A Policy Brief 1 the Latin American and Caribbean Region Is a Biodiversity Superpower

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A Policy Brief 1 The Latin American and Caribbean region is a biodiversity superpower. It has one of the greatest endow- ments of natural capital in the world, which is a source of economic growth and has the potential to become the world leader in offering the services its ecosystems and biodiversity provide, and in return receive new benefits from this conservation and sustainable management. The new policies recommended in this brief promise to transform the traditional model of development—one that often disregards environmental costs— into a new paradigm that recognises the value of services provided by healthy, fully functioning ecosystems.

The United Nations Development Programme launched an initiative to The Power of Unified Ecosystem Valuation assess and communicate the economic contribution of biodiversity and ecosystems services to development and equity in the region. This effort The Technical Team produced a Report with chapters on primary sectors involves a partnership with the UN Environment Programme, The Eco- of the region’s economies centered on biodiversity: agriculture, fisheries, nomic Commission for Latin America and the Caribbean, the Secretariat forestry, hydrological services, protected areas, and tourism. Each chap- of the Convention on Biological Diversity and the UN Conference on ter offers advice for integrating the economic value of ecosystem goods Trade and Development. and services into decision-making for specific industry sectors. Additional studies on ethics and biodiversity, biodiversity and human health, biotrade, Extensive collaboration has marked this process. A Commission for Bio- conservation finance and Reducing Emissions from Deforestation and diversity, Ecosystems, Finance and Development is guiding the Initiative Forest Degradation (REDD) have been prepared as part of the initiative.1 from inception to fruition. A Technical Team produced a Report from robust data and analyses to make a compelling case for policy change. It is highly important to note that the cumulative value of ecosystem A Technical Advisory Committee of regional experts in economics and goods and services across all the sectors is orders of magnitude greater finance vetted the technical quality of the report. In addition, national and than any one sector in isolation. When the full consequences of various regional representatives of the public sector, private sector, civil society actions are totalled, the resulting aggregate value should be the figure and academia throughout Latin America and the Caribbean contributed used for comparison with the value generated by other uses. first-hand input and suggested emblematic cases to enrich the Report and ensure that recommendations are as relevant and timely as possible. All in This Policy Brief summarises the policies that can help build a more eco- all, this Initiative and its report are the result of the efforts and inputs of logically sound future, as well as explaining the consequences of some more than 500 people throughout the region and the world. business as usual practices that are unsustainable and that have a negative impact on biodiversity and ecosystem services.

1 The Report uses concepts for assessing the economic values of Ecosystem Services: Business as Usual (BAU) and Sustainable Ecosystem Management (SEM). BAU refers not to all current productive activities but rather to those which damage or deplete ecosystem services. It is characterized by a focus on short-term gains, externalization of impacts and their costs, and little or no recognition of the economic value of ecosystem services. Under a SEM scenario, the focus is on long term gains; costs of impacts are internalized. Ecosystem Services are maintained, thus generating potential for a long-term flow of ecosystem goods and services that can enter into management decisions. SEM practices tend to support ecosystem sustainability as a practical, cost-effective way to realize long-run profits.

2 FOREWORD

Whereas the 20th century brought an awakening to the dangers of environmental degradation along with the beginnings of a response, the 21st century is bringing an understanding of the real value of the food, water, human health, and climatic stability provided by the diversity of life forms and the ecosystems in which they thrive. This report offers a brief overview of the ingenious efforts being undertaken by the people of Latin America and the Caribbean to value and defend their unparalleled heritage of biological and ecological wealth. Their commitment has formed the roots for a flowering of innovation in the development and application of new techniques for living in closer harmony with the regenerative powers of nature. The number, variety, and uniqueness of these pioneering efforts places the region in a leadership position supporting the global community’s urgent quest for new paradigms that protect the environment while also improving living standards.

The countries of Latin America and the Caribbean represent the most herons, Walcott’s ginger lilies, Vinicius de Moraes’s carnations, and Ner- biologically diverse region on Earth. South America alone is home to uda’s shimmering poppies. Biodiversity is everywhere in Latin America’s almost half of the planetary biodiversity, and more than a quarter of its poetry, but also in its prose: in Rivera’s forest, in Carpentier’s sea, and in forests. The Mesoamerican coast has the longest coral reef in the Western Vargas Llosa’s mountains. It is also in the technicolor explosions that flood Hemisphere and the Americas as a whole boast 300 million acres of fertile the paintings of Wilfredo Lam, Alejandro Obregón, and Frida Kahlo. land, 230 million acres of grassland, more than 325 million acres of forest, and 27% of the world’s available fresh water. In Latin America, we enjoy an abundance of natural riches. But the nature in our novels, paintings, and poetry stands out of harm’s way, safe from the These vast ecosystems and their profusion of biodiversity lie at the foun- fate of the living nature that inspired them. It took only three decades for dation of the cultures that once populated Latin America and the Carib- the Caribbean’s coral reefs to be reduced by 80%. Every day, natural habi- bean. In the myths of the Guaraní people, men turn into lilies or kapok tats of plants and animals are converted into industrial farmland. Pesti- trees. In the culture of the Muzo people of Colombia, comets are said to cides and fertilizers contaminate our water sources, indiscriminate logging be infuriated birds come to destroy the people’s crops. The traditions of tears down centuries-old forests, and endless highways pay no respect the indigenous Mirripuye people, who live in the Venezuelan Andes, say to the woods and wetlands they rip through. If we do nothing about this that Caribay, the first woman, lived in the sweet-smelling forests, where destruction, if we choose to remain ignorant and turn our backs on nature, she played among the flowers and trees. Cuzco, the capital of the Inca all of the words and brushstrokes of our artists will become testimonials to Empire, got its name from the Aymara phrase qusqu wanka, which means a world that has disappeared. They will become the echo left by a paradise “rock of the owl”, a fertile place to work the land, according to the teach- lost to predators. We run the real risk of replacing our ecosystems with ings of Inti, the Sun God who the Aztecs called Huitzilopochtli. The Sun museums of dusty stuffed animal bodies standing among plastic plants God ordered the Mexica people to build a temple on the site where they and cardboard backgrounds. found an eagle poised upon a cactus, devouring a snake. There is a biblical passage that illustrates how a region’s biological Thus, at the confluence of three species, one vegetable and two animal, resources have been exploited. It is the story in which Esau trades his king- the city of Tenochtitlán arose. Oral traditions long ago worked their way dom, which had been his birthright, to Jacob in exchange for a “mess of into a written tradition, and live on in Rubén Darío’s ever-present swans, pottage.” Later, Esau sees his mistake and wants to take back the trade, the wondrously free seagulls in the work of Gonzalo Rojas, Eugenio Mon- but it is too late. In this way, those who exploit our natural inheritance are tejo’s great-grandmother butterflies, Ernesto Cardenal’s tepesquintes, sating their hunger for one day, but in the long term they are trading away agoutis and coatis, the chestnut trees and graceful reeds of Dulce María a birthright of immense potential and promise. They are as short-sighted Loynaz, the trembling reefs of Octavio Paz, Alfonsina Storni’s fussy in business negotiations as Esau.

3 The United Nations Development Programme has put together this support communities such as Pimampiro in Ecuador, Otoro in Honduras, report to show how biodiverse ecosystems possess the real potential to San Pedro del Norte in Nicaragua, Ecoservicios in El Salvador, and Cerro contribute to growth and equity in Latin America and the Caribbean. In San Gil in Guatemala are some inspiring examples of a real paradigm these pages, we will see how the transit to bio-sustainable businesses has change. Perhaps the most emblematic case is the Brazilian initiative to brought progress, stability, and well-being to communities. Ecotourism stop Amazonian deforestation. Launched in 2005, the goal is to reduce projects and the export of organic products have opened global markets deforestation in the Brazilian Amazon by 80% by the year 2020. that move hundreds of millions of dollars. They also make possible the creation of commercial networks for the assembly of new cosmetics and Nevertheless, to protect the region’s ecological potential and reap its eco- medications. Biomimicry technology studies nature as a source of inspi- nomic benefits, we must expand these programs, and sustain them for ration and finds scientific solutions in nature; it is a revolutionary field the long term by continuing to invest the necessary resources. If we do of knowledge that could resolve many problems and help to ensure the not pursue this vision, we will be compiling a track record of appealing, survival of the human race. Throughout the region, a multitude of pro- cheap, and even romantic acts which will have no significant impact on the grams are using sustainable plans and technologies that respect biodiver- future of our countries and their people. However, if we make the correct sity, ecosystems, and livelihoods. Fishing collectives of Chilean abalones decisions about the future of life on Earth, we will heed the Biblical warn- and the breeding of lobsters in Banco Chinchorro, México; the Colombia ing, and not trade our kingdom, our scepter, our crown, and our precious Fund for national parks; the hydroelectric program La Esperanza, in Costa inheritance for a sad “mess of pottage.” Rica; the Peruvian fund to promote Natural Protected Areas; initiatives to

Commission for Biodiversity, Ecosystems, Finance and Development

This initiative has been sponsored by UNDP in partnership with UNEP, ECLAC, UNCTAD and the CBD Secretariat. And has benefited from the generous support of the Government of Spain. The reports emanating from the initiative are informed by the work of the Technical Team, stakeholder consultations and by strategic guidance provided by the Com- mission for Biodiversity, Ecosystems, Finance and Development, and do not necessarily represent the views of the governments or organizations sponsoring the initiative. Furthermore, the views expressed in this publication are those of the author and do not necessarily represent those of the United Nations or UNDP.

4 I. BIODIVERSITY FOR ECONOMIC GROWTH AND EQUITY IN LATIN AMERICA AND THE CARIBBEAN

1. The Source of Real Wealth

In the last decade, Latin America and the Caribbean have achieved outstand- In Peru, an estimated 376,000 ha are irrigated with water from Protected ing growth performance and poverty reduction. The region has also shown Areas, producing an agricultural output worth US$514M annually. Agri- notable resilience during the recent financial crisis. The economic future looks cultural exports were valued at US$1.3B in 2005; thus 40% of agricultural promising for the region. Prudent macroeconomic policies, structural reforms exports were dependant on Protected Areas.6 and the favourable commodity-price cycle have all contributed to this positive outlook. But biodiversity also plays an underappreciated role. The Latin American and Caribbean region shows a strong correlation between tourism demand and biodiversity, with between two thirds and Biodiversity is central to the long term provision of ecosystem services three quarters of all international tourists [Peru (73%7), Argentina (60%) and and plays a key role in maintaining ecosystem resilience. From an anthro- Costa Rica (65-75%)]8 visiting at least one protected natural area. Roughly pocentric perspective, resilience is the capacity of a system to sustain dis- 94% of those Caribbean tourism and hospitality companies surveyed indi- turbance and still retain its basic capacity to provide Ecosystem Services. cated that they relied on their surrounding environment for their livelihood.9 As such, biodiversity and ecosystem services2 are essential to human wellbeing and survival, and their conservation is a necessary condition for Biodiversity provides the primary safety net for rural populations in the long-term economic health. Biodiversity is the life insurance for life itself.3 Latin American and Caribbean region and helps limit malnutrition and large-scale urban migration. Many rural and indigenous populations This unsurpassed biological heritage makes a measurable contribution to depend on biodiversity for their livelihoods, including fishing, non-timber national economies. For example, Protected Areas in Mexico contribute forest products, and agriculture. at least US$3.5B a year to the economy, and every Mexican peso invested (US$0.07) in Protected Areas generates 52 pesos to the economy The region’s immense array of natural resources makes for a unique labo- (US$4.0).4 ratory for products and processes that could incubate medical solutions for current and future generations. There are biodiversity-based medici- In 2007, hydropower plants with catchments in several national parks gen- nal markets on the rise in which the region could be positioned as leader erated 73% of Venezuela’s electricity.5 through further investment in research and technology development. The phytotherapeutical medication has an estimated global market of U$60B.10

2 According to the Convention on Biological Diversity: “Biological diversity is the variability among living organisms from all sources including, inter alia, terrestrial, marine and other aquatic ecosystems and the ecological complexes of which they are part; this includes diversity within species, between species and of ecosystems. Ecosystems are a dynamic complex of plant, animal and micro-organism communities and their non-living environment interacting as a functional unit.” Furthermore, the Millennium Ecosystem Assessment provides a framework to define different types of ecosystem services. The list includes provisioning, regulating, supporting, and cultural services. Ecosystem Services are derived from the native, and managed, biodiversity of a region. Typically, in order to be considered a service, a flow of resources must result directly or indirectly in greater human welfare. 3 http://www.cbd.int/ibd/2005/?page=key 4 Bezaury Creel, J.E. and L. Pabón Zamora (2009). Valuation of Environmental Goods and Services Provided by Mexico’s Protected Areas. The Nature Conservancy-México Program-Comisión Nacional de Áreas Naturales Protegidas, Mexico City. 32 p.p.Borrini-Feyerabend (2004). Adapted from Heylings and Bravo, (2001). Consensus in a co-management board: a key incentive towards effective and equitable management of the Galapagos Marine Reserve. 5 EDELCA (2008). “Cifras 2007” (http://www.edelca.com.ve/publicaciones/pdf/cifras_espanol_2007.pdf); and “Informe Anual 2007” (http://www.edelca.com.ve/publicaciones/pdf/informe_anual_2007.pdf). 6 Flores, M., G. Rivero, F. León, G. Chan et al. (2008). Financial Planning for National Systems of Protected Areas: Guidelines and Early Lessons. The Nature Conservancy, Arlington, Virginia, US. 7 PromPeru, (2008)“Perfil del Turista Extranjero 2007”. Primera Edición. Lima. 8 Instituto Costarricense de Turismo (1996) Plan Nacional de Desarrollo Turístico de Costa Rica 2002 - 2012: Actualización 2006. 9 Vere Slinger, V.A. (2002) “Ecotourism in a small Caribbean Island: Lessons Learned for Economic development and Nature Preservation” University of Florida Dissertation. 10 LASMAR, J .L (2005). “Valorização da Biodiversidade: capacitação e inovação tecnológica na fitoindústria no amazonas. Tese de doutorado submetida ao corpo docente da coordenação dos programas de pós graduação de engenharia da Universidade Federal do Rio de Janeiro”.

5 The Latin American and Caribbean region includes six of the world’s most biodiverse countries—Brazil, Colombia, Ecuador, Mexico, Venezuela and Peru—as well as the single most biologically diverse area in the world, the Ama- zon. These biodiverse countries cover less than 10% of the world’s terrestrial surface but have approximately 70% of the species of mammals, birds, reptiles, amphibians, plants and insects of the world.11 South America alone has more than 40% of the Earth’s biodiversity, and more than one-quarter of its forests. The Meso-American Reef is the largest coral barrier reef in the Western Hemisphere. Central America, with only 0.5% of the world’s land mass, has 10% of all of its biodiversity. Fifty percent of the plant life in the Caribbean is found nowhere else on earth.12 These numbers are impressive; in particular when taking into account that the region represents only 16% of the global land surface and has only 10% of the total human population.13

2. Biodiversity and Ecosystems at risk

The current pattern of production in the majority of the countries in the at no apparent cost to people. On the other side of the scale, profits from region rests on unsustainable use of natural resources, and is increasingly commodities derived from ecological destruction are usually short-lived. costly to national and local economies. Early action is necessary to avoid But the trade-offs may not be evident until much later. ecosystem failure and irreversible change. Unequal division of the costs and benefits of exploiting natural resources Because biodiversity and most of ecosystem services do not have market is another major threat. The problem arises from the fact that the ben- prices, it is difficult for economic agents to value them, whether they are efit from exploiting the natural resource is primarily private (it may be an private (entrepreneurs, local rural households exploiting natural resources) enterprise selling wood or a farmer growing crops for self consumption); or public. It is essential that economic agents become aware of the values however, the costs (depletion of the resource, deterioration of the envi- of biodiversity and ecosystems services and their contribution to the pro- ronment) are shared among all inhabitants (mainly, the local ones). In the ductive sectors in order to make informed decisions about their manage- short term, each private agent or policy maker perceives that the benefits ment and use. are greater than the costs, ultimately depleting shared limited resources even when it is clear that it is not in anyone’s long term interest. Decision makers in business and government frequently do not take into account the value of goods and services provided by ecosystems. Yet, an These two main issues, lack of market price and unequal division of costs extraordinary array of services with real monetary value hangs in the bal- and benefits, lead to an unsustainable use of biodiversity and ecosys- ance, such as fresh water, food, disease control, pharmaceuticals, flood tem services. Free access and unrestricted demand ultimately depletes retention, carbon sequestration, crop pollination, genetic diversity, and resources through overexploitation, either temporarily or permanently. scenic beauty, among others. Nature provides these products and services

11 United Nations Environment Programme (2010). “Perspectivas del Medio Ambiente: América Latina y el Caribe. GEO ALC 3”. 2010. Page 94. 12 Ibidem. 13 Bayon, R., Lovink, J.S., Veening, W.J. 2000. FAO statistics.

6 3. Breakthroughs in Biodiversity Management

1 Program serves to link small agricultural producers to consumers, through The meetings of the Commission for Biodiversity, Ecosystems, Finance direct purchase and payment by the government. Other policy initiatives and Development, conferences on biotrade and innovative conservation in Brazil include the restriction of rural credit to those not aligned with finance, as well as the stakeholder consultations undertaken under this forest code, compensation for unmitigated effects of productive activi- initiative have highlighted one source of optimism. The world has seen ties, and the ICMS Verde, a system created to compensate municipalities the emergence of many innovative policies and ecosystem management that have protected areas within their territories for the resulting loss of practices now underway that integrate ecosystem service valuations into revenue. Measures are underway to develop new mechanisms of environ- operational decision-making. mental management; stimulate the creation of new protected areas; and reward municipalities for the environmental services they provide. According to the 2009 Millennium Development Goals Report, only 12% of the planet is under some form of protection. However, the Latin Ameri- 3 can and Caribbean region hosts a particularly large number of Protected More recently, we have seen commitments to sustainability from major Areas: Brazil alone has 1280 (excluding indigenous lands), while South industries: the Brazilian Association of Meat Exporters has pledged to ban America (excluding Brazil) currently has 1507 terrestrial Protected Areas the purchase of cattle from newly deforested areas of the Brazilian Ama- covering 22% of its land surface and 114 marine reserves. In Central Amer- zon, and an agreement was reached between the Federal Public Prosecu- ica, terrestrial Protected Areas cover more than a quarter of the land area, tor’s Office (“Ministério Público Federal”), meat packing companies and with Costa Rica, Guatemala and Panama accounting for particularly large the largest supermarket chains to ban the purchase of meat from illegally shares of protected land. The Caribbean has 973 protected sites, many of deforested areas in the Amazon; a moratorium by the soy industry on which are marine areas. the purchase of soybeans produced on rainforest lands deforested after 2006; and a private sector Enterprise Movement for sustainable use of Colombia has a National Environmental System coordinated by the Min- biodiversity. istry of Environment that involves 33 Regional Autonomous Corporations, the National Park Service and five research institutes promoting terres- 4 trial and marine biodiversity conservation research. The National System Several countries have created methods to transfer funds from those who of Protected Areas (SINAP); indigenous reserves and Afro-Colombian profit from ecosystem services to those who preserve them. collective territories extend over 37% of Colombia’s terrestrial land and include representative samples of 70% of the country’s natural ecosystems Mexico has launched a large-scale payment for hydrological services providing important safeguard to the country’s natural heritage. If forest scheme that places an appropriate value on protection of water sources. In reserves and other conservation categories are added, an approximate the Sierra de Zapalinamé Reserve in the state of Coahuila, Mexico, moun- 43% of Colombian territory is under some sort of conservation scheme. tain streams provide clean water for more than 70% of the nearly 700,000 residents of the city of Saltillo. Mexican NGO Profauna (Protection of the 2 Mexican Fauna) launched a public awareness campaign entitled “Por una Major achievements in protecting the environment include Brazil’s reduc- razón de peso” (for a very good reason), in order to increase recognition tion of deforestation in the Amazon from more than 27,000 km2 in August of the importance of the Sierra as a water source. Voluntary user fees have 2004-July 2005 to approximately 7,000 km2 in August 2008-July 2009, been instituted, and approximately US$50,000 (Ps531,138) was donated and its commitment made into Federal Law to reduce deforestation by as of 2006.15 80% to less than 3,600 km2 a year by 2020.14 Mexico’s Program of Hydrological Environmental Services (PSAH), Brazil has also established a national policy of minimum price guarantee funded by US$18M in federal revenues from water fees, selects benefi- for ten “socio-biodiversity products” (products from biodiversity made by ciaries—landowners and populations—by criteria that includes the value of indigenous or traditional communities). This policy supports biodiversity- water and the degree of poverty in the affected area. In 2004, 83% of pay- based products for consumers at affordable prices. A Food Purchase ments went to marginalized population centers.16 PSAH payments have

14 “Report of Management Indicators 2005.” Earth Observation General Coordination (OBT), Version 1.2. National Institute for Space Research (INPE), Ministry of Science and Technology. March 10, 2006. “Annual Report for Accounts Management, 2009.” National Institute for Space Research (INPE), Ministry of Science and Technology. March 2010. 15 Lechuga Perezanta, Claudia. “Zapalinamé: Connecting Cities and Watersheds in Mexico.” Ecosystems Marketplace, 5 February 2009. Fondo Mexicano para la Conservación de la Naturaleza, A.C. “Por una razón de peso: Crónica de un proyecto sustentable en la Sierra de Zapalinamé.” Undated 16 Belcher, B. M., M. Ruiz-Perez, and R. Achdiawan. 2005. “Global Patterns and Trends in the Use and Management of Commercial NTFPs: Implications for Livelihoods.” World Development 33 (9):1435–52.

7 also been channelled to implement agroforestry arrangements in seven 9 Mexican States, amounting to US$4.8M in 2008 to protect 86,385 ha. The The Peruvian anchoveta fishery is the largest single-species fishery in success of the PSHA is such that between 2003 and 2005 less than 0.1% of the world, accounting for approximately 10% of global marine landings the nearly 300,000 ha covered was deforested.17 (with annual yields between 6 and 8 million tonnes).20 The fishery has long been characterized by extreme variability associated with inter-annual and 5 inter-decadal oscillations and occasional collapse.21 In 2008, the Peruvian New green market opportunities exist in the realms of, for example, pay- Government introduced individual fishing rights over the anchoveta bio- ments for ecosystem services, certification and biotrade, and access to mass by setting a maximum catch limit per vessel based on a percentage ecosystem service-focused finance. Various innovative systems of pay- of the Total Allowable Catch. The main goals were to address the issue of ments for ecosystem services (PES) are underway, with many involving fleet overcapacity and eliminate the race to fish. water, allowing downstream users to jointly compensate watershed landowners and communities for practicing organic agriculture, conserving To ease the social costs of transition, the legislation established three soil, reforesting land, and excluding livestock from sensitive areas. programs: (a) workers’ retraining incentives; (b) development and promotion of micro and small-sized companies for displaced workers; and (c) 6 early retirement provisions. These programs are financed by two manda- Throughout the region, governments are beginning to reimburse com- tory contributions payable by the beneficiaries of the new fishing rights. munities for their work preserving ecosystems. In Brazil, the state of Ama- Returns on investment are expected to greatly improve by reduction of zonas, in partnership with the private sector, established “Bolsa Floresta”, a overcapacity in both the harvesting and processing sectors (on the order system that rewards local communities for conservation of primary forest; of 60-80%). strengthens community organization; supports sustainable livelihoods; and finances improvements on local education, health, communications The introduction of catch shares led to a hefty increase in the price of and transportation systems.18 anchoveta—a rise of nearly 50% in 2009 over 2008, despite a drop in fishmeal prices of more than 25%. The catch share system has effectively 7 eliminated the race to fish, with an increase in the length of the fishing Brazilian multinational cosmetic firm Natura promotes equitable benefit- season, and lower average and maximum daily fish landings. This has led to sharing through biotrade. The firm currently has 56 negotiated natural increased selectivity (evidenced by a lower percentage of juveniles in the asset supply agreements with small farms, companies, and communi- catch), improvements in the quality of the fish, and a greater share of high- ties in the region. Natura’s gross revenue has increased by 129.85% from protein fishmeal (prime and super-prime) in total fishmeal production. BRL1.41mn in 2002 to 2005 BRL3.24mn in 2005.19 10 8 In Colombia, the local Afro-Colombian Community Councils of Tadó and In an unprecedented effort, Mexico’s National Commission for the Knowl- Candoto and two supporting organizations, Fundación Las Mojarras and edge and Use of Biodiversity (CONABIO) has produced a country study Fundación Amigos del Chocó, have created a programme entitled Oro entitled “Natural Capital and Human Well-Being” to provide comprehen- Verde. The programme provides support to Afro-Colombian communi- sive, cutting-edge analysis of the state of knowledge, conservation and ties in the Chocó eco-region that carry out small scale artisanal alluvial sustainable use of Mexican biodiversity and the environmental services mining. It proposes an innovative low-impact mining by using ancestral it provides. This knowledge is also linked to the relation between social techniques without toxic chemicals, and restoring the natural landscape groups and the ecosystems they own, facilitating in a number of cases, its and vegetation of mining areas once the gold is extracted. The extracted sustainable management. metals are sold through the programme paying certified miners a premium

17 Muñoz-Piña, C., A. Guevara, J. M. Torres, and J. Braña (2008). “Paying for the hydrological services of Mexico’s forests: analysis, negotiations and results.” Ecological Economics. 18 Viana, Virgilio. Bolsa Floresta (Forest Conservation Allowance): an innovative mechanism to promote health in traditional communities in the Amazon. Instituto de Estudos Avançados da Universidade de São Paulo. Vol.22 no.64 São Paulo December, 2008. 19 Boechat, Cláudio and Roberta Mokrejs Paro. “Natura’s Ekos: Perfume Essences Produce Sustainable Development in Brazil.” Growing Inclusive Markets, 2008. 20 Hatziolos, M., y De Haan, C., 2006. Pesca. En: Giugale, M., Fretes-Cibils, V., y Newman, J., eds. Perú. La oportunidad de un país diferente. Lima: Banco Mundial. pp. 427-444. 21 Fréon, P., Bouchon, M., Mullon, C., García, C. and Ñiquen, C. 2008. Interdecadal variability of anchoveta abundance and overcapacity of the fishery in Peru. Progr. Oceanogr. 79: 401-412.

8 of 2% and 1% over official gold and platinum prices, respectively. The pro- Ecuador’s other national parks and to develop renewable energy sources gram also receives an additional premium on the sale of certified metals, and build schools and hospitals for indigenous groups.26 which was increased to 15% in April 2008. The programme created the world’s first local certification for precious metals to guarantee social and environmentally responsible mining, allowing the increase of a green and 4. The Impacts of “Business as Usual” fair trade demand for its metals among jewellers in Colombia, Europe and the United States.22 Changes in public policy can affect the profitability of business as usual unsustainable practices and level the playing field or even incentivize the 11 shift to sustainable ecosystem management. An analysis of cases illustrat- Analyses carried out by the World Resource Institute “Reefs at Risk” proj- ing the impacts of Business as Usual unsustainable practices are as follows: ect estimated that coral reefs across the Caribbean provide goods and services with an annual net economic value estimated at between US$3.1B Forest Conversion and US$4.6B. This includes fisheries, dive tourism, and shoreline protec- The most important land use change in tropical Latin America and the tion from storms and waves. In 1992, through the implementation of a Caribbean over last 40 years has been the widespread conversion of for- $10 user-fee in the form of an annual scuba diving tag, Bonaire National ests to pasture land for livestock production. Between 1981 and 1990 the Marine Park became the first fully self-funded marine protected area in region converted 75 million hectares of forests, most of which became the Caribbean. These reefs continue to be among the healthiest in the cattle lands. The number of cattle in the Amazon more than doubled from region and receive approximately 38,000 visitors annually because rev- 26 million in 1990 to 57 million in 2002.27 The Amazon went from having enues generated from tourism are more than sufficient and are reinvested 18% of Brazil’s cattle to almost one third. In fact, 80% of the growth in Bra- to cover the costs of sustainable management practices.23 24 zil’s livestock population in this period was in the Amazon, where there are almost six hectares of pasture for every hectare of cropland.28 Guyana’s pristine forests are the country’s most valuable asset. The majority of the 15 million hectares of rainforests could be suitable for timber Loss of Soil Productivity extraction, agriculture, and significant mineral deposits exist below its sur- Declining soil fertility of tropical forests together with unsustainable pro- face. The value of this forest—as established by the government known as duction practices, prolonged dry seasons, soil compaction, erosion, pests, Economic Value to the Nation (EVN)—is estimated to be the equivalent weeds, and pathogens all cause productivity loss in forestry and agricul- of an annual annuity payment of US$580M. The Government of Guyana tural activities. For instance, 37.6% of Ecuadorian land is considered to be has launched an initiative entitled “Low Carbon Development Strategy at high risk of degradation. Losses in soil fertility have resulted in the pur- (LCDS)” to avoid deforestation while promoting economic development chase of high cost imported agrichemicals. In Costa Rica, yearly erosion through receiving payments for preserving Guyana’s forests standing. And from farm and pasture land removes nutrients worth 17% of the crop value will turn to the world carbon markets to raise funds to meet its develop- and 14% of the value of livestock products.29 Overfishing not only depletes ment goals.25 fish populations, but also harms other water life forms that depend on healthy coastlines, damaging the ecosystem as a whole. It is estimated Innovative schemes to compensate conservation efforts have been that over one third (37%) of fisheries are overexploited or depleted, while proposed in the region. Ecuador has asked the world to be reimbursed 10% are recovering.30 US$3.6B for not to exploring the Ishpingo-Tiputini-Tambococha oil block in the Yasuni national park. Under the terms of a unique, legally binding Impacts on Climate, Food and Energy Security trust fund set up by the government and UNDP, the oil and timber in the The region contains the world’s largest tracts of intact tropical forest. Yasuni will never be exploited. Any money raised would be administered These not only store huge quantities of carbon, but they also act as by the UNDP and would go to protect 4.8 million hectares of land in a natural carbon capture and storage (CCS) system sucking carbon

22 The Alliance for Sustainable Mining (2010) “Oro Verde—Green Gold” 23 Parsons, G. R. and S. Thur (2008) “Valuing Changes in the Quality of Coral Reef Ecosystems: A State Preference Study of SCUBA Diving in the Bonaire National Marine Park”. Environmental and Resource Economics 24 STINAPA Bonaire National Parks Foundation http://www.bmp.org/ 25 http://www.lcds.gov.gy/ 26 Vidal, John and Rory Carrol (2010) “Ecuador signs $3.6B deal not to exploit oil-rich Amazon reserve.” The Guardian. 4 August 2010 27 Kaimowitz,D., Mertens, B., Wunder, S. and P. Pacheco. (2004) “Hamburger Connection Fuels Amazon Destruction Cattle ranching and deforestation in Brazil’s Amazon.” Center for International Forestry Research. 28 Greenpeace, 2006. Analysis of Amazon deforestation based on IBGE data. Available at: http://www.ibge.gov.br/home/estatistica/economia/agropecuaria/censoagro/2006/default.shtm 29 Cruz, W. and R. Repetto. 1992. “Economic Policy Reform for Natural Resource Conservation.” Environment Department Working Paper No. 4. Washington D.C.: World Bank. 30 Hilborn, Ray, Thomas P. Quinn, Daniel E. Schindler, and Donald E. Rogers (2003) “Biocomplexity and fisheries sustainability School of Aquatic and Fishery Sciences and Department of Biology, University of Washington,. Ed. William C. Clark, Harvard University, Cambridge, MA. 1 April 2003.

9 dioxide from the atmosphere for free, and removing carbon at about one Loss of Adaptation Capacity to Mitigate the Effects of tonne per hectare per year. In addition, the moisture recycled by these Climate Change forests underpins the security of agribusiness and hydropower in several countries. Vegetation cover helps preventing floods and landslides, and in the marine realm, mangroves in protected areas absorb 70-90% of the force gener- Health impacts ated by hurricane waves. Biodiversity and ecosystem services play a fundamental role in supporting human health. Loss and degradation of the region’s natural capital Ecosystems mitigate natural disaster impacts. As natural disasters may increase increases the risk of disease dissemination. Climate change may increase in frequency and severity due to climate change, the conservation of remaining spreading tropical diseases and biodiversity losses may facilitate circula- coastal ecosystems is essential. As much as 65% of mangrove forests, important tion of contagious agents. Biodiversity’s greatest contribution to human not only to the protection of coastlines against storms, but also to the productiv- health is the filter effect to disease spreading. ity of fisheries, have been lost in Mexico over the last 20 years.33

Studies have shown links between deforestation and the proliferation Impacts on the Poor of infectious diseases, such as malaria, dengue fever, chagas disease, Biodiversity provides the primary safety net for rural populations in the Latin leishmaniasis and hantaviruses31 Disease proliferation causes a direct American and Caribbean region and helps limit malnutrition. Social factors, impact on government spending; increasing costs for mitigation and such as increased migration to urban areas, insecure land tenure, coloniza- eradication strategies instead of financing preventive action. The expenses tion of remote areas, increased social inequality and growing poverty levels, in the Americas due to malaria alone exceeded US$500M from 2004 among others, can also lead to the changes in the consumption and exploi- to 2007.32 tation of natural resources. An effective strategy to reduce poverty can- not be designed in isolation from its environmental context, and needs to promote sustainable resource use and management strategies by the poor.

II. BUSINESS AS USUAL UNSUSTAINABLE PRACTICES AND ITS CONSEQUENCES

Policy features of unsustainable Business as Usual practices include: (ii) Perverse subsidies.

(i) Lack of government institutions, rule of law, adequate legal framework Government subsidies may subsidise certain activities and practices that and enforcement. give the wrong incentives, and by distorting relative profitability among economic activities it may favour practices that damage ecosystems. For Property rights are not properly assigned. Forests, water and other natural example, commercial activities that log natural forests may receive direct resources belonging to the Nations or protected areas often lack govern- subsidies, subsidised credit, fiscal incentives and other transfers from the ment institutions that effectively enforce their conservation and sustain- public sector. Various states also promote the use of pesticides and fertil- able management. And property right uncertainties may also contribute izers, discouraging methods that work in concert with ecosystems. to private sector unsustainable practices. Short-sighted decisions may lead to low quality development, and to a The benefits of protecting biodiversity and ecosystem services, are mostly cycle of boom and collapse that has been one of the main causes of the realized in the future, while the costs might be incurred in the short term unsustainable exploitation of forests in the region. For example, public (issuing the law, negotiating with private sector for permits, etc). incentives coming from a wide range of subsidies provided primarily to

31 Patz J.A., Graczyk, T.K., Geller, N., Vittor, A.Y. 2000. Effects of environmental change on emerging parasitic diseases. International Journal for Parasitology 30:1395-1405. 32 World Health Organization, 2008. 33 Lemay, M.H. 1998. Coastal and marine resource management in Latin America and the Caribbean. World Bank Technical Paper No. ENV-129, Washington, D.C.

10 agriculture, have worked as a market incentive for deforestation. This low in comparison to the cost of having a sustainable water system (sub- model has done little to socially advance the poorer sectors of the com- sidised by the government). In cities and the countryside, people overuse munities living in those forests, especially traditional forest people. the resource, and not enough investment is made in water infrastructure. Only recently, in some countries of the region private-public partnership Moreover, young people, looking for better income, are easily recruited to investment programmes for water treatment are being adopted. work as loggers, planters and cattle ranchers under harsh conditions. The social costs are staggering. Business As Usual unsustainable practices destroy a natural asset that has high economic, scientific and environmental value without generating a (iii) Illegal and unregulated actions. proportional level of wellbeing to the population.

Inadequate government control and very low public wages contribute to The advantages of sustainable ecosystem illegalities in granting permits, licenses for forestry, mining or other extractive activities concessions. management The Report also documents economic growth potential from a transition In some sectors such as fishing and forestry there are illegal, unreported to Sustainable Ecosystem Management practices leading to revenues and unregulated extraction of the natural resource, which consequently generation from sustained and/or increased productivity. For example, destroys habitat that is crucial for the regeneration of fish and trees stocks. mixed species plantations and reduced impact logging are shown to increase returns along with land titles and market signals reflecting scar- Illegal, Unregulated and Unreported (IUU) activities have significant neg- city; payments for ecosystem services; and increased fishery productivity. ative impact on biodiversity and ecosystem services; from illegal hunting to selling animals as pets, or trading their skin or other parts, to deforesta- Benefits from the adoption of Sustainable Ecosystem Management prac- tion and trading wood. tices can be evidenced in most productive sectors of the region. The implementation of agro-forestry systems, rotational cattle production, and (iv) Prevalence of informal extractive activities. conservation of natural pollination and pest control agents have contributed to increased productivity and returns. In Mexico, pest control by bats Informality is an issue for the different extractive activities: loggers, min- is estimated to reduce the need for pesticides by 25-50%; where pesticides ers, slash-and-burn agriculture, and fishery, among others. The impact of are not used they reduce production losses by 55%. This natural pest con- these activities on biodiversity and ecosystems services can be significant trol service is valued at between US$6.5M and US$61.6M a year.34 but difficult to assess. Beyond its intrinsic value, the region’s immense natural capital of biodi- (v) Lack of awareness of the importance of biodiversity and versity and ecosystems represents its principal competitive advantage. ecosystem services and lack of knowledge on how to manage Conservation of this natural capital presents an opportunity—not a cost or natural resources properly. a restriction—for the creation of a new development paradigm based on ecological integrity, human health, and social equity. Markets do not value ecosystem services used by productive sectors nor those important for human health maintenance. When services are freely To contribute to the achievement of this goal, this policy brief presents or cheaply obtained, they are underpriced, undervalued and overused. recommendations clustered in four action areas: the consolidation of an The costs of goods sold do not reflect the true cost of production. For enabling environment, valuation, education and advocacy, and innovation instance, in rural areas, water is considered a free input by farmers and for sustainable management of biodiversity and ecosystem services. agro-businesses. In urban areas, potable water tariffs are disproportionately

34 Gandara, G., Correa Sandoval, A.N. and Hernández Cienfuegos, C.A. 2006. “Valoración económica de los servicios ecológicos que prestan los murciélagos Tadarida brasiliensis como controladores de plagas en el norte de México.” Tecnológico de Monterrey. Escuela de graduados de Administración Pública y Política Pública. Cátedra de Integración Económica y Desarrollo Social. Working Paper 2006-5.

11 III. POLICIES FOR A SUSTAINABLE ECONOMY AND A BETTER FUTURE

A wide variety of policies can promote Sustainable Ecosystem Manage- Every infrastructure project, public and private, must internalise the cost ment on a large scale. Some measures rearrange incentives and subsidies, it inflicts upon the environment as well as on local communities, and com- while others encourage the inventive use of financial mechanisms to har- pensate them accordingly. ness the dynamism of local and international markets. Still others increase the enforcement options available to governments. Substantial opportuni- There is a need to formulate incentive measures for sustainable businesses ties exist for designing and implementing environmental fiscal reform to that use native biodiversity, implement IPR instruments, address land enable profitable Sustainable Ecosystem Management through payments tenure issues, and enact laws determining the use and access to natural for ecosystem services, carbon trade, and biotrade, among other activities. resources and knowledge, with fair and equitable sharing of the benefits. The viability of these economic activities will depend first and foremost on a conducive enabling environment. Every infrastructure project, public and private, must internalise the cost it inflicts upon the environment as well as on local communities, and com- 1. An enabling environment for sustainable pensate them accordingly. ecosystem management (b) Enforcement and compliance Ecosystem management and conservation should be a national, long- term, integrated, state policy in the region. The transformative pow- Effective surveillance and control is critical to the success of both regula- ers of government to levy taxes, support subsidies, delineate land titles, tory and incentive-based management. Countries must strengthen their direct public and private investment, and enforce policies play a crucial governance through investment in surveillance and enforcement capabili- role in maintaining the regenerative powers of natural systems. Govern- ties, and in improved procedures for prosecuting Illegal, Unreported and mental policies create incentives and disincentives in the marketplace for Unregulated fishing and increased sanctions. It is equally important for commodities, energy services, and returns on investment for large-scale the success of enforcement and compliance that governments simultane- infrastructure investments. Governmental agencies need to develop the ously introduce temporary compensation policies to mitigate economic capacity to measure ecosystem values along with the contrasting values and social costs of these controls. derived from unsustainable use. For instance, in the case of fishery, regulatory tools for implementing man- Lack of adequate legal framework and property rights leads to predation. agement strategies include access controls, area management, controls Hence, public policies must promote activities friendly to the environment such as gear restrictions and season lengths, and output controls such as and penalise non friendly activities with negative impacts, as well as intro- annual catch quotas and size limits, controls may include fishing gear, for duce legal regulation and enforcement capacity to protect biodiversity example, using minimum mesh size to reduce pressure on juveniles and and ecosystem services. avoiding destructive gear to reduce habitat damage.

(a) Regulatory frameworks encouraging investment and conservation (c) Incentives, subsidies, and tax breaks

Governments and other stakeholders can provide policy frameworks Subsidies can be used to encourage activities operating with ecological and strategies that scale up environmentally friendly activities which are responsibility, promoting biodiversity and ecosystem services. Some prod- needed in order to go beyond small niche markets and include strong ucts currently promoted by environmentally conscious subsidies include economic sectors that highly contribute to local and national economies. natural ingredients for cosmetics, pharmaceuticals, food, textiles, and handicrafts. These frameworks can provide a transparent and enabling environment for environmentally friendly practices. Governments must also realign private Incentives could be designed to restore degraded lands for agriculture, incentives with public objectives, not only through economic incentives, with appropriate safeguards to respect local rights. And tax breaks could but also through Intellectual Property Rights (IPRs) and a more secure be granted for intensifying production on existing lands. investment environment. Promoting agro-forestry systems is an important way to strengthen Numerous cases of illegal access and use of genetic resources and environmental services. The integration of trees and shrubs with crops traditional knowledge have cast a shadow over the Intellectual Property and livestock can enhance small-scale farming (benefitting low-income Rights systems. Biodiversity rich countries constantly point at the failure to groups). Such measures can improve soil fertility, crop pollination, water discourage biopiracy and other forms of misappropriation. quality. They also sequester carbon and reduce erosion. Potential costs of

12 establishing agro-forestry include adaptation to local conditions, provid- credit and savings mechanisms is still a barrier for private landholders to ing information and training, establishing government and project sup- invest in Sustainable Ecosystem Management. port, linking farmers to markets, securing land tenure and exemption from government ordinances, and ensuring the quality and diversity of planting One financial institution working to this end is the Brazilian Develop- materials. ment Bank (BNDES). Since 2008, the BNDES Amazon Fund has provided grants for avoided deforestation projects in Brazil. This represents The design and introduction of sustainable water tariffs is an innovative the cutting edge of conservation finance. Beyond the Amazon Fund, a way to incorporate the cost of ecological services into national environ- Green Finances Department is under development to channel savings mental policies, providing sustainable financing for the conservation, to an alternative investment option, “green securities,” combining profit- protection and restoration of ecosystems. Sustainable water tariffs can ability with improvement of socio-environmental conditions. BNDES has be promoted in key productive sectors such as irrigated agriculture and recently begun to expand the scope of its operations to a regional and hydropower; and for domestic and industrial water consumption. interregional scale, increasing its importance and prominence in the field of conservation finance and credit. Fisheries can also be managed effectively to preserve biodiversity. The Latin American and Caribbean region is probably home to a wider variety Brazil’s Ministry of Tourism in partnership with BNDES recently estab- of catch-share systems than anywhere else in the world, with examples in lished a line of credit of BR1B (US$544.5M) for the refurbishment and Argentina, Chile, Mexico, and Peru, among others. construction of hotels, representing a major financial commitment to moving the Brazilian tourism industry toward sustainable ecosystem man- Subsidies and incentives to economic activities and practices friendly to bio- agement.35 By offering more favourable conditions to projects that take diversity and ecosystem services may be implemented by different means: environmental sustainability into account, the government expects to obtain environmental commitment from the hotel industry.

Consumer prices and input subsidies An example of how soft credit can help promote Sustainable Ecosystem Management business is the case of Jambi Kiwa in Ecuador. A pilot proj- Latin American and Caribbean governments could subsidise environmen- ect in 1998, 20 women started Jambi Kiwa to improve their quality of life, tally friendly products at the final market, or subsidise inputs used in their foster gender equality, guarantee the sustainable use of their surrounding production, so the cost of their retail price is lower. natural resources, and capture the market potential of medicinal plants. The goal was to transform and commercialize medicinal and aromatic Policymakers can also decide to compensate those companies employ- plants to sell at the local and national market. With leadership and coming environmental friendly practices with direct subsidies. Payments for mitment of the beneficiaries, and access to credit by a Canadian organiza- Ecosystem Services (PES) programmes provide compensation to ecosys- tion, in 2001 the initiative evolved into a communitarian business named tem services managers from those who use them. The government may Jambi Kiwa. It now involves more than 600 families (80% are women with pay for forest conservation (i.e Costa Rica, Mexico, and Brazil) or proj- high levels of illiteracy and 75% are indigenous Puruhá).36 ects focused on restoring degraded pastures into silvopastoral systems. A scheme similar to Performance based budgeting can be implemented, which means that payments are based on the environmental outcomes Certification schemes resulting from the agricultural management. The growing certification movement demonstrates that consumers actu- ally value eco-friendly measures that are respectful of local community Concessional financing and investment practices. Certification schemes, such as the Marine Stewardship Council (MSC), Organic, Fair Trade, and Shade Grown, among others, can com- Commercial banks may be reluctant to finance businesses exploring new mand a price premium and hence constitute mechanisms through which or innovative practices that have not yet been proven profitable. Imple- Ecosystem Services benefits can be captured and Sustainable Ecosystem menting a revolving fund for formal Small and Medium Enterprises could Management promoted. This can give privileged access to high value be a useful way to encourage sustainable practices. Smaller credit institu- markets and enable responsible fishers, farmers or lumbermen to differen- tions (municipal and rural credit agencies) may offer very high interest tiate their product in return for commitments to responsible environmental rates for most small and medium enterprises to afford. Hence, access to management and reduced ecosystem impacts. Certification has benefited

35 BNDES (2010) “Program for modernizing the hotel sector already has a portfolio of R$ 841 million.” 14 May 2010 36 CORPEI (2008), Sistematización del proyecto - Fortalecimiento y consolidación de la gestión empresarial de la PYME comunitaria Jambi Kiwa (Informe de gestion - Jambi Kiwa - 2008).

13 farmers across the region including banana producers in Peru, Mexico and These collaborative arrangements enhance the competitiveness of Ecuador; coffee producers in Brazil, Colombia, Costa Rica and Guate- the sector, facilitate cooperation and coordination between actors, and mala; and cocoa producers in Mexico. In Guatemala, Forest Stewardship obtain environmental, social and economic benefits throughout the value Council certified community concessions increased Guatemalan forestry chain by increasing volume and quality of inputs, increasing productivity revenues by 209% to USD 5.8 million as of 2010.37 Other distinctive signs and purchasing power, quality control, linkages between producers and such as geographical indications and appellation of origin can also be used exporters, reducing transport costs, sharing stewardship responsibilities, as strategies for product differentiation and higher retail prices. equitable benefit sharing and promotion of trust between communities, public and private sectors. Also, marketing strategies such as specialised showrooms may be used to promote biodiversity based products and products and services from Seven policy steps for creating eco-friendly value chains: a certain area. For example, the Sala Andes and Amazonia aims to dif- ferentiate biotrade products and services derived from the Amazon and 1. Identification of sectors with potential. This involves listing products Andean regions. and services and product groups; then prioritising based on environmental, biological, social, political, economic, technological and infra- A market-driven strategy implemented by Jambi Kiwa, a Producers’ Asso- structure criteria. ciation of Medicinal Plants from Ecuador, has resulted in the development of value-added products that comply with market requirements and have 2. Selection of value chains. Selection of matrixes; strategic analysis, based differentiated characteristics: certifications, sanitary permits, sustainably on these same green guidelines. produced products and recognition of the local culture and traditions. 3. Assessment of the selected value chain. This includes gathering infor- Local markets may not generate enough demand to adequately support mation, mapping, gap analysis, identification of problems and solutions development in the region. Biodiversity products and services must improve in accessing current and potential markets, prioritising solutions. quality to meet national and international standards. Investment in local, national and international marketing strategies are also necessary. Being 4. Formulation of sector strategy. This includes drafting strategic lines of aware and fulfilling market requirements in terms of administrative proce- work, formulating a work plan, and validation of the strategy. dures, quality, documentation volume, investment, and logistics is crucial if Latin American and Caribbean producers intend to expand their produc- 5. A monitoring system is established during the implementation process. tion to European, Asian and other markets. Trade agreements should provide incentives and facilitate access to biodiversity-based products. 6. Volume of production and reliability. A greater volume of ecologic products should be available to satisfy demand in large markets. In (d) Eliminating Ecologically Perverse Subsidies addition, a stable and reliable production is necessary in order to meet retailer needs. Perverse subsidies can maintain destructive overcapacity in some sectors and contribute to additional negative impacts to biodiversity and ecosys- 7. Support for disclosure. Develop instruments that invite companies to tems services. report on their use of natural capital.

(e) Strengthening Sustainable Value Chains Natura: a successful example of value chain and benefit sharing

Value chains link a rural area to local, regional, national and international Through benefit distribution, the Brazilian company Natura seeks to empower markets. A sustainable value chain can organise local production, for- communities with whom they work. The Iratapuru community is an example malise Small and Medium Enterprises, offer technical assistance, supply of Natura’s learning from traditional and local communities, while contributing financing, reach and meet existing demand. to the generation of income for communities through the purchase of raw materials. Composed of 30 families, the Mixed Extractivistic Producer Coop- Value chain enables actors directly or indirectly involved in a productive erative of the Iratapuru River sells crude Brazil nut oil to Cognis, a processing activity act in a coordinated way with the aim of taking the product or ser- company that refines the essence and delivers it to Natura which, in turn, uses vice from the supplier or manufacturer to wholesale retailer to consumer. it to manufacture shampoos, conditioners, and bar soap. The community is Thus establishing market-oriented strategic alliances between producers, reimbursed at the beginning of the productive chain, for oil provision, and at processors, distributors, traders and regulatory and support institutions. the end, as a percentage of Natura product sales.

37 Program on Forests (2010). “Strengthening the Value Chain for Indigenous and Community Forestry Operations” 3 August 2010.

14 Through resources derived from the agreements and investments made erosion, protect water quality, mitigate fire risk, help maintain and encour- by Natura, the community built and operates an oil extraction plant. Ima- age natural regeneration, and protect biological diversity. RIL techniques flora, Forest Stewardship Council’s representative in Brazil, certifies nut and guidelines are not fixed prescriptions, but adapt harvesting options to production with the “FSC green seal”. In addition, a percentage of total existing biophysical and economic conditions. sales go to a Sustainable Development Fund that promotes other economic initiatives in the community to enhance its technical and commercial management capacity.38 2. Valuation

(f) Engaging the private sector A full understanding of economic value, along with assessments of subsidies and incentives, could unlock investments capable of generating pay- The private sector is a key partner in this process. Its engagement could back that far exceeds unsustainable use. Ministries of Finance and Envi- be facilitated by presenting risks and opportunities to its operations: repu- ronment with research centres throughout the region could spearhead this tational risks; regulation restrictions; higher production costs if negative effort and ensure community participation. There is a need to inventory impacts are internalized; and environmental dependency risk. Opportu- and valuate: nities come from investors perceiving greater value in forward thinking companies that demonstrate a competent awareness of the issues and a • Ongoing relevant projects willingness to act. • The economic value of goods and services generated by intact ecosystems—economic data must make sense to communities and be useful Habitat Banking is an emerging system to incentivize organizations or to policy makers. To attain this there is a need of solid, reliable and private companies to restore, create, enhance or conserve a habitat and scientific base information systems, and mechanisms for providing to sell tangible units of this habitat, termed credits. These credits can be intelligence about natural resources for the use of many stakeholders, used as compensation for impacts on similar habitats caused by produc- government agencies, and individual and community owners of the tive or extractive operations. Implementation of Habitat Banking requires resources, private sector and civil society. adoption of environmental legislation and the establishment of a system • Government policies, subsidies, and incentives affecting biodiversity based on standards and protocols for credits and mitigation instruments, and ecosystem management to manage and monitor enforceable contractual agreements and reduce transaction costs. Land property rights are essential for this scheme to • Communities and groups that benefit from biodiversity and ecosystem succeed including formal recognition of customary or community rights. services, and those affected when those services are degraded..

Establishment of concessions in public forests may be one way of improv- The Ministry of Environment of Peru (MINAM) is a good example of ing access to timber resources while providing more reliable monitoring. valuation efforts carried out in the region. In 2008, it produced valuable Policies need to encourage sound investment in technology, professional information supporting the national environmental accounts and report- training and provision of specific information regarding timber (or other ing on the state of ecosystems, its values and threats. extractive natural resources) markets. Long -term concessions conditions may encourage the private agent to use Biodiversity and Ecosystem Ser- Furthermore, the many concrete and measurable economic costs incurred vices in a sustainable way. by ecosystem degradation are often ignored. Large investments in physi- cal infrastructure and human resources are not accompanied by corre- Policymakers can steer part of the funds from taxes on products with neg- sponding investments in natural capital. One reason for this discrepancy is ative impacts on the environment, as well as royalties paid by businesses the fact that the value of ecosystem services is not included in the concept exploiting natural resources to a trust fund that would pay private land- of Gross Domestic Product (GDP). Several studies are proposing new owners protecting forests. Such programme exists in Costa Rica where economic indicators that accurately reflect irreplaceable draw downs of individual farmers receive site-specific contracts for forest protection, natural capital. Real growth and wealth indicators integrate quality of life reforestation, agro forestry, and natural forest regeneration. variables including human health, ecological integrity, social well-being, equity, and intergenerational justice. The idea of creating national public Reduced Impact Logging (RIL) systems use an array of harvesting tech- accounts which include losses and returns on natural capital is also gather- niques that reduce damage to residual trees, limit soil disturbance and ing pace.

38 Arnt, R. (2008). Natura and access to genetic resources and traditional knowledge. Natura Cosmetics

15 Emerging Markets for biodiversity and ecosystem services Suggested activities include:

Markets for sustainably harvested products are expanding rapidly. Organic (a) Before any project is undertaken, disseminate information to sup- product sales in 2009 grew by 5.3 percent overall, to reach $26.6 billion in port engagement of an aware population. Develop social participation the United States alone.39 mechanisms in all conservation efforts, and demonstrate the benefits of environmental services to human health, development, quality of life, and The United Nations’ REDD programme presents a concrete framework survival. Biodiversity strategies include conservation of cultural diversity. and an invaluable opportunity for the region to capitalise on conservation. REDD creates a financial value for the carbon stored in forests, (b) Spread knowledge about innovative systems in order to spur replica- offering incentives to reduce emissions from forested lands and invest tion. Continue to enhance public awareness of the drivers of deforesta- in low-carbon paths to sustainable development. “REDD+” goes beyond tion and degradation, of the spill-over value generated by investment in deforestation and forest degradation to include conservation, sustain- protected areas, and of the value of biodiversity as an adaptive element able management of forests and enhancement of forest carbon stocks. amidst climate change. Some predictions suggest that financial flows for greenhouse gas emission reductions from REDD+ could reach up to US$30B per year.40 (c) Enhance private sector involvement.

Additional areas for further development that will increase competitive- (d) Introduce more rigorous valuation of protected areas benefits and ness of the region include: costs, including stakeholder valuations focussing on short- term and long- term benefits of moving from Business as Usual unsustainable practices to (a) Accounting processes that include biodiversity and ecosystem ser- Sustainable Ecosystem Management presenting opportunity costs and vices. Systematic data gathering to facilitate decision making among min- distribution issues. istries in order to align economic and environmental policies and understand related trade-offs. (e) Implement a Sustainable Ecosystem Management Information Sys- tem for the protected areas systems to provide a timely flow of sector (b) Distributing Payments for Ecosystem Services among the community level information to decision makers (public and private) on matters such so that everyone benefits. Careful financial monitoring processes must be as ecosystem health, progress towards Sustainable Ecosystem Manage- built into design and aggressively implemented. ment targets, and the economic impact of protected areas under Sustain- able Ecosystem Management. This could also be replicated and linked in (c) Fostering fair use of innovative financial instruments that place a value regional and local levels. on ecosystem services. The idea of “Forest Bonds” and tradable “Biodiver- sity Certificates” or “Ecosystem Service Certificates” is being pioneered by (f) Explain to consumers the benefits of sustainable products, while doing companies seeking to pilot a new asset class for biodiversity and the services massive campaigns on the importance of protecting the environment. If it provides. This could deliver substantial benefits to the owners of such consumers internalise the importance of biodiversity and ecosystem ser- assets whether they are governments or communities, as well as investors. vices, they may be willing to pay higher prices for sustainable products and for those whose production processes meet environmental friendly practices. 3. Education and Advocacy (g) Enhance the capacity of rural poor in natural resources sustainable Latin America and the Caribbean need to advance education and out- uses throughout the whole growing (or fishing) season, teaching sustain- reach efforts. Stakeholders should develop campaigns to increase knowl- able practices with “learning by doing” techniques. edge and awareness about biodiversity and ecosystem services among consumers (who have a choice in purchasing products), among legislators and policy-makers, and also among rural poor whose livelihood depend on biodiversity and ecosystem services.

39 The Organic Trade Association (2010) “U.S. Organic Product Sales Reach $26.6 Billion in 2009.” 22 April 2010 40 UN REDD, accessed July 13, 2010

16 4. Innovation

Biodiversity and Ecosystem Services conservation and sustainable manage- Investment in research, development, and technology is required to tran- ment is essential to the future of the region and its long-term competi- sition to sustainable productive sectors (i.e. restoring degraded lands for tiveness. Bioprospecting, the emerging field of biomimicry and biotrade agricultural production) and for climate change adaptation including depend heavily on diverse, sustainable and healthy ecosystems. Investment investments in ecological infrastructure. Benefits of ecological infrastruc- in knowledge, research and technology development is necessary to be at ture are especially significant with regard to water, including both water the forefront of natural resource-based technologies, products and markets. purification and waste water treatment. Investment on scientific and Investment in technology could add value to biodiversity products, ensure technical knowledge information of ecosystems—through mechanisms sustainability of natural environments and benefit the local population. such as the Inter-American Biodiversity Network (IABIN)—is particularly important. The region’s immense array of natural resources make Latin America and the Caribbean a unique laboratory for the development of products and Natural disasters such as storms, floods, fires, droughts and biological processes that could provide significant medical solutions for current and invasions all significantly disrupt economic activity and society’s wellbeing. future generations. There are biodiversity-based medicinal markets on the Diverse ecosystems are part of the ecological infrastructure that provides rise in which the region could position itself as a leader through further effective resilience to natural disasters. Prevention and damage control investment in research and new technology development. plans should include investment in natural hazard control systems provided by forests and wetlands (floods), mangroves and coral reefs (storms Non-timber forest products are important for the pharmaceutical, cos- and tsunamis). metic and personal care industries. Natural compounds based on plants, animals or microorganisms are essential for drug development.

IV. BIODIVERSITY AND ECOSYSTEM SERVICES: AN ENGINE OF GROWTH AND COMPETITIVENESS TOWARDS A NATURAL KNOWLEDGE ECONOMY

The biodiversity and ecosystem riches of Latin American and Caribbean The Latin American and Caribbean region is an agribusiness superpower countries are a treasure whose value might increasingly be captured within with the potential to be a superpower in biodiversity, carbon and freshwa- a future 21st century economic system. It offers a comparative advantage ter services. As a global storehouse of carbon and biodiversity, the region that could energize the region’s much-needed economic growth and social has an opportunity to lead in the monetization of ecosystem services as a development. However, this potential is at risk due to Business As Usual basis for integrating conservation and production functions. unsustainable practices that deplete biodiversity and ecosystem services- -sometimes to irreversible states. The Latin American and Caribbean region’s vast natural capital, presents an opportunity to lead as a natural knowledge economy. Partner countries The region’s governments, private and financial actors, civil society and in the world can support these efforts by providing financial resources and other stakeholders should understand and consider the value of biodi- creating favourable market incentives for conservation and sustainable versity and the significant ecosystem services it provides in policy, plan- management of biodiversity and ecosystems services. ning, and investment in order to support sustainable economic and human development. If protected, invested in and used ethically, biodiversity can open new markets, reenergize existing sectors and grow profit centers.

41 “Ecological infrastructure refers to nature’s capacity to provide freshwater, climate regulation, soil formation, erosion control and natural risk management, amongst other services.” (TEEB, UNEP).

17 Acknowledgements

Commission for Biodiversity, Ecosystems, Finance and Development

Heraldo Muñoz (Convener) Ahmed Djoghlaf Carlos Magariños Assistant Secretary-General and UNDP Director of the Executive Secretary, Convention on General Director, Foresight 2020 Regional Bureau for Latin America and the Caribbean Biological Diversity Wendell Mottley Manuel Arango Paulo Gadelha Managing Director, Credit Suisse Founder, CIFRA Group President, Oswaldo Cruz Foundation (Fiocruz) Cristián Samper Marcelo Argüelles Rebeca Grynspan Director, Smithsonian National Museum of President, SIDUS Pharmaceutical Group UNDP Associate Administrator Natural History Alicia Bárcena Enrique Iglesias José Sarukhán Executive Secretary, United Nations Economic Secretary General, Ibero-American General National Coordinator, National Commission for the Commission for Latin America and the Caribbean Secretariat (SEGIB) Knowledge and Use of Biodiversity (CONABIO) Alessandro Carlucci Pedro Pablo Kuczynski Achim Steiner Chief Executive Officer, Natura Senior Adviser and Partner, Rohatyn Group Executive Director, United Nations Environment Programme

UNDP

Heraldo Muñoz Coordination of Commission, Stakeholder Assistant Secretary-General and Regional Director, Regional Bureau for Latin America and the Caribbean Consultations and Communications Veerle Vandeweerd Emma Torres UNDP Senior Adviser Energy and Environment, Regional Director, Environment & Energy Group Bureau for Bureau for Latin America and the Caribbean Development Policy Nick Remple Coordination of Technical Team Energy and Environment Practice Leader, Regional Bureau for Latin America and the Caribbean [May 2008 Andrew Bovarnick to May 2010] UNDP Lead Natural Resource Economist

Christopher Briggs Overall Support to the Initiative Energy and Environment Practice Leader, Regional Bureau for Latin America and the Caribbean [June 2010 María José Baptista to present] Project Manager

The Commission for Biodiversity, Ecosystems, Finance and Development wishes to acknowledge the contributions made by Antonio García to the Foreword; and Luis Carranza to the Policy Brief.

This Initiative has benefited from extensive collaboration of numerous individuals and organizations: The Technical Advisory Committee, the Technical Team, Lead Economists, Chapter leaders, Support authors, Researchers, External reviewers, participants in the stakeholder consultations, and James McGowan—rapporteur of the Commission meetings. UNDP is grateful and indebted to all enlisted in the acknowledgment section of the report. 18