Costa Rica
Global green leader nears net zero goal
At the start of 2020, Costa Rica was a global leader in environmental action, with encouraging progress towards carbon neutrality and a uniquely successful reforestation programme. But the devastating impact of COVID-19 on the country's tourism industry has put an unprecedented strain on government finances, prompting IMF intervention and public unrest. The government's commitment to circular bioeconomy as the solution to COVID is laudable, but with funding increasingly uncertain, Costa Rica's green transition hangs in the balance.
Prosperous and politically stable, Costa Rica is known for its pacifist constitution outlawing any military spending. And thanks to decades of strong investment in education, healthcare, and social services, it also boasts one of the lowest poverty rates in Latin America. Although rural poverty is still an issue, the country has successfully diversified its economy away from a heavy reliance on agriculture into finance, pharmaceuticals, and - prior to COVID-19 at least - a booming eco-tourism industry.
Home to about 5% of the world’s total biodiversity, tiny Costa Rica is proud of its status as one of the richest countries in the world for wildlife, with fully a quarter of its landmass protected in national parks and conservation areas - a key factor in its becoming the only tropical country in the world to reverse deforestation.1
It also punches well above its weight when it comes to global green leadership. Costa Rica has twice topped the New Economic Foundation’s rankings for sustainability, generates almost all its electricity from renewable sources, and has set clear ambitions to become carbon-neutral by 2050, but likely much sooner.2
The landmark 2018 Decarbonisation Plan and 2019-2022 National Development and Public Investment Plan set world leading ambition for Costa Rica’s transition towards an inclusive, green economy – with clean transport the next step on from its portfolio of renewable electricity.3 And a promising 10-year National Bioeconomy Strategy, announced in 2020, shows commitment to the medium- and long-term green transition.4
Climate policies are well-aligned with the Paris Agreement, making it one of only a handful of countries to have made good on their commitments to keeping global heating below 1.5°C. And with natural resource accounts dating back to as early as 1991, and the world’s first national payments for environmental services (PES) program, Costa Rica is also a leader in the field of natural capital.
However, ongoing fragility in the government’s financial situation – driven by budget deficits, foreign debts and now COVID-19 – have introduced growing uncertainty into Costa Rica’s vision of a green future. In 2020, the government redirected more than US$370 million earmarked for decarbonisation projects towards immediate pandemic response measures and reducing public debt, and an attempt to raise taxes to ease fiscal strain was met by nationwide protests and police violence.5 The government of Carlos Alvarado has been vocal in its support for international green recovery, launching a High Ambition Coalition for Nature & People, but unstable public finances remains a serious threat to Costa Rica's laudable green ambition.
Policy Scores
Last updated 14 Jun 2022
Green COVID-19 Recovery
The Costa Rican economy has been hit hard by the COVID-19 pandemic, with the collapse of tourism revenues worth more than 6% of GDP worsening budget deficits and putting further strain on relatively high public debt (which stands at around 60% of GDP). President Carlos Alvarado Quesada's attempts to manage the escalating debt situation by raising taxes (in order to reach a credit agreement with the IMF) was met with nationwide protests and police violence, forcing the government to retract measures and consider alternatives.
During 2020, the government deployed a single, comprehensive economic recovery plan with stimulus estimated to total around USD$2.1 billion or 3% of GDP. The plan contains little in the way of green measures, focusing instead on propping-up struggling businesses, providing household subsidies, public investment and loans with preferential rates for the productive sector. Under public infrastructure spending, the government allocated approximately US$550 million for an electric passenger train and associated infrastructure which is expected to create more than 2,650 green jobs. Other green stimulus measures include raising taxes on oil and gas consumption in the context of slumped fuel prices, and the launch of the ‘Women & Nature’ initiative which provides financial support for rural women who safeguard natural capital as well as credit to improve equality in biodiversity management. Costa Rica has been vocal in emphasizing the importance of green recovery internationally, launching the High Ambition Coalition for Nature & People which calls for 60% of recovery spending to be climate-friendly and the phase-out of fossil fuel subsidies. However, domestic measures have been constrained and fall short, with the opportunity to apply green conditionality to financing for environmentally harmful industry missed (and unconditional support provided to aviation by cutting the cost of jet fuel).
Looking ahead, the government has released a 10-year National Bioeconomy Strategy outlining more than 100 potential projects to support the transition towards a circular bioeconomy and decarbonise production and consumption. While the strategy looks promising in terms of catalysing the transition towards a green economy over the medium to long term, financing is increasingly uncertain – with the government redirecting more than US$370 million in structural funds provided by international banks for the 2019 National Decarbonisation Plan towards immediate pandemic response measures and reducing public debt. Continuation of the Costa Rican green transition hinges on the stabilisation of public finances, opening fiscal space and greater financing of the currently broad – but shallow – bioeconomy approach.
The Costa Rican economy has been hit hard by the COVID-19 pandemic, with the collapse of tourism revenues worth more than 6% of GDP worsening budget deficits and putting further strain on relatively high public debt (which stands at around 60% of GDP). President Carlos Alvarado Quesada's attempts to manage the escalating debt situation by raising taxes (in order to reach a credit agreement with the IMF) was met with nationwide protests and police violence, forcing the government to retract measures and consider alternatives.
During 2020, the government deployed a single, comprehensive economic recovery plan with stimulus estimated to total around USD$2.1 billion or 3% of GDP. The plan contains little in the way of green measures, focusing instead on propping-up struggling businesses, providing household subsidies, public investment and loans with preferential rates for the productive sector. Under public infrastructure spending, the government allocated approximately US$550 million for an electric passenger train and associated infrastructure which is expected to create more than 2,650 green jobs. Other green stimulus measures include raising taxes on oil and gas consumption in the context of slumped fuel prices, and the launch of the ‘Women & Nature’ initiative which provides financial support for rural women who safeguard natural capital as well as credit to improve equality in biodiversity management. Costa Rica has been vocal in emphasizing the importance of green recovery internationally, launching the High Ambition Coalition for Nature & People which calls for 60% of recovery spending to be climate-friendly and the phase-out of fossil fuel subsidies. However, domestic measures have been constrained and fall short, with the opportunity to apply green conditionality to financing for environmentally harmful industry missed (and unconditional support provided to aviation by cutting the cost of jet fuel).
Looking ahead, the government has released a 10-year National Bioeconomy Strategy outlining more than 100 potential projects to support the transition towards a circular bioeconomy and decarbonise production and consumption. While the strategy looks promising in terms of catalysing the transition towards a green economy over the medium to long term, financing is increasingly uncertain – with the government redirecting more than US$370 million in structural funds provided by international banks for the 2019 National Decarbonisation Plan towards immediate pandemic response measures and reducing public debt. Continuation of the Costa Rican green transition hinges on the stabilisation of public finances, opening fiscal space and greater financing of the currently broad – but shallow – bioeconomy approach.
Governance
National green economy plan
The Estrategia Nacional de Cambio Climático (2009) is Costa Rica’s keystone climate policy, but the 2018 Decarbonisation Plan outlines high level commitment to net zero by 2050 - with the targets now incorporated into the country's latest NDC submission. While world-leading in terms of ambition, the plan is weaker on implementation and transparency (lacking interim targets and a process for periodic review) and could be further strengthened by being made legally binding. The 2019-2022 National Development and Public Investment Plan (PNDIP) provides additional detail, including alignment of the planning with national development priorities, the SDGs and green finance.
The Estrategia Nacional de Cambio Climático (2009) is Costa Rica’s keystone climate policy, but the 2018 Decarbonisation Plan outlines high level commitment to net zero by 2050 - with the targets now incorporated into the country's latest NDC submission. While world-leading in terms of ambition, the plan is weaker on implementation and transparency (lacking interim targets and a process for periodic review) and could be further strengthened by being made legally binding. The 2019-2022 National Development and Public Investment Plan (PNDIP) provides additional detail, including alignment of the planning with national development priorities, the SDGs and green finance.
Inclusive governance
Some coordination between the Ministry for Economic Planning and the Ministry of Environment & Energy , and various private sector associations are engaged with the UN Global Compact on corporate sustainability, but no concrete legislation requiring employee involvement in corporate governance or gender inclusion.
Some coordination between the Ministry for Economic Planning and the Ministry of Environment & Energy , and various private sector associations are engaged with the UN Global Compact on corporate sustainability, but no concrete legislation requiring employee involvement in corporate governance or gender inclusion.
SDG business strategy
Costa Rica has committed on paper to engaging the business sector on sustainability in general and the SDGs in particular, but existing initiatives are small-scale and lack cross-sector impact. The private sector is increasingly engaged on green issues, and the government has targeted their engagement with SDG implementation through the Banco Central de Costa Rica (BNCR), and the prospective formulation of a national SDG business strategy – though it’s exact status is unclear.
Costa Rica has committed on paper to engaging the business sector on sustainability in general and the SDGs in particular, but existing initiatives are small-scale and lack cross-sector impact. The private sector is increasingly engaged on green issues, and the government has targeted their engagement with SDG implementation through the Banco Central de Costa Rica (BNCR), and the prospective formulation of a national SDG business strategy – though it’s exact status is unclear.
Wealth accounting
Costa Rica is recognised by the World Bank’s WAVES programme as a regional leader on natural capital and national wealth accounting. Developed and managed within the Banco Central de Costa Rica, accounts on forests, energy and water were established in 2012 and are now increasingly integrated into government policy.
Costa Rica is recognised by the World Bank’s WAVES programme as a regional leader on natural capital and national wealth accounting. Developed and managed within the Banco Central de Costa Rica, accounts on forests, energy and water were established in 2012 and are now increasingly integrated into government policy.
Finance
Green finance plan
A plan for sustainable finance reform has been agreed by the central bank and the Ministry of Finance, but unresolved differences over details have slowed implementation. Costa Rica has pioneered the use of payments for ecosystem services (PES) since 1996, and is a pilot country for UNDP’s Biodiversity Finance Initiative (BIOFIN). BIOFIN Phase II is currently under technical development.
A plan for sustainable finance reform has been agreed by the central bank and the Ministry of Finance, but unresolved differences over details have slowed implementation. Costa Rica has pioneered the use of payments for ecosystem services (PES) since 1996, and is a pilot country for UNDP’s Biodiversity Finance Initiative (BIOFIN). BIOFIN Phase II is currently under technical development.
Green fiscal & monetary policy
No government-wide reviews of sustainability of fiscal and monetary policy have yet been completed, though further fiscal commitments have been clarified in the PNDIP. The BIOFIN initiative, of which CR is a pilot country, has prompted a review of biodiversity relevant green fiscal and monetary policy at the Treasury, central bank and MINAE, with conclusions expected during 2019 but currently unclear .
No government-wide reviews of sustainability of fiscal and monetary policy have yet been completed, though further fiscal commitments have been clarified in the PNDIP. The BIOFIN initiative, of which CR is a pilot country, has prompted a review of biodiversity relevant green fiscal and monetary policy at the Treasury, central bank and MINAE, with conclusions expected during 2019 but currently unclear .
Safe & accountable banks
Banco Central de Costa Rica undertakes some banking sector stress tests under its risk evaluation protocols, but these focus on financial stability alone. Work on expanding risk analysis to include social and environmental criteria is underway at CR’s financial sector watchdog SUGEF and the Ministry of Environment & Energy, but in its very early stages.
Banco Central de Costa Rica undertakes some banking sector stress tests under its risk evaluation protocols, but these focus on financial stability alone. Work on expanding risk analysis to include social and environmental criteria is underway at CR’s financial sector watchdog SUGEF and the Ministry of Environment & Energy, but in its very early stages.
Pricing carbon
Progress has stalled since the ambitious introduction of a 3.5% tax on carbon pollution in 1996. Almost no headway has been made in implementing the planned Voluntary Domestic Carbon Market (VDCM), and existing carbon taxation is managed exclusively by National Forestry Financing Fund (FONAFIFO) public-private institution, with a narrow focus on finance for forestry.
Progress has stalled since the ambitious introduction of a 3.5% tax on carbon pollution in 1996. Almost no headway has been made in implementing the planned Voluntary Domestic Carbon Market (VDCM), and existing carbon taxation is managed exclusively by National Forestry Financing Fund (FONAFIFO) public-private institution, with a narrow focus on finance for forestry.
Sectors
Green sectoral policy plan
No national government body coordinating green economy policy, but sectoral policy is strong and engagement with several regional / international initiatives, including a regional climate change plan from the Central American Commission for Environment and Development (CCAD, and the Mesoamerican Environmental Sustainability Strategy (EMSA) of 2008. Recent Decarbonisation Plan also created using a 10 priority-sector focus and the PNDIP recognises the importance of intersectoral implementation.
No national government body coordinating green economy policy, but sectoral policy is strong and engagement with several regional / international initiatives, including a regional climate change plan from the Central American Commission for Environment and Development (CCAD, and the Mesoamerican Environmental Sustainability Strategy (EMSA) of 2008. Recent Decarbonisation Plan also created using a 10 priority-sector focus and the PNDIP recognises the importance of intersectoral implementation.
Small business support
Little concrete government support given to SMEs, although some private sector bodies (UCAEEP, CICR, AED) have relevant SME and social enterprise initiatives. The Ministry of Economics & Commerce (MEIC) have outlined some green and sustainability concerns in their SME policies, but these lack strategic focus.
Little concrete government support given to SMEs, although some private sector bodies (UCAEEP, CICR, AED) have relevant SME and social enterprise initiatives. The Ministry of Economics & Commerce (MEIC) have outlined some green and sustainability concerns in their SME policies, but these lack strategic focus.
Carbon budgeting
Despite not including binding carbon budget legislation, Costa Rica has been identified as one of just 16 nations whose domestic decarbonisation legislation is ambitious enough to meet their Paris Agreement commitments. Since 2018, the Costa Rica’s government has made decarbonisation a central priority with plans to phase out fossil fuels, shift to 100% renewable energy, and achieve net zero carbon emissions. Lack of enforcement of ambitious targets, and some frustration over slow progress in implementation and the lack of public transparency remain risks for Costa Rica’s decarbonisation trajectory.
Despite not including binding carbon budget legislation, Costa Rica has been identified as one of just 16 nations whose domestic decarbonisation legislation is ambitious enough to meet their Paris Agreement commitments. Since 2018, the Costa Rica’s government has made decarbonisation a central priority with plans to phase out fossil fuels, shift to 100% renewable energy, and achieve net zero carbon emissions. Lack of enforcement of ambitious targets, and some frustration over slow progress in implementation and the lack of public transparency remain risks for Costa Rica’s decarbonisation trajectory.
Clean energy policy
Over 90 % of Costa Rica’s electricity is provided by renewables, but transport continues to be heavily reliant on fossil fuels – hence the focus on transportation in the new Decarbonisation Plan. Some initial coordination from the Ministries of Transport and Economic Planning, but this remains in the preliminary stage.
Over 90 % of Costa Rica’s electricity is provided by renewables, but transport continues to be heavily reliant on fossil fuels – hence the focus on transportation in the new Decarbonisation Plan. Some initial coordination from the Ministries of Transport and Economic Planning, but this remains in the preliminary stage.
People
Green jobs
Although inequality and poverty reduction are core issues for the current government, existing policies in Costa Rica are not explicit on connections between green issues and the poverty agenda. Various ministries have SMEs and labour programmes, but little mention of green jobs, and inter-ministry coordination is weak. Brief mention is given to decent job creation in the Biodiversity National Policy 2015-2030.
Although inequality and poverty reduction are core issues for the current government, existing policies in Costa Rica are not explicit on connections between green issues and the poverty agenda. Various ministries have SMEs and labour programmes, but little mention of green jobs, and inter-ministry coordination is weak. Brief mention is given to decent job creation in the Biodiversity National Policy 2015-2030.
Pro-poor policy
No specific pro-poor environmental policies can clearly be identified, and there is no identification of environmental risks in Costa Rica’s national strategy for poverty reduction. The PNDIP provides some linkages of with the 2030 agenda and provides initial mapping of national targets against relevant SDG indicators for poverty, jobs, inequality.
No specific pro-poor environmental policies can clearly be identified, and there is no identification of environmental risks in Costa Rica’s national strategy for poverty reduction. The PNDIP provides some linkages of with the 2030 agenda and provides initial mapping of national targets against relevant SDG indicators for poverty, jobs, inequality.
Participatory policymaking
Public consultation has been part of Costa Rica’s development of decarbonisation planning, but rigour and consistency of process is unclear. Some gender equality policies in place, but there are significant gaps and little evidence of social impact assessment. Some ministries and state governments are beginning to intervene, but there is a lack of cross-cutting macro government policy.
Public consultation has been part of Costa Rica’s development of decarbonisation planning, but rigour and consistency of process is unclear. Some gender equality policies in place, but there are significant gaps and little evidence of social impact assessment. Some ministries and state governments are beginning to intervene, but there is a lack of cross-cutting macro government policy.
Innovative social protection
Some initiatives under the PNDIP focused towards social investment and expanding social support services, but programmes in this area from the National Women’s Institute (INAMU) and the Ministry of Labour (MTSS) remain largely invisible.
Some initiatives under the PNDIP focused towards social investment and expanding social support services, but programmes in this area from the National Women’s Institute (INAMU) and the Ministry of Labour (MTSS) remain largely invisible.
Nature
Ocean & land conservation
The PNDIP national development plan is the main strategy prepared by the Ministry of Economic Planning to coordinate work towards the SDGs, although SDG 14 & 15 largely fall within the remit of the Ministry of Environment & Energy. The strategy provides some alignment of development targets with SDG 14 and 15.
The PNDIP national development plan is the main strategy prepared by the Ministry of Economic Planning to coordinate work towards the SDGs, although SDG 14 & 15 largely fall within the remit of the Ministry of Environment & Energy. The strategy provides some alignment of development targets with SDG 14 and 15.
Natural capital accounts
A national capital assessment programme has been active since 2012, with accounts for water, energy and forest resources, and more in the pipeline. Existing accounts were designed according to UN System of Environmental-Economic Accounting (SEEA) standards, and CR has been part of the World Bank’s WAVES initiative since 2013.
A national capital assessment programme has been active since 2012, with accounts for water, energy and forest resources, and more in the pipeline. Existing accounts were designed according to UN System of Environmental-Economic Accounting (SEEA) standards, and CR has been part of the World Bank’s WAVES initiative since 2013.
Natural capital committee
Costa Rica’s natural capital commission meets regularly and brings together representatives from the ministries of finance, economic planning, environment & energy, the national statistics agency and the central bank, supported by the WAVES programme.
Costa Rica’s natural capital commission meets regularly and brings together representatives from the ministries of finance, economic planning, environment & energy, the national statistics agency and the central bank, supported by the WAVES programme.
Nature-based fiscal reform
A “polluter pays” national tax on fossil fuel consumption has financed reforestation programmes, and various exploratory studies are underway on various green fiscal policies including taxes and subsides, although economic headwinds appear to have delayed their implementation.
A “polluter pays” national tax on fossil fuel consumption has financed reforestation programmes, and various exploratory studies are underway on various green fiscal policies including taxes and subsides, although economic headwinds appear to have delayed their implementation.
References
- World Headquarters, "Costa Rica country profile"
- Vox.com, "Costa Rica has an ambitious new climate policy", June 2018
- Think GeoEnergy, "Costa Rica reports near 100% renewable energy electricity supply and electricity export"
- The Costa Rica News, "Costa Rica launches new National Bioeconomy Strategy", August 2020
- Civicus Monitor, "Costa Rica sees weeks of protest against tax increases", October 2020