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?

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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 c.parker@globalcanopy.org