Assessing the Potential for Payments for Watershed Services to Reduce Poverty in Guatemala

Payments for Environmental Services (PES) are being increasingly used as conservation instruments, particularly in Latin America. PES programs seek to capture part of the benefits derived from environmental services and channel them to natural resource managers who generate these services, thus increasing their incentive to conserve them. Many have assumed that these payments would go mostly to poor land users, and thus contribute to poverty reduction. There has been little empirical verification of this assumption to date, however. The PES approach was conceptualized as a mechanism to improve the efficiency of natural resource management, and not as a mechanism for poverty reduction. Pagiola et al. (2005) identified three main questions regarding the linkages between PES and poverty: (1) Who are the actual and potential participants in PES programs, and how many of them are poor? (2) Are poorer households able to participate in PES programs? And (3) are poor households affected indirectly by PES programs? We focus here on the first question of eligibility. This study examines whether the recipients of payments for environmental services are likely to be poor. Our focus is on watershed-scale PES mechanisms in which water users make payments to service providers. In Guatemala, as in other countries, it has long been argued that land users in marginal areas such as the steep slopes of upper watersheds tend to be poor. We use data from highland Guatemala to examine this assumed close spatial correlation between areas of high poverty and areas that provide environmental services. We first identify specific watershed areas in which PES mechanisms could potentially be developed, based on the presence of major downstream water uses such as hydroelectric power generation, domestic water supply, and irrigation. We then compare these areas with the spatial distribution of poverty in the country, allowing us to ask two questions that are central to the potential for PES to reach the poor: (1) How many of the potential providers of water services are poor? The local poverty impact of a PES program on poverty will depend on whether potential providers are poor or not. And (2) how many of the poor are potential water service providers? The potential impact of PES on poverty at a national scale will depend on whether many of the poor are in fact in areas where PES mechanisms might be implemented. Even if most potential PES recipients are poor, it may be that few of the poor are potential PES recipients. We map the ‘water supply areas’ by identifying the location of the intakes from which users obtain their water and then delineating the portions of the watershed that contribute to those intakes. About 1.9 million ha have significant potential for development of PES mechanisms through the presence of major water uses. This area is under-estimated as data could only be obtained for a subset of all users. All water supply areas are not equivalent. Some have substantial potential for PES because of the importance of downstream water uses, while others have more limited potential. For each user, we collect information on the nature and magnitude of their water use and construct use-specific indices of the relative importance or “value” of water supply areas. With about 56% of its population under the poverty line, Guatemala has one of the highest poverty rates in Central America. Using the watershed-level poverty map developed by Nelson and Chomitz (2007), we analyze both the poverty rate and the poverty density in water supply areas. Our analysis shows that both the poverty rate and the poverty density in the water supply areas vary substantially. The average poverty rate in water supply areas is only 44 percent, which is lower than the national average of 53%. There is essentially no correlation between the importance of a water supply area and the poverty rate of people living within it. The total number of poor that could potentially be reached if PES mechanisms were developed in all water supply areas is about 1.76 million, or 73% of the country’s poor. This analysis only considers the potential for PES programs to reach the poor. Even where many of the potential service providers are poor, it does not follow that the poor will get the benefits. A variety of obstacles, including insecure land tenure, lack of title, small farm holdings, and lack of access to credit might limit the participation by the poor in a PES program. The extent to which these problems prove to be obstacles in practice depends on the specific characteristics of the PES program and the conditions under which it is implemented. References: Nelson and Chomitz. 2007. Environment, Development and Sustainability 9(4): 369. Pagiola et al. 2005. World Development 33(2): 237.