The city of Quito, Ecuador offers a leading example of the potential for developing markets that channel economic demand for water to upstream areas from which it is supplied. In Quito’s case, the availability of water for the city of about 1.5 million inhabitants and surrounding areas depends on the conservation of protected areas upstream, with 80 per cent of the water supply originating in two ecological reserves, the Cayambe-Coca (400,000 ha) and the Antisana (120,000 ha).

The Fund for the Protection of Water – FONAG – was established in 2000 by the municipal government, together with a non-governmental organization, as a trust fund to which water users in Quito contribute. FONAG uses the proceeds to finance critical ecosystem services, including land acquisition for key hydrological functions.