Mainstreaming the Payment of Watershed Environmental Services

By Luis Gamez Hernandez, Public Utilities Company of Heredia, Costa Rica

As World Water Week continues to showcase research and experiences related to water, today’s post brings us back to the week’s theme of cooperation and partnerships. Luis Gamez Hernandez discusses a specific initiative in Costa Rica, whereby cooperation between a local water utility, citizen of Heredia, and upstream land owners has resulted in improvements in drinking water and land management. 
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Citizens of Heredia understand the importance of management and conservation of the upper part of five local microwatersheds for high quality drinking water. In fact, to ensure the provision of this environmental service, it was included as an item in the monthly water service bill. This pioneer initiative in Costa Rica was motivated by the concern of the local public utilities company (ESPH) for the urgent need to protect its water supply sources and its catchment area from the risk posed by urban sprawl and other ongoing changes in land use in the upper watershed.

By acknowledging the threat of degradation of the catchment area, the ESPH applied creative economic instruments to expedite policy actions and obtain valuable social and economic benefits at very low cost. A local environmental services payment scheme was developed specifically to protect and conserve the catchment area and water sources, to capitalize on the natural endowment of high quality drinking water for the local and metropolitan population.

Introduced in March 2000, the additions to the water service monthly bill make all categories of end-users contribute directly to underwriting the cost of protecting and maintaining adequate forest cover in strategic areas of the catchment area.  An additional amount of approximately US $ 0.3 per cubic meter used – the Tarifa Hidrica –  is charged in the monthly water bill, which supports infiltration and recharge of ground water. This stream of fresh revenues are earmarked to offer a direct and tangible monetary compensation to the Braulio Carrillo National Park and to private landowners, for forest protection and restoration in key points of the watershed used for water supply. Participating landowners receive a payment close to US $120 /hectare/year for protecting forest around ESPH’s water sources. This amount represents the opportunity cost of land use in the upper watershed (mainly marginal dairy farming and abandoned grasslands) to generate the quality water environmental service. The estimate was obtained through the annual flow of revenues of traditional land uses, and the value that local residents give to water as an environmental service.

In 2011, the ESPH scheme covered 1191 hectares of forested and reforested public and private land. Corporations such as  Florida Ice & Farm, a large soft drinks and bottled water company and brewery, provided a donation to pay back for the conservation of the upper watershed that supplies their production. It is used as a matching fund to ESPH. It finances 55% of each contract in the Río Segundo watershed, where a total of 311 hectares have been contracted. Other large water consumers and water supply entities that extract water from this area will likely contribute as well to finance the protection of these watersheds.

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

Read More:
Case study: Empresas de Servicios Publicos de Heredia – IIED Watershed Markets