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SANREM CRSP Bridging Award

Analysis Required for Payments

for Watershed Environmental Services (PWES)

Submitted by:   The Ohio State University

Funding Period:  01/30/05-06/30/06

Principal Investigators:    Dr. Douglas Southgate, Dept. of Agriculture, Environment and Development Economics

                                    Dr. Timothy Haab, Associate Professor

Subaward:  Fundación Antisana, Ecuador

Abstract

This project addresses payments for watershed environmental services (PWES), an innovative yet infrequently used method to reward conservation activities in the upper reaches of drainage basins to improve hydrology and other factors at lower elevations.  The setting of this activity is an area close to Quito, the national capital of Ecuador, where this type of payment is being given serious consideration. The lessons learned will be broadly transferable, both in Ecuador and to other countries. Dissemination of information will take place at workshops organized in the country by the national counterpart. In addition, a pair of manuscripts will be submitted for peer review by June 2006.

Objectives

The fundamental purpose of this bridging activity is to demonstrate the degree to which watershed conservation can be funded locally; specifically through the use of PWES collected from the beneficiaries of conservation, who by and large live and work in lower watersheds. One specific objective will be to estimate the price increase that the customers of potable water systems would accept for the sake of conserving water sources. The costs of such an approach will be investigated as well. In addition to investigating these benefits and costs, this project will demonstrate how biophysical assessment of watersheds, legal investigation, and economic analysis all contribute to effective implementation of PWES.

Justification

This SANREM Phase III activity builds on research conducted during SANREM Phase II in rural Andean communities around Cotacachi, Ecuador, a small highland city north of Quito. An interdisciplinary team of scientists investigated a range of natural resource issues, including biodiversity conservation, soil management, and drinking water quality. Close ties were developed and maintained with local leaders and organizations that exhibited considerable interest in research findings.

The Quito watershed is of interest to SANREM and USAID because it is a place where fundamental resource development issues are reaching critical proportions. Due to population growth, urban expansion, and the proliferation of floriculture, demand for water is increasing. In response to this increasing demand by the area's 2 million residents, Quito Municipal Sewage and Water Agency (EMAAP-Q) is pursuing a project to pipe in water from another drainage basin. The project cost of $1.5 billion or more means that alternatives such as using available water more effectively are receiving close attention.

By establishing a water fund (FONAG) and applying modest surcharges on monthly water bills, EMAAP-Q has overcome funding barriers to implementation. Although FONAG funds are intended to protect water sources, few disbursements for conservation activities in upper watersheds have been made by the fund. This project will address issues that must be resolved before EMAAP-Q's water fund can fulfill its purpose with monetary disbursements based on watershed conservation needs.

This bridging project will assist EMAAP-Q in the development and implementation of:

• Governance: PWES, the topical focus of this project, represents an innovative step toward the improved governance needed for watershed conservation. Experience elsewhere has shown that without payments, sustainable watershed governance is extremely difficult.
• Economic Policy: The existence of PWES, incorporating environmental values into economic decision-making, will alter market behavior in ways favorable to sustainable development.
• Institutional Capacity Building: By demonstrating how PWES can be implemented, this project will provide guidance for the development of FONAG and institutions like it in other parts of Latin America.
• Environmental Services: Environmental services will be chronically under-supplied without available funding. This project will show how this barrier to sustainable development can be overcome.

Procedures

The methodology to be employed in this project is contingent valuation (CV), a survey-based technique for attaching an estimated value to something not currently bought and sold in a market setting. CV is used routinely to estimate the value that households lacking a connection to potable water systems attach to this service. In addition to examining consumers' willingness to pay for these services, the CV technique will also be used to estimate the cost of watershed management. This includes estimating levels of payments to the residents of upper watersheds that are needed to induce them to give up resource uses that they would otherwise find profitable.

Deliverables

Dissemination of research findings will include two journal manuscripts. One of these will concern the use of contingent valuation (CV) in designing PWES. The second manuscript will focus on CV estimates of payments acceptable to the residents of upper watersheds. These payments reflect the income variability experienced by small farmers in places like the Ecuadorian Andes, as well as the limited means farmers have for coping with this variability.

Student Support and Training Activities

Training will take the form of research seminars presented at local institutions, including the Pontificia Universidad Catálica del Ecuador (PUCE) and the Quito campus of the Facultad Latinoamericana de Ciencias Sociales (FLACSO). Part of FUNAN's subcontract with OSU will be to arrange workshops so that this type of training will be a part of this activity.