9/10/2009 1

Incentives and Financing to integrate the value of biodiversity and ecosystems into our economies

Working insights from TEEB

Patrick ten BrinkTEEB for Policy Makers Co-ordinator

Head of Brussels Office

Institute for European Environmental Policy (IEEP)

Session: 5.3 Financing and incentives

Vision for Biodiversity Beyond 2010: People, Ecosystem Services & the Climate CrisisStrömstad, Sweden7th September 2009

Building on and borrowing from the work & insights of the wider TEEB team

and contributors of supporting studies, call for evidence and other contributions

TEEB’s Genesis and progress

“Potsdam Initiative – Biological Diversity 2010”

1) The economic significance of the global loss of biological diversity

TEEB Interim Report @ CBD COP-9, Bonn, May 2008

Strömstad 7-9 September

Presentation overview

1. The (missing) values of biodiversity and ecosystems to the economy

2. Instruments to integrate these values

� Instruments to reward benefits: PES, ABS et al

� Instruments to avoid damage/overuse

� Who benefits and who should pay - eg PAs

� Environmental Harmful Subsidies

� Policy Coherence and instrument mix

3. (Realising) Potential

Annex: Background: Aims and process of TEEB

Supporting / Background slides

The (missing) values of biodiversity and ecosystems to the economy

Market signals do not fully take into account the value of ecosystems & biodiversity

� Climate regulation: carbon stored in trees, soils, wetlands;

� Natural hazard management and adaptation to climate change

They often do not reflect the damage to ecosystems/biodiversity, losses of services:

� Land conversion (tropical forests to palm oil based biofuels),

� Degradation costs (eg water pollution, soil degradation)

They rarely offer appropriate incentives for the sustainable use of natural resources

� Forest products (timber et al), agricultural products

� Water use (re groundwater depletion), soil mining and erosion

Without prices to reflect the true value (or damage) & without other mechanisms to take value (damage) into account, it is no surprise that we have a socially inequitable and economically inefficient use of ecosystems and their biological resources.

There have been a range of successes to learn from, & many opportunities for action.

Why are these values missing from the market?

� Public goods or quasi public goods with no “automatic, natural” markets - eg fish and open seas.

� Property rights (ownership, use, access) limitations

� Policy gaps – lack of policies to ensure appropriate pricing: full cost recovery, polluter pays, user pays

� Implementation failure - eg lack of full implementation of WFD & full cost recovery

� Governance failure – eg lack of coherence, verifiability, enforceability and trust

� Information failure - lack of information on services (eg hydrological, carbon storage),

and on their on value and links to ecosystem components; lack of product information (eg labelling/certification)

� Transaction costs – eg for PES schemes, certification for products

� In some cases markets don’t exist (yet), in others they can be difficult to access, in others they can have significant imperfections/flaws. These are generally solvable (in principle).

…but not in all cases are markets the answer, and fixing the market (eg via improved market signals) will take time and only get us so far

Fiber

Food

Spiritual & religious

Freshwater

Genetic resources

Climate regulation

Water purification

Disease regulation

Flood/Fire regulation

Recreation & tourism

Aesthetic

Economic Value ($)

Economic Valuation

Difficult or

impossible

Easy

?

?

?

?

?

?

?

?

?

?

?

Ecosystem services public goods & difficulty of valuation

Source: Jeffrey A. McNeely, Chief Scientist, IUCN-The World Conservation Union from presentaion: FUNDING MECHANISMS FOR BIODIVERSITY. 27

July 2006 Inter-American Development Bank Workshop on Biodiversity Loss

Values historically overlooked by market signals...now available

TEEB Climate Issues Update (TEEB, 2009)

Natural capital is a foundation of the economy and wellbeing – often outside of

the market

Sectors of the economy

• Primary sectors (agriculture,

forestry, fisheries, mining)

• Food & drink

• Textiles

• Wood & Paper

• Petro Chemicals

• Manufacturing

• Services (eg water supply,

waste, insurance)

• Tourism

• etcNatural capital

• biodiversity and ecosystems

• other “natural resources”

Outputs from one sector

= intermediate inputs to another

Impacts• investment

• depletion

• damage

Man made capital

Fixed capital stock: factories,

transport infrastructure,

The Foundations

Human capital

Learning, health, happiness

Social capital

Social cohesion, trust, judiciary,

civic society, education, health

services, social services etc

The Economy

(intermediate demand)

Final Demand

Government

Households

Services

Exports

Business

Other demand

Inputs

Outputs

Biodiversity loss: Running down our natural

capital... by not taking value of nature fully into account

Poorer Ecosystems

Richer Ecosystems

Source: building on Ben ten Brink (MNP) presentation at the Workshop: The Economics of the Global Loss of Biological Diversity 5-6 March 2008, Brussels, Belgium.

73%

62%

1. The (missing) values of biodiversity and ecosystems to the economy

2. Instruments to integrate these values

� Instruments to reward benefits: PES, ABS et al

� Instruments to avoid damage/overuse

� Who benefits and who should pay - eg PAs

� Environmental Harmful Subsidies

� Policy Coherence and instrument mix

3. (Realising) Potential

Annex: Background: Aims and process of TEEB

Supporting / Background slides

Economic Incentives and the Economy

Sectors of the

economy

Natural capital

• biodiversity and ecosystems

Forests; Agricultural lands; Seas,

inland waters, wetlands; Coral

reefs and mangroves; Protected

Areas; Other green infrastructure;

Soil; Ecosystems, species,

habitats, genetic materials

• other “natural resources”

Man made Capital

Human Capital

Social Capital

Final

Demand

Inputs

Outputs

Foundations: Capital stocks

Pricing outputs and use:

Product Pricing & User charges

Eg fertiliser and pesticides tax

Pricing for pollution, damage / liability:

Fines, charges, fees, compensation requirements

Pricing inputs

Full cost recovery and resource pricing

eg water pricing; land conversion fees

Intermediate

consumption

Public sectorPrivate sector Households

Exports

Payments for resource use & ecosystem services (PES)

Eg fishing licence, PES for water, REDD for forests

Market Creation

Eg ITQs for fisheries

Eg certification

Externalities

Markets for inputs: habitat banking

Incentive Schemes: Rewarding the (unrecognised) value of ecosystems and biodiversity

� Payments for Environmental Services (PES) – potential to build on experiences of water purification, carbon storage et al. Economics underlines the potential.

� PES-REDD+ – potentially high value new instrument offering synergies between biodiversity and climate change

� Access and Benefits Sharing (ABS) – negotiations up to COP 10

� Other compensation measures (tax breaks, transfers) and direct payments to secure benefits

� Markets (organic, biotrade, natural cosmetics, FSC, MSC etc) – being “mainstreamed”.

� Emerging? Markets: habitat banking, Future market? link REDD to ETS schemes ?

Market Signals to avoid degradation / loss of ecosystems and biodiversity

� Resource charges – to reflect full cost recovery principle and also resource value –

eg water pricing under WFD, stumpage fees for trees.

� Pollution taxes and charges– to make the polluter not the society pay – eg NOx tax,

COD charges.

� Product taxes / charges – to incentivise users to use less – eg pesticides, fertilisers,

plastic bags, batteries, fish tackle

� Licenses – to raise revenue and in some cases restrict access - eg fishing licences,

tourism fees.

� Fees and fines – to discourage non compliance – eg pollution, damage.

� Liability and compensation - to encourage responsibility – eg avoid oil spills.

� Habitat Banking – to make meeting “no-net-loss” commitments more

economically efficient.

� Green public procurement – making use of market demand (PP 14% of EU GDP) to

encourage lower impact (production/use/disposal) products.

Instruments to respond to ecosystem service benefits & create revenue for

biodiversity

Benefits

Funding Costs

Appreciation of the ecosystem services benefits should lead to instruments

that help raise revenues

Funding Pays for the costs of protecting nature / restoration / new investments in natural capital

Paying costs to protect nature / invest in natural capital should

safeguard / create benefits

But who should pay whom with which instruments ?

Protected areas lead to a wide range of ecosystem service benefits, yet there is a financing gap, despite the benefits very often being (far) greater than the costs.

Can new effort on instruments to reward the benefits be the answer?

Note: global expenditure for PAs ~ totals between US$6.5 and 10 billion annually (Gutman and Davidson, 2007). An expanded protected area network covering 15% land & 30% of sea estimated to cost ~ $45 billion p.a. That expanded PA system would deliver goods and services with a net annual value greater than $4.4 trillion (Balmford et al. 2002). In Chapter 8 TEEB for Policy Makers, forthcoming, November 2009.

Who benefits, who should pay? Eg Protected Areas

What are the policy implications > Funding? PES?

0

1

2

3

4

5

Biochemicals &

pharmaceuticals

Climate / climate change

regulation

Genetic / species diversity

maintenance

Biodiversity

Ecotourism & recreation

Education, art & research

Cultural & amenity valuesWater (quantity)

Food/Fibre/Fuel

Erosion control

Natural hazards control (fire,

flood)

Water and air purification &

waste management

Pollination / seed dispersal

Mainly local benefit

Additional national benefit

Mainly global benefit

Action locally leads to local, to national & to global benefits.

Environmental Harmful Subsidies: Aligning Today’s Subsidies to Tomorrow’s Priorities

OECD: €33.6 bn , incl. irrigation (Myers and Kent 1998)Water

World: approx. €179-230 bn/year, of which EHS €130-175 bn (EEA 2005) Transport

OECD: €33.5 bn in 1993 (OECD)Manufacturing

World: USD 15-35 billion (UNEP 2008)Fisheries

IEA: $310 billion in the 20 largest non-OECD countries in 2007 (IEA 2008 )Energy

OECD: €204 bn a year (in 2005-7) (OECD 2008)Biofuels: €10-12 bn in 2006 (OECD 2008)

Agriculture

OECD / WorldSector

We are fishing down the foodweb – D. Pauly (UBC, Canada)2010

40 %

40 %

20 %

1950

� Often large sums on outdated objectives: distorting markets and trade; creating

non-level playing field for biodiversity/ecosystems; often big impacts on

ecosystems & biodiversity

� Policy coherence: subsidy reform and provision of positive incentives

– Reforming subsidies will free up funds

– Removing harmful subsidies will decrease the funding need for positive incentives (as you

don’t need to compensate the perverse effects with positive incentives)

9/10/2009 17

Policy coherence and instrument mix

We need more than incentives to address the problem – we need a coherent policy mix

Oil Spills: following Exxon Valdez – policy response: a combination of instruments:

• Technical Regulation: requirement for double hulled ships - 79% of all oil tankers criss-crossing the globe are now of double-hull design

• Regulatory constraints: single hulled ships not allowed in EU waters.

• Economic incentives: responsibility for clean up fines and compensation payment for damage - The cleanup effort cost the company $2.5 billion alone, and Exxon

was forced to pay out $1.1 billion in various settlements. A 1994 federal jury also fined Exxon an additional $5 billion for its "recklessness,"

• Criminal charges: risk of charges for negligence, jail sentences

9/10/2009 18

A further example: REDD+

REDD+ : Reducing Emissions from Deforestation and forest Degradation

Potential for carbon: REDD could lead to a halving of deforestation rates by 2030, cutting emissions by 1.5–2.7 Gt CO2/year (Eliasch 2008)

Cost: halving deforestation estimated to cost $17-33bn/year by2030 (Eliasch 2008) with long term benefits of $3.7billion

Cost-effectiveness of measures: from a few EUR/tCO2e for reforesting agricultural used peatlands, to ~10EUR/tCO2 for reduced deforestation, to manmade CCS of 20-50 EUR/tCO2e of (Mckinsey 2008).

Value of ecosystem services. Carbon storage: ave ~2000$/ha/yr; Other ecosystem services: ave ~ 4000$ha/yr (TEEB 2009, working numbers) – “co-benefits” to carbon in REDD

Information needs and governance: carbon storage/sequestration data/monitoring; carbon-biomass natural capital accounts; wider ecosystem accounts; understanding opportunity costs, ensuring rule of law and coherence of policies, engagement of peoples

Who pays / what format: from projects, to funds, to market links (eg to carbon markets). Need for north south transfers

A New instrument of major potential for both climate and biodiversity

Challenges: policy coherence, multiple objectives, implementation & governance

Coherence example #3: Addressing the Marine Fisheries challenge

Market based / incentive instrument – Quotas and ITQs; (Reforming) subsidies; Fishing licenses/fees

Regulation – on activities; on equipment/capacity; on products; on ecosystem conversion

MPAs - Designation, implementation and financing of a system of Marine protected areas

Planning: coastal zone management; spatial planning

Management practice: adoption of marine management practices / ecosystem approach

Information based: Product labelling and market certification; science based policy making

Investment in Restoration of mangroves and coral reefs; investment in MPAs

Capacity building – for products certification, monitoring, inspection and enforcement…

Monitoring & Enforcement: ensure credible/good governance

Underperforming natural asset, biodiversity impacts, increasing risk of fisheries collapse – to address this requires a coherent comprehensive set of instruments

and measures

1. The (missing) values of biodiversity and ecosystems to the economy

2. Instruments / Incentives to integrate these values

� Instruments to reward benefits: PES, ABS et al

� Instruments to avoid damage/overuse

� Who benefits and who should pay - eg PAs

� Subsidies

� Policy Coherence and instrument mix– eg oil spills and REDD+

3. (Realising) Potential

Instruments and measures Contributions to natural capital

Past loss/ degradation

Predicted future loss of natural capital (schematic) – with no additional policy action

2009 2050

Halting biodiversity loss

Opportunities/benefits of ESS

Investment in natural capital +ve change

Alternative natural capital

Development path

Regulation

PAs

Restoration

Investment in natural capital: green infrastructure

Economic signals :

PES, REDD, ABS (to reward benefits)

Charges, taxes, fines (to avoid degradation/damage:

Subsidy reform (right signals for policy)

Better governance

`

Sustainable consumption (eg reduced meat)

Markets, certification/logos & GPP

Agricultural innovation

No net loss from 2009 level

9/10/2009 22

Solutions – a Toolkit; which portfolio of instruments will work for you?

Policy Instruments

� New instruments: eg REDD+

� Support wider use of good existing tools

� Market based: eg PES, resource charges, fine/compensation, markets, GPP

� Regulation: waste water treatment, air pollution control, standards et al

� Help make existing tools realise their potential: eg PAs, direct investment, EIA, SEA

� Help provide information to reform “bad ones”: eg harmful subsidy reform

Information: Better information - Measure to Manage Natural capital

� From ecosystem indicators & footprints, to valuation of natural capital, to more encompassing macro indicators, GDP of the poor, to more comprehensive national accounts

New investments

� PAs, green infrastructure, restoration, green new deal investments

And how can we make these happen ?

EU vision in 2010 goal setting?…relating to incentives/economics…

� EU a key biodiversity driver in the international context

� New Green Global Deal for biodiversity

� Commitment via incentives and financing to take the value of ecosystems

and biodiversity into account

� EU responsibility and engagement for biodiversity in the world’s

biodiversity rich, economically poor county.

� Further support to Copenhagen and post Copenhagen –

mitigation and adaptation.

� EU to support REDD at Copenhagen as a stepping stone to further

development of incentives measures for wider ecosystem services

� Investment in adaptation and restoration/ecological infrastructure-

resiliance+

� EU needs to lead by example - new instruments and financing and

investing in natural capital (PAs and wider green infrastructure)

9/10/2009 24

Thank You

� What do you see as the potential for incentive measures?

� What targets are ambitious but achievable?

� Governance challenges and solutions?

� What could be a Practical Roadmap?

Patrick ten Brink

ptenbrink@ieep.eu

IEEP is an independent, notIEEP is an independent, notIEEP is an independent, notIEEP is an independent, not----forforforfor----profit institute dedicated to the profit institute dedicated to the profit institute dedicated to the profit institute dedicated to the

analysis, understanding and promotion of policies for a analysis, understanding and promotion of policies for a analysis, understanding and promotion of policies for a analysis, understanding and promotion of policies for a

sustainable environment in Europesustainable environment in Europesustainable environment in Europesustainable environment in Europe

Presentation overview

1. The (missing) values of biodiversity and ecosystems to the economy

2. Instruments / Incentives to integrate these values

� Instruments to reward benefits: PES, ABS et al

� Instruments to avoid damage/overuse

� Who benefits and who should pay - eg PAs

� Subsidies

� Policy Coherence and instrument mix– eg oil spills and REDD+

3. (Realising) Potential

Annex: Background: Aims and process of TEEB

Supporting / Background slides: content

TEEB’s Goals

1. Demonstrate the value to the economy, to society/individuals and wider environment – what we have & what we risk losing.

2. Underline the urgency of action, benefits of action (opportunities)

3. Show how we (can) take into account the value of ecosystems and biodiversity in our decisions and choices,

4. Identify / support solutions

� New instruments,

� Support wider use of good existing tools (eg in other countries),

� Help make existing tools realise their potential;

� Help provide information to reform “bad ones”

5. Address the needs of policy-makers, local administrators, business and citizens (the “end-users”)

Source: adapted from Pavan Sukhdev

TEEB – Final Report June 2010

TEEB D4: TEEB for Citizens

TEEB D3: TEEB for Business

TEEB D2: TEEB for Local Policy-

Makers and Administrators

TEEB D1: TEEB for International

and National Policy-Makers

TEEB D0: Ecological and

Economic Foundations

TEEB D1: TEEB for International and National Policy-Makers

Part I: Introduction

Ch1 The Biodiversity Policy Challenge

Ch2 The Policy Responses: Actors and instruments

Part II: Measuring what we Manage: Information & Tools for Decision-Making

Ch3 Measuring to Manage our Natural Capital

Ch4 Recognised the Value of Biodiversity

Part III:Solutions: Instruments and measures

Ch5 Policies to Reward (unrecognised) Benefits of Ecosystems and Biodiversity

Ch6 Aligning Today’s Subsidies to Tomorrow’s Priorities

Ch7 Policies to Address the Losses of Biodiversity?

Ch8 Protecting areas, ecosystems, habitats and species

Ch9 Direct Investments in natural capital and ecosystem restoration

Part IV: Recommendations / Road map to Nagoya and beyond

Ch10 Using the whole Policy Toolkit to address the challenge

Inputs from Science and Economicsexperts through the Call for Evidence, participation in Working Groups, etc

D0

2008 2009 2010

Continuous involvement of End-User Groups

D4

D3

D2

D1

TEEB Ecological and Economic Foundations

TEEB for National and International Policy-Makers

TEEB for Citizens

TEEB for Business

TEEB for Local Policy-Makers and Administrators

End-U

ser O

utr

each

CB

D C

OP10 N

agoya, Japan

CB

D C

OP9 -

Bonn, G

erm

any

D0

D4

D3

D2

D1

The Process for TEEB Phase 2

TEEB timeline

2008 2009 2010

TEEB Phase I TEEB Phase II

May 08 Interim report(CBD COP9, Bonn)

Final TEEB synthesis & publicationsCBD COP10(Oct 2010,

Nagoya,

Japan)

Sep 09 TEEB Climate Issues

Update(Strömstad)

Nov 09

D1 for policy makers

Spring /

Summer 2010

D2, D3 & D4

TEEB Climate Issues Update

Coral reef emergency

Ecosystem investment for climate adaptation

National accounting for forest carbon

Forest carbon for climate mitigation

See Pavan’s presentation on 8 Sept.

Ecosystem Services - The Millennium Ecosystem framework

Source: MEA

Mapping changes : from Biodiversity & Ecosystems to Economic Values

Source: L. Braat & P. ten Brink (eds.)

Change inEconomic

Value

Policies Nat. Reg. Loc. Int.

Changein

Land use,Climate,Pollution,Water use

(Human)Drivers

ChangeIn

EcosystemServices

Changein

Biodiversity

Changein

Ecosystemfunctions

Natural Drivers

The link between biodiversity, ecosystems, their services, and

benefits to mankind…& economics

Function

eg 1: slow

passage of water

eg 2: biomass

Biophysical

Structure of process

eg 1: woodland

habitat

eg 2: net primary

productivity) Service

eg 1: flood

prevention

eg 2: harvestable

products

eg 3: carbon

storage

Benefit (value)

eg 1: avoided costs of

impacts

eg 2: for more woodland

harvestable products

eg3: value of carbon

capture and storage

Source: Building on presentation by Jean-Louis Weber (EEA) presentation at the Workshop: The Economics of the Global Loss of Biological Diversity 5-6

March 2008, Brussels, Belgium

Maintenance and restoration costs

Also investments in green

infrastructure – PAs, watersheds,

urban environment.Economic and social values

– some market values or to

be market values, some

risk, some non market

values

Natural Capital

Ecosystem Services across land-uses: Trade-offs of conversion

Source: Ben ten Brink (MNP) presentation at the Workshop: The Economics of the Global Loss of Biological Diversity 5-6 March 2008, Brussels, Belgium.

Energy

Soil protection

Food

regulation

Energy

Soil protection

Food

-

Freshwater

Soil protection

Food

Climate regulation

Climate regulation

Energy

Freshwater

1natural extensive

3 intensive

Freshwater

Energy

Soil protection

Food

Climate regulation

Energy

Soil protection

Food

-

Freshwater

Soil protection

Climate regulation

Climate regulation

2

3

Freshwater

Artificial surfaces and associated areas

Cultivated land, grazing area

Cultivated and managed areas, woody biofuels

Intensive

Extensive

Forest managed

Bare natural

Natural areas

Landuses within Biome

Monetary Value

Quantitative Review of Effects

Qualitative Review

Non-Specified

Benefits

Increasing up the

benefits

pyramid

Measuring Benefits of Ecosystem services

Answers are needed at all levels

Full range of ecosystem services from biodiversity

Type of benefits; health benefits

from clean air, social benefits

from recreation, income from

products, security, wellbeing.

Quantitative: eg level of service,

number people benefiting from

wood from forests, # of avoided

health impacts; number of visitors

Monetary: eg avoided water purification

costs, avoided flood damage, tourist

value, value of medicines /

pharmaceuticals from natural products

Knowledge gaps The “known-

unknowns” and

“unknown-unknowns”

Source: P. ten Brink: presentation at March 2008 workshop Review of Economics of Biodiversity Loss, Brussels

The BenefitsPyramid

(1) Economic size of losses (COPI 1 study)

A : 50-year impact of inaction or ‘business as usual’

B : Natural Capital Loss every year

Welfare losses equivalent to 7 % of GDP, horizon 2050

Natural Capital Lost : AnnuallyEUR 1.35 x 1012 to 3.10 x 1012

(@ 4% (@ 1%

Discount Rate) Discount Rate)

3. TEEB Phase 1 results

Source: Braat& ten Brink(Eds., 2008): Costof PolicyInaction

Payments for Environmental Services (PES) and the Polluter Pays Principle (PPP)

Farmer Economic Optimum

Legal requirements (“reference level”)

Environmental target (practical /politically feasible env optimum at the time)

Zero impact (within assimilative capacity)

Zero emissions

Costs of measures borne by farmer – eg Polluter Pays

Principle (partly implemented)

Government pays PES to help farmers pay for measures to

meeting targets/objectives beyond legislative requirements

Self-damaging practice (Damage) Costs to farmers

and society

Costs born by society (env impacts)

Reducing emissions/impactsexample farming & PES

No control – “full damage”

PES?

39

ETR – Scope for future ?Where do biodiversity and ecosystem

related fiscal instruments fit?

1995 2009

Past - Present

Developments & Lessons

2013 2014 2020 2050

Long Term

Visions for the Future

Short Term

Planning horizon

Medium Term

Strategic Thinking

20122008 2010 2011

SE

ES

HU

PL

DK

CY

BE IE LT

20052000

52.6 50.1 50.1

19.1

28.5 28

22.2 21.6

27.8

7 6.7

labour

capital

consumption

Env tax

Possible scenarios 2050

A B C

MS own policy or copying other MS

policies

OMC? Legislation?Enhanced

cooperation?OMC 2?

Enhanced cooperation 2?Process

Tax level

EU Presidencies

labour

capital

ETS allowances

Env Tax

cons.

Small?

15%?

30%?

EL IT

Today

6.7% 6.7?

30?15?

Source: Bassi S and P ten Brink