Compensating local people for their upstream activities

2005 Winner

REECS is an all-Filipino consultancy firm on environmental and resource economics. It services a broad base of clients and is composed of professionals who are committed to the advancement of sustainable economic development. The firm traces its roots to the Natural Resources Accounting Project, the pioneering venture that laid the groundwork for institutionalising the use of accounting for economically viable natural resource-based services. It has since developed a wide range of expertise and looks at environment-economic interactions within a holistic and multi-disciplinary framework.

More information about the organisation

REECS’ clients include international development agencies and research institutions, national and local governments, businesses, NGOs and other concerned stakeholders. REECS's services deliver results that help clients make informed decisions and improve resource management initiatives.


The general objective of the project was to initiate a PES program in the proposed project site, the Peñablanca Protected Landscape and Seascape in the municipality of the same name.

Project Description

After comprehensive investigations and stakeholder dialogues of REECS it was decided to introduce “Payment for Environmental Services” (PES) in the proposed project area, together with supporting measures such as the establishment of tree nurseries, etc. PES is a relatively young market-based instrument that addresses the twin goals of environmental protection and poverty alleviation. It is an innovative tool, but is rarely applied and tested in Asia, particularly in the Philippines. It calls for the beneficiaries of certain environmental services to make payments to those providing the services. Thus, for a PES programme to be sustainable, the direct involvement of the beneficiaries of the environmental services is essential. The project has taken care to address this issue. Providing training support on sustainable upland farming practices and community organising as well as identifying and introducing alternative livelihood programmes were identified as crucial (flanking measures) for the successful introduction of PES. Furthermore extensive information and education are important besides training for upstream communities on forest patrolling and monitoring.

Country / Region

The Pinacanauan Watershed area is about 65,099 ha. It encompasses a total of 24 barangays in Peñablanca, the 3 largest being Minanga, Lapi, and Mangga. The watershed covers more than 4000 ha of land under the city of Tuguegarao and nearby towns. For the purpose of the study, the Pinacanauan Watershed was subdivided into 5 major subwatersheds. Subwatershed 1 is the largest with an area of more than 26,000 ha, where most part of the largest barangay, Minanga, is found. Sub-watershed 2 is the smallest with only 4,000 ha, most of which is within Barangay Lapi. Subwatershed 3, 4 and 5 have an area of at least 10,000 ha each.


Despite the resource potentials for economic development, the municipality and the local communities has yet to capture fully all the economic benefits available. Communities still rely principally on livelihood strategies that continue to degrade these forests such as timber poaching, unregulated wildlife hunting and firewood gathering, unsustainable upland farming and kaingin making, these despite a number of tenure instruments such as Community-based Resource Management Agreement and other tenures granted by government representing about 36 % of the total land area of PPLS.

Information about local context

The project addresses the issues of severe environmental degradation and deforestation in critical water catchments, and the widespread poverty and insecure livelihoods of upland farmers, which occurs at both local and national levels in the Philippines. Both of these key factors are interlinked: while poverty and lack of secure or sustainable livelihood options themselves can often be underlying causes of environmentally-destructive land and resource practices among upland communities, continuing watershed degradation in turn undermines local livelihoods and tends to have disproportionately severe effects on the upland poor (as well as impacting negatively on the downstream populations who depend on watershed goods and services). The Peñablanca Protected Landscape and Seascape (PPLS), the target site of the project, is a critical watershed and biodiversity hotspot. A wide range of flora and fauna are found in the largely forested area, which displays high levels of species diversity and endemicity. Located in the southernmost part of Cagayan Province, PPLS covers an area of some 118000 hectares, and provides the watershed for the Pinacanauan River. This river provides one of the main water sources to the Peñablanca municipality and to Tuguegarao City. At the same time, PPLS also forms a popular tourist area, attracting visitors who want to experience its nature as well as visit well-known local sites such as waterfalls and caves.

Chances / Risks

The project has been designed to be economically sustainable through generating funds (PES), income (livelihood activities) and other benefits (agroforestry) for conservation. For the most part these activities look as if they will generate tangible economic benefits to upstream commu-nities. The main risk is whether they yield sufficient income to act as adequate incentives for farmers to curtail environmentally destructive activities in the watershed.

Participation of the communities

The beneficiaries have been involved actively in the project. During the implementation of the REECS/PREM research in the proposed project site, the key stakeholders were periodically updated and consulted, in particular, the concerned offices of the regional Dept of Environment & Natural Resources. In the present project, the Protected Area Manage-ment Board (PAMB) in the project site is one of the co-proponents. Likewise, the regional office of Conservation International which has been active in the project site is also one of the co-proponents.

Project monitoring

During the project of Swiss Re Foundation an external coach has been supporting REECS in the establishment of the PES system. REECS together with the coach monitored the project implementation with periodic on-site visits.

Project update 2007

Alleviation of poverty thanks to innovative PES Scheme The implementation of the PES scheme and its support measures has been running according to plan. It is well-designed and addresses important concerns both in development and conservation terms: the need to find mechanisms that promote watershed conservation through improved environmental management and at the same time strengthen rural livelihoods and alleviate poverty. The specific objectives have proved to be well chosen and to form the essential elements needed to initiate a PES programme. Great emphasis is also being put on strengthening capacity and awareness, and on pro-moting dialogue and negotiation between different stakeholders. The seedling nurseries have been built. They are progressing well and are ready to be planted out. However, the most critical point is the implementation of the PES scheme itself. Even after the ES buyers and sellers have been identified and given extensive information about the scheme, it is still difficult to find ES beneficiaries who are willing to actually pay for the services they use.

Project update 2009

The monitoring project of Swiss Re Foundation has ended in December 2008. The service beneficiary and the service providers are still very committed to the project. The project is known in the region and community members are interested to participate.

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Resources, Environment and Economics Center for Studies, Inc. (REECS)
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Resources, Environment and Economics Center for Studies, Inc. (REECS) 
Eugene Bennagen