INTERNATIONAL UNION FOR CONSERVATION OF NATURE AND NATURAL RESOURCES ECONOMICS AND BIOLOGICAL DIVERSITY: Developing and Using Economic Incentives to Conserve Biological Resources By Jeffrey A. McNeely INTERNATIONAL UNION FOR CONSERVATION OF NATURE AND NATURAL RESOURCES Gland, Switzerland November 1988 Prepared and published by the International Union for Conservation of Nature and Natural Resources Copyright: 1988 International Union for Conservation of Nature and Natural Resources This publication may be reproduced in whole or in part and in any form for educational or non-profit uses, without special permission from the copyright holder, provided acknowledgement of the source is made. IUCN would appreciate receiving a copy of any publication which uses this pub- lication as a source. No use of this publication may be made for resale or other commercial purpose without the prior written permission of IUCN. Citation: McNeely, Jeffrey A. 1988. Economics and Biological Diversity: Developing and Using Economic Incentives to Conserve Biolog- ical Resources. IUCN, Gland, Switzerland. xiv + 232 pp. ISBN: 2-88032-964-7 Design: The Magazine Group Printed by: St. Mary's Press, McGregor and Werner, Inc. Washington, D.C. Available from: IUCN Publications Services, 1196 Gland, Switzerland The designations of geographical entities in this book, and the presenta- tion of the material, do not imply the expression of any opinion what- soever on the part of the participating organizations concerning the legal status of any country, territory, or area, or of its authorities, or concern- ing the delimitation of its frontiers or boundaries. The interpretations and conclusions in this report are those of the author and do not necessarily represent the view of IUCN, USAID, or the other participating organizations. TABLE OF CONTENTS Foreword i Preface iii Acknowledgements v Executive Summary vii 1. ECONOMICS AND BIOLOGICAL DIVERSITY INTRODUCTION 1 AN APPROACH TO USING ECONOMIC INCENTIVES TO PROMOTE CONSERVATION OF BIOLOGICAL DIVERSITY 6 Purpose of the Guidelines 6 Limitations 7 2. VALUES AND BENEFITS OF BIOLOGICAL DIVERSITY INTRODUCTION 9 THE ECONOMIC ROOTS OF OVER-EXPLOITATION 10 APPROACHES FOR DETERMINING THE VALUE OF BIOLOGICAL RESOURCES 14 Direct Values of Biological Resources 14 Indirect Values of Biological Resources 19 THE BENEFITS OF PROTECTING HABITATS 25 Costs of Replacing Biological Resources 29 Costs of Protecting Biological Resources 30 THE CONCEPT OF MARGINAL OPPORTUNITY COST 31 CONCLUSIONS 33 3. ECONOMIC INCENTIVES: What they are and how they can be used to promote conservation of biological diversity INTRODUCTION 37 THE NATURE OF INCENTIVES AND DISINCENTIVES 38 ECONOMICS AND BIOLOGICAL DIVERSITY FORM AND FUNCTION OF THE DIFFERENT TYPES OF INCENTIVES 41 Direct Incentives 41 Indirect Incentives 42 COSTS AND BENEFITS OF INCENTIVE SYSTEMS 43 THE PROBLEM OF PERVERSE INCENTIVES 44 Major Economic Incentives for Depleting Biological Resources . 45 Commodities Trade and Incentives to Over-exploit 48 Modifying Perverse Incentives 51 NEGATIVE IMPACTS OF ECONOMIC INCENTIVES PROVIDED BY THE INTERNATIONAL COMMUNITY, AND WHAT CAN BE DONE TO OVERCOME THEM 53 CONCLUSIONS 55 4. THE USE OF ECONOMIC INCENTIVES TO PROMOTE CONSERVATION OF BIOLOGICAL RESOURCES AT THE COMMUNITY LEVEL INTRODUCTION 57 THE USE OF ECONOMIC INCENTIVES AT THE COMMUNITY LEVEL 58 DIRECT INCENTIVES TO PROMOTE CONSERVATION OF BIOLOGICAL RESOURCES AT THE COMMUNITY LEVEL 60 Direct Incentives in Cash 60 Direct Incentives in Kind 64 INDIRECT INCENTIVES TO PROMOTE COMMUNITY SUPPORT FOR CONSERVATION 71 Indirect Fiscal Incentives 71 Indirect Service Incentives: Community Development and Biological Diversity 72 Social Incentives for Conserving Biological Resources 73 CONCLUSION 77 5. THE USE OF INCENTIVES AT THE NATIONAL LEVEL INTRODUCTION 79 NATIONAL GOVERNMENT POLICIES WHICH ENABLE ECONOMIC INCENTIVES TO FUNCTION AT THE COMMUNITY LEVEL 80 Direct Incentives in Cash 80 Direct Incentives in Kind 81 Indirect Fiscal Incentives 81 Indirect Service Incentives 83 TABLE OF CONTENTS Indirect Social Incentives 83 COORDINATING CONSERVATION INCENTIVES: THE CROSS-SECTORAL APPROACH 84 The role of conservation strategies 84 Some cross-sectoral linkages 85 ECONOMIC INCENTIVES AND RESOURCE MANAGEMENT AGENCIES 94 Incentives for Staff 95 Community Service Voluntary Labor 96 The Special Case of Forestry Departments 97 CONCLUSIONS 99 6. INTERNATIONAL ASPECTS OF INCENTIVES SYSTEMS INTRODUCTION 101 THE ROLE OF DEVELOPMENT ASSISTANCE IN PROVIDING INCENTIVES FOR CONSERVING BIOLOGICAL RESOURCES 103 INTERNATIONAL LEGAL INSTRUMENTS AS INCENTIVES TO CONSERVE BIOLOGICAL DIVERSITY 106 CONCLUSIONS 109 7. MECHANISMS FOR FUNDING INCENTIVES PACKAGES INTRODUCTION 111 HOW TO FUND INCENTIVES PACKAGES 112 CONCLUSIONS 121 8. GUIDELINES FOR USING INCENTIVES TO CONSERVE BIOLOGICAL DIVERSITY INTRODUCTION 123 GUIDELINES FOR CENTRAL GOVERNMENT PLANNERS. 124 Introduction: Why Incentives Are Required to Conserve Biological Resources 124 Guideline 1: Make Rapid Initial Assessment of Available Biological Resources 126 Guideline 2: Estimate the Contribution of Biological Resources to the National Economy 127 Guideline 3: Establish National Policies for Managing Biological Resources 128 Guideline 4: Remove or Reduce Perverse Incentives 129 Guideline 5: Establish a Structure of Responsibility for the Biological Resources in the Region 130 ECONOMICS AND BIOLOGICAL DIVERSITY GUIDELINES FOR RESOURCE MANAGEMENT AGENCIES 131 Guideline 1: Develop the Institutional Capacity for Implementing Economic Incentives to Conserve Biological Diversity 132 Guideline 2: Ensure Community Involvement in the Incentives Package 133 Guideline 3: Design Realistic Incentives Packages, and Monitor Their Application to Ensure that Modifications are Made if Necessary 135 Guideline 4: Incorporate Economic Incentives into the Planning Process for the Agency 136 Guideline 5: Develop Innovative Funding or Other Mechanisms that Will Enable the Public to Support Conservation of Biological Resources 137 Guideline 6: Ensure that Incentives are Perceived as Such 137 Guideline 7: Incorporate Disincentives as Part of the Package 138 GUIDELINES FOR DESIGNING AND IMPLEMENTING DEVELOPMENT PROJECTS 139 Guideline 1: Design the Incentives as a Package 139 Guideline 2: Determine the Capacity of the Local Community to Benefit from Incentives 141 Guideline 3: Ensure that Projects which Incorporate Incentives Include All Necessary Elements for their Success 142 9. CASE STUDIES PERVERSE ECONOMIC INCENTIVES 1. Incentives Which Deplete Biological Resources in Brazil 147 2. Economic Incentives Resulting in Over-use of Grazing Lands in Botswana 149 3. Incentives Resulting in Over-exploitation of Tropical Forests in Indonesia 151 ECONOMIC INCENTIVES AT THE COMMUNITY LEVEL 4. Using Economic Incentives to Integrate Conservation and Rural Development in Thailand's Khao Yai National Park 153 5. Access to Thatching Grass as an Incentive for Promoting Local Support for Protected Area Values in Zimbabwe 156 6. Economic Incentives for Conserving Brazil's Iguape-Cananei- Parangua Estuary 157 7. Incentives for Controlling Human Impact on the Forests of Sagarmatha National Park, Nepal 159 TABLE OF CONTENTS 8. Access to Grazing and Water as an Incentive to Conserve the Amboseli Ecosystem, Kenya 160 9. "Ownership" of Marine Resources in Quintana Roo, Mexico 162 10. Food for Work as an Incentive for Community Action in Wolong Nature Reserve, China 164 11. Providing Profits from Hunting to Local Communities: A Major Incentive for Conseving Large Game in Zimbabwe 166 12. Community Involvement as an Incentive for Conservation Management of a Woodland in the Inner Delta of the Niger, Mali 168 13. Providing Training to Farmers as an Incentive for Conserving the Tegucigalpa Watershed, Honduras 170 14. Traditional Ownership for Modern Conditions in the Coastal Zone of Japan 172 15. Economic Incentives Among Pastoralists in Northern Kenya 174 16. Incentives and Disincentives in Community-Level Marine Resource Management in the Philippines 176 THE USE OF INCENTIVES AT THE NATIONAL AND INTERNATIONAL LEVELS 17. Innovative Funding for Conserving Biological Resources in Costa Rica 178 18. The Rubber Tappers Movement in Brazil: Harvest Rights as an Incentive to Conserve Biological Resources 180 19. Economic Incentives Provided to Rural Communities Adjacent to Indian Wildlife Reserves 182 20. Creating a Revolving Fund for Supporting Wildlife Management in Zambia 184 21. Land Swaps Between Government and Private Industry: A Mechanism for Conserving Wetlands in the USA 186 22. Debt Swap for Conservation in Ecuador: An International Incentive for Conserving Biological Diversity 187 23. The International Trade in Tropical Timber 189 24. Central Government Subsidies for Conserving a World Heritage site in Queensland, Australia 191 25. Cooperative Management of Caribou in the Arctic 193 DEFINITIONS OF KEY CONCEPTS 195 BIBLIOGRAPHY 199 ACRONYMS 231 INDEX 233 PREFACE he World Commission on Environment and Development has Tpointed out that "Conservation of living natural resources— plants, animals, and micro-organisms, and the non-living elements of the environment on which they depend—is crucial for develop- ment. The challenge facing nations today is no longer deciding whether conservation is a good idea, but rather how it can be imple- mented in the national interest and within the means available in each country" (WCED, 1987). The WCED called for greater attention by development agen- cies to the issues of conserving biological