Opportunities for greening the Vanuatu economy - an assessment by the Pacific Institute of Public Policy

Foreword

The Pacific's leaders and policymakers have come to realise that continued development is premised on addressing convergent economic, environmental and social challenges. The Pacific faces a number of challenges, with energy, food and financial shocks, persistent economic inequities, and climate and environmental issues having dramatic impacts throughout the region. Under business as usual, these challenges will threaten recent progress made in reducing poverty and improving livelihoods. Green growth offers a development model to mitigate these issues while strengthening economic growth and environmental protection. The green growth model is of particular relevance to Vanuatu because of the importance of environmentally vulnerable sectors, such as tourism and agriculture, to economic development. Recalibrating economic growth with sustainable development objectives may help build resilience in these sectors while opening new opportunities in other sectors for improving the livelihoods of people throughout Vanuatu. While many elements of the broader green growth model are relevant for Vanuatu, moving toward a Pacific model of growth is also essential. Small Island Developing States (SIDs) face unique and special challenges: they are environmentally and economically vulnerable, and their geography and lack of resources limit development opportunities. The report will also echo the calls that green growth in the region is also based on marine resources. The idea of a 'green economy in a blue world' was put forward by the Pacific to

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 1 - emphasise the importance of sustainably utilising the region’s considerable marine resources to achieve strong economic growth and environmental protection.

The United Nations tasked the Pacific Institute of Public Policy (PiPP) to produce the report, with the aim of identifying opportunities and constraints to achieving green growth in Vanuatu. This is an important aim, especially because of the strong poverty reduction potential that green growth offers. But most importantly, because green growth offers practical and feasible solutions to a number of the economic, environmental and social challenges faced by Vanuatu, which many prior development models have espoused, but failed to achieve.

This report will assist with building the foundations for this transition and provide ideas for how Vanuatu can maximise sustainable development opportunities while overcoming blockages. But most importantly, the report will be useful for the Pacific's preparations for the United Nations Conference on Sustainable Development (Rio+20).

The first Earth Summit held in Rio de Janeiro in 1992 gave rise to three key United Nations institutions for the advancement of sustainability: the Convention on Climate Change, the Convention on Biodiversity and subsequently the Convention to Combat Desertification. The world will meet again this year to discuss sustainable development at Rio+20, but with a renewed focus on green growth. The Rio+20 process, and the international community, can assist the Pacific by reaffirming financial assistance for the implementation of green growth and making progress on strengthening international management of the environment, in particular the management of marine and coastal resources. In addition, Vanuatu and other countries of the Pacific can assist the international community in shifting to improved management of marine and coastal resources by sharing accumulated experience of managing the blue economy. How we went about it

The report highlights the opportunities for green growth at the national level and within various key sectors to support sustainable development and poverty reduction. Using economic, environmental and social analysis alongside timely and relevant knowledge gained from consultations with key stakeholders, and Pacific Institute for Public Policy expertise on Vanuatu, this report provides a detailed and thorough overview of green growth in the Vanuatu context. The report is organised into five sections: The first section outlines the green growth model and its application to the Pacific, with a particular emphasis on the importance of marine resources as drivers of green growth in SIDs. The second section evaluates the feasibility of using five green growth paths to achieve sustainable development in Vanuatu. Within this framework, the degree of traction and blockages expected under each framework are described. The third section identifies opportunities for green growth at the national level and within the various key sectors to support sustainable development and poverty eradication. The fourth section outlines the local, regional and international mechanisms required to mainstream green growth opportunities into national policy and implementation processes, and comments on the implications of Rio+20 for mainstreaming green growth. The concluding section highlights the important findings of the report and puts forward recommendations on how to best achieve green growth in Vanuatu.

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 2 - This report does not seek to present every aspect of the green economy assessment in Vanuatu – instead it aims to focus the reader on a succinct analysis of the opportunities and constraints, and provide practical policy recommendations for those involved in the implementation of green growth in Vanuatu. Those who seek a deeper understanding of the green growth model in the Pacific context are encouraged to read the background material referred to throughout the report, and listed in the references and further reading section. Additional material, including a table outlining the opportunities and constraints to achieving green growth, can be found in the appendices.

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 3 - 1. Introduction What is green growth?

Green growth is a model of development that advances environmentally sustainable economic progress to foster socially inclusive development. This is achieved by realigning economic growth aims to achieve concurrent environmental sustainability objectives. Green growth requires a systemic approach which builds synergies between economic growth and environmental sustainability, and mutually reinforces policies to achieve these aims. Most importantly, the green growth model explicitly recognises economic, social and environmental systems as complementary, not conflicting. Therefore green growth strategies can potentially reduce poverty and achieve social progress, while simultaneously increasing the supply of natural assets. Green growth strategies can also provide a more resilient growth model that is more capable of withstanding external shocks, which are becoming increasingly costly and frequent with growing interconnectedness between countries. The triple food, fuel, and financial crisis in 2008 resulted in higher food and fuel prices and a sharp decline in economic growth, all of which threatened poverty reduction efforts in Vanuatu. Implementing green growth can mitigate the impact of global shocks through reducing reliance on fossil fuels, strengthening local food systems, and increasing economic opportunities through focusing on green economic opportunities. The transition to green growth requires a clear vision, measurable targets and monitoring processes. This vision is best articulated in long-term government planning documents, and achieved through the mainstreaming of green growth across government processes. Also necessary are targets and indicators that provide information to monitor the success of green growth policies. Achieving green growth will require a concerted effort, facilitated by the government, and backed by the private sector and civil society. Coordinated action between stakeholders will strengthen environmental and economic governance and increase the likelihood of achieving an equitable, stable and inclusive outcome. In the Pacific context, strengthening regional and international cooperation is also essential, particularly for improving fisheries management and adapting to climate change. Many environmental issues, such as fisheries decline and climate change, are transboundary in nature – and thus cooperation between nations is essential for developing effective and efficient solutions. The market is another key facilitator of the green economy, but appropriate regulation is required for the market to act efficiently and effectively. Investing in natural capital may result in long-term benefits, but may require a significant upfront cost that will need to be provided by the government and other key actors. Moreover, enhancing the level of green investments will also require reducing the price gap between market prices and the economic value of ecosystem goods and services. The current system creates perverse incentives, as decisions are made based on individual short-term benefits and costs rather than long-term social impacts. Such market failures can be corrected by policy changes, including by introducing eco-taxes, which tax destructive activities such as water pollution, and using fiscal transfers to increase the supply of environmental assets, for example through paying an island village to develop a marine protected area. Pacific island countries (PICs) have distinct resource bases and particular environmental challenges. In Vanuatu's case, drivers of green growth include renewable energy, improved water and waste management, and sustainable fisheries, agriculture and forest management. Implementing green growth is challenging, and is especially difficult in SIDS, where government capacity to implement key policy tools like eco-taxes and fiscal transfers is lacking. Vanuatu is often categorised as a SIDS, but perhaps a better term is a 'large-ocean country'. The importance of marine resources is apparent in Vanuatu, which has a land-to-ocean ratio of 1:55 and an exclusive economic zone covering an area larger than France. Therefore implementing green growth in in Vanuatu, as

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 4 - is the case elsewhere in the Pacific, requires a unique approach, with a particular focus on marine resources and the blue economy.

Defining green growth in the Pacific context

Green economy in the blue world In the Pacific, marine and coastal resources are integral drivers of the green economy. The protection, preservation and sustainable use of marine resources can assist with poverty alleviation and boost economic performance. Key priorities for the blue economy include using marine resources for development, combating unsustainable and destructive fishing and managing ocean impacts of climate change. First, marine, coastal and fisheries resources form a key part of the foundation of Pacific island economies and represent a key pathway to future growth. The current use of these resources, particularly the region’s tuna stocks, is inequitable with countries outside the Pacific currently gaining the majority of benefit flows. The direct participation of PICs in resource utilisation can result in a fairer share of benefits, but this will require the capacity building of marine industries. Second, overfishing and illegal, unreported and unregulated fishing are depleting fish stocks and threatening future growth prospects in the region, and solving these issues must be at the forefront of strategies to build a green economy in Vanuatu. While these issues are not new, a response that is innovative and collaborative is required to ensure the safeguarding of the marine environment for future generations. Third, the marine impacts of climate change, particularly sea-level rise and ocean acidification, are threatening the health of the ocean. Coral reef ecosystems are particularly vulnerable to climate change and as coral reefs provide vital support mechanisms for fish stocks and marine ecosystems, the collapse of these will have costly consequences. Managing the impacts of climate change will require building the resilience of vulnerable marine ecosystems and urgent mitigation efforts by the global community.

The importance of climate change With the existence of many PICs threatened by climate change, this is the defining development challenge for the region. There is an inequity in this area, as those countries that face the highest costs of climate change are not the nations responsible for greenhouse gas emissions. PICs have among the lowest per capita and aggregate greenhouse gas emissions globally, yet will have among the highest future damage costs per capita. This is therefore an issue of climate change justice, as the burden of responsibility lies with developed countries that have high historical emissions and the large emerging and developing economies that will emit the most into the future. While many countries are focusing on reducing greenhouse gas emissions, climate change mitigation should not be a priority for the Pacific. Because of Vanuatu's low per capita emissions, mitigation should only take place if there are dual-benefits – for example the energy security benefits from shifting to renewable energy sources. The priority for the region should instead be climate change adaptation, as the impacts of climate change are already apparent and will worsen into the future. Sea level rise will continue to erode coastlines and render coastal areas inhabitable, food security will decline with rising temperatures and declining water security, and natural disasters will become increasingly costly with more frequent and severe storms projected. These challenges require a coordinated approach between stakeholders, and adaptation strategies that are part of a broader effort to achieve inclusive and environmentally sustainable growth. Flexible adaptation approaches that span a continuum of responses are the best approach, from those that focus on specific impacts in specific locations to those that deliver key benefits under a wide range of climate conditions. This approach is inherently flexible, delivering outcomes under a wide range of scenarios. Adaptation can also deliver co-benefits over differing time scales if the focus remains on development and poverty alleviation. In short, Vanuatu's vulnerability to climate change is a function of both its preparedness and investment in resilience. There exist many opportunities to reduce vulnerability, and achieve climate

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 5 - change adaptation through means that also increase the supply of natural assets, alleviate poverty and create economic opportunities.

Natural assets Due to a number of pressures, the supply of a number of natural assets in Vanuatu is currently below optimal levels.1 The main causes of decline include population growth, urbanisation, poor land and marine management practices, deforestation, and negative impacts of economic growth (mostly from tourism and infrastructure development). Due to poor land management practices, soil erosion is a growing concern throughout the country and coastal erosion is also a growing issue – thus it is important that land management is a key focus of green growth strategies. While a significant proportion of Vanuatu remains forested, many of these areas are also degraded. In recent years, there have been programs to restock natural forest areas, which have been successful but more action is required. In addition, climate change is threatening these ecosystems and will result in the further decline of many natural assets. Due to higher population density and economic importance, coastal ecosystems are particularly vulnerable to climate change impacts. Poor environmental management practices have degraded a number of ecosystems throughout the country, including coastal habitats such as mangroves and seagrass beds; a number of river systems; lowland forests; and a number of coastlines, from sand mining and erosion. A number of species are also threatened in Vanuatu, including the commercially important coconut crab. The major threats to biodiversity in Vanuatu include deforestation, poor agricultural practices, urbanisation and infrastructure development and climate change. Biodiversity is also threatened by the introduction of invasive species (both accidental and deliberate), which can spread from island to island.

Economic governance in green growth While it is acknowledged that green growth policies are not a substitute for sound social policies, green growth does provide opportunities to improve economic governance and alleviate poverty. A successful transition to green growth in Vanuatu requires governance approaches that are inclusive, effective and fair. An inclusive approach can account for disadvantaged and vulnerable groups, and formulate responses to mitigate and minimise the negative impacts of the transition. Inclusiveness can also help ensure that resources are shared in a more equitable manner, as stakeholders are involved directly in the policymaking processes. Moving toward long-term sustainability and greater resilience also requires flexible and adaptive governance approaches that can effectively manage specific pressures and contexts.

1For more information on natural assets see: Millennium Ecosystem Assessment (2005).

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 6 - 2. Existing green growth initiatives

Sustainable consumption and production The consumption and production of goods and services requires the use of natural resources, and inevitably results in pollution. Ecosystems have a limited capacity to absorb this pollution, and if natural limits are passed, ecosystem decline results. Sustainable consumption and production (SCP) patterns are vital for maintaining pollution at levels that do not result in the decline of natural systems.2 While consumption levels in Vanuatu are currently low when compared with global levels, due to poverty levels and a lack of disposable income, the consumption of goods of services still results in adverse environmental impacts, especially in urban areas. A key cause of this is from inadequate waste disposal systems in Vanuatu. Recycling is in its infancy in Vanuatu and there is currently no organised separation of waste. Some businesses have implemented recycling measures but have come across regulatory hurdles when, for example, recycling inputs used in production of goods. Policies encouraging the uptake of recycling are a key element of SCP contributing to green growth in Vanuatu. In addition, education on waste management, particularly at schools and in the workplace, could assist with reducing the environmental impact of consumption through encouraging better waste management practices, such as recycling. Production also results in environmental impacts in Vanuatu, but these are not very significant, as the main industry in terms of economic output is tourism (which has a low environmental footprint in comparison to other sectors, such as manufacturing). But the tourism sector still has a high resource intensity, especially for land use, and produces a number of waste products in Vanuatu. Sustainable tourism was a major process of the Marrakesh Process, and the 2011 Progress Report outlined steps to improve the sustainability of tourism to met green growth objectives.3 This process identified a number of policy recommendations, including integrating sustainable tourism planning into existing national and regional development plans, and where possible using local goods and services in tourist operations. Reducing the environmental impact of the production side requires greening of the private sector, which could be driven by increased consumer awareness of sustainability issues. The main measure of economic development continues to be gross domestic product (GDP), which is based on the monetary value of the outputs from given economic activities. This system does not account for the real value of natural and human capital and related service flows. Alternative measures can include indicators such as natural assets and happiness in national accounting. The use of these indicators provides a more accurate description of progress, by redefining development as a continuous process aiming for a balance between material and non-material needs of individuals and society.

Greening business and markets Instituting legislation and policies to encourage the greening of business and markets is another path that can be used to achieve green growth. Green business is defined as an enterprise that considers environmental protection as an essential component of its long-term business objectives, both by promoting eco-efficient production activities and by marketing sustainable products and services. By introducing policies, legislation and incentives encouraging business to pursue green practices, the private sector can become an engine of green growth. Further, raising awareness in the private sector that green practices are the source of commercial opportunities rather than additional costs can help to mainstream green growth throughout Vanuatu's businesses.

2SCP is the first of five green growth paths recommended for implementing green growth by the United Nations Economic and Social Council of Asia Pacific (2009). 3United Nations Environment Program (2011).

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 7 - The private sector is underdeveloped in Vanuatu, with the informal traditional economy remaining the most important economic system for most of the population, especially for people in rural areas. But business is still a key driver of Vanuatu's economy and a significant cause of environmental degradation in Vanuatu. Private sector growth is currently driven by small and medium enterprises, land speculators, individual investors, and family firms, all of which operate without adequate environmental governance processes. In the cases where firms are required to prepare environmental impact assessments (EIAs), the government lacks capacity to review impact statements, and implement adequate monitoring and compliance systems (such as fines) – which also results in lost revenue for the government. Greening of business in Vanuatu could involve providing green education to businesses causing environmental damage or requiring business to adhere to environmental management standards, such as the International Standards Organization (ISO) frameworks. Markets are effective mechanisms for incentivising green growth and improving environmental outcomes, but require government regulation to create a strong enabling environment. Market mechanisms can build innovative, low-cost solutions to a range of environmental problems, including biodiversity loss and water pollution. The regulation required for greening markets involves making the polluter pay for their environmental impacts. This is recognised as the most cost effective and efficient method, as it incentivises the private sector to innovate to improve environmental outcomes. However, market based mechanisms are difficult to implement in SIDS,due to a lack of government capacity. Vanuatu lacks a strong taxation system and the monitoring and enforcement capacity to implement economy-wide market based approaches, which require high-levels of monitoring and enforcement. Therefore a more decentralised, ad-hoc system is perhaps the best approach. This could involve the use of a range of market mechanisms to incentivise improved environmental management. Environmental performance bonds are appropriate market mechanisms for implementing green growth in Vanuatu, particularly as these are effective in rural areas and do not require high levels of government capacity. The principle underlying a performance bond is that it incentivises improved environmental management with a price signal. For example, a tourist operator constructing a hotel in an environmentally sensitive area would make a bond payment to the authorities. And if environmental damage occurs, the bond is confiscated. This is a form of insurance to align the incentives of the government and the private sector for strengthened environmental management.

Sustainable infrastructure Sustainable infrastructure is also a key driver of green growth. Moving to a more sustainable infrastructure system can contribute to poverty alleviation by providing society with a reliable access to human needs, such as water and shelter, and reduce the negative environmental impacts resulting from the construction and operation of infrastructure. Sustainable infrastructure is based on a whole-systems approach, in which different types of infrastructure are comprised of interdependent components that interact with the greater natural, social and economic environment. The majority of energy is consumed by the residential sector in Vanuatu, due to the high energy intensity of residential dwellings (see appendix Figure 5). The construction and operation of buildings are highly resource intensive, requiring vast amounts of land, water and raw materials. However, the resource intensity of infrastructure could be decreased through the eco-efficient design, construction and operation of buildings, which improves the quality of infrastructure services and reduces utility costs. Additionally, the retrofitting of existing buildings for energy efficiency, particularly passive cooling systems in Vanuatu's case, could also yield significant savings for business and households. Because of poor planning and little regard to long-term economic and environmental considerations or human health impacts, infrastructure developments are frequently far from sustainable in Vanuatu. The performance can be optimised for those most in need by assessing the socio-economic and environmental

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 8 - impacts of infrastructure development. This includes increasing the supply of quality and affordable housing to disadvantaged and impoverished members of society. In addition, the inexorable urbanisation that is occurring in Vanuatu is resulting in an increase of environmentally degraded and deteriorating areas, such as informal settlements on the outskirts of Port Vila. The environmental impacts resulting from the mismanagement of urbanisation include declines in air, soil and water quality, and increased vulnerability of human settlements to climate change. Infrastructure development can contribute to green growth in Vanuatu, but broad based sustainable planning is required for this to occur. Sustainable planning refers to a decision making process where communities, alongside other stakeholders including government, are involved in enhancing infrastructure services to better address the specific challenges people face in accessing land and basic needs. Sustainable infrastructure development also has a high potential for green job creation, as employment in the building and construction sector makes up a large percentage of the labour market in Vanuatu. The combination of sustainable master planning and green job creation could be a driver of green growth.

Green tax and budget reform Vanuatu and other United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) member countries accepted green tax and budget reform (GTBR) as a means for achieving green growth in 2005 at the 5th Ministerial Conference on Environment and Development.4 GTBR refers to two policy initiatives that can reduce poverty, raise fiscal revenues, and improve eco-efficiency, public health, and environmental quality. The first initiative, green taxation, involves levying taxes on environmentally damaging activities and products. The second component, green subsidy reform, consists of gradually eliminating counterproductive subsidies that favour unsustainable development and redirecting fiscal funds towards areas that support green growth and poverty reduction. Though green taxes are more economically efficient mechanisms than directly intervening with command and control approaches, there are government capacity constraints to using GTBR in Vanuatu. Without a functioning welfare system, applying a green tax to sectors usually targeted in larger economies – such as energy, transportation and drinking water – could endanger poverty alleviation efforts in Vanuatu.

While GTBR was not explicitly referred to in the Government of Vanuatu 2012 Budget, there is currently a subsidy in place for increasing the production of copra, a biofuel refined from coconuts.5 The copra price reached a record level of VT 75,000 per tonne in mid 2011 resulting in a surge in copra production, but the recent drop in the world market price of coconut oil has alerted buyers and farmers to the volatility of the copra price. This subsidy has increased the long-term commercial viability of copra in Vanuatu by reducing the vulnerability of the industry to external price shocks. There is a small potential for further green subsidy reform in Vanuatu, but this is constrained by limited fiscal space.

Due to the implementation difficulties and potential poverty impacts of green taxes, and the lack of counterproductive fiscal transfers currently in place, GTBR will at this stage play a minimal role in establishing a green economy in Vanuatu. Whilst there is the potential for GTBR to grow in importance as a policy tool into the future, this transition must occur incrementally. Currently, the most appropriate market mechanisms for mainstreaming green growth include decentralised, ad-hoc systems, and the use of ‘payment for ecosystem services’ (PES) schemes to invest in natural capital.

Investment in natural capital According to Costanza (2008), natural capital is defined as the 'stock of natural ecosystems that yields a flow of valuable ecosystem goods or services into the future'. Natural capital can be in many forms,

4United Nations Economic and Social Council of Asia Pacific (2005). 5Government of Vanuatu (2011).

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 9 - including mangrove forests, which reduce coastal erosion and provide a buffer against the impacts of climate change, and coral reefs, which maintain coastal fisheries and provide food security.6 Natural capital that provides flows of benefits to society is defined as an economic service. Investments in natural capital can take many forms and can also free up revenue for social enhancement. For example, investing in improved watershed management – an alternative to investing in a water treatment plant – would be socially-enhancing as this revenue could be reallocated for poverty alleviation efforts. PES schemes can also achieve green growth through augmenting rural incomes and providing alternative livelihoods for people currently engaged in environmentally damaging behaviours. A relevant example in Vanuatu could involve a coastal village putting aside an area of coral reef as a Marine Protected Area (MPA). The village households would get payments to compensate for the reduction in fishing that will occur, and increased tourism and maintenance of the MPA could create green jobs. The payment for this would come from the stakeholders who benefit from the ecosystem services provided by the reef. Tourists are such beneficiaries, and incorporating this payment into the price of a hotel room, for instance, could provide the investment necessary for increasing natural capital. International PES (IPES) schemes are also important for achieving green growth in Vanuatu. These include the Clean Development Mechanism (CDM), which stimulates sustainable development and emission reductions, and the UN operated Reducing Emissions from Deforestation and Degradation (REDD+), which is an effort to create a financial value for the carbon stored in forests.7 IPES approaches can also complement investments from local beneficiaries (for example water and energy users) to ensure that services such as carbon sequestration and watershed protection continue to benefit the local economy and communities, as well as the international community. As a green growth path, investments in natural capital, alongside the ad hoc greening of markets and GTBR, may prove an effective market-based approach for Vanuatu. These approaches are more feasible than broader wide-scale policies, as Vanuatu lacks a developed taxation system and high levels of government capacity in relation to monitoring and enforcement processes. Instead of the policy frameworks used in larger economies, investing in natural capital in Vanuatu can occur via mechanisms like PES, which do not require a developed taxation system or high levels of government capacity. Also, as Vanuatu is predominantly rural, with 75 per cent of people living outside of urban areas, decentralised market approaches such as PES are necessary for green market strategies to function effectively in building natural assets in isolated rural areas.

6Costanza, R. (2008). 7The concept that REDD can also protect fragile ecosystems, conserve biodiversity and sustain resource-dependent livelihoods has been labelled REDD+, these additions to the REDD framework are important to Vanuatu.

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 10 - Volcano Islands (Japan) Bonin Islands Daito Islands HAWAII Minami-tori Shima (USA) (Japan) (Japan) Tropic of Cancer Okino-tori Shima Wake Honolulu (Japan) (USA)

Commonwealth Johnston (USA) of the Northern Mariana Islands Guam Marshall Islands

Palikir Cook Islands Pahuyra Palau Federated States of Micronesia (USA) Pago Pago American Tarawa Samoa Howland (USA) Baker Equator Indonesia Nauru (USA) (USA) 3. Opportunities for green growth

Papua New Guinea Fisheries Kiribati VANUATU The current state of fisheries in Vanuatu Kiribati Vanuatu is a vast archipelago with 80 inhabited islands, and an exclusive economic zone (EEZ) of 680,000km, approximately the same size as India's land area. Fisheries and marine management are a vital source of food and employment, with many people depending on the marine environment for their 2.21livelihoods. Vanuatu Funafuti Port Moresbsbsby Tokelau

Tuvalu SolomoSolomon IIslandsslands

WaWallis and SamoSamoa FutunaFutuna AmericanAmerican

Vanuatu Fiji SSamoamoa Coralal SeaSea Port Vila

New CaledoniCaledonia NiuNiuee French Polynesia MatthewMatthew & Hunter (Fr/Van) ToTonngga

Tropic of Capricorn Source: SPC 2011 Pitcairn Islands Key features As with other PICs, tuna is currently the most valuable marine resource. Vanuatu has a locally-based fishery Populationfor tuna, and recent catches by these fisheries total 4,200 tonnes per year, which is worth approximately USD 10 million.8 But as Vanuatu lacks the capacity to establish a large domestic fishing fleet, a key source of Yearfisheries revenue currently comes from2010 foreign fishing2035 fleets 2050paying 'access2100 fees' to fish for tuna in the Adamstown EEZ.Population However, (x 1000) the a'access-fees' arrangement 252 is suboptimal,400 as it 483results in only695 a small proportion of the AUSTRALIA Brisbanne caught tuna value remaining locally, by some estimates only 0.1 per cent of the landed value per vessel.9 A numberPopulation of tuna growth fishing rate methodsa are allowed 2.6 under fisheries1.6 regulations, 1.4 including 0.7 long line and purse seine fishing. (Drift net andNNorfolk trawlorfo fishinglk IIslans isla nnotd allowed in Vanuatu's waters.) As tuna is a migratory species, Vanuatu is also a member of(AUS) regional organisations that collectively manage the resource. It is a member of the Forum Fisheries Agency (FFA) and the Western Central Pacific Fisheries Commission (WCPFC), but is

not a member2 of the Parties to the Nauru Agreement (PNA), which is the regional fisheries agreement EEZcontrolling area (km around) 30 per668,220 cent of global tuna supply. Kermadec Islands (NZ) Land area (km2) 11,880 NEW ZEALAND Sydney Land as % of EEZ 1.7 8Secretariat of the Pacific Community (2011). 9Asian Development Bank (2007). Adélaïde Canberra Fisheries and aquaculture activities: -- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU Auckland - 11 - Melbourne Wellington

263 Coastal fisheries are also an important driver of the blue economy in Vanuatu, including deep water snapper fisheries (locally known as poulet) which supply mostly local markets. In 2007, the total harvest of coastal fisheries was about 3,400 tonnes per year (worth USD8 million), and the commercial catch was about 550 tonnes.10 This also includes the artisanal and subsistence fishery harvests, which provide an important source of protein in the diet for coastal households. The reef fish catch is at lower levels, as fish poisoning (ciguatera) from fresh fish contaminated by algal blooms constrains the harvest size.

The aquarium trade is another important source of revenue and was valued in 2004 at VT120 million vatu, but no data has been collected since then. One local firm and another foreign company have licences to collect species for the aquarium trade. Regulations relating to this activity are in place through the Fisheries Act (2005), which implements a management plan for the aquarium trade. A number of businesses are also licensed to export clams and coral but only if they are cultured, not wild. There are hatcheries for clams in Port Vila harbour and a private hatchery at Pango, a coastal settlement on the outskirts of Port Vila. Any wild coral taken must be replanted so regeneration occurs, and there are government inspectors tasked with monitoring this. Jason Raubani, Department of Fisheries, notes that 'the aquarium trade is currently sustainable, but it sometimes it conflicts with the tourism industry, so a plan was established in 2003 between them. The aquarium trade begun in the 1990s and operators must pay the land and reef owners. There is a quota on the flame angelfish but no others yet. There have been plans to breed the clown fish and other species, but it seems not to be viable yet. Clams and coral are being exported from farms and that is a positive development.'11

Developing domestic fishing capacity

Developing fishing capacity in Vanuatu provides a significant opportunity for economic development, as marine fisheries are largely underexploited. Building a domestic fishery will assist in augmenting local employment opportunities and food security. Moreover, decreasing the number of foreign tuna fishing licenses and encouraging local boats to increase harvests can help with building capacity. But developing appropriate infrastructure, such as wharves, is vital for making this a viable option.

Recently, there have been positive developments in the local tuna industry. In 2009, a locally owned tuna fishing company began exporting filleted tuna to Japan, and a Chinese-backed fish processing plant is being built with the intention of processing big eye and yellow fin tuna for export.12 This plant will help to result in stronger fisheries management, as landing fish caught in national waters will provide more accurate data for the regulatory authority to ensure compliance with the Western and Central Pacific Fisheries Commission conservation and management measures.13 The Department of Fisheries has requested that the government provides land to make a fish market in Port Vila but so far this request has not been actioned. Fish markets will help to increase the nutritional intake of fish products, which is currently estimated to be 20 kg per person per year, well below the recommended levels.5 In addition, there is also significant potential for aquaculture in Vanuatu, with shrimp, marine ornamentals (coral and giant clams), marine fish, sea cucumbers, and Tilapia (a freshwater species) currently farmed. Teouma Prawn Farm, a commercial venture operating near Port Vila, has been highly successful, even though it has thus far failed to export its produce as was initially intended, because of high local demand.6

Even with recent successes, the fishing industry in Vanuatu is still under-developed and represents a low percentage of total employment. Coastal fisheries are important for the livelihoods of coastal communities, with approximately 60 per cent of households deriving their first or second income from selling fish.5

10Ibid. 11Interview with Jason Raubini, Department of Fisheries, Port Vila, 2012. 12Vanuatu Investment Promotion Authority (2010). 13Asian Development Bank (2007).

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 12 - Fisheries and aquaculture are important drivers of the 'green economy in the blue world' in Vanuatu, and could further contribute to economic growth and poverty alleviation with key policy interventions:

• Increase the benefit flows from tuna through greater investment in local fishing operations and higher revenue from access fees. This combined with improving the efficiency of fishing operations will result in fisheries contributing to more growth opportunities.

• Invest in building domestic processing capacity, including landing facilities and other associated infrastructure, and canneries.

• Increase the number of livelihoods that can be based on fishing and aquaculture.

• Manage coastal fisheries to minimise the gap between the fish available from coral reefs and the fish needed for food security.

Improving fisheries management Strengthening the regulation of fisheries is also vital for the sector to contribute to achieving green growth. Illegal, unreported and unregulated fishing (IUU) is currently a problem in Vanuatu, and there are a number of regulations in place attempting to combat this. The Department of Fisheries enforces a quota system for Vanuatu waters, especially for the tuna catch and places several monitoring observers on boats – every boat fishing in Vanuatu waters is requited to have a vessel monitoring system (VMS) in place. There are many conditions in the tuna fishing licences; so effective monitoring of harvests can take place. Jason Raubani, Department of Fisheries, suggests that the monitoring taking place 10 years ago 'was really bad but these days there is a lot more effective monitoring. We estimate illegal catch to be about 10% in our waters, which is much better than before. We export to Japan, China, US, EU and Australia. If you export to the EU you must show a catch certificate to show it is legal and registered.'14 To stop the illegal harvesting of fish, the transit of fish is not allowed in Vanautu's waters, only transhipment at Port Vila port. And on an ad hoc basis, the EEZ is monitored with patrol boats and aerial surveillance (P2 Orion airforce planes) from the FRANZ countries (France, Australia, New Zealand). The Department of Fisheries currently lacks the capacity to monitor and enforce regulation throughout Vanuatu's widely dispersed archipelago. Community-based natural resource management (CBNRM) is important in this context, and is legally recognised in Vanuatu's Constitution. CBNRM has been found to be an effective form of environmental governance throughout Vanuatu, and sustainability is ensured through a combination of traditional knowledge, species-specific prohibitions, seasonal closures, and gear restrictions.15 The Department of Fisheries actively supports CBNRM as a viable, decentralised system of resource management that draws upon pre-existing, restorative community-based systems of dispute resolution. Communities have also taken up the role of monitoring and enforcing national regulations, and this service saves government resources. The Department of Fisheries still has activities throughout Vanuatu, with rural fishing programs in the islands of Futuna, Erromango, Tanna, Malekula and Aneityum. The catch from these programs is stored using solar powered freezers and traditional canoe fishing is promoted by the department. But with traditional land-management systems under threat in Vanuatu, due to high rates of population growth and inter-island migration, improving the security of tenure will be beneficial. Establishing large marine protected areas (MPAs) in Vanuatu may also bring benefits in the form of protecting fisheries resources and other investments in natural assets. Other PICs, especially Micronesian

14Interview with Jason Raubini, Department of Fisheries, Port Vila 2012. 15Hickey, F. & Johannes, R. (2002).

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 13 - states, have taken the lead in marine protection, with the Marshall Islands establishing the world's largest shark sanctuary in 2011 (see appendix Figure 4 for a comparison of MPAs in the Pacific). In the future, MPAs could also attract international environmental finance, as there are international benefits from protecting marine species.16 For example, internationally valued assets resulting from MPAs include possible pharmaceutical products derived from marine species and the protection of tuna stocks for future consumers. Education is also important for improving community awareness on how to better manage marine resources. The Department of Forestry promotes mangrove preservation; a number of NGOs are also involved in environmental education: Wan Smol Bag has made theatre shows focused on turtle sanctuaries, Vanua-Tai monitors fishing communities, and Live and Learn teaches school students about environmental and ocean issues. Awareness of marine resources is also promoted by Reef Check Vanuatu, which was set up by the Department of Fisheries to improve awareness of sustainability and monitoring of fish stocks. Agriculture and food security

While agriculture contributes less to GDP than tourism, accounting for about 15 per cent of GDP in 2006, the poverty reducing potential of the agriculture sector is extensive.17 Over 75 per cent of Vanuatu's population lives in rural areas, and these people are dependent on subsistence or commercial agriculture for their livelihoods. And because of Vanuatu's large rural population, agriculture is also both the largest employer (mostly in the informal subsistence sector) and the most important source of economic opportunities in rural communities. Therefore, transforming agriculture is key to poverty eradication and sustainable development in Vanuatu. But there are a number of constraints: Agriculture currently lacks sufficient levels of investment to contribute to green growth; activity in the sector is resulting in environmental impacts which will worsen into the future; and food security is increasingly at risk from a range of pressures, including urbanisation and population growth.

The 2007 Agriculture Census found that 82 per cent of all households engaged in some form of agriculture. Most practised shifting cultivation (70 per cent) and intercropping of temporary crops (63 per cent) with only 13 per cent of these households using what could be considered modern techniques such as applying fertiliser, pesticides or using improved seeds.18 And because of low levels of investment over the past decades, Vanuatu has seen declining rates of productivity improvement. Since independence, food crop production has not significantly increased while the population has almost doubled. The technologies and techniques developed in the ‘green revolution’, which led to the productivity increases seen in other small economies since 1960, have been underinvested in Vanuatu. Agriculture remains mostly rain-fed and fertiliser use is low on Vanuatu's farms. When irrigation does occur it is often backbreaking. Peter Rush Iesul, a farming system officer with the Department of Agriculture, noted that:

‘Farmers still irrigate their gardens with buckets and increased investment into green revolution technologies is required for productivity improvements to occur.’ Mr Iesul captured the gravity of the issue, stating: ‘Vanuatu has largely missed out on the green revolution.'19 Transforming farming methods from those based on custom and tradition to modern methods is difficult, especially when export commodity prices are volatile or low. Import substitution policies could overcome these barriers, by encouraging the production of crops which have a high local demand, such as rice, and providing more commodity price stability. Reducing import dependence, through increasing the supply of locally produced food, is vital for making agriculture contribute more to the green economy.

16World Bank (2008). 17Government of Vanuatu (2010). 18Ibid. 19Interview with Peter Rush Iesul, Farming System Officer, Department of Agriculture, Port Vila 2011.

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 14 - The increasing consumption of imported food throughout Vanuatu, and particularly in urban and peri-urban settings, is due in part to the urban poor lacking direct access to land and a lack of affordable locally produced food in domestic markets. There is considerable potential for providing locally grown food to Vanuatu's markets, and this will to increase food security through building resilience to future food crises and providing cash income to farmers.

Figure 1: Declining productivity and increasing population from 1961-2009

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Source: FAO / World Bank Environmental impacts of agriculture Agriculture has a high environmental impact in many countries, including the pollution of water with agricultural chemicals and the destruction of soils. But as the majority of agriculture in Vanuatu is still subsistence based, the environmental impact of the sector is small in comparison to other countries. Overall, agriculture can be considered sustainable aside from isolated examples of soil erosion due to monoculture, and low levels of deforestation to clear land for cropping. However, agriculture is at risk of becoming unsustainable as population growth is leading to a shorter rotation cycle, and the number of large commercial plantations and farms is increasing (especially for copra and beef farming). Further commercialisation of agriculture is important, as it will result in poverty reduction. But expansion must occur sustainably, and minimising the impact of agriculture on the environment will require strengthened government regulations and innovative policy solutions. These could include the use of green market mechanisms. For example, requiring commercial farms to pay an environmental bond which will be distributed back to the farmer based on environmental performance, or PES schemes to compensate farmers for the environmental assets present on their land.

Food security Vanuatu topped the World Risk Report 2011 for all the wrong reasons.20 It is highly vulnerable to cyclones and earthquakes, and these events can result in food insecurity as crops are destroyed and food supplies are reduced. Traditional risk management and food preservation strategies have been used historically to cope

20Institute for Environment and Human Security (2011).

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 15 - with the natural disasters plaguing the region. For example, people on Tanna, an island in Vanuatu’s south, preserve food by burying crops, such as breadfruit and yams, to maintain food security when a disaster disrupts production. These techniques are cost effective and can sufficiently manage the particular risks faced by Vanuatu's different islands. The risk of certain natural disasters, such as cyclones, is predicted to increase as a result of climate change, and encouraging the use of these techniques is a cost effective way to improve resilience. However, the use of traditional techniques is in decline. This is due perhaps to an increased supply of imports in rural markets or possibly because development agencies distribute food aid in times of disaster. The frequency and cost of natural disasters will only worsen as climate change becomes more severe. Throughout Vanuatu, a number of food security strengthening projects are being implemented to build resilience and adapt to expected climate impacts. For example, at Teouma bush community, a village near Port Vila, a project is being undertaken as part of the Coping with Climate Change in the Pacific Islands Region (CCCPIR) programme to develop crops resistant to climate change.21 In this specific project, different varieties of traditional crops, such as sweet potato, are chosen and tested under various climatic conditions at Teouma to determine the most resistant varietal. Projects like this are cost effective and useful for finding indigenous crop varietals resistant to salinisation and other predicted climate impacts. In short, a number of changes are required if agriculture is to drive rural poverty alleviation and contribute to green economic growth.

• First, a key comparative advantage in Vanuatu is high value agricultural products, such as organic food, and focusing on these products could lead to increased export revenues.

• Second, increasing processing capacity to develop value-added products could also boost export revenues and help overcome trade quarantine issues (which currently constrain Vanuatu's exporting potential).

• Third, improved food security and reduced poverty will result with more locally produced food supplied to local markets, in particular the tourism market. But this will also require investing in infrastructure and overcoming shipping and other infrastructural monopolies.

• Fourth, transformation of the agricultural sector will require a sustainable agriculture roadmap which integrates traditional production systems with modern technologies and green economic management. Energy and transport

Renewable energy opportunities

Unlike Fiji which can use hydro power on one island to support most of the population, or Nauru which aims to be 100 per cent solar powered to support its small population on one main island, Vanuatu must experiment with a variety of different renewable energy technologies appropriate to its dispersed population. A small percentage of the commercial energy is currently generated from renewable sources, but the vast majority of on-grid electricity in Vanuatu is generated by imported diesel fuel. This is a major cause of energy insecurity, with particularly volatile world fuel prices in recent years. Vanuatu's economy is not immune to oil price shocks, as illustrated by the high domestic fuel prices throughout the 2008 global energy crisis.

21Secretariat of the Pacific Community (2010).

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 16 -

Figure 2: Vanuatu and World oil prices (Index: Y 2002 = 100)

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Source: Prices: World Bank / Exchange rates: IMF Currently, a range of stakeholders are involved in renewable energy initiatives in Vanuatu, with the private sector, government bodies and NGOs all active in building up the sector. A Utilities Regulator has been put in place to set the price of electricity and act as a watchdog on the dominant energy provider, the French Suez company UNELCO, which has enjoyed a monopoly in almost all urban areas since Vanuatu’s independence in 1980, although this monopoly came to an end recently with the concession for electricity on Santo (Vanuatu’s largest island in the north of the country) having been awarded to a competitor, Pernix. Vanuatu has among the highest electricity prices in the world and its moves towards developing a renewable energy economy are hindered by the presence of the UNELCO monopoly. Moving to a more competitive system can result in lower prices and also lead to more innovation around renewable energy development. UNELCO aims to have 30 percent of its electricity generated by renewable means by 2020 (currently it is about 16 per cent), but this is unambitious given the progress made by other PICs in mainstreaming renewable energy. But as UNELCO only provides electricity to 'on-grid' urban areas, there is an opportunity for more ambitious policies to target increased renewable energy provision to 'off-grid' areas. The majority of households are currently off-grid, as electricity infrastructure is not present in rural areas and on most islands. Most of the private businesses involved in the renewable sector are concentrating on solar power, and this industry is growing rapidly, with estimates suggesting a doubling in size every year. At a 2011 conference in Samoa on developing green economies, a Vanuatu delegate, Trinison Tarivonda, outlined Vanuatu’s renewable energy efforts, noting that the country is experimenting with small-scale wind, solar, bio-gas and bio-fuel generation. 'Solar energy has been going on several years now and this is serving the electricity needs of about ten per cent of the population. Wind energy is being trialled in six islands and hopefully this will get off the ground too. In the island of Santo, we are using coconut to provide electricity to about 200 households.'22 Tarivonda also identified some of the constraints in renewable projects as being high maintenance costs, lack of funds to start projects and lack of expertise.

22Komai, M. (2011).

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 17 - While solar energy has been identified as having the most potential, other renewable energy options are also feasible in Vanuatu. Further opportunities include biomass, which currently provides about 50 per cent of off-grid energy production mostly from timber and coconut products.23 In addition, according to the Utilities Regulatory Authority (URA), hydropower and wind power currently provide for 'on-grid' generation of 5 cent gross and 10 per cent of national energy production respectively.24 Vanuatu also has rich geothermal resources, and the government is currently exploring geothermal options with an Australian company, Kuth Energy, that could provide eight megawatts of baseload power for Efate by 2018. This according to, Brian Phillips, the coordinator of the National Advisory Committee on Climate Change (NACCC), is above the current baseload requirements for Efate. But Mr Phillips notes that there are also constraints to implementing geothermal power: 'But that deal will depend a lot on whether UNELCO can offer an economically-viable purchasing price for geothermal energy supplied by Kuth Energy, but a geothermal option would also require the use of powerlines around Efate that are part of UNELCO’s concession. At this stage Kuth Energy says UNELCO’s offer on a purchasing price is significantly below what is required to make the project viable.'25 The URA was developed in 2008, with a mandate to improve the provision of reliable and affordable electricity and water services to the country and to expand these services into more areas. The regulator has successfully reduced the price of electricity, through facilitating a formal tariff review process between the government and UNELCO. But the regulator cannot pressure UNELCO to increase renewable energy generation. 'Mr Nima Heschmat at URA suggests that there is no incentive for UNELCO to use renewables unless they invest in a project themselves. Otherwise it must come from donors. Similarly, there aren’t many incentives coming from government either to support renewables. However one step in this direction came with an amendment to the Electricity Supply Act which now allows electricity self-generation, but this too depends on UNELCO. Self-generation is allowed but not sold in UNELCO’s concession area.'26 The government is also working on a national policy roadmap, which is scheduled to be available later in 2012, to provide the blueprint for renewable energy action. This will assess a number of areas considered strategic to Vanuatu's energy development, and will put forward a number of goals around increasing the supply of renewable energy in Vanuatu. A key goal going into the future is to make Efate island carbon neutral by 2020. The government could also do more to help the renewable energy sector by removing tariffs on imported renewable technology products. To its credit, the government has removed all import duty on solar panels, but there is a range of other renewable energy products that still attract duty. For instance solar refrigerators have a 25 per cent import duty and batteries needed to store solar energy have a 15 per cent import duty. Further reforms could include removing import taxes on all green technology products. Given the geographic dispersion of Vanuatu's population, transport and shipping is a major consumer of oil. Fuel needs for transport to remote islands are especially high, and there may be an opportunity for coconut- based biofuels to be used for shipping in the future. In 2006, the government decreed that all government- owned diesel vehicles must run on coconut oil. At least 20 vehicles were converted and two biofuel stations were created. This was an ambitious idea, but the project failed because of rising copra prices.27 This was a good example of a green budget reform, and perhaps development assistance could be used to revive this

23Small Island Developing States Network (2010). 24Interview with Nima Heschmat, Utility Regulatory Authority, Port Vila, 2012. 25Interview with Brian Phillips, Coordinator, National Advisory Committee on Climate Change, Port Vila 2012. 26Interview with Nima Heschmat, Utility Regulatory Authority, Port Vila, 2012. 27United Nations (2010).

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 18 - program in the future. But as biofuel crops are often in direct competition with land for food crops, careful expansion of this industry is required.

The Clean Development Mechanism Vanuatu also needs to position itself to benefit from international assistance for moving towards renewable energy development. Environmental investment and credit schemes, such as the Clean Development Mechanism (CDM) can be used to raise much needed capital for renewable energy projects that result in emissions reductions. But for a project to qualify for the CDM, emission reductions must be additional to what would otherwise have occurred. In addition, there are a number of other rigorous requirements needed for qualifying for the CDM and these have made it difficult for SIDS to access the CDM. To assist with overcoming these barriers, the donor community has been building government capacity. For example, the ADB is currently working with the Government of Vanuatu to build a CDM registered biogas project that will be attached to a sludge treatment plant.28 There is a broad consensus among the political leadership and community at large that a renewable energy economy is necessary for both environmental and economic reasons. There is also a danger, however, that climate change funding through frameworks such as the CDM may be seen as a new 'cargo cult' with a rush to access funds for projects that may not be well-thought out. With so many organisations and people looking to access this new source of funding, careful planning and coordination between stakeholders needs to take place to ensure that renewable energy projects are a strong driver of green economic growth. Moreover, due to opportunities for fraud, problems have already emerged with carbon credit markets in the US, Europe and Australia. To this end, Vanuatu will require proper oversight, perhaps even a carbon credit regulator of sorts. Legislation, standardisation and quality control on imported technology will need to be better managed to ensure Vanuatu adopts best practice to deal with this new and fast-changing sector. Since Australia recently passed legislation creating a price on carbon and suggesting up to half of carbon credits can be sourced overseas, there is an opportunity for Vanuatu to benefit from this carbon credit market if stakeholders come together to establish a national legal framework and suitable policy. Tourism

Tourism’s role in the green economy As with many other PICs, the tourism sector in Vanuatu is the dominant service industry, the largest foreign exchange earner and one of the key contributors to economic success in recent years. Due to this prominence of tourism, the sector has a major impact on Vanuatu's green growth prospects. Throughout Vanuatu, tourism has high poverty alleviation potential, especially on outer islands. This is illustrated by economic estimates from 2009, which indicate that tourism contributed to more than 40 per cent to gross GDP and employed up to 6,000 ni-Vanuatu people.29 But without proper planning and management, tourism can also result in significant adverse environmental impacts – as tourism is a high consumer of resources and producer of pollution, and also has a high impact on coastal areas. It is imperative, therefore, that the development of tourism be carefully planned, particularly in relation to land, coastal and water management. Tourism, as with all forms of resource intensive development, needs to be carefully integrated within existing environmental constraints and opportunities present within Vanuatu. Moreover, developing a national sustainable tourism strategy, which incorporates strategic environmental assessment and sustainable consumption and production practices will help to ensure that the inevitable environmental impacts of tourism are minimised.

28Asian Development Bank (2011). 29Vanuatu Investment Promotion Authority (2010a).

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 19 - There are a number of opportunities where tourism can contribute to both economic growth and environmental protection. For example, eco-tourism, which synthesises areas of high ecological value and low-impact tourism, can provide important and environmentally sustainable opportunities for tourism development throughout Vanuatu. Another way to increase sustainability is to set minimum standards for tourism operations, in line with the Marrakesh Process recommendations, and organisations such as the Sustainable Tourism Stewardship Council (STSC) have been established to develop certification programs and accredit tourism operators.30 Implementing a green tax on tourism will also assist with reducing the environmental impacts of tourism. For example, Palau has a green tax on hotel rooms and departure tax, and since the launch of this tax in November 2009, approximately USD 2.3 million has been raised for local community conservation efforts. The Palau Green Fee has been regarded by the Secretariat of the Pacific Regional Environment Program (SPREP) as a success, and could perhaps be replicated in Vanuatu.31 But as Vanuatu is already considered a high cost destination, care would need to be taken to not negatively affect tourism inflows by making Vanuatu uncompetitive with other key tourist markets in the region – and therefore research would be required for setting the optimal tax rate. Nonetheless, a green tax on tourism is an economically efficient policy, as the environmental impact of tourism is high and the tourism sector benefits directly from maintaining pristine environmental quality. Investment in tourism, particularly for the associated infrastructure, is costly in terms of capital and alternative opportunities, as there is high competition for land resources between tourism, agriculture and other land uses. The overdevelopment of tourism in particular areas could be environmentally, economically and culturally disruptive and detrimental to other valuable sectors for Vanuatu's economy, such as agriculture. There are also constraints to tourism expansion in Vanuatu. Other PICs, especially Fiji, are in direct competition for tourists from Australia, New Zealand and other Asia Pacific countries, and hotels and resorts around the country have protested the high cost of electricity, claiming it adds roughly a third to the cost of rooms.

In recent years, a positive growth area for tourism in Vanuatu has been the increase in cruise ship visits to Vanuatu from Australia and New Zealand. The number of cruise ship arrivals has grown significantly over the last three years, and this has resulted in a largely positive contribution to the local economy, without the environmental impacts from land-based tourism. The per-visitor contribution to the Vanuatu economy is slightly higher for visitors arriving by air than cruise ships, due to their longer stay, but this is offset by the far higher number of tourist arrivals by cruise ships.32 There are plans to build a new wharf in Port Vila to enable increased numbers of cruise ships to dock; and while this is a positive development for Vanuatu's economy, infrastructure projects will need to be planned carefully to ensure that negative environmental and social impacts are minimal.

Attracting investment Tourism can also generate significant inflows of foreign direct investment (FDI), through hotel construction and other tourism related developments. Tourism FDI has a high potential for contributing to equitable poverty-alleviating economic growth, as these developments bring much needed capital into Vanuatu and can have positive impacts on communities through, for example, increasing employment opportunities. But for tourism developments to contribute to green economic growth, more vocational education is necessary to ensure that Vanuatu's workforce is suitably trained for working in this sector. The incorporation of sustainability into these training programs will also help to ensure that green tourism is mainstreamed. But FDI inflows can also create social and cultural issues. For instance, the majority of the Efate coastline is

30International Task Force on Sustainable Tourism Development (2009). 31Secretariat of Pacific Regional Environment Program (2012). 32Government of Vanuatu (2011).

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 20 - reportedly now under foreign control (in the form of long-term leases).33 These land transactions take place between the traditional owners and the developers, and this can create problems as no regulatory authority is in place for strategic oversight (for determining what level of foreign land control is in the national interest) or mediating if disputes take place between landowners and tourist operators. Mining

Developing sustainable mining While no mining activity of any consequence is currently taking place in Vanuatu, the mining sector is potentially a key driver of green growth. Up until 1980, manganese mining took place on Efate and there is the possibility for manganese to contribute to economic growth in the future with contracts for future exports planned. There are also terrestrial gold and copper deposits present on other islands, and significant high-quality limestone deposits have been found on Espiritu Santo, Vanuatu's largest island. And in recent years, PICs have been assessing how deep-sea mining opportunities can expand the resource base of the regions economies. Vanuatu has significant deep-water deposits of seafloor massive sulphides (SMS) associated with Vanuatu’s submarine volcanic activity. SMS deposits accumulate below the sea floor, and a number of highly valued metals are associated with these deposits, including copper, zinc, lead, silver and gold.34 While both terrestrial and deep-sea mining provide significant development opportunities for Vanuatu's transition to green economic growth, the expansion of the mining sector in most developing countries has led to sub-optimal economic and social outcomes and costly environmental degradation. This is mainly due to ineffective redistribution of benefits and inadequate government regulation and legislation. The mining sector is an important driver of economic development in other Melanesian countries, particularly Papua New Guinea, but it has also resulted in negative impacts, including land degradation, government corruption and violent conflict. Therefore developing strong institutions — particularly foreign investment review mechanisms, resource tax architecture to redistribute benefits and environmental assessment processes — will be vital for ensuring mining results in green economic growth in Vanuatu.

Deep-sea mining International mining companies are currently exploring Vanuatu's seafloor for SMS deposits, but appropriate regulation and legislation needs to be in place before mining commences. The Deep Sea Mineral Project, a joint Secretariat for the Pacific Community and European Union program, is currently assisting the Government of Vanuatu to develop the institutions required for a viable sustainable deep-sea marine minerals industry. In particular, this project is focusing on regionally integrated legal frameworks, improved human and technical capacity and effective environmental monitoring systems.35 Deep-sea minerals can potentially support Vanuatu's development ambitions through foreign investment, export earnings and government revenues. And with correct management, these assets could be converted into jobs, infrastructure, public service improvements and growth in the domestic private sector. But as with conventional mining, society has to balance the importance of short term financial return with long-term economic objectives, in particular the development of livelihoods and the preservation of environmental sustainability.36 As with other mineral resources, Vanuatu's SMS resources are exhaustible, and thus planning across generations is also vital for the equitable extraction of these resources. For deep-sea mining to contribute to Vanuatu's transition to a 'green economy in a blue world', the economic value of resource extraction needs to include associated social and environmental impacts. Determining the

33Slatter, C. (2006). 34International Seabed Authority (2008). 35Secretariat of the Pacific Community (2011a). 36United Nations Environment Program (2012).

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 21 - true cost of deep-sea mining is challenging as the deep-sea environment is one of the least understood regions of the planet, and thus extracting these resources has a high environmental risk.37 To this end, for deep-sea mining to contribute to the green economy, it is vital that further research takes place into these sensitive deep-sea marine environments to avoid costly consequences through the deterioration of the marine environment and the loss of unaccounted ecosystem services. Forest resources

Forestry and the green economy Forests are key for subsistence life in Vanuatu, with an estimated 80 per cent of the population depending, in part, on forest resources for their livelihoods, including for food, and materials to build shelter. Natural forest cover in Vanuatu (444,000 hectares) is at 36 per cent of the total land area, which is significantly lower than other Melanesian countries but higher than the global average (see appendix Figure 3). Throughout the 1980s and 1990s high value forests were unsustainably exploited, resulting in significant decline of natural forest cover. The government imposed a ban on round log exports in 1998.38 Due to this ban, the total volume of timber harvested dropped significantly in the 2000s. Currently, the harvest size is below the sustainable yield (or the optimal harvest size that does not impact on sustainability), but at least 40 per cent of commercial forests are degraded from past mismanagement. Vanuatu’s commercial forestry goal is for 20,000 hectares of timber plantations by 2022. As the local forestry industry is now largely moribund, timber is currently imported to meet local demand. But there are a number of forestry programs in place to build commercial opportunities, improve sustainable management, and increase the supply of local timber on domestic markets. The International Tropical Timber Organization (ITTO) has an ongoing project on restocking natural forest areas. Also, the Vanuatu Biodiversity Conversation Trust Fund has been established to provide a continuous source of financial assistance for the retention of forests in Vanuatu and related biological conservation, and the Trust Fund is funding the lease for a 3,202 ha Kauri Forest Reserve in Erromango, an island in the southernmost province of Vanuatu.39 Forestry resources are managed by the Department of Forests, and the Forestry Act (2001) provides the legal framework for the protection, development and sustainable management of forests and the forest industry. All forests in Vanuatu are owned by indigenous landowners, and the Forestry Act requires non-custom owners or commercial forestry operators to obtain licences and permits in order to undertake commercial forestry operations. The only exception to this is if timber is extracted for supply to other ni-Vanuatu, and this aspect of the legislation could potentially constrain efforts to reduce small-scale deforestation rates.31 The rate of deforestation is currently low in Vanuatu, and is caused by low-levels of timber harvesting; subsistence land use; and natural events, including cyclones and volcanic eruptions. In recent years, the conversion of forested land for agriculture and subdivisions has been the most prominent causes of deforestation.40 Prior to the 1998 ban on round-wood exports, activities by foreign logging companies resulted in forest degradation through high intensity selective logging. There is also the possibility that once suitable timber stocks are exhausted in Solomon Islands, foreign logging companies will attempt to unsustainably harvest forest stocks in Vanuatu.

This is an ideal time to overhaul the forest sector to minimise current and future deforestation and land degradation pressures, and utilise forests as key drivers of green growth. Investing in sustainable commercial forestry potential will help to build economic growth potential, but the economic opportunities

37Secretariat of the Pacific Community (2011a). 38Asian Development Bank (2007). 39Ibid. 40The Forest Carbon Partnership Facility (2008).

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 22 - of forest protection must also be realised. However, any alternative to forestry also needs to contribute to economic development, as forest protection often results in lost economic opportunities. This issue can be resolved, in part, by emphasising that forestry and agriculture are not mutually exclusive. Building strong agroforestry capability will reduce the need to harvest forests for food production while also allowing limited timber harvests. The Vanuatu Department of Forests has shown interest in agroforestry, and this could perhaps be accompanied by the establishment of an agroforestry unit in Vanuatu that could have a wider application to Melanesian forest management.32 As agroforestry also has a high potential for carbon sequestration, there are also economic opportunities from payment for ecosystem service schemes such as Reducing Emissions from Deforestation and Land Degradation (REDD+). It has long been understood that forests play a vital role in acting as 'carbon sinks' to absorb carbon emissions, and afforestation and reforestation can play key roles in meeting the development needs of Vanuatu through REDD+.

Reducing Emissions From Deforestation and Land Degradation (REDD+)

The aim of REDD+ is to create a financial value for the carbon stored in forests, thereby incentivising sustainable management of forests and enhancement of forest carbon stocks. It is predicted that financial flows for greenhouse gas emission reductions from REDD+ could reach up to US$30 billion a year globally. REDD+ investments could be a significant driver of green growth in Vanuatu through reducing poverty while mitigating against climate change. There are also many co-benefits associated with REDD+ activities. Forests provide an important range of ecosystem services, including watershed protection, biological diversity, and non-timber forest products, local-climate regulation and tourism assets. These co-benefits are important for Vanuatu's economy and culture, and therefore climate change mitigation is just one part of a larger set of benefits resulting from protecting Vanuatu's forests. In addition to climate change mitigation possibilities, REDD+ protects other internationally valued assets, such as genetic resources and possible pharmaceutical products. There is also the opportunity for these assets to contribute to green economic growth through, for example, well-regulated bio-prospecting. But there are many challenges associated with the establishment of REDD+ in Vanuatu. These include, obtaining accurate data on deforestation for determining baseline trends of past deforestation, and putting in place structures to channel finance to appropriate actions. While discussions on are ongoing, REDD+ is expected to be included in the post-2012 global climate architecture. PES mechanisms can also play a significant role outside of the global climate change regime, through voluntary market transactions and regional and bilateral agreements. For example, the Government of Norway has provided Indonesia with up to USD 1 billion for financing for REDD+ activities. In addition to REDD+ investments, it would be beneficial for the Government of Vanuatu to explore alternative options similar to the Norway-Indonesia deal, which may include setting up a domestic market for carbon in forests that could be used as an offset for international partners. The Government of Vanuatu has made preparations for REDD+, but the Department of Forests needs significant additional capacity to manage and monitor activities expected under REDD+. Initial preparations have involved identifying priority activities and pilot sites, and developing required governance structures. And consultation with stakeholders is particularly important in the Vanuatu context, as all forest areas are owned by indigenous people. REDD+ will need to involve these people in decisions about the future management of their forest resources as an integral part of any future management regime for Vanuatu’s forests. Because of the lack of government capacity, this process is highly complicated and it might be several years before REDD+ can function in Vanuatu.

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 23 - Climate change adaptation

Climate change is the defining issue of this century for the Pacific. The livelihoods of Vanuatu's people are at risk from a range of predicted climate change impacts: rising sea levels, increased severity of cyclones and other natural disasters, coral reef degradation from ocean acidification, and impacts of rising temperatures on agriculture and other key sectors. To some degree, many of these impacts are now unavoidable due to latent inertia in the climate system from greenhouse gases emitted over the past century. Because of the severity of the predicted impacts, and also because Vanuatu's total greenhouse gas emissions are less than 0.001 per cent of global emissions, the main policy priority should be climate change adaptation not mitigation.41 In select cases, however, climate change mitigation should take place, but only if co-benefits can be realised – for example, through the use of green market mechanisms such as REDD+ or the CDM. Wide-scale climate change adaptation is needed In Vanuatu, as every sector and every community will be negatively affected by climate change. But as predicting the impacts of climate change is difficult in Vanuatu, particularly at the local level, building nationwide resilience to climate change is an essential climate change adaptation strategy. The concept of resilience has also gained prominence at the global level, featuring prominently in successive reports of the Intergovernmental Panel on Climate Change (IPCC). In the context of climate change, the IPCC Fourth Assessment Report describes resilience as the ability of a social or ecological system to absorb disturbances while retaining the same basic structure and ways of functioning, the capacity for self-organisation and the capacity to adapt to stress and change.42

Adaptation approaches must be flexible and span a continuum of responses, from those that are entirely justified by specific impacts on specific locations to those that represent sound development practice and confer benefits under a wide range of potential climatic conditions, even in the absence of climate change.43 The latter no-regrets approach can deliver a range of co-benefits by keeping the focus on development and poverty reduction.

Vanuatu arguably has the highest natural disaster risk in the world, and climate change will increase both the severity and frequency of particular natural disasters.44 Thus, building resilience to natural disasters is a vital feature of the green economy. Without sufficient natural disaster preparedness, recent successes made in poverty reduction and economic development will be at risk. Climate change adaptation finance can be used to develop monitoring and early warning systems for natural disasters, and also for funding disaster relief programs. But tradition and custom are also important for climate change adaptation. Traditional techniques are cost effective, location specific means for building resilience to future climate change impacts. Those communities that are most at risk from climate change, particularly low lying atolls in the Banks and Torres islands in northern Vanuatu, have already started adapting to climate change by moving inland as higher tides erode their coastal communities. In some ways they are simply reverting back to their old ways. Before the arrival of European traders and missionaries, most islanders lived inland, since coastal living resulted in vulnerability to cyclones and other natural disasters. Adaptation strategies could also focus on strengthening other traditions, such as traditional food preservation to cope with food shortages after natural disasters. By continuing to use traditional strategies – and improving these through research – important cultural practices can be preserved while concurrently achieving cost effective climate change adaption. This will also allow the allocation of government

41United Nations (2010). 42IPCC (2007). 43United Nations and Asian Development Bank (2012). 44Institute for Environment and Human Security (2011).

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 24 - resources to more pressing issues, such as increasing the provision of education and healthcare – both of which are also vital for climate change adaption.

The capacity to deal with climate change risks also depends on socio-economic factors, such as the income and education levels of individuals in Vanuatu's communities. These factors can be augmented by international climate change assistance, from the donor community and multilateral funds. For instance, from the United Nations Framework Convention on Climate Change 'Cancun Accord', more developed countries have proposed the 'Green Climate Fund' which aims to allocate USD 100 billion annually by 2020 for adaptation and mitigation efforts in lesser developed countries.

Climate change adaptation finance is potentially a significant source of funding for Vanuatu, and the government should be gearing up to take maximum advantage of these opportunities. But there are a number of blockages to Vanuatu accessing international finance for adapting to climate change. The Government of Vanuatu lacks the capacity to fulfil many of the stringent requirements required to access the finance, and in some instances this process can take many years to complete before the funding is unlocked. While these requirements are important for reducing the chance of funds being misused or misappropriated, donors need to provide capacity building to the government for the application process, expedite the funding processes 45 and provide further support for determining the priorities for adaptation.

45Vanuatu has undertaken a National Adaptation Program of Action to identify priority activities. For more information see United Nations Development Program (2007).

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 25 - 4. Mechanisms to mainstream green

growth opportunities National mechanisms In recent years, the Government of Vanuatu has published a range of documents on its medium term strategy. While environmental issues are increasingly seen as 'cross-cutting' by policymakers, many of these planning documents do not cover sustainability, or green growth, in sufficient detail. For example, the medium-term national planning document, 'Priorities and Action Agenda 2006-2015', identifies seven strategic priorities, all of which could pertain to the development of the green economy.46 The priorities identified include private sector development and employment creation; good governance and public sector reform and primary sector development. But only the latter priority focuses on achieving environmental protection, and for mainstreaming to occur, a coordinated and planned approach between all relevant sectors and government departments is required. Currently, there is a National Energy Policy Framework and a Disaster Risk Reduction and Disaster Management National Action Plan but no roadmap for achieving broad-based sustainable development in Vanuatu. This roadmap could improve the coordination of green growth actions between government departments and agencies. It could also provide a plan for government departments that are essential for achieving green growth in Vanuatu, for example the Ministry of Commerce, Industry and Tourism, but have not yet integrated sustainability into their policymaking processes. As well as a green growth roadmap, the mainstreaming of sustainable development could occur via the establishment of a National Council on Sustainable Development (NCSD) – this has been proposed by the government previously.47 The members of the council would need to include key stakeholders with a broad representation. The main objective of the council could involve oversight of green growth implementation by acting as a sustainable development social planner, or it could contribute to Vanuatu acting on its international sustainability commitments. There are provisions under the Environmental Management and Conservation Act 2002 to create a Department of Environment and Conservation, but after ten years this is yet to happen. The Environment Unit is currently located in the Ministry of Lands, Geology and Mines, which is not the most suitable arrangement with mining interest increasing and land development being a key driver of environmental degradation in Vanuatu. A standalone Ministry for the Environment and Conservation may overcome this possible conflict of interest. More importantly, this ministry could mainstream sustainable development approaches within the government and also assist with coordinating green growth policy making across sector agencies. Previous analysis, including a consultation by the Asian Development Bank in 2007, found that funding for environmental protection and management was inadequate and accounted for less than one per cent of the total budget.48 This appears to be unchanged in the 2012 budget, with the budget appropriation to the Environment Unit, for example, only totalling 0.001 per cent.49 Therefore, capacity building is necessary for government bodies to have the resources required to implement green growth. But as with other SIDs, there is limited fiscal capacity in Vanuatu for increasing the size of government departments.

46Government of Vanuatu (2006). 47Government of Vanuatu (2007). 48Asian Development Bank (2007). 49Government of Vanuatu (2012a).

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 26 - These capacity constraints could be overcome by increasing the revenue of departments focusing on environmental policymaking. According to the 2012 Budget Document, the current revenue for the Environment Unit of the Ministry of Lands, Geology and Mines is less than 0.1 per cent of total government revenue.50 And with high levels of construction in recent years, the amount of revenue from environmental impact assessments is particularly low at only a third (equating to USD 11,000) of the total annual Environment Unit revenue. This illustrates both the lack of appropriate environmental regulation and lack of enforcement measures present in Vanuatu and the vast opportunities available for implementing policy mechanisms to achieve green growth. The Environment Unit could use a market-based mechanism, such as a performance bond on land developers, which would be both reduce levels of land degradation and also raise finance for underfunded sustainability programs. Due perhaps to the significant levels of international assistance available for climate change adaptation and mitigation and also the onerous requirements for accessing this funding, the government has successfully implemented a peak coordinating body for climate change. The NACCC is the government umbrella group aiming to co-ordinate a whole-of-government approach to issues around climate change, including the management of CDM and REDD+. The NACCC combines the department heads of many government ministries and agencies and has a secretariat based at the Vanuatu Meteorological Services Office. The present chairman of NACCC, Jotham Napat, notes that challenges for mainstreaming climate change policies are similar to the challenges faced by other departments, including combining the input from all relevant departments to co-ordinate activities with government and donors. Mr Napat identified a need for institutional strengthening and expert help in developing projects such as the 'infrastructure masterplan' to integrate renewable energy – which the government is currently implementing. According to Mr Napat, one billion vatu has been budgeted to implement a national adaptation plan, but developing a policy base and necessary legislation is still required to mainstream climate change adaptation.51 In establishing a 'whole of government' approach the NACCC has achieved what an overarching body tasked with implementing green growth should model itself on. In addition to using government to implement green growth, engaging with and mobilising civil society, the private sector and the community is also required for mainstreaming green growth. The Vanuatu Association of NGOs (VANGO) has a Memorandum of Understanding with the Government of Vanuatu which allows it to receive support from donor countries and the government. Civil society is growing in strength in Vanuatu and has achieved coalition building around disaster response and climate change adaptation, and VANGO is potentially an important coalition for pressuring the government to improve environmental management. The private sector is currently not an active player in green growth in Vanuatu, as there are no strong incentives for greening business and implementing sustainable consumption or production mechanisms. The government should build a close relationship with the private sector, especially the tourism industry, to build business awareness of emerging environmental problems and collaborate to establish least-cost solutions to these issues. Mainstreaming of green growth in Vanuatu is likely require the private sector to pay for the ecosystem services used and the pollution resulting from unsustainable consumption and production through, for example, a green tax on hotel rooms; therefore it is preferable that the private sector be recognised as a key stakeholder in this process at as early a stage as possible. Finally, a strong government relationship with communities is also essential for mainstreaming green growth. This is because the subsistence agriculture and fisheries sector, which is the largest employer in Vanuatu and potentially the most effective sector for broad based poverty reduction, is largely out of the purview of the state. These resources are regulated via CBNRM, which is essential for maintaining the supply of natural assets throughout the country. To cope with future pressures, including population growth

50Government of Vanuatu (2012a). 51Interview with Jotham Napat, Chairman, National Advisory Council on Climate Change, Port Vila, 2012.

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 27 - and climate change, CBNRM needs to be strengthened and given greater formal power through an inclusive and consultative approach. In short, Vanuatu’s ability to move to a green economy will be mainstreamed when government builds capacity and effectively utilises relevant ministries and departments into a whole-of-government approach; when sustainability is incentivised in the private sector, through government consultation and green business approaches; and when the resilience of CBNRM is increased to withstand future pressures on local society and its natural environment.

Regional mechanisms Increased regional co-operation on green growth and the blue economy has taken place in recent years, especially in preparation for the 2012 United Nations Conference on Sustainable Development (Rio+20). Vanuatu has much to gain from regional co-operation to develop mechanisms for mainstreaming green growth, as similar opportunities and challenges are present in all PICs. Three key areas where opportunities and challenges align for the Pacific region are fisheries management, deep-sea mining and climate change adaptation. First, all of the region’s countries are implementing policies to maximise revenue flows and improve the sustainability of fisheries. The Pacific's tuna fishery is the most important in this regard, as it is a transboundary resource, and since PICs can work together to get more equitable access-fee arrangements. Second, deep-sea mining has gained traction in recent years as exploration of the Pacific has demonstrated the extent of seabed mineral deposits, and technological developments have made deep-sea mining cost effective. While this resource has potential as a driver of the blue economy, the region needs to collaborate to ensure that strong regulations are developed to ensure mining is environmentally, economically and socially sustainable. Last, climate change is a major development issue for all PICs, and regional collaboration on adapting to impacts in key sectors such as agriculture, renewable energy, and tourism will ensure that best-practice solutions are shared between countries. Additionally, regional co-operation on climate change finance is also important for ensuring that the Pacific gets the best deal possible from the international community. Vanuatu is an active member of a variety of sub-regional and regional organisations that are focusing on achieving green growth, including the Melanesian Spearhead Group (MSG), the Pacific Islands Forum (PIF) and the South Pacific Regional Environment program (SPREP). One of the main blockages the Pacific needs to overcome at present is the failure of the donor community to provide funds they have pledged at large international forums. The bureaucracy involved in applying for project funding and slow disbursal of pledged funds has hindered progress towards combating climate change in many PICs, including Vanuatu. At the sub-regional level, MSG member countries, including Vanuatu, have recently agreed to a number of commitments that will assist with mainstreaming green growth. The MSG Declaration on Environment and Climate contains commitments to sustainably manage terrestrial ecosystems (Melanesia Terrestrial Commitment) and for using coastal ecosystems to adapt to climate change (Melanesia Blue Carbon Initiative). Also, agreed upon was a Framework for Green Growth, and an implementation framework will be developed by the MSG countries for Rio+20.52 Further to this, a number regional conferences have attempted to work through environmental issues facing the region: Fiji hosted the annual meeting of the Pacific Islands Roundtable for Nature Conservation in 2011 (PIRNC) whose delegates were told that Pacific economies need to go green if the region is to ensure its economic viability. PIRNC Chairman Taholo Kami noted: ‘We may not have a choice. For us, without our environment and unique societies, we have little else to offer to the global market. After the first United Nations Conference on Sustainable

52International Union for Conservation of Nature (2012).

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 28 - Development in 1992, the world is facing the consequences of ignoring the principles of sustainable development. Today to deal with the consequences we need a green economy approach'.53 Also in 2011, Samoa hosted a gathering of Pacific Finance and Environment Ministers, funded through the United Nations, PIF and SPREP. It sought to discuss opportunities and challenges for building green economies in the region; this was the first in a series of preparatory meetings for of Rio+20. There are a number of benefits for Vanuatu from membership in sub-regional and regional organisations, including the collective action power provided by acting as a regional bloc at the international level. Vanuatu can communicate its needs through a Pacific voice, which is louder and more-resourced than it can muster individually. And as many of the Pacific's needs align in the green growth area working as a region at the international level may be an effective approach.

International mechanisms

The international community can assist Vanuatu in its transition to green growth by providing environmental finance and reaffirming its commitment to limiting degradation of global environmental systems. Vanuatu is not responsible for climate change or the financial, fuel and food crises afflicting the world, but has to face the resulting impacts on development gains and threats to the survival of community livelihoods.

These inequities can be resolved though international assistance to build resilience and achieve sustainable development in Vanuatu. Recent research on 'Pacific Futures' by the World Bank Pacific Unit has highlighted the vulnerability of Vanuatu and the Pacific, and the limited capacity for the region to follow the conventional development path.54 Therefore, long-term assistance by the international community is necessary if sustainable development and poverty reduction is to occur. At various forums, the international community has expressed a willingness to commit to assisting the Pacific, but more developed nations have not met their commitments for funding sustainable development or climate change mitigation and adaptation.

In addition, environmental finance that has been channelled through global mechanisms, such as REDD+ or the CDM, has not been designed to account for capacity constraints or provide adequate assistance to overcome blockages. As a result, Vanuatu has not been able to access finance effectively and often has to wait years to acquire funding it urgently requires. Vanuatu, alongside other PICs, should call for the international community to improve the provision of environmental finance and ease the reporting burden required for accessing funding.

Vanuatu also has much to gain from Rio+20, especially in the area of the blue economy. Coastal and marine resources must feature prominently on the Rio+20 agenda. The Pacific has shown leadership in designing regulation for sustainable ocean management, but these efforts cannot succeed without the backing of the international community. Rio+20 should be a turning point in committing to protecting and sustainably managing the Pacific in a way that provides equitable benefits to those who rely on ocean resources for their livelihoods. Rio+20 is also an opportune moment for the international community to recommit to addressing the climate change threat, which is fundamental to sustainable development and the future of Vanuatu and other PICs. Given the vulnerability of Vanuatu as a least developed country, and development constraints faced by PICs more generally, the Pacific needs to secure deep and lasting commitments from the international community to assist in the transition to green growth.

53Kami, T. (2011). 54World Bank (2011).

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 29 -

5. Key messages and recommendations Key messages The Pacific continues to face a number of economic, environmental and social challenges, which threaten recent progress made in reducing poverty and improving livelihoods. Vanuatu's leaders and policymakers have come to realise that achieving poverty alleviation and economic development is premised on addressing convergent economic, environmental and social challenges. Green growth offers a development model that can resolve these challenges while strengthening economic growth and environmental protection. The green growth model is of particular relevance to Vanuatu because of the importance of environmentally vulnerable sectors, such as tourism and agriculture, to economic development. Recalibrating economic growth with sustainable development objectives can help build resilience in these sectors while opening new opportunities in other sectors for improving the livelihoods of people throughout Vanuatu. But most importantly, green growth offers practical and feasible solutions to a number of the economic, environmental and social challenges faced by Vanuatu, which many prior development models have espoused, but failed to achieve. An important and transformative feature of green growth is the recognition of the vital role of natural assets in economic and social development. A range of mechanisms is employed to achieve these improved outcomes, including adjusting incentives to improve environmental management by payment schemes, and harnessing public sector support of sustainability. Given Vanuatu's geography, a largely rural population and lack of resources, the green growth paths of most relevance are decentralised and localised. These mechanisms must also be implemented alongside regulatory change to build new opportunities in Vanuatu's key sectors, namely fisheries, agriculture, energy and transport, tourism, mining and forestry resources. While many elements of the broader green growth model are relevant for Vanuatu, moving toward a Pacific model of growth is also essential. This report has also called for green growth in the region that is based on marine resources. The model of a 'green economy in a blue world' was put forward by the Pacific to emphasise the importance of sustainable use of the region’s considerable marine resources to achieve strong economic growth and environmental protection. Although recent progress has been made with the establishment of the NACCC, further mainstreaming of green growth in Vanuatu is required. Establishing green growth strategies and mechanisms in Vanuatu will require integrating sustainable development into government planning processes, establishing a Ministry for the Environment, and engaging private sector and civil society to a greater degree. Combining domestic efforts with regional action will assist Vanuatu with accessing international assistance for achieving climate change adaptation and broader environmental protection. This assistance must also be used to create co-benefits to achieve sustainable development and poverty reduction, which will be achieved by channeling finance in a no-regrets approach that builds economic opportunities for Vanuatu's people. At Rio+20, the Pacific must work as a region to call for the international community to reaffirm its support for the implementation of green growth in developing countries. Achieving strong international environmental commitments, especially in relation to marine resources and climate change, is equally important for achieving a sustainable future in Vanuatu with less poverty and greater economic and social opportunity.

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 30 -

Key recommendations

• Implementing sustainable consumption and production practices, particularly toward waste management and resource use of tourism sector, is important in Vanuatu's case.

• Focus on decentralised green growth strategies, such as payment for ecosystem services or environmental performance bonds, and mechanisms rather than broader green growth paths, for example economy-wide green taxes.

• Develop domestic fishing capacity through investing in a local tuna industry and achieving a fairer deal on access arrangements while improving fisheries management by implementing traditional systems and establishing marine protected areas.

• Increase the economic opportunities of agriculture by growing high value crops and developing value-added products. Food security is also a major issue, and supplying more local produce to domestic markets will increase resilience to food price shocks.

• Fuel price shocks are increasing energy poverty and decreasing energy security, increasing the supply of renewable energy and locally grown biofuels will assist with overcoming these issues.

• Developing renewable energy via the Clean Development Mechanism has a high potential for achieving green growth, but Vanuatu requires increased capacity assistance from the international community to access this finance.

• Tourism is a vital sector for the Vanuatu economy, and green growth strategies, such as ecotourism, have a high potential as drivers of sustainable development.

• Vanuatu has significant mining potential, especially for deep-sea minerals, but for these to be key drivers of green economic growth, strong institutions are necessary.

• Forestry is potentially an important sector for Vanuatu, but it requires improved management. Additionally, REDD+ is an important component of the green economy and can achieve forest protection while providing economic opportunities.

• Climate change is the defining issue of this century for Vanuatu, and a government focus on no- regrets climate change adaptation that also increases economic development in the short-term is recommended.

• In line with past proposals, the Government of Vanuatu should establish a stand-alone Ministry for the Environment to provide oversight for mainstreaming green growth.

• Through improved regulations and stronger enforcement, local green growth regulations and mechanisms can be used to raise finance for underfunded government departments.

• By continuing to collaborate closely with sub-regional and regional organisations, Vanuatu can communicate its needs through a stronger united Pacific voice.

• Vanuatu and the Pacific has much to gain from Rio+20 – and this is an opportune moment for the international community to recommit to addressing climate change and building strong international institutions to manage key environmental issues for the region, especially the blue economy.

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 31 -

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 32 - References and further reading

Asian Development Bank (2007) Country Environmental Analysis Vanuatu. ADB, Manila.

Asian Development Bank (2011) Proposed Loan and Administration of Grants Republic of Vanuatu: Port Vila Urban Development Project. Available from http://www2.adb.org/Documents/RRPs/VAN/42391/42391-013-van-rrp.pdf

Costanza, R. (2008) Natural capital. National Council for Science and the Environment, Washington, D.C.

Food and Agricultural Organisation (2007) An Assessment of the Impact of Climate Change on Agriculture and Food Security in the Pacific: A Case study in Vanuatu. FAO SAPA, Apia, Samoa.

Government of Vanuatu (2006) Priorities and Action Agenda 2006-2015. Ministry of Finance and Economic Management, Port Vila.

Government of Vanuatu (2007) Third National Report to the United Nations Convention to Combat Desertification. Port Vila.

Government of Vanuatu (2010) Millennium Development Goals 2010 Report for Vanuatu. Prime Minister’s Office, Port Vila.

Government of Vanuatu (2011) Vanuatu Fiscal Strategy Report Volume 1. Ministry for Finance and Economic Management, Port Vila.

Government of Vanuatu (2012) Budget 2012 Volume 2. 2012 Program Estimates, Port Vila.

Hickey, F. & Johannes, R. (2002) Recent evolution of village-based marine resource management in Vanuatu. SPC Traditional Marine Resource Management and Knowledge Information Bulletin, no. 14, pp. 8-21.

Kami, T. (2011) Fiji emphasizes need for green economies in Pacific region. Available from http://news.xinhuanet.com/english2010/world/2011-07/27/c_131011971.htm

Komai, M. (2011) Tonga, Cook Islands and Vanuatu turn to renewable energy. Available from http://www.pina.com.fj/?p=pacnews&m=read&o=15579392314e29246959fc9e7d95c8

Millennium Ecosystem Assessment (2005) Living Beyond Our Means: Natural Assets and Human Well-Being. UNEP, Nairobi.

Institute for Environment and Human Security (2011) World Risk Report. The United Nations University, Bonn.

Intergovernmental Panel on Climate Change (2007) Fourth Assessment Report of the Intergovernmental Panel on Climate Change. IPCC, Geneva.

International Seabed Authority (2008) Polymetallic Sulphides. Available from http://www.isa.org.jm/files/documents/EN/Brochures/ENG8.pdf

International Task Force on Sustainable Tourism Development (2009) A three-year journey for sustainable tourism. UNEP Division of Technology, Industry, and Economics, Paris.

International Union for Conservation of Nature (2012) Melanesian leaders make serious commitment for nature and climate change. Available from http://www.iucn.org/about/union/secretariat/offices/oceania/oro_newsarchive/?9625/Melanesian-leaders-make-serious- commitment-for-nature-and-climate-change

Secretariat of the Pacific Community (2010) SPC/GIZ Coping with Climate Change in the Pacific Island Region. SPC, Noumea.

Pan et al. (2011) A Large and Persistent Carbon Sink in the World’s Forests. Science, vol. 333, pp. 988-993.

Recipes for the Implementation of Renewable Energy Sources (2006) Country Report – Pacific Islands Fiji Islands, Vanuatu, Kiribati. RECIPES, Amsterdam.

Secretariat of the Pacific Community (2011) Vulnerability of Tropical Pacific Fisheries and Aquaculture to Climate Change. Noumea.

Secretariat of the Pacific Community (2011a) Emergence of Deep-Sea Mining In The Pacific Islands Region. Available from http://www.sopac.org/index.php/media-releases/1-latest-news/371--emergence-of-deep-sea-mining-in-the-pacific-islands-region

Secretariat of Pacific Regional Environment Program (2012) The green fee supporting conservation efforts in Palau. Available from http://www.sprep.org/biodiversity-ecosystems-management/the-green-fee-supporting-conservation-efforts-in-palau

Slatter, C. (2006) The Con/Dominion of Vanuatu? Oxfam, New Zealand.

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 33 - Small Island Developing States Network (2010) Vanuatu National Assessment Report. Available from http://www.sidsnet.org/msi_5/docs/nars/Pacific/Vanuatu-MSI-NAR2010.pdf

United Nations (2010) Trends in Sustainable Development in Small Island Developing States. Department of Economic and Social Affairs, New York.

United Nations and Asian Development Bank (2012) Green Growth, Resources and Resilience Environmental Sustainability in Asia and the Pacific. UNESCAP, Bangkok.

United Nations Development Program (2007) Republic of Vanuatu National Adaptation Program of Action. NACCC – UNDP, Port Vila.

United Nations Economic and Social Council of Asia Pacific (2005) Report on the Outcomes of the Fifth Ministerial Conference on Environment and Development in Asia and the Pacific. UNESCAP, Bangkok.

United Nations Economic and Social Council of Asia Pacific (2009) Green Growth Paths. Available from http://www.greengrowth.org/ggtracks.asp

United Nations Environment Program (2011) Paving the Way for Sustainable Consumption and Production – the Marrakech Process Progress Report. UNEP, Nairobi.

United Nations Environment Program (2012) Green Economy in a Blue World Synthesis Report. UNEP, Nairobi.

United Nations Statistics Division (2010). Available from http://data.un.org/

World Bank (2008) Can Payments for Environment Services Help Protect Coastal and Marine Areas? Environment Matters, World Bank, Washington D.C.

World Bank (2011) Discussion Note: Pacific Futures. World Bank Pacific Department, Sydney. Available from http://devpolicy.anu.edu.au/pdf/2012/Discussion_Note_Pacific_Futures.pdf

Vanuatu Investment Promotion Authority (2010) Fisheries. Available from http://investvanuatu.org/Sectors/fisheries.html

Vanuatu Investment Promotion Authority (2010a) The Tourism Sector. Available from http://www.investvanuatu.org/Sectors/tourism.html

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 34 - Appendices

Figure 3 Proportion of land Figure 4: Proportion of marine and forested in PICs (2010) terrestrial area protected in PICs (2010) Cook Islands

FSM Cook Islands

Fiji FSM

Kirbati Fiji Kirbati Marshall Islands Marshall Islands Nauru Nauru Niue Niue Palau Palau PNG PNG Samoa Samoa Solomon Islands Solomon Islands Tonga Tonga Tuvalu Tuvalu

Vanuatu Vanuatu

PIC Average PIC Average 0 5 10 15 20 25 0 20 40 60 80 100

Source: United Nations Statistics Division (2010).

Figure 5 Vanuatu energy consumption in different sectors (2006)

Residential (44%)

Comercial and public services (2%)

Agriculture (29%)

Transportation (23%)

Industry (2%)

Source: RECIPIES (2006).

Table 1 Opportunities and constraints for achieving green growth in key sectors

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 35 - Sector Opportunities Constraints Green growth paths

(1) Developing domestic (1) A lack of investment fisheries, especially tuna available for increasing capital (1) Developing PES schemes to fisheries. (such as boats and fisheries protect coastal fisheries and the training) for developing livelihoods of island communities. (2) Further developing sustainable domestic (2) Develop MPAs to increase the Fisheries aquaculture and the fisheries. aquarium trade. supply of fisheries assets, and (2) Improving sustainable there is also a possibility for the (3) Working with other PICs management of fisheries, international community to fund to achieve fairer access fee aquaculture and the marine protection. arrangement. aquarium trade.

(1) Improve agricultural (1) Low levels of investment productivity and local food present for investing in (1) Implementing PES schemes to security through small- irrigation and fertiliser to incentivise increased supply of scale investments. improve productivity. natural assets, for example (2) Focusing on high-value biodiversity, and using (2) Negative impacts of Agriculture crops, such as organic environmental performance population growth and and food produce, which may have a bonds to incentivise improved urbanisation on land tenure comparative advantage. land management. security arrangements and security. (3) Traditional techniques (2) Continuing subsidies of copra (3) Predictions of decreased provide a cost-effective and possibly extending these to crop yields and declining means for adapting to other crops with environmental food security due to climate climate change and benefits. change. maintaining food security.

(1) The current monopoly on (1) High potential for supplying electricity to Port increasing the on-grid Vila and other urban centres (1) Careful taxation of fossil provision of renewable (except Luganville), which generated electricity while energy, in particular solar may be a blockage for directing green subsidies towards and geothermal generation. introducing other energy renewable energy will incentivise systems – for example the transition to a green (2) Reducing rural energy geothermal generation. economy. And the reduced levels Energy and poverty by increasing the on taxation on renewable energy transport off-grid provision of solar (2) As with other sectors, a products in place should be and biomass generation. lack of investment is a barrier expanded. to establishing new energy (3) High possibility for systems. (2) Using the CDM, and perhaps climate change mitigation bilateral carbon credit schemes, mechanisms to assist with (3) A small population and to raise capital for renewable developing renewable dispersed geography result in energy implementation. energy. challenges for delivering cost- effective energy.

(1) Tourism has a high environmental impact, and greening the sector requires (1) Vanuatu has among the (1) As a key contributor to reducing the consumption of highest electricity prices GDP and leading user of goods and production of waste. worldwide, which constrains electricity, ecotourism has the expansion of the sector. (2) With tourism’s link to potential to be a strong infrastructure, this sector could driver of green growth. (2) There is also strong contribute to green growth Tourism competition between PICs for (2) Inward foreign direct through job creation and the tourist market, and investment into the tourism sustainable infrastructure implementing policies that sector is also potentially development. increase costs may result in transformative if directed Vanuatu becoming less (3) Greening the tourism sector towards green goals. competitive. through certification programs to accredit tourism operators will improve the sustainability of the industry.

(1) Potential for terrestrial (1) A lack of investment will (1) The extraction of minerals, mining throughout the also constrain the especially gold mining, has a high country. development of this industry. environmental impact, thus Mining strong sustainable production (2) Deep-sea mining has a (2) Vanuatu currently lacks practices are vital. high potential due to the strong institutions to manage large SMS deposits present mining, and these are vital for (2) A larger mining sector also in Vanuatu's extensive EEZ. the industry to contribute to provides an opportunity for green

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 36 - green growth. taxes to be used for implementation of green growth.

(1) The sustainable harvesting of (1) Agroforestry provides an (1) As with other sectors, forests is essential for the forestry opportunity for forestry to government capacity is a to contribute to sustainable expand without barrier to achieving development. If exports grow, deforestation taking place sustainable forestry. stronger management systems or agricultural impacts. are necessary. Forest (2) 40 per cent of commercial resources (2) The expansion of forests are degraded as (2) Forests provide additional forestry is a potential driver regeneration has not taken benefits in the form of of green growth, especially place since exports of logs environmental services. as harvests are currently were banned. Currently, this Potentially, REDD+ is an effective below the sustainable is a constraint for forests approach for incentivising forest harvest size. contributing to green growth. protection while raising finance for poverty reduction.

(1) Traditional techniques (1) Due to stringent are cost-effective methods requirements, climate change for adapting to climate adaptation finance is difficult (1) Directing climate change change, and should be to access. adaptation funding towards encouraged. Climate (2) Implementation of climate building wide-scale resilience is change (2) High levels of climate change adaptation programs necessary as every sector and adaptation change finance have been are also challenging, and every community in Vanuatu will set aside for adaptation, Vanuatu should take a no- be negatively affected by climate and this is an important regrets approach to ensure change. source of funding for that this funding results in Vanuatu. development.

-- Pacific Institute of Public Policy GREEN GROWTH ASSESSMENT - VANUATU - 37 -