4. Policy instruments
This chapter provides an overview of the main policy instruments used for biodiversity conservation and sustainable use. It begins with protected areas – the most prominent instrument for biodiversity conservation in Latin America – followed by a discussion on other regulatory approaches such environmental impact assessments, strategic environmental assessments, land-use planning and zoning. The chapter then examines the use of economic instruments such as payments for ecosystem services, biodiversity offsets, tradable resource extraction quotas and fiscal incentives. The role of environmentally harmful subsidies is also reviewed. The final section discusses voluntary and information instruments, such as certification, eco-labelling and voluntary agreements.
The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
4.1. Introduction
Latin American countries have made significant progress in putting in place policy instruments for biodiversity conservation and sustainable use over the past decade. To date, most countries have relied heavily on regulatory approaches, but they are beginning to implement more economic instruments as well as information and voluntary approaches (Table 4.1). Implementation, enforcement, monitoring, capacity and resourcing remain ongoing challenges.
Establishing new protected areas is one of the primary tools used. While the proportion of protected areas in Latin America is impressive, many countries are struggling to ensure the representativeness of all ecosystems and adequately resource effective management. Mandatory Environmental Impact Assessments (EIAs) remain one of the key tools available to mitigate the biodiversity impacts of major energy, mining, industrial and infrastructure projects, and Strategic Environmental Assessments (SEAs) have been used in several sectoral policies and land-use plans.
The usage of economic instruments is also growing in Latin America, with countries such as Mexico leading the use of Payment for Ecosystem Services (PES) systems that pay individuals or communities for conservation measures, and biodiversity offset regimes that undertake conservation actions to compensate for residual biodiversity loss from development sites. A number of Latin American countries also use water charges, water markets, forestry fees and tradable fishing and forestry quotas. Subsidies that provide incentives to promote sustainable use of biodiversity and ecosystems remain an important component of biodiversity policy in Latin America, particularly for rural and poor populations. However, it is also important to reform environmentally-harmful subsidies established for other purposes such as tax exemptions for fertilisers and pesticides and subsidies for irrigation infrastructure and small-scale mining.
Voluntary and information initiatives can also be important avenues to biodiversity conservation and sustainable use. Eco-labelling is becoming increasingly popular, particularly as export markets for forest, agriculture and aquaculture products demand more sustainable production methods.
4.2. Regulatory instruments
4.2.1. Protected areas
The number and size of protected areas has been increasing in Latin America over the past decade, and Central and South America now have the largest percentage of terrestrial protection in the world. In 2014, Central America had 28.2% of its terrestrial areas protected and South America had 25.0% protected. Comparable percentages for Europe, North America and Asia were only 13.6%, 14.4% and 12.4% respectively (Juffe-Bignoli et al., 2014). OECD countries together had 15.4% of their land protected in 2017 (OECD, 2018). Several countries in the region exceed the CBD Aichi Target of conserving 17% of terrestrial area and inland water by 2020 (Figure 4.1).
However, Central and South America are behind other regions in the creation of marine protected areas, and remain below the CBD Aichi Target to conserve 10% of coastal and marine areas by 2020. This can be attributed to the region’s historical policy focus on slowing deforestation, a gap in policy responsibility between environment and fisheries ministries, a lack of data and knowledge to assess biodiversity priorities, and a lack of financial and human resources. In 2014, marine protected areas comprised 2.1% and 3.9% of total marine areas in Central and South America respectively, versus 3.9% in Europe, 6.9% in North America, and 4.5% in Asia (Juffe-Bignoli et al., 2014). The recent designation of large marine protected areas in Chile, Mexico and Brazil is, however, likely to improve South America’s ranking (Figure 4.1).
Note: Data for Chile include the largest marine reserve in the Americas (Nazca-Desventuradas). Data for Brazil include two large mosaics of marine protected areas designated in March 2018 (Archipelago of Trindade and Martim Vaz and Monte Columbia and Archipelago of São Pedro and São Paulo).
Source: UNEP-WCMC and IUCN (2018), The World Database on Protected Areas (WDPA), January 2018. Available at: www.protectedplanet.net.
Brazil has made one of the largest contributions to increase the global land area under protection since the turn of the century. Between 2000 and 2014, the number and extension of terrestrial protected areas in the country doubled, to reach a surface of almost three times the size of France. The Amazon Region Protected Areas (ARPA) programme has been at the heart of this progress (Box 4.1). About two thirds of the area under protection falls into the “sustainable use areas” category, which permits human settlements and various sustainable uses of natural resources. Allowing carefully controlled sustainable use of biodiversity in protected areas has proved to be helpful in overcoming political and social barriers to protected area expansion, partly as it is more compatible with traditional communities’ rights. All protected areas are managed within the National System of Protected Areas (SNUC) which was established in 2000 to consolidate the pre-existing highly fragmented assortment of federal, state, municipal and private protected areas into one consistent framework (OECD, 2015).
Brazil also made a step increase with respect to marine conservation. In March 2018, the President signed decrees to create two large mosaics of marine protected areas: one for the Archipelago of Trindade and Martim Vaz and Monte Columbia situated in the Brazilian Exclusive Economic Zone (EEZ) of the coast of the State of Espírito Santo (with a total protection of 47.2 million ha); and one for the São Pedro and São Paulo Archipelago located in the extreme northeast of the EEZ, on the northeast coast of the State of Pernambuco (with a total protection of 44.9 million ha). The new areas lift the share of EEZ under protection from 1.6% to more than 26%. The government considers the establishment of these areas an important progress from both an environmental an economic perspective, as the areas will help contain the collapse of fish stocks. Both mosaics are a result of common efforts by the ministries of environment and defence (the limits of some areas are coincide with the limits of the EEZ).
The Amazon Region Protected Areas (ARPA) programme, launched in 2002, is one of the largest tropical forest conservation programmes in the world. It was created with the goal of expanding and strengthening the protected area system in the Amazon biome, including along the so-called “deforestation arc” and in areas expecting road infrastructure development. The ARPA programme made a significant contribution in fighting deforestation in the area.
The programme had four major components: establishment of new areas; management and consolidation; financial sustainability; and co-ordination, management and monitoring. By 2015, the programme created more than 500 000 km2 of protected areas in the biome. It has effectively supported the operation of protected areas by investing in basic infrastructure and capacity building. The ARPA programme has attracted substantial international finance for protected areas. However, the government envisions to shift funding from donation based to government financed over 25 years and has set up a transition fund for the purpose.
Source: OECD (2015), OECD Environmental Performance Reviews: Brazil 2015.
A common challenge for Latin American countries is to ensure that protected areas are representative of all biomes and ecosystems (UNEP, 2010). In Brazil, for example, most protected areas (77%) are within the Amazon region, which reflects the successful implementation of the ARPA programme and the government’s efforts to reduce deforestation in the region. While the Amazon will remain important, greater effort is needed in the Cerrado and Caatinga biomes where protection is low and higher deforestation is anticipated. In Chile, only 11 of 64 sites identified as national protection priorities are fully or partially within the boundaries of official protected areas, 46% of the country’s wetlands are protected, and coastal protection near growing population centres is limited. In Peru, only 12 of the country’s 21 terrestrial eco-regions are represented (OECD/ECLAC, 2017, 2016; OECD, 2015). Priority should therefore be given to under-represented ecosystems as countries continue to expand their protected area systems.
Declaration of protected areas alone is not enough if it is not linked to effective measures or management. However, effective management is a significant challenge. Despite legal requirements, many protected areas operate without a management plan; those that do cannot always ensure that it is implemented and that biodiversity is effectively conserved or used sustainably within the protected zone. This is largely due to human and financial capacity constraints. In Chile, for example, most protected areas lack sufficient resources, including park rangers and a monitoring system (OECD/ECLAC, 2016). In Brazil, less than half of protected areas in the Amazon biome had an approved management plan in 2012, even though a management plan is a precondition for sustainable use (e.g. for tourism, sustainable logging or use by the local community). In Colombia, 93% of terrestrial protected areas have adopted management plans, but endemic and threatened species are not always adequately protected (OECD/ECLAC, 2014). Peru has increased the attention given to Protected Natural Areas (PNA): while in 2003, 33 out of 40 PNAs were staffed and only 17 had management plans, in 2015, 61 out of 64 PNAs were staffed and 41 had management plans (OECD/ECLAC, 2017). Brazil has also made progress in the management of its protected areas, but limited resources and capacity have constrained implementation (Box 4.2). Strengthen the effective management of protected areas in Latin America will require adequate funding as well as strengthened governance schemes with the participation of local communities.
The law establishing Brazil’s National System of Protected Areas (SNUC) introduced several features that helped improve the governance and management of protected areas. One such feature is the requirement to establish management committees that would facilitate the involvement of local communities and stakeholders in decisions concerning protected areas. The committees include government officials and representatives of the private sector and civil society.
The law requires protected areas to establish management plans within five years of their creation. Plans are a condition for sustainable public use (such as tourism, environmental education and sustainable logging) and local community resource use (e.g. harvesting, fishing, farming). However, many areas have not met this deadline due to limited resources and capacity. In 2012, only 94 of 247 protected areas in the Amazon biome had an approved management plan.
The law also introduced instruments for managing protected areas at a landscape scale, allowing for connections among and within ecosystems and recognising the importance of ecological corridors to maintain ecological processes. It introduced the opportunity to integrate multiple protected areas into a “mosaic” if they are in proximity or overlap. This approach allows for the development of shared solutions to issues such as land and resource use in border zones, access to protected areas, enforcement, monitoring and evaluation of management plans, and research. As of 2014, 14 mosaics had been approved.
Source: OECD (2015), OECD Environmental Performance Reviews: Brazil 2015.
4.2.2. Biodiversity conservation on private land
Private protection initiatives can be particularly important for improving representativeness in priority ecoregions, as often the greatest pressures are near populated centres and in agricultural regions where land is privately owned.
Biodiversity conservation on private land can be achieved through both regulatory requirements and voluntary engagement. Brazil’s Forest Code, for example, requires landholders to set aside a share of their private land for conservation. In the Amazon, land holders have to preserve 80% of forested land on their private property, while land owners in other regions generally have to preserve 20% of native flora. An innovative system of tradable forest quotas (see Section 4.3) aims to facilitate compliance with this requirement.
In other countries, private voluntary donations play an important role for biodiversity conservation on private land. There are a few examples where individuals, non-profit organisations or companies independently decided to purchase, donate or set-aside a portion of land for conservation. This was the case with the Pumalin Park in Chile, one of the largest private protected areas in the world (Box 4.3). Tax incentives, subsidy programmes or other support measures can stimulate such donations and help develop a culture of environmental philanthropy. In Chile, pending legislation will allow for private initiatives to be brought into the official protected area system, financing of management plans and incentives for further private conservation efforts (OECD/ECLAC, 2016).
Pumalin Park was originally created by the founder of the American clothing company The North Face, Douglas Tompkins in 1991. As a regular visitor to southern Chile fond of skiing, kayaking and hiking, he decided to purchase 17 000 ha to protect primeval native temperate rainforest at risk of logging. The park has grown over time, acquiring an additional 230 000 ha and establishing a network of campgrounds, trails, information centres and other public facilities. Chile has designated the park a nature sanctuary and the lands have been donated to a Chilean Foundation – Fundación Pumalín – for the administration and ongoing preservation of the park.
Source: OECD/ECLAC (2016), OECD Environmental Performance Reviews: Chile 2016.
4.2.3. Other regulatory approaches
Many Latin American countries also use other regulatory approaches such as standards, licensing, permitting, and planning tools to promote biodiversity conservation and sustainable use. Regulatory restrictions on activities potentially harmful to biodiversity are common across Latin American countries. Mexico, for example, places restrictions on: whale watching activities; sea turtle, shark and stingray fishing; and the use of gill nets (OECD, 2013a).
Most countries in Latin America require Environmental Impact Assessments (EIAs) of major projects, though controversy remains in many countries regarding their effectiveness in protecting biodiversity. EIAs are structured processes for obtaining and evaluating the potential environmental impacts of a project prior to decision-making. They are usually applied to proposed major projects, such as power stations or mines (UNEP, 2004). In Chile, the EIA process has historically dealt with biodiversity issues in an ad hoc manner, leading to an uneven treatment of projects. It also tends to come too late in the project design process to result in significant change, does not provide avenues for adjustment once the project is operating, and does not cover smaller projects such as small mines that can have important impacts on ecosystems (OECD/ECLAC, 2016). Many of these issues are not unique to Chile, however. Several OECD countries do not require EIAs for smaller projects and one of the key challenges in most countries, such as France, is involving the public early enough in the project to be able to make meaningful changes (OECD, 2016a). The development and use of technical guides can facilitate the full consideration of the impact on land and marine biodiversity in EIA processes.
Strategic Environmental Assessment (SEA) is increasingly being used in Latin American sectoral policies and land-use plans, though not yet comprehensively or consistently. SEAs incorporate a range of analytical and participatory approaches to integrate environmental considerations into policies, plans and programmes and evaluate the inter-linkages with economic and social considerations. Colombia has promoted the use of SEAs in sectoral policy development, but has not made it a legal obligation (OECD/ECLAC, 2014). SEA has also been increasingly in Chile and Peru. In Chile, most territorial plans are required to undergo an SEA, although less than half of them do. Mexico and Brazil have no legal requirements for SEA.
Land-use planning and zoning can be another effective tool for biodiversity conservation and sustainable use. Brazil, for example, put in place a National Environment Policy for environmental and ecological-economic zoning (ZEE) aimed at allocating compatible activities in defined environmental areas to maintain sustainable use of natural resources and a balanced ecosystem. Several states have also developed ZEEs, and the 2012 Forest Code requires all states to approve their ZEEs by 2017. While the maps and guidelines are useful tools for territorial and development planning, further work is needed to improve their effective use in spatial planning and policy making, and bolster the capacity at the municipal level to implement zoning requirements (OECD, 2015). Peru is also using ZEEs as one of its land-use planning tools, and 13 of 24 regions have approved ZEEs (OECD/ECLAC, 2017). Colombia advanced in the protection of 2 million ha of moorlands and 1.8 million ha of wetlands in trough zoning processes that prioritised environmentally critical areas that were not under any type of legal protection.
4.3. Economic instruments
Economic instruments are important tools for promoting biodiversity conservation and sustainable use efficiently, while also offering the potential to raise revenue. Latin American countries are increasingly adopting economic instruments, but many are in the early stages of development or are not yet sufficiently stringent to significantly impact biodiversity outcomes.
4.3.1. Payment for ecosystem services programmes
Latin American is a leader in the use of payments for ecosystem services (PES). PES are based on the recognition that well-functioning ecosystems provide important services essential for the economy and human well-being, such as reliable and clean flows of water and productive soil. PES are agreements whereby a user or beneficiary of an ecosystem service pays individuals or communities whose management decisions influence the provision of ecosystem services (OECD, 2010). Some countries have combined PES systems with social objectives, helping to provide financing to impoverished rural communities for their involvement in biodiversity conservation and sustainable use.
Costa Rica was an early pioneer in the use of programmes. The country developed the first PES programmes over 20 years ago, paying land owners to protect forests in return for their ecosystem benefits (such as conserving species, regulating river flows and storing carbon). Forest cover has returned to over 50% of the country’s land area (from a low of 20% in the 1980s) largely as a result of the PES system and a ban on land-use change in forests (Barton, 2013). Approximately 1 million ha of forest in Costa Rica has been part of the PES programme. The current programme favours indigenous territories, areas with low social development scores and properties under 50 ha. The system is also helping to formalise land tenure and to update property registers needed to collect taxes.
Mexico now runs one of the world’s largest national PES programmes, covering more than 3.25 million ha. It comprises two PES initiatives involving forest management, which were brought together under the same umbrella in 2011: the Hydrological Ecosystem Services Programme (PSAH) launched in 2003 and the Programme to Develop Ecosystem Service Markets for Carbon Sequestration and Biodiversity and Improved Agro-forestry Systems (CABSA) launched in 2004. The PSAH is funded by a national fee on water use, while the CABSA’s budget is renegotiated by congress every year and therefore does not have stable, long-term funding. Ecosystem service providers are predominantly ejidos – areas of communal land used for agriculture. Verification of forest cover is done through satellite image analysis or ground visits. The programme also includes an environmental endowment fund and the promotion of local PES mechanisms through matching funds. An important feature of the PES programme is that it targets areas with high biodiversity benefits, high risk of loss and low opportunity cost (OECD, 2010). Mexico adjusted and revised its programme several times to take into account the first two of these elements. The conservation impact of the PSAH initiative has been fairly low, and could be improved by putting greater weight on environmental eligibility criteria (OECD, 2013a).
While Brazil does not yet have a national legal framework governing PES, several states and municipalities have developed their own laws and PES programmes. Brazil has implemented several PES and conditional cash-transfer programmes at the federal and state levels, including Bolsa Verde and Bolsa Floresta – which provide payments to extremely poor households in rural forest communities to compensate them for conservation activities (Box 4.4). The beneficiaries of the programmes are mainly rural family producers and settlers, traditional communities and indigenous peoples, with financing generally provided by governments. A national PES framework in Brazil could help standardise programmes, improve monitoring and effectiveness and lower transaction costs (OECD, 2015).
Bolsa Floresta, launched in 2007 by Amazonas state, provides monthly cash payments of about USD 20 to families living in protected areas in exchange for forest conservation efforts (e.g. for limiting the amount of forested land converted for farming). Bolsa Floresta was the first of its kind and became of the world’s largest PES programmes, reaching more than 35 000 people in 15 protected areas in 2013.
Building on this initiative, the federal government launched Bolsa Verde in 2011 as part of the broad anti-poverty programme Brasil sem Miséria. The programme provides payments for adoption of environmental practices and technical training to support beneficiaries in meeting their conservation commitments. It is seen as a potentially efficient way to curb deforestation, with low payments per hectare of avoided deforestation. However, implementation is complex and complementary training activities are insufficiently developed. Developing monitoring mechanisms and ensuring a link with the national land registration programme (the Rural Environmental Cadastre) would help improve effectiveness and reduce management costs for Bolsa Verde and the existing PES programmes.
Source: OECD (2015), OECD Environmental Performance Reviews: Brazil 2015.
In Colombia, legislation was extended in 2007 to support PES programmes and a law on PES was enacted in 2017. PES programmes at the national level include the Forestry Incentive Certification Programme for commercial reforestation and the Forest Ranger Families Programme which helps shift families from growing illicit crops towards conservation, restoration and legal and sustainable production. There are also several sub-national programmes, mainly focused on watershed conservation and restoration, including for Colombia’s capital city Bogotá (Box 4.5) (OECD/ECLAC, 2014).
The páramo, or high Andean moorland, provides crucial ecosystem services, such as regulating the quantity and quality of water. Around 70% of the Colombian population’s water supply originates from upland areas. Chingaza National Park in the páramo is the main source of water supply for the 8 million inhabitants of Bogotá, while also supplying water for hydropower generation. Conservation measures in the Park decrease the generation of sediment in the water, securing the quality of water and reducing the costs of water treatment.
The Bogotá water utility makes a voluntary annual payment to Chingaza National Park, and is also charged a water use fee that includes a minimum charge plus a variable component that reflects the investment needs for conservation, the socio-economic circumstances of stakeholders and the scarcity of water resources. Detailed fee calculation is possible through the capacity of the national park to gather technical data.
The regime is a model of a successful “payment for ecosystem services” approach. However, revenue raised does not reflect the full value of the ecosystem service and there continues to be political resistance to fully deploying the fee system as fears of increased costs could damage economic activity in the region and affect poor households.
Source: OECD/ECLAC (2014) OECD Environmental Performance Reviews: Colombia 2014.
As Latin American countries develop, expand and update PES systems, they could look to lessons learned as well as additional features such as those used in Mexico to prioritise areas with high biodiversity benefits and/or high threat of loss. Most EPRs advise countries to carefully monitor and evaluate the effectiveness of the PES schemes. Adverse auctions mechanisms could be considered used to improve the cost-effectiveness of PES systems. The focus of PES systems on providing financing to impoverished rural communities may help smooth approval and implementation of PES programmes, yet countries should be careful to ensure it does not erode environmental benefits.
4.3.2. Biodiversity offsets
Biodiversity offsets are conservation actions designed to compensate for significant, residual biodiversity loss from development projects after reasonable steps have been taken to avoid and minimise biodiversity loss at a development site (BBOP, 2009). Biodiversity offsets are economic instruments based on the polluter pays approach. The most common objective adopted in offset programmes is to deliver No Net Loss (e.g. of a habitat, species, ecological status, ecosystem services), although several programmes around the world have adopted a more ambitious goal of Net Gain (OECD, 2016b).
At least 56 countries around the world have laws or policies that specifically require biodiversity offsets or some form of compensatory conservation for particular impacts (OECD, 2016b). In Latin America, several countries have biodiversity offset systems in place, including Mexico, Brazil and Colombia, and Chile is working to develop a national offset programme.
Mexico adopted its Forest Land Use Change Compensation mechanisms in 2005. Under the mechanisms, successful land-use change applicants are required to reforest an area at least the same size as the deforested area with species of the same type. The developer can choose whether to create its own offset or pay into a compensation fund at a compensation ratio greater than 1:1. However, the current system has not assessed whether the reforestation activities linked to compensation are successful and whether their location and timing truly compensate for the environmental services lost (OECD, 2013a).
Brazil has a number of offset mechanisms in place. One is integrated into its environmental licensing procedure, whereby project developers can be required to pay compensation based on the severity of the environmental impact of the project. However, clear mechanisms to monetise the environmental impact and the amount of compensation are needed. The revenue generated is earmarked for protected areas. Another is the land offset mechanism and tradable forest quotas introduced by the Forest Code. Landholders that are not compliant with forest set-aside requirements can make up for this deficit either by buying private property within official protected areas on behalf of the government, which allows the consolidation of protected areas, or by purchasing Environmental Reserve Quotas (see section below on Fishing and Forestry Tradable Quotas and Fees). However, for this mechanism to operate, Brazil’s Rural Environmental Cadastre will need to be fully implemented (OECD, 2015).
Colombia developed a manual in 2012 that provides guidance on how the impact on ecosystems from development projects can be offset by the developer providing an equivalent form of ecological compensation. The 2014 OECD EPR of Colombia highlighted the positive step in developing the manual, while noting that effective implementation would require enforcement, consistent application of the requirements across sectors and regions, and effort to ensure that the offsets are additional to what would have taken place anyway (OECD/ECLAC, 2014).
Chile’s use of biodiversity offsets is at a very early stage. The Ministry of Environment and the Environmental Assessment Service have released a guide on biodiversity offsets as compensatory measures in EIA. The proposed legislation creating the Biodiversity and Protected Area Service will provide the legal framework for establishing biodiversity offsets and biobanks of certified and quantified conservation initiatives (OECD/ECLAC, 2016).
While biodiversity offsets have significant potential to improve overall outcomes, policies in place to date have had mixed results in terms of environmental effectiveness. Careful design and implementation of the instrument is key to success. Experience from some of the regimes that have been in place the longest – such as wetland banking in the United States – will be helpful to Latin American countries as they develop and refine their own systems. The OECD publication Biodiversity Offsets: Effective Design and Implementation offers good practice insights as well as case studies from the United States, Germany and Mexico. Germany has over 1 000 biobanks – where developers can purchase credits from a repository of existing offsets – operating or under development. The US species mitigation offset system has at least 143 different credit types, with 92 for species and 51 for habitat (OECD, 2013b).
4.3.3. Water markets and charges
While there are some water markets and charges in place in Latin America, most do not yet explicitly reflect water needs for biodiversity across ecosystems. Effective water markets or water use charges will be increasingly important in Latin America as water scarcity concerns grow. Water prices that reflect the scarcity or vulnerability of the resource can promote reduced and more efficient water use. It is important, however, that the water needs of biodiversity and ecosystems are considered in the design of instruments, along with the needs of agriculture, industry and municipalities.
In Colombia, environmental legislation supports the financing of watershed management. Hydroelectric plants must transfer 6% and thermal energy plants 4% of their revenue to regional and municipal authorities to carry out watershed conservation and sanitation projects, with over USD 80 million raised annually. Entities constructing or operating irrigation projects or other water abstractions are required to use 1% of the amount invested to pay for watershed protection. All water users are also required to pay a fee, which raises over USD 10 million annually. Departmental and municipal governments are mandated to spend 1% of current income to purchase or manage lands that protect municipal water sources or for payment for ecosystem services, with the legislation allowing for collaboration across districts (OECD/ECLAC, 2014). Colombia recently raised water fees by over 100% for the industrial, mining and hydrocarbons sectors.
The 2014 EPR of Colombia noted that while the system had significant potential, the fees were too low to finance both water service provision and watershed protection, and more effort is required to improve the rate of water fee collection, estimated at 67.5% in 2010. The consolidation of water fee revenues into three water funds is seen as an important measure to enhance the efficiency of spending, allowing for supplementary funding from donors and international financial institutions. The funds are also managed by a committee of stakeholders. The water fund model has been adopted in several Latin American countries, and the Latin American Water Funds Partnership is working to scale up the use of water funds in the region (OECD/ECLAC, 2014).
Chile has long had a market of water use rights, but existing user rights do not allow for meeting minimum flow requirements in half of the river basins in arid northern Chile. This is due to insufficient regulation and transparency of the water market, which have led to over-allocation and extreme concentration of water rights and overexploitation of some aquifers. Rising water tariffs encouraged urban households to reduce consumption of drinking water by 18% between 2000 and 2013, but the amount of water abstracted for public water production increased by 23% as a result of rising water losses from leaking infrastructure (OECD/ECLAC, 2016).
Brazil’s National Water Resources Policy Law introduced water abstraction and effluent charges as water resource management tools, but only a few states and river basins charge for water and those that do have fees too low to influence use. Hydropower plants are required to provide financial compensation of 6.75% of the value of electricity produced, and mines between 1-3% of turnover, to compensate for the use of water and natural resources, but revenue is not earmarked to environmental activities as in Colombia (OECD, 2015).
4.3.4. Fishing and forestry tradable quotas and fees
Tradable quota systems and fees can also provide efficient mechanisms to promote sustainable use of biodiversity. Successful implementation requires careful design that reflects biodiversity priorities and adequately finances enforcement and monitoring.
Chile introduced a quota system for its fishing industry in 2001, with quotas distributed between industrial and small-scale sectors, and a tradable quota licence system for industrial fisheries. These reduced fish catches by 64% between 2004 and 2013. However fish production from aquaculture almost tripled over 2000-12, and the effluent, pesticides and medicines this generates are a major source of pollution of, and pressure on, inland waters, estuaries and marine ecosystems (OECD/ECLAC, 2016).
Colombia has had a forestry fee in place since 1982, initially set as 10% of the value of wood extracted. As of 1993, regional authorities are able to set their own fees. The system is challenged by the fact that illegal logging, which does not contribute to the fees, still accounts for a large percentage of timber produced in Colombia (OECD/ECLAC, 2014).
Brazil’s Forest Code – updated in 2012 – introduced an economic instrument to facilitate compliance with land set-aside obligations that require landowners to maintain native vegetation on a proportion of their properties and along water bodies and sensitive areas. Environmental Reserve Quotas (CRAs) can be issued for each hectare of area maintained as native vegetation in excess of the requirement. This quota can then be purchased to offset a deficit in a different property in the same biome, and preferably in the same state. The 2015 OECD EPR highlighted the promise of the initiative, but noted that care would need to be taken to ensure conservation of areas with high biodiversity value rather than only areas with low opportunity cost (OECD, 2015).
4.3.5. Financial incentives and subsidies to promote sustainable use of biodiversity and ecosystems
Financial incentives can be an effective approach to encourage conservation, sustainable use and restoration activities. In areas where high biodiversity benefits overlap with areas where the poor are concentrated, such incentives can also provide social co-benefits that make them more appealing to adopt.
Many of the biodiversity-related economic instruments applied in Mexico are subsidy-based. Over 53% of the forests are owned by local or indigenous communities that are generally poor. A national reforestation programme (PRONARE) supports landowners or users reforesting degraded forest land by providing seedlings, training and funding. This has succeeded in reforesting a much larger land area than what would have been without the programme (UACH, 2010). Another programme promotes the conservation and sustainable use of wildlife, income generation and employment through Management Units for Wildlife Conservation (UMAs) and Facilities for Wildlife Handling (PIMVS) in rural areas. Sustainable fishing is promoted with buyouts for fishers who are willing to accept payments to stop fishing or switch to alternative methods that help protect the vaquita, one of the world’s smallest and most at-risk cetaceans. These measures are believed to have helped reduce threats to conservation of vaquitas and to have begun decreasing the total level of fishing, with conservation benefits for other marine species (OECD, 2013a).
Chile also provides subsidies for native forest conservation, and is establishing a National Biodiversity Fund to implement new economic instruments and finance conservation programmes outside protected areas (OECD/ECLAC, 2016). Peru provides direct transfers to indigenous and rural communities for forest conservation (OECD/ECLAC, 2017).
Brazil developed an innovative incentive to improve enforcement and compliance with deforestation requirements. Municipalities with critical deforestation levels are placed on a blacklist maintained by the Ministry of Environment. Public financial institutions then restrict credit available to those on the blacklist. The Brazilian Central Bank has also made access to subsidised rural credit in the Amazon biome conditional on the legitimacy of land claims and provision of information to demonstrate compliance with environmental regulations (OECD, 2015).
Green public procurement can also support the development of sustainable domestic industries. As part of its 2012 Sustainable Procurement Policy, Brazil’s government launched a national procurement programme targeting biodiversity-related products. Similar initiatives also exist at the state level. The 2009 National Plan to Promote the Production Chain of Socio-Biodiversity Products (PNPSB) provides facilitated access to credit and markets as well as technical assistance. A minimum price is provided for select products, such as açai fruit, natural rubber and Brazil nuts. While this price support only benefits a small fraction of total production of the targeted products, production and commercialisation of socio-biodiversity products and competition among buyers has increased (OECD, 2015).
4.3.6. Removing environmentally-harmful subsidies
Subsidies that are counter-productive to efforts to address pressures facing biodiversity remain in many countries across Latin America. Examples include government subsidies for agricultural production and irrigation that do not include environmental criteria, subsidies for small mine production, subsidies for non-native forestry plantations, and tax exemptions for fertilisers and pesticides. Such subsidies stimulate increased production and input use, which puts pressure on the natural resource base and on biodiversity. For example, chemical fertilisers and pesticides have negative impacts on soil and water quality, and can harm human health and ecosystems. Removing or reforming these subsidies can help re-align incentives towards more biodiversity-friendly approaches, such as the more efficient use of inputs.
Brazil, for example, provides tax reductions to certain fertilisers and pesticides, as well as market price support through guaranteed minimum prices and direct government purchases which encourage increased production (OECD, 2015). In Chile, Mexico and Colombia producer support is also linked to input use. In Chile, fertiliser and pesticide use has increased faster than total agricultural production, indicating inefficient use (OECD/ECLAC, 2016). In Mexico, the value of subsidies supporting conventional production is far higher than that of environment-oriented programmes such as the PES system (OECD, 2013a). Low or subsidised water prices are a barrier to efficient water use in all five EPR countries (Section 5.2).
Fiscal reform need not be detrimental to agriculture sectors. For example, Denmark mobilised DKK 461 million (roughly USD 69 million) in 2010 from its pesticide tax, with 60% of the tax revenue channelled back to the agriculture sector through different subsidy schemes. Indonesia removed its pesticide subsidy, and three plantings later had record levels of rice production combined with savings of over USD 100 million (OECD, 2013b).
In Chile, the Biodiversity Finance Initiative (Biofin) co-ordinated by the United Nations Development Programme in co-operation with finance and environment ministries identified two subsidies harmful to biodiversity: support to irrigation infrastructure, and subsidies to small-scale mining. Current irrigation subsidies do not incorporate environmental criteria, and have allowed the drainage of wetlands and replacement of areas of rich biodiversity with monocultures. Mining uses large amounts of water, and mining waste (tailings) contaminate soil, surface water and groundwater, hence damaging ecosystems. Subsidies for forest plantations have also encouraged replacing native forests with exotic species, which absorb significant groundwater and reduce biodiversity (OECD/ECLAC, 2016).
4.4. Voluntary and information instruments
Voluntary and information instruments can be important complementary tools to regulatory and economic instruments. They are particularly useful in areas where economic and environmental objectives align. For example, environmental certification and labelling can help companies compete in global markets increasingly demanding environmentally-friendly products (OECD, 2013b). Private sector agreements can offer reputational benefits for companies while attaining biodiversity objectives.
4.4.1. Certifications and eco-labelling
Chilean companies have realised the economic benefits of certifications and eco-labels, given growing demand from international consumers for sustainable production methods from suppliers, particularly in forestry, aquaculture and agriculture. However, the variety of international and independent eco-labels in the Chilean market tends to confuse consumers (OECD/ECLAC, 2016). Mexico has two sustainable forestry certifications, two green coffee certifications, and eco-certification for tourism-related businesses (OECD, 2013a). Colombia has implemented a national green labelling system – Sello Ambiental Colombiano – that aims to increase the proportion of goods and services with environmental certification to 30% by 2019. Environmental certifications are also in place for tourism, wine, coffee, organic produce and other goods and services. Brazil also has a national green labelling system, but this has not yet managed to co-ordinate and better articulate environmental labelling initiatives (OECD, 2015).
4.4.2. Private sector agreements
In Brazil, the business sector has been motivated to help combat desertification in the Amazon by what is referred to as the “Soya Moratorium”. In 2006, following a report from Greenpeace and pressure from consumers, a large group of companies (including McDonald’s and Wal-mart), in co-operation with the Ministry of Environment, agreed to stop using soy grown on cleared forestland in the Brazilian Amazon. The initiative was one of the first voluntary zero-deforestation agreements in the world. In 2004, nearly 30% of soya expansion occurred through deforestation. By 2014, the rate was reduced to 1% in the Amazon. A similar initiative – the Beef Slaughterhouse Pact – was developed for Brazil’s cattle industry (OECD, 2015). Further expansion of such initiatives to other regions and sectors could provide additional biodiversity benefits.
Chile has used its Clean Production Agreements with industry to set specific targets and promote action in exchange for financial support. While the focus to date has been on energy, waste and water use, there is work underway to incorporate biodiversity objectives. An agreement with the fruit sector, for example, aims to reduce the impact of pesticides on pollinators (OECD/ECLAC, 2016). The Colombian government has signed Zero Deforestation Agreements with private companies from the oil palm, beef, milk and wood sectors, in which companies commit to not generate negative impacts on forests and other strategic ecosystems.
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