Payments for Ecosystem Services of Mangroves: a Case Study of the Savegre Delta, Costa Rica

Serie Técnica 13

PAYMENTS FOR ECOSYSTEM SERVICES OF MANGROVES: A CASE STUDY OF THE SAVEGRE DELTA, COSTA RICA

El Proyecto Biodiversidad Marino Costera en Costa Rica, Desarrollo de Capacidades y Adaptación al Cambio Climático es un proyecto en el marco de la Iniciativa Internacional de la Protección del Clima “IKI” del Ministerio de Medio Ambiente, Protección de la Naturaleza y Seguridad Nuclear de la República Federal de Alemania

Publicado por: BIOMARCC-SINAC-GIZ

Investigación y Reporte Técnico: Roman Leupolz-Rist

Coordinación y Revisión: Christian-Albrechts-Universität zu Kiel, Equipo técnico BIOMARCC-SINAC-GIZ

Esta publicación puede citarse sin previa autorización con la condición que se mencione la fuente.

Citar como: BIOMARCC-SINAC-GIZ. 2014. Payments for ecosystem services of mangroves: A case study of the Savegre Delta, Costa Rica. San José-Costa Rica. 73 pags.

Fotografías: Manglar y desembocadura del Río Savegre (Roman Leupolz-Rist)

Financimiento: “ Proyecto Biodiversidad Marino Costera en Costa Rica, Desarrollo de Capacidades y Adaptación al Cambio Climático (BIOMARCC-SINAC-GIZ)”

Las opiniones que el autor expresa en esta publicación no reflejan necesariamente las opiniones del Proyecto BIOMARCC-GIZ-SINAC.

SINAC BIOMARCC

El Sistema Nacional de Áreas de Conservación de BIOMARCC-SINAC-GIZ, es un proyecto de apoyo al Costa Rica (SINAC) es un sistema de gestión Sistema Nacional de Áreas de Conservación institucional descentrado y participativo, que (SINAC-MINAET) ejecutado por la Deutsche integra las competencias en materia forestal, de Gesellschaft fὕr Internationale Zusammenarbeit vida silvestre y áreas silvestres protegidas del (GIZ) GmbH, por encargo del Ministerio Alemán de Ministerio de Ambiente, Energía y Medio Ambiente, Conservación de la Naturaleza y Telecomunicaciones (MINAET), con el fin de dictar Seguridad Nuclear (BMU) en el marco de su políticas, planificar y ejecutar procesos dirigidos a Iniciativa Protección del Clima (IKI). lograr la sostenibilidad en el manejo de los recursos naturales de Costa Rica. (Ley de El objetivo principal del proyecto es “Incrementar Biodiversidad 1998). El SINAC está constituido las capacidades de adaptación de los ecosistemas por once subsistemas denominados Áreas de marino-costeros de Costa Rica ante las Conservación y su Sede Central. Un Área de consecuencias del Cambio Climático” y tiene como Conservación es una unidad territorial objetivos específicos: administrativamente delimitada, en donde se 1. Contribuir a establecer un Sistema de Áreas interrelacionan actividades tanto privadas como Protegidas Marino – Costeros ecológicamente estatales y se buscan solucione conjuntas, representativo adaptado al cambio climático. orientadas por estrategias de conservación y desarrollo sostenible de los recursos naturales. 2. Fortalecer las capacidades de gestión de las instituciones responsables del manejo de áreas “El SINAC es un concepto de conservación integral de conservación marino - costeras y de otros que ofrece la posibilidad de desarrollar una actores locales relevantes, especialmente gestión pública responsable, con la participación referentes a los desafíos del cambio climático. del Estado, la Sociedad Civil, la empresa privada, y 3. Elaborar e implementar conceptos y de cada individuo del país interesado y mecanismos financieros para la adaptación de comprometido con la construcción de un ambiente las Áreas Protegidas Marino – Costeras al sano y ecológicamente equilibrado”. Cambio Climático con la participación activa de los actores relevantes.

4. Establecer una plataforma de información, comunicación y cooperación (Mecanismo de Facilitación Nacional) que permita el intercambio y la transferencia de conocimientos y experiencias sobre manejo de los ecosistemas marino - costeros y su adaptación al Cambio Climático entre los actores relevantes (SINAC; MINAET; Instituciones Científicas; grupos y población locales).

5. Validar y transferir conceptos, instrumentos y estrategias desarrollados en el marco del proyecto hacia otros países de la región centroamerican

333.918 C8374p Costa Rica.Biodiversidad Marina y Costera de Costa Rica

Payments for ecosystem services of mangroves: a case study of the Savegre Delta, Costa Rica / Biodiversidad Marina y Costera de Costa Rica. - - 1ª ed. - - San José, C.R.: Biodiversidad Marina y Costera de Costa Rica, Creación de Capacidades y Adaptación al cambio climático, 2016. 93 p. – (Serie Técnica)

ISBN 978-9930-9497-2-6

1. MANGLARES 2. ECOSISTEMAS – INVESTIGA- CIONES 3. COSTA RICA I. Titulo

CONTENIDO / TABLE OF CONTENT

ÍNDICE DE TABLAS / TABLE INDEX ...... iii ÍNDICE DE FIGURAS / FIGURE INDEX ...... iii LIST OF APPENDICES / LISTA DE APÉNDICES ...... iv LISTA DE ABREVIACIONES / ABBREVIATIONS ...... v Resumen ...... vii Abstract ...... vii PARTE I – RESUMEN EJECUTIVO (EN ESPAÑOL) ...... 1 Introducción ...... 1 Teoría de los Pagos por Servicios Ecosistémicos (PES)...... 2 Estrategia empírica y presentación de resultados ...... 3 Discusión de resultados ...... 4 Conclusiones y recomendaciones ...... 4 Información adicional sobre el sector turismo ...... 6 PARTE II – PAYMENTS FOR ECOSYSTEM SERVICES OF MANGROVES: A CASE STUDY OF THE SAVEGRE DELTA, COSTA RICA ...... 9 Introduction ...... 9 Research objectives and hypothesis ...... 10 Relevance in literature ...... 10 Description of the study area ...... 13 Materials and methods ...... 17 Theory on Payments for Ecosystem Services ...... 28 The ecosystem service framework ...... 28 Definition, principles, structure and classification of PES ...... 31 The “Pagos por Servicios Ambientales” scheme of Costa Rica ...... 36 Empirical strategy and presentation of findings ...... 39 Land cover analysis ...... 39 Financial analysis with net present value criterion (NPV) ...... 45

Adapting price level (NPV= 0) ...... 59 Discussion ...... 65 Conclusions and recommendations ...... 72 BIBLIOGRAFÍA / REFERENCES ...... 81 ANEXOS / APPENDIX ...... 86

ÍNDICE DE TABLAS / TABLE INDEX

Table 1 Database of the study (own representation) ...... 29 Table 2 PSA amounts paid according to executive order No. 35159-MINAET ...... 38 Table 3 PSA with reforestation modality in national parks, biological reserves and surrounding areas (NPBRS) between 2005-2007 ...... 39 Table 4 Land cover of the PNMA and the buffer zone (100 m and 200 m) ...... 41 Table 5 Classification of land cover types ...... 43 Table 6 Cash flow of oil palm producers ...... 46 Table 7 Cash flow of rice producers ...... 47 Table 8 Cash flow of a grassland owner ...... 48 Table 9 Costs of Removal of existing crops in oil palm plantations ...... 49 Table 10 Costs of restoration of water levels ...... 49 Table 11 Cash flow of reforestation projects on oil palm plantations ...... 54 Table 12 Cash flow of reforestation projects on rice fields ...... 55 Table 13 Cash flow of reforestation projects on grasslands ...... 56 Table 14 Cash flow of reforestation projects on bare soil ...... 57 Table 15 Calculation of PES price level for reforestation projects on oil palm plantations ...... 60 Table 16 Calculation of PES price level for reforestation projects on rice fields ...... 61 Table 17 Calculation of PES price level for reforestation projects on grassland ...... 62 Table 18 Calculation of PES price level of reforestation projects on bare soil ...... 62 Table 19 Area of BZ100 likely to be reforested as a result of the price level ...... 64 Table 20 Area of the BZ200 likely to be reforested as a result of the price level ...... 64

ÍNDICE DE FIGURAS / FIGURE INDEX

Figure 1 Study area and the National Park Manuel Antonio (NPMA) ...... 15 Figure 2 The mangrove of the Savegre Delta in 1949 and 2010 ...... 16 Figure 3 Target of the reforestation project ...... 17 Figure 4 Methodological approach of the study ...... 18 Figure 5 Ecosystem Service Framework ...... 30 Figure 6 PES in the classification of environmental policy instruments ...... 32 Figure 7 Costs and benefits of different land uses with and without PES ...... 33 Figure 8 Land cover classes of the study area ...... 40 Figure 9 Land cover of properties with cadastral plan ...... 42 Figure 10 Agriculture frontier in the study area ...... 44

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LIST OF APPENDICES / LISTA DE APÉNDICES

Appendix 1 Proof of the calculated PES price level of reforestation projects on oil palm plantations, using r= 5% 86 Appendix 2 Proof of the calculated PES price level of reforestation projects on oil palm plantations, using r= 10% 87 Appendix 3 Proof of the calculated PES price level of reforestation projects on rice fields, using r= 5% ...... 88 Appendix 4 Proof of the calculated PES price level of reforestation projects on rice fields, using r= 10% ...... 89 Appendix 5 Proof of the calculated PES price level of reforestation projects on grassland, using r= 5% ...... 90 Appendix 6 Proof of the calculated PES price level of reforestation projects on grassland, using r= 10% ...... 91 Appendix 7 Proof of the calculated PES price level of reforestation projects on bare soil, using r= 5% ...... 92 Appendix 8 Proof of the calculated PES price level of reforestation projects on bare soil, using r= 10% ...... 93 Appendix 9 Classification of ecosystem services according to TEEB (2010) ...... viii Appendix 10 Calculation of the annual payment for NPV=0 ...... ix Appendix 11 Properties in the study area with cadastral plan (registered and ungeristered) ...... x Appendix 12 Properties with cadastral plan (registered/un-registered) and without cadastral plan ...... xi Appendix 13 Share of agricultural land uses (Oil palm, rice and grassland) in the NPMA ...... xi Appendix 14 Share of agricultural land uses (Oil palm, rice and grassland) in the buffer zone with 100m ...... xii Appendix 15 Share of agricultural land uses (Oil palm, rice and grassland) in the buffer zone 200m ...... xii

LISTA DE ABREVIACIONES / ABBREVIATIONS

Project “Coastal Marine Biodiversity Proyecto “Biodiversidad en Costa and Climate Change Adaptation” Rica – Desarrollo de Capacidades BIOMARCC y Adaptación al Cambio Climático” Buffer zone area with 100m Zona de amortiguamiento de 100m BZ 100 (scenario 1) (escenario 1) Buffer zone area with 200m Zona de amortiguamiento de 200m BZ 200 (scenario 2) (escenario 2) CAF Forest Credit Certificate (Spanish) Certificado de Abono Forestal In Advance Forest Credit Certificate Certificado de Abono Forestal por CAFA (Spanish) Adelantado National Chamber of Palm Producers Cámara Nacional de Productores de CANAPALMA Costa Rica Palma CENAT Institute of high technology Costa Rica Centro Nacional de Alta Tecnología Cash inflow (used as synonym for Ingreso de flujo de caja CIF benefits) Cash outflow (used as synonym for Egreso de flujo de caja COF costs) CONARROZ National Rice Corporation Costa Rica Corporación Arrocera Nacional Central Pacific Alliance for the Alianza del Pacífico Central para la CPACMCC Commercialization of Mangrove Carbon Comercialización del Carbono de Manglares Certificates of Environmental Services Certificado de Servicio Ambiental CSA (Spanish) Certified Tradable Offsets Certificados CTO Transferibles/Negociables de Compensación de Emisiones DCF Differential cash flow Flujo de caja diferenciado EbA Ecosystem-based Adaptation Adaptación Basada en Ecosistemas Ecosystem services (used as synonym Servicios ecosistémicos (como ES for Environmental Service) sinónimo de Servicio Ambiental) Costa Rica’s Forest Financing Fund Fondo Nacional de Financiamiento FONAFIFO (Spanish) Forestal Deutsche Gesellschaft für Internationale Deutsche Gesellschaft für Zusammenarbeit (German international Internationale Zusammenarbeit GIZ cooperation agency) (agencia alemana para la cooperación internacional) Deutsche Gesellschaft für Technische Deutsche Gesellschaft für Zusammenarbeit (former German Technische Zusammenarbeit GTZ international cooperation agency) (antigua agencia alemana para la cooperación internacional) Costa Rican Institute of Electricity Instituto Nacional de Electricidad ICE (Spanish) Inter-American Development Bank Banco Interamericano para el IDB Desarrollo (BID)

IRR Internal rate of return Tasa interna de retorno Millennium Ecosystem Assessment Evaluación de Ecosistemas del MA Milenio Ministry of Agriculture and Livestock Ministerio de Agricultura y MAG (Spanish) Ganadería Ministry of Environment, Energy and Ministerio de Ambiente, Energía y MINAE Oceans (Spanish, formerly MINAE) Mares Net cash flow (used as synonym for net NCF benefits) NGO Non-Governmental Organization Organización No Gubernamental National Parks, Biological Reserves and Parques Nacionales, Reservas NPBRS surrounding areas Biológicas y áreas adyacentes

NPMA National Park Manuel Antonio Parque Nacional Manuel Antonio NPV Net present value (criterion) Valor neto actual (criterio) PES Payment for Ecosystem Services Pago por Servicios Ecosistémicos Airborne Research Programme Programa de Investigaciones PRIAS (Spanish) Aerotransportadas Costa Rica’s PES-Programme (Spanish) Programa de Pago por Servicios PSA Ambientales Reducing Emissions from Deforestation Reducción de Emisiones de la REDD+ and Degradation Deforestación y Degradación System of Conservation Areas Sistema Nacional de Áreas de SINAC Conservación The Economics of Ecosystems and La Economía de los Ecosistemas y TEEB Biodiversity de la Biodiversidad United Nations Environment Programa de las Naciones Unidas UNEP Programme para el Medio Ambiente Willingness to accept (a change in land Disposición (al cambio en el uso de WTA use practice) tierra) Willingness to pay (for an ES) Disposición (al pago por un servicio WTP ecosistémico)

Resumen Abstract

Distintos instrumentos han sido Several policy instruments have been utilizados en la conservación de los used for the conservation of marine and ecosistemas marinos y costeros. Para coastal ecosystems. To prevent the evitar la degradación de los manglares, se degradation of mangroves, conservation han establecido áreas de conservación a areas have been established along the lo largo de la costa pacífica de Costa Rica. pacific coast of Costa Rica. The positive Las experiencias positivas de protección experiences from the inland forest de bosques y reforestación en suelos con protection and reforestation programmes aptitud forestal del interior del país a that belong to Costa Rica’s “Pagos por través del programa de "Pagos Por Servicios Ambientales” (PSA) scheme Servicios Ambientales" (PSA) de Costa have induced systems to think in the Rica han inducido el pensamiento marine and coastal realm. The ecosystem sistémico en el ámbito marino y costero. service (ES) concept by Costanza et al. El concepto de servicios ecosistémicos (1997) and Daily (1997) and the concept (SE) por Constanza et al. (1997) y Daily of payment for ecosystem services (PES) (1997) y el concepto de Pago por developed by Wunder (2005) have Servicios Ecosistémicos (PES) promoted the development of incentive desarrollados por Wunder (2005) han based policy tools. The inland forest PSA promovido el desarrollo de herramientas programme addresses ES such as basadas en políticas de incentivos. El watershed protection and carbon actual programa PSA aborda SE como la sequestration. However, little empirical protección de cuencas y captura de evidence about mangrove PES exists and carbono entre otros. Sin embargo, existe the possibilities to include mangroves in poca evidencia empírica sobre programas the already existing PSA scheme has not de PES en manglares y no se han been analyzed. The BIOMARCC project is analizado las posibilidades de incluir los analyzing the possibility of the manglares en el esquema de PSA ya implementation of a buffer zone in the existente. El proyecto BIOMARCC está surroundings of the mangroves of the analizando la posibilidad de la creación de Savegre Delta in Costa Rica and finance it una zona de amortiguamiento alrededor through a PES scheme. The main objective de los manglares de la desembocadura del of this study is to determine the rio Savegre en Costa Rica y de financiarla maximum percentage of the buffer zone a través de un programa de PES. El that is likely to be reforested under the objetivo principal de este estudio es current PSA reforestation modality price. determinar la zona de amortiguamiento The study therefore analyzes from the que es factible de reforestar bajo la landowner’s perspective, from which land modalidad de "Pagos Por Servicios use types the reforestation is a profitable Ambientales" de reforestación - (PSA) de alternative under the current PSA price, FONAFIFO. El estudio analiza desde la considering the opportunity costs of the perspectiva de los propietarios de land. In the case that the current PSA terrenos con distintos usos de suelo, si la price is too low to achieve the restauración de manglar es una reforestation of the buffer zone, price alternativa rentable bajo el precio actual levels are calculates for each land use

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de PSA, teniendo en cuenta no sólo los type and the area that is likely to be costos del proyecto de reforestación en sí, reforested for each price level is sino también los costos de oportunidad de determined. The net present value (NPV) la tierra. En el caso de que el precio actual criterion is used as a decision tool for the de PSA sea demasiado bajo para lograr la financial analysis. The findings of this reforestación de la zona de study show that the current PSA price of amortiguación, los niveles de precios US$ 980 is too low to achieve the necesarios se calculan para cada tipo de reforestation of the buffer zone and that uso del suelo y se determina el porcentaje to reforest all target areas a price of US$ de la zona de amortiguamiento que es 27 702 (when r=5%) or higher is needed probable a ser recuperada con cada nivel for any 15 years reforestation projects of de precio. a size of one hectare. To make a mangrove PES scheme a well-functioning El criterio del valor actual neto (VAN) se instrument, landowners should be utiliza como una herramienta de decisión allowed to use the reforested mangroves para el análisis financiero. Los resultados and thereby obtain additional benefits, de este estudio muestran que el precio which would lower the required price actual de PSA de US$ 980 es demasiado level and make mangrove reforestation bajo para lograr la reforestación de la more attractive. Policy makers should zona de amortiguamiento y que para also promote the ES of mangrove like lograr la recuperación de todas las áreas carbon sequestration and scenic prioritarias es necesario pagar un monto beauty/tourism. Landowners should be de al menos US$ 27 702 (cuando r = 5%) sensitized about the ES of shoreline para cualquier proyecto de reforestación protection to induce them, to cover some de 15 años y de una hectárea de tamaño. of the reforestation costs themselves. If Para que un programa de PSE de manglar policy makers decide that the reforested funcione bien, los propietarios de tierra mangrove should not be used at all, PES deben estar autorizados a utilizar el might not be the best policy instrument manglar recuperado (concesiones de uso) for the study area. y así obtener beneficios adicionales, lo que reduciría el nivel de los montos a pagar y haría la reforestación de manglares más atractiva. Las autoridades locales deben promover los SE del mangle como la captura de carbono y la belleza escénica / turismo. Los propietarios de tierras deben ser sensibilizados acerca del importante SE de protección costera para convencerlos de cubrir parte de los costos de reforestación. Si las autoridades locales deciden que el manglar reforestado no se debería de utilizar en absoluto, entonces el PSE quizás no sea el mejor instrumento de conservación para el área de estudio.

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PARTE I – RESUMEN EJECUTIVO (EN ESPAÑOL)

Introducción Los manglares del Parque Nacional Manuel Antonio (PNMA) en el la desembocadura del Rio Savegre en Costa Rica han sufrido por la invasión de la frontera agrícola. Como parte de los esfuerzos realizados por el proyecto "Biodiversidad Marina Costera y Adaptación al Cambio Climático" (BIOMARCC), se analizan las posibilidades de la implementación de una zona de amortiguamiento de 100 o 200 metros alrededor de los manglares dentro del PNMA. El plan consiste en financiar la zona de amortiguamiento a través de pagos voluntarias a un fondo de fideicomiso, estructurados como un programa de Pagos por Servicios Ecosistémicos (PES).

El objetivo principal de este estudio es determinar el porcentaje máximo de la zona de amortiguamiento que puede ser recuperado por reforestación /restauración bajo el actual precio de la modalidad de reforestación del programa "Pagos Por Servicios Ambientales" (PSA) de FONAFIFO. El estudio analiza desde la perspectiva de los propietarios de terrenos con distintos usos de suelo, si la recuperación de mangle mediante la reforestación es una alternativa rentable bajo el precio actual de PSA, teniendo en cuenta no sólo los costos del proyecto de reforestación en sí, sino también los costos de oportunidad de la tierra. En el caso de que el precio actual de PSA sea demasiado bajo para lograr la reforestación de la zona de amortiguación, los niveles de precios necesarios se calculan para cada tipo de uso del suelo y se determina el porcentaje de la zona de amortiguamiento que es probable a ser reforestado con cada nivel de precio.

Se formula la siguiente hipótesis: Desde la perspectiva del propietario, los proyectos de reforestación de manglar con el actual precio de PSA, no son una alternativa rentable a los usos actuales de la tierra, debido a los altos costos de implementación y de oportunidad.

El planteamiento metodológico utilizado en este estudio se basa en la idea, de que para determinar la posible tasa de reforestación de la zona de amortiguamiento, es necesario analizar el proceso de toma de decisiones desde la perspectiva del propietario. En primer lugar se lleva a cabo un análisis de cobertura, ya que dependiendo del uso actual de la tierra, los costos de oportunidad y de implementación de un proyecto de reforestación puede variar. El enfoque metodológico se basa en la suposición de un terrateniente que busca maximizar sus beneficios y que tiene que decidir para cuáles de sus usos actuales es más rentable

reforestar con mangle para obtener un pago por parte del actual fondo de PSA. El método utilizado es el criterio del valor actual neto (VAN), también llamado método del valor presente. El VAN se calcula para cada uno de los posibles proyectos de reforestación (en áreas de distintas coberturas que han resultado del análisis de uso de la tierra y la rentabilidad de cada proyecto es analizado desde la perspectiva del propietario.

Dado que la hipótesis de este estudio es que el monto actual pagado por el programa PSA no es suficiente para cubrir todos los costos asociados con un cambio de uso del suelo, se añade un tercer paso. La cantidad del pago en el que el VAN = 0 se calcula para cada uso del suelo, para determinar en qué nivel de precios del terrateniente es indiferente a reforestar o no.

Teoría de los Pagos por Servicios Ecosistémicos (PES) Según el estudio TEEB los servicios ecosistémicos (SE) se definen como "contribuciones directas e indirectas de los ecosistemas al bienestar humano", también denominados productos y servicios de ecosistemas (TEEB 2010). El enfoque de este estudio son los SE que pueden ser comercializados a través de mercados existentes o programas de pago. Según MARES (2010) uno de los SE comercializables de manglares es el servicio de captura de carbono. El carbono almacenado en los manglares es 7990 gCm² y la tasa de acumulación de carbono es 139gC. Los servicios de calidad de agua y de filtración de la contaminación proporcionados por los manglares, también pueden ser comercializados, ya que mediante la eliminación de nutrientes y la disminución de la turbidez protegen a otros ecosistemas, como los arrecifes de coral, que son importantes para la industria pesquera (MARES 2010). Los manglares también ofrecen el servicio de protección y estabilización costera, importante para las comunidades costeras vulnerables a tormentas y la erosión costera. Además, según MARES (2010), los servicios de biodiversidad, hábitat y vivero de peces también podrían ser comercializados.

Según Wunder (2005) un Pago por Servicios Ecosistémicos (PSE) es “una transacción voluntaria, donde un SE bien definido (o un uso de la tierra que aseguraría ese servicio) es ‘comprado’ por al menos un comprador del SE a por lo menos un proveedor del SE sólo si el proveedor asegura la provisión del SE transado (condicionamiento)”. El programa "Pagos por Servicios Ambientales" (PSA) de Costa Rica es un instrumento de incentivo de conservación forestal, organizado por el Fondo Nacional de Financiamiento Forestal (FONAFIFO). La Ley N º 7575 establece que un tercio del impuesto a los hidrocarburos de Costa Rica se ha de utilizar para compensar a los propietarios de bosques y plantaciones por los costos de oportunidad que

enfrentan para producir SE que benefician a la sociedad costarricense (Orozco et al. 2001).

Estrategia empírica y presentación de resultados El análisis de la cobertura del suelo muestra que dentro de la zona de amortiguamiento (ZA) planeada es necesario reforestar las áreas de las coberturas siguientes: Suelo desnudo, palma africana, arroz y pastizales. En ambos escenarios una gran parte de la zona de amortiguamiento (66% en ZA 100/ 70% en ZA 200) es tierra agrícola y tiene que ser reforestada. La mayor parte (35% en ZA100/ 36% en ZA 200) está cubierto por arroz, seguido por pastizales (19% en ZA 100/ 20% en ZA 200) y palma africana (12% en ZA 100/ 14% en ZA 200). La parte de la zona de amortiguamiento que pertenece al suelo desnudo es del 1% (en ZA 100) y 3% (en ZA 200). Solamente alrededor de un tercio de las propiedades de la zona de amortiguamiento (en ambos casos) tienen planos catastrales.

Los resultados de los VPN de los diferentes proyectos están entre US$ -1179 (suelo desnudo) a US$ -17408,14 (aceite de palma) al descontar con un 5% y de US$ -770,78 (suelo desnudo) a US$ -12342,63 (aceite de palma) al descontar con un 10%. En todos los proyectos de reforestación el VAN <0. Siguiendo el criterio de decisión, desde el punto de vista de los propietarios de tierra ninguno de los proyectos de reforestación es aceptado y es probable que ningún propietario de tierra se incorpore al contrato de PSA actual. Se deduce que con los montos actuales, la zona de amortiguamiento quedaría sin reforestar o recuperarse

Dado que el análisis financiero demostró que el precio actual de PSA es demasiado bajo para lograr la reforestación de la zona de amortiguamiento, se calculan los niveles de precios donde VAN=0 para todos los proyectos de reforestación en cada tipo de cobertura. Si el VAN de un proyecto es cero, los propietarios de tierra son indiferentes a aceptar o no el proyecto. Para ambos escenarios ZA100 y ZA 200, el cálculo demuestra que con un precio de PES menor a US$ 30761, para ningún propietario de tierra es rentable unirse al contrato de PSA y la reforestación es poco probable. Con un pago entre US$ 5517 y US$ 12745 es probable que 29% (ZA 100) o 31% (ZA 200) de las áreas de proyecto se reforesten. Con un pago de US$ 27702 o más, es probable que todas las áreas de proyecto sean reforestadas, con la condición de que los propietarios de tierra sean individuos que pretendan maximizar sus beneficios y confíen en criterio de decisión del VAN.

1 El costo se refiere al valor de la producción total, por lo tanto para cada caso deberá estimarse el pago anual para compensar el valor global de producción (BIOMARCC, 2014) 3

Discusión de resultados Un hallazgo importante del análisis de cobertura es que una gran parte de la zona de amortiguamiento son tierras agrícolas, lo que implica que una gran parte del área necesita ser reforestada. Esta observación concuerda con Kroeger et al. (2007) que identifica las tierras agrícolas como prioritarias en cualquier proyecto de conservación de SE.

La hipótesis formulada ha sido respaldada por los resultados de este estudio. Con los montos actuales de PSA los proyectos de reforestación no son una alternativa rentable para ninguno de los usos actuales de la tierra, por lo tanto, ninguna de las áreas prioritarias es probable a ser reforestada. La brecha entre los costos y beneficios de los proyectos de reforestación se puede explicar por el hecho de que cuando se diseñó el programa actual de PSA, se incluyeron flujos financieros adicionales en los cálculos para definir el monto a pagar. En reforestaciones comerciales, los propietarios obtienen beneficios adicionales por raleo de bosque y en última instancia por la venta de leña y madera. En el caso de los proyectos de reforestación de los manglares del área de estudio, los responsables involucrados desean alcanzar la recuperación total de los manglares, por ello incluso la tala parcial para madera, leña o carbón es considerado contra productiva a la sucesión natural secundaria. Otra posible explicación para el resultado de este estudio es que los proyectos de reforestación propuestos tienen costos de implementación y de mantenimiento relativamente altos y como factor más importante, altos costos de oportunidad de la tierra. Dado que el análisis financiero demostró que el precio actual de PSA es demasiado bajo para lograr la reforestación de la zona de amortiguamiento, la segunda parte del estudio evaluó el efecto de diferentes clases de precios sobre las áreas que deben ser reforestadas.

Las autoridades locales podrían sentirse motivadas de promover únicamente la reforestación de propiedades con costos de oportunidad bajos como suelo desnudo y pastizales. Sin embargo, la reforestación parcial sólo tendría sentido si prueba mediante un análisis ecológico que una zona de amortiguamiento fragmentado aún hace sentido en relación a la protección de los manglares de la desembocadura del Savegre.

Conclusiones y recomendaciones Los resultados de este estudio tienen implicaciones importantes para las autoridades locales. En el diseño de un esquema de PES de manglares es importante evitar la creación de un “incentivo perverso”. Si los legisladores decidieran pagar diferentes cantidades a los propietarios de tierra, de acuerdo con sus costos de oportunidad y no

ofrecieran una modalidad de protección para los bosques privados en la zona de amortiguamiento, el riesgo es grande de que el incentivo no produzca los resultados deseados. El “incentivo perverso” se manifiesta en propietarios de tierras con menores costos de oportunidad que se vieran incentivados a sembrar arroz o cortar sus bosques sólo para entrar en la categoría de los propietarios que obtienen los mayores pagos por reforestación manglar.

Como fue descrito por Nunes et al. (2009), la valoración económica de los SE es la base para el diseño de cualquier instrumento de conservación. Por lo tanto, se recomienda valorar todos los SE mencionados en “Teoría de Pagos por Servicios Ecosistémicos”. Después de la valoración económica, los compradores potenciales de SE deben ser identificados y los SE del manglar del Savegre pueden ser comercializados. Se recomienda comercializar los SE del manglar del Savegre como uno solo, incluyendo la reforestación privada y el manglar que pertenece al PNMA. Los fondos recaudados podrían ser dirigidos a las zonas del manglar donde más sean necesitados, en este caso, en el área de la zona de amortiguamiento. Dado que el PNMA ya tiene un cobro por entrada, esto podría ser un obstáculo en el camino de comercialización de los SE del manglar.

En el río Savegre existe un sector turístico relativamente desarrollado, con actividades como rafting, “tubing” y paseos a caballo a lo largo del río. Sin embargo, el turismo de manglar es casi inexistente. Una decena de diferentes empresas ofrecen tours en kayak en los manglares cercanos de Damas. Durante el proceso de recopilación de datos para este estudio, varios operadores turísticos expresaron su interés en desarrollar actividades turísticas en los manglares de la desembocadura del Savegre. Para comercializar el SE de belleza escénica, se podría cobrar una cuota adicional solo para visitar los manglares, para evitar un aumento en la cuota de entrada ya existente del PNMA. Una alternativa sería cobrar a los turistas de manglares a través de un aumento mínimo en los precios de los tours de manglares, de modo que los fondos se recogen a través de los operadores turísticos y no se tendría que crear una cuota de entrada adicional. Dado que la mayoría de los tours de manglar son vendidos a través de hoteles, otra alternativa podría ser la de incluir la cuota por manglares de PSA en los precios del hotel o descontarla de la comisión que los hoteles cobran por cada tour que venden a sus clientes. En todos los casos los ingresos se deberían acumular en un fondo fiduciario administrado por FONAFIFO u otra agencia independiente.

El SE de captura de carbono debe ser comercializado en una escala más amplia para atraer fondos adicionales. Los mecanismos internacionales de incentivos como los que promueve el concepto de "Reducción de Emisiones por Deforestación y Degradación" (REDD +) y el uso de estándares de conservación son estrategias fundamentales para atraer a compradores nacionales e internacionales de certificados de carbono. Incluso

si toda la zona de amortiguamiento es reforestada y se añade a la zona de los manglares ya existentes del PNMA, el área total de manglar, todavía sería demasiado pequeño para el mercado internacional de carbono y para los estándares de conservación. Para solucionar este problema, los diferentes manglares de los alrededores como Damas, el estuario de Palo Seco, Extremo Bejuco y otros, podrían ser unidos en la "Alianza Pacífico Central para la Comercialización de Certifica dos de Carbono de Manglar" (APCCCCM). La alianza podría utilizar los fondos obtenidos para proteger áreas de alto riesgo y para financiar proyectos de reforestación como el de esta área de estudio2.

Un importante SE de los manglares es la protección costera. Sin embargo, este SE difiere de las otras, porque los productores de SE son también los beneficiarios del SE. En otras palabras, nadie se beneficia tanto del servicio de protección costera como los mismos propietarios de tierra, cuyos terrenos se encuentran en peligro. Puede resultar confuso que estos propietarios se paguen a si mismo por el SE de protección costera, pero si las autoridades locales aumentan la conciencia acerca de este servicio, es posible que los propietarios podrían estar dispuestos a cubrir algunos de los costos de reforestación del proyecto ellos mismos.

En el caso de los manglares del Savegre, la creación de una zona de amortiguamiento va de la mano con la necesidad de incentivar a los propietarios de las tierras agrícolas a abandonar o modificar su práctica actual. Sin embargo, en otras áreas los manglares del estado podrían estar rodeados por un cinturón de vegetación natural de propiedad privada. Las autoridades locales deberían aprender de los retos de los proyectos de reforestación que se presentan en este estudio y proteger la vegetación natural que rodea a los manglares, antes de ser destruidos. Siempre es más conveniente proteger los ecosistemas existentes en vez de permitir que se destruyan y restablecerlos posteriormente.

Información adicional sobre el sector turismo En la siguiente tabla se muestran los operadores turísticos que actualmente operan en el manglar de Damas. Muchas de estas empresas mostraron interés en operar en el manglar de la desembocadura del Río Savegre y sus ventas actuales son un indicador para analizar el potencial turístico del manglar del Savegre.

2 Actualmente se está determinando la viabilidad legal para la comercialización del carbono proveniente de áreas protegidas públicas. 6

Tabla Operadores de turismo en el manglar de Damas. Fuente: Elaboración propia

Los operadores fueron entrevistados por su disposición a pagar por el uso del manglar de Damas y por cualquier otro, como por ejemplo el del Río Savegre. Los operadores están dispuestos a pagar más, si tienen la opción de traspasar el costo al turista (véase la tabla a continuación).

Tabla Disposición a pagar de los operadores turísticos. Fuente: Elaboración propia

Los operadores turísticos requieren de ciertas instalaciones básicas, antes de poder comenzar a operar en el manglar del Savegre. La siguiente imagen muestra las instalaciones mínimas necesarias y el porcentaje de operadores que demanda una determinada instalación.

Ilustración Instalaciones requeridas. Fuente: Elaboración propia

PARTE II – PAYMENTS FOR ECOSYSTEM SERVICES OF MANGROVES: A

CASE STUDY OF THE SAVEGRE DELTA, COSTA RICA

Introduction The mangroves of the National Park Manuel Antonio (NPMA) at the Savegre Delta in Costa Rica have suffered under the landward destruction and forward moving of the agricultural frontier. Clear felling, soil drying through drainage channels and conversion to rice fields, oil palm plantations and grasslands are major problems. There is a need to stop the agricultural frontier, because without taking any action, the mangrove system is close to disappearance.

The park authorities express the need of a buffer zone in their management plan. As part of the efforts undertaken by the project “Coastal Marine Biodiversity and Climate Change Adaptation” (BIOMARCC), the possibilities of the implementation of a buffer zone of 100 or 200 meters in the surroundings of the mangrove inside the park are analyzed. Landowners in the surroundings of the mangroves are requested to convert their oil palm plantations, rice fields, and grasslands into a secondary forest with mangrove tree species and in return they are compensated by a payment. The plan is to finance the buffer zone through voluntary payments to a trust fund, structured as a Payment for Ecosystem Services (PES) scheme. The already existing PES scheme for inland forests named “Pagos por servicios ambientales” (PSA) could be applied to mangrove tree species. However, it is necessary to analyze the costs landowners would incur by changing their land use and determine if these costs can be covered by the current PSA price or if it is necessary to create a new PES scheme with a higher payment amount in order to become an interesting option for landowners. On these regards, the profitability of changing from the actual land covers to forest reforestation needs to be analyzed from the landowner’s perspective. BIOMARCC considers the buffer zone as one out of many possible measures, that are all part of a bigger action plan to protect the remaining mangroves.

Research objectives and hypothesis

Main Objective

The main objective of this study is to determine the maximum percentage of the buffer zone that is likely to be reforested under the current “Pagos por Servicios Ambientales” (PSA) reforestation modality price. The study therefore analyzes from the landowner’s perspective, for which land use types the reforestation is a profitable alternative under the current PSA price, considering not only the costs of the reforestation project itself but also the opportunity costs of the land.

In the case, that the current PSA price is too low to achieve the reforestation of the buffer zone, price levels are calculated for each land use type and the area that is likely to be reforested with each price level is determined.

Hypothesis

From the landowner’s perspective, reforestation projects with the existing PSA price are not a profitable alternative to the current land uses, because of the high implementation and opportunity costs.

Relevance in literature

According to TEEB (2010) the basis of today’s understanding of ecosystems and their contribution to human well-being goes back to Westman (1977), who published the paper “How much are nature’s services worth?”. Thanks to publications by Costanza et al. (1997) and Daily (1997), the concept of ecosystem services (ES) was implemented and widely accepted by the scientific community. The research efforts on the topic have greatly increased during the last decade. In 2005 the Millennium Ecosystem Assessment (MA) established a definition and a classification of ES (TEEB 2010).

Several environmental policy instruments have been design and applied over the years and incentive based mechanisms have become more and more popular. In 2005 Wunder defined payments for ecosystem services (PES) as a “voluntary transaction where a well-defined ES is being ‘bought’ by a ES buyer from a ES provider if and only if the ES provider secures ES provision” (Wunder 2005, p.3). The effectiveness of PES programmes has been analyzed by Engel, Pagiola and Wunder (2008a) in “Designing payments for environmental services in theory and practice: An overview of the issues”.

The study “The Economics of Ecosystems and Biodiversity”(TEEB) of the United Nations Environmental Programme (UNEP) of 2011, complemented the ES concepts of the Millennium Ecosystem Assessment (MA) with economic aspects and adopted Wunder’s definition of PES. The TEEB study is a milestone in environmental economics, since it combines the current state of research from multiple areas within one initiative.

Empirical PES initiatives have been implemented in watershed protection and forest conservation programmes, for instance the programme "Pagos por Servicios Ambientales" (PSA) in Costa Rica, the Mexican "Payment of Hydrologic Environmental Services of Forests", "Vittel mineral water" in France and other examples from Germany, Japan and Ecuador (TEEB 2011). Pagiola (2008b) described Costa Rica’s PSA in “Payments for environmental services in Costa Rica”, concluding that “the PSA programme has worked hard to develop mechanisms to charge the users of environmental services for the services they receive.” (Pagiola 2008b p.712)

Applying the PES concept to marine and coastal ES is a rather new approach. The UNEP study "Marine and Coastal Ecosystems and Human Well-Being", which is based on the results of the Millennium Ecosystem Assessment, identifies all ecosystem services for each marine and coastal ecosystem. An article by Pagiola (2008a) is titled with the question “Can payments for environmental services help protect coastal and marine areas?” The article applies the experiences from watershed and carbon sequestration PES schemes to the costal and marine environment. The conclusion is that the application of the PES concept to mangroves is difficult, but not impossible. Due to the problem of the “tragedy of the commons”, fishermen will not be willing to pay for mangrove conservation, even though fish nurseries in mangroves account up for one third of landings. Another problem is that the fishing industry is composed of independent fishers. As known from the “prisoner´s dilemma” theory, the group as a whole benefits from mangrove conservation, but every single fisher seeks to avoid payment and profit from the ecosystem services of mangroves for free. Pagiola sees the potential for direct user-financed mangrove PES in short-ranged benefits like coastal protection services and for other benefits in government-financed schemes.

The programme Marine Ecosystem Services (MARES) of the NGO Forest Trends, takes a leading role in the field of marine and coastal ecosystems and payments. The MARES "primer" shows a "Step by Step Approach" on how to implement PES in marine and coastal areas and is based on the report "Payment for Ecosystem Services: Getting Started", which was created in 2008 by Forest Trends, in collaboration with UNEP. Ghana’s wildlife division is assessing the potential of marine and coastal PES options in the context of it’s West Coast Conservation Initiative with the help of the MARES

programme, identifying mangroves as potential carbon sinks in future PES schemes (Lau et al. 2009).

The potential of mangrove forests as carbon sinks has been analyzed by Zwick in Ecosystem Marketplace 2010. The food company Danone (called Dannon in the US) and the NGO “Océanium” have a mangrove reforestation project in Senegal, where 36 million reforested trees are being planted for carbon sequestration purposes to compensate the emissions of Danone’s mineral water production process (Ecosystem Marketplace 2010).

The legal framework of mangrove’s PES implementation has been addressed by Hawkings et al. (2010) in “Roots in the water: Legal frameworks for mangrove PES in Vietnam”. An important finding of this study is that private mangrove PES are not possible to implement in Vietnam, because the mangrove forests are owned by the state. However, they consider that PES is an option in Vietnam in the case of forest contracting, forestland allocation and co-management arrangements. The study also identifies high opportunity costs as one of the main barriers to mangrove conservation by PES schemes, recommending the use of a methodology to calculate the opportunity costs of avoided mangrove conservation developed by the University of Queensland in collaboration with the German Agency for Technical Cooperation (GTZ).

Several studies about PES and ES use economic decision criteria or indices like the net present value (NPV) or the cost-benefit ratio. Zheng et al. (2009), use the cost-benefit analysis model to assess the conflicts between the environmental costs caused by mariculture activities and the economic incomes. Only few studies use decision criteria like the NPV to make a financial analysis of the PES scheme from the perspective of the involved actors. Ibarra (2007) assessed the profitability of forest protection with PES in a static-comparative analysis for the years 1999 and 2005 in Costa Rica. Other studies evaluated the cost-efficiency of PES programmes. Barton et al. (2009) assessed the cost-efficiency of PES to private landowners in Costa Rica, with a special focus on opportunity costs of conservation to agricultural land use.

Reviewing the existing literature, it is shown that incentive based instruments like Payment for Ecosystem Services (PES) have received increasing attention in the last decades. Several initiatives have tried to transfer the experiences from existing inland PES schemes to the marine and coastal realm. The scientific literature on PES in marine and coastal zones (MCZ) has focused on the legal and political frameworks of the target areas and on the economic analysis of overall efficiency and implementation possibilities. There is still a lack of reliable data and empirical evidence of the implementation of PES in mangroves ecosystems. Due to this lack of data mangrove

PES have not been analyzed from the perspective of the involved actors. This study aims to fill in this gap and analyze the profitability of a land use change from the landowner’s perspective, using financial decision tools like the net present value criterion and to establish a relation between the decision making process of individual actors and the area that is likely to be included in a potential mangrove PES scheme.

Description of the study area

The study area is located at the Savegre River delta, southeast of the city of Quepos, in the Central Pacific Region of Costa Rica (Bermúdez 2012). The Savegre River is known as one of the cleanest rivers of Costa Rica. The focus of this study is on the mangroves and the wetlands of the area. To protect the mangroves from the forward moving agricultural frontier the project BIOMARCC is analyzing the implementation of a buffer zone at the border of the National Park Manuel Antonio (NPMA).

Legally the study area consists of two parts: The first part contains the mangroves and wetlands of the delta area of the Savegre River, which belongs to the NPMA and includes only the segment of the park between “El Rey” beach and the park limits at the border to the National Wildlife Refuge Portalón. This part of the study area has a size of approximately 595 ha. The second part of the study area is the planned buffer zone area, located at the edge of the NPMA. This research includes two scenarios, a buffer zone of 100 m and the other of 200 m, the size of this part of the study area varies between approximately 141 ha (BZ 100) and 274 ha (BZ 200) (Based on own calculations).3 Figure 1 shows the exact position of the study area in relation to the extension of the entire NPMA. Besides the Savegre River, which cuts through the study area, Figure 1 also shows the Naranjo River on the westside.4

Politically the study area belongs to the canton of Aguirre.5 It is divided into the districts of Quepos, west of the Savegre River and the Savegre district east of the river. The delta area is only partially populated but has intensive agriculture from farmers living in the surroundings. Exact population statistics for the study area do not exist.

The study area is influenced by the location between the Pacific Ocean and the close mountains cordillera “Costeña”. Climatologically it’s characterized by an extended dry season between December and April (Barrantes et al. 2011a). In the rainy season

3 The 200m buffer zone is not exactly twice the size of the 100m buffer zone, because when designing the buffer zone, geographical conservation gaps where considered and corrected. 4 The figure only shows the part of the NPMA that is on land. In reality this park also extends into the Pacific Ocean, however this has no relevance to this study. 5 The canton of Aguirre has a population density of 39.5 inhabitants per square kilometer and an overall population of 23189 inhabitants (Bermúdez 2012). 13

strong precipitations are common because of the landwards-moving moist air mass from the ocean and the accelerated evapotranspiration, which in turn is the result of the zenith-position of the sun. Large parts of the delta area are flooded during the rainy season (Barrantes et al. 2011a). The average annual temperature is between 23 ° C and 27 ° C (Saborio et al. 2003).

The Integrated Risk Study “Savegre River Basin” of the Costa Rican Institute of Electricity (ICE) classifies the area as highly vulnerable in terms of biophysical, social and economic parameters (Saborio et al. 2003). The entire Central American region suffers the consequences of the active tectonic faults and seismic activities. The position close to the hurricane belt has also strong effects over the region. The last big hurricane was “Cesar” in 1996, which affected the road infrastructure close to the Savegre Basin. Floods and droughts are the result of alteration of the general patterns in precipitation by the climatologic effects of the phenomena “La Niña” and “El Niño” (Saborio et al. 2003).

Several mangrove forests appear in the surroundings of the study area. The mangroves of the Camaronera-ravine and those of the Naranjo River belong to the NPMA and those of the Portalón River belong to the National Wildlife Refuge Portalón (Bermúdez 2012). Figure 2 illustrates the extension of the mangroves of the Savegre Delta in 1949 and 2010. It clearly shows that the mangrove is being reduced. More than 60% of the original extension of the mangroves shown in the Figure 2 has been lost (Own calculation in cooperation with Gerlach based on IGN 2005). The forward moving agriculture frontier, or in other words, the conversion of mangroves and wetlands into cropland or pasture for cattle, is considered one of the driving forces for mangrove loss.

On the west side of the Savegre River the leftovers of Avicennia sp. and Rizophora sp. species are growing between palm trees and ornamental plants. Avicennia sp. can also be found at the eastside of the river, however only in small proportions, as well as C. erectus (Bermúdez 2012). The most abundant mangrove species on the rivers eastside are Rhizophora sp. and P. Rhizophora. Overall the mangroves of this side of the river are less damaged than those of the westside.6 The proximity of the Portalón mangroves to the study area could be a good starting point for natural recovery of the Savegre mangroves. Besides the conversion of mangrove into agriculture land, the main drivers of mangrove degradation are increased sedimentation due to mineral

6 Due to the low salinity of only 6 ‰, in the Savegre Delta, species like N. latissima can also be found on the eastside of the river. Other abundant species that occur are C. califórnica, C. montagnei and C. valida. The mangroves of the National Wildlife Refuge Portalón appear to be the healthiest ones in the surroundings of the study area and less threatened than those of the Savegre Delta (Bermúdez 2012). 14

extraction, water pollution because of urban development and agrochemical pollution from croplands (Bermúdez 2012).

Figure 1 Study area and the National Park Manuel Antonio (NPMA). Source: Own representation in cooperation with Gerlach, Arc GIS 10.1, land cover by PRIAS, Regularization of cadastre and registration of Costa Rica: IDB Cadastre Programme (2008), satellite picture by RapidEye (2010)

Figure 2 The mangrove of the Savegre Delta in 1949 and 2010. Source: Own representation in cooperation with Gerlach, Arc GIS 10.1, land cover by PRIAS, mangrove polygon IGN (2005) and satellite picture by RapidEye (2010)

According to Bermúdez (2012), many bird species are affected by the degradation and loss of the mangroves in the Savegre Delta, because mangroves and wetland forests serve as habitat ad breeding sights for many native (e.g. Hummningbird species like Amazilia bourcardi) and migratory bird species (e.g. peregrine falcon). Hummningbirds feed on the flowers of mangrove species like Pelliciera rhizophora.

Figure 3 illustrates the potential outcome of implementing a buffer zone around the mangroves of the NPMA. A positive side effect of the reforestation of mangroves could also be that illegal agriculture areas inside the national park would be abandoned and mangroves can recover through secondary succession.

Figure 3 Target of the reforestation project. Source: Own representation, Arc GIS 10.1, land cover by PRIAS, Regularization of cadastre and registration of Costa Rica: IDB Cadastre Programme (2008), satellite picture by RapidEye (2010)

Materials and methods

Approach and methods

The methodological approach used in this study is illustrated in Figure 4. The underlying idea is that to determine the possible rate of reforestation of the buffer zone area, it is necessary to analyze the decision making process from the landowner’s perspective. First a land use analysis is undertaken, because depending on the current land use the opportunity costs of implementing a reforestation project may vary. The methodical approach is based on the assumption of a profit-maximizing landowner with a variety of different land uses on his property, deciding for which land uses it might be profitable to reforest with mangrove tree species and obtain a payment from

the current PSA trust fund. The method used is the net present value criterion (NPV) also called present worth method. The NPV is calculated for each of the possible projects (reforestation on different land use classes) that have resulted from the land use analysis and the profitability of each project is analyzed from landowner’s perspective. Since the hypothesis of this study is that the current PSA payment amount is not enough to cover all the costs associated with a land use change, a third step is added. The payment amount at which the NPV = 0 is calculated for each land use, to determine at which price level the landowner is indifferent to reforest or not.7

Step 1: Land Step 2: Net Step 3: PES cover analysis present value (NPV=0) (NPV ≥0) Land cover A NPV A PES A

Land cover B NPV B PES B

Land cover C NPV C PES C

......

Figure 4 Methodological approach of the study. Source: Own representation

Step 1: Land cover analysis

The method used is the land cover analysis after remote sensing with satellite pictures. Both the area of NPMA and the buffer zone are analyzed. The area under consideration for buffer zone implementation varies according to two scenarios:

Scenarios:  Scenario 1: A buffer zone of 100m is implemented  Scenario 2: A buffer zone of 200m is implemented

The land cover analysis of the buffer zone area is not done from scratch. The BIOMARCC project has commissioned a large-scale land cover analysis of the Central Pacific Region. The data used consists of satellite pictures taken with the RapidEye

7 Since the price level of any PES scheme is the payment amount that ES providers obtain, the terms “price level” and “payment amount” are used as synonyms. In this study the term PES is used to describe the general “Payments for Ecosystem Services”-approach and several random payment schemes under this category. The term PSA is only used to refer specifically to the “Pagos por Servicios Ambientales” scheme of FONAFIFO in Costa Rica. 18

satellite. The Airborne Research Programme Costa Rica (PRIAS) did the land cover analysis of these satellite pictures on large scale. However to be used for the purposes of this study, these data has to be processed. To perform the study the use of geographical information system (GIS) is necessary. In this study the programme ESRI ArcGIS 10.1 is used. First the format of the data has to be converted to CRTM05. Second the polygons of the NPMA and the two buffer zone scenarios are created, based on the “Regularization of cadastre and registration of Costa Rica: IDB Cadastre Programme”. Third the land cover from PRIAS is clipped with the polygons, reclassified and afterwards grouped into different land use classes. The next step is the design of maps and creation of tables showing the areas in hectares of each land cover class. Finally the percentage of the total area for each class is calculated. Further maps are designed for illustration purposes for the introduction of this study.

The land use types are classified according to the possibilities and necessity of reforestation. The results of this step can later be used to relate the financial analysis to the land cover of the buffer zone.

Step 2: Financial analysis with the net present value criterion (NPV)

Since the purpose of this step is to analyze the decision of entering the reforestation contract from the landowner’s perspective, a financial analysis of the project needs to be undertaken. Contrary to an economic analysis, the financial analysis does not include environmental or social costs and benefits, because profit-maximizing private investors are normally primarily interested in the returns of their project and the associated monetary costs (Bann 1998). However, the environmental and social cost and benefits will be addressed in the recommendations chapter of this study.

The method used is a financial analysis with the net present value (NPV) also called present worth or net present value criterion.8 This method is used to determine if an investment in a project should be realized or not by porting all negative and positive cash flows to the present (Remer et al. 1995). Some sources also refer to this kind of analysis as financial cost-benefit analysis and describe it as discounting net benefits, referring to net cash flows (Bann 1998).

The net present value (NPV) can be derived from the cash inflows (CIFt) and cash outflows (COFt) of every period in years (t, t=0,…, T) under the assumption of the same discounting rate (r) every year (formula adapted from Berndt et al.1998).

8 Besides the present worth, also future worth, annual worth and capitalized worth are evaluation techniques considered to belong to the time analysis periods of the equivalence methods, sometimes also referred to as net present value methods (Remer et al. 1995). In the following study the term net present value (NPV) is used, referring only to the present worth and not to other equivalence methods. 19

푇 −푡 푁푃푉 = ∑(퐶퐼퐹푡 − 퐶푂퐹푡) × (1 + 푟) 푡=0

This formula can be converted to:

푇 (퐶퐼퐹 − 퐶푂퐹 ) 푁푃푉 = ∑ 푡 푡 (1 + 푟)푡 푡=0

According to Gladysz (2008) the positive inflows and negative outflows can be summarized as net cash flows (NCFt):

푇 푁퐶퐹 푁푃푉 = ∑ 푡 (1 + 푟)푡 푡=0

For illustration purposes this formula is also often written as followed:

푇 푁퐶퐹 푁푃푉 = ∑ 푡 − 퐼 (1 + 푟)푡 0 푡=1

Where I0 is the initial investment (or negative net cash flow in period t=0) and where the discounted present worth starts in the period t=1 (Last formula adapted from Barzev 2002).

According to Remer et al. (1995) the steps for applying the NPV method are:

1. Determination of the discounting rate (r) 2. Estimation of the project duration (in this case = analysis period) (T)

3. Estimation of the cash inflows (CIFt) and cash outflows (COFt) for each period

4. Calculation of net cash flows for each period (NCFt) 5. Calculation of the net present value (NPV)

In this study the following assumptions and parameters apply.

Assumptions:

- The PSA programme is applied to a forest with mangrove tree species

- Every landowner with at least 1 ha land, that is willing to engage in the PSA contract, is accepted - Profit-maximizing landowners - Landowners can have more than one land use type on their property - The reforestation project on one current land use is not mutually exclusive to the reforestation project on another current land use.9

Parameters:

- The projection analysis period is T = 15 years, because that is the useful life of the reforestation project, which has a 15 year contract under the PSA reforestation modality of FONAFIFO. - Two assumed discounting rates are used: 5 and 10% - The projects have a spatial extension of one ha, because that is the minimum allowed size of land to enter a reforestation contract with FONAFIFO. - All values are given in US dollars (US$) from the year 2012. Costa Rican currency Colones where converted using the exchange rate 1 US$ = 501, 75 Colones (as on 21.10.2012, National Bank of Costa Rica)

Application of the financial analysis with NPV criterion in this study

1. Calculation of NCF of current land uses 2. Analysis of the costs of the reforestation projects (includes NCF of current land uses of each periods opportunity costs (OC)) 3. Analysis of benefits of the reforestation projects 4. Calculation of the NCF of the reforestation projects (includes costs and benefits) 5. Calculation of NPV of the reforestation projects 6. Comparison of the reforestation projects to the current land uses using differential cash flows

9 Example: Project “Maintain oil palm plantation” and project “Reforestation on oil palm plantation area” are mutually exclusive projects, while “Reforestation on oil palm plantation area” and “Reforestation on rice field area” are not mutually exclusive. 21

According to Michel (2001) the rules listed below have to be followed in the analysis of cash outflows and inflows (costs and benefits). These rules apply for the calculation of the NCF of current land uses as well as for the cost and benefit analysis of the reforestation projects.

“1) Forecast benefits and costs in today’s dollars. 2) Do not include sunk costs. 3) Include opportunity costs. 4) Use expected value to estimate uncertain benefits and costs. 5) Omit non-monetary costs and benefits.“ (Michel 2001 p.27)

Calculation of net cash flows (NCF) of current land uses

In this study the opportunity costs take an important role in the analysis. The opportunity costs are described by Woll (2003) as the forgone income that a factor would have achieved, used in the best possible alternative. Wunder, Engel, Pagiola (2008b) consider that if omitted in investment decision, it makes seem a project more attractive than it is. Berk et al. (2011) points out that not only the opportunity costs of capital (the interest rate of a alternative investment with same risk) should be considered, but also the opportunity costs of other assets like buildings and land, by including the cash flow of alternative uses as incremental costs in the financial analysis. Following these arguments, the opportunity costs of the reforestation projects are defined as the net cash flows (NCF) after tax of the current agricultural land uses. Applied to the different areas of the buffer zone, different land uses have different NCF and therefore imply different opportunity costs.

Cost Analysis (Cash Outflow)

According to Wunder, Engel, Pagiola (2008b) the costs associated with the ES provision influence the efficiency of PES schemes. Therefore the cost analysis is a critical part of this study. The authors list the costs associated with ES provision as follows (adapted and complemented):

1. Implementation costs: Costs associated to land use changes (e.g. reforestation) 2. Maintenance costs: Periodical costs after initial investment 3. Opportunity costs: NCF from foregone alternatives 4. Transaction costs: Costs of entering the PES contract

All costs are obtained through interviews, expert opinions and secondary data gathering from official sources, complemented and proofed by direct observations and site visits. For a detailed description of the sources, data gathering method and validity of data, review the database chapter of this study. Transaction costs are not considered, because of uncertainties, but will be addressed in the discussion.

Benefit analysis (Cash inflow)

In the case of an economic analysis, all ES produced by a reforested mangrove could be accounted as potential benefits of the reforestation project. In the financial analysis of this study only those ES that already have a demand and ES buyers paying for them, are taken into account. Since policy makers are seeking for the creation of a long-term permanent buffer zone, clear-felling at the end of the project is not an option and thus other potential incomes from traditional forestry such as timber and wood sales or forest thinning are not included as benefits.

The PSA payment by FONAFIFO is currently considered the only cash inflow that the ES of a reforested mangrove can generate. The payment amount is obtained by interviews and secondary data gathering from official sources. For a detailed description of the sources, data gathering method and validity of data, review the Database chapter of the study.

Calculation of the NCF of reforestation projects

After analyzing the costs (cash outflows) and benefits (cash inflows) of the reforestation project they are integrated into one cash flow and the NCF are calculated for each period.

Calculation of the NPV of the reforestation projects

According to Takatsu (1984, pp. 230) the NPV method is “widely used as one of the best decision rules” in investment decision-making. He refers to the first investment decision criterion of independent projects as follows (adapted):

1. NPV > 0  The project should be accepted 2. NPV < 0  The project should not be accepted 3. NPV = 0  Investor is indifferent between choosing to accept or not

After applying the NPV criterion, a link to the land cover is established and the percentage of the buffer zone that is likely to be reforested under the current PSA- price is calculated.

Comparison of the reforestation projects to the current land uses using differential cash flows

In this study the investment decision of landowners with different land use classes on their property is analyzed. For each of his crops or land uses, the landowner needs to make a comparison with a potential reforestation project. Every decision between a current land use (e.g. oil palm plantation, rice, etc.) and reforestation with mangrove tree species is a decision between two mutually exclusive projects. To compare mutually exclusive projects the decision criteria can either use independent cash flows of the projects or a differential cash flow (DCF).10 In this study only differential cash flows are used. The DCF analysis is an alternative for mutually exclusive projects with some identical aspects. The differential cash flow is obtained by calculating the difference of the net cash flows of two projects. The NPV of the differential cash flow

(NPVA-B) of project A and B is described below (Götze et. al 2008):

푁푃푉퐴−퐵 = 푁푃푉퐴 − 푁푃푉퐵

Can be converted to:

푇 푇 −푡 −푡 푁푃푉퐴−퐵 = ∑(퐶퐼퐹푡퐴 − 퐶푂퐹푡퐴) × (1 + 푟) − ∑(퐶퐼퐹푡퐵 − 퐶푂퐹푡퐵) × (1 + 푟) 푡=0 푡=0

10 Usually the decision criterion is used with independent cash flows instead of differential cash flows. In the case of independent cash flows the decision criterion compares the NPV of the mutually exclusive projects A and B (Damodaran 2010): NPVA > NPVB  Project A is better than project B NPVA < NPVB  Project B is better than project A

Can be simplified as:

푇 −푡 푁푃푉퐴−퐵 = ∑((퐶퐼퐹푡퐴 − 퐶푂퐹푡퐴) − (퐶퐼퐹푡퐵 − 퐶푂퐹푡퐵)) × (1 + 푟) 푡=0

It is not necessary to subtract the NCF of the current land use from the NCF of the reforestation project, because the NCF of the current land uses were already subtracted as OC in the NCF of the reforestation project. The NCF of the reforestation project with the OC of the current land uses can be seen as a differential cash flow that serves to compare the mutually exclusive projects “Reforestation” and “Maintaining the current land use”.

Coming back on the formula of the NPV of the differential cash flow (NPVA-B) described by Götze et al. (2008), we could assume that project A is “Reforestation” and project B is “Maintaining the current land use” (e.g. oil palm plantation or rice production). The cash inflows and outflows of project B (“Maintain the current land use”) can be simplified as the net cash flows of this project:

푇 −푡 푁푃푉퐴−퐵 = ∑((퐶퐼퐹푡퐴 − 퐶푂퐹푡퐴) − (푁퐶퐹푡퐵)) × (1 + 푟) 푡=0

The net cash flow of project B (NCF of the current land use) is the opportunity cost in project A. In other words, the NCF of the current land use is the OC of undertaking reforestation. The differential cash flow is then discounted to the present, like shown in the formula

푇 −푡 푁푃푉푅푒푓 = ∑((퐶퐼퐹푡퐴 − 퐶푂퐹푡퐴) − (푂퐶푡퐴)) × (1 + 푟) 푡=0

It was shown that the calculated NPV of the reforestation project (that include the OC) could be seen as the NPV of a differential cash flow of the mutually exclusive projects “Reforestation” (without including OC) and “Maintain the current land use” (as separate project). This is done to be able to compare both projects with the decision rule for mutually exclusive projects.

The decision criterion for the mutually exclusive projects A and B, using differential cash flows is the following (adapted from Damodaran 2010):

1. NPVA-B > 0  Project A is better than project B

2. NPVA-B < 0  Project B is better than project A

Step 3: Adapting price level (NPV =0)

The PES price / payment amount is determined by the transactions between supply and demand of ES. Several questions arise concerning the PES price. Since the method used in this study is a financial analysis and not an economic analysis, no answer can be given to the question if the PES-price is the “proper” market price and reflects the true economic value. Price distortions by policy makers or market failures are not addressed (Bann 1998). Instead of economical optimal price allocations, this study searches for the payment level at which the landowner (ES provider) is indifferent to invest or not in reforestation, when considering the net cash flows (opportunity costs) of the current land uses. It is assumed that ES providers are not willing to accept a payment that is smaller than the cost of providing the services.

In analogy to the case of the internal rate of return (IRR), where an interest rate is calculated, under which the project cash flow results in a NPV=0 (Kalhoefer 2007), in this study the formula of NPV = 0 is solved for the PES price/payment amount (PPES):

푁푃푉 = 0

NPV can be substituted by the formula of the beginning of the chapter:

푇 퐶퐼퐹 − 퐶푂퐹 ∑ 푡 푡 − 퐼 = 0 (1 + 푟)푡 0 푡=1

Coming back on the case study, we find that the current PSA programme uses a variable payment, because it pretends to absorb the high initial investment costs by higher payments in the beginning and decreases the payment amount over time. It is assumed, that the initial investment does not produce the highest costs, but the opportunity costs, that are assumed to remain high over the entire time. Therefore, an equal payment in every period during the entire project is assumed. Since the PES payment is assumed to be the only cash inflow, CIFt =PPES:

푇 푃 − 퐶푂퐹 ∑ 푃퐸푆 푡 − 퐼 = 0 (1 + 푟)푡 0 푡=1

The equation is solved for PPES to find the payment level at which a landowner is indifferent whether or not to participate in the reforestation project, when forgone net benefits from the current land use are included as opportunity costs. Appendix 10 illustrates the derivation of the formula shown below:

퐶푂퐹 (1 + 푟)15(∑푇 푡 + 퐼 ) 푡=1 (1 + 푟)푡 0 푃 = 푃퐸푆 (1 + 푟)14 + (1 + 푟)13 + ⋯ + (1 + 푟)0

Database of the study

Since this is a financial analysis, the majority of the data used in this study is quantitative data. For the land cover analysis, geographical data is used. All data is complemented and verified by site visits, interviews and secondary data gathering of qualitative data (Table 1). The data gathering was done during a six months period (May – October 2012) in Costa Rica. In many cases data gathering was very time consuming, due to the fact that the data sources were not easily accessible. Since this study uses cash flow data from private firms, special permits were necessary to access the data and confidentiality letters had to be signed. Some of the data provided by different sources was contradictory to each other and had first to be verified.

Study limitations

The NPV might be considered one of the best investment decision criteria. However, as every financial prediction method it has limitations. Sensitivity of variables like the discounting rate should not be underestimated. Transaction costs play an important role in any PES scheme, but due to uncertainties they are not included in this study. However it is essential to consider the effects of transaction costs on the participation of ES providers in the PES programme. The results of this study might change if transaction costs were included. The reforestation projects are assumed to be one ha. In reality farmers with different property sizes might enter the PES scheme. According to Pagiola et al. (2005) the transaction costs usually are connected to the PES contract and not to the farm size. This means that large farms have the same transaction costs as small farms and it is therefore more profitable to undertake contracts with large farms (Pagiola et. Al 2005).

The cost analysis is based on data provided by organizations working in the agricultural sector that could tend to overestimate their net benefits. Assumptions made in this study, such as for example the assumption of a uniform payment during the entire lifetime of the project can have legal implications that are not addressed in this study. Duffy et al. (2001) collected practical experiences about social factors that affected farmer decision-making in Panama and Costa Rica from biosphere buffer zones. According to these authors, landowners do often base their land use decisions on cultural influences and personal preferences, regardless of the profitability of these 27

projects. This is contradictory to the value-maximizing principal underlying the decision rules in this study and therefore represents a limitation.

Theory on Payments for Ecosystem Services

The ecosystem service framework

According to the TEEB study the term ecosystem services (ES) is defined as “direct and indirect contributions of ecosystems to human well-being” (TEEB 2010) and is a synonymous of the term ecosystem goods and services (TEEB 2010). Other commonly used synonyms are environmental service and ecological services (Scherr 2006). Based on the MA-Classification, TEEB distinguishes between four types of services: Ecosystems products like food called provisioning services; regulating services, referring to the benefits obtained from the regulation of processes like climate regulation; habitat services like biodiversity and lifecycle maintenance (called supporting services by MA) and last but not least, cultural services, referring to all nonmaterial benefits like recreation and amenity values (TEEB 2010 and MA 2005). Appendix 9 shows the classification of ecosystem services according to TEEB (2010), complemented with the services of other classifications.

Figure 5 illustrates the stages of ecosystem-human interaction, going from ecosystem processes to human well-being, including the feedback between the use of ecosystem services (ES) and the value perception. The stages can be divided into the ecosystem context and the sociocultural context. To explain the context of ecosystems and biodiversity, we take the example of mangroves in shallow water. Mangrove forests are the major coastal wetland system in tropical and subtropical regions. These coastal plant associations have common characteristics, but they belong to different taxonomic groups. They are perfectly adapted to the coast and managed to colonize the coastline, gaining space from the sea (Villalba 2006).

Table 1 Database of the study (own representation) Data gathering Type of data Source of data Validity of data11 method

Land cover Pictures taken with the RapidEye Secondary data High degree of certainty, and property satellite for the BIOMARCC gathering verified by but data from 2010 is data project. Large-scale land cover site visits partially outdated. Data is (geographical analysis by Airborne Research backed by the National data) Programme Costa Rica (PRIAS), Centre for high Technology Registered and unregistered Costa Rica (CENAT) and its properties polygons provided by recognized professionals COTOBIRA S.A., coordinate system provided by Henry Chaves Consulting, Regularization of cadastre and registration of Costa Rica: IDB Cadastre Programme (2008)

Opportunity Palma Tica Company, National Interviews with all Satisfactory degree of costs: African Chamber of Palm Producers sources, secondary certainty. A limitation can oil palm, rice (CANAPALMA), National Rice data from be that producer and grassland Corporation (CONARROZ), CANAPALMA and associations tend to (quantitative Ministry of Agriculture and CONARROZ, farmers overestimate their data) Livestock (MAG) of Costa Rica expert opinion, (forgone) profit. Only and interviews with farmers complemented by site temporarily validity of visits data, due to market price fluctuations, data not easily transferable to other studies

Implementati National Forestry Financing Fund Interviews with all Limited degree of on costs (FONAFIFO), Palma Tica sources, secondary certainty, associated to (quantitative Company, CANAPALMA, Owners data from FONAFIFO ambiguities and lack of data) of reforested and natural forests, and national NGO’s, data. Only temporarily national NGO’s (Costas Verdes – forest owner expert validity of data, data not Coastal restoration Playa opinion, verified by easily transferable to other Hermosa, Titi Conservation site visits to studies Alliance, Mangrove Reforestation reforestation projects Hotel La Isla)

PSA Payments National Forestry Financing Fund Interviews, secondary High degree of certainty, (quantitative (FONAFIFO) data and literature backed by the Ministry of data) research Environment and Energy (MINAE)

Tree Costarican Institute of Electricity Interview and site Satisfactory degree of seedlings (ICE) visit to tree nursery certainty: Value estimated costs based on previous (quantitative experiences. Only data) temporarily validity and limited transferability

11 Validity of data: The degree of certainty is ranked as follows: High degree > Satisfactory degree > Limited degree 29

Figure 5 Ecosystem Service Framework. Source: Own representation adapted from TEEB (2010, Figure1.4)

According to TEEB (2010), this ecosystem involves different processes, like for example primary production. The process primary production is a requirement for the function of sustaining a stable bivalve population, which in turn has the potential of delivering the service food. The functions are ecological phenomena, recognized as subsets of the biophysical structures and processes, usually providing more than one service (TEEB 2010). To understand the sociocultural context and its economic components, we have to reconsider our previous definition of ecosystem services. The mentioned contribution of ecosystem services to human welfare is manifested through multiple benefits and their values provided by these services. According to TEEB (2010) in the example of the mangrove, the service food generates the following welfare gains or benefits: nutrition, pleasure and culturally speaking also social identity. The values of the benefits generated by the service food include the nutrition value itself, but also, that bivalve harvest serves as a source of income or sustains a way of life. When assessing the value it is important to distinguish between the potential use of a service (capacity of food provisioning of a mangrove on a sustainable basis) and the actual use of a service (actual bivalve harvesting for food in the mangrove) (TEEB 2010). On the other hand, not only the direct benefits (direct use values) of services such as food have to be considered, but also the indirect benefits (indirect use values) of services such as flood and storm protection and the nonuse values of services such as aesthetics and recreation. The biophysical structures or processes are often affected by the use of these services (TEEB 2010).

Coastal ecosystems are highly productive and have been estimated to account for up to 40% of the total value of global ecosystem services (TEEB 2011). The mangroves ecosystem serve as habitat for different species such as birds, alligators, crabs, shrimp, invertebrates and juvenile sport and commercial fishes (Clark 1994). This ecosystem interacts with other coastal and marine ecosystems, such as seagrass and coral reefs. Organic and inorganic materials are transported by runoff and tidal flushing between the systems. The same applies to animal migration. Many fish species use mangroves as a nursery for their juveniles, but at older life stages most tend to live in the coral reefs or the open ocean (Clark 1994). Mangroves provide a variety of ecosystem services (ES) such as the ones previously mentioned. However, in this study the focus relies only on those ES that can be commercialized through existing markets or policy induced payment schemes. According to MARES (2010) one of the marketable ES of mangroves is carbon sequestration. The standing carbon stock of mangroves is 7990 gCm² and the carbon accumulation rate is 139gC. 푚−2푦푟−1. Water quality and pollution filtration services of mangroves might also be commercialized, because by removing nutrients and decreasing turbidity they protect other ecosystems, like coral reefs, that are important to the fishing industry (MARES 2010). Mangroves also offer shoreline protection and stabilization services, by protecting the coast and vulnerable communities against storms and erosion. Furthermore, according to MARES (2010), the ES of biodiversity and fish nursery habitat are ES that could also be traded.

Definition, principles, structure and classification of PES

According to Jack et al.’s (2008) classification of environmental policy instruments, payments for ecosystem services (PES), is part of the incentive-based mechanisms, because it seeks to achieve behavioral change by the use of incentives. Figure 6 shows the location of the PES at the side of tradable permits, subsidies and market friction reductions.

By the first criterion Wunder wants to distinguish PES from command and control mechanisms. However, he recognizes that in many cases PES are still far away from being completely voluntary land use choices for ES providers. The second criterion expresses the need for a robust scientific basis of any PES scheme, due to the fact that ES buyers need to know what they get for their money. Wunder recognizes that especially in watershed protection the PES is often lacking fundamental scientific criteria and is easily influenced by external dynamics. The third and fourth criteria are critical because PES is a market transaction with a resource transfer from ES buyers to ES providers in exchange for the provided ES. This resource transfer can be money or assets and the transaction can be made through an intermediary. The last criterion is

the conditionality of the transaction. ES buyers need to be sure that they will get the ES they paid for. Wunder declares that in developing countries with weak enforcement this criterion is not always met. Wunder expresses the need for periodic PES schemes in combination with monitoring, especially when dealing with areas at the edge of the agricultural frontier that are lacking governance. In periodic PES schemes both ES providers and buyers can exit or change the contract after a given period if conditions have changed or directives have not been followed (Wunder 2005).

Figure 6 PES in the classification of environmental policy instruments. Source: Jack et al. (2008) p. 9465

PES can be applied on a variety of ecosystems. In this study the focus relies on forest and mangrove forest conservation. The decision between environmental conservation and the conversion of a forest area into pasture or cropland is highly influenced by the expected benefits of each land-use type. Figure 7 illustrates the costs and benefits of the land use options of conversion to pasture and forest conservation, with and without the implementation of a PES scheme. According to Engel, Pagiola and Wunder (2008a), if the expected benefits of conversion to pasture are higher than the benefits resulting of forest conservation, an ecosystem manager with a focus on benefits would decide to convert the forest to pasture. However this land use option produces costs to other actors that depend on the forest and to society in general. The typical example is downstream population that needs the upstream forest to be conserved to secure water services (Engel, Pagiola, Wunder 2008a). If these ES users become ES buyers and pay the ecosystem managers to become an ES provider, the option of forest conservation becomes interesting. The ones that benefit from the ES pay for its

provision. The authors argue with the Coase-theorem, explaining that in the PES scheme the externalities are internalized. The minimum payment has to be at least the amount of the difference between the benefit obtained by conversion to pasture and the benefit associated to conservation. The maximum payment is as high as the amount of the sum of all costs produced by the conversion to pasture (Engel, Pagiola, Wunder 2008a). If the payment amount would exceed the total costs, then it would be better for the downstream population to cover the costs instead of making the payment. The actual payment amount is subject to negotiations and is somewhere in between. In the case of nature-protected areas the payment is addressed to the protection authorities, so these have additional incomes to keep on protecting the ecosystem and securing the provision of ES (Engel, Pagiola, Wunder 2008a).

Figure 7 Costs and benefits of different land uses with and without PES. Source: Engel, Pagiola, Wunder (2008a)

A very precise description was given by Wunder, Engel, Pagiola (2008b, pp. 13) as follows: „If we assume that participants are rational decision-makers, then they would be unlikely to accept a payment unless it exceeded the sum of the opportunity costs they face, any implementation costs they must undertake, and any transaction costs they bear. Payments can thus be taken as an upper bound to these values.“

Taking these thoughts into consideration, this also means that if the conservation option doesn’t provide any benefit to the ecosystem manager, the minimum payment has to be the total amount of the benefit of the alternative activity.

According to Pagiola et al. (2005) the payment amount is positioned between the minimum willingness to accept a change in land use practice (WTA) of the ES providers and the maximum willingness to pay for a service (WTP) of the ES buyers. The financial benefit to ES providers is measured by the “payment net of opportunity costs” (Pagiola et al. 2005, p. 246).

A good example to illustrate the negotiation process between ES providers and ES buyers is the PES programme implemented by Nestlé’s mineral water bottling company Vittel in France. According to Perrot-Maître (2006), the company pays farmers12 to change their land use practices to reduce the nitrate concentration in the aquifer. Farmers had to leave intensive cattle ranching with maize cultivation for animal feeding to become extensive producers with only one cattle head per ha and no use of agrochemicals. To evaluate the level of compensations the baseline could either be the Vittel’s benefits or the opportunity cost to the farmers. Also the valuation of this costs and benefits change the payment amount. Logically farmers wanted to set the payment at the level of Vittel’s benefit (the maximum payment), while Vittel favored the farmer’s opportunity costs to be used to evaluate the compensation (the minimum payment) (Perrot-Maître 2006).

Coming back on the negotiation process: According to Perrot-Maître (2006), the heterogeneity of the farmers represented a problem in the calculation of the opportunity costs and therefore in the determination of the payment level. As described above, to obtain a payment that is interesting to both parties, it needs to be a little higher than the farmer’s opportunity costs (need of an incentive) and a little lower than the Vittel’s avoided market losses. The farmers had not only to be compensated for the production loss, but also for learning costs and investments like farm modernization for optimal waste management (Perrot-Maître 2006). In the end the PES contracts were designed individually based on the farms location and on the costs of the farmer. The change in nitrate level was not a condition in the contract, because the individual farmer cannot guarantee it alone (Perrot-Maître 2006). An intermediary institution called Agrivair does the monitoring of the livestock rate and the farming practices. Another important lesson learned from the negotiation process from the Vittel-PES is the monopoly position of each farmer (Perrot-Maître 2006). If we compare this PES scheme to the model of perfect competition from economic theory as described in Fritsch, Wein, Ewers (2007), the market interactions of ES supply and demand appear to be the ones of a monopoly rather than those of a market with infinite sellers and buyers. According to Perrot-Maître (2006) on one hand this applies to Vittel, being the only buyer, but also to the farmers. Even if there are several

12 The farmers differed from each other, not only in the size of their land (on average between 19 and 135 ha), but also in their production process (cattle for meat, cattle for milk, hay and maize) and the resulting profits of each production process. 34

farmers, each one is a monopolist for the area where he is located. A protected area was created in a certain perimeter around the spring. A farmer of this area could not be exchanged with one far away from the water basin. A single defector close to the spring would have had enough influence over water quality to bring ad absurdum the entire project. Opportunistic behavior to increase the payment level was the consequence. However, according to Perrot-Maître 2006, the Vittel-case also shows that the negotiation process is not only influenced by reasons of profit-maximization, but also by social factors. On one hand the influence of opposing farmers unions, and on the other hand the fact that most farmers had family members employed by Vittel and that they consequently accepted the deal. According to French National Agronomic Institute the PES was economically feasible.13 It is considered to be a sustainable programme. The fact, that the activities of single farmers cannot be directly linked to the nitrate concentration prevents it from being a perfect PES (Perrot-Maître 2006).

According to Pagiola et al. (2005) the participation of potential ES providers in PES programmes depends on several factors. Given that the property is located in the target area of the project, the first factor to address is the profitability of the PES scheme. As explained before, the payment needs to be higher than the farmer’s opportunity costs. The authors advise the same payment per ha for all farmers participating in the PES scheme. High productive farms have higher opportunity costs (when abandoning their habit to adopt environmental friendly practice), than those farms with less productivity. According to the authors larger farms are usually less productive and therefore have more incentive to participate in PES schemes. As already shown in the Vittel-case, other factors affect the decision-process, like for example the question, if the practices endorsed by the PES scheme go along with the general farming system. There is evidence that larger farms adapt more easily to new practices than smaller ones. The overall willingness to participate depends on the fulfillment of all of these conditions. Once the willingness is clarified, the next factors deal with the actual ability of ES providers to participate in the PES scheme (Pagiola et al. 2005).

Pagiola et al. (2005) identified three conditions for ES providers to be able to participate in a PES scheme. First of all it is necessary to have tenure security, titling is not always necessary but lots of PES schemes ask for a title as well. Another condition is to have enough capital or access to credit to undertake investments such as reforestation. Some PES programmes cover at least a part of the initial investment.

13 Vittel started the dialogue with the farmers in 1989 and it took 10 years to complete the negotiation process. It was not until 2004 that all 26 farms had entered the PES programme and at the present time the contracts of all farmers have 30 years duration (Perrot-Maître 2006).

The last condition is to possess enough technical capacity to adapt to complex land uses (Pagiola et. al 2005).

According to Wunder (2007) PES are best implemented in areas with relatively small opportunity costs and manageable threats. Areas like marginal croplands, degraded pastures or forests in gradually advancing agricultural frontiers, with relatively low opportunity costs, have the best site conditions for PES implementation. If the potential ES provider’s decision between a harmful and a sustainable land use can be influenced by a small payment, it’s the perfect scenario for PES. According to Wunder (2007) if implemented under this scenario PES can have much higher efficiency than other instruments. In other cases where opportunity costs are extremely high, but conservation is still desired, command and control mechanisms might be the better choice. If transaction costs are prohibitive, the purchase of the area that needs to be conserved can be an option. PES is an incentive based instrument and becomes interesting to implement at the margin of profitability (Wunder 2007).

Before final implementation, a baseline of the ES status needs to be developed to evaluate PES additionality. However, to design the payment scheme, it is more important to understand the opportunity costs associated with land use changes than to develop in detail the economical valuations of the ES (Wunder 2007).

An important issue that needs to be addressed is the threat that PES schemes could become a perverse incentive. Wunder (2007) sees the implementation of PES in protected areas as critical. If the protection of the area is already functioning well, the payment to single intruders could be an incentive for other individuals to also invade the protected area to receive a payment.

The “Pagos por Servicios Ambientales” scheme of Costa Rica

The “Pagos por Servicios Ambientales” (PSA) scheme of Costa Rica is an incentive based forest conservation and reforestation programme, hosted by the National Forestry Financing Fund (FONAFIFO). The law No. 7575 establishes that one third of the Costa Rica’s gas tax is to be transferred to FONAFIFO and used to compensate forest and plantation owners for the opportunity costs they face to produce ES that benefit the Costa Rican society (Orozco et al. 2001). Other incomes of FONAFIFO are donations from national and international organizations, 40% of the wood tax incomes (Orozco et. al 2001) and other smaller financing mechanisms like the water cannon, international loans and incomes of forest credits (www.fonafifo.go.cr, retrieved 24.02.2013).

The programme was not created from scratch; instead it is the product of an evolution of forestry incentives implemented throughout Costa Rica’s history.14 According to Orozco et al. (2001) the forestry law No. 7032 was approved in 1986 and introduced the Forest Credit Certificate (CAF) for reforestations, which in comparison to agricultural credits had no associated interests. The In Advance Forest Credit Certificate (CAFA) was paid in advance to those farmers that could not bear the initial reforestation investment. However, it was subject to conditions like the membership in a farmer organization. Other incentives, credits and tax deductions were also implemented during the years, some more successful than other. Carbon credits were emitted through certified tradable offsets (CTO) to countries like Germany, Netherlands, Norway and México (Orozco et al. 2001). In 1996 the law No. 7575 recognized four forest ES and the PSA was established as described above (Orozco et al. 2001).

Using the terms of the classification of ES in Appendix 9 of this study (TEEB 2010), the law includes two regulating services: Climate regulation (carbon sequestration) and regulation of water flows (urban and hydroelectric use). The law also refers to the habitat service gene pool protection (maintenance of biodiversity) and to a variety of cultural services bundled under the term scenic beauty (aesthetic information, recreation/tourism and information for cognitive development) (Based on service description by Moreno et. al. 2010).

According to Méndez (2011) the ES beneficiary of the ES climate regulation (carbon sequestration) and gene pool protection (maintenance of biodiversity) is the entire world. ES like regulation of water flows (urban and hydroelectric use) and scenic beauty are considered to bear benefits for the country. These ES beneficiaries should pay for the ES they use and therefore become ES buyers. The ES beneficiary of the provisioning service raw materials (in this case wood and timber) is the landowner itself (Méndez 2011).

Even if the forest law No. 7575 refers to four different services, in fact the PSA scheme charges principally gas users (as ES buyers), which are linked to the ES climate regulation (carbon sequestration). However, according to Orozco et al. 2001, the Costa Rican government considers that the gas users are not the only ES buyers and others should also be charged. An interesting finance mechanism is the Certificates of Environmental Services (CSA) instrument. For example, tourists can compensate the

14 Costa Rica’s forests have suffered clear cuts for coffee plantations since the 19th century, followed by banana plantations and conversion to pasture for cattle farming. Until 1949 the state proclaimed laws like the law on fallow land, authorizing settlers to deforest new terrain without any regulations. The first natural reserves were created in the seventies and the forestry law of 1969 established first incentives for reforestation. In 1979 the “deduction of income tax”-incentive was established, but due to the fact that the majority of the rural population wasn’t even paying the income tax, a deduction did not work as incentive for reforestation (Orozco et al. 2001). 37

emissions of their flight to Costa Rica by buying a clean-flight-CSA. All CSA proceeds go to the trust fund (www.fonafifo.com, retrieved 24.02.2013).

Another concern is that the PSA is just a redistribution of tax incomes, because no new tax was created. An intermediary between taxpayers and the trust fund is the ministry of finance, which usually decides to assign amounts smaller than the one-third of the gas tax income that was specified by the law (Orozco et. al 2001).

Table 2 PSA amounts paid according to executive order No. 35159-MINAET Years of Modality Amount/unit Payment Forest protection US$320/ha 5 Reforestation US$980/ha 5 Agroforestry US$1,3/tree 3 Water resources US$400/ha 5 Conservation gaps US$375/ha 5 Productive natural regeneration US$205/ha 5 Natural regeneration in pastures in the category of Kyoto US$320/ha 5 Protocol / Clean Development Mechanism Natural regeneration in pastures US$205/ha 5

Source: Own representation based on www.fonafifo.go.cr (retrieved 24.02.2013)

Table 2 illustrates the different modalities of the PSA scheme, the respective payment amounts and the number of years to receive the payments. Besides forest protection and reforestation, FONAFIFO addresses also agroforestry, conservation gaps, pastures and water resources. Usually the payments are distributed over 5 years, even if the contract lasts longer. In this study the main focus relies on the reforestation modality, although mangrove PES schemes could also include a forest protection modality15. According to Méndez (2011), the reforestation modality distributes the payment in a decreasing manner, because of the initial investment in reforestation: ES providers get paid 50% of the total US$ 980/ha the first year to bear the costs of seedlings and other costs of the start up period, 20% the second, 15% the third, 10% the fourth and 5% the fifth year. The reforestation contract consists of 15 years, with payments only in the first five years, addressing areas between min. one ha and max. 300 ha (Méndez 2011). The maximum amount paid to an entity or single person cannot exceed US$ 100.000 (www.fonafifo.go.cr, retrieved 24.02.2013).

15 The modality of forest protection includes areas of min. two ha up to max. 300 ha per landowner in five year contracts. The forest protection payment of US$ 320/ha is equally distributed over five years, paying US$ 64/ha every year (Méndez 2011). 38

The PSA programme addresses different target areas with each modality. The forest protection modality for instance plays an important role in biological corridors. Since its creation the PSA also was applied to national parks, biological reserves and surrounding areas (NPBRS) (Moreno et al. 2010). As mentioned in the last chapter Wunder (2007) sees the implementation of PES in protected areas as critical. However, the implementation makes sense on private properties between protected areas and the agriculture frontier. Table 3 shows the amount of ha that has been reforested in NPBRS, the total ha under PSA in NPBRS and the corresponding payments and percentages. Reforestation in NPBRS has increased between the years 2005 and 2007, in ha as well as in percentage of the total PSA in NPBRS. The underlying payments for reforestation of those years were different than present payments. Instead of US$ 980/ha, reforestation was compensated with US$ 816/ha. The payment for protection was the same. Table 3 shows that reforestation amounts in 2007 represented 98,86 % of the total amount paid for all modalities together in NPBRS. That is because the reforestation modality had and has the highest payment amount and also because reforestation measured in ha was the most common PSA modality in NPBRS (Moreno et al. 2010).

Table 3 PSA with reforestation modality in national parks, biological reserves and surrounding areas (NPBRS) between 2005-2007 Payment Reforest. in Total PSA in Share Total payment Share Year reforst. in NPBRS(ha) NPBRS(ha) (%) in NPBRS(US$) (%) NPBRS(US$) 2005 13,00 1133,50 1,15 10608,00 365008,00 2,91 2006 467,00 489,50 95,40 149440,00 167800,00 89,06 2007 630,60 643,10 98,06 222574,40 225136,90 98,86

Source: Own representation based on data from Moreno et al. (2010)

Empirical strategy and presentation of findings

Land cover analysis

Land cover of the study area

As described in the first chapter, the study area consists of two parts: One part lying inside the NPMA and the other part is the planned buffer zone area, outside the NPMA. For simplicity purposes the first part will be denominated NPMA (referring only to the share of the NPMA in the study area). This research includes two scenarios, a buffer zone of 100m (denominated BZ 100) and the other of 200m (denominated BZ 200).

This study aims to establish a relation between the paid PES price and the area of the buffer zone that is likely to be converted to mangroves and native tree species. The land cover inside NPMA is also included in the analysis. Landowners with illegal plantations inside the NPMA will get no payment for reforestation and by establishing a buffer zone these landowners lose their access to the lands inside NPMA incurring in additional opportunity costs that are not addressed by the PES scheme. If a landowner has half of his planation inside the NPMA and is only recompensed for the other half outside the park, his overall decision to enter or not a PES contract can be affected by his forgone profits inside NPMA. Figure 8 illustrates the different land use types of the NPMA, BZ 100 and BZ 200. It is clearly shown that wetlands occur along the entire shore, but mangroves only remain on the eastside of the river. It is apparent from this figure that agricultural lands are invading the NPMA.

Figure 8 Land cover classes of the study area. Source: Own representation, Arc GIS 10.1, land cover by PRIAS, Regularization of cadastre and registration of Costa Rica: IDB Cadastre Programme (2008), satellite picture by RapidEye (2010)

Table 4 illustrates the area in hectares (ha) of the different land covers in the NPMA, the BZ 100 and the BZ 200. The NPMA (inside the study area) has a total size of approximately 595 ha; the total size of the buffer zone is approximately 141 ha in the BZ 100 and 274 ha in the BZ 200.

Table 4 Land cover of the PNMA and the buffer zone (100 m and 200 m) Land cover PNMA Area (ha) BZ 100 Area (ha) BZ 200 Area (ha) Oil Palm 53,54 16,52 37,71 Rice 77,43 49,63 98,61 Grassland 41,86 27,38 55,05 Bare Soil 2,25 0,85 7,03 Forest 9,2 6,2 19,72 Mangrove 229,62 11,79 17,29 Wetland 130,19 23,13 30,08 Lagoon 0,92 0 0 River 38,29 4,15 5,48 Sand (river) 7,42 1,87 2,67 Sand (beach) 3,87 0 0 Infrastructure 0,51 0,14 0,4 Total 595,1 141,66 274,04

Source: Own representation, calculated with Arc GIS 10.1, based on land cover by PRIAS (2010)

Land cover of single properties

This study aims to establish a relation between the paid PES price and the area that is likely to be converted to mangroves and native tree species. If single properties can be identified also a relation between PES price and the decision of single landowners can be established. Before analyzing the land cover of single properties, it is necessary to identify all properties in the study area. As a side effect of this analysis we also obtain information about the tenure of land. One of the conditions to enter a PES contract is clear ownership of the land. The properties of the study area that have a cadastral plan are illustrated in Appendix 11. Among the properties with cadastral plan three properties remain unregistered and there are still registered properties inside the NPMA, which is illegal according to the park authorities. Properties entering a PES contract should be registered and landowners should possess a cadastral plan. The share of properties that have a cadastral plan (registered and unregistered) and those without a cadastral plan, are illustrated in Appendix 12. In the case of the BZ 100 less

than 31% are registered properties and could enter a PES contract. In the case of the BZ 200 only 33% are registered properties. For this study it is assumed that all areas have the possibility to enter a PES contract. Landowners with unregistered properties need to undergo registration first. Transaction costs of registration are not included in the financial analysis, however decision makers should consider them.

Figure 9 Land cover of properties with cadastral plan. Source: Own representation, Arc GIS 10.1, land cover by PRIAS, Regularization of cadastre and registration of Costa Rica: IDB Cadastre Programme (2008), property polygons by COTOBIRA S.A, satellite picture by RapidEye (2010)

To establish a relation between PES price and the decision of single landowners, Figure 9 shows the land cover of the properties with cadastral plan. Only a few properties have a homogeneous land cover. In most cases nearly the entire property has the same land cover and only the boarders have a different land cover. However in other properties it is evident, that two or more land covers occur within one property. In this land cover analysis the actual user of the land and the existence of user rights are not defined. This analysis only includes land ownership. Since only around one

third of the properties of the buffer zone (in both scenarios) have a cadastral plan, the results on the land cover analysis of single properties are not representative and the relation between the PES price and the land cover of single properties cannot be analyzed in this study.

Classification of land cover types

To assess which of the current land uses have the potential to be reforested; the land uses were classified as shown in Table 5. The land uses that need to be reforested were identified as oil palm, rice, grassland and bare soil. These areas are the target areas for the reforestation project. All this land uses currently produce a net cash flow, which should be seen as opportunity costs if converted to mangrove and native forest. It is assumed that only bare soil has no opportunity costs. The land cover types of mangrove, wetland and forest, are already covered with native species and there is no need of reforestation. This land uses don’t apply for PSA with reforestation modality and therefore they are not considered. They should be protected with the forest protection modality of PSA, to prevent that the PSA of reforestation is a perverse incentive to cut down the remaining forest to be able to apply for reforestation funds. This analysis does not include the forest protection modality, however this insight will be discussed in the recommendation chapter.

Table 5 Classification of land cover types Opportunity cost Land cover Classification Reforestation of reforestation Oil Palm Rice Agricultural land Yes Yes Grassland Bare Soil No land cover No Forest Mangrove Natural vegetation Wetland Lagoon No Don’t applies River Land cover’s Sand (river) without the option Sand (beach) to plant Infrastructure

Source: Own representation

If oil palm, rice and grassland are summed up as agricultural land, the problem of the agricultural frontier becomes obvious. This is illustrated in Figure 10, which additionally includes bare soil as part of the agricultural frontier. Figure 10 clearly shows how the agricultural frontier has already broken through the limits of the NPMA and is threatening the last remaining wetlands and mangroves of the Savegre Delta.

Figure 10 Agriculture frontier in the study area. Source: Own representation, Arc GIS 10.1, land cover by PRIAS, Regularization of cadastre and registration of Costa Rica: IDB Cadastre Programme (2008), satellite picture by RapidEye (2010)

Already 29% of the study area inside the limits of NPMA has been converted to agricultural lands (see Appendix 13). Most of it (13%) has been converted to rice, but also oil palm (9%) and grassland (7%) are becoming major threats. These figures are important, because if landowners would accept a PES contract for their legal lands outside the limits of the park, they would tend to include the loss of their illegal lands inside the park as opportunity costs in their decision-making. In scenario 1 a buffer zone of 100 m width is implemented. Appendix 14 shows that 66% of the buffer zone is agricultural lands. Most of it (35%) is covered by rice, followed by grassland (19%)

and oil palm (12%). From this chart it also can be seen that only 1% of the buffer zone belongs to bare soil, which is the only land use to be reforested that does not have opportunity costs. In scenario 2 a buffer zone of 200 m width is implemented. The pie chart of Appendix 15 clearly indicates that also in scenario 2 a large share (70%) of the buffer zone is agricultural land. Rice is again the main agricultural land cover (36%), but also grassland covers a big share (20%). Oil palm is the smallest agricultural land cover, however it takes a considerable share of the overall buffer zone (14%). Under scenario 2, the share of the buffer zone that belongs to the land cover class of bare soil is even higher than in scenario 1, ricing up to 3% of the buffer zone.

Financial analysis with net present value criterion (NPV)

In the land cover analysis the land uses, which need to be reforested, were identified as oil palm, rice, grassland and bare soil. It was also defined that oil palm, rice and grassland owners have to take into account the opportunity costs when engaging in reforestation. In this chapter the net cash flows of these current land uses are presented. In a next step the costs (cash outflows) of the reforestation projects are analyzed, taking the net cash flows of the current crops as opportunity costs in the reforestation projects and analyzing additional costs of the projects. After that, the benefits (cash inflows) are analyzed, which include the PSA payment. Finally the NPV is calculated (using discounting rates 5 and 10%) from the perspective of landowners of one ha oil palm, rice, grassland and bare soil.

Net cash flows (NCF) of current land use types (opportunity costs)

The relevant cash flow is the annual after-tax net cash flow (net benefit), because it represents the annual opportunity cost in the reforestation project. The observed time horizon is 15 years from 2013- 2027 (2012 is year 0). All costs and benefits are calculated for one ha/year, since according to FONAFIFO this is the minimum required size of a property to be able to enter a PSA contract. The land uses that have net cash flows (NCF) that have to be considered as opportunity costs in the reforestation project are: African oil palm, rice and grasslands. Since nothing is currently produced on the land cover type of bare soil, the NCF and therefore the opportunity cost of this land cover type is assumed to be zero. In reality any strip of land can have opportunity costs. However, due to lack of data, this possibility is not considered.

African Oil palm NCF (of 1ha)

According to the interviews with the National Chamber of Palm Producers (CANAPALMA), Palma Tica Company and private landowners, the age of the oil palms in the study area is heterogenic. A statistical medium age cannot be calculated due to lack of data. Based on the interviews and expert opinions an average age of the palms of 10 years is assumed. Therefore in the first year (2013) of the 15 years project the palms are in their 11th year of live. Initial investments and plantation costs are not considered, because they are sunk costs. Therefore in the year zero, no cash flow is produced. Based on the interviews and expert opinion, it is assumed that the net cash flow remains constant for the years 5-15. It is also assumed that the oil palm will be less productive after the age of 25 years, what leads to the elimination of the plant. Therefore the assumed productive live time of an average oil palm is 25 years. Table 6 shows the cash flows of oil palm producers for 15 years. The resulting NCF after tax is different in the first four periods and constant in the years 5-15.

Table 6 Cash flow of oil palm producers 0 1 2 3 4 5-15 Year (2012) (2013) (2014) (2015) (2016) (2017-27) Age of palm (yr) 10 11 12 13 14 15-25 Fruit (mt/ha/yr) 20,60 22,20 21,10 21,40 19,20 Price of fruit (US$/mt) 149,00 149,00 149,00 149,00 149,00 Sales/ Total benefits 3063,00 3292,00 3140,00 3175,00 2856,00 (US$/ha/yr) Maintenance costs 797,00 800,00 800,00 805,00 805,00 (US$/ha/yr) Harvest costs (US$/ha/yr) 25,00 25,00 25,00 25,00 25,00 Transportation costs 14,00 14,00 14,00 14,00 14,00 (US$/ha/yr) Fixed costs (US$/ha/yr) 100,00 100,00 100,00 100,00 100,00 Interest payments 108,00 85,00 60,00 31,00 0,00 (US$/ha/yr) Depreciation (US$/ha/yr) 327,00 0,00 0,00 0,00 0,00 Total costs (US$/ha/yr) 1371,00 1024,00 999,00 975,00 944,00 Net benefit (US$/ha/yr) 1693,00 2268,00 2142,00 2199,00 1913,00 Tax (20%) 339,00 454,00 428,00 440,00 383,00 Net cash flow after tax 1354,00 1814,00 1714,00 1759,00 1530,00 (US$/ha/yr)

Source: Own representation based on CANAPALMA (2012) and interviews with Palma Tica and private landowners

Rice NCF (of 1ha)

According to the interview with the National Rice Corporation (CONARROZ) and verified in literature (Benavides et al. 2005 and IDEAS 2007) the rice is harvested twice a year in Costa Rica. In this study it is assumed that both harvest periods are equal productive. However, the interview with CONARROZ reflects, that in reality the second harvest period can be a little less productive than the first. Due to lack of scientific proof and data, this factor will not be included in the analysis. The net cash flow of six months is multiplied by two. It is assumed that the NCF of rice will remain constant at US$ 625,40 over the 15 years project duration (Table 7).

Table 7 Cash flow of rice producers Cash Flows Value Harvest (73,6 kg sack/ha/6 mth) 58, 50 Price of 73,6 kg sack (US$/ Sack) 45,05 Sales /Total benefits (US$/ha/6 mth) 2635,43 Cost of direct labor (US$/ha/6 mth) 82,01 Cost of mechanized labors (US$/ha/6 mth) 759,22 Cost of Inputs (US$/ha/6 mth) 688,88 Other costs (US$/ha/6 mth) 354,72 Administrative costs (US$/ha/6 mth) 271,93 Financial costs (US$/ha/6 mth) 87,79 Total costs (US$/ha/6 mth) 2244,55 Net benefit (US$/ha/6 mth) 390,88 Tax (20%) 78,18 Net cash flow after tax (US$/ha/6 mth) 312,70 Net cash flow after tax (US$/ha/yr) 625,40

Source: Own representation based on CONARROZ (2010) and interviews with representatives of CONARROZ

Grasslands NCF (1ha)

According to the interviews with farmers/local experts and with the Ministry of Agriculture and Livestock of Costa Rica (MAG), a common practice is farm animal boarding. This practice consists of a cattle owner paying a provision to a farmer with enough grassland for accommodation and fattening of his livestock. The cash flow of a grassland owner with own cattle may vary from the one in this approach. However, due to lack of data, these variations are not considered. Based on the interviews, it is assumed that two head of cattle can feed on one hectare. It is also assumed, that the NCF remains constant at US$ 143,50 over the 15 years project duration (Table 8).

Table 8 Cash flow of a grassland owner Cash flows Value Head of cattle (Cattle/ha) 2 Boarding Provision (US$/Cattle/yr) 119,58 Total Provision/ Total Benefits (US$/ha/yr) 239,16 Total costs (US$/ha/yr) 59,79 Net benefit (US$/ha/yr) 179,37 Tax (20%) 35,87 Net cash flow after tax (US$/ha/yr) 143,5

Source: Own representation based on interviews with the Ministry of Agriculture and Livestock of Costa Rica (MAG) and with farmers/local experts.

Cost analysis (Cash outflows) of reforestation projects

Opportunity costs

The opportunity costs of the reforestation projects are defined as net cash flows (NCF) after tax of the current land uses. Therefore they are taken from the above calculations. Opportunity costs are considered for every year of forgone profit during the entire duration of the reforestation projects.

Implementation costs

- Reforestation costs - Elimination of existing crops - Restoration of water levels

The implementation costs can be seen as the initial investment of the reforestation project. In difference to maintenance costs, implementation costs only arise once. Based on the interviews with FONAFIFO, national NGO’s and private forest owners, the average reforestation costs with mangroves and native tree species is considered to be US$ 700/ha. These costs depend on a variety of factors and can be higher in some cases. The implementation costs of the reforestation projects include the reforestation costs themselves and additional costs of preparing the land for reforestation. The reforestation costs include the removal of grass, weed and remaining plants in the case of grassland, rice (seasonal crop) and bare soil. In the case of oil palms, which have a wooden trunk and a vast root system, the elimination produces additional costs, illustrated in Table 9. The total cost of removing all palms is US$ 222,37/ha.

Table 9 Costs of Removal of existing crops in oil palm plantations Cost of MSMA herbicide (US$/2.5 gallons) 95,95 Cost of MSMA herbicide (US$/gallon) 38,38 Cost of MSMA herbicide (US$/cc) ≈ 0,01 Required quantity of herbicide to eliminate one palm 150 (cc/palm) Palms per hectare 140 Required quantity to eliminate one palm (cc/ ha) 21000 Cost of MSMA herbicide (US$/ha) 212,92 Labor (hours/man/ha) 5 Minimum Wage (US$/ha) 1,89 Labor cost (U$/ha) 9,45 Total cost of removing palms (US$/ha) 222,37

Source: Own representation based on interviews with Palma Tica, Coopecalifornia and literature review of Chinchilla, Carlos (1996), assumed herbicide cost according to www.pestrong.com (retrieved 21.10.2012)

According to the interviews, another necessary measure to prepare the land for reforestation is the restoration of water levels. The water levels have been altered by the construction of drainage channels and water contention walls to make the land arable. Depending on the crop this alterations have been more severe and reverting this alterations has different costs depending on the current land use. Table 10 illustrates the costs of restoring the water levels. Bare soil is assumed to have no alterations of water levels. Alteration patterns among land uses and the assumed costs may vary in reality and these assumptions may not be representative for every individual case of the study area.

Table 10 Costs of restoration of water levels Costs of restoration of water Land use levels (US$) Oil palm 500 Rice 200 Grassland 200 Bare soil 0

Source: Own representation based on interviews with Palma Tica, Coopecalifornia and literature review of SENARA (2005).

Maintenance costs

Once the buffer zone is reforested with mangroves and native tree species, the plantation needs to be maintained. Weed needs to be removed temporarily to allow the seedlings to grow. According to the interviews with national NGO’s and private forest owners, the costs are higher in the first 5 years, when the trees are very small. Based on these interviews, the maintenance costs are assumed to be US$ 200 in the first five years and US$ 160 in the next ten years of all reforestation projects. Maintenance costs include costs of activities to clear land of weeds, pruning and other treatments. It also includes costs of technical assistance, social charges and administrative costs.

Benefit analysis (Cash inflows) of reforestation project

- PSA Payment by FONAFIFO - Seedlings from ICE

In the interviews the Costa Rican Institute of Electricity (ICE) showed to be committed to participate in the efforts of saving the remaining mangroves of the Savegre Delta. Based on the interviews with FONAFIFO, private forest owners and national NGO’s, we assume that on one ha of land 811 mangrove seedlings have to be planted and if the seeds can be taken from the NPMA (as done in other reforestation projects in the surroundings) the costs of each seedling can be estimated to be US$ 0,5. Based on the interview with the ICE, in this study it is assumed that the ICE produces the seedlings in their nursery gardens. The costs that can be avoided and therefore diminish the investment are 811 seedlings/ha * US$0,5 = US$ 405,5/ha.

As described in chapter 2, the reforestation modality of FONAFIFO’s “Pagos por Servicios Ambientales” (PSA) programme consists of a payment of US$ 980, distributed over the first five years (50%, 20%, 15%, 10% and 5%) of the 15 years contract. According to the interview of FONAFIFO, the study area is currently not among the highest priority areas. Also the creation of a special modality of mangrove reforestation and/or protection is under consideration. However for this study it is assumed that every landowner with at least 1 ha land, that is willing to engage in the PSA contract, is accepted.

Traditional reforestation projects consider the PSA payment from FONAFIFO as an additional cash inflow to bear the costs of initial investments of reforestation. The main cash inflow comes from timber and wood sales at the end of the reforestation contract when the trees are cut down. An additional cash inflow during the project

comes from the revenues of forest thinning as part of the maintenance done in the reforestation area. In the case of the reforestation projects of this study, the mangroves and native tree species are not meant to be cut at the end of the project, because the reforestation project is only the first step in a broader conservation concept of the buffer zone. Local experts consider that forest thinning as practiced in commercial reforestations is not an option, because they fear it would prevent the natural flora and fauna from recovering. Therefore the PSA payment is the only real cash inflow or benefit. The option of allowing some sustainable practices in the reforested mangroves to generate additional income to the landowners is addressed in the discussion.

NCF of the reforestation project and net present value calculation (Cost-benefit analysis)

In this section all costs and benefits from above are included as cash inflows and outflows in the overall cash flows of the different reforestation projects on different land uses. The NCF of the current land uses are considered to be the opportunity costs of the NCF of the reforestation projects. The NPVs are calculated from the landowner’s perspective and the decision criterion presented in the methodology chapter is applied. If the NPV<0, the reforestation project should not be accepted from the landowner’s perspective.

NPV of reforestation project on oil palm plantations

The NPV of a fifteen year reforestation project on one ha of land, taking into account the opportunity costs derived from the net cash flow (NCF) of the current land use of oil palm (see Table 11) and a total PSA payment of US$ 980, is US$ -17408,14 (when discounting with 5%) and US$ -12342,63 (when discounting with 10%). According to the decision criterion, since NPV < 0, the project should not be accepted from the landowner’s perspective.

NPV of reforestation projects on rice fields

The NPV of a fifteen year reforestation project on one ha of land, taking into account the opportunity costs derived from the net cash flow (NCF) of the current land use of rice (see Table 12) and a total PSA payment of US$ 980, is US$ -7551,83 (when discounting with 5%) and US$ -5277 (when discounting with 10%). According to the decision criterion, since NPV < 0, the project should not be accepted from the landowner’s perspective.

NPV of reforestation project on grasslands

The NPV of a fifteen year reforestation project on one ha of land, taking into account the opportunity costs derived from the net cash flow (NCF) of the current land use of grassland (see Table 13) and a total PSA payment of US$ 980, is US$ -2788,06 (when discounting with 5%) and US$ -1944,85 (when discounting with 10%). According to the decision criterion, since NPV < 0, the project should not be accepted from the landowner’s perspective.

NPV of reforestation projects on bare soil

The NPV of a fifteen year reforestation project on one ha of land, taking into account the opportunity costs derived from the net cash flow (NCF) of the current land use of bare soil (see Table 14) and a total PSA payment of US$ 980, is US$ -1179,03 (when discounting with 5%) and US$ -770,78 (when discounting with 10%). According to the decision criterion, since NPV < 0, the project should not be accepted from the landowner’s perspective.

Table 11 Cash flow of reforestation projects on oil palm plantations

Source: Own representation

Table 12 Cash flow of reforestation projects on rice fields

Source: Own representation

Table 13 Cash flow of reforestation projects on grasslands

Source: Own representation

Table 14 Cash flow of reforestation projects on bare soil

Source: Own representation

Comparison of the reforestation projects to the current land uses using differential cash flows

After applying the decision criterion to the reforestation projects, to determine from the landowner’s perspective if they should be undertaken or not, in this section we want to approach the decision making in a different manner. For each of his crops or land uses, the landowner needs to make a comparison with a potential reforestation project. Every decision between a current land use (e.g. oil palm plantation, rice, etc.) and reforestation with mangrove tree species is a decision between two mutually exclusive projects.

In this case, the NCF of the reforestation project that includes the OC of the current land use, can be seen as a differential cash flow that serves to compare the mutually exclusive projects “Reforestation” and “Maintaining the current land use”. The same cash flows of Tables 11-13 of the reforestation projects can be used, because the NCF of the current land uses are equal to the opportunity costs in the reforestation project. Normally the NCF of one project is subtracted from the NCF of another project, after subtracting the cash outflows from the cash inflows in each NCF. However, it makes no difference to , or to . According to this decision rule if the NPV of the differential cash flow is NPVA-B < 0, then the project “Maintain the current land use” (B) is better than the project “Reforestation” (A).

This approach is done to compare each reforestation project to the alternative of maintaining the current land use in the case of oil palm plantations, rice fields and grasslands. It was assumed that bare soil does currently not include an alternative use (with no OC) and therefore it is not included in this analysis. Although opportunity costs were not considered for bare soil, the analysis showed that the reforestation project is still not likely to be accepted by the landowner. It is likely that landowners would prefer not using the property with bare soil at all, before reforesting it and incur negative cash flows.

NPV of the differential cash flow of the projects “Reforestation” and “Maintain oil palm plantation”

The NPV of Table 11 is US$ -17408,14 (when discounting with 5%) and US$ - 12342,63 (when discounting with 10%). With both discounting rates the NPV < 0. According to the decision criterion of mutually exclusive projects, since the NPV of the

differential cash flows NPVA-B < 0, the project “Maintain oil palm plantation” (B) is better than the project “Reforestation” (A).

NPV of the differential cash flow of the projects “Reforestation” and “Maintain rice fields”

The NPV of Table 12 is US$ -7551,83 (when discounting with 5%) and US$ -5277 (when discounting with 10%). With both discounting rates the NPV < 0. According to the decision criterion of mutually exclusive projects, since the NPV of the differential cash flows NPVA-B < 0, the project “Maintain rice field” (B) is better than the project “Reforestation” (A).

NPV of the differential cash flow of the projects “Reforestation” and “Maintain grasslands”

The NPV of Table 13 is US$ -2788,06 (when discounting with 5%) and US$ -1944,85 (when discounting with 10%). With both discounting rates the NPV < 0. According to the decision criterion of mutually exclusive projects, since the NPV of the differential cash flows NPVA-B < 0, the project “Maintain grassland” (B) is better than project “Reforestation” (A).

Relation to the land cover analysis

Since under the current PSA price/payment the mangrove reforestation is not a profitable alternative for any landowner, the share of the target area likely to be reforested is zero.

Adapting price level (NPV= 0)

After analyzing the net present values (NPV) landowners would obtain by entering the current PSA contract, in this last step the price level is adapted, to obtain a NPV of zero. The price level for ecosystem services (ES) is the amount paid to the ES provider. According to the decision criterion presented in the methodology chapter, if the NPV= 0 the landowner should be indifferent between choosing to accept or not the reforestation project. In this chapter, the NCF of the reforestation project is considered as a single project, including the NCF of the current land uses as OC. The differential cash flow approach is not used in this chapter. Only the general term “PES” is used instead of “PSA”, because the second refers explicitly to the scheme of

FONAFIFO in Costa Rica (US$ 980 for reforestation). In this chapter an alternative payment amount is calculated and a different payment manner is proposed. FONAFIFO pays 50% of the total US$ 980 at the beginning of the projects to absorb the initial investments in reforestation and the rest is paid in a decreasing manner in the next four years. From the calculations in the financial analysis it was proofed that the assumption made in the methodology chapter, about the opportunity costs being the decisive costs and not the initial investment, an equal annual payment to absorb these opportunity costs makes more sense, than a variable payment with higher amounts at the beginning of the project. The calculation of this annual payment, where the NPV = 0, is the purpose of this chapter.

As explained in the methodology chapter of this study, to find out at what price level the landowners are indifferent to accepting the reforestation project or not, NPV = 0 is solved for PPES obtaining the following formula, that will be used to calculate all the PES payments/price level:

퐶푂퐹 (1 + 푟)15(∑푇 푡 + 퐼 ) 푡=1 (1 + 푟)푡 0 푃 = 푃퐸푆 (1 + 푟)14 + (1 + 푟)13 + ⋯ + (1 + 푟)0

Applying the formula to a reforestation project of one ha on an area that is currently used for oil palm plantations (see Table 15) and discounting with 5%, we obtain:

(1,05)15(18152,12 + 1016,87) 푃 = 푃퐸푆 21,58

푃푃퐸푆 = 1846,78

Table 15 Calculation of PES price level for reforestation projects on oil palm plantations Discounting rate r = 5% Discounting rate r = 10% NPV = 0

Investment $1.016,87 $1.016,87 Discounted costs $18.152,12 $13.375,27 Discounted costs + Investment $19.168,99 $14.392,14 y(1+r)^14+y(1+r)^13+…+y(1+r)^0 $21,58 $31,77

Annual payment PPES = y $1.846,78 $1.892,19 Total payment (y*(t=15)) $27.701,77 $28.382,83 Source: Own representation

In the same way, PPES is calculated for all reforestation projects on different land uses for both discounting rates, 5 and 10%. In the case of reforestation projects on oil palm plantations, if a discounting rate of 10% is used, the yearly PES price is US$ 1892,19. The total payment for the entire project duration of 15 years is also shown in Table 15, for both discounting rates, being US$ 12745,89 and US$ 13055,24. To proof if the calculated PES price actually results in a NPV of zero, the price is introduced in the cash flow as annual payment. Appendix 1 and 2 illustrate this proof for reforestation projects on oil palm plantations. Appendix 1 shows, that for the cash flow discounted with 5% the NPV = 0. Appendix 2 shows, that the same result is obtained, when a discounting rate of 10% is used.

Table 16 Calculation of PES price level for reforestation projects on rice fields Discounting rate r = 5% Discounting rate r = 10% NPV = 0

Investment $494,50 $494,50 Discounted costs $8.325,36 $6.125,45 Discounted costs + Investment $8.819,86 $6.619,95 y(1+r)^14+y(1+r)^13+…+y(1+r)^0 $21,58 $31,77

Annual payment PPES = y $849,73 $870,35 Total payment (y*(t=15)) $12.745,89 $13.055,24

Source: Own representation

The calculation of the PES price for reforestation projects on rice fields is shown in Table 16. The annual PES price/payment is US$ 849,73 (r=5%) and US$ 870,35 (r=10%). The proof of the calculated price level is illustrated in Appendix 3 (for r= 5%) and Appendix 4 (r=10%). For reforestation projects on grassland the same methodology is applied (see Table 17). The resulting PES price/payment is less than half the required payment of projects on rice fields: US$ 367,83 when a discounting rate of 5% is applied and US$ 388,45 when the discounting rate is 10%. In the case of reforestation projects on grassland, the corresponding proof is given in Appendix 5 for r=5% and Appendix 6 for r=10%.

Table 17 Calculation of PES price level for reforestation projects on grassland Discounting rate r = 5% Discounting rate r = 10% NPV = 0

Investment $494,50 $494,50 Discounted costs $3.323,41 $2.460,08 Discounted costs + Investment $3.817,91 $2.954,58 y(1+r)^14+y(1+r)^13+…+y(1+r)^0 $21,58 $31,77

Annual payment PPES = y $367,83 $388,45 Total payment (y*(t=15)) $5.517,39 $5.826,74

Source: Own representation

The case of reforestation projects on bare soil can provide useful information. In this study it is assumed that landowners of bare soil have no opportunity costs, when they join reforestation projects and sign PES contracts. Hence, the PES price level calculated in this section is the required amount to cover the implementation and maintenance costs of reforestation projects, if the opportunity costs are not considered. However, since oil palm plantation owners have costs to remove existing crops besides the additional costs of restoration of water levels, which owners of rice and grassland also face, the PES price/payment needed to cover the maintenance and investment of these projects would be a little higher. The calculated annual PES price/payment for reforestation projects on bare soil (see Table 18) is US$ 205,06 (r=5%) and US$ 218,65 (r=10%) and the corresponding proof of calculation is given in Appendix 7 and 8.

Table 18 Calculation of PES price level of reforestation projects on bare soil Discounting rate r = 5% Discounting rate r = 10% NPV = 0

Investment $294,50 $294,50 Discounted costs $1.833,92 $1.368,60 Discounted costs + Investment $2.128,42 $1.663,10 y(1+r)^14+y(1+r)^13+…+y(1+r)^0 $21,58 $31,77

Annual payment PPES = y $205,06 $218,65 Total payment (y*(t=15)) $3.075,86 $3.279,82

Source: Own representation

After calculating all PES price levels, the last step is to establish a relation between the PES price and the land cover analyzed in chapter 3.1. Since only around one third of the properties of the buffer zone (in both scenarios) have a cadastral plan, the results

on the land cover are not representative and the relation between the PES price and the land cover of single properties cannot be analyzed in this study. However, it is possible to assess the implications of the different payment amounts on the total area of the buffer zone that is likely to be reforested in each case.16 From the PES price level/payments (PPES) calculated above, classes can be created to include every possible payment amount from zero to infinity. Only the total payment amounts for the entire project duration of 15 years are used. Table 19 illustrates the area that is likely to be reforested by applying different payment amounts in scenario 1,with a buffer zone of 100m. In the case of using a discounting rate of 5%, if the price level/payment (PPES) is US$3075 or less, no landowner would have an interest in changing his land use to mangrove reforestation, if and only if the landowner is a profit maximizing individual that trusts the NPV criterion. If an amount between US$ 3076 and US$ 5516 is paid it would be only profitable for landowners of bare soil. The total area likely to be reforested would be 1 ha which is around 1% of the target area (total area that should be reforested). If an amount between US$ 5517 and US$ 12745 is paid, it is not only profitable for landowners of bare soil but also for landowners of grassland and so on. The total reforested area is the cumulated area of the single land uses. For this payment class this means, that 28 ha (29%) of the area are likely to be reforested. In the land cover analysis the total area of each land cover type was presented. The amount of total reforested area in Table 19 increases according to the amount of the total area of the next single land use type that joins the PES contract. For an PES payment amount between US$ 5517 and US$ 12745 the additional land use type that joins the contract is grassland, the total reforested area increases by the total area of grassland presented in the buffer zone, which is about 27 ha. Therefore, 1 ha of bare soil and 27 ha of grassland, results in 28 ha of total reforested area for that PES payment class. This same procedure is repeated for every PES price/payment class. If the payment is US$ 27702 or higher, it is likely that all agricultural land uses and bare soil are reforested in the buffer zone. The same analysis is done with a discounting rate of 10%. The payment classes are slightly different and the payment from which it is profitable for the landowners of all agricultural land use types and bare soil is US$ 28383.

16 To make the analysis more comprehensive, both, prices/payments and area have been rounded up, avoiding decimals. 63

Table 19 Area of BZ100 likely to be reforested as a result of the price level Total Total P , r=10% P , r=5% (US$) PES reforested reforested Reforested land covers PES (US$) area (ha) area (%) 0-3075 0-3279 0 0% None 3076-5516 3280-5826 1 1% Bare Soil 5517-12745 5827-13054 28 29% Bare Soil and Grassland Bare Soil, Grassland and 12746-27701 13055-28382 78 82% Rice Bare Soil, Grassland, Rice ≥27702 >28383 95 100% and Oil palm

Source: Own representation

In the case of scenario 2, where a buffer zone of 200m is implemented (see Table 20), the payment classes remain the same, however the effect on the total reforested area changes. The buffer zone of this scenario is approximately twice the size of the buffer zone of the first scenario, however this does not mean that every single land use is also double in size. It can be seen from the Tables, that with a payment of US$ 3076 in scenario 1 only 1% of the target area is reforested, while in scenario 2 up to 4% are likely to be reforested. However, this difference becomes minimalistic in higher classes. Like in the first scenario, if the payment is US$ 27702 (when r=5%) / US$ 28383 (when r=10%) or higher, it is likely that the entire target area (all agricultural land uses and bare soil) are reforested in the buffer zone.

Table 20 Area of the BZ200 likely to be reforested as a result of the price level Total Total P , r=10% P , r=5% (US$) PES reforested reforested Reforested land cover PES (US$) area (ha) area (%) 0-3075 0-3279 0 0% None 3076-5516 3280-5826 7 4% Bare Soil 5517-12745 5827-13054 62 31% Bare Soil and Grassland Bare Soil, Grassland and 12746-27701 13055-28382 161 81% Rice Bare Soil, Grassland, Rice ≥27702 >28383 199 100% and Oil palm

Source: Own representation

Discussion

The purpose of this study was to determine the maximum percentage of the buffer zone that is likely to be reforested under the current “Pagos por Servicios Ambientales” (PSA) reforestation modality price. It was expected that from the landowner’s perspective, reforestation projects with the existing PSA price are not a profitable alternative to current land uses, because of the high implementation and opportunity costs.

The land cover analysis showed that the proposed buffer zone of the NPMA contains four different land cover types that need to be reforested, denoted by target areas: Bare soil, oil palm, rice and grassland. It was shown that in both scenarios a large share of the buffer zone (66% in BZ 100 / 70% in BZ 200) is agricultural land and has to be reforested. Most of it (35% in BZ 100 / 36% in BZ 200) is covered by rice, followed by grassland (19% in BZ 100 / 20% in BZ 200) and oil palm (12% in BZ 100 / 14% in BZ 200). The share of the buffer zone that belongs to the land cover class of bare soil is 1% (in BZ 100) and 3% (in BZ 200). It was also shown that only around one third of the properties of the buffer zone (in both scenarios) have a cadastral plan.

To fulfill the purpose of this study, we analyzed, from the landowner’s perspective, for which land use types the reforestation is a profitable alternative under the current PSA price, also considering the opportunity costs of the land. In the financial analysis the net cash flows (NCF) of current land use types were calculated for one ha and afterwards used as opportunity costs in the net present value (NPV) calculation of the reforestation projects. Oil palms had the highest NCF after tax: US$ 1354 (year1), US$ 1814 (yr 2), US$ 1714 (yr 3), US$ 1759 (yr4) and US$ 1530 (every yr from 5-15). The other NCFs after tax were rice with US$ 625 (every year) and grassland with US$ 143,5 (every year). It was assumed that bare soil has no opportunity costs. In the cost analysis the implementation costs of one ha are US$ 700 (reforestation), US$ 222,37 (removal of existing crop, only oil palm), US$ 500 (restoration water level oil palm) and US$ 200 (restoration of water levels rice and grassland). It was also shown that the maintenance costs are US$ 200 (first 5 years) and US$ 160 (next 10 years). The benefit analysis found that besides the costs that can be avoided thanks to the seedlings provided by the ICE (US$ 405,5/ha), the only cash inflow is the PSA reforestation modality payment by FONAFIFO of US$ 980/ha (for the entire 15 years of project duration). All cash inflows (benefits) and cash outflows (costs) were included in the NPV of the different reforestation projects.

The results of the NPVs of the different projects ranged from US$ -1179 (bare soil) to US$ -17408,14 (oil palm) when discounting with 5% and from US$ -770,78 (bare soil)

to US$ -12342,63 (oil palm) when discounting with 10%. The NCF of the current land uses were considered to be the opportunity costs of the NCF of the reforestation project. The decision criterion was applied and since the overall NPV in all cases was NPV < 0, none of the reforestation projects should be accepted from the landowners perspective. Since none of the reforestation projects are profitable from the perspective of the landowner, no landowner is likely to join the PSA contract and the buffer zone will not be reforested. Additionally we wanted to make a comparison between the two mutually exclusive projects “Reforestation” and “Maintain current land use” using the differential cash flow approach. The cash flow was therefore considered to be a differential cash flow. According to this decision criterion, if the

NPV of the differential cash flows its NPVA-B < 0 then the project “Maintain the current land use” (B) is better than the project “Reforestation” (A). This was the case in every single reforestation project, with both discounting rates.

A prior study of Ibarra (2007) noted that for the PSA forest protection modality, forest protection on a five years time horizon is marginally less profitable than logging and that if landowners only want to maximize their profits it is likely that they choose logging over forest protection. Since the forest protection modality has completely different payment amounts than the reforestation modality. This conclusion does not necessarily have implications for this study. However, it might be an indicator for small-dimensioned payment levels and tight available budgets.

Since the financial analysis showed that the current PSA price is too low to achieve the reforestation of the buffer zone, the price levels for a NPV=0 were calculated for each land use type. If the NPV of the reforestation project is zero, landowners are indifferent to accept or not the project. For both scenarios BZ 100 and BZ 200, the calculation showed that with a PES price/payment lower than US$ 3076, it is not profitable for any landowner to join the PES contract and reforestation is unlikely. With a payment between US$ 5517 and US$ 12745 it is likely that 29% (BZ 100) or 31% (BZ 200) of the target areas are reforested. With a payment of US$ 27702 or higher it is likely that the entire target area is reforested, under the condition that landowners are profit maximizing individuals that trust the NPV criterion. It was shown that in both buffer zone scenarios (BZ 100 and BZ 200) the effects of the PES price/payment on the target area likely to be reforested are nearly the same.

The findings of the land cover analysis are important for this study, because they are needed to assess the effects of different PES price levels on the area likely to be reforested. Therefore they can be seen as an input to the financial analysis. An important finding of the land cover analysis was the high share of the buffer zone covered by agricultural lands, what implies that a large area needs to be reforested.

This finding further supports the idea of Kroeger et al. (2007) that identifies agricultural lands as prime target in any ES conservation and recovery strategy.

Pagiola et al. (2005) establishes a difference between PSA contracts financed by public funds versus those financed by private funs. The authors stated that in the case of private funds also landowners without land titles could be accepted in the payment scheme. In this study it was not expected that only around one third of the properties of the buffer zone has a cadastral plan. Even if this means that it is not possible to establish a relation between single properties and different PES price levels, the land cover analysis of single properties with cadastral plan can give us important insight to the composition of these land units. It can be assumed that in most cases landowners tend to plant only one crop type in each property. In the cases were most of the property belongs to one land cover and only the borders have a different land cover, it is likely that these land covers belongs to a neighbor that has invaded the property, due to unclear property limits. However, with only one third of the buffer zone included in this analysis, caution must be applied, as the findings might not be representative to the entire buffer zone area. This finding also showed that most of the landowners would have difficulties to enter the PES contract, taking into account that Pagiola et al. (2005) identified tenure security as one of the three conditions for ES providers to be able to participate in PES schemes.

The hypothesis is supported by the findings of this study. With the existing PSA reforestation modality price none of the reforestation projects are a profitable alternative to current land uses, hence none of the target areas is reforested. The gap between the costs and benefits of the reforestation projects may be explained by the fact, that when the current PSA price level was designed, additional cash inflows of reforestation projects were included in the calculations. In commercial forest reforestations, landowners obtain additional profits from forest thinning and ultimately by selling wood and timber considering the optimal rotation period. Also, experiences from the mangroves of Térraba-Sierpe show that additional income can be generated by the production of charcoal from mangrove wood. The difference between Térraba-Sierpe and the buffer zone in the Savegre Delta, is that the mangroves of Térraba-Sierpe grow naturally in a healthy environment and partial extractions can be done in a sustainable way. In the case of the mangrove reforestation projects of the study area, the involved policy makers want to achieve the total recovery of the mangrove and even partial clear-felling for timber, wood or charcoal production is considered to be contra productive to natural secondary succession and mangrove recuperation. Another typical source of income from mangroves is mussel gathering. However, since the buffer zone area is located land inwards behind the remaining mangroves, no mussels occurs in this area and this activity doesn’t apply for the study area.

Another possible explanation to the outcome of this study is that the proposed reforestation projects have high implementation and maintenance costs and as most important factor considerable opportunity costs of land. An interesting finding was that the opportunity costs of the reforestation projects on the different land covers showed significant differences. It was expected that ongoing crops like oil palms have the highest NCF, but the difference between this and the single year crops (rice, grassland) was not expected to be so high. This finding corroborates the ideas of Orozco et al. (2001), who suggested that geographical differences should be contemplated in Costa Rica’s PSA scheme to avoid that properties with profitable land uses are not excluded, because their opportunity costs are much higher than the payment level. The relatively low NCF of grassland is consistent with the declining prices of livestock farming in Costa Rica in the last decades. Since the costs vary among the reforestation projects (on the different current land uses), while the benefits remain the same, it can be generalized that the costs exceed the benefits in all analyzed cases from the landowner’s perspective. Furthermore the findings of this study suggest, that even if a landowner has no opportunity costs (as shown in the case of bare soil), the current PSA price is not enough to make the reforestation a profitable alternative to its current land use, when the landowner is not allowed to make use of the mangrove forest to obtain additional income. Since there are notable differences between the opportunity costs of the different land cover types, it can thus be suggested that there is no general pattern concerning the profitability of the reforestation projects.

In theory the PES price is produced by the interactions of ES supply and demand. According to Pagiola et al. (2005) payments have to be lower than the maximum willingness to pay for a service (WTP) of the ES buyer and higher than the minimum willingness to accept a change in land use practice (WTA) of ES providers. The PSA scheme of FONAFIFO principally charges gas users. The obtained amount can somehow be seen as the demand for the ES of carbon sequestration. The results of this study showed that in this case the payment amount is too low to attract potential ES providers. Therefore, other ES of mangroves have to be promoted and the potential beneficiaries of these ES must be identified, so they can become additional ES buyers. This finding is in agreement with Kroeger’s et al. (2007) findings, which showed that ES with a public goods character should be marketed as co-products of ES with private good character. For this study, this means that landowners should be allowed to some extent to commercialize provisioning services like wood, besides carbon sequestration and scenic beauty. If policy makers absolutely discard this option, the markets of the ES with public goods character have to be developed faster but always in a regulatory framework, that allows the precise quantification of the ES.

The results presented in this study might differ from those presented in previous studies, if these studies did not include opportunity costs or only gave limited importance to this issue. In contrast to traditional reforestation projects, the landowners of the buffer zone area of the Savegre Delta have to be convinced that mangrove reforestation could be a profitable alternative to their current land uses. Usually it is the landowner that takes the initiative to reforest an area and therefore asks for financial assistance of FONAFIO’s PSA programme. In such cases the landowner doesn’t have to be convinced first, because he already considers reforestation to be the right choice. In this study, the landowners have a monopoly position such as described by Perrot-Maître (2006) in the Vittel-PES. The buffer zone cannot simply be established in a different area when landowners demand exorbitant prices, because it is meant to protect specially the mangroves of the Savegre Delta.

Since the financial analysis showed that the current PSA price is too low to achieve the reforestation of the buffer zone, the second part of the study set out with the aim to assess the effect of different price classes on the target areas to be reforested. It was shown that under the assumption that landowners are profit-maximizing individuals that trust the NPV criterion, the reforestation of the entire target area is unlikely until the payment is US$ 27702 (when r= 5%) / US$ 28383 (when r=10%) or higher. At this price level, landowners of bare soil, grassland, rice and also oil palm are indifferent to the reforestation project or can consider it a profitable alternative to their current land use. The analysis of the relation between potential price classes and the target area likely to be reforested showed that the price classes have different sizes and that the smaller a class is, smaller increment in price is needed to jump to the next price class and achieve a greater reforested area.

This finding has important implications for policy makers. Instead of paying an amount that belongs to the upper bound of a price class, policy makers should pay an amount that belongs to the lower bound of the next price class. For instance if US$ 5510 are paid, then the reforestation project would be only profitable for landowners of bare soil and it would be more recommendable to pay at least US$ 5517, because with only US$7 more it would also be interesting for landowners of grassland and instead of 1%, 29% of the target area would be reforested.

The findings of the financial analysis of this study also have a number of important implications for theory, research and future practice. The evidence from this study suggests that if policy makers want to apply the PES concept to mangroves, it is not enough to just include mangrove forests as possible target areas for the current PSA reforestation modality scheme. What might be a profitable alternative in the case of commercial reforestation projects for timber production, does not necessarily work for a mangrove conservation project. The results of this study support the idea that a

PES scheme can only function as a reforestation incentive to landowners if it exceeds the total costs of the project, taking into account the opportunity costs of land. Taken together, this means that policy makers have the choice between establishing a higher PES price or to allow landowners to use the reforested mangrove for commercial purposes to achieve additional cash inflow. However, a considerably elevated PES price is not consistent with the PES theory. According to Wunder (2007) the best scenario for PES implementation is when the decision of a landowner between a harmful and a sustainable land use can be influenced by a small payment. This applies for areas with relatively small opportunity costs and manageable threats. Even if the study area does not completely fulfill these conditions, the implementation of a PES scheme is not impossible but certainly associated to more difficulties.

A practical implication for this particular study area is that it is unlikely that the reforestation can be achieved without including additional income sources, because a significantly high price needs to be paid for the reforestation of the entire buffer zone area. This could motivate policy makers to reforest only properties with land covers with no or low opportunity costs like bare soil and grassland. These land cover types are likely to be reforested with a much lower PES price and this would be consistent with the theoretical concept of PES schemes described by Pagiola and Wunder. However, the partial reforestation of a buffer zone would only make sense if an ecological analysis would prove that a fragmented buffer zone would still make sense concerning the protection of the last remaining mangroves of the Savegre Delta.

Professionals should pay attention to the findings of this study, because when assessing the viability of PES as an incentive based instrument in other researches in the marine and coastal realm, the findings can change the understanding of the interaction between costs and benefits associated to anthropogenic induced recovery of relevant ecosystems.

Finally, a number of important limitations need to be considered. The data used to calculate the NCF’s after tax of the current land uses must be interpreted with caution, because of the price fluctuations of the markets for oil palms, rice and cattle farming. In this study it is assumed that the current land uses have a similar risk potential as the PSA contract from the landowner’s perspective. In reality the risk potential of the current crops might be slightly higher.

In the land use analysis it was shown that natural vegetation, like forests, mangroves and wetlands already occur in the buffer zone. Besides the PSA reforestation modality, FONAFIFO also has a PSA protection modality for already existing forests. However, the question if the PSA forest protection modality price is high enough to make forest protection a profitable alternative for landowners was not addressed in this study.

This also accords with the findings of Blackman et al. (2010). These authors ranked the forest protection modality as the most important of all PSA modalities on a national scale, because 85% of the land compensated by FONAFIFO belongs to this modality. Only 9% of the land belongs to the reforestation modality. Since the scheme has not been implemented on mangroves, at this point it cannot be stated which will be the most important modality for these ecosystems. Moreno et al. (2010) showed that in 2007 the reforestation modality represented 98,86% of the total amount paid for all modalities in national parks, biological reserves and surrounding areas (NPBRS).

No real discounting rates were used in this study. In a study by Ibarra (2007) about the profitability of forest protection vs. logging in Costa Rica, a discounting rate of 9,16% was used. The author averaged the discounting rate of the economy between 1997 and 2000. Therefore, in this study 10% was used as one of the discounting rates. A sensitivity analysis was not conducted for every single variable of the study. However, to address this limitation, two different discounting rates where used, 5 and 10%. The results obtained by using a discounting rate of 5% were not significantly different to those obtained when using a discounting rate of 10%. This variable did not affect the overall outcome of the study and the conclusions derived from it.

A limitation concerning the opportunity costs is that they change over time. They depend on the markets of the different crops. If for instance the price for palm oil changes, then the revenue and the profit of the oil palm farms will also change. If the price of palm oil is higher, the opportunity costs of converting oil palm farms into protected mangrove and forest is higher. Also production costs of the alternative land uses can produce alterations in a farm’s profit and therefore opportunity costs as well. The results of the interviews with the producer associations about the opportunity costs need to be interpreted with caution, because these associations might tend to overestimate their profits to attract more landowners to their agricultural sector.

An issue that was not addresses in this study was the effect of transaction costs. Due to lack of data, transaction costs were not included in the calculations, although they were identified. First of all, landowners incur transaction costs when entering a PSA contract. Pagiola et al. (2005) stated that in Costa Rica’s PSA programme the application process includes the preparation of a management plan that is usually done by a forest engineer and the fulfillment of eleven requirements. The authors recommend that landowners with small properties join in collective contractive schemes to lower transaction costs. Ibarra (2007) assumes that landowners usually pay an engineer for the PES application process, who charges around 10% of the value of the total payment amount. Also the land cover analysis showed that more than two thirds of the buffer zone area (in both scenarios) belong to properties without

cadastral plan and it is uncertain how many of them are registered. Landowners that want to participate in a PES contract would have to clarify the ownership of their property and would have to incur transaction costs. Wunder (2007) summarized a personal communication from Pagiola about transaction costs incurred during the certification process of Costa Rica’s PSA programme, stating that landowners pay on average 12 to 18% to intermediaries. He further indicated that also ES buyers face transaction costs to enter the PSA programme of about 7%. Since all these figures could not be verified for the study area, they were not included in the financial analysis. In other studies like the case presented in chapter 2 about Vittel Water Company, PES developers were faced with increasing transaction costs over time, due to trust deficiency from both parties (Perrot-Maître 2006).

A general limitation of the study is the gap between the willingness to reforest of landowners and the goal of a reestablished mangrove land cover. This means that, even if land owners plant mangrove seedlings with the best intentions, this is no guarantee for policy makers that the mangrove will actually grow on the altered soil. In this case, additional costs for replanting or extra activities will be incurred. This problem can be addressed by including this risk into the calculations. Due to lack of data on the probability and rate of failure of reforestation it could not be included in the current study. Another limitation is the uncertainty related to the assumptions that were established before undertaking the financial analysis. All assumptions were based on interviews and expert opinions, but when implementing a PES contract on mangroves they could change. If for instance the ICE would not be able to deliver enough seedlings, the landowners would have to bear the entire reforestation costs by themselves. This however would only reinforce the hypothesis that the costs of reforestation and opportunity costs of land cannot be covered by the current PSA price.

The findings of this study might not be directly transferable to other study areas, as costs involved may be the result of special site conditions and implementation costs used in this study contain some uncertainties.

Conclusions and recommendations Mangroves are one of the most productive coastal ecosystems with a variety of ES that enhance human well-being. Sea level rise and a forward moving agricultural frontier lead to the so-called coastal squeeze, reducing the mangroves ability to migrate and adapt to the effects of climate change. Different policy instruments have been implemented to conserve the remaining mangroves, most of them being command and control mechanisms. In Costa Rica incentive based conservation instruments have successfully been implemented in the inland forest conservation projects. However,

these instruments have not been tested on mangroves or other coastal ecosystems. In scientific literature, a variety of theoretical frameworks have been developed around this topic in the last decade, but they are lacking case studies that have verified the theoretical concepts. This study aims to fill in this gap, by analyzing the profitability of mangrove conservation projects from the landowner’s perspective, applying the price of the “Pagos por Servicios Ambientales” (PSA) programme of Costa Rica’s forest conservation sector to mangroves. Furthermore, this study analyzes the required price/payment amount at which landowners are indifferent to reforest mangroves instead of plant their current crops and evaluates the relation that exists between different price levels and the area likely to be reforested. The findings of this study show that the current PSA price of US$ 980 is too low to achieve the reforestation of the buffer zone and that to reforest all target areas a price of US$ 27702 (when r=5%) or higher is needed for any 15 years reforestation projects of a size of one hectare. Since the theory on PES states that PES should be implemented in cases where little incentive is needed to trigger the difference between one land use and the other, a considerably high PES price is not recommended. If only areas of low opportunity costs are reforested, ecological functioning of the buffer zone needs to be considered. To make a mangrove PES scheme a well-functioning instrument, landowners should be allowed to use the reforested mangroves and thereby obtain additional benefits, which would lower the required price level and make mangrove reforestation more independently more attractive.

The findings of this study have a number of important implications for future practice of policy makers. When designing a PES scheme to give an incentive to reforest mangroves, it is important to avoid the creation of a perverse incentive. If policy makers would decide to pay different payment amounts to landowners according to their opportunity costs, then landowners with oil palm plantations would get the highest payments followed by those that have rice fields and grasslands. Landowners of bare soil would get the least payment amount. In this case, it is likely, that owners of bare soil would plant rice or grass to obtain higher payments. This would have a negative effect on the ecosystem, for example more pesticides are used on rice fields. On the other hand, if landowners of bare soil would only pretend to plant rice to get the payment, every single production factor used in this activity would represent a loss to the overall resources of society. If policy makers would decide to pay landowners of bare soil and all agricultural land uses the same amount, the risk of a perverse incentive would prevail for landowners of forest, wetlands and mangroves. The perverse incentive would have even a worse effect than in the first scenario. It is possible, that these landowners would clear cut their forests just to obtain payments for reforestation.

It is necessary to understand, that a total payment (for one hectare of land in a fifteen years project) of US$ 27702 has a different incentive value to the different landowners. For a landowner of oil palm plantations, the payment is just enough to cover its implementation and opportunity costs, while for a landowner of bare soil it would exceed the reforestation costs he faces by far. Landowners of forests and mangroves that would get the same payment would consider it their net cash flow, under the assumption that they have no current use for the forest. Even if they had opportunity costs, the PES price would still by far exceed their foregone profits.

The concept of ecosystem services (ES) presented in this study considers that the PES price is the result of the interactions of supply and demand of ES. Therefore, the PES price should not only be derived from the opportunity costs of landowners entering the PES contract and the demand of ES should not be neglected. However, it is important to first analyze the further implications that the implementation of a PES could have on an area with heterogeneous land use types, like the buffer zone of this study. Although the findings of this study have shown that the implementation of a PES scheme in a mangrove reforestation project is a complex issue, the following can be concluded: To avoid a perverse incentive, every landowner of the buffer zone should get the same payment amount. The payment amount should in the best case be the result of the interaction between ES supply and demand and therefore awareness of the ES of the mangroves has to be increased among the general population. If the PES price that emerges from the ES demand is too low then it is likely that the buffer zone will only be partially reforested. An analysis should be undertaken to assess if this fragmented reforestation is still ecologically worthwhile. Even if the PES scheme is economically feasible, it should only be implemented if it achieves the desired ecological effects.

To cover the considerably high opportunity costs, it is recommended that policy makers promote the ES of the entire mangrove of the Savegre Delta to attract the attention of potential ES buyers. As described by Nunes et al. (2009), economic valuation of ES is the basis for the design of any policy instrument. Therefore, it is recommended to value all ES mentioned in the chapter of the theory on ES. After the economic valuation, the potential ES buyers need to be identified and the ES can be commercialized. Even if the buffer zone would be totally reforested with mangrove tree species, it would only represent a small part of the entire mangrove system of the area and the commercialization of the ES exclusively of the reforested mangrove would probably not raise enough funds to cover the costs. However, it would be possible to commercialize the ES of the entire mangrove system as a whole and direct the raised funds to the areas where they are most needed, in this case to the buffer zone area. Since the major part of the mangrove belongs to the NPMA and the park already has an entrance fee, this could be an obstacle on the way to mangrove ES

commercialization, depending on the ES under negotiation. The Savegre River has a relatively strong developed tourism sector, including rafting, tubing and horseback riding along the river. However, mangrove tourism is nearly non-existent. Around ten different companies offer kayak tours in the nearby mangroves of Damas. During the data collection process for this study, several tour operators expressed their interest in developing touristic activities in the mangroves of the Savegre Delta. To commercialize the ES of scenic beauty, an additional entrance to the mangroves of the NPMA could be charged to avoid an increase and mix up of the already existing entrance fee of NPMA. An alternative would be to charge mangrove tourists through a minimal increase in the mangrove tour prices, so that the funds would be collected through the tour operators and no additional entrance fee would have to be created. Moreno et al. (2010) indicated that in 2008 more than 260000 tourists visited the NPMA. On the national scale more than one third of tourist’s total spending can be attributed to hotel costs and only less than 3% to entrance fees of national parks. Since most of the mangrove tours are sold by the hotels, another alternative could be to include the mangrove PES payment in the hotel costs or to discount it from the commission that hotels charge for every tour they sell to their guests. In all cases the earnings should be collected in a trust fund that is administrated by FONAFIFO or an independent agency. The ES of carbon sequestration is already being addressed by the current PSA scheme of FONANIFO in inland forest reforestation projects, by charging gas users a special tax. Whether or not the payments from the gas tax are included in a mangrove PES scheme, the ES of carbon sequestration should be commercialized on a broader scale to attract additional funds. International incentive based mechanisms like the ones included in the concept of “Reducing Emissions from Deforestation and Degradation” (REDD+) and the use of conservation standards are key strategies to address national and international ES buyers of carbon stocks. Even if the entire buffer zone is reforested and added to the area of the already existing mangroves of the NPMA, the total area of the mangrove would still be too small for the international carbon stocks market and conservation standards. To address this problem, different mangroves of the surroundings like Damas, the estuary of Palo Seco, Extremo Bejuco and others, could be united in the “Central Pacific Alliance for the Commercialization of Mangrove Carbon Certificates” (CPACMCC). The alliance could use the obtained funds to address areas of high risk and to finance reforestation projects like the one of this study area. According to Engel, Pagiola and Wunder (2008a), in the case of nature-protected areas the park authorities function as ES providers and use the additional incomes to keep on protecting the ecosystem and securing the provision of ES. Lau et al. (2009) proposed the commercialization of carbon credits to reduce the deforestation of mangroves in Ghana, by targeting oil and gas developers as potential ES buyers. The food company Danone (called Dannon in the US) and the NGO Océanium have a mangrove reforestation project in Senegal, where 36 million

reforested trees are being planted for carbon sequestration purposes to compensate the emissions of Danone’s mineral water production process (Ecosystem Marketplace 2010).

Another approach to address the gap between costs and available funds is to achieve synergy effects through cooperation with other mangrove reforestation projects. If mangrove seedlings are produced on a large scale the unit could be reduced and the reforestation costs could be lowered even without the assistance of the ICE and its nursery-gardens. Nevertheless, cooperation like the one with ICE are essential elements to avoid or lower costs.

An important ES of the mangrove is shoreline protection. However, this ES differs from the others, because the ES producers are also the ES beneficiaries. In ES such as scenic beauty, landowners that reforest and protect mangroves are the ES producers that should get paid by tourists (ES buyers). But in the case of shoreline protection no one benefits as much from the protective function of the mangrove as the landowners themselves, whose plots are in danger. It might be confusing that this landowners pay themselves for the ES of shoreline protection, but if policy makers increase awareness about this issue, it is possible that the landowners could be willing to cover some of the reforestation project costs themselves. The service of shoreline protection is very important for Ecosystem-based Adaptation (EbA) to climate change. Since it was shown that the beneficiaries of this service are the local landowners themselves and therefore it would be difficult to attract external funds, it seems challenging to develop a PES scheme that addresses EbA. However, Wertz-Kanounnikoff et al. (2011) showed that a PES scheme that addresses a non-EbA ES such as scenic beauty and tourism can have positive side effects that allow local population to adapt to climate change. These side effects could be the creation of jobs in the eco-tourism industry and extra income to landowners to the payment. The authors further analyzed that if scenic beauty is directly associated to landscape protection, like in this mangrove reforestation project, the EbA ES can come to “piggy back” on the tourism PES scheme.

According to Bermúdez (2012) there are many birds species living in the mangroves of the Savegre Delta, that are important to adjacent agriculture fields and the protection of this species and their habitat should be in the interest of the farmers. Woodpeckers like Campephilus guatemalensis feed on larvae and insects that would otherwise affect agriculture plantations. Other species like Elanus caeruleus protect rice fields by feeding on rodents. Using the TEEB classification of ES illustrated in Appendix 9, the involved ES in this case is the regulating service “biological control”. If landowners would reforest with mangroves, they would become ES provider. However, they are also the only direct ES beneficiaries, just like it is the case with shoreline protection. Policy makers should rise awareness about this ES among

landowners so they might be willing to cover a share of the costs of the reforestation project.

It is important to consider that every land use change is associated with social costs. Pagiola et al. (2005) stated that if the PES programme is less labor intensive than the current land use, farm workers might lose their job. Even if a shift from agriculture to environmental protection under a payment scheme might be profitable for the farmer himself, other involved actors will not profit as much or even incur costs. The oil palm farm workers might lose their jobs, which will have a direct impact on the quality of life of farmworkers families. This means food security, health and up to some extend even children’s education could be affected. Studies from Uganda show that crop raiding of park animals on agricultural lands surrounding protected areas effectively contributes to the social costs of the farmers (Mackenzie et al. 2012). Studies on this topic for Costa Rica could not be found, however the effect is expected to be smaller, because of the different fauna, for instance elephants do not exist in Costa Rica. If we assume that the creation of a buffer zone might lead to unemployment and associated poverty, it is also necessary to analyze the effects of an increase in poverty on nature. According to Duraiappah (1998) environmental degradation is not the result of poverty, but produced by institutional and market failure and rich and powerful actors. However, it is possible that some of the former farmworkers could establish illegal agriculture on protected areas, once they lose their job on big farms. Nevertheless this is only an assumption. Overall the social costs and possible associated negative environmental effects will be considerably low, due to the small size of the buffer zone. Wunder (2007) points out that in poor societies with week institutions a payment scheme can even lead to the destruction of own initiatives of the local communities, because money transfers could weaken intrinsic motivations. Policy makers should therefore carefully analyze the already existing conservational framework of the area to avoid counterproductive strategies and consider possible social costs associated to unemployment among local NGO’s, produced by the concentration of conservation initiatives in a national scheme.

This study has shown that the success of the implementation of a PES scheme as an incentive based instrument to promote mangrove reforestation depends on a variety of factors. If after analyzing all the mentioned factors policy makers decide to implement a PES scheme on mangroves, a number of important recommendations should be taken into account. The PES contracts should not be more than 15 years and price negotiation should be possible after the end of the contract. Wunder (2005) expresses the need for periodic PES schemes in combination with monitoring, especially when dealing with areas at the edge of the agricultural frontier that are lacking governance. If the opportunity costs are higher after 15 years, the PES price will need to increase or it will be less attractive than it was and some landowners

might think of returning to old practices again. In the particular case of the reforestation project of the Savegre Delta, it is anyways likely that the 15 years reforestation project is only used as an interim solution on the way to a national conservation strategy of mangroves. An independent intermediary should manage the trust fund, regulate the payments and monitor the reforestation project. Therefore already existing institutions like FONAFIFO could be used or a new institution could be created.

If the commercialization of additional ES cannot be accomplished and the measures to reduce the costs have not the desired outcome or if partial reforestation under a lower price does not achieve the desired ecological effects, alternative approaches or instruments to create the buffer zone should be implemented. One alternative to the reforestation project policy makers might think of, could be to create a buffer zone area, eliminate existing crops and to allow the mangrove to migrate and recover by itself. However, this alternative should be discarded, because even if reforestation costs could be avoided, landowners would still have to be compensated for their land and since opportunity costs are much higher than the reforestation costs, the major problem would remain. Also it is uncertain if mangroves would really recover by themselves on the soil altered by agriculture.

If policy makers decide that incentive based instruments like PES are not going to be implemented in the study area, an alternative is the expropriation of the land adjacent to the NPMA. According to IGN (2005) the mangrove retrospective study showed that the mangrove of 1949 covered a much greater area than the actual mangrove. The proposed buffer zone is going to be implemented in an area that was formerly mangrove. Moreno et al. (2010) explained that according to forestry law no. 7575 mangroves belong to the national heritage sites of Costa Rica and are property of the state. If it can be demonstrated that the private properties in the buffer zone area were illegally sold, the expropriation of the land might be an option. However, policy makers should take into consideration that expropriation is only the first step and to avoid farmers from invading again the area control mechanisms have to be established. The costs of expropriation and control could be even higher than those of an incentive based instrument like PES. Further research should be done on this topic.

In the case of the Savegre Delta, the implementation of the buffer zone goes along with the need to incentivize landowners of agriculture lands to abandon their current practice. However, in other areas the state owned mangroves might be surrounded by a belt of natural vegetation on private property. Policy makers should learn from the challenges of reforestation projects presented in this study and protect the natural vegetation surrounding the mangroves before they are destroyed. It is always more convenient to protect existing ecosystems than to let destroy them first and

reestablish them afterwards. Like the PSA forest protection modality that prevents forests from being destroyed, also a mangrove protection PES should exist. The experiences from inland forests show, that forest conservation payments are usually lower than reforestation payments, because no reforestation costs are incurred and opportunity costs are lower than those of highly productive agricultural crops like oil palms.

This research has thrown up many questions in need of future investigation. Since in this study the PES concept was only analyzed as a reforestation incentive and not as an instrument to conserve existing mangroves, further research should be done to investigate the profitability of mangrove conservation PES in general and in the case of Costa Rica the implementation of the PSA forest protection modality on landowners with mangroves should be evaluated.

The authorities of the NPMA stated in the interview, that all the mangroves of Costa Rica belong to the national natural heritage and therefore cannot be privately owned. Thereby the question arises, if the mangroves that are reforested on private property shall become property of the state. In the interview with FONAFIFO it was clarified, that in such a case the land would remain the private property of the landowner that reforested the mangrove. This was the basis for this study. However, further research should be done to investigate the legal basis of mangrove reforestation in Costa Rica and additional investigations about the property rights of this particular area are needed.

In this study the profitability of reforestation projects with a PES was analyzed from the landowner’s perspective, including all costs and benefits that would affect the landowner’s decision. It is recommended, that the same study should be conducted from the perspective of society. In other words, instead of making a financial analysis with private cost calculation, an economic analysis that includes also social costs should be performed. The results of such a study would not be able to answer the question of the required price level at which landowners are indifferent to reforest or not, but it could give insight to the question of whether using PES in mangrove reforestation is overall profitable for society as a whole. This analysis would differ from the current study, because by changing the perspective from landowner to society the PES payment would no longer be a benefit, it would be a cost, under the assumption that society is the ES buyer. Besides social costs, also additional operation costs like monitoring costs, would have to be included in the analysis.

Further research on the application of PES on marine and coastal ecosystems would be a great help in porting the theoretical and empirical findings from the application of PES on inland ecosystems like forests to some of the most threatened systems by

climate change and anthropogenic pressures: Mangroves, seagrass and coral reefs. If the debate is to be moved forward, a better understanding of the influence of the effects of opportunity costs on the incentive magnitude of PES schemes needs to be developed.

PES have shown great potential as incentive based instruments in national and international schemes. The dynamics of the field makes further research on this topic indispensable. PES are not the solution to all problems of the marine and coastal realm, but in some cases they can trigger the difference between the destruction and the preservation of entire ecosystems and can encourage the rebuilding of already degraded systems.

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ANEXOS / APPENDIX

Appendix 1 Proof of the calculated PES price level of reforestation projects on oil palm plantations, using r= 5%

Source: Own representation

Appendix 2 Proof of the calculated PES price level of reforestation projects on oil palm plantations, using r= 10%

Source: Own representation

Appendix 3 Proof of the calculated PES price level of reforestation projects on rice fields, using r= 5%

Source: Own representation

Appendix 4 Proof of the calculated PES price level of reforestation projects on rice fields, using r= 10%

Source: Own representation

Appendix 5 Proof of the calculated PES price level of reforestation projects on grassland, using r= 5%

Source: Own representation

Appendix 6 Proof of the calculated PES price level of reforestation projects on grassland, using r= 10%

Source: Own representation

Appendix 7 Proof of the calculated PES price level of reforestation projects on bare soil, using r= 5%

Source: Own representation

Appendix 8 Proof of the calculated PES price level of reforestation projects on bare soil, using r= 10%

Source: Own representation

Appendix 9 Classification of ecosystem services according to TEEB (2010)

Ecosystem Definition Included services Service (TEEB (2010) glossary) Classification Provisioning “The products obtained  Food services from ecosystems”  Water  Raw materials (timber, fiber, fuel)  Genetic resources (industrial products)  Medicinal resources (biochemical)  Ornamental resources (handicraft) Regulating “The benefits obtained  Air purification (air quality) services from the regulation of  Climate regulation (C-sequestration) ecosystem processes”  Disturbance prevention or moderation (Floods and Storms)  Regulation of water flows (drought prev.)  Waste treatment (water purification)  Erosion prevention  Soil fertility and nutrient cycling  Pollination  Biological control (Seed dispersal / Pest &disease control) Habitat services “The importance of  Lifecycle maintenance (Nursery-service, (Supporting ecosystems to provide Photosynthesis, primary production) ser.) living space for resident  Gene pool protection and migratory species” (Maintenance of biodiversity) Cultural services “The nonmaterial benefits  Aesthetic information (Beauty) people obtain from  Recreation & tourism (eco-tourism) ecosystems through  Inspiration for culture, art and design spiritual enrichment,  Spiritual experience (religious values) cognitive development,  Information for cognitive development reflection, recreation, and (Use in science & education) aesthetic experience”

Source: Own representation based on TEEB (2010)

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Appendix 10 Calculation of the annual payment for NPV=0

PPES is the variable we are looking for. For simplification purposes it is denoted y.

푇 푦 − 퐶푂퐹 ∑ 푡 − 퐼 = 0 (1 + 푟)푡 0 푡=1 푇 푇 푦 퐶푂퐹 ∑ − ∑ 푡 − 퐼 = 0 (1 + 푟)푡 (1 + 푟)푡 0 푡=1 푡=1 푇 푇 푦 퐶푂퐹 ∑ = ∑ 푡 + 퐼 (1 + 푟)푡 (1 + 푟)푡 0 푡=1 푡=1 푇 푦 푦 푦 퐶푂퐹 + + ⋯ + = ∑ 푡 + 퐼 (1 + 푟)1 (1 + 푟)2 (1 + 푟)15 (1 + 푟)푡 0 푡=1 푇 푦(1 + 푟)14 + 푦(1 + 푟)13 + ⋯ + 푦(1 + 푟)0 퐶푂퐹 = ∑ 푡 + 퐼 (1 + 푟)15 (1 + 푟)푡 0 푡=1 푇 푦((1 + 푟)14 + (1 + 푟)13 + ⋯ + (1 + 푟)0) 퐶푂퐹 = ∑ 푡 + 퐼 (1 + 푟)15 (1 + 푟)푡 0 푡=1 푇 퐶푂퐹 푦((1 + 푟)14 + (1 + 푟)13 + ⋯ + (1 + 푟)0) = (1 + 푟)15(∑ 푡 + 퐼 ) (1 + 푟)푡 0 푡=1 퐶푂퐹 (1 + 푟)15(∑푇 푡 + 퐼 ) 푡=1 (1 + 푟)푡 0 푦 = (1 + 푟)14 + (1 + 푟)13 + ⋯ + (1 + 푟)0

Source: own calculations

Appendix 11 Properties in the study area with cadastral plan (registered and unregistered)

Source: Own representation, Arc GIS 10.1, property polygons by COTOBIRA S.A, Regularization of cadastre and registration of Costa Rica: IDB Cadastre Programme (2008), satellite picture by RapidEye (2010)

Appendix 12 Properties with cadastral plan (registered/unregistered) and without cadastral plan

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% NPMA BZ 100 BZ 200 Properties without 77,02% 68,51% 65,51% cadastral plan Overlap of properties 0,18% 0,50% 0,26% Not registered 2,59% 1,17% 1,75% properties Registered properties 20,56% 30,82% 33,00%

Source: Own representation, based on property polygons by COTOBIRA S.A

Appendix 13 Share of agricultural land uses (Oil palm, rice and grassland) in the NPMA

Oil Palm Rice 6% 1% Grassland 1% Bare Soil 22% 13% Forest

29% 7% Mangrove Wetland 39% 9% River 2% Sand (river) Sand (beach) Infrastructure

Source: Own representation, calculation based on land cover by PRIAS

Appendix 14 Share of agricultural land uses (Oil palm, rice and grassland) in the buffer zone with 100m

Oil Palm

1% Rice 3% Grassland Bare Soil 35% 16% Forest 66% 12% Mangrove 8% 19% Wetland 5% River 1% Sand (river) Infrastructure

Source: Own representation, calculation based on land cover by PRIAS

Appendix 15 Share of agricultural land uses (Oil palm, rice and grassland) in the buffer zone 200m

Oil Palm Rice 1% 2% Grassland Bare Soil 36% 11% Forest 70% 6% 14% Mangrove 20% 7% Wetland 3% River Sand (river) Infrastructure

Source: Own representation, calculation based on land cover by PRIAS

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