Liquid Assets

By Katherine Ellison & Amanda Hawn

Jalpan de Serra, Querétaro, Mexico
At first glance, Carlos Ortega’s woodshop in central Mexico’s Sierra Gorda Biosphere Reserve might make a conservationist wince. Large logging hand saws hang from the wall above neat stacks of wooden boards. But closer inspection reveals that the saws have rusted over with age and that the wood is recycled material that Ortega buys in town for his small furniture business. A former cattle rancher who once harvested the oak forest on his 200-ha property, he now makes his living in ways that protect rather than harm the reserve’s rich landscape. Ranching had never been profitable in the mountains, their slopes too sparse for grazing and too remote from urban meat packers. And so, he explains, “I began to look for alternatives.”

Two years ago, Ortega got lucky with the advent of a ground-breaking new federal program called Payments for Hydrological Environmental Services. The payments, amounting to as much as US$40 per hectare per year, acknowledge that landowners who refrain from logging and ranching help preserve the complex natural machinery of this important watershed which, with roots, foliage, and underbrush, keeps water filtered and evenly flowing for several thousand downstream consumers. Ortega, one of 45 Sierra Gorda residents now receiving the environmental payments, says the program’s promise convinced him to sell his 60 cattle and quit cutting down trees. The conservation pesos, he says, “are a better business for me.”

It’s not all that hard, of course, to persuade rural folk to accept money to conserve their surroundings. But Mexico’s ambitions don’t stop there. The government also intends to tackle a more entrenched twenty-first-century dilemma: getting water consumers (not just the government) to pay for nature’s hidden subsidies, which they’ve long taken for granted.

Mexico’s project was inspired by a ground-breaking scheme in operation in Costa Rica since 1997. There, farmers living on some 350,000 ha have been paid to protect forests that, it is understood, help maintain water purity, biodiversity, and climate stabilization (by storing carbon dioxide). The governments of China, Australia, and — in one of the world’s biggest programs — the U.S. are making similar sorts of payments to designated land stewards. (The U.S. Conservation Reserve Program dates from 1985 and pays farmers not to grow crops on land at risk of erosion.) In developing countries, such projects have recently been growing much more popular as the World Bank and the Global Economic Facility, spotting opportunities for conservation combined with poverty relief, have endorsed the strategy with millions of dollars in loans, grants, and technical support.

Mexico’s program is much bolder than the one in Costa Rica, not least because Mexico is many times the size of the Central American path-breaker, with deeper and more widespread poverty. Mexico also has the good fortune to be one of the biologically richest countries on Earth — and the misfortune of what’s said to be the world’s second-worst record of deforestation, after Brazil. More than 1 million ha of forest — nearly three Sierra Gordas — is lost each year, mostly due to illegal logging. That means that an increasing number of Mexicans who had never before dreamed of the interplay between forests and water are now experiencing a rude awakening as aquifers dry, soil quality decreases, and pure water grows scarce.

The jury is definitely out on how much difference environmental payments can make in halting Mexico’s destruction of its life-support infrastructure. Much like the effort in Costa Rica, Mexico’s program — at work in 16 sites around the country where water supplies are at risk — is handicapped by limited funding, less-than-solid scientific justification, and, worst, persistent lack of popular appreciation of nature’s life-support services. Here in the Sierra Gorda Biosphere Reserve, however, officials have a singular advantage in the charismatic leadership of long-time civic activist Martha (Pati) Isabel Ruiz Corzo.

“The Sierra Gorda is a water factory — and this needs to be appreciated by presidents, governors, and water users,” Ruiz argues to all who will listen. A former concert violinist from a wealthy family, she abandoned urban comforts to move with her husband and sons to a rugged home here some twenty years ago. Struck by the ecological riches surrounding them, Ruiz and her husband, Roberto Pedraza Mu?z, helped create the nonprofit Sierra Gorda Ecological Group and successfully lobbied the government to create the Sierra Gorda Biosphere Reserve.

In 1997, Ruiz was named director of the new United Nations-administered conservation area. At that time, there were already more than 100,000 people living within its boundaries, most of them without electricity or plumbing but with legal claim to the land and a need to support themselves from it. The Sierra Gorda Ecological Group, of which Pedraza is now director, has been encouraging transitions to sustainable livelihoods with programs ranging from ecotourist bird-watching ventures to the manufacture of odorless composting latrines. Today it also manages the government’s environmental payments program.

The role of forests in maintaining water purity and flow is sensually clear in the Sierra Gorda. On the drive up from the smoggy, dry flatlands of Querétaro City, the brown horizon is broken only by the purple bloom of the occasional jacaranda tree. Bone-dry arroyos line the highway as the hills become steeper until suddenly, the foliage deepens, the air cools, and new ecosystems grade into one another in quick succession — oak forest, pine forest, cloud forest, rain forest. In the newly protected cloud forest areas, evidence of past logging is slowly fading. Trees felled by vanished loggers now lie covered with moss, and old footpaths have been covered by a tangle of roots and leaves.

Pointing to a map, Pedraza explains that the region is a center for hydrological recharge due to both geography and geology. The clouds coming off the Gulf of Mexico sweep across the flat plains to the east and then are “caught” by the Sierra Gorda’s peaks, which force air upward, cooling and condensing it in the process. This generates heavy summer rainstorms known as temporales. The water then seeps through the area’s porous rock, collecting in underground rivers and caverns.


Mexico’s government, which wants to establish itself as a pioneer in preserving such natural machinery, is campaigning to enlighten both potential stewards and beneficiaries of nature to, in effect, radically change past patterns of waste and corruption. The idea is to switch the system eventually from one of dole-outs and partisan favors to a more efficient, market-based operation in which users pay providers, with clear incentives all around. “This is the only way to make sure it’s done right,” says World Bank economist Stefano Pagiola, who is helping set up similar systems in many parts of the world. “If the money is only coming from the government budget, there’s no incentive to make sure the conservation is done right, no meaningful pressure in the system. Whereas if the forest conservers are getting money from service buyers, the buyers will hold them accountable. If the system doesn’t work, they won’t keep paying.”

Until this quasi-market system is in place with tangible benefits for specific beneficiaries, monitoring of compliance by the paid land stewards is especially important. For now, Mexico’s government is checking up on them with yearly satellite photography, technology that plays the greatest role in giving the project realistic hope of success. In the Sierra Gorda, Ruiz’s ecological NGO has provided essential support to the government by helping farmers apply to be part of the program and by monitoring their on-the-ground compliance. “We make sure they get their cows and goats out of the forest, which is not something so easily seen with satellites,” Ruiz says.

So far, Mexico’s federal forestry system, known by its acronym CONAFOR, has paid out approximately US$29 million (in pesos) to preserve about 184,000 ha all over Mexico. The bulk of the money has come from general water revenues, meaning that to date there’s no direct link to the natural benefits provided. It is paid to residents who agree not to exploit forest on their property and to advise the government within 30 days of any event they witness which might harm the trees. Local residents sign 5-year contracts and are paid annually — US$30/ha for temperate forest and US$40/ha for cloud forest — if at least 80 percent of the canopy is maintained.

Each watershed eligible for Mexico’s payments has been chosen by means of a series of criteria including the extent of remaining forest canopy, the threat to its continued existence, and the watershed’s proximity to downstream communities of 5,000 people or more.

CONAFOR’s rationale in the Sierra Gorda and other sites where land stewards receive compensation is in line with a globally emerging awareness of the “services” provided by ecosystems — an idea advanced by prominent scientists including Stanford University Professor of Biology Gretchen Daily and University of Vermont Gund Professor of Ecological Economics Robert Costanza. The forestry agency has established a list of seven specific natural tasks the payments are designed to support: water quality preservation, sediment reduction, flood prevention, and drought alleviation, in addition to maintenance of aquifers, minimization of runoff during heavy rains, and conservation of springs.

Unsurprisingly, Mexico has had little problem persuading property owners to come forward to be paid. The harder task, of course, will be persuading water users to take over the bulk of government financing, which is due to be sharply reduced in 2006.

In the Sierra Gorda, that task has fallen to Ruiz, who is taking it up with passion. She has already collected data on 300 potential customers, mostly businesses with the means to pay more for their water — including a mining firm, a wood factory, and an electric utility — and says she intends to start contacting them this fall.

In the meantime, Ruiz is leading an effort to gather tools of persuasion in the form of scientific studies. “I don’t want to lose credibility due to uncertain science, so we are taking our time to build a very strong case before we start negotiations,” she says.

Private water consumers have listened to reason in other parts of the world. About five percent of the Costa Rican watershed budget is already being provided on a voluntary basis by some of the largest water consumers. In the South African city of Hermanus, a new water billing program helps pay the salaries of workers who clear invasive eucalyptus trees from watersheds, where they suck up much-needed water. And in France, the famed bottled-water firm Perrier Vittel has been sponsoring watershed maintenance since the late 1980s. Concerned that contaminants, including pesticides and fertilizers from farms in the Rhine-Meuse watershed, were compromising the quality of Perrier’s prestigious water, the company signed long-term contracts with farmers on 1600 ha of strategically important land who agreed to switch to environmentally more benign practices.

A few small, private funding arrangements have sprung up in Mexico as well. The most advanced one is near Jalapa in the state of Veracruz, where a municipality is charging a voluntary extra fee for urban water use. The money is going into a trust fund for a watershed management scheme.

In hope of garnering similar private funding, the Sierra Gorda Ecological Group has established 12 monitoring sites where scientists from the nearby University of Querétaro are measuring water flow, filtration, and soil quality. The sites, distributed through the reserve’s various ecosystems (cloud forest, oak forest, rain forest, and pine forest), each host a device resembling a black soup pot. The deceptively simple-looking machines contain tiny computers that can record even slight changes in the rates of precipitation, run-off, and filtration. The researchers plan to use these data, together with data on climate variables, soil properties, and vegetation cover at each site, to model hydrological processes throughout the reserve; in short, they will collect evidence that the conserved watershed is doing just what it’s supposed to do.

Much as Ruiz hopes to use the information to sway downstream water consumers, such studies take a few years at best to yield meaningful data. The Querétaro researchers are also hampered by a lack of strong global studies to help them make a convincing case for watershed management. Partly this is due to the fact that benefits yielded by watersheds are, to a great degree, site-specific — idiosyncratic to a given landscape. But another problem, experts say, has been lack of funding for this kind of research.

“We’re talking here about something that will bring benefits ten years from now,” says Pagiola. “It’s not our job at the World Bank to do research, and it’s not something governments want to do. So the research we need to justify investments isn’t happening nearly enough. There are some models, but mostly a lot of scattered, unsystematic stuff.”

At the same time, scientists throughout the world are engaged in a debate about just how much pristine nature is necessary to meet water-supply demands. “What really is the role of forestry in a watershed? What’s actually the optimal land-use pattern? In the tropics, you can get the same watershed functions with one-third the number of trees, as long as they’re in the right places. So do we even know that we’re paying the right people?” asks agroeconomist Sara Scherr, Director of Ecosystem Services at Forest Trends, a Washington, D.C., nonprofit group that lobbies for sustainable forestry.

While arguments about how to make watershed programs more efficient continue, a larger battle goes on to convince skeptics that the approach is even warranted. Given that technical solutions have the weight of history — and firm data — behind them, this can sometimes require what Pagiola calls a leap of faith. “A lot of people know dams and filtration plants,” he says. “So when there’s a water problem, they… go for the mechanical solution because they’re either completely unaware of land-use strategies or they see there’s no good data. With a filtration plant, you pick it out of a catalogue, and you have a low-risk if high-cost solution. Whereas we’re offering something we think will help, but have to say, no, I don’t have any numbers to show you.”

In Mexico, however, water problems have become so dire that many bureaucrats and politicians now appear to be ready to act without knowing all the answers in advance.

For more information:
For more information on the Sierra Gorda Biosphere Reserve:

About the Author:

Katherine Ellison is a Pulitzer Prize-winning journalist who has written for Fortune, The Atlantic Monthly, The Washington Post, and The Los Angeles Times.

Amanda Hawn is the Assistant Editor of the online Ecosystem Market-place and a contributor to the science and technology section of The Economist.