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Objective

VIEWS: 106 PAGES: 29

									               Certificate of Advanced Studies in Environmental Diplomacy


  University of Geneva in cooperation with the United Nations Environment Program




                                  Cinthia Soto Golcher



                                            Thesis on:


 “Understanding of the difficulties faced in promoting global decisions on the use of
 Payment for Environmental Services as an innovative financial mechanism for the
                conservation and sustainable use of ecosystems.”




                                    New York, January 2007




Cinthia Soto Golcher- Thesis on Payment of Environmental Services                       1
INDEX

        Page

    1. Introduction                                                               1
    2. Definition Environmental/ Ecosystem Services                               3
        2.1 Use of the term in environmental related documents                    3
        2.2 World Trade Organization (WTO)                                        4
    3. The Millennium Ecosystem Assessment                                        6
    4. Payment for Environmental Services (PES), the Costa Rican experience       9
    5. International negotiations on PES                                          12
    Decisions related to PES                                                 12
    Regional                                                          12
                    5.1.1.1      Central American Commission on Environment       12
                                 and Development (CCAD)
                    5.1.1.2      Convention on the Protection and use of          13
                                 transboundary watercourses and international
                                 lakes, Europe
    Global                                                            13
                    5.1.2.1      The Kyoto Protocol                               13
                    5.1.2.2      Food and Agriculture Organizations (FAO),        14
                                 Ministerial Meeting on Forests
                    5.1.2.3      Commission on Sustainable Development (CSD-13) 14
                    5.1.2.4      Ramsar Convention                                15
                    5.1.2.5      International Tropical Timber Agreement (ITTA)   15
                    5.1.2.6      United Nations Forum on Forests (UNFF-7)         15
                    5.1.2.7      Convention on Biological Diversity               16
    Different uses by some promoters of the term Payment of Environmental 17
             Services
    Difficulties and why some countries feel threatened                      19
    6. Conclusions and way forward                                                21
    7. Bibliography                                                               26




Cinthia Soto Golcher- Thesis on Payment of Environmental Services                      2
    1- Introduction

Payment for environmental services (PES) has become an important strategy in many
countries, developing and developed, for the sustainable management of natural
resources and its respective financial sustainability. In the case of developing countries,
which are very rich in natural resources, the biggest challenge is to maintain and
conserve those resources in a way that does not prevent their development, but enhances
it and also secures those benefits for present and future generations.

Allocation of scarce resources compete among basic needs such as health, education,
transportation, etc., including resources allocated for payment for environmental
services, which in many cases, are not enough to cover all the ecosystem services
provided. This is why recognition and support from the international community
becomes very important for those countries, considering also that “…The benefits of
biodiversity conservation are often widespread, even global in the case of existence
values or carbon sequestration, while the costs of restricting access to biodiversity often
are concentrated on groups living near biodiversity-rich areas”.1

However, while recognizing the importance of ecosystem services, when it comes to
international negotiations, those countries supporting the concept of PES face great
opposition from other countries, particularly developing countries, including some that
are applying PES schemes within their borders, making it very difficult to have a clear
reference or a global consensus on the issue.

In this regard, the objective of this study is:

To increase an understanding of the difficulties faced in promoting global decisions
on the use of Payment for Environmental Services as an innovative financial
mechanism for the conservation and sustainable use of ecosystems.

Being a negotiator for Costa Rica in different United Nations fora, I have faced the
difficulties of reaching a consensus on the issue because of the different concerns raised,
some of them fair, some of them misunderstandings and others just irrational. We need
to determine a way forward, and act now considering the tremendous degradation
ecosystems are suffering already and the need to conserve them while guaranteeing their
financial sustainability.

This project is a thesis required for a “Certificate of advanced studies in environmental
diplomacy” of the University of Geneva in conjunction with United Nations
Environment Program. The information sources are from relevant literature, interviews
and know-how accumulated from the different negotiations.




1
 Millennium Ecosystem Assessment, 2005. Ecosystems and Human Well-being: Synthesis. Island Press
Washington DC. Page 71


Cinthia Soto Golcher- Thesis on Payment of Environmental Services                                  1
The first part consists of some theory and definitions of concepts, and the scientific and
empirical assessment of the Millennium Ecosystem Assessment with regards to PES
and related issues.

This is followed by a short explanation of how a developing country like Costa Rica,
which has been the pioneer in developing a PES program, is working on the issue.

Following that section, there is a short summary of decisions related to PES in different
negotiations in the last few years; different uses of other countries of PES schemes;
main objections raised during global negotiations and finally, a set of conclusions and
recommendations on how to move the process forward.




Cinthia Soto Golcher- Thesis on Payment of Environmental Services                       2
2. Definition Environmental/ Ecosystem Services

2.1 Use of the term in environmental related documents

The reference to Environmental/Ecosystem services can be found in many documents,
particularly after the Earth Summit in Rio de Janeiro, in 1992, of which Agenda 21 was
one of the main outcomes of the meeting.

Chapter 15 of Agenda 21, entitled: “Conservation of Biological Diversity” has the
following references to “environmental” or “ecosystem” services (bold is from the
author of this work):

“15.2. Our planet's essential goods and services depend on the variety and variability
of genes, species, populations and ecosystems”

“A) Management-related activities

15.5. Governments at the appropriate levels, consistent with national policies and
practices, with the cooperation of the relevant United Nations bodies and, as
appropriate, intergovernmental organizations and, with the support of indigenous
people and their communities, non-governmental organizations and other groups,
including the business and scientific communities, and consistent with the requirements
of international law, should, as appropriate:

….(f) Undertake long-term research into the importance of biodiversity for the
functioning of ecosystems and the role of ecosystems in producing goods,
environmental services and other values supporting sustainable development,…

…(m) Take measures to encourage a greater understanding and appreciation of the
value of biological diversity, as manifested both in its component parts and in the
ecosystem services provided. …”

Ten years after Rio, the Johannesburg Plan of Implementation (JPOI), adopted at the
World Summit on Sustainable Development in 2002, states on Section IV. Protecting
and managing the natural resource base of economic and social development, paragraph
24, that “Human activities are having an increasing impact on the integrity of
ecosystems that provide essential resources and services for human wellbeing and
economic activities…”

According to the Millennium Ecosystem Assessment (MA), “Ecosystems services are
the benefits provided by ecosystems. These include provisioning services such as food,
water, timber, fiber, and genetic resources; regulating services such as the regulation of
climate, floods, disease, and water quality as well as waste treatment; cultural services




Cinthia Soto Golcher- Thesis on Payment of Environmental Services                       3
such as recreation, aesthetic enjoyment, and spiritual fulfillment; and supporting
services such as soil formation, pollination, and nutrient cycling.”2

The following table illustrates clearly the four types of services according to the MA:

                                 ECOSYSTEM SERVICES


                                                Provisioning
                                                      Food
                                                      Fresh water
                                                      Wood and fiber
                                                      Fuel
                                                      …




                                                Regulating
                      Supporting                      Climate regulation
                        Nutrient
                       cycling                        Flood regulation
                       Soil                          Disease regulation
                       formation                      Water purification
                       Primary                       ….
                       production
                       ….


                                                Cultural
                                                      Aesthetic
                                                      Spiritual
                                                      Educational
                                                      Recreational
                                                      ….



                 Source: Millennium Ecosystem Assessment, 2005. Ecosystems and
                Human Well-being: Synthesis. Island Press Washington DC. Page vi



In general terms, the terms environmental or ecosystem services have been used
indistinctively, and some countries have specific legislation with one or other name, and
also, different understandings of what it means. These different interpretations, together
with the indistinctive use of both terms, have made it difficult to agree on a common
international definition.

2.2     World Trade Organization (WTO)



2
 Millennium Ecosystem Assessment, 2005. Ecosystems and Human Well-being: Synthesis. Island Press
Washington DC. Page 39


Cinthia Soto Golcher- Thesis on Payment of Environmental Services                                  4
The Trade and Environment Chapter, paragraph 31, sub-item iii) of the Doha
Ministerial Declaration adopted in 2001, agreed on negotiations, with a view to
enhancing the effectiveness of trade and environment, for “the reduction or, as
appropriate, elimination of tariff and non-tariff barriers to environmental goods and
services”. At the Doha Ministerial, environmental issues acquired higher importance as
reflected in this paragraph and other parts of the Declaration.

Under WTO, the definitions are still being discussed, including for environmental
goods. With regards to environmental services, current definition of environmental
services according to the list in WTO document MTN.GNS/W/120 is based on the
United Nations provisional Central Products Classification (CPC), but Members are not
obliged to use it, thus it serves as a reference. During debates, it has been expressed that
it is very hard to precise environmental sector from others, taking into account the
development of new technologies. Classification currently used includes sewage
services, refuse disposal services, sanitation and similar services and other services.

It is interesting to notice that while it is referred to as “environmental services” in the
English and French version, in the Spanish version it is translated as “services related to
the environment”, and not “environmental services”.




Cinthia Soto Golcher- Thesis on Payment of Environmental Services                         5
3. The Millennium Ecosystem Assessment

The Millennium Ecosystem Assessment (MA) is the result of the joint efforts of more
than 1,360 scientists from 95 countries. Their work was written between 2001 and 2005
as a request for information made by Governments through the different environmental
treaties, including the Convention on Biological Diversity, the United Nations
Convention to Combat Desertification, the Ramsar Convention on Wetlands, and the
Convention on Migratory Species. The project was run under the auspices of the United
Nations and lead by a multistakeholder board (45 members Board of Directors) from
civil society, scientists, business, etc.

The result: 5 Volumes with the following topics:

    1.   Ecosystems and Human Well-being: Current State and Trends, Volume 1
    2.   Ecosystems and Human Well-being: Scenarios, Volume 2
    3.   Ecosystems and Human Well-being: Policy Responses, Volume 3
    4.   Ecosystems and Human Well-being: Multiscale Assessments, Volume 4
    5.   Ecosystems and Human Well-being: Our Human Planet- Summary for Decision
         Makers, Volume 5

The first set of assessment reports contains an overall synthesis and 5 reports, which
interpret the MA findings and are addressed to specific audiences:

    1. Ecosystems and Human Well-being: Synthesis Report
    2. Ecosystems and Human Well-being: Biodiversity Synthesis
    3. Ecosystems and Human Well-being: Desertification Synthesis
    4. Ecosystems and Human Well-being: Wetlands and Water Synthesis
    5. Ecosystems and Human Well-being: Opportunities and Challenges for Business
       and Industry
    6. Ecosystems and Human Well-being: Health Synthesis

The main objective of the MA was to assess the results of the change of ecosystems and
how they are affecting human well-being. It establishes scientific basis for actions
needed to enhance the conservation and sustainable use of ecosystems which will
contribute to human well-being.

It analyzes the linkages between ecosystems and human well-being, and focuses on
ecosystem services (benefits obtained from ecosystems). The different types of
ecosystem services according to the study were detailed on Chapter 2.




Cinthia Soto Golcher- Thesis on Payment of Environmental Services                   6
The MA locates human well-being at the center of its assessment. It also recognizes that
biodiversity and ecosystems have an intrinsic value in themselves. Decisions affecting
ecosystem services are taken taking into account people´s own well-being and also on
its intrinsic value.

The MA recognizes that 4 of the 24 ecosystem services examined have been enhanced:
crops, livestock, aquaculture and more recently, carbon sequestration, however, the
other 15, among others, water supply, natural hazard protection, regulation of erosion,
have been degraded. This is impacting people in different ways and in different degrees.

In addition, and with regards to environmental/ecosystem services and valuation,
according to the MA, “The importance of biodiversity and natural processes in pro-
ducing ecosystem services that people depend on is not captured in financial markets.
Unlike goods bought and sold in markets, many ecosystem services do not have markets
or readily observable prices. However, lack of a price does not mean lack of value.”3
There is evidence that in many cases, changes of land use and conversion was enhanced
because the value of the lost ecosystem services, for example, the indirect value of
biodiversity conservation, was not internalized. In other cases, subsidies distorted costs
and benefits, and ended up destroying biodiversity.

People place different values on biodiversity and ecosystem services, but there are some
ecosystems services that are more difficult to value, and there is no analysis of its full
costs, risks and benefits. There are some valuation methods developed to estimate the
different values, however, the so called provisioning ecosystems services such as food,
fresh water, wood, etc are the ones commonly valued. When it comes to other types of
ecosystem services, it is important to mention that some of them are not traded or
privately owned, and the valuation and willingness of people to pay for them is not so
clear, additionally, according to the MA some of these services are intrinsic and they
cannot be valued in conventional economic terms. How much can you charge for
providing the service of protecting biodiversity?

Market failures will need to be addressed at the national and international level, as well
as the need to internalize the environmental externalities that lead to the degradation of
ecosystems services. Many ecosystem services are not tangible and are not traded in
markets, so markets do not allocate any value to them, failing in this regard in the
provision of appropiate signals that might otherwise contribute to the efficient allocation
and sustainable use of the services. Aditionally, sometimes this has an effect on the
demand and offer of other services, for example when it comes to water pricing, many
countries do not consider the conservation and mantainance costs of watersheds, so
prices are lower and demand is higher, overexploiting natural resources.

Throughout the MA there are several references to the need to develop incentives for
the conservation and sustainable use of natural resources, including payments to local
landowners for the ecosystem services rendered by the ecosystems they own. It
recognizes also the need to develop compensating mechanisms addressing the
distributive and equitable aspects of these economic instruments.



3
 Millennium Ecosystem Assessment, 2005. Ecosystems and Human Well-being: Synthesis. Island Press
Washington DC. Page 38


Cinthia Soto Golcher- Thesis on Payment of Environmental Services                                  7
Some of the responses which have been succesful in promoting sustainable use of
natural resources include payments and the creation of markets for biodiversity and
ecosystem services. Market mechanisms have proved to be very helpful, as an example,
ecotourism (non-consumptive use of natural resources). Other mechanisms, according
to the MA, include tax incentives, easements, tradable development permit programs,
and contractual arrangements (such as between upstream landowners and downstream
users). It also mentions the successful experience of Costa Rica with its PES program
(more on chapter 4).

The development of carbon markets, offering carbon sequestration services can provide
great incentives for conservation of natural resources, and should be consistent with
biodiversity conservation efforts, enhancing the plantation of different species of native
trees in a determined area, opposed to planting one type of tree (monoplantations).
Trees in general absorb CO2, but planting one type will not enhance biodiversity
conservation and actually, might be harming it.

There are still several challenges in the use of these market mechanisms, some of them,
according to the MA, include acquiring the information needed to ensure that buyers are
in fact obtaining the services that they are paying for; the need to establish the necessary
institutional frameworks required for markets to work and to ensure that benefits
obtained are distributed in an equitable manner. In short, market mechanisms need to be
developed or improved, as appropiate.

As part of the drivers that exacerbate biodiversity loss, the need for the elimination of
subsidies is emphasized, since they act as perverse incentives and affect the rate of
biodiversity loss and ecosystem changes. Besides the ethical discussion on agricultural
subsidies in industrialized countries, resulting in the reduction of profitability in
developing countries and increase of poverty they provoke in those parts of the world,
the impact they have on the environment is significant, since they lead to
overproduction, support unsustainable agricultural practices, including the overuse of
fertilizers and pesticides which have serious effects on the ecosystems. In this regard,
the MA recommends the development of policies that remove perverse incentives or
create markets for biodiversity protection which can have a greater possitive impact on
biodiversity at a lower cost.




Cinthia Soto Golcher- Thesis on Payment of Environmental Services                         8
    4. Payment for Environmental Services (PES), the Costa Rican experience

Background

Costa Rica committed in 1992 to the agreements reached in the Rio Summit, including
the three Rio Conventions and the Forests principles. The country recognized the need
to ensure its environmental sustainability, and created, among others, the Forestry Act
7575, which recognizes the environmental services provided by forests and forests´
plantations.

Forestry Act is based on the principle that forest owners will receive a payment to
compensate them for the benefits that their forests and forests plantations provide to the
Costa Rican society and to humanity in general. It is defined as: ¨Those provided by
forests and forests plantations for the protection and improvement of the environment¨.

The Law recognizes the following services:

    a) Mitigation of greenhouse-effect gases (fixing, reduction, sequestration, storage
       and absorption).
    b) Protection of water for urban, rural or hydroelectric use.
    c) Protection of biodiversity for its conservation and sustainable scientific and
       pharmaceutical use, research, genetic improvement and protection of ecosystems
       and life forms.
    d) Natural scenic beauty for tourism and scientific purposes.

Funding sources

Funding comes from different sources, but the main one is a 3.5% of the selective tax of
consumption on oils and other hydrocarbons (under the principle that ¨polluter should
pay¨), which is destined to FONAFIFO (National Forest Financing Fund), classified as
a body of maximum decentralization within the organizational structure of the State
Forest Administration and attached to the Ministry of Environment and Energy.

FONAFIFO was created through the mentioned Forest Law with the aim of fulfilling
international commitments. It was legally consolidated in 1996 and started the PES
program in order to compensate small and medium owners of forest or lands with forest
vocation, with the objective of maintaining or restoring the forest cover in the country.

Since the amount collected through this tax is used to recognize the services of
mitigation of greenhouse gases and biodiversity protection only, FONAFIFO has signed



Cinthia Soto Golcher- Thesis on Payment of Environmental Services                       9
agreements with other institutions and non-governmental organizations in order
internalize the other environmental services.

In this regard, Fonafifo has signed contracts with hydropower, refreshments and
ecotourism companies, which recognize that such an investment will translate in higher
quality of the natural resources they profit from, and enhance long term sustainability.

On the other hand, the Law of the Regulating Authority of the Public Services states in
article 31 with regards to the fixation of price, tariffs or tolls that ¨The criteria of social
equity, environmental sustainability, conservation of energy and economic efficiency as
defined in the National Development Plan, should be central elements to fix the price,
tariffs and tolls of the public services…¨

Based on this, the Company of Public Services of Heredia (ESPH S.A.) has included a
hydro tariff as an environmental adjustment of the current tariffs for the supply of
drinking water, which considers the economic value of the environmental hydro service
or service production of water and the environmental cost required to recover and
conserve the areas where the sources of water are located. These resources are invested,
through PES agreements, in forests protection and its natural regeneration upstream,
where water is generated.

Additionally, FONAFIFO is developing software which will enable travelers to
compensate the CO2 produced during their flights to and from Costa Rica and to
recognize the environmental service provided by Costa Rican Forests in their
absorption. In the near future, interested persons will be able to purchase this certificate
through the web page. In past United Nations’ events celebrated in Costa Rica (such as
“Innovative Financial Mechanisms for Sustainable Forests Management”, which was a
Country-Led Initiative under the United Nations Forum on Forests on March 2005; and
the “Second International Expert Meeting on Sustainable Consumption and
Production”, on September 2005), participants were offered the possibility to clean their
emissions. The positive outcome led FONAFIFO to start a project with the Costa Rican
Tourist Board and Tourist Chamber, and some airlines, to offer travelers the possibility
as well. Currently, Fonafifo has signed a contract with Nature Air, an airline that is
willing to pay for their emissions and recognize the service provided by the Costa Rican
forests in the absorption of CO2 emissions.

This PES program has been very successful because it has been a result of good
planning and transparent management. As a financing mechanism developed for the
management, conservation and sustainable development of forest resources and
biodiversity, the PES program has four basic pillars:

    a)   institutional framework
    b)   legal framework
    c)   financing
    d)   monitoring and evaluation.
The Constitution of the country also states, in its article 50, that ¨…Every person has the
right to a healthy and ecologically balanced environment… The State should guarantee,
defend and preserve that right…¨




Cinthia Soto Golcher- Thesis on Payment of Environmental Services                           10
Benefits

The economic recognition of the environmental benefits provided by forests has
contributed to increase its ecological, social and economic value, and it has gone
beyond its original environmental objectives being also a very important tool to
distribute wealth and combat poverty.

The use of the PES program and other actions taken by the government has had the
following benefits:

       More than 500.000 Has. of forests are being protected in Costa Rica (9.6 % of
        the national territory)
       Reduction of deforestation rate.
       Restoration of forest’s cover and degraded lands.
       Effective mechanism in combating illegal logging.
       Promotion of production and exports of non-traditional products making use of
        potential markets.
       Promotion of forest industry.
       Contribution to rural development.
       Contribution to national strategies to combat poverty
       Contribution to global environmental goals.




Cinthia Soto Golcher- Thesis on Payment of Environmental Services                 11
5.       International negotiations on PES

5.1      Decisions related to PES
International discussions on certain issues are the first steps in developing international
law. These discussions can lead to negotiations of resolutions, declarations, principles
(soft law), which can serve as a basis for developing domestic law, institutions and
human capacity and, after some years, finally, to binding agreements (conventions).

In this globalizing world, where global environmental problems are having impact on
all around the world, particularly on the most vulnerable regions, we need to find a
common understanding and ways to cooperate among nations. Current negotiations on
environmental/ ecosystem services will determine in great extend how the world is
prepared to face, stop and reverse, where possible, ecosystems’ degradation, considering
that they are key to human kind subsistence. However, its financial sustainability is
necessary in overcoming this challenge. PES has demonstrated to be an innovative
financial mechanism for ecosystem conservation and sustainable management.

5.1.1 Regional
5.1.1.1 Central American Commission on Environment and Development
         (Comisión Centroamericana de Ambiente y Desarrollo-CCAD)

Based on the agreements reached at the Earth Summit in 1992, the Central American
countries subscribed the Central American Alliance for Sustainable Development
(ALIDES) in 1994, which aims at promoting sustainable development in a democratic
and participatory way, respecting ethnic, social and cultural diversity, focused on
improving life quality of its citizens in harmony with nature, and preserving a healthy
environment for future generations. The Central American Commission on
Environment and Development (CCAD) is responsible for implementing the ALIDES
decisions related to the environment. CCAD belongs to the Central American
Integration System (SICA).

CCAD has developed the Central American Environment Plan (PARCA), which aims at
contributing to the sustainable development of the region, strengthening the cooperation
and integration for environment management. The three strategic objectives of the Plan
for 2006-2010 are:

      1- Prevention and control of environmental pollution


Cinthia Soto Golcher- Thesis on Payment of Environmental Services                       12
    2- Conservation and sustainable management of natural patrimony
    3- Institutional strengthening of CCAD

With regards to objective 2), one specific objective is to internalize the environmental
costs and benefits, so the operalization of payment for environmental services programs
is encouraged, and it is expected that by 2010 at least 4 countries in the region apply
one mechanism or policy that promotes sustainable production practices and payment
for environmental services. Costa Rica, as a pioneer in the development of this financial
mechanism has been asked by CCAD to support other countries in the region through
cooperation and exchange of experiences.


5.1.1.2 Convention on the Protection and use of transboundary watercourses and
international lakes, Europe

UNECE Rules on payments for ecosystem services in integrated water resources
management

In November 2006 the Forth Conference of the Parties to the Water Convention4
adopted this set of rules, principles and recommendations. The objective of the
document is ”to provide guidance on the establishment and use of Payment for
Ecosystem Services to implement integrated water resource management, through the
promotion of the protection, restoration and sustainable use of water-related ecosystems
at all levels, from local to transboundary”5

The document includes as water ecosystems, forests, wetlands, grasslands and
agricultural land. It also considers agricultural land and urban areas as a type of
ecosystem affecting water cycles within the basin.

It refers to the establishment of PES schemes, principles, stakeholder’s involvement,
legal and institutional frameworks, information needs, monitoring and financing. It
clarifies that any scheme needs to be supported by a strong legal and regulatory
framework. It also includes different schemes such as public, private (self organized)
and trading schemes (market oriented).

Under financial arrangements, it states that compensation (or incentive) is defined for a
specific land use or management practice, which is supposed to deliver an ecosystem
service. It also states that the scheme may compensate specific practices such as non-
application of nitrates, restrictive mowing or draining (sustainable practices).

Annexes include a section which gives concrete examples of how members of UNECE
are implementing different schemes. Many of them relate to agricultural practices and
how farmers get compensation for additional costs and loss of income due to changes in
their farming practices to more environmentally friendly farming techniques.



4
  Convention on the Protection and use of transboundary watercourses and international lakes, (it is an
European regional convention)
5
  UNECE Rules on payments for ecosystem services in integrated water resources management,
ece/mp.wat/2006/5, September 12, 2006, page 5


Cinthia Soto Golcher- Thesis on Payment of Environmental Services                                         13
5.1.2 Global

          5.1.2.1 The Kyoto Protocol

Kyoto Protocol provisions constitute an example of how ecosystem services are being
traded world wide, as it recognizes one of ecosystem services provided by forests:
carbon sequestration. It constitutes a market-based instrument for financing forests’
development.

Regretfully, clause 3.3 is restrictive, as it compensates those who reforest or afforest,
but it does not recognize anything to those countries that protect their natural forests and
avoid deforestation. This is a confusing signal, as it seems that to benefit from the Clean
Development Mechanism under the Kyoto Protocol, countries need to deforest first.

       5.1.2.2 Food and Agricultural Organization (FAO) Ministerial Meeting on
Forests

On March 4th 2005 there was a Ministerial Meeting on Forests held in Rome, Italy,
where the outcome was a Ministerial Statement, where Ministers:

“call on FAO to further develop studies and assist countries, upon request, in the
design and implementation of projects on payment for environmental services from
forests as well as in the assessment of the various benefits (water, carbon, biodiversity)
of these projects,”

This is the only language where you can find a direct reference to PES, however, many
of the same countries who signed the statement, are opposing to it in other fora.

5.1.2.3. Commission on Sustainable Development, thirteenth Session (CSD-13)

CSD-13, held in New York on May 2005, was the first policy year after the new
working modalities of the Commission. It dealt with the issues of water, sanitation and
human settlements. There was an attempt to include reference to PES, but it was not
possible for some countries to accept an explicit reference, so the agreed paragraphs
were6:

Under section A. Water, Integrated Water Resource Management:

“d)
(v) Enhancing the sustainability of ecosystems that provide essential resources and
services for human well-being and economic activity in water related decision-
making;”

And under:

“D. Interlinkages and cross-cutting issues:




6
    See E/2005/29-E/CN.17/2005/12


Cinthia Soto Golcher- Thesis on Payment of Environmental Services                        14
…. (x) Concerning the means of implementation, mobilize adequate resources to meet
the water, sanitation and human settlements goals and targets, tapping both domestic
and international sources through a range of financing approaches, such as:

…(ii) Identifying and promoting innovative and sustainable means of financing;

(iii) Enhancing the sustainability of ecosystems that provide essential resources and
services for human well-being and economic activity and developing innovative means
of financing for their protection;”

         5.1.2.4. Ramsar Convention (COP-9)

During last COP-9 held in Kampala, Uganda on November 2005, Resolution IX.3
entitled “Engagement of the Ramsar Convention on Wetlands in ongoing multilateral
processes dealing with water”, paragraph 20 instructs the Secretariat of the Convention
to promote and implement relevant decisions taken on CSD-13 on integrated water
resource management. These decisions are detailed on 5.1.2.3.

At the same time, Resolution IX.14 on “Wetlands and poverty reduction”, calls for the
review and improvement of financing mechanisms for wetland management to help
address poverty reduction, and the engagement of local communities in the maintenance
of ecosystem benefits/ services.


         5.1.2.5 International Tropical Timber Agreement

Under the latest ITTO agreement7 (January 2006), there are some references to the issue of
environmental services and the need to develop strategies to enhance the contribution of
forests products and services to sustainable management of forests:

Article 1, subparagraph q):

“Promoting better understanding of the contribution of non-timber forest products and
environmental services to the sustainable management of tropical forests with the aim
of enhancing the capacity of members to develop strategies to strengthen such
contributions in the context of sustainable forest management, and cooperating with
relevant institutions and processes to this end;”

         5.1.2.6 United Nations Forum on Forests, Sixth Session (UNFF-6)

During UNFF-6, celebrated on February 2006 in New York, the international
community reviewed the International Arrangement on Forests, and finally agreed on a
future development of a non-legally binding instrument for the sustainable management
of forests, and also, as a major achievement, an agreement on 4 Global Objectives of
Forests. Additionally, there are some references to PES included under the financial
mechanism on the final document8. The original proposed language made explicit

7
 International Tropical Timber Agreement, 2006, UNCTAD, ref TD/TIMBER.3/12, Geneva, 16- 27
January 2006
8
    See ECOSOC 2006/49


Cinthia Soto Golcher- Thesis on Payment of Environmental Services                            15
reference to PES, however, it was strongly opposed by some countries, so the final text
is:

“k) Further developing innovative financial mechanisms for generating revenue to
support sustainable forest management”

“l) Encouraging the development of mechanisms which may include systems for
attributing proper value, as appropriate, to the benefits derived from goods and
services provided by forests and trees outside forests, consistent with relevant national
legislation and policies.”

       5.1.2.7 Convention on Biodiversity, Eighth Session of the Conference of the
Parties (COP-8)

During last COP held in Curitiba, Brazil, on March 2006, there were some decisions
taken which are relevant to the PES discussions and relate to it directly or indirectly:

Decision VIII/9, Implications of the findings of the Millennium Ecosystem Assessment

Paragraph 21:

“Requests the Subsidiary Body on Scientific, Technical and Technological Advice to
take note in its deliberations of the linkages between biodiversity and relevant socio-
economic issues and analysis, including economic drivers of biodiversity change,
valuation of biodiversity and its components, and of the ecosystem services provided, as
well as biodiversity’s role in poverty alleviation and achieving the Millennium
Development Goals;”

Decision VIII/17, Private-sector engagement (preambular section)

“Noting that contributions from business and industry towards the implementation of
the Convention and its 2010 target could be facilitated by further work under the
Convention to develop:

 …(b) Tools for assessing the value of biodiversity and ecosystem services, for their
integration into decision-making;”

Decision VIII/25 Incentive measures: application of tools for valuation of biodiversity
and biodiversity resources and functions

The need to assess the value of biodiversity and the associated environmental services it
provides it’s recognized. This decision calls for promoting a common understanding on
issues related to, i.a.:

 “a) Integration of the values of biodiversity resources and functions and associated
ecosystem services into national accounting and decision-making, taking into account
the conceptual framework of the Millennium Ecosystem Assessment;
…




Cinthia Soto Golcher- Thesis on Payment of Environmental Services                     16
c) Capturing the calculated values through the careful analysis and design of markets
for ecosystem services where appropriate, taking into account the three objectives of the
Convention;”

Decision VIII/26 Incentive measures: preparation for the in-depth review of the
programme of work on incentive measures

Through this decision, a preparatory process for the in-depth review of work on
incentive measures is started, and it will be considered by the Parties on the ninth
session of the COP.



5.2 Different uses by some promoters of the term Payment of Environmental
     Services

Seminar on environmental services and financing for the protection and
sustainable use of ecosystems

In October 2005 a seminar entitled “Seminar on environmental services and financing
for the protection and sustainable use of ecosystems” was organized by the Swiss
Agency for the Environment, Forests and Landscape, the UNECE Secretariat of the
Water Convention (United Nations Economic Commission for Europe), in cooperation
with the World Conservation Union (IUCN) and the secretariat of the Ramsar
Convention on Wetlands. Countries prepared reports on how are they dealing with the
issues under discussion.

Some of the reports were studied for this project, and some of them raised elements
which could be controversial in an attempt to promote the use of PES at the
international level. The reports of the following countries: Austria, Switzerland and The
Netherlands, have some interesting statements:

Austria

         “The core aim of ÖPUL9 was to compensate for environmental services, which
          farmers had rendered without being rewarded for doing so until then.” 10
         “We may say that our national legislation is indeed conducive to the creation of
          schemes which favour the payment of services rendered to the ecosystem.”11

          Comments: Looking at the above languages, they indicate that farmers are the
          ones rendering environmental services, instead of being the ecosystem as such
          the one providing the services.



9
 Austrian agri-environmental programme, ÖPUL
10
   Austria National Report. Seminar on environmental Services and Financing for the protection and
sustainable use of ecosystems, Geneva, 10-11 October 2005, Page 1
11
   Idem, Page 2



Cinthia Soto Golcher- Thesis on Payment of Environmental Services                                    17
        “The agri-environmental programme ÖPUL is not part of Austrian poverty
         reduction strategy papers. Nevertheless ÖPUL fulfils important aspects of
         poverty reduction. It gives income to small farmers who might otherwise have to
         give up farming without these subsidies.” 12

         Comments: The text here clearly indicates that farmers are being subsidized
         otherwise they cannot continue with their farming activities.

Switzerland

        “In the article 104, of the Federal Constitution of the Swiss Confederation,
         agriculture contributes substantially by way of a sustainable and market-oriented
         production among others, to the conservation of natural resources and the
         upkeep of rural scenery; the Confederation shall conceive the measures in such a
         way that agriculture may fulfil its multiple functions by complementing
         agricultural revenues by direct payments, to secure a fair and adequate
         remuneration for the services rendered, provided that compliance with
         ecological requirements is proven. It shall promote, by way of economic
         incentives, forms of production which are particularly close to nature and
         friendly to the environment and the animals. It shall protect the environment
         against pollution due to excessive use of fertilizers, chemicals and other
         auxiliary substances.”13

     Comments: This paragraph brings the issue of the multifuntionality of agriculture,
     and that it should be supported by direct payments, which in commercial terms
     might be translated as “subsidies”.

     The Netherlands

        Landscape fund
         “In the eastern part of the Netherlands a beautiful scenic landscape is created by
         small scale agricultural activities. The habitants of the area and many tourists
         enjoy the scenic beauty of the landscape. For the local farmers it becomes more
         and more difficult to generate sufficient income with the limited number of
         animals and (many) small strips of land. Recently a pilot project “landscape
         funds” was established. These funds compensate farmers loss of income for
         activities that contribute directly to the improvement and conservation of unique
         landscape characteristics. A major uncertainty for the project is whether it fits
         the European regulation for subsidies.”14


12
  Idem, Page 3
13
   National Report of Switzerland on Environmental Services and Financing for the Protection and
Sustainable use of Water-related Ecosystems. Seminar on environmental Services and Financing for the
protection and sustainable use of ecosystems, Geneva, 10-11 October 2005, Page 3
14
   Some Issues and Examples of Environmental Services and Financing for the Protection and
Sustainable Use of Water-related Ecosystems in The Netherlands, A contribution of the Ministry of
Agriculture, Nature and Food Quality. Seminar on environmental Services and Financing for the
protection and sustainable use of ecosystems, Geneva, 10-11 October 2005, Page 3



Cinthia Soto Golcher- Thesis on Payment of Environmental Services                                   18
        Comments: In this case, the scenery beauty is how the agricultural activities
        constitute a landscape of interest to tourists. However, there are concerns of the
        same Dutch Government wheter this “landscape fund” is a subsidy or not.

Other examples

One European country pays farmers who live in the mountain for cutting bushes during
Winter so that snow does not get accumulated and cause an avalanche. They consider
that as an “environmental service”.

Comment: This is a service provided by human beings, which can prevent a disaster and
the loss of human life, nature and infrastructure.

        5.3 Difficulties and why some countries feel threatened

In the past two years, as innovative financing mechanisms are evolving in many
countries for the protection, conservation and improvement of ecosystems, when it
comes to international negotiations and the inclusion of reference as PES, which for
some countries it has been a key factor in the achievement of their environmental goals
and poverty reduction strategies, some other group of countries have strongly opposed
to any reference to PES. Some language has been agreed to reach consensus, but every
time opposition from Parties is present.

Some of the reasons for some countries to oppose have been:

        a. Millions of inhabitants. Some argue that they have millions of people, some
           of them living in important ecosystems. If people start requesting for
           payment for the services provided by the ecosystems they live in, the
           Government will have no resources to satisfy those requests.

        b. Transboundary water courses. Because of transboundary water courses,
           downstream countries are concerned that upperstream countries start
           charging them for any measure they take to improve quality of the water
           running in the basin, particularly if it has to do with an ecosystem service,
           leaving the valuation at the discresion of the upperstream country.

        c. Poverty. They say they are a poor country and cannot afford to pay people
           for such a service.

        d. Transboundary air pollution. Due to burning of crops and forests, to
           enhance agricultural land for next season, and the consequent air pollution
           affecting them and neighboring countries, these countries are concerned
           neighboring countries will demand from them some payment for affecting
           their ecosystems, health, etc.

        e. Profit from natural forests. For this country, profiting from natural forests
           is something abusive and capitalist. Forests are there to benefit all their
           inhabitants, rich and poor, and charging for the services they provide is a
           very good example of social injustice and is unacceptable.



Cinthia Soto Golcher- Thesis on Payment of Environmental Services                      19
        f. WTO negotiations. One country has argued that we cannot decide anything
           related to PES since WTO is still discussing the issue of environmental
           services, and has not been able still to come to an agreed definition.

        g. Hidden agricultural subsidies. As agricultural subsidies have to be phased
           out under World Trade Organization (WTO) agreements, some developing
           countries feel that developed countries are trying to hide and transform them
           into PES schemes15.

The above are concerns that countries do not generally raise during negotiations, but are
what they do say when you approach them and request some kind for explanation in
order to understand their position.

There are other countries opposing, but their reasoning behind their positions has not
been explicitly expressed. They just say no to PES. A possible reason for this is the fact
that for countries with high deforestation rate, it represents a huge risk of having a
finger pointed at them if international community starts calculating how much, in
monetary terms, we are losing in ecosystem services due to their inability to stop
deforestation.

It is important to mention that some of these countries have some incipient mechanisms
for PES. They have even requested South-South cooperation from other developing
countries that are more advanced with PES mechanisms, but still, when it comes to an
international agreement on PES, they are strongly opposed.




15
  They mention the European understanding and regulations for the “multifuntionally of agriculture”,
which states that agriculture done in an sustainable way, adopting ecological sound practices, can
contribute to the maintainance of ecosystems and for this, farmers get paid as providers of an
ecosystem/environmental service.


Cinthia Soto Golcher- Thesis on Payment of Environmental Services                                      20
6- Conclusions and Way Forward

Main conclusions

Payment for environmental services is one of the main instruments used by some
countries to guarantee their environmental sustainability, and it has also served as a tool
to reduce poverty and improve wealth distribution.

As mentioned by Profesor Joseph Stiglitz, Nobel Prize in Economics in 2001, in his last
book, “…Compensation would not only be fair and help the economies of the rainforest
countries; it would provide incentives for them to maintain their forests, which would
be of enormous environmental benefit to all.” 16

As long as ecosystems, such as forests, are seen only in terms of wood, and not in terms
of the services they provide and in this regard, being paid for them, deforestation is
going to continue. If you sell a product, and no one is willing to pay for it, you are not
going to continue selling it; most probably you will invest your time and resources in
something that is more profitable. The same with ecosystem services, if people don´t
recognize them in a financial way, what kind of incentive or alternative will
people/owners have to continue its maintainance? It is clear that current system is
imperfect and that it has not been able to absorb the positive and negative externalities
and more needs to be done if we really want future generations to satisfy their needs as
much as we did.

In the case of forests, incentives should be also channeled for avoided deforestation,
taking into account that change of land use is the second cause of CO2 emissions after
burning of fossil fuels. Even though current international incentives schemes tend to
take us in a different direction. This gap is being addressed by the Coalition for
Rainforests Nations, a group of 14 countries, led by Costa Rica and Papua New Guinea.
This group of countries with the support of other interested Parties introduced an item
under the UNFCCC on December 2005, during COP-11 called: “Reducing Emissions
from deforestation in developing countries”. This agenda item is subject now to several
workshops, and a decision will be taken on next COP in Bali, Indonesia.




16
     Stiglitz, Joseph. Making Globalization Work. W.W. Norton & Company, Inc, Nueva York, 2006, p179


Cinthia Soto Golcher- Thesis on Payment of Environmental Services                                 21
Now, with regards to the concerns that other countries have raised (Chapter 5.3) and the
mentioning of PES as a financial mechanism to achieve sustainable development,
including sustainable forests management, here are some counterarguments:

    a- Millions of inhabitants: Currently for a small developing country like Costa
       Rica, the demand of PES by forests owners is much higher than the financial
       resources available. It has been able to satisfy only 40% of the demand, so the
       country has had to determine which are priorities areas (like biological
       corridors) to allocate those scarse resources. For this to happen in a transparent
       and organized way, appropiate legislation and institutions are needed.

    b- Transboundary water courses: For PES programs to be successful, national
       legislation should exist. This legislation should concentrate on national
       implementation, and cannot go beyond its borders. However, regional
       agreements could be developed when concerned parties agree to do so. At the
       end, a more sustainable management of riparian resources benefits everybody
       (upstream and downstream).

    c- Poverty: Other developing countries who are using PES programs are also poor
       and this has not been an obstacle to develop PES programs. In the case of Costa
       Rican society, it has decided to invest tax money which could have been used in
       other activities like education, health, etc., on a forestry fund for the benefit of
       current and future generations, as well as for all human kind. Consistent with the
       “polluter- pays” principle, we are chanelling a 3.5% of the fussil fuel tax to our
       National Forest Financing Fund. This program which started as a conservation
       and environmental solution program ended up being also a poverty reduction
       strategy.

    d- Transboundary air pollution: Same as b)

    e- Profit from natural forests: This argument doesn´t seem to have any basis or
       logic, however, what could be offered in reply is that all forests, primary,
       secondary, and planted, provide environmental/ecosystem services, so it makes
       no sense to pay for the services provided by planted forests and not for the ones
       from primary forests, which at the same time are very rich in biodiversity.

    f- WTO negotiations: The understanding of environmental services under WTO
       does not have to do anything with ecosystems as such, but as mentioned on
       Chapter 2.2, it has to do more with recycling, waste management, etc., or as
       translated to Spanish in WTO documents “services related to the environment”.

    g- Hidden agricultural subsidies: From all the arguments, this is the objection
       that deserves to be seriously analyzed.

        The issue of agricultural subsidies having to be phased out according to WTO is
        a serious concern to all around the world. These discussions have had WTO
        negotiations on hold and there exists lots of polarization, particularly between
        the North and the South. Amounts paid in agricultural subsidies by the
        developed countries to its farmers are between 3 to 5 times higher than Official
        Development Assistance (ODA) currently paid. Aditionally, subsidies tend to


Cinthia Soto Golcher- Thesis on Payment of Environmental Services                       22
        lower prices in an artificial manner, the biggest losers being the farmers from
        developing countries who cannot compete against them ― as a result, poverty is
        increased. Aditionally, we have the serious environmental problems of
        overexplotation of natural resources. There exists a huge pressure from the
        international community for these subidies to be ended, and developed countries
        have to find now a sustainable solution and alternatives to their already
        accostumed subsidized farmers.

        Now, bringing the discussion back to the environmental arena, some developing
        countries feel that how some developed countries are applying their PES
        programs, particularly payments related to the “multifunctionality of
        agriculture” can lead to hidden agricultural subsidies.

        Here we are at a stage where environmental concerns crash with trade concerns.
        With regards to agriculture and environment, the MA says:

        “Where agriculture already dominates landscapes, the maintenance of
        biodiversity within these landscapes is an important component of total
        biodiversity conservation efforts, and, if managed appropriately, can also
        contribute to agricultural productivity and sustainability through the ecosystem
        services that biodiversity provides (such as through pest control, pollination,
        soil fertility, protection of water courses against soil erosion, and the removal of
        excessive nutrients).”17

        There are no doubts that sustainable agricultural practices and the swift to
        environmentally friendlier techniques are very helpful and healthy, not only for
        the environment, but also for human beings. However, we have to make a clear
        difference between those services provided directly by ecosystems which are
        intrinsic from them because of their ecological characteristics, with other
        human-being sustainable practices that are benefiting the environment. The
        question is then, how to compensate these practices without affecting
        international trade?

        Even though the issue of sustainable practices is very important and deserve a
        whole research, some preliminary proposals are:

                Taxation of non-sustainable practices and this money being used for
                 enhancing the sustainable ones.
                Tax reduction on sustainable practices
                Analyze each activity and determine then which financial mechanism is
                 more appropiate according to its characteristics

        Another issue seem by some as an environmental/ecosystem service is landscape
        beauty. However, this is a very subjective way of assessing the need for the PES
        or not. For some countries, landscape beauty are the forests, and ecotourism
        companies are interested in paying neighboring landowners for protecting their
        forests (it makes little sense owing beautiful forested land if your neighbouring

17
 Millennium Ecosystem Assessment, 2005. Ecosystems and Human Well-being: Synthesis. Island Press
Washington DC. Page 75.


Cinthia Soto Golcher- Thesis on Payment of Environmental Services                            23
        properties are degraded and deforested). However, for other countries, landscape
        beauty could mean a cow on the mountain eating the pastures or certain type of
        crops. So separation or distinction becomes very subjective and goes to
        dangerous zones.

All situations described make international negotiations on PES more complicated.
There are still many misunderstandings and concerns. Recommendations on this regard
are:




Way Forward under a negotiation perspective

Recommendations:

               In order to avoid any confusion between services provided by the
      ecosystem (intrinsic in nature) with those human activities that will have a
      possitive impact or improvement on the environment, the recommendation would
      be not to use the reference of environmental or ecosystem services indistinctively.
      It could also bring confusion with WTO´s use of the term, which as mentioned on
      earlier chapters, has not an agreed definition yet and there are still many
      differences on how to move forward those negotiations. It is not convenient from
      an environmental perspective for our negotiations to be confused and paralyzed by
      other discussions happening in a different forum. Payments given to landowners
      for the services provided by the ecosystems they own should be refered to in
      international negotiations as “payment for ecosystem services”. In brief, the
      following understanding could serve to clarify the differences between the
      concepts:

            -    There are two main categories of services: services from nature (from
                 ecosystems) and services to nature (from humans).
            -    Services from nature are the provisioning, regulatory, cultural and
                 supporting goods and services as described in the Millennium Ecosystem
                 Assessment – they are provided by nature and assist in maintaining other
                 natural and human systems
            -    Services to nature are the human/economic services currently discussed
                 in the WTO environmental and agriculture/subsidies negotiations
                 (including the multi-functionality of agriculture) – they are provided by
                 humans to maintain other human and natural systems.
            -    Both kinds of services are being supported by some countries through
                 “payments” (i.e. incentives). In some cases payments are from users (i.e.
                 fees etc) and in some cases they are to users (i.e. subsidies).
            -    As suggested before, where possible, we should call services from
                 nature: “ecosystem services” (as per the MA); and we call services to
                 nature: “environmental services” or “services related to
                 the environment” (as per WTO). That services related to the



Cinthia Soto Golcher- Thesis on Payment of Environmental Services                      24
                 environment are performed to maintain ecosystem services does not
                 make them the same thing.
            -    Developing countries, given their abundant natural resources and limited
                 financial resources, have a strong interest in payments for ecosystem
                 services, considering that all human kind is benefiting from many of
                 these services.
            -    Systems for payments "from" users “for ecosystem services” (e.g.
                 FONAFIFO) can be juxtaposed with payments "to" users to supply
                 “environmental services” (i.e. EU subsidies). FONAFIFO can thus be
                 distinguished from EU subsidy schemes by emphasizing:

                 •        FONAFIFO relates principally to services from nature (i.e.
                 “ecosystem services”) whereas EU payments (subsidies) relate
                 principally to services to nature (i.e. “environmental services”);

                 •     While FONAFIFO has a direct link between sources of income and
                 services which will be paid with those resources (like any commercial
                 transaction), and identifies specific users who pay “for” those services
                 (e.g. through hydrocarbon tax), EU subsidies do not (i.e. they generally
                 come            out          of          consolidated         revenues);

                 •     Both identify actors whom payments are made "to" (forest owners
                 and farmers) but this does not render the two schemes identical -- the two
                 are in somewhat different historical/cultural relations to
                 the resources and are being paid (generally) for different reasons.

               In order to avoid any confusion, it is necessary to identify some
      distinctions and criteria for evaluating them (e. g. identified targets responsible
      "for" payment relating to "ecosystem services" etc). This will help prevent efforts
      to support payments for ecosystem services (as has been the case) from supporting
      perverse subsidies in developed countries.

               A meeting of like-minded countries (Mexico and countries of the Central
      American Integration System-SICA), who share the same concern of the different
      interpretations being given by some other “supporters” of payment of ecosystem
      services (EU and Switzerland), should be convened in order to analyze the
      situation and determine the strategy to follow.

               After this group has analyzed the situation and coordinated its position, a
      meeting with these other countries supporting PES to clarify the situation will be
      necessary. It is important that when we talk about PES, make language proposals
      and have strong positions and discusions within our negotiating blocks, we all talk
      about the same thing. It would be regretable for a country like Costa Rica to
      defend the concept within the Group of 77, with all its political implications of not
      reaching consensus, and then realize that our allies from outside the Group are
      using it as hidden subsidies, which is something that we strongly oppose in WTO.

              It would be advisable that in this meeting we all have an understanding
      and consensus of the meaning of this concept, and then, proceed to negotiate it in
      the appropiate fora with other partners.


Cinthia Soto Golcher- Thesis on Payment of Environmental Services                       25
               An open meeting/ seminar to discuss the subject is advisable, where
      countries can discuss freely all their concerns without having the pressure of a
      negotiation. Examples of best practices could be presented.

               Definition of the concept of scenic beauty will also be necessary in order
      to avoid subsidizing activities that can have an impact on international trade.




Bibliography

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?OpenDocument



Cinthia Soto Golcher- Thesis on Payment of Environmental Services                      26
Stiglitz, Joseph. Making Globalization Work. W.W. Norton & Company, Inc, Nueva
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Cinthia Soto Golcher- Thesis on Payment of Environmental Services                 27

								
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