5. Financing
This chapter examines how the reviewed Latin American countries finance the implementation of their biodiversity conservation strategies and action plans. It provides an overview of public budget allocations, private sector contributions and the role of international development assistance. It presents examples of conservation trust funds, which are commonly used in the reviewed countries.
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.
5.1. Introduction
The first CBD High-Level Panel report in 2012 estimated that between USD 150 billion and USD 440 billion per year would be required globally to meet the Aichi Biodiversity Targets by 2020. They also noted, however, that the benefits secured through implementing the Aichi Targets are likely to significantly outweigh costs (CBD High-Level Panel, 2014).
The overall trend in biodiversity financing in Latin America is upward, with most government budgets growing between 2000 and 2015. Countries such as Chile and Mexico have managed to increase rates of private revenue generation for protected area funding, and countries such as Brazil are expanding their use of biodiversity funds. International finance also remains important, with Latin America receiving more development assistance for biodiversity-related activities than other region. However, the five EPRs undertaken for Brazil, Chile, Colombia, Mexico and Peru show that overall financing remains inadequate to achieve country and regional biodiversity objectives. Protected area management, enforcement of existing environmental laws and ecosystem monitoring and reporting are particularly impacted by the lack of financial resources. While domestic public financing is essential to conservation efforts, revenue raised from protected area entrance fees and other economic instruments as well as international financing can also play an important role.
A 2010 study by the UNDP and The Nature Conservancy of the financial sustainability of Protected Areas in Latin America found a financing gap of USD 314 million per year just to meet basic management needs. More rigorous management would require USD 700 million per year. The study also cautioned that the situation could get worse, with growing funding needs to respond to pressures and increased commitments, and risks to financing that is not stable or secure. There is, however, considerable variability across countries in spending levels. For example, it was estimated that Chile, Peru and Brazil only have roughly half of their financial needs for protected areas covered (Bovarnick et al., 2010).
The Biodiversity Finance Initiative (Biofin), launched in 2012 by the UNDP, aims to support countries to define biodiversity finance needs and gaps through detailed national assessments. Brazil, Chile, Colombia, Mexico and Peru are all participating in the programme. The initiative provides a methodology to enable countries to measure their current biodiversity expenditures, assess their financial needs in the medium term and identify the most suitable finance solutions to bridge their national biodiversity finance gaps (Biofin, 2016).
5.2. Domestic public financing
Latin American countries continue to rely mainly on domestic public financing to implement biodiversity conservation strategies and action plans. While budgets have generally increased over the last 10-15 years, overall financing is not sufficient to attain stated biodiversity objectives. Most Latin American countries are spending under USD 5 per hectare of protected area, which is below spending by OECD peers such as Australia, Sweden and the United States (Figure 5.1). Costa Rica and Argentina are the exceptions. In addition to the total volume of funding, analysis about the breakdown of spending could help identify where funding gaps are largest, and better channel available resources to priority areas for action.
Source: Bovarnick et al. (2010), Financial Sustainability of Protected areas in Latin America and the Caribbean: Investment Policy Guidance; Mansourian and Dudley (2008), Public Funds to Protected Areas.
Chile has significantly increased financing for biodiversity from public resources, with the budget allocation growing by 176% between 2000 and 2014, slightly faster than total central government outlays for environmental protection (+174%) and more than the total government budget (+139%). Biodiversity accounted for the largest share of all estimated environmental protection expenditure in 2012 (28%) and 0.26% of the 2014 central government budget. However, Chile’s funding per hectare of protected area is among the lowest in Latin America (Figure 5.1). Building on the current USD 41 million per year, it is estimated that an additional USD 35 million per year would be needed to finance an improved protected area system with effective management and monitoring. Proposed legislation establishing a new Biodiversity and Protected Area Service includes a request for an increase in public financial resources to approximately USD 47 million per year. The proposed consolidation of previously fragmented agencies involved in biodiversity activities also has the potential to improve the efficiency and effectiveness of public spending (OECD/ECLAC, 2016).
In Peru, public funding for biodiversity rose by 500% between 2004 and 2010, but a study by the Universidad del Pacifico identified an annual shortfall of roughly USD 35 million. Increases in financing for environmental enforcement in Peru are, however, a positive development (Box 5.1).
Peru has strengthened environmental enforcement, through OEFA, the lead body in the National Environmental Assessment and Oversight System. OEFA supervises compliance with environmental regulations in four sector groupings: medium and large-scale mining; hydrocarbons and electricity; commercial fisheries and aquaculture; and the brewery, papermaking, cement and tannery industries.
The government increased the environmental enforcement budget from USD 16 million in 2012 to USD 71 million in 2015, and increased the maximum level of fines for noncompliance threefold. The additional financing allows for a significant increase in the direct auditing of firms, as well as supervision of other environmental enforcement entities.
Source: OECD/ECLAC (2017), Environmental Performance Review of Peru 2017.
While Brazil does not have comprehensive or consistent information on public and private biodiversity-related spending, federal budget outlays for biodiversity-related programmes grew by 50% in real terms between 2010 and 2014. The Chico Mendes Institute for Biodiversity Conservation (ICMBio) is the main institution for biodiversity-related programmes, and its budget increased by 57% between 2008 and 2014 (OECD, 2015).
Mexico increased expenditure on biodiversity from MXN 2.6 billion in 2001 to MXN 8.4 billion in 2009 (approximately USD 135 million to USD 446 million). The public sector is the greatest contributor to conservation projects, with one study estimating approximately 74% of funding for conservation projects came from public sources (OECD, 2013).
5.3. Private revenues
With public financing falling short of what is needed, it will be increasingly important for Latin American countries to maximise other sources of financing, including from the private sector and NGOs. Protected area entrance fees, licenses and fees for tourism and other activities in protected areas, permits for research, concessions, payment for ecosystem services programmes (Section 4.3), and instruments for private sector support are all used in Latin America, but there remains scope to increase the scale and coverage of these instruments.
Growth in nature-based tourism offers an opportunity to boost biodiversity financing in Latin America. In 2010, private revenues from protected areas (e.g. from access fees and concessions) represented only 10% of total protected area funds available in the region. Chile and Mexico have, however, managed to achieve rates above 25% (Bovarnick et al., 2010). In Brazil, only 17% of protected areas that could receive visitors generated revenue from public visitation. A lack of infrastructure and service capacity to collect fees is a significant barrier. Ten pilot public-private partnership agreements are planned in Brazilian national parks with high tourism potential to help expand the revenue-raising potential of protected areas (OECD, 2015).
Tourism fees are an area of opportunity to increase financing for biodiversity in Latin America. For example, Peru charges a fee of USD 10 000 to tourism companies operating in the Manu National Park (Bovarnick et al., 2010).
Administration contracts for protected areas are another way to leverage private financing. Peru has signed at least ten administration contracts with NGOs (sometimes associated with an academic institution) to partially or fully implement management plans on individual protected areas. Contractors often commit to secure and contribute at least the same level of resources as the government. Some have brought in as much as four times the government contribution (IBRD, 2012).
The private sector can provide financial support to supplement scarce public resources. In Brazil, energy companies OGX and MPX committed to support the national parks of Fernando de Noronha and Lençois Maranhenses with more than BRL 4 million each over 2012-18 (Funbio, 2014). In Mexico, an alliance between WWF, SEMARNAT and the Carlos Slim Foundation promised to mobilise USD 100 million to undertake actions that strengthen biodiversity conservation and sustainable development (OECD, 2013).
The private sector can also help finance biodiversity conservation in the form of public-private partnerships. In Brazil, such a partnership was used to support protected area management in what is known as The Lund Route – a hiking trail covering 24 km2 in three protected areas north of the Belo Horizonte metropolitan area. The partnership between a non-profit organisation – Semeia – and the state government of Minas Gerais, aims to increase tourism while improving conservation effectiveness. The initiative began with a bidding process offering a 30-year contract that makes the concessionaire responsible for all conservation activities, including fire control, species control and scientific research (OECD, 2015).
5.4. Biodiversity funds
Biodiversity funds (also referred to as conservation trust funds) can be an efficient tool to finance conservation initiatives, and provide a mechanism for international and private donors to contribute through pooling their resources. They are usually run by private or arms-length institutions entrusted with long-term endowments that support conservation programmes (IBRD, 2012).
The Latin America and the Caribbean Region have 22 conservation trust funds (CTFs) across 15 countries and one transboundary area. The CTFs support 660 protected areas, which include 455 public protected areas and 150 private. The funds invest in protected area equipment and infrastructure, establishment of councils and training, community participation programmes, scientific research and biodiversity monitoring. In general, CTFs have been successful in attracting financing and supporting important biodiversity initiatives. They have also spurred needed capacity building in the region, helping to innovate and share lessons learned (IBRD, 2012). The sources of funds for the CTFs vary, but international donor resources are the most important, followed by private donations, government budget resources and market mechanisms. A number of the funds are endowment funds, where only the interest earned is spent (IBRD, 2012). A significant advantage of CTFs is their independence from government, which provides flexibility and agility in operations and more long term stability in funding. The funds often include members of civil society and the private sector, as well as government officials, on governing boards (IBRD, 2012). However, disadvantages can include high administrative costs, exposure to market volatility, and possible loss of capital. Conditions for successful CTFs include the presence of a long-term fundraising strategy, local ownership over the choice and design of projects supported, widespread stakeholder and government support for biodiversity conservation, a solid legal and financial institutional framework in the country the fund operates in, and clear targets, monitoring and evaluation (Drutschinin and Ockenden, 2015).
The Network of Environmental Funds in Latin America and the Caribbean (RedLAC) was established in 1999 in order to create a system of learning, institutional strengthening, capacity building and co-operation across its 26 members in 16 countries. RedLAC administers a total of USD 328.7 million dedicated to protected areas (IBRD, 2012).
Brazil uses several budget and extra-budgetary funds contribute to financing biodiversity-related expenditure, such as the National Fund for the Environment, Protected Areas Fund, Atlantic Forest Restoration Fund and, most notably, the Amazon Fund – one of the first large-scale efforts to deliver performance-based-payment for greenhouse gas (GHG) emission reductions through forest conservation (Box 5.2). Part of the Amazon Fund is channelled through the Brazilian Biodiversity Fund (Funbio), a non-profit private organisation that raises and invests financial resources for biodiversity conservation, mostly in protected areas, on behalf of the federal and state governments.
The Mexican Fund for the Conservation of Nature was created in 1998, and uses 75% of the interest from its protected areas fund to support innovative and strategic projects implemented by local groups and civil society organisations (IBRD, 2012).
Colombia’s Colombia Heritage Fund brings together public and private partners to close the financial gap for the effective management of protected areas and to guarantee the long-term financial sustainability. Under the fund’s model, donors mobilise resources for immediate implementation of the required actions while the government commits to gradually increase the allocation of resources and implementation of actions to ensure the sustainability of the system in the long-term.
The Amazon Fund was created in 2008 with the objective to invest in forest conservation and sustainable use, deforestation prevention and monitoring, and to reduce greenhouse gas (GHG) emissions resulting from deforestation and forest degradation.
The Fund was originally based on a performance-based financing mechanism: Norway had committed up provide up to USD 1 billion over a five-year period for bringing GHG emissions from deforestation below a 10-year average. The agreement between Norway and Brazil stipulated that the donation would be made into the Amazon Fund, managed by the Brazilian Development Bank in co-ordination with the Ministry of Environment, and be invested in deforestation control as well as activities to promote the conservation and sustainable use of the Amazon biome.
The fund has a sound monitoring system and has been effective in securing resources for environmental projects, including international and private finance. Between 2009 and 2015, cumulative contributions amounted to USD 970 million, with 72 projects supported. Most funds come from international donors (mainly Norway), but also from companies. At least 80% of the fund’s investments are earmarked for the Amazon region and up to 20% can be invested in other Brazilian biomes or tropical countries.
Source: OECD (2015), OECD Environmental Performance Reviews: Brazil 2015.
5.5. International financing
International finance is an essential component of biodiversity financing in Latin America, with several international and regional organisations, and bilateral and multilateral agreements, funding conservation initiatives and capacity building throughout the region.
The Global Environment Facility (GEF) is one of the most important funders of biodiversity conservation efforts in Latin America. Biodiversity projects receive more funding from GEF than any other environmental issue in Latin America. Two major GEF-funded projects are the Amazon Region Protected Areas Program (ARPA), with USD 46 million from GEF and USD 121.5 million from other financing, and the Adaptation to the Impact of Rapid Glacier Retreat in the Tropical Andes programme, with USD 9 million from GEF and USD 25 million from other sources (GEF, 2013). The more recent Amazon Sustainable Landscapes Program aims to protect forests, promote sustainable land management and climate change mitigation actions in forest regions in Brazil, Colombia and Peru using USD 5 million from GEF and USD 20 million in co-financing (GEF, 2018).
The Inter-American Development Bank (IDB) began a Biodiversity and Ecosystem Services Programme in 2012 that aims to: integrate the value of biodiversity and ecosystem services into key economic sectors; protect priority regional ecosystems; support effective environmental governance and policy; and create new sustainable development business opportunities (IDB, 2015). For example, the IDB has provided USD 162.5 million for a project in Brazil aimed at the Serra do Mar and Atlantic Mosaics System socio-environmental recovery, including protection of São Paulo water sources (IDB, 2016).
International multilateral and bilateral co-operation and private corporate foundations will continue to be important sources of financing for biodiversity. For example, in the Amazon forest between 2007 and mid-2013, international funding amounted to USD 1.34 billion. Seven of the top donors were from countries and multi-lateral institutions engaged in development co-operation, two were private foundations and one was an international NGO (OECD, 2015). A debt for nature swap between the United States and Brazil has also helped to conserve vulnerable Atlantic coastal rainforest. In 2010, the two countries signed an agreement to convert USD 21 million of Brazilian debt into a fund to protect tropical ecosystems. The money is being used to conserve Atlantic coastal rainforest, as well as the Cerrado and Caatinga ecosystems. While the Atlantic forest once covered most of Brazil’s coastline, more than 90% has been cleared. The remaining forest supports significant biodiversity, including 200 bird species and 21 primates endemic to the area (BBC, 2010).
Bilateral official development assistance (ODA) commitments by members of the OECD Development Assistance Committee (DAC) to biodiversity to Latin America and the Caribbean averaged at USD 6.8 billion per year over 2013-15, rising from USD 3.2 billion per year over 2006-07 (at constant 2015 prices). It now represents about 6% of total ODA commitments (OECD, 2018). One of the reasons for the growth is that biodiversity considerations are increasingly being integrated into activities with other primary objectives, and there is growing interest in synergies between biodiversity and climate change actions.
Over 2011-15, seven of the top ten countries with the highest share of biodiversity-related finance in total ODA were located in Latin America and the Caribbean (OECD, 2018). Brazil was the world’s top receiving country in this period, with biodiversity-related ODA commitments reaching USD 270 per year (at constant 2015 prices); equal to more than a quarter of total ODA (OECD, 2018). ODA where biodiversity is a secondary, but significant, focus has grown and is now greater than ODA targeting biodiversity as a primary objective.
Note: For many countries less than half of the total ODA is screened against the Rio marker for biodiversity.
Source: OECD (2018), “Creditor Reporting System: Aid activities targeting Global Environmental Objectives”, OECD International Development Statistics (database).
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