Government Programs Benefits and Drawbacks

Outside the United States, several other countries are also experimenting with regulated biodiversity offsets. (See Table 9-1.) For instance, the Australian states of Victoria and New South Wales either already have or are setting up schemes similar to the U.S. system, although with a few important differences. The BioBanking system in New South Wales has proposed a scheme whereby some areas would be deemed too sensitive for development. These would be "red-flagged" and would ideally be the sites where species banking would occur. In other words, the Australians are looking at addressing one of the main pitfalls of the U.S. system: a lack of broad-based, landscape-level planning to determine which areas are most needed for conservation. For now, it looks like the BioBanking scheme will be voluntary, but the hope is that, since compensation for damage is obligatory, BioBanking will be cheaper than the alternatives.23

In the state of Victoria, the BushBroker scheme is mandatory and applies to native vegetation. The principle is simple: whoever harms native vegetation in Victoria needs to offset that damage by creating or protecting the same type of vegetation in the same bioregion. Applying this scheme, on the other hand, is extremely complicated. There are literally dozens of vegetation systems and bioregions, which makes finding the right match a daunting task. To address this problem, the government of Victoria is building a sophisticated computer matching system that it expected would be operational by the end of 2007.24

While cap-and-trade regulated offset schemes to protect biodiversity can indeed create real markets and can be extremely powerful when used correctly, they also require strong government oversight, effective legal systems, enforcement of rules and regulations, and robust financial institutions. These conditions may be found in some industrial countries, but they are not the conditions of much of world—especially in those parts that hold most of the world's biodiversity, places like parts of Central and South America, Congo, China, Indonesia, Madagascar, and Mexico. So what can be done in those parts of the world?

Fortunately, the underlying concept behind both conservation banking and wetlands mitigation banking—that is, putting a value on biodiversity—applies in all countries, even if the exact systems for providing these payments may not. Even the U.S. government has a multimillion-dollar-a-year program to help farmers and private landowners conserve. It comes in the form of Farm Bill payments such as the Wetlands Reserve Program, the Conservation Security Program, the Conservation Reserve Program, and the Environmental Quality Incentives Program.25

SPECIAL SECTION: PAYING FOR NATURE'S SERVICES Banking on Biodiversity

Table 9-1. Examples of Legal Requirements for Biodiversity Offsets

Country or Region

Program

Legislation

Policy goal

United States

Species Mitigation (of which conservation banking is one tool)

Endangered Species Act Í973 as amended and the Guidance on Establishment, Use and Operations of Conservation Banks

To offset adverse impacts to threatened and endangered species

Wetland Mitigation

Clean Water Act Í972 Chapter 404(b)(Í) and the US Army Corps of Engineers regulations (33 CFR 320.4(r))

"No overall loss of values and functions" (I990);"net gain" (2004)

Australia, New South Wales

Australia, Victoria

Green Offsets for Sustainable Development: Concept Paper (2002); Native Vegetation Act (2003) and subsequent regulations (2005);the Threatened Species Conservation Amendment (Biodiversity Banking) Bill 2006

Native Vegetation Management Framework (2002) and subsequent amendments to related Acts; BushBroker-native vegetation credit registration and trading: Information Paper (2006)

"Net environmental gain"

"A reversal, across the entire landscape, of the long-term decline in extent and quality of native vegetation, leading to a Net Gain"

Western Australia

Native Vegetation Act (2003); Environmental Offsets: Position Statement No. 9 (2006)

"Net environmental benefit"

Brazil

Forest Regulation and National System of Conservation Units

Lei No. 477Í of Í965; Lei No. Í4.247 of 22/7/2002, Lei No 9.985 of Í8/7/2000, Decreto No.4.340 of 22/8/2002

No net loss of habitat under a defined minimum forest cover for private landholdings

Canada

Fisheries Act

R.S. Í985, c. F-Í4, Policy for the Management of Fish Habitat (1986), and the Habitat Conservation and Protection Guidelines, Second Edition (Í998); see especially Subchapter 35(l) and Subchapter 35(2) of the Fisheries Act

No net loss in capacity of habitat to produce fish

European Union

Habitats and Birds Directive

Council Directive 92/43/EEC of 2Í May Í992 on the conservation of natural habitats and of wild fauna and flora and Council Directive 79/409/EEC

Maintain overall (ecological) coherence of the sites

Source: See endnote 23.

In Brazil, the government requires that a Brazil's books that requires compensation minimum amount of a landowner's territory for damage to biodiversity, although the laws be kept in forest cover. There is also a law on to determine that compensation are not ade-

Banking on Biodiversity SPECIAL SECTION: PAYING FOR NATURE'S SERVICES

quately established yet. Similarly, in places as far afield as South Africa, Colombia, and the European Union, laws requiring or encouraging biodiversity offsets are either being considered or already being implemented.26

The Chinese government has long had a program known as Grain for Green (the official title translates as the Sloping Lands Conversion Program, or SLCP) that pays farmers to keep forest cover on hillsides. Its aim is to help conserve watersheds and prevent floods, but it also affects biodiversity conservation. This is not a market-based system, however; it is a system of government subsidies and payments. The money comes directly from tax revenues and is redistributed based on certain established criteria. While the SLCP system does help increase the value of standing forests (and has an astounding budget of $43 billion over 10 years), it does not directly link the users of the biodiversity services with the providers of those services. Government mediates the transaction, so the users of the service are not receiving information on the cost of their use.27

Private landowners in Costa Rica who protect their forest cover receive a payment from the National Forestry Trust Fund.

Mexico is introducing a similar system. It was modeled on a program for water conservation in the country known as Pago por Servicios Ambientales Hidrológicos (PSAH, or Payment for Environmental Hydrological Services). The PSAH is interesting in that it collects a fixed amount of revenues from water users and then redistributes it to key targeted forested watersheds across the country. The principle here is that by helping protect forested areas in key watersheds, the payments will help support the provision of water-related ecosystem services throughout the country. The program started in 2003 and pays between $30 and $40 a hectare for forest conservation, depending on the type of forest being protected. Currently the program is paying for the management of close to a million hectares.28

Building on its success with water services, Mexico has received a grant from the Global Environment Facility to establish a similar program to make payments for biodiversity conservation. The problem with this approach is twofold. First, as in China, the money is coming from philanthropic sources or the government. Second, the payment and the payer are severed from the actual service being received. In other words, while all Mexicans contribute a bit of the money they pay for water to the PSAH, they often do not know they are making this contribution. And the money they pay is not necessarily used in the watersheds that supply those individuals with water. Again, the link between buyer and seller is not direct. This makes it difficult for users of the service to make decisions based on the economic costs of their use.29 One of the most talked about payment for ecosystem services programs, as these are often called, is the Pago por Servicios Ambientales (PSA) program created by Costa Rica in 1996. Private landowners in Costa Rica who protect their forest cover receive a payment from the National Forestry Trust Fund. These payments are made at a base rate of $40 per hectare but can vary depending on type of forest cover. Most of the money for this trust fund comes from a tax added to fuel sales in Costa Rica, but this is supplemented by "environmental credits" sold to businesses and other sources of international finance. Between 1996 and 2003, the Costa Rican PSA program had enrolled more than 314,000 hectares of forested land, transferring more than $80 million to landowners in the process.30

SPECIAL SECTION: PAYING FOR NATURE'S SERVICES Banking on Biodiversity

Once again, this is a government-run program where the user and provider of the biodiversity services are not closely linked. Also, like China's Grain for Green program and Mexico's PSAH, the price per hectare of biodiversity is set by government, not via a direct market-based mechanism. They are in effect government monopsonies (one buyer without competition, the opposite of a monopoly) for biodiversity services, and as such they may be paying too little or (though this is less likely) too much for the conservation of biodiversity. The price is largely arbitrary and based on the government's ability to pay rather than on supply and demand for the service.

Despite these drawbacks, the programs in China, Mexico, and Costa Rica have been extremely successful at giving added economic value to biodiversity and, some observers say, have also been successful in their overall goal of increasing forest cover.

A particularly interesting and different approach to payments for biodiversity services is found in Victoria in Australia. Through two programs there—known as BushTender and EcoTender—the state has established a reverse auction system for providing government payments to private landowners who conserve local biodiversity (among other goals).

The pilot for BushTender took place in Victoria in 2003, and according to Mark Eigenraam, one of its architects, it "used an auction system to distribute environmental funds to landholders who were interested in improving terrestrial biodiversity on their properties. The implementation of BushTender led to 5,000 hectares of native vegetation on private land being secured under management agreements. In economic terms, it created the supply side of a market for nature conservation and generated significant cost savings when compared with pre vious grant-based systems for distributing conservation funds to landholders."31

BushTender's success is now being followed up with EcoTender, in which the state is inviting local landholders to submit competitive "bids" for government funding to pay for improved management of remnant vegetation and revegetation on their properties. "Where BushTender focused on a single environmental outcome (increasing terrestrial biodiversity), EcoTender aims to achieve multiple environmental benefits, including improvements in saline land and aquatic function," explains Eigenraam.32

What is interesting about BushTender and EcoTender is that they use government's monopsony buying power to invite bids that effectively serve to discover the "best" price at which biodiversity conservation will be achieved. Nevertheless, the buyer is once again the government using tax revenues, so the connection between the buyer or user of the biodiversity services and the seller is still not direct.

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