New rules put nature on balance sheet in Peru

by Barbara Fraser | Thomson Reuters Foundation
Tuesday, 27 May 2014 14:00 GMT

Horses graze along a glacier-fed stream in a wetland in the Andes Mountains near Huaraz, Peru. New legislation to promote payment for environmental services could encourage farmers in valleys like this to protect water sources by fencing off livestock. TRF/Barbara Fraser

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Giving ecosystem services an economic value can improve resource management and shape policy, experts say

LIMA (Thomson Reuters Foundation) - The stream spilling out of Lake Parón, at the foot of a glistening glacier high in the Andes Mountains, flows past a farming village and the city of Caraz before joining the Santa River.

Its water tumbles through a steep, narrow gorge, powering a hydroelectric plant, before reaching the desert coast, where some is diverted to irrigate fields of export crops while the rest empties into the Pacific Ocean.

Small farmers living in the shadow of Peru’s glaciers, which are shrinking with the warming climate, understand the importance of the water and vegetation around them. But only recently has Peru’s rich natural bounty - from tropical forests and glacier-fed streams to national parks - begun to register on the Latin American nation’s financial balance sheets.

Those ecosystems are the source of a variety of products, from timber to Brazil nuts, as well as services such as carbon storage, water regulation and erosion control – not to mention stunning natural beauty.

And although some critics balk at putting a value on ecosystems and the services they provide, proponents say they must be considered among the country’s economic assets.

“Calculating their economic value helps bring to light the benefits we receive from a whole series of services that are provided by ecosystems,” said Rosario Gómez, a former vice minister of the environment, who is now a researcher at the University of the Pacific in Lima.

Peru took its first steps in that direction with some studies more than a decade ago, but the effort gained impetus in 2008 when the country’s Environment Ministry was created.


One important step was legislation requiring companies to calculate the cost of the environmental impacts of their operations, according to Roger Loyola, director general of the ministry’s Office of Evaluation, Valuing and Financing of Natural Assets.

“The law does not say what natural assets are,” Loyola said, “but we interpret them as anything that is produced naturally, without human intervention. That includes natural resources, ecosystems and ecosystem services.”

Peruvian legislation calls for sustainable use of natural resources but does not specifically regulate payment for environmental services. Neither do existing laws necessarily encourage efficient management of natural resources, Loyola added.

Farmers in the Santa River Valley pay a fee for access to irrigation water, for example, but that amount does not reflect the value of the water itself, nor the importance - and cost - of protecting the upper reaches of the watershed, where the river has its source.

Loyola’s office is currently drafting two handbooks, one for calculating the cost of environmental impacts, which he expects to be completed in June, and one for determining the value of natural resources, which will be finished later this year.

Those guidelines will help ensure that calculations have a consistent scientific basis, he said.


Draft legislation currently before Congress provides a framework for compensation for environmental services. Those services include regulation of water and atmospheric cycles, carbon storage, scenic beauty, pollination, soil formation, erosion control and biodiversity.

The Environment Ministry would oversee the implementation of the general system outlined in the draft law, which leaves the details to be spelled out in future regulation.

The draft legislation defines providers of environmental services as anyone who contributes to their conservation, recovery and sustainable management. Those who benefit environmentally or economically from the services provide some form of payment or other compensation in return.

The compensation - whether in the form of cash or technical assistance - could involve financing conservation and sustainable management, productive development or related infrastructure, according to the law’s text.

That might include things like assisting smallholder farmers to diversify into shade-grown coffee, to decrease deforestation.

Loyola said the law would help provide incentives for good environmental management.

Downstream water users, for example, who are concerned about the quality of the water reaching them might pay for farmers in the upper watershed to build fences to keep livestock from trampling wetlands or fouling streams, he said.


Highlighting the economic value of ecosystem services can also guide policy decisions, said ex-official Gómez.

She and fellow researchers compared the incomes of farmers who grew cacao, the raw form of chocolate, in the buffer zone of Río Abiseo National Park in northern Peru with those of farmers outside the park area. They found that farmers closer to the park produced an additional 300 kilos of cacao a year, worth some $720, due to their better-kept environment.

Families used that extra cash to buy school supplies for young children, and pay for university or post-secondary school tuition for older ones.

The higher productivity of the farms nearby Río Abiseo was a powerful argument for maintaining the park’s funding, which was facing a budget cut, Gómez said.

Other countries are also using natural capital accounting to shape policy. A 2010 study of the Térrabe Sierpe mangroves and wetlands on Costa Rica’s Pacific coast valued that ecosystem at between $300 million and $1.9 billion, an amount that would justify investment in conservation measures, according to Greg Schundler, a research analyst at Earth Economics, a non-profit organisation in Tacoma, in the United States, which conducted the study.

One challenge Peru faces is connecting natural asset calculations with regional and local government development plans, to ensure that the value of ecosystems and their services is taken into account in all parts of the country, said Fernando León. He began working on valuing Peru’s ecosystem services more than a decade ago, and now coordinates the German government cooperation agency’s environmental and climate finance programme in the country.

That programme is working closely with Peru’s Ministry of Economy and Finance to make sure the initiative to develop a framework for natural capital accounting is adequately funded, he said.

One added benefit of the increased emphasis on environmental accounting is that it has created jobs for analysts and increased the number of courses in environmental economics and finance in Peru, León noted.

Ultimately, experts say, the goal of placing a value on ecosystem services is not to turn nature into a commodity, but to use natural resources more sustainably.

That also makes good economic sense, as the study of the cacao farmers showed, according to Goméz.

“Local and regional government officials are interested in this because the goal is very clear: ecosystem services for development planning, to reduce poverty more efficiently and increase competitiveness,” she said.

Barbara Fraser is a freelance writer based in Lima. She specialises in reporting on environmental, public health, indigenous and social issues.

This story is part of a series of articles, funded by the COMplus Alliance and the World Bank, looking at progress and challenges in developing nations’ efforts to legislate on climate change, ahead of the June 6-8 World Summit of Legislators in Mexico City, organised by the Global Legislators Organisation (GLOBE International). 

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