Ilagan Watershed Reports 5Tongson

DevelopingPESintheAbuanWatershed

Chapter 5: Developing Payments for Environmental Services in the Abuan Watershed

By

Edgardo E Tongson Sr Consultant on Water Resources

WWF-Philippines

Abstract

Watersheds provide important environmental services to society, including flood

regulation, water retention, soil formation, nutrient cycling, landscape beauty, carbon

sink and as habitat for biodiversity. Payments for Environmental Services is a

market-based tool linking buyers and sellers of environmental services in order to

generate sustainable financing for watershed management. The Abuan watershed,

with its flood regulation and water retention features, has the potential to generate at

least 3.3 MW of hydropower, irrigate 1,025 hectares of rice paddy, and supply

domestic water to 130,000 population in the town of Ilagan. With reforestation of

2,146 has of open grasslands and arrest of illegal logging activities, the watershed can

generate carbon credits of 21,250 CO2 tons and 718 CO2 tons from CDM and REDD

respectively. The scenery and clean water also offer opportunities for river-based eco-

tourism such as boating, kayaking, white water rafting and rappelling. The total

economic output from these environmental services can reach USD 9.3 Million a

year, of which USD 715,329 (or 7.7%) can be realized annually through voluntary

and involuntary PES schemes and provide sustainable financing for watershed

protection. If we remove payments from carbon credits, the annual payments through

PES amounts to USD 539,580 or the equivalent of USD 9.50/hectare. Examples of

model PES schemes and institutional design to implement PES in Abuan are

presented.


1.Introduction

Watersheds provide a host of services beneficial to society. Unfortunately, society

attaches no value to these services. As such, this results to their further loss and

degradation. Watershed values, when realized, have the potential to generate

significant economic activity that will benefit the watershed communities.

Beneficiaries of these services pay for activities that enhance these services. Part of

these values may be captured and monetized as part of Payments of Environmental

Services (PES) schemes. PES schemes are growing in popularity because they

provide sustainable financing to defray the cost of watershed activities.

In relation to the Abuan watershed, four types of services stand out:

1. Watershed protection (e.g. hydropower companies and water utility pay upland

farmers for avoiding deforestation, soil erosion, pollution, flooding risks)

2. Landscape beauty (e.g. tourism operator paying local community not to cut trees

and pollute river that are used to enhance visitor experience)

3. Carbon sequestration and storage (e.g. Foreign power company paying farmers in

tropical countries to plant or maintain trees)

4. Biodiversity protection (e.g. conservation groups paying local community to restore

areas to create biological corridors).

1.1EmergenceofPESasaConservationTool

Land use activities can produce both positive and negative impacts to the hydrology

of a watershed. PES is a tool to provide incentives to encourage sustenance of

positive impacts and to minimize the negative effects. These activities entail costs

such as conduct of patrols to stop illegal logging, sustainable upland farming,

reforestation and provision of alternative livelihoods to logging-dependent

communities.

While the conventional way of funding watershed activities is through government

budgets, PES schemes diversify sources of funding by capturing payments from

private users of water for different types of watershed services. Compared to the use


of public resources such as taxes, PES schemes offer a more direct, efficient and more

equitable allocation of resources. PES schemes mimic market transactions between

buyers and sellers. Buyers of watershed services, such as end users, will continue to

make voluntary periodic payments for watershed activities as long as watershed

functions and services are well-defined and maintained.

The theoretical framework of PES is derived from the Coase theorem (Coase 1960).

The theorem states that, in free markets without transaction costs, buyers and sellers

will reach an equilibrium in which externalities are internalized through payments,

entitlements or transfers made in either direction. Voluntary, conditional and periodic

payments for a well-defined Environmental Service (ES) describe the nature of PES

schemes (Wunder 2005).

1.2CasesandBestPracticesinPESworldwide

There is growing literature presenting cases and examples of its application world

wide (Landell-Mills & Porras 2002, Pagiola 2002). Similar experiences were

documented for the Philippines (Padilla et al 2005). Some examples of water

payments through self-organized deals are presented in Figure 5-1. The cases include

a well-known water company (Vittel) who acquired upstream farmlands at the

beginning and gave incentives in the form of PES later on. In Ecuador, the

hydroelectric companies contribute to a fund, called FONAFIFO, to compensate

landowners residing in watersheds for land use activities. In Colombia, irrigators’

groups pay upstream land owners to control erosion in springs and waterways.


Figure51.ExamplesofWaterPayments(UNEP2008)

The payments from PES for land use activities can range widely. In PES cases

compiled in Costa Rica, the payments range from USD 10 to 45/ha-year (Figure 5-2).

Figure52.RangeofpaymentsforForestServicesinCostaRica(Pagiola2007)


To conserve 18,000 ha of watersheds in Costa Rica, hydropower companies, bottlers,

hotels and irrigation farmers pay a total of USD 500,000 a year (Pagiola 2007). The

higher payments reflect higher opportunity costs such as when forests are near

urbanizing areas, or where there are competing alternatives, e.g. rubber, oil palm,

soya, logging, etc.

1.3 Watershed Services from Abuan Watershed: Use it or Lose it.

The hydrology of the Abuan watershed offers a range of benefits that could be

harnessed for conservation and development. The potential economic values from

watershed services in Abuan will come from the clean and abundant year-round

surface water that can be delivered by gravity to different users, such as hydroelectric

power plants (through runoff-river schemes), river-based tourism, irrigation and

domestic water supply.

The watershed generates high levels of surface run-off estimated at 1,234 Million

m3/year (Rojas 2009). A large drainage area (63.79 sq km), steep slopes and thin

soils underlain by semi-permeable pyroclastic materials contribute to high levels of

surface runoff. Sixty-seven (67%) percent of the annual precipitation of 2900 mm is

converted to surface run-off. Water absorbed as soil moisture results in interflow that

find their way into channels and into Abuan river. The soil, however, is vulnerable to

erosion as ninety percent (90%) of the watershed areas have slopes exceeding 30%

(Evangelista 2009). The study site has low groundwater potential with ground water

recharge limited to just 5% of annual rainfall (Rollan 2009).

The baseline scenario shows that we will lose the forest and the watershed services to

destructive activities. The recent campaign against illegal logging in Abuan in 2008-

2009 yielded half a million board feet of timber valued at P 8 Million pesos (Ly

2009). This paper argues that the economic gain from logging is small compared to

potential gains from protecting the forest. However, unless the watershed services of

Abuan basin are utilized by Ilagan town and by society at large, these gains will not

be fully realized.


The objective of this study is to determine the feasibility of setting up a PES program

in the Abuan watershed.

This paper will present the potential uses of watershed services in Abuan, potential

economic contribution, indicative amounts that can be captured through PES

schemes, identification of buyers and sellers and a conceptual arrangement of

instituting a PES system.

2.Methods

PES requires clear definition of land use activities that would lead to hydrological

effects that are important for investors, or “buyers”, in different economic sectors –

whether irrigation, hydropower, domestic water supply, agriculture or tourism. It will

require the understanding of the socio-economy and farming practices of watershed

communities, site geomorphology, soil profiles and erosion, land use trends,

hydrology, hydrogeology and economics. This emphasizes the need for inter-

disciplinary research and expertise that will be involved in the design and operation of

PES schemes.

The preceding studies by Rojas (209), Rollan (2009) and Evangelista (2009), provide

background information on the hydrology, hydrogeology, soils and land use activities

respectively. These studies assessed the conceptual feasibility of a run-off river

hydropower facility, irrigation and domestic water supply. Carag (2009) assesses the

tourism potential for river-based ecotourism.

Figure 5-3 describes the pathways in preparing a business case for PES. It starts

from understanding the science and economics, charging services users, paying

services providers and establishing the institutional framework.


Figure 5-3. The Multi-Disciplinary Nature of PES Schemes (Pagiola 2007)

The first step is developing the business case for investors and buyers to pay for

environmental services1. The business case will outline the opportunities for PES by

identifying the environmental service(s), understanding their linkages to land use

activities, measuring the hydrological impacts, estimating opportunity costs of buyers

and sellers, designing contractual agreements and designing an institutional

framework for collection, disbursement and monitoring of payments to upland

communities.

The methodology of developing a business case for a PES scheme in the Abuan

watershed is enumerated as follows:

1. Defining ecosystem services in Abuan Watershed and measuring economic

output

2. Identifying prospective buyers

3. Identifying sellers, and Watershed Protection Services

4. Assessing legal and policy context for PES

5. Prospective PES amounts per sector

6. Surveying available PES support services, organizations and institutional

arrangements

1There are no current investments in Abuan for water-related operations. This paper lays the empirical basis for exploring combined and integrated schemes to maximize its natural endowments beneficial to society,


The next section presents the results from the research. The findings are organized

following the methodology outlined above.


3.Results

DefiningecosystemservicesinAbuanWatershedandmeasuringeconomicoutput

IntheAbuanwatershed,regularandyear‐roundstreamflowsaretheprimary

watershedservicethathavethepotentialtogeneratesignificanteconomic

benefitstothetownofIlaganandprovinceofIsabela.Flowregulation,asa

watershedservice,canbemeasuredusingahydrographwhichshowsthe

dischargeorstreamflowsagainsttimeduringarainfallevent.

Therearefour(4)hydrauliccontrols–sizeofriverbasin,vegetation,slopeand

soiltype‐thatinfluencethefloodperformanceofawatershed.Ofthese,

vegetativecoverandsoiltypecanbealteredbyhumanactivities,whiletherest

arebeyondhumancontrol.Figure54illustratestheeffectofchangesinsoil

andforestcoverondischargeratesandflooding.

Figure54.SoilandVegetationEffectsonStreamHydrograph

Inforestedwatersheds,thehydrographshowsagradualrise,alaterpeakingof

floodsandagradualrecessionofstreamflow(greenline).Whenforestsare

removed,thegraphshowsahigherandquickerpeakfloodandasteeper

recessioncurve(blueline).Themeanamplitudeasmeasuredbythedistance

betweenpeakandbaseflowiswiderfordeforestedorimpermeablewatersheds.

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Theconversionofsoilsfrompermeabletoimpermeablesurfacematerialdueto

landdevelopmentsiscommonlyfoundinurbanizingwatersheds.Soil

conversionhasthesameeffectonthehydrographasadeforestedwatershed.

Soilcompactionorsurfacepavingresultsinhigherrun‐off,quickerpeakfloods,

lesserinfiltrationanddiminishingbaseflows.

Withforestcoverstillat89%,theAbuanbasinretainsabout33%ofa10‐year

24‐hourstormwithacumulativerainfallof308.8mmandabout25%ofa50‐

yearstormwithacumulativerainfallof389.2mm(Rojas2009).Theforestsand

itssoilsarelargelyresponsibleforwaterretention,storageandfloodpeak

attenuation.

Intactforestsretainwaterasitiscaughtinthebranchesandleavesofthetrees

andneverhitsthegroundandalotissoakedupbytheleaflitter,grassandother

organicmaterialontheforestfloor.Thismaterialprotectsthesoilfromerosion,

reducescompactionfromtheimpactofheavyrainsandconservesmoisture.If

theforestisremoved,thegroundisexposedtohigherrainfallwithhigher

intensitiesandtosolarradiationresultinginhigherevaporation,lesswater

infiltration,highersoilerosion,quickerandhighervolumeoffloods.

Theconversionofpermeablesoilstoimpermeablesurfacessuchas

establishmentofbuilt‐upareaswillexhibitthesameimpactsasadeforested

watershedi.e.highervolumeofrun‐offandquickerfloodingdownstream.The

lossofsoilduetoerosionresultsinlesserinterflowanddiminishedbaseflows

duringthedrymonths.

Theflowdurationcurveisatoolthatmeasuresthepercentageofthetimethat

flowratesequalorexceedthevariousflowratesduringtheperiodofstudy.

Rojas(2009)developedaflowdurationcurve(Figure55)whichshowsan80%

dependableflowofabout15m3/secondor1.3Millionm3/dayanda95%

dependableflowofabout9.5m3/secondor0.8Millionm3/day.


Fig. 55. FlowDuration Curve (FDC) of Abuan River for Hydropower and

IrrigationDevelopment

Fortheconceptualhydropower/irrigationscheme(Figure56),abouthalfofthe

95%dependableflowestimatedat4.65m3/secondwillbeused.Theotherhalf

oftheflowsislefttomaintaintheriveranditsecologicalprocesses.


Figure56.SchematicConfigurationofConceptualHydropower/Irrigation

Development

3.1.1 RunoffriverHydropower

Thehydropowerpotentialandirrigationpotentialofthebasinwasevaluatedas

acombineddevelopment.Theschemeconsistsof7diversiondams(weirs)anda

tunnelwaterwaytotakewatertoapowerstationatlowerelevation.The

schemeisconceivedinriverstretcheswithsteepgradients(>1/60slopes)orin

placeswheretheequivalentheadismadeavailable.

Theoutflowfromthetailraceofthepowerplantwillbedischargedtothemain

canaltoallowtheslightlywarmerwatertocooldowntoambienttemperatureas

itflowsthroughacanalparalleltotheriverandisdistributedtotheindividual

farmlots intheirrigableservicearea.Notall thewater isneededfor irrigation


throughouttheyear.Partofthewatervolumemaygotoawatertreatmentplant

tosupply thedomesticwatersystem for Ilagan town,withdistanceof18kms.

With the combined development and conjunctive use of surface water for

multiple use, the infrastructures needed and the initial capital investment are

significantlyreduced.

Inestimatingtheeconomicbenefitsfrommini‐hydropowergeneration,we

assembledthehydrologicdataonthestreamsanddeterminedtheamountof

wateravailableanditsdistributionthroughouttheyearandfromyeartoyear.

Forthispurpose,thecatchmentarea,approximateavailablehead,andannual

rainfallisused.

Rojas(2009)suggestsusingf95%dependableflowof4.65m3/secondas

exploitabledischarge.Withassumedhydraulicheadof80m,theschemecan

powera3.3MWhydropowerplant.Weassumealoadfactorof0.8andaselling

priceofUSD0.10centsperKWHgenerated.

Theestimatedannualsales(inUSD)fromhydropowergenerationiscomputed

asfollows:

GrossSales=Plantcapacityx1000KW/MWxLoadFactorxNo.ofdays

operationsx24hours/dayxUSD0.10/KWH

GrossSales=3.3MWx1000KW/MWx0.8x360x24x0.10/KWH

GrossSales=USD2,280,960/year

CapitalCosts/MWinstalledcapacity=USD2Million

HurdleRate=12%p.a.

3.1.2Irrigation

Assuming1hectareofricepaddywillrequire1meterofwaterpercropping

season,thismeans10,000m3/hectareofirrigationrequirement.Fromtheflow

durationcurve,the80%dependableflowisequivalentto7.0m3/secondwhich


amountsto6.35MCMin105days.Dividingthisbytheirrigationrequirementof

10,000m3/hectare,anequivalentareaof6,300hectarescanbeirrigatedinone

(1)croppingseason.

ThereisnoformalirrigationsystemtoservicethefloodplainsoftheAbuan

watershed.Farmerswhowereinterviewedarewillingtoplantriceifirrigation

systemsareinplace.Theirrigationschemewillconveywaterbygravityto

channelsanddikesandirrigate1,025haofSanManuelclayloaminthelower

terracesandthefloodplainofAbuanwatershed(Evangelista2009).Irrigation

willcomplementtherain‐fedmonthsandtappedfor105daysinsummer.

Excesswatercanbeusedtoirrigatefloodzonesinadjacentwatersheds.

Assumptions:

Servicearea=1,025

Riceyield/ha/cropping=4.2MetricTons(MT)(basedonaverageyieldsof

adjacentirrigatedriceareas.

Projectedriceproduction=4,305MT/ha‐crop

Projectedannualriceproduction=4,305x2.5=10,763MT/yr

Priceofpalay=USD0.25/kg(@P48:1USD)

Gross income per yer = 10,763 x 1000 x 0.25 = USD 2,690,750

Netincome/ha‐cropping=P25,900(Evangelista2009)

Annualnetincome=P25,900x2.5=64,750orUSD1,249perhectare

CapitalCostIrrigationInfrastructure/hectare:P280,000(USD5,833)

Capitaloutlay:USD5,833/hax1,025has=USD5,978,825

Hurdlerate:18%p.a.

3.1.3FutureDomesticWaterSupply


Thissamewater,usedtopowerthehydropowerplant,isreturnedtotheriver.

Fromhere,thewatermaybeusedconjunctivelytosupplyirrigationwaterfor

drymonthsanddomesticwaterallyearround.Waterfordomesticusemayflow

toawatertreatmentplantandthenpiped17kmdownstreamtodomesticusers

inIlagantown.Atpresent,domesticandindustrialwaterrequirementsofthe

townaresuppliedbygroundwater.

Asthetownurbanizes,theincreasingdemandforgroundwaterwillleadto

heavyabstractionthatmayresultindepletionofwatertables,interferencecosts,

saltwaterintrusionandlandsubsidence.Bychannelingsurfacewatertosupply

urbandemand,competitionwithindustrialusersanddepletionofwatertablesis

avoided.

Assumptions:

Averagepercapitawaterconsumptionperyear=0.2m3/dayx365days/year

=182.5m3/year

PopulationofIlagantown=130,000(NSO2007)

PriceoflevelIIIwatersystem=USD0.20/m3

GrossSales=182.5x0.20x130,000

GrossSales=USD4,745,000/year

3.1.4RiverbasedEcoTourism

River‐basedtourismisgrowinginpopularityintheregion.Afeasibilitystudyby

Carag(2009)onthetourismpotentialinAbuanriveridentifiedboating,

kayaking,rappellingandwhite‐waterraftingaspossibleactivities.Dayand

weekendpackagetoursarebeingdevelopedinAbuanRiver.Thesetourscater

toweekendvisitorsfromManila.Thepackagesaretobemadepartofthe

tourismprogramoftheIlaganMunicipality,IsabelaprovinceandRegion2.Eco‐

tourisminAbuancancreateemploymentopportunitiesforformerlogging‐

dependenthouseholds.Smallentrepreneurscanbenefitbyleasingpicnichuts


andboats,sellinglunchesanddrinks,tourguidingservices,souvenirsales

amongothers.Theseinvestmentsspurthelocaleconomythroughmultiplier

effects.

Assumption:

Visitor‐tripsperyear:1,000

AveragespendingorTravelCostpervisitorassuming2D/2N:$50

Tourcost/tourist: $20/pax

GrossSales/year: 1000x$50+1000x$20

GrossSales/year: $70,000

3.1.5CarbonMarkets

Withgrowinginterestincarbonmarketsandemergingincentiveschemessuch

asReducingEmissionsFromDeforestationandDegradation(REDD),

opportunitiesareemergingtogeneratepaymentsforcarbonsequestrationto

benefitAbuancommunities.

CleanDevelopmentMechanism

TheCleanDevelopmentMechanismallowsAnnex1countriestobuycarbon

creditsfromdeveloping(non‐Annex1)countriesinorderfortheformertomeet

regulatorycapstocarbonemissions.Thelattermaysellcarboncreditsby

sequesteringcarbonthroughtreeplantations,energyefficiencymeasures,

switchingtobiomassfuels,andthelike.InthecaseofAbuan,opengrasslands

maybeplantedtoagro‐forestrytoprovidetree‐basedlivelihoodsandtosell

carboncreditsatthesametime.

Thefollowingtableshowstherateofcarbonsequesteredforagro‐forestry

plantations.Assuming2,146hectaresofopengrasslandinAbuanisplantedto

agro‐forestry.Thecarbonsequesteredandequivalentsalesfromcarboncredits

iscomputedasfollows:


Assumptions:

Opengrasslandconvertedtoagro‐forestry=2,146has

Csequestrationrateofagro‐forestry=2.7tons/ha‐year(Lascoetal2000)

TotalCsequestration=5,794tons/year

Atomicweightofcarbon=12

Atomicweightofoxygen=16

AtomicweightCO2molecule=(12+(16x2))=44

TotalweightofCO2=5.79x103tonsx44/12=21.25x103tonsCO2

Priceof1tonCO2equivalent=US$8/tCO2‐e

Grosssales/year=21,250x$8=$170,000

PaymentsThroughAvoidedDeforestation(REDD)

Thisapproach,alsoknownasREDD(ReducedEmissionsfromDeforestationand

Degradation),isbeingnegotiatedbytropicalcountriesintherun‐uptothe

CopenhagenClimateChangenegotiationsinDecemberof2009.Thismodeof

financingaimstoarrestthedeclineinforestcoverandgloballossofcarbon

sinks.Itwillgeneratefinancialresourcesbymaintainingorimprovingexisting

carbonsinksinintactforestsbyprotectingforestreserves.Paymentsaremade

basedonreducedratesofdeforestation.

ThebaselinedeforestationrateinAbuanWatershedisderivedfromthevolume

ofconfiscatedtimberasreportedbytheProvincialTaskForceonForest

Protectionfor2008‐2009(Ly2009).Infourteenmonthsofthecampaign(July

2008toSeptember2009),thetotalvolumeofconfiscatedtimberoriginating

fromAbuanwatershedisreportedat1,449m3.Thistranslatestoannual

volumesof1242m3.

Deforestationrate/year=1242m3


Assumptions:

1ton=2.83m3

Equivalentmassintons=438.87

%Carboncontentofbiomass(Lascoetal2000)=44.7

Ccontentremoved(tons/year)=196

Priceof1tonCO2equivalent=US$8/tCO2‐e

AtomicweightCO2=(12+(16x2))=44

Atomicweightofcarbon=12

TotalweightofCO2removedayear=196*44/12=718tons

Grosssales/year=718x$8=$5,749

3.2 Identifyingprospectivebuyers

TheprospectivebuyersdifferwithrespecttotheES.Thebuyerscanrangefrom

hydropowercompanies,bulkwaterproviderssuchaswaterdistricts,the

NationalIrrigationAuthority(asproxyforricefarmers),carbonbrokers

representingAnnex1countriesandvisitingtourists(Table51).

Summarizingthepotentialeconomiccontributionsfromhydropower,irrigation,

watersupply,carboncreditsandtourism,theeconomicvaluesgeneratedby

conservingtheAbuanforestsmayreachUSD9.34Millionayear.

Table51.EnvironmentalServices,PotentialBuyersandAnnualEconomicOutputinAbuan

WatershedService PotentialBuyers AnnualEconomicOutput(inUSD)

Hydropower(runoffriver)

IndependentPowerProducersIPPs,ElectricCooperatives

2,280,960

Irrigation VIBANARAfarmers* 2,069,750


RiceIrrigatorsassociations

River‐basedAdventureTourism

Tourists,adventuregroups 70,000

WaterSupply BarangayWaterAssociationIlaganWaterDistrict

4,745,000

Carbonsequestration(CDM)

KyotoProtocolAnnex1CountriesCarbonbrokers,banks

170,000

AvoidedDeforestation Same 5,749TOTAL 9,341,459

• VIBANARAfarmersmaybebothbuyerandsellerofES

3.3 IdentifyingSellersandWatershedProtectionServices

“Sellers”ofPEScanbedefinedasactorsthatlegallyownthelandorwho

exercisesmanagementcontrolpertainingtolanduseswithinthewatershed.

Thesecanbestateactors,non‐stateactorsoramixofboth.Themajor“sellers”

aretheparkauthoritiesoftheNorthernSierraMadreNaturalParkandtheCBFM

organizationwhohasjurisdictionto69%and16%ofthewatershedarea

respectively.

3.3.1 NorthernSierraMadreNaturalParkProtectedAreaAuthorities

TheNorthernSierraMadreNaturalParkcovering69%ofthewatershedareais

locatedinthehighercatchmentandprovidesthelargestproportionateshareof

benefits.Theagencyhavingjurisdictionoverlandusedecisionsintheparkis

theDeptofEnvironmentandNaturalResources(DENR)throughtheProtected

AreasManagementBoard(PAMB).UnderthePAMBaretheexecutivestaff

consistingoftheparksuperintendentandtherangers.Theparkoffice,aswith

otherparksinthecountry,isunderstaffed,lacksresourcesandequipment,and

untrainedtohandleacomplexjobinparkmanagement.

Somepartsoftheparkmaybetraditionallyownedandcontrolledbyhunting

andgatheringindigenouscommunitiessuchastheAgtaandDumagattribesby

virtueoftheirancestralclaims.Reportsshowthat13bandswith5‐7familiesper

bandbelongtothesegroups.Theysubsistsonkainginorswiddenfarming,


hunting,fishingandgatheringofnon‐timberforestproducts(rattan,honey,

resin,etc).

3.3.2CBFMArea

Thestateawardeda25‐yearleaseagreementtothePeoplesOrganization,called

Vibanarra,underaCommunityBasedForestManagement(CBFM)Agreement.

Throughthisagreement,theorganizationhaslegalcontroltoover16%ofthe

watershed.

WithintheCBFMarea,migrantandindigenouscommunitiescanbefoundinthe

lowersub‐catchmentofthewatershed.Thisarea,clearedthroughaprevious

loggingconcession,isnowpre‐dominantlyplantedtocorn,uplandrice,tree

farmswithexpansiveopengrasslands,shrubsandresidualforests.Intherainy

monthsafteraheavydownpour,theAbuanriverturnsbrown,ladenwithsilt

fromupstreamdeforestedareas.Cornplantationsanduplandriceplantedin

hillyareasarereportedtohavehigherosionrates(Evangelista2009).

Alargepartofthehaulersofillegallogs(calledbugadors)consistingofabout

150familiescomefromthiscommunity.Becauseofpovertyandhigherreturns

fromlogging,thesebugadorsrelyontheillegaltimbertrade.Attheheightofthe

anti‐loggingcampaignin2008,someofthesepeoplewereapprehended.Others

havetoseekotherformsoflivelihood.Giventherightincentives,theyplayan

importantroleinreversingforestdenudation,landdegradationandinproviding

bufferingactivitiestothenaturalpark.TheyarealsokeytoanyfuturePES

scheme.

Theincentiveschememaybechanneledtotheorganizationwhoallocatesthe

benefitstoitsmembers.Thisreducesthetransactioncostofrelatingto

individualfamiliesparticipatinginthePESscheme.

Inthecaseofroamingtribalgroups,theirfootprintorimpactonforestresources

isnotassevereasthemigrantfarmers.Leftontheirown,thesetribalgroups


willcontinuetolivesustainablyofftheparkresourcesastheyhavesincethe

timeoftheirancestors.Theirsubsistenceactivitiesandrightsoverancestral

territoriesareguaranteedundertheIndigenousPeoplesRightsActof1996.

3.3.3WatershedProtectionServices

Landusepracticesthatdisturbthesoilresultsinhigherosion.Road

construction,agriculturecroppingpractices,deforestationmaygreatly

accelerateerosion.Soilerosionresultsindepositionofsiltinwaterways,canals,

weirs,pipesandotherhydraulicstructures.Thesedepositsreducetheavailable

volumethatthestructureisdesignedtoconvey.Everyyear,waterutilitiesand

hydropowerplantsspendconsiderablemoneytoremovesiltinloggedcanals

andstructures.

Swiddenfarmsorkainginespeciallyinsteepslopesareresponsibleforhigh

erosionrates.ThepredictedannualerosionratesforkainginfarmsintheAbuan

watershedcanrangefrom1524to3671tonsperhectaredependingonslope

categories.Theseerosionratesareclassifiedasextremelyhigh.Ifkainginfarms

areconvertedtoagro‐forestryareas,theannualerosionrateswillbereduced

dramaticallyby99%to14.98‐18.52tonsperhectare.Kainginfarmersarebest

candidatesforanyPESschemeinAbuan.

Theorganizedfarmersmightoffertoimplement,forafee,specificnatural

resourcemanagementpracticesoractivities,suchasmaintainingforestcover;

reforestation,possiblywithafocusonnativespecies;adopting‘sustainable’or

‘best’landusemanagementpractices,suchassustainablefarmingorsustainable

forestry.Byadoptingthesepractices,theyarecreatingormaintainnaturalfilters

inthewatershedtoreducesoilerosionandwaterpollution.Bymaintaining

vegetation,waterflowsareregulatedthroughtheyear,controllingforfloodsand

minimizingsoillossandsedimentation.

3.4.1 Assessinglegal,policycontextforPES


ThepolicyenvironmentenablingadoptionofPESorPES‐likeschemesis

embeddedinsectorpolicieslinkedtotheuseandmanagementofnatural

resources.Thesepoliciesarefoundinpowergeneration,protectedareasand

irrigation.

ThedevolutionofpowersunderthelocalGovernmentCodepresents

opportunitiestogeneratelocalfinancingfromextractionoruseofnatural

resources,e.g.mining,domesticwateruse,hydropower,forestry.Thelaw

providesfora1%shareofLGUsinthenationalwealthasstipulatedintheLocal

governmentCodeof1991(RA7160).

Asummaryofthesepoliciesastheycorrespondtospecificwatershedserviceis

presentedinTable52.

Table52.EnablingPolicyforPES,valuationmethodsusedandresponsibleagency

EcosystemService

Policy Valuationmethod

ImplementingAgency

Hydropower ENR94‐1RA7638(DOEAct),RA9136(EPIRA)

1/2of1centavo/kwhofgrosssalesVoluntary

IPP,DOE,LGU,NAPOCORIPP

Hydropower

1%shareofnationalwealth,LocalGovernmentCode

1%ofgrosssales

LGU

Irrigation Voluntary %ofsummeryield

IrrigatorsAssociation,CBFMO

Eco‐Tourism LGUordinance WTP,TravelCost

LGU,operators

Biodiversity,bio‐prospecting

NIPASAct(RA7586)WildlifeAct(RA9147)

WTPorCost‐BasedFee‐based

PAMB,DENRPAMB,DENR

DomesticWater PD1067WaterCodeofthePhilippines1%shareofnationalwealth,Local

Cost‐based1%ofgrosssales

NationalWaterResourcesBoard,WaterDistrictWaterDistrict,LGU


GovernmentCodeCarbonPayments

KyotoProtocolREDD

$/ton‐CO2esequesteredcarbonstocksintrees

DNA,DENR

Forestservices ExecutiveOrder318

(2004)

3.5ProspectivePESamountspersector

ThissectionexplorestheamountsthatcanberaisedfromPESschemesunder

existinglawsandsectoralpoliciesthatcansustainablyfinancewatershed

protection.

PowerSector

ThepowersectorisoneofthepotentiallysignificantcontributorstoPES

schemes.Forallpowerprojects,theDeptofEnergyestablishedthe

Reforestation,WatershedManagement,Healthand/orEnvironment

EnhancementFund(RWMHEEF)throughRepublicAct7638of1992.The

ImplementingRulesandRegulations,ascontainedinER‐94‐1,Sec6(f),states

that:

“Onehalfofonecentavo(PhP0.005)perkilowatthourofthetotalelectricitysales

oftheenergygeneratingfacilityshallbesetasidebythepowerproducertobeused

forreforestation,watershedmanagement,healthand/orenvironment

enhancement.Thepowerproducerandtheenergyresourcedeveloper,tothe

extentoftheirrespectivecontributiontothefund,shalleachsubmitwork

programsforreforestation,watershedmanagement,healthand/orenvironment

enhancementwhichwouldhavetobeapprovedbytheDOEinconsultationand

closecoordinationwiththeDENR,theDOH,therelevantwaterdistricts,local

governmentunits,regionaldevelopmentcouncils,nongovernmentorganizations,

andotheraffectedparties…”


ThiswasamendedbyDepartmentCircularNo2000‐03‐003,wherebythe

electrificationfundwillget50%ofonecentavoandtheremaining50%willbe

sharedequallybetweentheDevelopmentandLiveihoodFindandthe

RWMHEEF).

RepublicAct9136alsoknownastheElectricPowerIndustryReformActof2001

(EPIRA)adoptedtheseamendmentstoER94‐1.

UndertheRWMHEEFFund,therehavebeenatotalof349projects,withatotal

disbursementofPhP413,935,169for38powerplants,overaperiodof8.5years.

ThemajorityoftheprojectsarefoundinLuzon,mainlyinMetroManila,

correspondingtothenumberofpowerplantslocatedperregionalcenter.

(Rosales2003)

ThefundsaccruingfromRWMHEEFareadministeredbytheDepartmentof

Energy.ForNAPOCORassets,thefundisadministeredbyNAPOCOR.Thelocal

governmentunitsubmitsproposalstoDOE/NAPOCORforevaluation.The

proposalsmayincludeconstructionofhealthcenters,communaltoilets,water

supplysystem,erosioncontrol,forestmanagement,reforestation,rehabilitation,

soilfertilityconservationandenhancement,wastedisposalandotherrelated

projects.

TheamountaccruingtoRWMHEEFforhypotheticalAbuanhydropower

operationisestimatedasfollows:

AnnualVolumeinKWH=3.3MWx1000KW/MWx0.8x360x24

=22,809,600KWH

RWMHEEF=22,809,600KWHx.005/KWH

=114,048Pesos(USD2,376)

Whiletheseamountsmaybesmall,thehydropowercompanymayaugmenttheir

investmentinthewatershedcorrespondingtothevaluestheyattachfor

watershedservices.InadditiontotheRWMHEEFschemes,thepowerproducer

mayprovideforvoluntarypaymentstakenfromtheirproducersurplus.


Forexample,Ina1MWrun‐offriverhydroelectricprojectinSanFernando,

Romblon,thepowercompanyisvoluntarilysettingasideP400,000ayearfor

reforestation,enforcement,livelihoodsandscholarshipstobenefitindigenous

uplandcommunities(ROMELCO,perscomm.).

AssumingtheeconomicsandproducersurpluswiththeRomblonhydropower

projectarethesame,theenvisioned3.3MWrun‐offriverschemeinAbuanmay

annuallygenerateanadditionalP1.2M(orUSD25,000)forwatershedactivities.

LGUSharefromNationalWealth

Thelocalgovernmentcodeprovidesa1%sharefromgrosssalesinfavorofthe

localgovernmentunit.WithprojectedannualsalesofUSD2,280,960,the1%

shareoftheLGUamountstoUSD22,809perannum.

IrrigatorAssociations.

TheNationalIrrigationAdministration(NIA)ismandatedtobuildirrigation

infrastructures(weirs,canals,pumps,etc)toincreasefarmproductivityinrice

andcornlands.NIAalsoorganizesfarmersintoirrigatorgroupsinorderto

accessloansforirrigationinfrastructure.

InasurveyoffarmersinRomblon,thefarmergroupshaveindicatedwillingness

topay1cavanofriceforeachhectarefor1croppingseason.Assumingthesame

socio‐economicprofilesandwillingness‐to‐payisfoundinAbuanricefarmers,

thefutureirrigationschememaypotentiallygenerate$12,812ayear,computed

asfollows:

Assumptions:

Price=$0.25/kg

1cavan=50kg

Potentialirrigablearea=1,025has

Voluntarypaymentsbyfarmers=$0.25/kgx50kg/cavanx1cavan/hectarex

1,025has


=$12,812peryear

Ecotourismpayments.

Paymentsfromvisitingtouristscanbeintheformofentrancefeesauthorized

throughprovincialormunicipallegislation.ExamplesofLGU‐legislated

financingcanbefoundinTubbatahaReefs,Mabini‐Tingloy(Anilao)Batangas,

PuertoGalera,OlangoIslandandHiluturaninCebuandStPaulsSubterranean

RiverinPuertoPrincesaCity.

FutureoperatorsinAbuanwatershedcanrunpackagesforboating,kayaking,

rapellingandwhite‐waterraftingactivities.Theseoperatorscanpayafee

similartothosechargedbycompetingsitesalongChicoandPinacanauanRivers

respectivelyinCagayanProvince,orbyassessing10%oftheirtravelcost.

ForAbuan,weassumeanentrancefeeofP100perpassenger/daytotheriver.

Assumptions:

DailyEntrancefee=P100

Visitor‐tripsperyear:1,000

Entrancefee:P100/visitor

Grosscollectionsperyear=P100/pxx1,000pax/year=P100,000

Biodiversity

TheNIPASLawof1992isanactprovidingfortheestablishmentand

managementofNationalIntegratedProtectedAreassystem,definingitsscope

andcoverage,andforotherpurposes.Thelawallowstheparktocollectentrance

fees,donations,penaltiesandfinesarisingformparkadministration.Thepark

collectionsaredepositedinthenationaltreasurywhere75%areallottedtothe

parkfordirectuseand25%accruestotheIPAFsub‐fundtosubsidizeother

parks.


TheWildlifeActof2001isanactprovidingfortheconservationandprotection

ofwildliferesourcesandtheirhabitats,appropriatingfundsthereforeandfor

otherpurposes.Thelawupgradesthepenaltiesandfeesasadeterrentto

commitwildlifeviolations.Italsosetstheprotocolandfeesforbio‐prospecting

bylocalandforeigninstitutionsforcommercialandnon‐commercialand

academicpurposes.

ThePAMBmaysetvisitorfeesforentrancetothepark.Sincevisitorsdonot

crossintotheparkboundary,weomittheentrancefeesincalculatingthe

potentialamountstoberaisedfromPESschemes.

DomesticWater

TheLGUmaycollect1%fromthegrosssalesofthewaterdistrictasitsshareof

nationalwealth.ForAbuan,thesecollectionscanearntheLGUuptoUSD

474,500peryearfromdomesticwateruse.Thesecollectionshoweverdonot

guaranteeearmarkingforwatershedactivities.

UnderthePhilippineWatercode,theNWRBthroughtheLocalWaterDistrictis

responsibleforsettingwatertariffstobechargedtoconsumers.Currentwater

policieshoweverdonotreflectthetruecostofwaterprovisionwhichincludes

thecostofmaintainingwatersheds.Apartfromthe1%levybyLGUs,thewater

districtmayhowevervoluntarysetasidefundsforwatershedprotection.

Carbon

ThecreditsfromCDMandREDDandequivalentmonetaryvalueswillgodirectly

tothecommunitiesthathostandmanagetheforestresources,includingplanting

treestosequestercarbon.Thereishoweveraneedforlocalconsolidator,

broker,andverifiertovalidatethecarboncredits.

ThecarboncreditsfromCDMandREDDcangenerateuptoUSD175,749ayear

assumingalltheopengrasslandsarereforestedandillegalloggingiscurtailed.


ForestServices

ExecutiveOrder318(2004)onPromotingSustainableForestManagement

“providesforpropervaluationandpricingofforestryresourcesandcollectionof

feesforuseofenvironmentalservicesofforestsandwatersheds.Italsoprovides

foraplough‐backmechanismthatensuresserviceprovidersareproperly

compensated.

PoolingallpotentialPEScontributionsfromdifferentsources,theproposed

schememaygenerateUSD715,329peryear(Table53).Withforestcoverat

56,807has,thisisequivalenttoUSD12.59perhectare.

TheESindicatorsforthehydropowerandirrigationschemesaretheaverage

baseflowsduringdrymonths(March–June)measuredinaverageMCM/day.

Forthewatercompany,itiswaterqualitymeasuredinTotalSuspendedSolids

andotherparameters.Forcarbonbrokers,theindicatoristheforestcoverin

numberofhectares.Fortourism,itmaybeacombinationoftheabove

indicators.

Table53.IdentifyingESBuyers,indicatorsandestimatedamountsforPES

ESBuyer PESamountsInUSD

Amounts(inUSD/year)

ESindicators

RWMHEEF

2,376 Stablewaterflowsyear‐round,baseflowsduringdrymonths

Voluntary

25,000 same

HydropowerPowerCompany

1%sharefromgrosssales

22,809 same

Irrigatorsassociation

Voluntary1cavan/HH‐yr

12,812 Dryseasonflows,MCM

Tourists WTP 2,083 Scenery,Clean&flowingwater,H2Oquality

WaterDistrict 1%Sharefromgrosssales

474,500 Abundant,clean&Potablewater,H2Oquality

Carbonbrokers

CDM

170,000 Re‐Forestationcover(has)

REDD 5,749 OldgrowthForestcover


(has)Total 715,329

Ifweremovepaymentsfromcarboncredits,theannualpaymentsforPESis

reducedtoUSD539,580ortheequivalentofUSD9.50/hectare.Thisis

comparabletothelowendoftherangeofPESpaymentsintheCostaRica

examplemadebyahydropowerproducer(seeFigure52).Butthisratiois

higherthanwhattheotherprotectedareasareearningandwillimprove

managementeffectivenessifspentwisely.

3.6SurveyingavailablePESsupportservicesandorganizations

PESprogramscanbeintheformofself‐organizeddealsbetweenfewsellersand

buyersorlegislatedschemesandstructuredarrangementsinvolvinglarge

numbersofbuyersandsellers.Thelatterwillrequirebrokerstosetuppayment

mechanisms,aggregatesellersand/orbuyers,conductstudies,anddefraythe

transactioncostsessentialforitsestablishmentandmonitoring.NGOsusually

performthebrokeringrolewhileLGUsprovidetheenablingframeworkand

initialfunds.Nohardandfastruleisprescribedinsettingupvoluntaryand

involuntaryschemes,butamixofbothmaybemoreapplicable.

3.6.1InstitutionalArrangement

ThereisnostandardblueprintindesigninginstitutionstoimplementPES

schemes.ItisimportanttohighlightthatPESneedtobeadaptedonacase‐by‐

casebasisandusedasappropriate,keepinginmindthatPESaremeansof

securingecosystemservicesthatareimportanttosocio‐economicdevelopment.

InthecaseofAbuan,thepotentialroleoftheCBFMcommunityistoprovide

bufferingor“socialfencing”tothepark.ThisshouldbethegoalofanyPES

scheme.Thesefarmersarelocatedinareasthatprovideaccesstothepark,and

arethereforeinthebestpositiontospotandreportillegalactivities,monitorand

dissuadepoachers,outsidersandmigrantsfromenteringthepark.


Thusitisimportantforthesefarmerstobenefitfromincentivesystems

includingcashandnon‐cashrewards.Non‐cashincentivescanincludeland

tenure,credit,infrastructureorpost‐harvestfacilities,andothersupportthatare

madeconditionaltofarmers’sustainablymanagingtheirland.PESschemescan

beearmarkedtosubsidizesustainableagriculturesuchasagro‐forestry

schemes,treefarms,inter‐croppingsystems,organicfarmingandother

practices.Farmerscanorganizethemselvesintocommunitywatchdoggroups

andbeemployedtomonitorandpatroltheforestsforanyillegalactivities.

Themoresectoralbenefitsarerealized,thegreatertheamountoffundsthatcan

begeneratedfromPES.WatershedactivitiesentailcostsandPESschemesare

gainingpopularitybecauseoflatentdemandforservicesfromarangeofbuyers,

whetherhydropower,eco‐tourism,irrigationorwaterutilities.Ifopportunity

costsfromloggingarehigh,orifthereisabignumberofsellers,the

contributionsfrombuyers’canbepooledtopayforwatershedactivitiesthat

wouldotherwisebedifficultforasinglebuyer.InmostcaseswherePESschemes

operate,thefundsarekeptinatrustaccountandatrusteeorganizationorNGO

istaskedtomanagetheaccount.

Thefunctionsofthetrusteeorganizationincludeorganizingthewatershed

communities,buildingtheircapacities,reviewingproposals,workplansand

budgets,disbursingfunds,monitoringandreportingprogress,evaluating

outputs,andrepeatingtheprocessaftereachprojectcycle.

Thetrusteewillalsoreportprogresstoitsbenefactorsusingindicatorsthatare

importanttothem.Theseindicatorsshouldsignifyhealthofthewatershedand

arelinkedtothelevelofwaterflowsduringsummer,amplitudeofflows

throughouttheyear,waterquality,forestcover,poverty,amongothers.

OneoftheimportantindicatorstomonitorinanyPESschemeistheopportunity

cost,especiallythosebornebyfarmersingivinguplandusesthataremore

profitable,butmaybeecologicallydestructive.Theselandusescaninclude

small‐scalemining,swiddenfarming,orestablishingexotictreefarms.Because

opportunitycostsvaryandfluctuatesovertime,itwouldbeimportantfor

paymentsfromPESschemestobeflexibleinordertomatchoratleastcoverthe


opportunitycosts.Auctions,biddingandotherschemesaresomeofthemeansto

derivetheopportunitycostsofsellers.

Figure57depictsaPESgovernancestructureopereatinginSibuyanIsland,

RomblonProvince.Thewatershedmanagementprojectcyclecoincideswiththe

intra‐LGUplanning,budgetingandmonitoringcycle.Thisscheme,whichstarted

inearly2006,isintoitssecondcycleofimplementationbytheLGUofSan

Fernando,Romblon.ThefundscomefromcontributionsoftheMunicipalLocal

Government,andWWF.Thesellersaretheuplandcommunitiesconsistingof

SibuyanMangyanTagabukidindigenousgroup.Theuplandcommunitiesreceive

paymentstoperformpatrols,surveillance,plantnativetreesandagro‐forestry

species.

Thefundsfortheseactivitiesareheldintrustusingaseparatebankaccount.The

donors’representativesareco‐signatoriestodepositsandwithdrawals.Funds

aredisbursedaftersatisfactoryreviewofprogressreportsandverificationbya

monitoringcommitteewhichiscomposedofthebarangaycaptains,DENRand

theNCIP.


Figure57.PESGovernanceStructure,SibuyanIsland,RomblonProvince

2009.


Conclusions:

ThevaluesbeingderivedformtheAbuaniscurrentlybasedontimber

extraction.TherecentcampaignagainstillegallogginginAbuanin2008‐2009

yieldedhalfamillionboardfeetoftimbervaluedatP8Millionpesos.The

baselinescenarioshowsthatwewilllosetheforestandthewatershedservices

todestructiveactivities.AssumingthereturnsfromloggingisP8Millionayear(

orUSD166,667)basedonconfiscationrecords,thisamountissmallcompared

totheUSD9.3Millioneconomicvaluesthatcanbederivedfromeconomic

sectorsthatdependonmaintainingforestservices.Thisdoesnotincludethe

potentialdamageavoidedfromdeforestationsuchasfloodingandlandslides.

Withoutthecarbonpayments,thepotentialreturnperhectareofforest

preservedisUSD9.50/hectare.Thisiswellwithinthelowendofpayments

beingmadetoprotecttheforestsinCostaRica.

WhileAbuanshowshighpotential,thechallengeistoconverttheseeconomic

valuesintofinancialreturns.ThepaperrecommendsthattheLGUofIlagan

presentthebusinesscasetotheRegionalDevelopmentCouncilchairedbythe

NationalEconomicDevelopmentAuthorityofRegion2(NEDA‐2).NEDA‐2will

thenprepareaninvestmentkit,conductinvestors’roundtable,andmarketthe

sitetoinviteinvestorsinhydropowerdevelopment,irrigationanddomestic

watersupply.TheDepartmentofTourismRegion2(DOT‐2)shouldadoptthe

recommendationoftheCarag(2009)study,buildcapacitiesofoperatorsandset

tourismstandardstolauncheco‐tourisminAbuan.Eachsectorwilleventually

undertakedetailedfeasibilitystudiesandoperationalplanstomakethese

schemeswork.ThePESschemesandgovernancestructurescanbeestablished

lateronceoperationsstartinAbuan.

UnlessthewatershedservicesofAbuanbasinareutilizedforthebenefitofits

residents,theIlagantownandsocietyatlarge,thepullofdeforestationwill

alwaysremain.TheAbuanwatershedhasmuchofferandthebenefitscanbe

significantasarguedinthispaper.Itiseitherweuseit,orweloseit.


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Ilagan Watershed Reports 5Tongson