FUNDING MECHANISMS FOR BIODIVERSITY

Jeffrey A. McNeelyChief Scientist

IUCN-The World Conservation Unionjam@iucn.org

27 July 2006Inter-American Development Bank

Workshop on Biodiversity Loss

The Millennium Ecosystem Assessment used ecosystem services as a new way to think about the benefits provided by nature

The Millenium Ecosystem Assessment model

The MA Balance Sheet

CropsLivestockAquacultureCarbon sequestration

Capture fisheriesWild foodsWood fuelGenetic resourcesBiochemicalsFresh waterAir quality regulationRegional & local climate

regulationErosion regulationWater purificationPest regulationPollinationNatural hazard

regulationSpiritual & religious Aesthetic values

TimberFiberWater regulationDisease regulationRecreation & ecotourism

Enhanced Degraded Mixed

Bottom Line: 60% of Ecosystem Services are Degraded

Degradation of forest ecosystem services often causes significant

harm to human well-being

– The total economic value associated with managing ecosystems more sustainably is often higher than the value associated with conversion

– Conversion may still occur because private economic benefits are often greater for the converted system

One approach to conservation is creating markets for ecosystem services

Source: Forest Trends

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

Private Benefit Capture

Difficult

Easy

?

?

?

?

?

?

?

?

?

?

?

Many ecosystem services are public goods

Services Revenue

Carbon Sequestration

Biodiversity Conservation

Cultural Value

Watershed Protection

Carbon Trading

Pharmaceuticals Pollination Biodiversity Offsets

Eco-tourism Conservation concessions

User Fees

Tree Growth Certified Timber

Potential markets for ecosystem services

Source: Forest Trends

Ecosystem services: Carbon sequestration

Carbon sequestration, often supported under the Kyoto Protocol, is one of the best-known forest ecosystem services.

Market value of carbon trading in 2005: US$ 11 billion.

The growth of trade in carbon offsets

Using Carbon Emissions Trading to Finance Sustainable Development and Conservation

Above-ground and total soil carbon(0-20 cm) for sites in the humid tropical lowlands of Brazil, Cameroon and Indonesia

SOURCE: Forest Trends

Climate Action Project with Government of Bolivia, Fundacion Amigos de la Naturaleza, TNC, BP-Amoco, American Electric Power, and PaficiCorp. Initial investment $9.6 million doubled size of park; will prevent emission of 10 million tons of carbon over 30 years.

Noel Kempff Mercado National Park, Bolivia

Vilcanota Assessment, Peru

Cultural services can be the most valuable, but beyond monetary prices

Other cultural values can bring significant profits for local people

0

20,000

40,000

60,000

80,000

100,000

1873

1878

1883

1888

1893

1898

1903

1908

1913

1918

1923

1928

1933

1938

1943

1948

1953

1958

1963

1968

1973

1978

1983

1988

1993

1998

2003

Year

Num

ber o

f Site

s

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

20,000,000

Are

a in

Km

2

Cumulative area sites of known date

Cumulative no. of sites of known date

Note: 38,427 PAs covering approximately 4 million km² have no date and are not included in the cumulative graph

The remarkable growth of protected areas demonstrates their value

The Forest Climate Alliance

Strategic Advice to National Policy Initiatives

Biodiversity Offsets

Forest ecosystem services: Watershed Protection has multiple benefits

• Provision of water• Hydropower, navigation• Water storage to buffer floods, droughts• Control of erosion and sedimentation• Maintain river channels, riparian habitats• Maintain coastal vegetation requiring freshwater• Maintain water quality• Control groundwater levels, reducing salinity

Cloud forests provide substantial climate benefits as well as conserving biodiversity

Mangrove ecosystem

shrimpshrimp

housinghousing

cropscrops

Mangrove Services:

• nursery and adult fishery habitat

• fuelwood & timber

• carbon sequestration

• traps sediment• detoxifies

pollutants• protection from

erosion & disaster

Trade-offs among ecosystem services

Value (per hectare)

0

$2000

$4000

Mangrove Shrimp Farm

Coastal Protection (~$3,840)

Timber and Non-timber products ($90)

Fishery nursery ($70)

Net: $2,000 (Gross $17,900 less costs of $15,900)

Pollution Costs (-$230)

Less subsidies (-$1,700)

Restoration (-$8,240)

Mangrove Conversion

Private Net Present Value per hectare

Mangrove: $91

Shrimp Farm: $2000

19871999Public Net Present Value per hectare

Mangrove: $1,000 to $3,600

Shrimp Farm: $-5,400 to $200

Source: Millennium Ecosystem Assessment; Sathirathai and Barbier 2001

Source: UNEP

0

50

100

150

200

250

300

350

1950s 1960s 1970s 1980s 1990s

Flood events per decade

Asia Americas Africa EuropeSource: Millennium Ecosystem Assessment

Hurricane Mitch

Protected areas can help prevent such damage. How much is this service worth? To whom?

Payments for ecosystem services:Build on established markets

Eco-tourism• “the fastest growing sector of the largest

industry on earth”• annual exports up to US$100 billion (estimated

from data reported at www.world-tourism.org and www.ecotourism.org)

Organic foods• market value of organic products reported

as US$25 billion in 2004 (www.ifoam.org)

Certified “sustainable” products• Worldwide certified forest area is

approaching 5% of total forest area (www.unece.org)

Source: Joshua Bishop, IUCN

Payments for ecosystem services:Create new incentive mechanisms

Biodiversity-friendly carbon storage• 18 percent of approved emission reduction

projects are LULUCF or biomass-related, as of 2003/04 (www.prototypecarbonfund.org)

Incentives for watershed protection

• Over 7 million ha of fragile cropland re-forested in China, under the US$40 billion Sloping Land Conversion Program (www.cifor.cgiar.org)

Biodiversity offsets and mitigation• 72,000 ha of wetland and endangered species habitat in

over 250 approved “banks” selling habitat “credits” in the USA (two-thirds of banks are privately owned)

Source: Joshua Bishop, IUCN

Status of Ecosystem Service Markets

* The retail carbon market is currently 0.7m t/CO2 and is expected to grow to 15m in

Carbon: 2008-2012

* The Kyoto compliant market was 1.16m t/CO2 in 2002 and is expected to grow to

a minimum of 15m t/CO2 in 2008-2012

* Private corporations and international NGOs are the main buyers

Biodiversity: * Fastest growing components: Eco-labeling and easements for high-

conservation value land

* Municipal water systems and industrial

Watershed Protection: users are most likely to pay

* Investments in sustainable watershed management proven cost-effective

Current obstacles to markets for forest ecosystem services

• Lack of information about value of ecosystem services, especially non-market values, and what benefits they provide

to the poor

•Limited institutional experience with compensation mechanisms, and the problem of free riders

• Inadequate legal framework or supporting institutions

• Equity concerns – how can benefits be delivered to the poor?

• Payments for ecosystem services have been shown to work.

• Biodiversity supports all ecosystem services.

• A package of ecosystem services will have a higher value than a single service, but trade-offs may sometimes be required.

• The approach will only work if creative people apply the general principles to specific cases.

• Institutional and policy support from government is essential.

CONCLUSIONS