1

COSTA RICA CASE STUDY:

THE IMPORTANCE OF BIODIVERSITY AND
ECOSYSTEM SERVICES FOR ECONOMIC GROWTH
AND EQUITY IN COSTA RICA



NATIONAL ECONOMIST REPORT


Jaime Echeverria, MSc



San Jos, Costa Rica
February 2010



2

Table of Contents
1 INTRODUCTION ................................................................................................................5
1.1 CONTEXT ............................................................................................................................... 6
1.2 OBJECTIVE ............................................................................................................................. 7
1.3 BIODIVERSITY IN COSTA RICA .................................................................................................... 7
2 SECTOR ANALYSIS: THE IMPACT OF BIODIVERSITY AND ECOSYSTEM SERVICES ON
ECONOMIC GROWTH AND EQUITY .........................................................................................8
2.1 TOURISMS IMPACT ON THE ECONOMY AND POVERTY ................................................................... 8
2.1.1 Income / foreign exchange revenues .......................................................................... 9
2.1.2 Tax Revenues ............................................................................................................ 10
2.1.3 Jobs and Poverty Reduction ...................................................................................... 12
2.1.4 W ......................................................................... 13
2.2 BIODIVERSITY PROTECTION ..................................................................................................... 14
2.2.1 Conservation of public protected areas .................................................................... 14
2.2.2 Economic Contribution of the National Parks and Biological Reserves to Costa Rica
20
2.2.3 The use of biodiversity in the development of pharmaceutical and agricultural
products ................................................................................................................................. 22
2.3 AGRICULTURAL SECTOR ......................................................................................................... 26
3 ANALYSIS OF EXISTING OR POTENTIAL ECONOMIC INSTRUMENTS AND THEIR IMPACT .... 29
3.1 ECOLOGICALLY ADJUSTED WATER USE FEE ................................................................................. 29
3.2 WASTEWATER DISCHARGE FEE ............................................................................................... 30
3.3 ENVIRONMENTAL SERVICES PAYMENT PROGRAM ....................................................................... 31
3.4 DEBT FOR NATURE SWAPS ..................................................................................................... 33
4 CONCLUSIONS ................................................................................................................ 35
5 REFERENCES AND LITERATURE REVIEWED ...................................................................... 37
6 ANNEX 1. SECTORS PROPOSAL ....................................................................................... 39

List of Tables
Table 1. Sustainable Environmental Management vs Business as Usual ........... 6
Table 2. Costa Rica: Foreign exchange income from tourism and tourism related
to exports. 1999-2008 (millions of U.S. dollars) ........................................... 10
Table 3. Costa Rica: Budgeted and actual revenues from the Costa Rican
Tourism Institute (ICT). 2005 -2008. $ Million. ............................................. 11
Table 4. Costa Rica: Measuring poverty among employees (individual income
from a main job) .......................................................................................... 13
3

Table 5. Costa Rica: National Conservation Areas System Comparative income
2004-2006 ($ millions) ................................................................................. 17
Table 6 Costa Rica: the Economic Impact of National Parks and Biological
Reserves Estimation. ($ millions for 2002). ................................................. 20
Table 7 INBio bioprospecting projects-inactive .................................................. 24
Table 8. Costa Rica: INBio budget for 2002. ..................................................... 25
Table 9. Costa Rica: farm and livestock products exports. 2004-2008. (in
thousands of US$). ...................................................................................... 27
Table 12 Costa Rica: Output from main agricultural crops. In metric tons. 2004-
2008 ............................................................................................................ 28
Table 14. Costa Rica: Water use fee ($/m3) according to water use ................. 29
Table 15. Costa Rica: Estimated revenues for discharge fees in $ dollars ........ 31
Table 16. Costa Rica: Amounts paid per hectare and per tree for PES by
modality for a five-year contract, 2009. (U.S. dollars) .................................. 32

List of Figures
Figure 1. Costa Rica: percentage distribution of tourist arrivals ........................... 9
Figure 2 Costa Rica: International tourist arrivals from 1999 to 2008 ................... 9
Figure 3 Costa Rica: Foreign exchange earnings from tourism .......................... 10
Figure 4 Costa Rica: Estimated income from tourist's air departing tax. n U.S.
dollars......................................................................................................... 12
Figure 5 Costa Rica: Conservation Areas and Biological Corridors.................... 14
Figure 6 Costa Rica: National System of Conservation Areas. Generated
Revenue. National Park Fund-($ millions) ................................................... 17
Figure 7. Costa Rica: Forest Fund / National Conservation Areas System. Share
of Revenue Generated by source. ............................................................... 19
Figure 8. Costa Rica. Value added of different sectors ($ millions) .................... 26
4

Figure 9 Costa Rica: Projection of the amount collected as fees for water use,
according to expected demand. -Millions of dollars ..................................... 30
Figure 10. Costa Rica: FONAFIFO budgetary allocation for payment of CAF and
PSA by source of funding, 2000 - 2008-Thousands of dollars ..................... 32
Figure 11. Costa Rica: Distribution and number of hectares under for
Environmental Services Payment, by year and type, 2000 2008 ............. 33

5

1 Introduction
The importance of biodiversity often goes unnoticed by those making decisions
that affect the economy. Since most of these benefits are of a public nature,
dispersed in space and not traded in markets, it is often difficult to quantify their
importance. However, the fact is that the global economy depends upon the
planet's biological resources and the health of the systems that support it.
In some sectors of the economy this is more evident. For example, fishing is a
global industry that depends almost entirely on a biological resource that
reproduces itself, but that at the same time depends on the ecosystem's balance.
And though the interest of the industry is on a single species, such as for
example tuna fish, its existence depends upon the health of the ecosystem as a
whole. In the case of tourism, or more specifically, ecotourism, this relationship is
quite clear in the case of Costa Rica: hundreds of thousands of tourist's arrive
each year interested in exploring the biodiversity contained in the protected areas
system, including National Parks, Biological Reserves and other categories.
Even so, usually the contributions that biodiversity represents to the country's
economy are usually overlooked by those who make decisions and draw public
policy. Usually the country's protected areas are subject to budget cuts, or at
best, a freeze on spending levels. This occurs despite of the importance of the
services obtained from these areas.
This study provides useful information to demonstrate the great importance of
biological diversity for the country's economy using several sectors as examples.
Aspects related to revenue generation for the economy in tourism, water use and
protected areas, are presented to illustrate the economic relations that depend
on biodiversity.
The point being made throughout the document is that in these sectors, Costa
Rica, has been using a sustainable environmental management approach
towards biodiversity, not business-as-usual. For example, it is the only country in
Central America that directs revenues from an eco-tax on petrol and water-use-
fees towards the protection and conservation of forests on private and public
land. The case of water-use fees is a good example. In most of Central
America, business as usual means not even paying a volumetric fee for water.
The information provided here should be useful to make a comparison across
countries, using these sectors as indicators and Costa Rica as an example of
how a sustainable environmental management approach works; at least, in some
sectors of the economy. (See next table)
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Table 1. Sustainable Environmental Management vs Business as Usual
Sector/Issue BAU SEM (Costa Rica Example)
National Parks Sparse independent units.
Poor financing.
Little research.
Unsecure land tenure.

Cohesive and integrated
system of protected areas.
Good research facilities
Partnerships with
Universities and other
research centers.

Secure land tenure.
Payment for
environmental
Services
Isolated and very limited
local schemes
Lack of legal framework
Problems assigning and
collecting resources.

National system, based on
a law,
Secure sources of
revenue.
Extensive know-how
Private sector support and
engagement
Water Limited, or lack of,
legislation
Use fees do not cover the
management cost
Resistance to metering
Users are not registered
Extensive legislation that
considers a use-fee on a
volumetric basis, for the
different types of water
use.
Integrated Water
Management Costs are
included in water use fees.
Metering is common and
most users are registered.
1.1 Context
As part of the Regional Program for Latin America and the Caribbean (LAC)
2008-2011, UNDP adopted a regional initiative in order to inform policy-makers in
the region about the need to incorporate biodiversity and ecosystem services
(BES) in local strategies, considering the role they could play in meeting
development and equity the objectives. To support this initiative, UNDP, in
collaboration with UNEP, ECLAC and the Secretariat of the Convention on
Biological Diversity (CBD), has initiated a dialogue with political and economic
leaders and Latin American and the Caribbean environmental experts to prepare
a report that presents convincing arguments about the need to invest to maintain
biodiversity and ecosystem services.
7

1.2 Objective
The terms of reference indicate that the objective of this document includes:
"... A review of relevant data and evidence from the existing literature as well as
projects and case studies in Costa Rica, which may allow the construction of
convincing arguments to make decision makers reconsider their investment
decisions and ensure the transition from a business as usual (BAU) approach to
natural resources management, to a sustainable environmental management
(SEM) approach."
1.3 Biodiversity in Costa Rica
Costa Rica is located in Central America, between Nicaragua and Panama. It
comprises a land area of 51,100 km2 and a marine component of 568,000 km2.
Several mountain ranges cross the country from side to side, providing a huge
variety of climates and microclimates. Significant differences in conditions
between the Caribbean and the Pacific make this country rich in biodiversity.
Costa Rica is ranked among the richest countries in biodiversity per unit of area
in the world and shares about 80% of its biological wealth with other Central
American countries (SINAC, 2009).
Furthermore, it has 3,5% of the world's reported marine species, including
invertebrates and microorganisms. Regarding vertebrates and plants, the
number of described species is approximately 95%, and 100% for freshwater fish
according to SNAC (2009). Based on the Holdridge's Life Zone System
(bioclimatic units) Costa Rica has 12 life zones and 12 transition areas, its basal
tropical forests and the premontane are the largest, representing a 44.8% and
43,34%, respectively.
Costa Rica has 4.5 million inhabitants (INEC, 2010), of which about 80,000
belong to the indigenous population. They are located mostly in 24 indigenous
territories in Talamanca, that represent 7% of the national territory (about
400,000 ha), near the buffer zone of the country's largest protected area, La
Amistad International Park (PILA).
According to the National Biodiversity Report, Costa Rica has made significant
progress towards achieving the 2010 CBD goals. The national system of
protected areas, along with programs such as payment for environmental
services and sustainable tourism certification are contributing to this end.
However, there are still challenges such as the coordination of different efforts.
8

2 Sector analysis: The impact of biodiversity and
ecosystem services on economic growth and equity
2.1 Tourism's impact on the economy and poverty
According to ECLAC (2007), tourism is an economic activity that contributes to
the growth and development of economies, and has a high potential for poverty
reduction. The "Tourism Enriches" campaign implemented by the World Tourism
Organization (WTO, emphasizes that this activity generates substantial economic
benefits. International tourism is the mayor world export sector, and an important
factor in reducing the trade deficit in for many countries. It generates employment
for millions of people around the world, opportunities in rural areas and
encourages the establishment of tourism enterprises in the less developed
regions. It also increases investment in infrastructure, government's revenues
through tourism taxes, and environmental conservation through the visitation to
national parks, historical monuments and archaeological sites. Tourism can
promote development and alleviate poverty as the WTO highlighted in its 2002
campaign called "Sustainable Tourism - Eliminating Poverty" (http:/ /
www.unwto.org / sdt / index.php).
Costa Rica is the country that captures the largest amount of tourists in Central
America, 25% of the total. Figure 1 shows the origin of tourist arrivals to the
country. The average spending by international tourists visiting the country was
estimated at between $ 800 and $ 1,000 per visitor in 2004. The main reason to
visit the country is tourism and recreation, followed by business purposes
(ECLAC, 2007). Those who visit the country for recreation represent 60% and
visit at least two national parks (Arias, 2010). Tourism generates about
110,000 direct jobs in the country, representing approximately 9% of total jobs
generated by the private companies in Costa Rica. If the recent growing pace of
tourism is kept, by 2015 the tourism sector could become the largest employer in
Costa Rica. Another important fact is that 56% of these jobs are generated in
rural areas, mostly in Guanacaste, the Pacific and Atlantic coasts.
9

Figure 1. Costa Rica: percentage distribution of tourist arrivals

Source: Costa Rican Tourism Institute, 2009.
2.1.1 Income / foreign exchange revenues
Tourism is a major source of foreign exchange for Costa Rica. Since 1999, the
arrival of international tourist has doubled from 1 million to over 2 million in 2008,
mainly from North America, Central America and Europe, as shown in Figure 2.
The 2 million tourists that entered the country in 2008, generated income of U.S.
$ 2,144 million (Table 2), equivalent to 22.6% of total exports' earnings (Costa
Rican Tourist Institute, 2009).
Figure 2 Costa Rica: International tourist arrivals from 1999 to 2008

Source: Costa Rican Tourist Institute, 2009.
46.744%
31.045%
13.851%
5.462%
2.898%
AMRICA DEL NORTE AMRICA CENTRAL EUROPA
AMRICA DEL SUR OTRAS ZONAS*
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
N
u
m
b
e
r

o
f

t
o
u
r
i
s
t
s
10

Table 2. Costa Rica: Foreign exchange income from tourism and tourism related
to exports. 1999-2008 (millions of U.S. dollars)
Year Total Exports
Income from
Tourism*
Ratio:
Tourism/Exports
1999 6.662,1 1.036,1 15,6
2000 5.848,7 1.229,2 21,0
2001 5.021,0 1.095,5 21,8
2002 5.263,5 1.078,0 20,5
2003 6.101,2 1.199,4 19,7
2004 6.301,7 1.358,5 21,6
2005 7.027,2 1.570,1 22,3
2006 8.199,8 1.620,9 19,8
2007 9.337,0 1.927,4 20,6
2008 9.503,7 2.144,2 22,6
*/ These figures do not include cruise information.
Source: Costa Rican Tourism Institute (ICT), 2009.
Figure 3 Costa Rica: Foreign exchange earnings from tourism

Source: Costa Rican Tourism Institute (ICT), 2009.
2.1.2 Tax Revenues
The Costa Rican Tourism Institute (ICT) is the institution in charge of promoting
integrated tourism development in Costa Rica. Expected revenues for 2008 were
a total of $ 33.3 million. However, real revenues were almost $50 million. (see
Table 3). Currently tax revenues are the largest funding source for ICT,
generating 47% of total revenues each year. These taxes include a:
00
500
1,000
1,500
2,000
2,500
2000 2001 2002 2003 2004 2005 2006 2007 2008
Divisas
(millones $)
Ao
11

3% tax on lodging ($ 9.93 million in 2007). (Law N 2706, Art. 7).
5% on international airfares ($9.73 million in 2007). It applies to tickets sold in
Costa Rica for any kind of international travel. Revenues belong to ICT and
are used to fulfill its duties (Law 1917, art. 46).
Non-tax revenues came primarily from securities' investments and rents from
land and buildings. Surplus revenues have shown significant growth between
2005 and 2007, from $ 9.17 million to $ 14.9 million; these are invested in
government securities (Legislative Assembly, 2008).
Table 3. Costa Rica: Budgeted and actual revenues from the Costa Rican
Tourism Institute (ICT). 2005 -2008. $ Million.

Source: (Legislative Assembly, 2008)
* Approved Budget for ICT to 21 August 2008.
** Actual revenue.
Additionally, there is another tourism-related tax. The "airport tax generates
more than US$50 million per year from international tourists. It has steadily
increased, in parallel to visitation, from $43.6 million in 2005 to $54.3 million in
2008. Each tourist pays $ 26.00 and must be paid by all who leave by air (Law
No. 8316). $12.15 goes to the Central Government and $13.85 to the Civil
Aviation Technical Council (CTAC), and both are used to finance general
expenditures (Legislative Assembly, 2008).
12

Figure 4 Costa Rica: Estimated income from tourist's air departing tax. n U.S.
dollars

Source: based on ICT data for international tourists departing Costa Rica.
In summary, the three existing taxes directly related to tourism generated an
estimated $ 76.5 million in 2008.
Recently, the Law for Strengthening the Development of the Tourism Industry
created two new taxes. A $15.00 tax is assigned to the promotion, trade,
planning and the sustainable development of the country as a tourist destination.
This specific assignation is wider than the tax it eliminated, for it allows major
flexibility in the use of these resources. This new tax will generate an estimated
average per year of $500 thousand. A 5% tax on tickets sold outside the
country, and that have Costa Rica as departure point, created to complement to
the already existing 5% tax that is applied to all air tickets sold in Costa Rica. It is
expected to generate some $7.48 million. Since the approval of this Law, the 3%
tax on lodging was eliminated with the derogation of the Law N 2706, which was
part of the tax basis on which the sales tax is applied, therefore, the collection of
the sales tax is reduced on lodging services.
2.1.3 Jobs and Poverty Reduction
It is also important to consider that there are other activities that depend upon
tourism for development, such as agriculture, transportation, construction and
commercial activities. According to the World Tourism Organization (WTO)
tourism indirectly produces 4 indirect jobs for each direct job. This means that
around 550,000 people in Costa Rica depend directly or indirectly on tourism
(Rodriguez, August 2005).
When it comes to education levels, the preparation of tourism workers largely
reflects the education characteristics of each country. Costa Rica has a staff with
13

higher education levels than the other countries in the region and this is also
reflected in the tourism sector. In Costa Rica, 45% of the employees of the tourist
sector have had at least primary school; 54% have high school or university
diplomas. These values are similar for the other sectors of the economy (CEPAL,
2007).
According to CEPAL (2007), the poverty incidence among employees in Costa
Rica is 7.1%. However, it is only 3.6% for the tourism sector. Other variables
such as the depth and severity of poverty behave in the same way. (see Table
4).
Table 4. Costa Rica: Measuring poverty among employees (individual income
from a main job)
Sector Incidence Depth Severity
Tourism 0,036 0,013 0,006
All sectors 0,071 0,030 0,016
Source: (CEPAL), 2007
2.1.4 Protected Areas impact on tourism
All of the above has relevance for biodiversity because a significant part of the
tourism industry strictly depends upon the national system of protected areas.
According to Monestel DeShazo and Luis Vega (1999) of Harvard University
studied the protected areas role in the development of foreign and domestic
tourism in Costa Rica, but found little evidence in quantitative terms. They found
however that:
Foreigners visit 4.5 public places during their stay of 16 days in the country.
Foreigners invest between 50% and 70% of their visiting time in protected
areas and their surroundings.
The national tourist makes 4.8 trips per year to visit 9.9 sites.
Domestic and foreign tourists with higher incomes spend a higher proportion
of their time visiting protected areas.
A 30% reduction from 1995 to 1997 in the government's budget for
maintenance and infrastructure investment of protected areas, might affect
the increase of foreign and domestic tourism in the mid term:
14

DeShazo and Vega (1999) conclude, that from any point of view, public protected
areas are and will be one of the main engines of growth for the tourism sector in
Costa Rica.
In Section 2.2.2 a broader analysis of the economic impact of protected areas is
presented.
2.2 Biodiversity Protection
2.2.1 Conservation of public protected areas
Costa Rica is usually considered a worldwide leader in the development of
market mechanisms for environmental management. However, barriers have
been identified that prevent the National System of Conservation Areas (SINAC),
established in 1995 (Figure 5), from fully implementing its national biodiversity
strategies. For this reason, SINAC and UNDP are implementing a GEF-financed
project entitled "Overcoming Barriers for the Sustainability of Protected Areas in
Costa Rica with the objective of generating the capacities needed to ensure that
the system achieves its goals, generating local and global benefits (for more
details see http://www.sinac.go.cr/proyectobig.php).
Figure 5 Costa Rica: Conservation Areas and Biological Corridors

Source: http://www.corredoresbiologicos.go.cr/documentacion.html
15

Using a scenario approach, Mark Adamson (2006) studied the economic and
financial sustainability of the Protected Areas System. He assessed a total of
132 possible options (3 management alternatives, 11 revenue cases, and 4
expenditures including alternatives). The economic analysis included generation
of hydrological services, and the value of environmental functions recognized by
the national system of payment for environmental services (PES). The financial
analysis assesses revenues including only the income generated by the
protected areas through visitation, taxation, and surplus transferred; it does not
consider externalities.
According to the study, the Protected Areas System is providing the country with
economic benefits in excess of the expenses associated with its existence.
Results show that the system is sustainable in economic terms and for all
scenarios. This means that if SINAC successfully collects its tax revenues and
visitation fees, and visitation and revenues maintain its current trend, the total
economic benefits produced by the ASP exceed their expenses, based on a
definition of economic efficiency or inter-temporal dynamics. This does not
exclude the possibility that in economic terms the system could be more efficient.
It was not possible, however, to determine the cost-effectiveness of the system
because SNAC's accounting is not done by "cost centers. But, considering the
possible scenarios for tax revenue collection, surplus transfers and income
opportunities from visitation, there is economic evidence that the system could
substantially increase its efficiency; both increasing revenues and reducing
expenditures.
The author concludes that the system is sustainable from an economic point of
view (i.e. economic benefits outweigh its costs in a planning horizon up to 2020).
Net present values are positive for the three scenarios considered ($182.48
million in the baseline, $293.39 million in the middle, and $476.33 million in the
optimist scenarios). Financially, including only direct profits, the system reduces
its sustainability and cannot cover all their expenses. Thus, the financial
sustainability of the system depends on the internalization of the economic
benefits generated by the ASP, which rests upon a political decision. The main
opportunity for this being the financial resources the new water use fee will
generate, 25% of which will be directed towards SINAC. Therefore, making the
case about the system's benefits for the economy is very important.
The financial sustainability of the system however, depends upon the
assumptions used to estimate it. SINAC and The Nature Conservancy (TNC)
(2007) used the Convention on Biological Diversity's goals as guidelines. A
financial gap analysis was carried out using information from 2004 to 2006. It
included all revenue sources administered by SNAC's regular budget, three
special funds (National Parks, Forestry and Wildlife funds), development aid and
16

private and resources. Currently the main funding sources of SINAC are (Valerio,
2010):
Central Government. Through its ordinary and extraordinary budgets,
currently is the largest source of revenue for SNAC's annual budget.
National Parks Fund. Includes admission fees, other Protected Area' s
services and the National Parks mail stamp).
The Forestry Fund and the Wildlife Trust, which represents the third
source of revenue for the System.
Wildlife fund.
25% of the ecologically adjusted water use fee.
Royalties and research projects of INBio bioprospecting.
Donations, conventions from national and international agencies.
Loans, with international financial organizations.
Interests generated on the transitional investments from the Heritage Fund
of the Conservation Areas.
Revenue from concessions services of the Protected Areas (ASP).
Permits fees for using the ASP.
Deposits / fines resulting from the reconciliations and settlement of legal
proceedings for environmental damages.
Fines for infringement of the forestry, wildlife and protected areas
legislation.
The next table shows sources of income for three years and the relevant
contribution of each. Notice the important increase suffered by the approved
budget, from $17 million to almost $28 million and the reduction in the difference
between the received and the budgeted amount. The Government budget
covers approximately 75% of the total costs while resources from other sources
cover the rest.
17

Table 5. Costa Rica: National Conservation Areas System Comparative income
2004-2006 ($ millions)
2004 Real Approved Difference
Regular budget 7,8 7,8 0
Parks Fund 8,7 6,6 2,1
Forestry Fund 1,7 0,54 1,1
Wild Life Fund 0,22 0,035 0,19
Private Resources 2,1 2,1 0
Total 20,5 17 3,5
2005
Regular budget 11,6 11,6 0
Parks Fund 9,05 9,04 0,01
Forestry Fund 1,4 0,28 1,1
Wild Life Fund 0,26 0,13 0,13
Private Resources 4 4 0
Total 26,4 25,1 1,3
2006
Regular budget 12,44 12,44 0
Parks Fund 9,6 10,7 -1,02
Forestry Fund 0,15 1,4 0,12
Wild Life Fund 0,26 0,13 0,13
Private Resources 3,3 3,3 0
Total 27,2 27,9 -0,78
Source: (SINAC/TNC, 2007)
In the case of the National Parks Fund, its main income is from the "pro national
parks stamp and the parks entrance fees, as shown in Figure 6 below:
Figure 6 Costa Rica: National System of Conservation Areas. Generated
Revenue. National Park Fund-($ millions)

0
2,000
4,000
6,000
8,000
10,000
12,000
2004 2005 2006
Surplus
Transfers
Financial
revenues
Other income
Entrance fees
18

Source: Prepared based on (SINAC / TNC, 2007).
The pro-national parks stamp amount ($0.4) was updated in the Biodiversity Law
No. 7788, and revenues from it are managed by the Banco Credito Agricola de
Cartago, a national bank, and collected by the Immigration Office, the National
Property Registry, and the Ministry of Foreign Affairs. The funds are then
transferred to the Central Bank of Costa Rica (BCCR) and subsequently
deposited in the Ministry of the Environment's account.
However, it is important to mention that these mechanisms have only very few
controls and verification systems. As a result it is difficult to determine if the
amounts collected are consistent with those deposited in SNAC's account. The
same situation happens with Local Municipalities, which have to collect a 2%
over patents and an $8.7 stamp duty for the right to allow alcoholic beverages
consumption in commercial establishments (SINAC / TNC, 2007).
The Forestry Fund was created in 1996 (Forest Act 7575) and obtains resources
from the forestry tax and non-tax income, such as the sale of forms, applications,
and guides. The forestry tax is 3% of the market value of logs/timber sent to its
primary industrialization and imported logs/timber. Wood pays a sales tax equal
to the general sales tax of 13%, minus a 3%, which is the forestry tax. However,
its collection has been hampered by different legal interpretations, a situation that
must be resolved. Taxes on imported wood are collected through various tariff
items and at different ports of entry (SINAC/TNC, 2007).
As shown in Figure 7, the surplus amounts of the Forestry Fund are quite
important. However, the procedure to include these funds in SNAC's budget is
very complicated. Even though the law established the amounts, SINAC
requires legal amendments to be able to access them.
19

Figure 7. Costa Rica: Forest Fund / National Conservation Areas System. Share
of Revenue Generated by source.

Source: Prepared based on (SINAC / TNC, 2007).
Finally, the Wildlife Fund is entrusted with the collection of its wildlife-stamp,
which is a kind of tax associated with the import and export of flora and fauna,
entrance fees from wildlife refuges and related activities such as research fees
and permits, hunting and fishing licenses. This fund makes the smallest
contribution to SNAC's budget. And worse of all, it entails high administration
costs because accessing these funds is a complex process.
Even though SINAC has been able to diversify its funding, available resources
favor the "normal" functioning SINAC. This is insufficient to meet other
conservation needs, such as development, institutional strengthening,
sustainable use and conservation of resources, and biodiversity, in accordance
with the duties and responsibilities that the legislation entrusted the institution
with (Valerio, 2010). Luckily, the situation is expected to improve once its share
of the ecologically adjusted water fee starts to flow in.
To reduce further these funding gaps, SINAC proposes to develop mechanisms
such as (Valerio, 2010):
Adjusting the admission fees and other services provided to visitors and users
of the wilderness areas.
Granting contracts for non-essential services in the protected areas.
Establishing and implementing cooperative agreements with NGOs.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2004 2005 2006
Surplus
Transfers
Other income
Assets sales
Financial revenues
Goods and Services
Government Budget
20

Monitoring and ensuring proper collection of revenues from all of the different
sources typified by the legislation.
2.2.2 Economic Contribution of the National Parks and Biological Reserves to
Costa Rica
In a study by CINPE-UNA, Furst, Moreno, Garcia, & Zamora (2004), estimated
the contribution of national parks and biological reserves to the national economy
in $815 million per year (Table 6). For illustrative purposes, that amount is 40
times greater than SNAC's budget for 2004. However, in the end probably the
system's contribution is larger, since there are many goods and services that are
not considered in the study. In the case of tourism, activities such as lodging,
transportation and food were included.
Table 6 Costa Rica: the Economic Impact of National Parks and Biological
Reserves Estimation. ($ millions for 2002).
Economic activity Estimated revenue (millions of
US$)
Tourism (national benefits) 708,47
Availability of good quality water for power generation 87,00
Resources for conservation of protected areas 9,16
Contributions to INBio contributions 5,60
Visitation to PNRB 2,70
Employment and wages generation 1,31
Land purchase 0,71
Payment for environmental services (FONAFIFO) 7,53
Total 814,96
Source: (Furst, Moreno, Garca, & Zamora, 2004)
In a different study, the International Center for Economic Policy and Sustainable
Development at the Universidad Nacional de Costa Rica (CINPE-UNA) analyzed
the economic and development contribution of three protected areas: Chirripo,
Cahuita and Poas Volcano. The authors quantified these benefits using "cluster
analysis", by which they estimated the contribution of socio-economic activities
induced by productive chains around the protected areas. The protected areas
studied have become development poles that also make an environmental
contribution, preserving biodiversity resources and providing many goods and
services. They also promote the development of new economic activities, such
as scientific research and tourism, related to the existence of the protected area.
The CINPE-UNA estimated that Cahuita, Chirripo and Poas Volcano contributed
$6.41 million to the tourism sector. Additionally, these areas generated almost $1
million in park entrance fees. In the case of Chirripo, the development of tourism
related services such as hotels, restaurants, transportation, rental equipment and
related activities like fishing and hot springs were analyzed. These activities
21

currently generate $183,426 in revenues for San Gerardo and surrounding
communities because of the 6,300 tourists per year that visit the area.
In the case of Cahuita National Park, the park's existence promotes income-
related activities such as food services, fishing guides, handcraft production and
sale and other commercial businesses that produced $1.87 million in 2002.
Finally, in the case of the Poas Volcano National Park, activities related to the
protected area generated revenues of $ 4.36 million the same year. In this park,
important activities include non-traditional agriculture, specifically strawberries
cultivation, processing and marketing, and ferns for export.
Extrapolating the result to the parks' system as a whole, the park system
generates about $900 million in added value, an amount equivalent to a 5.5% of
the Gross Domestic Product (GDP) for 2002.
A different study by Juan Antonio Aguirre from the Sustainable Development
Center, measured the economic impact of tourist spending in the neighboring
communities of Poas Volcano National Park. In this study the author determined
a multiplier effect of 1.56, which implies that every dollar spent on direct
purchases, generated another $0.56 in revenues for indirect purchases in and
outside the community.
He estimated sales multipliers with respect to the impact of tourist expenditure in
the area and determined no significant differences between the types of business
analyzed (souvenir shops and restaurants). The only difference was the amount
of investment needed to establish a business, $33,323 in the case of restaurants
and $9,800 in the case of souvenir shops. They receive an average of 44
customers per day who spend on average $28.76 per person.
The park had to be closed completely for one week and partially for two in 2006
due to crater eruptions of the volcano. According to the study, the Park's closure
as a result of the eruptions meant a 72% reduction in visitation to the area. This
meant foregone income for the community of $42,108, $5,474 in uncollected
sales' tax, and $2,267 in reduced park entrance fees.
All of these examples illustrate the role that national parks play in promoting
development in Costa Rica. Clearly, the system generates benefits beyond
protecting biodiversity for future generations. t is an "engine of growth that
brings a steady flow of foreign visitors, who engage in different activities and
generate many indirect benefits. Scientific research, and other high added value
activities, including significant aid programs from the international community.
22

2.2.3 The use of biodiversity in the development of pharmaceutical and
agricultural products
Since 1991 The National Biodiversity Institute (INBio) through its bioprospecting
program
1
, has established research and collaboration agreements nationally and
internationally with over 30 companies in the pharmaceutical and agricultural
industries. By 2004 this program had contributed with $600,000, which
correspond to 10% of research funds, to the conservation of protected areas,
through the Ministry of Energy and the Environment (MINAE).
Additionally INBio has contributed with more than $1.5 million for the
conservation of protected areas and research projects with public universities
and invested about $ 1.7 million in training national scientists, equipment
purchases and infrastructure (Tamayo, Guevara, & Huertas, 2009).
Although INBio has signed agreements with different companies worldwide the
case that set the stage for the development of such agreements was signed with
Merck & Co in 1991. t was called a "shared benefits agreement. This
agreement provided access to a number of plant samples, insects and
microorganisms for pharmaceutical product development. Part of the research
should be carried out locally and the company would cover research costs.
Furthermore, it included a clause by which MINAE would receive 50% of the
funds during the discovery and development phases. It also provided these
organizations with a percentage of the profits (which would be decided later),
joint intellectual property rights, technology transfer and knowledge to develop
scientific capacity in Costa Rica (Tamayo, Guevara, & Gamez, Biodiversity
Prospecting: The INBio Experience, 2004).
INBio has entered into at least 22 other agreements from 1991 to 2005 that have
already been completed, which are summarized in Table 7. These research
projects contemplate chemistry and biotechnology with human health
applications, veterinary, agriculture, fragrances and essences development,
insecticides, nematicides, ecological control, biopesticides, and Chagas disease.
Although the products developed are not yet on the market, Merck & Co had filed
for 27 patents by the year 2004, mainly related to anti-bacterial ingredients,
antiprotozoal, antifungal, inhibiting fat activity in HIV and the development of a
natural nematicide component, 2R, 5R-dihydroxymethyl-3R, 4R-
dihydroxypyrrolidine (DMDP), isolated from a leguminous tree, which is one of
the most advanced projects. The fact that some projects are classified as inactive

1
Bioprospecting is defined as the systematic search for genes, compounds and organisms that might have
a potential economic use and assisting the development of a product (Tamayo, Guevara, & Gamez,
Biodiversity Prospecting: The INBio Experience, 2004).
23

does not mean that the agreements with the companies on compensation, profit
sharing, or intellectual property rights are complete.
24

Table 7 INBio bioprospecting projects-inactive
Project Name Number of
agreements,
including the
number of
renewals -
Project Partners
Chemical prospecting
Search for sustainable uses
for biodiversity of Costa Rica
4 Merck & Co, Inc. Whitehouse
Station, NJ USA
Supply and implementation of
DMDP (2.5-didydroxy-methyl-
3 ,4-dihydroxypyrrolidine)
1 British Technology Group
(BTG), London, UK
Chemical Prospecting in
conservation areas in Costa
Rica
1 Briston-Myers Squibb Company
(BMS), Walling Ford, CT USA y
Cornell University, Ithaca, NY
USA
Fragrances and aromas 2 Givaudan Roure, NJ USA
Insecticides Components 1 University of Massachussetts,
Boston, MA USA
Development of a natural
nematicide -Tropical Program
for assessing the
effectiveness of DMDP
1 Ecos S.A.-La Pacfica, San Jos
& Guanacaste, Costa Rica
Search for plant components
with antibacterial and antiviral
properties
2 Indena S.p.A, Milan, Italia
Human Health 1 Strathclyde University,
Stathclyde, Scotland
Search for new plant
compounds
1 Eli Lilly & Co. Indianapolis, IN
USA
Search for plants with
antiparasitic activity
1 Swiss Tropical Institute, Basel,
Switzerland
Potential drugs little known in
Costa Rica
1 Institute of Chemistry and Cell
Biology, Harvard Medical
School, Boston, MA USA
Biotechnology Prospecting
Search extremophile
organisms enzymes
1 Recombinant BioCatalysis, Inc,
San Diego, CA, USA
Gene Prospection - Fase 1 1 Diversa Corporation, San Diego,
CA USA
Prospecting of genes with
potential nematicidal activity
1 Akkadix Corporation, La Jolla,
CA, USA
Search biologically active
components in tissue culture
of the Costa Rican flora
1 Phytera Inc, Worcester, MA,
USA
Development of protocols for
micro-organisms with
potential biological control
1 Compaa Agrcola La Gavilana
Ltda, San Jos, Costa Rica
Development of protocols for
micropropagation of potential
ornamental plants
1 Agrobiot S.A. Alajuela, Costa
Rica
Source: (Tamayo, Guevara, & Huertas, Research Collaborative Agreements and Bioprospecting in Costa
Rica: Scientific, Technological and legal impacts, 2009)
25

According to Tamayo, Guevara & Gardens (2009) INBio is involved with the
University of Alabama leading the search for a Chagas disease vaccine or cure.
Other organizations involved in this case include the School of Agriculture of the
Humid Tropical Region (EARTH), National University of Costa Rica, Universidad
de Santiago de Chile and Universidad de la Republica de Uruguay.
Additionally, other projects with national and international partners, with the main
objective of finding a cure for cancer. These projects are funded by agencies like
the Organization of American States (OAS), the National Cancer Institute and the
U.S International Fogarty Center. In addition, with financing from the Inter-
American Development Bank (IDB) / FOMIN, INBio developed an initiative to
develop pharmaceutical products from popular medicinal plants. This company
launched in 2004 and in 2006 two products known as "Qassia & Style, both
derivatives, the first from the plant known as "Big Man and the second from a
plant called "Justicia Pectoralis, and whose profits are shared with NBio and
MINAET to be used on Costa Rican sustainable biodiversity.
Among other active biotechnology exploration projects, INBio develops studies
with other local partners such as BioTcnica Anlisis Moleculares S.A to control
diseases that attack crops. Two other active projects with international
organizations include one carry out gene exploration in collaboration with Diversa
Corporation. INBio processes the samples and Diversa searches for enzymes
and structural proteins that can be used for industrial biotechnology, crop
protection and pharmaceutical applications. Already released, the first product is
a fluorescent protein and enzyme helpful in cotton processing, and whose profits
are also shared with MINAET for the conservation of protected areas.
NBio's success at developing bioprospecting projects with national and
international companies and multi-donor support is a clear indication about the
value of biodiversity used in a sustainable and strategic way, as a source of
knowledge and resources for conservation. For example, INBio's 2002 budget of
$5.65 million came mainly from bilateral and international organizations, its own
resources and agreements with different companies (see Table 8).
Table 8. Costa Rica: INBio budget for 2002.
Source of Funds 2002
($ millions) %
Bilateral 1,26 22,4
CR-USA Foundation 0,29 5,2
NGO`s 0,048 0,8
Agreements with Companies 0,34 6,1
International Organizations 1,19 21,1
Own resources 2,09 37,0
Agreements with International Universities 0,4 7,2
Other sources 0,008 0,15
Total 5,65 100%
Source: Adapted from (Furst, Moreno, Garca, & Zamora, 2004).
26

2.3 Agricultural Sector
Agriculture as well as tourism is a major source of foreign exchange and
indirectly benefits from the existence of protected areas. The agriculture, forestry
and fisheries sectors value added is estimated at $1,865 millions in 2009,
representing 7.6% of GDP. Nevertheless, its share has been declining in recent
years, at the expense of other sectors such as industry, trade, restaurants, hotels
and other services (see Figure 8Error! Reference source not found.). Despite
all of this, the sector still remains an important source of revenue for the country,
and provided 224,322 direct jobs in 2009, or 11.5% of total employment in the
country.
Figure 8. Costa Rica. Value added of different sectors ($ millions)

Source: (SEPSA, 2010)
In 2008 Costa Rica's total exports of bananas, pineapples and coffee were
respectively $689 million, $572.7 million and $308 million. Relative to total
exports these represent 20.1%, 16.7% and 9% (see Table 9, Error! Reference
source not found., and Table 10). Companies planting these three crops have
seen their output increase, but at the same time have shown interest in
implementing good agricultural practices, such as integrated pest management
programs.
27

Table 9. Costa Rica: farm and livestock products exports. 2004-2008. (in
thousands of US$).

Source: (SEPSA, 2010)
Regarding the legal framework, in April 1997 the Phytosanitary Protection Act
was established, which includes international agreements with the World Trade
Organization on sanitary and phytosanitary aspects for the export of agricultural
products. The Phytosanitary Department was created, and currently works as a
decentralized body of the Ministry of Agriculture and Livestock (MAG). This law
provides a wide range of applications including plant protection, pesticides,
organic farming and creates the Biosafety Commission (Murillo, Hernandez, &
Sanchez, 2008)
A study done by ICSTD-CINPE (Murillo, Hernandez, & Sanchez, 2008), analyzes
the sanitary and phytosanitary control measures of the major export products of
Costa Rica, such as bananas, pineapple and melon and their economic impact.
Banana production is the agricultural product that generates more jobs, mainly in
the Atlantic region of the country, it is estimated that 91 of every 100 workers are
directly or indirectly related to banana production. As mentioned above, total
banana exports in 2008 amounted to $ 689.3 million, consistent with an average
of 100 million boxes per year (1.8 million cubic meters).
The banana exports are mainly in the hands of foreign companies such as
Chiquita, Dole, Fiffes and Del Monte. Many individual farmers have contracts
with these companies who provide them with all standards and regulations in
order to buy the product.
2004 2005 2006 2007 2008 a/
Banano 545.179 481.940 638.580 682.141 689.388 1,1% 20,1%
Pia 256.210 324.144 436.866 489.190 572.723 17,1% 16,7%
Caf oro 197.596 232.601 258.715 308.225 308.048 -0,1% 9,0%
Otras preparaciones alimenticias 140.570 146.664 158.223 186.367 220.825 18,5% 6,4%
Los dems jarabes y concentrados para la
preparacin de bebidas gaseadas
16 75.085 131.108 155.335 185.060 19,1% 5,4%
Aceite de palma 60.318 64.623 19.813 77.731 103.958 33,7% 3,0%
Plantas ornamentales 71.033 70.495 76.426 81.800 83.808 2,5% 2,4%
Follajes, hojas y dems 61.508 65.919 73.280 73.282 76.704 4,7% 2,2%
Salsas y preparaciones 44.353 50.558 56.249 69.107 71.485 3,4% 2,1%
Meln 71.630 73.923 82.534 85.920 67.968 -20,9% 2,0%
Productos de panadera fina 26.211 31.525 41.628 51.848 67.806 30,8% 2,0%
Alcohol etlico 34.279 37.120 92.608 106.684 66.454 -37,7% 1,9%
Purs de frutas 45.080 52.823 43.509 60.633 65.576 8,2% 1,9%
Yuca 34.474 43.093 35.855 42.048 64.006 52,2% 1,9%
Filetes y dems carnes de pescado 35.729 35.033 16.925 31.559 48.987 55,2% 1,4%
Carne de bovino 27.393 32.248 31.170 32.152 45.220 40,6% 1,3%
Azcar 38.058 29.671 42.562 48.717 34.361 -29,5% 1,0%
Palmito 20.046 20.223 21.887 28.010 26.673 -4,8% 0,8%
Jugo de naranja sin congelar concentrado 17.630 25.344 32.836 62.989 21.557 -65,8% 0,6%
Pescado fresco o refrigerado 28.093 30.228 30.896 23.451 20.370 -13,1% 0,6%
Chayotes 8.220 8.221 8.222 8.223 13.508 64,3% 0,4%
Otros 493.436 455.156 449.490 489.113 583.112 19,2% 17,0%
Total 2.257.063 2.386.638 2.779.381 3.194.524 3.437.597 7,6% 100,0%
%Participacin
2008
Descripcin
Variacin %
2008/07
28

A good example is the case of Chiquita, which has programs to support
independent producers and is designed to meet the socio-environmental rules
established by The Rain Forest Alliance and EurepGAP. The adoption of
international standards and certification involves a high economic cost that the
banana industry is assuming; it implies substantial investments in their packing
facilities such as lighting, ventilation, safety and health. It is intended to reduce
the risk of contamination and to generate a change in their employees' practices,
which means a new learning process. An example of adopting good agricultural
practices is the Talamanca Small Producers Association, formed by 1200
farmers (90% of whom are indigenous) export dehydrated banana to Canada
and England, and are Fair Trade and Organic certified ( FLO-CERT GmbH).
Table 10 Costa Rica: Output from main agricultural crops. In metric tons. 2004-
2008

Source: (SEPSA, 2010)
29

3 Analysis of existing or potential economic
instruments and their impact
As part of the Water Department initiatives for institutional strengthening and
financial viability within MINAE, two water resource charges or fees have been
recently implemented.
Ecologically updated water resources use fee.
Wastewater discharge fee.
3.1 Ecologically adjusted water use fee
This fee was recently updated to reflect not only changes in the cost of living but
also to include the watershed protection cost component. It must be paid by all
water users, on a volumetric basis, as shown in Table 11.
Table 11. Costa Rica: Water use fee ($/m3) according to water use
Use Fee ($/m3)
Surface Water Groundwater
Human consumption 0,002 0,003
Industrial 0,005 0,006
Commercial 0,005 0,006
Agro industrial 0,003 0,004
Tourism 0,005 0,006
Agricultural 0,002 0,002
Aquaculture 0,0002 0,0003
Hydraulic Force 0.0002 ---
Source: (Decreto Ejecutivo No.32.868-MINAE)
The funds raised will allow the State to secure financing for the administrative
management of water resources, financing of public policies aimed at
guaranteeing the quality and quantity of available water, and its efficient use. It
will also contribute to the conservation of forests in private and public protected
areas through the payment for environmental services national program (detailed
in Section 3.3.
In 2007 MINAE's Water Department raised $1.2 million in fees. These are
allocated 50% towards integrated water management, 25% towards payment for
environmental services in private areas and 25%, or $300 thousand, were
transferred to SINAC for the conservation of protected areas.
The National Management Plan for Integrated Water Resources forecasts
income from this fee up to 2010, assuming that it is updated progressively
30

starting in 2006 (Ministry of Environment, Energy and Telecommunications
(MINAET) and Inter-American Development Bank (IDB)-Netherlands Integrated
Water Resources Management (INWAP), 2008). Figure 9 shows the projected
amounts to be collected through the fee for the years 2010, 2015, 2025 and
2030, and under those scenarios the amount that corresponds to SINAC.
Figure 9 Costa Rica: Projection of the amount collected as fees for water use,
according to expected demand. -Millions of dollars

Source: Ministerio de Ambiente, Energa y Telecomunicaciones (MINAET) y Programa de
Alianza Banco Interamericano de Desarrollo (BID)-Pases Bajos para la Gestin Integrada de
Recursos Hdricos (INWAP), 2008)
3.2 Wastewater Discharge Fee
The discharge fee is based on the "polluter pays" principle, which seeks to
internalize the costs associated with waste discharges into rivers, lakes and other
water bodies. It seeks to charge polluters by kilogram of chemical oxygen
demand (COD). It is administered by the Environmental Quality Department at
MINAE and it is just starting to rake in funds. However, the implementation
process has been slow, because of operational difficulties. During the first year
of implementation, this fee is expected to collect between $1.0 and $1.4 million
as shown in Table 12 below. However, in year 6, when the full amount will be
recovered, the collected amount should be between $5 and $6 million.
31

Table 12. Costa Rica: Estimated revenues for discharge fees in $ dollars
Case Total Estimation (year 1) in $ US-
Domestic Productive
Activities
Total
Case 1: All registered entities meet the discharge
limits
402.607 559.754 961.821
Case 2: All registered entities do NOT meet the
discharge limits
402.607 1.026.186 1.428.079
Source: Ministerio de Ambiente, Energa y Telecomunicaciones (MINAET) y Programa de Alianza Banco
Interamericano de Desarrollo (BID)-Pases Bajos para la Gestin Integrada de Recursos Hdricos (INWAP),
2008)
3.3 Environmental Services Payment Program
The Payment for Environmental Services Program (PSA) was created in 1996
through the Forestry Act 7575, and is administered by the National Forestry
Financing Fund (FONAFIFO), a decentralized institution. PSA is a kind of
compensation to the owners and holders of forests, forest plantations and
agroforestry systems for the environmental services they provide to society
locally, nationally or internationally. Owners must be willing to comply with
certain requirements.
Environmental services recognized for the PSA payment are scenic beauty,
water, biodiversity and carbon sequestration for different uses. For example,
biodiversity protection for conservation and sustainable use, scientific and
pharmaceutical use, research and genetic improvement, ecosystems and life
forms protection, as well as natural scenic beauty for tourism and scientific
purposes (www.fonafifo.go.cr).
The program evolved from a classic forestry incentive scheme to a payment for
environmental services scheme that was mainly funded by a tax on fuel.
However, it has sought for alternative funding sources to ensure its long-term
sustainability, and reduce its dependence on only one source. Figure 10, shows
the amounts allocated from PSA since 2000 to 2008, and the process of source
diversification promoted by FONAFIFO. Despite these efforts, in 2006 funds from
the central government began to increase again and the pursuit of new economic
instruments for the long-term sustainability of the program became a priority. A
clear example of this effort is the creation of the Biodiversity Fund, which has
$7.5 million of co-financing from GEF and aims to create an endowment that will
allow the long-term sustainability of the system.
The first agreements signed in 1998 were with companies such as Global Energy
Hydroelectric Power Plant and Hidroelctrica Platanar, the Compania Nacional
de Fuerza y Luz and Florida Ice & Farm Company, a beverages business. From
2001 to 2006, a loan came into effect between the Costa Rican government and
32

the World Bank for institutional strengthening of the PSA program, which greatly
reduced the Central Government contribution during those years.
Considering the different financing sources, it is estimated that FONAFIFO since
its inception has invested close to $133 million in five-year-contracts, according
to the amounts presented in Table 13 for forest protection, protection within
protected areas, water resources protection, protection in conservation gaps,
pasture regeneration, natural regeneration and trees outside forests in
agroforestry systems.
Figure 10. Costa Rica: FONAFIFO budgetary allocation for payment of CAF and
PSA by source of funding, 2000 - 2008-Thousands of dollars

Source: Prepared based on information provided by FONAFIFO, 2010.
Table 13. Costa Rica: Amounts paid per hectare and per tree for PES by
modality for a five-year contract, 2009. (U.S. dollars)
Modality Payment ($)
Forest Protection 320
Protection in Wildlife Protected Areas 320
Water Resources Protection 400
Protection for Conservation Gaps 375
Reforestation 980
Regeneration in Kyoto pasture land or carbon 320
Pastures Regeneration 205
Natural regeneration with productive potential 205
Agroforestry systems by tree 1,30
Source: FONAFIFO, 2009
0
5,000
10,000
15,000
20,000
25,000
2000 2001 2002 2003 2004 2005 2006 2007 2008
PSA (CSA)
PSA (Hydroelectric)
PSA (Florida Ice & Farm)
PSA (CNFL)
PSA (Pres. KFW)
PSA Ecomarkets
PSA
CAF
33

From 1997 to 2008, 8,345 contracts have been established, covering 671,278
hectares, distributed in the different modalities mentioned above. Of the total,
some 56,870.7 hectares were contracted to indigenous territories. As shown in
Figure 11, more resources have been allocated for the protection of areas
considered as priorities, with the objective of conserving biological corridors, or
highly threatened areas. Furthermore, 2.6 million trees have been planted in
agroforestry systems, contributing to the connectivity of key ecosystems.
Figure 11. Costa Rica: Distribution and number of hectares under for
Environmental Services Payment, by year and type, 2000 2008

Source: Prepared based on information provided by FONAFIFO, 2010.
There are different opinions about the environmental services program ability to
reduce poverty. A study by (Camacho, Reyes, Miranda, & Segura, 2002),
conducted a multiple criteria analysis that determined that the PSA program has
influenced and improved the communities organizational capacity. However, it
showed that it contributes little to improve the quality of life in those communities.
This is in part due to the fact that it is usually non-profitable for small farmers.
The PSA thus, should be seen as a complementary activity for small farmers, but
not a main single activity. Moreover, the study by (Miranda & Porras, 2002) for
the Virilla river basin determined that those entering the PSA program in areas
near the Central Valley, with small holdings fewer than 10 ha, on average are
working professionals to whom PSA payments represents only 4% of their
income. Such study suggests that the primary objective should be the
conservation of natural resources; and that the allocation of funds should be
made based on conservation priorities not income distribution issues.
3.4 Debt for Nature Swaps
A debt for nature swap between Costa Rica and the United States was signed in
September 2007. It led to the modification of the Costa Rican debt with The
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
Natural
Regeneration
Plantations
Reforestation
Forest
Management
34

United States Government. The Government of Costa Rica contributes 80% of
these funds ($ 12.6 million dollars) and non-governmental organizations such as
The Nature Conservancy (TNC) and Conservation International (CI) provide the
other 20% of the exchange $2.5 million for a total of $15.1 million (Dobles, 1997).
The resources are managed by INBio and will be invested for a period of 16
years by grassroots organizations, Costa Rican NGOs or Universities
(Matamoros, 2010).
These funds are intended to finance and strengthen the policy building capacity
related to social participation around protected areas, planning and effective
management of these processes, and promote local conservation. Proposed
priority areas include Osa, Amistad, Tortuguero, Maquenque and Guanacaste.
The thematic priority areas are groundwater recharge, integrated watershed
management, biological corridors, ecosystem restoration, and socio-economic
aspects related to the surrounding areas of influence areas, among others.
(Dobles, 1997)
35

4 Conclusions
Costa Rica's economy has always relied on the exploitation of biological
resources. Initially, to support a subsistence oriented economy, based on
exchanges at a local level. Then as part the global system of trade, initially in
the international commodities market for meat, coffee and bananas. Recently
however, it has shifted to a services based economy that heavily relies on
eco-tourism as a main driver of development.
During the past 10 to 15 years, the country has taken a series of small steps
that have led to the understanding that protected areas, and biodiversity, are
economic uses of the territory that generate multiple benefits. They are not
only costs to society. Rather, they support a series of high-value added
economic activities that benefit the people and increase human development.
They represent the main attraction of a tourism sector that takes more
importance every day, provides significant employment and fuels other
sectors such as real estate development. Marine protected areas allow the
reproduction of commercial species of fish, while land areas provide indirect
benefits to industry, agriculture and the services sectors in many different
ways.
Many economic studies, carried out by the government, NGOs and
universities have shown the relationship between biodiversity conservation
and economic activity. These, have turned out to be compelling arguments
for politicians and the public at large. Some of this studies may have
generated the political will to charge water users for the ecological services
provided by watershed protection. Also, to the allocation of a proportion of the
fuel tax for payment of environmental services in private areas. The
population has been willing to support both ideas, because it has seen the
benefits of forest conservation in Costa Rica.
Benefits occur in many ways through a variety of interactions and so it is hard
to capture all of them. Some of the pathways are not understood, or could be
misinterpreted as a result of partial information. For example, the role of
biodiversity and the national system of protected areas in building a country-
brand that has given Costa Rica a green image. This has attracted other
knowledge-based businesses and information technology companies.
In the nineties, eco - tourism emerged as a very important new economic
activity, showing the population that preserving nature provided tangible
economic benefits to society. Additionally, scientific studies that highlighted
the economic impacts of biodiversity, significantly increased interest in
preserving it.
At present, there is ample evidence that biodiversity has provided the country
many economic benefits. As a result,it was for example willing to ban
36

offshore oil exploration on the Caribbean coast since 2002. This policy has
been basically maintained to date.
The use of two economic instruments for financing conservation provides
more weight to the idea that Costa Rica has been following a sustainable
environmental management, or SEM, approach towards development. A tax
on fuel allows for funding the national system of payment for environmental
services (or PES) through the National Forestry Fund (FONAFIFO). This flow
will be complemented by fresh funds coming from the "ecologically adjusted
water fee which is just starting to become operational.
Both cases confirm that people are willing to invest and spend to protect
nature, and that there is an underlying demand for environmental protection.
However results must be shown and the conservation benefits are sometimes
overshadowed by an ageing infrastructure, and lack of personnel in some key
protected areas.
37

5 References and Literature Reviewed
(CEPAL), C.E.(2007). Tourism and social conditions in Central America:
Experiences in Costa Rica and Nicaragua. Mexico: CEPAL.
Arias, M. (2010, February 3). Sustainable Tourism Program SINAC. (V. R.
Gatjens, Interviewer)
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39

6 ANNEX 1. Sectors Proposal
Sector Justification & indicators
Tourism and protected areas Tourism is a major source of foreign
exchange in Costa Rica; in 2008 2
million tourists arrived, generating
22.6% of foreign exchange in relation
to exports ($ 2144.2 million) (Costa
Rican Tourism Institute, 2009).
Indicators
Total visitation in relation to protected
areas visitation.
Jobs generated by the tourism sector.
The impact of protected areas tourism
in the local economy (Case of
Talamanca and Poas Volcano).
Multipliers: The impact of protected
areas on the gross domestic product.
Taxes and existing rates to finance
the tourism sector and its relationship
to protected areas.
Agriculture Agriculture as well as tourism is a
major source of foreign exchange and
benefits from the existence of protected
areas. In 2008 Costa Rica exported $
305 million in coffee, $ 689 million in
banana and $ 572.9 million in
pineapples, as major non-traditional
products, which involves implementing
agroforestry programs, organic farming,
good agricultural practices and
integrated pest management programs.
Indicators
Areas under agricultural production.
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Employment generated by the sector.
Organic production.
Revenue generated by the sector and
its participation in the nations
accounting.
Cases of integrated pest management
and the implementation of good
agricultural practices.
Forest Protection (Payment for
Environmental Services)
Costa Rica developed in 1996 the
program of Payment for Environmental
Services, which prioritizes the
investment depending on the areas of
greatest biodiversity in the country,
priority buffered zones of protected
areas. The Ecomarkets Project initiated
the process of developing the
Biodiversity Fund, which will be formed
as a public foundation which will
channel the funds of international
cooperation for payment for
environmental services in priority
biological corridors, from mid 2010. The
country has a seed fund of $ 15 million
from GEF.
Indicators
Areas under PSA and number of
beneficiaries.
mpact of PSA on family income and
the local economy,
Multiplier effect of PSA on income
generation for the pharmaceutical
industry.
ncome generation for the
conservation of economic instruments
such as water use fee.
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mpact of PSA on the gross domestic
product.
Study of Cases.