Payments for Ecosystem Services and Promoting Biodiversity Co-benefits in REDD-plus

Katia KarousakisClimate Change, Biodiversity and DevelopmentOECD Environment DirectorateGreenWeek, 2 June 2010

Content

• Enhancing PES Cost-effectiveness– Criteria for effective design and implementation

– Case study: Tasmanian Forest Conservation Fund

• Promoting Biodiversity Co-benefits in REDD– Forests, ecosystems …and REDD-plus

– How to promote biodiversity co-benefits

– How to bundle & layer additional finance to target biodiversity benefits directly

PES Introduction and Context• PES definition:

– A voluntary, conditional agreement between at least one “seller” and one “buyer” over a well-defined environmental service – or a land-use presumed to produce that service (Wunder, 2007)

• Applied to internalise local and national public good benefits of biodiversity and associated ecosystem services

– National scale examples: Canada, China, Costa Rica, Estonia, Mexico, South Africa, US, UK

– Many more local scale PES programmes

Ø Large proliferation of PES… More than 300 programmes to date

• Estimated to channel over USD 8.2 billion per year, increasing by 10-20% per year

• Key instrument for biodiversity and ecosystem service conservation and sustainable use >> CBD COP-10

Why are PES important• PES provide direct payments to landowners and users to

support conservation and provision of ecosystem services– Potentially large gains in cost-efficiency from PES

compared to indirect payments or other regulatory approaches (Engel et al. 2008)

Ø But often cited criticism is lack of ability to realise cost-effectiveness

• Environmental and cost-effectiveness of PES depend crucially on programme design and implementation

Key PES design elementsØ Clearly identify PES goals and objectives

Ø Remove perverse incentives - coherent PES policy requires other prevalent market distortions to be removed

Ø Clearly define and enforce property rights

Ø Ensure sufficient and long-term financing for PES

Ø Target and differentiate payments (via spatially explicit CBA) to enhance cost-effectiveness -- rather than uniform payments

Ø Additionality, leakage and permanence should be addressed

Ø Performance-based payments are preferable to effort-based payments

Ø Monitoring, reporting and performance evaluation is key

Mobilising Finance for PES• Can be user-financed (private sector or individuals) or

third party-financed (government or institutions)

• Capacity building costs and PES implementation costs

• Examples:– Costa Rica: (biodiversity conservation, carbon sequestration,

environmental quality, hydrological services): fuel consumption tax, water use tariff, CDM credits, hydroelectric companies. Design and capacity building costs supported by World Bank, GEF, and KfW

– France Vittel (Vosges mountains): (hydrological services): Vittel pays to reduce fertiliser use on farms, reducing contamination of the aquifer and lowering purification costs

Mobilising Finance for PES

Source: TEEB

Efficient Targeting of PES• Benefits

– Identify areas with high ecosystem service benefits

• Valuation, benefit indices, scoring, spatial mapping

• Threat– Identify areas with high risk

of ecosystem service loss (additionality)

• Costs– Identify areas with low

opportunity costs

Tasmanian Forest Conservation Fund

• Goal: protect up to 45 600 ha of forest on private land (mainly old growth) via voluntary market-based measures

• PES mechanisms: reverse auction, differentiated take-it-or-leave-it offers and direct negotiation – total FCF budget AUD 50 million

• Robust metric to target benefits: Conservation Value Index(CVI)

• Calculated the CVI based on each proposal to enable ranking based on value for money criteria (AUD/CVI)

• Reverse auctions to further enhance cost-effectiveness

Ø Cost-efficiency gains of 52% compared to a first-come first-served basis

Forests, ecosystem services & REDD-plus• REDD-plus : Reducing Emissions from Deforestation and forest

Degradation and the role of conservation, sustainable management of forests, and enhancement of forest carbon stocks in developing countries (UNFCCC)

• Forests provide multiple other ecosystem services, in addition to carbon mitigation (and adaptation): – biodiversity, watershed services, flood and erosion control, etc

Ø The Bali Action Plan recognises that action to support REDD “can promote co-benefits and complement the aims and objectives of other relevant international conventions and agreements”Ø Safeguards should be [promoted][and][supported]: Actions that are

consistent with the conservation of natural forests and biological diversity, ensuring that actions referred to in paragraph 3 below are not used for the conversion of natural forests, but are instead used to incentivise the protection and conservation of natural forests and their ecosystem services, and to enhance other social and environmental benefits. (AWG-LCA COP-15)

Promoting biodiversity co-benefits in REDD

• Based on economics of targeting multiple ecosystem services: spatial cost-benefit analysisA. Identify areas with high ecosystem service benefits

B. Identify areas with high risks of deforestation and degradation

C. Evaluate opportunity costs

…then develop policies and incentives to capture benefits

• Data and economic estimates of (A) can highlight where government or private-sector REDD investors can get 2 benefits for the price of 1. Ø Some tools and blueprints:

• National gap analysis by CBD Programme of Work on Protected Areas, UNEP WCMC Carbon and Biodiversity Demonstration Atlas, ARIES, InVest… and more

UNEP WCMC Carbon and Biodiversity Atlas

Panama: 20% of carbon stored in high carbon, high biodiversity areas

Targeting payments in MadagascarBUNDLED ES: percent overlap of three services

TARGETED PAYMENTS FOR ES

Source: Wendland et al, 2009

Joint ecosystem service provision

Source: Wunder and Wertz-Kanounikoff, 2009

Beyond biodiversity co-benefits:Multiple payments for multiple services

• Payments for biodiversity can be:– voluntary vs. regulatory

– fund-based vs. market-based

• Voluntary initiatives to layer carbon and biodiversity payments are already emerging– e.g. CCBA, Plan Vivo, CarbonFix… i.e. green REDD credits

– Good but may not provide the scale necessary to significantly alter behaviour and impact biodiversity at global scale

ØOther regulatory mechanisms and policy approaches for biodiversity are likely to be needed

Key messages on REDD-plusØ Successful REDD-plus mechanism will likely lead to

significant biodiversity co-benefits

Ø Ensure appropriate level of biodiversity safeguards in REDD-plus where needed – future work on modalities

Ø International biodiversity financing should be invested in:– economic valuation and spatial mapping of biodiversity

(and ecosystem service) benefits

– complementing REDD-plus financing e.g. for high biodiversity/low carbon areas – can redirect biodiversity finance to these areas – so also need better MRV of biodiversity finance

Key messages on REDD-plus

Ø REDD-plus demonstration activities provide an important opportunity for biodiversity policy-makers to promote and support biodiversity monitoring, reporting and verification

– Enables analysis, comparison and evaluation of different approaches and methods used to promote biodiversity co-benefits in REDD-plus post-2012

Ø Consider creation of a technical expert group to establish best practice guidelines and principles – a “how-to” toolkit to promote biodiversity co-benefits in REDD-plus

– for developing countries implementing REDD-plus at national, regional, and/or local levels

Thank you!For further information on OECD work on the economics and policy of

biodiversity, visit:

www.oecd.org/env/biodiversity

Key policy areas:v Biodiversity Indicators, Valuation and Assessment

v Economic Instruments, Incentives and Markets

v Biodiversity Finance, Development and Distributional Issues

Including:

Ø OECD workshop on Enhancing the Cost-Effectiveness of Payments for Ecosystem Services (25 March 2010)

Ø OECD 2009, Promoting Biodiversity Co-Benefits in REDD, Working Paper (also in TEEB D1)