Transcript Developing PES schemes in Latin America: The potential for combining carbon sequestration with watershed management UNECE Enrironmental Services Seminar, Geneva, October 2005 Jan Fehse, EcoSecurities Ltd.

Developing PES schemes
in Latin America:
The potential for
combining
carbon sequestration
with
watershed management
UNECE Enrironmental Services
Seminar, Geneva, October 2005
Jan Fehse,
EcoSecurities Ltd.
What is EcoSecurities?

EcoSecurities specialises in the development of
projects in the Kyoto carbon market and trading of
‘carbon credits’: emission reduction and carbon
sequestration in forests.

Investigating the combination of C sequestration and
water-related ES payments for financing of watershed
forest restoration in developing countries

Projects with UNCCD’s Global Mechanism – Ecuador,
Nicaragua

Project with CORNARE - Colombia.
Hydro-PES systems in Latin America
In LA generally a great lack of watershed management
regulation (enforcement) and funding.
However, interesting institutional structures in Colombia
and Peru: Autonomous Authorities set up to manage
watersheds. In Colombia income from fees on hydroenergy sales (CORNARE).
Provide a legal and institutional framework, can
intermediate in PES schemes, can provide funding and
help in monitoring.
Not very advanced yet.
In PES systems in LA great emphasis on self-organized
private deals.
Hydro-PES systems in Latin America
Landell-Mills & Porras (2002) identified 12 hydro-PES
systems in LA. Some examples:
Colombia
- Sugar producers Cauca Valley (irrigation)
Ecuador
- Quito EMAAP-Q (municipal drinking water)
Costa Rica - PROCUENCAS (municipal drinking water)
ES sought: water volume, water quality, reduced sediment
load.
Valuation of hydro-ES
How to link money spent on upstream watershed
management with water ES performance?
Quantification very difficult! In developing countries near
impossible: lack of data.
More a matter of marketing the idea, supported by
scientific evidence and financial arguments (e.g. damage
cost avoided)
Valuation cannot be based on ES indicators (m3,
sediment load, etc.), but must be based on cost per
activity: (forest) area conserved or restored.
Valuation of conservation
Cost for conservation activities based on opportunity
cost. Recurring payments to landowner, financed
through levies on water or electricity.
- Requires in-depth valuation analysis.
PES
Value of landowner’s awareness of ES
Other use
Other use
Opportunity
cost
Value and income
from the forest
Valuation of restoration
Cost for restoration easy to determine, but difficult to
finance. Costs front-loaded: trees need to be planted.
Capital is needed!! More difficult for water user to
finance out of ongoing product sales.
How to overcome capital needs?
Financing of forest restoration
Capital invested in watershed restoration could also create
other returns:
• Products from plantation activities (e.g. timber, fruits)
• Other ES (carbon sequestration!)
Optimal plantation plan for watershed (e.g. native species)
likely to be sub-optimal for commercial investor. Payments
from hydro user and C sequestration can make investment
attractive!
Financing of forest restoration
Payments from water user
Ecosystem
Services
Contributions from Watershed
Management Authorities
Capital investment
Higher returns on
capital investment
FOREST
RESTORATION
Income from C sequestration
Income from products
Development of the C market

CDM Emission reductions projects are trading full
out! Demand larger than supply: prices are rising
(currently approx. € 4-5 / tCO2e)

C sequestration projects face some hurdles yet:
–
development of baseline and monitoring meths
– linkage with the EU emissions trading system

But market interest is starting to show clearly.
Institutional and private buyers are preparing, as
well as post-2012 investors

Ball park potential income : € 500+ / ha over 20
years
Requirements for C/hydro-PES
• Downstream water user(s) with financial capacity and
willingness to pay.
• Supporting legal and regulatory framework (e.g. CORNARE)
• Clear land tenure! Basis for contracting.
• Willing ES providers with understanding of issue. Land not
needed for subsistence.
• Impartial intermediary with track record in region
• Capable and credible forestry service provider and manager
Requirements for C/hydro-PES
• Sufficiently large area to overcome transaction costs
• Capital investor with environmental vision; or
• Carbon investor (e.g. POSCO).
Conclusions
• Water-related PES systems in LA largely private deals
• Lack of funding a great limiting factor
• Carbon market can strengthen financing of watershed
forest restoration – and vice versa: potentially a very
powerful synergy with benefits for water users,
environment and communities!
THANK YOU!