Economists have proposed a number of instruments for financing conservation and it is useful to consider these in terms of their potential to reduce poverty. They include both market and non-market-based instruments. Maintaining the optimal value of environmental goods and services for current and future generations requires innovative financing mechanisms. Environmental goods hold different values for different people. A river may provide livelihoods for a fishing community, water to an agricultural community downstream, stabilise the microclimate of a nearby town, contain a rare species of dolphin that is not found anywhere else in the world, and provide the habitat for a freshwater plant with medicinal properties. Thus goods and services from the river provide direct and indirect use and non-use value to various groups at different times. There is no “market” for most of these goods and services. The challenge is to ensure that over-use of the river by the agricultural community does not exhaust fishing stocks and that fishing methods do not harm the dolphins.
A number of instruments for financing conservation have been proposed or developed at the local, national and global levels. Many of them were developed to pay for the global or public value of biodiversity in developing countries. Conservation that addresses poverty must not only generate new funds, it must better manage existing mechanisms to meet local needs. Global mechanisms for financing conservation will perpetuate the environmental and social injustices of the past if they fail to engage with the local and indigenous communities whose lands or resources they are trying to conserve.
Economic Instruments for Financing Conservation and Poverty Reduction
- Global Environment Facility
- Debt-for-nature swaps
- Conservation Trust Funds or Environmental Funds
- Tobin-Type and Other Taxes
- Compensation To Communities For Opportunity Cost and Damages
- Markets For Carbon Sequestration
- Markets For Watershed Services
- Biodiversity Offsets and Mitigation and Conservation Banking
- Markets For Recreation
NON MARKET-BASED MECHANISMS
The rationale for non-market based mechanisms is that biodiversity and ecosystem services have both public as well as private good/service characteristics, and that the market will fail to deliver on the value of public goods. Thus public investment (in the form of various taxes, funds and other measures) is required in order to finance conservation.
GLOBAL ENVIRONMENT FACILITY
The Global Environment Facility (GEF) provides grants to developing countries for projects that achieve global environmental benefits. Since it was established in 1991, GEF has provided USD 4.5 billion in grants and generated USD 4.5 billion in co-financing from other partners for projects in developing countries and those in transition. GEF funds are contributed by donor countries. In 2002, 32 donor countries pledged USD 3 billion to fund operations between 2002 and 2006. GEF finance s only the incremental cost of projects, i.e. the difference between the benefits that will accrue to the country, and the benefits that will accrue to the world. Some observers claim that the incremental approach favours high-tech solutions over low-cost, indigenous ones (Horta 2002) and that these big projects do little to address poverty. The UNDP-GEF Small Grants Programme (SGP), which supports community-based activities, has been very successful. It is implemented by NGOs.
DEBT-FOR-NATURE SWAPS
Debt conversion means the cancellation of a country’s foreign debt in exchange for new obligations. A variety of debt conversion mechanisms exist, such as debt-for-equity, debt buy-backs, and debt-for-nature swaps (Moye 2001). The idea of debt-for-nature swaps arose in the 1980s. It developed from the fact that countries with the greatest biodiversity were often the same ones that face the greatest foreign debt burdens. The process usually involves purchasing commercial debt by a conservation organisation at a discount, converting that debt to local currency, and using the money to fund conservation activities. This movement was led by NGOs and has given rise to a second generation of debt swaps in which government-to-government debts are restructured in order to reduce financial outflow from indebted countries and channel funding for conservation activities to local organisations (Resor 1997).
There is nothing intrinsic about debt-for-nature swaps that allows them to contribute to poverty reduction. It is not obvious that debt-for-nature swaps will help the poor or address poverty except at the macro-level and certainly it is unclear how they can contribute to poverty reduction among the rural poor. They may be able to contribute to poverty reduction depending on the way they are used, such as promoting selected conservation and development efforts at the local level. Their impact will depend on what specific kinds of programmes are funded, and where. They can provide much needed long-term resources to local organisations, in which case their effect on poverty will depend on how well those organisations function and how much they take the poor into consideration. Debt swaps have funded programmes that involve communities in forest management, ecotourism, sustainable livelihoods and biodiversity-based enterprises, which have the potential to alleviate poverty. (The link is more direct in the case of debt-for-health or debt-for-education swaps.) In the past debt swaps have sometimes excluded poor/indigenous people who depend on forest resources, which has exacerbated poverty. There have also been accusations that debt-for-nature swaps pave the way for bioprospecting and appropriation of traditional knowledge.
CONSERVATION TRUST FUNDS OR ENVIRONMENTAL FUNDS
More than 30 environmental funds were created in the 1990s, seven of which have received GEF support. They include trust funds established by legislation, foundations, common-law trusts and NGOs. Their aims can range from financing the cost of protected areas (park funds), supporting national environmental plans or strategies (strategy funds), and providing grants for biodiversity conservation (grant funds) (Bayon, Lovink and Veening 2000).
TOBIN-TYPE AND OTHER TAXES
James Tobin originally proposed the Tobin tax in 1978 as a global tax on foreign exchange transactions that would be uniformly applied in all countries to discourage speculation on currency fluctuations. Although the Tobin tax has not been implemented, despite having many proponents, and Tobin has distanced himself from various interpretations of it, interest has grown in revenue-raising mechanisms that could be used to generate funds for environmental protection and curb pressure on natural resources. For instance, taxes have been proposed on the aviation and shipping industries for use of international airspace and oceans. Setting up global tax schemes is a difficult proposition at best and would require an international consensus that does not yet exist.
National governments have imposed environmental taxes on activities such as tourism, however. Visitors to the Fernando de Noronha Marine National Park on the Atlantic coast of Brazil have to pay a daily environment tax that increases incrementally as the visit continues. The Caribbean island of Dominica levies USD 1.5 on all tourists on departure. Maldives, threatened by global warming, is considering imposing an environment tax on tourists. One innovative financing mechanism is the ecological value-added tax or ICMS-E, introduced in Brazil. This levy on the circulation of goods and services rewards municipalities for the positive externalities of their conservation areas. The levy has been an incentive for municipalities to increase the area under conservation.
Tobin taxes and similar levies have no specific connection with poverty, however. They are ways of raising money for onservation, and connections with poverty reduction have not been made. The problem is how to target them effectively to contribute to poverty reduction.
COMPENSATION TO COMMUNITIES FOR OPPORTUNITY COST AND DAMAGES
Factors such as increasing demographic pressure, expansion of cultivation and the emergence of large-scale commercial farming lead some conservationists to believe that biodiversity conservation and animal husbandry/farming are in conflict and competing forms of land use that should be kept separate. The logic of many ICDPs is that people can be compensated for their costs or provided with alternative activities; however, effective compensation is rare and alternative activities and income have not been as effective as hoped.
►Back to Top
MARKET-BASED MECHANISMS
There has been increasing interest in market-based approaches to environmental conservation, or “payments for ecosystem services.” The rationale is to create incentives for resource managers/owners to behave in ways that sustain environmental functions like carbon sequestration, watershed protection, habitat for endangered species, maintenance of landscape beauty, and so on. The incentives can take the form of direct payments for ecosystem services, tradable permits or quotas, and eco-labelling or certification schemes. Below are some examples of markets for ecosystem services, and what their impact might be on biodiversity and on the poor.
MARKETS FOR CARBON SEQUESTRATION
There is growing evidence of global warming due to the greenhouse effect, and increasing credence to the threat of rising sea levels, loss of coral reefs, diseases, and desertication. This led to the development over the last decade of an international framework to counter the build-up of greenhouse gases like carbon dioxide and methane. The establishment of the United Nations Framework Convention on Climate Change (UNFCCC) in 1992 and the signing of the Kyoto Protocol in 1997 spurred the development of markets in carbon offsets. The Kyoto Protocol set emission reduction targets for countries, providing a foundation for a system of emission rights trading. The rationale is that some countries will find it simpler and cheaper to reduce emissions than others, for instance through carbon sequestration activities such as afforestation. Those countries that do not find it cheap or easy to reduce emissions can buy additional rights to emit from those for whom it is less costly. Potentially, developing countries can benefit by engaging in afforestation and reforestation activities and selling rights to emit to developed countries.
Although it is still unclear whether the Kyoto Protocol will be ratified, a voluntary market in carbon offsets has emerged and is likely to continue developing, both within and outside the framework of the protocol. The evidence on costs and benefits is not clear. All countries stand to potentially gain from such trade. But the impacts on poor people in developing countries will depend on whether afforestation activities engage local communities, and whether they lead to loss of access to forest resources and fast-growing plantations that deplete groundwater supply. There are also serious reasons to
question the extent to which institutional arrangements will be developed for the transfer of benefits from credits to communities and especially the poor. There is little evidence that mechanisms exist for this and little reason to be confident that they will be developed.
There are a few examples of positive social impacts from carbon markets. The Noel Kempff Mercado National Park is a partnership between the Government of Bolivia, various NGOs, American Electric Power, BP Amoco and PacifiCorp to protect four million acres of tropical forest. The primary purpose of the project is to capture carbon dioxide, but it also includes health care programmes and alternative economic development activities to assist local people who live in and around the park and who depend on local resources for their livelihood. More than half the park rangers were hired from local communities. The project has resulted in formalised land tenure for the local communities. Another example is a community silviculture carbon offset project in the Sierra Norte of Oaxaca, Mexico, which finances the development of women’s groups. These examples of benefits from carbon markets are relatively few and inconclusive.
There are also negative impacts. The biggest social concerns from carbon projects are exclusion and erosion of rights, eviction, and the potential negative impacts of fast-growing plantations on soil, water and biodiversity. There is real potential for carbon projects to help poor people through new sources of income, diversified income streams, institution building and formalization of rights over resources. There are also real risks, however, of exclusion and increased vulnerability of the poor, and control of benefits by more powerful actors.
MARKETS FOR WATERSHED SERVICES
Forests maintain water quality, prevent soil erosion, control floods, regulate water flows and maintain aquatic habitats. A growing recognition of the watershed services provided by forests and the increasing willingness of downstream populations to pay for them has led to the emergence of payment mechanisms in many corners of the globe, from New York to Quito, and from Haryana to Costa Rica. Watershed markets often have a large number of stakeholders, and will depend on a number of factors for success: 1) a large downstream population who benefit from the watershed services; 2) a manageable number of upstream landowners and low transaction costs; 3) the cost of alternative options, such as filtration plants, dredging, etc.; 4) well defined property rights; and 5) the strength of local institutions and the likelihood of cooperative arrangements.
Poor upstream communities may be able to benefit from watershed markets, but this will depend on their negotiating power and their ability to move in and out of the market. If the poor lack property rights in a watershed and forest protection is imposed on common lands, then poor people living upstream may actually become worse off. The gains to poor people living downstream will depend on their access to improved water supply and how much they have to pay for watershed protection.
BIODIVERSITY OFFSETS AND MITIGATION AND CONSERVATION BANKING
Mitigation and conservation banking (which started in the U.S.) refers to protected areas that are created and managed as a means of providing compensation for habitat loss resulting from land development. Banks sell biodiversity offsets to public and private developers, who are obliged by law to mitigate habitat loss when it cannot be avoided. For each hectare of habitat that is destroyed, developers must purchase credits from approved conservation bankers to support species conservation efforts in the surrounding area, for habitat that is similar to that which they intend to convert. Although some countries offer land developers the opportunity to compensate for habitat loss by investing in conservation, and some major multinationals undertake voluntary mitigation and compensation measures, there are no internationally accepted standards or procedures for compensatory mitigation. Moreover, in many biodiversity-rich developing countries, there is little or no obligation to mitigate the adverse impacts of land-use change. In most developing countries, conversion of natural forest land to agricultural, industrial and other uses has vastly diminished natural forest cover.
One measure that may help stem this loss is a global “biodiversity credit mechanism” for trade in biodiversity conservation obligations, similar to the Clean Development Mechanism of the Kyoto Protocol. Another option is to institute an international voluntary agreement for compensatory mitigation of biodiversity loss. To the extent that developing countries are often rich in biodiversity, trade in biodiversity conservation obligations will involve financial transfers from richer to poorer countries and will potentially discourage conversion of natural forest land to other uses. The key relevance to addressing poverty depends on whether funds are used for the benefit of the poor living on the fringes of biodiversity-rich areas. Experiences so far have not been promising.
MARKETS FOR RECREATION
Alternative forms of tourism (ecotourism, green tourism, or nature tourism) are the fastest growing segments of the tourism sector, constituting about 30 percent of the global market today. The International Ecotourism Society defines ecotourism as “responsible travel to natural areas that conserves the environment and improves the well-being of local people.” The theory is that culturally and environmentally sensitive tourism minimises adverse impacts. By providing jobs, income and business opportunities to local communities, it also helps both in the effective conservation of biodiversity-rich areas and in the economic betterment of poor indigenous communities. Voluntary certification schemes that grant “eco-labels” to tourism businesses based on the sustainability of their practices have proliferated in many countries. Some standards are national, such as the Costa Rican Certification in Sustainable Tourism (CST), and the South African Fair Trade Tourism South Africa program.
A review conducted for WWF in 2000 pointed out, however, that certification schemes are currently limited to just one percent of tourism companies. Moreover, in most countries tourism standards do not adequately address the range of socio-economic and environmental issues deemed to be affected by tourism. Even if tourism standards can comprehensively address poverty and environment issues, and are adopted en masse by businesses, it is not clear that they are the best or most cost effective way forward.
Many other market-based mechanisms to finance biodiversity have emerged, including bio-prospecting, certification schemes for sustainable practices, eco-labelling for organic products, and so on. Their impact on the poor is not easy to gauge. It is likely that poor people would find it difficult to participate as suppliers of ecosystem services or environmentally friendly products, since they lack the information, resources and technology to engage in such markets.
►Back to Top
PRO-POOR FINANCING FOR CONSERVATION
Making financing measures work for both conservation and people is a difficult task at best. The danger is not just that market and non-market based mechanisms to finance conservation may not benefit the poor, but that they may actually make such people worse off by reducing their access to natural resources and concentrating land ownership in the hands of a few. Moreover, poor people who consume ecosystem services are likely to be negatively affected by the imposition of payment schemes that involve transfers to providers of ecosystem services. Special care needs to be taken to ensure that poverty is not exacerbated by mechanisms to finance conservation, and that the poor are helped both as suppliers and consumers of environmental products and services. A number of lessons have been learned in this regard around the world, including the following (Landell-Mills and Porras 2002; Pagiola, Bishop and Landell-Mills 2002). These are some of the things that can be done to try to direct benefits to the poor:
- clarify the property rights of poor and vulnerable people, and consider the impacts of the proposed mechanism on the landless poor.
- invest in local infrastructure, including schools, clinics, information systems and transport.
- provide financial support through subsidies or technical assistance to enable poor people to participate in biodiversity-based enterprises.
- improve local capacity through institution building and have communities actively participate in decision-making.
- help smallholders gain access to markets through the building of cooperative institutions.
Ultimately, the process of setting priorities and devising strategies for ensuring benefits to poor people from mechanisms to finance conservation must be done at the local level, with the participation of poor and vulnerable groups.
►Back to Top
 |
Conservation for Poverty Reduction |
