The Costa Rican PSA: A Viable Policy

By Geoff  Michael

There are a number of approaches for emissions mitigation from land use and land use change (LULUC). In this paper I summarize the current success and costs of the various incentives for LULUC emissions mitigation. As a reference point I compare the success of each policy toward getting net annual emissions from LULUC to zero, down from the current 5.39 Gt of CO2 emissions. At present, without a penalty for CO2 emissions from LULUC for non-annex countries, the only incentive to maintain the most biodiverse mature forests comes from payments for ecosystem services or for carbon sequestration.

Globally, emissions from land use change averaged 5.72 Gt CO2 per year during the 1990s dominated by fluxes from tropical deforestation, with slightly lower emissions of 5.39 Gt CO2 per year during the period from 2000-2005(Houghton, 2008). Between 1990 and 2005, deforestation, dominated by conversion of forests to agricultural land, has continued at the distressing rate of approximately 13 million hectares per year. (UNFCCC). The greatest emissions were from Central and South America as well as South and South East Asia (figure 1).


Source: Houghton, 2005. CO2e flux from LULUC

There are a number of approaches for emissions mitigation from land use and land use change (LULUC). In this paper I concentrate on Reduced Emissions from Deforestation and Forest Degradation (REDD), afforestation and reforestation, and summarize the current incentives for emissions mitigation. As a reference I use the goal of getting net annual emissions from LULUC to zero, down from the current 5.39 Gt of CO2 emissions. Hopefully, in the future the world LULUC sequestration will pass neutral, with net sequestration of carbon in soil and above ground biomass. But at present, without a penalty for CO2 emissions from LULUC for non-annex countries, the only incentive to maintain the most biodiverse mature forests comes from payments for ecosystem services or for carbon sequestration.

There are three current economic strategies to provide incentives:

  • Mandatory markets like the European climate exchange, and the Kyoto CDM mechanisms
  • Voluntary markets like the Chicago Climate exchange
  • National payment for ecosystem services, in particular the Costa Rican system, and the U.S. Conservation Reserve Program.

Kyoto Certified projects

Currently REDD is not part of the Kyoto agreement, however it may be added in the upcoming commitment period. There are five certified CDM forestry projects listed on the UNFCCC website. Located in India, Vietnam, China and Moldovia, they are currently sequestering a total of 277,080 tons of CO2e per year. There are no LULUC Joint Implementation projects. With all non annex I global land to choose from, these projects amount to less than 0.0048% of the sequestration needed to get the flux from LULUC to neutral. Current CER trading price is $14.20 per ton CO2.

The European Climate Exchange currently excludes LULUC projects.

Chicago Climate Exchange (CCX)

As of February, 2009, members of voluntary CCX have sequestered 8,860,500 tons CO2e over the last six and a half years, about 1.4 million tons CO2e per year (CCX,2009). Prices for the CCS trading instrument, the CFI, are currently about $2 per ton from a as high as 7$ per ton in 2008. Seven of the programs are in the U.S., five in central and South America. These voluntary projects, primarily funded by U.S. companies, move the world 0.026% closer to carbon neutral LULUC.

Conservation Reserve Program

As of October 31, 2008, there were 13,585,297 hectares enrolled in the Conservation Reserve Program at a cost of $1.8 billion for 2009. Research in Canada shows carbon accumulation of 10 g C m-2 yr-1 (Grogan, 2007). This conservative rate of .37 ton CO2 per ha per year is significantly lower than the implied estimate by Fargione (2008) of an emission of 69 tons per ha for conversion of abandoned cropland to corn crops. But even at the conservative rate of 10 g C m-2 per year, if U.S. land in the conservation reserve is storing carbon at that rate, we’re sequestering about 1.4 mil t C per year, or about 5.1 mil t CO2 per year. With these assumptions, the CRP sequesters about 0.1% of the 5.39 Gt CO2 annual global LULUC flux. If the land was allowed to reforest, we could assume even higher rates.

Costa Rica – PSA

In the last century Costa Rica experienced rapid deforestaion from 72% forest cover in 1950 to 26% in 1983 (Watershed). But from 1979 – 1996, incentive programs and other factors resulted in reforestation of about 109,000 hectares and by 2002, it had recovered to 45% forest cover (Zbindine,2005). The current Costa Rican land policies have been developed over two decades. A national program of payments, Pago por Servicios Ambientales, (PSA) is now administered by National Fund for Forest Financing, Fondo Nacional de Financiamento Forestal, (FONAFIFO). Payments are made for ecosystem services, explicitly including

  • Mitigation of greenhouse gas emissions
  • Hydrological services, including provision of water for human consumption, irrigation, and energy production
  • Biodiversity conservation
  • Provision of scenic beauty for recreation and ecotourism (Pagola, 2007)

270,000 hectares, about 5% of Costa Rica’s entire national territory and 10% of its forest cover, were enrolled in the PSA as of 2005 at an average payment of $43 per hectare per year for forest conservation contracts. This payment increased to $64 per hectare per year in 2006, and to approximately $81 per hectare per year for plantations (Pagiola. 2007).

The PSA program is designed as a “user pays” system, where those who benefit form the services pay directly. To date however, much of the funding comes from a general carbon tax of 3.5% which generates about $3.5 mil per year, which is arguably on the users of the ecosystem services. However, hydropower users, water bottling plant, and some agribusiness users pay for the water services through contracts with FONAFIFIO totaling about $0.56 mil per year. Other funding for the program includes the German kFw carbon offset project of $1.8 mil annually, and other sales of carbon credits for reforestation and afforestation. An additional $8 mil per year from the Ecomarkets project supplement the user payments. The total FONAFIFO budget is approximately $15 mil per year (Watershed Markets).

Pagiola (2007) cites a study demonstrating the PSA resulted in avoided deforestation on 108,000 ha, and that between 1999 and 2005 the PSA program has avoided the emissions of 40 mil t CO2, about 6.6 mil t CO2 per year. (Tattenbach et al., 2006). Strictly within its borders, Costa Rica has reduced emissions by about 0.12% of the carbon needed to make LULUC flux neutral globally. Costa Rica has a land area of only 51,100 km2, about 0.034% of the total land area of the planet, and 0.173% of the remaining forested area of the planet (Mygatt,2004).


Overall, most of the programs currently in place are making frightening little impact on the net LULUC emissions problem. However, the Costa Rican PSA approach holds promise, and is now beginning to be emulated in other countries.

Table 1 summarizes the total change in CO2 emissions from LULUC projects.


Source: Geoff Michael, various references.

Mandatory CER trading from the tighter qualifying restrictions of CDM program cost more than voluntary programs, as expeccted. In the CRP program, the price appears high because carbon sequestration is not the primary goal, bit it is a significant additional benefit.

What’s remarkable is the quantity of carbon emissions mitigation that Costa Rica is able to achieve. The PSA is also not primarly a carbon sequestration program, but it produces big sequestration benefits. Because the PSA is a national program, any leakage within the country from activities displaced by forest management is included in the reported 6.6 mil t CO2 emissions mitigation. While some deforestation continues, the rate has been dramatically reduced. However, a variety of factors are responsible, not just the PSA (Sanchez-Azofeifa,2003).

I would argue that issues of leakage in a global economy make individual market based LULUC sequestration projects an inherently flawed system for the levels of carbon storage necessary to avoid serious climate change. Because all forested or potentially forested land will be under global pressure for food, wood, or or bio-fuel production, and prices are communicated globally, any set aside of land for sequestration is felt globally as a push to convert to farm land or harvest trees for wood elsewhere. However, national level systems of payments for ecosystem services, like Costa Rica’s PSA could be part of a real solution.


CCX Offset report. Volume 1, Number 2, February/March 2009, WWW.CHICAGOCLIMATEEXCHANGE.COM

Joseph Fargione, Jason Hill, David Tilman, Stephen Polasky, Peter Hawthorne. Land Clearing and the Biofuel Carbon Debt. Science, VOL 319 29 FEBRUARY 2008

Robyn Foote and Paul Grogan, Queen’s University Biological Station, Kingston ON,

Richard A. Houghton , Carbon Flux to the Atmosphere from Land-Use Changes 1850-2005 .

Mygatt, Elizabeth. World’s Forests Continue to Shrink. April 4, 2004. Earth Policy Institute.

G. Arturo Sanchez-Azofeifa, Gretchen C. Daily, Alexander S. P. Pfaff, Christopher Busch, Integrity and isolation of Costa Rica’s national parks and biological reserves: examining the dynamics of land-cover change, Biological Conservation, Volume 109, Issue 1, January 2003, Pages 123-135, ISSN 0006-3207, DOI: 10.1016/S0006-3207(02)00145-3. (

Stefano Pagiola. 2007. Payments for environmental services in Costa Rica Ecological Economics, 2008. p7 1 2 – 7 2 4

Tattenbach, F., Obando, G., Rodríguez, J., 2006. Mejora del excedente nacional del pago de ServiciosAmbientales. FONAFIFO, San José. (in Spanish). (but cited from Pagiola, 2007)

Watershed Markets. Costa Rica- National PES programme, Case Studies:

Zbinden, S., Lee, D.R., Paying for Environmental Services: An Analysis Of Participation in Costa Rica’s PSA Program. World Development Vol. 33, No. 2, pp. 255–272, 2005. doi:10.1016/j.worlddev.2004.07.012


1 Response so far »

  1. 1

    Baruani said,

    Interesting, however I would suggest that you consider carbon sequestration by forests as an international ecosystem service and therefore should be paid through an international payment for ecosystem services. This is particularly so because a ton of carbon sequesteres in Costa Rica have impacts beyond Costa Rican borders, and furthermore that deofrestation in most developing countries is for supply of timber and oil to developed countries. Therefore it is not fair for poor developing countries to shoulder the responsibility alone. The carbon payment should be on top of other services such as watershed. We can have more discussion on this if you want.

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