Environmental Externalities in a Costa Rican Watershed

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Session 16
Environmental Externalities in a Costa Rican
Watershed
John A. Dixon Johnkailua_at_aol.com World Bank
Institute Ashgabad, November, 2005
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The Arenal-Tempisque Watershed the study site
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Characteristics of the Watershed

• Multiple users located between the very upper
  portions of the watershed to the coastal waters
• A man-made lake created to develop hydropower in
  the upper watershed
• All users dependent on the water flows in the
  watershed
• Unidirectional externalities (for the most part)
• A fairly enlightened government structure with an
  active public and private sector

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Major stakeholders from the upper watershed to
the coastal waters

• Forest operators (upper watershed)
• Dairy farmers (upper watershed)
• ICE hydropower generating authority (upper to
  middle watershed)
• Farmers and fish farmers (middle watershed)
• The Palo Verde Wetland national park (lower
  watershed)
• Coastal fishermen (lower watershed/ adjacent
  coastal waters)

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The Arenal-Tempisque Watershed
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TheArenal-TempisqueWatershed
A Flowchart of the Watershed the physical system
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The management issue

• Conflicts between ICE and other stakeholders over
  the timing and quantities of water released
• Growing concerns over sedimentation in the upper
  watershed and impacts on the reservoir and ICE
• No effective forum to bring all stakeholders
  together
• A sense that the watershed is operating
  sub-optimally wrt use of water and its economic
  and environmental impacts
• No real effective voice for the downstream
  wetlands or coastal fishermen

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Major economic sectors/ actors in the watershed
-- rated by numbers of people and their political
power
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Valuation of Resource Use in the A/T Watershed

• Economic valuation carried out of each major use
  sector
• Relied on local prices and values
• Largely based on change-in-production approach
• Some limited use of benefit-transfer to estimate
  wetland values
• Explicit inclusion of costs of externalities
• Preliminary results but certainly gets
  attention!

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Baseline payoff matrix (in present value, million
dollars)
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The Payoff matrix what it shows

• The diagonal elements are the different users/
  sectors in the watershed and show their net
  return from their activity without taking
  externalities into account
• The off-diagonal elements represent externalities
  either those that affect others downstream
  (below the diagonal) or that affect the sectors
  net benefits (elements on the same row)
• A social welfare measure is found in the final
  column (realized benefit) and final row (net
  benefit)

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Electricity generation mix over time
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Major lessons from the report

• Most externalities (off-diagonal elements) are
  negative
• Electricity and irrigation provide 90 of the
  benefits
• Dairy and ranching provide negative benefits
  worth 665 million. They should probably not be
  undertaken
• Irrigation also has high negative impacts
• Externality costs are equal to 38 of potential
  benefits
• Major losers are the electricity authority,
  fishermen and wetlands

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Major lessons (cont.)

• Rapid siltation of the low cost Corobici (Santa
  Rosa) reservoir drives the upstream impacts
• Dredging of the Santa Rosa reservoir may be an
  economical option and should be considered (and
  costed)
• Downstream, system benefits are larger with
  increased irrigated acreage, however demand side
  effects may lower this benefit
• The major impact of chemicals is on the estimated
  life of the wetlands and fisheries (however,
  valuation of wetlands at 200 per hectare may be
  high)

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Conclusions

• An integrated approach clearly identifies winners
  and losers and potentials for gain.
• Coalitions are needed to reduce costs of
  externalities and increase net social welfare
• Existing institutions do not promote coalition
  building
• Other potentially important impacts (e.g.
  tourism, recreation, ecosystem services) are not
  well captured in the study