FONDO NACIONAL DE FINANCIAMIENTO FORESTAL

EVIRONMENTAL SERVICES
	CORNERSTONE OF THE ESPP

The Environmental Service Payment Program (ESPP) , as a financing mechanism for the management, conservation and sustainable development of forest and biodiversity resources is based on four cornerstones: Institutional Context, Legal Framework, Financing and Monitoring and Evaluation.

The aforementioned cornerstones are described below:

Institutional Context

Since its creation, the Environmental Service Payment Program (ESPP) has promoted and facilitated the participation of different actors who are interested in developing Costa Rica’s forestry sector. In this manner, the adoption of an innovative financial structure has been possible, wherein various institutions are incorporated, such as: National System of Areas of Conservation (SINAC), FONAFIFO, National Forest Department (ONF), the Forest Managers, the Association of Agronomist Engineers, cooperatives, regional (cantonal) agricultural centers, non-government organizations of this sector, and beneficiaries in general. FONAFIFO is the ESPP’s financial core center.

Within MINAE FONAFIFO works in coordination with SINAC, integrating the State Forest Management (AFE), which defines national policies for the investment of ESPP resources in priority areas. It also takes into consideration aspects related to the context of the Mesoamerican Biological Corridor- Costa Rica’s Area, as well as other commitments pertaining to conservation of ecosystems and biodiversity. Currently, FONAFIFO has established eight Regional Offices in strategic areas for the execution of its activities
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In recent years, as a result of the expansion of the Program’s coverage, managerial and operational skills have been developed gradually, in order to guarantee the efficient handling of the investment resources allocated to the Institution, and adequately meet the prevailing regulation requirements, mainly in relation to financial management and public budgets, as well as to keep a productive dialogue with the country’s treasury authorities,

Legal Framework

During the 1990’s, Costa Rica experienced a change, at the environmental level, as a result of a legislation which promoted the conservation and protection of natural resources, including the creation of institutions to strengthen the sector and a significant change in society's perceptions of management, conservation and sustainable development of natural resources.

The global environmental initiatives implemented in the early and mid-1990s, such as Rio’s Summit and Declaration on the Environment and Development, Agenda 21, the international conventions on climate change, efforts against Desertification and Biological Diversity, the Kyoto Protocol, the Forestry Principles and, more recently, the Millennium Goals and Johannesburg Summit, have defined the path Costa Rica has chosen to follow.

Also, in Costa Rica, the legal previsions required to safeguard the right of all citizens to enjoy a healthy and balanced environment and various sub-regional agreements were ratified, such as the Regional Agreement for the Management and Conservation of Natural Forest Ecosystems and the Development of Forest Plantations, in addition to the promulgation of new laws, such as: Forest Law No. 7575, the Law of the Public Services Regulating Authority, the Environment Organic Law, Soil Conservation Law and Biodiversity Law, which together provide the framework for the execution of the ESPP Program.
The prevailing legal framework also establishes the context of application and recognition of environmental services, FONAFIFO's funding sources and governing mechanism, whereby the Program's institutional sustainability is guaranteed.
FONAFIFO's ESPP Area is responsible for ensuring the efficient operation of the ESPP Program. Based on this, all activities are coordinated in relation to guidelines (decrees, manuals of PES procedures), technical procedures, statistics and processing of payments to beneficiaries of ESPP contracts, as well as the evaluation and monitoring of the ESPP Program.

Financing

Initially, the most important financing source for the Environmental Service Payment Program (ESPP) was the allocation of a third part of the resources generated by fuel consumption taxes to such purpose, pursuant to the terms provided in Article 69 of the Law 7575. Subsequently, this tax was modified by the Tax Simplification Law, whereby the sole fuel tax was created out of which 3.5% is allocated for ESPP. This determination reflects the legislator’s clear vision of establishing a financing source in order to guarantee the Program’s sustainability.

The same prevailing legal framework (Forestry Law) establishes, in its Article 47, other potential funding sources for the strengthening of the programs developed by the institution, such as:

Financial contributions received from the State, through the Republic’s ordinary and extraordinary budgets or other mechanisms; donations or credits received from national or international organizations; credits the Fondo Nacional de Financiamiento Forestal receives, as well as the resources attracted through the emission and placement of credit facilities, among others.

In addition, FONAFIFO has invited other international institutions to take part therein, such as the World Bank and the World Environmental Fund, through Ecomarket Projects. and the German Government, through KfW, which grants resources for the Huetar Norte Forestry Project.

However, up to date, the resources available for investment are insufficient to supply the increasing demand; thus, FONAFIFO, developed mechanisms and entered into agreements with local private companies in order to generate supplementary financing sources for the PES Program, which has derived in successful results and benefits for more producers thanks to the investment of resources made through this mechanism. The investments made by private companies amounts to US$ 7 million approximately for the last years .

Monitoring and Evaluation

FONAFIFO has designed a monitoring and evaluation system supported by modern technology and trained personnel. By means of this tool, the institution is allowed to carry out the functions required to guarantee that the resources invested are used efficiently and reach those who actually provide environmental services.

This monitoring is carried out through various activities: field visits by staff of the ESPP Area and Regional Offices’ to properties registered subject to the ESPP Program; the review of management reports submitted by Forest Managers; audits of FONAFIFO and the ESPP Program, including the SIG and IPMS as follow-up and supervision tools which, together with computer platforms, allow for information management of all ESPP contracts, combining different elements, such as technical criteria, legal, geographic and financial aspects. In this manner, both transparency and support are provided to the ESPP Program.

The ESPP Program achieved some objectives, in combination with other actions executed by the Government, which impacted positively the following:

	Reduction of deforestation rate.
	Recovery of forest cover and degraded lands.
	Creation of an effective mechanism aimed at fighting illegal logging.
	Promotion of non-traditional production, exports and exploitation of potential markets.
	Promotion of the forestry industry.
	Contribution to rural development
	Contribution to national strategies to fight poverty.
	Contribution to the fulfillment of global environmental goals.

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EVIRONMENTAL SERVICES

CORNERSTONE OF THE ESPP