To Keep Their Water Flowing,
Peruvians Put Money Into Mountains

LIMA | Peru | 9 May 2012 | The Peruvian Andes have long supplied the country’s cities with clean mountain water, but climate change and rural encroachment are disrupting this once-reliable supply.   Indeed, the US State Department has identified impending water shortages here as a security threat with implications far beyond Latin America.

The Ministry of Environment (MINAM) has responded with an innovative project designed to keep the water flowing by paying people in the Andes to maintain the watershed.   Launched in cooperation with Forest Trends (publisher of Ecosystem Marketplace) and funded by the Swiss Agency for Development and Cooperation (SDC), the Watershed Services Incubator aims to develop financing mechanisms that can be used in Peru and exported to other cities around the world.

It builds on the experiences of cities as diverse as New York City and Denver in the United States; Dar es Salaam in Tanzania; and the Latin American towns of Heredia in Costa Rica and Saltillo in Mexico.

Each of these cities face water crises that are the result of man’s impact on nature, and each has embraced economic solutions designed to persuade people who benefit from clean water to pay people who deliver it.   The Watershed Services Incubator and MINAM will work to develop capacity within the Ministry to oversee such mechanisms, and then to identify a set of best practices that can be adopted by other agencies around the world.

“The incubator of projects for watershed services is an opportunity for Peru to take a more comprehensive and systematic approach to the protection and management of watersheds, with the objectives of ensuring the provision of the environmental services watersheds provide, ensuring the conservation of watersheds and rewarding the good practices that conserve and manage watersheds,” said Manuel Pulgar-Vidal, Minister of the Environment of Peru.

The Incubator is designed to foster a new wave of policies and projects that will provide incentives to upstream communities to preserve and protect the natural systems that are essential to watershed health and human well-being. These innovative financing mechanisms are designed to maximize the contribution of natural ecosystem processes in the provisioning of water— sustaining healthy watersheds while lowering the long-term costs and stresses associated with ever-increasing demands for freshwater.

“Today, Peru has said that it will set an example for the world by committing to a national policy of taking on natural infrastructure approaches to address their water crisis,” said Michael Jenkins, president of Forest Trends. “The Incubator is designed to show how support at the national level can leverage ingenuity from local initiatives to create real solutions for one of the biggest challenges we face today—the protection of our natural water resources.”

The Katoomba Incubator

The Incubator model has already been used to develop forest carbon projects in Brazil and to help local communities across Latin America and Africa develop their own mechanisms for environmental finance.

The Incubator also maintains a Rapid Response Team that has lent support to regulators in Peru, Ecuador, and Brazil – all of which are nations with high levels of forest cover and pressure for forest exploitation.

In Ecuador, the Team brought in experts from the Environmental Law Center of the International Union for Conservation of Nature, and RISAS, a Quito, Ecuador-based PES network for an open forum and closed-door meeting with Ecuador’s Ministry of Environment on how to use payments for ecosystem services and carbon trading to foster forest preservation.

This is the Incubator’s first foray into water payments.

The Swiss Tradition

Payments for watershed services have a long history in Switzerland, and were pioneered there in the Middle Ages when low-lying communities first recognized the importance of maintaining healthy mountain catchments.   The Swiss Agency for Development and Cooperation of the Federal Department of Foreign Affairs of the Swiss Government has a long history of pioneering innovation in water management and policy, including leading initiatives that address critical topics such as water conflict and diplomacy, sanitation needs, access to water, and poverty alleviation.

SDC’s emphasis on sustainability, particularly with regards to sustainable water resource management, is reflected in the support for Forest Trends’ work with MINAM on “compensation for watershed services.” Compensating, or providing incentives for those whose actions serve to preserve the quantity and quality of water, changes the way in which water is valued and provides income for the rural communities who are managing the upper watersheds and clean water for urban centers downstream.

“The Swiss Government is pleased to support the Government of Peru in their efforts towards the efficient integrated management of water resources as part of their national policy efforts and wishes MINAM the greatest success in the implementation of this important project,” said the Ambassador of the Switzerland Confederation in Peru, Madam Anne-Pascale Krauer Muller.

The Incubator will build on experiences in Peru and internationally in using relevant innovative financing tools to value nature’s benefits – efforts such as those in Moyobamba (see sidebar, right), where the drinking water tariff was modified to incorporate the costs of protecting the watershed to assure a sustainable supply of clean water to the community.

“These experiences highlight the importance of involving water users in managing watersheds, whether they are domestic, agricultural or industrial users,” says Marta Echavarrí­a, an expert on innovative finance for conservation who is leading Forest Trends’ efforts in Peru. “With their commitment, land-uses practices are improved to insure water quality and flow.”

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