Environmental Services Payment (PSA) Program

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Environmental Services Payment (PSA) Program


The PSA Program consists of financial compensation provided by the State through FONAFIFO to forest and forest plantation owners for the environmental services they provide, and which have a direct impact on environmental protection and improvement.


In accordance with Forest Law No. 7575, Costa Rica recognizes the following environmental services:



Mitigation of greenhouse effect gas emissions (fixation, reduction, sequestration, storage, and absorption)


Protection of Water for urban and rural use, and for hydroelectric plants.


Protection of biodiversity for conservation and sustainable use for scientific purposes, for the pharmaceutical industry, for research, and for genetic improvement, as well as for the protection of various ecosystems and forms of life.


Protection of the beauty of natural landscapes, to the benefit of both the tourist industry and scientific purposes.



The most important characteristic of this program is that it changed the traditional concept of "subsidy" or "incentive" to that of  providing a "financial reward" to acknowledgethe environmental services a forest provides, which in turn contribute to increase its ecological, social, and economic value.



Basic Pillars of the Environmental Services Payment Program


The Environmental Services Payment (PSA) Program, as a mechanism to finance the management, preservation, and sustainable development of forest resources and biodiversity; it is sustained by four basic pillars: Institutions, Legal Framework, Financing, and Monitoring and Evaluation.


The following is an outline of these pillars:

Región de Acordeón


Since its creation, the Environmental Services Payment (PSA) Program has facilitated and promoted incorporation of several stakeholdersin Costa Rica’s forest development sector. This permitted the adoption of a novel financial scheme incorporating various institutions such as: SINAC, FONAFIFO, the National Forest Office (ONF), forest regents, the country’s Association of Agricultural Engineers, cooperatives, cantonal agricultural centers, non-governmental organizations from the farming sector, and beneficiares in general. FONAFIFO is the financial backbone of the PSA program.


Within MINAE, FONAFIFO works in coordination with SINAC; this is how the State’s Forest Administration (AFE) is structured. The State’s Forest Administration is where national policies for resource investment in priority areas of the PSA Program are defined. Moreover, elements deriving from the Mesoamerican Biological Corridor- Costa Rican Chapter’s framework are taken into account, as well as other commitments to ecosystem conservation and biodiversity. At present, FONAFIFO has eight Regional Offices to develop its activities in strategic zones.


Recently, as a result of the extention of the Program’s coverage, managerial and operational capacities have been developed to guarantee efficient management of the investment resources assigned to the institution, so that it can better conform to the requirements of the regulations in effect concerning financial administration and public budgets, and maintain a productive dialogue with the authorities in the country’s Ministry of the Treasury.

Legal Framework

During the 1990s, Costa Rica experienced a change in the environmental area, with legislation favoring conservation and protection of natural resources, the creation of institutions that strengthen the sector, and a significant change in the way in which society perceives management, conservation and sustainable development of natural resources.


Global initiatives from the beginning and middle of that decade, such as the Río Summit and Declaration on Environment and Development, Agenda 21, international conventions on climate change, the Convention on Biological Diversity and the Convention on Action Against Desertification, the Kyoto Protocol, the Forestry Principles, and more recently, the Millennium Development Goals, and the Johannesburg Summit, have had an effect on the definition of the route the country has decided to follow.


Likewise, Costa Rica included the necessary legal provisions to safeguard the right of all its inhabitants to enjoy a healthy and balanced environment, several sub-regional agreements were ratified, such as the Regional Convention for the Management and Conservation of Forest Natural Ecosystems and the Development of Forest Plantations, and new laws were enacted, such as Forestry Law No. 7575, the Regulating Authority of Public Services Law, the Costa Rican Organic Environmental Law, the Law for Soil Conservation, and the Biodiversity Law, which together are the framework within which the PSA Program is implemented.


The legal framework in effect also establishes the area of application of and compensation for environmental services, its sources of financing, and the governing mechanisms of FONAFIFO, thus guaranteeing institutional sustainability of this Program.


The PSA Area of FONAFIFO is responsible for assuring the effective operation of the PSA Program. All activities related to guidelines (decrees, PSA procedure manuals), technical procedures, statistics, payment mechanisms to beneficiaries of PSA contracts, evaluation, and monitoring of the PSA Program are carried out in this Area.


Initially, the main source of financing for the Environmental Services Payment (PSA) Program consisted of assigning to it one-third of the resources generated from gasoline taxes, pursuant to Article 69 of Law 7575. Later, this tax was modified by the Tax Simplification Law, creating a single tax for gasoline, of which 3.5% is assigned to the PSA Program. This action reflects the vision of legislators, who clearly perceived the need to establish a source of financing which guarantees the Program’s sustainability.


The same legal framework (Forestry Law) sets forth in its Article 47, other potential sources of financing to strengthen the programs developed by the institution, such as:


Finaicial contributions received from the State through ordinary and extraordinary budgets of the Republic, or other mechanisms; donations or credits received from national or international organizations; credits obtained by the Fondo Nacional de Financiamiento Forestal (FONAFIFO) as well as other resources obtained through emission and placement of credit instruments.


In addition, FONAFIFO has encouraged participation of international entities such as the World Bank and the Global Environment Fund, through the Ecomarkets Project, and the German Government, through the KfW Development Bank, which contributes resources for the Huetar Norte Forest Program.


However, the currently available resources for investment have not been enough to satisfy the growing demand. In this situation, FONAFIFO has developed mechanisms and agreements with local private businesses to generate alternate financial resources for the PSA Program, which have proved to be highly successful, and have made it possible to benefit more producers with the resources obtained through the use of this instrument. The investment made by private businesses has been approximately $7 million in the last few years.

Monitoring and Evaluation

FONAFIFO designed a monitoring and evaluation scheme supported by modern technology and qualified personnel. The tasks necessary to guarantee that the resources invested are used efficiently and reach those who are actually providing environmental services are carried out with the assistance of this tool.


Monitoring is carried out through several activities: visits of personnel of the PSA Area and Regional Offices to properties in the PSA Program, revision of reports from regencies provided by Forest Regents, audits of FONAFIFO and the PSA Program, accompanied by the SIG and SIAP as follow-up and monitoring tools, which together with the computing platform, make it possible to manage all of the PSA contract information, combining technical criteria, legal, geographic and financial information to provide transparency and support for the PSA Program.


The PSA Program, in combination with other actions by the Government of the Republic, has permitted reaching objectives which have had a positive impact on:

• Reducing deforestation rates.

• Recovering forest cover and degraded lands.

• Efficiently fighting illegal forest felling.

• Promoting production and non-traditional exports, and taking advantage of potential markets.

• Promoting the forestry industry.

• Contributing to rural development.

• Contributing to national strategies against poverty.

• Contributing to compliance with global environmental goals.


National Forest Financing Fund - FONAFIFO - Costa Rica          All rights reserved. 2014