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WATERSHED PAYMENTS FOR ECOSYSTEM SERVICES

AND CLIMATE CHANGE ADAPTATION

CASE STUDY: RUGEZI WETLANDS, RWANDA

By Elizabeth Willetts Dr. Randall Kramer, Dr. Lydia Olander, advisors March 2008

Masters project submitted in partial fulfillment of the requirements for the Master of Environmental Management degree in the Nicholas School of the Environment and Earth Sciences of Duke University 2008 © Abstract: Watershed Payments for Ecosystem Services and Climate Change Adaptation Case Study on Rugezi Wetlands, Rwanda By Elizabeth Willetts March 2008

A majority of East African nations rely heavily on hydropower for their energy supply. Climate change experts predict significant changes to total precipitation and seasonal weather patterns in this area in the near future. Consequently, these nations should expect hydrologic stress across all watershed scales. Resilience of East Africa’s energy sector to these climate change impacts will rely on coordinated environmental and economic policy. It will depend on the ability of governments to quickly improve management of important ecosystems and water basins. However, effective decision- making must balance the watershed needs of local livelihoods, such as subsistence agriculture, with national energy needs, such as expansion of electricity infrastructure. Environmental policy increasingly leans to economic mechanisms to find resolutions to ecosystem dependency conflicts. Payments for Ecosystems Services (PES) is one environmental economic mechanism that could effectively and rapidly improve environmental management in this region. This paper investigates the feasibility for using local PES schemes in a major Rwanda watershed as both a tool for community vulnerability reduction and for energy sector resilience to climate change impacts.

Payments for Ecosystem Services in developing countries involves local-level environmental negotiations between the public and private sectors. The mechanism has two goals. Primarily, it gives physical value to specific resource improvements. Secondly, PES reorganizes funding streams towards particular environmental objectives using positive incentives. In effect, it can develop a sustainable, locally-driven, conservation funding mechanism. PES most strongly emerged as a conservation tool in the early 1990’s in Latin America. Uncertainty in its ability to achieve restoration targets and questions about its ability to achieve financial independence does not deter PES’ popularity. PES schemes and informational networks now exist in Latin America, Asia, Africa, and Oceania.

The first portion of this paper looks at the capacity-building potential of PES mechanisms. It relates these to adaptive capacity needs for climate change given by the United Nations Framework Convention on Climate Change (UNFCCC). The second portion of this paper organizes key literature describing different feasibility criteria for PES implementation in the Rwandan context. To verify whether watershed PES is plausible, the paper then investigates the political, social, and environmental context of Rwanda’s major watershed and compares these to fourteen international PES case study sites. The final portion of the paper links potential PES scheme designs in the Rugezi area to specific capacity building potential and then to climate change adaptation objectives.

Successful implementation of watershed PES in Rwanda will depend on careful scheme design and persistent trust- building in order to harmonize wetland inhabitant and electric utility needs. Existence of contextually parallel projects in Indonesia, South Africa, and Columbia, gives evidence that these challenges can be creatively overcome. Findings show that Rwandan decision-makers will need more hydrologic data to make ecologically informed and efficient decisions and to set targets. With several necessary conditions in place, watershed PES in Rugezi may be a feasible tool for climate change adaptation and energy sector resilience. However, there is need for cost-benefit analysis to clarify short term, long term, and distributive costs and benefits of such a project.

Date:______

Approved:

______Dr. Randall Kramer, Advisor Dr. Lydia Olander, Advisor

2 Masters project submitted in partial fulfillment of the requirements for the Master of Environmental Management degree in the Nicholas School of the Environment and Earth Sciences of Duke University 2008.

This paper is written for and supported by the International Institute for Sustainable Development.

The International Institute for Sustainable Development (IISD) is an independent, not-for-profit corporation headquartered in Winnipeg, Canada, established and supported by the governments of Canada and Manitoba. Its mandate is to promote sustainable development in decision-making in Canada and around the world.

International Institute for Sustainable Development Geneva office International Environment House 2 9 chemin de Balexert 1219 Châtelaine Geneva Switzerland Phone +41 22 917-8373 Fax +41 22 917-8054

3 Contents

Abstract……………………………………………………………………………………………………….pg. 2

Introduction…………………………………………………………………………………………………..pg. 6

1.0 Conceptual Links Between Payments for Ecosystem Services and Climate Change Adaptation…………………..…………………………………………………….pg. 8 1.1 Ecosystem Services 1.2 Local-level Payments for Ecosystem Services 1.3 Linking Payments for Ecosystem Services to Climate Change Adaptation 1.4 Climate Change Risks in Rugezi Watershed of Rwanda

2.0 Institutional Feasibility for Local-level Payments for Ecosystem Services…………………………..pg. 15 2.1 Institutional Feasibility Assessment Chart 2.2 Rwanda Background Analysis 2.2.1 Ecology and Social Assessment 2.2.2 Watershed PES and the African Context 2.2.3 Rwanda Environmental Policy Context 2.3 Case Study Analysis 2.4 Stakeholder Analysis 2.5 Local-level PES Institutional Design Options in Rugezi

3.0 Feasibility Summary……………………………………………………………………………………pg. 48 3.1 Climate Change Adaptive Capacity Feasibility 3.2 Institutional Feasibility 3.3 Hydrologic Feasibility 3.4 Next Steps

4.0 Conclusions……………………………………………………………………………………………..pg. 53

5.0 References……………………………………………………………………………………………….pg. 54

4 6.0 Appendices………………………………………………………………………………………………pg. 59

5 Abbreviations

“Integrating Vulnerability and Adaptation to Climate Change into Sustainable ACCESA Development Policy Planning and Implementation in Eastern and Southern Africa” ACTS African Centre for Technology Studies CITT Center for Information and Technology Transfers COOCASTER Coopérative de Conservation et d’Amelioration de Sol et Terrassement Radical EDPRS Economic Development and Poverty Reduction Strategy ELECTROGA (Hyroelectric utility) Société de Production et de Distribution d’Electricité, d’Eau et de Z Gaz GEF Global Environmental Facility ICRAF World Agroforestry Centre IMCE Integrated Management for Critical Ecosystems IPCC Intergovernmental Panel on Climate Change IRICP International Research Institute for Climate Prediction IUCN World Conservation Union KIST Kigali Institute of Science and Technology MDG Millennium Development Goals NBI Nile Basin Initiative NELSAP Nile Equatorial Lakes Subsidiary Action Project PEI Poverty Environment Initiative PES Payments for Ecosystem Services PRESA Pro-poor Rewards for Environmental Services in Africa REMA Rwanda Environmental Management Authority RUPES Rewarding Upland Poor for Environmental Services UNDP United Nations Development Program UNEP United Nations Environmental Program

6 Introduction

In the past few years water levels have fallen drastically in Rwanda’s major northern lakes due to precipitation changes and poor agricultural management in the watershed. As result the region has a low water table, reduced hydro-potential, and reduced agricultural productivity. Between 2004 and 2006 national electricity shortages led to the tripling of utility prices. At the same time, rural communities continue to inhabit and rely on the Rugezi wetlands – the source of basin water flow - in search of water, food, and livelihoods. The local watershed suffers from conflicting use and no one is conserving it, and no one has the incentive. Emerging climate change impacts in this area –primarily, more droughts and a greater frequency of dry periods –will undoubtedly heighten both issues. As result, the Rugezi watershed suffers a three-part burden: local watershed degradation, a national energy crisis, and a livelihood dependency problem.

The Rwandan government created its National Environmental Policy along with an implementing agency, Rwanda Environmental Management Authority (REMA) in 2005, in order to deal with its increasing resource problems. However, gaps in the implementation and monitoring of the new environmental policy limit conservation efforts. Decentralization of the environmental ministry to incorporate the needs of REMA is also slow. As result, neither the electric utility nor the rural communities have incentive to modify their resource use. For the utility, the only way to restore the electricity grid is to increase hydro-potential, such as by construction of more stations and exiling wetland farmers. But in the Rugezi wetland, inability for the Rwandan government to address significant population density, land scarcity, and disappearing natural resource bases like timber and topsoil leave rural people with no other option than to encroach further onto rich wetland soil. Both parties need and want to use the Rugezi as a water source. But Rwanda runs the risk of losing effective hydro-potential and, or, seeing no end to the resource struggle in the northern region.

Developing domestic incentives for wetland management is challenging and the responsibility is largely held by Rwanda’s environmental ministry. The fact that the Rugezi wetlands hold status under the Ramsar Convention as wetlands of international importance does little to fortify their protection. The international treaty provides little additional protection or funding towards Rwanda’s internal problems. Creating economic incentives for improved environmental management will likely be the means for Rwanda to deal with this problem. Local initiatives are just beginning to focus on economically-integrated approaches to the Rugezi situation. For example, the Poverty and Environment Initiative (PEI) – a joint program with the United Nations Development Program (UNDP) and the United Nations Environmental Program (UNEP)- conducts integrated ecosystem assessments for REMA. PEI measures the vulnerability of the poor and their dependency on natural resources. Environmental financing through the private sector, such as with tax incentives for better production or pollution control, is one of their goals.1

Most local government and NGO initiatives concentrate on community-based management or improved environmental management in the region. There are three such projects in the Rugezi watershed. REMA maintains the first project entitled Integrated Management of Critical Ecosystems (IMCE). IMCE aims to build wetland policy and management capacity, with a particular focus on training, in the Rugezi region. 2 Another organization, Coopérative de Conservation et d’Amelioration de Sol et Terrassement Radical (COOCASTER), works between farmers, government projects, and private institutions in select wetland communities. COOCASTER focuses on sustainable agricultural practices and training while also providing a small-scale credit program to those households that comply with best practices.3 Thirdly, UNEP’s Integration of Vulnerability and Adaptation to Climate Change into Sustainable Development Policy Planning and

1 Mulisa, Alex. Personal Communication. Poverty and Environment Initiative. Kigali, Rwanda. September 13, 2007. 2 Kapiteni, Antoine. Personal Communication. IMCE. at Ministry of Lands, Environment, Forestry, Mines and Water. Kigali, Rwanda. September 14, 2007. 7 Implementation in Eastern and Southern Africa (ACCESA) works with local and international partners to build decentralization capacity between Rwanda’s ministries and other actors, such as the utilities. Climate change adaptation and support for energy diversity is the prime focus of this program.

Ideally, these projects will supply adequate resource training, monitoring, and an assessment of resource valuation to the area. It is unclear, and unlikely, that they will provide enough immediate incentives to dissipate the Rugezi hydro-potential and land scarcity issue. At the bottom line, these traditional mechanisms are not inspiring organic incentives or long-term behaviour change which could lessen the watershed burdens.

In nations where gaps in policy fail to inspire appropriate and sustainable management incentives funding schemes called payments for ecosystem services (PES) have developed in local areas. PES schemes propose using local resource markets to prevent degradation and support economic stability. PES values ecosystem goods and services by incorporating ecosystem goods and services into local, regional, and, or national markets. Payment schemes operate between identified buyers and sellers in a mutually beneficial way with the assistance of intermediary actors. Both buyers and sellers are thus able to value the sustainability of the natural resource through positive incentives.

The Center for International Forestry Research (CIFOR), the International Institute for Environment and Development (IIED), the World Agroforestry Center (ICRAF), and the World Bank have noted the substantial capacity-building benefits of PES schemes in enhancing overall sustainable development, despite their inherent operational uncertainties.4 In the Rugezi context there may be potential for a watershed PES scheme to (1) inspire incentives for improved management, (2) contribute to capacity building and vulnerability reduction for climate change adaptation, and (3) help alleviate a critical energy problem. Given this understanding, there may be an opportunity for PES to contribute to climate change adaptation in a broader context. This conceptual link does not yet exist in PES literature.

The objectives of this paper are twofold. First, it will address the links between payments for ecosystem services and reductions in climate change effects. Secondly, it will outline the institutional feasibility for designing watershed PES in Rugezi to enhance Rwanda’s social and economic buffering capacity.

A combination of a literature review, personal interviews, and fieldwork in northern Rwanda provided the theoretical and conceptual backing to the final policy recommendations. This document reviews white papers on PES research, implementation, and evaluation at the local level from the following international institutions: World Conservation Union (IUCN), Worldwide World Wide Fund for Nature (WWF), World Agroforestry Centre (ICRAF), Katoomba Group, World Bank, International Institute for Environment and Development (IIED), Forest Trends, Center for Environmental Economics and Policy in Africa (CEEPA), the Nile Basin Initiative (NBI), and the Center for International Forestry Research (CIFOR). Interviews were also conducted with relevant professionals in these organizations. Fieldwork focused on interviews with primary environmental stakeholders in Nairobi, Kenya and Rwanda. This included Rwanda’s environmental Ministries, provincial and sector directors, NGOs, the utility company, PEI, as well as various economists and environmentalists in the field. The Kigali Institute for Science and Technology (KIST) assisted in the selection of regional stakeholders.

3 Uwizeye, Jean Claude and Anne Hammill. Reducing the Vulnerability of Energy Sector to the Impacts of Climate Change in Rwanda pilot project: Preparation of the implementation plan for phase 2 Field Intervention 2007-2009. Workshop Report. CITT/KIST/IISD. Kigali, Rwanda. February 2007. 4 Bond, Ivan. Payments for Watershed Services: Opportunities and Realities. Sustainable Development Opinion. International Institute for Environment and Development. 2007.; Iftikhar, Usman Ali, Kallesoe, Mikkel, Duraiappah, Anantha, Sriskanthan, Gaya, Poats, Susan V., and Brent Swallow. Exploring the Inter-linkages among and between Compensation and Rewards for Ecosystem Services (CRES) and human well-being: CES Scoping Study Issue Paper no. 1. ICRAF Working Paper no. 36. Nairobi: World Agroforestry Centre. 2007.; Pagiola, Stefano, Arcenas, Agustin, and Gunars Platais. “Can Payments for Environmental Services Help Reduce Poverty? An Exploration of the Issues and the Evidence to Date from Latin America.” World Development. 33:2, pp. 237-253. 2005 8 Section 1.0 of this document outlines the conceptual links between adaptive capacity, community resilience, and the opportunity for PES to decrease community vulnerability. Section 2.0 describes the approach to designing a feasibility analysis for local-level PES, gives a contextual assessment for the Rwanda situation, compares this to international PES case studies, and synthesizes local field interviews. Section 2.0 also delivers PES design recommendations for the Rugezi case study. Section 3.0 summarizes the feasibility for the PES options recommended in Section 2.0, and first offers advantages, disadvantages, and potential social and political risks of implementation. Second, it analyzes the use of PES to address the watershed conflict and to address climate change adaptive capacity. This section also discusses areas for future research in feasibility design, and feasibility in the Rwanda context. Section 4.0 offers concluding remarks.

1.0 Conceptual Links between Payments for Ecosystem Services and Climate Change Adaptation

This section introduces the concept of ecosystem services and payment for ecosystem services. It highlights the capacity building potential of PES schemes in order to understand the links between PES and adaptive capacity. These links are then specified for climate risks in the Rugezi watershed case study. 1.1Ecosystem Services

According to the Millennium Ecosystem Assessment ecosystem services are the “benefits provided by ecosystems, including provisioning, regulating, cultural, and supporting services.”5

Provisioning services include foods, fibres, and fuels.

Regulating services include drought and flood mitigation, regulation of disease carrying organisms, moderation of weather extremes and their impacts, purification of the air and water.

Cultural services include aesthetic beauty, parts of heritage.

Supporting services include cycling and moving nutrients and maintenance of biodiversity.

All four of these services are available at local and global scales. The frame of reference for these services depends on the scope of the project in mind, which is determined by the size of the ecosystem and the economies involved. 1.2 Local-level Payments for Ecosystem Services An eruption of interest in the quantification of ecosystems services followed the United Nation’s Millennium Ecosystem Assessment (MA) report in 2003. The MA cited degradation of ecosystem services as a barrier to improvements in human well-being and therefore to achieving the Untied Nation’s Millennium Development Goals.6 As a result of these findings, payments for ecosystem services, has become a popular experimental policy tool for conservation finance. Though there are risks worth weighing carefully, great interest in the overall benefits of PES implementation exists.

PES incorporates undervalued ecosystem functions into the market economy and therefore serves to balance the value of provisioning, regulating, supporting and cultural services within a community. Provisioning services, such as timber, can be easily valued in traditional markets as a form of natural capital. Regulating, cultural, and 5 Millennium Ecosystem Assessment. Ecosystems and Human Well-being: Synthesis. Island Press, Washington, DC.2005. 6 Millennium Ecosystem Assessment. (2005) op cit 9 supporting services are not commodities in the traditional sense, and therefore their value is not represented in traditional supply and demand. In order to value these services collectively, PES schemes form a new market.

In these markets, ecosystem services are quantified and sold by “sellers” to “buyers.” “Sellers” of the ecosystem service are those who expend the effort and cost to sustainably manage the resource, i.e., landowners, governments, or farmers. “Buyers” of the ecosystem service are those who use the resource, such as businesses, governments, and consumers. A PES scheme formally operates between at least one buyer and one seller in a voluntary transaction.7 At the local level, intermediaries and donor actors are also involved. International NGOs, investment groups, or utilities can provide significant technological, educational, and organizational capacity as intermediaries. Intermediaries can be important in managing and compensating local opportunity costs.8 In general, local-level PES schemes require up-front donor support. Micro-credit organizations may also give a financial jumpstart to PES schemes, especially in cases where sellers must find alternative livelihoods.9

PES markets exist at many scales, from global carbon markets, to community water markets. Hybrid markets termed International PES (IPES) also exist to “bundle” global and local investment benefits for deeper environmental protection.10 The context of this paper only considers community, or local-level, PES in developing countries.

These local markets operate through a variety of structures, the most popular being self-organized private deals and public payment schemes. The PES structure either reinforces existing environmental management and or it can stimulate conservation behaviour through new economic incentives.11

The flexibility of PES schemes is in a large part due to the many different service buyers and site-specific arrangement of actors. Usually sellers are small land-owners or farmers. Buyers generally include:12

 Governments and multilateral agencies in the public sector  Private sector: Companies under offset regulation or companies that use ecosystem services for personal gain, such as bottling companies who use watersheds  Philanthropic donors: the Nature Conservancy for example allows individuals to invest in the purchase of critical ecosystems to establish protected areas  Consumers of eco-products: purchasing organic food is an example of buying an eco-product  Utilities: some utility companies are interested in investing in environmental best practice

There is no formal standard for PES payments. The price for planting a tree, for example, varies according to region, community, and PES scheme. Therefore market transactions have various forms of compensation. Compensation types include

 Individual monetary payments, such as cash transfers 7 Wunder, Sven. Payments for Environmental Services: Some Nuts and Bolts, CIFOR, Occasional Paper No. 42. 2005. 8 Corbera, Esteve, Kosoy, Nicolás, and Miguel Martínez Tuna. Marketing Ecosystem Services Through Protected Areas and Rural Communities in Meso-America: Implications for Economic Efficiency, Equity and Political Legitimacy. Tyndall Centre for Climate Change Research. October 2006. 9 Bond (2007) op cit; Wunder (2005) op cit; Murali, K.S. “Microfinance, social capital and natural resource management systems: conceptual issues and empirical evidences”. International Journal of Agricultural Resources, Governance, and Ecology. Vo. 5, No. 4, 2006. 10 Huberman, David, and Tobias Leipprand. Developing International Payments for Ecosystem Services: A Technical Discussion September 12 and 13, 2006. Background Paper. UNEP – ETB. Geneva, Switzerland. August 2006.; Wunder (2005) op cit 11 Corberba (2006) op cit 12 Scherr, Sara J., Milder, Jeffrey C., and Carina Bracer. How Important Will Different Types of Compensation and Reward Mechanisms be in Shaping Poverty and Ecosystem Services Across Africa, Asia, & Latin America over the next two decades? CES Scoping Study Issue Paper 5. ICRAF Working Paper no. 40. Nairobi, Kenya: World Agroforestry Centre. 2007. 10  Improvements in public services, such as health or education facilities  Local infrastructural improvements, such as roads  Improved land tenure rights

1.3Linking Payments for Ecosystem Services to Climate Change Adaptation

Payments for ecosystem services in developing countries involves local-level environmental negotiations between the public and private sectors. The local-level PES mechanism offers direct and indirect benefits to a community.

Direct Benefits to capacity building include

 Improved Environmental Management and Monitoring: PES schemes improve the local planning, management, and understanding of natural resources. Monitoring of natural resources is valuable to “sellers” who want to protect their capital. Increased knowledge about ecosystem conditions and dynamics can enhance management decisions. For example, farmers may note changes in rainfall patterns and soil conditions that inform planting times or crop selection.  Strengthened Local Economies: 1) PES typically delivers compensation to the poor people in an economy. Rather than a handout, payments are conditional on resource management contracts. PES schemes differ by compensation mechanisms but payments are often tiered or delivered on a regular schedule. Therefore, there is an incentive for the poor to maintain PES’ financial contracts and this elevates the poor’s position in the local economy. 2) PES may help focus micro-credit lending towards long-term natural resource availability. 13

Indirect Benefits to capacity building include

 Improved Social Capital: By requiring cross-sector and cross-demographic negotiations PES can bring under-represented community members to the decision-making table. It can improve communication and human capital among different sectors, ministries, and levels of administration, and can enhance networks and support institutions. In this sense, PES schemes may also act as equalizers.  Support for Legal Frameworks: Local-level PES schemes emerge where there are gaps in policy or policy implementation. PES schemes may precede or assist the establishment of environmental and other development policies. For instance, in schemes where land rights are a form of compensation PES may assist in the establishment of local land rights.  Increased Human Capital: PES can assist in the development of alternative employment, job skills, or the provision of financing needed for the poor to move away from raw material harvest. For example, funding can provide new agricultural technologies that minimize time spent farming, or, can supply household technologies that minimize harvesting, such as a gas cook stove. This leaves more time for alternative activities.

If indeed PES can contribute to local capacity building then perhaps it can act as a tool for climate change adaptation as well.

Climate change affects the productivity, diversity, and functioning of ecosystems around the world. The poor, who are most directly dependent on the natural resource base for their livelihoods, will feel the greatest impacts 13 Murali (2006) op cit 11 of these changes. Helping the poor adapt to climate change therefore requires increasing their capacity to better manage and restore ecosystems.

The Intergovernmental Panel on Climate Change (IPCC) defines adaptive capacity as “the ability of a system to adjust to climate change (including climate variability and extremes), to moderate potential damages, to take advantage of opportunities, or to cope with the consequences.” According to the IPCC fourth assessment report, human settlements will be more vulnerable because they will be more susceptible to, and less able to cope with, adverse effects of climate change. Human settlements can expect three general changes: (1) climate sensitivities of human activities will emerge, (2) human settlements will expect changes in the cost of maintaining a climate controlled environment, and (3) human settlements will expect climate to compound existing stressors in society. Therefore, adaptive capacity involves strengthening economic wealth, technology, information and skills, infrastructure, institutions, and equity.14

To buffer vulnerable systems, assets, and infrastructure from climate impacts it is important to enhance environmental management from societal and economic perspectives. There are four intuitive means to accomplish this goal. The first buffer results from increased understanding of local natural resources and ecosystem services. PES schemes foster resource knowledge development by valuing the ecosystem services to different actors in a particular area. Because PES improves environmental management and monitoring it assists in creating a knowledge buffer. The second buffer involves increasing protection of natural ecological buffers, such as forests which prevent landslides. Most PES case studies fall short of monitoring so achievement of specific ecological goals are inconclusive. A third buffer is the establishment of local economic incentives for sustainable resource management. PES design ideally uses positive incentives to re-orient economic activities towards long-term sustainability. The last buffer results from diversified and enhanced livelihoods through alternative income sources. PES can increase human capital, such as through alternative employment opportunities. However, this link is not strongly explored in the literature, and seems more strongly correlated to microfinance activities.

Increased local-level participation in decision-making and local control of resource management are the most universally observed benefits of PES. These positive improvements could or would translate simply into a greater “response-capacity” of the poor. Combined with social safety nets, greater protection of valued natural resources, and more stable livelihoods,15 PES schemes may increase the capacity of the poor to adapt to climate change.

It is worth noting that local-level PES schemes may also undermine adaptive capacity. The initial modifications to local economies will involve some transitional instability. This can make communities more vulnerable in the short-term. For instance, changing or altering watershed access or timber harvest levels involves water or energy transition costs. It will take time to stabilize alternatives. If climate is indeed less predictable in the near future, communities may be much more vulnerable during transitional periods. Corruption is another issue. Corrupt PES stakeholders will easily undermine adaptive capacity if objectives shift away from long-term resource sustainability and community development.

1.4Climate Change Risks in Rugezi Wetlands of Rwanda

Local-level adaptive capacity in Rwanda faces particularly difficult challenges. Tiny, landlocked and located in southern equatorial Africa, Rwanda has a low natural resource base, high transportation costs, and limited land

14 Intergovernmental Panel on Climate Change. Climate Change 2007: Impacts, Adaptation, and Vulnerability. The Working Group II contribution to the IPCC Fourth Assessment Report. WMO and UNEP. 2007. 15 Department for International Development. The Impact of Climate Change on the Vulnerability of the Poor. Key Sheet 03. 2004. 12 availability. Coupled with high population growth and limited human capital development these issues underpin Rwanda’s struggle to rebuild following civil war and genocide in the 1990s. For all of these reasons the United Nations describes Rwanda’s development as “behind the starting line” in reference to the Millennium Development Goals (MDGs). In its assessment the MDG considered it “unlikely” that Rwanda would achieve Environmental Sustainability by 2015,16 and only offered meagre information on national progress indicators.

Rwanda’s MDG goal 1A, Poverty Reduction emphasizes population growth, governance, and purchasing power of the poor as particularly important factors for progress towards poverty reduction. Important factors for environmental sustainability are listed in goal 7 and include improved capacity for implementing environmental priorities, deforestation and biomass energy dependency, monitoring, community participation, and population growth. The need is clear. Rwanda’s environmental improvements need to integrate with governance and investment goals, while also considering, pro-poor and population density concerns.

Achievement of the MDGs will also result from improvements to the Rwandan energy infrastructure according to the United Nations Development Programme.17 Stable energy systems provide direct and indirect benefits for poverty and hunger reduction, education, and livelihoods which translate to improvements in economic growth.18

Experts believe climate risk management in Africa will focus on water resources.19 Because Rwanda’s climate change risks will primarily affect the reliability of its water sources it will, therefore, impact national dependence on hydropower for energy. Climate change will challenge progress towards the MDGs as well as stability of the energy sector. The International Research Institute for Climate Prediction (IRICP) considers climate information especially important for developing hydropower energy generation and irrigation opportunities in the East Africa region.20 According to Rwanda’s National Adaptation Programme of Action (NAPA) Rwanda risks two specific climate change scenarios21:

1. Prolonged seasonal drought, recurring in two or three successive years

2. Intense rains but lower total precipitation in rainy seasons

Rwanda’s northern region along the Democratic Republic of Congo and Ugandan border is most exposed to precipitation excess. Specifically, the northern districts of Gisenyi, Ruhengeri, and Byumba will feel impacts such as high precipitation, landslides, and landslips. As consequence these areas are at high risk for floods, soil degradation, destruction of habitat, reduced water quality, and destruction of roads and bridges. This will lead to destruction of biodiversity in humid zones, destruction of wetland plants in riverine zones, and destruction of infrastructures in low zones. This area has already incurred environmental degradation, disappearance of rare species, famines, human and economic loss, erosion, threats to human and animal lives, and disturbed transport and threat to economic and commercial sectors. Climate change will contribute to these historical

16 United Nations. Millennium Development Goals: Status Report on the Republic of Rwanda. http://www.unrwanda.org/undp/rwa_mdg_report_2003.pdf. Accessed August 2007. 17 United Nations Development Program. Mainstreaming Access to Energy Services: Experiences from Three African Regional Economic Communities. Regional Energy for Poverty Reduction Programme. Dakar, Senegal. May 2007. 18 MINIFRA. Energy Policy for Rwanda. Final Draft. Republic of Rwanda. October 2004. 19 Williams, James. Sustainable Development in Africa: Is the Climate Right? IRI Technical Report Number IRI-TR/05/1. Position Paper. International Research Institute for Climate Prediction. Columbia University, NY.2005. ; UN Water/Africa Division. Africa Water Vision for 2025: Equitable and Sustainable Use of Water for Socioeconomic Development. 2004. 20 Williams (2005) op cit 21 MINITERE. National Adaptation Programmes of Action to Climate Change. Republic of Rwanda. Kigali, Rwanda. December 2006. 13 anthropological and ecological issues. In response, Rwanda intends to take preventative measures against intense precipitation and erosion in the northern and western provinces.22

The case study project area –the Rugezi watershed–straddles districts in the northern province, and has had both moderate floods and moderate to severe drought exposures between 1998-2000.23 In the future, this area should expect increases in temperature, prolonged droughts, and high evapotranspiration. This will disturb the hydraulic cycle, increase vulnerability for low river flows, and reduce water levels in lakes and rivers. Lastly, this will impact local communities directly by declining aquatic ecosystems, creating new limitations and exposure to forest resources, and reducing hydroelectric production in Ntaruka and Mukungwa hydropower stations.24

Concern for the recent decade’s trend of decreasing rainfall levels and shortening of both rainy seasons has caused policy-makers to plan for this extreme in the Rugezi area.25 Any changes to rainfall patterns will affect agriculture, a sector which currently expects two rainy seasons and at least as many harvests. Erosion will be a principle factor in agriculture and this will impact food production and food security in the northern region. Particularly high siltation in wetlands and waterways may result. High mountainous regions will see destruction of anti-erosive systems, destruction of economic infrastructure, and a reduction of GDP and per capita revenues, increased food costs, and population migration. Major socioeconomic concerns are deforestation, desertification, overexploitation of lands and natural resources, dispersed rural habitat and high levels of poverty. In addition, Rwanda expects challenges to food production and industrial coffee and tea production. Subsistence farming is especially vulnerable.26 Adaptation will require significant social, institutional, and environmental buffering.

Map 1: National Erosion Risk Map for Rwanda27 * Rugezi Wetland

22 MINITERE (December 2006) op cit 23 Informational Maps provided by Liza Leclerc at UNEP on the Rwanda NAPA team. Nairobi, Kenya. February, 2008. 24 MINITERE (December 2006) op cit 25 Uwizeye, Jean Claude and Anne Hammill. (Februrary 2007) op cit 26 MINITERE (December 2006) op cit 27 Adopted from: Musahara, Herman. Personal communication. Powerpoint Presentation: Protection des bassins versants et conservation de l’eau et des sols au Rwanda. Kigali, Rwanda. September, 2007. 14 * Erosion risk increases sequentially according to the legend. Dark green areas have very low erosion potential and red areas indicate highest erosion risk. Rugezi wetland itself has low erosion potential. However, the surrounding highland hills have a medium to high erosion risk .

Three specific ecological risks for the Rugezi watershed are:

Risk 1: Hydro-potential will fall below required functioning levels. Investment in hydro-power as a national energy source will be inefficient. Rwanda’s national energy sector will dip into further crisis.

Risk 2: Competition for quality land will increase as will the challenges in raising livestock. Fuel-wood supply will be stressed. Rural economies will suffer.

Risk 3: Continued fuel-wood dependency will increase national carbon emissions.

In light of these concerns, the Rwanda NAPA identifies six national climate priorities listed in Table 1 below.

Table 1: Rwanda NAPA National Climate Change Priorities28

Ranked Priority Aim Reduce local vulnerability to quantitative and 1. Integrated water resource management qualitative water shortages and pollution (IWRM) damage due to climate change. 2. Implement hydro-agro-meteorologic early Improve information system and reduce local warning and rapid intervention information exposure to risks of extreme events and climate systems catastrophes. Improve adaptive capacity and promote non- 3. Promote income generating activities agricultural activities. 4. Promote intensive agriculture and animal Improve rural adaptive capacity through agro- husbandry. sylvo-pastoral systems.

28 MINITERE (December 2006) op cit 15 5. Introduction of climate resistant crop varieties. Improve adaptive capacity of farmers. Reduce dependency on, and exploitation of, 6. Develop alternative energy sources. firewood; reduce vulnerability of energy sector.

According to the International Research Institute for Climate Prediction (IRICP) achievement of the Millennium Development Goals hinges on proactive responses to climate variability. 29 A quick glance at Rwanda’s climate risks highlights how their inability to depend on stable resources will hamper consistent economic growth and progressive rural development.30 Climate information is especially important for optimizing resource benefits and economic planning.

2.0 Institutional Feasibility for Local-level Payments for Ecosystem Services

Experts continue to suggest that PES in developing countries remains “poorly tested.”31 One reason for this appears to be a lack of formalized assessment tools. This section compiles aspects of existing frameworks, guidelines, and criteria previously proposed by leaders in the PES field in order to formalize an institutional feasibility for local watershed PES in a developing country. A local background analysis, a case study analysis, and a stakeholder analysis substantiate the basis for the chart design as well as the conclusions drawn from it. The background analysis provides details on potential buyers, sellers, and community constraints, as well as a status report on the existing environmental conditions and geographic area. The case study analysis uses these site characteristics to compare the Rugezi watershed situation to other PES schemes which operate under similar objectives and conditions. Finally, the stakeholder analysis discusses particular attributes of local Rwandan actors who may fill traditional roles in a potential PES scheme. The completed feasibility chart summarizes the local Rwandan conditions using a structured framework designed by combining various existing opinions on PES design requirements. A complete chart for the Rugezi Watershed can be found in Appendix 1.

2.1 Institutional Feasibility Assessment Chart

Because the implementation of PES touches on non-environmental issues of poverty, health, and business responsibility, the background assessment, international case study comparison, and stakeholder analysis are not enough to understand the realistic feasibility for PES implementation. A more cohesive feasibility for instituting a PES scheme in the Rugezi watershed depends on numerous factors that are only beginning to emerge in the literature. This section describes the various analytical approaches used to describe and prioritize significant PES implementation factors. Though PES exists within different income levels and at differing geographic scales, this section filters this information for the local-level, developing country context. This section concludes with a cohesive local-level PES Institutional Feasibility outline, formed by combining aspects of existing frameworks, guidelines, and criteria previously proposed by leaders in the PES field. The complete chart can be found in Appendix 1.

PES implementation requires five phases according to the World Agroforestry Centre (ICRAF): (1) conceptual design, (2) scoping, (3) brokering, (4) negotiation, and (5) implementation.32 Case studies do not specify what

29 Williams (2005) op cit. 30 Department for International Development. Climate Change in Africa: Increasing climate variability is compounding vulnerability in Africa. Development planning needs to consider current and increasing climatic risks. Key Sheet 10. 2004. 31 Wunder, Sven. Are Direct Payments for Environmental Services Spelling Doom for Sustainable Forest Management in the Tropics? Ecology and Society 11(2):23. 2006. 32 Iftikhar, Usman Ali, et al.. ( 2007) op cit 16 actors guide each phase, but it appears international NGOs, such as ICRAF, or other intermediaries take the lead, or at least guide government or private sector involvement. Within this process, there are four main approaches to the conceptual design for PES schemes. Conceptual design is particularly important for identifying appropriate willingness to pay values. Willingness to pay will determine the compensation exchange between buyers and sellers, and, more or less, suggests an opportunity cost for ecosystem services. Therefore, assembling the criteria for the institutional feasibility of local-level PES depends on a synthesis of these design approaches.

Conceptual design first requires a clear characterization of the PES scheme given the financial scope, geographic scale, and conservation objective of the existing situation. The financial scope ideally includes an evaluation of opportunity costs, or tradeoffs, for either using a resource in one way or another, or between short- term and long-term conservation planning. The design should recognize the flow of both environmental and economic benefits. Components from cost-benefit considerations proposed by the World Conservation Union (IUCN), Center for Environmental Economics and Policy in Africa (CEEPA), and the World Bank are useful for this feasibility.33 The geographic scale recognizes whether the scheme intends to incorporate local, regional, or global externalities. For example, a watershed PES scheme attempts to manage local investment and local resource goals while a climate stabilization PES scheme attempts to manage global and local investment with global climate goals and local forestry goals.34 The conservation objective ideally recognizes both qualified and quantified ecosystem service improvements.

According to Sven Wunder at the Center for International Forestry Research (CIFOR), given this existing situation a proper PES design must then ensure that the scheme (1) delivers services contingent on payments, (2) is based on a mutual and voluntary definition or use of the resource, (3) is pro-poor by reducing inequality in the negotiation phase or by ensuring additional financing to poverty-stricken sellers, and (4) is realistic. These criteria are widely referenced, though they are not formally recognized, or even consistently demonstrated in PES schemes.35 These four design criteria explicitly characterize the compensation mechanism – what the payments are, how and to whom they are made, how they are distributed, and their frequency– and are intended to be indicators for scheme effectiveness. A good deal of institutional stability is required for these four conditions to exist.

The design of the compensation type will rely on the capacity of individual actors and the political, social, and private sector context. The Ecosystem Marketplace suggests several general transaction types, three of which are applicable to a local-level PES scheme in a developing country: (1) direct public payments, (2) direct private payments, and (3) tax incentives.36 The feasibility for these options rests with the level of government involvement. Forest Trends also offers a useful chart that incorporates relevant conceptual design components, government involvement, and institutional support considerations.37 The Katoomba group – a branch of Forest Trends – alternatively uses specific, national-level, analytical charts to inventory PES in East Africa. These

33 Pagliola, Stefano, von Ritter, Konrad, and Joshua Bishop. Assessing the Economic Value of Ecosystem Valuation.. Environment Department Paper No. 101. IUCN. Oct 2004.; The Center for Environmental Economics and Policy in Africa (CEEPA) offers an example of this: Mkanta, William, and Mathew Chimtembo. Towards Natural Resource Accounting in Tanzania: A Study on the contribution of Natural Forests to National Income. CEEPA Discussion Paper Series. September 2002. http://www.ceepa.co.za/dispapers/tanzanian_study.pdf; Experts at the World Bank developed a chart to organize the impacts, costs, and benefits for a case study in China: Giupponi, C., Goria, A., Markandya, A., Sgobbi, A., "A Pilot Study on Payment for Ecological and Environmental Services in Lashihai Nature Reserve, China", forthcoming in "Payment for Ecosystem Services". The paper was presented at the Ninth Biennial Conference of International Society for Ecological Economics on "Ecological sustainability and human well-being", New Delhi, India. 15-18 December 2006. 34 Wunder (2005) op cit; Huberman, David, and Tobias Leipprand. (2006) op cit 35 Wunder, Sven. (2005) op cit 36 Conservation Backgrounder. Ecosystem Marketplace. http://www.ecosystemmarketplace.com. Accessed 6/14/2007. 37 Waage, Sissel, Scherr, Sara, Inbar, Mira, and Michael Jenkins. A Guide to Conducting Country-Level Inventories of Current Ecosystem Service Payments, Markets, and Capacity Building. Forest Trends. July 21, 2005. 17 charts are helpful as well, but are primarily tools for post-implementation description rather than pre-design assessment.38

Conceptual design can also relate to specific actors. The World Bank, ICRAF, and the Tyndall Center among others are particularly concerned with the impact PES designs have on the poorest of the poor, especially concerning equity and legitimacy of poor stakeholders.39 Some experts believe that consideration may, or should, be the make-or-break indicator of PES success. Along a different vein, WWF and Forest Trends look to incorporate big business – important and influential investors - into PES designs. Therefore, conceptual design could include attractive corporate marketing to entice the private sector to use PES to improve their competitive advantage.40 The feasibility for institutional PES should consider both of these actors, their inputs, and resulting impacts.

Lastly, conceptual design must ensure additionality – the guarantee that the scheme is producing an ecological or socioeconomic result that would not have occurred otherwise.41

To summarize, conceptual design for local-level PES should consider:

 financial scope: cost-benefit analysis, opportunity costs, benefit flows  geographic scale: local-level, global-to-local-level  conservation objective: qualified and quantified ecosystem service improvements  mechanism design: (1) delivers services contingent on payments, (2) is based on a mutual and voluntary definition or use of the resource, (3) is pro-poor by reducing inequality in the negotiation phase or by ensuring additional financing to poverty-stricken sellers, and (4) is realistic  type and delivery of compensation  poorest of the poor  private sector involvement  additionality

The effectiveness, and therefore the feasibility, of local-level PES depends on these factors. The PES Feasibility Chart uses twelve sections to assess these conceptual criteria. These sections include (1) background information, (2) site ecosystem service valuation, (3) PES scheme type, (4) PES Stakeholders, (5) PES Mechanism, (6) Institutional support for PES, (7) Scaling up the PES model, (8) PES Risks, and (9) PES Benefits, (10) Funding, (11) Awareness, and (12) Implementation. Ultimately, this is a qualitative chart and it cannot answer “yes” or “no” to whether the Rugezi watershed is a viable PES option. However, it can suggest a relative feasibility for Rugezi describing the opportunities and pitfalls associated with conceptual design. The

38 Mutunga, Clive and Samuel Mwangi. Inventory for Ecosystem Service Payment in Kenya. Katoomba Group in conjunction with BEA International and Kenya Resource Centre for Indigenous Knowledge. March 2006; Ruhweza, Alice and Moses Masiga. An Inventory of Initiatives/Activities and Legislation Pertaining to Ecosystem Service Payment Schemes (PES) in Uganda. Katoomba Group, Forest Trends. Septmeber 2005. 39 Iftikhar, Usman Ali, et al.. ( 2007) op cit; Corbera, Esteve, Kosoy, Nicolás, and Miguel Martínez (October 2006) op cit; Pagiola, Stefano, Arcenas, Agustin, and Gunars Platais (2005) op cit; Salzman, Jim. “The Promise and Perils of Payments for Ecosystem Services.” International Journal of Innovation and Sustainable Development. 1: 1,2 2005. ; Corbera, Esteve, Brown, Katrina and W. Neil Adger. “The Equity and Legitimacy of Markets for Ecosystem Services.” Development and Change. 38(4), 2007. 40 “Why Invest in Ecosystem Services? A Business Brief from Forest Trends”. www.forestrends.org. Accessed 7/12/07. ; WWF. 2006. Ecosystem Services and Payments for Ecosystem Services: Why Should Businesses Care? WWF Forum to Promote Ecosystem Services and Payments for Ecosystem Services. Accessed June 2007. http://assets.panda.org/downloads/business_brochure_1.pdf 41 Smith, Mark, Groot, Dolf de, and Ger Bergkamf. PAY: Establishing Payments for Watershed Services. IUCN. Gland, Switzerland, 2006. 18 list below describes specific assessment categories and questions included in the chart. The following Section 2.2 provides the content information to complete the institutional analysis framed in this chart.

 Background Assessment  Project location  Resource conflict  Opportunity costs  Are there existing sustainable development activities in place at the site?  List current PES in this country  Climate change risks  Ecosystem Service Valuation  List of ecosystem services  Is the ecosystem service scarce or declining?  Is the economic activity linked to the ecosystem service relatively important or potentially so?  Are the substitutes for the ecosystem service expensive or unavailable?  Are there multiple suppliers who will compete to provide the service?  Are there new markets for the ecosystem service, such as consumers or companies who use more expensive alternatives?  Is there a strong link between land use actions and watershed service? How is this demonstrated?  PES scheme type  PES scheme type: climate stabilization, hydrologic regulation, or biodiversity benefits?  Motivation for scheme: environmental, pro-poor, other?  Scale: local, regional, national, international  Approach: (area based, public scheme, private scheme, asset-building, use-restricting, product-based)?  Stakeholders  Potential stakeholders  List of sellers  List of buyers  List of intermediaries  List of donors  What are the opportunities for private sector involvement for: (1)value-added goods and services, (2) cost saving, (3)regulation compliance, (4) voluntary PES, (5) selling ES to government agencies  Mechanism  Potential compensation type: individual monetary payments, improvements in public services, local infrastructural improvements, improved land tenure?  Number of shareholder transactions needed/extent of transaction costs?  Structure of the deal  How do payments flow?  Is/does the scheme: (1) realistic, (2) based on mutual voluntary definition and use of resources, (3)deliver services conditional on payments, and (4) reduce inequality in the negotiation phase or ensuring additional financing to poverty-stricken sellers?  Institutional support  Does a national regulatory framework support or inhibit PES?  Do landowners have clear, legal rights to sell ecosystem services?  Do community organizations have right to sell/approve/reject deals?  Is there government support for reducing the risk of PES?  Are there any additional laws/regulations/administrative rules required for development of PES?  Are there any institutions that support PES?  What institutions are needed to help support PES?  Are there local support organizations established?  Are local people able to decide how PES funds will be spent?  Scaling up  Are there ecosystem service bundling opportunities?  Is there an opportunity to be part of a PES network?

19  Has a national assessment of potential future sites for ecosystem service deals been conducted?  Has a national assessment of buyers been conducted?  Is there technical assistance available for identifying and establishing PES markets?  What are the indicators for monitoring success?  Has a cost-benefit analysis been done?  What is needed to support PES?  Risks  Has a financial and risk analysis been conducted?  Is there potential for  loss of livelihoods and income due to restricted land uses or natural resource extraction?  reduced health and reduced food security resulting from loss of access to natural resource based foods?  increased land prices resulting from an increased demand for land?  inequitable distribution or resource power if wealthier and more powerful groups have a greater ability to pay or participate?  loss of cultural heritage due to abandonment of traditional resource use?  loss of employment due to reduced harvesting rights, reduced labor needs, or if excess labor cannot be redirected to other income generating activities?  loss of control, flexibility, and/or local participation over local development options especially if contracts specify a narrow range of management alternatives?  skewing of local power structures or power base resulting from an unequal distribution of rewards?  increased competition resulting from markets that lead to the further marginalization of weaker groups?  How does this schemes influence the poor?: reduces vulnerability, increases access to decision-making processes, increases access to social and health services, and improves environmental quality in addition to enhancing material wealth.  Is there cause for concern for “moral hazards” in the type of PES incentive?  Benefits  Are there existing analyses on local benefits from the project?  Is there potential for  increased land/resource tenure or property security resulting from formalization of property rights?  improved human and resource health resulting from investments in medical facilities, conservation and pollution mitigation, and decreases in environmental health risks?  strengthened social institutions resulting from cooperative arrangements that support evolving markets?  skill development resulting from training such as in natural resource management?  improved recreation and cultural opportunities resulting from environmental conservation and the protection of cultural heritage and religious sites?  diversified and increased rural income resulting in lessening household vulnerability and risks from shocks, and increased diversified incomes/goods?  increased productivity resulting in more sustainable farming and forest systems for local livelihoods?  improved human well-being and improved livelihoods due to environmental enhancement?  improved business and market organization resulting in local communities, fostering and enabling future growth and economic development?  increased food security from sustainable farming, technology, and knowledge?  increased access to alternative or clean energy?  Funding  What type and source of financing is available?  Awareness  What is the level of awareness of valuation or PES?  Who disseminates information on valuation or PES?  Are there training and education resources available? 20  Implementation  Are there experts in ecosystem service monitoring and evaluation in country?  What is the timeline for the design, scoping, brokering, negotiating, and implementing phases?

2.2 Rwanda Background Analysis

The local background analysis provides an ecological and social assessment that describes Rugezi watershed ecology, local livelihoods, and the energy sector. It then looks at PES as a tool specifically for watershed ecosystem management, PES as a tool in Rwanda, and PES as a tool in Africa. Finally it highlights relevant environmental policies and projects of other actors.

Frequent government modifications to local political boundaries make it difficult to demarcate watershed management responsibility. For this reason, this paper will speak of the general watershed area as “Rugezi**.”42 2.2.1 Ecology and Social Assessment

42* *Rwanda has recently called this area “Rugeziruhondo” watershed as well, see www.rwandagateway.org. Accessed 2/15/08 ; The Ramsar Convention officially terms this watershed “Rugezi-Bulera-Ruhondo”. www.wetlands.org Accessed 2/2008. 21 Map 2: 2006 Rwanda Province Map43

Lake Rugezi Bulera Wetland Tanzania Lake Ruhondo

Democratic Republic of Congo

Rwanda holds 8.1 million residents at an average population density of 328 people square kilometers, and a population growth rate of 3.1%. Approximately, 83% of the population is rural, and 60% of the population lives below the poverty line. Agriculture accounts for 43% of GDP and 90% of population employment. 44 Additionally, the 1994 genocide significantly disrupted environmental data collection, shifted community and political boundaries, and hampered community knowledge of environmental issues. In this setting, the Rugezi watershed project area hosts some of the country’s extreme statistics in terms of poverty, degradation, migration, and malnutrition. Below are sections outlining the Rugezi watershed community, the Rugezi watershed catchment and ecosystem services, and the local and national energy situation relating to the Rugezi watershed.

43 UNHCR. Rwanda Province Map as of June 2006. Rwanda National Institute of Statistics. 44 MINITERE (December 2006) op cit 22 Rugezi Catchment: The Rugezi* wetlands sit in the northern highlands of the Northern Province, an area which straddles the former provinces of Ruhengeri and Byumba.45 Sixty-six percent of the watershed lies in former Ruhengeri and 33% lies in former Byumba.46 The total area of the wetlands is 6,735 hectares. Dominant topographical characteristics include rolling hills, wetland lowlands, and a climate of 16-17 °C. The upland hills typically have slopes between 35-60%, fragile soils, and extensive erosion. Land cover surrounding the wetlands consists of shrub plantation and rain-fed herbaceous crop. A small percentage of forest plantation exists, mostly of invasive Eucalyptus, Pinus, or Cypress species.47 Rwanda observes two rainy seasons per year.

As a highland peat bog (2050 meters), the health of this wetland significantly determines the rate, quantity, and quality of gravitational water flows that supply the Mukungwa river and in turn, supply Lake Bulera* and Lake Ruhondo resting 200 meters below. Lake Bulera and Ruhondo are Rwanda’s two deepest lakes and play a principle role in national hydropower production. Lake Bulera occupies 5280 hectares, with a maximum depth of 174 meters, and Lake Ruhondo occupies 2610 hectares, with a maximum depth of 68 meters. In the last decade water levels in Lake Bulera dropped 4 meters and levels in Lake Ruhondo dropped 1 meter. 48 Experts cite overall precipitation changes and decades of anthropogenic stress in Rugezi as causes for these reductions. 49

Map 3: Rugezi Watershed50

45 Cited in (data from 1981-1991): Republique Rwandaise. Ministere de L’agriculture, De L’elevage et Des Forets, Direction du Genie Rural et de la Conservation des Sols. Rapport Global Definitif phase 1 Annexe 2 Etude Hydrologique. Kigali, Rwanda. August 2002. 46 UNDP/UNEP/MINITERE. Economic Analysis of Natural Resource Management in Rwanda. 2007. 47 Musahara, Herman. Personal Communication with maps derived from the National Institute of Statistics in 2004. Kigali, Rwanda. September 14, 2007. * The spelling of Lake Bulera is uncertain; HELPAGE (2004) and EA II (2007)use “Bulera”, all maps use “Burera” 48 REMA. Economic Analysis of Natural Resource Management in Rwanda. With UNDP and UNEP. Republic of Rwanda. Kigali, Rwanda. December 2006. 49 Hategekimana, Sylvère and Emmanuel Twarabamenye. The impact of wetlands degradation on water resources management in Rwanda: the case of Rugezi Marsh. 5th International Symposium on Environmental Hydrology. Cairo, Egypt. September 2007. http://www.irst.ac.rw/IMG/pdf/Paper_for_V_International_Symposium_on_En_Hydrology1.pdf. Accessed 3/2008 50 Adopted from: Republic of Rwanda. Mission D’Etude de la Conservation et de la Gestion Intégrée du Marais de Rugezi et de son Bassin Versant. MINALOC and HELPAGE. Kigali, Rwanda. May 2004. 23 Lake Bulera Direction of water flow

“Kamiranzovu ” RUGEZI WETLAND

Ntaruka hydro-station

“Hondo”

Lake Ruhondo Mukungwa hydro- station

“Rusumo” (Hategekimana, and Twarabamenye 2007)

“Rusumo” (HELPAGE 2004)

In general, the northern part of Rugezi is ‘severely degraded’, whereas the southern sections are still functional.51 This is shown in Map 4. Rugezi’s principle ecological issue is a declining water storage capacity caused by anthropogenic uses. Agriculture, drainage projects, poor land management practices, and population density greatly contribute to erosion, vegetation changes, and soil changes. These factors directly affect turbidity of water, water flow rates, vegetation filtration potential, soil absorption potential, and weather buffering capacity of the wetland. Downstream, the outflow of the affected wetland carries high sediment loads and demonstrates an altered flow pattern. Intelligent restoration of this area would involve several phases. Foremost, minimizing human impact is key. Reducing the amount of cultivation and habitation on the wetland is a first consideration. Modifying land management practices of existing farmers and dwellers is a second and imperative consideration. An efficient restoration plan would target areas for both of these considerations in order to minimize cost and maximize ecological impact. In Rugezi, these targets will likely focus on the northern Kamiranzovu region where degradation and human encroachment is highest, and or on the Rusumo region which is the source of outflow52 These targets will play a large role in the PES scheme design; farmers in these regions would be the most likely “sellers.”

51 Hategekimana, Sylvère and Emmanuel Twarabamenye. (2007) op cit 52 Republic of Rwanda. (May 2004) op cit 24 Design of a restoration plan highly depends on available hydrological, vegetative, and soil data. Without this information it will be impossible to set baselines, targets, and efficient goals. On the other hand, some areas of the wetland may already suffer permanent degradation. Therefore, the level of potential restoration success is uncertain at this point in the scoping analysis. Map 4: Degradation in Rugezi Wetland53

Data sources differ on principle characteristics of Rugezi. Firstly, conflicting nomenclature for the two principle valleys and wetland subsections makes it difficult to understand hydrologic properties and flow directions. Input and output flow sources are important for identifying and prioritizing restoration targets as well as identifying downstream hydro-potential. Overall, Rugezi lacks formal, scientific data collection and a thorough hydrological analysis is required to assess the ecological feasibility of a conservation funding scheme. For informational purposes available nomenclature and measurement details are listed in Table 2 and described on Map 3. Table 2: Compilation of Available Hydrologic Data for Rugezi Water Flows

53 Hategekimana, Sylvère and Emmanuel Twarabamenye. (2007) op cit 25 Hydrologic Data Available for Rugezi Water Flows

Rugezi ecology according to HELPAGE (2004):

The shorter, northern valley of Kamiranzovu is 9km and 2.5km at maximum width and the second, principal valley stretches 26km and is 3 km at maximum width to the southeast. The principal valley of Rugezi splits into two branches – to the north east the branch is called ‘Hondo’ and to the south west it is called ‘Rusumo’. Rusumo contributes approximately 25% of the flow to Kamiranzovu. 54 Flow from the southwest Rugezi valley –Rusumo- to Lake Bulera is 2m3/s.55

Rugezi ecology according to scientists at Rwanda’s Institute of Scientific and Technological Research and the National University of Rwanda (2006):

‘Rusumo’ refers to the northern part of the central valley of Rugezi and also names the principal outflow stream of the wetland. Seasonal precipitation determines flow rates in Rusumo which vary between 0.43 (dry season) and 5.72 m/s2 (rainy season). Rusumo’s outflow determines 50% of the inflow to Lake Bulera.56

54 Republic of Rwanda. Mission D’Etude de la Conservation et de la Gestion Integree du Marais de Rugezi et de son Bassin Versant. MINALOC and HELPAGE. Kigali, Rwanda. May 2004. 55 CITT/KIST. Energy Baseline. UNEP-GEF Pilot Project on Reducing the Vulnerability of the Energy Sector to the Impacts of Climate Change in Rwanda. Project Report. Kigali, Rwanda. August 26, 2006. 56 Hategekimana, Sylvère and Emmanuel Twarabamenye. (2007) op cit 26 Map 4: Rugezi Wetlands Cultivation and Natural Vegetation57

High cultivation areas

High natural vegetation areas

57 Republic of Rwanda. (May 2004) op cit 27 The total flows from the Rugezi wetlands have international importance for the Nile River Basin. The Nile River Basin claims 67% of Rwanda’s national territory and drains 90% if its national waters through the Nyabarongo and Akagera Rivers. Water flows out of Rwanda into Lake Victoria and thus contributes roughly 8-10% to the White Nile waters. In order to plan for continued joint resource use, Rwanda participates in regional watershed management and belongs to the New Partnership for African Development (NEPAD), the African Minister’s Council on Water (AMCOW), the Nile Basin Initiative (NBI), and the East African Community (EAC).58 The Rugezi wetlands became part of the Ramsar convention in 2001, officially designating it as a wetland of international importance. Additionally, degradation of this catchment threatens 60% of the world population of Bradypterus graueri, a warbler species that lives in Rugezi. Regional actors are, therefore, likely invested in the storage capacity of Rugezi as well. Map 5: The Nile River Basin59

Over the past century, various economic activities have damaged the wetland ecosystem. Up until 2001 Rwanda’s Ministry 10% of Agriculture supported wetland drainage for socioeconomic purposes. Over the last decade, several international organizations Rwanda  tried and failed to re-engineer wetland canals and improve agricultural development of the marsh. General declines in water flows also inspired the hydroelectric utility to intervene in environmental engineering. In efforts to improve flow to the lakes and increase flows to the hydroelectric turbines, the electric utility drained large sections of the wetland, only to see even greater reductions in the water table as result.60 As result of these poor policies and planning measures, Rugezi now suffers irresolvable, permanent ecological and socioeconomic problems. Ecologically, Rugezi has abnormally high velocity, runoff, and storm peaks that compromise flow. Recent drainage also permitted greater community access to the wetland for agriculture, leading to increases in cultivation, and a wetland-dependent agricultural economy.

In general, Rugezi watershed performance is due to (1) poor design of water control works, (2) unclear property rights and access to wetlands, and (3) inadequate technical skills in rural engineering. Subsequent watershed degradation has led to (1) reduced agricultural output of downstream farmers from low water quantity or flooded crops, (2) pollution and degradation of drinking water, (3) landslides and floods causing property

58 MINITERE. Politique Sectorielle De L’eau et de L’Assainissement. Republic of Rwanda. Kigali, Rwanda. 2004. 59 Obtained from Google Maps under “Nile River Basin” search. Accessed 2/23/08. 60 Hategekimana, Sylvère and Emmanuel Twarabamenye. (2007) op cit 28 damage and deaths, and (4) degradation of water quality and quantity. It is likely that conversion of some wetlands has resulted in damages that outweigh benefits of agricultural output.61 Rugezi Community Assessment The Rugezi watershed straddles the Musanze, Burera, and Byumba* districts in the Northern Province of Rwanda. These two provinces host the highest population density of all Rwanda’s rural areas. Density statistics vary between 415 – 600 people per square kilometer in this area,62 with a total population estimated at 120,000 people.63 The upstream watershed population in Rugezi wetland inhabits the southern part of the Burera district and a small part of the western Byumba district. The downstream watershed population –surrounding the lakes- inhabits both the Musanze and northern Burera districts. The upstream population has just as much responsibility for wetland and lake management as the downstream population. However, a significant number of rural people do not technically have rights to their land, and this affects the responsibility a household feels towards land upkeep. Rural land tenders vary between ancestral possession where land is passed through family lines, and a more traditional, commercial deed possession.64

The Rugezi population is entirely rural; 70% of the population inhabits or cultivates a parcel next to or in the Rugezi wetland itself.65 Therefore community welfare depends on wetland conditions and rainfall. A recent study suggests the majority of inhabitants manage 0.25 hectares or less, and depend on the wetland valley even if their plot is some distance away. Since the Rugezi watershed sits in the highlands, steep slopes are also an issue. Agriculture is practiced on slopes up to 80% grade. The local population practices subsistence farming, growing 2-3 crops at a time, on an average of 0.75 hectares.66 Sustainable farming practices such as crop- rotation, fallow fields, and agro-forestry are not well followed, which is partially due to the small size of land plots. Main crops in order of amount produced are beans, sorghum, sweet potatoes, maize, and vegetables. Livestock in order of farmer preference are cows, pigs, goats, sheep, poultry, bees, and rabbits.

Map 6: 2008 Rugezi Districts - Musanze, Burera, and Byumba67

61 Republic of Rwanda (May 2004) op cit 62 Republic of Rwanda. (May 2004) op cit ; MINITERE (December 2006) op cit 63 UNDP/UNEP/MINITERE. Economic Analysis of Natural Resource Management in Rwanda. 2007. 64 MINITERE. National Land Policy. Republic of Rwanda. Kigali, Rwanda. February 2004.; Republic of Rwanda. ‘Organic Law No. 08/2005 of 14/7/2005 Determining the Use and management of Land in Rwanda’. Kigali, Rwanda. July 2005.; Musahara, Herman. Improving Land Tenure Security for the Rural Poor: Rwanda- Country case study. FAO Support for the Empowerment of the Poor Working Paper #7. Workshop for Sub-Saharan Africa. National University of Rwanda. 2006. 65 Republic of Rwanda. (May 2004) op cit 66Republic of Rwanda, ‘Organic Law No. 08/2005 of 14/7/2005 Determining the Use and management of Land in Rwanda’. Kigali, Rwanda. July 2005. 67 CITT/KIST. Community Vulnerability Baseline. UNEP-GEF Pilot Project on Reducing the Vulnerability of the Energy Sector to the Impacts of Climate Change in Rwanda. Project Report. Kigali, Rwanda. August 26, 2006. 29 Byumba

Alternative income activities for these districts have been minimized by environmental problems. A reduced water table has nearly eliminated boat transportation and fishing from the rural economy in all but the southern tip of the wetland. In effect, access to local markets has dropped and access to markets in Tanzania and Uganda has become impossible. Crop agriculture, herding, fishing, artisan crafts, and honey-making have significantly declined due to wetland degradation. 68 Comparative prices for these activities in 2004 are listed in Appendix 2. Local collectives form around these employment activities in groups of 10-33 individuals. A non-inclusive list of these collectives is described in Appendix 3.

In Rugezi, 25% of children between 6-17 years of age have never been to school and 50% of the population over age 15 knows how to read and write. Women tend to have less education, but are involved more than men in agricultural production (52% to 38%, 1998). Main diseases include Malaria, diarrhea, intestinal parasites, Tuberculosis, dental infections and HIV-AIDS. According to the MDGs, PopulationByumba has one densityof the highest district rates of malnutrition (47%). Minimal to non-existent water piping infrastructure supports the watershed communities. Households typically spend at least ½ hour per day collectingin Rugeziwater as well wetland as considerable time transporting it. Per capita water consumption in rural areas is approximately 8.15 litres, far below the 20 litres/day national standard.69 Map 7: Population Density in Rugezi Wetland70

Population growth continues to change the agriculture system and settlement. This includes the decrease in land holding size, the increased fragmentation of holdings, the cultivation of bottom lands and steep slopes 68 UNDP/UNEP/MINITERE. (2007) op cit 69 MINITERE. Sectoral Policy on Water and Sanitation. Republic of Rwanda. Kigali, Rwanda. October 2004. 30 previously used as pasture and woodlot, and the decrease or omission of fallow periods. A 1997 estimate of annual soil erosion suggests it is an economic cost of 2% national GDP.71 Invasive Eucalyptus species continue to infiltrate the ecosystem, causing erosion, and a cycle of degradation for the local people who have grown dependent on this fast-growing source of fuel-wood.72

Lack of land, lack of fertilizer, need for improved seed, and few pesticides are listed as challenges to agriculture production. Few families invest, at least 80% of income is spent on food, and many would benefit from access to micro-credit programs.73 Rugezi weekly per capita income was less than 1181 Rwandan Francs according to Rwanda’s ministry of economic planning in 2002.Error: Reference source not found Agriculture contributes 43% of the Rwanda’s GDP and comprises 72% of exports. A recent economic analysis suggests wetland management can bring significant contributions to economic growth; currently 15% of expected GDP growth in agriculture is due to wetlands.74

Rural Rugezi farmers feel pressures to produce agricultural yields yet environmental conditions, population densities, and low educational and technology levels limit productivity. On the other hand, modifications to this lifestyle and livelihood practices would involve a fair amount of household risk. In order to be “sellers” in a PES scheme the farmers’ risks associated with modifying income streams must be extremely low. Therefore, the compensation provided to farmers in the scheme would need to clearly outweigh the opportunity costs of changing professions in the long-term.

70 Republic of Rwanda. ( May 2004) op cit 71 UNDP/UNEP/MINITERE. (2007) op cit 72 Huggins, Chris, and Herman Musahara. Land Reform, Governance and the Environment: The Case of Rwanda (Draft). Paper Prepared for 4th Regional Session of the Global Biodiversity Forum for Africa, White Sands Hotel and Resort, Dar es Salaam, Tanzania. African Centre for Technology Studies. Kigali, Rwanda. June 9-11 2004. 73 CITT/KIST. Community Vulnerability Baseline (2006) op cit 74 UNDP/UNEP/MINITERE. ( 2007) op cit 31 Figure 1: Over-cultivation. Ruhurura, Byumba district. Northern Province, Rwanda. September, 2007.

Rwanda’s Energy Situation: In the last few years water shortages caused an energy crisis. This has increased the number of concerned stakeholders involved in Rugezi’s watershed management. Energy demand in Rwanda is approximately 900 megawatt-hours of electricity per day (2004).75 Hydroelectricity supplies 97% of this demand, with the remaining 3% coming from fossil fuels. Various government ministries as well as the electric utility company are now critically aware of wetland mis-management and climate change risks.

The Rugezi watershed currently supplies Rwanda with 90% of its total electricity through two main hydropower stations, the Ntaruka and Mukungwa stations located in the Rugezi watershed.76 Current stations also operate at only 30-50% efficiency for various reasons.77 Several other, micro-hydropower stations operate in the Northern Province, but their exact location, water sources, and energy contributions have not been formally identified. Available details about these stations are listed below in Table 3.

75 REMA. (December 2006) op cit 76 Uwizeye, Jean Claude and Anne Hammill. (Februrary 2007) op cit.; CITT/KIST. Energy Baseline. UNEP-GEF Pilot Project on Reducing the Vulnerability of the Energy Sector to the Impacts of Climate Change in Rwanda. Project Report. Kigali, Rwanda. August 26, 2006. 77 REMA. (December 2006) op cit.; UNDP/UNEP/MINITERE. ( 2007) op cit 32 Prioritizing hydropower for energy investment depends on the future of Rwanda’s energy grid mix. A review of available data suggests hydropower is the most logical and capable energy source in the next 5-10 years. However, thermal, solar, and methane power are future potential options for additional sources of energy. Current estimates suggest thermal power has the potential for 170-340 megawatts. Cloudy weather prevents solar power from being more than a minimal source but it is currently used to electrify public buildings, health centers, schools, and governmental buildings. In the near future, with proper extraction equipment, Rwanda expects Lake Kivu to supply 500-700 megawatts worth of methane energy. In the meantime, Rwanda’s 2004 national energy policy strives to conserve energy by reducing fuel-wood consumption by 15% in 2007, charcoal consumption by 20% in 2007, and increase the number of urban consumers using improved stoves to 20% by 2010.78

For this PES case study, it is important to note there are major differences between urban and rural uses of energy, and therefore differences in the distributional outcomes of an increased water table. Electricity only comprises 1% of total energy consumption, largely in the rural areas. The majority, 94-97%, of the population use wood, shrubs, dung, and detritus biomass for their energy needs. 79The communities of the Rugezi watershed have extremely limited electricity access and use firewood or biomass and kerosene for 100% of their needs. The required infrastructure for this service will take at least a decade to achieve. In the short term, any improvement in hydropower infrastructure or wetland management will benefit the urban population, mostly in Kigali who uses 60% of generated electricity.80 Because of this, urban electricity consumers are important stakeholders in this analysis.81 Table 3: Rwanda’s Hydropower Sources

Available Data on Principle Hydropower Stations of Rwanda82

Ntaruka Station: Lake Bulera feeds the Ntaruka station which stands between Lake Bulera and Lake Ruhondo. Since 1976 it has used three turbines for a total energy production capacity of 11.25 MW. However, climate changes, ecosystem degradation, and human resource challenges limit production at only 1 MW. The flow rate from Lake Bulera is above 12 m 3/s when all turbines are running at full capacity, which exceeds the flow rate of water from Rugezi to Lake Bulera.

Mukungwa Station: The Mukungwa station operates at the south-western point of Lake Ruhondo from where it receives its water flow. Although it has had the capacity to produce 12.5 MW since 1982, it produces only 3 MW due to climate changes, ecosystem degradation, and human resource challenges. The annual average flow rate for this station at full capacity is 5.6 m3/s.

Micro-hydropower Stations: Rwanda’s ministry of infrastructure identifies 160 potential sites for micro-

78 MINIFRA. Energy Policy for Rwanda. Final Draft. Republic of Rwanda. October 2004.; REMA. ( December 2006) op cit 79 MINITERE. Rwanda National Environmental Policy. Working Draft. Republic of Rwanda. Kigali, Rwanda. 2003. 80 UNDP/UNEP/MINITERE. (2007) op cit 81 CITT/KIST Energy Baseline (2006) op cit; MINIFRA (October 2004) op cit 82 CITT/KIST Energy Baseline (2006) op cit; MINIFRA (October 2004) op cit 33 hydropower with an expected capacity range of 20-600 kW. The Kigali Institute of Science and Technology (KIST) identifies up to 1900 kWh additional hydro-potential from micro-hydropower stations currently under construction.83

The recent crisis forced Rwanda to rely on supplemental diesel imports, leading to costs of up to $65,000 U.S. per day for diesel generation, though only 2% of the Rwanda population uses electricity. 84 Frequent power shortages pushed some customers and businesses to buy their own generators. National electricity prices have tripled from 18 Rwandan Francs per Killowatt-hour to 42 Rwandan Francs per Killowatt-hour since 1997. In order to make services more affordable, Electrogaz, the national para-statal energy utility company, will need to secure more customers. However, communication and coordination between Electrogaz and government ministries is minimal and has been cited as a major gap in policy progress for the management of the Rugezi watershed.85 On the positive side, conservation behaviour is now widely advertised, especially for water saving strategies and electricity efficient lighting.86 These factors play an important part in the utility’s involvement as a PES “buyer.”

Concern for declining water tables led Electrogaz to perform large-scale drainage project in the Rugezi wetland in the last decade. The intention to increase flow quantity and rates clearly backfired – Rugezi now suffers longer term effects, such as vegetation and soil changes. In addition to this event, Kigali’s Center for Innovations and Technology Transfer (CITT) lists the following factors as highly responsible for reductions in Rugezi’s hydro-potential87:

 Increases in energy demand, largely in urban areas  Reduced flow of tributaries to and water levels of Lake Bulera and Lake Ruhondo  Insufficient rainfall and drought  Poor land practices  Inadequate servicing and maintenance of stations, and the age of stations  Increases in agro-processing (principally coffee, tea, wheat, pyrethrum, maize)

The principle ecological issue – as much as data suggests – is that these factors have significantly limited the storage capacity of the wetland. In turn, this affects groundwater recharge rates, the filtrations capacity, and flow characteristics. In response, the Rwandan government is strongly considering temporarily ceasing hydropower production at Ntaruka and Mukungwa stations for up to 3 years in order to reinstate normal water levels. This is realistical if other micro-hydropower operations, solar, thermal, or methane energy can relieve national energy demand.

Alternatively, the government can invest in hydropower management. Immediate priorities for the hydropower sector are (1) reinstating adequate water flow levels, (2) enhancing station production efficiency, and (3) monitoring rainfall patterns.88 The energy sector can also expect additional stress from climate change impacts.

83 KIST’s list of hydropower and micro-hydropower stations currently under construction are listed in Appendix 4. Geographic locations are not given. Mutabazi, Richard. Personal Communication. KIST. Kigali, Rwanda. November 1 2007. 84 Poverty Environment Initiative. Guidelines for Mainstreaming Environment in the Economic Development and Poverty Reduction Strategy. REMA. Kigali, Rwanda. 2007. 85 Disi, Denis. Personal Communication. Electrogaz. Kigali, Rwanda. September 11, 2007.; Musahara, Herman. Personal Communication. Kigali, Rwanda. September 14, 2007.; Kabutura, Michael. Personal Communication. Center for Resource Analysis. Kigali, Rwanda. September 13, 2007. 86 Electrogaz website: http://www.electrogaz.co.rw/. Rwanda’s national para-statl hydroelectric utility company. Accessed 2/25/2008. 87 Uwizeye, Jean Claude and Anne Hammill. (Februrary 2007) op cit 88 CITT/KIST. Energy Baseline. (2006) op cit 34 Expected reductions in rainfall and increased rain intensity will further stress the water table, wetland functions, and alter flow rates. The utility company and the ministries of the Rwandan government have a very clear interest in using environmental management to offset the current crisis. Economic growth will certainly depend on the potential development of both the electric utility and water infrastructure. Right now, these two objectives depend on wetland management in Rugezi. 2.2.2 Watershed PES and the African Context

PES schemes differ by four principle objectives: climate stabilization, biodiversity protection, aesthetic beauty, and hydrologic regulation.89 The Rugezi watershed case study assesses local-level ecosystem services; therefore this paper only analyzes the potential for a PES scheme to support hydrologic regulation. The first part of this section highlights components of watershed PES that differ from a standard PES scheme. The second part of this section outlines the specific ecosystem services attributed to the Rugezi watershed. Despite the prolonged overuse of the Rugezi area, the United Nations Environmental Program only recently collaborated with Rwanda’s environmental ministry to value its wetland ecosystem services. On the other hand, although the PES concept only emerged a decade ago in Africa, a few recent developments suggest Rwanda’s interest in it may be timely. Development of regional PES networks and major interest by large agencies, such as the World Agroforestry Centre, provide context for scheme development in Rwanda. The final portion of this section reports on current PES work in Eastern Africa. Watershed Payments for Ecosystem Services Typically, the distribution of government revenues and not the value of the ecosystem services determine investment for watershed management.90 Watershed PES reverses this perspective; the value of the services determines the investment and direction of environmental management. Clearly, under this scenario, valuation will differ by watershed and this determines institutional design.91 This aligns well with Africa’s Vision 2025 project which envisions “institutional arrangements” and “demand-responsive approaches” to be the future drivers of water resource development.92 Forest Trends, a leader in research on watershed PES emphasizes that innovation “is the name of the game” in watershed management. As testament to this motto, there are three popular methods for financing watershed management. These differ principally by level of government involvement93:

 self-organized private deals : These occur when there is individual private sector incentive to invest and there is little to no government involvement in watershed management. These deals are usually managed by an intermediary NGO.  trading schemes : These occur when governments set standards or caps regarding water quality or emissions pollution.  public payment schemes : These occur when the public sector or government pays for the ecosystem service of a local watershed through taxes, bond issues or user fees.

Decisions over scheme design also relate to the size of the watershed. Leaders in the watershed PES field note that smaller watersheds tend to benefit more from private deals, larger ones from public initiated systems. 94 By

89 Wunder (2006) op cit 90* The term “PES for hydrologic regulation” is interchangeable with “watershed PES”. Johnson, Nels, White, Andy, and Danièle Perrot-Maître. Developing Markets for Water Services from Forests: Issues and Lessons for Innovators. A collaboration of Forest Trends, World Resources Institute, and the Katoomba Group. 2001. 91 Postel, Sandra L. and Barton H. Thompson, Jr. Watershed protection: Capturaing the benefits of nature’s water supply services. Natural Resources Forum. 29 (2005). 92 UN Water/Africa Division. Africa Water Vision for 2025: Equitable and Sustainable Use of Water for Socioeconomic Development. 2004. 93 Johnson, Nels, White, Andy, and Danièle Perrot-Maître. (2001) op cit 94 Johnson, Nels, White, Andy, and Danièle Perrot-Maître. (2001) op cit 35 population levels and international impact potential, Rugezi is a large watershed. But targeting sections of the Kamiranzovu region can narrow PES scheme management. Competing Demands for Rugezi Watershed Ecosystem Services A value conflict exists for the Rugezi wetland. The wetland currently has two uses: it is a community resource and a source for national energy development. Upstream wetland inhabitants desire improved water quality and quantity. Downstream utility stations and national electricity consumers want increased water flows from Rugezi. Both objectives would benefit from proper, natural, wetland management. However, upstream users have no income or livelihood alternatives than to use the wetland for agricultural or handcraft purposes. The utility also sees no other option than to support agricultural prohibition and immediate, extensive rehabilitation. The immediate needs of the local community are incongruous to the immediate national energy needs.

In the long term, the Rwandan government wants stable energy infrastructure and an intact wetland. Additionally, Rwanda wants to increase its national tourism sector from $26 million U.S. to $100 million U.S. by 2010 – with a large focus on ecotourism. Improving access and marketing of rural areas such as Rugezi can play an important part in this objective, especially near Rusumo falls which can be accessed on the way to Volcano National Park.95 However, current policy structures, funding shortages, and meagre technology are not able to encourage behaviours that could achieve either wetland objective. The Rugezi watershed continues to lose ecosystem services while reduced water flows from the Rugezi headwaters, sedimentation build-up around the hydropower facilities, and changes in rainfall patterns all increase the demand for Rugezi’s ecosystem services.

There is good, fundamental reason for this conflict. The Rugezi watershed is a rich ecosystem and it supports many services. Table 4 below outlines Rugezi’s current ecosystem services according to the Millennium Ecosystem Assessment categories – provisioning, regulating, supporting, cultural services. In some ecosystems service studies, data on tradeoffs for these different service uses exist. Rwanda currently does not have such an analyses but a collaboration of United Nations Development Program, United Nations Environmental Program, Rwanda’s environmental ministry, and local economic consultants recently started producing a literature foundation for this sort of study.96

95 CITT/KIST. Community Vulnerability Baseline. (2006) op cit; UNDP/UNEP/MINITERE. ( 2007) op cit 96 See: Poverty and Environment Initiative. Project. Pilot Integrated Ecosystem Assessment of Bugesera. UNEP/UNDP/GOR. Kigali, Rwanda. January 2007. 36 Table 4: Rugezi Watershed Ecosystem services97

Ecosystem Services of the Rugezi Wetlands

 Provisioning: - Medicinal plants - Building materials - Hunting/fishing - Biomass for fuel - Water for downstream hydropower facilities - Agricultural production: food crops, tea  Regulating: - Stabilizing river banks and lowering the potential of landslides - Water quantity-related:  Flood prevention, control and mitigation  Regulating runoff /sediment control  Supporting water storage in the soil  Facilitating groundwater recharge/water supply - Water quality-related:  Withholding sediments  Reducing erosion  Improving water infiltration  improving the quality of surface water and groundwater/waste processing  Supporting: - Biodiversity  Fish spawning grounds  Habitat for migratory birds  Possesses 60% of the World’s population of Bradypterus graueri  Cultural: - Recreation - Aesthetic - Spiritual benefits

In Table 4 the regulating, supporting, and cultural services are the non-marketed ecosystem services which would find value through a PES scheme.

Watershed Payments for Ecosystem Services in Africa

PES is a tool for watershed management around the globe. Schemes exist most extensively in Latin America and, in the past 10 years, have gained momentum in South East Asia and Eastern Africa. In East and South Africa the Katoomba Group and ICRAF are largely responsible for research and operation of PES. However, neither operates in Rwanda.

Since the late 1990s, the Katoomba group – an international working group that also runs the Ecosystem Marketplace - has built an East African PES network. Consequently, they lead in the understanding of ecosystem services and implementation of payments for ecosystem services at the local level in this region.

97 Adapted from: UNDP/UNEP/MINITERE. ( 2007).; REMA. (December 2006) op cit 37 Katoomba monitors the implementation of multi-resource, local-level PES schemes in Tanzania, Kenya, Uganda, Madagascar, and South Africa. These programs exist in various states, but are mostly just getting off the ground. Operational barriers largely rest on the failure of money to actually change hands between buyers and sellers.98 Trust and perception of risk are major causes of this. Despite these setbacks, the establishment of a PES network that includes Malawi, Ethiopia, Namibia, Zimbabwe, Botswana, Lesotho, Swaziland and Zambia is underway.99 The most successful and direct projects in these areas involve ecotourism, where communities find very direct benefits from resource management. However, despite the energy and investment available to develop PES in Africa, PES has still been described by Katoomba journalists as “slow and complicated.” 100 Recent experiments with bundled forestry and carbon PES in Tanzania and Uganda may be enough to turn the tide on this.101

PRESA (Pro-poor Rewards for Environmental Services in Africa) is a new information sharing network coming into official form in January 2008 through ICRAF. ICRAF intends to operate core and associate PES sites across Kenya, Tanzania, Uganda, and Guinea largely based on watershed management.102

Though Rwanda is not a country currently considered103 for exploration by these networks, its geographic proximity to Tanzania, Uganda, and Kenya invite the possibility for shared-learning and adaptation. Regional PES networks also facilitate support for integrated and trans-boundary schemes which are a real issue for Eastern African countries who share major resources and water basins.

2.2.3 Rwanda Environmental Policy Context

In the environmental policy arena, Rwanda has a few initiatives and a few gaps. A few recent developments characterize Rwanda’s environmental regulation framework: (1) the establishment of an implementing agency underneath the environmental ministry in 2005 (Rwanda Environmental Management Authority), (2) decentralization of environmental responsibility, and (3) the establishment of a National Fund for the Environment.104 These efforts should increase Rwanda’s ability to handle environmental challenges.

However, continuous modification to the environmental policy structure in the last decade hampers Rwanda’s ability to monitor, implement, and manage environmental conditions and projects. In particular, communication between the relevant ministries – environment, infrastructure, economic planning and finance, agriculture, and tourism - is inefficient or non-existent. As result, involvement of the private sector in environmental management is extremely limited. Two examples of this are particularly relevant for understanding PES design involving climate change. First, although the environmental implementing agency now requires environmental impact assessments the private sector is still not responsible for best management practices 105 and suffers no penalties. Second, the Ministry of infrastructure rather than the ministry of environment monitors climate change issues. As result, feedback mechanisms for climate concerns are weak. Communication barriers also

98 Alice Ruhweza, director of Katoomba East Africa, explains that Katoomba does not currently have partners or members on the ground in Rwanda, and this limits its inclusion in the network. Personal Communication. July 2007. 99 See http://www.katoombagroup.org/africa/pes.htm. Accessed August 23, 2007. 100 Austin, Jennifer. March 15, 2006. Payments for Ecosystem Services in Rural Africa. Katoomba Group, Ecosystem Marketplace, Online Community Forum. http://www.ecosystemmarketplace.com/pages/newsletter/cf_africa_07.html Accessed August 1, 2007. 101 Katoomba Group Newsletter. http://www.katoombagroup.org/documents/newsletters/Vol2_No1.html. Accessed. 2/24/2008. 102 Yatich, Thomas. Personal Communication. ICRAF. Nairobi, Kenya. September 6, 2007. 103 Ruhweza (July 2007) op cit 104 Republic of Rwanda, ‘Organic Law No. 04/2005 of 8/04/2005 Determining the Modalities of Protection, Conservation and Promotion of Environment in Rwanda. May 2005. Kigali, Rwanda. 2005 105 Best Management Practices (BMPs) : commonly referred to as effective programs, standards, methods, or technologies, for preventing, reducing, or removes pollution. 38 limit enforcement capacity, which is a particular concern for the parties involved in the Rugezi watershed problem.

Funding is another issue. Financially, the environmental sectors (environment, agriculture, energy, and water and sanitation) roughly receive 2.5% of GDP, of which an average of 50% is realized. 106 The Rwandan government created the environmental implementing agency in 2005 to expand funding and infrastructure to enhance sufficient environmental policy.107 But cost-benefit analyses for the environment are not formal procedure.108 Recent decentralization offers a new community development fund structure which would reallocate 5% of their budget to environmental management activities.109 The new National Fund for the Environment is another tool for conservation and pollution prevention. Both projects are still struggling to be effective. The environmental ministry would likely support PES as a means to enhance infrastructure and secure funding for wetland projects.110 PES also may instill improved resource utilization attitudes, stimulate productivity, and have the ability to engage in economic market reforms.

Current resource policies also present noteworthy boundaries to the Rugezi watershed issue. Table 4 below lists additional, specific policy concerns relevant to PES design in the Rugezi watershed. The table compares the national water policy, land policy, land law, agriculture policy, and energy policy, paying particular attention to the regulatory structures, focal issues in the coming years, and gaps in the policies relevant to wetland management.

Overall lack of procedures, standards, and enforcement mechanisms could be both an opportunity and a limitation for a PES scheme design. With governmental support, PES could assist Rwanda to achieve conservation objectives and create incentives for policy transition. However, without proper government support, or under a poor design, a PES scheme might confuse these objectives. Specific land and agricultural policy objectives suggest additional PES design concerns.

Land tenure is a huge issue and often limiting factor to implementation of PES schemes. Significant numbers of landless persons farm scattered plots in the Rugezi watershed due to a lack of registration systems. Continued existence of customary and written land law poses challenges for development. Existence of numerous small landholdings will make transaction costs high for PES schemes. Use of local Land Bureaus will be essential for a PES scheme to consolidate costs and transactions. However, the transfer of land tenure rights could be used as compensation in the PES scheme. At the local level ensuring that the poor are included in national land policy requires investment in farm micro-credit, supporting cooperatives for supply and marketing, and creation of extension services for implementation of land policy.111

Associations and cooperatives could play a primary stakeholder role in the organization of transactions and collection of fees in a PES funding scheme. Creating supporting infrastructure for an agriculture system would create a needed off-farm employment and alternative incomes. Indirect benefits of PES have been seen to enhance this sort of institutionalization. A mandate of 50 meter wetland buffer already exists, but is poorly monitored, and weakly enforced. Lack of a policy infrastructure opens the opportunity for PES to serve as an incentive for better wetland environmental management. However, a watershed PES scheme may be inhibited by the lack of organization and institutional monitoring mechanisms.

106 Poverty and Environment Initiative. (January 2007) op cit 107 REMA. Poverty-Environment Indicators and Strategy for Monitoring them within the framework of the EDPRS. Center for Resource Analysis Limited. Kigali, Rwanda. March 2007. 108 Poverty and Environment Initiative (January 2007) op cit 109 CITT/KIST. Community Vulnerability Baseline (2006) op cit 110 REMA. (March 2007) op cit 111 Musahara, Herman. Improving Land Tenure Security for the Rural Poor: Rwanda- Country case study. FAO Support for the Empowerment of the Poor Working Paper #7. Workshop for Sub-Saharan Africa. National University of Rwanda. 2006. 39 Table 4: Specific Policy Measures Which Relate to Watershed PES in Rugezi, Rwanda

National Policy Operation

Water Policy (2004)112  Governed by ministry of health  Relies on collaboration with other ministries (economic planning and finance, agriculture, infrastructure, health, education, community development)  Recently decentralized; funding for rural water supply and sanitation ties to community development funds  Limitations: monitoring, deforestation, erosion, adequate financing, human capital, and firm decentralization mechanisms  Objectives of NAPA IWRM: increase lake and river levels and water flows and protect humid zones, protect basin sides, ensure satisfactory drinking water, ensure satisfactory irrigation and industry water supply, reduce land loss due to erosion. Land Policy (2004)113  Governed by the ministry of environment  Lakes, waterways, natural reserves and parks, and natural reserve marshlands considered public lands; State private land includes economically viable marshlands.  Agricultural activities must be located 50 meters lake banks and 10 meters from rivers. Buildings must be 20 meters away. Reserved swamps are protected from all activities  Land policy faces three major challenges 1) land titling, 2) land scarcity/degradation, 3) land distribution.  Strong customary land laws exist outside of a formal deed structure Land Law (2005)114  Seeks to consolidate family plots into areas of 1 ha or more  The definition of marsh or ‘swamp’ land is vaguely given as the “plain area between hills or mountains with water and biodiversity, papyrus or carex or plants of their species.”  Wetland boundaries are defined as “where the marsh grass ends.”115  Environmental impact assessments are now required for any marshland development project, and there is increased scrutiny on the appropriateness of crop types for this ecosystem.  Annual district-level re-distribution of marshland forces landholders into a short- term management mindset. Agricultural Policy  Governed by the ministry of agriculture. (2005)116  Seeks to increase crop specialization in wetland areas (rice, maize, potatoes, soy, beans, tea, and coffee)  Focused on professionalism, commercialization, and promotion of agri-business for cereals, in of fishing, apiculture, and agriculture.  Reducing agricultural employment by 50% by 2020 is a national goal.  National cooperatives exist for tea, rice, and cattle breeding Energy Policy (2004)117  Governed by the ministry of infrastructure  Relies on collaboration of five ministries (infrastructure, economic planning and finance, agriculture, public service)

112 MINITERE. Sectoral Policy on Water and Sanitation. Republic of Rwanda. Kigali, Rwanda. October 2004. 113 MINITERE. National Land Policy. Republic of Rwanda. Kigali, Rwanda. February 2004. 114 Republic of Rwanda. (July 2005) op cit 115 KIST. Personal Communication. Ruhurura, Northern Province, Rwanda. September 2007. 116 MINAGRI. Nationale Politique Agricole. Republic of Rwanda. Kigali, Rwanda. 2007. www.minagri.gov.rw Accessed October 22, 2007.; MINAGRI. Strategic Plan for Agricultural Transformation in Rwanda. Republic of Rwanda. Kigali, Rwanda. October 2004. 117 MINIFRA. Energy Policy for Rwanda. Republic of Rwanda. Kigali, Rwanda. October 2004. 40  Rural energy policy focuses on 1) energy efficiency in irrigation and agro- processing, 2) energy alternatives and reductions in biomass as fuel, 3) using electrification to promote small-scale industry, and 4) linking energy policy and agricultural policy objectives.  An agency regulates national utilities.

Rwanda’s agricultural policy presents a different, long-term challenge. It prioritizes marshland for specialized crops and irrigation system development in order to increase production efficiency and to meet economic goals. Vision 2020 has fixed the following specific national objectives for the period 2002 to 2020 1) 90% of land will be protected against erosion, 2) 10000 ha of land on hills will be irrigated, 3) 40000 ha of marsh land will be developed, 4) 140 valley dams and water reservoirs on hillsides will be constructed.118 If these issues are not incorporated for planning, a PES scheme may fall apart when rural protection is overridden by growth policy. These objectives suggest conflict between the needs of local communities, agricultural development, sustainable wetland management, and hydropower needs. Specification of a timeline and procedure for these types of goals is crucial to maintaining a functioning PES scheme. PES may, alternatively, invite modifications to policy objectives such as irrigation plans. Detailed cost-benefit analyses can lay out these options more effectively.

Transboundary water policy is a final consideration for PES schemes in northern Rwanda. The East Africa Great Lakes Region considers regional interconnection and integration of power systems essential for economic growth and long-term planning. Regional cooperation and collective reliance on energy security is part of Rwanda’s national energy policy. As such, it is a member of the Nile Basin Initiative (NBI), the East African Community (EAC), and a member of the African Union (AU) which operates the Africa Energy Commission (AFREC). Discussions are underway for the construction of energy lines between Sudan, Egypt, Ethiopia, DRC, Rwanda, Burundi, Uganda, Tanzania, and Kenya, which are all members of the Nile Equatorial Lakes Subsidiary Action Project (NELSAP). Efforts are also being made to create a Kampala-Kigali pipeline.119 NELSAP soon plans to implement a hydroelectric power project on the Kagera River that shares borders with Tanzania, Burundi and Rwanda.120 A regional approach to the energy situation is viewed as both cost-effective and a strategic way to attract international investors.121 Rwanda also participates in the African Ministerial Conference on Water (AMCOW) to create trans-national cooperation, mechanisms, and dialogue for water management systems. Regional councils and regional PES networks in East Africa may find some interesting overlaps; incorporating long-term basin planning into Rwanda’s PES design may be a good idea.

Considerations for long-term PES will need to analyze the impact PES could have on regional water goals and conversely the impact regional water projects could have on PES. A PES scheme would need the support of these local organizations and would likely use the funds to channel compensation. Rwanda’s national environmental fund could streamline such a watershed PES scheme. Alternatively, regional collaboration could impede any PES implementation. Largely, the status of domestic policy institutions, ministries, and funds suggest there is support and motivation for a PES mechanism in Rwanda. 2.3 Case Study Analysis

This section uses an international case study comparison to situate the potential Rwanda project among other operational PES projects. A case study comparison should indicate if Rwanda's institutions – despite the support and limitations identified in Section 2.2.3 – provide a practical, feasible context for PES design. Secondly, it

118 MINAGRI (October 2004) op cit 119 United Nations Development Program. Mainstreaming Access to Energy Services: Experiences from Three African Regional Economic Communities. Regional Energy for Poverty Reduction Programme. Dakar, Senegal. May 2007. 120 Nile Basin Initiative. Nelsap to Implement $200 Million Power Project. News. http://nelsap.nilebasin.org/index.php? option=com_content&task=view&id=16&Itemid=49 Accessed 11/2/2007. 121 MINIFRA. Energy Policy for Rwanda. Final Draft. Republic of Rwanda. October 2004. 41 offers a contextual feasibility for watershed PES in Rugezi. Because PES schemes differ across a broad range of themes this comparison uses five principle characteristics of the Rugezi case study to identify other comparable schemes. These principle PES scheme characteristics are:

 involvement of a watershed (ideally a wetland catchment with excess agriculture production)  involvement of a hydropower utility company  poor upstream communities  existence of minimal regulatory frameworks  situated in a developing country

Three challenges impact the effectiveness of this comparison. First, differences in scale, scope, and objectives make it difficult to compare projects on a relative plane. For example, the relative involvement of a buyer depends on complex combinations of local political, economic, and social inputs that differ by country. Secondly, the typical PES analysis format is a non-standardized observational review. Most analysts describe only a few parts of the scheme crucial or comprehensible to that particular author. Thirdly, it is not always clear what level of operational success a case study has. PES schemes have different benchmarks for success and are not formally monitored. These three literature gaps limit the completeness and structure of this analysis. Therefore, this section summarizes general trends in the case studies, and then highlights a few specific examples which particularly align with the Rugezi context.

An in-depth literature review uncovered 14 watershed PES schemes existing across Latin America, Asia, and Africa. Below, Table 5 summarizes the 14 case studies fulfilling developing country watershed PES criteria.

Table 5: Summary of Comparison PES Case Studies in Developing Country Watersheds

Location Relevant, Principle Factors of the PES scheme

LATIN AMERICA

State of Paraná, Brazil122  $ channelled from national to municipal government  Competition exists between municipalities for funds Colombia123  National government finance project  Private companies are not permitted to initiate watershed management plans  Hydroelectric utility involved  Private sector involved  Watershed tax exists  $ channelled through decentralized government agencies Costa Rica124  National hydroelectric utilities involvement (Energía Global, Compañia de10 Fuerza y Luz, Hidroelectrica)  Local hydroelectric utility involvement (Heredia Public Utility Company)  Use of a national environmental fund (FONAFIFO)  Use of a local trust fund  Local NGO (FUNDECOR) is the intermediary  Direct monetary payments fund sellers  Direct investments fund infrastructure, including water system development Quito, Ecuador125  Water supply utility involved as buyer and intermediary  Private sector involved (a local brewery)

122 Johnson, Nels, White, Andy, and Danièle Perrot-Maître (2001) op cit 123 Perrot-Maître, Danièle and Patsy Davis, Esq. Case Studies of Markets and Innovative Financial Mechanisms for Water Services from Forests. Forest Trends and the Katoomba Group. May 2001. 124 Perrot-Maître, Danièle and Patsy Davis, Esq. (May 2001) op cit ; Redondo-Brenes, Alvaro and Kristen Welsh. Payment for Hydrological Environmental Services in Costa Rica: The Procuencas Case Study. Yale School of Forestry and Environmental Studies. Tropical Resources Institute. Tropical Resources Bulletin. Vol. 25. 2006. 42  Use of an environmental fund (FONAG)  Direct payments fund projects and infrastructure Pimampiro, Ecuador126  Users pay water service fees  $ channelled through municipal governments  Direct payments fund landowners ASIA

Lashihai Nature Reserve,  Tourist visitor tax China127  $ channelled through municipal government  Direct monetary payments fund farmers for watershed management Lake Toba, North Sumatra,  Private sector involved (Aluminum mining company) Indonesia128  District government is the seller  Use of local environmental fund (Nature Conservation Fund Lake Toba) Rinjani National Park, Segara  Water supply utility involved (PDAM) River basin, Lombok,  Private sector involved (Lombok Inter-Rafting Company) 129 Indonesia  Land and forestry tax exists  $ channelled through government to local administrators  Direct payments fund local administrators functions and farmers Cidanau Waterhsed, Banten  Water utility (PDAM) and a water infrastructure company (KTI) involved Province, Indonesia130  Private sector involved (Steel company)  $ channelled through local government forum (Cidanau Watershed Communication Forum)  Local fund is used through this Forum  Direct payments fund communities Sumberjaya Watershed,  Energy crisis caused by environmental degradation Indonesia131  Hydroelectric utility involved  Land tenure rights given as compensation by government (Social Forestry Program)  Direct payments from donors and utility fund communities  Direct payments from donors and utility fund farmers Kulekhani, Nepal132  Forested land is state owned, but locals have user rights  Hydroelectric utility involved  $ channelled through decentralized government agencies (District Development Committees)  Local fund is used (Environmental Management Special Fund)  Direct payments fund communities for projects and infrastructure AFRICA

125 Poats, Susan V. Report on the Latin American Regional Workshop on Compensation for Environmental Services and Poverty Alleviation in Latin America. April 26-28 2006. Quito, Ecuador. ICRAF Working Paper no. 33. World Agroforestry Centre. Nairobi, Kenya. 2007. 126 Poats, Susan V. (2007) op cit 127 Giupponi, C., Goria, A., Markandya, A., Sgobbi, A., "A Pilot Study on Payment for Ecological and Environmental Services in Lashihai Nature Reserve, China", forthcoming in "Payment for Ecosystem Services". The paper was presented at the Ninth Biennial Conference of International Society for Ecological Economics on "Ecological sustainability and human well-being". New Delhi, India. 15-18 December 2006. 128 Suyanto, S., Leimona, Beria, Permana, Rizki Pandu, and F.J.C. Chandler. Review of the Development Environmental Services Market in Indonesia. ICRAF. RUPES. 2005. 129 Suyanto, S., et al. (2005) op cit 130 Suyanto, S., et al. (2005) op cit 131 Suyanto, S., et al. (2005) op cit; Suyanto, S. Conditional Land Tenure: A Pathway to Healthy Landscapes and Enhance Livlihoods. RUPES Sumerjaya Brief No. 1. ICRAF. Bogor, Indonesia. 2007. 132 Upadhyaya, Shyam. “In Kulekhani, Nepal, a hydroelectricity scheme that used to rely on ‘command and control’ relations with the upland communities in their catchment now face more critical ‘sellers’.” Site Profile: RUPES Kulekhani. ICRAF. Bogor, Indonesia. 2007. 43 Nairobi, Kenya133  One catchment supplies 60% of Kenya’s electricity through hydropower (Mt. Kenya)  Hydroelectric utility is involved (Nairobi City Water and Sewage Company)  Direct payments fund individuals and communities  Direct payments fund projects Ga-Selati River, South Africa134  Transnational catchment involved  Water supply utility involved (Lepelle Water Board)  Private sector involved (Palabora Copper Mine, FOSKOR mine)  Government is a buyer through the Department of Water Affairs and Forestry Morogoro Region, Uluguru  Project currently in the planning phase Mountains, Tanzania135  Water supply utility involved (DAWASCO)  Private sector involved (Coca-Cola, and others)  Direct payments fund communities

Ten of the 14 case studies involve a water utility in the watershed funding scheme. Of these 10 water utilities, five describe themselves as hydroelectric utilities and five describe themselves as water supply or water infrastructure utilities.

Table 6 tallies the specific motivations for the 14 PES projects. Most projects have overlapping motivations and most did not directly list or prioritize goals, therefore, goal summaries are based on project content. In six and seven cases respectively, hydroelectric or commercial needs motivate watershed PES schemes.

Table 6: Watershed Management Goals of Case Study PES Projects

Number of projects Goal of case study PES projects motivated by this goal Flow stabilization 4 Hydro-potential improvement 6 Water quality improvement* 14 Water quantity improvement* 13 Commercial water demand** 7 Resource sustainability/preservation 7 Overall watershed management 5 Ecotourism demand 1 Disaster prevention 1 Corporate Social Responsibility 1 Incomplete, unknown or unspecified goal 2 Total Number of Projects 14 *Commercial and/or residential consumption **’Commercial’ includes both industrial and manufacturing companies. Listed firms include an orange grower and processor, a brewery, mining companies, a beverage manufacturer, a steel manufacturer, and an outdoor rafting company. These may or not be state-owned entities.

Unfortunately, explanations of existing regulatory context for PES case studies are brief, if included at all. As result, it is not clear what actor initiates the implementation of the PES schemes at the local level. In some

133 Yatich, Thomas. Personal Communication. ICRAF. Nairobi, Kenya. September 6, 2007. 134 Wise, Russell M., and Josephine K. Musango. November 2006. A Framework for decision-making using a cost- effectiveness approach: a case study of the Ga-Selati River. CSIR, Stellenbosch, RSA and IIED, London, UK. 135 Tesierra, Julio. “Equitable Payments for Watershed Services: A Joint CARE-WWF-IIED Programme funded by DGIS & Danida.” Presentation PEP Meeting. Copenhagen, Denmark. June 19 2007. 44 cases, creation of environmental funds or a new resource tax may inspire the PES funding mechanisms through government and private sector negotiations. Theoretically, watershed PES falls into one of three categories mentioned in Section 2.2.2 – the self-organized private deal, the trading scheme, or the public payment scheme. Realistically, the 14 cases indicate adaptive arrangements combining aspects of self-organized private deals and public payment schemes are most common in watershed management. Complete methodological understanding of these arrangements is fairly limited because observational project descriptions are brief. None of the case studies involved trading schemes.

In nine of the 14 case studies, local or regional government is responsible for payment distribution. In four of these nine cases, the government’s role in the PES scheme links to larger decentralization plans. In three of the 14 cases, the role of the government is unclear. In seven cases, taxes on a natural resource contribute to the funding scheme. NGO intermediaries - either multinational, local, or both - are used in eight cases. PES schemes incorporate environmental funds in 6 cases.

The mechanisms of these PES schemes overlap several political and financial boundaries. This section will not compare these mechanisms in depth because in depth transaction methods, payment schedules, and operational timelines are not a thorough feature of any case study. Table 7 below serves to organize the fundamental components of the 14 schemes. It lists types of buyers, sellers, and the varieties of compensation mentioned in the case study schemes. Socioeconomic status of buyers and sellers is not listed in most cases, but status of sellers is likely to be middle to lower class at developing country standards. For the most part, schemes tend to have one or two buyers and one seller. Terms listed are those used in the case study themselves.

Table 7: Case Study Analysis of Watershed PES Mechanism

Organization of Watershed PES Mechanism Buyers Sellers Compensation type  Hydroelectric utilities  Private landowners*  Continuous monetary  Water supply utilities  Local landowners payments** ($6-45/ha/yr***)  Industrial water users (small, medium, large)  Lump sum monetary  Water service users  Forest owners payments**  Eco-tourists  Village administrators/Water  Land tenure  Farmers who use irrigation user Associations  Fund distributions (yearly systems  Upstream communities monetary payments or  Downstream communities infrastructural support)  Government ministries and/or decentralized agencies *Landowners largely reside in critical watershed areas. **Monetary payments may be earmarked for specific activities, i.e. terracing, cultivation, and/or infrastructure, etc. ***2001-2007 U.S. dollars

PES case studies notoriously lack indicators for project success. These 14 case studies are no exception. As Section 1.3 of this document suggests, a few indirect benefits of PES stand out. In particular, several cases imply PES contributes to decentralizing government natural resource management. Environmental taxes, environmental funds, and NGO intermediaries are also common individual or joint components to watershed PES designs; PES may support these political components. High demand for PES – as represented in 10 different management goals (Table 7) – does not indicate success, but does suggest optimism for PES as a flexible conservation tool. However, lack of success indicators goes hand in hand with the lack of risk indicators. In only one case, the Morogoro watershed in Tanzania, is a PES cost-benefit analysis performed. In this case, the PES design - based on a private deal with the Coca-Cola beverage company- forecasts water

45 treatment cost reductions of 10% over 11 years, and 60% increases in land productivity in four years. 136 Risk assessment and difficult monitoring really need further evaluation in the case studies. At the bottom line, understanding the feasibility for PES design in Rugezi cannot be based on past “successes.” Instead, the feasibility can be understood by examining cases that face similar challenges to the Rugezi watershed case.

Four case studies particularly resonate with the socioeconomic conditions of the Rugezi watershed: the Colombia government PES watershed management, the ICRAF PES projects in the Cidanau and Sumberjaya watersheds of Indonesia, and the Ga-Selati River project in South Africa. These four deal with decentralized watershed management, community encroachment, hydro-power energy crisis, land tenure, and transnational catchment issues.

Decentralized watershed management – a goal similar to Rwanda’s environmental ministry and its new community agencies137 - is most clearly presented in the Colombia PES case study. In the last ten years, the Colombian government established regional agencies in order to improve watershed management. The national government, as well as local municipalities, contribute to funding these agencies. Therefore, both public and private revenues contribute to water quality, water quantity, and hydro-potential improvement. Specifically, this watershed PES scheme relies on a revenue stream comprising 1% of the total municipal budgets, 3% of hydroelectric utility revenue, and 1% of industry investments. Additional income pooling balances funding distribution across poor and wealthy watersheds.138

ICRAF addresses alternative livelihoods in two PES projects. These cases specifically model PES schemes around water utility needs and community encroachment on the wetland. ICRAF, through their regional PES network, RUPES, manages both the Cidanau Watershed, in the Banten Province and the Sumberjaya watershed in Indonesia. Both of these watersheds face intense agricultural production and encroachment of the local population onto wetlands. The Cidanau watershed uses a newly established watershed association to manage payments from the water utility companies who improve environmental management. Management techniques include planting forest cover in wood and fruit tree varieties which contribute to alternative incomes for the local population. Potential for industrial involvement exists in the future. The Sumberjaya watershed is most similar to the Rugezi context in that it faces landslide and soil erosion risk and pressure from an energy crisis due to disrupted water flows. In effect, Sumberjaya faces the same ecosystem valuation conflict as Rugezi – managing the livelihoods of inhabitants while supporting stable hydroelectric infrastructure. This PES scheme uses land tenure as compensation for best environmental practices. The model is designed to allow a government environmental ministry to distribute land tenure, while the utility company distributes payments to communities for infrastructure and environmental management projects.139

The South African case is the only study which discusses transnational water issues. South Africa, Botswana, Zimbabwe, and Mozambique share the Ga-Selati river catchment. Demand for water quality, quantity and flow in these areas is increasing, and regulations have not been effective at watershed management. As result, the PES model combines incentives of two mining companies, a water board, and a government environmental ministry –the buyers- to support a conservation organization, a local community, and an irrigation association – the sellers.140

These four case studies suggest it is plausible to initiate a PES scheme to address wetland encroachment and hydroelectric utility conflicts, to potentially involve transboundary water users, and to design a model to

136 Tesierra, Julio (2007) op cit. 137 Rwanda recently established Community Development Funds to improve distribution of environmental funds and management of environmental practices. Other decentralized agencies now also exist within specific ministries, such as Land Bureaus and Watershed management groups. 138 Perrot-Maître, Danièle and Patsy Davis, Esq (2001) op cit 139 Suyanto, S et al (2005) op cit; Suyanto, S. ( 2007) op cit 140 Wise, Russell M., and Josephine K. Musango (2006) op cit 46 establish revenue using a decentralized government framework. None of the Rugezi watershed characteristics is unique to a PES scheme, except that it is based in Rwanda. It appears that it is institutionally feasible to adopt Watershed PES to the Rugezi context.

2.4 Stakeholder Analysis

Rugezi’s specific stakeholder pool describes areas of potential resistance and areas of potential support. The stakeholders involved in the Rugezi context include local watershed farmers, the private sector, the para-statal hydroelectric utility, water consumers, government ministries, local agencies, and other agencies. The ease of managing the local negotiations, i.e. transaction cost, tends to be a barrier for PES scheme implementation. For each stakeholder, this section will describe (1) their level of interest in a scheme, (2) their level of influence in a scheme, (3) their role in the scheme, (4) their likely position on watershed PES, and also (5) the transaction costs involved to include them. Assessment of stakeholder opinions is in part based on personal communication, but, largely, these assessments are based on personal observation and contextual analysis.

Local Watershed Landowners Farmers in Rugezi prioritize stable shelter, food production, and stable natural resource access (wetlands, forest, lakes). They will be highly interested in a PES scheme if it enhances their livelihood in these ways and if it does so in a low-risk, long-term way. The potential PES scheme will compensate farmers for reducing encroachment on the wetlands and for completing sustainable resource practices. Farmer interest in PES will also depend on the opportunity costs of the compensation – they will have a high interest if compensation exceeds the alternative option which is continuing farming and inhabiting as usual; they will have a low interest if the scheme and/or policy does not offer suitable alternative incomes, or if these alternatives are not distributed fairly in the region. Getting farmers on board is crucial to the scheme; if this sector wavers, the PES model will be weak. The farmers have a strong influence on the PES scheme. Clearly, these farmers will act as sellers in the PES model. It is unclear how many sellers are necessary; potentially, only those farmers working in areas of highest degradation will be needed. Still, depending on this number, organization and negotiation costs of the transaction is likely to be high. Farmers are likely to support a scheme if it is designed well and fairly.

Private Sector The private sector includes mining companies (gold and columbo-tantalite), agro-processors (tea, coffee, rice and pyrethrum), agricultural cooperatives, and local collectives. Other PES case studies reveal the private sector tends to have an interest in watershed management if it impacts their direct supply. In Rugezi, the interest of mining companies and agro-processors is likely, but data is unavailable for how the water table and flow affects their production and bottom line. Agricultural cooperatives and local collectives are likely to have an interest especially if reduction in wetland farming limits particular crops. The opportunity for both industrial and agricultural producers to contribute revenue to the scheme is high. In this case, their inclusion would have a strong influence on the PES model. In a potential scheme, the private sector would act as buyers of watershed services. Data collection for the Rugezi case study did not include interviews with the private sector. Unfortunately, it is not clear whether the private sector would support the scheme or not, or to what extent. Negotiations with the private sector should be simple, and incur low transaction costs.

Para-statal Hydroelectric Utility Without official and implementable wetland policy the hydroelectric utility is likely to look beyond government support for resolution and relief to consumer demand pressure. The interest of the utility in a PES scheme is likely to be high, especially since firms have no authority to manage the sustainability of their natural resource supply chain in Rwanda. The utility’s influence on the project is necessary; the model will be inefficient if the utility organizes management outside of the model. The utility would fulfill the role of a buyer in the PES scheme. The utility has a strong incentive to support speedy recovery of the Rugezi wetland to enhance water flows and levels in the lakes. They will likely strongly support the scheme in order to reduce wetland 47 encroachment; the government describes ceasing hydropower production as the only short-term alternative. Transaction costs with the utility would be small.

Water consumers In many watershed PES schemes, a water user tax is placed on the water supply or electricity services. Coupled with a recent tripling of national electricity prices, an environmental tax will be an unpopular, and likely, unfeasible option in Rwanda. Contributions of consumer support could greatly influence both the PES revenue stream as well as the environmental ‘attitude’ of the country. Consumers would act as buyers in the PES scheme. The 2% of the population who use electricity may have income levels that could support the scheme. However, it is likely that they would not support the scheme from an income standpoint. Transaction costs would be minimized since the tax could be included in existing electricity bills.

Government ministries Government ministries may have a strong interest in using PES to support increasing environmental regulation. The Ministry of infrastructure which monitors and manages climate change impacts, the ministry of agriculture, and the ministry of environment will have stakes in PES because it might impact the water table, community organization, agricultural production, and environmental management. The government tourism agency may have an interest as well since PES could benefit Rugezi as an eco-tourist destination. The Rugezi area already anticipates ecotourism development following the electrification provided by new local micro-hydro plants. 141 The case studies suggest the government influence will be high since frequently ministries are responsible for distribution of compensation. Because no cost-benefit data exist to describe impacts to the private sector, and they themselves do not perform noteworthy environmental monitoring activities, it can be expected that the PES scheme will rely on government support. The government may act as a buyer or intermediary in both. The government will likely have a medium to high interest in PES to support environmental regulation; current policies are ineffective and pressure in the situation continues to build. Transaction costs for government involvement will be low to medium. Lack of inter-ministry communication may delay negotiations for the project.

Local Agencies Local NGOs and environmental NGO programs which individually support environmental protection projects may find a PES scheme supportive to their missions. These projects may be able to influence the fluidity of PES scheme implementation. Since several environmental projects in Rugezi are subcontracted through government agencies they may have the power to influence the design and performance of the scheme. These actors would likely fulfill the role of intermediary – and agent responsible for supporting negotiations between buyers and sellers. Local agencies will theoretically have the most realistic sense of the feasibility of compensating farmers for different practices, and thus investigation into their position is important. Local agencies may be supportive or resistant to a PES project depending on how a scheme could disrupt stability and management. Negotiation with local agencies is likely to be smooth, and involve low transaction costs.

Other Agencies The Nile Basin Initiative – a regional watershed organization – may have an interest in supporting PES schemes that improve water management for the Nile River.

In summary, four of seven stakeholders – farmers, the private sector, the utility, and the government ministries – likely have a high interest and high influence in the PES scheme, and would play a supporting role in its implementation. Local agencies may have significant interest while electricity consumers will likely be resistant to water user fees. Quantitative data could demonstrate these relationships more effectively. But because cost

141 Pierre, Tuyambaze. Personal Communication. Executive Secretary Butaro Sector. Kabahura, Northern Province, Rwanda. September 12, 2007. 48 and revenue data is mostly unavailable no cost-benefit analysis could be performed within the scope of this study.

2.5 Local-level PES Institutional Design Options in Rugezi Watershed

This section presents two general options for PES design in the Rugezi watershed given assessment criteria from the PES Institutional Feasibility Chart, a background assessment, climate change risks, a case study analysis, and a stakeholder analysis. Option 1: Rugezi Public Payment Scheme

The hydroelectric utility and or the private sector directly pay an environmental tax to the government through the environmental Ministry. The government determines the size of the tax based on a water use or watershed dependency ratio. The environmental Ministry could distribute this tax to decentralized agencies for improved environmental management, population relocation, and climate change monitoring related to hydropower. Taxes could also feed directly through the National Fund for the Environment in Rwanda. Using the national fund could leave the opportunity for scaling-up PES to involve carbon sequestration, ecotourism, or broader hydropower PES into the future. Demand studies could determine whether electricity consumers would agree to an environmental premium on their utility bills for the service and whether this would affect accessibility and growth of the service.

Decentralized agencies would be responsible for managing payments distribution. The Rwanda government needs to decide if compensation would be primarily monetary, or would include infrastructural improvements, or land tenure rights. This is called the “Public Payment Scheme” because it is initiated by the government. Option 2: Rugezi Private Payment Scheme

The hydroelectric utility and or the private sector directly pay local landowners to relocate and improve management practices. This amount is determined through cost-benefit analysis on the current and future economic losses incurred by these actors for continued watershed degradation. Payment distribution would be managed by intermediaries and/or decentralized local environmental agencies. The hydroelectric utility, intermediaries, and decentralized agencies need to determine the most effective form of compensation. Intermediaries also would manage the transactions, administration, and environmental monitoring required for this scenario. This is called the “Private Payment Scheme” because it is voluntarily initiated through the private sector. Scaling Up

There may be future opportunities to scale-up a watershed PES scheme using additional investments from ecotourism, carbon sequestration projects, and or other watersheds. Rwanda’s tourism bureau wants to increase long-term, high-end, eco-tourist, explorer, and individual business person visits, bringing the industry to $100 million U.S. by 2010. The Ruhengeri province in the Rugezi watershed is one area cited for eco-tourist investment.142 Secondly, the Reducing Emissions from Deforestation and avoided Degradation (REDD) policy may permit watershed preservation activities that impact forestry (as Rugezi’s would) to receive funding for sequestered greenhouse gas emissions. Depending on Rwanda’s capacity for reforestation or avoided deforestation future revenue streams to the global carbon market may be viable. 143 Thirdly, trans-boundary water management with countries in the Nile River basin (Uganda, D.R.C., Tanzania, Kenya, and Burundi) and

142 USAID. Rwanda Tourism Strategy, 2003. http://rwanda.usaid.gov/images/Docs/biodiversity/Rwanda%20Tourism %20Strategy.doc. Accessed October 13, 2007. 143 Olander, Lydia P. and Brian Murray. A new opportunity to help mitigate climate change, save forests, and reach development goals. Nicholas Institute for Environmental Policy Solutions. Duke University. NI WP 07-03. July 2007. 49 with the Nile Equatorial Lakes Subsidiary Action Project (NELSAP) – an integrated water resources management program -offers the potential for watershed PES support.144

3.0 Feasibility Summary

The Rugezi watershed faces several hydrological issues. It suffers a depleted water table, overly intense cultivation, and population encroachment on principle basin wetlands, significant erosion, and poor land quality management. In the future, this area is likely to contend with increased length and frequency of droughts. Climate change will also have an impact on society’s food production, income alternatives, and have an influence on population migration and health. In order to resolve and manage these issues, Rwanda must weigh the tradeoffs between short-term livelihood needs and long-term resource benefits. If Rwanda is able to conserve the Rugezi wetland and improve environmental management in this region, water quantity and quality should improve. As result, Rwanda will increase, to some extent, the value of the wetland’s provisioning, regulating, supporting, and cultural services. Improved ecological values would lead most directly to financial benefits for the hydroelectric and tourism sectors.

The aim of this document is to evaluate whether watershed PES in Rugezi would (1) inspire incentives for improved management, (2) contribute to capacity building and vulnerability reduction for climate change adaptation, and (3) help alleviate a critical energy problem. Determining whether PES can achieve these objectives rests on four feasibilities: feasibility of PES as a tool, feasibility of hydrologic response, feasibility of climate change adaptation, and a cost-benefit feasibility. This section develops recommendations for using PES towards these objectives. First, the section looks at the recommendations considering the potential for PES to contribute to climate change adaptive capacity. The second section looks at the feasibility of the Rugezi institutional structure to foster a PES tool. The last section looks at the feasibility for PES to achieve real hydrologic improvements, and therefore contribute to increased hydro-potential and overall energy sector resilience.

3.1 Feasibility for Climate Change Adaptive Capacity

Climate change predictions in Rwanda will require communities to adapt to higher precipitation intensities and less rainfall. Communities should expect increased erosion, decreases in land utility, higher sedimentation, and changes to water flow patterns. Agricultural cultivation will need modification for precipitation-specific crops and new land use patterns. The likelihood that local PES could buffer these impacts is mixed. Table 8 compares local PES’ contribution to adaptive capacity and whether these positive effects are additional – meaning whether they would occur anyway. Information in Table 8 refers to both schemes outlined for Rugezi in Section 2.5: the Public Payment Scheme – based on government initiation – or a Private Payment Scheme – based on private sector/utility initiation.

Table 8: Potential for Watershed PES in Rugezi to Achieve Adaptive Capacity Goals

PES Capacity Impact of Watershed PES in Would this Occur Will this increase Building Rugezi Without A PES Scheme? community resilience and reduce livelihood vulnerability caused by Climate Change?

144 Nile Basin Initiative. http://www.nilebasin.org. Accessed 2/23/2008.; Nile Equatorial Lakes Subsidiary Action Program. http://nelsap.nilebasin.org Accessed 2/23/2008. 50 The scoping phase of watershed PES Not likely. Possible, if management in Rugezi is likely to identify specific The conflict between the techniques, such as crop wetland areas for efficient, cost- hydropower utility and the choices, are applied to local effective management. This will inhabitants of the wetlands food production needs. But Improved improve the foresight and planning has remained static or not if environmental Environmental related to agricultural production, and increased in the last years. management prevents management & even crop selection. If compensation income activities. Monitoring is contingent on population relocation there could be immediate ecological benefits to the watershed, or at least these would be easier to initiate. Ideally, compensation to farmers Not likely. Probably. But it is would diversify their incomes, or No other income generating uncertain whether the (with or without the help of micro- activity is known in this resulting economic credit organizations) it could enable area. improvement would be a new livelihoods. This is highly significant buffer. Strengthened Local dependent on a regular payment Economies schedule. Delivery of land tenure rights could greatly support economic growth and the organization of infrastructure development. PES negotiations are likely to Not likely. Possible, if it improves support decentralization of Rwanda’s The best chance for institutions, knowledge, environmental management agencies, improved social capital in and equity. and give an incentive for different Rugezi without PES is the actors to come to the table. new community Communication between the development committees Improved Social government ministries (primarily and decentralized Capital environment, infrastructure, health, government agencies. and planning), businesses (such as However, these do not mining companies and agro- currently receive serious processors), and the utility company mention in current will logically increase or commence. government documents. Farmers who do not have a strong political voice may find one. Watershed PES does support Unknown how much Possible, if institutions and Support for Legal integrated water management trends support legal initiatives will systems are supported. Frameworks of the NAPA, and encroachment have, or how strict they reductions in the Land Policy. have the capacity to be. Ideally, government distributed Not likely. Possible, if institutions and funding for sustainable This is a current static knowledge develop. Increased Human environmental practices can develop problem for the Rugezi Capital new environmental management jobs wetland communities. and can initiate infrastructure work as well.

Local PES used for improving climate change adaptation capacity shows high additionality. Positive impacts to environmental management and monitoring, strengthened local economies, improved social capital, and human capital are not likely to occur without the positive incentives provided by a PES scheme. It is unknown whether legal initiatives would develop such outcomes on their own, or at least, whether they could do so under the

51 same timeline. Improvements in environmental management and monitoring and strengthened local markets are two outcomes of PES that have the highest probability of contributing to adaptive capacity.

Outside of this analysis there may be a conceptual risk involving a PES scheme in climate change. Climate change impacts are unpredictable. If the declining water table in Rugezi has significantly more to do with declining rainfall then anthropogenic issues in Rugezi, the scheme mechanism – where people receive compensation to relocate - may suffer. In this case, the payment scheme may be better suited to incorporate an environmental price premium on electricity consumer bills, than to compensate farmers to relocate or assume best practices. On the other hand, if agricultural modifications do contribute to an improved water table, calculating the improvement attributed to PES is logical, but statistically difficult. Long time series quantitative hydrologic models are really the only (impractical) way of resolving this dilemma. The elusiveness of this sort of data is the policy curse of PES. Rwanda’s environmental regulations will likely strengthen in the coming years. But the supplemental benefit of PES as a policy tool remains uncertain. In this case, it is helpful to remember that local PES is not designed to be a panacea for environmental management, but rather a supplement to existing local policy.

3.2 Institutional Feasibility

This paper defines institutional feasibility as the readiness of the political structures, the potential for successful PES design, and the reality of PES based on an international case study comparison. Politically, Rwanda offers a weak environmental policy framework. The environmental ministry is relatively young. Its overall communication with, and authority over, private and public agencies is uncertain. In addition, different governmental ministries seem to have conflicting plans for the Rugezi watershed. For instance, the ministry of agriculture plans to specialize in wetland crops while also greatly consolidate small farm plots. Alternatively, national land, water, and environmental policy intend to implement various wetland improvement projects and establish a wetland boundary to minimize use. Despite these overlaps, the Rwanda government would likely support implementation of a local-PES scheme as a supplement to environmental and economic policy. Given the steadily rising severity of the watershed energy crisis and lack of economic alternatives it has few other options.

The political structure shows mixed ability in, but high motivation to, fulfill local PES design criteria. The first three design criteria – financial scope, geographic scale, and conservation objectives – are somewhat in place. Escalating consumer electricity bills for PES buyers and income streams on the side of the seller offer preliminary opportunity costs. But the government needs a complete cost-benefit analysis to define the short- term and long-term costs associated with present and future degradation of the Rugezi watershed. This is important because the geographic scale of a Rugezi PES project has two options. A PES scheme could exist within the Rugezi watershed involving regional buyers and sellers. Or the scheme could involve the utility company’s national consumer base. Uncertainty in the causality for the water table decline (precipitation verse anthropogenic use) limit detailed conservation plans. This information will help determine the scale of an appropriate scheme. This will also help fulfill the third criteria – determining specific conservation objectives and targets in order to restore the Rugezi water table. Despite these gaps, a PES scheme seems likely to fulfill the additionality criteria for conservation objectives (Table 8).

Potential for successful PES design also rests on a proper payment mechanism. According to experts, Rugezi Watershed PES would ideally (1) deliver services contingent on payments, (2) be based on a mutual and voluntary definition or use of the resource, (3) be pro-poor by reducing inequality in the negotiation phase or by ensuring additional financing to poverty-stricken sellers, and (4) be realistic. Under the Public Payment Scheme option, the environmental tax would make PES non-voluntary. Under the Private Payment Scheme option, private sector and utility company involvement would be voluntary. Neither approach in this design phase could realistically ensure that services would be contingent on payments or that negotiations would be pro-poor even

52 if they are designed this way. This seems to be an on-going objective of other PES projects. Selecting an appropriate compensation method for buyers and sellers can help. For Rugezi, it seems likely that a mixed compensation package of infrastructural support (i.e. water pipelines, or cook stoves), land tenure rights, and financial payments (exceeding wetland agriculture benefits) would be necessary to overcome opportunity costs of wetland residents. A cost-benefit analysis could provide details for this selection. Regional Rwandan officials are keenly aware of the importance of contingent payments and pro-poor approaches.

The potential for successful PES design is mostly positive. The greatest uncertainties exist because the project lacks cost-benefit data. Despite this, a stakeholder analysis indicates the majority of actors have a high interest and high influence in the PES scheme, and would play a supporting role in its implementation.

In reality, 14 international case studies existing in Africa, Asia, and Latin America operate in similar context to the Rugezi watershed. These projects operate under similar constraints, with similar actors, and with similar motivations and similar environmental objectives. Cost-benefit data does not appear to have been a limitation for implementation of these PES designs. Four case studies particularly resonate with the socioeconomic conditions of the Rugezi watershed: the Colombia government PES watershed management, the ICRAF PES projects in the Cidanau and Sumberjaya watersheds of Indonesia, and the Ga-Selati River project in South Africa. These four address decentralized watershed management, community encroachment, hydro-power energy crisis, land tenure, and transnational catchment issues. Given these similarities Watershed PES design in Rugezi is feasible.

However, Watershed PES also invites various institutional risks. Improper design can cause concern for equity, poverty, and sustained environmental management.145 In particular, the Rugezi watershed could increase demographic issues if compensation (monetary, infrastructural, or land tenure) is delivered to one section of the wetland and not the other. In this case and especially considering historic ethnic conflict, it is crucial to ensure inhabitants are fairly brought to the decision-making table. In option 1, the Public Payment Scheme, the government will be responsible for careful negotiation. In option 2, the Private Payment Scheme, both the private sector and local authorities will incur this responsibility. Columbia’s national scheme handled equity pro-actively by pooling funding to ensure equitable watershed management and payment distribution across a larger geographic area. This case can be a useful guide. Conversely, relative instability in the Rwandan government - such as via frequent changes in ministry responsibilities and political boundaries – imply that the national organizational systems may not be realistically efficient at absorbing the changes a PES scheme would require. The likelihood that transaction costs in Rugezi will be high – due to both high population density and a nascent decentralized management structure – is another point for consideration. Largely, these are detailed mechanism questions appropriate for the second phase in the PES implementation process. As suggested above, other international case studies seem to manage such risks within an on-going development approach.

One risk factor – availability of land tenure - is a particularly “hot-topic” in developing country PES schemes. There is a global debate over the existence of land or property rights as a requirement for PES effectiveness. It appears that land tenure can simplify the PES mechanism in some cases, but complicate it in others. Another debate angle hinges on differences in management of common property resources and whether lack of property rights facilitates the management or detracts from it.146 The Rugezi watershed would clearly need to prepare for the existing challenges facing this factor. A thorough analysis of the ecosystem service ‘ownership’ of sellers, the level of collective ownership and the power relationships that result is vital to stability in the Rugezi area. 147 On the other hand, land tenure may be an effective carrot for previously unregistered plot tenders to integrate

145 Corbera, Esteve, et al (2006) op cit; Pagiola, Stefano, et al (2005) op cit; Salzman, Jim (2005) op cit; Iftikhar, Usman Ali (2007) op cit 146 Wunder, Sven. (2006) op cit; Corbera, Esteve, Brown, Katrina and W. Neil Adger. The Equity and Legitimacy of Markets for Ecosystem Services. Development and Change. 38(4), 2007. 147 Corbera, Esteve et al (2007) op cit 53 into Rwanda’s formal land policy. The Sumberjaya watershed takes this approach in Indonesia, using the assignment of property rights as a reward for participation, and it will be a good model for Rwanda’s PES potential regarding land tenure compensation.

3.3 Hydrologic Feasibility

It is uncertain if PES could achieve hydrologic goals in the wetland. Stabilizing hydro-electric production means improving water quantity and quality. It is highly probable that relocating large portions of Rugezi’s dense populations outside of the wetland will improve vegetation and reduce soil erosion. This is likely to improve Rugezi’s non-marketed ecosystem services -such as groundwater recharge, filtration, flow regimes, and landslide reductions – which are essential for reducing sedimentation and increasing the water table. But by how much or on what timeline is uncertain. Such a policy will also be socially and financially costly. A feasible, and maximally effective, PES design will not include the entire wetland population, but rather specific locations. Locations of ecosystem service “sellers” are determined by their potential ecological contribution. Because retrievable documents offer conflicting flow data and outflow locations for Rwanda it is uncertain where a scheme should target, and what restoration potential can be expected. Rwanda needs more formal, scientific analysis of the Rugezi watershed hydrology in order to form baselines, targets, and potential for restoration. Some areas of the wetland may be beyond restoration, or may take many years to restore. Because the social costs are high, neither the Rwandan government nor the electric utility should fund a program without an outline of benefits or timeline for restoration.

3.4 Next Steps

To move forward with a PES project actors should confirm hydrologic data and outline a blueprint for wetland restoration. Following this, decision-makers should dig deeply into the significant risk areas – land tenure, climate factors, population density and transaction costs – as well as into stakeholder positions, especially within the private sector. These are areas that case study projects address with careful planning. Cost-benefit data will be especially helpful for short and long-term planning.

4.0 Conclusions

Like many other East African nations, Rwanda must buffer its hydropower industry from the impacts of climate change. But effective and efficient environmental planning will come with social and economic tradeoffs at the community level. Successful implementation of watershed PES in Rwanda will depend on careful scheme design and persistent trust-building in order to harmonize wetland inhabitant and electric utility needs. Existence of contextually parallel projects in Indonesia, South Africa, and Columbia, give evidence that these challenges can be creatively overcome. Findings show that Rwandan decision-makers will need more hydrologic data to make ecologically informed and efficient decisions and to set targets. With several necessary conditions in place, watershed PES in Rugezi might be a tool for climate change adaptation and energy sector resilience. However, there is considerable room for cost-benefit analysis to clarify short term, long term, and distributive costs and benefits of such a project.

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60 Appendices Appendix 1 : Institutional Feasibility Chart for Rugezi Watershed PES

Scheme Attribute has this been considered? In what capacity?

Location Rugezi Wetlands, Burera and Byumba districts, Northern Province, Rwanda.

T Resource Conflict 1)Upstream and downstream users desire improved water quality and quantity N

E which can only come from proper, natural, wetland management. However,

M upstream users have no other income alternative than to use the wetland for S

S agricultural purposes. E S

S 2) Downstream hydropower facilities require increased water flows from Rugezi to A supply demand. However, this requires agriculture prohibition and immediate D extensive rehabilitative measures be put in place. N U

O 3) The immediate needs of the local community are incongruous to the immediate R

G national energy needs. Due to policy structures, lack of funding, and a lack in

K technology, there are no incentives to initiate behaviors that could achieve either C goal, or work to ameliorate the tense situation. A B Opportunity Costs  lost agricultural revenue  lost land availability for housing and population growth  reductions in national energy supply and infrastructure  reductions in GDP growth Are there sustainable Yes. IMCE, REMA, Ramsar Convention, PEI, COOCASTER, ACCESSA are development activities already individually performing environmental and economic analyses, strengthening local in place at the site? institutions, focusing on decentralization, and enhancing alternative income options. These actors do not work together for the most part.

Current PES in Rwanda  No formal PES exists in Rwanda.  Rwanda’s 2004 Environmental Policy prohibits cultivation and inhabitation of wetlands 50 meters from wetlands; Compensation has been proposed for the relocation of rural farmers in the form of 1)cows, 2)housing, 3)housing materials. This has not been done, nor is their a plan for how to obtain the funding for this.  Relocation recently occurred around lake Kivu where families were one- off compensated at the sector level with building materials and land. Details of this event would be beneficial for the Rugezi scenario.

61 Climate Change Risks  Reductions in water quantity and quality, and the increased incidence of water-born disease  loss of carbon sinks due to deforestation and wetland cultivation  increased energy stress due to the dependency on fuel-wood which is vulnerable to climate  impacts to food and fiber production  significant alterations to the nation’s hydro-potential and energy infrastructure development

Risk 1: Rainfall levels will continue to drop due to global warming causing water levels in Lake Bulera and Ruhondo to fall farther. Hydro-potential will fall below required functioning levels. Investment in hydro-power as a national energy source will be inefficient. Rwanda’s energy sector will dip into further crisis.

Risk 2: Un-monitored climate variability will impede local farmer’s ability to develop stable local economies. Harvests and prices may be largely incongruous to changing climate characteristics. A dry climate will likely exaggerate current erosion levels and decreasing soil quality, thus reducing agricultural yield. Competition for quality land will increase as will the challenges in raising livestock. Fuel-wood supply will be stressed. Rural economies will suffer.

Risk 3: Local communities will not be prepared for increases in rainfall. Increased precipitation may significantly increase erosion, limit agricultural capacity without new technology or seeds, and impact local infrastructure such as housing and roads, especially those on steep slopes. Fuel-wood supply will be stressed. Rural economies will suffer.

Risk 4: Excessive, continued deforestation will further reduce Rwanda’s ability to mitigate carbon emissions due to lost sequestration capacity. Continued fuel-wood dependency will increase national carbon emissions.

N List of Ecosystem Services  Provisioning: O

I - Medicinal plants T - Building materials A

U - Hunting/fishing L - Biomass for fuel A V

- Water for downstream hydropower facilities S - Agricultural production: food crops, tea E  Regulating: - stabilizing river banks and lowering the potential of landslides - Water Quantity-Related:  Flood prevention, control and mitigation  Regulating runoff /sediment control  Supporting water storage in the soil  Facilitating groundwater recharge/water supply - Water Quality-Related:  Withholding sediments  Reducing erosion  Improving water infiltration  improving the quality of surface water and groundwater/waste processing  Supporting: - Biodiversity 62  Fish spawning grounds  Habitat for migratory birds  Possesses 60% of the World’s population of Bradypterus graueri  Cultural: - Recreation - Aesthetic - Spiritual benefits

Is the ecosystem service scarce Yes. Water flow has decreased, water levels in Rugezi have decreased, biodiversity or declining? has decreased, soil erosion has increased. Various ES have been seen but not measured to have reduced functions.

Is the economic activity linked Yes. Both the energy sector and the agricultural sector will see significant affects. to the ES relatively important or potentially so?

Are the substitutes for the ES Non available. There is a potential that methane extraction from Lake Kivu could expensive or unavailable? relieve the hydropower sector as prime energy source, however, this project is still in the design phase, and is likely to take years to achieve adequate production.

Are there multiple suppliers No. To make an impact on water levels collective action is required among all who will compete to provide the suppliers. service?

Are there new markets for the No. However, ecotourism is a potential new sector in the Rugezi area. ES, such as consumers or companies who use more expensive alternatives?

Is there a strong link between It is assumed that agricultural activity significantly impacts water turbidity and flow land use actions and watershed to Lake Bulera and Ruhondo. Quantification of this impact is not available. It is also service? How is this uncertain what impacts water flow more, drops in rainfall or agriculture. demonstrated?

E PES scheme type: climate Hydrologic Regulation P

Y stabilization, hydrologic T

regulation, or biodiversity E benefits M E

H Motivation for scheme: Environmental, pro-poor/livelihoods, development, diversified energy base C

S (environmental, pro-poor, etc.)

S E

P Scale: (local, regional, national, Local/Regional; There are also potential implications for trans-boundary water international) system models.

Approach: (area based, public Potentially defined in these ways: area based, public scheme, private scheme, asset- scheme, private scheme, asset- building, use-restricting building, use-restricting, product-based)

63 MECHANISM STAKEHOLDERS tenure rights) improvements,Improved land services, infrastructural Local Improvements public in monetary (Individual payments, Potential Type: Compensation Agencies 5)Selling to ES Government 4) PES Voluntary 3)Regulation Compliance 2) Saving Cost and Goods Services 1)Value-Added private sector for: involvement for opportunities the are What List Donors of List Intermediariesof List Buyers of List Sellers of Potential Stakeholders undertake undertake efforts its on own. no ability managelegal the to or wetlands lake nearareas their and not facilities will 4) is that PES It be unlikely voluntary would initiated.Electrogaz,for example,has the Convention,would Ramsar PES further that.and enable national requirements EIAs.Additionally,Rugezi meetfor conditions must under 3) would environmental PES foster assessment,and would meet this help the new ability meet to demand,and need reduced for fixes. technological 2) Electrogaz a potential cost-savingshas good for related increased to water flows, this growth. plants expanding.are sector anThe has incentive ensure to water land for and needs product-oriented operations.In tea, particular coffee, livestock, and processing dairy 1) agriculturalThe sector undergoing is development intensive a and to more UNEP,GEF MINITERE FONERWA CDF (through and funds) KIST/CITT, IISD, PRESA, Katoomba,ACCESA, IMCE, PEI, COOCASTER, associations,5) community organizations, rice(UCORIRWA),livestock (IMBARAGA) coffee,4) and agricultural 1) Electrogaz,2) companies,3) mining cooperatives: (FERWATHE),tea Referencesource found not production,population density, and degradationenvironmental are highest. Musama,Kayange, Kabona, Bukaragata,and where agriculture Ruhanga Byumba and districts their sectors,principally northern18 the sectors Kindoyi, of: Community Committeesdevelopment and associations agricultural of: and Burera involvement. for managementenvironmental practices could considered be this of type 5) Uncertain. However,the exchange land or piping of tenure water infrastructure                     UNEP, GEF, USAID, UNEP, GEF,USAID, DFID, IFAD PRESA,Katoomba Group IISD CITT/KIST Community collectives/associations CDCs District/town BureausLand District OfficersEnvironmental National Environment Consultative on Forum REMA MINITERE MINAGRI MINIFRA Tea,coffee, rice and processing plants Mining companies Electrogaz infrastructure infrastructure example,selected based development on need MDGs) and performing/completing environmental (this an management plans is Water infrastructurepiping in communities local for managementwatershedplans to *similar project Sumberjaya Indonesia in land rights exchangetenure in for performing/completing environmental development projects payments CDFs,FONERWA,Electrogaz,from private for or sector to farmers monetary payments CDFs, FONERWA, Electrogaz,or sectorfrom private

Error: Reference not source found

Error: 64 Number of shareholder This could be broken down in different ways. transactions needed (describes transaction costs)  Total population for the area is 120,000 people.  Collective action among the 2 districts = 2 shareholders  Collective action among the 18 sectors = 18 stakeholders.  If the PES scheme was isolated to the northern sectors of Burera in extremely critical condition, transaction costs could be lowered to 6 sectors. Structure of the Deal Option 1:

Electrogaz could pay an environmental tax to the central government through MINITERE. MINITERE could distribute this tax to the districts and sectors responsible for environmental management, relocation, and climate change monitoring related to hydropower. Electricity consumers could see a premium on their utility bills for the service. Taxes could feed directly to the National Fund for the Environment in Rwanda (FONERWA). Using the national fund could leave the opportunity for scaling-up PES to involve carbon sequestration, ecotourism, or broader hydropower PES into the future.

REMA, and Environmental District Officers would be responsible for increasing decentralization of funding, projects, and management. CDCs/CDFs would be responsible for distributing funding to relevant individuals or local community development projects and infrastructure.

Option 2:

Electrogaz could directly pay local community members (likely those in the northern Rugezi) to relocate and improve management practices. These payments could be made directly to District Environmental Officers or CDCs/CDFs who could determine the best use of funds as either individual payments or as infrastructural investments. This option is likely to see faster improvements in water quality and quantity as well as more direct support for the local population. Intermediaries such as KIST/CITT, local NGOs could manage the transactions, administration, and environmental monitoring required for this scenario.

Option 3:

Similar to the above, however other private sector actors and agricultural cooperatives could also incur the tax in a ratio related to water-use (Option 1), or could directly pay the District Environmental Officers or CDCs/CDFs (Option 2).

Option 4:

MINITERE/REMA offers rural people land rights and/or water piping infrastructure in exchange for environmental management.

How do Payments flow? Consumers pay fees to the utility. Utility and private sector pays FONERWA. FONERWA directs District Environmental Officers or Land Bureaus who distribute compensation to Sectors via CDCs and CDFs. CDCs and CDFs compensate sellers through monetary payments, land rights, or public water infrastructure.

65 Is/does the scheme 1) the scheme is logical

1) realistic, 2) Electrogaz and the private sector may view their role as a buyer as a voluntary position. Due to regulation to cease agriculture 50 meters from wetlands local 2) based on mutual voluntary people are not considered volunteers in this arrangement. definition/use of resources, 3) Rugezi residents are unlikely or unable to relocate without compensation. 3) deliver services conditional on payments, and 4) Participation and local representation on environmental committees is absolutely required for any plan implementation; PES would likely enhance negotiation 4) reduce inequality in the between different levels of political geography such as between cells, sectors, negotiation phase or ensuring districts within the Northern Province. additional financing to poverty- stricken sellers?

T Does a national regulatory  There is no wetlands policy, therefore there is an opportunity for PES to R framework support PES? fill this gap. O

P  Goals of MINITERE, MINIFRA, and MINAGRI support decentralization, P

U diversified non-agriculture incomes, and improved monitoring and S education. It is likely that these government institutions will support PES L as a means to accomplish these objectives. A

N Does a national regulatory  Environmental policy currently prohibits anyone other than MINITERE to O

I framework inhibit PES? perform environmental management projects. Therefore there is an

T opportunity to use financial incentive to promote environmental U

T management using MINITERE as one intermediary. I

T  Current policy mandates that local people relocate from the wetlands. This S inhibits the ‘voluntary’ requirement of the formal PES scheme. N I  Land policy has largely not distributed land tenure rights. This may challenge the formalization of a PES scheme on the sellers’ end. Do landowners have clear, legal No. Rural people do not have land rights. However, wetlands products and ES have rights to sell ES? traditionally been permitted as commodities.

Do community organizations Uncertain. The status of community organizations is unknown, or nascent. These have rights to community organizations will need to determine WTP values for the ES. sell/approve/reject deals?

Are there government agencies REMA exists for this function. However, REMA was created in 2005 and many that regulate and manage the projects and initiatives are in embryonic stages. ES?

Is there government support for PES would be considered one tool towards enhancing livelihoods, development, reducing the risk of PES? environmental management, and energy diversification. The risks of the Business As Usual scenario, are perhaps equal to the risks of initiating a scheme, with the potential for change being greater with PES.

Are there any additional MINITERE would need to instate a fee/tax on utility/private sector water use laws/regulations/administrative (option 1), or Electrogaz/private sector would need to establish a payment value rules required for development based on local economics. of PES?

Are there any institutions that KIST/CITT, IISD, UNEP, GEF, Sector executive secretaries. The ACCESA steering support PES? committee is researching broad interest in PES.148

What institutions are needed to Local NGOs, PEI, MINITERE, MINAGRI, MINIFRA, COOCASTER, IMCE, help support PES? Electrogaz,

Are there local support As part of Rwanda’s decentralization plan, local organizations have received more organizations established? authority and governmental support, but financially and structurally these entities are still young.

148 ACCESA Steering Committee. Personal Communication. September 13, 2007. CITT/KIST. Kigali, Rwanda. 66 Do local people able to decide If funds are distributed through CDFs then local people should be able to determine how PES funds will be spent? where funding is spent or how infrastructure is created.

P Are there ES bundling Potentially. U opportunities? G

N  Depending on the capacity for reforestation or afforestation, there could be I

L an opportunity for acquiring carbon credits.

A  A funding link could be established with ecotourism projects. C

S  Possibilities for trans-boundary water management with countries in the Nile River basin, e.g. Uganda, D.R.C., Tanzania, Kenya, and Burundi PES suggest an opportunity for a regional scheme.  Creating a nation-wide, networked, hydropower scheme similar to those of Costa Rica and Kenya may have real potential. Is there an opportunity to be a Yes. There are two options. The Katoomba group operates an east and southern part of a PES network? Africa network including South Africa, Malawi, Tanzania, Uganda, Kenya, Madagascar. ICRAF operates PRESA (Pro-Poor Rewards for Environmental Services in Africa) in Kenya.

Has a national assessment of No. potential future sites for ES deals been conducted?

Has a national assessment of No. buyers been conducted?

Is there technical assistance Katoomba, PRESA, UNEP/UNDP, PEI, and national environmental economic available for identifying and specialists (Center for Resource Analysis, National University of Rwanda) establishing PES markets?

S Has a financial and risk analysis No. K

S been conducted? I R Potential for loss of livelihoods Yes. There is likely to be a transitional period for some of the population. and income due to restricted land uses or natural resource extraction :

Potential for reduced health and Yes. But it is uncertain how access to wetland for provisioning service will be reduced food security resulting affected. s from loss of access to natural resource based foods :

Potential for increased land N/A prices resulting from an increased demand for land:

Potential for inequitable The potential scheme would need to evaluate differences between large land holders distribution of resource power if and small, as well as between those with long-standing land rights, and those with wealthier and more powerful none. Equity is a critical issue. groups have a greater ability to pay or participate:

67 Potential for loss of cultural Yes. But it is uncertain how access to wetland for provisioning service will be heritage due to abandonment of affected. s traditional resource use:

Potential for loss of employment Possible. However, compensation may lead to increased jobs, such as through due to reduced harvesting infrastructure labor needs. Enhancement of the private sector should also improve rights, reduced labor needs, or if off-farm employment. excess labor can not be redirected to other income generating activities:

Potential for loss of control, The potential PES scheme should enhance decentralized environmental management flexibility, and/or local participation over local development options especially if contracts specify a narrow range of management alternatives:

Potential for skewing of local Possible. Potential unknown. power structures or power base resulting from an unequal distribution of rewards:

Potential for increased Potential unknown. competition resulting from markets that lead to the further marginalization of weaker groups:

How does this scheme influence  Reduces vulnerability: Provides direct economic support and funneling of the poor: funds to local people at the sector and district level; Potentially diversifies local economy by enhancing beekeeping, artisanal crafts, intensive (reduces vulnerability, increases agriculture, and support of private sector development (e.g. tea and coffee access to decision-making production). processes, increases access to  Increases access to decision-making processes and access to services: social and health services, and Enhances local participation, communication, networks and institution improves environmental quality building, and overall decentralization. in addition to enhancing  Improves ES: Improves sustainability of wetlands, encourages opportunity material wealth) for ecotourism, operates to increase fish and wildlife levels.

Is there cause for concern for Rwanda’s environment, poverty, and population is so dire that a “moral hazard” “moral hazards” in the type of related to the environment is not a priority. PES incentives?

Are there existing analyses on No. local benefits from the project?

68 BENEFITS oeta o increased systems local : for livelihoods forest and farming sustainable more for in resulting productivity Potential and household increased diversified incomes/goods: and from risks shocks, lessening and vulnerability in and diversified resulting income rural increased for Potential cultural of heritage religious and sites: protection cultural the improved from and conservation environmental resulting and opportunities for recreation resource Potential natural management: in as such training from resulting development skill for Potential from support markets: evolving that arrangements resulting cooperative institutions social strengthened for Potential environmental and in health : risks mitigation, and decreases conservation pollution medical in facilities, investments resulting from health resource and human improved for Potential or land : increased rights property of formalization tenure from resulting security property for land/resource Potential forchange should help climate also stabilize production.agricultural reliability spreadand of infrastructure water and/or electricity. The to ability prepare non-agricultural enhancementemployment, ofsector,and private increase in Increasesand of diversification result income supporting should from alternative ecotourism. conservation,wildlife, beauty,biodiversity, scenic the for and opportunity Improved managementwetlands and reduction encroachment enhancein should monitor climate forchange should impacts result. Improved education awareness aand is benefit PES improved to of schemes; ability and artisanal should occur.crafts also of ecosystemlocal services; increased for marketssupport local for agriculture, fish, and should governments see coordination,communication,improved valuation and Local organizations,agricultural cooperatives, community development committees Possible. Formalization property is of rights a real potential benefit Possible.Improved should agricultural climate monitoring improve planning. 69 Potential for improved human Yes. well-being and improved livelihoods due to environmental enhancement:

Potential for improved business PES will support needs of Electrogaz and development of the private sector, and and market organization agricultural processing resulting in local communities, fostering and enabling future growth and economic development:

Potential for increased food Possible. security from sustainable farming, technology, and knowledge:

Potential for increased access to PES intends to improve water flows for hydropower stability and thus reduce alternative or clean energy dependency on biomass for fuel, and increase access to alternative and clean energy; for the short-term, these results will be seen largely outside of Rugezi and in the urban areas; in the long-term these results may be seen for the rural communities in areas such as Rugezi.

G What type and source of National funds for the environment (FONERWA) N I financing is available? D N U F S

S What is the level of awareness of Minimal.

E valuation and PES? N E R

A Who disseminates information MINITERE

W on valuation and PES? A Are there training and No. education resources available?

Are there experts in ES Not enough. monitoring and evaluation in- country?

70 IMPLEMENTATION Peas Beans Sorghum Potatoes Crop Bassin Versant. Bassin 150 in the Impacts Climate to Change Rwanda. Sector of 149 Appendix 2: Commodity Rugezi Wetlands in (2004) prices

Republic of Rwanda. Mission D’Etude de la Conservation et de la Gestion Integree du Marais de son duMarais Rugezi la et Rwanda. Gestionde D’EtudelaIntegree Conservation et Mission de of Republic de Vulnerability of UNEP-GEF the PilotProject Energy onReducingCITT/KIST. the Vulnerability Community Baseline. What is needed to support PES? What needed support is to done? Has Cost-Benefit been a analysis monitoring success? What indicators are for phases? implementing negotiating,and design,scoping,brokering, What the for is timeline the MINALOC and HELPAGE. Kigali,Rwanda. andMINALOC HELPAGE. 180 FRw /kg 130 FRw /kg 150 FRw /kg 40 FRw/kg Price with Case Landa of and Resource Water use Rugezi in Wetlands”). review MINITERE.(“Economicat Analysis Natural of Resource in Use Rwanda No.A cost-benefit partial analysis Rugezi of environmental is economics under Indicators thesefor could be: 4) enhanced livelihoods. 3) enhanced sector andenergy diversity stability, 2) in improvements environmental quality resource and quantity, 1)decreasesin to vulnerability climate impacts, Success this for project determined is as Phase III: should contactedbe as well. cooperativesshould Regionalimmediately. begin networks international and donors particular,engagementwith private the sector,Electrogaz, agricultural and Phase II: completed 2009 by specificto costs,benefits,determine and willingness-to-pay.This be should Phase I:            2 NA 1 NA # of seasons/yr Design Scoping This underway. and – is economic analysisMore needed is Brokering Negotiating and – phase be This could initiated 2007-2009. In Approval MINITERE/REMA localof and district/sector governments ElectrogazEngagement and of private the sector Economic analysis Case reviewstudy Technicalassistance Education Health Rural Mix Employment river rate,lakeflowlevel, water quality Water Resources siltation Ecosystem household supply food Agriculture/food security Implementing Could initiated – be immediately Phase following II. Project Report. August26,2006 Project : incidence malaria/diseaseof : cover,waterforest levels,water quality,soil fertility/quality,

May 2004. : rate/levels,hydro-potential, siltation supply water mix, : crop mix,household: yield, crop nutrition, Maintains an extremely stableMaintains an market. extremely *Notes* 149 150 71 Maize 80 FRw /kg 1 Fish 50 FRw /batch Water level dependent Formally existed as an important employment. Now only employs 1% Rugezi population. A batch (or tige of fish ranges 5- 20 fish). Sufficient water levels permit catches of 20 batches/night; poor water levels minimize this to 10 batches/night. Boat 1000 FRw /day This employment existed in the past, but transportation water levels no longer permit market trading between Rwanda, Tanzania, and Uganda or between Rugezi communities. Boat transportation is now only possible in the southern tip of the Rugezi valley which is far less degraded.Error: Reference source not found Crafts Tiles – 40 FRw Sold at markets 2x/week This indicates the wetland supplies a Mats – 750 FRw significant income contribution to the local Ropes – 50 FRw /bundle people. These activities are organized into Pads – 5000 FRw local cooperatives or associations. Crafts are produced by women. Honey 700-800 FRw /liter Each hive typically Produced largely during the dry season. produces 5 liters, and Local cooperatives organize up to 1200 each owner possesses 10 hives. hives. Medicinal N/A N/A N/A Plants

Appendix 3: Community Associations in and around Rugezi (not all inclusive)151

Community Associations Sector/District Function (Members) DUHAGURUKE Kinyababa/Burera Profit-sharing fishing collective (17) DUFATANYE Kinyababa/Burera Goat and sheep rearing collective (30) DUKUNDANE Kinyababa/Burera Farmers, animal husbandry, and handicrafts (20) DUFATANYE Kinyababa/Burera Irish potatoes and beans collective (15) DUHUZIMBARAGA II Kinyababa/Burera Farmers & animal husbandry; everyone possesses a goat or sheep (23) DUKANGUKIRE AMAJYAMBERE Kinyababa/Burera Farmers & animal husbandry DUTERIMBERE Butaro/Burera Irish potatoes and tomatoes collective (18) KARANINGUFU Butaro/Burera Profit-sharing; keeps a certain amount of money in a pool each month (18) INGOBOKA Butaro/Burera Handcraft arts for disabled men (23) INSHUTI Butaro/Burera Irish potatoes and sorghum collective (17) TWUBAKIRANE Kagogo/Burera Tile collective N/A Kagano/Burera Meetings about tomatoes and Irish potatoes (18) DUSHYIGIKIRANE Gacaca/Musanze Irish potatoes and beans collective (17) MUVANDIMWE Gacaca/Musanze Irish potatoes collective (17) TWITEGANYIRIZE IMINSIMIBI Gacaca/Mukungw Irish potatoes collective (33) a

151 CITT/KIST. Initiate Engagement with Communities Located in the Watershed Areas. UNEP-GEF Pilot Project on Reducing the Vulnerability of the Energy Sector to the Impacts of Climate Change in Rwanda. Project Report. August 26, 2006. 72 DUSHYIGIKIRANE Gacaca/Mukungw Agriculture collective (14) a UMURAVA Gacaca/Mukungw Savings and credit collective (33) a DUFATANYE Gacaca/Mukungw Collective on development (31) a MUDAHEMUKA Gacaca/Musanze Tiles collective (23) RAGIRA INTAMAZANJYE Kivuye/Burera Irish potatoes & Sorghum collective(16) DUSABANE Kivuye/Burera Potatoes & Maize collective (16) TEGANYAEJO HAZAZA Kivuye/Burera Maize & Potatoes collective (42) URAMA Kivuye/Burera Potatoes, maize, & beans collective (12) TERIMBERE Kivuye/Burera Potatoes, maize, & Sorghum collective (10) DUTERIMBERE Kivuye/Burera Potatoes, wheat, sorghum & beans collective (16) DUFATANYE Kivuye/Burera Potatoes, wheat, sorghum, & beans collective (10) AMIZERO Kivuye/Burera Maize, beans, & sorghum collective (11) TWUNGANIRANE Burera/Burera Maize & potatoes collective (23) ABISHYIZEHAMWE Kivuye/Burera Maize, potatoes, & sorghum (24) DUTABARANE Kivuye/Burera Sheep, potato, & sorghum collective (10) TWITEZIMBERE Butaro/Burera Maize & potato collective (14) BANYARWANDAKAZI ASHYIZEHAMWE Kinyababa/Burera Self help credit project collective (N/A) ATAVEBU Kinyababa/Burera Maize & Potato collective (27) DUHUZE Gacaca/Mukungw Maize & potato collective (19) a Sorghum Association Kinyababa/Burera Sorghum collective (29)

Appendix 4: List of Hydropower plants supplied by KIST152

1. The Hydropower plants under construction: Mukungwa II (2.5MW) RUGEZI (2,2 MW) RUKARARA (9,5MW) Nyabarongo (27,5MW) to be started in January 2008,

2. The Micro Hydropower plants under construction: Janja (200kw) Mutobo (200kw) Gashashi (200kw) Nyabahanga (200kw) Nyirabuhombohombo (500kw) Nshili I (400kw) Agatobwe (200kw)

3. The existing Micro and hydro power plants (not necessary operational at the time): Mukungwa I Ntaruka I Rusizi Nyamyotsi

152 Mutabazi, Richard. Personal Communication. KIST. Kigali, Rwanda. November 1 2007. 73 74

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