Biodiversity conservation and climate mitigation: what role can economic instruments play?

Available online at www.sciencedirect.com

Biodiversity conservation and climate mitigation: what role caneconomic instruments play?Irene Ring1, Martin Drechsler2, Astrid JA van Teeffelen3, Silvia Irawan4 andOscar Venter5

Tradable permits and intergovernmental fiscal transfers play an

increasing role in both biodiversity conservation and climate

mitigation. In comparison to regulatory and planning

approaches these economic instruments offer a more flexible

and cost-effective approach to biodiversity conservation.

Economic instruments should act as complements to rather

than substitutes for conventional land-use planning, given that

their applicability is limited by the heterogeneity of biodiversity.

Linking biodiversity policies with carbon mitigation policies may

provide synergies and alleviate the chronic inadequacy of

conservation budgets. Since the scope and scale of the two

policy fields differ in some respects, it must be ensured that

market-based climate mitigation policies will be implemented

with the restrictions necessary for safeguarding Earth’s

biological diversity.

Addresses1 UFZ — Helmholtz Centre for Environmental Research, Department of

Economics, Leipzig, Germany2 UFZ — Helmholtz Centre for Environmental Research, Department of

Ecological Modelling, Leipzig, Germany3 Wageningen University and Research Centre, Department of

Environmental Sciences, Wageningen, The Netherlands4 Crawford School of Economics and Government, The Australian

National University, Australia5 The Ecology Centre, University of Queensland, Brisbane, Queensland

4072, Australia

Corresponding author: Ring, Irene ([email protected])

Current Opinion in Environmental Sustainability 2010, 2:50–58

This review comes from a themed issue on Terrestrial systems

Edited by Anne Larigauderie and Harold A. Mooney

Received 13 December 2009, accepted 22 February 2010

Available online 17th March 2010

1877-3435/$ – see front matter

# 2010 Elsevier B.V. All rights reserved.

DOI 10.1016/j.cosust.2010.02.004

IntroductionEconomic instruments play an increasing role in both

biodiversity conservation and climate mitigation [1–3].

Already possessing a long tradition in the context of

policies related to air and water pollution (e.g., [4,5]),

economic instruments are being recommended more and

more as a cost-effective means of implementing biodi-

versity policies [6,7]. Most notably, The Economics of

Ecosystems and Biodiversity (TEEB) initiative recently


called for better use of economics and related instruments

in according value to biodiversity and ecosystem services

and their contribution to human well-being. In response,

there have been a number of global studies on the benefits

of biodiversity and the growing costs associated with bio-

diversity loss and ecosystem degradation [8,9,10��].

Here we review recent developments with regard to two

economic instruments that hold promise for biodiversity

policies, addressing both private actors (tradable permits)

and public actors (intergovernmental fiscal transfers).

Tradable permits and intergovernmental fiscal transfers

are innovative policy instruments that are attracting

attention from both researchers and decision makers as

a means of protecting biodiversity.

In a tradable permit scheme, a regulator places a limit on a

certain activity (e.g., habitat development or carbon emis-

sions), and distributes permits allowing the activity to

occur. These permits may be traded among private actors,

and any actor engaging in this activity must have a permit

to cover the amount of the activity being undertaken

[11,12]. Such schemes have been implemented in, for

example, the United States [13,14] and Australia [15].

Compared to landscape planning, tradable permit

schemes are expected to deliver benefits in terms of

cost-effectiveness and private actor engagement (e.g.,

[16]). However, the conditions in which such benefits

can be realised are not well understood.

Fiscal transfer schemes redistribute public revenues,

mostly from taxes, through transfers from national and

regional governments to local governments. An important

objective of such schemes is to reduce fiscal imbalances

across decentralised governments [17]. Another purpose

is to compensate local governments for expenditure

incurred in providing benefits to areas beyond their

boundaries, such as that spent on schools and hospitals.

Some countries have started to introduce ecological

indicators, such as protected areas, for the redistribution

of intergovernmental fiscal transfers to the local level

[18,19,20�]. Ecological fiscal transfers compensate local

governments for the expenditure incurred in providing

ecological public goods and services [21,22]. They may

also compensate for the opportunity costs of such goods

that entail spillover benefits to areas beyond municipal

boundaries, thereby reconciling the local costs with the

global benefits of conservation [22,23]. Although less

prominent in the literature, ecological fiscal transfers have

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Biodiversity conservation and climate mitigation Ring et al. 51

been included in this review because they explicitly

address local public actors and their role in biodiversity

conservation. Municipalities often perceive protected

areas as an obstacle to development because of the

land-use restrictions associated with them [24]. By inter-

nalising the positive externalities of protected areas,

ecological fiscal transfers provide an incentive to local

communities to increase the supply of ecological goods

and services to a level that can otherwise be reached only

at higher social costs by protected area regulations on

their own.

The trading of carbon credits and carbon dioxide (CO2)

emissions permits was valued at a substantial US$126

billion in 2008 [25], and these transactions may greatly

expand as efforts to Reduce Emissions from Deforesta-

tion and forest Degradation (REDD) gain momentum.

Through the intended REDD schemes, international

payments are to be provided for avoiding deforestation

and forest degradation (REDD) as well as for the con-

servation and sustainable management of forests

(REDD+) and the enhancement of carbon stocks through

afforestation, reforestation and restoration (ARR)

measures (for REDD(+) options see [26�,27��,28], for

ARR see [29�]). Linking biodiversity conservation with

climate policies not only may create synergies but can also

involve trade-offs [30,31�,32–34,35�], and the same holds

for implementing corresponding REDD schemes in con-

nection with tradable permit markets or ecological fiscal

transfers.

The goals of this review are twofold. First, it aims to

provide a better understanding of the potential and

limitations of tradable permits and intergovernmental

fiscal transfers for biodiversity conservation policies. Sec-

ond, it highlights the synergies and trade-offs between

biodiversity and climate policies involved in tradable

permits and ecological fiscal transfers, and the potential

of the latter two for the implementation of REDD

schemes.

Tradable permitsTradable permits and biodiversity conservation

Tradable permits have recently been added to the con-

servation policy toolbox as a supplement to public sector

conservation. Tradable permits are considered to have a

number of advantages compared to top-down conserva-

tion planning. One is that they make biodiversity an

economically valuable resource, which enhances the

involvement of private actors in biodiversity conservation

[36] and sets explicit financial incentives to protect or

restore biodiversity [11,37]. Like many other market-

based instruments, tradable permits deliver (at least in

theory) conservation goals at least cost: actors for whom

the cost of biodiversity conservation is low will conserve

and sell their permits, while actors for whom conservation

is expensive will buy permits and develop their land


[11,12]. In principle, top-down planning can be cost-

effective, too, but for this the planner needs to be fully

informed about the conservation costs of the private

actors, which is often not the case [38��]. Market-based

instruments like tradable permits help to reveal that

hidden information to the regulator [39]. Since the num-

ber of permits is fixed, the overall ecological value in the

region in question remains constant, ensuring the eco-

logical effectiveness of the instrument [11,12,38��]. This

may be seen as an advantage of tradable permits over

‘price-based’ instruments such as subsidies or payments

for environmental services [7,40]. Despite these advan-

tages of tradable permits, the successful application of

tradable permits in the area of conservation is complex in

practice, for several reasons (see e.g., [15]). One major

reason is the heterogeneity of destroyed and restored

habitats in terms of the following three main aspects:

type, space and time [38��,41,42�].

Type refers to the kind of habitat that is present in the

destroyed and restored locations, such as forest, grassland

and wetland. Many offset policies require like-for-like

compensations, meaning that forest loss is to be compen-

sated for by forest restoration, for example. However,

allowing permit trade between types (e.g., a permit

generated by grassland restoration may be used for forest

destruction), could have both economic and ecological

benefits. It increases market size and hence cost-saving

options [38��] while promoting the restoration of rare

habitat types at the cost of very common habitat types,

provided appropriate market rules are adhered to. Allow-

ing trade between types will require that market rules

maintain minimum levels of each habitat type.

Space concerns the spatial configuration of habitat at the

landscape scale, which changes as a result of the permit

market. It can be considered to some extent in spatial

trading rules [37,43,44]. Such rules are more complex than

non-spatial trading rules and are likely to incur higher

transaction costs in the market, but their application is

still simpler than the evaluation of each individual habitat

in the region concerned.

The Time aspect concerns the continuous availability of

habitat. Destroying habitat before equivalent habitat has

been restored increases the risk of species extinction

[42�]. Furthermore, species need time to colonise a

restored habitat, and a too frequent turnover of habitat

may also increase the risk of species extinction (e.g., [44]).

Demanding equivalence of destroyed and restored

habitat may lead to a temporary shortage of permits,

compromising the functioning of the permit market. This

is particularly problematic given that restoration out-

comes are often uncertain [45].

The heterogeneity of habitats, as described above, and

the uncertainty associated with restoration outcomes have


52 Terrestrial systems

triggered concerns regarding offsetting in general and

tradable permits in particular [45–47]. Quite obviously

there is a trade-off. While the ecological effectiveness of

the instrument calls for relatively complicated trading

rules, simple rules that ignore the three dimensions of

type, space and time are favourable from an economic

point of view, because they maximise the number of

market participants, leading to large and competitive

markets and best realising the cost-saving potential men-

tioned above [38��,48]. A possible way out of this dilemma

is the use and further development of trading rules that

address heterogeneity in a simple and effective manner

(e.g., the above-mentioned spatial trading rules). As an

alternative, Chomitz [48] proposes a combined approach:

a tradable permit scheme with relatively simple rules

delivers the large-scale achievement of relatively simple

biodiversity targets (such as amount of forest cover) at

comparatively low costs. The financial resources thus

saved can subsequently be used to target more complex

biodiversity features, e.g., by setting up reserves where

biodiversity is known to be rich and unique. This sup-

ports our idea that tradable permits can complement,

rather than substitute, traditional top-down conservation

policies.

Walker et al. [42�] argue that complex trading rules are

unlikely to be implemented and enforced in practice

because of adverse pressure from interest groups prefer-

ring simple trading rules and lax restoration targets. One

implication of this argument is that tradable permits

should be applied only if institutions are present that

ensure the equivalence of destroyed and restored biodi-

versity [49]. Where possible and necessary, such institu-

tions need to be developed and strengthened, with

benefits most likely extending beyond the environmental

realm. Sufficiently simple and transparent approaches —

like the ones mentioned above — are to be preferred,

whose outcomes (e.g., in terms of land-use pattern) can be

monitored easily.

Combining tradable permits with REDD schemes

Conservation of biodiversity is related to the conservation

of another resource: stored terrestrial carbon. Since forest

loss currently accounts for 12–20% of global CO2 emis-

sions [50,51], payments through REDD schemes have

been proposed as an important policy option for climate

mitigation [27��,52].

Since it can be measured on a single scale, carbon is a

commodity that can be traded relatively easily on markets

[53�]; indeed, several markets for forest carbon exist

already (see [25,54]). What remains uncertain is whether

the two policy goals, carbon storage and biodiversity

conservation, are correlated or in conflict with one

another. At a coarse spatial scale there are obvious argu-

ments for the former, given that tropical rainforests are

among the ecosystem types richest in carbon and biodi-


versity [55]. However, on a finer scale, trade-offs between

carbon storage and biodiversity exist [31�,32,53�,56�], so

that a policy targeted only at carbon might fail to conserve

biodiversity [57].

In order to ensure that carbon trading has no negative

impact on biodiversity, two permit markets could be

established, one for biodiversity and one for stored car-

bon. If a land-use activity has negative impacts on both

resources, there could be a requirement that a land user

holds permits for each resource. This would pertain also

to land-use changes associated with credit production,

such as a carbon credit project that has negative outcomes

for biodiversity. This constraint might be loosened by

allowing the substitution of carbon and biodiversity to a

certain extent, which would be very similar to the above-

mentioned question concerning the extent to which

trading between different biodiversity types should be

allowed. The conclusion reached by Venter et al. [35�] —

that minor reallocations of REDD funds would allow both

goals to be met reasonably well — indicates that a limited

substitution between biodiversity and carbon permits

could increase the cost-effectiveness of both schemes.

The question of how such a combined biodiversity-car-

bon policy should be implemented remains largely unre-

solved. A market-based approach would require correct

reference levels to be set for deforestation, along with the

establishment of monitoring and enforcement schemes

which, as in the case of tradable permits, requires the

presence of functioning governance structures [29�,58].

Given the large amounts of money flowing through the

various carbon markets [25], one could optimistically

assume that it should be possible to finance institutional

improvements, and REDD may provide the necessary

incentives to do so [59]. At the same time, large amounts

of money flowing into countries that have not yet installed

the appropriate institutions may exacerbate corruption

and scupper the intentions of the scheme [60]. Irrespec-

tive of the (combination of) instrument(s) applied, careful

implementation and monitoring remain necessary to pre-

vent money wasting or indeed the acceleration of biodi-

versity loss and carbon emissions.

A key stumbling block will be generating demand for the

biodiversity aspects of the carbon credits, although this

could conceivably be done by setting specific biodiversity

targets, possibly in partnership with upcoming commit-

ments under the Convention on Biological Diversity, or

diverting existing biodiversity funds to meet the

additional costs [35�]. These targets need to take into

account the fact that the processes determining biodiver-

sity generally operate on smaller spatial and temporal

scales than those determining the atmospheric carbon

stock. Consideration of the above-mentioned issues of

type, space and time is therefore crucial in the construc-

tion of market-based carbon-biodiversity policies.



Ecological fiscal transfersIntergovernmental fiscal transfers and biodiversity

conservation

Fiscal instruments involve public revenues and expen-

diture. In the form of environmental taxes, charges and

fees they have a long tradition in environmental policies

addressing the negative externalities of environmental

pollution (see e.g., OECD/European Environment Agen-

cy database on economic instruments used in environ-

mental policy). Although less developed and not often

applied to date, these instruments also constitute import-

ant incentives for biodiversity conservation [6,10��]. In

this case, though, it is crucial to adequately address the

positive externalities of conservation and to reward those

actors who provide ecological goods and services [10��].An ecological or biodiversity-related angle to ecological

fiscal reform has evolved only recently, accounting for a

new, wider understanding of the positive externalities of

conservation policies [61]. The spillover benefits of local

conservation activities need to be addressed by different

types of fiscal instruments, depending on the actors

involved.

When there is a mismatch between costs and benefits in

the provision of public goods and services, such as bio-

diversity conservation, local actors have no incentive to

actively engage in or support conservation activities.

Paper parks and the degradation of valuable land may

be a consequence of this imbalance of costs and benefits.

Numerous state-led, public–private and private pro-

grammes now exist and are widely promoted to compen-

sate private actors for benefits foregone. Subsidies, agri-

environmental payments, conservation support pro-

grammes and government-financed payments for

environmental services are all examples of fiscal instru-

ments that compensate landowners and businesses for the

extra costs incurred in providing ecological goods and

services (Agri-Environmental Schemes or Payments for

Environmental Services (e.g., [10��,40])).

In contrast to this, the conservation costs incurred by

local governments tend to be neglected, and tight

municipal budgets do not leave much leeway for con-

servation activities. Decisions on the designation of

protected areas are usually taken at higher governmental

levels, even though the costs of losing these areas for

other social and income-generating developments are

borne by the local governments and communities con-

cerned [21,23]. Although municipalities in most

countries benefit from development activities through

local land, income and business taxes, they often lose out

regarding conservation activities and associated restric-

tions on land use. As a consequence, existing and new

protected areas are often perceived as an obstacle to

development by local governments. This is especially

the case for large protected areas, such as national parks

and biosphere reserves [24].


What is the link between intergovernmental fiscal trans-

fers and conservation policies? Under fiscal transfer

schemes, public revenue is redistributed through inter-

governmental fiscal transfers from national and regional

governments to local governments. At present, the

indicators used for the redistribution of public revenues

to lower levels of government are based mainly on

economic or social indicators (the number of inhabitants

being a widely used surrogate indicator). Ecological pub-

lic functions and relevant indicators are rarely considered

[21]. In this way, municipal budgets increase by attracting

more inhabitants or increasing development activities,

rather than investing in ecological public goods and

services associated with biodiversity conservation. Inter-

governmental fiscal transfers can be an effective means of

redistributing finances from central to local levels to

support the local provision of ecological goods and ser-

vices with spillover benefits, using ecological indicators to

guide distribution [19,20�,21,61–63]. They can compen-

sate for local expenditure on conservation activities and

the opportunity costs resulting from land-use restrictions.

In addition, intergovernmental fiscal transfer schemes are

central to social policies and the redistribution of wealth

and income. Hence they are especially suited to combin-

ing conservation policies with poverty reduction (e.g.,

[64]), an essential feature for the design and implementa-

tion of policy instruments in developing countries.

So far, only Brazil (Ecological ICMS) and, more recently,

Portugal (Amended Local Finances Law as of 2007) have

implemented ecological fiscal transfers to compensate

municipalities for the costs associated with protected

areas [18,19,20�,22]. Both countries have introduced

the size of protected areas as a simple and easily available

additional indicator for the distribution of intergovern-

mental fiscal transfers to local governments. Other

countries are actively exploring the potential of introdu-

cing conservation-related indicators into their fiscal trans-

fer schemes to the local level (e.g., for Germany: [65,66],

for Norway: [67]).

In Brazil, a value-added tax on goods and services, the

ICMS, is a major public revenue source at state level. In

twelve out of 26 states (for 2008, see Figure 1), a pro-

portion of this tax is allocated to compensate local gov-

ernments for providing ecological services [20�]. The

common ecological indicator used by all twelve states

is based on conservation units, representing designated

protected areas in relation to total municipal area. Intro-

duced as a means to compensate local governments for

land-use restrictions imposed by protected areas, the

ecological ICMS also became an incentive to create

new protected areas. Since the introduction of ecological

fiscal transfers in the state of Parana in 1992, public and

private protected areas in this state had increased by a

total of 1,052,752 ha or 165% by the year 2000 [19,20�].The ecological ICMS in Brazil has proved especially



Figure 1

The map shows the 12 Brazilian states that introduced ecological fiscal transfers in the form of ICMS Ecologico legislation (as of 2008). All these states

use conservation units, which are based on designated protected areas for biodiversity conservation, as an indicator to distribute value-added tax

revenues from the state level to local governments.Source: Own figure. Cartography and Geographical Information Systems: Kindler, Helmholtz Centre

for Environmental Research — UFZ, based on ESRI Data and Maps 2006.

successful for municipalities with large protected areas,

where the wider benefits spill over municipal boundaries.

Experience has shown that, in addition to quantity, the

ecological indicator should also include the quality of


protected areas in the redistribution mechanism. For

example, in the state of Parana, the additional quality

index of each protected area is assessed on the basis of

variables such as physical quality, biological quality (flora



and fauna), physical representativeness and the quality of

planning and maintenance [19,20�]. In this way, the

monitoring and active management of existing protected

areas is promoted, and the quality of Parana’s protected

areas has increased (W Loureiro, PhD thesis, Federal

University of Parana, 2002). Although the ecological

ICMS explicitly addresses local public actors, it has also

led to new forms of public–private partnership between

local governments and landowners [19,20�,22]. In the

states of Parana and Minas Gerais, a number of local

governments benefiting from ecological fiscal transfers

now support landowners in the management of protected

areas. Moreover, these states have been active in promot-

ing the establishment of private protected areas in buffer

zones surrounding public protected areas.

Ecological fiscal transfers have existed for some time in

Brazil, where they provide an incentive for municipalities

to designate or support new protected areas and to engage

in the management of existing areas [19,20�]. This shows

that regulation in the form of protected areas is not

enough: complemented by economic instruments that

internalise the positive spatial externalities of protected

areas, the two instruments together lead to an increased

supply of ecological goods and services to society. The

supply of biodiversity conservation could only be

achieved at higher social cost through protected area

regulations on their own. In addition, the inclusion of

ecological indicators in fiscal transfer systems involves

low transaction costs, as no new official bodies are

required for their implementation [20�].

Ecological fiscal transfers have been proposed in the

literature as a suitable measure for a few other countries

as well. Kollner et al. [62] developed a spatially explicit

model based on biodiversity indicators and cantonal

benchmarking for fiscal transfers to the local level in

Switzerland. Ring [21,61] analysed the status quo of

and prospects for integrating ecological fiscal transfers

in Germany. Ring [61] modelled the integration of a

protected area-based indicator into the existing fiscal

transfer system for the German state of Saxony, illustrat-

ing in a spatially explicit way the potential fiscal impacts

of different design options on each of the Saxon munici-

palities. Kumar and Managi [63] suggest ecological fiscal

transfers for India based on indicators related to forest

conservation.

Up to now, the debate about ecological fiscal transfers has

addressed the redistribution of public revenues within

national boundaries. However, fiscal transfer schemes

may also represent an important means of channelling

international payments for biodiversity conservation and

climate mitigation from the national down to lower levels

of government. For example, Irawan and Tacconi [68]

propose intergovernmental fiscal transfers as a means of

distributing REDD payments in decentralised countries.


Combining fiscal transfer schemes with REDD schemes:

the case of Indonesia

Indonesia’s participation in a potential REDD scheme is

crucial because of its considerable contribution to global

emissions from deforestation and forest degradation.

Greenhouse gases (GHG) emitted from deforestation

and forest degradation in Indonesia were estimated at

1880 MtCO2 in 2005 [69]. The total emissions from

deforestation and forest degradation in Indonesia,

together with Brazil, are estimated to be approximately

four-fifths of the annual reduction target of the Annex 1

countries of the Kyoto Protocol [70]. Responding to the

ongoing REDD initiatives, the government of Indonesia

is currently preparing an implementation design for

REDD. For any national implementation plan, it is

essential to analyse the existing forest governance and

fiscal arrangements [27��,29�]. Within Indonesia, most of

the forest land is controlled by the state. Local govern-

ments are beginning to play a greater role in decision-

making with regard to forest management and land-use

change. Forest exploitation and conversion of forests for

other land uses generate public revenues for local govern-

ments in the form of local taxes and revenue-sharing

schemes that allow them to provide basic public services.

Thus local governments often perceive forest exploita-

tion and land-use change as one of the easiest ways to

generate local public revenues [71]. This shows there is

scope for intergovernmental fiscal transfers to provide

incentives for forest conservation at the local level.

In order to ensure the successful implementation of

REDD, the involvement of local governments in REDD

schemes is crucial. Local governments should be able to

assess the costs and benefits of REDD and choose to

participate when marginal benefits exceed marginal

costs. The estimation of REDD costs at the local level

can be done using a similar concept to the one proposed

for the global and national level (see [72,73]). Participat-

ing local governments could be compensated using inter-

governmental fiscal transfers, while non-participating

ones would need to be closely monitored to prevent

national leakage [68]. Two possible fiscal instruments

for distributing funds generated from REDD in

Indonesia are intergovernmental grants and shared rev-

enues. Each instrument differs in terms of the respective

distribution formula used and the degree of condition-

ality regulating how funding should be spent at the local

level. The distribution formula of intergovernmental

grants in the country takes into account different fiscal

capacities at the local level (e.g., poorer jurisdictions

receive higher grants), while the revenue-sharing mech-

anism distributes funds only on the basis of products

generated (e.g., more carbon credits generated from

reduced deforestation lead to higher local revenues).

In terms of the conditionality factor, the revenue-sharing

mechanism provides autonomy for local governments to

spend the funds transferred with no strings attached [74],



whereas intergovernmental grants can be made con-

ditional by strictly prescribing how the funds should

be spent [75].

ConclusionsEconomic instruments are gaining momentum as a means

of achieving conservation objectives in a more cost-effec-

tive manner [10��]. Tradable permits and intergovern-

mental fiscal transfers have been suggested as new

instruments in biodiversity policies, but their potential

and limitations need to be carefully investigated. Trad-

able permits for biodiversity conservation provide more

flexibility for land developers, because required conser-

vation offsets are flexible in space and time [38��]. Their

applicability, however, is limited on account of the

heterogeneity of biodiversity and ecosystems, with con-

sequences for the relevant spatial scale of the instru-

ments’ design, which generally needs to be smaller

than that intended for carbon policies. Whereas tradable

permits address land users — both those developing and

those conserving the land — ecological fiscal transfers are

aimed at local and regional governments as a means of

reconciling the local costs and global benefits of biodi-

versity conservation [22]. Common to both instruments is

their inability to replace traditional legal regulation and

planning approaches in conservation policies. As part of a

well-designed policy mix, however, their potential is far

from being fully realised. Few countries use them in

practice, even though these instruments render conserva-

tion policies more cost-effective: they effectively address

the negative externalities of land development and inter-

nalise the positive externalities of conservation measures

and protected areas.

In climate mitigation policies, both tradable permits and

fiscal instruments have been much more widely discussed

as a means of addressing the negative externalities of

greenhouse gas emissions [3]. It does not matter where

on the globe a CO2-equivalent is produced: emissions that

trigger climate change are a rather homogeneous good, so it

is much easier to apply economic reasoning to climate

policies compared to biodiversity conservation. Desisting

from logging activities has been put forward as a cost-

effective method of climate mitigation [3], so that forest

protection and biodiversity conservation are now inextric-

ably linked with climate mitigation. Through recently

suggested REDD and REDD+ schemes, the range of

potential options and instruments for implementing such

schemes is currently being explored [26�,27��,28,29�,30].

However, the synergies and trade-offs between the two

require careful investigation in order to ensure that the

efficiency gains of carbon policies do not come at the

expense of biodiversity and ecosystems [31�,32–34,35�,59].

Biodiversity conservation is the more heterogeneous

good. Hence from an ecological perspective it would

be safer to include forest-related carbon objectives in


biodiversity policies. However, political realities under

UNFCCC negotiations will most likely take the other,

more difficult route, and try including forest conservation

in climate mitigation policies. It is up to the biodiversity

community to remain alert and make sure that market-

based instruments in climate mitigation policies are

implemented with the restrictions needed to safeguard

biological diversity on Earth.

AcknowledgementThis research was partly funded by the project EcoTRADE, part of theEuropean Science Foundations’s EuroDIVERSITY programme (AvT).

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Biodiversity conservation and climate mitigation: what role can economic instruments play?

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