Bigger Biodiversity Benefits for your Buck: How economic instruments can help safeguard nature

Katia Karousakis & Edward Perry, Programme Lead & Analyst, Biodiversity, Land Use and Ecosystems, OECD Environment Directorate

This article was originally published on the Forum Network as a part of a series in which OECD experts and thought leaders — from around the world and all parts of society — address the COVID-19 crisis, discussing and developing solutions now and for the future. To keep updated on all of the OECD’s work supporting the fight against COVID-19, visit our Digital Content Hub.

Ten million hectares of forest are destroyed each year. Live coral has declined by about 4% per decade since 1990. And one million plant and animal species—one quarter of all species—are now threatened with extinction. The past decade has not yielded the biodiversity outcomes that many hoped for when the 2011-2020 Strategic Plan for Biodiversity was adopted, under the auspices of the Convention on Biological Diversity (CBD). As a result, biodiversity loss continues to accelerate, posing significant risks to our economy and the well-being of current and future generations.

The 15th Conference of the Parties to the CBD (CBD COP15)—where a post-2020 Global Biodiversity Framework is due to be agreed—is critical. It is our chance to take stock of lessons learned, and to design a better, more effective framework for the next decade. A framework that includes specific actions countries can take to address the pressures on biodiversity, whether it is land and sea-use change, over-exploitation, pollution, climate change or invasive alien species.

What role for economic instruments in the post-2020 Global Biodiversity Framework?

Many issues are being discussed and negotiated in the lead up to CBD COP15. One issue that is not receiving the attention it should is the role of economic instruments—or positive incentives—in driving the changes needed to halt and reverse biodiversity loss. What are these economic instruments? They include biodiversity-relevant taxes, fees and charges, tradable permits, environmentally-motivated subsidies, payments for ecosystem services and biodiversity offsets. Environmental economists prefer these to more traditional command-and-control instruments because they can, in theory, achieve a given environmental objective at a lower total economic cost. In other words, they are more cost-effective. You get a bigger bang for your buck.

For the latest data on positive incentives, see Tracking Economic Instruments and Finance
for Biodiversity – 2021

These instruments can be applied to pretty much any sector to help address the key pressures driving biodiversity and ecosystem services loss. Pesticide taxes in agriculture, fees on fishing and hunting licenses, tradable permits to limit extraction of groundwater, payments for blue carbon in the ocean, biodiversity offsets to address the adverse impacts of development. Economic instruments make activities that harm biodiversity more expensive and activities that benefit biodiversity economically attractive. By helping to reflect the true value of nature or biodiversity in economic activities, economic instruments are a key tool to mainstream biodiversity across sectors.

Are countries using economic instruments to address the biodiversity crisis?

Yes, though there is substantial scope to scale up both their use and ambition. OECD data on these instruments, to which more than 120 countries are currently contributing, show a plateau in their uptake since around 2010 (Figure 1). This is despite the CBD 2011-2020 Aichi Target 3 on positive incentives that called for their application but, as the Global Biodiversity Outlook 5 highlights, was not fully achieved.

Figure 1: Number of countries with biodiversity-relevant economic instruments

Source: OECD (2021), Tracking Economic Instruments and Finance for Biodiversity – 2021

The data suggest that the ambition of the existing instruments in place has also not increased over time. For example, the revenue generated from biodiversity-relevant taxes in OECD countries amounts to USD 7.7 billion annually, and has remained stable for a number of years now. And while this may not be a trivial amount, it is less than 1% of the revenue generated by other environmentally-relevant taxes. Revenues from environmentally-relevant taxes themselves account for just 5% of all tax revenues.

We must increase the use of economic instruments for biodiversity, and ramp up their ambition. This is a key ingredient for the post-2020 Global Biodiversity Framework—and if we are to bend the curve of biodiversity and put our economies on a more sustainable, nature-positive future.

For the latest OECD report, see Biodiversity, natural capital and the economy:
A policy guide for finance, economic and environment ministers

Further reading

Read more on the Economics and policies for biodiversity: OECD’s response.

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