Mainstreaming natural capital and ecosystem services into decisions. Why, how, and what? Juhern Kim Senior Land-use Specialist

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1 Module 4: Implementing Agenda 2030 for Prosperity and Planet: The Inclusive Green (April 24, 2017) Mainstreaming natural capital and ecosystem services into decisions Why, how, and what? Juhern Kim Senior Land-use Specialist This presentation does not necessarily represent an official view of the organization.

2 You cannot manage what you don t measure Sustainably manage forests, combat desertification, halt and reverse land degradation, halt biodiversity loss

3 Critical role of AFOLU sector in mitigation and adaptation, economic growth, and social inclusion GHGs emission Socio-economic implications Source: TEEB (2010) Source: IPCC (2014) Parties should take action to conserve and enhance, as appropriate, sinks and reservoirs of greenhouse gases as referred to in Article 4, paragraph 1(d), of the Convention, including forests. (Article 5, paragraph 1)

4 Threatened natural assets base due to four major drivers of human interventions Major drivers Source: Climate Focus analysis based on Hansen et al., 2013, updated on GFW 4

5 Growing economy with shrinking natural assets: how to level the playing field? The current status quo urges us to take an integrated approach (i.e. harmonizing agro expansion and preserving healthy/resilient ecosystem). Source: OECD 2011 (modified by GGGI)

6 Hidden benefits of ecosystem services: how to identify, demonstrate, and capture ES

7 Why natural capital has been neglected in mainstream decision making? Don t we need a five-capital model?

8 (1) Valuation of natural capital & ES will lead a better informed decision Understanding overall stocks of natural capital and monitoring stock changes is vital at a national level. (e.g. SEEA) Source: MAES analytical framework, European Commission (2013)

9 (1) Valuation of natural capital & ES will lead a better informed decision NC accounting Wealth Accounting and the Valuation of Ecosystem Services

10 (1) Valuation of natural capital & ES will lead a better informed decision monetary valuation Reference: Barbier (2007)

11 (2) Integrated planning/sustainable landscapes approach let gov ts make an optimal decision A landscape-level intervention promotes strategies that maximize productivity gains while encouraging sustainable management of natural assets/healthy ecosystem. (e.g. agroforestry; no cattle ranching in biological corridor) NATURE ZONE COMBINED ZONE ECONOMIC ZONE Source: Four Returns (2015) Ferwerda

12 (2) Integrated planning/sustainable landscapes approach let gov ts make an optimal decision Ultimately, it leads to sophisticated policy interventions and projects development with targeted investments in place.

13 (3) Market instruments addressing natural capital & ES are available policy options e.g. Wetland mitigation banking (United States) e.g. Biodiversity offset credits (NSW, Australia) e.g. To maintain ecosystem services (Costa Rica) e.g. Irrigation groups to upstream forest communities (Colombia, France, etc.) Reference: Hawkins (2011).

14 (3) Market instruments addressing natural capital & ES are available policy options PES is a policy scheme that provides financial flows for maintenance or enhancement of benefits provided by ecosystems. Reference: UK Department for Environment Food and Rural Affairs (2013).

15 (3) Case: Payment for ecosystem services in Costa Rica (conceptual framework) Costa Rica is a globally recognized champion of payment for ecosystem services (PES) program Pago por Servicios Ambientales (PSA). An innovative blend of economic and regulatory instruments providing financial incentives for ecosystem services that are not usually monetized and paid for in the traditional market. New sources of income for land management, restoration, conservation, and sustainable agricultural activities. Forest cover increased from 21% in 1987 to 54% in 2015

16 (3) Case: Payment for ecosystem services in Costa Rica (payment model) PES has been credited with helping Costa Rica to achieve conservation goals, and part of success has been due to willingness to get underway and to experiment Key results to date: More than 1M ha registered Approx. 6.5M trees planted in agroforestry systems Almost 16,000 families involved Over 136,000 ha of indigenous territories placed under PES 3.5% of fuel tax

17 (3) Case: Payment for ecosystem services in Costa Rica (payment model) Payment for the different PES modalities Natural Regeneration Payment amount per hectare: USD Disbursement period: 5 years Contract duration: 5 years Reforestation Payment amount per hectare: between USD 1, to USD 2, (depending on the species planted) Disbursement period: 5 years Contract duration: between10 and 16 years (depending on the species planted) Agroforestry Systems Payment amount per tree: USD 1.76 to USD 2.60 (depending on the species planted) Disbursement period: 3 years Contract duration: 5 years Source: Executive Decree Nº MINAE, 2015

18 (3) Case: Payment for ecosystem services in Costa Rica (payment model) Payment for the different PES modalities Forest Management Payment amount per hectare: USD Disbursement period: 5 years Contract duration: 5 years Forest Protection Water Resources Payment amount per hectare: USD Disbursement period: 5 years Contract duration: 5 years Conservation Gaps Payment amount per hectare: USD Disbursement period: 5 years Contract duration: 5 years Source: Executive Decree Nº MINAE, 2015 Others Payment amount per hectare: USD Disbursement period: 5 years Contract duration: 5 years

19 (3) Case: Payment for ecosystem services in Costa Rica (financing structure) The National Forestry Financing Fund manages approx. USD 400M dedicated to PES, but this highly depends on tax revenues, and it does not meet the demands Primary source of income comes from tax revenue Represents 61% of FONAFIFO s total budget from Represents 79% of FONAFIFO s total budget over the last five years. Fossil fuel tax (3.5%) is the main source of ordinary budget. Flow of water fee (Canon de Agua) increased from 0.3% in 2007 to 6% of the ordinary budget in recent years. However, only 42% of PES enrollment requests were accepted in 2015

20 (4) Private sector implication: The business-as-usual will threaten their business fundamentals. Source: TEEB for Business Coalition (2013)

21 (4) Private sector implication: private capital committed to conservation but not enough deals Private sector financing: More than USD 3.1bn of private capital remained on the table undisbursed in 2015, since investors did not find matured deals. Annual Private Capital Committed by Conservation Category ( ) Source: Ecosystem Marketplace 2016 Private capital flows to conservation investments totaled USD 8.2bn from 2004 to Investors committed more capital to conservation in 2014 and 2015 than in previous years on average USD 1.6bn

22 (4) Private sector implication: how do we increase bankability of projects in conservation sector? What are the business models for investment? o Returns from commodities production; e.g. Sustainable agricultural/forestry commodity production (with offtake agreements) o Non-production returns; e.g. performance-based (PES and offsets trading) and service-based (conservation via eco-tourism) Bankability: 1) market is thin; 2) certain business models require more concessional (grant) funding to help them incubate and scale; 3) offtake agreement is important. Returns from commodities production Non-production returns Source: USAID 2016

23 (4) Private sector implication changing landscape/ growing commitments from corporations Private sector engagement: The number of commitments (total and by commodity) to reduce deforestation risks in their supply chain of commodities and corporations that made any commitment increased rapidly. Changing model of corporation : e.g. Corporation 2020; B-Corp; EP&L; impact investing; etc.

24 Global Green Growth Institute (GGGI) GGGI became an international intergovernmental organization at Rio +20 on 20 June, 2012 Help govt. in green policy & planning Enable green investment flows * 27 member countries * Projects in 4 thematic areas and cross-cutting areas Share knowledge & develop capacity Thought leadership (research & advocacy)

25 GGGI s thematic approach Reduced deforestation/ forest degradation Bio-economy Payment for Ecosystem Services (PES) Mainstreaming green growth in a landscape level planning process Reduced deforestation and forest degradation through forest-based economies, contributing to climate change mitigation/adaptation and livelihood of local communities (e.g. REDD+) Innovation through bio-economy to meet food security and development goals in an environmentally sustainable and socially inclusive manner (e.g. climate-smart agriculture) Payment for ecosystem services by identifying policy/regulatory and market-based solutions for conserving or restoring ecosystems (e.g. PES scheme)

26 Takeaway What lessons or ideas have you learned today? What will you be bringing back to your workplace? Any questions?

27 Thank You Juhern Kim Senior Land-use Specialist Follow our Activities on Facebook and Twitter