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April 14th, 2016
Energy • Finance

Reforesting Costa Rica through Payments for Environmental Services (PES)

In the 1950s, one half of Costa Rica was covered in forest; by 1995, it was only a quarter. In order to reverse this decline, the government introduced a reforestation initiative: the Payments for Environmental Services (PES) programme under Forestry Law 7575 in 1996.

It aimed to preserve the existing forest and promote additional tree-planting by paying landowners for the ecological services they provided by adopting sustainable land management.

The initiative

The approach chosen by policymakers was to instigate Payments for Environmental Services (PES) programme. "The PES programme was introduced by the new Forestry Law 7575 in 1996, First, it banned all conversion of established forests, [which was made] punishable by prison sentences rather than fines ... Second, it introduced the offer of payments for reforesting, protecting forest, or managing existing forest in private properties outside national parks.” [4]

PES was based on the ideas of the NGO, Fundecor, which “advocated a market-oriented approach based on valuation of the economic contribution of Costa Rica's forests”. [5] “In this system, landowners receive direct payments for the ecological services which their lands produce when they adopt land uses and forest management techniques that do not have negative impacts on the environment and which maintain people's life quality.” [6]

It was executed through the Fondo Nacional de Financiamiento Forestal [National Forestry Financing Fund] (FONAFIFO) and the Sistema Nacional de Áreas de Conservación [National System of Conservation Areas] (SINAC), which aim to protect existing forests and promote forest plantations to meet the industrial demand for lumber and other timber products.

The challenge

Many countries have suffered from deforestation, but Costa Rica's experience has been particularly acute. “In 1950, forests covered more than one-half of Costa Rica; by 1995, forest cover had declined to 25 percent of the national territory.” [1] This was particularly true of the 1970s and 1980s, when Costa Rica had one of the world's highest rates of deforestation.

This situation appeared to stabilise when, “in 1986, the government adopted a new forestry law and created the Ministry of the Environment (then known as the Ministry of Natural Resources, Energy, and Mines) [and] Costa Rica made progress in restoring forest cover”. [2] However, “in 1994, the Ministry of Finance decided to cut the reforestation subsidies the government had been using as its main policy tool. Decision-makers had to look for a new approach”. [3]

The public impact

Although it may not be entirely down to PES, "by 2005, Costa Rica’s forest cover had reached 51% [of the country’s land], an increase from 42% when the programme began in 1997”. [7] Between 1997 and 2005, “during that period, FONAFIFO spent approximately US$110 million on PES contracts protecting 400,000 hectares of land (almost 8% of the country’s total land area, or 11% of that deemed to have forest potential)”. [8]

Stakeholder engagement

The main internal stakeholder was the Ministry of the Environment. It also worked with government agencies, such as the National Forestry Commission.

A number of NGOs have been involved in PES, principally:

  • Fundecor, which developed the PES model in Costa Rica and was supported by an endowment from the United States Agency for International Development (USAID).
  • The Tropical Science Center, a Costa Rica-based scientific and environmental organisation, which conducted forest valuation studies.

Fundecor's involvement encouraged farmers to become engaged in PES. “Farmers softened their opposition when they learned of Fundecor's involvement in the new law. ‘It was a consummation of the trust Fundecor had built with farmers,' said [Franz Tattenbach, then executive director of Fundecor]." [9] This was also true of other landowners.

The logging companies were not supportive of PES: the influential Carlos Manuel Rodríguez said “‘the logging companies had to accept [the new proposal] . . . a land-use-change ban was very consistent with the sustainable logging they were preaching”. [10]

Political commitment

Politicians from the main political parties understood the need to protect the country's forests. The Ministry of the Environment and the influential Ministry of Finance both supported PES. "The proposed new programme was a win for both the finance minister and the environment minister, [René Castro]. The finance minister could increase tax revenue, and Castro could get the proposed new policy funded.” [11]

Public confidence

Fundecor’s central role in the development and implementation of PES influenced the public response to the programme. “Helping farmers increase their incomes gained Fundecor respect in the region and across the forestry industry. Farmers’ participation grew as they realised Fundecor had no interest in seizing their land for national parks—as some of the traditional conservationists had advocated. Tattenbach cited Fundecor’s ‘total respect for stewardship of private property’ as critical to gaining the trust of private landowners.” [12]

Clarity of objectives

The objectives of PES were clearly defined at the outset: to protect existing forests and promote forest plantations through payments to landowners. They were also measurable: "according to FONAFIFO, the main goal of the PES program was ‘to get as close as possible to 70% forest cover,’ which corresponded to the amount of land believed to have ‘forest potential’.” [13]

Strength of evidence

Fundecor’s proposal for a nationwide PES programme was based on local experience. “In 1992, as part of an independent pilot programme, Fundecor had made payments for environmental services to a group of farmers who chose to conserve their forests and invest in them development of ecotourism on their land. The US$10-per-hectare payments covered an area of 1,600 hectares. In communities where ecotourism was less feasible, Fundecor offered farmers incentives to switch to timber production as an alternative to farming cattle or growing crops.” [14]


The financial feasibility was addressed by the following sources of funding for PES:

  • “A tax on fuel sales. [15]
  • “Payments to FONAFIFO from private sector firms for the conservation of critical watersheds, and through the sale of

    Certified Tradable Offsets (CTOs) derived from forest ecosystems.

  • “The Global Environmental Facility (GEF) has also donated US$8 million to FONAFIFO to support the programme.
  • “US$5 million will be invested in direct payments for forest conservation contracts with landowners located in the Mesoamerican Biological Corridors in Costa Rica.
  • “US$3 million will be invested in increasing institutional efficiency of FONAFIFO, SINAC, and NGOs promoting conservation, reforestation, and sustainable management of forest ecosystems through the PES.”

The legal feasibility was established through Forestry Law 7575 in 1996.


René Castro, the minister for the environment, had the greatest influence over the management structure of PES. “While negotiating enactment of the law [7575], Castro established a joint-management structure for the new PES programme. He … created a trust fund called FONAFIFO to administer the programme in collaboration with SINAC. The joint-management structure divided administrative tasks. SINAC selected priority areas to fund, it received and processed applications, and it monitored programme implementation. FONAFIFO oversaw payments, programme finances, and external fund-raising.” [16]


Effective mechanisms were incorporated in the service delivery. SINAC was responsible for monitoring. “Every year, staff from the local SINAC office would inspect a selection of properties enrolled in the programme to ensure the ... reporting had been accurate. SINAC staff checked that a property had the required signage, that the forest met the required density, that there had been no illegal tree cutting, and that there were no cattle in the forested area.” [17] These inspections enabled SINAC to assess the progress of PES.

The area of the country covered by forest was also measured to calculate the rate of reforestation.


The alignment between the Ministry of the Environment and other actors, particularly NGOs, was essential to PES:

  • “SINAC and FONAFIFO developed the operating procedures for the programme, with input from other organisations, including the National Forestry Office.” [18]
  • Fundecor was involved throughout and was well aligned with farmers and other landowners.
  • “The GEF provided a US$40 million grant and loan package … to provide financing for PES contracts, build capacity among staff at SINAC and FONAFIFO, and introduce new targeting mechanisms into the programme.” [19]
  • The World Bank invested in PES.
  • The main political parties were united in their approval of PES. “Although an opposition party victory in the February 1998 presidential election could have disrupted the political support necessary for making those refinements, it instead brought a friendly face back into a leadership position." [20]
  • The Office of Joint Implementation was created to facilitate Costa Rica's partnerships with countries that invested in climate change mitigation in developing countries, within the UN's initiative on climate change.

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