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AN INTRODUCTION TO INNOVATIVE FINANCIAL MECHANISMS
Charlie Parker Head of Policy
Global Canopy Programme
How to raise $140 billion for natural capital
OVERVIEW
• Why are IFMs important?
• How much do we need?
• How much are we currently spending?
• What is the future scale of finance?
• Conclusions
WHY ARE IFMS IMPORTANT?
• There is currently a shortfall in biodiversity finance
• Traditional forms of finance (ODA, philanthropy) are often seen as not being able to fill the gap
• IFMs can engage with the private sector
• IFMs may internalise the externality of biodiversity loss
BUT
• Political challenges to their implementation
• What do we mean when we are talking about IFMs?
WHAT ARE THE COSTS OF CONSERVATION?
GLOBAL CANOPY PROGRAMME
ACTION TARGET USD BN/YR SOURCE
Expand PA network +30% terrestrial PAs in developing countries 4-13 Bruner et al., 2004
Expand PA network To 15% terrestrial ecosystems 18-27.5 James et al., 2001
Expand PA network To 15% terrestrial ecosystems, 30% marine ecosystems
45 Balmford et al., 2002
ACTION TARGET USD BN/YR SOURCE
Expand PA network +30% terrestrial PAs in developing countries 4-13 Bruner et al., 2004
Expand PA network To 15% terrestrial ecosystems 18-27.5 James et al., 2001
Expand PA network To 15% terrestrial ecosystems, 30% marine ecosystems
45 Balmford et al., 2002
Global biodiversity protection
Conservation and sustainable use of majority of world’s biodiversity
300 IUCN, 2010
Protect all biodiversity outside protected areas
Maintain biodiversity in the human-dominated environment
290 James et al., 2001
Total ecosystem protection
In the context of climate change 355-385 Berry, 2007
WHAT IS THE CURRENT SCALE OF FINANCE?
GLOBAL CANOPY PROGRAMME
IFMS UNDER THE CBD
• Under Decision IX/11B there are six sources of finance for biodiversity – Payment for ecosystem services
– Biodiversity offset mechanisms – Environmental fiscal reforms
– Markets for green products
– Biodiversity in international development finance – Biodiversity in climate change funding
PREVIOUS STUDIES
• Gutman (2003) From Goodwill to Payments for Environmental Services – Presents 52 financing options
– Broken down across six sources • Public
• Private not-for-profit
• Private for-profit
• Payments for environmental products
• Payments for environmental services • “You may need less money than you think”
PREVIOUS STUDIES
• Gutman and Davidson (2008) A Review of Innovative International Financial Mechanisms for Biodiversity Conservation – Prepared for COP 9 of the CBD
– Presents 61 traditional and innovative financing options – Broken down across four categories
• Government sources
• Voluntary sources
• Markets and Businesses • International Payments for Ecosystem Services
THE LITTLE BIODIVERSITY FINANCE BOOK
A guide to proactive investment in natural capital (PINC)
THINK PINC
• Prepared for COP 10
• Broken down into three sections: – Generation
– Delivery – Institutional Arrangements
• Presents 18 traditional and innovative mechanisms
OVERARCHING FRAMEWORK …
• Financial mechanisms can be broken into three components:
GENERATION MECHANISMS
• Based on core CBD principles of adequacy, predictability and timeliness
• Broken down across four criteria – Scale: How much?
– Timeframe: When? – Level: At what level?
– Market: From where?
GENERATION MECHANISMS
• Based on core CBD principles of adequacy, predictability and timeliness
• Broken down across four criteria – Scale: How much?
– Timeframe: When? – Level: At what level?
– Market: From where? • Four options: Direct, Indirect, Other, Non Market
MARKET CRITERIA
• Direct mechanisms – Generate finance directly from the provision of an
ecosystem service or biodiversity
– Usually local in scale
– Require strong regulation to scale up
• Examples – Forest carbon market, direct PES mechanisms
MARKET CRITERIA
• Indirect mechanisms – Raise finance by tangibly linking the value of biodiversity
and ecosystem services to more traditional markets
– Larger scales are achievable
– Require some form of demand side regulation
• Examples – Green commodities (FSC, Shade grown coffee) – Ecotourism
– Natural Capital Bonds
MARKET CRITERIA
• Other market mechanisms
– Generate finance from markets that are not linked to biodiversity and ecosystem services
– Even larger scales are possible
– Politically challenging, requires coordination
• Examples – Maritime or aviation tax or levy,
– Financial Transaction (Tobin) tax
– Auctioning allowances
MARKET CRITERIA
• Non Market mechanisms
– More traditional mechanisms that generate revenue from non-market sources of finance
– Less predictable than other sources of finance
– Require political will to scale up
• Examples – ODA
– Philanthropy – Subsidy reform
GENERATION MECHANISMS
Direct PES
Cap and trade market
Baseline and credit market
Natural Capital Tax
Direct User Fees
Bioprospec<ng
Greening commodi<es
Natural Capital Bonds
Linked Avia<on Tax or Levy
Mari<me Tax or Levy
Auc<oning of Allowance
Financial Transac<on Tax
Levy on Insurance Premiums
Other Domes<c Budget Alloca<on
Official Development Assistance
Debt-‐for-‐Nature Swap
Subsidy reform
Philanthropy
Non-‐market
…UNDER THE CBD
• Direct PES
Payment for ecosystem services
• Baseline and credit market
Biodiversity offset mechanisms
• Natural Capital Tax • Avia<on Tax • Mari<me Tax or Levy • Subsidy reform • Insurance Levy
Environmental fiscal reforms
• User Fees • Bioprospec<ng • Greening commodi<es • Natural Capital Bonds
Markets for green products
• Official Development Assistance
• Debt-‐for-‐Nature Swap
Interna<onal development finance
• Baseline and credit market
Climate change funding
• Cap and trade market • Auc<oning of Allowance • Domes<c Budget Alloca<on
• Philanthropy • Tobin Tax
Other
…UNDER THE CBD
• Direct PES
Payment for ecosystem services
• Baseline and credit market
Biodiversity offset mechanisms
• Natural Capital Tax • Avia<on Tax • Mari<me Tax or Levy • Levy on Insurance Premiums
• Subsidy reform
Environmental fiscal reforms
• User Fees • Bioprospec<ng • Greening commodi<es • Natural Capital Bonds
Markets for green products
• Official Development Assistance
• Debt-‐for-‐Nature Swap
Interna<onal development finance
• Baseline and credit market
Climate change funding
• Cap and trade market • Auc<oning of Allowance • Domes<c Budget Alloca<on
• Philanthropy • Tobin Tax
Other
WHAT IS THE FUTURE SCALE OF FINANCE?
OTHER
INDIRECT
DIRECT
NON- MARKET
OTHER
INDIRECT
DIRECT
NON- MARKET
ADDITIONAL SOURCES
• What are the new and additional sources of finance?
PAYM
ENT
FOR
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OSY
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BIO
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OD
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TS
BIO
DIV
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INTE
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BIO
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MAT
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HA
NG
E FU
ND
ING
OTH
ER
THINK PINC
Biodiversity Ecosystem Services
Natural Capital
Existence value Use values Total value
Traditional Market-based Instruments
Innovative
CONCLUSIONS
• There is a shortfall in finance of $ hundreds of billions
• There are a range of mechanisms that are available
• These mechanisms have different levers to scale up – Direct: Regulation
– Indirect: Demand – Other Market: Coordination
– Non Market: Political will
• To reach finance at scale we need to use all mechanisms.
THANK YOU For more information visit www.globalcanopy.org
Charlie Parker [email protected]