Report

Topic
forests:

: Paying for the hydrological services of Mexicos

Analysis negotiations and Results

Submitted By

: Anju Andezhath Mohanan (3433393)

Megha Madan (3425408)

Study Program: M.sc Environmental and Resource Management

Date of Submission: 14-01-2015

Introduction
Water scarcity and deforestation are Mexicos important environmental issues because, the most
important water resources are overexploited as compared to the previous years and the forests are
deteriorating in an alarming rate. To control these issues the Government has decided to
introduce the Payment for hydrological Environmental Services programme (PSAH). Before
introducing PSAH, the Government has applied many strategies to reduce the water scarcity and
deforestation. Unfortunately these policies couldnt find success. So PSAH over scored the
existing policies. The programme PSAH is associated with the direct payments to the landowners
with primary forest cover (forests in good state of conservation). The fund for the payment will
be collected from the water users. Without this policy, Mexico would face many dilemmas in
many areas.
The background analysis and design was undertaken by a team of researchers from the Institute
of National Ecology (INE) which is governments environmental research agency and part of the
Secretariat of Environment and Natural Resources (SEMARNAT), two Mexican universities and
the University of California at Berkeley.

Methodology
The major question arrived was who should pay for the environmental services. Governments
either at the federal, state or municipal can act as intermediaries between the owners of the forest
and the citizens who get benefits from using clean environment. All drinking water users
including domestic, industrial, commercial and bulk water users pay for water uses to the
government. And consequently, government will pay the forest owners.
The second step is to select the forest to be paid based on certain eligibility and prioritization. A
blue ribbon committee of Mexican and International scientists was assembled to classify the
forests according to their importance for aquifers and watersheds. The main priority areas are
critical recharge areas for the over exploited aquifers of the country (according to national water
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commission), near streams in regions with water scarcity, poor water quality and high sediment
load, where hydrological natural disasters are more frequent, or in areas that supply urban centers
of more than 5,000 inhabitants, or in priority mountain areas (designated by CONAFOR, if they
are also facing water problems).
From the total amount collected from the policy, 96 per cent is allocated to direct payments to the
participants (land owners) of the policy and to support the project elaboration. The remaining 4
per cent cover operation cost, evaluation and monitoring cost. Payments to the land owners are
made at the end of every year. Interestingly, Primary forest owners receive 300 pesos per hectare
per year (approximately US$27) and cloud forest owners receive 400 pesos per hectare per year
(US$36) due to the perceived higher delivery of hydrological services associated with this type
of forest (mainly due to their role in capturing water from horizontal rain in the dry season).
Almost four out of five Mexican forests are owned as common property by Ejidos and
Comunidades, a type of Mexican institution where collaborations of peasants own the lands in a
combination of private and common property. Because community interests are taken into
consideration for decision-making of the use of resources, this ownership structure is considered
to have a positive influence. However, it also has the potential problem of collective action.
Many empirical studies in Mexico have shown that high cooperation costs increase the
probability that a particular Ejido or Comunidad may select individual activities or individual
tenure as compared to collective ones. For forests whose sustainable use is generally done as
common property, this can be a complication, whereas the land uses that engages with it, like
cattle ranching and agriculture for example, can without a hitch be done in individual terms.
In the case of deliberate land use change, demonstrated by maintaining pasture or agricultural
fields in previously forested areas, participants dont receive any payment by the years end,
regardless of how small the change is. If deforestation takes place due to other reasons,
participants fail to get paid for the damaged area, but they do get paid for the preserved forest
area. By using the 1998 National Population Councils indicator of marginalization to categorize
these populations inside the Ejidos and Comunidades which had more than 100 hectares of
forest, it was found that more than 85% of were categorized as having high and very high
marginalization. Factors like low education levels and fewer opportunities to interact with local
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CONAFOR (Comisin Nacional Forestal) officials were the main obstructions for active
participation; this in turn led to poverty.
The extent of overexploitation of aquifers whose recharge area is being protected provides
indicators of the effectiveness of targeting specific areas of water scarcity. The degree of aquifer
overexploitation needs to be complemented with indicators for surface water scarcity. Yet
another concern is the correct watershed scale to use. Whether it has to be the micro watersheds
of a few thousand hectares, or the large scale interconnected watersheds that comprise several
states was one of the concerns.

Results:
The formation of the PSAH program greatly attracted the contemplation of Ejidos, Comunidades
and private land owners. More than 900 applications were received summing up for close to 600
thousand hectares of land in the year 2003. Out of these applications, only 271 forest owners
were selected giving a sum of about 127 thousand hectares of forest land into the program. In
2004, with the support of Congress, the budget for the program was raised by 50%. The number
of applicants also increased to 960, out of whom 352 new participants were selected with
roughly 180 thousand hectares of Forest land.
From the 2003 and 2004 PSAH experience, the first hint that can be drawn is that the payments
set were too high. The receipt of almost three times as many applications as participants can be
accepted itself is an indication that the opportunity costs of many applicants is below the
threshold fixed by the payment amount. This outcome was predicted by INE because the
estimation of the distribution of opportunity costs had shown a potential participation of between
20% and 40% of those offered the program. Concerning the type of forests, the total effect of a
higher price per hectare of land and the highlighting of its importance by CONAFOR made
cloud forests get a larger proportion of applicants and accepted participants in the program when
contradistinguished with the temperate and tropical forests. The cloud forest ecosystems
represent nearly 12% of all the area receiving PSAH payments, considering the fact that
nationally they constitute for 3.4% of total forests, and 6.6% of the 2004 eligibility areas.

Conclusion:
Coming up with a nation-wide program, instead of a several local ones, was desirable because
funding was obtained by earmarking a federal fee for water. It has the benefit of meeting huge
scale watersheds or aquifers effects, however, at the cost of having a program not perfectly tailormade for the local needs, and not linking directly contributions by citizens and payments to the
forest owners who give most of their environmental services.
In case of certain barriers, the PSAH (Program for Hydrological Environmental Services) should
be complemented with a support campaign to make sure that the poorest communities can
participate in the program. The Mexican experience indicates that it is feasible to achieve an
economic mechanism of fees collection from water users for paying the watershed environmental
services of forests, especially when participants are aware of the austerity of water problems. It
also indicates the advantage of having a trust fund to send a message to the participants that the
programs payments will be there for their medium-term efforts to protect their forests. To solve
the problems with targeting, the Mexican government introduced a series of water scarcity, risk
of deforestation, and poverty in the application grading system. Over the past few years we have
been witnessing an inspiring evolution of PES systems in different countries, all of them
investigating various rules and sets of possible incentives. The Mexican PSAH is one of the
largest in proportion and scope, and it is contributing important ideas for the overall ongoing
learning process, mainly in cases where forest ownership and poverty are highly interrelated.

Reference:
Paying for the hydrological services of Mexicos forests: Analysis, Negotiation and Results by
Carlos Munoz-Pina, Alejandro Guevara, Juan Manuel Torres, and Josefina Brana.