Discussion Paper

User Financing in a National Payments for Environmental ServicesProgram: Costa Rican Hydropower

Feb 15, 2009 | Allen Blackman, Richard T. Woodward

This was created in partnership with Environment for Development .

Abstract

National government-funded payments for environmental services (PES) programs often lack sustainable financing and fail to target payments to providers of important environmental services. Inprinciple, these problems could be mitigated by replacing at least some government funding with direct contributions from individual environmental service users who have incentives to underwrite payments and who can ensure that they are targeted appropriately. We use original survey data and official statistics to analyze user financing in Costa Rica’s renowned national PES program, focusing on the amounts and sources of such financing, the drivers of contributions by private hydroelectricity plants (the most important sources of user financing), and hydroelectric plant managers’ perceptions of the PES program. We find that user financing from all sources supports less than three percent of the program’s totalpayments to environmental service providers. In the private hydroelectric sector, not surprisingly, large plants tend to contribute while small ones do not. Beyond that, the weight of evidence suggests that improving relations with local communities and government regulators may be as important a motive forcontributing to the PSA program as ensuring the provision of forest environmental services. These findings raise questions about the potential of user financing to improve the efficiency and financialsustainability of national PES programs.