Title: Conservation Paradigm: Payment and Market Schemes for Biodiversity Protection
by: Grace Villamor[1] and Rodel Lasco[2]
RUPES Program, ICRAF-Philippines
Abstract:
The loss of biodiversity is of great concern of the world, and the loss of tropical forest biodiversity has been singled out for urgent attention. This presentation delivers a new emerging trend to conserve biodiversity while rewarding people by providing and improving this environmental service through promoting markets for forest biodiversity protection services.
Payment mechanisms or rewarding schemes for biodiversity protection at the global and local levels are currently implemented. However, to better manage the schemes biodiversity should be valuated to the nearest real worth. This paper will show common valuation techniques for biodiversity while key commodities used to market biodiversity protection services will be introduced. Examples of payment schemes for biodiversity protection will be presented to further understand the said concept.
Keywords:
Biodiversity, payment mechanisms, market
Introduction:
The world's biodiversity is declining at an unprecedented rate and its loss is of great concern of the world. The loss of tropical forest biodiversity has been singled out for urgent attention. Particularly because of its immensely rich species found therein as well as the concentration of the anthropogenic impacts. This paper will try to present the great immediate concern for biodiversity protection on biodiversity hotspots of the world and to introduce a new emerging trend to biodiversity protection while rewarding its providers.
Biodiversity Hotspots: At risks
In 1988, Norman Myers introduced the concept of biodiversity hotspots (Mittermeir, et al, 2004). He raised the question: “what areas are the most immediately important for conserving biodiversity?” By definition, hotspots have lost at least 70 percent of their native vegetation including the wildlife that depends on their survival. Yet, these hotspots still hold especially high number of endemic species; at least 150,000 endemic plants species which represent 50 percent of the world’s total while about 22,022 terrestrial vertebrate species represent 77 percent of the world’s total[3].
There are 34 biodiversity hotspots in different regions (table 1) which covers 3,379,246 km² of total land area and comprise more than 100 countries. The occurrences of most hotspots are concentrated in the tropics. By continent, Africa and Asia-Pacific have the most number of hotspots in land mass. Among countries, Brazil has the largest remaining area of tropical forest habitat.
Table 1: List of biodiversity hotspots by continents (CI, 2004)
North and Central AmericaCalifornia Floristic Province
Caribbean Islands
Madrean Pine-Oak Woodlands
Mesoamerica
South America
Atlantic Forest
Cerrado
Chilean Winter Rainfall- Valdivian Forests Tumbes-Chocó-Magdalena
Tropical Andes / Europe and Central Asia
Caucasus
Irano-Anatolian
Mediterranean Basin
Mountains of Central Asia
Africa
Cape Floristic Region
Coastal Forests of Eastern Africa
Eastern Afromontane
Guinean Forests of West Africa
Horn of Africa
Madagascar and the Indian Ocean Islands
Maputaland-Pondoland-Albany
Succulent Karoo / Asia-Pacific
East Melanesian Islands
Himalaya
Indo-Burma
Japan
Mountains of Southwest China
New Caledonia
New Zealand
Philippines
Polynesia-Micronesia
Southwest Australia
Sundaland
Wallacea
Western Ghats and Sri Lanka
Originally, the 34 hotspots covered a land area of 23,490,101 km², 15.7 percent of the Earth’s land surface, an area equivalent in size to Russia and Australia combined (Annex 1). This extent of habitat has now been reduced by 86 percent, a mere 2.3 percent of the planet’s land surface (CI, 2005).
Each hotspot possesses unique flora and fauna species which are not found elsewhere. However, extinction is the gravest aspect of the biodiversity crisis. Though extinction is a natural process, anthropogenic impacts have elevated its rate and serious loss of biodiversity is presently taking place.
The ultimate goal of biodiversity hotspots is to keep the nature intact, which means that anthropogenic species extinction must be stopped by slowing the rate of species extinction. Habitat destruction is widely considered the most pervasive anthropogenic cause of biodiversity loss and this pose a huge challenge for conservationists because of two compelling reasons:
That 68 percent of the countries with biodiversity hotspots belong to the lower and lower-middle income or developing countries based on the 2004 Global Economic Status of World Bank. Figure 1 shows the distribution to different economic income group[4]. This trend had been observed for the past couple of decades where occurrence of most terrestrial biodiversity was found at low latitudes particularly in developing countries [as measured by per capita gross national product, GNP 1986] (Huston, 1994); and
That 86.96 percent of the total world population are living in the countries where biodiversity hotspots are found and 39 out of the top 50 most populated countries are part of the hotspots (U.S Census Bureau, International Database, and The World Factbook, 2005)[5].
Fig. 1 Pictures the percentage distribution of countries belonging to different income group. The groups are: low income, $825 or less; lower middle income, $826 - $3,255; upper middle income, $3,256 - $10,065; and high income, $10,066 or more (Source: 2004 Global Economic Status of World Bank).
What do these information show? These give an understanding that poverty and population pose pressures and threats to biodiversity hotspots. The more people the greater the need for natural resources for livelihoods, food security and health. Meanwhile poor countries have less ability to cope with rapid population growth, absence of markets, weak institutional capacities and use of inappropriate or obsolete technologies that heighten the pressures to biodiversity.
UNEP (1995) estimated about 35 million working-age people annually enter the labor force in developing countries, exacerbating the already serious problems of underemployment and unemployment. It also predicted that in the next 10 years, developing countries must generate 30 million new jobs each year just to absorb into the workforce the children already born. This means that the natural resource base of developing countries will be increasingly under pressure if they are unable to provide employment in industry and agriculture.
Conservation Paradigm: PES - The Emerging Trend
One of the most important reasons for the degradation of biodiversity (particularly in mountain areas) – is that people who make land use decisions often receive few or no benefits from biodiversity conservation. – Stefano Pagiola (2005)
Natural resources are crucial to human welfare so there must be strong linkage between ecological systems, economics and social systems (Arom et al., 1993, cited in UNEP, 1995). One approach which has received increasing attention in recent years is to provide compensation for the provision of environmental services or generally known as Payment of Environmental Services (PES). It is a part of a new and more direct conservation paradigm, explicitly recognizing the need to bridge the interests of providers and beneficiaries. Particularly, the upland poor who are protectors of biodiversity could be paid or compensated in cash or in non-monetary forms by beneficiaries.
In parallelism to market setting, the protectors of biodiversity is the sellers and the potential buyers or beneficiaries are parties who stand to benefit from the environmental friendly land use activities and natural resources management practices. With PES, it tries to avoid the concept of “free-rider” where beneficiaries hardly pay anything for the goods or services produced by nature that have been traditionally perceived as free.
PES recognizes the poor people or communities particularly living where biodiversity hotspots occur and aims to alleviate their poverty. A program that applies this concept is the Rewarding Upland Poor for Environmental Services (RUPES), a project developing PES mechanisms benefiting poor upland people of Asia. The project is being implemented by the World Agroforestry Centre (ICRAF) and supported by the International Fund for Agricultural Development (IFAD) as the major funding. It aims to enhance the livelihoods and reduce poverty of the upland poor while promoting environmental conservation at local and global levels. There are four environmental services that the program is focusing: (1) biodiversity conservation; (2) watershed protection; (3) carbon sequestration; and (4) landscape and seascape beauty. The program builds working models of best practices for successful environmental transfer agreements adapted to Asian context. There are six action research sites across Asia where biodiversity is very rich – three in Indonesia, one in Nepal and two in the Philippines – the program is supporting the research into which PES mechanisms work.
For biodiversity protection services, there are payment mechanisms available and are used to channel finance (Landell-Mills & Porras, 2002), as follows:
Direct negotiation – Payments are often embedded within projects (e.g. integrated conservation and development projects) and often involve a lengthy process of bargaining.
Intermediary-based transaction – Intermediaries help to reduce transaction costs associated with searching, negotiating and completing deals. In addition, they may lower trading risks by building up skills to identify better transactions and vetting participants. Trusts Funds, local and international NGOs are the most common forms of intermediary.
Pooled transactions - This approach controls trading risks by sharing the investment among several buyers. In addition, the pooled fund may be large enough to diversify investments.
Joint venture/venture capital - Payments involve investors offering equity input into a start-up company and channeling payments for environmental services through this new enterprise in the form of profit sharing, cheap finance, technical assistance, direct grants, etc.
Over-the-counter trades – These occur where the commodity is pre-packaged for sale, or buyers offer to purchase a pre-packaged product.
Clearing-house transactions – A sophisticated intermediary which offers trading platform for buyers and sellers of standard products.
Retail-based trades – Payments are attached to existing marketed goods and services.
Exchanged-based trades – These exist where the commodity has been standardized and can be resold in secondary and, in some cases, derivative markets such as futures or option markets.
Among these payment mechanisms, trust fund intermediaries, direct negotiations and pooled transactions are mostly used. One well-known example is the Critical Ecosystems Partnership Trust which pools donor and NGO finance for biodiversity conservation. The RUPES Kalahan as one of the RUPES action research sites in the Philippines, tests payment for biodiversity similar to retail-based trades as another example.
Valuing Non-marketable Service of Biodiversity
The biggest challenge to market biodiversity protection is to reflect its real worth. The developments in the mid-1980s on the concept of economic value became helpful in identifying the economic benefits of biodiversity. Instead of just focusing only on direct commercial values, non-market values, ecological functions and non-use benefits are now part of the total economic value of ecosystems including biodiversity. The following are values of associated biodiversity resources (Landell-Mills & Porras, 2002):
Option value – biodiversity provides a valuable stock of genetic and chemical information that keep options open for future uses. Option value is captured by the public at large, and specifically by companies engaged in bioprospecting. Commodity example: Bioprospecting access rights
Role in maintaining ecosystem functioning – valued by local and global communities, with particular services (e.g. pest and disease control functions) valued by specific stakeholders. Commodity example: biodiversity-friendly products
Insurance value – this is derived from greater resilience of diverse environments to external shocks and is valued by national and global communities. Commodity example: protected areas
Choice value – the provision of greater choice for users, thereby offering a greater satisfaction. Commodity example: biodiversity-friendly products
Existence value – values attributed to global biodiversity protection, but not associated with expected uses noted above
Commoditizing biodiversity protection services
Biodiversity protection services are commoditized in different forms in order to capture their value. Landell-Mills and Porras (2002) identified and described key commodities and these are presented below:
Biodiversity business shares – Biodiversity-friendly companies may attempt to capture willingness to pay for biodiversity protection by issuing shares in their business. Share purchase becomes a vehicle for expressing demand for biodiversity protection.
Biodiversity credits/offsets – Explored in Australia as a mechanism for generating finance for biodiversity protection. Credits would be introduced as part of broader regulatory programme that requires developers to achieve a minimum standard of biodiversity protection. Where development results in reduced biodiversity, developers would be required to offset this damage through biodiversity enhancement elsewhere. It likely takes account of diversity (range of taxa), abundance (biological productivity) uniqueness (taxonomic significance) and relative rarity (Shields, 2000).
Biodiversity-friendly products – It is the price difference of the product as reflected by the consumer’s willingness to pay for the biodiversity protection (sold through existing commodity markets).
Bioprospecting rights – These rights allow for the collection and testing of genetic material from a designated forest area. They are often purchased from responsible government authorities in return for an up-front payment. Most of the purchasers are pharmaceutical companies, biotechnology companies and research institutes.
Conservation Easements – These refers to contracts between landowners and those who wish to protect or expand certain natural ecosystems (e.g. native forests, wetlands and grasslands), whereby the landowner is paid to manage their land in ways that achieve the desired conservation objective. Easements are normally signed in perpetuity, and where the land is sold, the easement is transferred to the new owner. Conservation easements are similar to development rights in that the seller often gives up the right to develop an area of land, but they are normally tied to a particular piece of land and are not tradable. Example: Baticulan Watershed, Negros Philippines (as a RUPES learning site)
Debt-for-nature swaps – This involves the purchase of discounted developing country debt, which is exchanged for domestic financial resources to invest in conservation. Payments are made in a number of ways, generally by central bank. Funds may be channeled thrugh trust funds, or local NGOs that act as intermediaries. Swaps have become less popular in the late 1990s as debt has become more expensive and redemption rates offered by debtors are less attractive.
Development rights – Used mainly in the USA for the conservation of historical buildings, archeological sites and wetlands – and are now increasingly being used to promote forest conservation. Governments typically introduced the development rights to increase the flexibility of land development restriction in a conservation area. The idea is to allocate development rights up to selected limit, and to allow these to be purchased by landowners. Increasingly these rights are tradable so that once purchased they can resold and the rights are not attached to a particular piece of land. Conservationists may purchase development rights to prevent others from using them.
Conservation concession – (as pioneered by the Conservation International in Guyana in 2001) This is essentially a land lease, involving the allocation of forest use rights in a defined area to the lessor who commits to protect the forest from unsustainable timber and non-timber forest products harvesting. The right to protect forests is purchased from the government for an up-front payment and annual fees.
Land acquisition – Amongst the simplest approaches to capturing demand for biodiversity protection is to sell the land on which biodiversity exists.
Management contract – It details biodiversity management activities, and payments attached to the achievement of specified objectives.
Protected areas (PA) – These are areas designated by national authorities to protect a range of environmental services, including biodiversity. The World Conservation Union (IUCN) identifies six categories of protection from strict nature reserves and wilderness area managed mainly for science and wilderness protection to manage resource protected areas where sustainable use is permitted.
Research permits – These are issued to costumers interested in researching different types of plants, animals and ecosystems.
PES Example 1: Bioprospecting Rights – Benefits from Bioprospecting in the Philippines[6]
Pursuant to the provisions of Executive Order No. 247 (The Bioprospecting Law) and the R.A (147 (Wildlife Act), the following are schemes used to determine bioprospecting fees and rehabilitation bond, the payment/transfer of royalties and benefit-sharing.
Section 7. Determination of the Bioprospecting Fee through Negotiation.
The Inter-Agency on the Collection of Biodiversity and Genetic Resources (IACBGR) shall negotiate bioprospecting fees to be charged for an area, whether marine or terrestrial applied for E.O. 247 at the initial review and evaluation of the commercial research proposal, taking into consideration, among others, the following:
a) the nature of the applicant, whether individual or corporation;
b) the diversity of the biological resources in the area of collection;
c) the budget of the research;
d) the quantity of specimen to be collected;
e) the nature of the specimen to be collected;
f) the method of collection; and
g) the duration of the collection phase.
Section 8. Bioprospecting fee – As a guideline, the minimum bioprospecting fee shall be set at such amount specified under this section, or computed on a per unit area basis provided herein, whichever is higher.
Subject to the foregoing, the minimum bioprospecting fee shall be US$3,000.00 or US$ 3.00 per hectare of area over which the applicant shall have commercial bioprospecting rights in a specific area, the minimum bioprospecting fee shall be US$ 5,000 or US$5.00 per hectare.
Section 9. Rehabilitation/Performance Bond – The applicant shall post a rehabilitation/performance bond in an amount equivalent to 25% of the negotiated bioprospecting fee.
Benefits from bioprospecting that are to be shared with local stakeholders are as follows: