FUNDING MECHANISMS FOR BIODIVERSITY Jeffrey A. McNeely Chief Scientist IUCN-The World Conservation Union 27 July 2006 Inter-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 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 EnhancedDegradedMixed 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

ServicesRevenue 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

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 shrimp housing crops 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: $ Public 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

Source: 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 and Organic foods market value of organic products reported as US$25 billion in 2004 ( Certified “sustainable” products Worldwide certified forest area is approaching 5% of total forest area ( 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 ( Incentives for watershed protection Over 7 million ha of fragile cropland re-forested in China, under the US$40 billion Sloping Land Conversion Program ( 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: * The Kyoto compliant market was 1.16m t/CO2 in 2002 and is expected to grow to a minimum of 15m t/CO2 in * 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