ENVIRONMENTAL SERVICES
From Rio to Costa Rica, for World Sustainability

By: Roberto Solano Leiva ** / BUFETE ÁLVAREZ JIMÉNEZ DE PASS

The environmental services compensation program is the only existing Clean Development Mechanism in the world. In simple terms, the Costa Rican government pays people or entities to use their properties for conservation and reforestation purposes. The main goal is to compensate sustainable land uses, which include conservation efforts and reforestation with native or exotic species for commercial purposes. The program is also designed to improve the economic situation of rural inhabitants and their families.

The concept of Clean Development Mechanism was created during the United Nations Summit on Environment and Development held at Rio de Janeiro in 1992, specifically for the Climate Change Convention concerning global warming. At said Convention, different countries all over the world agreed upon the creation of environmentally friendly programs that would reduce greenhouse-effect gas emissions with properly certified ecological actions. In addition, developed nations, which are generally the greatest polluters, promised to pay developing countries for their environmental services to the world’s atmosphere, better know as the green or ecological debt.

The discussion of global warming continued in 1997 with the creation of the Kyoto Protocol, which determined the amounts of carbon emissions for each country. The parties involved in the Kyoto Protocol took on the responsibility of reducing contamination, either by controlling their emissions or by sponsoring countries with significantly low emissions and reliable Clean Development Mechanisms.

As with most international treaties concerning the environment, the results were mere intentions and temporary governmental programs. However, legislators in Costa Rica created the first clean development mechanism with the Forestry Law, (law number 7575) of April 1995. The law contains a specific chapter on environmental services, which are broadly defined as the benefits provided by natural forests and forestry plantations for environmental or physical and biological protection and improvement. Such benefits include the reduction of greenhouse gas emissions (carbon fixation), protection of natural resources (urban, rural and hydroelectric), protection of biodiversity, development of scientific and eco-tourism investigations, and protection of ecosystems and natural scenic beauty.

The Ministry of Environment and Energy (MINAE), through the National System of Conservation Areas (SINAC) and the National Fund for Forestry Financing (FONAFIFO), which together compose the National Forestry Administration (AFE), is the governmental authority in charge of assigning incentives like the Forest Conservation Certificate (CCB) and the Forestry Payment Certificate (CAF). The goal of these certificates is to make conservation and reforestation efforts more profitable or economically viable than other activities in the rural areas. The incentives consist of payment of a specific amount per hectare, property tax exemptions, asset tax exemptions, and immediate police protection in case of unwanted intruders, squatters or invaders.

To enter the program, the interested owner must fill out and submit the application provided to the regional FONAFIFO office. The application also requires several legal and technical documents showing the status of the property. Unfortunately, the National Forestry Administration has a limited budget and will only select the most ecologically relevant properties.

After the property has been selected, the property owner can then sign a contract with the government. The owners promise not to change, temporarily, their land use to other commercial or agricultural purposes, while assigning their environmental service rights to FONAFIFO. The government can then negotiate these rights on the international markets as green bonds, in order to reduce the external debt, or will trade them any other way possible. In exchange, the government commits to providing incentives, technical assistance, and reinforced police protection for the property. The contract must be recorded in the Real Property Section of the National Registry, but the annotation in the registered title does not encumber the right to transfer title to a third party or to obtain financing from any bank in Costa Rica.

The Costa Rican environmental services program has been successful in protecting real property for conservation purposes, one of Costa Rica’s main assets due to the protection of its scenic beauty. Currently, the program is designed to promote the protection of natural resources such as air (atmosphere), water sources and biodiversity. However, it is essential that other natural resources like soil be included in order to eliminate the impact of development and erosion. Thus, the new Organic Agriculture Law allows certified organic farmers to receive the benefit in order to encourage environmentally friendly agricultural practices.

The World Conservation Union (IUCN) recently gave recognition to Costa Rica for its ten years with the environmental services program. In addition, the IUCN and the World Bank created the Sustainable Biodiversity Fund to consolidate this conservation effort. Fortunately, other countries in the region, such as El Salvador, have expressed their interest in these types of mechanisms for encouraging sustainable development. Nonetheless, the program requires more national and international funding to increase the amounts paid to the beneficiaries and the number of farms sponsored in order to maintain existing programs as well as fund new projects.

Costa Rica is also developing plans to begin offsetting all of the country’s carbon dioxide emissions by promoting biofuels, hybrid vehicles, and clean energy, in addition to the environmental services compensation program, in order to obtain a “C-Neutral” label certifying that tourism and certain industrial practices mitigate all of the carbon dioxide they emit.

The new certification system will also implement a voluntary contribution from tourists and businesses to offset their carbon emissions, with the estimated value of one ton of carbon rated at $10. These funds will add to conservation funds as well as reforestation and research programs for protected areas.

Through the environmental services compensation program investors in real property in Costa Rica can obtain several tax benefits and still develop the property through a sustainable program that will increase their property’s value and beauty. If a developer or investor decides to include a property as part of the environmental services compensation program, they should seek professional advice to verify development limitations and the advantages of said program.


** Roberto Solano Leiva is a lawyer and notary specializing in environmental legislation, and a partner at Alvarez Jiménez de Pass (www.jdalaw.com).