he role of economic instruments in the context of biodiversity related
multilateral environmental agreements
DRAFT WORKING PAPER COMMISSIONED BY UNEP
FOR INPUT BY THE UNEP WORKING GROUP ON ECONOMIC INSTRUMENTS
(February 2003)
Commissioned by: UNEP
Prepared by: Nicola Borregaard
Beatriz Bustos
Matthew Stilwell
With the collaboration of: Jaime Ubilla
Table of Contents
1 Introduction 6
2 The role of economic instruments in the context of biodiversity related MEAs 10
2.1 The role of economic instruments in achieving environmental objectives 10
2.2 Economic instruments to implement biodiversity-related MEAs 13
2.2.1. Property rights 13
2.2.2. Market creation 14
2.2.3. Charges 14
2.2.4. Fiscal instruments 15
2.2.5. Environmental Funds and other financial assistance 15
2.2.6. Liability Systems 16
2.2.7. Economic Instruments for Biodiversity Protection at the International Level 17
3 References to Economic Instruments in selected MEAs 19
3.1 Convention on Biological Diversity 20
3.2 Convention on Trade in Endangered Species of Flora and Fauna 24
3.3 Convention on Wetlands (Ramsar Convention) 27
4 Lessons learned in the use of economic instruments to implement selected biodiversity related MEAS 31
4.1 Thematic areas for the use of economic instruments 33
4.1.1 Economic Instruments for in situ conservation 33
4.1.2 Raising financial resources 34
4.1.3 Sustainable trade 38
4.1.4 Payments for environmental services 41
4.1.5 Transferring technology/know-how/capacity building 43
4.1.6 Addressing perverse subsidies 44
4.2 Supporting the introduction of Economic Instruments for biodiversity protection 46
4.2.1 Valuation and Economic Instruments 46
4.2.2 Integration of local communities 48
4.2.3 Identification of benefits and beneficiaries 49
4.2.4 Exchange of experiences, training, capacity building with regard to Economic Instruments 51
4.2.5 Importance of Bundling Goods and Services 53
4.2.6 Role of the State in implementing Economic Instruments 54
5 Conclusions – prospects for enhanced use of economic instruments (preliminary bullet points) 56
6 Bibliography 58
7 Annexes 63
List of Figures
Box 1: Conservation easements in CBD and Ramsar 33
Box 2: Captive breeding in CITES Error! Bookmark not defined.
Box 3: Ramsar Small Grant Fund 36
Box 4: The Mgahinga and Bwindi Impenetrable Forest Conservation Trust 36
Box 5: Kiwi Recovery Program 37
Box 6 Bolsa Amazonia. Error! Bookmark not defined.
Box 7: Certification schemes Error! Bookmark not defined.
Box 8: Climate Care 42
Box 9: Quito Water conservation Fund 42
Box 10: Costa Rica Environmental services payment system Error! Bookmark not defined.
Box 11: Subsidies in the Fishing industry Error! Bookmark not defined.
Box 12: Tax incentives on wetland conservation in the United States Error! Bookmark not defined.
Box 13: Promoting sustainable use in local communities. 49
Box 14: Monetary and non-monetary benefits 50
Box 15: Costa Rica and Merck Company 51
Box 16: Clearing house mechanism 52
Abbreviations
5
1 Introduction
Command and control instruments have traditionally been used as the main policy tool to achieve environmental objectives. However, over the last decade there has been an increasing recognition of the need to broaden the use of market-based incentives in complementing command and control measures. Economic instruments (EIs) are considered effective tools in correcting market and policy failures, and internalizing environmental and social costs. Appropriately designed and implemented economic instruments, applied within the right policy framework, can make an important contribution to achieving sustainable development. Their application can subsequently strengthen the implementation of multilateral environmental agreements (MEAs). In addition, EIs can enhance synergies between trade and environment whereby international trade and environmental obligations are implemented in a mutually supportive way.
Being instruments that aim to internalise external costs in the most efficient way, EIs are capable of reflecting social costs in market prices at the national and international levels. While considered less interventionist than command and control regulations, well-designed economic instruments can also lead to trade patterns, and production and consumption patterns, for which all costs, including environmental, are also more fully reflected. In the case of biodiversity protection, trade intervention is made only to the point of correcting market distortions. Numerous MEAs have addressed the use of EIs in Conference of the Parties (COP) meetings, emphasizing the need for capacity building, exchange of experiences and more research on the use of EIs. In literature and in practice, EIs are dealt with in the context of concrete environmental problems as well as situations.
This publication responds to a request by the Governing Council that UNEP studies the effectiveness of market-based incentives in achieving the objectives of multilateral environmental agreements, including those agreements for which UNEP provides the secretariat (GC decision 21/14). The publication aims to analyze the use of EIs in confronting specific environmental concerns, with a focus on biodiversity protection, thus helping to implement the objectives of the biodiversity related MEAs. At the same time, it also looks at how biodiversity-related MEAs can contribute to strengthening the use of EIs for biodiversity protection.
The OECD (1994) has defined the basic conditions under which policy instruments qualify as an economic instrument as follows:
Instruments that affect estimates of costs and benefits of alternative actions open to economic agents. Economic instruments, in contrast to direct regulations, thus allow agents the freedom to respond to certain stimuli in a way they themselves think most beneficial. (p.17)
Market mechanisms and economic incentives are other words for roughly the same idea. For example, when speaking of “economic incentives”, authors often implicitly or explicitly aim to emphasise positive incentive measures, such as financial payments for environmental services, tax incentives, or the creation of markets for biodiversity related goods. Several of the biodiversity related MEAs have explicitly emphasized the wording “positive incentives”.[1]
The three principal MEAs that are discussed in this paper are the Convention on Biological Diversity (CBD), the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) and the Ramsar Convention on Wetlands (Ramsar).[2] The value of EIs in achieving their objective has been identified in each of these Conventions:
· The CBD obliges Parties to “adopt economically and socially sound measures that act as incentives for the conservation and sustainable use of components of biological diversity” (Article 11)
· CITES Strategic Plan emphasizes that “for trade to be responsible and based on sustainable use, social and economic incentives are needed” (Goal 1) and has called for a “review of … national policy regarding the use of and trade in CITES-listed species, taking into account economic incentives.” (Decision [name to be included when finalized]).
· Ramsar has identified in its Strategic Plan the goal of promoting “incentive measures that encourage the application of the wise use principle, and the removal of perverse incentives.” (Objective 13)
The objective of this document is furthermore to identify synergies between the MEAs with regard to the use of EIs, and to provide answers to some of the following questions:
· How can EIs be used for biodiversity protection?
· How have EIs been approached in the different MEAs under analysis?
· How can EIs be implemented more effectively, taking into account, amongst others, requirements in terms of information, valuation, benefits and beneficiaries mapping?
· How can EIs be used to more effectively address some crucial issues identified in the MEAs for biodiversity management, such as the involvement of local communities?
· How can MEAs help to exchange experience and foster capacity building on EIs?
· How can a more comprehensive perspective on the use of EIs help biodiversity protection?
By exploring potential synergies between the Conventions on the use of EIs, this document seeks to complement other important initiatives. Cooperation, and the search for synergies, have included joint working programs, mutual participation in COPs, website links, and joint regional initiatives. Memoranda of Understanding and casual or regular cooperation, joint meetings, and staff exchange have been promoted, favouring synergistic approaches. In 1996 the Ramsar Bureau and the CBD Secretariat initiated preparations for technical cooperation. Since 1998, they have maintained joint work plans, and established a joint River Basin Initiative. Ramsar’s Strategic Plan states that it will “work as partners with international and regional multilateral environmental agreements (MEAs) and other agencies” and specifically “continue to strengthen cooperation and synergy with the Convention on Biological Diversity” and “establish working relations with CITES”. The CBD’s website lists its partner conventions and organizations, as well as other joint initiatives that have been established. In the different COP meetings the need for more cooperation has repeatedly been emphasized. CITES’ most recent Strategic Plan notes that “numerous linkages also exist between the aims of CITES and those of other multilateral environmental agreements. Specifically, the missions of CBD and CITES are closely related, thus necessitating a high degree of cooperation and synergy. Cooperation and coordination with species management conventions and agreements are equally important.” (Strategic Plan Goal 5)
These inter-Convention initiatives are complemented by initiatives that integrate, or even originate from, third organizations in cooperation with the MEAs on incentive-related issues. Various MEAs maintain Memoranda of Cooperation or Memorandums of Understanding with a range of different private organizations that work on biodiversity protection. In the context of EIs, the Conservation Finance Alliance constitutes probably the most relevant of these initiatives, with Ramsar being a member of the Alliance and CBD having participated actively in its formation. This document aims to provide additional input for further cooperation on EIs.
Cooperation on areas of synergy is supported by recommendations of the UN Governing Council’s 20th session (Nairobi 1999), which emphasized the importance of promoting inter-linkages among multilateral environmental agreements and international processes in an effort to better focus international policy-making. In particular, it calls on Parties to give due consideration to ways to strengthen coherent inter-linkages among relevant conventions. Despite this opportunity, however, EIs have to date played a relatively minor role in these joint efforts. The CBD´s COP Decision VI/15 on incentive measures emphasized the need for further cooperation on incentive measures. The recent Ramsar initiative on implementing an expert network on incentives has the potential to form the basis for a wider initiative if other MEAs cooperate in the implementation.
The document is structured as follows: Chapter 2 describes the role of economic instruments in the context of biodiversity related MEAs, and provides an overview on the range of EIs available for biodiversity protection. It also refers to the interrelationship between EIs and trade policies and the implication that this has on the use of EIs in MEAs.
Chapter 3 presents a description of how the topic of EIs has been dealt with in the MEAs under analysis, including the original conventions, as well as Conference of Parties (COP) meetings and other official documentation.
Chapter 4 analyzes cross-cutting issues on the use of EIs for implementing the objectives of biodiversity related MEAs. Discussed within the context of the Conventions’ objectives on biodiversity conservation and sustainable use, the chapter illustrates areas where EIs may be used, such as sustainable trade and outlines the conditions for the successful use of EIs, such as local community involvement, technology transfer and capacity building. The chapter deals with concrete applications of economic instruments for biodiversity protection and identifies how synergies between the MEAs and EIs contribute to achieving the MEAs’ objectives.
Chapter 5 concludes the document by summarizing the findings of the previous chapters as well as providing some recommendations for enhancing a more effective use of EIs in the biodiversity related Conventions.
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2 The role of economic instruments in the context of biodiversity related MEAs
2.1 The role of economic instruments in achieving environmental objectives
The interest in and the use of EIs has significantly expanded over the last two decades. Whereas in the early 1970s policy instruments for environmental management consisted basically in direct regulation, today the importance of balanced packages of command and control regulation and economic instruments is often emphasized. This situation is also reflected in the major MEAs. The Ramsar and CITES agreements, signed in 1971 and 1973 respectively, contain no reference to the use of economic incentives in their original texts. However, the Convention on Biodiversity, signed in 1992 when EIs had grown in popularity, includes several references to the use of economic incentives. [3]
For at least two decades, there has been an understanding that EIs can help increase efficiency and cost-effectiveness in environmental management. Their use can also generate financial resources[4], divert funds to environmentally friendly technologies, reduce compliance costs, create incentives for investment, and increase the involvement of private agents in environmental protection.
The policy shift towards greater EI use is motivated further by changes in the role of the state and other civil actors, and by insights into the need to complement traditional with new and innovative approaches. Such insights suggest that:
· Heavy reliance on command and control has, in the absence of other measures, often resulted in poor environmental results;
· A mix, or combination, of different instruments, such as coercive, educational, or incentive based approaches, developed in light of market structure, cultural, socio-economic and political conditions, is mutually supportive of environmental and economic aims;
· Sustainable development is increasingly a more pressing objective rather than simply a long-term environmental performance goal. For example, RAMSAR, CBD, and CITES, have explicitly integrated sustainable use and sustainable development into their agendas;
· Limitations in financial resources for environmental management in both developing and developed countries require more attention to efficiency and cost effectiveness in order to identify financial resources to assist in the implementation of MEAs;
· There is increased cooperation between the public and private sectors, as well as the integration other actors;
· Economic instruments can create win-win-win situations with regard to the economic, environmental and social pillars of sustainable development;
· Voluntary character of many EIs, going hand in hand with international legal and institutional set-up.
According to biodiversity experts, EIs can contribute substantially in addressing the escalating loss of biodiversity. According to the Conservation Finance Alliance (2002), “escalating biodiversity loss is due, in large part, to several critical economic and financial factors.” (p.1) These critical economic and financial factors include the lack of investments and long-term financing in biodiversity conservation, the adverse impacts of private financial flows, the lack of capitalization on new environmental business opportunities that contribute to biodiversity conservation, and the lack of markets that value and pay for biodiversity services. EIs can play a key role in reversing these trends.Organisations such as the OECD (1999) have insisted that “without incentives to use biological resources conservatively, biodiversity will be increasingly depleted.” (executive summary)