© 2008 by Direitos de edi9ao reservados aos editores.

1'

Capa, diagramac;ao e impressao: Suprema Graficae Editora suprema@konet.com.br

Ficha catalografica preparada pela Se~ao de Cataloga~ao e Classificac;ao da Biblioteca Central da UFV

Recursos naturais e crescimento econ6mico / Alexandre R311 B. Coelho, Erly C. Teixeira, Marcelo J. Braga, editores. 2008 - Viyosa, MG : Os Editores, 2008.

598p. : ii. ; 21 cm.

Inclui trabalhos apresentados no XX Seminario Inter-nacional de Politica Economica, 15 e 16 de outubro 2008, Vi9osa, MG.

1. Recursos naturais -Aspectos econ6micos . • 2. Desenvolvimento economico. 3. Aquecimento global. 4. Preservayao de floresta. 5. Meio ambiente e desenvol-vimento. 6. Comercio intemacional. 7. Biocombustiveis. 1. Coelho, Alexandre B., 1977-. IL Teixeira, Erly C., 1949-. UL Braga, Marcelo J., I9u9-.

CDD 22.ed. 333.72

Sumario

Introdu~ao.... .. ... .... .......... ... . . ..... .... ... .. . .... ...... ... . ..... ... .. ... . . . . . ... . ... ... 01

Parte 1 - Aquecimento global: impactos no Brasil

Capitulo 1 - FUTURE IMPACT OF CO2, TECHNOLOGY AND CLIMATE CHANGES ON BEANS AND MAIZE PRODUCTIVITY IN THE SOUTHERN PART OF BRAZIL Luiz Claudio Costa, Flavia Justino, Leydimere Janny Cota Oliveira, Gilberto Chohaku Sediyama, Williams Pinto Marques Ferreira, Carlos Fernando Lemos............................................................... 07

Capitulo 2 - ASSESSING THE IMPACT OF CLIMATE CHANGE ON THE BRAZILIAN AGRICULTURAL SECTOR Jose Feres, Eustdquio Reis, Juliana Speranza................................ 25

Parte 2 - Expansao agropecuaria e desmatamento na Amazonia

Capitulo 3 - A MODEL OF AMAZON DEFORESTATION AND CARBON EMISSIONS Eustdquio J. Reis.............................................................................. 47

Capitulo 4 - CRITICAL ANALYSIS OF OPTIONS TO MANAGE ES IN THE ANDES/AMAZON REGION Jan Borner, Maren Hohnwald, Stephen A. Vosti....................... ....... 75

Capitulo 5- EXPANSAO AGROPECUARIA E DESMATAMENTO NA AMAZONIA: QUAIS OS CAMINHOS Alfredo Kingo Oyama Homma ........................................................ 125

Capftulo 6 CRESCIMENTO ECONOMICO E DESMATAMENTO NA AMAZONIA LEGAL: UMA ANALISE

, ECONOMETRICA Sergio Castro Gomes, Marcelo Jose Braga, Antonio Cordeiro de Santana, Joiio Eustaquio de Lima.................................................. 177

Capftulo 7 · DETERMINANTES DE DESMATAMENTO EM POLOS DE PRODU<;:AO AGROPECUARIA FAMILIAR NO ESTADO DO ACRE lair Carvalho dos Santos, Marcelo Jose Braga, Alfredo Kingo, Oyama Homma, Joiio Eustaquio de Lima....................................... 211

Capftulo 8 · A PECUARIA E O DESMATAMENTO NA AMAZONIA NA ERA DAS MUDAN<;:AS CLIMATICAS Paulo Barreto, Ritaumaria Pereira, Eugenio Arima...................... 239

Capftulo 9 · FORMAc;:Ao HISTORICA DOS DIREITOS DE PROPRIEDADE DA TERRA NO BRASIL E NOS ESTADOS UNIDOS E SUA RELA<;:AO COM AS POLITICAS AGRICOLAS ATUALMENTE ADOTADAS NESSES DOIS PAISES Gervasio Castro de Rezende, Sebastiiio Neto Ribeiro Guedes ....... 279

Parte 3 - Comercio internacional e meio-ambiente

Capftulo 10 - TRADE AND CLIMATE POLICY WITH A FOCUS ON BRAZIL Glen Peters..................................................................................... 315

Capftulo 11 · COMERCIO INTERNACIONAL E MEIO AMBIENTE: DEFINic;:Ao DO PADRAO DE ESPECIALIZAc;:Ao AMBIENTAL DAS EXPORTA<;:OES INDUSTRIAIS BRASILEIRAS Maria Cecilia J. Lustosa................................................................ 337

Capftulo 12 - OS EFEITOS DO ACORDO MERCOSUL-UE SOBRE O SETOR AGROPECUARIO E O MEIO AMBIENTE NO.BRASIL Augusto Mussi Alvim, Flavia Tosi Feij6.......................................... 371

Parte 4 - Biocombustfveis: solu~ao ou novos problemas?

Capftulo 13 - BIOCOMBUSTIVEIS: SOLU<;AO OU PROBLEMA? Angelo Costa Gurgel.. ................... ..... ... .. .. ........ ......... ... ....... ......... 407

Capftulo 14 - SUSTENTABILIDADE ECONOMICA DA PRODU<;AO DE BIODIESEL NO BRASIL Aziz Galviio da Silva Junior, Ronalda Perez................................... 435

Capftulo 15 - BIOCOMBUSTIVEIS: NOVOS DESAFIOS POR SOLU<;OES DO SETOR SUCROALCOOLEIRO NACIONAL Marta Cristina Marjotta-Maistro................................................. 455

Parte 5 - 0 papel da agua no processo de desenvolvimento

Capftulo 16 - PRE<;O DA AGUA E GESTAO DE BACIAS HIDROGRAFICAS Ademar Ribeiro Romeiro, Junior Ruiz Garcia............................... 489

Capftulo 17- USO DE PLANILHA ELETRONICA NA GESTAO DE RECURSOS HIDRICOS EM BACIA HIDROGRAFICA Wilson da Cruz Vieira, Giani Claudia Setto Vieira......................... 515

Capftulo 18 - ELASTICIDADE-RENDA DAS DESPESAS COM AGUA E ESGOTO NO MEIO URBANO E NO MEIO RURAL DAS REGIOES BRASILEIRAS Gil Bracarense Leite, Marilia F. Maciel Gomes, Maurinho Luiz dos Santos .................................................................... : ..... :........... 539

Parte 6 - Mercados de carbono: oportunidades para o Brasil

Capitulo 19 - MECANISMO DE DESENVOLVIMENTO LIMPO E OPORTUNIDADES PARA O BRASIL: 0 CASO DA BIOMASSA ENERGETICA Zilmar Jose de Souza ...................................................................... 565

INTRODU(AO

RECURSOS NATURAIS E CRESCIMENTO ECONOMICO

0 crescimento economico das sociedades modernas vem sendo acompanhado par um processo de degrada,ao ambiental e de destrui,ao de ecossistemas. Esse processo, que de alguma forma sempre existiu, deu um salto com a revolu,ao industrial no seculo XVIII, no qual as atividades humanas pas5aram a atingir uma escala nunca antes imaginada. 0 uso intensivo de combustfveis f6sseis (inicialmente o carvao, depois o petr6leo) permite o desenvolvimenlo do setor de transportes e comercio e das atividades industriais em muitos paises, pressionando a base de recursos naturais. As descobertas <la medicina e a queda da taxa de mortalidade no seculo XIX resultaram no aumento acelerado do crescimento populacional, o que causou maior gera,ao de resfduos e pressionou a oferta de alimentos. Esse processo, inicialmente circunscrito aseconomias centrais, transferiu-se para os paises pouco desenvolvidos, no seculo XX (ROMEIRO, 2003).

A partir da decada de 50, esse quadro intensificou-se em decorrencia do espetacular crescimento economico mundial. Nessa epoca observaram-se, em varios paises, processos acelerados de degrada,ao ambiental, seja pela destrui,ao da cobe1tura vegetal original, seja pela polui,ao dos rios e do ar, pda degrada,ao do solo, pela extin,ao de especies etc. Esses processos ocasionaram o "despertar'' da consciencia ecol6gica em v:irios pafses, em especial nos chamados paises desenvolvidos, e maior preocupa,ao com os impactos decorrentes do crescimento econOmico no meio ambiente.

Apesar disso, o final do seculo trouxe atona um novo fenomeno que rnudou a forma Como se avalia a influf:ncia da economia no rneio ambiente. qua! seja, o aquecimento global. Equase consenso, na comunidade cientffica, que o aumento da temperatura media no planeta, observado nas ultimas decadas, foi causado pela a,ao humana, por meio da entissao de gases provenientes das atividades industriais e agropecuarias e das mudan,as no uso do solo. As proviiveis conseqliencias da continua,ao desse processo nao sao ainda conhecidas adequadamente, mas poucos consideram que seja passive! continuar cmn o mesmo padraode crescimento de emissao de gases como no passado (HELM, 2001).

1

Eusltiquio l. Reis

74

CRITICAL ANALYSIS OF OPTIONS TO MANAGE ES IN THE ANDES/AMAZON REGION

Jan Borner 1

Maren Hohnwald 2

Stephen A. Vosti3

1 - Introduction

Decision-makers have three types of choices to make regarding . the management of ecosystem services (ES): a) which specific ES to

manage, b) the specific quantitative and qualitative objectives associated with each ES, c) and the "management options" (MO) for achieving these specific objectives. This chapter focuses on the final ·choice faced by decision-makers, that of selecting the proper MO from an array of options that includes the standard set of MO (e.g., land use regulations, taxes, subsidies, user fees) that are generally implemented by policymakers, as well as a broader set of MO (e.g., reallocation of property rights, joint management of common property resources, etc.) that may be implemented by policymakers in collaboration with other stakeholder groups. Choosing among alternative MO may not be easy, perhaps because of the lack of information regarding their relative effectiveness, or straightforward, perhaps because of trade-offs between (say) poverty outcomes and ES flows that some MO might cause. Moreover, the number and characteristics of available MO will likely vary over time and be influenced by policy decisions (e.g., policy action that define water rights are required to establish a water MO based on water markets), so decision-makers face a 'moving target' as regards MO, but their actions today will influence future MO.

The rationale for public policy attention (and perhaps action) in the context of ES with public good characteris clear; environmental externalities,

' International Center for Tropical Agriculture (CIAT), Amazon Initiative Consortium, Belem, Brazil. 'Amazon Initiative Consortium, Belem, Brazil. ' Department of Agricultural and Resource Economics, Center for Natural Resources Policy Analysis, University of California, Davis, United States.

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Jan Bomer, Maren Hohnwald e Stephen A Vosti

missing markets, information asymmetries, etc. suggest that without p_ublic sector interventions in most cases ES will be undervalued, overused, and suffer from sub-optimal levels of investment (Belli et al., 2001}. Even ES that provide private benefits are sometimes underused or overused due to 'conservation investment poverty' (Vosti and Reardon (1997)); these cases also merit public policy attention. However, since implementing management options is never costless, the existence of (e.g.} a market failure in the context of a given ES is not sufficient to justify policy action; decision-makers must first assess the value to society of the effects of such a market failure, and also assess the effectiveness and costs of alternative options for addressing the problem. In the case of water pollution, for example, stakeholders may decide to invest in water treatment plants that substitute for natural water-purifying ecosystem services, especially if the demand for water purification can only be met by a large expansion of natural purification systems, and this expansion displaces income- and employment-generating activities in upstream areas.

Therefore, taking any action at all requires that at least one MO exists for which the sum of expected benefits to society outweighs the sum of expected costs of implementing it over a specific time period;4•5 if this is not the case, then the socially optimal response is to take no action until something in that calculus changes that alters this basic relationship 6• When several MO exist that pass this first fundamental test, attention is then focused on the relative performances (to be made more concrete, below) of alternative management options.

Assuming that a compelling argument can be made for a management intervention to achieve a specific objective related to a specific ES, the challenge is to identify a MO to get the job done. Ideally, there would exist one MO that is clearly superior in every way to all other

• These sums of benefits and cost represent the discounted streams of annual benefits and costs attributable to the MO over a specific decision-making time period 'The word 'expected' is inserted here to introduce the notion of uncertainty in the flows and values of ES, and also the uncertainty in the performance of alternative MO. We will take up this issue of uncertainty later in the chapter. 6 Since policy action can influence some of the elements of this calculus (e.g., investments can increase the effectiveness of a given MO, and hence increase the expected benefits associated with ES management), choosing whether or not to manage an ES is not always independent of MO choice.

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CRJT!CAL ANALYSIS OF OPTIONS TO MANAGE ES IN THE ANDES/AMAZON REGION

alternatives, i.e., a MO that is effective (i.e., can achieve the objective), is inexpensive to establish and to operate, that can be paid for bx a set of ES beneficiaries (and therefore does not require taxation and reallocation of resources), that reduced rural poverty (or at least did not increase rural poverty), and that did not alter (and perhaps even enhanced) other ES flows that were not the specific targets of policy action. In reality, no such candidate MO may exist. Indeed, a large body of literature has shown that policymakers often face trade-offs among development objectives, among them ES flows (see for example Lee & Barrett, 2001). Moreover, MO are likely to have different characteristics, e.g., some may be quick and cheap to establish, but not particularly effective at achieving the stated policy objective, or, some MO may have large negative effects on the poor while others reduce poverty. The bottom line is that each MO will have a set of characteristics that need to be identified and measured before decisions can be taken regarding which MO to choose for a given ES management task. Not surprisingly, chief among these characteristics will be a measure of cost-effectiveness 7 (Moran et al., 1996).

To illustrate this notion of MO characteristics and possible trade-offs, Table 1 sets out some candidate MO forretaining above-ground carbon in the Amazon - paying farmers to retain forest cover, forest use regulations (i.e., regulating the amount or location of deforestation activities), and establishing a cap-and-trade system that any owner of Amazonian forest could participate in. Let's assume that a policy decision is made to increase the amount of carbon retained on private forested land. Once that decision is taken, policymakers must decide on how to achieve this objective. In order to choose among these MOs, policymakers need the information contained in each 'cell' of Table 1, and it is unlikely that a given MO will dominate all others in all of the columns of Table 1. For example, establishing and enforcing forest use regulations may be effective at achieving carbon-retention objectives and inexpensive to set up (though perhaps less to

7 Cost-effectiveness will j,e fundamental criterion for choosing among MO for specific ES task, especially for those ES flows for which values cannot easily be established. Other criteria will include important indicators of sustainability, such as those identified in the last three columns of Table l.

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Jan Born-er. Maren Hohnwald e Stephen A. Vosti

operate), but this particular MO may have adverse effects on rural poverty (Vosti et al., 2002). At the other extreme, a cap-and-trade system may be the most economically efficient and provide the greatest benefits to the rural poor, but this MO may be very expensive to establish and operate, especially in hinterland areas where markets function poorly in general and the rule of law is challenging to enforce. So, trade-offs among some of the evaluation criteria for selecting MOs are likely to exist.

Table 1 - Example of the Summary Criteria for Selecting among Management Options for a Targeted ES - Carbon Retention in Amazonian Forests

Alternative MOs for Achievl.t1g a GIY-cn ES

Expected lmpnct on Targeted ES

E:ipected Cosl of Intcrvendon

Expede-d Cost Effectiveness

Eipccted Effects on P-overty

Effects qn Nou-To.r&etMI

£oos.yst-em SenicQ Objective

(E.g., Carbon Refention in fbe AQJaz.o-n)

tons of ,c;Jrbon n:lained

(top:i,: ln year T)

PVor e!ltabllibment

and operation111!

"''"' (2007 USS>

Expeiclcd Cost pe..-expec:led ion -of ret.:a.lned .carbon (P"Vofc.o$-Wton~ o[ earhnn, .2007

USS)

Ctu11ngela. h::i-romc o[ l"C!.Oun:e-poor soi.1.Uholden

attrlb1it1.b~£0 carbon ~ntlolli

pnign.m (PV of income clJ.allfU,NCl7

USS>

Enhau~e--

:in-ents

(e.g.t me;1sute1i of

plantla11tm:al

dlversi:ly)

Declines

Payments to F:annen: for Ca::rbOili Retained

Forest Use: Rcndatlons Cap-and• Trade System.

The size and direction of these trade-offs will depend on a variety of factors that establish the socioeconomic, ecological, and institutional context in which.ES flows occur and in which MO will be undertaken, and, these factors vary over time and space, with perhaps predictable effects on ES flows and on MO characteristics. For example, at a given point in time, a specific MO that has been proven to be highly effective in managing an ES in densely populated micro-watersheds in the Andes region may be ineffective in managing the same ES in the Amazon region because oflow population dens.ity and poor-quality transportation infrastructure. Or to take another example, in this case focusing .on changes over time in a given locale, climate change will likely change rainfall/run-off patterns in the Amazon Region (Richey et al., 1989), and these changes may focus policy attention on previously unmanaged ES (e.g., smface water flows), and require

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CRITICAL-ANALYSIS OF OPTIONS TO MANAGE ES IN THE ANDES/AMAZON REGION

the development and deployment of new ES in an area where all MO has focused on forest-based ES.

While the framework for MO selection set out in Table 1 is conceptually appealing, filling in the cells of Table 1 is an ambitious task, and one that is beyond the scope of this chapter. Instead, our objective here is to identify the types of research and training activities that need be undertaken in order to fill in Table 1 for selected ES and to better-position policymakers to use that information. We does so by, first, providing an overview of the MO the scientific literature has identified for addressing both the causes and the consequences ES under-provision. Second, this chapter lays out the basic mechanisms through which MO affect human behavior related to ES flows. Third, we summarize the factors that influence the performance of MO with respect to the performance indicators set out in Table 1. Gaps in knowledge identified along the way will help us suggest MO-specific research and capacity-building needs, some of which may be undertaken by the ESPA Program. Based on what is known about the potential for alternative MOto manage ES flows in the Amazon and Andes regions, we finally review factors that affect the cost-effectiveness of selected MO in Amazon and Andes contexts.

The remainder of the chapter is organized as follows. Section 2 outlines the procedure followed during the review of the literature on ES management options. Section 3 describes the basic mechanisms through which MO can influence human behavior related to the use and modification of ES. Section 4 identifies key ES characteristics that are expected to affect MO performance and should therefore be considered when selecting among MO for ES management. Section 5 reviews the conditions under which selected MO have found to perform well in one or more of the categories (MO characteristics) set out in Table 1. Section 6 identifies factors that affect the cost-effectiveness of selected MO in Amazon/Andes contexts. Finally, we define a series of research activities, the results of which could support better-informed decisions regarding investments in and selection of MO to address ES-poverty issues in the Amazon/Andes, and training needs for their successful implementation.

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Jan Borner, Maren Hohnwald e Stephen A. Vosti

2 - The Literature Review: Methods and General Observations

Between September and December 2007, we systematically screened over 600 peer-reviewed journals articles, research reports, and institutional publications in English, Spanish, and Portuguese that dealt with the options for and the and effects of environmental management. In total, we identified 25 types of MO for which we categorized publications according to: regional focus, ES addressed, socioeconomic effects ( expected or observed), and approach (empirical, theoretical) (see Annex I). 20% of the reviewed articles with an empirical approach focus on Latin-American (12% Amazon, 5% Andes), while 15% and 18% focus on Africa and Asia, respectively 8• For each MO category, key studies were analyzed in more detail in order to learn more about their performance under different agroecological and socioeconomic conditions and for managing different ES. The great majority of the reviewed publications deal with carbon, plant biodiversity, and water-related ES; there were fewer studies of forest products, soil degradation, and air pollution.

Apart from the literature on payments for ES, we found that few publications address specific and well-defined ES. We attribute this to the fact that the ES concept has only recently been widely adopted in the scientific literature, and that, with the exception of water, few ES-specific policy instruments are available. In fact, many of the early and most cited publications that use the ES concept (e.g. Costanza et al. (1998) or Daily (1997)) have focused primarily on providing quantitative and qualitative evidence of the benefits or the value to society of ES. As argued in the introduction to this chapter, being able to measure the value of these benefits, or the associated with costs of foregoing them, is key to making informed decisions about whether, where, and how to intervene and manage ES. Hence, one recommendation that will emerge from this review is that more time and multi-disciplinary effort be dedicated to refining and measuring

' The remainder of the articles focused on developed country settings or problems, or was not specific to any geographic region.

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CR!TICALANALYSIS OF OPTIONS TO MANAGE ES IN THE ANDESIAIV!AZON REGION

ES. That said, a few "pure" ecosystem services studies do use the ES

concept to analyze the causes and possible remedies of reduced and suboptimal ES provision; this focus emerged from natural resource management literature (see for example Sterner, 2003). The Millennium Ecosystem Assessment (MEA 2005) provides one of the first, broad frameworks for defining and managing. In this framework the di verse events and processes (natural and human-induced) that affect ecosystem functioning are termed direct or indirect drivers of ecosystem change that can be addressed by potential responses; the latter being equivalent to what we call management options in this report. We prefer to use the term "management," because we believe it better describes the required proactive, multi-stakeholder process of efficiently and equitably managing ES flows.

3 - Management Options: What Are They and How Do They Work?

Options to manage natural resources, and hence, ES use and modification, have been classified in many different ways. For example, Bayon (2001) distinguishes public-good-specific, incentive-changing, and business options. Sterner (2003) divides his MO toolbox into options to use markets, create markets, regulate use, and engage the public. The MEA establishes categories of response options, such as legal, economic, and social responses, among others.

Inevitably, classifying MO requires establishing somewhat artificial conceptual boundaries. This is because MO may use different mechanisms to achieve essentially similar objectives and because they can be applied by different actors at multiple spatial scales and in different socioeconomic contexts. Our typology of MO (introduced and explained below) does not aspire to improve on previous classification attempts, rather, provide a didactic tool for the subsequent analysis of ES management options in settings where poverty alleviation is a key policy objective.

Despite differences in the details associated with the MO examined by many authors, it is a common feature of all policy instruments for

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I.an Bomer, Maren Hohnw.ald e Stephen A. Vosli

environmental management that they seek to influence human behavior. Ideally, a decision-maker's goal is to use MO to 'adjust' human behavior in order to achieve a situation in which all natural resources (including ES flows) are used ( or conserved) in socially optimally ways (Baumol & Oates, 1988). This would require stimulating behavior that maximizes social welfare. In practice, decision-makers don't know what this social optimum is, and even if they did, do not know the best collection of MO to achieve it. However, while we may not know what is 'optimal,' stakeholders in society do have strong preferences regarding natural resource management and ES flows, and we know that market forces (alone) will not deliver what most stakeholders prefer. So, MO are necessary and we need a framework or understanding them and for evaluating among them for achieving preferred NRM and ES flow outcomes.

A first step in doing so is to identify three basic (and admittedly not strictly separable) ways or mechanisms through which MO can affect human behavior9: ·

1. Establishment of general conditions that enable behavior driven by private incentives to contribute to achieving a given ES objective (Enabling)

2. Provision of (specific) incentives that change behavior in ways that contribute to achieving a given ES objective (Incentives)

3. Provision of (specific) disincentives that change behavior in ways that contribute to achieving a given ES objective (Disincentives) Figure 1 summarizes the MO we have identified during our literature review according to these three categories.

• We emphasize the word 'can ' because the intensity with which a given MO is used and the duration of use of a given MO wiII, in part, determine its effect on human behavior - e.g., small price subsidies and short-term

.punishments may do little to change behavior.

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CRITICAL ANALYSIS OF OPTIONS TO MANAGE ES IN THE ANDES/AMAZON REGION

Disincentives

Figure 1 - Basic Management Option Mechanism for Affecting Human Behavior: Enabling, Incentives, and Disincentives

Enabling MO Management options in the "Enabling" category contribute to

establishing conditions in which it may be in an individual's, a household's, or a community's best interest to use or modify a given ES in (more) socially optimal ways. In a sense, these 'enabling' MO allow for ES outcomes that would emerge if economic agents' behaviors were not constrained by factors that the private sector will not (in and of itself) provide, and some of these new ES outcomes may be desirable. For example, no private entity will produce agricultural technologies with large public-good components, or, provide environmental education - in former case the private benefits of

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Jan Bomer. Maren Hohnw.ald e Stephen A. Vasti

technological change that accrue to farmers are expensive to 'collect,' while in the latter case the benefits might be purely social so farmers will not be willing to pay for this service 10• In both cases, land use options that improve ES management become available to farmers. However, implementing enabling MO will not guarantee a more socially acceptable outcome; no single enabling MO is likely to 'remove' all of the constraints that preclude the desired human behavior (e.g., credit provision may not be sufficient to overcome the effects of insecure land tenure), or, in a less-constrained situation an individual may choose behavioral options that do not involve the targeted ES (e.g., credit provided for soil-enhancing investments may instead be used· to pay for educational services for children). However, research has shown that situations exist in which the MO in this category have contributed to more efficient and socially optimal ES use or to less damaging ES modifications (Kuyvenhoven, 2004). Enabling MO are often viewed as complementary policies that are required for effective implementation of some incentive and disincentive MO (Auty & Kiiski, 2002). Lastly, because enabling MO by definition and design aim to increase options available to the rural poor (and to others), they can have negative effects on ES use or flows, e.g., providing rural credit in forested areas can increase deforestation (Vosti et al., 2002).

A frequently cited example for an "Enabling MO" is the transfer of property tights to natural resources of to ES flow to local resource users or to lower-level administrative units (Agrawal & Gupta, 2005). Studies all over the world, including the Amazon, have shown that situations of poorly defined property tights (i.e., resource tenure insecurity), non-existence of property rights (i.e., open-access situations such as unguarded or unmanaged common pool resources), or the incomplete assessments of property tights (i.e., individuals taking decisions that affects ES flows do now own all of the resources they manage or affect) motivate natural resource "mining" strategies, i.e. the rapid exploitation of ES and ecosystem goods in the face

'°Fora list of reasons why the private sector will not provide the needed goods or services, see Belli et al. (200 l ), Technical Appendix

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CRITICAL ANALYSIS OF OPTIONS TO MANAGE ES IN THE ANDES/AMAZON REGION

of uncertain opportunities for future use (Hotte, 2001; Schuck et al., 2002). Providing environmentally friendly technological alternatives to

traditional technologies, if these alternatives can economically compete current practices, will likely be adopted by users without specific incentives that encourage their use, or disincentives that discourage the use of environmentally more damaging technologies (Qaim et al., 2006). If, however, access to such technologies is limited by liquidity constraints, MOsuch as rural credit schemes have been shown increase adoption rates and ES use efficiency (Anderson etal., 2002; Anderson & Thampapillai, 1990).

Government and civil society engagement in environmental education and awareness building has shown to be a major contributor to reducing the costs of environmental management by affecting human behavior in ways that narrow the gap between privately and socially optimal ES flows (Kollmuss & Agyeman, 2002; Palmer et al., 1998).

In some cases, relatively small investments in establishing mutually beneficial partnerships can help solve environmental problems (Schwartzman & Zimmerman, 2005). Research on partnerships, however, has also shown that implementing this particular enabling MOoften requires long-term coordination, and the establishment and maintenance of a legal regulating framework (Visseren-Hamakers & Glasbergen, 2007), all of which can be expensive.

Finally, farm income (and hence, human welfare) and some types of ES flows are directly and negatively linked; e.g., excessive rainfall can cause flooding that destroys crops, or, droughts can make agriculture infeas~ble. Insurance schemes have traditionally been used to mitigate the negative effects related to extreme weather events (Hazell et al., 1986), and the public sector has played important roles in establishing, monitoring,

· and guaranteeing such schemes. In situations in which risk undermines the incentives to adopt ES-friendly technologies or farming practices, insurance schemes can contribute to stabilizing or increasing incomes, and to ES conservation (Nail et al., 2007).

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Jan Bomer, Maren Hohnwald e Stephen A. Vosli

Incentive-Providing MO Whenever a given ES are underprovided, overused, or underinvested

in, one frequent cause is that the value of that ES is not evident to or captured by the individuals affecting their provision. In such situations, governments have often decided to provide direct incentives that encourage ES conservation, or land use practices that provide additional ES (Portney & Stavins, 2000). Traditionally, subsidieshave been among the most frequently used MO from this category, for example, in the European Common Agricultural Policy and also in some Latin America (Huber et al., 1998; Lowe et al., 1999). For example, Europe has long guaranteed its farmers cheap access to credits, inputs, such as fuel and fertilizers or technical equipment. However, subsidies supporting the production of goods that intensively use (e.g., water for agriculture) or compete with (e.g., forest clearing for agriculture) ES have often been identified to contribute to ES losses (Brouwer & Lowe, 2000). Input provision and tax exemptions are ways of providing indirect subsidies for the provision or protection of ES, but both have received criticism the same type of criticism. Nonetheless, these policy instruments could be used, perhaps in combination with other MO, to change behavior in ways the generate or protect ES (Oenema et al., 2006).

Payments for environmental services (PES) 11 are generally perceived to be the most direct way to stimulate the provision of a given ES, and while few concrete examples are in currently in place, PES has received much attention in the recent environmental management literature (see Borner et al., 2007 who analyze PES in the Eastern Amazon context). Costa Rica was one of the first countries to implement a national PES ' scheme to manage ES, such as biodiversity conservation, soil erosion control, water flow regulation, and forest carbon retention (Pagiola, 2007). However, the effectiveness, cost-effectiveness and equity effects of these pioneering projects have yet to be comprehensively assessed, nor have the context-specific factors that are likely to influence these indicators of MO

11 The "e11vironmental services" addressed by most existing PES schemes are equivalent to ecosystem services with public good character, e.g. carbon fixation and biodiversity related benefits. or scenic beauty (Landell-Mills and Porras 2002).

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CIUTlCAL ANALYSIS OF OPTIONS TO MANAGE ES IN THE ANDES/A.MAZON REGION

performance been identified or carefully studied (Pagiola et al., 2005; Wunder, 2007).

Certification orecolabelling is a wide-spread MO used to increase the market prices of products produced in ways that are less environmentally damaging, and hence provide incentives for implementing ES friendly production practices (Ferraro et al., 2005). The certificate or label is used to separate markets for conventional and more eco-friendly products and allow consumers the option of paying (at a premium) for the improved management of ES. Some authors do therefore refer to certification also as market creation MO (Nunes & Riyanto, 2001). Establishing and managing certification and ecolabelling schemes are not costless, and these costs need be included in the analysis undertaken to select the proper MO for managing a given ES of set of ES.

Disincentive Providing MO Disince;ntives are the most commonly used policy instruments for

environmental management, especially in Latin American (Huber et al., 1998). Whenever the costs associated with ES use or modification are perceived by society to be excessive, disincentives can be used to reduce and regulate the agricultural or other activities that are causing ES losses. MO such as regulations (e.g., forest retention laws), bans (e.g., trade bans on endangered species), and standards (e.g., gender and size restrictions on the harvesting of certain types of wildlife) are typical examples for command-and-control MO; fines and legal action (e.g., imprisonment) are generally used enforce compliance (Pearce & Turner, 1990). Command and control MO have been largely criticized as being economically inefficient and as having negative effects on poverty (Dietz et al., 2003; Holling & Meffe, 1996). Nevertheless, they have remained popular among decision-makers, in part because they are relatively easy to establish (though less easy to enforce, especially in the context of developing countries (Huber et al., 1998)), also because they can generate government revenue in the form of fines.

The Huber et al. study also highlights that the r_evenue-generating characteristic of environmental taxes is one of the reasons that this MOhas

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Jan Borner, Maren Hohnwald e Stephen A. Vosti

traditionally preferred by public policy decision-makers, though whether or not this revenue is sufficient to cover all of the costs of enforcement and of MO management remains an open question, and governments generally need to borrow to establish such programs. Moreover, empirical evidence suggests that environmental taxes, at least in the context of developed countries, can bring about both ES and welfare gains (Bosquet, 2000; Johnstone & Alavalapati, 1998). In the context of developing countries, however, levying taxes to enhance ES flows may have adverse effects on the asset portfolios and on the income flows of the poor (Bruce & Ellis, 1993).

User fees represent an option for managing ES use and modification at the local level, e.g., in National Parks and other forms of Protected Areas (Green & Donnelly). User fees, e.g., in the form of resource extraction permits, also represent a form of regulating resource use and extraction (and hence the flows of some ES associated with these resources), e.g., water use and timber extraction, both within and outside of protected areas (Simula et al., 2002; Sudirrnan et al., 2005). If properly enforced, strictly Protected Areas (PA) are obviously the purest form of natural resource management and, hence, ES conservation. Research has shown that large economic benefits can be derived from allowing some access to and use of PA, especially if PA are successful integrated in local and international markets for tourism and other rather "non-destructive" uses (Amend et al., 2006). Whether PA achieve conservation objectives, however, crucially depends on whether they can be effectively enforced; whether PA can cost-effectively achieve conservation objectives requires an analysis of establishment and management costs. Hayes (2006) shows that for a large sample of PA, effectiveness in achieving conservation objectives is not necessarily higher than the effectiveness of other types of forest protection at meeting the same objectives. There is a consensus in the literature regarding the positive effects for effectiveness ( cost-effectiveness is generally not addressed) and equity of involving local populations in the desigri of use-and-protect strategies for PA (Cernea & Schmidt-Soltau, 2006).

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CRITICAL ANALYSIS OF OPTIONS TO MANAGE ES lN THE ANDES/A.MAZON REGION

4 - Factors Influencing the Performance of MO in Achieving Defined Objectives

Choosing among MO requires the definition of specific development objectives. As suggested in Table 1, if the objective is to enhance or maintain the provision ofa given ES, the ab iii ties of alternative MO to deliver improved ES flows in cost-effective ways should be considered, as well as their respective effects on other development objectives, such as poverty, other ES related to (or occurring in the same geographic area as) the targeted ES, etc. Knowing the nature and degree of interrelationships among ES may influence choice of MO ( e.g., biophysically 'tightly bundled' sets of ES might best be managed using MO that focus on land use management, whereas more biophysically 'independent' ES may be best managed more directly); the same might be true for the nature and degree of effects on poverty.

4.1 The Biophysical Characteristics of ES

The MEA definition of ES included many of generic benefits that humans can obtain from the environment. Understanding some of the basic properties of this mixture of ecosystem services and goods is therefore the first step to evaluating the potential costs and effectiveness of MO.

Not all ES are equally "systemic." Promoting carbon sequestration, for example, requires far less knowledge about ecosystem functioning than (say) enhancing soil fertility or species diversity, both of which depend much more on the presence of a variety of ecological processes, and hence are more vulnerable to ecosystem modifications. This biophysical 'independence' and (hence) predictability has made it easier to develop quantitative measures carbon stocks and flows in a variety of land use systems, and to identify and test policy approaches to managing this important ES in the context of forest and in agro-ecosystems (Pagiola et al., 2002).

The MEA approach to classify ES in terms ofregulating, provisioning, and supporting (among others) services is useful to understand how ecosystem services contribute to human wellbeing. From a management

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Jan Bomer. Maren Hohnwald e Stephen A. Vostl

point of view, however, this categorization of ES may be less convenient, because it groups ES with very different characteristics in the same categories. On the one hand, research that improves the understanding of the implications of specific ES characteristics for management has proven helpful in identifying suitable intervention mechanisms (Kroeger & Casey, 2007). On the other hand, the implications of the MEA classification scheme may be useful for identifying pathways through which ES benefits flow and to which stakeholder groups these benefits accrue, thereby facilitating the process of identifying who could and should cover at least some of the costs of establishing and managing MO. In what follows, we outline some of the basic features of ES that we deem relevant for making correct management decisions.

4.1.1 Excludability

Under ~ome circumstances, certain types of MO can reasonably be discarded from the list of potentially candidates for managing ES. This applies for most of the MO from the categories "Incentives" and "Disincentives" when the ES of choice has attributes of a private good. An ES can be considered to have private good characteristics if those that benefit from its provision can exclude others from reaping the same benefits. Forest products on private land are excludible ecosystem goods that, once extracted, provide benefits exclusively to the owner ( ecosystem good with private good attributes). That said, extracting forest products might produce externalities affecting ES with public good character. Carbon sequestration, on the other hand, is a classic example of a non-excludible (i.e. public) ES, because the benefits of a sequestered unit of carbon accrue to the society as a whole and not exclusively to the individual even if the individual owns the land on which the carbon was sequestered. Hence, incentives or disincentives to increase carbon fixation or maintain its level of fixation are almost certainly needed if society feels these services are underprovided.

Swinton et al.(2003), in an overview of poverty and the environment in Latin-American find, however, that even ecosystem services with private good characteristics are subject to degradation of users lack the means ( or

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CRITICAL ANALYSIS OF OPTIONS TO MANAGE F,S IN THE ANDES/AMA7_,0N REGION

opportunities) to invest in their maintenance or technologies to use them more efficiently. In such situations, policies that provide disincentives (e.g. taxes or fines) could well increase poverty, especially if other than pure liquidity constraints limit investments in ecosystem service maintenance.

Management options that enable ES users to use such services more efficiently, if this is in their own best interest, seem to be the way to go in situations of investment poverty. Obviously, many such situations require also other than purely ES oriented interventions including the provision of basic education and other public services. Moreover, existing technologies sometimes need to be adapted to specific conditions or new and competitive technologies for more efficient ES use have to be developed.

Whether users of ecosystem goods and services can exclude others from deriving the same benefits often depends on resource ownership (Ostrom et al., 2005). In both the Andes and the Amazon many natural resources are, de facto, open access resources with ill-defined, incomplete, non-existent, or incompletely-enforced property rights (Ravnborg & Guerrero, 1999; Seroa da Motta & Ferraz do Amaral, 2000). Especially in developing countries, weak infrastructure and administrative capacities limit the effectiveness of disincentive based management options in these situations. Incentive-based MO can be expensive, mechanisms for taxing beneficiaries to cover MO management costs are often not in place, and these MO are also hard to justify because ES flow benefits and costs are primarily local. Research has produced evidence that enabling MO, such as property right transfers and supporting local communities to build efficient institutional arrangements that regulate resource use and access, are promising candidates to address such situations (IFAD, 2003; McGrath et al., 1993).

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4.1.2 Temporal and Spatial Dimensions and interdependency of ES provision

The provision of ecosystem services varies naturally over time and space (Kremen, 2005). ES provision and flows tyP.ically have end points, i.e., limits to the spatial extents to which ES provide benefits. For example, rivers reach the ocean at specific points, and although the water they carry may influence ecosystems for many miles out to sea, eventually these influences disappear. Elevation patterns in mountainous regions, such as the Andes, introduce enormous spatial variations in the provision of ES, especially if they depend on climate conditions. But even in regions with less heterogeneous elevation patters, such as the Amazon basin, bedrock characteristics and tidal inundation introduce additional spatial variability to ES provision and related benefits. For example, tidal movements in the Amazon allow for electricity generation in small-scale tidal power plants along some, but not all, rivers and temporally inundated areas (Charlier, 2003).

Often there are also multiple temporal patterns to ES provision -diurnal, monthly, seasonal, and inter-annual. For example, huge diurnal temperature variations in some mountainous regions affect the type of agricultural crops that can be grown. Or, to take another example, Amazon river discharge has been shown to vary enormously depending on the ENSO cycle with implications for hydropower generation, fluvial transport and fishery (Richey et al., 1989). These natural patterns may influence decision-makers choices of MO as well as the details associated with selected MO (e.g., whether or not to offer payments for ecosystem services, and if so, what seasonal and other patterns of these payments should be). With regards to both space and time, there can be great uncertainty regarding ES flows 12.For example, we may not knpw where the endpoint of influence of a particular stream flow might be at a given point in time, because weather

12 The same may be true for the value to society of particular ES, e.g., the value of surface wacer during the wet season can be much lower than the value of surface water during the dry season; we deal only with the issue of uncertainty in ES flows here.

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CRITICAL ANALYSIS OF OPTIONS TO MANAGE ES IN THE ANDES/AMAZON REG JON

patterns in a given year can extend or reduce that stream's flow. Some of this uncertainty can be reduced or better understood with the· proper investments in research/monitoring, but other aspects of this uncertainty will be difficult to discover; this is especially true for ES that have yet to be concretely defined or measured. Regardless, decision-makers wrestling with selecting MO and crafting them to be cost-effective in specific agroecological and socioeconomic circumstances should know that while 'on average' they may succeed in meeting stated ES objectives, there will be times and places (within their target temporal and geographic domains) when/where their MO will overshoot and undershoot these same objectives. MO selection and crafting may alter the amount of overshooting or undershooting, and time/effort spent doing so may contribute to the institutional sustainability of the selected MO.

4.2. Implications for management

Humans and their economic activities adapt to natural spatial and temporal variations in ES provision. Rapid and unexpected changes, however, can imply huge costs to those that are particularly dependent on the affected ES. For example, the 2005 drought in the Amazon exemplified the implications of water shortages to the local and regional economies that have developed under conditions of relative water abundance 13•

Moreover, the natural temporal and spatial ES flows have, for eons, been altered by human activities and investments. These investments and activities are·undertaken to harness the benefits of ecosystem services (e.g., diverting river flows to irrigate agricultural products), or to reduce the damages associated with levels of ecosystem service flows (e.g., building levees to reduce flooding), or for reasons that are not directly related to ES but still can affect ES flows. These investments and activities are not distributed randomly over the landscape; spatial patterns of investments and activities will be carried out where their economic returns are positive, and they will be undertaken first in areas where these returns are highest

" "Record drought cripples life along the Amazon". New York Times, December !1th, 2005.

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Jan Bomer, Maren Hohnwald e Slephen A. Vost'!

(Chomitz & Thomas, 2003; Pfaff, 1999; Thtinen, 1826). Finally, these investments and activities can have knock-on effects (some of which may be unknown), e.g., investments in water storage capacity can reduce variation in surface water flows and depending on how the storage capacity is constructed and managed, groundwater supplies or fish spawning can be adversely affected. Needless to say, climate change and human-induced land cover change in the Amazon/ Andes region can increase the complexity of this challenge, especially with regard to measuring and managing ES with strong systemic linkages, such as biodiversity-related services (and disservices, e.g., pests) and services related to water flows

Humans and their economic activities adapt to natural spatial and temporal variations in ES provision. Rapid and unexpected changes, however, can imply huge costs to those that are particularly dependent on the affected ES. For example, the 2005 drought in the Amazon exemplified the implications of water shortages to the local and regional economies that have developed under conditions of relative water abundance.

Hence,· spatial and temporal dimensions of ES flows, and the uncertainty associated with these can influence decision-makers choices of MO for ES management. Since it is often the case that the beneficiaries of ES flows are separated (in time and space) from those taking decisions that affect ES flows, managing ES is all the more complex. A first step towards managing a given ES therefore is to understand how the (natural) characteristics of this ES and its use and modification affect: I. the types of benefits 14 that the ES provides, 2. the ways in which these benefits are generated, 3. the temporal and spatial scales at which benefits are generated, and (finally) 4. to whom these benefits accrue.

14 It is important to note that not all ES flows generate benefits; floodwaters can generate, or, the marginal benefit of additional stream flow (once environmental flow requirements are met) might be zero. These cases are omitted from the discussion here.

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CRITICAL ANALYSIS OF OPTIONS TO MANAGE ES IN TllEANDES/AMA7..0N REGION

The second step is to ask how alternative MO may affect these four items. In practice, we may not have the means to measure actual ES flows, e.g., those flowing from different compositions of plants in a give locale. Hence, decision-makers are often forced to manage land uses (or other broader units that are relevant for ES provision) in the hopes of influencing specific ES flows. The typical method for managing these sorts of ES is captured in Figure 2. Ecosystem service flows are identified (ES 1 in Figure 2), though often not measured in detail (e.g., pollination services), and the land uses deemed most likely to generate these ES flows (e.g., because the resources required to sustain bee populations are present in these land uses, Land Uses 1 in Figure 2) are identified and policies are implemented that increase the likelihood that these land uses will continue to exist or emerge in particular geographic areas. It is assumed that if the policies are successful in retaining or expanding the target land uses (Land Uses 2 in Figure 2), this success will be proportionately replicated for all of the ES (ES2 in Figure 2) that the land use was assumed to contain or generate. The literature has pointed up the problem associated with many of the assumptions underlying this approach, e.g., the extent to which heterogeneity within land use categories can affect ES flows. For example, a forest use regulation and a cap-and-trade system may be equally effective in retaining a specific total amount of forested land, however, the geographic distribution of the forests generated by the two MOs will likely be different, with possible consequences for some ES (Debinski & Holt, 2000).

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fan Borner, Maren Hohnw.3ld e Stephen A. Vosti

ES1 ES2 Land Usesl Land Uses2

Pollination "" ptiorto ESservices Policy surface Water Forest1

Specific Agricultural

carbon Practices1

sequestration

after the ES/ Polley

Forest2

T Speciffc Agricultural Practices2

Implementation of Land Use Policy

Aimed at lnHuencing ES

Flows

'-

Pollination se1Vices Surface water

Garban Sequestration

Figure 2 - Managing Ecosystem Services via the Management of Land Uses

On important implication of this is that decision~makers are generally forced to manage 'bundles' of ES via their policy decisions that affect land use and land use change. There is 'good news' and 'bad news' associated with this; the 'good news' is that managing 'bundles' of ES allows decision-makers to credibly suggest that included in these bundles are some unknown or highly undervalued ES, the 'bad news' is that these bundles may include ES that are not particularly valuable to society. The biophysical and economic literatures related to ES management are increasingly focusing on how to go about 'un-bundling' ES, and the value to society associated with doing so, with some of the 'value added' from this approach stemming from our enhanced ability to choose (or to develop) more cost-effective MO capable of focusing on specific ES.

4.3 Other Factors Affecting the Choice of MO

A series of factors unrelated to ES characteristics also can affect the expected indicators of MO performance set out in Table 1. We begin with a discussion of socioeconomic factors arrd then focus attention on institutional factors.

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CRITICAL ANALYSIS OF OPTIONS TO MANAGE ES IN THE ANDES/AMAZON REGION

4.3.1 - Socioeconomic Factors Affecting ES-Flow-Modifying Activities and Investments

Many factors influence the willingness and ability of individuals, or groups of individuals, to engage in activities and investments that change the natural flows of ES, and many of these can affect the ability or the costs of achieving specific ES objective by using particular MO. Chief among these factors is the size and the timing 15 of the flows of private benefits derived from ES-flow-modifying activities and investments; these.benefits come in the form of increased expected profits, increased expected asset values, or both.

Expected profitability of some ES-modifying activities and investments are known to be affected by improvements in transportation infrastructure, improved access to technology and information, reductions in poverty, and improvements in equity. However, the direction of effects of these factors on ES flows is very site-specific and ES-specific. For example, road· construction in tropical forests leads to deforestation, biodiversity losses, and CO2 emissions. However, extensions of and especially improvements in transportation infrastructure can be necessary to promote the sustainable intensification of agriculture which can increase some ES flows (Zaal & Oostendorp, 2003).

The type (increased profits versus increased asset values), size, and timing of the net benefits associated with ES flow-modifying activities and investments, and the stakeholder groups to whom these benefits accrue, can influence the selection of MO for ES flows. For example, where such activities and investments are very profitable (e.g., as is the case for most tropical deforestation), PES schemes will be expensive and hence perhaps beyond the fiscal means of policymakers; under such circumstances, land use taxes (which reverse the financial flows among stakeholder groups, vis-a-vis PBS) or land use regulations may be more cost-effective MOs, even when enforcement/monitoring costs are included in the analysis.

"Timing is important because lhe flows of benefits and costs associated with specific activities and investments are discounted to account for time preference, and the discount race can be high for resource-poor economic agents.

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Finally, the profitability of economic activities and investments other than ES flow-modifying activities and investments can influence the choice of MOs, especially in situations involving the poor. For example, hillside agriculture practiced by resource-poor smallholders may disrupt ES flows, but these folks may have few agronomic options for the lands they cultivate, and no options for shifting their labor to other economic sectors. Taxing this land use or regulating those who pursue it may increase poverty ( options within and outside the agricultural sector are bleak); in such cases PES may be a more cost-effective as well as a more equitable option.

4.3.2 Institutional Factors that Can Condition MO Effectiveness and C ost-Ejfectivenes s

A series of institutional factors influence the profitability and asset-value effects of ES modifying activities and investments and, thus, affect the cost-effectiveness and other attributes of MOs available to manage ES flows. Law enforcement and the definition and security of property rights, for example, represent basic preconditions for the effectiveness of many MO. Regulations will typically not be followed if the benefits of non-compliance outweigh the costs, i.e., if the expected value of disincentives (e.g., fines) are small because enforcement is unlikely. The same applies to taxes and other MO from the "disincentives" category in Figure 1. But, a general lack of the ''rule of law" also can affect "Incentive" MO. For example, payments for environmental service (PBS) schemes may be ineffective if the recipients ( e.g., landowners, in this case) cannot exclude others from modifying services originating from their land. Recent research, however, suggests that offering such PES may actually encourage property right enforcement by rural communities and, overall, lead to positive environmental and welfare outcomes (Engel & Palmer).

Other MO, such as community-based resource management, require collective action, civil engagement, and organizational capacity to achieve the desired, specific ES flow objectives (Kellert et al., 2000). In recently-settled areas, such as at the margins of tropical moist forest, most of these types of social capital are typically in short supply, and investinents in them

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can take time to yield results required to make this type of MO effective and cost-effective (Fearnside, 2001). However, if the sets of economic actors who modify ES flows have the means to communicate and negotiate who those who use them, and if the benefits of negotiating outweigh transaction costs of doing so, research suggests that conditions are favorable for building the social capital and institutional capacity to manage ES (Lubell et al., 2002). Particularly promising cases are those involving clearly defined ES of interested and easily identified groups of ES manipulators and users, e.g., small watersheds with upstream water modification and downstream water use.

More broadly, poverty can affect both the choice of MO and the extent to which particular ES management issues even enter the policy debate. As May ( 1991) notes, both poverty and spatial dispersion of beneficiaries a particular ES flow often reduce the visibility of ES-welfare relationships, and hence limit both the private and policy responses to ES management.

An old paradigm is that local problems require local solutions. As we have seen, this holds for some but certainly not all problems related to ES provision and use. Many central governments have tried to address this notion by delegating the management of some natural resources (and hence ES) to lower-level administrative units, such as states or districts, in both developed and developing countries. Decentralized management, however, poses new challenges to effective and efficient ES management, among then the risk that unprepared and underfinanced local governments lack the administrative and technical capacities to take and effectively implement policies related to ES flows (see Toni & Kaimowitz, 2003 for the example of forest management in the Amazon).

But even iflocal governments and local civil society are prepared to cost-effectively handle local ES flow management challenges, such challenges are generally not exclusively local, but rather 'spill over' spatially and temporally into the domains of other decision-makers. Some very important ES flows with large public good components do not coincide with, or are contained within, administrative boundaries and managing them therefore requires cooperation across policy-making boundaries. Among

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Amazon and Andean countries this notion has given rise to the foundation of the Amazon Cooperation Treaty Organization (ACTO). However, multilateral environmental agreements and partnerships around the world are plagued with the same difficulties that arise at local level, e.g., free riding (individuals, communities or even countries reaping the benefits of ES management without paying their share of management costs) and high transaction costs of inter-governmental negotiations (Chang & Rajan, 2001).

S -MO for ES in the Amazon/ Andes Region, and their Expected Effects on Poverty

This chapter does not aim to provide definite answers regarding the selection of specific MO to meet specific ES flow objectives under particular agroecological or socioeconomic conditions. Rather, we set out to provide insights into factors that should influence such decisions today (given acknowledged gaps in knowledge) and especially to suggest a prioritized set of research activities to fill these knowledge gaps. In this section we therefore limit ourselves to highlighting some selected factors that our review of the literature suggests are likely to affect the effectiveness and cost-effectiveness of selected MO in addressing important ES objectives in the Amazon/Andes context, and with what effects on rural poverty. We set out our general observations below, some of which may not be valid across the entire Amazon/ Andes region. .

Table 2 summarizes key factors that the literature suggests influence the cost-effectiveness of particular types of MO in achieving specific ES objectives, and with what effects on rural poverty.More specifically, Column 1 of Table 2 identifies the class of MO, Column 2 identifies the ES to be managed, Column 3 addresses poverty effects, Column 4 address the cost-effectiveness of a given class of MO for reducing poverty, and the final column (5) of Table 2 examines the cost-effectiveness of a given class of MO for achieving ES management objectives.

Beginning with Column 2, it is clear that most MO can be used (in theory) to address ES flows associated with either specific ES or bundled ES. In practice, however, the great majority of MO has been used to influence

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CRITICAL ANALYSIS OF OPTIONS TO MA NAG E ES IN THE ANDES/AMAZON REG !ON

human behavior with respect to broad natural resource categories, such as forests or fishing grounds among many others (as suggested in Figure 2), with expected direct effects on specific ES flows, most of which are not measured. The notable exception is the MO comprised of PES schemes that are often specifically designed to address one or two well-defined ES,

· such as carbon or biodiversity related services, but which likely have spill-over effects (of different magnitudes and perhaps in different directions, vis-a-vis the targeted ES) on other ES.

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Table 2 - MO and Factors Expected to Influence their Cost-Effectiveness in the Amazon/Andes

MO ES Target Conditions for potential to reduce(or not exacerbate) poverty•

Factors teduch1g cost-effectivene.s.s io achieving poverty aUev:lation in the

Amazon/And••

Factors redudng to cost-effectiveness in achieving ES

objectivesIn ·lbe Amazon/Andes

PES (Subsidies) Specific

-Carbon -Biodiversity

-Water - Scenic beauty

-If the poor can offer additional ES provision and -If the poor have rights to exclusion

-Poor can offer little

additionality- Poor have weak and insecure property tights - No legal ha.is for PES ftom trea,n"'

- Spatial heterogeneity

of opportunity costs - High opportunity costs

Taxes (user fees:1 etc.)

Specific and unspecific -Timber

-NTFP -Water -Carbon.-Biodiversity-Scenic beauty -Climate regulation

- If tax revenues are reinvested. in ( compensating) poverty aJleviationmeasures or-If the poor can directly capture the revenues or -If the poor are excluded ftom the tax

- If poor are allowed to capture user fees they

often lack capacity to attract u,ers - Few examp]es of environmental tax.es

-Weak enforcement capacity

- High transaction costs (monitoring and enforcement)

Certification Specific and unspecific

-Wate,IAir quality -Carbon -Biodiversity -Soil quality - Climate regulation

- If thepoor have market access and -If the poor can capture price premiums and -If the poor can meet quality standard,

- Limited market access

- Costs of certification process -Costs. of investments. in to technology

- Hightransaction costs

(monitoring of difficult to measure ES} - Weak enforcement capacity

TechnoJ ogical Innovation

Specific and unspecific - Various -If the poor have technology access (knowledge, exteasion, inftastructure) and -lfthc poor can afford up,fi:ont investmentcosts

- Limited technology access

- Investment poverty

- High opportunity costs of conservation

investment.- High development costs (R&D system)

Table 2 - Continuac;ao

Regulation (bans, Specific and unspecific - Various -If regulations do not affect - Low bargaining power to -Weak enforcement capacity -standards~ essential ES consumption (or if negotiate compensation and High transaction costs protected areas) so. compensating mechanisms

are in place) or -ff regulations include special treattnent of poor ES users

s.pecial treatment (monitoring and enforcement) if under

ll!l!8Sure Local Institutional Specific and unspecific -If the poor have equal

baraaininj{nower in - Low administrative and -High returns to free

Arrangements ( community-based resource management, partnerships)

- Various the negotiation process or -If institutions are set up in a way that promotes poverty alleviation

organizational capacity oflocal govenunents

- Low bargaining power

- Few cooperative exneriences

riding

Environmental Specific and unspecific - Various -If the poor have access to -Low level of teacher training - High returns to Education education (infrastructure,

costs) and -If education addresses ES issues relevant for the poor

in rural schools-High costs due to poor transport infrastructure

environmentally damaging behavior (lack of nde of Jaw)

Cap-and-Trade Schemes

-·

Specific -Air quality -Climate regulation

- Various others

-If the poor are sellers and - If the poor have market access

- Limited market access -Weak enforcement capacity - High traruiaction costs (monitoring and enforcement)

Jan Bomer. Maren Hohnwald e Stephen A. Vosti

Almost all MO can potentially be designed in ways that leave the poor unaffected, or perhaps even better off (column 3 in table 2). However, designing and implementing MO to achieve poverty-neutrality or to reduce poverty generally implies additional up-front costs (e.g., those associated with building participatory or institutional capacity) and operational costs, and not many decision-makers have been willing to incur these costs in the past. Potential poverty effects are expected to vary across categories of MO. For example, poverty effects of "Enabling" MO (e.g., technological innovations) tend to depend on whether the poor will be able to reap their benefits of ES management; when access to such technologies is limited, the poor generally do not benefit and may even become poorer as non-poor adopters' effects on (say) product prices are felt. Or, the poor may lack experience and (hence) skill and bargaining power, which can limit their ability to effectively participate in the design of MO, such as community-based resource management or partnership agreements.

In the case of "Disincentive" MO (e.g., taxes or user fees), mechanisms need to be in place to compensate low-income groups for negative welfare effects (e.g. tax exemptions), or MO need to be designed in ways that leave the poor rather unaffected. "Incentive" MO (e.g., PES), on the other hand, often require a minimum level of market access to work effectively. For example, conservation payments to subsistence farmers make little sense, if there are no or only far away markets that provide staple foods to complement production losses. In other cases, mechanisms need to be in place to make sure that price premiums actually trickle down to the poor instead of being captured by intermediaries, e.g., as has been the case for some certification schemes (Harris et al., 2001).

Options for Managing ES in the Amazon

The majority of the Amazon region is in Brazil and therefore (theoretically) already highly regulated. For example, roughly 41 % of the Brazilian Amazon region is covered by various categories of Protected Areas (PA) and Indigenous Territories, whereas the.remaining public and private iand is subject to the national forest retention standard that requires 80% of

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CRITICAL ANALYSIS OF OPTIONS TO MANAGE ES IN THE ANDES/ AMAZON REGION

landholdings to remain under primary forests. In practice, however, deforestation continues to take place (illegally) wherever it is profitable to do so, i.e., mainly alongside roads and highways (Laurance et al., 2002). Increasing effectiveness of existing natural resource management objectives (and their hoped-for ES objectives) requires that "Disincentive" MO be strengthened (either by increased penalties, more rigorous enforcement, or both), which, especially in remote parts of the Amazon, may be less cost-effective than providing incentives, e.g. PES, for avoiding deforestation (Nepstad et al., 2007; Swallow et al., 2007). However, very little is known about the potential effects of PES on forest and land use decisions, and what is known suggests that in areas with high agricultural potential, which is where conversion of forest to agriculture is most likely to happen, the costs of such schemes might be very high (Vosti et al., 2002).

Where property rights are secure, resource use interests relatively homogeneous and communities willing to cooperate, building capacities for more effective management, organization and institutional development is likely to help maintaining essential ES and contributing to poverty alleviation.

However, strong incentives for ES modifying activities will always represent a major challenge for cost-effective ES management and in those parts of the Amazon, where such incentives are high, ES management will also be costly. This is especially so if ES do not provide direct benefits for modifiers or those that benefit do not have a voice to negotiate modification outcomes. Hard tradeoffs therefore need to be faced by those that promote economic growth and infrastructure development at forest frontiers, unless the global community that benefits from the ES provided by the Amazon forest is willing to compensate for some of the benefits this development provides.

Options for Managing ES in the Andes

Land cover change and consequent soil erosion in the Andes affects farmers through loss of soil fertility and down-stream water users through reduced water quality and quantity. The adoption of technologies and agricultural practices that reduce soil erosion, and the protection or

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Jan Borner, Maren Hohnwaldc. Stephen A. Vo-s.ti

reestablishment of riparian vegetation have therefore long been prime ES management targets and MO have been developed and used in some areas to achieve them, with varying degrees of success (Ataroff & Rada, 2000; Southgate & Macke, 1989; Zimmerer, 1993).

Watersheds can be very complex both in terms of the structure of their hydrologic systems ( e.g., size, number of sub-basins, seasonal patterns of surface water flows) and in terms of the numbers and differences in socioeconomic statuses of ES users and modifiers (e.g., urban, rural, peri-urban). Most of the MO reviewed in this chapter have been used to achieve water-related ES objectives in one way or another, and in some place or another in the Andes. Ravnborg and Guerrero ( 1999) emphasize the importance of establishing platforms for negotiation between ES users and ES modifiers, and note that mutually beneficial negotiation outcomes sometimes crucially depend on third-party facilitation. In complex settings involving large watersheds and multiple stakeholder groups, transaction costs of setting up such platforms are therefore likely to reduce cost-effectiveness of communal management approaches. Payments for Environmental Services (PES) schemes have often been suggested as cost-effective options to address watershed-level externalities (e.g. sediment runoff) that reduce ES benefits of downstream users (Landell Mills & Porras, 2002). Yet, in a review of payment for watershed services schemes in Latin America, Southgate and Wunder (2007) conclude that most initiatives have not yet reached mature states. Their study highlights that key determinants of sediment displacement are still not well enough understood to effectively trace cause and effect relationships on the basis of which payment mechanisms need to be designed.

Water user fees are a standard MO in watershed management, and revenues should ideally be reinvested in maintaining water service provision. It is, however, not always obvious whether such tax revenues are best invested i_n improving technology to deal with sediment runoff, compensating users for maintaining ES flows, or enforcing regulations that oblige them to do so. Here again, no cheap, quick, easy-to-apply, and transparent tools for examining trade-offs among such watershed-specific investments are available, though their potential usefulness in policymaking is high.

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CRITICAL ANALYSIS OF OPTIONS TO MANAGE ES IN THE ANDES/AMAZON REGION

Region-Wide Options for Managing ES

Andes and Amazon ecosystems are linked through important biophysical processes such as water flow and climate regulation ( see spatial analysis in chapter#), and through socioeconomic systems, such as trade in agricultural and industrial inputs and products. Some of these biophysical processes are better known than others (e.g., we know more about rainfall-runoff relationships in the Andes/Amazon than we do about weather-biodiversity relationships), but even for those relationships that are better understood, our ability to predict the effects of natural or human-induced 'shocks' or 'disturbances' on ES flows is limited. Some of the generic elements of the socioeconomic system that link the Amazon and the Andes are better understood than others, but many of the details that underpin the system are not well-known, in part because they rely on an understanding of individual and community behavior that we do not have. These knowledge gaps shackle the ability of decision-makers to contemplate MO for ES management, because to be effective MOrequire changes in human behavior and these behavioral changes have to bring about the hoped-for changes in ES flows. This is especially challenging for climate linkages and research still needs to prove whether and how they can be cost-effectively managed (Burgos et al., 1991; Feddema et al., 2005).

Yet, downstream water users in the Amazon will doubtless be affected by changes in sediment flows due to deforestation or pollution from industry and urban centers in upstream countries. Large-scale investments in reservoirs for hydropower generation may have tremendous effects on both river discharge and migratory fauna and, hence, on ES benefits downstream. Understanding and measuring the ES and poverty implications of such interventions are preconditions for effective, cost-effective and equitable regional management, but filling these knowledge gaps will require regional scientific cooperation. Currently, few incentives exist for researchers in national knowledge systems to engage in collaborative research with partners from other Amazon/Andes neighbor countries. International scientific cooperation has been more focused on bilateral agreements addressing national rather than regional resource management

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issues. The same has long been true for inter-governmental cooperation. Common resource management is, however, one of the issues addressed by the Amazon Cooperation Treaty Organization (ACTO}, which gives hope that innovative regional responses to common resource management issues maybe developed in the near future.

6 - Implications for Research, Capacity-Strengthening and Policy

If stakeholder groups in the Andes/ Amazon region do not like what they 'see' in the context of ES flows or the effects of these flows on poverty, several fundamental questions have to be addressed, and the knowledge base for addressing them is, at present, weak.

First, what is it that stakeholders claim to 'see' as regards ES flows, poverty, and the links between them? In terms of measuring poverty (especially income related poverty), we are on solid theoretical and empirical grounds - we can measure poverty and poverty dynamics, so any major gaps in knowledge are primarily attributable to insufficient resources being dedicated to identify the poor and measuring the depths and nature of their poverty. As regards ES flows, the scientific base is much weaker - with relatively few exceptions (e.g., carbon sequestration and CO2 emissions) ES flows tend to be poorly defined at any given place/point in time, and definitions become even more poorly defined when temporal and spatial dimensions of ES flows are considered; with the exception of some ES linked to weather patterns, shoulders of scientists are generally shrugged when the issue ofuncertainty is mentioned. Finally, since there are many natural and human-made factors that influence poverty, and, to the extent that they can, the poor choose among these factors in implementing livelihood strategies, we in fact know very little about the relative importance of particular ES flows in causing or reducing poverty, especially in the long term.

The research reviewed for this chapter (and many of the activities undertaken to put this report together) demonstrate that progress is being made in framing and understanding issues, but it even more clearly

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CRITl CAL AN ALYSJS OF OPTIONS TO MAN AG ll ES IN THE AN DES/AMAZON REG !ON

demonstrates the need for greater scientific effort to be dedicated to discovering what stakeholders 'see.' A top priority it to more clearly define and measure ES flows, with particular emphasis on the spatial and temporal dimensions of these flows, and on the sources and degrees of uncertainty associated with them. Note that this research must be inter-disciplinary, since what folks 'see' when they mention ES flows is not independent of their value systems or of their efforts to feed their families. Parallel to this research, the links between ES flows and poverty must be better understood, even if this improved understanding, in some cases, leads us to choose policy measures other than managing ES flows to reduce poverty.

Second, if stakeholders are unhappy with what they 'see,' why is this so and what is the 'extent' of their displeasure? Answering this question requires knowledge of the private and social benefits associated with ES flows or costs associated with changes in these flows, how these benefits/ costs vary across stakeholder groups, and how society might go about using these stakeholder-group-specific benefits/costs to help make policy choices.

Several veins of the literature continue to wrestle with these thorny issues, but large gaps in knowledge remain. The most important of these gaps is the development of methods to measure the benefits associated with particular ES or bundles of ES, and how these benefits change as ES flows are altered. To address decision-makers' needs, these methods must incorporate the site-specific nature and temporal patterns of ES flows, and generate 'distributions' of expected benefit flows that capture the inherent uncertainty associated with most ES flows and their values to society. Work on new ways of establishing and managing dialog related to ES flows among stakeholder groups or their representatives is progressing, and is generally seen as a necessary condition for achieving successful and sustainable outcomes. However, large gaps remain in identifying the most efficient methods of establishing and managing multi-stakeholder interactions, and especially in ho.w to generate and deliver science-based information that is useful to such interactions.

Third, if stakeholders don't like what they 'see,' what can be done? Answering this question requires an understanding of the biophysical relationships at play in the case of a given ES flow and how these would be

109

Jun Bomer. Maren Hohnwald e Stephen A. Vost!

affected by policy action, and an understanding of human behavior of those using or modifying ES flows and the responsiveness of this behavior to alternative policy actions.

Here again, several veins of the literature are making progress on addressing these issues, but progress has been understandably slow given the complexity of the biophysical relationships that are being discovered, and the many (and often stakeholder-specific) factors the influence human behavior. Chief among the biophysical knowledge gaps are the consequences for non-targeted ES flows of actions affecting targeted ES flows. As regards human behavior, the knowledge base is progressing fastest a the level of individual or household decision-making, but many of the most pressing ES flow issues will have to be resolved at the community or 'higher' levels, and at present the theoretical base is not sufficiently developed to meet this challenge, and the empirical work just beginning.

Finally, if stakeholders don't like what they 'see,' what should be done, and by whom? This is the most relevant pair of policy questions. It is also the most challenging question because it requires the definition of ES-specific policy objectives, information on the effectiveness and efficiency of alternative management options for meeting these objectives, and information on poverty effects of these MO. In some cases, the answer to the first question will be 'do nothing, at least for now,' in other cases the answer will involve the identification of a particular MO for improving a specific ES flow, and in other cases the answer may involve investing in human-made alternatives to the natural ES flows. In all cases, answers to the second question must identify the nature of partnerships required to take action, and the division of labor among partners.

In part because of the knowledge gaps identified above, the literature is generally ill-prepared to provide guidance to this fundamental pair of policy questions; continued progress in filling these gaps will, in the end, help address these questions. But part of this ill-preparedness is attributable to the failure to frame research needs in ways that contribute to responding to these questions; establishing such a framework focused on addressing these questions will identify new gaps in knowledge as well as innovative ways of ·'using' existing knowledge to do so.

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CRITICAL ANALYSIS Of' OPTIONS TO MANAGE ES IN THE ANDES/AMAZON REGION

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120

ANNEX#: Ecosystem management and eco·finance options identified in the literature and main characteristics of the reviewed literature

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123