Evalutation of payments for ecosystem services in the valley region of Bolivia

Market based mechanisms are proliferating around the globe as a means to offer direct economic incentives for protecting and conserving ecosystem services. Among the ecosystem services being marketed, payments for watershed services (PWS) are the most difficult to establish clear service provision. Most PWS use a land-based compensation method, assuming that specific land management practices will result in the desired watershed services. Past evaluations of financial benefits for PWS service providers have suggested that payments have been relatively insignificant when compared to income or opportunity costs of market participants.

This report explores whether the payment employed in a PWS implemented by the non-governmental organization Fundación Natura in the Los Negros watershed of Bolivia offers significant incentive to conserve forest cover and has the ability to meet landowners’ opportunity cost of alternative uses of land. Since 2003, upstream farmers have enrolled parcels of land and been compensated $3 per hectare per year for conserving forest cover. In 2008, sixty-two farm surveys were completed and their location geo-referenced in the Los Negros watershed to determine annual net farm income per hectare as a measure of marginal opportunity cost to land. Opportunity costs were modeled using biophysical characteristics of farm parcels, economic parameters of the market and distances to roads. The model was used to map opportunity costs across the watershed.

The economic model predicted significant variation in opportunity cost across the Los Negros watershed with a range of US $0 to $8493 per hectare. The majority of landowners were overcompensated with 75% of the area in conservation carrying opportunity costs of US $0 per hectare. Other areas are significantly under-compensated at the current compensation rate and could be under the highest threat of deforestation. While increased cost effectiveness could be achieved and more meaningful incentives offered to landowners by differentiating compensation, consideration should be given to non-financial benefits of the PWS, such as strengthened property rights, as well as the political costs of price differentiation.