FUNDING MECHANISMS FOR BIODIVERSITY

1. FUNDING MECHANISMS FOR BIODIVERSITY Jeffrey A. McNeelyChief ScientistIUCN-The World Conservation Union jam@iucn.org 27 July 2006 Inter-American Development Bank Workshop on Biodiversity Loss

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

4. The Millenium Ecosystem Assessment model

5. The MA Balance Sheet Enhanced Degraded Mixed Crops Livestock Aquaculture Carbon sequestration Capture fisheries Wild foods Wood fuel Genetic resources Biochemicals Fresh water Air quality regulation Regional & local climate regulation Erosion regulation Water purification Pest regulation Pollination Natural hazard regulation Spiritual & religious Aesthetic values Timber Fiber Water regulation Disease regulation Recreation & ecotourism Bottom Line: 60% of Ecosystem Services are Degraded

6. 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

7. One approach to conservation is creating markets for ecosystem services Source: Forest Trends

8. Private Benefit Capture Difficult Economic Valuation Difficult or impossible Easy Easy Many ecosystem services are public goods Spiritual & religious ? Aesthetic ? Flood/Fire regulation ? Disease regulation ? Water purification ? Climate regulation ? Freshwater ? Genetic resources ? Recreation & tourism ? Fiber ? Food ? Economic Value ($)

9. Potential markets for ecosystem services Services Revenue Tree Growth Certified Timber Carbon Sequestration Carbon Trading Pharmaceuticals Pollination Biodiversity Offsets Biodiversity Conservation Eco-tourism Conservation concessions Cultural Value Watershed Protection User Fees Source: Forest Trends

10. 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

11. 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

12. Noel Kempff Mercado National Park, Bolivia 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.

13. Cultural services can be the most valuable, but beyond monetary prices Vilcanota Assessment, Peru

14. Other cultural values can bring significant profits for local people

15. The remarkable growth of protected areas demonstrates their value

16. 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 The Forest Climate Alliance Strategic Advice to National Policy Initiatives Biodiversity Offsets

17. Cloud forests provide substantial climate benefits as well as conserving biodiversity

18. housing shrimp crops Trade-offs among ecosystem services Mangrove Services: • nursery and adult fishery habitat • fuelwood & timber • carbon sequestration • traps sediment • detoxifies pollutants • protection from erosion & disaster Mangrove ecosystem

19. $4000 Value (per hectare) Coastal Protection (~$3,840) $2000 Net: $2,000 (Gross $17,900 less costs of $15,900) Fishery nursery ($70) Less subsidies (-$1,700) Timber and Non-timber products ($90) Pollution Costs (-$230) 0 Restoration (-$8,240) Shrimp Farm Mangrove Public Net Present Value per hectare Mangrove: $1,000 to $3,600 Shrimp Farm: $-5,400 to $200 Private Net Present Value per hectare Mangrove: $91 Shrimp Farm: $2000 1987 1999 Source: UNEP Mangrove Conversion Source: Millennium Ecosystem Assessment; Sathirathai and Barbier 2001

20. Source: Millennium Ecosystem Assessment

21. Hurricane Mitch

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

23. 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

24. 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

25. Status of Ecosystem Service Markets * The retail carbon market is currently 0.7mt/CO2 and is expected to grow to 15m inCarbon: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

26. 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?

27. CONCLUSIONS • 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.