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Colección: INTERAMER
Número: 69
Año: 2000
Autor: Ramón López and Juan Carlos Jordán, Editors
Título: Sustainable Development in Latin America: Financing and Policies Working in Synergy

Resource Use Charges In Latin America

Table 2 presents a summary of natural resources pricing in Latin America according to a recent survey presented in Serôada Motta, Huber, and Ruitenbeek (1999).8 These examples were successfully implemented only when they did not depend on institutional capacity to collect the revenue through procedures based on monitoring and user performance. It can also be noticed that the definition of pricing criteria was equally important to set the basis of the pricing system and avoid political barriers.

Forestry taxes and royalties on oil and electricity production are typically oriented to financing purposes, i.e., revenue-raising. On the other hand, water charges implemented in the region face the dilemma of adopting pricing criteria to accommodate a variety of objectives that are not always consistent.

In Brazil, Colombia, and Venezuela, a forestry tax is charged for wood consumption when the harvesting is not offset by equivalent reforestation. These taxes are set for financing purposes to foster reforestation, not to achieve an ecological goal such as curbing deforestation. They are usually very low and poorly enforced, particularly in frontier regions where monitoring is difficult.9

However, royalties from natural resource exploitation are already in place in Brazil, Colombia, Ecuador, and Venezuela with relative success.




Forestry Taxation

Charges on Natural Resource Exploitation

Water Charges for Use and Pollution


On forestry activities without adequate reforestation

On mineral and hydroelectricity production to compensate municipalities where exploitation takes place

Sewage tariffs based on pollution content in place in some states. Full water charges based on river basin authority already approved in some states and under discussion at federal level


On forestry activities without adequate reforestation

On mineral and hydroelectricity production to compensate municipalities where exploitation takes place

Charges based on cost recovery partially implemented being replaced by charges reflecting full environmental costs


On oil to finance environmental research and management institute


Wastewater discharge at national level partially implemented and under revision


On forestry activities without adequate reforestation

Source: Serôada Motta, Huber, and Ruitenbeek (1999).

In Brazil and Colombia, these royalties, created in the 1990s, are a small proportion (varying from 4% to 6%) of the gross revenue of hydroelectricity, mineral, and oil production. In reality, they are earmarked revenue sources for the municipalities where exploitation takes place; some funds are also earmarked for regulatory and environmental agencies. In Colombia, the use of royalty funds for preservation purposes is more strictly earmarked than in Brazil; the Brazilian experience has been one of using the royalty revenue as a supplementary budgetary source for general revenue purposes. Royalties in Ecuador and Venezuela are strictly based on oil revenue. In Ecuador the royalty is a form of tax levy on oil passing through the pipeline from the Ecuadorian Amazon; it is earmarked for the Ecuadorian Institute for Eco-Development in the Amazon Region (ECORAE), formed in 1992. Royalty income in Venezuela, by contrast, finances the general federal budget.

Royalties may become an important source of revenue for environmental agencies if applied on resources with low price elasticity of demand, as in the case of minerals and electricity. Revenue aims can be achieved through a small share of the production value, with low collection costs that do not depend much on institutional capacity and sophisticated legislation. Political constraints may arise, however, in countries where the private sector is increasing its participation and faces strong international competition.