teeb training session 2: instruments for improved stewardship of natural capital

The Economics of Ecosystems & BiodiversityThe Economics of Ecosystems & Biodiversity

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Session 2: Instruments for Improved

Stewardship of Natural Capital


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Instruments for improved stewardship of natural capital

Part 1: Recognizing the value of Protected areas

Part 2: Reforming subsidies

Part 3: Addressing losses through Regulation and Pricing

Part 4: Rewarding benefits through payments and markets

Part 5: Investing in Ecological Infrastructure


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Part 1:

Recognizing the value of Protected Areas Some definitions

A protected area (PA) can be defined as:

“A geographically defined area which is designated or regulated and managed to achieve specific conservation objectives” (CBD)

“A clearly defined geographical space, recognised, dedicated and managed, through legal or other effective means, to achieve the long-term conservation of nature with associated ecosystem services and cultural values” (IUCN World Commission on Protected Areas)


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Protected Areas Quick Facts Over 120,000 designated protected

areas covering around 13.9% of the Earth’s land surface.

Marine protected areas cover only 5.9% of territorial seas

0.5% of the high seas but are increasing rapidly in number and area

Worldwide, nearly 1.1 billion people depend on protected areas for a significant percentage of their livelihoods

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Providing a case for PAs

Protected areas are central to global efforts to conserve biodiversity and safeguard biodiversity

Their benefits include:

Provide a supply of clean drinking water Reduce risk from unpredictable events and

natural hazards Maintain food security by increasing resource

productivity and sustainability Contribute to climate change mitigation and

adaptation Protect cultural and spiritual resources Provide potential source of economic

development©Grida Ardenal


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Challenges for PAs

external pressures from distant sources

direct pressures

local conflicts

lack of financial resources

poor capacity

Inappropriate institutional structures

unclear or insecure land rights

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Improving PA effectiveness through economic valuation

Results of economic valuation need to be appropriately interpreted and embedded in sound management processes

Valuing ecosystem services can support sound decision-making by helping to assess the costs and benefits of different options

Valuations can inform the debate amongst those responsible for a protected area and those affected

Valuation helps to analyze the social impacts of conservation


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The cost of PAs These can range from: PA management costs, loss of access to

resources, forgone opportunities, human-wildlife conflicts, displacement etc

Cost estimations for global protected areas vary significantly between different studies:

Cost estimates range from US$ 1.2 billion/year for a fully efficient protected area network in developing countries to US$ 45 billion/year for a global marine and terrestrial network that covers 30% of marine area and 15% of terrestrial area

The EC report focuses on the costs of Natura 2000, the EU network of areas managed for specific conservation objectives, which are estimated to be € 5.8 billion for the EU-27 countries


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Mobilizing Funds and Financing PAs

Biodiversity financing estimated to be around US$ 4 to 5 billion a year, with some 30-50% going to finance protected areas

There is severe competition for available funds

Funding by non-profit organizations probably contributes more than US$ 1 billion/year to international biodiversity protection

Biodiversity is losing ground to climate change funding

Market-based sources of protected area income could contribute between US$ 1-2 billion annually

Financing for protected areas can also be obtained via new innovative mechanisms and instruments


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A Framework for Successful Financing

Create markets and promote market-based toolsCreate a diverse portfolio of funding (as sources may

fail along the way)Address the social impacts of PAs (demonstrate

relative costs and benefits to stakeholders to garner support)

Making available funds work better


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Case study; Using economic arguments to support protected area strengthening in Indonesia

Acheh province in Northern Sumatra has one of the largest continuous forest ecosystems remaining in South-East Asia.

Forest sustains livelihoods by retaining water in the rainy season, providing continuous water supply throughout the dry season, mitigating floods and erosion

Since 1980, due to illegal logging threatening parks ecosystems, Leuser national park has sought to protect this rich natural heritage

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National Park managers commissioned a valuation study of impact of biodiversity loss and found:

1. Conserving the forest and its biodiversity would provide the highest long-term economic return for the province

2. Continued deforestation would cause ecosystem service degradation and generate lower economic return for the province

3. Short term benefits for logging industry BUT more long term negative impacts for most other stakeholders

Leuser National park on Sumatra, Indonesia

The Political Economy of Conservation

Figure1: Benefit distribution among stakeholder under different land use scenarios in the the Leuser Ecosystem(25,000 sq km), Indonesia, in Net Present Value (NPV) in billion US$ over 30 years, at a discount rate of 4%.

Source: van Beukering, P.J.H., H.S.J. Ceasar, M.A. Janssen(2003). Economic valuation of the Leuser National Park on Sumatra, Indonesia. Ecological Economics 44,pp 43-62


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Part 2:Reforming subsidies

What are subsidies? OECD “a government action that confers

an advantage on consumers or producers in order to supplement their income or lower their cost”

WTO: “a financial contribution by a government, or agent of a government, that confers a benefit on its recipients”.

©OECD

©WTO


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The magnitude of Global Subsidies from selected economic sectors

Source: TEEB, 2010


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Subsidies and the environment

An Environmentally Harmful Subsidy (EHS) is...

“ a result of a government action that confers an advantage on consumers or producers, in order to supplement their income or lower their costs, but in doing so, discriminates against sound environmental practices” (OECD, 2005)

Some subsidy types have been identified as critical drivers of activities harmful to ecosystems and biodiversity, resulting in losses of ecosystem services by enabling: Under-pricing the use of natural resources Increasing production


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Case study: The environmental impact of subsidies to the small scale sector in Senegal

In the late 1970s, Senegalese authorities provided direct support to fisheries including small scale fisheries.

Small scale sectors starting producing more for export than domestic markets and fishing efforts of small scale units intensified

By 2003, factories received 60% of their supply from small-scale fishing units.

Most marketed species in this category are now in danger of biological collapse

©123rf.com/Carlos Mora

©123rf.com/Carlos Mora


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Subsidy reforms

Phasing out subsidies can alleviate environmental pressures, increase economic efficiency and reduce the fiscal burden

Freed funds can be used for more pressing funding needs, like rewarding those who provide biodiversity benefits (via PES schemes for example)

Some successful but relatively small subsidy reforms can now been seen around the world – but progress is too slow and protracted - Why?


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Analytical Tools for Subsidy Reforms

The ‘quick scan’ model (OECD 1998)

The ‘checklist’ (Pieters 2003)

Integrated assessment methodology (OECD 2007a)

‘Green’ subsidies checklist (UNEP 2008b)


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Criteria for Subsidy Programme Design

Targeted

Efficient

Soundly based

Practical

Transparent

Limited in time

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Part 3: Addressing the losses through regulation

and pricing Rewarding benefits and reforming subsidies are important

components of policy reform because their measures are explicitly designed to avoid ongoing losses

Decision-makers and resource users will only take such losses into account if confronted with the real costs involved

A coherent strategy to make the full costs of loss visible and payable should form the backbone of new biodiversity policies

We therefore need instruments that reflect and incorporate the cost of such losses


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Fundamental principles for incorporating costs

Three closely related principles should guide the choice and design of policy instruments:

The ‘polluter pays’ principle (PPP) The user/beneficiary pays principle

The full cost recovery principle


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Regulating to avoid damage: Environmental standards

Regulation is the most widely used instrument for environmental protection

Regulation of emissions: emissions standards, ambient quality standards and technical

standards, and performance management prescriptions for good practice

Regulation of products: sets restrictions on the use of products (e.g. illegally logged

timber, activities damaging to endangered species etc.) establishes production standards (certification, best practice

codes, etc)

Spatial planning: involves regulation of land uses that have direct implications for ecosystem services or habitats (e.g. protected areas)


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Setting more accurate prices; Market Based Instruments

Market based instruments (MBIs) can change the incentives available to private actors when deciding upon resource use

MBIs work in 3 ways: Control prices Control quantitative Set liability rules and can be adjusted to discourage harmful

activities Examples of MBIs include: taxes, charges, fees and fines, permits

etc MBIs give private actors more choice in selecting the most cost-

efficient option.


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Biodiversity Offsets and biodiversity banks and the compensation of losses

Biodiversity offsets: measurable conservation outcomes resulting from actions designed to compensate for residual adverse biodiversity impacts which arise from project development and persist after appropriate prevention and mitigation measures have been implemented.

Biodiversity banking: is a market system, based on biodiversity offsets, for the supply of biodiversity credits and demand for those credits to offset damage to biodiversity (debits).


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Offsets and biodiversity banks; Advantages

Advantages:

Help balance development and conservation Generate funds for conservation Mainstream biodiversity into business and regional planning Reverse some past losses of restorable but threatened habitats Reduce habitat fragmentation Be more cost effective than avoidance and mitigation

measures


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DisadvantagesOffsets can only deliver benefits where there are

significant areas of remaining habitat that are: Worth maintaining Unprotected and likely to remain so in the future (to ensure

additionality) Subject to significant levels of loss and degradation

Cause the displacement of threats from one area to another (leakage)

Offsets and biodiversity banks; Disadvantages


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A case study – biodiversity compensation and offsets in Australia and the US

In Australia Their bio-banking system intends to restore

alternative sites to where land-use conversion and associate biodiversity loss are inevitable

Provides an incentive to encourage conservation on private land

No economic data available yet as the programme is in an early stage

In the US More than 400 wetland banks have been

established More than 70 species banks which can trade

between US$100 million and US$370 million in species credits each year.

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©123rf.com


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Part 4: Rewarding benefits through payments and

markets Biodiversity provides a range of ecosystem services that

benefit people locally, nationally and internationally

The provision of these services stems directly from natural processes

Many services are not priced or are underpriced in the markets

Existing economic signals may not reflect the true value of natural capital

Focus on payment and market-based tools to reward private and public actors who maintain the flow of services that benefit society


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Payments for Ecosystem Services

Definition: PES can be defined as a voluntary transaction where a well-defined ecosystem service (ESS) is ‘bought’ by at least one ESS buyer from at least one ESS provide, if – and only if – the ESS provided secures ESS provision.

Adapted from Wunder, 2005

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PES Quick facts

In 2010 over 300 PES programmes existed globally

Broad estimate of the value being captured: USD 8.2 billion

USD 6.3 billion in China, Costa Rica, Mexico, US and UK alone


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The structure of PES

Highly flexible; there is no one model or blueprintMany ways to structure schemes, depending on the

specific service, scale of application and context for implementation

Some are based on legal obligations whereas private PES schemes are voluntary with little government involvement

Sources and mechanisms for payments vary as do the providers and the beneficiaries


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Source: World Bank 2002

Illustrating Payments for Ecosystem Services (PES)


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PES stakeholders and their interactions

Source: Adapted from Pagiola, 2003


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PES at different scales

PES can be implemented at different geographic scales

If a site provides a service that is mainly useful locally (e.g. pollination of crops), then a local PES makes sense

If it provides national benefits (e.g. pest control), then national government should initiate the appropriate PES

Provision of global benefits (e.g. as in the case of biodiversity and carbon services) may require an internationally coordinated approach


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PES with multiple co-benefits

PES schemes can:

Be designed to create or support employment related to the provision of ecosystem services

Combine protection for a wider set of ecosystem services with poverty concerns and addressing climate change

PES can offer major win-win opportunities

PES can involve non-monetary benefits rather than a monetary reward e.g. reducing tensions across boundaries and protected areas


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PES; Opportunities and challenges

The voluntary aspect of PES is a key feature BUT legal/regulatory underpinning is essential if their full potential is to be realized

If private sector involved, can offer the potential to raise additional finance and complement public conservation funding

Requires significant investments in information and capacity building

Difficult to implement where: Resource tenure or use rights are insufficiently defined or enforced Institutional capacity and transparency are lacking or where

resource access and ownership are in dispute, PES ‘buyers’ have little incentive to participate


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The role of valuation in PES The ability to quantify, monetize and communicate the values

of ecosystem services to key stakeholders can help build support for PES

The lack of a biophysical assessment and economic valuation of an ecosystem service need not preclude PES

Precise quantification of the service can be prohibitive (e.g. for small watershed schemes)

Arguments based on the precautionary principle may be enough to justify starting PES


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PES needs to be:

Based on detailed, scientific understanding of the ecosystem services

Tailored to the particular socioeconomic and political context of the site and anticipates changes

Actively involved all stakeholders in the design and implementation process

Considering market development and funding opportunities

Based on an integrated, holistic and flexible approach, that can be adapted over time

Recommendations for PES Schemes


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Example of a PES Scheme; Incentives to conserve agricultural services in Japan

Japanese government reward local communities and farmers in mountains areas for conserving agricultural services

Direct payments are made to farmer local groups to motivate them not to abandon farmlands and to conserve the associated ecosystem services

To conserve paddy fields, PES operate to; Improve landscape amenity, species Ecosystem diversity and land conservation Prevent water pollution by encouraging less

use of chemical inputs for agriculture©123rf.com/Chan Punya


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Part 5:

Investing in ecological infrastructure Ecological infrastructure - worthwhile investment? Investing in ‘ecological infrastructure’ makes economic sense in

terms of cost-effectiveness because it is cheaper to avoid degradation than to pay for ecological restoration

Investments in ecosystem restoration can benefit multiple policy sectors and help them achieve their policy goals e.g. Wetlands and forest protection: reduced risk of flooding impacts Restore forest, lakes and wetlands: to address water scarcity and/or

water purification Coral reefs as fish nurseries: fisheries productivity/food security

Investing in restoring degraded ecosystems is directly relevant to many policy sectors affected by climate change


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Step 1: Identifying priority candidates (15 minutes) First phase (5 minutes): please work separately and in parallel:

Assignment for the ‘environment’ representative: please identify 3 programmes or policies in your country which you believe generate (the most) important harmful incentives for biodiversity and the environment.

Assignment for the ‘finance/economic/planning’ representative: please identify 3 programmes or policies which you believe are not very (or even: the least) effective/targeted.

Second phase (10 minutes): Please compare notes. Do you have some overlap? If yes: congratulations! You found natural candidates for prioritized removal or

reform. If no: please have a look at each other’s notes and identify (5 minutes): Any cost-ineffective programmes with environmentally harmful effects? Any environmentally harmful programmes which are not very cost-effective? If yes: these could be interesting candidates for prioritized reform.

Group Exercise 1 (in country teams): Harmful incentives


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Group Exercise 1 (in country teams): Harmful incentives continued…

Step 2: Designing phase out or reform (30 minutes)

Identify one or (time permitting) two programmes which you believe are in need of reform, and develop (tentative) answers to the following questions (30 minutes):

1.Which stakeholders are relevant? Are there stakeholders who could act as champions for removal, phase out, or reform?

2.How could stakeholders’ interests be addressed (compensation, gradual phase out, …)? What are the pros and cons of the different options in the specific case at hand?

3.Are there opportunities for enhancing the effectiveness of the programme while reducing environmental damage?

4.Are there opportunities to mitigate harmful impacts?5.Based on the answers, develop a ‘roadmap’ and timetable for

phase out or reform.


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Group Exercise 2 (in country teams): Positive incentives

Reviewing existing incentive programmes (20 minutes)

Review existing incentive measures in your country and identify opportunities for

1.replication or scaling up of existing programmes;

2.improving targeting/effectiveness

3.improve social/equity impacts

4.improving financial sustainability


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Group Exercise 2 (in country teams): Positive incentives continued…

Opportunities for new incentive programmes (20 minutes) Discuss and agree on criteria that are most relevant to

identify high potential or high priority for introducing positive incentives. Existing threats to biodiversity? Economic values of biodiversity? Social development concerns?

Based on the above, identify critical gaps where introducing new incentive programmes could be helpful.

What do you think are the key steps required in introducing these new programmes?

teeb training session 2: instruments for improved stewardship of natural capital

Documents

global protected areas

marine protected areas

value of protected areas

designated protected

protected area pa

teeb training instruments

teeb training challenges

teeb training session