1. Economic Instruments, Sustainable Financing and Economic Valuation for the Protection of the Marine Environment By Ulrik Dan Weuder, UNEP/GPA London 5 th May 2006

2. Presentation 1. Economic instruments (EI) 2. Economic valuation (EV) 3. Sustainable financing 4. Options for strengthening protection of the marine through EI and EV Focus! Protection of the marine environment! IMO relevant issues and options!

3. 1. Economic Instruments rationale for the use of environmental taxes/charges Theoretical rationale – intervention to secure an optimal level of pollution and to achieve optimum rates of resource use and depletion. Polluters Pay Principle (PPP) – (User Pays Principle).. the polluter should bear the expenses of carrying out the measures…. to ensure that the environment is in an acceptable state  Environmental taxes – appropriate tool for implementation of this principle (‘internalising of external costs’);  Main advantage of environmental taxes: the price signals – behavioural changes;  Indicating the possibility of realising static and dynamic efficiency gains

4. 1. Economic Instruments function and usage Function in environmental policy: Revenue-raising taxes; Incentive taxes; Cost-covering charges or user fees. Revenues of environmental taxes: General budget; Earmarked to finance specific environmental programme (including funds to be used for compensatory measures).

5. 1. Economic Instruments Some examples of environmental taxes/charges Type of economic instruments: Charges for collection facilities; Taxes for air pollution; Deposits for ship breaking (non commercial waste elements). For marine pollution: Free rider problem (ships and ports); Need for regional or global mechanisms; Design of instrument is important.

6. 1. Economic Instruments Conclusions Regulatory measures (command-and-control policies) are still the mostly used method in environmental policy. Environmental policy makers are facing a real challenge in combining aspects of economic efficiency and political and social acceptability vs. environmental effectiveness of economic instruments - there is a need for a balanced approach. Environmental taxes – linked explicitly to other instruments within a portfolio instrument mix or package. The effectiveness of all market based instruments, depend on the functioning of the political, institutional and regulatory framework. Monitoring and enforcing environmental compliance is a prerequisite for market-based instruments.

7. 2. Economic Valuation The rationale of monetary evaluation Economic value – based on what people want – their individual preferences. Economic value is measured by the maximum amount of one thing a person is willing to give up to get more of something else is considered a fair measure of the relative ‘value’; dollars are an accepted measure of economic value. Ecosystem values are measures of how important ecosystem services are to people – what they are worth. Ecosystem valuation can be a difficult and controversial task – because various types of market failure (externalities, not clearly defined property rights, etc.) are associated with the environment. Environmental valuation measures the value of these services to people by estimating the amount people are willing to pay to preserve or enhance these services.

8. 2. Economic Valuation The rationale of monetary evaluation Benefits assessment - the monetary evaluation of the ‘environmental benefits’ of environmental policy, or its obverse, ‘damage assessment’ has two main issues:  First, to illustrate the kinds of economic damage done to national economies by resource depletion and environmental pollution; and  Second, to integrate better the ‘un-priced’ ecosystem services into cost-benefit analysis.

9. 2. Economic Valuation 2. Economic Valuation Monetary evaluation of ‘environmental benefits’  Starting point: needs for environmental actions require decisions about how to allocate public investments to protect and restore the national environment - in the context of tight national budgets.  Decisions must be justified – in terms of the benefits to the natural environment but also in terms of fiscal accountability and public support.  Decisions will often involve trade-offs or allocations of natural resources - such decisions can be based on economic analysis.  However, economic consideration are secondary for decisions related to endangered species, serious public health issues.

10. 2. Economic Valuation 2. Economic Valuation Estimates of ecosystem benefits are needed  To justify and decide how to allocate public spending on conservation, preservation, or restoration activities.  To compare the benefits of different project or programmes.  To prioritise conservation or restoration projects.  To consider the public’s value, and encourage public participation and support for environmental initiatives.  To maximise the environmental benefits per dollar spent.

11. 2. Economic Valuation c oncepts of ecosystem values Some services of ecosystem are bought and sold on markets (for example fish, wood, etc) others are not traded on markets (for example a day of wildlife viewing, a view of the ocean). However, this does not mean that these services have no value! What is required is a measure of how much people are willing to give up! Types of values  Use values - value derived from the actual use of a good/service (option value, bequest value); and  Non-use values or ‘passive use’ values - value not associated with the actual use (existence value).

12. 3. Sustainable Financing Sustainable financing sources are recurrent and automatic in payments. Sustainable financing for activities are sources which cover all expenses – investments, operational and maintenance costs.

13. 3. Sustainable Financing InvestorFinancing Mechanisms Sust.Financiers Private sector exp. Public Sector Exp. Retained earnings Subsidies from governments Loan financing Governmental subsidies (national, sub- national or local) Users Community Service provider Private financing (commercial loans, capital markets, retained earnings) International Financial Institutions Foreign governments (ODA Export Credits) Company Domestic tax payers Users Foreign tax payers Borrowed and private capital has a price for future generations Planning for sustainability must be based on domestic financing

14. 4. EI and EV for marine protection Land based pollutants from ships/design of EI Reception facilities ( oil, waste, wastewater etc.) – global/regional system, weight/volume based. – example payment based on ship standards, ships/crew, passengers payment times days at see since last payment. Air pollution (CO2, SO2, fuel tax etc.) – incentives for technology change/adaptation – efficient/innovation Ship breaking (deposit charge, mandatory waste charges etc.) – mechanism to compensate for disposal of non commercial waste problems

15. 4. EI and EV for Marine Protection marine based pollutants from human activity EI - Extraction charges – Extraction tax for renewable resources – Extraction tax and value of non-renewable resources (EV) EV – from marine damages – Use values – Non use values Problem with externalities

16. Thank You! Ulrik Weuder u.weuder@unep.nl Tlf. +31 70 311 44 60