Environmental Services Certificates (Paraguay)

A recent law (PES law 3001/06) in Paraguay provides a mechanism for copmensation for environmental damage. The law requires 25% of land to be maintained in natural forest. If 25% is not met, damage must be compensated through reforestation, by purchasing ESCs provided by landowners exceeding the 25% minimum forest cover required. Owners of large impact projects must also invest 1% of their total project budget in ESCs as compensation. In the future, the market will decide the prices of ESCs, as it is not set by government and is not a tax system. In reality, however, the law is only infrequently applied, and some forests have been cleared almost entirely.