“Contribution to the environmental objectives of Peru� Programme (ProAmbiente)
Working paper Nr. 5
Investment in natural infrastructure Making investments in physical infrastructure sustainable
Investment in natural infrastructure.
Making investments in physical infrastructure sustainable. © German Cooperation, implemented by GIZ “Contribution to the environmental objectives of Peru” Programme (ProAmbiente) www.proambiente.org.pe Responsible for the publication: Silke Spohn, director of ProAmbiente Author: Fernando Leon – Principal Advisor “Environmental and Climate Financing” Field Revision and editing: Rosa Díaz Design: Fábrica de Ideas Layout: César Caballero Translation Sheila Gratton Photographs: Management Committee of the Cumbaza watershed (p. 10) IMS group (p. 9) ProAmbiente (p. 5, 7, 11, cover) Digital document, 1st edition September 2015 Total or partial reproduction of this publication is authorized, on condition that the source is cited. The publication of this document has been produced in alliance with the ValuES project and the “Enhancing low-carbon development by greening the economy” project in cooperation with the Partnership for Action on Green Economy (PAGE), both projects of the German Cooperation, executed on behalf of the German Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB) with financing from the International Climate Initiative (ICI).
Contents 04
04
05
Introduction
Summary
The physical infrastructure gap
06
07
08
Physical infrastructure and natural infrastructure
Development planning and infrastructure
Favourable conditions for integrating the natural infrastructure
08
09
11
A case for public investment in natural infrastructure
Natural infrastructure (green infrastructure) in other countries
Guidelines for integrating natural infrastructure
11 Relevant documents consulted
Investment in natural infrastructure Making investments in physical infrastructure sustainable 1. Introduction The “Contribution to the environmental objectives of Peru” Programme (ProAmbiente) of the German Cooperation, implemented by GIZ, works on behalf of the Federal Ministry for Economic Cooperation and Development (BMZ) of Germany, together with partner institutions at national and regional level. It aims to support the achievement of Peruvian objectives related to sustainable use and the conservation of ecosystems for biodiversity protection, mitigation and adaptation to climate change. The programme works in four fields of action that are focused on sustainable forest management; management and environmental policy; environmental and climate finance; and innovation related to biodiversity. At the national level, the main partners of ProAmbiente are: The Ministry of Environment (MINAM), the National Service of Natural Protected Areas (SERNANP), the Agency for Assessment and Enforcement (OEFA), the Environmental Certification National Service for Sustainable Investment (SENACE), the Ministry of Agriculture and Irrigation (MINAGRI), the National Forest and Wildlife Service (SERFOR), the Ministry of Economy and Finance (MEF) and the National Council for Science, Technology and Technological Innovation (CONCYTEC). At the subnational level, working together with the regional governments of San Martin, Ucayali and Amazonas -joint action areas- and Arequipa, according to specific themes.
4
Under the framework of environmental funding work is being done to support efforts to “green” the National Public Investment System (SNIP for its acronym in Spanish). A breakthrough in this regard is the promulgation of national policy guidelines for public investment in biodiversity and ecosystem services (R.M. No. 199-2015-MINAM), and the guidelines for the formulation of public investment projects (PIP) on biodiversity and ecosystem services (RD No. 006-2015-EF / 63.01). However, the next step is to integrate biodiversity, i.e. avoid its confinement to the environmental sector in order to achieve its mainstreaming in other sectors, so that the plans, programmes and projects aimed at installing physical infrastructure integrate green infrastructure from their design.
2. Summary Physical infrastructure plays an important role in the countries development: it helps competitiveness, creates favourable conditions for private investment and improves living standards of the population. However, its functioning in the long term depends on another type of infrastructure based on ecosystems and biodiversity, working independently since not created by man and provides a number of services called ecosystem services.
In a mega-biodiverse country like Peru, natural infrastructure is the basis for the livelihoods of the most vulnerable people as well as the support for economic activities. In this dynamic, the Andes wetlands filter water which is then consumed by the population on the coast, and the forests of the mountains of the high jungle control soil erosion and prevent floods. These are free services provided by the natural infrastructure. In this sense, the natural and physical infrastructure should be considered as two elements that complement and reinforce each other in benefit of the population. Although the aim of closing the gap in physical infrastructure, is a challenge, it also offers the opportunity to integrate into development plans the focus on sustainability of public investment, on considering from the design of an engineering project the natural infrastructure, not as an “environmental� issue alone, but as a factor reducing costs, and minimizing the vulnerability and sustainability of public investment in the long run.
proven economic, social and environmental effectiveness is a reference that is being taken into account, also in Peru, specifically in the department of San Martin, the first case of investment in natural infrastructure associated with physical infrastructure, is being developed. This will serve as an example referring to the transversal integration of natural infrastructure in all PIPs oriented towards the execution of physical infrastructure.
3. The physical infrastructure gap Closing the gap in physical infrastructure in developing countries is considered a condition for economic growth, poverty reduction and increased competitiveness. For example, it is known that access to clean water through the water and sanitation infrastructure reduces by 55% the probability of infant mortality.
Today, six years after the creation of the Ministry of Environment, there have been positive changes in the environmental institutions, legal framework and public awareness of environmental challenges; which provide a favourable environment for continued progress in the adoption of best practices and reference models such as the integration of physical and natural infrastructures.
In Peru, the total gap of physical infrastructure for the period 2012-2021 amounts to 33% of the gross domestic product (GDP) projected for that period. The magnitude of the required funding is approximately US$ 87,975,000, which represents a challenge not only in the building of schemes that combine public investment and private sector participation, but also in the consideration of key elements from design to ensure functionality in the long term.
Although the experience of the European Union (EU) and the United States of America (USA) in the implementation of the green infrastructure approach as a public policy of
The physical infrastructure gap has national implications, as it constitutes a barrier to development, and, in the global context, it has an unfavourable impact as
5
being a factor in assessing the competitive position of the country. To actually close this gap two things must be considered: the installation of the missing infrastructure and the assurance that the installed infrastructure works properly in good time.
4. Physical infrastructure and natural infrastructure To understand how they interrelate it is important to define both physical infrastructure and natural infrastructure. Physical infrastructure: the set of engineering structures and facilities that are the basis for the provision of services needed for development1. Natural infrastructure: the network of natural areas that conserve the values and functions of natural ecosystems, which in turn provide services to the population and ensure the sustainability of the physical infrastructure2. Traditionally, it was thought that the sustainability of the physical infrastructure was conditioned by good construction and maintenance. However, it is more and more evident the role of ecosystems and their services (natural infrastructure) in obtaining this purpose. A clear illustration of this are the cases of large dams filled by sediments because their design did not take into account the ecosystems. In the current context it is not possible to think about investing large amounts of resources in developing physical infrastructure without considering the characteristics of the natural environment where they are going to be used, including their vulnerability in the face of extreme weather events. Also, on noting that the physical infrastructure is established in a particular territorial space, the links with nature are close and often decisive, but only noticeable if your look extends beyond the engineering work. It is common to find PIPs on a great scale for the installation of water and sanitation infrastructure with no connection to the ecosystems that provide this resource. The establishment of physical infrastructure is not only a challenge but also an opportunity to integrate the natural infrastructure as an element that ensures its functionality and sustainability in the long term.
Rozas, P. y Sรกnchez, R., Desarrollo de infraestructura y crecimiento econรณmico: revisiรณn conceptual. Santiago de Chile: Cepal, 2004. 2 Adapted from Benedict, M. and McMahon, E., Green Infrastructure: Smart Conservation for the 21st Century. The renewable Resources Journal (Maryland, EUA), 2002. 1
6
The physical infrastructure is installed in the environment (rural or urban) and depends for its working, on ecosystems and the services they provide (natural infrastructure). The physical infrastructure is built with the aim of providing development services, such as safe drinking water, sanitation, water for agriculture and water for power generation, among others. The link between nature and physical infrastructure is direct and solid; for example, it is clear that mountain ecosystems provide clean water, but for it to be available to the public requires the construction of reservoirs and pipe installation. In another case, ecosystems can provide a volume of water on a steep slope, but to converting it into energy for people requires the construction of a dam, pipes and turbines. Furthermore, ecosystems provide places with special scenic beauty, but tourists may not appreciate this if trails, lodges, roads and interpretation centres are not built, among others. The examples above show that physical infrastructure is only a means to bring the benefits of natural infrastructure to the people; to that effect, the development of physical infrastructure must integrate natural infrastructure from its design. When ecosystems are degraded the functionality of the physical infrastructure is reduced and its vulnerability to extreme climate events is increased. Thus, it is known that costs of treatment for drinking water are increased when the rains intensify and the water comes loaded with sediment as a result of exposure of soil from deforestation. Different experiences of destruction of the physical infrastructure, as a result of floods and landslides that result from degradation of vegetation cover in the upper parts of the watershed, are also known. In all cases, the population, the private sector and the government assume the costs of making the natural infrastructure invisible when implementing decisions of physical infrastructure. Poechos Dam is a case in point, built to hold 1,000 million cubic metres of water, after 26 years of operation lost almost half of its storage capacity because of the accumulation of sediment as a result of rains which eroded soils without vegetation coverage of the Chira River Basin. Conversely, when ecosystems are preserved functionality of the physical infrastructure increases and its vulnerability decreases. Ecosystems in the upper reaches of the watershed control soil erosion and provide stability to the slopes, reducing the risk of floods. Maintaining healthy natural infrastructure avoids high costs for the population and the economy. A classic example is the conservation of forests upstream in the Catskills watershed, which saved the city of New York from an investment of between US$ 4,000 and US$ 6 000 million additional in physical infrastructure to maintain the quality of the supply of urban drinking water.
5. Development planning and infrastructure As already mentioned, closing the infrastructure gap is a key element for the development and provision of people with better public services; which has a close relationship with the installation of physical infrastructure. In this regard, national sectorial strategic plans and plans of regional and local development prioritize public investment for the development of physical infrastructure. However, the bias towards investments in physical infrastructure makes natural infrastructure invisible. Mega investments oriented towards the installation of water and sanitation systems without any consideration of the ecosystems that supply the water resource is seen, for example. These investments are mainly directed to engineering works and leave a gap in the necessary financing for the preservation of the natural infrastructure. The consequence of making nature invisible is that this is not integrated into development plans and, therefore, investments for its conservation are not considered. Unlike what happens with investments in physical infrastructure, in which financing needs are known with precision; for example, the financing gap of water and sanitation infrastructure is of US$ 5,335 million.
The integration of physical infrastructure with natural infrastructure can be carried out from the design of an investment project; for that attention must be paid not only to engineering but also to the related ecosystems and the ecosystem services necessary for the operation of the physical infrastructure. In short, what is required is the adoption of a sustainable investment approach, in which for each “X” monetary units of investment in physical infrastructure “Y” monetary units are allocated for the conservation of the natural infrastructure, but since design of the project. The drinking water and sanitation sector offers an opportunity to make more sustainable investments. Not only because the links between ecosystems and infrastructure are more evident in this area, but also because the PIPs in this category are included in all development plans at a regional and local level, so that integrating the natural infrastructure in these projects has the potential for “greening” the sector to integrate nature into development planning and scale up the approach of sustainable investments to other sectors. The SNIP can make a qualitative leap by moving to a second generation of PIPs with a focus on sustainability, and integrate the natural infrastructure on the guidelines of identification, formulation and evaluation of water and sanitation projects, which can be a first step.
7
6. Favourable conditions for integrating the natural infrastructure For a decade work has been done to integrate natural infrastructure to physical infrastructure. The first test case was conducted in the department of San Martin, with public sector leadership and with the advice of the German Cooperation, implemented by GIZ. The idea was to generate resources to conserve the ecosystems of the top three watersheds that supply water to Moyobamba city. The people of this city, in 2008, agreed to include an additional Sol (PEN) in their water bills in order to generate resources to fund the conservation work in partnership with the people of the upper parts of the watersheds of Rumiyacu, Mishquiyacu and Almendra, who with their actions contribute to the provision of ecosystem water services. Since then, to date, these initiatives have multiplied. The Ministry of Environment (MINAM) has counted at least 17 throughout the country. Thanks to a policy change and the enactment of a law, favourable conditions have been generated to develop compensation schemes for ecosystem water services. In 2013 the Modernization Act of Sanitation Services, which obliges the National Superintendence of Sanitation Services (SUNASS for its acronym in Spanish) in coordination with the entities providing sanitation (EPS for its acronym in Spanish) to include in their Optimized Master Plan (PMO for its acronym in Spanish) environmental compensation mechanisms and watershed management, was approved. Similarly, in 2014 the Compensation Mechanisms for Ecosystem Services Law was promulgated, which establishes the technical characteristics, conditions and competence to promote compensation mechanisms for ecosystem services (MRSE for its acronym in Spanish). Despite these advances, the amount of investments achieved with these mechanisms is still modest in relation to the conservation needs of the natural infrastructure in watersheds. In general, the challenge is to integrate the concept of sustainability in large investments to implement infrastructure, particularly those aimed at establishing water and sanitation systems. The National Investment Plan of the Sanitation Sector shows that by 2014 there were 7 524 PIPs viable for execution for a value of S/. 18 454 million, 72% of this amount was allocated to regional and local governments. It is expected that the construction of water and sanitation infrastructure, through these investments, helps to close the gap in this sector in favour of the 4.2 million inhabitants who still lack safe drinking water and 9.8 million people without sanitation. The most effective way to ensure the provision of ecosystem water services, which will address
8
the unmet needs of the population, will be to consider the natural infrastructure as part of these investments.
7. A case for public investment in natural infrastructure In the last 10 years, the Regional Government of San Martin has been characterized by its consideration of environmental aspects in regional policies and in the implementation of plans, programmes and projects. It was in this department where the first initiative of payment for ecosystem services was installed, and now it claims to be again a pioneer in building an initiative of investing in natural infrastructure to complement a PIP of physical infrastructure for water and sanitation. The San Martin Regional Government prepared the PIP “Improvement and expansion of drinking water, sewage and wastewater treatment in the towns of Tarapoto, Morales and Banda de Shilcayo� for the amount of S/. 538 million to provide water and sanitation to 153 517 people. The project involves the construction of engineering works, installation of equipment and instruments, and operating costs and maintenance, but makes a central element invisible: the ecosystems that will provide water for the entire system to work and, most importantly, for the populations taken account as to have quality water in sufficient quantity and with the expected regularity. Faced with this gap, the Environmental Regional Authority (ARA for its acronym in Spanish), with the advice of ProAmbiente, has taken the initiative to develop the first case of public investment in natural infrastructure to complement the installation of physical infrastructure. It is a PIP which will cover the investment gap in conservation of the ecosystems that will provide water for the operation of drinking water and sewerage systems that will be installed. The PIP of the conservation of the natural infrastructure considers the recovery of the vegetation cover in the protection areas, implementation of good management practices and soil conservation, the improvement of governance in the basin, communication and awareness of the key actors; strategic actions that will be performed with an investment of approximately S/. 30 million. The formula is simple: with an investment of S/. 30 million in natural infrastructure, an investment of S/. 538 million in physical infrastructure is being safeguarded in favour of the people. This case is just a measure to complement a PIP that had made nature invisible. The ideal would be for the PIP to adopt a sustainability approach in which the value chain of a drinking water and sanitation system begins in the ecosystems which supply water and ends in the receiving body of wastewater, which is also an ecosystem, but located in the basin downstream.
8. Natural infrastructure (green infrastructure) in other countries The natural infrastructure approach has been successfully adopted globally. In the US, the Environmental Protection Agency (EPA) has established a collaborative platform to promote the development of natural infrastructure, through a declaration of a partnership between the public sector, private sector and NGOs, Green Collaborative Infrastructure Statement of Support, and a statement of support from federal agencies, Federal Agency for the Green Infrastructure Collaborative. In both statements it is recognized that investing in natural infrastructure can play a unique and valuable role in building more sustainable and resilient communities. Some states like Illinois, in coordination with EPA, have even enacted specific rules to develop natural infrastructure: The Green Infrastructure for Clean Water Act.
The World Resources Institute (WRI) reported cases throughout the US in which investment in natural infrastructure has a positive return not only in environmental terms but also economic and social. In Medford, Oregon, it is estimated at US$ 12 million is saved per year by investing in the restoration of riparian forests instead of installing physical infrastructure to mechanically cool the water thereby fulfilling its obligations under the Clean Water Act. Also, the water authority of the district of Portland, Oregon, saved US$ 110 million by developing conservation actions in a watershed rather than building physical infrastructure. Meanwhile, the implementation of the Green Infrastructure Plan for the District of New York estimates that each acre of vegetation would provide annual benefits of US$ 8 522, in terms of reducing energy demand; US$ 166, in reduction of CO2 emissions; US$ 1 044 in improving air quality; and US$ 4 725 in increased property values. In turn, the European Commission, in a communication document to Parliament, the Council, the Economic and Social Committee and the Committee of the Regions en-
9
titled “Green Infrastructure: Enhancing Europe´s Natural Capital”, recognizes that natural infrastructure is a tool that provides natural solutions with proven economic and social benefits. It also helps to understand the value of nature for human society and, consequently, the importance of mobilizing investments to sustain and multiply them. It has been reported that humid air that is provided freely by natural infrastructure, in Europe could be replaced by an air conditioning using electricity and steam, but at an estimated cost of € 500 000 per hectare. Also, it has been estimated that the Humber Estuary, England, has an annual revenue estimated at € 465 000 in terms of protection from coastal flooding and reduced spending on artificial coastal defences, in addition to favourable conditions for wildlife. On the other hand, in Sint-Truiden, Belgium, conservation measures for the natural infrastructure were taken to protect the city from floods and avalanches of mud, at a cost of € 126 per hectare for 20 years, which was well below the € 54 per hectare per year in terms of cleaning and repairing flood damage in the area covered by such measures. The benefits of natural infrastructure are tangible and have a positive impact on society. The legal and institutional framework supporting this topic in other countries shows the importance they assign it and the examples presented provide quantitative evidence of the positive
10
impact of investing in its conservation or recovery, and include the issue of public policy.
9. Guidelines for integrating natural infrastructure The gap of physical infrastructure, in general, and of drinking water and sanitation infrastructure, in particular, represents a challenge but also provides an opportunity to integrate the natural infrastructure as a key element in ensuring sustainability and functionality in the long term, as it happens in other countries were the natural infrastructure is part of public policies that bring the benefits of nature to society. In the case of Peru, although the mechanisms of compensation for watershed ecosystem services are a step in this direction, the legal conditions, progress in national environmental policy and the growing awareness of the community on these issues provide a favourable environment to integrate natural infrastructure in public investment aimed at developing physical infrastructure. In this regard, the following guidelines are proposed: • •
Recognize the economic and social benefits of integrating natural infrastructure in the public investment projects. Promote the conservation of the natural infrastructure through public and private investment.
• • • •
•
Consider natural infrastructure from the design of a public investment project to establish physical infrastructure. Recognize that water ecosystem services are the key element in the investment projects of drinking water and sanitation. Identify the ecosystems which provide water services as critical assets in the value chain of a drinking water and sanitation system. Include the costs of ecosystem conservation which provide water as part of the economic and financial analysis of investment projects of drinking water and sanitation. Integrate in the analysis of risks and sustainability of the public investment projects of drinking water and sanitation, the costs of damage to the system by not considering the conservation of ecosystems, and the benefits for the costs avoided by including conservation actions.
10. Relevant documents consulted Federal Agency Support for the Green Infrastructure Collaborative. (2014). Retrieved from http://water.epa.gov/infrastructure/greeninfrastructure/upload/Federal-Support-for-GreenInfrastructure-Collaborative_508.pdf
Lira, L. (2006). Revalorización de la planificación del desarrollo, CEPAL. Retrieved from http://www.cepal.org/es/ publicaciones/7316-revalorizacion-de-la-planificacion-deldesarrollo Comisión Europea. (2013). Infraestructura verde: mejora del capital natural de Europa. Retrieved from http://eur-lex.europa.eu/resource.html?uri=cellar:d41348f2-01d5-4abe-b8174c73e6f1b2df.0008.05/DOC_1&format=PDF Economides, C. (2014). Green Infrastructure: Sustainable Solutions in 11 Cities across the United States, Columbia University Water Center. Retrieved from http://water.columbia.edu/ files/2014/04/Green_Infrastructure_FINAL.pdf Gartner, T. Mulligan, J.Schmidt, R., & Gunn, J (2013). Natural Infraestructure: Investing in Forested Landscapes for Source Water Protection in the United State, World Resources Institute. Retrieved from http://www.wri.org/publication/naturalinfrastructure Plan Nacional de Inversiones del Sector Saneamiento para el periodo 2014- 2021, Ministerio de Vivienda, Construcción y Saneamiento, Perú. Retrieved from http://www.vivienda.gob.pe/
11