Mexico’s Program for the Payment of Hydrological

Environmental Services of Forests

Carlos Muñoz PiñaInstituto Nacional de Ecología

60 million hectares of temperate and tropical forests in Mexico

A country experiencing very fast deforestation

- 3

-2

-1

0

1

2

3

4

5

Ann

ual r

ate

of c

hang

e %

TemperateForests

TropicalForests

Shrubs Vegetación

hidrófila Otros tipos de

vegetación NaturalGrassland

Induced

pasture

Crops

Land use change in Mexico 1993-2000

-

Overexploited Aquifers

Market failures

Less silting and better water quality in watershed and recharge areas in aquifers.

Biodiversity Conservation

Carbon sequestration

The market does not pay for the environmental services of forests:

3 Types of Hydrological Services

• Aquifer Recharge

• Improved surface water quality, less suspended particles and lower costs.

• Reduce frequency and damage from flooding in short steep watersheds

Deforestation and market forces

Market signals (inputs and output prices)

Short term horizon induced by poverty

Costly cooperation in common property forestry

Decisions to change land use respond to:

Localities with high or very high marginality

60 million hectares of temperate and tropical forests in Mexico

Land use changesControl vs. Incentives

• In Mexico, government’s control of land use changes is costly, not effective and potentially poverty increasing.

• So, necessarily conservation = profitable forests

for communal owners taking land use decisions

Otherwise: regulatory taking on the poor

A public policy nicheForests with (potential) commercial use

PRODEFOR, PROCYMAF,

Cadenas Productivas

Plantations PRODEPLAN

Degraded Forests PRONARE

Not degraded, not commercial forests, important for watersheds and aquifers

PSAH

Program’s Objective• Stop the deforestation that

threatens those forests critical for watershed-related environmental services in Mexico

ByPaying land owners to preserve

forest land and avoid its transformation for other uses, such as: agriculture and cattle raising.

Eligibility Areas for PSAH

Forests owned by the poor

orForests important for water

With potential future clients

Providing other environmental

services?

or

Overexploited acquifers Deep poverty

municipalities

H related natural disasters

High water scarcity zones

or

or

Cities > 5K

Priority Mountains

Natural protected areas

or

or

Linking providers with those who benefit• Federal Fees Law reformed to

introduce an earmarking of a portion of the water fee.

Negotiations• Initial proposal 2.5%• Finance Ministry & National Water

Commission want to exclude municipalities from payment, so fix amount to ~US$20 million.

How much?

Two ways of approaching the problem: 1. Value of the service: What would

society loose if the forests were not there?

2. Opportunity Cost: What landowners would sacrifice if they kept the forest.

• Between those 2 values is the relevant space of the transaction.

OPORTUNITY COSTS

-2000 -1000 0 1000 2000 3000 4000 5000 6000

.00005

.0001

.00015

.0002

.00025

.0003

.00035

.0004

.00045Densidad

FrijolRENTAF N(s=1.22e+003)

-1000 0 1000 2000 3000 4000 5000 6000

.0001

.0002

.0003

.0004

.0005

.0006

.0007

.0008Densidad

BovinosRENTABOV N(s=858)

-100 0 100 200 300 400 500 600 700 800 900

.001

.002

.003

.004

.005

.006

.007

Densidad

Ovinos y CaprinosRENTAOTR N(s=175)

Cattle

Corn

Beans

Sheep & Goats

Source: Luis Jaramillo (2003) www.ine.gob.mx

-1000 -750 -500 -250 0 250 500 750 1000 1250

.00025

.0005

.00075

.001

.00125

.0015Densidad

MaízRENTA N(s=282)

Differentiated payment

• A political economy mix, recommendation based on opp cost, combined with value of service & forestry lobby:

1. Cloudforests: $400 pesos (~US$37) per hectare per year

2. Rest of temperate and tropical forests: $300 pesos (~US$28) per hectare per year

Forest area incorporated into PSAH

Year in which forest is signed into the program … 2003 2004 2005 2006 2007 total

Surface incorporated into

the program (thousand hectares)

126.8 184.2 169.1 118.0 545.6 1,143.7

Forest owners participating

(individuals + collectives)272 352 257 193 816 1,890

Total payment to be made over 5 years

(million US$)

3.5 5.2 4.7 17.2 84.2 114.8

PSAH 2003-2008: >1.2 million hectares

Durango: a watershed supplying cities and irrigation districts

Challenges for PES

• Unexpected success: Three times as many applications as funds. (Excess demand)

• Possibility of generating greater value to customers.

• Who received the payments?• Lets look at the actual

targeting…

Targetting:

• By value of environmental service• By level of poverty• By risk of deforestation

Important: voluntary program implies self-selection.

Overexploited Aquifers

Type of Aquifer

Country (surface)

%

Population using it

%

Eligibility CONAFOR

PSAH 2003

%

PSAH 2004

%

PSAH 2005

%

PSAH 2006

%

PSAH 2007

%

Extremely Overexploited

(+50% a +800%)0.1 29 7 0 0 7 13 6

ModeratelyOverexploited(+5% a +50%)

19 14 18 13 10 20 34 12Expansion margin or

Equilibrium(less than +5%)

68 57 73 79 85 72 51 80

No information 13 0.1 2 8 5 2 2 2TOTAL 100 100 100 100 100 100 100 100

Overexploited aquifers

Type of Aquifer

Country (surface)

%

Population using it

%

Eligibility CONAFOR

PSAH 2003

%

PSAH 2004

%

PSAH 2005

%

PSAH 2006

%

PSAH 2007

%

Extremely Overexploited

(+50% a +800%)0.1 29 7 0 0 7 13 6

ModeratelyOverexploited(+5% a +50%)

19 14 18 13 10 20 34 12Expansion margin or

Equilibrium(less than +5%)

68 57 73 79 85 72 51 80

No information 13 0.1 2 8 5 2 2 2TOTAL 100 100 100 100 100 100 100 100

Overexploited aquifers

Targeting the poor

Poverty and PSAH

Marginality

Forest communities

national level

Elegibility CONAFOR

PSAH 2003

PSAH 2004

PSAH 2005

Hectares (%)

Hectares (%)

Hectares (%)

Hectares (%)

Hectares (%)

Very high 69 35 25 22 26High 17 43 47 61 53

Medium 9 6 18 8 14Low 3 14 8 6 6

Very Low 2 1 2 3 1Total 100 100 100 100 100

79% - 83%

Targetting poverty

Targetting poverty

SEEKING EFFICIENCY

• Objetive: Maximize protection of environmental services through avoiding deforestation

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

• Main driving force: land use changes.

• More profitable agricultural and cattle ranching activities.

• Short term horizon caused by poverty (Guevara:2002).

• Specific patterns identified through econometrics: transport cost, slope, potential ag yields.

How to measure real risk of deforestation?

“All models are wrong, but some are useful.”

(George Box, quoted by Kennedy 1992: 73; quoted by Kaimowitz & Angelsen: 1998; and here).

Una rejilla para puntos de muestreo

20%

40%

60%

80%

100%

15

75

135

195

255

315

375

435

495

555

615

675+

Secundario sin cambio Secundario deforestado

Primario conservado Secundario regenerado Primario degradadoPrimario deforestado

0%

Cambios de uso de suelo y distancia al poblado más cercano

MINUTOS

ANÁLISIS ECONOMÉTRICO

VariableProbit

Deforestación/degradación vs no cambio

Probit OrdenadoDeforestación, degradación, no cambio

Pendiente (%) -0.005745 ** -0.003574 **Altitud (msn) .0000415 -.00000356Distancia al pueblo (min) -0.0035625 ** -0.002861 **Distancia a la ciudad (min) -0.0018948 ** -0.001137 **Rendimiento de maíz (txHa) -0.0126468 0.0690093 **Índice de marginación 95 0.0787564 ** 0.0647605 **Dentro de ANP -0.618584 ** -0.628249 **Pino y Pino-Encino 0.2120812 ** 0.8128571 **Selva alta 0.4517746 ** 0.814395 **Selva baja 0.2789231 ** 0.6340389 **

* Significativo a niveles mayores a 90%; ** Significativo a niveles mayores a 99%,

18k obs

Results for 2000 forests in Oaxaca

Targetting: Risk of Deforestation

Risk of deforestation

(quintiles)

Forests at

National Level

Elegible area

CONAFOR

PSAH 2003

PSAH 2004

PSAH 2005

PSAH 2006

PSAH 2007

% % % % % % %

Very high 20 12 4 11 7 6 14High 20 6 7 17 13 10 20

Medium 20 18 17 20 21 16 18

Low 20 25 30 30 27 25 22

Very Low 20 39 42 22 33 43 27

Total 100 100 100 100 100 100 100

Targetting: Risk of Deforestation

Risk of deforestation

(quintiles)

Forests at

National Level

Elegible area

CONAFOR

PSAH 2003

PSAH 2004

PSAH 2005

PSAH 2006

PSAH 2007

% % % % % % %

Very high 20 12 4 11 7 6 14High 20 6 7 17 13 10 20

Medium 20 18 17 20 21 16 18

Low 20 25 30 30 27 25 22

Very Low 20 39 42 22 33 43 27

Total 100 100 100 100 100 100 100

2008: Incorporating Watershed Targeting

Topographical Zones and Watersheds

Deforestation Risk and Topographical Zones(millions of hectares of forests)

Topographical Zones

Deforestation Risk

Very Low Low Medium High Very

High

Upper Watershed 7.8 7.2 6.6 4.7 3.2

Middle Watershed 3.9 4.6 5.0 6.2 6.9

Lower Watershed 0.4 4.5 0.6 1.4 1.8

A significant amount of key watershed areashas a high and very high deforestation risk

Modifying rules to incorporate new criteria for selection: location within a watershed

and relative water scarcity of the watershed

Topographical Zones

Average Water Scarcity in the Watershed

High scarcity

Medium scarcity

No water scarcity

problemsUpper

Watershed 5 points 5 points 4 points

Middle Watershed 4 points 3 points 2 points

Lower Watershed 3 points 2 points 1 point

PSAH 2003 (%) PSAH 2004 (%) PSAH 2005 (%) PSAH 2006 (%) PSAH 2007 (%)0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Distribution of PSAH payments by water scarcity in the watershed

%

Looking ahead • We need tests to compare areas with

payment and areas without payment, to see if there is a difference (control by deforestation risk, obviously )

• The problem of the “sixth year”. Need to see what they do after the contract ends:

– They can re-apply but no certainty that they are chosen

– They had money and time to build a sustainable forestry operation or move into other markets for environmental services. It is an empirical question.

Modifying behaviour, really (1)

2003-2006% de predios donde

se observó deforestación

Tasa de deforestación anual

(donde hubo def)

Predios sin PSAH 96% 6.6%Predios con PSAH 97% 4.1%

Polígono pagado 66% 1.9%

Polígono no pagado 97% 5.8%

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

• Muestra aleatoria, 160 predios.

• La diferencia está

entre el polígono pagado y las zonas (polígono o predio) no pagado.

Modifying behaviour, really (2)

2004-2007% de predios donde

se observó deforestación

Tasa de deforestación anual

(donde hubo def)

Predios sin PSAH 37% 0.3%Predios con PSAH 28% 0.4%

Polígono pagado 9% 0.1%

Polígono no pagado 20% 0.4%

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

• Muestra aleatoria, 115 predios.

• La diferencia está

entre el polígono pagado y las zonas (polígono o predio) no pagado.

Mexico’s Program for the Payment of Hydrological

Environmental Services of Forests

Carlos Muñoz Piña carmunoz@ine.gob.mx