Montenegro: the Economic Value of Biodiversity and Ecosystem Services Technical Report Lucy Emerton September 2013

GEF/UNDP PIMS 5024: National Biodiversity Planning to Support the Implementation of the CBD 2011-2020 Strategic Plan in Montenegro

Montenegro: the economic value of biodiversity and ecosystem services Technical Report Lucy Emerton September 2013

Table of Contents

1 INTRODUCTION: scope and content of the report ...... 1 Background to the assignment ...... 1 Aims and scope of the report ...... 1

2 BACKGROUND & CONTEXT: economic valuation and biodiversity planning ...... 2 Valuation and the CBD ...... 2 The status of biodiversity valuation in Montenegro ...... 3

3 IDENTIFYING & ASSESSING ECONOMIC LINKAGES: how economic activities depend and impact on biodiversity and ecosystem services ...... 4 Categorising and describing ecosystem services ...... 4 Economic linkages and indicators ...... 5 Key economic sectors and stakeholders that benefit from ecosystem services ...... 10 Ecosystem service providers and cost-bearers ...... 12 Economic trade-offs in managing and using ecosystem services...... 12

4 ESTIMATING & DEMONSTRATING BENEFITS AND COSTS: the economic value of biodiversity and ecosystem services ...... 14 Framing the economic model ...... 14 Assumptions and data sources ...... 16 The baseline economic value of biodiversity and ecosystem services ...... 19 Economic benefits and costs avoided over the NBSAP period 2011-20 ...... 19

5 APPLYING BIODIVERSITY VALUATION: potential targets and actions in the revised NBSAP ...... 21 How valuation can assist in meeting the CBD Strategic Goals and Aichi Biodiversity Targets ...... 21 Economic assessment of biodiversity values (in support of Aichi Targets 1 and 19) ...... 22 Formulation of methods and procedures for integrating biodiversity economic values into development planning and appraisal (in support of Aichi Targets 2, 3, 4 and 19) ...... 22 Ecosystem capital accounting (in support of Aichi Target 2 and 19) ...... 23 Strategic communication of biodiversity economic benefits and costs (in support of Aichi Targets 1 and 19, cross- cutting other Targets) ...... 23

REFERENCES ...... 24

List of Figures

Figure 1: Common International Classification of Ecosystem Services ...... 4 Figure 2: Ecosystem services and economic indicators for Montenegro ...... 6 Figure 3: Ecosystem services which have been valued ...... 14 Figure 4: Land cover and land use 2006 ...... 15 Figure 5: Contribution of different ecosystem services to 2011 baseline value ...... 19 Figure 6: Contribution of different ecosystem services to 2011-2020 value ...... 19 Figure 7: Annual values added and costs avoided from NBSAP 2011-2020 (€ million) ...... 20 Figure 8: Cumulative gains over the baseline to 2020 (€ million) ...... 20

List of Tables

Table 1: Economic linkages and values for key ecosystem services, sectors and stakeholders ...... 11 Table 2: Assumptions and data sources used in the economic model ...... 16 Table 3: Baseline 2011 economic value of biodiversity and ecosystem services (€ million) ...... 19 Table 4: Net present value of biodiversity and ecosystem services 2011-2020 (€ million) ...... 19

List of Acronyms

CBD Convention on Biological Diversity CICES Common International Classification of Ecosystem Services COP Conference of the Parties EPA Environmental Protection Agency EU European Union GEF Global Environment Facility MONSTAT Statistical Office of Montenegro NBSAP National Biodiversity Strategy and Action Plan PES Payments for ecosystem services TEEB The Economics of Ecosystems and Biodiversity UNDP United Nations Development Programme

1 INTRODUCTION: scope and content of the report Background to the assignment The UNDP/GEF/Government of Montenegro project “National Biodiversity Planning to Support the implementation of the CBD 2011-2020 Strategic Plan in Montenegro’’ aims to integrate the country’s obligations under the Convention on Biological Diversity (CBD) into its national development and sectoral planning frameworks through a renewed and participative biodiversity planning and strategizing process, in a manner that is in line with the global guidance contained in the CBD’s Strategic Plan for 2011-2020.

The current assignment is being carried out over a period of 25 days between June and October 2013. It seeks to identify and recommend appropriate economic information, approaches and tools to strengthen biodiversity planning, implementation and the achievement of national and global targets. In particular, it is envisaged to contribute to the following project outcome: Montenegro’s National Biodiversity Strategy and Action Plan (NBSAP) is revised/updated and it fully integrates new aspects of the CBD strategic plan, such as mainstreaming and anchoring the implementation of the plan into national development frameworks, valuing ecosystem services and promoting ecosystem-based adaptation and resilience.

As laid out in the terms of reference, the assignment focuses on three aspects of the economics of biodiversity:  Assessing and integrating ecosystem services through economic valuation;  Defining mechanisms to mainstream biodiversity into economic growth and development; and  Developing detailed guidance for the implementation of Payments for Ecosystem Services (PES).

Aims and scope of the report This report deals with the first of the topics listed above: the economic valuation of biodiversity and ecosystem services. According to the workplan and following the terms of reference for the assignment, the current document is intended to provide a “technical report on the economic value of biodiversity and ecosystem services”. Its aim is to identify, describe and assess the economic value of ecosystem services in Montenegro. The report is one of three being delivered under the assignment. The other two comprise: an inception report detailing the agreed workplan and reviewing initial findings on biodiversity economics in Montenegro; and recommendations on economic and financial mechanisms for biodiversity conservation and mainstreaming, including payments for ecosystem services.

The report contains five chapters:  Chapter 2 describes the role of economic valuation in biodiversity planning, including the current status of biodiversity valuation in Montenegro;  Chapter 3 identifies and assesses the key economic sectors and stakeholders that depend and impact on biodiversity and ecosystem services;  Chapter 4 presents a rough estimate of the economic value of biodiversity and ecosystem services; and  Chapter 5 identifies needs and niches to incorporate economic valuation into the revised NBSAP.

2 BACKGROUND & CONTEXT: economic valuation and biodiversity planning Valuation and the CBD Although not explicitly mentioned in the text of the Convention on Biological Diversity (CBD), the importance of economic valuation to biodiversity planning has been repeatedly underlined by the Conference of the Parties (COP) and is reflected in many CBD processes and programmes of work.

A note on the economic valuation of biodiversity was prepared by the Secretariat to the CBD as early as 1996, following up on decisions made at COP2 the previous year. It was subsequently included as an activity in the Convention's programme of work on incentive measures. In 2000, Decision V/15 on incentive measures called for the assessment of biodiversity values so as to enable them to be better internalised in public policy initiatives and private sector decisions.

By the time the “first round” of Biodiversity Country Studies and National Biodiversity Strategies and Action Plans were formulated in the late 1990s and early 2000s, economic valuation had come to be seen as a key step in biodiversity planning and implementation (Emerton 2001). Many countries conducted assessments of the economic value of biodiversity as part of NBSAP preparation, mainly as a means of helping to justify the importance of conservation, assisting in the development of financing strategies, and as a step in the process of designing incentives and other policy measures to support implementation.

Since then, valuation has been continued to be emphasised in CBD processes. In 2004, COP7 called for the exploration and compilation of existing methodologies for valuation. In 2008, the Conference of the Parties decided to put more emphasis on valuation as an important basis for public-awareness campaigns and policy action; this was reflected in Decision IX/11, which encouraged Parties and relevant organizations to intensify valuation efforts. Around this time, a number of documents were developed to provide further guidance on biodiversity valuation techniques (see, for example, SCBD 2007) and a database of case studies on valuation and incentive measures was compiled (see http://www.cbd.int/programmes/socio- eco/incentives/case-studies.aspx).

Consideration of biodiversity values is integral to the vision, mission and goals of the CBD Strategic Plan for Biodiversity 2011-2020 and the Aichi Biodiversity Targets. Goal A of the Strategic Plan and Aichi Targets 1 and 2 explicitly address the need to improve awareness of biodiversity values, to integrate them into national and local development and poverty reduction strategies and planning processes, and to incorporate them into national accounting and reporting systems.

Guidance prepared by the CBD in support of these targets underlines the need for countries to “appropriately value biodiversity” (SCBD 2012a,b). Further direction on the use of economic (sometimes also referred to as “monetary”) valuation has been provided in relation to the Aichi targets (Rode et al 2012), and in support of NBSAP preparation (UNEP-WCMC and IEEP 2012). The latter poses economic valuation as one of the “supporting approaches” for incorporating biodiversity and ecosystem service values into NBSAPs: as a key part of gathering information, identifying strategies and actions, and developing implementation and resource mobilisation plans. Economic valuation, it is suggested, can provide a means of helping to build the evidence base, strengthen political will, facilitate biodiversity mainstreaming and prepare the ground for sectoral implementation.

The status of biodiversity valuation in Montenegro The NBSAP for 2010-15 highlights that there is a critical shortage of information on national biodiversity values. It notes that “to date, there has not been any significant research of ecosystem services in Montenegro, of the relation between biodiversity and ecosystem services … or any kind of integrated approach for determining their values (monetary/economic or non-economic) …” and that the “contribution of biodiversity to the national economy has never been researched, and the basic information is either lacking or not publicly available”. The inception report prepared under this assignment has already reviewed the current national planning and policy context to biodiversity economics tools and approaches in Montenegro (Emerton 2013). It concludes that little or no information is currently available on the economic value of biodiversity and ecosystem services or the economic costs of their degradation and loss in Montenegro. Clearly, the information gap identified in the 2010 NBSAP are yet to be filled.

The inception report finds that economic contribution of biodiversity and ecosystem services and/or the risks that environmental degradation poses to economic growth and development is mentioned in almost all of Montenegro’s current national and sectoral development policies, strategies and plans. For example, the general principles of the National Forest and Forest Land Administration Policy of 2008 include the “value of resources”: while recognising the complexity of monetary valuation, the policy explicitly underlines its key role in priority setting, investment planning and benefit-sharing. The Energy Law of 2010 requires the consideration of environmental costs as a component of pricing, as reflected in the principles laid out in Article 18 for the determination of tariffs. There is also some recognition of the need to factor these costs and benefits into the calculations that are used to inform policy, planning and reporting. The 2012 document “Ecological State Montenegro +20” mentions a range of “policy and measures to create a favourable framework”, including the integration of ecosystem values into development policies and national accounts.

Yet, despite repeated references to the economic value of biodiversity and ecosystem services in government strategic documents and frameworks for growth, consideration remains largely qualitative. No sector or agency is engaged in generating quantitative measures or monetary estimates of the economic contribution of biodiversity to development and poverty reduction outcomes. As yet, neither environmental nor biodiversity valuation principles and approaches have been operationalized in the context of national, local or sectoral planning and reporting. The processes and guidelines laid out for investment appraisal, cost-benefit analysis, environmental impact assessment and strategic environmental assessment do not require the inclusion of environmental, biodiversity or ecosystem benefits and costs. As yet there is no regular collection of data, collation of statistics or reporting on biodiversity values, within or outside the system of national accounts.

Only three documents have been identified which make any attempt to value Montenegro’s biodiversity and ecosystem services in economic or monetary terms: a study carried out by WWF in 2005 on the value of the Tara River (Mrdak 2005), a review undertaken by Arcadis Ecolas and IEEP in 2007 on the benefits of compliance with the EU environmental acquis (Ten Brink et al 2007), and work conducted by UNDP/ISSP in 2011 on the value of protected areas (Emerton et al 2011). One workshop presentation was also located, titled “putting a price tag on the Multi-Functional Use of Eco-System Services: The case of Morača River and Skadar Lake in Montenegro” (Arends 2011), but does not appear to have been written up.

The current document makes a first, illustrative, attempt to assess the national value of Montenegro’s biodiversity and ecosystem services.

3 IDENTIFYING & ASSESSING ECONOMIC LINKAGES: how economic activities depend and impact on biodiversity and ecosystem services Categorising and describing ecosystem services In order to be able to identify and describe the links between biodiversity, ecosystems and the economy, it is first of all necessary to have a clear idea of the types and levels of ecosystems and ecosystem services that exist. Unfortunately, no mapping of ecosystem services has been carried out in Montenegro. It has therefore been necessary to assess ecosystem services as part of the current assignment. It should however be emphasised that this can only be a very rough and preliminary scoping, based on limited and incomplete data. It is to be hoped that a more comprehensive and better-informed ecosystem mapping and assessment exercise will be included as a key action in the NBSAP that is currently under development.

Figure 1: Common International Classification of Ecosystem Services

Source: Adapted from MAES et al 2013, http://cices.eu/wp-content/uploads/2012/07/CICES-V4-3-_-17-01-13.xlsx

The Common International Classification of Ecosystem Services (CICES) is used to categorise and describe ecosystem services in Montenegro. The CICES framework is currently being developed under the auspices of the European Environment Agency, in response to Action 5 of the EU Biodiversity Strategy to 2020 (which requires Member States to “map and assess the state of ecosystems and their services in their national territory by 2014, assess the economic value of such services, and promote the integration of these values into accounting and reporting systems at EU and national level by 2020”).

CICES is a hierarchical classification system organised around five levels (Figure 1, Maes et al 2013). At the highest level are the three sections of provisioning, regulating and maintenance, and cultural services; below are nested eight divisions representing the main types of output or services; under these are twenty service groups organised according to biological, physical or cultural types or processes; each of these group categories is sub-divided into forty eight service classes of biological or material outputs and biophysical and cultural processes; each class can then be broken down further into individual entities or class types, which allows for associated ecosystem service outputs to be measured via various indicators.

CICES is considered to be particularly appropriate to the current assignment for three reasons:  First, it has been specifically designed to assist in integrating the economic value of ecosystem services into accounting and reporting systems, including the valuation of ecosystem services for baseline and contrasting scenarios. Ecosystem service valuation, including an indicative partial estimate of the potential economic gains arising from the implementation of the CBD 2011-2020 Strategic Plan in Montenegro, is the focus of this report;  Second, it forms a component of the analytical framework that is being developed to assist in carrying out the ecosystem assessments that are called for in the EU Biodiversity Strategy to 2020. This should ensure that the results of the current assignment are consistent with the analytical frameworks that is being used by the EU and Member Countries and that will, presumably, be adopted for any future ecosystem service assessment and valuation work to be rolled out under Montenegro’s NBSAP; and  Third, it cross-references and harmonises with the two other most well-known and commonly-applied international classification systems for ecosystem services – those laid out in the Millennium Ecosystem Assessment (MEA 2005) and The Economics of Ecosystems and Biodiversity (TEEB 2008, 2010). It also links to the UN System of Environmental-Economic Accounts, which is currently being revised to incorporate ecosystem (capital) accounts and is being piloted via an experimental framework for ecosystem capital accounting in Europe (EEA 2011). CICES can therefore be seen as a methodology that builds on current international best practice in the analysis and valuation of ecosystem services, adapted to the specific demands and needs of the CBD Strategic Plan.

Economic linkages and indicators Applying the CICES classification and framework to Montenegro shows that a large number of sectors and stakeholders depend, directly or indirectly, on biodiversity and ecosystem services (Figure 2). Although quantitative information is lacking for several class components (most notably under the regulation, maintenance and cultural sections), it is possible to identify a wide variety of indicators which provide a means of measuring ecosystem service outputs in economic terms.

This preliminary scoping makes it clear that maintaining ecosystem capital stocks is essential to ensure the continued production of the flows of ecosystem services that benefit the Montenegrin economy. There are few sectors of the economy or members of the population that do not rely on ecosystem services for their production, consumption, income, employment or wellbeing.

Figure 2: Ecosystem services and economic indicators for Montenegro Section, Class Component Economic indicators (class type) Division, Group Provisioning Nutrition Around 2,500 ha of gardens, 4,000 ha of arable farms, 2,500 ha of vineyards and 1,500 ha of Cereals, vegetables, fruits and nuts consumed in raw orchards are cultivated (MONSTAT 2011b), yielding 16,000 tonnes of cereals, 40,000 tonnes of Cultivated crops and processed/ preserved forms fruit, 260,000 tonnes of vegetables and 40,000 tonnes of grapes a year. 450,000 litres of grape brandy, 6,000 litres of wine and 1,250 tonnes of juices a year are processed from fruits. More than 32,000 farms breed almost 118,000 livestock units, including cattle, horses, goats, Reared animals and Meat, dairy products and honey consumed in raw and sheep, pigs, poultry, rabbits and beehives (MONSTAT 2011c), yielding around 155 million litres of their outputs processed/ preserved forms milk, 68 million eggs, 554 tonnes of honey and 92,000 animals for slaughter a year. 1,400 tonnes of Biomass fresh meat, 2,300 of delicatessen and 3,300 tonnes of sausages are processed (MONSTAT 2012a) Wild plants, algae and Wild fruits, vegetables, nuts and mushrooms No data are available on number of users or quantity of harvest their outputs consumed in raw and processed/ preserved forms Freshwater and marine capture fisheries (including Wild animals and their crustaceans and molluscs), honey and game meat Around 800 tonnes of saltwater fish, cephalopods and crustaceans and 600 tonnes of freshwater outputs harvested from the wild, consumed in raw and fish are caught each year processed/ preserved forms Around 1 million ha of hunting grounds and 6,000 hunters are registered; 500 wild boar, 600 Animals from in-situ partridges and 200 pheasants a year are hunted (MONSTAT 2012a) Freshwater and marine aquaculture aquaculture Surface water for Abstracted surface water from rivers, lakes and other Around 2.5 million m3 of water is extracted from surface water sources for public water supply drinking open water bodies used for drinking schemes each year Almost 3 billion m3 of surface water is used by industries each year from private surface water supplies Just over 5,000 ha of agricultural land is irrigated on 12,500 holdings, 72% of these holdings use surface water sources (MONSTAT 2011b) or an equivalent of 59,000 m3 a year (MONSTAT 2012a) Around 88.5 million m3 of water is extracted from groundwater sources for public water supply schemes each year Water Ground water for 3 Abstracted groundwater used for drinking Around 10 million m of groundwater is used by industries each year from private surface water drinking supplies Just over 5,000 ha of agricultural land is irrigated on 12,500 holdings, 28% of these holdings use groundwater sources (MONSTAT 2011b) or an equivalent of 1.7 million m3 a year (MONSTAT 2012a) Large hydropower facilities with an installed capacity of 650 MW and annual production of around 1,650 GWh utilise between 2.5-4.6 billion m3 of water a year (MSPE 2010c); around 20 GWh a year is generated from small hydropower plants Materials Around 230,000 sheep and goats are kept (MONSTAT 2011c), yielding around 275 tonnes of wool Fibres and other a year. Processed and unprocessed extracts/ materials from materials from plants, 3 3 3 fibres, wood, timber, flowers, skin, bones, sponges, Almost 200,000 m of industrial sawlogs, 7,500 m of lumber and 47,500 m of pulpwood are algae and animals for Biomass algae and other plant and animal products harvested per year from around 630,000 ha of state and private forests and farms, producing direct use or processing 66,000 m3 of sawntimber, 2,500 doors, 1,000 closets and 1,176 tonnes of cardboard containers (MONSTAT 2012a) Materials from plants, Plant, algae and animal material for fodder and More than 43,000 agricultural holdings contain over 210,000 ha of perennial meadows and pasture

algae and animals for fertilizer in agriculture and aquaculture and just under 1,000 ha of fodder plants, yielding around 250,000 tonnes of fodder crops a year. agricultural use (MONSTAT 2011b) Genetic material (DNA) from wild plants, algae and Genetic materials from animals for biochemical industrial and pharmaceutical No data are available all biota processes e.g. medicines, fermentation, detoxification; bio-prospecting activities Abstracted surface water from rivers, lakes and other Surface water for non- open water bodies used for domestic use (washing, drinking purposes cleaning and other non-drinking use), irrigation, Water livestock and industrial uses See above Abstracted groundwater used for domestic use Ground water for non- (washing, cleaning and other non-drinking use), drinking purposes irrigation, livestock and industrial uses Energy More than 150,000 m3 of fuelwood is harvested from around 630,000 ha of state and private forests and farms a year Wood fuel, straw, energy plants, crops and algae for Just over 130,000 families consume an estimated 700,000 m3 of firewood, 950 tonnes of charcoal, Plant-based resources 3 Biomass-based burning and energy production 40,000 m of wood residues and 750 tonnes of wood briquettes and pellets a year; commercial and 3 3 energy institutional use comprises 30,000 m of firewood, 100 tonnes of charcoal, 56,000 m of wood residues and 65 tonnes of wood briquettes and pellets (MONSTAT 2013) Dung, fat, oils, cadavers from land, water and marine More than 3,500 farms utilise around 40,000 tonnes of solid dung or liquid manure sourced from Animal-based resources animals for burning and energy production animals a year, spread over a farm area of around 9,000 ha; (MONSTAT 20011c) Mechanical Physical labour and draught power provided by Animal-based energy Almost 4,000 horses and 600 donkeys/mules are kept (MONSTAT 2011c) energy animals Regulation and Maintenance Mediation of waste, toxics and other nuisances Bio-chemical detoxification/ decomposition/ mineralisation in land/ soil, freshwater and marine Bio-remediation by systems including sediments; decomposition/ micro-organisms, algae, detoxification of waste and toxic materials e.g. waste plants, and animals Mediation by water cleaning, degrading oil spills by marine bacteria, biota (phyto)degradation, (rhizo)degradation Filtration/sequestration/s Biological filtration/ sequestration/ storage/ torage/accumulation by accumulation of pollutants in land/ soil, freshwater and micro-organisms, algae, marine biota, adsorption and binding of heavy metals In the northern and central regions, about 60 % of the population lacks connection to a central plants, and animals and organic compounds in biota sewage system and in the coastal zone on average 35% of households lack a connection; five Bio-physicochemical filtration / sequestration/ storage/ rivers situated close to big cities and heavy industries are considered heavily polluted accumulation of pollutants in land/ soil, freshwater and Filtration/sequestration/s 3 marine ecosystems, including sediments; adsorption More than 22 million m a year of untreated wastewaters are discharged into the environment from torage/accumulation by 3 and binding of heavy metals and organic compounds settlements, and 14 million m from industries (MONSTAT 2012b) ecosystems in ecosystems (combination of biotic and abiotic Mediation by factors) ecosystems Dilution by atmosphere, Bio-physico-chemical dilution of gases, fluids and solid freshwater and marine waste, wastewater in atmosphere, lakes, rivers, sea ecosystems and sediments Mediation of Visual screening of transport corridors e.g. by trees; smell/noise/visual Green infrastructure to reduce noise and smells impacts

Mediation of flows Erosion / landslide / gravity flow protection; vegetation cover protecting/ stabilising terrestrial, coastal and Mass stabilisation and marine ecosystems, coastal wetlands, dunes; control of erosion rates vegetation on slopes also preventing avalanches (snow, rock), erosion protection of coasts and Mass flows Steep slopes and other areas are highly prone to erosion, and 24,500 ha of farming and urbanized sediments by mangroves, sea grass, macroalgae, etc. land is at risk of flooding (MED 2007b) Buffering and Transport and storage of sediment by rivers, lakes, Forested and vegetated slopes in mountainous areas provide important watershed protection attenuation of mass sea functions, and wetlands also play a key role in flood attenuation (MSPE 2010c). More than 50, 000 flows ha of forest is designated for protection of soil and water (FAO 2010) Capacity of maintaining baseline flows for water supply Hydrological cycle and and discharge; e.g. fostering groundwater; recharge by Climate change projections suggest that there will be a sharp increase in variability of river flow, water flow maintenance appropriate land coverage that captures effective characterized by both flooding and hydrological drought (MSPE 2010c); much of Montenegro’s rainfall; includes drought and water scarcity aspects. human settlements and infrastructure is situated in high risk areas (WMO and UNDP 2011) Liquid flows Flood protection by appropriate land coverage; coastal flood prevention by mangroves, sea grass, Flood protection macroalgae, etc. (supplementary to coastal protection by wetlands, dunes) Coastal erosion is impacting on pastures and arable land as well as settlements (MSPE 2007) Coastal forest and wetlands fulfils important shoreline and storm protection role (MSPE 2010c) Natural or planted vegetation that serves as shelter Storm protection Gaseous / air belts Climate change projections suggest that coastal flooding and storm surges will significantly increase flows (MSPE 2010c); much of Montenegro’s human settlements and infrastructure is situated in high risk areas (WMO 2011) Ventilation and Natural or planted vegetation that enables air No data are available transpiration ventilation Maintenance of physical, chemical, biological conditions

Lifecycle Pollination and seed Pollination by bees and other insects; seed dispersal Around a third of fruit, vegetable and fodder crop production depends partially or wholly on insect maintenance, dispersal by insects, birds and other animals pollination (calculated from Gallai and Vaissière 2009) habitat & gene Maintaining nursery Habitats for plant and animal nursery and reproduction Seagrass Posidonia oceanica and Cymodocea nodosa beds serve as nursery shelter areas for pool protection populations/ habitats e.g. seagrasses, microstructures of rivers etc. many larvae and juvenile forms of marine fauna (MSPE 2010b) Pest and disease control including invasive alien Pest control No data are available Pest & disease species control In cultivated and natural ecosystems and human Disease control No data are available populations Maintenance of bio-geochemical conditions of soils including fertility, nutrient storage, or soil structure; Weathering processes includes biological, chemical, physical weathering and Soil formation & pedogenesis No data are available composition Maintenance of bio-geochemical conditions of soils by Decomposition and decomposition/ mineralisation of dead organic fixing processes material, nitrification, denitrification etc.), N-fixing and other bio-geochemical processes; Maintenance / buffering of chemical composition of Chemical condition of freshwater column and sediment to ensure favourable Water freshwaters living conditions for biota e.g. by denitrification, re- No data are available conditions mobilisation/ re-mineralisation of phosphorous, etc. Chemical condition of Maintenance / buffering of chemical composition of

salt waters seawater column and sediment to ensure favourable living conditions for biota e.g. by denitrification, re- mobilisation/ re-mineralisation of phosphorous, etc. Global climate regulation Global climate regulation by greenhouse gas/ carbon by reduction of sequestration by terrestrial ecosystems, water columns Almost 25 million tonnes carbon stock in above-ground forest biomass, 8.6 million tonnes in below- Atmospheric greenhouse gas and sediments and their biota; transport of carbon into ground biomass and 5.4 million tonnes in dead wood (FAO 2010) composition & concentrations oceans etc. climate Modifying temperature, humidity, wind fields; regulation Micro and regional maintenance of rural and urban climate and air quality No data are available climate regulation and regional precipitation/ temperature patterns Cultural Physical and intellectual interactions Experiential use of More than 1.3 million foreign tourists a year spend more than 8 million bednights in Montenegro plants, animals and In-situ plant, animal and bird watching Coastal resorts account for around 90% of visitors and 95% of bednights (MONSTAT 2012a) land-/seascapes Around 300,000 visits are made to National Parks each year (ISSP 2011, Emerton et al 2011) Physical & Around 350 cruise ships with almost 250,000 passengers and 3,000 foreign leisure vessels with experiential 14,500 passengers visit Montenegrin waters each year for tourism and recreation purposes interactions Physical use of land- Walking, hiking, climbing, boating, leisure fishing and Around 1 million ha of hunting grounds and 6,000 hunters are registered; 70 wolves, 1,000 foxes, /seascapes hunting 2,200 hares, 500 wild boar, 600 patridges and 200 pheasants a year are hunted (MONSTAT 2012a) More than 1,000 sport fishing permits are issued each year for use in National Parks Almost 10,000 tourists a year participate in whitewater rafting Subject matter for research both on location and via Scientific other media Subject matter of education both on location and via Educational Intellectual & other media representative Historic records, cultural heritage e.g. preserved in No data are available Heritage, cultural interactions water bodies and soils Ex-situ viewing/ experience of natural world through Entertainment different media Aesthetic Sense of place, artistic representations of nature Spiritual, symbolic and other interactions Spiritual &/or Symbolic Emblematic plants and animals emblematic Sacred and/or religious Spiritual, ritual identity Enjoyment provided by wild species, wilderness, Existence ecosystems, land-/ seascapes No data are available Other cultural Willingness to preserve plants, animals, ecosystems, outputs Bequest land-/ seascapes for the experience and use of future generations; moral/ ethical perspective or belief

Key economic sectors and stakeholders that benefit from ecosystem services Applying the CICES framework allows for a comprehensive overview to be made of ecosystem services and ecosystem service beneficiaries in Montenegro. These economic linkages can now be traced through by looking in more detail at some of the most important services, sectors and stakeholders. In particular, it is possible to highlight the contribution of biodiversity and ecosystem services to seven of the key sectors which are emphasised as particular priorities in current development policy and/or seen as major areas of opportunity for future economic growth (MOF 2011, 2013): tourism, agriculture, forestry, fisheries, water, energy and human settlement/infrastructure. These sectors also play a major role in securing the basic livelihoods and economic wellbeing of much of Montenegro’s population. Chapter 4 will make some rough estimates of the economic value of these key ecosystem services.

As illustrated in Table 1, the critical point to emphasise is that Montenegro’s ecosystem services both generate benefits and help to avoid costs and losses. These effects are spread across the economy and human population. We can also single out the contribution that ecosystem services make to some of the most pressing concerns and cross-cutting issues in the national and sectoral development agendas, including poverty reduction, sustainable rural and urban livelihoods, disaster risk reduction and resilience and adaptation to climate change.

For example, biological resources and ecosystem services directly provide a source of income and employment. This includes almost 50,000 family farms and 50 agricultural enterprises that together employ the equivalent of 47,000 full-time workers (MONSTAT 2011e), the 500 or so people that are employed in forestry and fisheries activities (MONSTAT 2012a), and the estimated 25,000 jobs that are directly or indirectly generated by the tourism sector (WTTC 2011a). They also provide the inputs that enable production and consumption in these sectors. This includes both the raw materials for industry and manufacturing that come from biological resources (for example the approximately 1,400 tonnes of fish and 0.5 million m3 of wood that are harvested each year) as well as the natural and cultural landscapes that enable economic activity (for instance those that attract the almost 1.5 million domestic and international tourists that come to enjoy the country’s rich heritage each year).

Table 1 also illustrates how biodiversity and ecosystem services have an economic impact that extends to a far broader range of sectors and beneficiaries than just the consumers of biological resources. They protect the essential life support processes that enable and safeguard human settlement and production. In many cases, maintaining “natural infrastructure” provides a far cheaper and more cost-effective option than investing in the physical facilities and engineering works that is required to replicate these services, or to avoid, mitigate and remediate the effects of their loss. Examples include the 1,300 GWh a year of hydropower production and more than 100 million m3 of water supply that depends on forest watershed protection, as well as the 15,500 tonnes of crops that are pollinated by wild insects and 1,400 tonnes of fish catch that rely on natural habitats for their productivity.

Ecosystems also play a key role in reducing vulnerability to the effects of natural disasters and strengthening resilience to climate change. Floods and landslides already rank among the major natural hazards facing Montenegro (RMSI 2008). Almost 25,000 hectares of farmland and settlements are at risk of flooding, and many low-lying coastal areas regularly face damage from storms and tidal surges (MED 2007a). The climate scenario to 2100 suggests that flood waves will become more common, and affect progressively larger areas as a result of the increased intensity of rainfall and sea level rise (MSPE 2010c).

Table 1: Economic linkages and values for key ecosystem services, sectors and stakeholders

Services Key beneficiary sectors and user groups Major economic values and linkages  Income from sales of primary products Agriculture  Income and value-added from processed products and trade Farmers, fishers and primary harvesters Provision of  Reduced expenditures from own produced/collected foods cultivated & wild Food processing industry  Earnings from employment in food production, processing and trade foods Wholesale and retail traders  Foreign exchange earnings from raw and processed exports Rural and urban consumers  Public revenues from taxes, charges and fees Forestry, Energy  Income from sales of timber, lumber, pulp and woodfuel Private/farm forest owners  Income and value-added from processed products and trade State forest enterprises Provision of wood-  Reduced expenditures from own produced/collected products Forest concessionaires based biomass &  Earnings from employment in harvesting, processing and marketing Sawmilling and wood processing industry energy industries Wood products, pulp and paper  Foreign exchange earnings from raw and processed exports manufacturing industry  Public revenues from taxes, charges and fees Woodfuel consumers Pollination and Agriculture  Enhanced income from sustained crop productivity seed dispersal Crop farmers  Reduced expenditures on artificial pollination and seeding Maintenance of nursery Fisheries  Enhanced income from sustained catch and productivity populations/ Fishers  Reduced expenditures on breeding stock habitats

Maintenance of on- Agriculture:  Enhanced income from sustained crop productivity farm soil structure & fertility Farmers  Reduced expenditures on artificial fertilisers Tourism, Agriculture, Forestry, Fisheries, Water, Energy, Human Settlement  Income from water sales Domestic water consumers  Income from production using water as an input Regulation of Irrigated agricultural producers  Reduced expenditures from using own water sources inland waterflow Livestock producers  Avoided water shortage impacts and costs of alternative supplies and quality Large/small-scale hydropower facilities  Reduced costs of water treatment, dredging and desilting Other industries  Savings on breakages and repairs to equipment and machinery Water supply utilities  Prolonging of dam and reservoir lifetime and productive capacity Electricity utilities Control of  Avoided damages to houses, fields, infrastructure and other assets landslides and Tourism, Agriculture, Forestry, Fisheries, and installations floods Water, Energy, Human Settlement  Avoided loss of income from reduced production and output Protection against Urban and rural dwellers  Avoided costs of displacement of human population coastal erosion, Farmers and fishers  Avoided clean-up and remediation costs storms and tidal Urban and rural infrastructure  Avoided costs of constructing and maintaining artificial infrastructure surges to mitigate or protect against hazards and disasters Tourism, Agriculture, Forestry, Fisheries,  Avoided costs of climate change and variability Carbon Water, Energy, Human Settlement  Mitigation value of carbon sink sequestration Local, national and global community  Carbon trading-related earnings and revenues Tourism, Agriculture, Forestry, Fisheries, Water, Energy, Human Settlement  Enhanced income from sustained productivity and production Urban and rural dwellers opportunities Regulation of Farmers and fishers  Avoided loss of income from reduced production and output microclimate Forestry, tourism, energy and water  Avoided expenditures on mitigating or remediating temperature enterprises extremes, including reduced costs of energy Tourists and recreational visitors  Avoided costs of displacement of human population and production Urban and rural dwellers Wild species of  Income from tourism activities conservation or  Income and value-added from secondary/support industries cultural concern  Earnings from employment in tourism and secondary/support Tourism, Human Settlement Landscape of industries Tourists and recreational visitors conservation,  Visitor utility and enjoyment aesthetic or Tourism service industry  Enhanced property values and prices heritage Urban and rural dwellers significance  Enhanced investment in facilities, services and infrastructure Recreation &  Foreign exchange earnings tourism  Public revenues from taxes, charges and fees

Ecosystem service providers and cost-bearers The provision of ecosystem services is not cost-free. Obviously, various groups incur direct expenditures to manage and conserve biodiversity and ecosystems. These encompass the staffing, equipment and other physical expenditures that are needed to undertake on-the-ground conservation activities, and to maintain the institutional structures that are required to coordinate biodiversity management, policy formulation, law development and enforcement.

The main direct cost-bearers are the government agencies and public enterprises that are charged with environmental protection and conservation in Montenegro: most notably the Ministry of Sustainable Development and Tourism, Public Enterprise National Parks of Montenegro, Nature Protection Institute and Environmental Protection Agency. Some allocations for biodiversity and ecosystem conservation are also incorporated into the budgets of other public sector agencies, for example the Ministry of Agriculture and Rural Development and local government authorities. The main sources of funding are the public budget and self-generated revenues, with limited contributions being made by overseas donors, non- governmental organisations, the private sector and the general public. A recent report for example found annual investments in Protected Areas to be approximately €2 million a year, or an average of €1,800/km2; just under half of this comes from the central budget, with the balance funded through reinvested revenues (ISSP 2011, Emerton et al 2011).

There are also opportunity costs implied by the maintenance of natural ecosystems to generate services. Opportunity costs comprise the income, production and other outputs from alternative activities that are diminished or foregone by choosing to protect and sustainably utilise biodiversity and ecosystems (rather than to develop, convert or manage them for other purposes). This includes the opportunity costs that are incurred when achieving trade-offs between different ecosystem services: for example choosing between food production, timber harvesting, recreation, biodiversity conservation and carbon sequestration.

Although some preliminary efforts have been made to calculate the monetary value of the opportunity costs that are implied by different ecosystem service trade-offs in other Central and Eastern European countries (see Ruijs et al 2013), no estimate is available of the opportunity costs of biodiversity conservation in Montenegro. While, at a macro-level, the government and overall Montenegrin economy bears the main opportunity costs of development activities foregone, the bulk of the day-to-day costs associated with choosing between different ecosystem management and service provision options are incurred to private land and resource users.

Economic trade-offs in managing and using ecosystem services The key point to note is that costs and benefits of biodiversity conservation and ecosystem service generation are not distributed equally between different groups and sectors in the Montenegrin economy. Those that depend and impact most on biodiversity and ecosystem services do not always share in or contribute towards conservation and management expenditures, and those that bear the direct and opportunity costs often receive a disproportionately small share of the economic benefits and values generated.

Many of the economic values associated with Montenegro’s biodiversity and ecosystem services currently remain “uncaptured”: no mechanisms exist for charging the sectors and stakeholders that benefit from them, or for ensuring that users share in the costs of their provision. One example is the watershed protection services generated by natural forests: while these generate considerable economic value-added and cost savings to domestic and industrial consumers, hydropower facilities and water utility companies,

they are effectively provided free to beneficiaries and users. Similar conclusions can be drawn in relation to the dependence of the tourism sector on natural landscapes and protected areas, or the costs avoided to urban populations and infrastructure as a result of the flood and landslide protection functions provided by forests and wetlands.

The net result is that many of the costs of biodiversity and ecosystem conservation continue to be uncompensated or remain unmet. Both finance and incentives for conservation are weak. The institutions that are responsible for meeting the direct costs of conservation face critical funding gaps and budget shortfalls. For example, the income earned from Montenegro’s Protected Areas is equivalent to only around 15% of projected funding needs, and current budgets are estimated to be less than half of what is required for effective conservation management (Emerton et al 2011, ISSP 2011). At the same time, the provision of economically valuable ecosystem services goes largely unrewarded, meaning that land and resource users have few incentives for biodiversity conservation and sustainable use. While it is possible to earn considerable income from activities which involve converting, degrading or over-exploiting natural resources and habitats, there remain few market or business opportunities associated with ecosystem conservation or sustainable use. This is even though the concepts of “user pays” and “polluter pays” are both well-established in Montenegro’s national and sectoral development policies, strategies and plans.

This is neither equitable nor efficient. The fundamental need is to look to mechanisms which can better capture ecosystem values, compensate conservation costs and reward conservation actions. The third report to be produced under this assignment will review some of the mechanisms and policy instruments that can be used to address these market and price failures, and can be included in the NBSAP.

4 ESTIMATING & DEMONSTRATING BENEFITS AND COSTS: the economic value of biodiversity and ecosystem services Framing the economic model It is possible to make some estimate of value some of the key ecosystem services, sectors and stakeholders that have been identified in Chapter 3. It must however be emphasised that the figures presented below are based on extremely rough and ready calculations and on very limited data.

There remains a critical lack of ecological, biological and other biophysical information, as well as economic and price data, relating to biodiversity and ecosystem services in Montenegro. Many of these figures have had to be approximated based on partial data from existing reports, which are often inconsistent between different sources, and are sometimes of questionable quality. As already mentioned above, no basic national assessment or mapping of ecosystem services has been carried out. No current or historical data are available on land use and land cover except at a very aggregated level. Neither has any systematic definition of future outlooks or scenarios for biodiversity and ecosystem services been developed.

Therefore the figures below, and the assumptions and projections upon which they are based, should be treated with caution. They must be seen as a broad estimate of the likely magnitude and trends in ecosystem values. It is to be hoped that a more comprehensive and better-informed programme of valuation will be included as a key action in the NBSAP that is currently under development. This chapter provides some preliminary estimates of what can be fleshed out properly once proper ecosystem assessments are undertaken and outlook scenarios developed.

The valuation exercise focuses on the Figure 3: Ecosystem services which have been valued economic benefits generated and costs avoided associated with developing and implementing the NBSAP, in line with the CBD Strategic Plan and Aichi Biodiversity Targets.

In other words, it looks at the value-added by the revised NBSAP to the Montenegrin economy to the year 2020, as compared to a 2011 baseline. This also represents the economic value that would be foregone by failing to implement the revised NBSAP.

The study focuses on the priority sectors and key ecosystem services that have been identified in Chapter 3. Available data permits eight of these categories of ecosystem service to be valued, comprising eighteen components (Figure 3).

Figure 4: Land cover and land use 2006

From: http://www.eea.europa.eu/data-and-maps/figures/corine-land-cover-2006-by-country-1 accessed 24 August 2013

Assumptions and data sources The main assumptions and data sources used in the economic model are summarised in Table 2, and explained further in the paragraphs below.

Table 2: Assumptions and data sources used in the economic model Ecosystem Data sources used to Assumptions of change Component Indicator service estimate values 2011-20 Value of marine pelagic and non- MONSTAT 2012a,b; Production values Marine & freshwater pelagic, cephalopods, crustaceans MONSTAT online increase by 2.5% a year, fisheries and freshwater capture fisheries = records based on projected GDP Value of wild harvesting and hive MONSTAT 2011a-e; growth, gains in Honey production on public and private 2012a,b; MONSTAT technology. productivity lands online records and market access, Wild foods & expansion of area fodder MONSTAT 2011a-e; Value of meadow and pasture (MAFWM 2006a,b, Natural fodder 2012a,b; MONSTAT production on private land 2008a,b; MOF 2011, online records 2013) Value of wild berries, herbs and Harvest rate increases by Non-timber forest Emerton et al 2011; mushrooms collected under licence 2% a year (Emerton et al products ISSP 2011 in protected areas 2011) Value of sawlogs, lumber and MONSTAT 2012a,b; Timber & fibre Harvest levels increase in pulpwood harvested from state and MONSTAT online Wood-based production line with rising demand biomass & private forests records from population growth energy Value of firewood, charcoal, wood (MFAWM 2008a; Woodfuel MONSTAT 2013 residues, briquettes and pellets MONSTAT 2008) Value added to cereals, oil crops, Production values Pollination & pulses, fruits, vegetables, roots and increase by 2.5% a year, Insect pollination of Gallai and Vaissière seed tubers, stimulant crops, sugar crops, based on projected GDP crops 2009 dispersal treenuts, fodder crops that are growth, gains in dependent on insect pollination technology. productivity and market access, Value-added to crop production in On-farm crop expansion of area areas prone to excessive, strong or productivity (MFAWM 2006a, 2008b; Maintenance middle erosion. of on-farm Dorren et al 2004; MOF 2011, 2013) soil structure Control of Off-site damage costs arising from MED 2007b & fertility downstream erosion of soil from farms in areas sedimentation & prone to excessive, strong or middle siltation erosion. Water retention, Avoided expenditures and damage Pagiola 1998; Getzner regulation and erosion costs in areas downstream of 2009; Ceroni 2007; Currently assumed to be control watershed forest and grasslands Ruijgrok et al 2006 functioning at 75% of Avoided expenditures and damage Ceroni 2007; Morris potential service value for costs in areas downstream of and Camino 2011; Watershed Flood control “average” mix of watershed forests, grasslands and Schuyt and Brander protection ecosystem types and freshwater wetlands 2004 quality, and to reach full Morris and Camino service value over model Avoided expenditures on water Regulation of water 2011; Ruijgrok et al period, also reflecting treatment in areas downstream of quality 2006; Schuyt and increased production in grasslands and freshwater wetlands Brander 2004 dependent sectors (MED Protection against 2007a,b, 2011; MAFWM coastal erosion 2006a, 2008b) Coastal Avoided damage costs in coastal Morris and Camino protection Protection against strip 2011 storms and tidal surges Carbon Mitigation of climate Avoided damage costs associated Ding; Nunes & sequestration variability and change with carbon stored in natural forest Teelucksingh 2011 Income to Protected Area authorities Tourism numbers Emerton et al 2011; and businesses from domestic and increase by 7% a year Leisure spending ISSP 2011; WTTC international recreational visitors to (MTE 2008; WTTC 2011a coastal and nature areas 2011b) Domestic and international Dumitras 2008; 2001; Visitor consumer Landscape & recreational visitors to coastal and Emerton et al 2011; surplus nature-based nature areas ISSP 2011 Real value increases by recreation Ceroni 2007; Dumitras 1% a year, reflecting 2008; 2001; Emerton improved biodiversity and Domestic and international Willingness to pay et al 2011; ISSP 2011; ecosystem status recreational visitors to protected for conservation Getzner 2009; (Emerton et al 2011) areas Spurgeon & Gallagher 2010

The valuation exercise focuses on the services provided by natural ecosystems and indigenous biodiversity only. It does not, for example, include the provisioning services associated with cultivated crops and domesticated livestock or with water use (although counts the contribution of ecosystem regulating and supporting services to these sectors). Future projections of value under the revised NBSAP include only those land and resource uses which are believed to be sustainable in ecological terms.

Costs and benefits reflect the gross value of production, and relate to the value of biological resources as raw materials (for example roundlogs and whole fish). The study thus focuses on primary producers and consumers, not on value-added through processing and the market chain. It is concerned with direct impacts. Economy-wide multipliers and indirect production, income and employment effects are not included. Input costs and intermediary consumption have not been netted out of the value estimates, and figures are not adjusted for the impacts of subsidies and other price distortions.

Land use and land cover Although a 2006 land cover map for Montenegro is available, showing the forty four Corine land cover classes (Figure 4), there are no current or historical data on the area under different vegetation classes and land uses. Basic figures on areas under aggregated land use categories are taken from the Spatial Plan (MED 2007b). These are further broken down into different types of croplands, grasslands and wetlands from data presented in the Agricultural Census (MONSTAT 2011a-e), Statistical Yearbook (MONSTAT 2012a) and Montenegro in Figures (MONSTAT 2012b), while different forest types and management categories have been obtained from the 2010 Global Forest Resources Assessment (FAO 2010). Municipal-level data on the area in the coastal strip is taken from the National Report on Current Policy, Procedures, Legal Basis and Practice of Marine Spatial Planning (UNEP/MAP 2007).

Value of ecosystem services The question of how to place a monetary value on ecosystem services has long posed something of a challenge to economists. The easiest and most straightforward way to value goods and services, and the method used conventionally, is to look at their market price: what they cost to buy or are worth to sell. In the current study, it has been possible to use market price techniques to value selected provisioning services (marine and freshwater fisheries, honey, natural fodder, non-timber forest products, timber and fibre production and woodfuel) and the leisure spending generated by landscape and nature-based recreation. The main data sources are national and local-level statistics provided by MONSTAT, and sector- specific studies carried out on protected areas (Emerton et al 2011, ISSP 2011) and tourism (WTTC 2011).

Many ecosystem services however have no market price (or are subject to market prices which are highly distorted). This is the case for most of the regulating, supporting and cultural services generated by Montenegro’s biodiversity and ecosystems. For this reason, other valuation techniques must be found. Over recent decades a suite of methods have been developed with which to calculate ecosystem values that cannot be estimated accurately via the use of market prices. These are used in the current study, and include:  Production function approaches: relate changes in the output of a marketed good or service to a measurable change in the quality of quantity of ecosystem goods and services by establishing a biophysical or dose-response relationship between ecosystem quality, the provision of particular services, and related production. In the current study, the value of wild insects for crop pollination and the maintenance of soil structure and fertility are estimated using effect on production methods;

 Cost-based approaches: assess the market trade-offs or costs avoided of maintaining ecosystems for their goods and services. They assess the expenditures that are saved by not having to invest in physical infrastructure and measures to replace, mitigate or remediate ecosystem service loss, or the physical damages that are avoided. In the current study, the value of erosion control, watershed protection, coastal protection and carbon sequestration are estimated using cost-based methods; and  Stated preference approaches: rather than looking at the way in which people reveal their preferences for ecosystem goods and services through market production and consumption, these valuation techniques ask consumers to state their preference directly. In the current study, the visitor consumer surplus and willingness to pay for conservation associated with landscape and nature-based recreation are estimated using stated preference methods.

Due to the almost complete absence of ecological, biological, hydrological and other information pertaining to biodiversity and ecosystem services in Montenegro, it has been necessary to apply “benefit-transfer” techniques to value many of these regulating, supporting and cultural services. This refers to cases where ecosystem service values are transferred from studies which have been carried out in other countries.

There are many hazards in using such an approach, which are mainly to do with the credibility of applying data about a particular site or ecosystem to another context which might have very different biological, ecological and socio-economic characteristics. Where benefit transfer techniques have been used, a conservative approach has therefore been taken, and efforts have been made to ensure that transferred values are as appropriate as possible to the situation of Montenegro. The primary source of benefit- transfer estimates is valuation studies that have been carried out in nearby Central, Southern and Eastern European countries which share similar economic, institutional and ecological conditions to Montenegro. All data sources are clearly referenced. Transferred values have been adjusted to bring them to current Montenegrin price levels, applying a consumer price index (CPI) deflator to account for domestic inflation, and using appropriate Gross Domestic Product Purchasing Power Parity (GDP PPP) conversion rates to equalise differences between Montenegro and other countries. The resulting unit values have then been applied to country-specific data for Montenegro on the relevant area of land, quantity of production or affected population/sectors.

Assumptions of change The economic valuation exercise models the costs and benefits that might arise as a result of improved biodiversity and ecosystem conservation due to NBSAP implementation. It has been necessary to make certain projections of changes in the quality of key ecosystem services, as well as in other socio-economic and biophysical variables such as land and resource utilisation, population and demography, demand and consumption.

The updated NBSAP has not yet been prepared, and national biodiversity targets have not yet been set. Once these figures are available, they can be reflected in the economic model. The valuation model therefore keeps the area of land under different ecosystems constant, but assumes a general increase in the quality (and thus value per unit area) of ecosystem services. Some increase in resource utilisation and production in key biodiversity-dependent sectors (e.g. fisheries, forestry, agriculture, water, tourism) is assumed. Assumptions of change are based on the various goals and targets laid out in relevant national and sectoral development strategies, policies and plans (MAFWM 2006a,b, 2008 a,b; MED 2007a,b, 2011; MOF 2011, 2013; MTE 2007, 2008). Population projections draw on those suggested by MONSTAT 2008. Other factors are held constant.

The baseline economic value of biodiversity and ecosystem services The baseline value of selected biodiversity and ecosystem services to the Montenegrin economy is estimated at €982 million (Table 3). Provisioning services (wild foods and fodder, wood-based biomass and energy) contribute an estimated €169 million or 17%, regulating and maintenance services (on-farm soil fertility and pollination, watershed and coastal protection, carbon sequestration) €276 million or 28%, and cultural services (landscape and nature-based recreation) €537 million or 55% (Figure 5).

Table 3: Baseline 2011 economic value of Figure 5: Contribution of different biodiversity and ecosystem services (€ million) ecosystem services to 2011 baseline value

Ecosystem service Baseline value (€ mill) Wild foods & fodder 114.42 Wood-based biomass & energy 54.39 Pollination & seed dispersal 28.69 Maintenance of on-farm soil structure & fertility 0.41 Watershed protection 47.81 Coastal protection 1.34 Carbon sequestration 197.50 Landscape & nature-based recreation 537.28 Total 981.83

The recorded gross output for the whole Montenegrin economy in 2011 was €5.24 billion (MONSTAT 2012a): the calculated gross value of those ecosystem services which it has been possible to value is equivalent to almost a fifth of this value. Together they are worth more than two and a quarter times as much as the recorded output of the agriculture, forestry and fisheries sector of €425 million in 2011.

Economic benefits and costs avoided over the NBSAP period 2011-20 If the revised NBSAP is implemented, the net present value of selected biodiversity and ecosystem services to the Montenegrin economy over the CBS Strategic Plan period of 2011-20 is estimated to be just under €7.4 billion (Table 4). Just over half of this value is contributed by landscape and nature-based recreation, around a quarter comes from the regulating and maintenance services, and 15% from provisioning services (Figure 6).

Table 4: Net present value of biodiversity and Figure 6: Contribution of different ecosystem services 2011-2020 (€ million) ecosystem services to 2011-2020 value

Ecosystem service NPV@ 10% (€ mill) Wild foods & fodder 771.40 Wood-based biomass & energy 339.67 Pollination & seed dispersal 193.74 Maintenance of on-farm soil structure & fertility 2.91 Watershed protection 334.34 Coastal protection 9.38 Carbon sequestration 1,380.99 Landscape & nature-based recreation 771.40 Total 7,371.83

The bulk of biodiversity and ecosystem service benefits to the economy between 2011-20 (some 77%) arise from direct value-added to production in the crop, livestock, fisheries and forestry sectors. Just under a quarter (23%) are associated with damage costs and losses in production avoided to hydropower, water

supply, human settlement and infrastructure as a result of the continued protection afforded by ecosystem services (Figure 7). In total, the cumulative gains to 2020 over and above the baseline – in other words the amassed incremental benefit of implementing the revised NBSAP as compared to the current situation1 – will have reached almost €150 million by 2014, €328 million by 2017 and €541 million by 2020 (Figure 8).

Figure 7: Annual values added and costs Figure 8: Cumulative gains over avoided from NBSAP 2011-2020 (€ million) the baseline to 2020 (€ million)

1 The estimate of cumulative gains or incremental benefit only considers the effects of biodiversity and ecosystem conservation in terms of assumed improvements in the quality and unit value of ecosystem services. It excludes value-added from the increases in agricultural and fisheries production that result from more general changes in productivity, technology and market access.

5 APPLYING BIODIVERSITY VALUATION: potential targets and actions in the revised NBSAP How valuation can assist in meeting the CBD Strategic Goals and Aichi Biodiversity Targets The almost complete absence of information on, and integration of, the economic value of Montenegro’s biodiversity has already been noted as a constraint to effective biodiversity planning and implementation. While the current report represents a first attempt to identify, describe and quantify some of the economic benefits associated with ecosystem services, it provides no more than a very rough, preliminary set of indicative estimates that have been generated for illustrative purposes. It is clear that further work on biodiversity valuation should form a key part of the revised NBSAP that is currently under development.

It is self-evident that information on economic values will be key to achieving Goal A of the Strategic Plan 2011-2020, and to meeting Aichi Targets 1 (awareness of values), 2 (integration of values into local and national development planning, accounting and reporting) and 19 (knowledge generation, sharing and application). These Targets explicitly deal with the generation, dissemination and use of information on biodiversity values.

Valuation also provides an important tool in the identification, design and implementation of the actions that will be required to meet Aichi Targets 3 (development of positive incentives and elimination of harmful incentives) and 4 (sustainable production and consumption). Assessment and analysis of the magnitude and distribution of costs and benefits associated with biodiversity conservation and loss in different sectors, for different groups and as a result of different investment, production and consumption choices shows where there are needs and opportunities to better capture, reward and compensate values in support of biodiversity conservation. It can also help to ensure that the ensuing actions and instruments are equitable, efficient and cost-effective for those concerned, and will be economically and financially sustainable over the long-term. This is particularly important given the focus on mainstreaming biodiversity into the actions and budgets of other sectors and groups: if this is to be accomplished, then clear information must be provided about the value-added and costs avoided to them of doing so.

Last but not least, an understanding of economic values is integral to Aichi Target 20 (mobilisation of financial resources), and CBD Strategic Goals B (reducing direct pressures promoting sustainable use), C (improving the status of biodiversity) and D (enhancing benefits to all). Valuation provides a potentially powerful tool to help to justify investments and actions in support of biodiversity targets and goals, by providing a means of articulating the potential gains from undertaking such measures and the economic costs of failing to act.

We can therefore identify two basic areas where gaps currently exist, and biodiversity economic valuation might usefully be included in Montenegro’s revised NBSAP: in relation to the generation and dissemination of information on biodiversity values, and the design and implementation of incentives and financing mechanisms.

The paragraphs below focus on information generation and use. Specific market, price and policy instruments that might be used to better capture, reward and compensate biodiversity values (i.e. incentives and financing mechanisms) form the focus of the third report to be produced under this assignment, which deals with recommendations on economic and financial mechanisms for biodiversity conservation and mainstreaming, including payments for ecosystem services.

Economic assessment of biodiversity values (in support of Aichi Targets 1 and 19) The revised NBSAP provides an opportunity to overcome the current gaps in information and data about the economic value of biodiversity and ecosystem services in Montenegro.

It is assumed that the NBSAP will include efforts to map and assess Montenegro’s ecosystems and their services, and the development of some kind of outlook scenarios of future trends in biodiversity and ecosystem status and management. Economic valuation provides an essential follow-on to biophysical mapping and assessment, and can help to articulate and weigh up the economic consequences of alternative scenarios. The resulting information provides a key input for communications and awareness- raising efforts (see below), can serve to develop, test and showcase methodologies for integrating biodiversity values into national and sectoral development planning (see below), and feeds into the baselines and monitoring that are required measure the impacts of NBSAP implementation and progress towards targets.

To 2020, it would be realistic to envisage that a basic assessment and scenario analysis of biodiversity and ecosystem economic values has been carried out at the national level, and for key sectors that are identified as priorities in the revised NBSAP. It should be noted that training and capacity-building will likely also form a key part of the actions required to achieve this target, as will the establishment of funding windows to enable basic research on the value of biodiversity to be carried out.

Formulation of methods and procedures for integrating biodiversity economic values into development planning and appraisal (in support of Aichi Targets 2, 3, 4 and 19) The revised NBSAP also allows for the development and application of systematic approaches and requirements for monetary valuation, to assist in better incorporating biodiversity costs and benefits into existing national and sectoral planning processes.

Further work is required to establish appropriate approaches and procedures. There are two aspects to this. One is the formulation of guidance for public and private sector decision-makers on recommended methods for valuing biodiversity and ecosystem services. This should both serve to ensure that valuation efforts follow agreed and accepted methods which reflect international best practice, as well as promote coherence and consistency in the approaches that are followed by different sectors and actors. The second is to identify and agree where the monetary quantification of such costs and benefits should be a required part of development planning and appraisal procedures (for example environmental impact assessment, natural resources damage assessment, spatial planning, cost-benefit analysis and policy appraisal).

To 2020, it would be realistic to expect that a toolkit of nationally-appropriate methodologies for biodiversity valuation would have been developed and agreed. At the same time, the specific requirements and procedures for incorporating biodiversity valuation into key development planning, appraisal and approval processes should have been identified and formally endorsed via appropriate regulations and guidelines, and would be being applied in relevant processes. The formation of some kind of advisory or working group, drawing on the expertise of concerned public and private sector agencies, would likely be a key action for securing the technical and political support that is required to achieve this target. At the same time, building a cadre of trained experts in valuation – through the development of appropriate university/tertiary educational curricula and short-term training opportunities – will also be critical.

Ecosystem capital accounting (in support of Aichi Target 2 and 19) The inclusion of ecosystem capital accounting into the revised NBSAP provides an appropriate means of moving towards the incorporation of biodiversity values into national accounting and reporting systems.

Standards for ecosystem capital accounting are under development by the UN Statistics Division, and are already being piloted on an experimental basis in the EU. These offer a potentially useful mechanism for including ecosystem capital in Montenegro’s national accounts alongside GDP. The aim is to account for and report on the economic value of ecosystems as a key component of natural capital and economic assets and to incorporate the costs and benefits of changes in ecosystem status and ecosystem service provision in measures of economic performance, reflecting both physical and monetary units of measurement.

To 2020, it would be realistic to anticipate that methods, indicators and aggregates which could be delivered and integrated into enlarged national accounts would have been identified, adopted and rolled out, and that at least a preliminary version of national-level (and possibly sectoral and/or local-level) ecosystem capital accounts has been developed and reported for Montenegro. The establishment of a high-level working group or committee to consider and advise on data needs, sources, accounting and reporting procedures would likely be an initial action to contribute towards this target. The Ministry of Finance and Ministry of Economy would likely be lead agencies in undertaking the actions that are required to achieve this target.

Strategic communication of biodiversity economic benefits and costs (in support of Aichi Targets 1 and 19, cross-cutting other Targets) The strategic communication of biodiversity economic benefits and costs forms a key part of the information, communication and awareness efforts that will serve as cross-cutting activities in the revised NBSAP.

The national/ sectoral assessment(s), methodologies and approaches, valuation aspects of development planning and appraisal processes and ecosystem capital accounting will all generate new and important information on biodiversity costs and benefits in Montenegro. A key question is how to share and communicate these findings and evidence effectively, especially in relation to those values and impacts which are currently poorly recognised and understood. Making such information accessible, practical and relevant to priority groups and stakeholders is a fundamental concern. The processes and steps outlined in The Economics of Ecosystems and Biodiversity (TEEB) initiative, in particular, provide a particularly useful set of experiences and lessons learned for the strategic communication of biodiversity values via targeted campaigns for the general public, local and national policy-makers, sectoral planners, business, financial and economic decision-makers.

To 2020, it would be realistic to expect to have developed and implemented a strategic communications campaign on biodiversity economic values, targeted at the general public as well as decision-makers in key public and private biodiversity-dependent and biodiversity-impacting sectors. A national, and possibly sectoral and business, TEEB study/ies for Montenegro should also be envisaged as a means of contributing towards generating evidence and communications materials and engaging key decision-makers and opinion formers from both the public and private sectors.

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