Mexicos Program for the Payment of Hydrological Environmental Services of Forests

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Mexicos Program for the Payment of Hydrological
Environmental Services of Forests
Carlos Muñoz Piña Instituto Nacional de Ecología
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60 million hectares of temperate and tropical
forests in Mexico
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A country experiencing very fast deforestation
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Overexploited Aquifers
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Market failures

Less silting and better water quality in
watershed and recharge areas in aquifers.
The market does not pay for the environmental
services of forests
Biodiversity Conservation
Carbon sequestration
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3 Types of Hydrological Services

• Aquifer Recharge
• Improved surface water quality, less suspended
  particles and lower costs.
• Reduce frequency and damage from flooding in
  short steep watersheds

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Deforestation and market forces

Market signals (inputs and output prices)
Decisions to change land use respond to
Costly cooperation in common property forestry
Short term horizon induced by poverty
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Localities with high or very high marginality
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60 million hectares of temperate and tropical
forests in Mexico
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Land use changesControl vs. Incentives

• In Mexico, governments control of land use
  changes is costly, not effective and potentially
  poverty increasing.
• So, necessarily
• conservation profitable forests
• for communal owners taking land use decisions

Otherwise regulatory taking on the poor
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A public policy niche
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Programs Objective

• Stop the deforestation that threatens those
  forests critical for watershed-related
  environmental services in Mexico
• By
• Paying land owners to preserve forest land and
  avoid its transformation for other uses, such as
  agriculture and cattle raising.

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Eligibility Areas for PSAH
Forests important for water
With potential future clients
Forests owned by the poor
or
or
Overexploited acquifers
Cities gt 5K
Deep poverty municipalities
or
or
High water scarcity zones
Priority Mountains
Providing other environmental services?
or
or
H related natural disasters
Natural protected areas
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Linking providers with those who benefit

• Federal Fees Law reformed to introduce an
  earmarking of a portion of the water fee.
• Negotiations
• Initial proposal 2.5
• Finance Ministry National Water Commission
  want to exclude municipalities from payment, so
  fix amount to US20 million.

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How much?

• Two ways of approaching the problem
• Value of the service What would society loose if
  the forests were not there?
• Opportunity Cost What landowners would sacrifice
  if they kept the forest.
• Between those 2 values is the relevant space of
  the transaction.

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OPORTUNITY COSTS
Corn
Beans
Sheep Goats
Cattle
Source Luis Jaramillo (2003) www.ine.gob.mx
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Differentiated payment

• A political economy mix, recommendation based on
  opp cost, combined with value of service
  forestry lobby
• Cloudforests 400 pesos (US37) per hectare
  per year
• Rest of temperate and tropical forests 300
  pesos (US28) per hectare per year

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Forest area incorporated into PSAH
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PSAH 2003-2008 gt1.2 million hectares
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Durango a watershed supplying cities and
irrigation districts
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Challenges for PES

• Unexpected success Three times as many
  applications as funds. (Excess demand)
• Possibility of generating greater value to
  customers.
• Who received the payments?
• Lets look at the actual targeting

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Targetting

• By value of environmental service
• By level of poverty
• By risk of deforestation
• Important voluntary program implies
• self-selection.

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Overexploited Aquifers
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Overexploited aquifers
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Overexploited aquifers
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Targeting the poor
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Poverty and PSAH
79 - 83
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Targetting poverty
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Targetting poverty
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SEEKING EFFICIENCY

• Objetive Maximize protection of environmental
  services through avoiding deforestation

• Efficiency Maximize value to fee-payers
  through avoiding maximum hectares deforested at
  minimum cost, within budget constraint.

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How to measure real risk of deforestation?

• Main driving force land use changes.
• More profitable agricultural and cattle ranching
  activities.
• Short term horizon caused by poverty
  (Guevara2002).
• Specific patterns identified through
  econometrics transport cost, slope, potential
  ag yields.

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All models are wrong, but some are
useful.(George Box, quoted by Kennedy 1992
73 quoted by Kaimowitz Angelsen 1998 and
here).
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Una rejilla para puntos de muestreo
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ANÁLISIS ECONOMÉTRICO
18k obs
Significativo a niveles mayores a 90
Significativo a niveles mayores a 99,
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Results for 2000 forests in Oaxaca
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Targetting Risk of Deforestation
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Targetting Risk of Deforestation
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2008 Incorporating Watershed Targeting
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Topographical Zones and Watersheds
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Deforestation Risk and Topographical
Zones(millions of hectares of forests)
A significant amount of key watershed areas has a
high and very high deforestation risk
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Modifying rules to incorporate new criteria for
selection location within a watershed and
relative water scarcity of the watershed
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Looking ahead

• We need tests to compare areas with payment and
  areas without payment, to see if there is a
  difference (control by deforestation risk,
  obviously )
• The problem of the sixth year. Need to see
  what they do after the contract ends
• They can re-apply but no certainty that they are
  chosen
• They had money and time to build a sustainable
  forestry operation or move into other markets for
  environmental services. It is an empirical
  question.

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Modifying behaviour, really (1)

• Combinación de imágenes Spot y Landsat. Método
  que sobreestima la deforestación, por lo tanto
  tomar en cuenta sólo el valor relativo.

• Muestra aleatoria, 160 predios.
• La diferencia está entre el polígono pagado y las
  zonas (polígono o predio) no pagado.

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Modifying behaviour, really (2)

• Imágenes Spot y Landsat. Umbral alto, método
  que subestima la deforestación, por lo tanto
  tomar en cuenta sólo el valor relativo.

• Muestra aleatoria, 115 predios.
• La diferencia está entre el polígono pagado y las
  zonas (polígono o predio) no pagado.

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Mexicos Program for the Payment of Hydrological
Environmental Services of Forests
Carlos Muñoz Piña carmunoz_at_ine.gob.mx