation of the Biodiversity of the Paramo in the Northern and Central Andes Focal Area: Biodiversity Began 2005 Ends 2011 Project Status as of March 2007: active? GEF Funding Amount: 8.859 US$m Other funding sources: 10.532 US$m Total project budget: 37.244 US$m

44

Implementing Agency: UNEP Local executing Agency: National - Instituto de Ciencias Ambientales y Ecologicas, University of Los Andes (ICAE-ULA)-Venezuela Regional - Consortium for the Sustainable Development of the Andean Ecoregion (CONDESAN)-Lead executing agency International - Univ. of Amsterdam Project Description The Proyecto Paramo Andino will assist the participating countries (Colombia, Ecuador, Peru and Venezuela) to overcome the major barriers for conserving the biodiversity and safeguarding the hydrological and other environmental services and functions of the Andean Paramo. The project objective is to support the conservation and sustainable use of the biodiversity of the Paramo ecosystem. Specifically, the project will (i) implement examples of good practice in Paramo management at nine critical Paramo sites, (ii) support different governmental and non governmental levels to adopt key policies for Paramo conservation, (iii) increase the technical capacity of Paramo inhabitants and field practitioners to manage Paramo, (iv) increase awareness and information about Paramo among decision makers and the population in general, and (v) replicate best lessons of the project. Role of PES PES is not a central to the project design PES are mentioned as one option to reward early-adopters of conservation practices, and as a long term option to be further explored GEF’s Role The GEF grant will support all project major components Financial Mechanism(s) The first group of farmers to adopt alternative practices will receive direct financial support from the project (budget for activity 1.4). In parallel, the project will work with authorities and NGOs to put in place sustainable financial vehicles for the second and subsequent groups of farmers to enter the project (budget for activity 2.2). In the short term, these can include micro-credit facilities run by NGOs. In the medium and long-term, these can be complemented with other financial vehicles like conservation payments, which can take longer to establish. Who are buyers/sellers/users Buyers: mostly public agencies. Sellers: farmers that adopt alternative conservation practices M&E Reports None available as of March 2007 References GEF projects database LATIN AMERICA (J) GEF ID 2102 Panama, Second Rural Poverty, Natural Resources Management and Consolidation of the Mesoamerican Biological Corridor Project Focal Area: Biodiversity Began 2005? Ends 2010? (5 year project)

45

Project Status as of March 2007: Active? GEF Funding Amount: 6.27 US$m Other funding sources: 44 US$m Total project budget: 50.27 US$m Implementing Agency: World Bank Local Executing Agency: Autoridad Nacional del Ambiente (ANAM) Project Description The global objective of this project is to support the Government of Panama to integrate environmental and social sustainability into development and poverty reduction strategies in the Pacific and Atlantic municipalities. It will do so through the following objectives: (a) enable decentralization of environmental management by strengthening local governments; (b) strengthen and train local government authorities in environmental management; and (c) support poor communities to adopt biodiversity friendly income generating activities.

The project plans to develop pilot schemes of payment for environmental services (PES) and explore opportunities for self-financing by ANAM to maintain and sustain Protected Areas. Among key outputs are included a PES program for improved land use piloted in two project sites and a replication strategy is developed. The project would concentrate interventions in 28 districts and two indigenous comarc. By the end of the project, the project should result in the following: 60% of districts in the project area have incorporated biodiversity aspects into sector policies and plans and adapted appropriate regulations and implement plans accordingly; at least 50,000 ha of forests and other natural ecosystems of global biodiversity significance in the buffer zones of Protected Areas and biological corridors connecting them in the MBC-P under effective conservation; local and national institutional capacity is improved. Role of PES PES is a minor component, although the project does have a specific plan in regards to piloting two PES projects in different sites. The project is exploring several options for sustainable conservation financing and PES is one among these options. GEF Role GEF’s funds will contribute to capacity building of ANAM, coordinating indigenous and community conservation initiatives, bolster the revenue base of ANAM for managing the SINAP by exploring options for payment for environmental services (PES), as well as alternative funding mechanisms (e.g., carbon funds, service concessions, eco-tourism). Financial Mechanism(s) The project would support the development for environmental services markets whereby farmers would be contracted for adopting land use practices that generate valuable ecosystem services. Contracting of environmental services will be piloted at priority areas in two critical watersheds in Panama that provide and enhance these services to off-site consumers as well as generate environmental benefits at local, national and global levels. These services may include changes in land use practices (e.g., agro-forestry, forest management, conservation, re-forestation, aforestation), sustainable agricultural production systems that increase water quality and base flows, improve regulation of groundwater and surface flow, and maintain or enhance biological diversity. Who are buyers/sellers/users of the ecosystem services in question Sellers – farmers Buyers – Government, offsite consumers, beneficiaries at local/national/global levels( GEF)

46

M&E reports None available as of March 2007 References GEF projects database World Bank projects database ______________________________________________________________________________ LATIN AMERICA (K) GEF ID 2120 Venezuela, Biodiversity Conservation in the Productive Landscape of the Venezuelan Andes Focal Area: Biodiversity Began 2006 Ends 2011? (7 year project) Project Status as of March 2007: Active GEF Funding Amount: 7.7 US$m Other funding sources: 29.6 US$m Total project budget: 37.3 US$m Implementing Agency: UNDP Local executing Agency: Ministry for the Popular Economy (MINEP) CIARA Foundation Project description This 7 year project, to be executed by the CIARA Foundation of Venezuela’s Ministry of Popular Economy (MINEP), will address a variety of key barriers impeding the effective mainstreaming of biodiversity into main coffee producing mounting areas . this will be achieved through: i) increasing capacities among producers to apply biodiversity-friendly practices; ii) enabling policy, planning and regulatory frameworks and iii) replication processes from pilot areas. Role of PES PES plays an important role in this project. According to the project design PES will be central to make biodiversity-friendly farmer’s systems financially viable. GEF’s Role Capacity building, community organization, credit for micro-businesses, support for environmentally sound forms of natural resource management, biodiversity conservation, reduction of the growth of the agricultural frontier through poverty alleviation, land titling, and establishing locally-managed development initiatives. Financial Mechanism(s) It is envisaged that compensation for the provision of environmental services will be made by downstream consumers of water, including large scale commercial agricultural producers, water consumers and State-run water enterprises. The mechanisms for such compensation will be defined during the implementation of the project, and will be harmonized with other Government initiatives related to this theme. Payment options include: direct payments to producers, the finance of micro-enterprises in which the producers participate, and/or financial contribution to municipal offices through the establishment of environmental service compensation funds.

47

Who are buyers/sellers/users Buyers – Downstream consumers of water, including large-scale agriculture and state-run enterprises. Sellers – Shade-coffee producers M&E Reports None available as of March 2007 References GEF projects database AFRICA (L) GEF ID 2355 Kenya, Agricultural Productivity and Sustainable Land Management Focal Area: Land degradation Began 2006 Ends 2012? (6 year project) Project Status as of March 2007: active? GEF Funding Amount: 10.350 US$m Other funding sources: 72.800 US$m Total project budget: US$m Implementing Agency: The World Bank Local executing Agency: Kenya Agricultural Research Institute (KARI) and Ministry of Environment; National Resources & Wildlife; NEMA; Kenya Forestry Research Institute(KEFRI); Ministry of Agriculture; Ministry of Livestock Development Project description This project aims to enable agricultural producers and other natural resource users to adopt profitable and environmentally-sound land management practices and alternative livelihood strategies in the targeted operational areas. This will reduce and mitigate land degradation in the targeted operational areas and to contribute to maintenance of critical ecosystem functions and structures. Among several goals, this project aims to promote public-private sector marketing mechanisms for economic empowerment of the communities. The project will reduce and/or control land degradation through improved land management in five operational/catchments area covering (fully or partially) 16 districts, by supporting investments in SLM; enhancing local capacity for farmers, communities, extension agents, and other service providers to promote SLM based on participatory approaches; and mainstreaming SLM into the national land policy dialogue. Role of PES PES is a minor component. GEF’s Role

48

GEF support will promote the integrated watershed approach and contribute to the conservation of the structural and functional integrity of forest and wetland ecosystems in the operational areas mitigating threats to globally significant biodiversity and genetic resources, above and below-ground carbon sequestration and the health of international water systems (such as Lake Victoria). Financial Mechanism(s) The project will create a conservation trust fund. Initially, GEF, along with other donors, will provide financing. Eventually, the fund will be capitalized by sustainable market-based mechanisms, including PES and concessions for biodiversity friendly economic activities such as ecotourism. Who are buyers/sellers/users N/A M&E reports None available as of March 2007 References GEF projects database World Bank projects database LATIN AMERICA (M) GEF ID 2443 Mexico, Environmental Services Project Focal Area: Biodiversity Began 2006? Ends 2009? Project Status as of March 2007: active? GEF Funding Amount: 15.35 US$m Other funding sources: 166.79 US$m Total project budget: 182.142 US$m Implementing Agency: World Bank Local executing Agency: The National Forestry Commission (CONAFOR) Project Description The proposed project aims to address weaknesses in Mexico’s existing PES programs by seeking to (i) ensure the long-term sustainability of the PES program by developing new, sustainable long-term financing mechanisms based on payments from service users; (ii) increase the program’s efficiency and cost-effectiveness by focusing on the areas at greatest risk of deforestation and on areas with water quality or regulation problems; (iii) improve its contribution to poverty reduction; and (iv) increase its contribution to the conservation of globally important biodiversity by focusing it on critical ecosystems. The PES mechanisms will be piloted in eight priority areas that provide environmental benefits at the local, national, and global levels. These mechanisms will support land use practices such as forest conservation and management, reforestation, and sustainable agroforestry systems that improve water

49

quality, increase base flows during the dry season, help regulate groundwater and surface flows, and maintain or enhance biodiversity both on-site and by protecting critical ecosystems Role of PES This is a full PES project. GEF’s role GEF funds will support (a) capacity building of the institutions, government agencies and other stakeholders that would help secure biodiversity conservation; (b) Contributing to the capitalization of a Biodiversity Endowment Fund; (c) Paying for ecosystem services ob global biodiversity significance,. Financial Mechanism(s)

The resources generated by the full range of PES financing mechanisms and funding sources already in existence or developed under this project, including:

• Share of water tariffs from the Ley Federal de Derechos (LFD) that are directed to PES. • New financial resources from water users generated by mechanisms developed under Component 1A. • Tourism industry fees and contributions developed under Component 1B. • GEF and Biodiversity Conservation Endowment Fund resources. • Carbon sales. • World Bank resources to help finance the PSAH and CABSA programs, including both the national

programs and the matching fund for pilot areas. Who are buyers/sellers/users Buyers of ES:. Environmental services for water, biodiversity and carbon sequestration will be financed by government resources and out of the proceeds of the loan and grant in this project. While local actors can often be convinced to pay for national environmental services, global services are likely to require funding from the GEF, international NGOs, and the financial mechanisms created by the UN Framework Convention on Climate Change (UNFCCC) in the case of carbon sequestration. Sellers of ES: poor farmers organized in ejidos and/or indigenous communities M&E reports None available as of March 2007 References • GEF projects database • World Bank projects database • Alix-Garcia, J., de Janvry, A., Sadoulet, E., Torres J.M., Varela, J., and Ramos, M. 2005. An

Assessment of Mexico’s Payment for Environmental Services Program. • Alix-Garcia, J., de Janvry, A., Sadoulet, E. 2004. Payments for Environmental Services: To Whom,

for What, and How Much? • INE (Instituto Nacional de Ecologia), SEMERNAT. Programa de Pago por Servicios Ambientales

Hidrologicos de los Bosques. • Muñoz_Piña, C., Guevara, A., Torres, J.M., and Brana, J. 2005. Paying for the Hydrological

Services of Mexico’s Forests: Analysis, Negotiations and Results. Instituto Nacional de Ecologia.

50

LATIN AMERICA (N) ID 2551 Colombia, National Protected Areas Conservation Trust Fund Focal Area: Biodiversity Began 2006? Ends 2011? Project Status as of March 2007: active GEF Funding Amount: 15.350 US$m Other funding sources: 27.500 US$m Total project budget: 42.850 US$m Implementing Agency: World Bank Local executing Agency: Ministry of the Environment, Housing and Territorial Development National Natural Parks Authority (NPA) Project Description This project aims to support development of the National Protected Areas System by consolidating a Biodiversity and Protected Areas Trust Fund. The project also to enlarge stakeholder participation in the management of protected areas reaching out to previously marginalized Indigenous, Afro-Colombian and Peasant communities who inhabit buffer zones and conservation corridors surrounding National Natural Parks (NPs.) A principal project objective is to design management plans (MPs) with local communities inputs. The project also aims to develop innovative market-based incentives and projects that will improve local communities’ socio-economic conditions. Role of PES PES is a minor component and will be one source of financing for conservation. GEF’s role The GEF grant will support all project’s major components Financial Mechanism(s) The project will capitalize the endowment of FUNBAP, a private sector foundation with a private sector majority on its board, which will manage the endowment and other sinking funds. Additionally FUNBAP will seek other local financing sources from payments for environmental services (PES). The project is looking at the Regional and Integrated Silvopastoral Approaches to Ecosystem Management program to see examples of PES that the Colombian Trust Fund may use as an example. Who are buyers/sellers/users N/A M&E reports None available as of March 2007 References GEF projects database World Bank projects database

51

LATIN AMERICA (O) GEF ID 2884 Costa Rica, Mainstreaming Market-based Instruments for Environmental Management Focal Area: Biodiversity Began 2006? Ends 2012? Project Status as of March 2007: active? GEF Funding Amount: 10 $USm Other funding sources: 80.304 $USm (WORLD BANK 30 $USm, Govt of Costa Rica 47.6 $USm) together with financing from the sale of verified emission reductions under the Clean Development Mechanism and other sources (US$2.7 million). Total project budget: 90.304 $USm Implementing Agency: World Bank Local executing Agency: Ministry of Environment and Energy (MINAE), FONAFIFO Project description This project will (1) develop new sustainable financing mechanisms in support of Costa Rica’s ongoing Payment for Environmental Services (PSA) Program; through a water tariff, a Conservation Trust Fund, carbon sequestration, and voluntary markets for biodiversity conservation; (2) support the National Forestry Financing Fund in implementing an expanded PSA Program through institutional strengthening and payments to participating land users; and (3) support the National Forestry Financing Fund's efforts to remove barriers for medium- and small-holder participation in the PSA Program through technical assistance, capacity building, and secure land rights; and (4) this project also aims to improve the inclusion of small and low-income landholders into the project. The project also aims to provide for sustainable long-term financing of biodiversity conservation in the buffer zones of protected areas and biological corridors that connect them, including the Costa Rican portion of the Mesoamerican Biological Corridor (MBC), thus helping to ensure the sustainability of the national protected areas system. Role of PES This is a full PES project. GEF’s role GEF resource will be used primarily to capitalize the FBS (Trust Fund for Sustainable Biodiversity Conservation), as well as to fund activities that contribute to biodiversity conservation in buffer zones of protected areas and biological corridors that connect them. They will also be used for institutional and capacity development. Financial Mechanism(s) Mechanisms will include water tariff, carbon emission reduction sales, the capitalization and strengthening of the Biodiversity Trust Fund and the development of voluntary markets for biodiversity conservation.

52

Who are buyers/sellers/users Buyers: Currently the overwhelming buyer is Costa Rica government, plus the project funders, The project aims to increase the share of (a) local buyers, mostly for water related ecosystem services and for tourism related ecosystem services, (b) international buyers for carbon offsets; and (c) private buyers of biodiversity related ecosystem services. The Trust Fund for Sustainable Biodiversity Conservation (FBS) will act as a “financier of last resort” for those areas of biodiversity of global significance in buffer zones of protected areas and biological corridors that connect them. Sellers would be private landowners in the designated area, and the project include activities to increase the participation of poor farmers, indigenous communities and women M&E reports None available as of March 2007 References GEF projects database World Bank projects database LATIN AMERICA (P) GEF ID 2103 Venezuela, Expanding Partnerships for the National Parks System (Canaima) Focal Area: Biodiversity Began 2005 Ends 2011 (6 year project) Project Status as of March 2007: active? GEF Funding Amount: 6.350 US$m Other funding sources: 18.520 US$m Total project budget: 37.244 US$m Implementing Agency: World Bank Local executing Agency: National Park Institute (Instituto Nacional de Parques - INPARQUES) Project Description The objective of the project is to develop and implement a participatory, inter-institutional management model for Canaima National Park that will promote biodiversity conservation, provide both global and local environmental services, and ensure the full involvement of indigenous people and local communities. The model would also be replicated in the other protected areas in Venezuela. The project will support: (i) active community participation in CNP’s planning and management; (ii) a co-management decision-making and execution structure for project activity execution; (iii) sustainable production systems and other economic activities (eco-tourism) as a strategy to reverse inadequate land use, and (iv) participatory Management Plan implementation. A particular feature of Canaima NP is that it encompasses a large part of the watershed feeding the Guri dam reservoir and the active life of the Guri hydroelectric plant, depends one the conservation of the watershed Principal activities include: (i) establishing a participatory Co-Management Committee for CNP; (ii) designing a CNP Management Plan in coordination with the Pemon indigenous communities’ Life Plan; (iii) reaching stakeholder agreements to execute conservation and natural resource use actions in accordance with CNP’s Management Plan; (iv) capacity-building; (v) communication and dissemination strategy of the MP, promoting the acceptance and appropriation of this MP by the many actors in the

53

park, and (vi) design and execution of a Financial Sustainability Strategy for CNP, including an inter-institutional agreement to be signed between hydro power company (EDELCA) and the Co-Management Committee by program year five that confirms the transfer of resources in recognition of the environmental services provided by CNP. Role of PES Since 1992, Venezuelan hydroelectricity companies are ordained by law (Decree 2331) to transfer 1% of total hydraulic energy sales to the Ministry of the Environment for the conservation of key watersheds. Directing such payments form the large Guri hydroelectric plant towards PES in the Canaima national park, will be the financial backbone if this project. GEF’s role The GEF grant will support all project’s major components Financial Mechanism(s) Payments from hydro plant will be the major PES component of the project. Additionally the Project will support a comprehensive analysis of CNP’s financial situation and the design of other financing mechanisms, including: (i) tools to enhance CNP’s self-generated resources, such as ecotourism and a re-indexation of entry fees; (ii) a conservation trust fund (CTF), and (iii) agreements for compensation of CNP’s environmental services. The Project will seek an adjustment of visitor fees and the effective contribution of income from ecotourism to CNP’s financial situation. Who are buyers/sellers/users M&E reports: None available as of March 2007 References GEF projects database World Bank projects database GLOBAL (Q) GEF ID 2589 Global, Institutionalizing Payments for Ecosystem Services Focal Area: Biodiversity Began 2006 Ends 2010? (4 year project) Project Status as of March 2007: active ? GEF Funding Amount: 6.15 $USm Other funding sources: 12.02USSm Total project budget: 18.27 US$m Implementing Agency: UNDP Local executing Agency: Forest Trends Project description

54

This project is designed to promote world-wide capacity building on PES by supporting a host of training, communication , dissemination and deals brokering activities Role of PES This is a full PES project. GEF’s Role GEF grant will co-finance capacity building activities such as community forums, meetings, mobilization of private sector participation, case-studies, business models, market information services, and pursue new business opportunities in order to accomplish goals above. Financial Mechanism(s) This project is not intended to directly engage in specific PES but rather to facilitate their development Who are buyers/sellers/users This project is not intended to directly engage in specific PES but rather to facilitate their development . Regarding buyers the project focus is on mobilizing private buyers M&E None available as of March 2007 References GEF projects database AFRICA (R) GEF ID 2615 South Africa, National Grasslands Initiative Focal Area: Biodiversity Began 2005? Ends 2011? (6 year project) Project Status as of March 2007: Pipeline GEF Funding Amount: 8.35$USm Other funding sources: 38.0$USm Total project budget: 46.350 US$m

Implementing Agency: UNDP Local executing Agency: South Africa National Biodiversity Institute Project description The project will mainstream biodiversity in the production landscapes and relevant sectors by: (i) integrating biodiversity conservation principles into the agriculture, forestry, and urban development sectors through support to systemic and institutional capacity building in government agencies at the national, provincial and local levels and promotion of integrated planning and management systems across sectoral institutions; (ii) by increasing relevant knowledge and building partnerships between government agencies, the private sector, NGOs, and communities that secure biodiversity conservation; and (iii) by developing market based management instruments, that complement planning, regulatory and enforcement mechanisms

55

Role of PES PES could become a major component of this project, although at this point it is hard to tell. Studies scheduled for the initial part of the project will determine if there are willing/potential buyers and markets for ES or ES-related products. GEF’s role The GEF grant will support all project major components Financial Mechanism(s) Identification of biodiversity-based incentives will aim to address market failures that fail to capture the negative environmental costs associated with large-scale land conversion, water resource scarcity, and other ecological services provided by grasslands. The project proposes a series of studies ranging from assessing the markets for SA relevant certified products, to PES feasibility studies of selected catchments areas. Based on these studies, the project team together with the landholders and industry associations (Agri SA, Beef Producers of South Africa, Game Farmers Associations), will design and implement the following potential activities: (i) advancement of premium markets for environmentally friendly range fed livestock/game (in highveld grasslands), sugar (in coastal grasslands) and medicinal plants; and (ii) piloting hydrological service payment system to operationalise the stream-flow reduction permitting system in selected wetlands. Who are buyers/sellers/users N/A M&E reports None available as of March 2007 References GEF projects database LATIN AMERICA (S) GEF ID 2693 Peru, Strengthening Biodiversity Conservation through the National Protected Areas Program Focal Area: Biodiversity Began 2007 (?) Ends (2013?) (a five years project) Project Status as of March 2007: Pipeline GEF Funding Amount: 15 US$m Other funding sources: 15 US$m Total project budget: 30 US$m Implementing Agency: World Bank Local executing Agency: Institute of Natural Resources INRENA Project description The goal of the project is the consolidation of the protected areas system under a new decentralized framework. To achieve this goal, the project would: (1) support institutional development for

56

strengthening the capacity at the central, regional, and local levels to effectively manage the Peruvian System of Protected Areas (Pas) within the context of decentralization; (2) establish coordination mechanisms that integrate participator management by national, regional, and local authorities as well as key stakeholders; (3) promote and establish mutually beneficial relationships between regional authorities and local communities in PA management; and (4) promote the sustainability of the new Peruvian System of PAs. The project will include four main components: (a) Institutional development for sustainable biodiversity protection and usage through PAs by establishing and strengthening the new National Institute of Protected Areas (INANP); (b) Participative Management with an emphasis on sub-national and private protected areas by supporting 3 national PAs and 10 sub-national PAs: (c) Partnerships between communities and PAs through sustained economic activities (green business) and environmental awareness raising; (d) Support to the new Peruvian System of Protected Areas (SPANP), including a regional, local, and private level PAs by complementing the financing strategy of the Peruvian Trust Fund for National Parks and Protected Areas (PROFONANPE) created in 1991 through a GEF project. The PES related activities would make part of component (c) highlighted above, and are described in the project document, as follows: “Supporting activities for the involvement of private sector and local populations (in and surrounding national and regional PAs), aimed at the promotion of benefits from payment from environmental services, training, educational activities and an awareness-raising programs.” Additionally the project mentions that one objective is to boost the capital the Protected Areas Fund (PORFONANPE), through contributions of mining companies and other businesses. Role of PES PES plays a relatively minor role so far, but could grow in importance in the form of potential green business development and a vehicle for environmental awareness rising. The PES component is not described in-depth in the project document. GEF’s role GEF’s funds will contribute to all four project components Financial mechanism(s) Not specified in the project document M&E reports None available as of March 2007 References GEF projects database World Bank projects database LATIN AMERICA (X) GEF ID 2373 Brazil, Sustainable Land Management in the Semi-Arid Sertao Focal Area: Land degradation Began 2005 ? Ends 2010? (5 year project) Project Status as of March 2007: Active?

57

GEF Funding Amount: 6.243 US$m Other funding sources: 9.226 US$m Total project budget: 15.469 US$m Implementing Agency: IFAD Local executing Agency: Ministry of Agrarian Development Project description The goal of this project is -- on a pilot and demonstrative basis-- mitigate the causes of rural poverty and land degradation by adopting sustainable land management practices as a contribution to improve the livelihood and economic well-being of people affected by desertification in the semi-arid Sertão. The project aims to establish and operate an incentive mechanism for the environmental services provision related to sustainable land use practices, which would increase the ecological integrity and productivity of the Caatinga system, and to develop alternative sustainable funding options for selected services. The FISP Ecológico (environmental fund) will disburse financial incentives for the adoption of sustainable land use practices by the approximately 1,000 farmers that would participate in the 50 demonstration sites. Role of PES PES is a major component of this project. GEF’s role The GEF grant will be used for: capacity-building, training, development of biodiversity protection and other environmental-related micro-enterprises. GEF resources would also finance on-the-ground activities that prevent, stop or reverse land degradation, such as cropping, agroforestry and rangeland/pasture management systems that reduce land degradation and related activities. Financial mechanism(s) The project expects that the promoted sustainable land management practices will be equally or more profitable for farmers than the current degrading practices, and the project will provide important national benefits by reducing the barriers to adopting more profitable and environmentally beneficial systems. Additionally the project wants to increase income from the provision of global environmental goods and services such as carbon sequestration and biodiversity conservation, and the project intends to find sources for PES of water and carbon outside of the project, in order for these conservation payments to last beyond the project. The project also wants to develop commodity markets for organic products, as well as local markets for indigenous crops. Who are buyers/sellers/users Buyers Initially the project itself, but the goal is to market ecosystem services to variety of local national and international buyers (see above) Sellers would be local farmers M&E reports None available as of March 2007 References GEF projects database

58

LATIN AMERICA (Y) GEF ID 2356 Brazil, Ecosystem Restoration of Riparian Forests in Sao Paulo Focal Area: Land Degradation Began 2005 Ends 2010 Project Status as of March 2007: Active? GEF Funding Amount: 7.047 US$m Other funding sources: 11.872 US$m Total project budget: 19.5 US$m Implementing Agency: World Bank Local executing Agency: Sao Paulo State Secretary of the Environment (SMA) Project Description The objective of this project is to foster development of adequate tools, mechanisms and methodologies for each region in the State, aiming to facilitate and encourage future large scale restoration of riparian forests, in order to: (a) provide support for biodiversity conservation in São Paulo biomes (Atlantic Forest and Cerrado) through implementation of riparian forest corridors as a means to address the threat to biodiversity posed by forest fragmentation; (b) decrease, through restoration of degraded lands, sedimentation processes in reservoirs, rivers, water springs, headwater and recharge areas, for better quality and quantity of water resources; and (c) reduce local rural poverty through creation of ways to obtain financial resources derived from environmental services rendered by riparian forests. The global objectives of this project are: (a) stop and revert land degradation processes in riparian forests, both in public and private areas; (b) increase carbon sequestration in riparian forests; and (c) communicate the global relevance of local biodiversity threats and develop and implement mechanisms that support long term conservation of biodiversity. The principal project activities will involve: (i) improving the relevant policy, legal and regulatory frameworks to facilitate future implementation of payment mechanisms for environmental services rendered by riparian forests; (ii) testing and validating ecosystem restoration practices and improving seedlings production capacity to support future large-scale restoration of riparian forests; (iii) implementing on-the-ground investments for the field testing of sustainable land management practices to reduce pressure on and restore agro-pastoral lands and riparian ecosystems, while at the same time planning and implementing corridors of native riparian forests as a means of connecting fragments of remaining native vegetation; (iv) improving institutional and community capacity to address land degradation issues and support sustainable land management; (v) improving institutional capacity to coordinate cross-sectoral interventions, to monitor project impacts and to disseminate lessons and exchange information. The project intends to have at least 15 communities or 900 farmers adopting improved practices by PY04. Role of PES The functions and mechanisms of the PES systems are not described in the project so PES may or may not become a major component when the project is actually undertaken. GEF’s role GEF resources will finance on-the-ground activities that prevent, stop or reverse land degradation by funding, for example, a system for promoting the adoption of sustainable land management through payment mechanisms for environmental services rendered by riparian forests.

59

Financial mechanism(s) The project will seek a variety of funding, including: water use charges, financial compensation for increased carbon absorption, increase in agricultural productivity through adequate management of agro-pastoral systems, an increase in the market value of certified agricultural products (organic, etc), sustainable harvesting of NTFPs, eco-tourism, etc. Some of this financial sources may be developed as PES schemes Who are buyers/sellers/users These are not clearly articulated in the document, but it seems that buyers could include water consumers, water utilities, global carbon funds, tourists, consumers of sustainable NTFPs, etc. Sellers could include forest users and land owners. M&E reports None available as of March 2007 References GEF projects database World Bank projects database LATIN AMERICA (Z) GEF ID 1544 Brazil , Rio de Janeiro Integrated Ecosystem Management in Production Landscapes of the North-Northwestern Fluminense Focal Area: Multi focal areas Began 2005 Ends 2010 Project Status as of March 2007: Active GEF Funding Amount: 6.998 US$m Other funding sources: 8.027 US$m Total project budget: 15 US$m Implementing Agency: World Bank Local executing Agency: State Secretary of Agriculture, Fishery and Rural Development (SEAAPI) Project Description This project will promote an integrated ecosystem management approach to guide the development and implementation of sustainable land management practices while providing environmentally and socially sustainable economic opportunities for rural communities living in the North and Northeast Fluminense regions in Rio. The project aims to increase smallholder agricultural production, productivity and farm incomes and assist in the sustainable use of natural resources, by promoting the adoption of sustainable land and water management, at micro-catchments level. Role of PES PES may or may not become a major component of this project. Currently details such as buyers and sellers are not fully flushed out yet. This may become clearer as the studies and pilot studies described in the project are completed. GEF’s role

60

The project provides funding for studies, capacity building and for incremental financing for participants in pilot micro-catchments to support transition costs and implementation of sustainable livelihoods activities. Financial mechanism(s) The project will provide incentives to small farmers and other relevant natural resource managers to shift from existing non-sustainable agriculture practices to sustainable livelihood activities which enhance biodiversity, reduce or reverse land degradation, and increase carbon sequestration. Who are buyers/sellers/users Buyers: Thus far the project financers Sellers – rural communities, smallholder producers M&E reports None available as of March 2007 References GEF projects database World Bank projects database

61

References Alix-Garcia, J., de Janvry, A., Sadoulet, E., Torres J.M., Varela, J., and Ramos, M. 2005. An Assessment of Mexico’s Payment for Environmental Services Program. Alix-Garcia, J., de Janvry, A., Sadoulet, E. 2004. Payments for Environmental Services: To Whom, for What, and How Much? Barbut, Monique. December 2006. The New GEF; A Proving Ground for Our Sustainable Future. Boyd J and Banzhaf H. 2005. Ecosystem Services and Government Accountability: The Need for a New Way of Judging Nature’s Value. Resources, summer 2005 Chomitz, K., Brenes, E., and Constantino, L. 1998. Financing Environmental Services: The Costa Rican Experience and its Implications. GEF. June 2003. Review of Financial Arrangements in GEF-supported Biodiversity Projects. Monitoring and Evaluation Working Paper II. GEF. 2004. Biodiversity Program Study. GEF. July 2006. GEF Biodiversity Strategy in Action GEF Annual Report 2005. Fertile Ground, Seeding National Actions for the Global Environment. Grieg-Gran, M., Porras, I., and Wunder, S. 2005. How Can Market Mechanisms for Forest Environmental Service Help the Poor? Preliminary Lessons from Latin America. World Development, Vol. 33, No. 9. pp 1511-1527. Gutman P. 2007. Ecosystem Services: Foundations for a New Rural-Urban Compact. Forthcoming in the Journal of Ecological Economics. Hartshorn, G., Ferraro, P., and Spergel, B., Sills, E. 2005. Evaluation of the World Bank – GEF Ecomarkets Project in Costa Rica. Ibrahim, M. et al. August 2006. Enfoques Silvopastoriles Integrados para el Manejo de Ecosistemas; Informe de Avance Annual No. 4, Agosto 2005 – Agosto 2006 (Progress Report on the Integrated Silvopastoral Project). INE (Instituto Nacional de Ecologia), SEMERNAT. Programa de Pago por Servicios Ambientales Hidrologicos de los Bosques. Landell-Mills, N. and Porras, I. 2002. Silver Bullet of Fool’s Gold? A global review of markets for forest environmental services and their impacts on the poor. Lee, D., and Zbinden, S. 2005. Paying for Environmental Services: An Analysis of Participation in Costa Rica’s PSA Program. World Development. Vol. 33, No. 2. pp. 255-272. Man de, M. 2004. Local Impacts of Effectiveness of Payments for Environmental Services in Costa Rica: The Case of Payments for Forest Hydrological Services in Costa Rica’s Aranjuez Watershed. Universiteit Utrecht.

62

Munoz Piña, C., Guevara, A., Torres, J.M., and Brana, J. 2005. Paying for the Hydrological Services of Mexico’s Forests: Analysis, Negotiations and Results. Instituto Nacional de Ecologia. Pagiola, S., Arcenas, A., and Platais, G. 2005. Can Payments for Environmental Services Help Reduce Poverty? An Exploration of the Issues and the Evidence to Date from Latin America. World Development Vol. 33, No. 2. pp. 237-253. Pagiola S. 2005. Market-ish Instruments and Other Strange Beasts. Downloadable from: http://www.cifor.cgiar.org/pes/publications/pdf_files/Pagiola-2.pdf Poats, S. 2006. “Report on the Latin American Regional Workshop on “Compensations for Environmental Services and Poverty Alleviation in Latin America” Quito, Ecuador April 26-28, 2006. Grupo RISAS, Quito. Pagiola, S. et al. May 2004. Paying for Biodiversity Conservation Services in Agricultural Landscapes. The World Bank Environmental Economics Series, Paper No. 96. Scherr, S et al (2006) “Developing Future Ecosystem Service Payments in China. Lessons Learned from International Experience” Forest Trends, Washington DC Sierra, R. and Russman, E. On the Efficiency of Environmental Service Payments: A Forest Conservation Assessment in the Osa Peninsula, Costa Rica. Ecological Economics Vol. 59, pp. 131-141. Wunder S. 2005. Payments for Environmental Services: Some nuts and bolts. CIFOR Occasional Paper No. 42. CIFOR, BOGOR, Indonesia. World Bank, 2000. Bolivia: Sustainability of the National System of Protected Areas. Project Appraisal Document.

63

64

Others in this series

Agricultural Landscapes and Domestic Water Supply: the Scope for Payments for Watershed Services with special reference to sub-Saharan Africa by Bruce Aylward (Ecosystem Economics LLC)

Investing in the future: an assessment of private sector demand for engaging in markets & payments for ecosystem services, by S. Waage, with contributions from I. Mulder, K. ten Kate, S. Scherr, J. P. Roberts, A. Hawn, K. Hamilton, R. Bayon and N. Carroll (Forest Trends)

Payments for Ecosystem Services: Potential Contributions to Smallholder Agriculture in Developing Countries by Sara J. Scherr and Jeffrey C. Milder (EcoAgriculture Partners)

Project objectives

Identify when and how Agro-PES may improve environmental quality and benefit the livelihoods of the rural poor

Develop tools and information for policy-makers and technical staff on designing PES schemes that can reach the poor and contribute to poverty alleviation

Improve collaboration and coordination between strategic institutions involved in PES work, particularly within FAO and with external partners like Forest Trends, WWF and EcoAgriculture partners

Facilitate links between providers, users and potential facilitators, aiming at supporting the participation of more vulnerable groups

PESAL is a project funded by the FAO Netherlands Partnership ProgrammeAgriculture and Development Economics DivisionUN Food and Agriculture Organization- FAO

Pho

to c

redi

ts: F

AO

Dig

ital M

edia

onl

ine

Paymentsfor Ecosystem Services

From Agricultural Landscapes

PESAL Papers Series No. 1

Others in this series

Agricultural Landscapes and Domestic Water Supply: the Scope for Payments for Watershed Services with special reference to sub-Saharan Africa by Bruce Aylward (Ecosystem Economics LLC)

Investing in the future: an assessment of private sector demand for engaging in markets & payments for ecosystem services, by S. Waage, with contributions from I. Mulder, K. ten Kate, S. Scherr, J. P. Roberts, A. Hawn, K. Hamilton, R. Bayon and N. Carroll (Forest Trends)

Payments for Ecosystem Services: Potential Contributions to Smallholder Agriculture in Developing Countries by Sara J. Scherr and Jeffrey C. Milder (EcoAgriculture Partners)

Project objectives

Identify when and how Agro-PES may improve environmental quality and benefit the livelihoods of the rural poor

Develop tools and information for policy-makers and technical staff on designing PES schemes that can reach the poor and contribute to poverty alleviation

Improve collaboration and coordination between strategic institutions involved in PES work, particularly within FAO and with external partners like Forest Trends, WWF and EcoAgriculture partners

Facilitate links between providers, users and potential facilitators, aiming at supporting the participation of more vulnerable groups

PESAL is a project funded by the FAO Netherlands Partnership ProgrammeAgriculture and Development Economics DivisionUN Food and Agriculture Organization- FAO

Pho

to c

redi

ts: F

AO

Dig

ital M

edia

onl

ine

Paymentsfor Ecosystem Services

From Agricultural Landscapes

PESAL Papers Series No. 1