USING ECONOMICS TO ATTACK BIODIVERSITY LOSS

USING ECONOMICS TO ATTACK BIODIVERSITY LOSS

by

Frank Vorhies

presented at a workshop on
Incentives for Biodiversity: Sharing Experiences
Montreal, Canada
30 August - 1 September 1996

Overview. The Convention on Biological Diversity mandates impact assessments of

policies, programmes, and projects by Contracting Parties in order to ensure that
environmental and particularly biodiversity consequences are considered. This workshop
examines the role of economics in designing procedures for Biodiversity Impact
Assessment (BIA). The author outlines a framework of seven steps for BIA: identify an
impact, establish the causes, determine the winners and losers of the impact, propose
mitigation, determine the winners and losers of mitigation, implement mitigation
measures, and monitor and evaluate. He recommends that the Conference of the Parties
call for the development of new procedures for BIA, support NGOs as providers of
independent economic information, and continue to seek new financing for biodiversity
conservation.

1. Introduction

In April 1996, an international expert group of ecologists and economists
met at IUCN headquarters in Switzerland to discuss the role of economics in
designing procedures for biodiversity impact assessment. The group took the
Convention of Biological Diversity as its mandate; in particular, the
declaration “that it is vital to anticipate, prevent and attack the causes of
significant reduction or loss of biological diversity at source.”

The workshop used a case-study approach, with presentations on
biodiversity loss in coral reefs, tropical forests, and savannahs. These studies
were complemented by papers on different perspectives on the economics of
biodiversity loss, ranging from the implications of macroeconomic policy to
the economic benefits of ecosystem services. The participants were then
divided into three thematic working groups to (1) review the case studies and
the use of economics, (2) provide advice on procedures for biodiversity
impact assessment, and (3) make recommendations to the Conference of the
Parties. This report presents the key insights and recommendations which
emerged from their deliberations.

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2. A Framework for Biodiversity Impact Assessment

Article 14 on Impact Assessment and Minimising Adverse Impacts calls on
Parties to “introduce appropriate procedures requiring environmental impact
assessment of . . . projects that are likely to have adverse effects on
biological diversity . . . [and] to ensure that the environmental consequences
of its programmes and policies that are likely to have significant adverse
impacts on biological diversity are duly taken into account.” Thus the expert
group considered a new framework for assessment of biodiversity loss or
threats to biodiversity which would incorporate economic analysis and the
use of economic tools.

In particular, the workshop focused on the appropriate role for economic
valuation and economic incentives in developing a framework for
biodiversity impact assessment. Economic valuation is a key component of
the obligations envisioned in Article 7 on Identification and Monitoring. It is
also on the agenda for the second meeting of the Subsidiary Body on
Science, Technology and Technological Advice (SBSTTA) taking place in
September 1996. Economic incentives are called for in Article 11 and are to
be discussed at the third meeting of the Conference of the Parties (COP) in
November 1996.

A new framework for biodiversity impact assessment could include the
following seven steps:

Step 1 : Identify an Impact on Biological Diversity.

As called for in Articles 7 and 14 on identification, monitoring and impact
assessment, we should start with a biophysical identification of a loss of or
threat to biodiversity.

Step 2: Establish the Causes of the Impact.

Once we identify a loss or a threat, we need to establish the proximate and
underlying causes of this impact on biodiversity. It is at this step that
economists and social scientists can begin to bring their skills to the impact
assessment. As stated explicitly in the Convention, the Parties are “concerned
that biological diversity is being significantly reduced by certain human
activities.” Thus we need to assess the impact of these activities.

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Step 3: Determine the Winners and the Losers of the Impact.

Within any process or project that is causing biodiversity loss or threatening
biodiversity, there will be both winners and losers. Some of these groups may
not even realise that they are winning or losing, while others may have
special interests either in maintaining the loss of biodiversity or in stopping it.
Thus there is a need for a stakeholder analysis to determine who is being
affected and how they are being affected.

In this step, economic valuation can play a useful role. Selected, targeted
valuation studies can help identify the degree to which some are benefiting
and others are losing from the impact. Such valuation studies would be
especially useful in identifying who would be affected by measures to rectify
the situation, and thus in identifying who might lobby to maintain the process
or project threatening biodiversity.

Step 4: Propose Mitigation Measures.

We would next need to design alternative packages of mitigation measures
which would ensure that the relevant human activities are made compatible
with the three objectives of the Convention. These objectives are
conservation, sustainable use, and benefit sharing. As explained in Article 11
on Incentive Measures, the Parties should “adopt economically and socially
sound measures that act as incentives for the conservation and sustainable
use of biological diversity.” The appropriate package of measures will, of
course, differ for each situation, and different combinations of measures will
be more or less successful in meeting the various biodiversity objectives. To
be effective, the design and selection of appropriate measures must take into
consideration the complex array of social, cultural, historical, political,
economic, geographical and ecological factors surrounding the biodiversity
impact under consideration.

Step 5: Determine the Winners and the Losers of the Mitigation.

Once a package of mitigatory incentive measures is put into place, it is quite
likely that there will be a new set of winners and losers. Thus the biodiversity
impact assessment should include a second round of stakeholder analyses to
identify who is likely to benefit and who is likely to lose from the various
alternative packages of measures. Here again, there is a role for economic
valuation to quantify the probable impact on winners and losers.

By comparing the impact scenario to alternative mitigation scenarios, we will
be able to determine who is likely to lobby in support of new measures and

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who is likely to lobby against them. In addition, such a comparison will
provide insights on the redistribution of benefits and costs, and thus on the
likely influence of the mitigation measures on the third biodiversity objective
– equitable sharing of the benefits. From this comparative analysis, the most
appropriate package of mitigatory incentive measures can be negotiated.

Step 6: Implement the Mitigation Measures.

The implementation of the mitigatory incentive measures may well occur at
various levels of government and over a lengthy time period, and involve
several economic sectors. Thus a detailed implementation strategy will also
need to be developed.

Step 7: Monitor and Evaluate.

Once a new package of mitigatory incentive measures has been put into
place, the situation needs to be monitored and evaluated to see if what was
intended is actually occurring. Given the complexities of ecological,
economic, social and political processes, it is quite probable that matters may
not turn out as expected. Thus feedback loops and windows for
renegotiation need to be built into the procedures for biodiversity impact
assessment to allow for revisions when necessary.

3. Advice to the Conference of the Parties

The expert group felt that it was vital for the Conference of the Parties to call
for the development of new procedures for biodiversity impact assessment.
Because of the underlying social, political and economic causes of
biodiversity loss, these procedures should include the use of economic
analysis and economic tools along the lines suggested above. In particular,
there is a crucial role for economic valuation and economic incentives in
assessing the distribution of benefits and costs and in designing appropriate
and effective mitigation measures.

As the Convention itself calls for public participation in biodiversity impact
assessment, the expert group recommended that the Conference of the
Parties support the role of non-governmental organisations as independent
sources of economic information and analysis.

Also, there needs to be mechanisms by which Parties can share and learn
from their experiences in biodiversity impact assessment and in the use of
economics for biodiversity. Such a “clearinghouse mechanism” is called for
in Articles 17 and 18 on information exchange and technical and scientific

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co-operation. Various intergovernmental and non-intergovernmental
institutions, such as UNEP and IUCN, can facilitate the much needed sharing
of experiences on procedures and measures for minimising adverse impacts
on biodiversity.

Finally, as called for in Article 20 on Financial Resources, there is a need for
the Conference of the Parties to continue to seek out new and additional
financing for biodiversity conservation, especially for developing countries.
Quite clearly, as acknowledged in the Convention, “substantial investments
are required to conserve biodiversity.” New investments need to be targeted
at attacking the underlying causes of biodiversity loss.

4. Invited Experts to the April 1996 Economics of
Biodiversity Loss Workshop

Michael Young KENYA
Senior Principal Research Scientist
CSIRO Division of Wildlife and Brian Heath
Ecology Wildlife Consultant
Canberra StockWatch Ltd
AUSTRALIA Nairobi
KENYA
Gregor Hodgson
Chief Environmental Scientist George Dyer
Binnie Consultants Ltd Environmental Economist
HONG KONG Ministry of Environment and Natural
Resources
Edmund Barrow Mexico, DF
Community Conservation Co- MEXICO
ordinator
African Wildlife Foundation Yves Renard
Nairobi Director
KENYA Caribbean Natural Resources
Institute
Lucy Emerton Vieux Fort
Resource Economist ST. LUCIA
GEF East African Biodiversity George Hughes
Project Chief Executive
Nairobi Natal Parks Board
KENYA Pietermaritzburg
SOUTH AFRICA
Anne-Marie Izac
Natural Resources Strategies Marcus Giger
Director Agricultural Economist
International Center for Research in University of Bern
Agroforestry Bern
Nairobi SWITZERLAND

http://economics.iucn.org (96-03-18) Philippe Zahner

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Agronomist Global Environment Facility
Swiss Development Cooperation Washington D.C.
Bern USA
SWITZERLAND Terry Anderson
Director
Alan Rodgers Political Economy Research Center
Chief Technical Adviser Bozeman, Montana
GEF East African Biodiversity USA
Project Herman Cesar
Dar es Salaam Environmental Economist
TANZANIA The World Bank
Washington, DC
Peter Howard USA
Nature Conservation Advisor
EU-financed Natural Forest Project UNEP Participants
Kampala
UGANDA Ivonne Higuero
Environment and Economics Officer
Yam Malla Sipi Jaakkola
Professor of Forestry European Biodiversity Officer
University of Reading Bernd Schanzenbecher
Reading Environment and Trade Officer
UK Deborah Vorhies
Environment and Trade Co-ordinator
Carlos Martin-Novella
Global Policies Development Officer 6
Royal Society for the Preservation of
Birds
Sandy, Bedfordshire
UK

Norman Myers
Environmental Consultant
Oxford
UK

Diane Osgood
Environmental Economist
London UK
Tim Swanson
Professor of Economics
Cambridge University
Cambridge
UK

Randall Kramer
Professor of Economics
Duke University
Durham, North Carolina
USA

Walter Lusigi
Senior Environmental Specialist

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WRI participants

Walt Reid
Vice-President

Robert Repetto
Senior Economist

IUCN participants

Zeba Ali
Pakistan Office Economics Officer

Jill Blockhus
Forest Programme Officer

Mersie Ejigu
Assistant Director General

Caroline Martinet
Biodiversity Programme Officer

Jeffrey McNeely
Chief Scientist

Magnus Ngoile
Marine Activities Co-ordinator

Frank Vorhies
Environmental Economist

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