Case Studies:
Water Conservation Fund in Quito - watershed protection contracts & land acquisition Trust fund (FONAG) created in 2000 to which water users in Quito (drinking water, agriculture, hydroelectric power (HEP), tourism, etc.) contribute with the aim of sponsoring watershed management projects, in the surrounding protected areas. The fund’s Board of Directors has representatives from local communities, HEP, the national protected area authority, local NGOs and government. Activities involve land purchase in critical areas and promotion of agricultural improved-management practices but no direct payments to farmers. Up to now the fund has been spending only the interest accrued but is considering using the capital to finance part of its activities. Emerging - pilot project agreed in 1998 when negotiations began. Contributions to the fund began in January 2000 and financing of watershed protection projects in January 2002. NGO The Nature Conservancy (TNC) and Government were interested in increasing the funds available for management of the Cayambe - Coca and Antisana reserves in order to safeguard the hydrological environmental services provided by the reserves, on which Quito’s water supply depends. (Quito´s population exceeds 1.5 million; current water consumption is around 150 million m3 per year; recent construction of two major projects to ensure supply beyond 2020). The idea was to increase the price of water as good to include the costs of maintenance of these environmental services. SupplyPublic reserve inhabited by local communities (sellers). The improved water supplies are expected to be achieved through investment in watershed protection, initially in the Cayambe-Coca (400,000 ha) and Antisana Ecological Reserves (120,000 ha) surrounding Quito, which are the main sources of water for the city. The area may be extended to incorporate the Condor Bioreserve. Glaciers in these areas store 1.4 km3 water. The area is inhabited by 27,000 people distributed in small communities, who use water for agriculture and use the plateau for extensive livestock grazing. DemandPooled demand from various users. Water users in Quito and surrounding areas, including: farmers (dairy, agriculture), hydropower companies, industrial, tourist operators and domestic users. Users pay different water use rates depending on whether they extract water or not. Local government (municipal water supply) -EMMAP-Q- (Water users in Quito (1,5million) and surrounding areas (27000); national government (MBS-Cangahua irrigation project); private corporate (brewery) Cervecería Andina, Cerveceria Nacional, (HEP) - Empresa Electrica de Quito (EEQ), HCJB, Electro Quito-Quijos project, INECEL-Cuyuja Project and INECEL-Coca Codo Sinclair Project, (spa&resort) Papallacta Hot Springs Spa & Resort; private landowners (irrigation); International NGO (donor) -SDC IntermediaryIntermediation is done through a trust fund made up of several stakeholders involved. See below under (Mechanism) for a description of this fund. FacilitatorsThe initiative was kick-started by TNC, an international NGO and the local municipality; recently SDC has also begun supporting the initiative.ServiceWater quality and quantity, although particular interests could vary according to the different water users. CommodityConservation of existing ecosystems through land acquisition. Improved management practices through watershed management projects. Conditions to participate in the scheme: “contribute to water quality and flow protection, be compatible with the protected areas´ management plans, promote community participation, be action-oriented, follow the bylaws determined by the fund. The selection is done by a competitive and transparent process implemented by a specialized institution (NGOs in particular)” Possible activities that could be financed through this scheme include: land acquisition in critical areas, provision of alternative income for local residents, supervision, implementation of improved agricultural practices, education and training. According to TNC, although the land within the reserves is technically patrimony of the government, the original landowners were never compensated for their loss of land title deeds. Because of the continuous conflicts over land, the new strategy suggests that compensation should be attempted rather than expropriation. For example, using conservation easements or payments for environmental services designed to encourage more appropriate land uses to ensure the protection of water sources. Payment mechanismTrust intermediary & user fees/pooled transaction - regular payments by beneficiaries for watershed protection will be channelled through an independent trust fund, the Water Conservation Fund (FONAG). This fund was launched in January 2000 with support from The Nature Conservancy (TNC), USAID and Fundacion Antisana. Total seed capital US$ 21,000. Management of the Fund : 1) managed by Enlace Fondos, an independent private asset manager; 2) governed by a Board of Directors with representatives from local communities, HEPs, the national protected area authority, local NGOs and government; 3) legally registered - use of funds will be made in cooperation with the environmental authority; 4) execution of projects funded is done through specialised conservation entities and involves active local participation; 5) administration costs are limited to 10-20% total expenditure. In addition to creating a central funding institution to coordinate watershed protection, users may form user associations to contribute to the fund. Terms of paymentDownstream users pay a combination of one-off payments and cash-instalments based on the amount of water they use.
Upstream farmers receive support for watershed protection programmes, but no direct cash payments. Funds involvedIn 2005, the fund amounted to 3 million US$. Expenditure is equivalent to the annual interest raised (12% in 2005), which would result in an annual expenditure of US$360,000Analysis of costs and benefits EconomicThe areas targeted are already nature reserves and protected under law. However, NGOs and groups interested in conservation face threats of conversion to agriculture. Transaction costs are limited to 10-20% of total expenditure. Assuming annual expenditure is about US$ 300,000 (see funds involved), transaction costs would amount to US$30,000-60,000.The time scale for the negotiation process and capitalisation of the Trust Fund has been very long. EnvironmentalCollected funds will be used for funding management and conservation projects in the water supply areas. These measures should also have direct positive impacts over biodiversity, as the area is rich in abundant flora and fauna, especially orchids, bromeliads, and birds. This area contains species in danger of extinction such as the condor, puma, jaguar, spectacled bear and tapir. There is no information about actual environmental impacts from funded projects. SocialThe project proposes a high degree of community participation. Environmental education will be encouraged in order to reduce poaching, garbage dumping and illegal fires. There is a component for capacity building to improve agricultural methods and encourage alternative environmental-friendly activities.. The project supports capacity building in environmental-friendly production, improving agricultural methods, and organisational capacity. The Cayambe-Coca reserve is inhabited by 7,000 persons distributed in small communities, who use water for agriculture and use the plateau for extensive livestock grazing. The adjoining buffer area is inhabited by about 20,000 people in tenant farmer cooperatives, indigenous communities, and private landholders, many of whom are poor. These communities will benefit from increased income from land purchases and more support in securing land tenure.Market relies on the formation of supporting intermediary and implementing institutions. Unclear how much of the funding is transferred to upstream residents. Many regulations and laws concerning water in Ecuador. In Ecuador, environmental services are recognized by the Constitution. However, payments for environmental services are seen as contradictory to existing legislation that forbids changing land uses. According to Montserrat Alban, from EcoCiencia, an estimation of the cost of patrolling the upper parts of the watershed is approximately US$ 0.001/m3, representing approximately US$ 0.04/month per family, for an average use of 40m3/month. Main constraints According to Marta Echavarría, the process has been very slow and painstaking. "And project implementation is just beginning because we work only with the interest, not the capital, on the money in the fund. But it has been highly instructive." http://ecosystemmarketplace.net/pages/article.people.profile.php?component_id=468&component_
Marta Echavarria (mechavar@interactive.net.ec ) Echavarría, M. 2003. Three watershed protection experiences at different scales in Ecuador and Colombia. Presented at the training workshop on " Reward Mechanisms for Environmental Services: How to Assess, Negotiate and Monitor" 17-25 September 2003, Chiang Mai, Thailand. Echavarría, M. Vogel J. Alban M and Meneses F. 2004. The impacts of payments for watershed services in Ecuador. Emerging lessons from Pimampiro and Cuenca. MES 4London, ENVIRONMENTAL ECONOMICS PROGRAMME- IIED. Markets for Environmental Services- MES. http://www.iied.org/docs/eep/MES%20Series/MES4EcuadorWatersheds.pdf . Echavarría, M. and L. Lochman. 1998. Watershed Conservation Fund in Quito, Ecuador. Policy Mechanisms for Watershed Conservation: Case Studies. Washington, D.C., TNC. Johnson, N. 2000. Market Strategies to Build Sustainable Links Between Forests, Water and People. Discussion Draft presented at Forest trend's Environmental Markets and Forest Workshop. Sydney, Australia. April 10-12, 2000., World Resources Institute. |
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