Feasibility of Funding & Cost-Effectiveness

Assessments

Peter Nowicki - ECNC - nowicki@ecnc.org

Expert Workshop on Biodiversity and Economics

EEA, Copenhagen, 5 October 2006

Funding: Market based instruments

Market based instruments seek to address the market failure of ‘environmental externalities’ …

(through) the establishment of a proxy market for environmental services.

hhtp://glossary.eea.int/EEAGlossary/M/market-based_instrument

Biodiversity in the market place …

… conserves a public good (water quality, stream flow, wild life), but the incentive to do this comes from the resulting enhanced ability to sell an associated private good. The presence of a public good means that the market incentives to conserve are less strong than required for overall economic efficiency, but by capturing some of the value of that good the market improves on the pre-existing situation.

Geoffrey Heal, 1998: Markets and Sustainability

To date, markets have not performed notably well in conserving our planet’s environment. Indeed, they have done quite the opposite. But this is not intrinsic in markets. They can be reoriented in a positive direction, in which case their potential for good is immense. Markets need legal infrastructure….

Geoffrey Heal, 1998: Markets and Sustainability

International donors invest billions of dollars to conserve ecosystems in low-income nations. The most common investments aim to encourage commercial activities, such as ecotourism, that indirectly generate ecosystem protection as a joint product. We demonstrate that paying for ecosystem protection directly can be far more cost-effective.

P.J. Ferraro & R.D. Simpson, 2002: The Cost-Effectiveness of Conservation Payments

Managing ‘markets’ for biodiversity

• Access rights

• Use rights

• Ownership

• Defining clear objectives

• Time-scale needs to be accounted for

• Prompt monitoring in order to be effective

• Evaluation after implementation

Break-down of MBIs

Taxes / Charges

Subsidies support

Tradable permits

Eco-labelling

Financial mechan.

Liability & Comp.

Total

Flora 7 1 2 0 0 0 10

Fauna 35 4 19 1 0 0 59

Habitat / Ecosystems

57 56 12 5 4 1 136

Total 99 61 33 6 4 1 205

DG Env (July 2006): The Use of Market Incentives to Preserve Biodiversity

Environmental Service IndexLand use Biodiversity

index Carbon

sequestration index

Environmental service index

Annual crops (annual, grains, and tubers) 0.0 0.0 0.0 Degraded pasture 0.0 0.0 0.0 Natural pasture without trees 0.1 0.1 0.2 Improved pasture without trees 0.4 0.1 0.5 Natural pasture with low tree density (<30/ha) 0.3 0.3 0.6 Monoculture fruit crops 0.3 0.4 0.7 Fodder bank 0.3 0.5 0.8 Improved pasture with low tree density (< 30/ha) 0.3 0.6 0.9 Natural pasture with high tree density (> 30/ha> 0.5 0.5 1.0 Diversifie d fruit crops 0.6 0.5 1.1 Monoculture timber plantation 0.4 0.8 1.2 Diversifie d timber plantation 0.7 0.7 1.4 Scrub habitats 0.6 0.8 1.4 Riparian forest 0.8 0.7 1.5 Intensive silvopastoral system (>5,000 trees/ha) 0.6 1.0 1.6 Secondar y forest (> 10 m2 basal area) 0.9 1.0 1.9 Primary forest 1.0 1.0 2.0 New live fence or established liv e fence with frequent pruning< (per km)

0.3 0.3 0.6

Wind breaks (per km) 0.6 0.5 1.1 Notes: The environmental service index is the sum of the biodiversit y and carbon sequestration indices

FAO (May 2004): Paying for Biodiversity Conservation Services in Agricultural Landscapes

Cost-effectivesness

• Policy level: Sum of measures costs less than another array of measures

• Individual measure: Generates a higher level of conservation for a given amount of costs

DG Env (July 2006): The Use of Market Incentives to Preserve Biodiversity

Biodiversity financing: EU

The cost (including income foregone) of those activities / investments which serve to protect or to enhance the favourable conservation status of species and habitats.

In reference to Article 2 of the Habitats Directive

Actions beneficial for biodiversity

1. Add to territory

2. Manage territory

3. Promote conservation measures

4. Protect migration pathways

5. Regulate land use (positive)

Actions to avoid harm to biodiversity

6. Compensate past / future disruption

7. Reintroduce species

8. Forbid certain uses of biodiversity

9. Monitor species

10.Regulate land use (negative)

Metric of assessment - 1

• Ecological coherence

• Habitat / species resilience over time

• Conservation measures implemented

• Perenity of migration assured

• Land use maintained or enhanced

Metric of assessment - 2

• Restoration or substitution

• Species implantation successful

• Biodiversity deterioration prevented

• Population dynamics registered

• Land use stopped or diminished

Feasibility of funding andcost-effective assessment

• Benchmarking and monitoring:

indicators

• Analyze objectives very carefully

(target, target, target…)

• Consider all costs, including transaction

• Remember the relevant time horizon!