Economy and Resource Management [Monteverde Institute]



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The use of markets and payments for environmental services is a topic gaining increasing attention amongst policy-makers and environment and development practitioners around the globe. Simply put, the term ‘environmental services’ can be taken to refer to the overall concept of natural systems providing a continuous flow of valuable goods and services to society. This is in contrast to similar services provided by man-made physical infrastructure and technological capital (i.e. water treatment, artificial fertilization, genetic modification) for which these environmental services are a substitute. The use of market mechanisms as a means of incorporating the economic value of these environmental services into the financial decision-making of producers and consumers is an additional tool that can be employed to resolve longstanding market failures that lead to less than desirable economic outcomes – i.e. having fewer environmental services and paying more for their man-made substitutes. In the developing world, Costa Rica has led efforts to experiment with the application of these mechanisms, many of which were simply ideas on paper just a few years ago. A survey of markets for environmental services by IIED highlights the formative role Costa Rica has played and provides a rich characterization of the economics of these initiatives in a global context (Landell-Mills and Porras 2002). As a complementary effort, this paper digs deeper into the literature regarding the Costa Rica experience in an effort to see what we are learning from the experience: how has technical, scientific and economic information on environmental services fed into these initiatives? To what extent are these initial experiences being monitored and evaluated? Is there a feedback loop that connects these experiences with learning about environment and development issues, particularly in the local context of policy-making within the country? The principal objective of the literature review is to identify and review documents and other material that address the following: 1. the local origins of the concept of payments and markets for environmental services and how they have developed over time, particularly in relation to the broader international development of the concept and local necessities/realities (historical and trend analysis); 2. the types of existing initiatives related to markets for environmental services, and who is participating in such initiatives (descriptive work); 3. the knowledge base that underpins market development, i.e. the extent to which markets are based on specific scientific and technical knowledge regarding the biophysical, economic and social relationships involved as opposed to general views on the subject (critical assessment); 4. the initiatives undertaken and underway to date with respect to the monitoring and evaluation of the experience with payments and markets for environmental services and to what extent (and with what results) the literature assesses these initiatives in terms of economic efficiency, environmental effectiveness, and social equity and/or poverty reduction. Where written material is not available or does not provide comprehensive coverage, interviews with those involved in these initiatives were used to supplement the documentary evidence. Given that IIED has undertaken a thorough review of the global literature on this topic and identified the examples emerging from Costa Rica, objectives 1 and 2 draw heavily on the existing IIED work by attempting to cross-check, confirm and, where possible, expand the coverage (in number and depth) of existing cases of markets and payments. The added value of the literature review will be in the deepening of the knowledge base and analysis of its content with respect to objectives 3 and 4. This in turn provides a basis for charting a way forward. The paper is organized to cover the objectives one by one. In the first chapter the local origins of the concept of markets and payments for environmental services in Costa Rica is explored. The paper then turns to the experiences (or market cases) gained so far in the country, providing in each of the succeeding chapters a description and review of each of the cases, an assessment of the role of knowledge in the development and formulation of the initiatives and a report on monitoring and evaluation underway to date. The paper concludes by drawing out some of the lessons learned and making recommendations regarding practical steps that other countries, researchers and financing organizations might take to improve the process of launching such initiatives in the future.



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Monteverde Institute MVI



What are we learning from experience with markets for environmental services in Costa Rica? A review and critique of the literature



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