Costa Rica’s Forest Law 7575 incentivizes local landowners to protect forests (1996–ongoing)

In 1996, Costa Rica enacted the Forest Law 7575 to combat soaring deforestation rates, protect the remaining forests, and encourage reforestation. The law enforced responsible land management of public lands to retain forests and protect natural biodiversity, and incentivized citizen participation through a publicly funded program that provides private landowners an income in exchange for planting trees and other conservation efforts. Since the enactment of this policy, the country’s trend of deforestation has been reversed, approximately seven million new trees have been planted on private properties, and thousands of Costa Rican families have received direct cash transfers for their participation.

In the 1970s and 80s, Costa Rica experienced one of the highest deforestation rates in the world, peaking in 1990 when approximately less than 25 percent of its land remained forested—down from well over half in 1950.¹ Deforestation was largely driven by agricultural expansion, particularly for cattle ranching and banana plantations. In response, the government initiated a series of institutional reforms during the 1990s to encourage sustainable forest management, including the Forest Law 7575 and the Payment for Ecological Services program it created.^{2, 3}

Forest Law 7575, passed in 1996, calls for the protection, conservation, and sustainable management of the country’s forests. It prohibits the change of any public land—accounting for about 40 percent of forested land—from forests into non-forests. To address the management of privately owned land (the remaining 60 percent of forested areas) the law created the Fondo Nacional de Financiamiento Forestal, or National Fund for Forest Financing (FONAFIFO), an institution that funds the Pagos por Servicios Ambientales, or Payments for Environmental Services, (PES) program.⁴ This program pays landowners for the public goods their forested land provides, which includes: 

1. Mitigation of greenhouse gas emissions.
2. Hydrological services, including provision of water for human consumption, irrigation, and energy production.
3. Biodiversity conservation. 
4. Provision of scenic beauty for recreation and ecotourism. 

The PES program can be accessed by private landowners, including small landowners, in every province of Costa Rica. 

Interested landowners apply to enter a contract ranging from five to 16 years with FONAFIFO, who disperses direct cash transfers based on land size and environmental service provided. Different environmental services are valued at different amounts. Landowners must adhere to certain regulations, such as:

• Having a licensed forester certify their land management plan.
• Undergo initial and annual visits from forest regents employed by NGO Fundecor.
• Periodic visits by personnel of FONAFIFO regional offices. 

Forest regents report any findings of deforestation and a contracted landowner found with deforestation on their property may be temporarily or permanently suspended from the program.⁵ 

Implementation

In 1986, the government created a Ministry of Natural Resources, Energy, and Mines. In the years that followed, national parks became an important focus, and with it, the ecotourism industry grew. In 1987, the government unveiled an Environmental Education Master Plan, requiring that environmental learning be a part of the curriculum in all public schools. It is thought that this potential income in tourism combined with widespread environmental education, among other factors, has helped encourage public opinion to move towards supporting environmental conservation.⁶ 

In 1994, a new government took office focused on the environment, and emphasizing the economic value of the country’s forests. Around this time, an environmental NGO, Fundecor, was conducting economic valuation studies throughout the country’s forests and recommended the Payments of Environmental Services. The NGO first launched a small pilot program to a group of farmers covering 1,600 hectares that produced positive results, which was then picked up by the government.⁷ The then Minister of Environment brought the policy  to Congress who ultimately passed the law in 1996.

FONAFIFO was established to oversee this program under the Ministry of Environment, working closely with the pre-existing National Conservation Areas Agency (SINAC) within the same ministry.  They began accepting applications for the PES program in 1997.⁸ 

The program was restructured in 2004, due to concerns over low participation rates from small landowners in its initial years.⁹ Rather than managing contracts in the capital city on a first-come-first-serve basis, FONAFIFO established eight regional offices with a  decentralized governance structure. This gave each regional office authority to decide which contracts were better suited to which particular award, allowing them to assess the biodiversity needs of the geographic region as well as the social needs for the constituents. Contract preferences were no longer on a first-come-first-serve, instead areas of low social development, land owned by women, and indigenous landholdings were prioritized.¹⁰ Additionally, in 2018, a sub-program under PES, Sistemas Mixtos or Mixed Systems,  was added that specifically targets landowners with less than 10 hectares, designed to establish sustainable and regenerative agricultural systems on small plots of land.

Cost

The annual budget for the PES program is between USD 20 million and USD 25 million. It is estimated that approximately 90 percent of the program is financed by gasoline and diesel taxes.¹¹ In 2001, the Law of Tax Simplification and Efficiency (No. 8114) was passed, creating a single tax of a designated nominal amount per liter, assessed and adjusted four times per year, to be placed on gasoline and diesel. Premium gasoline holds the highest tax, followed by regular gasoline, then diesel, which operates the country’s buses and thus services the lower income members of society. From the total collected fuel taxes, 3.5 percent is allocated to be sent to FONAFIFO and fund the PES program.¹² The remaining approximately 10 percent of the budget is a combination of contributions from the state, international carbon credit sales, donors such as the World Bank, and partnerships with private companies that seek to offset their usage of carbon or water resources.¹³ 

Assessment

During its first 20 years of operation (1996 to 2016) the PES program has prevented over 1.05 million hectares of forests (the size of the country of Jamaica) from being subject to deforestation, and has reforested almost 70,000 hectares (the size of Singapore) of previously deforested land by the planting of over 6.8 million trees.¹⁴ Between the years of 2010 to 2020,  the country had a net reforestation rate of 16,400 hectares per year¹⁵ (the equivalent of almost 11,000 football pitches).

As of 2020, more than 18,000 Costa Rican families have held contracts in the PES program since its inception. FONAFIFO has distributed over USD 524 million during the same time period.¹⁶ For many households, these payments generate a supplemental income, rather than a primary income.

According to a 2015 study by Arriagada et al.¹⁷ in the Sarapiquí region, over 70 percent of program participants in their sample reported to have had a positive experience with the program, with many applying to renew contracts. Participants in the study also reported perceptions of increased property rights and general happiness with being a part of the community’s conservation efforts. This study also found that no harm or negative externalities to them or their families have resulted from participating.

A study by Cole¹⁸ focusing on participants in the PES program’s Agroforestry activity (establishing healthy ecosystems combining crops, livestock, and natural trees), conducted interviews with participants in the Buenos Aires canton and identified several benefits to participating in the program. Participants were able to utilize the supplemental income for farm investments such as fencing or additional livestock in some cases, and increased household purchasing power for clothes, education, and medicine in other cases. Additionally, 72 percent of those interviewed claimed that planting native trees led to decreased soil erosion and higher soil quality which can help in improved crop cultivation.

The policy has faced some criticism for its lack of ability to lift families completely out of poverty and there is a continued need to break down barriers for very small landowners and marginalized communities to join the scheme. After the structural governance changes in 2004 to decentralize FONAFIFO, and some programmatic changes such as the removal of the formal land title requirement, smaller landowners and minorities have begun to increase their participation rates. For example, in 2010 only 15 percent of contracts were given to women landowners, but by 2021 it has increased to 30 percent.¹⁹ However, some believe that further improvements would need to be made in order for this scheme to be used as a decisive tool for significant poverty reduction.²⁰ 

This program has endured for almost 30 years through several administration changes without any major political conflicts, and has enjoyed broad public support. It is a policy that treats the environment as a public good and puts intrinsic and economic value on conserving forests. Costa Rica’s PES program has gained international attention, and FONAFIFO has provided workshops for other countries to learn about the scheme. For example, the Dominican Republic has recently launched a pilot PES program in the Yaque del Norte River Basin region in 2024.²¹

Additional Information

For example, as of 2024, disbursements for five year contracts for ‘Natural Regeneration’ activities (maintaining land in its natural state and enabling natural processes of the ecosystem) are about USD 42 per hectare per year, while disbursements for 16 year contracts for ‘Reforestation with Native Species’ (actively planting native trees and encouraging the return of native species) average to about USD 162 per hectare per year.²² 

Article 69 of Forest Law 7575 laid the original financial framework for the PES program, which stated that one-third of the total revenue from a gasoline consumption tax, collected by state-owned gas company RECOPE and distributed to the Ministry of Finance, was to be given to the Ministry of Environment and allocated to this program.²³ However, this structure was dismantled shortly after.

Hanging bridge cloud rainforest forest in Costa Rica. © Adobe Stock/Curioso.Photography

Tags

• Climate & Environment
• High-Income Country
• Land
• Latin America & the Caribbean
• Low-Income Groups
• Rural Areas