Financial mechanisms in support conservation biology

Yet benefits of biodiversity and ecosystem service are high.. CBD refers to six “innovative financial mechanisms”: • Environmental fiscal reform • Payments for ecosystem services • Biod

An Introduction

Financial Mechanisms in Support Biodiversity Conservation

Why is finance important?

• Declining biodiversity trends at global level - OECD Environmental Outlook to 2050 projects a further 10% loss by 2050 under business as usual Yet benefits of biodiversity and ecosystem service are high

• Resulting adverse impacts to environment, health, economic growth human well-being

Financial mechanisms

Widely recognized that 2010 biodiversity targets were not met CBD COP10 led

to agreement on 2011-2020 Aichi Targets

 Will need to significantly scale up biodiversity outcomes

CBD refers to six “innovative financial mechanisms”:

• Environmental fiscal reform

• Payments for ecosystem services

• Biodiversity offsets

• Markets for green products

• Biodiversity in climate change funding

• Biodiversity in international development finance

What is an Ecosystem?

An ecosystem is the combination of living organisms and their non-living environment

People are part of ecosystems The health and wellbeing

of people depends upon the services provided by ecosystems

What is an Ecosystem Service?Benefits that humans receive from nature:

 Provisioning Services

 Regulating Services

 Cultural Services

 Supporting Services

Guess the Ecosystem Service?

 Ecosystem loss and fragmentation

Payments for Ecosystem Services (Wunder 2005) is:

 a voluntary transaction in which

 a well-defined ecosystem service

 is bought by at least one ecosystem service buyer

 from a minimum of one ecosystem service provider

 if the provider continues to supply that service

Payments for Ecosystem Services (PES)

 Industries (e.g hydropower, timber)

 Conservation organizations (local or international)

 Special interest groups (e.g sport hunters)

 Governments and municipalities

 Consumers (e.g ecotourists or buyers of certified productsWho are Ecosystem Service Buyers?

 Local land or resource owners

 Individuals or groups who use or interact with natural resources / ecosystem services (e.g subsistence/commercial hunters)

 Community organizations

 Villages

Who are Ecosystem Service Providers?

Case Study: Eld’s Deer

Early PES program in Lao PDR (Svadlenak-Gomexz et al 2007)

 ES: Conservation of Eld’s Deer

 Transaction: Annual cash payment to stop hunting, maintain habitat, and become

involved in conservation

 Buyer: WCS Lao PDR (conservation organization)

 Provider: 3 villages in Savannakhet Province

 Results:

 $ used for village development & to cover patrolling and education

related to ES

 Stabilization of deer population

 Increase in awareness of deer importance & data on deer population

Economists measure the value of ecosystem services to people by estimating the amount people are willing to pay to preserve or enhance the services

$200 billion $14 billion

Scientists estimate that up to 65% of the destruction from hurricane Katrina could have been avoided

if actions had been taken to conserve the shoreline protection provided naturally by wetlands (WBSCD 2007)

Alternative Cost Example

 Public payments and support services

 Private contracts

 Trading rights or credits through the market

 Eco-labeling

Types of Payments

There are many types of contracts for making a PES deal, including:

 Memorandum of Understanding (MoU)

 Legal contracts

 Customary law agreements

 ‘Handshake’ agreements

 Quid-pro-quo (barter) arrangements

What Contract Types Exist?

While contracts and agreements for PES vary, some parts common to all are:

 Start and end dates

 Key stakeholder details and addresses

 Responsibility of each stakeholder

 Detail of physical area

 Description of the legal rights of each party

 Defined actions to be agreed upon by each party

 Acceptance of the rules of the market

 Payment terms

Common Contract Parts

 Provides a monetary value for ecosystem services that were previously “externalities” not reflected

in prices

 Informs decision making and management planning

 Payments can be used to alleviate poverty, fund protected areas, improve conservation efforts, etc

 Buyers and providers continue to benefit from the targeted ecosystem service

Benefits of PES

Short-term benefits

 Cash income for immediate consumption (food) or investments (education, health care)

 Training on sustainable resource use

Potential long-term benefits

 More reliable local ecosystems and

flows of services

 Increase in land productivity

 Revenue for long-term investments

Can PES Reduce Poverty?

Prior to investing in a PES deal, potential sellers and their partners should undertake a risk assessment to understand the issues relevant to the specific site and context

 Failure to understand what is being bought and sold

 Loss of access to services

 Inability to harvest products

 Reduced land management activities

 Unfair sharing of revenues

 Increased competition in area

 Poorly designed contract leading to loss of control

 Performance risk and need for insurance

 Project could adversely affect ecosystem service

Risks to Sellers

Opportunities for PES include:

Ex: Biodiversity Conservation

 Potential PES in NEPL:

 Access to particular species/habitats

 Management contracts for conservation on private land

 Commercial pharmaceutical use

 Success in Cambodia (Clements et al 2010):

 Issue: Collection of eggs/chicks of threatened bird species

 ES: Conservation of large threatened bird species

 Provider: Limited number of local people

 Conditionality: Protectors paid $1/day + $1/day extra if chicks fledged

 Results: Over 1550 nests protected in 21 villages with locals receiving US$80-160/year

Ex: Bundling Payments for Forests

 Organization of payments for as many services as possible for sale as a single product

Adapted from Pagiola et al 2002

 Bring certainty to the ecosystem marketplace

 Consider how PES relates to the other strategic plans

 Review legal framework to determine PES applicability

 Promote research on PES and related topics

 Pilot PES projects at certain sites

Promoting PES in Lao PDR

PES programs are currently restricted by:

 Limited access to information

 Limited organization to attract buyers

 Limited access to partners

 Lack of money for initial costs

 Lack of influence to shape or enforce contracts

 Lack of financial protection against risks

Limiting Factors

PES deals will be most successful when and where:

 Demand is clear and money is available

 Resources are scarce and / or diminishing

 Effective brokers and intermediaries are available

 Contract laws exist and are enforced

 Clear criteria exist for evaluating fair outcomes Ideal Conditions

Enable conditions (3): Decree 99 Mechanisms

100% payment to forest user as non-organization Vietnam Forest Fund

households

 4 key buyers: 2 hydropower, 1 water supply, 1 tourist

 Total PFES revenue: 5 million USD

 Disbursement of the PFES payment to eligible groups in 2009 and 2010

 202,251 ha of forest, 7,997 households (via contract with 18 forest users)

 Average payment: 350-400,000 VND/ha/year (17-20 US)

Case studies PES in Lam Dong

 A Winrock International funded project

 Potential buyer would be a hydropower plant that was operational, with the production capacity of not less than 30 MW

 The local area where illegal logging still existed

 Forestland contracting to local households could be agreed upon by local authorities

 There were local households nearing near the watershed area

 Ma Cooih commune of Dong Giang district of the province was selected for the piloting

 A Vuong hydropower plant belonging to Electricity of Vietnam

Case study PES in Quang Nam

 379,272 ha under payment scheme

 Two hydropower plants + 1 water supply

 Clearly defined rights are very important for the success of PES

 Land tenure in Vietnam is not always clear

 PES/REDD+ operates within the current tenure structures: marginalise the poor

 Local elite capture?

Issue 1 Land tenure

 Hybrid between public and private, thus powerful buyers (e.g Hoa Binh hydro/EVN)

 Payment is not performance-based, but made because “Prime Minister requests”

 The lack of institutional and policy framework for facilitating carbon market, thus risks for investors

Issue 2 Buyers

 8 forest user groups with different quality of forest, thus different payment levels

 Ownership right: government

 Unequal distribution of PES/REDD+ benefits among users

 Potentials for conflicts

 Difficulties in protecting the forest

 Payment to whom?

 Payment mode: individual households, group of households, or community?

 How is payment used within community?

Issue 3 Service providers

 Government as intermediaries, connecting buyers and sellers

 Government decide level of payment, how the payment is made on what basics

 The government regulates carbon transaction

 Local government: socioeconomic indicators are important for deciding how payment is made

Issue 3 Intermediaries

 The lack of policy framework for accommodating carbon investment

 Weak coordination among government agencies (e.g MARD, MONRE)

 Weak coordination between government and private sector, government and other stakeholders

 The lack of capacity and human resources within the government and non-government sector

Issue 4 Institutions

Biodiversity Offsets: Definition

What are biodiversity offsets? 

“Conservation actions intended to compensate for the residual, unavoidable harm to biodiversity caused by development projects, so as to ensure no net loss of biodiversity.  

Before developers contemplate offsets, they should have first sought to avoid and minimize harm to biodiversity.” 

Insight & IUCN, 2004

Biodiversity Offsets: Benefits

 More in situ conservation activity than occurs now 

 Better conservation outcomes by focusing on high biodiversity value habitat and conservation priorities instead of highly compromised sites

 A mechanism to integrate conservation into development planning and biodiversity into the investment plans of companies

 Greater economic value to biodiversity

 New source of finance for biodiversity conservation

Biodiversity Offsets: Benefits

Government:

 Companies make increased contributions to conservation, without necessarily requiring elaborate new rules

 Development projects planned in the context of sustainable development

 Better balancing of the costs and benefits of conservation and economic development

Biodiversity Offsets: Benefits

Communities:

 Ensure developers leave a legacy of rehabilitated project sites and additional conservation benefits in the surrounding area

 Negotiate optimal environmental, economic and social outcomes at a community or landscape scale

  Identify pre-project biodiversity and ecosystem benefits and ensure important ecosystems remain functioning and productive during and after development projects

Biodiversity Offsets: Risk

Offsets are no substitute for “no go” areas: 

 Where development is not appropriate, the question of offsets should not even arise.   

Failure to deliver: 

 Even in the context of mandatory offset regimes, many conservation groups believe that the

requirements for viable offsets have not been met.  Many feel wetland banking in the USA has failed to deliver “no net loss”. 

 Some conservation groups oppose the concept entirely.  Others feel the theory has not been delivered

in practice.  At the same time, some developers feel offsets will cost more than they can bear.  Public skepticism that “no net loss” will be delivered in practice.  Stakeholder consensus is difficult. 

Standards:

 Credible and transparent standards, methodologies and guidelines for biodiversity offsets, if the

approach is to be adopted more widely

Biodiversity Offsets: Risk

Biodiversity Offsets: Current status

 Mainly used in North America: 15 programs operating and 4 being developed

 Central and South America: experimenting

 Africa: South Africa and Namibia applying this concept to Urianium mining

 Asia: Japan pioneering, Vietnam and Mongolia expressing interest

 Biodiversity banks established

 New Zealand: considering …