In 1987, forest cover had fallen to about 21 percent as ranching and agriculture expanded. By 2023, according to Costa Rica's Sistema Nacional de Áreas de Conservación, forest again covered 58.4 percent of the country.
In the 1940s, about 75 percent of Costa Rica's land was tropical rainforest and other natural forests. Ranching incentives, cheap cattle loans, and global meat demand drove deforestation. Beef exports to the United States in the 1970s and 1980s converted cloud forests to pasture at roughly 50,000 hectares per year.
A Payment-Based Model for Forest Protection
Costa Rica's 1996 Forest Law created the Programa de Pagos por Servicios Ambientales (PES), administered by FONAFIFO, the state agency. The program provides direct payments to forest and plantation owners whose conservation efforts protect and enhance the environment. FONAFIFO describes the shift as replacing traditional subsidies with economic recognition of the services forests provide: greenhouse gas reduction, biodiversity protection, watershed protection for urban, rural, and hydroelectric use, and scenic value for tourism and science.
A fuel tax finances the program. Originally, one-third of fuel consumption tax went to PES, later reduced to 3.5 percent of the unified fuel tax. The tax is collected at the pump, channeled through the national treasury to FONAFIFO. Contracts typically run 5 to 10 years.
More than 18,000 families and cooperatives have signed contracts. Since 1997, roughly 1.3 million hectares have been enrolled cumulatively, with about 300,000 hectares under active contract in any given year. Small to medium landholders with 10 to 100 hectares represent the majority of participants, though larger ranchers hold a disproportionate share of area. Indigenous territories, especially in the Talamanca region, hold collective contracts covering tens of thousands of hectares.
Deforestation rates varied regionally. A 2020 study of four regions found a sevenfold difference in net forest loss between 2001 and 2017, with lower rates inside protected areas. Protected areas themselves, numbering 32 national parks and 230 other reserves, covered 25 to 28 percent of land area as of 2017–2018.
Beyond the fuel tax, the World Bank, the Global Environment Facility via the Ecomercados project, and Germany's development bank KfW contributed funding. Water tariffs from hydroelectric and bottling companies, and international carbon credit sales, added revenue. FONAFIFO noted that available funding did not meet growing demand. Participating landowners earned an average of $22 to $42 per hectare per year, while ranchers earned $8 to $125 depending on location and management.
Mixed Signals in the Research
Early findings raised questions. A 2005 study found that smaller landholdings barely participated and enrollment rules favored larger properties. A remote-sensing analysis of contracts from 1997 to 2000 found no significant reforestation on PES plots compared to non-PES land. A 2005 household survey in the northern Sarapiquí region found that PES participation had no effect on measured household well-being and negative effects on cattle herd size and the likelihood of hiring farm workers.
An early problem: some landowners were paid not to fell trees they had no plans to fell anyway, because the land was too remote, too steep, or already legally protected. FONAFIFO revised its site selection to prioritize biological corridors, indigenous territories, and areas facing actual deforestation pressure. Additional conservation impact improved but remains difficult to measure. Follow-up surveys showed most participants re-enrolled or voluntarily kept their forests when contracts ended, though not universally.
Forest recovery cannot be traced to PES alone. The 1996 Forest Law banned land-use change on forested plots even for non-PES landowners, ecotourism grew, and ranching became less profitable as global commodity markets shifted.