MONEY TREES

Costa Rica 2017 | FINANCE | FOCUS: GREEN CREDIT

Costa Rica has become a leader in green credits, forming agreements both domestically and internationally to trade carbon offsets in its quest to become fully carbon-neutral by 2021.

For decades, Costa Rica has been a regional and world leader in leveraging its natural resources for the nation's benefit. The only tropical country in the world that has reversed deforestation, the area covered by its forests has risen from 26% in 1983 to 52% today thanks to aggressive conservation and reforestation programs initiated in the 1980s. More than a quarter of Costa Rica's land has been designated as a protected area or a national park, securing a future for the environment and attaining global recognition as an ideal site for ecotourism. Costa Rica has also become a leader in the burgeoning field of green credits, recently becoming the first country in the world to adopt the goal of achieving carbon neutrality by 2021.

Already producing over 90% of its electricity from renewable sources such as hydroelectric, geothermal, and wind power, Costa Rica sees green credits as the next step in environmentally sustainable economic practices. In 2013, Costa Rica and the World Bank announced an agreement for the purchase of an Emission Reductions Payment Agreement (ERPA) for Reducing Emissions from Deforestation and Forest Degradation (REDD+), worth as much as USD63 million at USD% per ton and representing 11.1% of total emissions reductions between 2010-2020. The landmark agreement makes Costa Rica the first country to use large-scale performance-based payments for conservation, and works by using the World Bank's Forest Carbon Partnership Facility (FCPF) to purchase carbon emission reductions, more commonly known as carbon credits. These REDD credits would then be purchased by companies that generate emissions from burning fossil fuels, putting downward pressure on greenhouse-gas producing energy sources worldwide. Moving forward, Costa Rica also plans to make forestry carbon credits tradable on the domestic carbon market.

Costa Rica's agreement is unique in that 10% of the target area is in indigenous territories. Government representatives hope this is a first step toward giving them a more active role in the nation's national strategy on ecological matters. The incorporation of indigenous people into the climate change framework is particularly important because of the previous lack of rural governance and incomplete land registry data that at times led to the granting of legal rights on land that already had indigenous residents. The REDD program will also bring improved governmental tracking of forest inventory and field monitoring, and there are plans to involve the country's 70,000 indigenous people in this as well.

Costa Rica's ERPA agreement is the first of its kind, but the nation has been a leader on the national level for years now. The Payment for Ecosystem Services Program (PPSA) has also been widely considered the most successful in the world. Initially begun in 1997, PPSA pays private landowners to conserve forested lands. The PPSA has four main targets: emissions mitigation, protection of water sources, provision of scenic beauty, and protection of biodiversity. Funds for PPSA come largely from hydrocarbon taxes. The Costa Rican government estimates that under the current PPSA structure, forest cover would stabilize at 55%. To further increase the benefits of the program, Costa Rica will increase PPSA by another 342,000ha as part of the REDD program.
After 2021, Costa Rica will need to retain most of the credits it produces to offset its own emissions and meet its goal of becoming carbon neutral. Environmental figures cited in a 2010 Climate Change report say that the forestry and agricultural sectors would accomplish 77% of the country's emissions goals by 2021 if they remained at their current pace. The Ministry of Agriculture and Livestock operates its own system of subsidies called the Program to Develop Sustainable Agricultural Production (PFPAS), which aims at increasing small and medium-scale agricultural producers' income and living standards through sustainable production systems. Farmers have found new ways to balance production demands with sustainability, and many have found that the two goals are not necessarily in opposition; reforesting has been found to lead to increases in bird populations, which deter pests and can increase yields. Still, one of the toughest barriers to true carbon neutrality are the large-scale industrial farms that make up the majority of the country's agricultural production. Creative and innovative use of carbon credits and new technologies will be key to Costa Rica's quest to attain carbon neutrality and continued economic growth.