Importance of Biodiversity and Ecosystems in Economic Growth ...

Importance of Biodiversity and Ecosystems in Economic Growth ...

Latin America and the Caribbean: A Biodiversity Super Power IMPORTANCE OF BIODIVERSITY AND ECOSYSTEMS IN ECONOMIC GROWTH AND EQUITY IN LATIN AMERICA AND THE CARIBBEAN: AN ECONOMIC VALUATION OF ECOSYSTEMS UNDP Basic facts on the Reports methodology A sectoral analysis based Report Cross-cutting areas Sectoral ES benefits provided by Protected Areas as a crosscutting area Relations amongst ecosystem services (ES) and other inputs, production practices and sectoral outputs Productio

n practices negativ e positive Sectoral outputs Source: A. Bovarnick Approach to Ecosystem Services (ES) and Biodiversity On the methodological approach to ES ES under SEM and BAU An example in agriculture

might be the difference in farm yields with the application of organic compost in a SEM agroforestry context versus yields using chemical fertilizer in similar situations (e.g., hillside farming) under BAU On comparing the available evidence for many countries on the costs and benefits of these different production practices the Report has noted that, in those cases where a full accounting is made, the net benefits are, on average, consistently greater for the SEM practice

On BAU and SEM methodology The BAU and SEM concepts enable the approximate capture of ES value over time to infer that ES of some sort are operating at a level that permit additional production (over BAU) or lower costs Figure 2.2 shows the hypothesis that under BAU, net revenues decline over time, while those of SEM may start lower but remain constant or rise. This leads to a point at which SEM replaces BAU as the optimal management approach. Biodiversity and ecosystems role in sectoral growth in LAC: Agriculture (I) Biodiversity and ecosystems role in sectoral growth in LAC: Agriculture (II)

SEM can harness ES and provide higher returns to farmers than more traditional farming systems The ecological benefits associated with agroforestry include carbon sequestration, biodiversity protection, soil improvements, crop pollination and water provision World Bank study on agroforestry systems across Central America (Current et al. 1995): Profitability is dependent on the site resources and markets Of the 21 systems analyzed, 40% had significantly higher returns than traditional systems. One agroforestry system had a net present value (NPV) of $2,863/ha (over 10 years, 1992 values) compared to

$1,423/ha for contour planting and $764/ha for woodlots Only 10% performed less well than traditional systems However in this and other SEM agricultural systems incentives and technical assistance are usually needed to promote uptake, since returns can lag in the early years until trees mature Resource degradation lowers the delivery rate for ES, and is approximated in the distance by which the ES line falls under BAU Figure 2. 3 indicates what changes are behind the drop in net revenues under BAU. For SEM, the ES line maintains its level or rises in response to improvement in the natural resource base under SEM, as shown here. In specific cases, the ES being delivered might be measure in m3/hour of sediment free water, number/night turtles available for watching on the beach, or tons/year of fish biomass grown (in the fishery stock itself or in the prey eaten). Depletion of these ES-related resources would lead to lower BAU revenues in the previous graph, Figure The BAU paradigm: Externalized costs In its simplest form the paradigm shows net revenues from BAU that are either constant or start decreasing only at a late date. Yields for the BAU model are above those of SEM for most of the planning horizon. Standard discounting of

private net revenues, even if a very low discount rate is used, will favor BAU, because SEM generates more revenues than BAU only in a very distant future. The case for SEM against BAU is based on the observation that BAU may be associated with negative externalities that, if accounted for, would switch the relative advantage of each alternative. That is, though BAU might initially make financial sense from a private perspective (the green BAU curve running above the SEM curve) it might not make sense after externalities are accounted for (i.e. the red BAU curve running below SEM after accounting for Market forces Figure 2.9 depicts a situation in which consumer preferences for certified products raise the revenues of goods produced under SEM, but only up to a point, after which the market premium is reduced and certification becomes a market access requisite. High premiums can still be observed for certified organic vegetables and fruits, but in the case of certified timber, the market is already more likely at the latter stage of the graph. Revenue increases also stem from gains in efficiency from better farming practices. Introducing policy instruments into the construed scenarios (I) Governments can create incentives and other conditions to change the balance in favor of BAU or SEM. For example, Figure 2.10 shows a situation in which a policy is introduced that lowers the profitability of BAU.

This could be the elimination of perverse subsidies that favor BAU practices (like subsidies for purchase of fuel or fishing ships in over-exploited fisheries, or subsidized agrochemical products for industrial cropping schemes). Other examples include introduction of pricing of natural resources as inputs into productive activities or the use of green taxes to correct for negative externalities (e.g., a tax on emissions, elimination of fuel subsidies for fishing boats in the Galapagos). Introducing policy instruments into the construed scenarios (II) An alternative strategy would be to encourage SEM with the use of policies that raise the profits of cleaner or more sustainable management strategies, or that facilitate transition to them. A well-known example is the use of payments for ES, and of subsidized access to credit that leads to green investments. Figure 2.11 captures this situation. Typical practices included under BAU and SEM for the Agriculture Sector Examples of SEM/BAU analysis for the agriculture sector

Analysis show that coffee farms produce higher yields partly because the forest supports pollinators for the coffee Then the Ministry of Agriculture can weigh the economic benefits to coffee farmers of conserving adjacent forest versus those benefits of converting the forest to new farms Another example is with pesticide

application in agriculture Ministries can compare farms that undertake BAU practices (i.e. heavy application of pesticide without due treatment with resulting pesticide contamination of adjacent water bodies) affecting downstream agricultural production with farms that undertake SEM practices (reduced pesticide use and cost, with more reliance on integrated pest control and natural predators), as well as reduced water contamination The downstream costs of water contamination can help policy makers make a more informed decision about the economic

value of pesticide application, as well as the flip side the economic value of maintaining the ES of natural pest control, which can reduce costly reliance on pesticide use (ever higher and more complex as the pests develop resistance) Costs of soil erosion (I) Recent evidence suggests that more than 40% of the worlds agricultural land is moderately to extremely degraded, resulting in a 13% reduction in crop productivity.

This can affect: Source: Wood et al. 2000; Winters et al. 2004 Costs of soil erosion (II) The associated costs of BAU are partly externalize d, as downstrea m sedimentat ion and loss in fertility

Benefits and costs of pesticides (Case studies) Sources: Cole et al. 2000; Lins 1996 in Conditions under a SEM scenario Valuation examples of key ecosystem services provided to agriculture Ecosystem services Quantitative estimates Monetary estimates Threats

SOIL FERTILITY Soil conservation in S. Brazil raised corn productivity 40%, soybeans 21%, beans 3%, and tobacco 32% Soil conservation in S. Brazil raised corn productivity 40%, soybeans 21%, beans 3%, and tobacco 32% Poor land management practices both on- and off-farm that result in soil degradation or erosion

WATER / CLIMATE REGULATION SERVICES 73% of water used is devoted to agriculture 73% of water used is devoted to agriculture Increasing demand/overabstraction Intensification of irrigation Water pollution caused by point and diffused sources including agricultural ones POLLINATION

35% of plant based crops worldwide supported by animal pollinators 35% of plant based crops worldwide supported by animal pollinators Changing land use Agrochemicals Climate change Invasive species GENETIC RESOURCES Generally maintains agriculture productivity,

protect against diseases Generally maintains agriculture productivity, protect against diseases Land conversion Monoculture PEST CONTROL Bats in Mexico are estimated to reduce need for pesticides by 25-50% Bats in Mexico are estimated to reduce need for pesticides by 25-50%

Habitat loss Economic benefits from maintaining specific ecosystem services (Agriculture sector examples) Soil fertility Water supply On-farm benefits of soil fertility can be measured based on the lost productivity avoided through the adoption of soil conservation practices Study of land use management in Lajeado, Sao Jos in Southern Brazil found that better soil management increased crop productivity

Between 1990 and 1996, maize, soybeans, beans and tobacco production rose by 40%, 21%, 3%, and 32% respectively In monetary terms, total farm income increased $98,460/yr for maize, $56,071/yr for soybeans, and $10,730/yr for tobacco Investments in the form of subsidies to farmers and road improvements to encourage the uptake of erosion control practices were expected to be recovered in four years| Source: Bassi 2002

The provision of water to agriculture is a key ecosystem service. However, deriving an economic estimate of this service is complex In LAC irrigation water is provided free or at low cost, meaning that the market price does not provide a suitable proxy for the social cost of water In addition, the cost of water extraction and irrigation vary depending on available technology and the water source

Bassi (2002) found that reduced soil erosion, improved basic sanitation and better management of animal waste led to a fall in the concentration of fecal coliform bacteria at two sampling points: one in the middle of the watershed and the other at the treatment station. Water treatment costs were reduced by 50% (from $3,000 to $1,500/month for 7,500 m3) due to lower need for chemicals Cranford, Trivedi and Queiroz (2010), based on a preliminary analysis, provide a lower bound estimate of the gross benefits of precipitation, related to the climate regulating services of the Amazonian basin, to crops in Brazil and Paraguay at $8 billion a year Estimated net benefits of soil conservation in

Central America Country and Area COSTA RICA BARVA TIERRA BLANCA TURRUBARES TURRUBARES DOMINICAN REPUBLIC EL NARANJAL GUATEMALA PATZIT HAITI MAISSADE HONDURAS TATUMBLA YORITO

PANAMA COCL Conservati on measure Crop Net present value ($)* Internal rate of return (%) Years to soil breakdown

Diversion ditches Diversion ditches Diversion ditches Terraces Coffee Potatoes Coco yam Coco yam -920 -3340 1110 4140 <0

<0 84,2 60,2 >100 >100 2 3 Diversion ditches Pigeon peas, peanuts, beans -132 16,9 >100

Terraces Corn -156 16,5 >100 Residue barriers Rock walls Corn, sorghum Corn, sorghum 1180 956

Positive** Positive** 0 1 Diversion ditches Diversion ditches Corn Corn 909 83 56,5 21,9

4 18 Terraces Rice, corn, yucca, beans 34 27,2 8 SOURCE: CASE STUDIES IN LUTZ, PAGIOLA AND REICHE (1994B) Economic benefits from specific farm practices to maintain ecosystem services: Organic agriculture Guerreiro Barbosa and

Gomes, 2007 Economic benefits from specific farm practices to maintain ecosystem services: Organic agriculture (IV) Conclusions: Sectoral outputs are dependent on a variety of ES inputs, for example (I) Conclusions: ES can provide access to emerging markets(II) In the past, maintaining ES was viewed as a barrier to economic growth, evidence suggests that conditions are changing: ES are important for sustained growth by providing access to emerging green markets, avoiding damage

costs, building resilience to climate change, and increasing the efficient use of scarce resources and, thereby, reducing production costs. Countries can increase the economic benefits of ES and SEM practice through specific policy changes and by supporting particular production and supply chains in the transition to SEM Conclusions: ES can provide access to emerging markets(III) Firms respond to both policy and market incentives. Consumers, increasingly, want the natural resources that are used as inputs to be sustainably managed. There are signs of companies taking early mover advantage and positioning themselves in the marketplace based on sustainable practices.

Access to affordable finance can also be an incentive. Several investment funds have been created to support sustainable ES use in LAC, including Root Capital, Verde Ventures, Futuro Forestales, EcoEnterprise Fund, and CAMBio. These funds have invested in numerous SEM enterprises in agriculture, forestry, and tourism. Recommendations Sectoral plans should undertake trade-off analysis

between maximization of short-term production and ES maintenance Level the playing field and incentivize SEM Develop economic instruments and planning to reduce off-site degradation of ES Increase the asset value of biodiversity and ES Augment public sector revenues from use of ES Generate and capture data on ES Where to download the main Report and related thematic and national reports http://www.undp.org/latinamerica/biodiversitysuperpower/Index.htm

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