Environmental initiatives in Latin America and the Caribbean

Forest: national foresty financing fund in Costa Rica


Costa Rica has an estimated forest cover of 2.6 million hectares, which represents 51% of its national territory (Food and Agriculture Organization |FAO] 2011). The country suffered extensive deforestation in the beginning of the second half of the 20th century. Vast stretches of rainforest were burned and converted into cattle lands and for agriculture use. Between 1986 and 1991, the country lost 4.2% of its remaining forest cover per year (Daniels et al. 2010), and by 1990 its forest cover was only of 1.6 million hectares (Madrigal, Alpizar and Otarola 2006).

Beginning in the late 1970s, Costa Rica introduced forestry incentives with the aim of enhancing the forest cover. These included favourable credit conditions, tradable tax vouchers and subsidies (Daniels et al. 2010). As a result of a third loan negotiation process with the World Bank, general subsidies (including forestry subsidies) were abolished and the forestry sector started exerting pressure on the government to receive support.

TABLE 13.1 Grading System to Assess the ‘Green’ level of Performance of Environmental


Ecosystem protection

Social equity

Economic growth


It has adverse effects on the environment.

It deepens social inequality.

It causes economic losses.

The initiative

In response to this worsening situation, the government of Costa Rica established the National Forestry Financing Fund (FONAFIFO)4 to complement existing forestry legislation. It is used to compensate the opportunity costs borne by private landholders of forests affected by legislation that prohibits land use change. FONAFIFO collects funds to support the payment for ecosystem services (PES) programme. Small and medium landholders may participate through reforestation, protection of existing forest, natural forest regeneration and agroforestry systems (seeTable 13.2 for a list of modalities of compensation).


FONAFIFO receives funding from four different sources. First, it receives public funds (the government assigns 3.5% ofits fuel tax revenue to the fund).This financing mechanism is based on the ‘polluter pays’ principle. Second, FONAFIFO makes

TABLE 13.2 Modalities of Compensation in the PES, Costa Rica


Legal status


Current payments ($2011)





Forest Law 7575 started in 1997, applicable till today

2-300 hectares enrolled, up to 600 hectares within indigenous areas

64/hectares per year for five- year period; renewable



Forest Law 7575 started in 1997, applicable till today

Between 1 and 300 hectares enrolled

816/hectares over 10-year period


Natural forest regeneration

2005 to present

Minimum of 2 hectares

41/hectares per year for five- year period; renewable




2003 to present

350 to 3,500 trees per participant; up to 336,000 trees per joint project, cooperative or indigenous reserve; specific requirements per hectares

1.30 per tree up to 3,500 trees, over three-year period




Forest Law 7,575 in 1997, until 2002


determined by



About $343 per hectares, over five-year period


Sources: Compiled from Daniels et al. (2010); Madrigal et al. (2006); FONAFIFO website (2012). •' Contracted hectares as of 31 May 2011. b Trees.

voluntary agreements with specific enterprises, which allocate funds for conservation activities in areas of their interest. Third, international organizations provide grants and loans for the provision of global public goods. Fourth, FONAFIFO sells Certificates of Environmental Services to individual investors, private companies and public organizations interested in investing in legally recognized environmental services. Investors can select the forest area of their interest, and the price per hectare will vary depending on the location and features of the area. This is not a trade system, since certificates are not exchangeable among investors. The main motivation for companies to invest is a desire to enhance their corporate image.The government creates an additional incentive, as these investments are tax deductible (see Table 13.3).

TABLE 13.3 Cumulative Contributions to FONAFIFO from 1998 to June 2011


Cumulative contribution (million of $2011)

Public Financing

3.5% of collected fuel tax revenues


Public-private agreements

Compama Nacional de Fuerza у Luz

3.77/ to protect 11,900 ha-'

Florida Ice and Farm and Empresa Seruicios

0.15/ to protect 1,000 hab

Publicos de Heredia Hydroelectric enterprises

0.42/ to protect 5,711 hac

International financing


57.37d/ to protect 137,033 hectares of forest/


enhance participation of women and indigenous communities 11,606,677.29 (grant)/ to protect 74,000

Certificates of Environmental Servicese

hectares for seven years 0.43



Source: FONAFIFO (2011); Madrigal et al. (2006).

a Compama Nacional de Fuerza у Luz pays $40/hectares for a period of ten years.

b Florida Ice and Farm paid $45/hectares from 2001 to 2007, and Publicos de Heredia has contributed $22/hectares.

1 Two hydroelectric enterprises have signed agreements with FONAFIFO. Energia Global paid $10/ hectares between 1997 and 2002 and $12/hectares ever since. Hidroelectrica platanar pays $15/ hectares to FONAFIFO for the areas which are already under the PES and $30/hectares directly to landholders who are outside the PES due to a lack of funds and/or because they do not meet the requirements.

d Loan of about $32.8 million from the World Bank, a grant of about $8.0 million from the Global Environment Facility (GEF),and $8.6 million from the Costa Rican government.

c At the time of writing, around 40 enterprises have acquired Certificates of Environmental Services.

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