Financing environmental services: the Costa Rican experience and its implications

Costa Rica’s pioneering environmental services program seeks to maintain socially optimal forest cover by compensating landowners for the external benefits provided by their forests. The National Forestry Fund proposes to sell carbon sequestration services to the world market and hydrological services to the domestic market. Revenues from these sales, together with tax revenue, is used to finance environmental service provision through landholder incentives for forest maintenance. The mechanics of these programs are discussed, along with implications for the design and implementation of similar programs.