The Economist of the Forest

Five Years of Timber

In February 1988, Álvaro Umaña received the results of a satellite survey of Costa Rica's remaining forest. The aerial photographs everyone relied on had shown 8 to 9 percent of forested land remaining outside parks and reserves. The satellites showed the real number: 5 percent. At the current rate of extraction, the country had five years of commercial timber left.

Umaña, two years into his tenure as the country's first environment minister, went to the press. He told reporters that much of the logging was illegal: trees felled inside national parks, hauled out at night on trucks, hidden under loads of agricultural produce, moved with the help of forged logging permits. He described surprise searches by the Rural Guard that uncovered illegal cuts inside protected areas. The Director General of Forestry petitioned President Óscar Arias to declare a national state of emergency. The proclamation empowered the forestry service to suspend all permits to fell trees outside of private plantations and to prohibit the export of unfinished wood products.

The crisis Umaña inherited had decades of momentum behind it. In the 1940s, roughly 75 percent of Costa Rica was forested. By the time he took office in 1986, that figure had collapsed to approximately 21 percent. The country had lost forest at an average rate of 3.9 percent per year between 1950 and 1984, with peak deforestation during the 1970s reaching 50,000 hectares annually. The drivers were structural: cheap government credit for cattle ranching, land-titling laws that required clearing as proof of productive use, and rapid road expansion into frontier areas. If the trajectory continued, there would be no forest left outside of parks by 2015.

The historian Sterling Evans identified a "grand contradiction" in this trajectory. Costa Rica was simultaneously building one of the world's most celebrated national park systems and destroying everything outside it. Twenty-five percent of the country was protected; sixty percent had been deforested. The parks that Álvaro Ugalde and Mario Boza had fought to create since the 1970s existed as green islands in a landscape of degraded pasture and eroded soil. Many of them existed only on paper, riddled with private inholdings and unfunded mandates.

The man who walked into this crisis was a physicist by training. Umaña had studied physics at the University of Costa Rica in the early 1970s, then won a Presidential Scholarship to Penn State, where Rachel Carson's Silent Spring redirected him from physics to environmental engineering. He participated in anti-war protests on campus. At Stanford he earned two degrees simultaneously: a PhD in Environmental Engineering and Science and an MA in Economics, training himself to think about the natural world through both scientific and economic frameworks. At twenty-nine, he co-edited a book with the ecological economist Herman Daly, Energy, Economics, and the Environment, published as an AAAS Selected Symposium volume in 1981. This was over a decade before "ecological economics" became a recognized field. Back in Costa Rica, he taught engineering at UCR, then joined OLADE, the Latin American Energy Organization, traveling the continent to work on renewable energy.

During a work assignment in Chile, Umaña met Óscar Arias, who was preparing his presidential campaign. By 1982, Umaña was advising Costa Rica's Ministry of Energy. When Arias won the presidency in 1986, Umaña proposed creating a new ministry that would unify natural resources, energy, and mines under a single cabinet authority. His reasoning was simple: Costa Rica depended on hydroelectric power, so forests and energy were the same problem. "I wanted to give nature a voice in politics," he later said. The Ministerio de Recursos Naturales, Energía y Minas (MIRENEM) was created by Law 7152, and Umaña, at thirty-four, became its first minister.

The Price of a Standing Tree

Umaña's central insight was economic. In 1986, a standing tree in Costa Rica had no financial value. Banks would not accept living forests as loan collateral. A tractor could secure a loan. Cattle could secure a loan. Forest could not. The only way to extract value from forested land was to cut it down. "A standing tree had very little value," he told the Tico Times in 2019. "You couldn't use it as a guarantee for a loan like a cattle or a tractor."

This meant that every economic signal a landowner received pointed toward destruction. Cattle ranching on cleared forest could support just one cow per hectare, yielding marginal profits. Umaña's department calculated the opportunity cost of conservation at $64 per year per hectare. It was a pittance, but it was still more than a living forest was worth on paper.

The existing policy instruments made the problem worse. Costa Rica's first reforestation incentives, created in 1979, offered $2,000-per-hectare tax deductions to landowners who planted trees. In practice, big companies clearcut native forest, sold the timber, and then collected the tax subsidy for replanting with exotic monocultures. "When you really look at it, it was a racket," Umaña said. "Big companies could cut down trees and replace them with monocultures and collect the tax write off." The incentive system was paying people to destroy biodiversity-rich native forest and replace it with plantations.

Umaña reversed the logic. He shifted 80 percent of incentive allocation to the protection of existing forests, leaving only 20 percent for reforestation. The centerpiece of this restructuring was the Certificado de Abono Forestal (CAF), a negotiable bearer security tradeable on the National Stock Exchange, usable for tax payments, or convertible to cash. It was created under Forest Law 7032 of 1986, giving forest protection a financial instrument for the first time. Subsequent variants followed: the CAFA for upfront reforestation funding in 1988, the CAFMA for sustainable timber extraction in 1993, and the CPB (Certificado para la Protección del Bosque) in 1995, which paid approximately $50 per hectare per year to landowners who conserved their forest. The CPB was the direct precursor to what the world would come to know as Payment for Ecosystem Services.

Umaña also devised a conservation loan program that used the trees themselves as collateral. Small landowners with one to five hectares could take soft loans through existing cooperatives. If the trees were healthy after five years, the debt was forgiven. The repayment rate was 97 percent.

The next step in this evolution was not Umaña's directly. René Castro Salazar, who served as environment minister from 1994 to 1998 under President José María Figueres, built the legislative coalition to pass Forest Law 7575 in 1996. That law recognized four environmental services provided by forests: greenhouse gas mitigation, hydrological services, biodiversity conservation, and scenic beauty. It earmarked one-third of the selective tax on fossil fuel consumption for FONAFIFO, the National Forestry Finance Fund, generating approximately $10 million per year. The first PSA contracts were issued in 1997, paying landowners to keep their forests standing.

There is an irony in the origins of PES that Umaña himself appreciates. In 1995, the World Bank's third Structural Adjustment Loan to Costa Rica required eliminating forestry subsidies. The concept of "payment for ecosystem services" provided the Ministry of Finance with a way to continue conservation payments without calling them subsidies. The reframing was strategic: what the World Bank required Costa Rica to abolish, Costa Rica simply renamed. Umaña has written that "the policies we implemented set the basis for what later became known as Payment for Ecosystem Services." His 2024 Royal Society paper goes further, noting that the Dutch debt-swap money "financed the transition to the payment for ecosystem services system."

Trading Debt for Trees

The idea of debt-for-nature swaps originated with Thomas Lovejoy, then vice-president of the World Wildlife Fund, in the early 1980s. The concept was straightforward: developing countries held foreign debt they could not repay, and that debt traded on secondary markets at steep discounts. If a conservation organization purchased that discounted debt and forgave it in exchange for environmental commitments, the country would reduce its obligations while funding conservation. A small deal had been tested in Bolivia, but no country had built a systematic program around the mechanism.

Costa Rica became the first. Umaña proposed the mechanism to the Dutch government, which approved a $5 million program focused entirely on forestry. The swap generated $9 million in local currency bonds and financed the conservation of 13,000 hectares of forest. Umaña personally co-managed the resulting Forestry Development Fund with the Dutch Ambassador. When President Arias received the Nobel Peace Prize in 1987, the international attention made it easier to bring other countries on board. At the 1988 IUCN General Assembly in San José, where Prince Philip visited for two weeks, Sweden and the Netherlands purchased $100 million in face value of Costa Rican debt. USAID added $56 million through the Tropical Forestry Conservation Fund.

The debt swaps were part of a broader set of actions during Umaña's four-year tenure. A log export ban was imposed on May 7, 1986, essentially at inauguration. A sawn wood export ban followed in 1987. In his first year as minister, nearly 15,000 acres were reforested, which he called double the acreage of 1985 and more than all the years since 1969 combined. President Arias declared 1988 the Year of Natural Resources. ECODES, the Conservation Strategy for Sustainable Development published in 1990, became the country's first national-level strategy linking conservation with economics, urbanization, agriculture, water, and energy.

Umaña also restructured conservation governance. He developed the system of regional conservation units (Unidades Regionales de Conservación), which Evans describes as "the birth of decentralized park administration." He modeled the regional units on UNESCO biosphere reserves, an approach that would later influence conservation management across Latin America. And when the ecologist Daniel Janzen described his proposal to consolidate fragmented parks and private pastureland in Guanacaste into a single conservation area, Umaña's response was characteristically practical: "Can it be done in four years?" Arias added: "Sounds fine to me, but do not count on us for any funds." Janzen raised the money internationally, and Guanacaste National Park was established on July 25, 1989, aggregating purchased pastureland with existing parks into a conservation area stretching from the Santa Elena Peninsula to the Orosí and Rincón de la Vieja volcanoes.

Selling Nature to Save It

Of all the institutions Umaña helped create during his tenure, the one that tested his economic logic most ambitiously was the Instituto Nacional de Biodiversidad (INBio). Umaña was the political patron. The organizational architect was Rodrigo Gámez, a virologist who had directed UCR's Center for Cellular and Molecular Biology and served as Arias's biodiversity advisor. The scientific visionary and fundraiser was Janzen. In October 1987, Umaña established a Biodiversity Office within MIRENEM, led by Gámez. When the government could not fund a standalone institution, a handful of scientists and entrepreneurs created INBio as a private, non-profit, public-interest association, formally incorporated on October 24, 1989.

INBio's mission was to inventory Costa Rica's estimated 500,000 species and find sustainable economic uses for biodiversity. Its most enduring innovation was the parataxonomist program, designed by Janzen and his wife Winnie Hallwachs: local residents were given six months of training in field biology, then deployed to systematically collect and identify biological specimens. By 2017, the parataxonomist program had helped identify approximately 10,000 new species in the Guanacaste Conservation Area alone.

The deal that made INBio famous was announced on September 19, 1991. Merck & Co., the pharmaceutical giant, agreed to pay INBio $1.135 million for access to approximately 10,000 chemical extracts from wild plants, insects, and microorganisms. Thomas Eisner, Cornell University's "father of chemical ecology," brokered the agreement. The vision was that pharmaceutical companies would pay developing countries for access to their biodiversity, creating a direct financial incentive to conserve it. INBio contributed 10 percent of the upfront payment and 50 percent of any future royalties to Costa Rica's National Park Fund. The deal was renewed in 1994 and 1997, with Merck investing over $3.5 million by 1999.

No commercial drug was ever produced. Not from the Merck deal, not from any bioprospecting arrangement anywhere. The success rate for natural products drug discovery is approximately one in 30,000 to 40,000 samples, and drug development takes 10 to 20 years of clinical trials. Merck terminated its contract in 1999 and in 2011 gave away the collections it had acquired from INBio. Other pharmaceutical companies abandoned their international bioprospecting ventures around the same time.

Critics argued that the deal had been biopiracy from the start. Given that pharmaceutical companies invest an average of $231 million in research and development for each new drug, the $1 million discovery charge was "barely loose change." For Merck, the contract bought exceedingly cheap labor and access to biological treasures. Other critics pointed out that at least one indigenous reserve fell within INBio's collecting area, yet indigenous communities were not parties to the agreement. Paradoxically, some indigenous people were hired as parataxonomists to collect the very specimens that would be sent to New Jersey.

INBio's broader trajectory ended in collapse. In the 1990s, international donor funding represented approximately 80 percent of INBio's revenue. Donations began declining after 2005. A $7 million loan to build INBioparque, an environmental theme park near Heredia, became crushing debt when the 2007-2008 financial crisis cut revenue by 60 percent. By 2012, INBio's annual budget had shrunk to $300,000, precisely the amount it cost to keep the lights on for the biological collection. Gámez, the founding director, described the paradox: "Costa Rica became a consumer economy, and we were left out. We never received support" from the government, while donors questioned why the state did not fund something "so important to the government."

In February 2015, the Costa Rican government decreed that the National Museum would take over responsibility for INBio's 3.5 million specimens, the second-largest biological collection in Latin America, valued at an estimated $76 million. On March 31, 2015, INBio handed over its facilities. The scholarly verdict, delivered by researchers at the University of Manchester, is one of the more precise assessments of the whole experiment: "The radical critique gains logical and moral power at the expense of practical relevance, while advocates of selling biodiversity have made their case with only limited empirical persuasiveness." Gámez died on March 1, 2025, at age eighty-eight. La Nación called him "el papá del INBio."

The Economy Has Yet to Become Planetized

After leaving the ministry in 1990, Umaña spent three decades building international institutional architecture for environmental governance. He taught at INCAE, the Central American business school, where he created a master's-level specialization in natural resources. He served on the UNESCO Executive Board from 1989 to 1993, then on the Rockefeller Foundation Board from 1991 to 2002, and on the World Resources Institute Board from 1988 to 2000.

In 1994, he was appointed a founding member of the World Bank Inspection Panel, the first mechanism that allowed citizens affected by World Bank-funded projects to seek accountability. He served as chairman from 1997 to 1998 and edited a book documenting the Panel's first four years, published by the World Bank. From 2001 to 2005 he directed the UNDP's Energy and Environment Group. He served as a senior advisor at the IMF. In 2014, he co-founded Climate Transparency with Peter Eigen, the founder of Transparency International.

Climate diplomacy threaded through this period. He served as Costa Rica's Ambassador for Climate Change and attended COP1 in Berlin in 1995, COP15 in Copenhagen in 2009 as chief negotiator, and COP21 in Paris in 2015 as a delegation member. Copenhagen, he said, "was a disaster, but it was good for us" because it allowed Costa Rica to promote Christiana Figueres, daughter of former president José Figueres Ferrer, as Executive Secretary of the UNFCCC. "Christiana did an outstanding job crafting the Paris Agreement."

In 2008, he co-authored a paper in Science with a group that included Elinor Ostrom, who would win the Nobel Prize in Economics the following year. The paper proposed an Earth Atmospheric Trust to manage the global commons. It was the kind of institutional architecture Umaña had spent his career building: a mechanism to make something invisible financially legible, to give the atmosphere the kind of voice in politics that he had once wanted to give forests.

In April 2024, at seventy-two, Umaña published a sole-authored paper in the Philosophical Transactions of the Royal Society B, titled "Valuing nature: the case of tropical forests and Costa Rica." The paper functions as a summing-up of his life's work. It describes the institutional innovations, the debt-for-nature swaps, the evolution of PES, and the forest recovery trajectory. It also contains a candid admission. Umaña writes that the international cooperation he and his colleagues expected to follow Costa Rica's early investments was "naive." They had assumed that demonstrating the model would prompt other countries to follow, and that wealthy nations would finance the transition. The economy, he observed, had become "globalized" but had "yet to become 'planetized'" regarding planetary constraints. "I feel a profound sense of regret," he wrote on his website, "over my generation's shortcomings in tackling climate change."

Close to the Maximum

The forests came back. From the low point of approximately 21 percent coverage in the late 1980s, Costa Rica's forest doubled to roughly 42 percent by 1997 and continued climbing to approximately 57 to 58 percent by the 2020s. The country told George Monbiot in 2023 that its forest coverage is now "close to the maximum." Over twenty years, the PES program disbursed $500 million to landowners and covered over one million hectares. Costa Rica received the 2019 UN Champions of the Earth award and the inaugural 2021 Earthshot Prize in the Protect and Restore Nature category.

The question of who deserves credit for this recovery has no clean answer. Mario Boza and Álvaro Ugalde built the national park system in the 1970s. Umaña added economic instruments and institutional architecture in the late 1980s. Castro codified PES into law in 1996. Carlos Manuel Rodríguez, who served three terms as environment minister, doubled the forest and made the electric sector 100 percent renewable. Structural factors mattered too: the abolition of the army in 1948 freed resources, the ecotourism boom created private incentives for conservation, the collapse of international beef prices reduced pressure on pastureland, and high education levels produced a citizenry that valued environmental protection. No single figure owns the outcome.

The contradictions are real. Costa Rica uses approximately 34.45 kilograms of pesticides per hectare per year, far above Europe and the United States. Pineapple production uses around 45 kilograms per hectare, including products banned in Europe. Transportation is "almost all completely fossil fuels," Umaña told the Tico Times, accounting for roughly 50 percent of carbon emissions, with agriculture contributing another 40 percent. Conservation successes, Yale Environment 360 reported, are "jeopardized by conflicts over the government's failure to return traditional lands to the Indigenous people who are regarded as the best forest stewards." And while total forest area has increased, intensive agriculture has created a landscape matrix of poor connectivity and declining biodiversity. The forest is back, but the ecological relationships that make it function are not all intact.

Evans, writing in 1999, had anticipated the objection. Vandermeer and Perfecto argued that "the fact that the model has been an utter failure in Costa Rica, where it had the greatest chance of success, calls the model itself into serious question." Evans pushed back: the critics "have not considered the alternative. Instead of green, Costa Rica would be a brown republic."

"I feel pretty good about what we did," Umaña told the Tico Times in 2019, "but we have a long way to go; plastics, pesticide use, wastewater treatment, solid waste management to name a few." He acknowledged that his generation had not solved the larger problem. "Any taxi driver will tell you the connection with the parks and tourism," he said, but tourism alone cannot sustain what remains.

Umaña lives in Washington, D.C. with his family. He maintains forest land in the Braulio Carrillo area of Costa Rica. He is a Senior Research Fellow at CATIE, co-chairs Climate Transparency, sits on Stanford's Natural Capital Project Advisory Council, and continues to publish. In 2024, his conservation work was featured in a children's book, Rewild the World at Bedtime. Costa Rica's forest trajectory was documented in the Dutch documentary Paved Paradise in 2023, which featured Umaña alongside biologist Hidde Boersma and George Monbiot.

The model Umaña helped build worked in one small country. Costa Rica proved that deforestation could be reversed, that forests could be given financial value without being destroyed, and that economic instruments could align conservation with development. What Costa Rica could not prove was that other countries would follow, that international cooperation would scale the model, or that making nature legible to markets would be enough to save it. The economy became globalized. It has yet to become planetized.