Study on biodiversity financing and tracking biodiversity-related expenditures in the EU budget. Final Report

Transcription

1 Study on biodiversity financing and tracking biodiversity-related expenditures in the EU budget Final Report June 2017

2 Study on biodiversity financing and tracking biodiversity-related expenditures in the EU budget EUROPE DIRECT is a service to help you find answers to your questions about the European Union Freephone number (*): (*) The information given is free, as are most calls (though some operators, phone boxes or hotels may charge you) LEGAL NOTICE This document has been prepared for the European Commission however it reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein. More information on the European Union is available on the Internet ( Luxembourg: Publications Office of the European Union, 2017 Print ISBN doi: / KH EN-N European Union, 2017 Reproduction is authorised provided the source is acknowledged.

3 Study on biodiversity financing and tracking biodiversity-related expenditures in the EU budget Project number: ENV.B.2/ETU/2014/0031 Final Report June 2017

4 LEGAL NOTICE The information and views set out in this report are those of the authors and do not necessarily reflect the official opinion of the Commission. The Commission does not guarantee the accuracy of the data included in this study. Neither the Commission nor any person acting on the Commission s behalf may be held responsible for the use, which may be made of the information contained therein. More information on the European Union is available at 2

5 Table of contents Executive summary Introduction and general approach to the study Context of the study Objectives and general approach Methodology Limitations Tracking biodiversity-related expenditure in the EU budget Introduction Funding instruments under shared management Partnership agreements ERDF / CF / ESF biodiversity expenditure tracking EMFF biodiversity expenditure tracking Funding instruments under central management Biodiversity tracking under centrally managed instruments (excluding EAGF) Funding instruments for the Common Agricultural Policy EAGF biodiversity expenditure tracking EAFRD biodiversity expenditure tracking Absorption of EU funds for biodiversity biodiversity funding in MFF Biodiversity funding in MFF (ex post analysis at EU level) Absorption of EU funds for biodiversity biodiversity funding in MFF in selected Member States Discussion: Challenges and obstacles for absorption of funds for biodiversity and options for increased funding uptake Private financing Introduction Methods Results Conclusions Annex Current tracking approaches in the EU budget (Draft Budget 2017) and share of biodiversity contributions per fund Annex to section ERDF / CF / ESF biodiversity expenditure tracking Annex to section Programme for the Environment and Climate Action (LIFE) Detailed analysis of partnership agreements Annex to section EAGF biodiversity expenditure tracking Detailed tables for EAGF analysis Detailed tables for EAFRD analysis Annex to section on absorption capacity Annex to section on private financing 224 3

6 Table of figures Figure 1 - Biodiversity-related expenditures in 2016 EU budget (M )... 9 Figure 2 - Biodiversity-related expenditures in Draft Budget 2017 (M ) Figure 3 - Funding allocations (M ) Figure 4 - Fraction of the total ESI fund amount for allocated to TO6 for each Member State Figure 5 - ESI funds allocations to TO6 per Member State over the budget period Figure 6 - Share of the total ESI fund for TO6 allocation in relation to Member States main land area (in km2).. 27 Figure 7 - Number of occurrences of biodiversity-related notions at fund-level Figure 8 - TO6 allocations including biodiversity and biodiversity-related notions Figure 9 - Funding allocation for Thematic Objectives under biodiversity-relevant intervention fields... Figure 10 - Biodiversity-relevant expenditure of centralised direct management instruments in 2015 and 2016 (estimates) Figure 11 - Environmental instruments under the Common Agricultural Policy Figure 12 - Simplified scheme of the biodiversity tracking for EAGF starting from 2015 (EY) Figure 13 - Proposed approach to refine tracking for biodiversity expenditures under the greening payments illustrated on the example of ex post estimate for 2015 (detailed explanation in the text) Figure 14 - Proposed refined tracking of biodiversity-relevant expenditure under green direct payments (EY) Figure 15 - Contribution of focus areas to biodiversity-related expenditures under current tracking approach and #5 tracking level, and the gap analysis Figure 16 - Priority 4 analysis: contribution of each sampled RDP to the gap (left) and the gap per each sampled RDP expressed as % of the current tracking approach estimate (right) Figure 17 - Gap analysis: isolated effect of ANC measure vs. all other measures for P Figure 18 - Effect of each measure (except M13) on the analysed gap for P Figure 19 - Distribution of measures contribution to the P4 biodiversity budget according to the current tracking approach Figure 20 EY proposition for enhancing ex-ante tracking approach for biodiversity-relevant expenditures under the EAFRD (illustrated scenario with M13 included) Figure 21: Contribution of ERDF and CF to biodiversity in MFF by intervention field (left) with indicated absorption rates (right) Figure 22: Direct contribution of EAFRD to biodiversity in MFF by measure (left) with indicated absorption rates (right) Figure 23: Indirect contribution of EAFRD to biodiversity in MFF by measure Figure 24: Direct (left) and indirect (right) contribution of EFF to biodiversity in MFF by measure/action Figure 25: Contribution of EFF to biodiversity in MFF by axis (left) with indicated absorption rates (right) Figure 26: Contribution of EAFRD to biodiversity in MFF in Poland by measure (left) with indicated absorption rates (right) Figure 27: Contribution of EAFRD to biodiversity in MFF In Greece by measure (left) with indicated absorption rates (right) Figure 28: Contribution of EAFRD to biodiversity in MFF in Romania by measure (left) with indicated absorption rates (right) Figure 29: Contribution of EAFRD to biodiversity in MFF in Denmark by measure (left) with indicated absorption rates (right) Figure 30 - General framework of PES programme

7 Figure 31 - General cartography of public political instruments for environment, position of PES and their variations (adapted from (Laurans, Lemenager, and Aoubid 2011) Figure 32 - The scope of payment for environmental services Figure 33 - The choice of publicly funded or privately funded PES Figure 34 - Overview of Financing Natures of PES Projects in EU Figure 35 - PES projects by EU Member States Figure 36 - Overview of the Geographic Scale of PES Project in the EU Figure 37 - Overview of Development Stages of PES Project in EU Figure 38 - PES Projects Distribution on Basis of Main EcoS Targeted Figure 39 - Overview of the Methodologies Used to Evaluate the Amount Disbursed in PES Projects in EU Figure 40. Disbursement Mechanisms of PES Projects in EU Figure 41 - Economic Sectors Involved in PES Projects Figure 42 - Success levels of PES Projects in EU Figure 43 -Relations between Main EcoS Targeted by PES Projects and their Development Stage Figure 44 - Framework of the Vittel PES Programme Figure 45 - Framework of the Evian PES case Figure 46 - Field edge adopters visiting their adopted lands... Figure 47 - Ecologist explaining the role of the edges... Figure 48 - Framework of Adopt a Field Edge programme Figure 49. Slovensky Raj National Park... Figure 50 - Slovensky Raj National Park... Figure 51 - Framework of Slovensky Raj National Park PES concept Figure 52 - Mature forests in Spain... Figure 53 - Mature forests in Spain... Figure 54 - Framework of Mature Forest Reserves PES programme Figure 55 - Flood risk map in Hull City... Figure 56 - Design of a small scale street level PES scheme... Figure 57 - Framework of Hull Flood Risk PES concept Figure 58 - HNV landscape in Mara-Cosau-Creasta Cocosului area... Figure 59 - PA Rooster's Crest and Morarenilor Lake... Figure 60 - Cheese-making at a traditional sheepfold... Figure 61 - Framework of Danube PES - Maramures Heritage Trail Scheme

8 List of tables Table 1 - Funding allocated to biodiversity in the EU budget for 2015, 2016 and Table 2 - Thematic Objectives set in the Common Strategic Framework and associated potential relevance to biodiversity Table 3 - ESI funds contribution to biodiversity (2016 Budget) Table 4 - TO6 allocations for MFF by ESI fund and Partnership Agreement Table 5 - Intervention field with a Rio marker Table 6 - Intervention field with a Rio marker Table 7 - Examples of Intervention fields where application of Rio markers is challenging Table 8 Allocated budget by Member States to biodiversity-relevant intervention fields in the OPs Table 9 Comparison of funding allocations under biodiversity-relevant intervention fields between regional OPs and ETC programmes Table 10 - Funding allocations (biodiversity relevant intervention fields 22, 85, 86, 87 and 91) under different TOs (in EUR million) Table 11 - Target values for indicator CO23 (Nature and biodiversity: Surface area of habitats supported to attain a better conservation status), in hectares, in each Member State Table 12 - Planned ESF expenditures under the secondary theme Supporting the shift to a low-carbon, resource efficient economy Table 13 - Estimation of contribution of ERDF and CF to financing biodiversity ( ) Table 14 - Contribution of ERDF and CF to financing biodiversity in DB Table 15 - EMFF measures contributing to biodiversity and proposed associated Rio marker Table 16 - EAGF Biodiversity budget for , and share of EAGF biodiversity budget in total EU biodiversity budget and in total EU budget Table 17 - Cross compliance requirements and their relevance to biodiversity Table 18 EAGF biodiversity expenditures related to green direct payments comparison of various approaches (MFF ) Table 19 - Possible levels of analysis for tracking biodiversity-related ex ante expenditures in the EAFRD budget Table 20 - Potential relevance for biodiversity of each focus area Table 21 - Sample of RDPs for detailed analysis, including EU commitments and sample coverage rates (September 2015) Table 22 Allocation of Rio markers to {focus area ; measure} pairs for Priority 4 and focus areas 5E and 5D, based on the sample of RDPs (EY) Table 23 - Outcome of the RDP sample analysis at different levels, including extrapolation to EU-28 level for #2 and #5 tracking levels Table 24 Difference between EY proposal (two scenarios) and the current tracking approach Table 25 - Types of absorption capacity, adapted from P. Wostner (2008) Table 26: Biodiversity-relevant intervention fields under ERDF and CF in MFF Table 27: Biodiversity financing under ERDF and CF in MFF (EUR billion) Table 28: Biodiversity-relevant measures under EAFRD in MFF Table 29: Biodiversity-relevant measures/actions under EFF in MFF Table 30 : Biodiversity financing under ERDF and CF in Poland in MFF (EUR million) Table 31 : Biodiversity financing under ERDF and CF in MFF in Greece (EUR million) Table 32 : Biodiversity financing under ERDF and CF in MFF in Romania (EUR million)

9 Table 33 : Biodiversity financing under ERDF and CF in MFF in Denmark (EUR million) Table 34: Overview of biodiversity financing under ERDF, CF, EAFRD and EFF in MFF Table 35 - Classification of Project Category Table 36 - Example of analysis of the relevance of private PES to solve ecosystem mismanagement for water quality Table 37 - The five PES case-studies analysed in-depth Table 38 - Analysis of the relevance of PES for each of the 5 in-depth case studies Table 39 - Current methodological options in the EU budget (Draft Budget 2017) and share of biodiversity contributions per fund Table 40 - Rio markers applied on Intervention field Table 41 - Detailed set of gathered data - presence of explicit biodiversity related objectives within PA fund-specific objectives Table 42 - Greening payments studied Table 43 - Estimation of land share impacted by the greening payments Table 44 - Estimation of implementation cost of the greening payments Table 45 - Application arrangements on greening payments at MS level Table 46 - Application arrangements on Ecological focus area at MS level Table 47 - Application arrangements on Ecological focus area at MS level Table 48 - Selection criteria for the sample of Member States to investigate absorption issues (EY)

10 List of acronyms AAP Annual Action Programme GHG Greenhouse gas ANC Area of Natural Constraints IMP Integrated Maritime Policy BPS Basic Payment Scheme M Measure CAP Common Agricultural Policy MAWP Multiannual Work Programme CF Cohesion Fund MEA Millennium Ecosystem Assessment CFP Common Fisheries Policy MFF Multi-annual Financial Framework CRIS Common Relex Information System MIP Multi-annual Indicative Programme CSDF Conservation and Sustainable Development Fund NGO Non-governmental Organisation DCI Development Cooperation Instrument OECD Organisation for Economic Cooperation and Development DG R&I Directorate general for Research and Innovation OP Operational Programme DG REGIO Directorate general for Regional policy P Priority EC European Commission PA Partnership Agreement EAGF European Agricultural Guarantee Fund PAF Prioritised Action Framework Payment for Ecosystem EAFRD European Agricultural Fund for Rural Development PES services EcoS Ecosystem Services PI Partnership Instrument EFA Ecological Focus Area PSF Policy Support Facility EFF European Fisheries Fund RDP Rural Development Programme EMFF European Maritime and Fisheries Fund SAPS Single Area Payment Scheme ENM Engineered Nanomaterial SFS Small Farmer Scheme ERDF European Regional Development Fund SMEs Small and medium-sized enterprises ES Environmental services service SMRs Statutory Management Requirements ESF European Social Fund TO Thematic Objective ESIF European Structural and Investment Funds VCS Voluntary Coupled Support ETC EU FA FSC GAEC European Territorial Cooperation European Union Focus areas of the EAFRD Forest Stewardship Council Good agricultural and environmental conditions 8

11 Executive summary Context and objectives of the study A lack of financing was identified as one of the major sources of failure to reach the 2010 EU biodiversity objectives. The EU approach to finance biodiversity related priorities is mainstreaming biodiversity objectives throughout the EU budget. Alongside increased and more effective funding from the public sector, financing from the private sector may contribute to the fulfilment of these needs. Tracking biodiversity-related expenditures is essential to ensure that spending can be related to policy outcomes in order to improve the effectiveness of EU and national funding, and to fulfil the EU and Member State reporting commitments under the Convention on Biological Diversity (CBD). The objectives of the study were to look at lessons learnt on biodiversity financing and tracking in the initial period of the budget, and to make recommendations for improvements in the coming period. Four aspects of the financing of biodiversity were analysed in the study: (i) ex post analysis of opportunities for biodiversity funding in the EU budget; (ii) opportunities for the private sector to finance biodiversity; (iii) first experiences of biodiversity tracking in the main EU funding instruments (iv Organise a workshop to collect feedback from Commission services, Member States and stakeholders on past experience and on suggestions for improvement, with a focus on the EU budget. Tracking biodiversity-relevant expenditure in the EU budget The methodology chosen by the European Commission (EC) to track biodiversity-relevant expenditure in the EU budget, as well as climate change-relevant expenditure, is to apply OECD Rio-markers to assess the share of any given budget line, project budget, etc. dedicated to biodiversity. Rio marker 2, 1, or 0 is applied to the budget line, based on whether the action targets biodiversity as a principal objective, significant objective or doesn't target it at all (respectively). The relative attributions of 100%, 40% or 0% of the total budget are then used respectively to generate amounts attributed to biodiversity based on the chosen marker. In the 2016 budget, the estimate for EU biodiversity-related expenditure amounted to EUR 13,660 million, i.e. 9% of the total EU budget. The implementation of the ex-ante tracking methodology is ongoing. It covers different levels Programme Statements, Work programme, project - of tracking and follows the recommendations of the Study on Tracking Biodiversity Expenditure in the EU Budget (Medarova-Bergstrom et al. 2015). Figure 1 - Biodiversity-related expenditures in 2016 EU budget (M ) Source: EY, based on Draft Budget 2017 The current tracking methodology for centralised management funds requires further improvements The following centralised management funds (excluding EAGF) include, to a certain extent, activities that can contribute to the preservation of biodiversity as a principal or significant objective and represent 5% of the EU biodiversity expenditures: European Earth Observation Programme (Copernicus), The Framework Programme for 9

12 Research and Innovation (Horizon 2020), European Neighbourhood Instrument (ЕNI), Development Cooperation Instrument (DCI), Partnership instrument for cooperation with third countries (PI), Programme for the Environment and Climate Action (LIFE). The analysis of the current tracking methodology reveals that the current three levels of biodiversity Rio markers may sometimes lead to over- or under-estimation and more nuanced application of the markers would help to refine the process. The biodiversity tracking process is still relatively new and ensuring the low administrative burden remains highly important, calling for synergies and exchange of knowledge in its implementation. One potential approach to enhance its accuracy could be the application of markers at project level through existing IT systems. For shared management funds, the use of additional information could increase the accuracy of the tracking approach As regards shared management funds, the European Structural and Investment Funds rely on five instruments: the European Regional Development Fund (ERDF), the Cohesion Fund (CF), the European Social Fund (ESF) and the European Maritime and Fisheries Fund (EMFF) and the European Agricultural Fund for Rural Development (EAFRD). ESIF follow eleven thematic objectives (TO) for the three funds, three of which are strongly related to biodiversity issues: TO6 (Protecting the environment and promoting resource efficiency), TO4 (Supporting the shift towards a low-carbon economy) and TO5 (Promoting climate change adaptation, risk prevention and management). For cohesion policy (ERDF, ESF and CF), biodiversity expenditures are followed at intervention field level which correspond to specific actions that can be implemented through OPs. Rio markers are applied at Intervention field level. However, given the diversity of eligible operations, the validity of the marker application for some intervention fields will be only possible to assess ex-post. In the meantime, the current methodology could take stock of additional existing information (contribution of the intervention field to the relevant TOs) or the targeted value for CO23 indicator (Surface area of habitats supported in order to attain a better conservation status). The analysis of the implementation data indicates a need for a more conservative approach in tracking biodiversity expenditures under the CAP The contribution of the Common Agricultural Policy (EUR 11.6 billion) accounts for 83% of the total biodiversity budget. In 2016, the EAGF (direct payments and market measures) contribution to the EU biodiversity budget amounted to 44%, based on the inclusion of green direct payments and a 10% share of other direct payments. Based on existing literature and discussions with relevant stakeholders, an alternative tracking approach was proposed that relies on the land area impacted by the measures that are beneficial to biodiversity. For greening payments, implementation data show the proportion of arable land and permanent grassland covered by measures directly relevant to biodiversity, Ecological Focus Areas (EFA) after applying weighting factors and permanent grassland declared as environmentally sensitive permanent grassland (ESPG), to which Rio marker 2 would apply. This would results in a more refined, but also more conservative estimate: 2.6% of green direct payments would be counted as biodiversity-relevant compared to 12% under the current tracking approach (based on current greening implementation data).. Due to the lack of comprehensive insights into the effects of cross-compliance on biodiversity and how to account for them, a conservative approach is recommended (Rio marker 0) until adequate information and evidence necessary to develop a robust quantitative approach becomes available. For EAFRD, an analysis of a sample of RDPs suggests that, the current tracking approach overestimates the priority 4 contribution. More accuracy can be obtained by applying different Rio markers to measures, depending on the corresponding focus area. Based on this refined approach, the EAFRD contribution to EU biodiversity expenditures is 38% lower in comparison to the current approach. Absorption and take up capacities within Member States Funding instruments under the EU budget provide many opportunities for funding biodiversity-related projects and the actual take-up of funding for biodiversity in each Member State depends on its real, financial, programming/project and administrative absorption capacity 1. Increasing the current uptake rate of funding for biodiversity-related projects in the EU could increase the funding available to achieve the EU biodiversity strategy. Evidence from the ERDF demonstrates that 1 P. Wostner (2008), The Micro-efficiency of EU Cohesion Policy, European Policy Research Paper Number 64, European Policies Research Center, University of Strathclyde, ISBN: , June

13 financing opportunities have not been exploited to their full potential by the Member States 2. In order to further investigate the potential for increased take-up across all EU financial instruments, an in-depth analysis was conducted for four Member States with various absorption profiles. Denmark provided insights from a Member State with relatively strong absorption capacity for biodiversity. Poland has robust co-financing and administrative capacity but shows some potential to improve programming. Greece lacks co-financing capacity, while Romania faces significant challenges particularly regarding administrative capacity. The analysis highlighted the following five key challenges for absorption of funds for biodiversity in the Member States and suggested options for increase take up. (1) The lack of preparatory actions (designation of Natura 2000 sites, preparation and adoption of management plans, basic research on the status and threats to biodiversity, etc.) can limit the absorption of EU funds. Member States who have not yet completed preparatory actions should step up their efforts and potentially conduct reviews of Natura 2000 sites to tackle inadequate designations, and if necessary implement legal and governance changes (e.g. to reinforce the legal enforceability of management plans of protected areas). (2) ESIF was judged broadly adequate for financing biodiversity if properly implemented. Biodiversity-related projects may however require more flexible administrative management of projects (due to the constraints of living organism: weather, seasons, etc.) and more open and flexible OPs (including in the formulation of their objectives) to allow non-conventional biodiversity projects. (3) Biodiversity projects require adjustments from managing authorities to promote integrated solutions and adapt to the (small) scale of projects. (4) Communication between departments (ministries, agencies, managing authorities, protected areas management) is essential to ensure coordination between the real needs of biodiversity conservation and EU funds national or regional programming. Creating intermediate bodies and stepping up communication with national and stakeholders can improve such communication. (5) The capacity of some beneficiaries, mostly at local and regional level, needs to be reinforced. Such capacity building could include training activities (including outside the planning stage of programmes), promotional activities focused on NGOs and SMEs and external application support cost. Private financing Private financing for biodiversity is now contributing to the achievement of the EU targets The EU and Member States contribute significant financial resources to the conservation of biodiversity. Private funding for conservation could also contribute to the achievement of the targets of the EU Biodiversity Strategy to Recent studies have concluded that nascent business areas beneficial to biodiversity face considerable implementation and financing barriers 3. Financing instruments that can engage private sector financing include payment for ecosystem services (PES) 4, private equities, green bonds, environmental certification, biodiversity offsets and compensatory measures, licensing rights, sponsorship, etc. PES are being used in many Member States as well as numerous third countries globally with a good degree of success. PES allow beneficiaries of ecosystem services to remunerate providers of these services and are a rapidly expanding approach for some complex environmental issues. The interest for payment for ecosystem services (PES) is growing in the EU and many new concepts or pilots were identified The analysis of PES in the EU revealed that public funding is still currently the main financial source for most PES projects (by number of PES schemes 5, 38% involved private funding). Conversely, private businesses and individuals are the main service providers. Most PES occur at a municipality level (local) or water catchment level that involves several municipalities (regional), with the number of national level PES schemes limited. The interest for PES is growing in the EU and many new concepts or pilots were identified (44% of schemes identified are between the concept and operational stage). PES in Europe tend to focus on water quality, habitats (or other support services) or target several ecosystem services and the economic sectors involved are those relying heavily on natural capital: Agriculture and livestock, Forestry, Water utilities, Natural area management and Tourism and leisure. 2 European Court of Auditors (2014), Is the ERDF effective in funding projects that directly promote biodiversity under the EU biodiversity strategy to 2020? 3 Dickie et al. (2012), Innovative use of financial instruments and approaches to enhance private sector finance of biodiversity 4 Payments for Ecosystem Services are also known as Payments for Environmental Services. 5 Data on financial flows were not available for a sufficient number of PES. 11

14 PES can be very efficient tools for biodiversity management provided certain conditions are fulfilled PES can be very efficient tools to solve ecosystem management issues, for instance to improve water purification through better watershed management (as illustrated by the Evian and Vittel cases in France). However, they require several pre-conditions such as an enabling regulatory environment, adequate capacity to manage the target ecosystem from relevant stakeholders and the existence of demand and willingness to pay for the ecosystem services at the intended location. When these pre-conditions are met, a clear business case for the private sector exists when the private company is dependent on the ecosystem service for its business model. One or a few private companies receive a significant share of the total ecosystem service benefit decreasing the incentive for others to free ride and ensuring that transaction costs are manageable. Several recommendations can be made to enhance the effectiveness of PES on biodiversity and account for their contribution to the biodiversity related expenditures tracking Several recommendations were formulated by the study. Among them, three of the key recommendations were: (1) Consider the possibility of establishing quantified EU targets to cover non-water ecosystem services in a manner similar to the Water Framework Directive targets for good ecological status of water bodies. (2) Consider a refinement or revision of existing instruments of the EU (e.g. the Green Direct Payments in the next reform of the CAP) to increase their effectiveness to provide specific agricultural related ecosystem services such as watershed management, pollination, etc. (3) Track ongoing PES programmes at local / regional / national level and consider developing a database to assess their effectiveness and identify best practices. 12

15 1. Introduction and general approach to the study 1.1 Context of the study Introduction to Biodiversity financing Though difficult to assess precisely, the cost of no action to prevent the loss of biodiversity and associated ecosystem services provides a strong rationale for policy makers to act to prevent this loss. In 2008, the global cost of policy inaction was estimated at 14 trillion Euros by In addition, numerous assessments 7 indicate that the benefits of biodiversity actions exceed by far their costs. These facts show the necessity of ensuring adequate and effective funding for biodiversity conservation and restoration. A failure to reach 2010 objectives to the 2020 Biodiversity Strategy The 2006 EU Biodiversity Action plan, organised around 10 main objectives, led to the implementation of successful actions, with long term achievements and consequences such as an improvement towards the completion of the Natura 2000 network and the broadening of the LIFE + Nature & Biodiversity component. However, the plan was not entirely fulfilled and hence the target of halting the loss of biodiversity by 2010 was not reached. One of the identified major reasons for not reaching the overall target was a lack of financing. The 2010 Assessment of implementing the EU Biodiversity Action Plan called therefore for more progress to be made on making available the necessary funding 8. Eventually, missing the 2010 objectives allowed the European Union to build the starting point for a stronger, wider set of objectives for 2020, capitalising on the lessons learnt from the implementation of the 2006 Biodiversity Action Plan. The EU 2010 biodiversity baseline will henceforth act as a reference point for subsequent actions on strategic plans, providing for measuring and monitoring progress achieved on the road towards reaching the targets of the EU 2020 Biodiversity strategy. The latter is defined through six priority targets declined in 20 actions. Target 2 of the strategy requires that 'by 2020, ecosystems and their services are maintained and enhanced by establishing green infrastructure and restoring at least 15% of degraded ecosystems' and includes actions to implement an EU Green Infrastructure Strategy and an initiative to achieve no net loss of biodiversity and ecosystem services. Other targets require full implementation of the EU Birds and Habitats Directives (Target 1), increasing the contribution of agriculture and forestry to maintaining and enhancing biodiversity (Target 3), ensuring sustainable fisheries (Target 4) and combating invasive alien species (Target 5). In addition, the EU committed to double the international 6 EC report (2008). The Cost of Policy Inaction (COPI): The case of not meeting the 2010 biodiversity target 7 See analyses and syntheses performed by The Economics of Ecosystems and Biodiversity (TEEB) 8 Report from the Commission to the Council and the European Parliament (2010): The 2010 assessment of implementing the EU Biodiversity Action Plan 13

16 resource flows to developing countries allocated to halting the loss of biodiversity, which requires sufficient resources for EU external instruments (Target 6). All of these targets, and the actions within them, are dependent on securing resources for natural capital investments. One of the barriers to halting the loss of biodiversity and ecosystem services is however a shortage of finance for investment in natural capital. EU finance for natural capital investment has focused in the past on grant funding, through the LIFE programme and other funds such as the CAP and European Structural and Investment Funds. However, closing the funding gap depends on attracting new sources of finance, including private sector finance, through means such as Payments for Ecosystem Services and finance for business models that enhance biodiversity and ecosystem services. In this sense, the conclusions of the European Council of October 14 th, recalled that the implementation of the post-2010 policy framework will require increased resources including the use of innovative financial mechanisms both for public and private funding such as the reform, elimination and reorientation of those subsidies harmful to biodiversity, payments for ecosystem services, [ ]. In this context, a study was lead in 2012 proposing a set of possible policy interventions on the EU scale to lower market barriers that make financing biodiversity and ecosystem services poorly attractive for private investors. It explored innovative financing instruments in cooperation with other institutions such as the European Investment Bank (EIB). The establishment of the Natural Capital Financing Facility (NCFF) by the EIB and the EC came in response to these previous analyses, addressing the barriers to the uptake of natural capital projects by demonstrating how biodiversity preservation can generate revenues or cost reductions. How to use the EU budget for biodiversity in the most efficient manner the importance of tracking public expenditures In addition to the provision of increased resources, another necessary condition to achieve the 2020 Biodiversity Strategy goals is the efficient and effective use of these resources, be it via the main funding instruments or through external action funding. Evaluating the effectiveness of the current state of biodiversity expenditures (such as the level of absorption of a fund) is a prerequisite for determining where changes and improvements are needed in terms of additional spending (including private), different frameworks and increased take-up in other policies. As shown in previous studies based on the budget period 10, there is a need to improve the effectiveness of the EU funding model, in particular the uptake of the existing possibilities at the Member State level show potential for improvement. Indeed, in a vital need of getting the most for biodiversity out of each euro, tracking how much is spent is necessary in order to evaluate the effectiveness of spending and correctly prioritize future expenditures. Policy makers are widely used by organizations and countries in order to track specific policy elements and the related expenditures and help fulfil international reporting requirements. An example for policy makers are the Rio markers, used by the OECD to track aid targeting the Rio conventions. Making a tracking system operational for the EU Budget is a matter discussed also for other policy areas. The current European Commission's tracking approach is based on a modified version of the OECD Rio markers methodology. The 2014 study supporting DG CLIMA in further developing the methodology for tracking climate change related expenditure 11 underlines a set of important issues to be taken into account while creating an appropriate methodology, compatible with stakes, external financing and the level of information and control expected to reach. With other DGs working on the same methodology and obtaining experiences of tracking, the sharing of good practice, limitations and desirable evolution will allow the tracking method for biodiversity-related expense to quickly grow in accuracy and relevance. The quoted study stresses the potential difficulty to implement an ex-post system able to capture the actual effects of 9 Council of the European Union (2010): Preparation of the tenth meeting of the Conference of the Parties to the Convention on Biological Diversity (Nagoya, Japan, October 2010) Council conclusions 10 Examples: IEEP for the WWF (2009): Biodiversity & the EU Budget making the case for conserving biodiversity in the context of the EU Budget Review. ENEA-MA Working Group on Biodiversity and Cohesion Policy Final Reporting, Presentation Budapest April IEEP et al. for the European Commission, DG CLIMA (2014): Tracking system for climate expenditure in the post-2013 EU budget: Making it operational 14

17 the activities and projects funded, by linking financial data and relevant environmental indicators. A strong expertise allying private finance, public expenditures and environmental management knowledge then appears inevitable in order to capture the complexity of the problem examined. The fact that different DGs are currently implementing tracking methods for their expenditures implies a need for common rules on how to track different issues-related expenditures, so that the tracking tool is compatible with shared-management funds' issues. Hence the construction and evolution of the tracking systems is a central challenge towards better biodiversity financing. 1.2 Objectives and general approach Objective of the study The objectives of the study is twofold: to look at lessons learnt on biodiversity financing and tracking in the first months of the budget, and to make recommendations for improvement in the coming period. This assignment follows up the 2014 study 12 which outlined an approach for tracking the biodiversity related expenditure in the EU budget across different EU funding instruments. This complementary study evaluates experience of tracking so far. It looks at the first results of the tracking approach in the MFF , based on the available data regarding the programmes' implementation. It also looks back at the MFF and takes stock on biodiversity financing and analyses the absorption of available funding streams, where the availability of data permitted. Finally, the study also investigates the potential of private financing for biodiversity. The expected result is to propose potential avenues to improve and refine the current tracking approach for the coming years. If the general objective is to improve the tracking of biodiversity expenditures in the EU budget and enhance understanding biodiversity financing opportunities, three aspects of the objective were investigated during the study: Track biodiversity related expenditures in the EU budget: the study lists the EU opportunities to finance actions with benefits to biodiversity and analyses the accuracy of the current approach to track biodiversity (chapter 2); Funding opportunities for biodiversity in the EU budget and avenues for an increased uptake in Member States and their absorption capacity: although opportunities to finance biodiversity exist in the EU budget, Member States capacity to seize them depend on many factors (section 2.5 of chapter 2 Absorption of funds for biodiversity and take up in the Member States ).First, a general overview of the funding uptake is provided at the EU level for biodiversity-relevant shared-management funds (ESIF) in MFF followed by an analysis for selected Member States to look more deeply at absorption and potential avenues for increased uptake. Identify opportunities in the private sector to finance biodiversity: alongside public funding opportunities, the study explores the potential of private sector regarding payments for ecosystem services (chapter 4). Structure of the report Chapter 2 explores biodiversity expenditures for each funding instrument of the EU budget. A section of this chapter is dedicated to the CAP; Chapter 3 focuses on absorption and take up of biodiversity funding in the Member States. Chapter 4 investigates opportunities from the private sector to finance biodiversity. 12 a. Kettunen, M., Illes, A., Hart, K., Baldock, D., Newman, S., Rayment, M., Sobey M. and Medarova-Bergstrom, K. (2014) Tracking Biodiversity Expenditure in the EU Budget, Final Report for the European Commission DG ENV, Institute for European Environmental Policy, London/Brussels 15

18 Annexes of the document present the detailed analyses for each section. 1.3 Methodology The study was based on a variety of tools to feed the analysis: - An in-depth literature review; - Data mining based on ESIF data; - Interviews with EU services responsible for tracking biodiversity; - A workshop on private biodiversity financing collecting information from stakeholders and discuss the preliminary results (29 participants from private sector and civil society organisations); - A general workshop presenting preliminary study results to wide range of stakeholders (80 participants from public administration, academia and civil society organisations). Tracking biodiversity related expenditures in the EU budget The analysis of the current tracking approach strongly depended on the availability of data. Three categories of instruments were analysed: The EU centralized managed instruments: the study explored the current tracking approach and performed an in-depth review of existing literature for each instrument in order to identify potential risks of over- or underestimation in the current approach. The EU shared managed instruments (ESIF): the study took stock of the partnership agreements, OPs and SFC data to perform quantitative analysis on the contribution of each programme to biodiversity and identify ways to improve the accuracy of current tracking approach. A dedicated analysis was performed on CAP funding instruments (EAGF and EAFRD): an in-depth review of existing literature resulted in proposing potential avenues to improve current tracking approach, including through an in-depth analysis of a sample of 17 RDPs. Absorption and take up capacities within Member States The EU budget provides many opportunities for funding biodiversity-related projects in Member States and the actual take-up of funding for biodiversity in each of them depend on their absorption capacity. Wostner provided a useful classification of different level of absorption capacities which was used in this study 13. This classification distinguishes the real absorption capacity (real needs and availability of the production factors), the financial absorption capacity (capacity of co-financing by the beneficiaries of the funds and the Member States), the programming/project absorption capacity (relevance of the strategy and programme, preparation of project documentation) and the administrative absorption capacity (administrative capacity of the public administration and the applicants to prepare, manage, supervise and implement projects). A screening of all Member States was conducted in order to select four of them for further investigation. The analysis aimed to screen Member States interesting in terms of absorption of EU funds to support biodiversity conservation but very few indicators directly related to take-up of funds for biodiversity were available so proxies were used. These proxies included the absorption rate of adopted OPs for Cohesion Policy in 2013 and 2015, for budget period, the EU Co-financing rates for ERDF and Cohesion Fund in 2007 and in 2013, the share of environmental expenditure in the expenditure of several instruments, etc. This preliminary screening was completed with additional criteria to ensure the four Member States selected would provide a balanced picture in terms of geographical representation across the EU (EU 13 / EU 15), size of Member State and management types of operational programmes (centralised / regionalised). The choice of Denmark, Greece, Poland and Romania balanced these criteria and included both Member States with high absorption rates and lower absorption rates. 13 P. Wostner (2008), The Micro-efficiency of EU Cohesion Policy, European Policy Research Paper Number 64, European Policies Research Center, University of Strathclyde, ISBN: , June

19 For each of the four selected Member States, an in-depth literature review was completed by interviews with key stakeholders among central and local authorities in charge of the programming and administration of EU funds in their country as well as beneficiaries of such funds (e.g. nature conservation NGOs). Private financing An extensive scientific and grey literature review was conducted to produce a PES database for the project: it lists 154 potential PES projects in the EU. Among them, 131 PES and PES-like cases were identified and kept for the rest of the analysis. A first screening phase led to the collection of key information for all the identified projects based on the last publicly available reports identified. The results of this overview provide macro-trends (e.g. rough percentages should be relatively accurate) but cannot be used for a precise analysis due to data limitations. Additional data were then collected for a shortlist of projects, based on the following criteria: Privately financed and Public Private Partnership projects, economic sectors involved, ecosystems involved and Member States. Well-known cases such as Vittel and Evian were excluded from the shortlist, although secondary data was also collected for these projects. Five projects were selected among this shortlist, in Romania, the Netherlands, Spain, Slovakia and the United Kingdom. Additional data was collected (including through interviews) to produce five in-depth case studies. To further refine the analysis, a workshop on private finance for biodiversity conservation and PES was organized in the context of this study. 1.4 Limitations The initial aim of the study was to look at first results of the tracking application and to see how closely the current approach reflects real expenditure on the ground. However due to delayed implementation of programmes, and therefore lack of ex-post data, the focus was redirected towards fine assessment of ex ante tracking approaches under certain instruments, based on available programming information at the time of the analysis.. 17

20 2. Tracking biodiversity-related expenditure in the EU budget 2.1 Introduction The analysis performed in this chapter addresses the following questions: a. What have the Member States and the EC planned for biodiversity within the various programmes (instruments under shared and centralized management)? b. How are these planned efforts translated into concrete actions by the Member States or regions (e.g. within the operational programmes for instruments under shared management)? A preliminary assessment of the funds allows to select most relevant programmes with regard to their potential effect on biodiversity. Overview of the current tracking methodology The European Commission uses Rio markers to assess its biodiversity and climate-relevant spending and provide statistical reports to the OECD-DAC, like many other donors. The figure below illustrates the Rio-marking procedure and how to account for the amount of funding allocated to the environmental themes. The methodology chosen by the European Commission (EC) to track biodiversity-relevant expenditure in the EU budget, as well as climate change-relevant expenditure, is to apply OECD Rio-markers to assess the share of any given budget line, project budget, etc. dedicated to biodiversity. Rio Marker 2, 1, or 0 is applied based on whether the action targets biodiversity as a principal objective, significant objective or does not target it at all (respectively). The relative attributions of 100%, 40% or 0% of the total budget are used to generate the reported amount attributed to biodiversity based on the three Biodiversity Rio Markers (respectively). Ex ante tracking consists of assigning a Rio market 0, 1 or 2 to a given line in the EU budget to calculate the potential contribution to biodiversity based on its objectives, whereas ex-post tracking take stock of the implemented projects and policies to adjust the effective contribution of each budget line to biodiversity. Further information on this methodology can be found in the 2014 report Tracking Biodiversity Expenditure in the EU Budget of Institute for European Environmental Policy a. Kettunen, M., Illes, A., Hart, K., Baldock, D., Newman, S., Rayment, M., Sobey M. and Medarova-Bergstrom, K. (2014) Tracking Biodiversity Expenditure in the EU Budget, Final Report for the European Commission DG ENV, Institute for European Environmental Policy, London/Brussels 18

21 Historic development of European use of Rio markers Following the Rio Earth summit in 1992 and the establishment of Rio conventions, the OECD-DAC (Development Assistance Committee) in close collaboration with the Secretariat of the United Nations Framework Convention on Climate Change (UNFCCC) introduced Rio markers to measure and monitor support to developing countries to implement the objectives of the Rio conventions: climate change adaptation, climate change mitigation, biodiversity and desertification. A scoring system of three values has been designed, in which development co-operation activities are marked as targeting the environment or the Rio Conventions: - as the principal" objective (Rio marker 2); - or a significant" objective (Rio marker 1), - or as not targeting the objective. They indicate donors policy objectives in relation to each aid activity. Rio-markers were defined to be descriptive rather than quantitative, however they are currently used to give an approximation of financial contribution to Rio convention s objectives. The European Commission uses the Rio-markers methodology to assess its biodiversity contribution. The following percentages have been assigned to each Rio marker : A percentage of 100% is used for activity with a Rio marker score of 2 A percentage of 40% is used for activity with a Rio marker score of 1 A percentage of 0% is used for activity with a Rio marker score of 0 The European Commission uses the following definition to describe principal and significant objectives: A principal objective must be explicitly stated as fundamental in the design of, or the motivation for, the action. Promoting the objective will thus be stated in the activity documentation to be one of the principal reasons for undertaking the action. In other words, the activity would not have been funded (or designed that way) but for that objective. A significant objective must also be explicitly stated, but is not the fundamental driver or motivation for undertaking and designing the activity. The activity has other prime objectives but has been formulated or adjusted to help meet the relevant environmental concerns. Source: DG International cooperation and development Table 1 summarises the latest figures for fund contribution to the biodiversity budget (columns (A)) for financial years 2015, 2016 and 2017 (draft budget) based on methodologies which are currently adopted by the European Commission (current tracking methodology). For a considered financial year, Columns (B) and (C) respectively show the share of each fund in the total biodiversity budget and the total EU budget. 19

22 Table 1 - Funding allocated to biodiversity in the EU budget for 2015, 2016 and Fund European Earth Observation and Monitoring Programme (Copernicus) Horizon The Framework Programme for Research and Innovation HEADING 1a COMPETITIVENESS FOR GROWTH AND JOB European Regional Development Fund (ERDF) DB2017 DB2017 DB % % % % % % M biodive M biodive M biodive rsity total rsity total rsity total (A) (B) (C) (A) (B) (C) (A) (B) (C) 107,8 0,9% 0,1% 103,7 0,7% 0,1% 8,1 0,1% 0,0% 51,9 0,4% 0,0% 200,8 1,4% 0,1% 138,4 1,2% 0,1% 159,7 1,3% 0,1% 304,5 2,2% 0,2% 146,5 1,3% 0,1% 861,1 6,8% 0,6% 808,6 5,8% 0,5% 934,9 8,4% 0,6% Cohesion Fund (CF) 682,2 5,4% 0,4% 660,2 4,7% 0,4% 766,1 6,9% 0,5% HEADING 1b COHESION POLICY European Agriculture Guarantee Fund (EAGF) European Agricultural Fund for Rural Development (EAFRD) European Maritime and Fisheries Fund (EMFF) Programme for the Environment and Climate Action (LIFE) HEADING 2 SUSTAINABLE GROWTH: NATURAL RESOURCES European Neighbourhood Instrument (ЕNI) Development Cooperation Instrument (DCI) Partnership Instrument for cooperation with third countries (PI) 1 547,3 12,2% 1,0% 1 468,8 10,5% 1,0% 1 701,0 15,3% 1,1% 6 063,8 48,0% 3,9% 6 030,1 43,2% 4,0% 3 272,7 29,5% 2,1% 4251,0 33,6% 2,8% 5 529,0 39,6% 3,7% 5 332,8 48,1% 3,4% 136,0 1,1% 0,1% 134,0 1,0% 0,1% 199,0 1,8% 0,1% 248,2 2,0% 0,2% 236,9 1,7% 0,2% 221,7 2,0% 0,1% , 0 84,6% 7,0% ,0 85,5% 7,9% 9 026,2 81,3% 5,7% 60,7 0,5% 0,0% 76,2 0,5% 0,1% 51,3 0,5% 0,0% 174,3 1,4% 0,1% 177,2 1,3% 0,1% 165,8 1,5% 0,1% 3,5 0,0% 0,0% 3,4 0,0% 0,0% 7,0 0,1% 0,0% 15 European Commission (2015), Draft General Budget of the European Union for the financial year 2016, COM(2015) 300 available at: and European Commission (2016), Draft General Budget of the European Union for the financial year 2017, available at: 20

23 HEADING 4 GLOBAL EUROPE 238,5 1,9% 0,2% 256,8 1,8% 0,2% 224,1 2,0% 0,1% Total ,5 100,0 % 8,2% ,1 100,0 % 9,2% ,8 100,0 % 7,0% Given total commitments , , ,0 (A) Funding allocated to biodiversity, in million euros, (B) Fraction of total funding allocated to biodiversity, in percent, (C) Fraction of total annual commitments, in percent Budget figures (i.e. ex-ante figures) show a high heterogeneity between instrument contributions compared to the total biodiversity budget. For instance, the biodiversity-budget of the European Structural and Investment Funds (ESIF; 13 billion in Draft Budget 2016), and in particular the instruments of the Common Agricultural Policy (EUR 11.4 billion, or 83% of the total biodiversity budget) weigh significantly more than EU centrally-managed instruments, including the Programme for the Environment and Climate Action (LIFE; EUR 0.2 billion in Draft Budget 2016). In accordance with the study by Medarova-Bergstrom et al. (2014) 16, the methodology for biodiversity-related budget tracking relies heavily on the use of Rio markers (as defined by the OECD 17). Figure 2 provides a summary of the use of Rio markers in the currently agreed upon methodology used in Draft Budget 2016). A full description of the current methodologies, as well as a summary of the share each fund has allocated to biodiversity, is provided in Table 39 the annex. In-depth assessment of funding instruments contribution to biodiversity The 2017 draft EU budget shows a high heterogeneity between different instruments' contributions to the total biodiversity budget: the biodiversity-budget of the Common Agricultural Policy (EUR 11.6 billion) accounts for around 83% of the total biodiversity budget, vs. 11% for the cohesion policy (ERDF and CF). Thus the study zoomed specifically into tracking approaches under EAGF and EAFRD to provide additional insights into its accuracy and potential avenues for improvement. 16 Medarova-Bergstrom et al..(2014) Tracking Biodiversity Expenditure in the EU Budget, Part I Guidance on definition and criteria for biodiversity expenditure in the EU budget, Final Report for the European Commission DG ENV, Institute for European Environmental Policy, London/Brussels 17 OECD (2009) Measuring and targeting the objectives of the Rio Conventions. 21

24 Figure 2 - Biodiversity-related expenditures in Draft Budget 2017 (M ) Source: EY, based on Draft Budget

25 2.2 Funding instruments under shared management Partnership agreements Regulatory context The European Structural and Investment funds (ESI funds) are governed by a Common Strategic Framework setting a common approach for the European Regional Development Fund (ERDF), the European Social Fund (ESF), the Cohesion Fund, the European Maritime and Fisheries Fund (EMFF) and the European Agricultural Fund for Rural Development (EAFRD) 18. Aside from fund-specific requirements set for the budget period 19, the Common Strategic Framework required National Authorities to prepare Partnership Agreements (PAs) consisting of strategic plans with investment priorities covering these five ESI funds, to be submitted before 22 April Before being negotiated with the European Commission, the PA shall be the result of consultation at various levels of governance, representatives from interest groups, civil society and local and regional representatives. The goal is to ensure a more strategic and complementary use of different sources of EU funding, and to combine and simplify their use for a better impact on growth and jobs. The planning schedule however set a submission deadline so early that ESI fund-specific budgets could not be submitted nor adopted at the time of PA submission. Eleven thematic objectives were defined 21, for which Partnership Agreements were required to disclose the following information, inter alia: A summary of the main results expected for each of the ESI Funds for each of the selected thematic objectives; The indicative allocation of support by the Union at national level for each of the ESI Funds by thematic objective, as well as the total indicative amount of support envisaged for climate change objectives 22. Limitations for biodiversity-related expenditure analysis at TO level These requirements involve a quantitative breakdown of Thematic Objectives allocations (TO) per fund, as well as qualitative information on the expected results for each of the ESI funds. Consequently, qualitative information is in general insufficiently detailed to consider setting Rio markers at TO level. A summary of TOs is provided in Table 2. Potential contribution of TO to biodiversity is highly variable: while TO6 Preserving and protecting the environment and promoting resource efficiency is directly related to biodiversity, a number of other TOs (in particular TO4 and TO5, and to a lesser extent TO1, TO3, TO8, TO9) are likely to include biodiversity measures that would require further examination at an investment priority level (based on Medarova- Bergstrom et al ). The two previous paragraphs imply that based on PA analysis, information on biodiversity-related expenditures can only be considered with a satisfactory level of confidence from TO6 allocation per Member State for the budget period. In addition, a comparison between and figures would not provide consistent conclusions, since the breakdown for the ESI fund allocation into TOs evolved from former priority themes (defined in Regulation No 1826/ ) in the budget to the eleven TOs in the budget. 18 Regulation (EU) No 1303/2013; article In particular Cohesion Fund: Regulation (EU) No 1300/2013; European Fund for Regional Development: Regulation (EU) No 1301/2013; European Social Fund: Regulation (EU) No 1304/2013; European Agricultural Fund for Rural Development: Regulation (EU) No 1305/ Regulation (EU) No 1303/2013; article Ibid; Article 9 22 Ibid, Article Medarova-Bergstrom et al. (2015) Tracking Biodiversity Expenditure in the EU Budget, Part II Fund specific guidance documents, Final Report for the European Commission DG ENV, Institute for European Environmental Policy, London/Brussels 24 Regulation (EC) No 1828/

26 Table 2 - Thematic Objectives set in the Common Strategic Framework and associated potential relevance to biodiversity Thematic Objective a Potential relation to biodiversity b c Level of identification TO1 Strengthening research, technological development and innovation Indirect Lower probability Investment priorities TO2 Enhancing access to, and use and quality of, ICT; - - TO3 Enhancing the competitiveness of SMEs, of the agricultural sector (for the EAFRD) and of the fishery and aquaculture sector (for the EMFF); Indirect - Lower probability Investment priorities TO4 Supporting the shift towards a low-carbon economy in all sectors; Indirect Higher probability Investment priorities TO5 TO6 TO7 TO8 Promoting climate change adaptation, risk prevention and management; Preserving and protecting the environment and promoting resource efficiency; Promoting sustainable transport and removing bottlenecks in key network infrastructures; Promoting sustainable and quality employment and supporting labour mobility; Indirect Higher probability Direct Indirect Lower probability - Indirect - Lower probability Investment priorities TO Investment priorities TO9 Promoting social inclusion, combating poverty and any discrimination; Indirect - Lower probability Investment priorities TO10 TO11 Investing in education, training and vocational training for skills and lifelong learning; Enhancing institutional capacity of public authorities and stakeholders and efficient public administration Indirect Lower probability - Indirect Lower probability - a Regulation (EU) No 1303/2013 of 17 December 2013; Article 9 b Medarova-Bergstrom et al. (2015) Tracking Biodiversity Expenditure in the EU Budget, Part II Fund specific guidance documents, Final Report for the European Commission DG ENV, Institute for European Environmental Policy, London/Brussels c Direct : TO directly related to biodiversity; Indirect : Through Investments priorities, either associated with higher likeliness of identifying biodiversityrelated expenditures in the investments priorities, or with lower likeliness ; - : low likeliness of identifying biodiversity-related expenditures both through the TO and associated investment priorities. Preliminary assessment of partnership agreements Comparison of contributions of ESI funds to TO6: a strong contribution from EAFRD and CF Figure 3 provides a comparison between the share of the contribution of each ESI fund to the TO6 allocation and total allocations for the budget period. As expected, it highlights important differences in contribution to TO6 between funds; main results include: While being a major contributor to the total ESI fund allocation (EUR million, i.e. 20%), the European Social Fund is not associated with any TO6 allocation The European Agricultural Fund for Rural Development and the Cohesion Fund significantly contribute to the TO6 (44% and 28% respectively ) in comparison with their overall share in the total ESI allocation (22% and 14% respectively) The European Regional Development Fund contributes significantly less to the TO6 allocation (25%) than to the total ESI allocation (43%) 24

27 The European Maritime and Fisheries Fund is associated with lower contributions; it contributes a share of 3% to the TO6 and 1% of total ESI funds. Figure 3 - Funding allocations (M ) 100% 80% 60% 40% 20% EMFF CF ESF EAFRD ERDF 0% TO6 Source: Partnership agreements Total Comparison of MS-level allocations to the TO6: the average allocation of budget to the TO6 in partnership agreements amounts to 14% Figure 4 below displays the fraction of the total ESI fund amount allocated to the TO6 for each Member State in the Partnership Agreements. Main features include: TO6 fractions span a wide range of values from 9% (Estonia) to 43% (Finland) Only two Member States are associated with values above 30% (Malta: 30% and Finland: 43%); the average EU-28 value amounts to 14%. Figure 4 - Fraction of the total ESI fund amount for allocated to TO6 for each Member State Source: EY based on data collected from Partnership Agreements presented in Table 4 (European Commission DG REGIO website June 2015) 25

28 Figure 5 shows the absolute amount allocated to the TO6 by each Member State and for each ESI fund in its Partnership Agreement. It must be underlined that the major contributors do not necessarily have the highest share of the total ESI budget allocated to TO6 (e.g. on one hand, Romania and France rank second and third respectively in the EU-28 share, but allocate only slightly less than 20% of their total ESI funds allocation to the TO6; on the other hand, Poland, Italy and Spain allocate below the EU-28 average and rank first, fourth and fifth respectively with regards to the total TO6 budget). While it must be noted that the five first contributors to the TO6 also rank among the largest EU-28 MS, there is no correlation between the main land area and the share of the TO6 budget among the total ESI fund allocation (cf. Figure 6). As a consequence, the underlying factors impacting the share of the total ESI fund allocation dedicated to the TO6 budget likely stem from qualitative reasons, i.e. country-specific context. This observation supports a call for Member State case studies, allowing examination of each Member States strategies within the Common Strategic Framework for ESI funds. These case studies will also allow analysis of the actual programme definition, implementation and subsequent absorption of available EU funds. Such an approach would enable identification and weighing of risks and opportunities that Member States are confronted with when establishing and discussing their ESI fund budget with the EU. Figure 5 - ESI funds allocations to TO6 per Member State over the budget period Source: EY, based on data collected from Partnership Agreements presented in Table 4 26

29 Figure 6 - Share of the total ESI fund for TO6 allocation in relation to Member States main land area (in km2) Source: EY, based on allocation figures from PAs (Table 4) and from main land area from the European Environmental Agency 25 A detailed analysis of biodiversity importance within the TO6 allocations As it was mentioned in the Regulatory context section above, Member States are required to disclose both the breakdown of the total budget over the considered period per thematic objective and per ESI fund, and qualitative information on the main results expected from each fund. Objective: PA information allows qualitative assessments on whether biodiversity is involved in the planned expenditures at the thematic objective level for each fund. This is the highest level of detail that can be reached to analyse allocated budgets in Partnership Agreements. Methodology: The breakdown of the TO6 allocations per MS and per ESI fund was extracted from the full versions of Partnership Agreements 26 (cf. Table 4). A semantic analysis of the Partnership Agreements was performed in two sections: (a) tables presenting the main expected results of fund-specific objectives for each thematic objective and (b) Full descriptions of thematic objective 6. The presence or the absence of (A) biodiversity or (B) biodiversity-related notions within these two kinds of sections was identified. Biodiversity refers to an explicit mention of the word biodiversity in the PA. Biodiversity-related notions include a wider semantic analysis, including explicit mention of words such as "Ecosystem", "Species", "Habitat", "Conservation", or "Natura 2000" in the PA. Two kinds of analyses were performed using the extracted information: 1. The number of occurrences of (A) biodiversity and (B) biodiversity-related notions (that is, the number of Partnership Agreements in which (A) and (B) were identified within each fund description under TO6), was computed; 2. The associated allocation involving biodiversity and biodiversity-related objectives was computed from the breakdown of the TO6 allocations per fund and the results from step European Environmental Agency (2013) Natura 2000 Barometer statistics, available at: 26 Available at : and 27

30 Results: The two-subsections below provide the main identified results from step 1 and step Number of occurrences of biodiversity and biodiversity-related notions statements as one of the main expected results a. Preliminary sample analysis The main results of step 1 described in the Methodology subsection above are displayed in Figure 7 below. 28

31 Figure 7 - Number of occurrences of biodiversity-related notions at fund-level (A) (B) (C) (D) Fund Nb of biodiversity occurrences a Nb of biodiversityrelated occurrences b Nb of positive TO6 allocations c Total number of funds to be allocated ERDF ESF CF EAFRD EMFF Total a Number of Partnership Agreements in w hich "Biodiversity" is explicitly stated as one of the main expected result of the considered fund under thematic objective 6 b Number of Partnership Agreements in w hich biodiversity-related notions are explicitly stated as one of the main expected result of the considered fund under thematic objective 6 Biodiversity-related notions w ere targeted based on a semantic analysis including: "Ecosystem", "Species", "Habitat", "Conservation", "Natura 2000" Biodiversity occurrences Biodiversity-related occurrences Positive TO6 allocation Total number of PAs EMFF CF ESF EAFRD ERDF c Number of Partnership Agreements in w hich a positive budget is allocated to the fund under TO6 29

32 The sample of allocations that was examined included 85 allocations to the TO6 (out of ) from Member States (column (C) of the table): while every Member State the EAFRD to the TO6 allocations, 21 Member States also allocated ERDF and EMFF to the TO6 in their PA, and 15 MS allocated CF to the TO6. Unsurprisingly, no Member State mentions ESF as a relevant fund for TO6 allocations. These 85 allocations amount to 61% of the number of allocation opportunities (cf. column (D) of the table corresponding to the total number of potential allocations (28 per ESI fund) for the TO6). b. The importance of biodiversity within the TO6 The semantic analysis that was performed indicates that 57 budget allocations (of 85 non-zero TO6 allocations and 140 opportunities for TO6 allocations in total) involved biodiversity as an explicit objective at fund-level (i.e. 67% of the total number of allocations to the TO6). Including a wider range of semantic options (biodiversity-related notions) provides slightly higher figures, as 65 budget allocations involve them as an explicit objective at fund-level (76% of the total number of allocations to TO6). An analysis at fund level shows that EAFRD is the fund for which non-zero allocations most often include biodiversity-related objectives (25 of 28 allocations, or 89%). To a lesser extent, the large majority of ERDF and EMFF non-zero allocations also involve biodiversity-related explicit objectives (respectively 71% and 81%). CF nonzero allocations, on their side, involved biodiversity-related explicit objectives as often as they did not (53%). 2. Importance of defining the share of the TO6 allocations involving biodiversity or biodiversityrelated notions The breakdown of budget allocations to the TO6 per ESI fund is associated with the presence (or absence) of biodiversity and biodiversity-related objectives identified in step 1 and detailed in Figure 8. The main figures presented in the table show that a large part of the total TO6 allocations (EUR million, cf. column (C) of the table) were relevant to biodiversity (EUR million; cf. column (A) of the table) or biodiversityrelated notions (EUR million; column (B) of the table). In particular, the latter figure indicates that 80% of the total TO6 allocations are relevant to biodiversity-related notions (cf. column (D) of the table). The share of identified allocations relevant to biodiversity-related notions is slightly higher than the fraction of TO6 non-zero allocations(figures for step 1 and step 2 are respectively: 71% and 78% for ERDF, 53% and 54% for CF, 89% and 98% for EAFRD and 81% and 84% for EMFF). This observation implies that larger allocations include more often stated objectives involving biodiversity-related notions. Fund-specific figures about the largest contributor to both TO6 allocations and associated allocations relevant to biodiversity-related notions, the EAFRD, (EUR million and EUR million respectively, that is 53% and 43% of the total for ESI funds) show that close to 100% of the total TO6 allocation (98%; cf. column of the table) involve objectives relevant to biodiversity-related notions. 27 Considering the 28 MS and the 5 ESIF, there are 140 opportunities to allocate funds to TO6. 30

33 Figure 8 - TO6 allocations including biodiversity and biodiversity-related notions Fund (A) (B) (C) (D) Biodiversity-relevant allocations a Allocations relevant to biodiversityrelated TO6 allocations c (B)/(C) (%) b notions ERDF % ESF CF % EAFRD % EMFF % Total % a TO6 allocations associated w ith an identified "biodiversity occurrence" among main fund-specific objectives, as presented in column (A) of the previous section table. b TO6 allocations associated w ith an identified "biodiversity-related notion occurrence" among main fund-specific objectives, as presented in column (B) of the previous section table. c Per Partnership Agreements 31

34 EC - ST U DY ON BI O DI VERSI TY FI N AN C IN G A N D T R A C KI N G BI ODIV E R S I TY-RELATE D EX PE N DI T U R ES IN TH E EU B U D GE T Discussion: Results from step 1 are detailed in the Results subsection above and show that biodiversity, and to a larger extent biodiversity-related notions, are explicitly stated as one of the main fund-level objectives for TO6 allocations in the examined PAs. In particular, 76% of positive TO6 allocations were found to mention biodiversity-related notions among the main stated objectives. While this observation is unsurprising, given that theto6 was identified as the most appropriate thematic objective for biodiversity, it might also mean that the examined PAs provide information with a degree of detail too low to allow for a precise identification of biodiversity-relevant budget allocations. Results from step 2 confirmed and quantified step 1 results. They demonstrated that a large part of TO6 allocations - 80% - included biodiversity-related notions. Moreover, larger allocations were found to be associated with a higher likeliness of involving explicit biodiversity-related objectives at fund-level (increase in the identified share from step 1 results to step 2 results and identified shares for the largest contributor EAFRD). These observations strongly suggest that examined information might be provided at a level of detail too low to allow for a precise analysis of the importance of biodiversity within PAs. Nonetheless, it is worth comparing the identified amount to the biodiversity budget estimated through current tracking approach: ESI funds contribution to biodiversity according to the 2016 Budget can be found in Table 3. Based on an extrapolation of the 2016 contribution, the estimate for the whole period would amount to EUR million. Thus the preliminary analysis of the stated importance of biodiversity-related objectives within TO6 allocations (EUR million) is quite close to the estimate produced by the current tracking approach. Table 3 - ESI funds contribution to biodiversity (2016 Budget) Fund Contribution to biodiversity Budget 2016 (M ) ERDF 808,6 CF 660,2 EAFRD 5529,0 EMFF 134 Total ESI funds 7131,8 Source: European Commission (2016) Conclusion: The qualitative analysis of the EU fund's expected results under TO 6 shows that biodiversity is brought forward by 76% of Member States representing 80% of total TO6 allocations. The total value at stake (EUR million) is close to the Commission s Budget 2016 estimation (EUR million to a 7-year long period, based on the 2016 value). However, the issues raised in the discussion could argue that the share of allocations within TO6 actually dedicated to biodiversity may be significantly lower than 100%. On the opposite side, a non-negligible share of other thematic objective allocations (in particular TO4 and TO5) could be associated with significant biodiversity-related objectives. Conducting the same analysis for other TOs as for TO6 would however still entail the same limitations as regards accuracy. The level of detail provided by the PAs therefore only allows for a preliminary analysis of the importance of biodiversity within the ESI fund budget. Further examination of more detailed programming documents is required to estimate biodiversity-related expenditure more accurately Ernst & Young All rights reserved 32

35 Table 4 - TO6 allocations for MFF by ESI fund and Partnership Agreement 28 Thematic Objective 6 allocation for per Partnership Agreements (M ) a Member State ERDF ESF CF EAFRD EMFF TOTAL ESI funds BE DE EE IE ES AT BG HR CZ CY DK FI FR GR HU IT LV LT LU MT NL PO PT RO SK SI SW UK EU a Source: European Commission. Collected at: 28 Submitted by April

36 EC - ST U DY ON BI O DI VERSI TY FI N AN C IN G A N D T R A C KI N G BI ODIV E R S I TY-RELATE D EX PE N DI T U R ES IN TH E EU B U D GE T ERDF / CF / ESF biodiversity expenditure tracking Introduction to Cohesion Policy: the EU s main investment policy to support job creation, business competitiveness, economic growth and sustainable development The Cohesion Policy relies on three funding instruments: the European Regional Development Fund (ERDF), the Cohesion Fund (CF) and the European Social Fund (ESF). The EU Cohesion Policy has two general objectives: Investment for growth and jobs (supported by the ERDF, CF and ESF); and European territorial cooperation (supported only by the ERDF). These general objectives are therefore not directly related to biodiversity but rather to broad socio-economic objectives. However, the funds should comply with the EU 2020 strategy that targets a smart, sustainable and inclusive growth. Sustainable development is fully integrated in the Cohesion policy. The Cohesion Policy strives to meet eleven thematic objectives (TO) for the three funds. Among these TOs, three are related to biodiversity issues: TO6 (Protecting the environment and promoting resource efficiency), TO4 (Supporting the shift towards a low-carbon economy) and TO5 (Promoting climate change adaptation, risk prevention and management). Other TOs could also bring indirect benefits to biodiversity, even though this is not specifically mentioned in the investment priorities (e.g., TO1, TO3, TO8, TO9 and TO10 29 ). Current approach for tracking biodiversity funding under Cohesion Policy: based on MS funding priorities as reflected by the categories of intervention The previously mentioned Thematic Objectives give only general orientations for investment priorities. Thus tracking at that level is not adequately accurate. The intervention fields however correspond to specific actions that are implemented through Operational Programmes (OPs); hence, they present a more detailed level of tracking biodiversity expenditures. For this reason, the suggested current methodology applies Rio markers at Intervention field level. The overview of the relevant intervention fields for biodiversity is presented in Table 40 in the Annex. Two intervention fields are directly relevant for biodiversity and are allocated a Rio marker 2 (100%): Table 5 - Intervention field 30 with a Rio marker 2 Intervention field Rio marker 085 Protection and enhancement of biodiversity, nature protection and green infrastructure Protection, restoration and sustainable use of Natura 2000 sites 2 Three other intervention fields are indirectly linked to biodiversity and are allocated a Rio marker 1 (40%). In the current tracking methodology, these are the following intervention fields: 29 Kettunen, M., Illes, A., Hart, K., Baldock, D., Newman, S., Rayment, M., Sobey M. and Medarova-Bergstrom, K. (2014) Tracking Biodiversity Expenditure in the EU Budget, Part II Fund specific guidance documents, Final Report for the European Commission DG ENV, Institute for European Environmental Policy, London/Brussels 30 ibid 2016 Ernst & Young All rights reserved 34

37 Table 6 - Intervention field 31 with a Rio marker 1 Intervention field Rio marker 022 Waste water treatment Adaptation to climate change measures and prevention and management of climate related risks e.g. erosion, fires, flooding, storms and drought, including awareness raising, civil protection and disaster management systems and infrastructure 091 Development and promotion of the tourism potential of natural areas 1 1 Challenges in the current tracking approach The general challenge for the current tracking approach lies in applying Rio marker 1 (40%) to a number of intervention fields, where biodiversity benefits are uncertain. Indeed, several intervention codes are broadly defined and could be used for different types of interventions that may or may not have significant relevance or benefits for biodiversity. Some of these are discussed below. Table 7 - Examples of Intervention fields where application of Rio markers is challenging 32 Intervention field 021 Water management and drinking water conservation (including river basin management, water supply, specific climate change adaptation measures, district and consumer metering, charging systems, leak reduction) Rio marker 022 Waste water treatment Rehabilitation of industrial sites and contaminated land Development and promotion of the tourism potential of natural areas 1 0 Concerning the intervention field water management and drinking water, in some countries, a river basin management scheme including measures to preserve and restore biodiversity is required and can be part of eligible operations. Other biodiversity beneficial operations include climate change adaptation measures which can be eco-system based. However, operations including infrastructure such as water supply, consumer metering etc. are unlikely to have significant biodiversity benefits; Waste water treatment is an obligation in each country. Operations therein may include large infrastructure investments where the relevance for biodiversity might not exist or is not obvious. Nevertheless, waste water treatment contributes to improving the status of EU waters and river basin quality, which will benefit biodiversity; Rehabilitation of industrial sites and contaminated land might include operations, which benefit biodiversity, but in most cases rehabilitation measures are aimed at enhancing human health, sanitation and general environmental quality in order to enable re-use of such areas (business/residential zones); Eco-tourism projects do not necessarily have specific biodiversity targets as project objectives. They are assumed to protect natural areas and preserve natural capital on which the business model depends. Thus, even without explicit biodiversity objectives, certain biodiversity benefits could be expected. However, the relationship between touristic activities and protected natural areas is complex and can be adversarial. Thus eco-touristic operations must follow sustainable management guidelines to ensure 31 ibid 32 Ibid 35

38 proper nature protection and safeguards against potential negative impacts on biodiversity (e.g. by devising comprehensive visitor management plans) in order to be accounted for biodiversity.. Ex-ante analysis of funding allocations: a heterogeneous use of intervention fields across MS The following analysis is based on information on funding allocations for adopted OPs 33 for the intervention fields 22, 85, 86, 87 and 91 that are considered most relevant to biodiversity. These figures highlight the weight of operations under intervention fields 22 and 87 (waste water treatment and adaptation to climate change measures) in the biodiversity budget. The largest contributors to these intervention fields are the programmes with the most significant financial allocations (Poland, Romania, Hungary, Spain, Italy): the amount allocated to these intervention fields is proportionate to the size of the ESIF envelope of the Member States. Table 8 Allocated budget by Member States to biodiversity-relevant intervention fields in the OPs Protection and enhancement of Protection, Adaptation to climate change Development EUR million biodiversity, restoration and measures and and promotion Waste water nature sustainable use prevention and of the tourism treatment protection and of Natura 2000 management of potential of Total green infrastructure sites climate related risks natural areas AT BE BG CY CZ DE EE ES FI FR GR HR HU IT LT LV MT PL PT RO SI SK TC UK Total budget Source:Source : DG REGIO Open Data platform 34 (December 2016). TC: Territorial cooperation programmes A comparison of funding allocations under biodiversity-relevant intervention fields between regional OPs and European territorial cooperation (ETC) programmes (see figure below) shows that regional OPs provide more funding opportunities to biodiversity than ETC programmes, which reflects their total financial envelopes. 33 Preliminary data based on 211 adopted OPs,

39 Table 9 Comparison of funding allocations under biodiversity-relevant intervention fields between regional OPs and ETC programmes Source : DG REGIO Open Data platform 35 (December 2016) ERDF + CF: funding allocations under TOs and intervention fields Each Member State has provided information on the budget they intend to allocate by intervention field and by TO. This double level analysis can identify which share of the intervention field budget could be excluded from the calculation when the TO is not relevant to biodiversity

40 Table 10 - Funding allocations (biodiversity relevant intervention fields 22, 85, 86, 87 and 91) under different TOs (in EUR million) EUR million Multi Total Total AT % BE % BG % CY % CZ % DE % EE % ES % FI % FR % GR % HR % HU % IT % LT % LV % MT % PL % PT % RO % SI % SK % TC % UK % Total % % 0% 0% 21% 50% 0% 1% 0% 0% 27% Source: DG REGIO Open Data platform 36 (December 2016) Among the highly and potentially relevant TOs for biodiversity, TOs 5 (Promoting climate change adaptation, risk prevention and management) and 6 (Protecting the environment and promoting resource efficiency), are predominantly used. They concentrate 71% of the total budget dedicated to these intervention fields. 9 Member States have not allocated any funding for the TO5 and 4 MSs have not allocated any funding for the TO6. Austria, Belgium, Finland and Lithuania have not used TO5 or TO6 at all; funding was only allocated under the category multi. As shown in the charts below, the main intervention field used for the TO5 is 87 and the main intervention field used for the TO6 is MSs allocated funding to the TO4 (Supporting the shift towards a low-carbon economy): Germany and Hungary as part of the intervention field 87 (Adaptation to climate change measures and prevention and management of climate related risks) and France as part of the intervention field 85 (Protection and enhancement of biodiversity, nature protection and green infrastructure). Only one MS (OP Germany Rheinland-Pfalz ERDF) allocated funding to the TO3 (Business and SME development) as part of one of the 5 intervention fields (91 Development and promotion of the tourism potential of natural areas). 3 MSs allocated funding to the TO9 (Social inclusion and combating poverty): Germany and Spain as part of intervention field 85, Slovakia for 22 (waste water treatment)

41 6 MSs allocated funding to the TO8 (employment and labour mobility) for the intervention field 91 (Development and promotion of the tourism potential of natural areas): France, Hungary, Portugal, Romania and a territorial cooperation programme between the Czech Republic and Poland. Figure 9 - Funding allocation for Thematic Objectives under biodiversity-relevant intervention fields Legend: Thematic objectives TO4 Supporting the shift towards a low-carbon economy in all sectors TO5 Promoting climate change adaptation, risk prevention and management TO6 Preserving and protecting the environment and promoting resource efficiency Intervention fields 22 Waste Water Treatment 85 Protection and enhancement of biodiversity, nature, protection and green infrastructure 86 Protection, restoration and sustainable use of Natura Adaptation to climate change measures and prevention and management of climate related risks 91 Development and promotion of the tourism potential of natural areas Source : SFC open data platform, December 2016 Figure 3 - Funding allocations for Multi 37 Thematic Objectives under the different five relevant intervention fields for biodiversity 38 Source : DG REGIO Open Data platform (December 2016) 37 OP registering in different TO 38 Graph based on data available at: 39

42 The following observations can be made about the most important intervention fields TO5 and 6 as well as the category multi which encompasses operations addressing more than one thematic objective: For the TO6, the highest amount allocated (EUR million, representing 15% of the TO6 allocation) stems from one single operational programme (OP Romania Large Infrastructure Operational Programme) 39, as part of intervention fields 22, 85 and 86. The intervention field 85 is also used for TOs 5 and 7 in the OP. The actions indicated in the OP for the TO6 are the following: - Increased protection and conservation of biodiversity and restoration of degraded ecosystems; - Reducing historically polluted areas and increased air quality assessment and monitoring at national level and; - Increasing the collection and treatment of urban waste water and assuring supply of drinking water. Based on the descriptions of the actions 6d and 6e, which relate to intervention fields 85 and 86, the use of these intervention fields and of a Rio marker 2 seems justified. A rough analysis of the descriptions of the actions under Increasing the collection and treatment of urban waste water and assuring supply of drinking water does not reveal measures which could have significant biodiversity benefits. The use of a Rio marker 1 might therefore not be justified. In order to be able to make an informed judgement, a further analysis has to be based on concrete information about the projects being implemented on the ground. This is to be done ex-post, when managing authorities will be able to provide more details. For the TO5, the highest amount was allocated by Hungary (OP Environmental and Energy Efficiency 40, EUR 757 million, representing 17% of the TO5 allocation), entirely part of intervention field 87. The measures listed in the OP for the TO5 include: - Improving data and knowledge bases on the effects of climate change and water management - Promoting social conditions for effective adaptation - Improving the conditions for sustainable management of water resources - Improving food and water resistance - Improving the conditions of water management, construction of reservoirs - Increasing the effectiveness of safety and security of disaster management interventions Whereas some of these measures can preserve and enhance biodiversity, others are more infrastructurerelated solutions, which are not likely to have positive effects on biodiversity. Further analysis would have to be done, preferable based on ex-post data, in order to determine whether the application of a Rio marker 1 is justified. 59% of the funding allocated for the multi TO comes from one single operational programme (OP Poland Infrastructure and Environment 41 EUR million), using intervention fields 22, 85, 86, 87 and 91. The OP description indicates that a joint implementation of investment priorities for TOs 5 and 6 will bring synergy effects to the projects. The TOs 5 and 6 objectives in the OP include: - Increasing the amount of retained water and higher efficiency of conducting reconnaissance and response in the event of natural threats and major accidents - Reduction of municipal waste and increase of share of separately collected municipal waste - Improved municipal wastewater treatment - Strengthened mechanisms to protect wildlife - Halting the decline of green spaces in cities Subsequent analysis of ex-post data could help verify the benefits of this approach and to determine the way this multi-to data can be tracked. Of the common output indicators, which are used in the OPs, the most relevant indicator for biodiversity is Surface area of habitats supported in order to attain a better conservation status (CO23). It is acknowledged that this RO16M1OP HU16M1OP PL16M1OP001 40

43 indicator is insufficient to reflect a wide range of outputs which could be achieved through expenditure related to biodiversity, Natura 2000 and/or green infrastructure. Top contributors to the target value for this indicator are different from those identified in the analysis based on financial allocation to relevant intervention fields: alongside territorial cooperation programmes, Bulgaria, Greece, Poland, France and Italy are the largest contributors to the target value. Poland and Italy were the only ones to be listed in the list based on largest contributors to thematic objective 6. Table 11 - Target values for indicator CO23 (Nature and biodiversity: Surface area of habitats supported to attain a better conservation status), in hectares, in each Member State Source: DG REGIO Open Data platform 42 (December 2016) TC: territorial cooperation programmes The values for indicator CO23 (in hectares) does not seem to correlate with the funding per Member State under CF or ERDF (in EUR million): the ratio between both values range from 0,01 ha /M (cohesion funds in Greece) to 452 ha/m (ERDF programme in Bulgaria). ESF: exploring funding allocations under the secondary theme Supporting the shift to a lowcarbon, resource efficient economy By referring to financial data aggregated against the secondary theme Supporting the shift to a low-carbon, resource efficient economy one can identify biodiversity-related expenditures under the ESF (see Table 12 below for the funding under this theme). As the majority of this expenditure is likely to be related to climate change, resource efficiency and eco-innovation, i.e. not explicitly related to biodiversity objectives, an option could be to apply a coefficient. This means that a Rio marker 1 should be applied only to a share of the funding allocations (e.g. 5 or 10 per cent) of the planned expenditures under the secondary theme Supporting the shift to a low-carbon, resource efficient economy. Further information available at an ex-post stage could help to determine a value for this co-efficient. The necessary information about biodiversity-specific projects could be provided within progress reports in relation to TOs, requested during annual review meetings between the Commission and managing authorities, or identified in external thematic evaluations. However, the fact that the amounts related to the ESF are relatively small when compared to the ERDF and CF. Therefore, it has to be assessed whether the use of resources necessary to identify this additional information is justified

44 Table 12 - Planned ESF expenditures under the secondary theme Supporting the shift to a low-carbon, resource efficient economy Source: DG REGIO Open Data platform 43 (December 2016) Comparative quantitative analysis: accuracy of the current ex ante tracking approach under ERDF and CF Based on the funding allocations of adopted OPs for the 5 most relevant intervention fields (i.e. same data as used in the previous sections), the estimated contributions of ERDF and CF contributions to financing biodiversity for the period amounts to be approximately EUR 1.5 billion per year (EUR 10.6 billion, as shown in Table 13 below, distributed over 7 years). A comparison of this annual amount and the biodiversity contribution estimated for the budget 2015 and draft budget 2016 (see Table 14 below) suggests that the current estimates for are appropriate. Table 13 - Estimation of contribution of ERDF and CF to financing biodiversity ( ) Protection and enhancement of Protection, Adaptation to climate change Development M biodiversity, restoration and measures and and promotion Waste water nature sustainable use prevention and of the tourism treatment protection and of Natura 2000 management of potential of Total green infrastructure sites climate related risks natural areas Total budget Rio marker 40% 100% 100% 40% 40% Budget allocated to biodiversity

45 Table 14 - Contribution of ERDF and CF to financing biodiversity 44 in DB 2016 Budget 2015 (EUR Million) DB 2016 (EUR Million) ERDF 934,8 757,4 CF 766,1 658 Total 1700,9 1415,4 Discussion: ex-post data needed to refine the tracking process and an indicator system could be improved for the next programming period As discussed above, it is challenging to assess biodiversity benefits for certain intervention fields (e.g. those listed in Table 7). An in-depth assessment can only be conducted once comprehensive data becomes available. In the meantime, and especially in the case of high uncertainties it is justified to take a more conservative approach, i.e. to apply a Rio marker 0 to intervention fields where some, but unlikely significant, benefits for biodiversity could be arguably expected.. Intervention fields 22 (displaying a budget considerably higher than intervention fields 85 and 86 together, but the extent of potential biodiversity benefits is unclear) and 91(if operations are not properly designed/executed the investments could even have negative impact on biodiversity) will have to be comprehensively assessed ex post. Tracking biodiversity-relevant expenditure in other sectors, particularly the ones that can also have adverse effects on biodiversity, should be scrutinized and application of Rio markers should be supported by robust evidence. Experience from this programming period in regards to tracking such challenging intervention fields will be invaluable to inform the ex ante tracking process for the next period. The indicator CO23 could be used to determine whether OPs indirectly contribute to biodiversity: if the indicator target value is high, it provides a good indication on the biodiversity relevance of the OP. However, this indicator is insufficient to assess the biodiversity dimension of a project. An analysis would have to be done at a more detailed level to assess whether a project is linked to CO23. Intervention fields are currently linked to indicators / investment priorities like CO23. However, the amount of money spent on each intervention field for each indicator is not indicated (only that they are linked). This element could be elaborated further for the next programming period. Regarding the ex post dimension of the analysis, primary data will become available with the submission of annual implementation reports of the operational programmes. This information will give insight into how allocated funding for selected projects achieve outcomes in terms of biodiversity benefits. 44 European Commission (2015), Draft General Budget of the European Union for the financial year 2016, Working Document Part I - Programme Statements of operational expenditure COM(2015) 300 June

46 2.2.3 EMFF biodiversity expenditure tracking Introduction to EMFF: the funding instrument of the reformed common fisheries policy and integrated maritime policy The EMFF is the fund for the EU's maritime and fisheries policies for It is one of the five European Structural and Investment (ESI) Funds. More specifically, Regulation (EU) No 508/2014 states that the EMFF shall contribute to the achievement of the following objectives: - promoting competitive, environmentally sustainable, economically viable and socially responsible fisheries and aquaculture; - fostering the implementation of the CFP; - promoting a balanced and inclusive territorial development of fisheries and aquaculture areas; - fostering the development and implementation of the Union s IMP in a complementary way to cohesion policies and to the CFP These objectives reflect the following thematic objectives referred to in Regulation (EU) No 1303/2013: - TO 3: enhancing the competitiveness of SMEs, of the agricultural sector (for the EAFRD) and of the fishery and aquaculture sector (for the EMFF); - TO 4: Supporting the shift towards a low-carbon economy in all sectors - TO 6: preserving and protecting the environment and promoting resource efficiency; - TO 8: promoting sustainable and quality employment and supporting labour mobility The EMFF is the funding instrument of the reformed Common Fisheries Policy (CFP). It also supports the implementation of the EU Integrated Maritime Policy (IMP) including its environmental pillar, the Marine Strategy Framework Directive. The new EMFF instrument results from the integration of previous funding instruments into a single regulation, allowing for more streamlined and unified rules and procedures to obtain a single set of financial decisions and reporting, monitoring and evaluation procedures. The majority of measures within the EMFF are financed and programmed under a shared management: national operational Programmes are the main programming and implementation documents in which Member States select the measures from the EMFF Regulation that they wish to implement. The specific objectives listed above are of high relevance to biodiversity (protecting and restoring aquatic biodiversity and ecosystems, reducing the impact of fisheries on the marine environment, ensuring a balance between fishing capacity and fishing opportunities, and promoting aquaculture with a high level of environmental protection). To meet these biodiversity-relevant objectives the fund includes a significant number of measures that are relevant to biodiversity and ecosystems, such as investments in gear, methods and management approaches to improve the sustainability of fish stocks, Natura 2000 related measures, or similar measures to support environmentally sustainable practices in aquaculture. The EMFF is part of the EU multi-annual financial framework for the programming period. EUR 0.9 billion for sustainable fisheries partnership agreements with third countries is added onto its total budget of EUR 6.4 billion tracking approach for EMFF is based on MS committed contributions for European fisheries fund (EFF) relevant measures For 2016 and 2017 (2016 budget and 2017 draft budget), the estimated EMFF budget related to biodiversity amounts to EUR 134 million and EUR 136 million, i.e. 1.07% of the total EMFF budget, and 0.1% of the total EU budget. Until 2015, calculation were based on the implementation of the relevant measures of the EFF (MS committed contributions at the end of May 2014), extrapolated using the EMFF s total appropriation under shared management. The EMFF includes specific measures in support of biodiversity in particular with regards to the Natura 2000 network. Most MSs planned support for this purpose in their EMFF OPs. As a consequence, there is a need to refine the approach. 44

47 Current proposition to improve biodiversity tracking in the EMFF budget: a measure based analysis Each EMFF OP describes the way Member Sates intend to allocate the EMFF across the thematic objectives and the measures described in the funding regulation. Each measure can be associated with a contribution to biodiversity and an appropriate Rio Marker. The following table lists suggests the allocation of Rio markers to relevant EMFF measures 45. Table 15 - EMFF measures contributing to biodiversity and proposed associated Rio marker Measures as identified in the Regulation (EU) N 508/104 Article 37: Conservation measures and regional cooperation 2 Article 38: Limitation of the impact of fishing on the marine environment 2 Article 39: Innovation linked to the conservation of marine biological resources 2 Article 40: Protection and restoration of marine biodiversity and ecosystems 2 Article 44.1(c): Investments in equipment and operations linked to conservation of resources 2 Article44.6: Inland fishing and inland aquatic fauna and flora 2 Article 54: Aquaculture providing environmental services 2 Article 80.1(b): promotion of the protection of the marine environment, in particular its biodiversity and marine protected areas such as Natura 2000 sites Article 80.1(a): contribute to achieving the objectives of the IMS and, in particular, those of the CISE 1 Article 80.1(c): improve the knowledge on the state of the marine environment 2 Article 27: Advisory services 1 Article 28: Partnerships between scientists and fishermen 1 Article 29: Promotion of human capital, job creation & social dialogue 1 Article 30: Diversification and new forms of income 1 Article 33: Temporary cessation of fishing activities 1 Article 34: Permanent cessation of fishing activities 1 Article 36: Support for the systems of allocation of fishing opportunities 1 Article 42: Added value, product quality and use of unwanted catches 1 Article 44.1(a): promotion of human capital, job creation and social dialogue (inland fisheries) 1 Article 44.1(e): Improvement of the value or quality of the fish caught 1 Article 44.3: The development and facilitation of innovation 1 Article 44.4: Diversification of inland fishing activities to complementary activities 1 Article 48.1(g): the restoration of existing aquaculture ponds 1 Article 51: Increasing the potential of aquaculture sites 1 Article 53: Conversion to eco-management and audit schemes and organic aquaculture 1 Article 62.1(b) / Article 63: implementation of community-led local development strategies 1 Article 68: Marketing measures 1 Article 76: Control and enforcement 1 Article 77: Data collection 1 Rio markers 2 Ex-ante analysis: applying a Rio marker 1 to the budget dedicated to thematic objective 6 (preserving and protecting the environment and promoting resource efficiency) By end of December 2015 all EMFF OPs were adopted. The EMFF OPs allocated on average approximately 40% for the TO6 (Preserving and protecting the environment and promoting resource efficiency), i.e. EUR 2,23 billion. 45 Medarova-Bergstrom, K., Kettunen, M., Illes, A., Hart, K., Baldock, D., Newman, S., Rayment, M., and Sobey M. (2015) Tracking Biodiversity Expenditure in the EU Budget, Part II Fund specific guidance documents, Final Report for the European Commission DG ENV, Institute for European Environmental Policy, London/Brussels 45

48 Budget dedicated at a measure level is not available in the OP. The only available information is at EMFF Union Priority level or thematic objective level. If we consider that the budget allocated to the TO6 can be marked with a Rio marker 1 and that not all the measures will directly act in favor of biodiversity, we can conclude that: - EUR 2,23 billion could be spent on the TO6 for the EMFF; - A Rio marker 1 can be attributed to this TO6 related actions in the operational programmes leading to a total envelope for biodiversity amounting to EUR 919 million over the period. Although the EMFF implementation started officially in January 2014, the late adoption of the EMFF Regulation (May 2014) has entailed a delay in the adoption of EMFF Operational Programmes (OPs), with 2014 and 2015 years being dedicated to the completion of the negotiation process of these programmes. The possibility to perform an in depth ex-ante analysis was therefore limited. Regarding the ex-post dimension of the analysis, data will increasingly become available as Member States will be submitting the annual implementation reports. The EUR 919 million potentially allocated to biodiversity through TO6, is significantly lower estimate of the biodiversity relevant expenditures in the total EMFF budget than the current tracking approach based on EFF shows: figures for provide for a yearly contribution of EUR 200 million per year (i.e. EUR 1,4 billion over the period). Starting from draft budget 2017, the methodology changes and follows our recommendations: biodiversity expenditures forecasts are based on the allocation in the Operational Programmes to Thematic Objective 6 "Preserving and protecting the environment and promoting resource efficiency" (Rio marker 1 of the total applied to budget line ). The annual EMFF contribution is calculated in proportion to the EMFF tranche in the annual budget. In addition, 40% of the relevant funding in direct management (scientific advice and knowledge, control and enforcement and voluntary contributions to Regional Fisheries Management Organisations) is included. 46

49 2.3 Funding instruments under central management Biodiversity tracking under centrally managed instruments (excluding EAGF) Current biodiversity tracking approach As with shared-management instruments, the methodology chosen by the European Commission (EC) to track biodiversity-related expenses related to centralised direct management instruments in its budget, as well as climate change-related expenses, is to apply OECD Rio Markers. An ex-ante methodology can be applied in three steps across all the centralised direct management instruments: 1. At the Programme Statements level, prepared annually by the European Commission to evaluate the Draft Budget : this level assessment is fed by and feeds into the two other levels of evaluation; 2. At the programming document level (work programme, etc.), Rio Markers are applied to particular financing themes, topics or areas of activity by the DGs in charge of the instruments; 3. Finally, Rio Markers are directly applied at the individual project or decision level. The first and second steps are sometimes considered to be respectively ex ante and ex post assessments because the project-level evaluation is conducted after funds are committed to those projects. However, strictly speaking, they are both ex ante assessment as they do not evaluate the actual disbursement, use nor the results of the funds. The methodological framework has been in place since 2014 and new data such as (re-) assessments of Rio Markers for specific topics - have been integrated as they became available. Ex post assessments of actual disbursements for biodiversity have not been conducted so far. Substantial data for such ex post assessments for the period should become available after project implementation, which can range from the end of 2016 for some annual projects (e.g. Innovative Funding Instruments funded by the Partnership Instrument) to the end of the period (e.g. for most LIFE projects). The implementation of the ex-ante tracking methodology for biodiversity expenditures related to centralised direct management instruments in the EU budget is still in progress. Project-level tracking, i.e. the most precise level of tracking, is already implemented for Horizon 2020 (for bottom-up actions directly and for programmable actions indirectly through), ENI and DCI (tracking for these instruments is well established and is also used to regularly report biodiversity expense to the OECD Development Assistance Committee and to the Convention on Biological Diversity), PI and LIFE. Because ex-ante tracking will continue to be refined for some instruments, figures for 2014, 2015 and even 2016 will need to be updated in the future. Figures for 2015 in the latest Draft Budget (2016) for instance are higher than the estimates reported in the 2015 Draft Budget, partially because of methodological improvements, such as the progressive integration of some sub-programmes into the tracking as data and tracking methodology become available (e.g. the Climate sub-programme for LIFE which was considered to have no biodiversity contribution before the 2016 Draft Budget). The implementation of tracking is currently in progress and is expanding to cover all the necessary levels Programme Statements, Work programme, Projects - and more generally to follow up on the recommendations of the Study on Tracking Biodiversity Expenditure in the EU Budget (Medarova-Bergstrom et al. 2015). For Copernicus and DCI, the application of only three levels of budget attribution (0%; 40% and 100%) to Rio (0, 1, and 2 respectively) Markers appears to be rather challenging, potentially leading to over or under-estimations, depending on the nature of the instrument. The application of Rio Marker 1 is challenging as the contribution of an instrument can range significantly below or over the weight factor of 40%. 47

50 EUR million EC - STUDY O N B IO D IVE RS IT Y F IN A NC IN G Figure 10 - Biodiversity-relevant expenditure of centralised direct management instruments in 2015 and 2016 (estimates) Rio marker 1 Rio marker 2 Rio marker 1 Rio marker (estimates) Source: Biotope, adapted from the EU Draft Budget Copernicus Horizon 2020 LIFE ENI DCI PI The Rio Markers (0, 1 or 2) applied were refined between 2014 and 2015, leading to some differences in the way the contribution to biodiversity was calculated in the Draft Budget 2016 as compared to the Draft Budget 2015 (e.g. the contribution to biodiversity of the sub-programme for Climate action has been taken into account only since the Draft Budget 2016). Figures for 2014 have not been re-assessed with these latest developments. Figures presented for 2014 in the Draft Budget 2015 thus cannot be compared to figures for 2015 and 2016 presented in Figure 10. European Earth Observation Programme (Copernicus) The Copernicus Programme consists of three components and the budget allocated to Copernicus for the three components is entrusted to different entities (Medarova-Bergstrom et al. 2015). The assessment of the contribution to biodiversity of Copernicus was so far conducted at the programme statement level. In the 2016 Draft Budget (European Commission 2015b), it was considered that Copernicus s contribution to biodiversity was limited to the land monitoring service 47 (from the service component), operational since The land monitoring service mainly provides services, information and data, which can be used in projects contributing to the protection of biodiversity but can also benefit other users. The same set of data can be used very differently by individual projects, for instance a high resolution layer soil permeability map can be used both to produce a map of habitat for species related to soil permeability (100% contribution to biodiversity) or for assessing the feasibility of civil engineering works in the area (0% contribution to biodiversity). Based on past experience, it has been assessed that the application of a Rio Marker 1 (40%) at the programme statement level may lead to over-estimation of its biodiversity contribution. A 30% coefficient (based on past experience) of the output produced by the land monitoring service was instead applied to calculate its contribution to biodiversity. 46 To prepare this figure, the following biodiversity contributions were considered as Rio Marker 1: - Copernicus, ENI and DCI even though these contributions are not calculated directly by applying Rio Markers at the Programme Statement level; - PI in 2016; - LIFE Climate sub-programme (even though in reality, a Rio Marker 2 is applied to the NCFF). 47 The service provides geographical information on land cover and on variables related to issues such as the vegetation state and water cycle. It is expected to contribute to biodiversity-related goals by supporting spatial planning, forest and water management, agriculture and food security, etc. (European Commission 2015b). 48

51 The Framework Programme for Research and Innovation (Horizon 2020) Horizon 2020 can be divided into two parts, according to how the R&I subjects are defined: programmable actions which include the Societal challenges and Leadership in Enabling and Industrial Technologies (LEIT) on the one hand, and bottom-up actions such as Marie Skłodowska-Curie actions and actions managed by the European Research Council. While the bi-annual work programmes define specific research topics in thematic areas for the programmable actions 48, the work programme leaves open the specific themes of the demand-driven bottom-up actions, which directly result from successful project submissions. The guidelines developed by the EC Directorate General for Research and Innovation (DG R&I) in collaboration with DG ENV and the consultants working on the biodiversity tracking methodology (Medarova-Bergstrom et al. 2015) give examples of how best to apply the Rio Markers, and the related 0%, 40% or 100% weighting factors, at the topic or project level for Horizon 2020 (similar examples were developed for other instruments). A robust assessment of the biodiversity contribution of Horizon 2020 is not possible as currently, only the and work programmes are available, together with final tracking figures for 2014, while the situation remains unknown until the work programme for these years is developed in The approach currently applied is broadly in line with the recommendations of the report commissioned by the EC on tracking biodiversity expenses (Medarova-Bergstrom et al. 2015): Rio markers for biodiversity are applied to all parts of the programme and have identified biodiversityrelated expenditure in demand-driven, bottom-up projects as well as in Societal challenge 2 Food security, sustainable agriculture and forestry, marine and maritime and inland water research and the bioeconomy, Societal challenge 5 Climate action, environment, resource efficiency and raw materials and Non-Nuclear Direct Actions of the Joint Research Centre; The Rio Markers used by Commission services for actions under the above mentioned parts of the programmes match those suggested. Current results of the ex-ante tracking were patchy at the time of preparing this report since only programmable actions tracking has been publicly reported (e.g. in the Annual Activity Report of Horizon 2020) while the contribution to biodiversity of bottom-up actions remain as yet unreported (figures). Partnership Instrument for cooperation with third countries (PI) The Partnership Instrument (PI) for cooperation with third countries seeks to promote EU and mutual instruments by supporting measures that respond to objectives arising from the Union s relationships with third countries and addressing challenges of global concern. The actions implemented under PI take several forms, among which two support biodiversity activities: Standalone projects which last several years (e.g. 3 years) and projects of a shorter duration (i.e. conferences, seminars, studies) implemented through a framework contract, the Policy Support Facility (PSF). Unlike Programmes such as LIFE, the number of projects supported by PI is limited, which facilitates the application of Rio Markers directly at the project level. Firstly, the Service for Foreign Policy Instruments produces a broad and relatively conservative estimate of biodiversity expenditure based on the Multiannual Indicative Programme (currently the MIP) and on experience with previous AAP. For 2016, the estimation stood at EUR 4 M. In a second step, Rio Markers are applied at the project level. More generally, for the project level tracking, the Common Relex Information System (CRIS) is used by PI.No ex ante estimation of the contribution of PI to biodiversity for the whole period has been conducted. For , no estimation can be provided (beyond very rough estimates which could be obtained by applying Rio Markers to the MIP) mainly because AAP (and the associated financing decisions) become available only about one year in advance. Although no ex post (i.e. after the money committed to projects is spent and results become apparent) tracking is planned, it is unlikely that results of such analysis would significantly differ from the ex ante methodology currently implemented which reports only the contribution to approved projects. For projects such as the Natural Capital 48 The Work Programmes include calls (e.g. call Waste in the Horizon 2020 Work Programme , Societal Challenge 5), where the contents are detailed in specific topics (e.g. Recycling of raw materials from products and buildings ). 49

52 Accounting and Valuation of Ecosystem Services, exact disbursement figures would in any case not be available until 2019 (36 months of implementation and 6 additional months for closure). Programme for the Environment and Climate Action (LIFE) General description The LIFE programme is the only EU funding specifically dedicated to environment and climate action, and each of these topics forms one of LIFE s two sub-programmes. It works through 2 Multiannual Work Programmes (MAWP), the first for a 4-year period ( ) and the second for a 3-year period ( ), the latter of which is not yet available. The MAWP indicates that a total amount of EUR million is allocated for the environment sub-programme while EUR 449 million is allocated for the climate action sub-programme for the period The first step of the evaluation of the contribution of the LIFE programme to biodiversity is conducted ex ante at the budget line / priority area level and the second step of the assessment is conducted ex ante at the project level (Medarova-Bergstrom et al. 2015). Tracking of biodiversity expenses using the Rio Marker methodology only started during the 2014 call for proposals, and data collected before did not allow an ex post analysis of actual payments and results prior to As of August 2015, some grants for the periods had not yet been allocated, so it was not yet possible to conduct a complete ex post analysis. Guidelines for the project-level analysis The table in section 0, for each thematic priority, the guidelines developed to apply Rio Markers at the project level as agreed in 2015 (Medarova-Bergstrom et al. 2015) and provides comments from the study s team regarding the application of some markers, which might be improved

53 Application of the guidelines to 17 projects of the 2014 LIFE call The team in charge of tracking biodiversity expenditures for LIFE had conducted a preliminary project-level analysis of all the projects under the 2014 LIFE call. The study s team refined this analysis for 17 projects under three priority areas requiring an in-depth analysis of the project objectives: Environment and Resource Efficiency, Climate Change Mitigation and Climate Change Adaptation. Projects from other priority areas requiring such in-depth analysis had already been thoroughly assessed by the LIFE team (including Environmental Governance and Information and Climate Governance and Information). The analysis revealed that the application of a Rio Marker 1 for 7 of the 17 projects was debatable and a Rio Marker 0 may be more appropriate. These projects would indeed be conducted even in the absence of any biodiversity benefits, and biodiversity or ecosystem services were not mentioned in their objectives or expected results (they were mentioned only in the box filled by LIFE applicants entitled Significant contribution to biodiversity ). The analysis presented below could also provide new examples of application of Rio Markers at the project level to illustrate the guidelines detailed in the table in the previous section (Guidelines for the project-level analysis). The table below details the analysis for all the projects. Sub-programme Project title and ID Suggested Justification Rio Marker Climate Adaptation Change Protection of key ecosystem services by adaptive management of Climate Change endangered Mediterranean socioecosystems - LIFE14 CCA/ES/ The project aims to mitigate the negative effect of climate change on key ecosystem services such as soil retention, pollination, pastures (net primary production), temperature regulation, water provision, prevention of forest fires and of desertification. Climate Adaptation Change LIFE URBAN-ADAPT: demonstrating urban climate adaptation and resilience in inner city Rotterdam - LIFE14 CCA/NL/ B1 2 The project mentions both biodiversity ( Significant increase in biodiversity at the demonstration sites ) and green infrastructures as objectives or expected results. It plans to partially restore the natural ecosystem of the river Nieuwe Maas. Climate Adaptation Change Adaptation to climate change through sustainable management of water of the urban area in Radom City - LIFE14 CCA/PL/ B1 2 The project promotes both the integrated management of the city in order to provide climate change adaptation and biodiversity benefits, and the development of a green-blue infrastructure to prevent extreme flooding linked to climate change. The project will integrate and enhance biological diversity in all project actions. 51

54 Sub-programme Project title and ID Suggested Justification Rio Marker Climate Adaptation Change Feeding strategies to decrease methane emissions and carbon footprint of dairy cows in Belgium, Luxembourg and Denmark - LIFE14 CCM/BE/ B1 1 (0) The project seeks to decrease methane emissions generated by dairy cows. One of the options that it will analyse is the increase of grazing and an associated increase in grassland areas, which may benefit biodiversity (compared to other land uses). The link with and contribution to biodiversity are however weak and indirect (not through direct actions but through knowledge creation) and biodiversity conservation is clearly a secondary objective. A Rio Marker 0 would seem justified. The LIFE applicant tagged this project however as significantly contributing to biodiversity. An ex post re-assessment would be required to justify that allocation. Climate Mitigation Change Revamping organic farming and its products in the context of climate change mitigation strategies - LIFE14 CCM/CY/ B1 1 (0) The project promotes organic farming as a tool to mitigate climate change and adapt to it. The conservation of biodiversity is not among the 10 specific objectives of the project or the 10 expected results. However, as organic farming in general has been demonstrated to be beneficial to biodiversity, the project is expected to contribute to biodiversity. Even without this contribution to biodiversity, it is likely that the project would be conducted, which would justify a Rio Marker 0. The LIFE applicant tagged this project however as significantly contributing to biodiversity. An ex post re-assessment would be required to justify that allocation. Climate Mitigation Change Andalusian blue carbon for climate change mitigation: quantification and valorisation mechanisms - LIFE14 CCM/ES/ B1 1 or 2 The project analyses the carbon sink capacity of a top priority habitat for the Habitats Directive: (habitat 1120), the Posidonia oceanica meadow, and seeks ways to finance the carbon sequestration service it provides. Other habitats would also benefit from the project. The project thus promotes an ecosystem service: carbon sequestration and would contribute to ensure financial resources are available in the medium-term for the protection of key habitats vital for marine biodiversity. Thus a Rio Marker 1 or 2 could be applied. It should be noted that this project does not mention other ecosystem services. Climate Mitigation Change Optimising Agricultural Land Use to Mitigate Climate Change (OPAL- Life) - LIFE14 CCM/FI/ B1 1 The project promotes the optimization of agricultural land use and biodiversity benefits are expected. It monitors stock of small game and avifauna by utilizing long-term survey data as background information. The primary objective is to safeguard rural livelihoods and reduce environmental footprint, and biodiversity benefits are by-products of crop diversification and sustainable intensification of high potential land and extensification of other land. A Rio Marker 1 is thus applied. Climate Mitigation Change Demonstration actions to mitigate the carbon footprint of beef production in France, Ireland, Italy 1 (0) The project seeks to decrease greenhouse gas (GHG) emissions generated by beef production. Innovative mitigation practices may decrease GHG emissions linked to grazing and grassland areas, which may benefit biodiversity. The link with and contribution to biodiversity are however weak and indirect (not through direct actions but through knowledge creation) and biodiversity conservation is clearly a secondary objective. A Rio 52

55 Sub-programme Project title and ID Suggested Justification Rio Marker and Spain - LIFE14 CCM/FR/ B1 Marker 0 would seem justified for this project. The LIFE applicant tagged this project however as significantly contributing to biodiversity. An ex post re-assessment would be required to justify that allocation. Climate Mitigation Change Sustainable and responsible management and re-use of degraded peatlands in Latvia - LIFE14 CCM/LV/ B1 1 The project promotes sustainable and responsible management of degraded peatlands as a tool to reduce greenhouse gas emissions and mitigate climate change. Strictly applying the guidelines would lead to apply a Rio Marker 0 to this project as it does not cite biodiversity or ecosystem service among its objectives or expected results and would probably be conducted even without biodiversity benefits (main aim is climate change related). However, biodiversity and ecosystem service (ES) conservation is clearly an underlying aim and the role of peatlands in providing ES is explicitly stated by the project: although it may not appear clearly in the description of the project, the contribution to biodiversity is a secondary aim (it was tagged as significantly contributing to biodiversity by the LIFE applicant), therefore a Rio Marker 1 is applied and may need ex post re-assessment. Environment and Resource Efficiency - Water Environment and Resource Efficiency - Resource Efficiency Environment and Resource Efficiency - Resource Efficiency INADAR - Innovative and ecological approach for dam restoration - LIFE14 ENV/DE/ B1 Early detection and advanced management systems to reduce forest decline caused by invasive and pathogenic agents - LIFE14 ENV/ES/ B1 Valorisation of iron foundry sands and dust in the ceramic tile production process - LIFE14 ENV/ES/ B1 2 The project plans to demonstrate a new approach for dam restoration by using eco-berms instead of concrete. Its primary objectives are twofold: increase the cost-effectiveness of dam restoration (by reducing costs and negative impacts) and significantly improve the ecological status of water bodies impacted by dams. Biodiversity indicators will be monitored by the project. It is very likely that without the expected benefits for biodiversity, the project would not be conducted. A Rio Marker 2 is therefore applied. 2 The project will design, apply and monitor advanced methodologies to achieve a more sustainable forest management at EU level in the field of control and prevention of forest decline caused by invasive and pathogenic agents. The project is very similar to an example of the guidelines monitor the environmental status of forests in order to facilitate their future conservation and a Rio Marker 2 is thus applied. 1 (0) The project seeks to demonstrate the valorisation of iron foundry sands and dust in the ceramic tile production process. The LIFE application states that parts of these by-products are disposed in landfill, so they may be swallowed or inhaled by animals, resulting in a negative impact on biodiversity to justify its biodiversity contribution. This hypothesis of indirect contribution to biodiversity does not justify a Rio Marker 1 as biodiversity contribution is clearly not (even secondary) objective of the project. Biodiversity and ecosystem services are not mentioned in the objectives or expected results. A Rio Marker 0 would seem justified for this project. The LIFE 53

56 Sub-programme Project title and ID Suggested Justification Rio Marker applicant tagged this project however as significantly contributing to biodiversity. An ex post re-assessment would be required to justify that allocation. Environment and Resource Efficiency - Resource Efficiency Environment and Resource Efficiency - Environment and Health Environment and Resource Efficiency - Water Integrated and sustainable management of cork waste generated in the cork industry - LIFE14 ENV/ES/ B1 Development of a real-time information and monitoring system to support the risk assessment of nanomaterials under REACH - LIFE14 ENV/ES/ B1 Efficient Integrated Realtime Control in Urban Drainage and Wastewater Treatment Plants for Environmental Protection - LIFE14 ENV/ES/ B1 1 (0) The project s main goal is the demonstration of the technical, environmental and economic feasibility of cork waste valorisation, according to the cork waste particle size. The main contribution to biodiversity is indirect and not a significant objective of the project: as the project may improve the economic viability of the cork business, it may lead to a more sustainable management of cork ecosystems, which themselves host a rich biodiversity. Biodiversity and ecosystem services are not mentioned in the objectives nor as expected results. A Rio Marker 0 would seem justified for this project. The LIFE applicant tagged this project however as significantly contributing to biodiversity. An ex post reassessment would be required to justify that allocation. 1 (0) The project aims to improve the use of environmental monitoring data when dealing with Engineered Nanomaterials. It is assumed that new measurement methodology will make possible a comprehensive evaluation of the potential threats and effects of the ENMs on biota. However, the benefits for biodiversity are indirect and not a direct objective of the project (and it should also be noted that the term ecosystem is used to describe compartment such as soil, air, surface water, with the focus being on their abiotic parts; the expected benefits for ecosystems are thus not direct benefits for biodiversity). Biodiversity and ecosystem services are not mentioned in the objectives or expected results. A Rio Marker 0 would seem justified for this project. The LIFE applicant tagged this project however as significantly contributing to biodiversity. An ex post re-assessment would be required to justify that allocation. 1 (0) The project demonstrates an integrated real time control strategy of urban drainage networks and wastewater treatment plants to minimize the pollution of receiving waters, through the use of real-time quantity and quality data. An indirect benefit for the aquatic fauna could result from the reduced pollution of receiving waters. Biodiversity and ecosystem services are not mentioned in the objectives or expected results. As stated in the guidelines Even if an indirect benefit for biodiversity is foreseen under the project, if the protection of ecosystems is not mentioned in the objectives or expected results of the project, a conservative approach is applied. A Rio Marker 0 would seem justified for this project. The LIFE applicant tagged this project however as significantly contributing to biodiversity. An ex post re-assessment would be required to justify that allocation. 54

57 Sub-programme Project title and ID Suggested Justification Rio Marker Environment and Resource Efficiency - Resource Efficiency Environment and Resource Efficiency - Water Demonstrating Remote Sensing integration in sustainable forest management - LIFE14 ENV/IT/ B1 Good ecological status of an agricultural stream - introducing Integrated Buffer Zones in a holistic approach - LIFE14 ENV/SE/ B1 1 The project plans to demonstrate the technical feasibility of integration of data collected from forest inventories with remotely sensed information. One expected result is that these new techniques are extremely useful to achieve sustainable forest management targets [(e.g. biodiversity)]. However, the main objective remains to demonstrate the use of spatial data for sustainable forest management, over a broader range of objectives (biodiversity conservation is not the primary objective), including climate change mitigation and the support of economic harvesting of forest. A Rio Marker 1 is thus applied. 1 The project uses innovative tools and a holistic approach to reach three goals: improve the ecological status of a water body (Water Framework Directive), reduce floods, and increase biodiversity in the agricultural landscape. This is achieved through Integrated Buffer Zones and Level Wetlands as well as the creation of biotopes. Good Ecological Status as well as the creation of ponds, nest boxes and a bio-passage for fauna are all part of the expected results. The applicant explicitly states: Increasing biodiversity by habitat enhancement and increased dispersal possibilities is a secondary goal of the project (the main one is to reach Good Ecological Status, including through a decrease of phosphorous concentration and reduced flooding). A Rio Marker 1 is thus applied. 55

58 Synthesis of the identified challenges and obstacles and associated recommendations for refining the current tracking approach Instrument European Earth Observation Programme (Copernicus) The Framework Programme for Research and Innovation (Horizon 2020) Evolutions compared to the situation described in Tracking Biodiversity Expenditure in the EU Budget (Medarova-Bergstrom et al. 2015) The recommendations of the 2015 study have not yet been fully applied: A coefficient of 30% is still applied to the budget of the Land monitoring service, instead of Rio Markers (0%, 40%, 100%). The work programme-level assessment does not apply Rio Markers to activities; The contribution of the marine environment monitoring service and the climate change service to biodiversity are not included in the tracking (despite recommendations from the 2015 study) No project-level ex ante tracking is conducted Current tracking methodology broadly in line with the 2015 study. Instrument-specific obstacles faced and solutions implemented or recommended Obstacles: Multiple entities deal with the implementation of Copernicus, making the tracking at the project level more difficult to coordinate and implement. Solutions: A solution could be to request applicants across all Copernicus supported projects to tag their project by assessing if it significantly contributes to biodiversity (or if the users of the services and data generated by the project do) 50 and then to independently assess the applicants assessment during the selection process (as LIFE currently does). It would provide harmonized project-level Rio Markers to refine the current programme statement-level evaluation of the contribution to biodiversity. Obstacles: Time lag between publication of the work programme and the finalization of grant agreements for projects selected for funding means that final figures are only available a year or so after the work programme is adopted. For 2014 calls checking, correcting and validating the Rio Markers used took some time, due to the steep learning curve for all services concerned in the first year of the tracking process. Solutions: Modifying IT rules to improve tracking: preventing the validation of the grant agreement for projects resulting from bottom-up actions as long as the Rio Marker describing their contribution to biodiversity has not been assigned this change is already in development; Clarifying priorities: in addition to biodiversity tracking, project officers (including in executive agencies) face many transversal tracking priorities such as Climate Action, Sustainable Development, Gender, Responsible Research and Innovation or Digital Agenda. This dilutes the relative priorities of all these tracking. Clarifying what is really priority and / or providing additional human resources for tracking should 50 In practical terms, such tagging would be conducted by "ticking a box" in the application form. 56

59 Instrument European Neighbourhood Instrument (ЕNI) and Development Cooperation Instrument (DCI) Partnership instrument for cooperation with third countries (PI) Programme for the Environment and Climate Action (LIFE) Evolutions compared to the situation described in Tracking Biodiversity Expenditure in the EU Budget (Medarova-Bergstrom et al. 2015) Current tracking methodology broadly in line with the 2015 study. Tracking is conducted at the level of actions defined in AAP and Rio Markers are applied to these actions. The other three steps of tracking Programme Statement level, MIP level, reporting level are currently not explicitly used. The 2015 study recommends that tracking at the programme level is not carried out from 2016 as it only provides some very rough estimates. Furthermore, as of 2016 project level information will be available through the project applications and more accurate tracking can take place (Medarova- Bergstrom et al. 2015) but tracking for the Draft Budget 2016 published in 2015 is still conducted at the programme level. However, data at the project level were not yet fully available when the Draft Budget was published and the recommendation will probably be applicable only in Instrument-specific obstacles faced and solutions implemented or recommended improve the capacity of project officers to track biodiversity contribution for bottom-up actions. 57

60 Conclusions and recommendations The three categories of Rio Markers may sometimes be challenging to apply resulting in a potential over or under-estimation o A need for more nuanced markers to refine the tracking process has been noted for some areas as the Rio marker 1 seems insufficient to cover all the different intermediary situations that can occur; while additional levels (e.g. 20% and 60%) might increase accuracy, they might also bring additional administrative burden due to a more complex application of markers. In some cases, applying Rio Markers to more detailed levels of an instrument (e.g. at the project level instead of the programme statement level) could provide an alternative solution which would not require the introduction of additional categories of Rio Markers and would still lead to a final weight of for instance approximately 20% or 60% at the programme level when all the project contributions would be summed-up. Such an alternative solution could for instance refine the tracking for Copernicus, as explained above. The biodiversity tracking process is still relatively new and the administrative burden in some instances might be significant o Facilitate exchange of knowledge and best practices across EC services in order to further pool the resources and improve the understanding on the most cost-effective ways to conduct tracking under specific instruments; o Consider the synergies linked to the current other tracking priorities such as Gender, Responsible Research and Innovation or Digital Agenda to reduce administrative burden (e.g. common training and communication on tracking); In some cases, Rio Markers are not assigned at the project level (e.g. for some projects for Horizon 2020) o The IT system could be better utilised to enhance the tracking process: (for example by alerting project beneficiaries that they forgot to fill the biodiversity Rio Marker when they validate their project). 58

61 EC - ST U DY ON BI O DI VERSI TY FI N AN C IN G A N D T R A C KI N G BI ODIV E R S I TY-RELATE D EX PE N DI T U R ES IN TH E EU B U D GE T 2.4 Funding instruments for the Common Agricultural Policy Introduction to the Common Agricultural Policy The Common Agricultural Policy (CAP) consists of three elements: (i) income support to farmers through direct payments, including a requirement to comply with sustainable agricultural practices; (ii) market-support measures; and (iii) rural development measures 51. The first two elements are funded by the European Agricultural Guarantee Fund (EAGF), a centralised management instrument. The rural development measures are funded by the European Agricultural Fund for Rural Development (EAFRD), a shared management instrument. As set out in the Treaty of the European Union, the main objectives of the CAP are to provide a stable, sustainably produced supply of safe food at affordable prices for consumers, while also ensuring a decent standard of living for European farmers and agricultural workers. Alongside these specific objectives, a number of Treaty provisions lay down other objectives which are applicable to all EU policies and measures, including environmental protection to promote sustainable development (Article 11), becoming objective of the CAP in their own right. The EAGF objective is to provide agricultural market and income support (1 st pillar of the CAP) through direct payments whereas the EAFRD supports structural change and competitiveness in agriculture, the provision of public goods, notably agri-environmental goods, and initiatives to develop rural areas beyond the farm sector (2 nd pillar of the CAP). Place of the environment in the Common agricultural policy Agricultural management practices can have a substantial impact 52 on the conservation of the EU's wild flora and fauna. Indeed the specialisation and intensification of certain production methods (such as the use of more chemicals and heavy machinery), marginalisation or abandonment of traditional land management practices are a threat to biodiversity on farmland. The European Commission addressed these environmental issues in the early 2000s by introducing rural development measures including agri-environmental measures targeting the improvement of agricultural practices, rules under cross compliance and more recently green direct payments. Although the main objective of the 1 st pillar is to provide agricultural market and income support, additional requirements were added to ensure environmental protection as laid down in Article 11 of the TFEU, including: - The rules under cross-compliance: a set of management rules and agricultural practices to comply with environmental standards that apply to farmers who request CAP payments; - The green direct payments: 30% of direct payments are linked to respecting three sustainable agricultural practices which are beneficial to environmental and climate change concerns, notably soil quality, biodiversity and carbon sequestration: o diversifying crops; o maintaining permanent grassland; o dedicating 5% of arable land to 'ecologically beneficial elements' ('ecological focus areas'). Funded through the EAFRD and co-financed by national, regional or private funds, the rural development programmes (RDP) provide a framework to invest on individual projects on farms or in other activities in rural areas on the basis of economic, environmental or social priorities designed at national or regional level. Some of the rural development measures listed by the RDP directly aim at protecting the environment and promoting sustainable agriculture including agri-environment measures, organic farming, Natura 2000 and WFD payments, and nonproductive investments. The figure below summarises the environmental instruments under the Common Agricultural Policy. 51 Regulation (EU) No 1307/2013, Regulation (EU) No 1308/2013, Regulation (EU) No 1305/ Ernst & Young All rights reserved 59

62 Figure 11 - Environmental instruments under the Common Agricultural Policy Source: DG AGRI, Review of greening after one year, SWD(2016) 218 final 83% of the 2017 EU budget for biodiversity stems from the Common Agricultural Policy 2017 draft EU budget shows a high heterogeneity between different instruments' contributions to the total biodiversity budget: the biodiversity-budget of the Common Agricultural Policy (EUR 11.6 billion) accounts for 83% of the total biodiversity budget compared to e.g. ERDF and CF, another major source of funding for biodiversity, which jointly account for 11% (EUR 1.5 billion). At the time when the Commission was developing the methodology for tracking biodiversity financing under the CAP there was little information available about its implementation on the ground (due to delayed programming). In light of the newly available information, the following chapter analyses the methodology and provides additional insights or potential approaches for its enhancement. 60

63 2.4.1 EAGF biodiversity expenditure tracking Although the main objective of the 1 st pillar is to provide agricultural market and income support and is not linked to environment, some of the management rules and agricultural practices under cross-compliance aim at complying with environmental standards, and some of which are closely linked to biodiversity. Based on this cross-compliance requirements, together with the green direct payments; a biodiversity expenditure tracking methodology has been applied to EAGF. EAGF budget contributes to the development of sustainable agriculture and to making the Common Agricultural Policy more compatible with the expectations of the society through cross-compliance. It contributes to preventing soil erosion, maintaining soil organic matter and soil structure, ensuring a minimum level of maintenance of lands and avoiding the deterioration of habitats, and protecting and managing water, and avoiding a massive conversion into arable land thanks to greening payments measures 53. The following analysis includes: - An analysis of the current tracking approach for the direct payments and suggestions for improvement; - A proposition for a refined tracking approach for green direct payments; Current approach for biodiversity tracking in the EAGF: Rio marker 1 is applied to a percentage of direct payments Before the CAP reform implemented in 2015, the tracking methodology consisted in applying the Rio marker 1 (40%) to a 20% share of the total appropriations for direct aids taking account of cross-compliance 54. As a consequence, an 8% weight factor was directly given to the total EAGF budget. The methodology applied for tracking climate change expenditures was identical. Since the 2016 financial year, the methodology for tracking biodiversity-relevant expenditure under the CAP is the following: 1. Green direct payments ( payment for agricultural practices beneficial to the climate and the environment, amounting to 30% of direct payments) are allocated a Rio marker 1 (40%), which finally equals 12% of the direct payments; 2. Cross-compliance: a Rio marker 1 is set to 10% of the remaining direct payments (i.e. 70% of direct payments), which finally equals 2.8% of the direct payments. As a consequence, a 14.8% of the EAGF budget is estimated to contribute towards biodiversity. 53 European Commission (2014) Statement of estimates of the European Commission for the financial year 2015, (Preparation of the 2015 Draft budget) SEC(2014) 357, June 2014, Brussels 54 European Commission (2015) Draft General Budget of the European Union for the financial year 2016, Working Document Part I: Programme Statements of operational expenditure, June 2014, Brussels 61

64 Direct payments (total): 100% EC - STUDY O N B IO D IVE RS IT Y F IN A NC IN G Table 16 - EAGF Biodiversity budget for , and share of EAGF biodiversity budget in total EU biodiversity budget and in total EU budget Basis for estimate EAGF contribution to biodiversity (M ) Share of total EU biodiversity budget b Share of total EU budget c Remaining direct payments taking into account cross-compliance (Rio marker 1 applied on 20% of 0503 Direct payments) % 2.1% Actual Budget % 2.1% Agricultural practices beneficial for the climate and the environment (item ) with Rio marker 1 Remaining direct payments taking into account cross-compliance (Rio marker 1 applied on 10% of 0503 Direct payments) % 3.3% % 0.8% Draft Budget % 4.1% a European Commission (2015) Statement of estimates of the European Commission for the financial year 2015, (Preparation of the 2015 Draft budget) COM(2015) 300, June 2015, Brussels b EAGF contribution to biodiversity as a share of the total EU biodiversity budget presented in Draft Budget 2015 for the considered year c EAGF contribution to biodiversity as a share of the total EU budget for the considered financial year The introduction of the green direct payments in 2015 led to a significant increase of the biodiversity budget of the EAGF (from EUR million in 2015 to EUR million in 2016; cf. Table 16), as well as a stronger weight of the EAGF in the total EU biodiversity budget (from 29.5% to 44.4%) and of the total EU budget (from 2.1% to 4.1%) was allocated to biodiversity through the EAGF. Figure 12 - Simplified scheme of the biodiversity tracking for EAGF starting from 2015 (EY) Green direct payments 30% 100% Rio marker 1 (40%) 14.8% of the total direct payments accounts for the biodiversity budget 10% Nongreen direct payments 70% Included in biodiversity expenditures 62

65 Analysis of the current tracking approach Non-green direct payments Introduction For direct payments, in 2015, active EU farmers had access to 55 : EC - STUDY O N B IO D IVE RS IT Y F IN A NC IN G Compulsory Schemes and Voluntary schemes according to Member State choices, subjected to cross-compliance rules, Or a simplified scheme for small farms (voluntary for Member States). Compulsory direct payment schemes include the single area payment scheme/basic payment scheme (SAPS/BPS), green direct payment and payment for young farmers (YFP) while the voluntary schemes cover redistributive payment, natural constraints payment (ANC), voluntary coupled support (VCS) and small farmers scheme (SFS). None of these schemes, except green direct payments, explicitly refers to biodiversity. In this chapter they will be referred to as non-green direct payments solely to distinguish them from green direct payments, without regard to their potential impact on the environment or biodiversity. The rationale for the inclusion of non-green direct payments into the biodiversity budget lies in the potential biodiversity benefits due to cross compliance mechanism. Cross compliance 56 is a mechanism that links direct payments to compliance by farmers with basic standards in the areas of public, animal and plant health, environment and animal welfare. These basic standards are "Statutory Management Requirements" (SMRs) and a set of rules on good agricultural and environmental conditions (GAEC) designed to 57 : Prevent soil erosion, Maintain soil organic matter and soil structure, Ensure a minimum level of maintenance of the lands, Avoid the deterioration of habitats, Protect and manage water. They apply to all farmers that receive support from the CAP. The table below presents the cross-compliance requirements applied by the SMRs and GAECs and their relevance with biodiversity. SMRs (notably 2, 3), GAECs (mainly GAEC 1 and 7) contribute to the preservation of biodiversity by limiting the potential negative impacts of agriculture. Figure 12 shows how the current tracking approach estimates the contribution of non-green direct payments to biodiversity: Rio marker 1 (coefficient 40%) is applied to 10% of their budget which in turn represents 70% of total direct payments envelope. This results in the contribution of 2.8% of total direct payments envelope. 55 Regulation (EU) No 1307/ Commission Regulation (EC) No 1122/ Council Regulation (EC) No 73/

66 Table 17 - Cross compliance requirements and their relevance to biodiversity Cross compliance requirement a Biodiversity Relevance GAEC 1 Establishment of buffer strips along water courses GAEC 2 Where use of water for irrigation is subject to authorisation, compliance with authorisation procedures No GAEC 3 Protection of groundwater against pollution No GAEC 4 Minimum soil cover Variable GAEC 5 Minimum land management reflecting site specific conditions to limit soil erosion Variable GAEC 6 GAEC 7 Maintenance of soil organic matter level through appropriate practices, including ban on burning arable stubble, except for plant health reasons. Retention of landscape features, including where appropriate, hedges, ponds, ditches, trees in line, in group or isolated, field margins and terraces, and including a ban on cutting hedges and trees during the bird breeding and rearing season and as an option, measures for avoiding invasive plant species Variable SMR 1 Protection of waters against pollution caused by nitrates from agricultural sources No SMR 2 Conservation of wild birds SMR 3 Conservation of natural habitats and of wild flora and fauna a. Kettunen, M., Illes, A., Hart, K., Baldock, D., Newman, S., Rayment, M., Sobey M. and Medarova- Bergstrom, K. (2014) Tracking Biodiversity Expenditure in the EU Budget, Part II Fund specific guidance documents, Final Report for the European Commission DG ENV, Institute for European Environmental Policy, London/Brussels The challenge of tracking contribution of the EAGF to biodiversity primarily stems from its nature it is an income support fund and not a programmable fund for which a methodology based on Rio markers is more appropriate. The views on the current tracking approach and the inclusion of cross compliance are polarised. The workshop organised in the context of the study confirmed the difficulty to find a consensus on this aspect (cf. feedback from the workshop below). One argues that cross-compliance should be accounted for even if the benefits for biodiversity are not substantial or are difficult to estimate - to quantify them (in place of only acknowledging them qualitatively) is important in order to recognize the potential role of cross-compliance. The second view questions the very inclusion of such benefits as well as their extent - although cross-compliance rules are designed to increase environmental awareness among farmers, they do not necessarily go beyond existing legislation or trigger quantifiable changes in agricultural practices. The arguments supporting the two views (inclusion or exclusion in the tracking) are therefore examined in more detail below with an aim to provide further insights for the continuing efforts to improve the tracking process. Feedback from the workshop Tracking biodiversity in the CAP budget In the context of the study, a workshop was organised to discuss the challenges and avenues to refine the current tracking methodology. One of the workshop sessions focused on the contribution of the CAP to biodiversity. Several topics were raised aiming to refine the current tracking and the main outcomes from the discussions are the following: Cross compliance & direct payments - While many participants acknowledged the fact that cross-compliance (both SMRs and GAECs) could have a potential to contribute to raise farmer s awareness on biodiversity requirements and enhance the compliance with the rules, such potential has not been verified to date. Some participants questioned the inclusion of cross-compliance into the tracking methodology arguing 64

67 that farmers should follow these rules at their own expense, as they are in general applicable to all citizens regardless of the CAP. - Regarding direct payments, the aspect of harmful subsidies was mentioned. If one accounts even for basic (legal) requirements under the CAP, then also its potential negative impacts on biodiversity should be taken into account. The current tracking methodology suggests that direct payments is by far the primary EU fund to protect biodiversity (more than 80%), without considering that the CAP can also have negative impacts. - There was a consensus among the participants that the quantification of the contribution of crosscompliance to biodiversity is challenging, even if one agrees that it should be done. A satisfactory approach to link the impact of cross compliance on biodiversity and direct payments is lacking. Keeping the current arbitrary percentage (10% of the non-green direct payments) was questioned and it has been suggested that it could be kept at 0% (and acknowledged qualitatively) until more evidence and information becomes available. - The penalties for breaching cross-compliance calculated as a percentage reduction of the CAP payments. Today, the average payment reduction ranges between 1 and 3% according to the participants, which seems to be a limited deterrent. It has been suggested by certain participants that this information might be considered to determine the contribution of cross compliance to biodiversity. Greening payments - The application of the Rio marker to the entire budget for greening payment was perceived to be too high by certain participants for two major reasons: (1) According to preliminary assessment, the percentage of land that falls under the greening measures (e.g. regarding Ecological Focus Areas and crop diversification) is limited: e.g. 47% of farmland (UAA) and 89% of farmers will be exempted from the Ecological Focus Areas requirement; (2) the criteria are set to such levels that many farmers are already compliant, and this level may allow for biodiversity destruction as they are above the threshold: in these cases, the payments will not lead to further efforts towards biodiversity, and may potentially lead to removals of areas in favour of biodiversity. - The crop diversification measure is defined in a way that it is not relevant to biodiversity. Participants did not question the exclusion of this measure from the tracking approach. Arguments for the inclusion of non-green direct payments Due to cross-compliance rules, direct payments schemes other than green direct payment contribute to biodiversity because: Cross compliance enhances the implementation of the existing environmental legislation via SMRs, namely the Birds and Habitats Directives. The SMRs potentially enhance the implementation of the existing legislation, with the European Commission defining the SMRs on the basis of Directives already in place 58. Notably, SMRs 2 and 3 aim to preserve biodiversity 59 : the SMR 2 corresponds to Directive 2009/147/EC on the conservation of wild birds and the SMR 3 refers to Council Directive 92/43/EEC on the conservation of natural habitats and of wild flora and fauna. These requirements however do not introduce new obligations. Some GAECs have potential to benefit biodiversity, depending how they are implemented by the Member States. Thus, several GAECs could go beyond those required by law 60, mainly for the GAEC 7 which aims to maintain landscape features and potentially the following GAECs: on the retention of a soil Regulation (EU) No 1306/2013 of December During , there is no European directive on soil, since the project of the directive on the soil protection has been abandoned in Therefore, the soil protection is treated, in the best cases, within the European countries through policies targeted other thematic. 65

68 cover (GAEC 4), limitation of soil erosion (GAEC 5) and the preservation of the soil organic matter (GAEC 6) depending on the type of management implemented. These two arguments support the inclusion of a share of EAGF budget in the biodiversity budget. On this basis, 10% of direct payments envelope excluding green direct payments has been included in the biodiversity budget after applying Rio Marker 1. The choice of the percentage level (10%) is however not elaborated, but is judged to be a reasonable proxy for reflecting the contribution to biodiversity. Arguments against the inclusion of non-green direct payments The opposing view on the current tracking approach in regards to the schemes other than green direct payments are based on several arguments: coherence with the Rio markers methodology; difficulty to quantify the contribution towards biodiversity; ex-post sanction system of cross-compliance; respect of the polluter-pays principle; difficulty to control cross-compliance application; lack of consistency in cross-compliance application. It is not in line with the Rio markers methodology. Biodiversity is not a principal (Rio marker 2) or significant (Rio marker 1) objective of direct payment schemes other than green direct payments, as the main objective of the direct payments (excluding green direct payments) is to provide agricultural market and income support. Although cross-compliance includes requirements that are favourable for biodiversity, cross-compliance is not an objective of direct payments, but an ex-post penalty system that cannot guarantee the delivery of biodiversity benefits. The sanction system of cross-compliance is applied ex-post. In the response to the European Court of Auditors on exclusion of breaches of cross-compliance rules from the calculation of residual error rates 61 (which measures the level of irregularity) the European Commission recalled that cross compliance is not an eligibility criteria for CAP payments: the Commission is of the opinion that the respect of crosscompliance obligations does not constitute an eligibility criterion for CAP payments and, therefore, the controls of these requirements do not pertain to the legality and regularity of the underlying transactions. [ ] Thus, the Commission considers that penalties imposed for violations of cross-compliance requirements should not be taken into account for the calculation of the error rates for the CAP. Therefore rather than presenting an ex-ante system ensuring that non-green payment schemes inter alia deliver on biodiversity, cross compliance is an ex-post sanction system. This means that cross-compliance should be excluded at least in ex-ante tracking methodology. However, since breaches of cross compliance rules are not counted towards the error rate, any ex post tracking methodology should also not take it into account. Adherence to cross compliance in practice is difficult to verify. The breaches from cross-compliance measures are punished with a reduction of payments generally ranging between 1 to 5% of the initial direct payment, after the farmer has been warned. This calculation makes the assessment of the financial weight of SMRs and GAECs difficult. Indeed, the paying agencies 62 perform 63 administrative checks and onthe-spot controls to ensure the admissibility of claims and compliance with EU rules for at least 64 1 % of all farmers that submit aid applications under support schemes. During the on-the-spot checks, compliance with standards is checked for certain farmers (cross compliance or other). This verification may be limited to a sample of half of the agricultural parcels 65. In the case of farmer negligence 66, the payment reduction percentage shall not exceed 5 % and, in the case of repeated non-compliance, 61 European Court of Auditors, The reliability of the results of the Member States' checks of the agricultural expenditure, Special Report No 18/ National or regional agencies are nominated by each Member State to make payments to beneficiaries 63 ibid 64 Ibid 65 Ibid 66 Regulation (EC) No 1122/2009 of 30 November

69 the reduction rate is set at 15 %. In duly justified cases, Member States may decide that given its severity, extent and permanence, non-compliance has a negligible impact. The contribution of cross-compliance to biodiversity is difficult to quantify. No robust way to assess the benefits and link them to expenditure under direct payments is available. Until such approach is devised, those should be only qualitatively acknowledged in order to ensure the integrity of the whole tracking process. Therefore, a share of the direct payments, considered as biodiversity expenditure due to cross compliance standards implementation, should be defined more precisely, representing the cross compliance impacts on biodiversity. It is not in line with the polluter-pays-principle. To ensure sustainable agricultural practices, the CAP policy applies two principles: the "polluter pays" principle and the "provider gets" principle. Firstly, farmers have to respect national and European environmental standards and the basic mandatory standards at their own costs (Figure 11): it is compulsory without financial support. This is in line with the polluter pays principle, which states that the polluter should bear the costs of avoiding or remedying environmental damage. The lack of consistency in the application of the Rio marker: cross-compliance does not only apply to non-green direct payments, but it is a mechanism covering all direct payments and certain rural development measures (Pillar 2) like agri-environment measures, organic farming or payments to areas facing natural constraints. Thus if cross-compliance is accounted for in tracking the contribution to biodiversity, that should not only apply to non-green direct payments, but across Pillar 1 and 2. Conclusions Regarding accounting for the contribution of cross-compliance rules to biodiversity, two potential ways forward could be considered: 1. A share of the non-green direct payments is taken into account, but defined more precisely to represent the impacts on biodiversity due to cross-compliance (some standards enhance the implementation of the existing environmental legislation for the conservation of wild flora, fauna and natural habitats and some other standards go beyond those required by law notably for the soil preservation). 2. Cross-compliance is excluded from the calculation of biodiversity expenditures since cross-compliance is neither eligibility criteria for the CAP payments, nor a significant objective of direct payments; mandatory standards should be respected by farmers at their own costs ( polluter-pays principle). Considering the complexity and polarised views around this element of the current biodiversity financing tracking approach, a potential way forward could be an application of a more conservative tracking approach while leaving the discussion open: accounting qualitatively for this part of direct payments and collecting additional information and evidence for development of a robust quantitative approach in the future. Cross compliance is responsible for a significant share of the EU budget for biodiversity (e.g. EUR 1.2 billion in 2016 budget) and thus scrutiny and careful consideration are warranted. A conservative approach would be also in line with the recent findings of the Court of Auditors' report on climate tracking summarised below. Both biodiversity and climate tracking follow the Rio markers methodology and thus share similar challenges in its application. 67

70 Report of the European Court of Auditors, Spending at least one euro in every five from the EU budget on climate action: ambitious work underway, but at serious risk of falling short, 2016 This special report from the European Court of Auditors aimed at determining whether the target to spend at least 20 % of the EU budget on climate-related actions was likely to be met and whether the approach employed was likely to add value. The Commission used the OECD s Rio markers 0, 1 and 2 to assess the share of EU funding contribution to climate change mitigation and adaptation. The European Court of Auditors judged that this methodology conducts to an overestimation of the European contribution to climate change. Two main reasons have been identified: The non-respect of the principle of conservativeness. The Common Principles for Climate Mitigation Finance Tracking defined this principle by the following statement: where data is unavailable, any uncertainty is to be overcome following the principle of conservativeness where under reported rather than over reported climate finance is preferable. The application of Rio Marker 2 to measures with significant impact on climate change and not only measures which have climate change as a primary objective. These over-estimations mainly concern the Common Agricultural funding supporting climate change. According to the report, two points of the methodology were not consistent: 20 % of the budget for non-greening direct payments is dedicated to climate change: this figure is poorly justified. The study suggests to consider only 10% of the direct payments (non-greening payment). After the application of the Rio marker 1, the contribution of EAGF to climate change declines from 47 to 38 billion euros. The use of Rio markers 2 to all measures of the EAFRD related to environment is not consistent because the measures are multiple and support climate change with various levels. They suggest to apply Rio marker 2 or Rio marker 1 depending on the type of measure. For example Rio marker 2 was applied to the measure concerning forestry activity but only Rio marker 1 to the measure concerning areas under natural constraints. After the application of this methodology for each measure of the EAFRD, the contribution of EAFDR to climate change decreased from 57,2 to 33,3 billion euro. Overall the adjustment of the methodology suggested by the European Court of Auditors conducts to 33 billion euro (15%) decrease in the CAP budget dedicated to climate change. The report also underlines that the greening payments do not contribute to a significant change in the contribution of the EAGF to climate change. Indeed 64% of the beneficiaries of direct payments are exempted from greening payments obligations. Extract from the reply of the Commission with regard to the CAP: The Commission takes note of the Court s simulations. However, the Commission has established an innovative and detailed tracking methodology built on the OECD s Rio markers. Nevertheless, the Commission recognises the need to continue efforts to increase climate relevance across EU programmes, including those mentioned by the Court. The method used by the Commission has been prepared in a transparent and coordinated manner. The EU approach to assessing levels of climate finance in agriculture and rural development is sound. Likewise, for green direct payments the calculation fairly reflects the climate-relatedness of the three farming practices. Also, for non-greening direct payments, the climate impact of 8 % of non-greening direct payments is not overestimated if we look at the benefits for the climate of cross compliance and direct payments. 68

71 Green direct payments Introduction Since the beginning of the 2015 financial year, the greening payments were designed to enhance farms environmental performance [ ] to support agricultural practices beneficial for the climate and the environment 67. Along with the compulsory schemes, greening payments, representing 30 % of the direct payments, can be allocated if additional obligations are fulfilled, provided the farmer complies with the three following basic practices: 1. Crop diversification on arable land, 2. Maintenance of the existing permanent grassland, 3. Preservation of ecological focus areas (EFA) on arable land. Regulation (EC) No 1307/2013 provided the primary environmental goal of each selected agricultural practice: Crop diversification aims to improve soil quality (crop rotation not included); Permanent grassland targets carbon sequestration; this protection should consist of a ban on ploughing and conversion of the most environmentally sensitive areas in the "Natura 2000" areas, and of a more general safeguard, based on a ratio of permanent grassland; EFAs are established, in particular, in order to safeguard and improve biodiversity on farms by directly encouraging biodiversity in specific areas that have high biodiversity value (e.g. land lying fallow, landscape features, terraces, buffer strips, afforested areas and agro-forestry areas); or indirectly encouraging biodiversity through a reduced use of inputs on the farm thanks to the use of nitrogen-fixing crops, catch crops and winter green cover; Equivalent practices chosen by Member States and compliant with annex IX of this regulation. Organic farmers compliant with Regulation (EU) No 834/2007 are eligible for greening payments without having to respect the preceding measures (crop diversification, permanent grasslands and Ecological Focus Area) 68. Benefits of greening measures for biodiversity While one measure can be assessed as targeting biodiversity as a primary objective (Ecological Focus Areas), the actual biodiversity benefits of the two other measures (maintenance of permanent grassland and crop diversification) are a subject of debate More importantly, these benefits are likely to be highly sensitive to the implementation terms selected by Member States (e.g. type and management of EFA, grassland management etc.), which differ significantly between Member States (see Table 45 in the annex). Crop diversification ensures a soil cover all year round in a view to maintain the arable land in good conditions and avoid soil erosion: in this regard, biodiversity is not a significant objective and Rio marker 0 should apply. Permanent grassland do not present biodiversity as the principal objective, but benefits can be expected from declaring permanent grassland as environmentally sensitive (ESPG) so Rio marker 1 could be applied. Ecological focus areas (EFA) present biodiversity as the principal objective, thus, a Rio marker 2 could be applied. The current tracking methodology does not disaggregate the measures, but sets a Rio marker 1 for green direct payments as a whole since biodiversity is not the principal objective and is targeted differently under each measure. Equivalent practices are defined for each of the three measures. Even if the Member States can define these equivalent practices, regulation gives some guidelines in the Annex IX. Here they are considered as similar to the above measures and are not treated separately. Significant differences exist with regard to the implementation of the greening payments (see Annex). For instance, the EFA can be implemented at a regional or collective level in order to obtain adjacent ecological focus 67 Regulation (EU) No 1307/ Regulation (EU) No 1307/2013 of December Pe er et al. (2014), EU agricultural reform fails on biodiversity, Science, VOL 344 ISSUE 6188, 6 June Alan Matthews, What biodiversity benefits can we expect from EFAs? October 11 th, 2015, available at: 69

72 areas that are more beneficial for the environment 71, with the example of forest: Member States with more than 50 % of their total land surface area covered by forest may decide that farms which have more than 50% of their land area covered by forest do not have to implement the EFA measure 72. EFA can include different kinds of elements such as land nitrogen-fixing crops or catch crops, land lying fallow, terraces, field margins and for each element some discrepancies exist concerning the dimension. The list of authorised elements varies from 2 (Malta) to 18 (France, Italy, Hungary) 73. Concerning permanent grassland, only four Member States opted for the calculation of the ratio (obligation to maintain the ratio of areas of permanent grassland to the total agricultural area declared by more than 5 % compared to a reference ratio to be established by Member States in ) at the regional level 75. Eight Member States notified their intention to offer their farmers the possibility to meet some of their greening obligations through equivalent practices. Four of them through agri-environment-climate measures (Austria, Ireland, Poland, Italy) and four under certification schemes (the Netherlands, France, Portugal, Scotland) 76. In such cases, equivalent practices could be accounted twice in the biodiversity budget (EAFRD and EAGF). Estimation of the financial contribution of greening payments to biodiversity based on available information Due to the diversity of implementation, an assessment for each country concerning the impact these measures have on land practices would require a comprehensive study on its own. Impact assessment for "CAP towards 2020" from 2011 already provided some insights on the proportion of lands where the requirements of the greening measures could effectively lead to changes in land uses. While the setup of the greening in the adopted legislative acts is slightly different than in the IA, we could nevertheless use the analysis for the sake of illustration and better identifying an order of magnitude of potential contribution of the greening to biodiversity. Impact assessment, Common agriculture towards 2020, 2011 Commission Staff Working Paper (2011), SEC(2011) 1153 The impact assessment for CAP reform towards 2020 provided insights on the expected changes in land use due to the implementation of the greening measures. The report highlights the limited proportion of land where greening measures would lead to changes in land use (based on the less conservative scenario, the most similar to the adopted scenario in practice): - 1.4% of the lands were supposed to be impacted by the crop diversification measure; - 2.3% for Ecological set-side; - 8% for permanent grassland. It should be noted that the greening setup for this scenario slightly differs from the settings of the current greening measures. The report also explores the cost of implementation for each type of greening measures. 71 Regulation (EU) No 1307/2013 of December Regulation (EU) No 1307/2013 of December EC, Direct payments post 2014 Decisions taken by Member States by 1 August State of play on Information note, available here: 74 Regulation (EU) No 1307/2013 of December EC, Direct payments post 2014 Decisions taken by Member States by 1 August State of play on Information note, available here: 76 Ibid 70

73 Using the assessment of the proportion of impacted lands we can assume that only part of the green payment proportional to the percentage of the impacted lands is considered as (directly) relevant biodiversity expenditure. By applying respective Rio markers to the percentages of impacted lands, the biodiversity relevant expenditure amounts to 4.3 billion euros over the period 77, i.e. 0.7 billion euros per year (average). Considering the second method in the impact assessment, the cost of implementation for farmers, leads to an estimate of 12.4 billion euros over the period. Both assumptions are based on the settings of greening measures in the 2011 impact assessment 78. This range of expenditures remains lower than what is estimated by the current tracking approach (36.6 billion euros over the period). The calculations are elaborated in the annex of the document. It is important to note that the impact assessment considered slightly different arrangement of greening measures than adopted in the final legislation. Nevertheless the analytical principle utilised in the impact assessment might be used to improve the precision of the existing biodiversity tracking methodology in regards to greening measures. The greening review performed in 2016 by the European Commission provides information on the implementation of greening measures in Member States in The area impacted by the greening obligations cover 72% of the total agricultural area of the EU. 14% of arable land is covered by EFA, but this percentage is reduced to 9% after the application of the weighting factors, established for each type of EFA based on its impact on/importance for biodiversity. 29% of the agricultural area of the EU is covered with permanent grassland: 16% of this grassland is declared as environmentally sensitive permanent grassland (ESPG), which is expected to inter alia benefit biodiversity. Thus 9% of arable land and 16% of permanent grasslands targeted by EFA and ESPG can be expected to bring direct benefits to biodiversity and Rio marker 2 could be applied thereon. Those percentages could be used to derive a general percentage of utilized agricultural land (UAA) where biodiversity is directly impacted by taking into account the share of arable land (60%) and permanent grassland (29%) in total UAA. That would yield 5.4% and 4.6% for each respectively or 10% of UAA in total. By applying it to the whole greening envelope in the MFF (305.1 billion euros) we would arrive at a more refined, but also more conservative estimate of the contribution to biodiversity in comparison to the current tracking approach (Table 18): 7.8 billion vs billion 79. For comparison reasons here we assume that the way the greening measures were applied in 2015 stays uniform across the period to In reality this would not be the case and the refined approach would make ex ante estimates and validate them ex post for each year (see the subsequent section) as the greening implementation data becomes available. Figure 13 demonstrates the approach on the example of ex post estimate for Figure 13 - Proposed approach to refine tracking for biodiversity expenditures under the greening payments illustrated on the example of ex post estimate for 2015 (detailed explanation in the text) 77 Based on the draft budget This approach introduces a higher level of uncertainties (estimates of the impacted lands and estimates for the implementation cost) % of 30% of direct payments envelope (305.1 billion euros; Draft Budget 2017) 71

74 Table 18 EAGF biodiversity expenditures related to green direct payments comparison of various approaches (MFF ) # Methodology Total Total (M ) (M ) (M ) (M ) (M ) (M ) (M ) (M ) (%) a 1 Estimate from EY based on the current tracking approach b c ,0% Potential-range discussion - based on the share 3a of land associated with a lack of compliance ,82% lower bound d i j Potential-range discussion - based on the share 3b of land associated with a lack of compliance ,41% higher bound e i j Potential-range discussion - based on the cost of 4a ,4% compliance - lower bound f i j Potential-range discussion - based on the cost of 4b ,1% compliance - higher bound g i j Estimate from EY based on the refined approach ,6% b : For 2014 and 2015: a Rio marker 1 applied on 20% of Basic Payment Scheme payments (that is as an estimate, 8% of EAGF budget) For 2016 to 2020: Rio marker 1 on green payments & 10% of Basic Payments Scheme payments. (as an estimate, green payments budgets was set as 30% of the total EAGF budget) source: Statements of estimates of the European Commission for the financial year 2018 c Total EAGF figures are based on Draft Budget 2017 figures d Weighting factors to the annual EAGF budget: 0.96% of EAGF budget for e Weighting factors to the annual EAGF budget: 2.34% of EAGF budget for h Application of a Rio marker 1 of the greeening payments budgets (estimated as 30% of the total EAGF budget) i Please note that full implementation of greening payments will be based on 2015 data collection (Regulation (EU) No 1307/2013), so that full implementation was considered from 2016, in line with the Commission observation in Draft Budget j Methods relying on the 2011 CAP impact assessment are presented for illustration purposes only. EU current tracking approach and EY refined approach 72

75 Report of the European Commission, Review of greening after one year, 2016 The report provides insights on the implementation of greening measures after one year. If the areas concerned by greening measures obligations are important (72% of the agricultural area in the EU) and highlight the high level of impacted lands, the environmental performance of the measures varies across Member States, depending on the choices made by Member States, notably in authorized EFA. 75% of the total EU arable lands fall under the crop diversification obligation; however, for 8% of the land, farmers had to adapt their production pattern in order to respect the thresholds of crop diversification, effectively impacting around 1% of the land. The impact of EFA types on biodiversity varies widely across EFA. The hedges, trees, ponds, ditches, terraces, stonewalls and other landscape features provide the best biodiversity benefits. Fallow and buffer strips also contribute to improve biodiversity. However some EFA types do not provide benefits for biodiversity: this is the case of productive areas and catch crops. In 2015 only 26.9% of the physical area of the EFA was devoted to the EFA types, which provide the most biodiversity benefits. EFA linked to a productive activity nitrogen-fixing crops and catch crops amount to 73.1% of the total declared EFA area, where the benefits for biodiversity and environment are limited. The various EFA areas are subject to weighting factors according to their expected environmental value. The area covered by declared ecological focus areas amounts to 14% of arable land before application of the weighting factors and to 9 % after this application, which is above the regulatory requirement of 5%. 29 % of EU farmland is permanent grassland subject to protection aimed in particular at carbon sequestration; 16% of this grassland is declared as environmentally sensitive with a view to protecting biodiversity and carbon storage. Proposal to refine the current tracking approach Current approach to tracking the contribution of the greening measures to biodiversity is based on the application of Rio-marker 1 to the entire envelope of the green direct payments. Taking into account the challenge to refine the tracking approach in this regard, the proposal suggest accounting for areas where the measures are applied as the most constructive way forward. The proposal is based on the analysis in the previous section and is as follows: - EFA and Permanent Grassland are taken into account and Rio marker 2 is applied (biodiversity as principle objective) - Only proportion of land directly impacted is considered: arable land covered by EFA after weighting factors have been applied and share of permanent grassland declared as ESPG. - Share of directly impacted agricultural land is calculated by taking into account the constitution of utilised agricultural area (% arable land and grassland) and the aggregated factor is applied to the green direct payments envelope. 73

76 Figure 14 - Proposed refined tracking of biodiversity-relevant expenditure under green direct payments (EY) Non green direct payments 70% The ex-ante approach could be executed on an annual basis in the same way as current tracking approach. However an ex ante estimate for a given year would be based on the ex post estimate for preceding years. There would be a time lag between the two estimates due to different timing between the greening implementation data notifications and the EU annual draft budget exercise (Programme Statements) within which the biodiversity tracking process takes place. The latter starts at year n-1 (Draft Budget 2018 started in the beginning of 2017) when only the implementation data from 2015 would be available. Thus ex post estimate for 2015 would serve as an ex ante estimate for The ex-post tracking exercise would update these time-lagged ex ante estimates once the actual greening implementation data for a given year would become available. Conclusions The proposed approach to refine tracking biodiversity-relevant expenditure under green direct payments draws upon the principles of the analysis in the Impact assessment for "CAP towards 2020" (SEC(2011) and the information from the review of greening after one year. It provides estimates based on the area where biodiversity is directly impacted by EFA and permanent grasslands measures. Such an approach became possible only with availability of the greening implementation data in It provides a more conservative estimate of the biodiversityrelevant expenditure, for illustration EUR 7.8 vs billion in the period based on the 2015 greening implementation data. Compared to the current approach, the proposal entails only one step extra, based on available greening implementation data, when calculating the aggregation factor. Thus it is not expected to add additional administrative burden. 74

77 2.4.2 EAFRD biodiversity expenditure tracking Structure of the EAFRD For the budget period, the EAFRD is organised into 6 priorities and 18 sub-priorities, henceforth denoted as focus areas. A set of EAFRD-specific measures and sub-measures contribute to the objectives set in the focus areas. Programming content regulations require that Member States prepare and submit for approval of Rural Development Programmes (RDP) 80 that shall provide details on the way they intend to use the overall EU budget inter alia: A table setting out, in accordance with Article 58(4), the total EAFRD contribution planned for each year A table setting out, for each measure, for each type of operation with a specific EAFRD contribution rate and for technical assistance, the total Union contribution planned and the applicable EAFRD contribution rate An indicator plan, broken down into focus areas, comprising the targets referred to in point (i) of Article 8(1)(c) and the planned outputs and planned expenditure of each rural development measure selected in relation to a corresponding focus area Regulation (EU) 1305/2013; Article Ibid. In practice, in the case of EAFRD Priority 4, the indicator plan is not broken down by FA 75

78 EC current approach for biodiversity tracking in the EAFRD is based on Rio marker allocation to Priority 4 and Focus Area 5E The EAFRD programming documents (rural development programmes) disclosed information includes planned expenditures, per year, per measure and per focus area/priority. Various levels of analysis could be implemented to track ex-ante biodiversity-related expenditures in the EAFRD budget. These are presented in the table below. Table 19 - Possible levels of analysis for tracking biodiversity-related ex ante expenditures in the EAFRD budget # Tracking level Performed analysis Weaknesses and potential issues 1 EU EAFRD budget (EU) Current tracking approach 2 Focus area at EAFRD level (EU) A fraction of the EAFRD budget is allocated to biodiversity, based on historical data. Rio marker 2 applied to P4 (excluding ANC) Rio marker 1 applied to focus area 5E Does not account for changes between distinct budget periods Does not allow any analysis at Member State level Historical data might not provide an accurate estimate Uncertainty of the real contribution to biodiversity due to the diversity of focus areas approaches in RDPs Required information No qualitative information required No qualitative information required 3 Focus area at RDP level 4 Measure at RDP level A Rio marker is allocated to each focus area, for each RDP A Rio marker is allocated to each measure, for each RDP Possible unsatisfactory confidence level of Rio marker due to lack of RDP qualitative information Administrative burden Possible unsatisfactory confidence level of Rio marker due to lack of RDP qualitative information Administrative burden Moderate level of information Moderate level of information precision and quantity 5 Measure at RDP level (Focus area ; Measure pair) A Rio marker is allocated to each combination of Focus area and Measure Possible unsatisfactory confidence level of Rio marker due to lack of RDP qualitative information Administrative burden High information precision & Moderate information quantity The study explored the different options to refine the current methodology based on the five methodologies described above. Due to the timing of the EAFRD programming, ex-post data for the budget period were not available at the time of the preparation of this report. By building on current EC methodologies (recently in Draft Budget 2016), and on suggestions from the IEEP report 82, the analysis focuses on assessing the accuracy of the ex ante tracking approach to biodiversity-related expenditures under EAFRD. A detailed analysis of RDPs following the tracking levels #3, #4 and #5 (Table 19) was performed in order to compare it with the results of the current tracking approach (level #2). The sensitivity of the results was also investigated to provide further insight into the precision of the current approach. A sample of RDPs was selected for a detailed analysis of the programming documents, aiming at: Assessing the general description of the focus areas or measures of the programming documents in order to apply Rio markers (identify whether biodiversity is a principal/significant objective). Identifying safeguards for biodiversity to ensure that commitments would ensure biodiversity proofing (within the sub-sections scope, eligibility criteria, eligible costs, selection criteria ). For example, afforestation measures under M08 intended for biodiversity benefits can deliver unanticipated impacts if safeguards against non-native species planting or pesticide use are not in place. RDP selection was performed based on commitments provided in 114 RDP out of 118 for which commitment data was available through SFC database as of 20 March The criteria that were adopted for RDP selection were: 82 Ibid. 76

79 - Achieving a 50% coverage of commitments for: o The whole scope of analysis (Priority 2, Priority 4 and Focus areas 5D and 5E) o The scope of analysis associated with the highest probability of identifying biodiversity-related expenditures (i.e. Priority 4, given that Member States allocate funding at priority level and not at focus area level for P4) o The scope of analysis associated with significant probability of identifying biodiversity-related expenditures (Focus areas 5D and 5E) - Minimising the scope of analysis (lowest number of RDP required to achieve a 50% coverage for P4+P2+5D+5E) - Accounting for two additional criteria: o Coverage of T9 and T8 indicators (biodiversity ambition) o Geographical representativeness The outcome of RDP selection and associated coverage rates are presented in Table 21. For each RDP, a qualitative review of the programming content was performed at pair (focus areas ; measure) level, for all focus areas and measures that could have potential benefits for biodiversity, based on the literature 83, i.e. focus areas 2A, 2B, 2C, Priority 4, 5D, 5E, for all measures. Table 20 - Potential relevance for biodiversity of each focus area Focus area # Focus areas Potential relevance for biodiversity? 1 Fostering knowledge transfer and innovation in agriculture, forestry, and rural areas with a focus on the following areas: 1A fostering innovation, cooperation, and the development of the knowledge base in rural areas; No 1B strengthening the links between agriculture, food production and forestry and research and innovation, including for the purpose of improved environmental management and performance; No 1C fostering lifelong learning and vocational training in the agricultural and forestry sectors. No 2 enhancing farm viability and competitiveness of all types of agriculture in all regions and promoting innovative farm technologies and the sustainable management of forests, with a focus on the following areas: 2A 2B improving the economic performance of all farms and facilitating farm restructuring and modernisation, notably with a view to increasing market participation and orientation as well as agricultural diversification; facilitating the entry of adequately skilled farmers into the agricultural sector and, in particular, generational renewal. 2C improving the economic performance of forests 3 promoting food chain organisation, including processing and marketing of agricultural products, animal welfare and risk management in agriculture, with a focus on the following areas: 3A improving competitiveness of primary producers by better integrating them into the agri-food chain through quality schemes, adding value to agricultural products, promotion in local markets and short supply circuits, producer groups and organisations and inter-branch organisations; No 3B supporting farm risk prevention and management. No 4 restoring, preserving and enhancing ecosystems related to agriculture and forestry, with a focus on the following areas: 4A restoring, preserving and enhancing biodiversity, including in Natura 2000 areas, and in areas facing natural or other specific constraints, and high nature value farming, as well as the state of European landscapes; 83 Medarova-Bergstrom, K., Kettunen, M., Illes, A., Hart, K., Baldock, D., Newman, S., Rayment, M., and Sobey M. (2015) Tracking Biodiversity Expenditure in the EU Budget, Part II Fund specific guidance documents, Final Report for the European Commission DG ENV, Institute for European Environmental Policy, London/Brussels 77

80 Focus area # Focus areas Potential relevance for biodiversity? 4B improving water management, including fertiliser and pesticide management; 4C preventing soil erosion and improving soil management. 5 promoting resource efficiency and supporting the shift towards a low carbon and climate resilient economy in agriculture, food and forestry sectors, with a focus on the following areas: 5A increasing efficiency in water use by agriculture; No 5B increasing efficiency in energy use in agriculture and food processing; No 5C facilitating the supply and use of renewable sources of energy, of by-products, wastes and residues and of other non food raw material, for the purposes of the bio-economy; No 5D reducing green house gas and ammonia emissions from agriculture; 5E fostering carbon conservation and sequestration in agriculture and forestry; 6 promoting social inclusion, poverty reduction and economic development in rural areas, with a focus on the following areas: 6A facilitating diversification, creation and development of small enterprises, as well as job creation; No 6B fostering local development in rural areas; No 6C enhancing the accessibility, use and quality of information and communication technologies (ICT) in rural areas. No Rio markers respectively at Focus area level only (level #3), and at Measure level only (level #4), were set accordingly based on the average weighted Rio marker identified during the analysis at level #5. The list of RDPs for which a detailed analysis was performed, including associated commitments and the analysis coverage rates, can be found in Table 21. The selected sample covers 47% of total commitments adopted in November 2015 (115 RDPs out of 118), and between 38% and 56% of focus areas with potential relevance to biodiversity (2A, 2B, 2C+, P4, 5D, 5E). In particular, the coverage rate for the largest contributor, P4, amounts to 49%. Finally, based on the yearly EAFRD budget disclosed in the Multi Annual Financial Framework 84, the planned expenditures were distributed over the period, to account for inflation and up-to-date levels of commitments. 84 Available at: 78

81 EC - ST U DY ON BI O DI VERSI TY FI N AN C IN G A N D T R A C KI N G BI ODIV E R S I TY-RELATE D EX PE N DI T U R ES IN TH E EU B U D GE T Table 21 - Sample of RDPs for detailed analysis, including EU commitments and sample coverage rates (September 2015) CCI Country Region Commitments (EU share ; in M ) * 2A 2B 2C+ P4 5D 5E Other Total 2014UK06RDRP001 UK England PT06RDRP002 Portugal Continente RO06RDNP001 Romania ES06RDRP001 Spain Andalucía BG06RDNP001 Bulgaria PL06RDNP001 Poland NL06RDNP001 Netherlands IT06RDRP019 Italia Campania CZ06RDNP001 Czech Republic FR06RDRP073 France Midi-Pyrénées IE06RDNP001 Ireland FR06RDRP021 France Champagne -Ardennes FI06RDRP001 Finland Mainland AT06RDNP001 Austria HR06RDNP001 Croatia National DE06RDRP004 Germany Bavaria DE06RDRP007 Germany Berlin-Brandenburg Sample totals (17 RDPs) EU-28 totals* Coverage rate (%) 50% 38% 65% 49% 56% 45% 47% * 115 RDPs out of 118, as at The total budget for all 118 RDPs amounts to EUR million Ernst & Young All rights reserved 79

82 EC - ST U DY ON BI O DI VERSI TY FI N AN C IN G A N D T R A C KI N G BI ODIV E R S I TY-RELATE D EX PE N DI T U R ES IN TH E EU B U D GE T Allocation of Rio markers at pair level (focus area; measure) Main outcomes from the sample analysis The main outcomes of the Rio marker allocation analysis at RDP sample level, including extrapolation to EU-28 level (for #2 and #5 tracking levels) can be found in Table 23. The complete set of Rio markers allocated to the sample of RDPs as well as a summary of the Rio marker allocation can be found in the Annex. Three main observations are: 1. Biodiversity-related expenditures identified through #5 tracking level analysis are found to be significantly lower compared to the current tracking approach (level #2): the identified amount within the analysed sample amounted to EUR million for the budget period (i.e. 18% of EAFRD commitments of the sampled RDPs), whereas the current approach amounts to EUR million (31% of EAFRD commitments of the sampled RDPs). The outcome of the analysis is 40% lower compared to the current approach. 2. Rio marker allocation at #3 and #4 tracking level was found to produce similar results to the #5 level. Biodiversity-related expenditures at sample level for tracking levels #3, #4 and #5 amounted to EUR million, EUR million and EUR million respectively (representing 18%; 17% and 18% of EAFRD commitments). 3. Based on the sample of RDPs, most measures contributing to P4 are expected to significantly contribute to biodiversity (Rio marker 1) except for Measure 1 (Knowledge transfer and information to improve the economic performance of all farms) and Measure 2 (Advisory services to improve the economic performance of all farms) where a Rio marker 0 is generally applied and measure 15 (Forest conservation, forest-environmental and climate services protection) where a Rio marker 2 is generally applied. Regarding focus areas 5D and 5E, Rio marker 0 generally applies except for measure 8 (Investments in the development of forest areas) where a Rio marker 1 is preferred. A synthesis of these results is presented in the table below Ernst & Young All rights reserved 80

83 Table 22 Allocation of Rio markers to {focus area ; measure} pairs for Priority 4 and focus areas 5E and 5D, based on the sample of RDPs (EY) P4 # Country Region M01 M02 M03 M04 M05 M06 M07 M08 M09 M10 M11 M12 M13 M14 M15 M16 M17 M18 M19 M20 Sample - Number of Rio markers 0 a Sample - Number of Rio markers 1 a Sample - Number of Rio markers 2 a # Country Region M01 M02 M03 M04 M05 M06 M07 M08 M09 M10 M11 M12 M13 M14 M15 M16 M17 M18 M19 M20 5E Sample - Number of Rio markers 0 a Sample - Number of Rio markers 1 a Sample - Number of Rio markers 2 a # Country Region M01 M02 M03 M04 M05 M06 M07 M08 M09 M10 M11 M12 M13 M14 M15 M16 M17 M18 M19 M20 5D Sample - Number of Rio markers 0 a Sample - Number of Rio markers 1 a Sample - Number of Rio markers 2 a a Allocated Rio markers do not total 17 since no Rio marker was attributed for {focus area ; measure} pairs associated with zero commitments. As a consequence of the observations resulting from the sample analysis: Reasons for the significant gap between the current tracking approach and the analysis at #5 tracking level were further investigated As analyses at tracking levels #3 and #4 did not provide any significant differences to tracking level #5 results, they were not considered in the further analysis. 81

84 EC - ST U DY ON BI O DI VERSI TY FI N AN C IN G A N D T R A C KI N G BI ODIV E R S I TY-RELATE D EX PE N DI T U R ES IN TH E EU B U D GE T Table 23 - Outcome of the RDP sample analysis at different levels, including extrapolation to EU-28 level for #2 and #5 tracking levels # Tracking level Analysis Total Total (M ) (M ) (M ) (M ) (M ) (M ) (M ) (M ) (%) a 2 z 2 Focus area EAFRD level Extrapolation to EU-28 level b Current tracking approach % % 3 Focus area at RDP level Use of Rio markers on focus area commitments at RDP level (P2, P4,5D,5E) % 4 Measure at RDP level Use of Rio markers on measure commitments at RDP level % 5 5 {Focus area ; Measure} pair at RDP level Extrapolation to EU-28 level c Use of Rio markers on {Focus area; Measure} pairs at RDP level % % a Fraction of EAFRD of the budget period commitments. b The current tracking approach was implemented to the total budget adopted as at 17th of November, 2015 (EUR million for 115 RDPs). c Biodiversity-related amounts for the selected sample were extrapolated to the adopted budget as at 17th of November based on each focus area coverage rate Ernst & Young All rights reserved 82

85 EC - ST U DY ON BI O DI VERSI TY FI N AN C IN G A N D T R A C KI N G BI ODIV E R S I TY-RELATE D EX PE N DI T U R ES IN TH E EU B U D GE T Gap analysis: understanding the difference between the current tracking approach and the sample analysis at #5 tracking level 1. Contributions of focus areas to the difference between the current tracking approach and the analysis at {Focus area ; Measure} pair level (#5 level) are very unequal Figure 15 below shows the contributions of focus areas to the biodiversity budget according to the current tracking approach and the sample analysis, as well as their contribution to the gap between the two. Priority 4 ( P4 in Figure 15) contributes to the vast majority of biodiversity-related expenditures identified both through the current tracking approach (97% of EUR 14.3 billion for the sample budget), and through the #5 analysis (94% of EUR 8.4 billion). Priority 4 is also the main contributor to the gap between the current tracking approach and #5 level analysis. Other focus areas had a significantly lower impact on biodiversity-related expenditures: EUR 156 million, EUR 169 million and EUR 31 million for Focus Area 5E, Focus Area 5D and Priority 2 (more precisely Focus Area 2A) respectively. Figure 15 - Contribution of focus areas to biodiversity-related expenditures under current tracking approach and #5 tracking level, and the gap analysis M EC approach: 3% Position Series Color Series5 key P2 5D 5E P4 97% #5 analysis: 2% 3% 0.4% 0 EC approach P4 gap 5E gap 5D gap P2 gap #5 analysis 94% Conclusion: the discussion on the validity of Rio markers currently used by the Commission for Priority 5 (Rio marker 1 for Focus Area 5E, Rio marker 0 for Focus Area 5D) and Priority 2 (Rio marker 0) is secondary to the discussion on the validity of Priority 4 Rio markers. The next sub-sections therefore focus on the analysis of Priority 4 contribution to biodiversity-related expenditures. 2. The discrepancies identified between the current tracking approach and the #5 analysis for P4 follow a consistent trend: in the majority of analysed cases, the results from #5 analysis results were significantly lower than the current tracking approach results Ernst & Young All rights reserved 83

86 EC - ST U DY ON BI O DI VERSI TY FI N AN C IN G A N D T R A C KI N G BI ODIV E R S I TY-RELATE D EX PE N DI T U R ES IN TH E EU B U D GE T 30% 25% 20% 15% 10% 5% 0% -5% Contribution of each RDP to the discrepancy between current tracking approach and #5 analysis Label key: UK1: UK - England IE : Ireland AT : Austria CZ : Czech Republic PT : Portugal - Continente DE1 : Germany - Bavaria ES1 : Spain - Andalucía BG : Bulgaria PL : Poland RO : Roumanie DE2 : Germany - Berlin-Brandenburg FI : Finland - Mainland NL : Netherlands IT1 : Italia - Campania HR : Croatia - National FR2 : France - Champagne Ardennes FR1 : France - Midi-pyrénées 200% 150% 100% 50% 0% -50% -100% Discrepancy between the current tracking approach and #5 analysis (in % of the former) Figure 16 - Priority 4 analysis: contribution of each sampled RDP to the gap (left) and the gap per each sampled RDP expressed as % of the current tracking approach estimate (right) The figure above displays (left panel) the contributions to the total P4 gap (amounting to EUR -5.9 billion) for each RDP, between the biodiversity budget identified by the current tracking approach and by the #5 analysis. The right panel identifies the discrepancies for each sampled RDP between the current tracking approach and the #5 analysis s, as a percentage of the estimate under current tracking approach. The impact of FR1 RDP (Midi-Pyrénées) is due to the substantial weight of measure 13 in the programme (areas under natural constraints ANC): the current tracking approach excludes this amount from the biodiversity expenditures, whereas #5 analysis suggests its potential inclusion. Conclusions from the analysis: In most cases, P4 biodiversity budget was found to be lower according to the #5 analysis compared with the current tracking approach (for 15 out of 17 analyses, the opposite tendency was found in the two remaining cases). In most cases, the difference at RDP level was found to be significant. For all 15 cases in which P4 biodiversity budget was found to be lower in #5 analysis, as well as in one case where P4 was found to be higher, the identified absolute gap was higher than 10%. Contributions to the total sample gap for P4 show a wide heterogeneity: the three highest contributors make up 52% of the total gap 2016 Ernst & Young All rights reserved 84

87 M ; Color and label keys: M13 (ANCs) All other measures Decreasing gap between current tracking approach and #5 analysis Figure 17 - Gap analysis: isolated effect of ANC measure vs. all other measures for P4 3. A very limited number of measures generate the gap between the current tracking approach and the #5 analysis for P4: 82% of the effect of all measures other than M13 (82% of EUR 7.3 billion) come from M10 Agri-Environment-Climate and M11 Organic Farming. Figure 17 displays the distribution of the effect of all measures apart from M13 (ANCs) in the identified gap. The main results of P4 analysis are: Most of the observed gap is generated by a very limited number of measures: 62% from M10 Agri-Environment-Climate 20% from M11 Organic Farming 6% both for M08 Forest investments and M04 in particular M04.4 Nonproductive investments linked to the achievement of agro-environment-climate objectives The impact of M10 (62%) is consistent across the RDPs. For the first eight contributors (see Figure 17, contributors to the gap are ranked by decreasing impact), the main difference between the current tracking approach and the #5 analysis stemmed from M10 Rio marker allocation. The distribution of contributions to the gap between the current tracking approach and the #5 analysis for P4 (M13 excluded) is proportional to their weight in P4 biodiversity budget using the current tracking approach (65%, 17%, 6%, and 6% for M10, M11, M08, M04 respectively). As a consequence, the difference in the biodiversity budget for all measures under priority 4 except M13 is mostly correlated to the commitment, and only to a lesser extent to distinct weighted Rio marker allocations. This means that there is a greater volume effect compared to a Rio marker effect. Nonetheless, these two observations necessitate further discussion on the appropriate Rio marker allocation for major contributors to the P4 gap, namely M10 and M Rio markers application to M13 Areas facing natural constraints (ANC) should be further examined In the current tracking approach, a Rio marker 0 is set for M13 and a Rio marker 2 is set for all other measures under priority 4. In the #5 analysis, in a number of instances different Rio markers are found to be more appropriate (Rio marker higher than 0 for M13 and lower than 2 for M10 and M11). Although the net gap was found to be negative (cf. previous sub-sections), Figure 16 shows that the ANC positive contribution to biodiversity might be significant. the allocation of Rio markers 1 or 2 to this measure led to identify an additional biodiversity budget of EUR 1.4 billion in the analysed RDPs. Although the positive effect of M13 is lower than the negative effect of all other measures, the impact is not insignificant, as it amounts to 3% of the total EAFRD commitments in the sampled RDPs. Changing Rio marker from 0 to 1 for M13 would help to account for that, but there is a risk of an overestimation attached to it. In the sample, only 8 RDPs out of 15 have biodiversity 85

88 objective under M13. Changing the marker would account also for M13 in RDPs that do not have such biodiversity objective. The marker change would add an amount of EUR 3 billion to the biodiversity budget, i.e. an overestimation of EUR 1.6 billion since 1.4 billion is justified according to the analysis. Thus the error of changing Rio marker is slightly higher than keeping status quo. Conclusions: The effect of allocating Rio marker 1 to M13 under P4 could be significant. An amount of EUR 1.4 billion contributing to biodiversity was identified through the #5 analysis of the sampled RDPs. The risk of overestimation is however higher as an additional EUR 1.6 billion would be unduly accounted for as well. Further discussion on how to account for this measure is required, also in the context of Rio marker allocation to other important measures, namely M10 and M % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 6% 6% 6% 20% 62% Color and label keys: Other M04 M08 M11 M10 Decreasing gap between current tracking approach and #5 analysis Figure 18 - Effect of each measure (except M13) on the analysed gap for P4 100% 80% 60% 40% 20% 0% Sample 6% 6% 6% 17% 65% Color key: Other M04 M08 M11 M10 Figure 19 - Distribution of measures contribution to the P4 biodiversity budget according to the current tracking approach 86

89 Potential avenues to improve biodiversity tracking under the EAFRD The results of the analysis highlight an unequal contribution of measures programmed under different focus areas towards biodiversity, both in context of the current tracking approach and in the context of the gap between the latter and more refined tracking approach. The following measures present the major elements therefor and deserve special attention: 1. M10 Agri-Environment-Climate (as programmed under Priority 4): the current tracking approach applies Rio marker 2 to this measure. Due to its substantial allocation (EUR 15.5 billion for the period ) the whole EAFRD biodiversity budget is highly sensitive to the choice of Rio marker here. Switching to a Rio marker 1 would lead to EUR 9.3 billion decrease in its contribution to biodiversity which corresponds to 32% of the EAFRD biodiversity budget (EUR 28 billion estimated using the current tracking approach 86 ). 2. M11 Organic Farming (as programmed under Priority 4): the current tracking approach applies Rio marker 2 to this measure. Its allocation for the period amounts to EUR 6.1 billion. Switching to a Rio marker 1 would lead to a decrease of EUR 3.6 billion, corresponding to 13% of the EAFRD biodiversity budget. In general, organic farming has shown to deliver biodiversity benefits (e.g. 30% higher species richness and 50% species abundance 87 ). However, organic farming also benefits soil management and water management, which all contribute to Priority 4. As a general rule RDPs do not provide enough information to identify biodiversity as a principal objective under this measure. Biodiversity is nevertheless expected to benefit considerably from organic farming, alongside soil and water and represents a significant objective thereunder. 3. M13 Areas of Natural Constraint (as programmed under Priority 4): the current tracking approach excludes this measure (Rio marker 0). Its allocation for period amounts to EUR 15.5 billion. Application of Rio marker 1 would thus increase contribution to biodiversity by EUR 6.2 billion, corresponding to 21% of the EAFRD biodiversity budget using the current approach for the budget period (EUR 29 billion). Payments to ANCs aim at maintaining farming practices in areas that face economic difficulties because of climate and environmental constraints. As such, they can prevent agricultural land abandonment 88 or switching to intensive practices, supporting the attribution of Rio marker 1 to this measure. Based on the analysed sample, biodiversity was explicitly addressed under this measure in 8 out of 15 RDPs. Switching to Rio marker 1 for this measure generates a considerable risk of overestimation, likely higher than the current underestimation, due to high number of RDPs where biodiversity is not included as an objective. Conclusion: The uncertainty over the precision of the current ex ante tracking approach for biodiversity under the EAFRD primarily stems from several measures programmed under Priority 4, namely M10, 11 and 13 Based on the analysis it is suggested to allocate Rio marker 1 to M10 and M11 (instead of Rio marker 2). This is in line with the criteria for using Rio markers in the context of the EU budget 89 : in both of these measures biodiversity is not a principal objective, but a significant one. It is reasonable to assume that the activities thereunder would have been carried out even in the absence of a biodiversity objective as these two measures address a multitude of objectives (soil, water, climate etc.). In case of M13, the issue is more complex and there is a considerable risk of both underestimation and overestimation depending on the choice of a Rio marker, with the latter likely being higher. Moreover, putting M13 at the same footing with M10 as well as M11 would seem unjustified in terms of expected benefits to biodiversity. Thus the study's proposal presents two options that could be further investigated, one including M13 and the other excluding it. Biodiversity-related expenditure under the EAFRD following these two 85 Within EUR 9.7 billion EAFRD budget adopted for 115 RDP as of 17th of November, Data available at: 86 Rio marker 2 applied to priority 4 (except for ANC Rio marker 0) and Rio marker 1 to focus area 5E 87 Bengtsson J, Ahnstrom J and Weibull A (2005) The effects of organic agriculture on biodiversity and abundance: A meta-analysis. Journal of Applied Ecology. 42 pp Ibid. 89 Medarova-Bergstrom et al

90 options would result in 38 % and 60% lower estimates respectively compared to the current tracking approach (extrapolation to EU-28 level). It should be noted that tracking at a more detailed level than the current one could also entail additional administrative burden. It is paramount to strike the right balance between the latter and the precision of tracking. Taking this into account and based on the analysis, the appropriate level could be the application of specific Rio marker to each pair (focus area; measure), but at the EAFRD level. This would produce similar results to the most refined approach used in this study. Thus Rio markers could be applied to measures programmed under P4 and FA 5E. The current tracking approach is already drawing upon that level of analysis by excluding M13 from Priority 4. In the same way other measures could be accounted for, in particular M4, M7, M8, M10, M11, M12 and M15. Other measures do not seem (sufficiently) relevant for biodiversity to justify tracking efforts. As regards other focus areas, the only measure where biodiversity benefits have been identified in the majority of cases is measure 8 within focus area 5E: Rio marker 1 would be appropriate here. The proposal to enhance the biodiversity tracking under the EAFRD is outlined in Figure 20, while its effect on the current tracking approach is shown in Table 24. Finally it is important to note the limitations of the analysis in this chapter. The availability of high quality information on how RDP measures might be implemented on the ground was scarce at the moment of the analysis. In addition the work hereunder was able to focus only on a sample of RDPs (17 out of 118), albeit they represented more than 50% of the budget of the EAFRD. Thus further analysis will be necessary in the future, when more information becomes available, in order to validate, complement or correct the findings of this work. Table 24 Difference between EY proposal (two scenarios) and the current tracking approach EAFRD biodiversity-related expenditure (M ) per contributing priority / focus area Current approach Proposed approach a % decrease Scenario with M13 included P % 5E % Total % Scenario with M13 excluded P % 5E % Total % a In the proposed approach, for priority 4, Rio marker 1 applies to M4, M7, M8, M10, M11, M12, and Rio marker 2 to M15. Rio marker 1 applies to M13 in the first scenario, where M13 is not taken into account in the second scenario. For focus area 5E, Rio marker 1 applies to measure 8 only. 88

91 Figure 20 EY proposition for enhancing ex-ante tracking approach for biodiversity-relevant expenditures under the EAFRD (illustrated scenario with M13 included) 89

92 3. Absorption of EU funds for biodiversity biodiversity funding in MFF EU funding opportunities for biodiversity in MFF have been described in the previous sections of this report. Their potential contribution towards biodiversity conservation objectives depends on initial financial allocations but, equally importantly, on the ability of Member States to absorb these funds and leverage them to raise additional funds. Member states vary in the absorption capacity, and thus in their capacity to translate available funding into actions and results on the ground. This chapter provides preliminary ex post estimates of biodiversity financing under ESIF in the previous period, MFF , analyses their absorption and provides insights into the absorption capacity of Member States. Absorption capacity is the degree to which a country is able to effectively and efficiently spend the financial resources allocated from the EU funds 90. It can be indicated by the absorption rate, defined as the level of expenditure (%) of the total amount of funds available (planned). Information on amounts selected for projects enables an additional insight into absorption capacity: how much money beneficiaries first managed to pull and then execute, which can indicate challenges in different stages of a project cycle (preparation vs. implementation). The amount that will be finally disbursed depends on several factors related to programming, administrative management, etc. For example, disbursement is influenced by applicants interest in programmes (e.g. relevance of the programme for their needs, awareness, complexity of procedures etc.), their administrative capacity and that of the entities administrating the funds, or co-financing opportunities. Based on these different factors it is possible to define different types of absorption capacity, as illustrated in Table 25. Table 25 - Types of absorption capacity, adapted from P. Wostner (2008) Type of absorption capacity Real absorption capacity Definition Real needs (that the applicants seek to achieve) according to of the national and international goals and engagements of the Member State Financial capacity absorption Availability of the production factors (staff, institutional (e.g. regulatory framework and State Aid rules) and spatial resources) to identify, organize and implement the projects and programs Capacity of co-financing by the beneficiaries of the funds Capacity of co-financing by the Member State Programming/project absorption capacity Relevance of the strategy and programme bases (national and EU) according to real needs Administrative capacity absorption Adaptation of the actual instruments of implementation Preparation of project documentation Capacity of preparation and implementation of the administrative activity by/for the applicants Administrative capacity of the public administration The scope of this study does not allow for a comprehensive analysis of funding uptake across all instruments or absorption capacity in all Member States. However, the analysis will contribute towards a better understanding of the current situation and the issues faced by Member States regarding the absorption of available funding streams in fulfilling the EU Biodiversity Strategy to 2020 objectives. At the time of the analysis, majority of operational 90 The European Institute from Romania, The analysis of absorption capacity of Community Funds from Romania, page 9 90

93 programmes delivering ESIF in MFF were in advanced stage with limited opportunity to inform better biodiversity uptake therein. Thus in agreement with the Commission the study focused on the wider analysis of absorption capacity in order to provide insights into key obstacles and opportunities for better funding uptake in Member States. First, a general overview of the funding uptake is provided at the EU level for biodiversity-relevant shared-management funds (ESIF) in MFF , illustrated by an analysis of absorption rates. Thereafter, an analysis for selected Member States looks more deeply at absorption at the country level, with information collected through interviews with relevant stakeholders. 3.1 Biodiversity funding in MFF (ex post analysis at EU level) This section provides preliminary ex post estimates for biodiversity financing and analyses absorption of EU funds for which solid ex post data was available at the time: ERDF, CF, EAFRD and EFF. These are the most relevant shared-management EU funds for biodiversity. The absorption rate is defined as the % of funds executed (paid) compared to planned budgets (initially adopted/programmed funds). It can be expressed at different levels: fund, programme, priority, measure, intervention field etc. The outcome of such an analysis depends on the quality of available data, which varies across analysed funds. For each fund, a timestamp of the data is indicated in order to allow a proper interpretation of the results. Final conclusions on the MFF for most of the biodiversityrelevant funds will be possible only towards the end of Biodiversity-relevant expenditure under ERDF and CF The analysis is based on ERDF/CF financing data categorised by intervention field and available as planned amount (initially adopted in operational programmes), selected (allocated to projects) and executed (actual expenditure). Data on the selected and executed amounts is based on the ERDF/CF programme annual Implementation reports (AIR) and cumulative up to the end of 2014 (dataset provided by the European Commission). The availability of the information on amounts selected for projects enables an additional insight into absorption capacity: how much money beneficiaries first managed to pull and then execute, which can indicate challenges in different stages of a project cycle (preparation vs. implementation). In some cases, selected amounts were higher than the planned ones, which indicates an increase of initial allocations during the implementation of a given operational programme. Over the period, biodiversity relevant 91 expenditure under ERDF and CF is tracked through five intervention fields (IF) listed in Table 26. Table 26: Biodiversity-relevant intervention fields under ERDF and CF in MFF Interventions fields (IF) Direct contribution 51 Promotion of biodiversity and nature protection (including Natura 2000) 55 Promotion of natural assets Indirect contribution 46 Water treatment (waste water) 49 Mitigation and adaption to climate change 56 Protection and development of natural heritage The contribution of ERDF and CF to biodiversity amounted to EUR 7.5 billion or 3.6% of the total expenditure under these funds (EUR 205 billion). One third of the amount (EUR 2.5 billion) was a direct contribution (Rio marker 2), measured through two intervention fields: IF51 Promotion of biodiversity and nature protection (including Natura 2000) and IF55 Promotion of natural assets. The indirect contribution (Rio marker 1) amounted to EUR 4.9 billion through the following fields: IF46 Water treatment (waste water), IF49 Mitigation and adaption to climate change 91 Biodiversity relevant expenditures are those that supports activities that contribute to the three objectives of the Convention on Biological Diversity (CBD) and the targets and actions set out in the EU Biodiversity Strategy to Current ex post European Commission methodology for the period 91

94 Direct contribution Indirect contribution EC - STUDY O N B IO D IVE RS IT Y F IN A NC IN G and IF56 Protection and development of natural heritage. Biodiversity thereunder is not considered as a principal, but a significant objective. Figure 21 shows the contribution to biodiversity and absorption rate by intervention field. Figure 21: Contribution of ERDF and CF to biodiversity in MFF by intervention field (left) with indicated absorption rates (right) Total biodiversity-relevant expenditure under ERDF and CF = EUR 7.5 billion Absorption rate by intervention field (IF) 1% 3% IF56 47% 70% IF51 IF55 25% IF49 IF46 41% 75% 80% 61% IF46 IF49 IF56 62% 9% IF55 IF51 74% 74% 72% 67% Executed/planned Executed/selected Direct contribution: IF51 = Promotion of biodiversity and nature protection (including Natura 2000); IF55 = Promotion of natural assets Indirect contribution: IF46 = Water treatment (waste water); IF49 = Mitigation and adaption to climate change; IF56 = Protection and development of natural heritage The breakdown of the contribution to biodiversity by intervention field is as follows: The largest contribution to biodiversity (62%) is through intervention field (IF46 water treatment, where biodiversity does not feature as a principal objective. This fact emphasizes the importance of careful consideration when applying Rio markers to fields/measures with large financial envelopes where contribution to biodiversity might not be straightforward. Over a third of the contribution (34%) comes directly through intervention fields IF51 Promotion of biodiversity and nature protection (including Natura 2000) and IF55 Promotion of natural assets. Their shares are 25% and 9% respectively. The remainder (4%) are indirect contributions through the intervention fields IF56 Protection and development of natural heritage and IF49 Mitigation and adaptation to climate change Biodiversity-relevant expenditures represent 3.67% of the total planned budget under ERDF and CF for , and a slightly lower 3.63% of the expenditure but Table 27 shows that the absorption rate for biodiversity (75%) is on par with the overall absorption rate for ERDF and CF (76%). Directly relevant funding (IF51 & IF55), however, has a lower absorption capacity of 73%. In Table 27, two types of absorption rates are used to interpret the financing data: one compares expenditure with initially planned amounts and another compares it to amounts allocated to projects. To distinguish the two, and only for the purpose of this study, these can be referred to as general and specific absorption rates respectively. The former informs about general capacity to absorb funds while the latter informs primarily about beneficiaries capacity to finalize projects and spend the funds. Comparing general and specific absorption rates can indicate different circumstances in terms of absorption of EU funds: When general and specific absorption rates are equal, all planned funds have been allocated to projects, though not all of them are necessarily yet executed; When a specific absorption rate is lower than the general one, more funds have been allocated to projects than planned, implying that allocations increased during programming period; When a specific absorption rate is higher than the general one, only part of planned funds has been allocated to projects - this might indicate weaker capacity of authorities to distribute or beneficiaries to take up funding opportunities. 92

95 Table 27: Biodiversity financing under ERDF and CF in MFF (EUR billion) a) Amount planned (programmed) b) Amount selected (allocated to projects) Executed (paid to beneficiaries) General absorption rate (executed/planned) Specific absorption rate (executed/selected) Total ERDF/CF % 68% budget Biodiversityrelevant 75% 64% Directly % 68% relevant Indirectly relevant % 62% This analysis shows that: In the context of planned amount, the level of spending for biodiversity relevant intervention fields (75%) is on average the same as compared to the use of ERDF and CF funds in general (76%). Thus, there seems to be no biodiversity-exclusive absorption problem under ERDF and CF. It should be noted however that directly relevant expenditure, while having the lowest budget, has a lower general absorption rate (73%) compared to both indirectly relevant expenditure (77%) and the total budget (76%). The allocations of funds under the ERDF and CF during the programming period have increased in general, from 270 to 304 EUR billion (+12.59%). This increase, however, is more significant for biodiversityrelevant intervention fields that are indirectly relevant (+25%). It also appears that while the amount selected for projects was generally higher than the planned amount, beneficiaries have been less efficient in spending available resources through activities contributing indirectly to biodiversity (62% specific rate) compared to those that have direct contributions (68%) or the average absorption under ERDF/CF (also 68%). As regards particular intervention fields (data shown in Figure 21), the analysis shows the following: o On average, all planned funds are allocated to projects for IF55 Promotion of natural assets. The specific absorption rate for IF55 (74%) is higher than the average specific absorption rate under ERDF and CF (68%). Examining in detail some projects under this intervention field has shown that they have used their available budget effectively. This is for example the case for Programa Operativo FEDER del País Vasco in Spain and Regionalny Program Operacyjny Województwa Zachodniopomorskiego na lata in Poland, for which absorption rate are equal or higher than 100%. On the contrary, the cross-border programme Programme des 2 mers between England, France, the Netherlands and Belgium (Flanders) seems to have implemented only 8% of the planned funds by the end of o The gap between general and specific absorption rates for the IF51 Promotion of biodiversity and nature protection (including Natura 2000) (72% and 67% respectively) is related to a significant increase of the original budget of most cross-border programmes. For instance, the INTERREG IVA Programm Deutschland-Niederlande has been allocated about seven times more financial resources than initially planned. The corresponding general absorption rate is 514% while the specific absorption is 77%. Under this intervention field, some national level projects exhibit low absorption rates. Among others, the OP Environment in Slovakia and the Sectoral Operational Programme Environment in Romania have general and specific absorption rates below 40%. o For all intervention fields, specific absorption rates are above 60%and the general absorption rate is above 70% except for IF49 Mitigation and adaptation to climate change and IF56 Protection and development of natural heritage where it is below 50%. For IF49 for instance, the regional programmes Operationelles Programm EFRE Berlin in Germany and Programa Operativo FEDER de Extremadura in Spain appear to have executed respectively 15% and 26% of their allocated funds. For IF56, some programmes such as the West Wales and the Valleys ERDF Convergence programme in England and the Programme opérationnel FEDER Martinique in France have general absorption rates of 30% and 29% respectively. 93

96 Biodiversity-relevant expenditure under EAFRD The analysis is based on EAFRD financing data categorised by measures and available as planned amount (initially adopted in operational programmes) and executed (actual expenditure). The expenditure data is cumulative up to the end of 2015 (dataset provided by the European Commission). Relevant expenditure for biodiversity under EAFRD is defined through five measures directly relevant to biodiversity (Rio marker 2) and sixteen indirectly relevant (Rio marker 1), described in Table 28. Table 28: Biodiversity-relevant measures under EAFRD in MFF Measures (M) Direct contribution 213 Natura 2000 payments and payments linked to Directive 2000/60/EC 214 Agri-environment payments 216 Non-productive investments 224 Natura 2000 payments 225 Forest-environment payments Indirect contribution 111 Vocational training and information actions 114 Use of advisory services 115 Setting up of management, relief and advisory services 126 Restoring agricultural production potential damaged by natural disasters and introducing appropriate prevention actions 211 Natural handicap payments to farmers in mountain areas 212 Payments to farmers in areas with handicaps, other than mountain areas 221 First afforestation of agricultural land 222 First establishment of agroforestry systems on agricultural land 223 First afforestation of non-agricultural land 226 Restoring forestry potential and introducing prevention actions 227 Non-productive investments 323 Conservation and upgrading of the rural heritage 331 Training and information 341 Skills acquisition, animation and implementation of local development strategies 412 Environment/land management 431 Running the local action group, acquiring skills and animating The total contribution of EAFRD to biodiversity amounted to EUR 33.9 billion or 35% of total expenditure of EAFRD. EUR 24.6 billion financed measures directly relevant to biodiversity and 9.2 billion indirectly relevant measures. The absorption of biodiversity relevant expenditure under EAFRD is almost 100% (98.8%) 93 of the amount planned for the period. 93 The executed amount is up to and including Q

97 Breaking data down by measures, the largest contribution to biodiversity (62%) is provided through M214 agri-environment payments 94. The absorption rate of measures directly relevant to biodiversity is at least 88% (M225) or higher (Figure 22). For M225 Forest-environment payments, the lowest absorption seems to be in Hungary and the Czech Republic where only 54% and 74% of the planned support has been disbursed respectively. In all other Member States the absorption rate at national level is equal to or higher than 93%. Planned allocations for M224 Natura 2000 payments have been effectively absorbed with absorption rate exceed 100% in all MS except in Italy where the absorption rate is 51%. Funds allocated to M214 Agri-environment payments under the EAFRD funds have been fully executed in all MS. The allocations were even slightly higher than the planned amount in some MS including Cyprus, Estonia, Denmark, Hungary, Ireland and Malta. Belgium and Greece appear to have the lowest absorption rate (39% and 59%, respectively) in executing funds allocated to M216 Non-productive investments. In other MS, the rate is higher than 70% and in some even 100% (Italy, Lithuania and Portugal). Concerning measures indirectly relevant for biodiversity, M211 Natural handicap payments to farmers in mountain areas and M212 Payment to farmers in areas with natural handicap, other than mountain areas are the largest contributors, jointly making 65% of the expenditure in this category (Figure 23). The absorption rate for these two measures is 104% and 95% respectively. Figure 22: Direct contribution of EAFRD to biodiversity in MFF by measure (left) with indicated absorption rates (right) Biodiversity-relevant expenditure (direct) under EAFRD = EUR 24.6 billion M216 2,5% M224 0,3% M225 0,3% M213 1,1% M225 M224 Absorption rate (executed/planned) 88% 107% M216 95% M214 95,8% M214 M213 99% 98% M213 =Natura 2000 payments and payments linked to Directive 2000/60/EC ; M214= Agri-environment payments ; M216 =Non-productive investments ; M224=Natura 2000 payments ; M225=Forest-environment payments 94 The data for agri-environment payments (M214) has not been broken down by sub-measures. 11 out the 17 sub measures are directly relevant for biodiversity (Rio marker 1) and 6 are indirectly relevant for biodiversity (Rio marker 2). Thus, the contribution of agri-environment payments could have been overestimated in the analysis. 95

98 Figure 23: Indirect contribution of EAFRD to biodiversity in MFF by measure Biodiversity-relevant expenditure (indirect) under EAFRD = EUR 9.2 billion M226 7% M221 7% Other 21% M211 32% M212 33% M211 = Natural handicap payments to farmers in mountain areas, M212 = Payments to farmers in areas with handicaps, other than mountain areas, M221 = First afforestation of agricultural land, M226 = Restoring forestry potential and introducing prevention actions, Other: (M111 = Vocational training and information actions, M114 = Use of advisory services, M115 = Setting up of management, relief and advisory services, M126 = Restoring agricultural production potential damaged by natural disasters and introducing appropriate prevention actions, M222 = First establishment of agroforestry systems on agricultural land, M223 = First afforestation of nonagricultural land, M227 = Non-productive investments, M323 = Conservation and upgrading of the rural heritage, M331 = Training and information, M341 = Skills acquisition, animation and implementation of local development strategies, M412 = Implementing local development strategies, M431 = Running the local action group, acquiring skills and animating. Biodiversity-relevant expenditure under EFF The analysis is based on EFF financing data categorized by axis and available as planned (initially adopted in operational programmes) and executed amount (actual expenditure). The expenditure data is cumulative up to the end of 2015 (dataset provided by the European Commission). While expenditure data is available by axis, measures and actions, data on commitments (planned amount) was available only by axis 95 limiting the absorption analysis to this level. The absorption rate of biodiversity-relevant measures and actions under EFF is thus approximated by the absorption rate of the axis under which they were programmed. Biodiversity expenditure under EFF is defined through directly (Rio marker 2) and indirectly (Rio marker 1) relevant measures and actions, as detailed in Table 29. Table 29: Biodiversity-relevant measures/actions under EFF in MFF Axis Measures (M) Actions Direct contribution Axis 1 Measure 1.1 Permanent cessation of fishing activities Measure 1.3 Investments on board fishing vessels; selectivity Action 2: Reassignment for creation of artificial reefs Action 6: Improvement of selectivity Axis 2 Measure 2.1 Aquaculture Action 4: Aqua-environmental measures 95 Facts and figures on the Common Fisheries Policy, European Union,

99 Axis Measures (M) Actions Axis 3 Measure 3.2 Protection and development of aquatic fauna and flora Indirect contribution Axis 1 Measure 1.1: Permanent cessation of fishing activities Measure 1.2: Temporary cessation of fishing activities Action 1: Scrapping Action 2: Reassignment for activities outside fishing Action 1: Temporary cessation of activities Axis 3 Measure 3.1: Collective actions Measure 3.5: Pilot operations Measure 3.6: Modification for reassignment of fishing vessels Axis 4 Measure 4.1: Development of fisheries areas Axis 5 Measure 5.1: Technical assistance Action 1: Management and implementation of programmes Action 2: Studies (excluding evaluation) Action 3: publicity and information Action 4: other technical assistance measures The EFF expenditure amounted to EUR billion (71% of planned EUR billion for the period), out of which 24% (EUR 732 million) has been identified as biodiversity-relevant. Thereof, EUR 622 million (85%) was indirect contribution and EUR 109 million (15%) direct contribution. Figure 24 and Figure 25 show direct and indirect contributions to biodiversity of different measures and actions: 90% of the EFF contribution to biodiversity is through five measures/actions (M1.1 Action 1; M1.2 Action 1; M3.1; M3.2; M4.1) under EFF priority axes 1, 3 and 4; The largest share of the contribution to biodiversity is indirect, namely through priority axes 1 and 4. Biodiversity relevant expenditure under both axes represent 73% of the total indirect contribution. Direct contribution of EFF to biodiversity comes mostly from Axis 3, specifically from measure 3.2 Protection and development of aquatic fauna and flora. Measures under Axis 2 also play a significant role therein (27% of direct contribution). 97

100 Figure 24: Direct (left) and indirect (right) contribution of EFF to biodiversity in MFF by measure/action Biodiversity-relevant expenditure (direct) under EFF = EUR 109 million M1.1 Action 2 0,1% M1.3 Action 6 3% Biodiversity-relevant expenditure (indirect) under EFF = EUR 622 million Other 12% M2.1 Action 4 27% M4.1 22% M1.1 Action 1 36% M3.2 70% M3.1 15% M1.2 Action 1 15% M2.1 Action 4 : Aqua-environmental measures; M3.2 Protection and development of aquatic fauna and flora; M1.1 Action 2: Reassignment for creation of artificial reefs; M1.3 Action 6: Improvement of selectivity; M1.1 Action 1= Scrapping; M1.2 Action 1: Temporary cessation of activities; M3.1 Collective actions; M 4.1 Development of fisheries areas; Other (M1.1 Action 2: Reassignment for activities outside fishing; M3.5 Pilot operations; M3.6 Modification for reassignment of fishing vessels; M5.1 Action 1: Management and implementation of programmes; M5.1 Action 2 : Studies (excluding evaluation); M5.1 Action 3 : publicity and information; M5.1 Action 4 : other technical assistance measures) 98

101 Indirect measures Direct measures EC - STUDY O N B IO D IVE RS IT Y F IN A NC IN G Figure 25: Contribution of EFF to biodiversity in MFF by axis (left) with indicated absorption rates (right) Total biodiversity-relevant expenditure under EFF = EUR 732 million Absorption rate under EFF Axis 3 10,4% Axis 5 70% Axis 2 4,1% Axis 4 63% Axis 1 0,5% Axis 5 5,8% Axis 3 75% Axis 4 19,0% Axis 2 61% Axis 3 16,5% Axis 1 43,7% Axis 1 83% Axis 1: Adjustement of the fleet, Axis 2: Aquaculture, processing and marketing, inland fishing, Axis 3: Measures of common interest, Axis 4: Sustainable development of fisheries areas; Axis 5: Technical assistance. EFF priority axes 1, 3 and 4 are the main channels of biodiversity funding under the EFF. The absorption rate for Priority axis 1 and 3 are the highest (83% and 75% respectively) while absorption under Axis 4 is significantly lower, at only 63%. 3.2 Absorption of EU funds for biodiversity biodiversity funding in MFF in selected Member States In order to provide further insights into the absorption of EU funding opportunities for biodiversity, four Member States 96 were selected for a more comprehensive analysis The quantitative analysis at MS level follows the methodology used in the previous section (see Biodiversity funding in MFF (ex post analysis at EU level) ), but excludes EFF due to unavailability of data at finer level (in regard to biodiversity-relevant commitments). Interviews were conducted with key stakeholders to gather information on absorption-related issues and options for increased take-up of EU funding for biodiversity (more information is available in the Annex). 96 In agreement with the Commission the analysis focused on four instead of five Member States in order to provide wider insights into the funding and absorption issues, due to data collection limitation in the fifth Member State. 99

102 Through a literature review, criteria were selected (See Table 48in the annex) with the aim of identifying potential issues in Member States as regards absorption of EU funds for biodiversity, and biodiversity financing in general. Since straightforward indicators for these issues are not readily available in the literature, a large number of indicators was identified, which can act as proxies. In order to gather additional insights on the absorption capacity and potential issues therein, four Member States with diverse absorption situations were selected for further assessment: Romania, Denmark, Poland, and Greece. This selection balances the following criteria: EU13 vs. EU15 to capture structural differences; Size of Member States; Level of current absorption performance. Based on interviews and desk research, this section analyses different types of absorption capacity, including the real absorption capacity which is assessed relative to the country s needs in terms of biodiversity conservation, the financial absorption capacity (co-financing issues), the programming absorption capacity and the administrative absorption capacity. This section thus provides additional insights that will help to better understand the current situation and issues around absorption. Due to limited scope of the study, it doesn t, however, represent a comprehensive assessment. 100

103 Poland Overview Group (EU15/EU13): Size (area - small/medium/large): EU13 Large Overall profile regarding EU funding: Poland was the main Cohesion Policy beneficiary, for both and periods and is characterised by above average economic performance (GDP growth rate above both EU28 and EU13 average for the period), to the extent that a number of Polish regions are closing economic disparity gaps - for instance, the Masovian Voivodeship region switched from the Convergence Objective category in the Cohesion Policy budget to More Developed Regions in the budget. Key results of the analysis: The current general absorption of funds for biodiversity under ESIF in MFF is good (81% under ERDF/CF and 100% under EAFRD). Specific absorption rate for ERDF/CF is 75%. Financial needs for biodiversity are significant (EUR 1.62 billion just for Natura 2000 sites, according to the Poland Natura 2000 Prioritized Action Framework) and currently not fully fulfilled by EU and national funds; Key obstacles seem to be the insufficiency of the current targets related to biodiversity, and the weaknesses in the programming related to biodiversity projects; The co-financing capacity of Poland for biodiversity projects is considered good thanks to the National and the 16 Regional Funds for Environmental Protection and Water Management. The administrative capacity of both public bodies and beneficiaries of EU funds is considered overall strong. Targets from the National Biodiversity Strategy (NBSAP) should be used adequately in the programming documents for EU funds in order to formulate actions that can effectively tackle biodiversity issues. Preparatory actions such as the drafting of Natura 2000 management plans are necessary first steps for concrete conservation actions. It is necessary to facilitate the implementation following preparatory actions as the plans can face obstacles, which may limit the uptake of EU funds. It is important to provide an effective legal and/or consultation framework for dealing with conflicts in the context of the implementation and management of the Natura 2000 Network. Absorption of funds for biodiversity under ESIF in MFF ERDF and CF Under ERDF and CF, 2.7% (EUR 1.5 billion) of the planned funds were directed toward biodiversity. Biodiversityrelevant expenditure has amounted to EUR 1.3 billion, which represents 3% of the total expenditure. Of this, 91% (EUR 1.1 billion) was indirect contribution, through intervention fields IF46 Water treatment (waste water) and IF56 Protection and development of natural heritage. The direct contribution amounted to 116 million through IF51 Promotion of biodiversity and nature protection (including Natura 2000) and IF55 Promotion of natural assets and represents 9% of the biodiversity-relevant expenditure. The largest contribution is indirect through IF46 with 90% of the biodiversity relevant expenditure. The absorption rates for biodiversity relevant intervention fields are, on average, higher than those of the total ERDF and CF budgets in Poland (Table 30). For the direct contribution, planned funds for biodiversity have been effectively allocated to beneficiaries (100%) during the programming period. 101

104 Table 30 : Biodiversity financing under ERDF and CF in Poland in MFF (EUR million) Total ERDF+CF Biodiversityrelevant Directly relevant Indirectly relevant a) Amount planned (programmed) b) Amount selected (allocated to projects) Executed (paid to beneficiaries) General absorption rate (executed/planned) Specific absorption rate (executed/selected) % 73% % 75% % 78% % 75% Breaking down the absorption rates by intervention fields, these specific points can be highlighted: Among the intervention fields directly relevant to biodiversity: o More funds than planned were allocated to IF51, an increase of 108% with a specific absorption rate of 75% and a general absorption of 81% o Highest absorption rate (94%) is related to IF55 Among the biodiversity indirectly relevant intervention fields: o 60% of the planned funds for biodiversity have been effectively allocated to IF56 EAFRD Under EAFRD, 22% (EUR 2.9 billion) of the planned funds (EUR 13 billion) were directed toward biodiversity. The allocation has been executed almost completely, and 63% of the relevant expenditure was through direct contribution (mainly M214 Agri-environment payments ) (see Figure 26). Figure 26: Contribution of EAFRD to biodiversity in MFF in Poland by measure (left) with indicated absorption rates (right) Total biodiversity relevante expenditure under EAFRD in Poland = EUR 2.9 billion M221 3% M226 2% M413 1% M111 0,3% M114 0,3% M126 2% M413 M226 M221 Absorption rate (executed/planned) 99,8% 99,9% 101,0% M212 29% M214 M ,0% 100,0% M214 63% M126 M ,0% 100,0% M111 99,7% Direct contribution: M214 = Agri-environment payments Indirect contribution: M111 = Vocational training and information actions, M114 = Use of advisory services, M126 = Restoring agricultural production potential damaged by natural disasters and introducing appropriate prevention actions, M212 = Payments to farmers in areas with handicaps, other than mountain areas, M221 = Natural handicap payments to farmers in mountain areas, M226 = Restoring forestry potential and introducing prevention actions, M413= Running the local action group, acquiring skills and animating There seems to be no specific biodiversity absorption issues under EAFRD in Poland as the absorption rate reached almost 100% (99.6%). 102

105 As regards the directly relevant biodiversity measures specifically, Funds planned under EAFRD have not been allocated under the measures M213 Natura 2000 payments and payments linked to Directive 2000/60/EC, M216 Non-productive investments, M224 Natura 2000 payments and M225 Forest-environment payments Absorption capacity 1. Real absorption capacity The lack of ambitious national biodiversity targets may limit the real absorption capacity and, though preparatory actions are overall satisfactory, they may not be sufficient to ensure the smooth and effective implementation of conservation actions. Insufficient biodiversity targets Some of the existing Natura 2000 Prioritised Action Framework (PAF) targets may be insufficiently specific and relevant and thus might not support real actions that improve conservation status. For example: one target deals with the proportion of Natura 2000 area covered by management plans: this may be reached without significant benefits for the conservation status of species or habitats if management plans are insufficient quality or face implementation challenges (for instance if private owners in Natura 2000 sites object management measures). Need to facilitate implementation following preparatory actions The designation of Natura 2000 sites and the adoption of their management plans are deemed satisfactory. However, the implementation of the management plans face obstacles which may limit take-up of EU funds, stemming from a lack of an effective mechanism for solving conflicts or from the insufficiencies of some planned management measures that lack ambition to reach conservation targets. For instance, when private owners do not agree with conservation measures planned in a management plan, they may block their implementation. Legal or dialogue tools to solve such conflicts need to be improved. 2. Financial absorption capacity Co-financing issues One National and 16 Regional Funds for Environmental Protection and Water Management provide most of the necessary MS co-financing. The contribution to co-financing required from beneficiaries remains thus very focussed and manageable. Without the Funds for Environmental Protection and Water Management, beneficiaries such as NGOs, SMEs and local governments would have to provide significantly higher shares of co-financing, which might be financially difficult for them. The timing of cash disbursements can reportedly sometimes cause issues for ERDF (and until a few years ago for LIFE too) as reimbursement times are very long (several months, and in extreme case even a year or longer) which can stretch NGO cash flows. 103

106 Significant improvements for LIFE beneficiaries The situation for LIFE beneficiaries has greatly improved since the first LIFE call for proposals. In 2008, the National Fund for Environmental Protection and Water Management was introduced to provide co-financing (prior to 2008, co-financing was provided by the eco-conversion of Polish debt managed by the Foundation EcoFun) and in , financial guarantees for beneficiaries have become easier to get. 3. Programming absorption capacity To mirror the governance of its Parks, Poland chose to plan the financing of National Parks (maintained at the national level) through the national Infrastructure and Environment Operational Programmes (OPs) and to plan the financing of Landscape Parks and Protected Landscape Parks through Regional Operational Programmes (ROPs). Some regions have not prioritized biodiversity, which results in lower financing planned for Landscape and Protected Landscape Parks in their ROPs, and thus for biodiversity-related actions. Another programming choice also represents an obstacle to biodiversity financing in the current period: Poland did not seize the opportunity offered by EU regulations to provide dedicated funding under RDP to pay farmers in Natura 2000 sites, limiting the funding available for biodiversity conservation measures in Natura 2000 sites. Also Poland decided to reduce agri-environmental payments for farmers with larger cultivated areas (e.g. only 60% of payment for area above 100 ha), except in National Parks. This may limit the involvement in agri-environmental measures of large farmers and may thus limit the take-up of EU funds for biodiversity. 4. Administrative absorption capacity Capacity of public authorities appears strong. Targeted simplifications to the administrative procedures faced by beneficiaries during the implementation, monitoring & evaluation and financial management & control steps of projects reportedly facilitate the implementation of projects by beneficiaries. Intermediate Bodies in Poland benefit from experienced staff who worked during the period. Attention should be paid to keeping these human resources in the Intermediate Bodies during the period and to avoid the loss of this know-how. Capacity of beneficiaries is deemed adequate, especially NGOs, national and landscape parks, and Regional Directorates of Environmental Protection. State Forest Authorities, local governments and SMEs may be less prepared to apply for EU funds with adequate biodiversity projects (sometimes because they prioritize nonbiodiversity objectives). Large conservation projects may not reap much economies of scale compared to small ones A large project aiming to draft over 400 management plans for Natura 2000 sites was conducted in Poland during the period. It was reportedly very difficult to administer for managing authorities and its extended scope did not generate cost savings. 104

107 Difficulties to adapt to the new LIFE framework Polish LIFE applications for the Sub-programme for Environment - Priority area Nature and Biodiversity were not selected in 2015, reportedly because of the lack of attention to the precise guidelines of the European Commission on the national allocations for the LIFE sub-program for the environment. One of the key issues explaining this setback was the apparent lack of EU added value in the Polish LIFE applications. Applicants understood these issues and should enhance the quality of applications during the rest of the period. 105

108 Greece Overview Group (EU15/EU13): Size (area - small/medium/large): EU15 Medium Overall profile regarding EU funding: Greece has been facing huge absorption issues since the economic crisis struck Europe and the country in particular. The crisis in Greece led the European Council to vote in a specific regulation in June 2011 to implement a comprehensive programme of technical assistance. Its objective is to enhance the synergies between the loan programme for Greece, EU funds, and support efforts to increase Greece's capacity to absorb EU funds (Regulation (EU) no 1311/2011 of the European Parliament and of the Council of 13 December 2011). Since 2011, the Task Force for Greece has led to noticeable improvements in particular with EU structural funding. But more efforts are still needed to increase absorption. Many uncompleted projects of the previous budgetary period had to be extended until Actions launched by the Task Force to tackle this issue were primarily to ensure that money from the structural funds reaches the beneficiaries by simplifying administrative procedures and management of the structural funds and by improving access to finance through a more efficient banking system. Administrative reform, improvement of the quality of public services, fighting against money laundering were other key strategic areas that the Task Force sought to implement. Furthermore, according to the 7th financial report from the Commission to the European parliament and the Council on EAGF, during the 2013 financial year, Greece launched seven appeals against clearance of accounts (amounting to about 812 M ). It represented the highest amount at stake among EU MS and demonstrates issues in the accounting and the handling of EU funds. Key results of the analysis: The general absorption of funds for biodiversity under ESIF in MFF is moderate (69% under ERDF/CF and 92% under EAFRD), while the specific absorption capacity under ERDF and CF is very low (31%) The overall absorption capacity of Greece for biodiversity projects shows certain weaknesses 97 to be addressed, with main obstacles linked to co-financing and administrative issues. In addition to the traditional co-financing issues of beneficiaries, the financial health of the contractors in charge of conducting nature conservation projects has been an issue in Greece. Their difficulties to get bank guarantees can lead to the discontinuation of projects as they may face cashflow issues. Capacity building and administrative reforms can successfully lead to improvements in the absorption rate as illustrated by the stark progress of Greece as regards structural funds since Coordination between Managing Authorities and other bodies involved in the absorption of EU funds is also critical in the successful absorption of EU funds, as well as the capacity of local beneficiaries, which would benefit from increased technical assistance, training and information. Absorption of funds for biodiversity under ESIF in MFF ERDF and CF Under ERDF and CF, 2.6% (EUR 418 million) of the planned funds were directed toward biodiversity. The total biodiversity-relevant expenditure amounts to EUR 287 million, representing 2% of total expenditure under ERDF and CF funds in Greece. 75% of the expenditure contributes indirectly to biodiversity (IF46 Water treatment (waste water) and IF56 Protection and development of natural heritage ), and 15% directly (IF51 Promotion of biodiversity and nature protection (including Natura 2000) and IF55 Promotion of natural assets ). It is important to note that 74% of the biodiversity relevant expenditure comes through IF46 alone. 97 Interviewees judged overall absorption "sufficient", that is to say they considered it did not hamper the disbursement of EU funds to meet Greece s biodiversity needs. 106

109 The general absorption rate of biodiversity-relevant allocation is significantly lower compared to the whole budget (69% vs. 87%), and the gap is even bigger for the specific absorption rate (31% vs. 52%). This indicates potential biodiversity-specific problems as regards use of these funds in Greece. Table 31 : Biodiversity financing under ERDF and CF in MFF in Greece (EUR million) Total ERDF+CF Biodiversityrelevant Directly relevant Indirectly relevant a) Amount planned (programmed) b) Amount selected (allocated to projects) Executed (paid to beneficiaries) General absorption rate (executed/planned) Specific absorption rate (executed/selected) % 52% % 31% % 42% % 28% Breaking down the absorption rates by intervention fields, the following specific points can be highlighted: Only 7% of planned allocations under IF55 has been executed by the end of The total expenditure under this intervention field (EUR 0.22 million) was however 48% of the selected projects' budgets (EUR 0.46 million), which is higher than for biodiversity-relevant expenditure in general (31%). Such low general absorption rate and significantly higher specific absorption rate imply weaker capacity of the authorities to distribute available funds. Allocations under IF46 have more than doubled from initially planned EUR 302 million to EUR 757 million selected for projects. The specific absorption rate thereof (28%) was however lower than for other biodiversity-relevant intervention fields. The specific absorption rate for IF51 is below 50% (42%) while the general absorption is 69%. EAFRD For EAFRD, 36% (EUR 1.4 billion) of the planned funds (EUR 3.8 billion) were directed toward biodiversity. Total biodiversity-relevant expenditure has amounted to EUR 1.3 billion, which represents 37% of the total expenditure. The direct contribution to biodiversity represents 63% (EUR 792 million) of the expenditure, largely through M214 Agri-environment payments. The indirect contribution is 27% (EUR 469 million). M214, M212 Payments to farmers in areas with handicaps, other than mountain areas and M211 Natural handicap payments to farmers in mountain areas jointly represent 96% of the relevant biodiversity expenditure (Figure 27). On average the absorption rate regarding biodiversity-relevant expenditure is slightly higher (92%) than for the fund in general (90%). As regards the EAFRD expenditure directed towards directly relevant biodiversity measures specifically: No funds have been allocated to M213 Natura 2000 payments and payments linked to Directive 2000/60/EC, M224 Natura 2000 payments and M225 Forest-environment payments Under M216 Non-productive investments has been executed with an absorption rate of 59% M214 Agri-environment payments, representing 63% of the biodiversity expenditure under EAFRD, has an absorption rate of 90% 107

110 Figure 27: Contribution of EAFRD to biodiversity in MFF In Greece by measure (left) with indicated absorption rates (right) M221 2,75% M216 0,07% Total biodiversity-relevant expenditure under EAFRD = 1.3 billion M226 0,54% M323 0,09% M431 1,28% M211 22,71% M114 0,04% M431 M323 M226 M221 M216 Absorption rate (executed/planned) 106% 61% 75% 95% 59% M214 62,75% M212 9,76% M214 M212 M211 90% 97% 96% M114 54% Direct contribution: M214 = Agri-environment payments; M216= Non-productive investments Indirect contribution: M114 = Use of advisory services, M211 = Natural handicap payments to farmers in mountain areas, M212 = Payments to farmers in areas with handicaps, other than mountain areas, M226 = Restoring forestry potential and introducing prevention actions, M221 = First afforestation of agricultural land, M226 = Restoring forestry potential and introducing prevention actions, 431 =Running the local action group, acquiring skills and animating Absorption capacity 1. Real absorption capacity The real needs for biodiversity and ecosystem services are high since the current status of species and habitats remains not satisfactory, and conservation actions should be strengthened. A drag on real absorption capacity: contractors difficulties to get bank guarantees The number of contractors (e.g. subcontractors of EU funds beneficiaries) is limited by the availability of bank guarantees, themselves limited by capital control linked to the financial crisis. The lack of bank guarantees for contractors can lead to the discontinuation of projects. This constrains the availability of production factors and, as a consequence, the real absorption capacity in Greece. Satisfactory biodiversity targets Targets are satisfactory but the focus of nature conservation could move from flagship species to other taxa, habitats and ecosystems. Another obstacle for increased absorption: the incompleteness of preparatory actions Greece partially completed preparatory actions: the designation of Natura 2000 sites is satisfactory, but the number of adopted management plans is still insufficient. This hampers the absorption of EU 108

111 funds as conservation priorities are unknown without management plans and EU-funded projects cannot be properly designed. 2. Financial absorption capacity Co-financing issues The financial crisis caused significant constraints on the share co-financing in the period and the national co-funding capacity has been insufficient. The co-financing rate provided by the EU for the Cohesion Policy increased from 79% of EU financing in 2007 to 84% in 2013; to compensate for a lack of Greek financing capacity. The average co-financing rate for the EU27 in 2013 was 73%. The Green Fund is the main public source of co-financing for biodiversity-related EU-funded projects, but in the financial crisis context some of its funds have been used for non-environmental projects, thereby reducing resources available for environmental projects. As the Green Fund only finances a part of the required co-financing, beneficiaries (NGOs, municipalities, SMEs ) need to secure more co-financing themselves. Their lack of funding capacity leads to a reduction of the overall number of projects they can carry out, and hence lowers the country s absorption capacity. 3. Programming absorption capacity Programming for the period regarding biodiversity improved compared to the previous period as the environment moved higher in the agenda, partly thanks to the establishment of the Ministry of Environment as a separate entity (it was previously part of the Ministry of Public Works), and the role of the Natura 2000 PAF in identifying/prioritising financing needs. 4. Administrative absorption capacity Capacity of public authorities During the period, coordination between Managing Authorities and the Ministry of Environment suffered from an administrative gap due to the lack of an effective Intermediate Body (IB). This meant the National Coordination Authority for Structural Funds, i.e. the Ministry of Economy, sometimes had to step in to rescue failing projects. As identified by the Task Force for Greece, limited human resources capacity also limited the administrative absorption capacity. Public authorities lack tools to assess the outcomes of projects on biodiversity, including tools to assess the capacity of beneficiaries and public authorities. Capacity of beneficiaries Sufficient capacity exists at national level, but these beneficiaries represent a limited number of entities. Local stakeholders such as local authorities (in the case of LIFE beneficiaries) meanwhile lack extensive experience with EU funds and require more information about funding opportunities, technical support and training of their staff to refine their objectives, improve project design, and understand where and how to apply for funds. Setback of Greek LIFE applications in 2014 In 2014, no Greek LIFE project application was selected. Two main factors explain this setback: the projects submitted were not appropriate (lack of experience of local and regional authorities) and they failed to adapt to the evolution of the evaluation criteria for the period (as compared to the period). 109

112 Romania Overview Group (EU15/EU13): Size (area - small/medium/large): EU13 Medium Overall profile regarding EU funding, including biodiversity funding: One of the MS facing strong absorption challenges. The country benefitted from specific measures from the EU to increase absorption and implemented a national Priority Action Plan in 2011 to overcome the challenges. Their recent integration into the EU allows a good analysis of progress since A number of indicators suggest Romania needs to raise the profile of biodiversity financing. The key results of this analysis are: The general absorption of funds for biodiversity under ESIF in MFF is moderate (69% under ERDF/CF and 94% under EAFRD), while the specific absorption capacity under ERDF and CF is low (43%) Co-financing issues have been partly addressed by an EU action plan from 2011 onwards. Areas which were assessed as improvable include the identification of the real needs for biodiversity financing, administrative capacity, and the implementation and use of EU programming mechanisms Failure to meet broad objectives and EU standards in terms of biodiversity protection was re-affirmed. A national biodiversity strategy should better support setting of explicit targets and establishing a budget to engage into concrete actions to achieve them Nonetheless, structural areas of improvement regarding the Member State s absorption capacity (administrative and programming) suggest the wider issue is not primarily connected to biodiversity or even to the environment, but to administrative capacity and governance in general. Absorption of funds for biodiversity under ESIF in MFF ERDF and CF Under ERDF and CF, 5.5% (EUR 848 million) of the planned funds were directed to biodiversity. Biodiversity relevant expenditure amounted to EUR 584 million, which represents 8% of the total expenditure. Of this expenditure, 79% is indirect (almost completely through IF46 Water treatment with a minimal contribution from IF56 Protection and development of natural heritage ) and 11% is direct (IF51 Promotion of biodiversity and nature protection (including Natura 2000) and IF55 Promotion of natural assets ). Table 32 shows that the general absorption rate regarding biodiversity-relevant expenditure is significantly higher compared to the whole ERDF and CF budget (69% vs. 49%). However, there is almost no difference when it comes to specific absorption capacity. There seems, however, to be a weaker capacity to disburse the funds allocated to projects under the directly-relevant intervention fields. The general absorption rate for indirect contributions (76%) is significantly higher than for direct contributions (51%). Although the initially planned allocation increased during the programming period to a much larger extent for indirect contributions, their specific absorption rate remains higher than that of direct contributions. This might indicate a larger absorption capacity of beneficiaries associated with intervention fields that are indirectly relevant to biodiversity, compared to beneficiaries of directly relevant fields. Table 32 : Biodiversity financing under ERDF and CF in MFF in Romania (EUR million) Total ERDF+CF a) Amount planned (programmed) b) Amount selected (allocated to projects) Executed (paid to beneficiaries) General absorption rate (executed/planned) Specific absorption rate (executed/selected) % 42% 110

113 Biodiversityrelevant Directly relevant Indirectly relevant % 43% % 41% % 44% Breaking down the absorption rates by intervention fields, the following specific points can be highlighted: EAFRD The specific absorption rate of allocations under IF51 is the lowest (38%) among biodiversity-relevant intervention fields. The general absorption rate for IF51 is also 38%. For the intervention fields that are indirectly relevant to biodiversity, the general absorption rate of allocations under IF56 is only 7% while the specific absorption rate is 45%. Of the planned EAFRD funds, 21% (EUR 1.7 billion) were directed toward biodiversity. Total biodiversity-relevant expenditure has amounted to EUR 1.6 billion, which represents 22% of the total expenditure. The direct contribution to biodiversity represents 73% (EUR 1.2 billion), largely through M214 Agri-environment payments. The indirect contribution represents 27% of the biodiversity-relevant expenditure. M214, M212 Payments to farmers in areas with handicaps, other than mountain areas and M211 Natural handicap payments to farmers in mountain areas jointly represent 98% of the relevant biodiversity expenditure (EUR 436 million) (Figure 28). On average the absorption rate for biodiversity-relevant expenditure (94%) is higher than for the whole EAFRD budget (89%). Figure 28: Contribution of EAFRD to biodiversity in MFF in Romania by measure (left) with indicated absorption rates (right) Total biodiversity relevant expenditure under EAFRD = EUR 1.6 billion M111 0,4% M431 Absorption rate (executed/planned) 77,61% M211 16,3% M212 9,1% M221 M214 M212 17,21% 94,46% 97,15% M214 72,9% M211 98,11% M111 24,58% Direct contribution: M214 = Agri-environment payments Indirect contribution: M111 = Vocational training and information actions, M211 = Natural handicap payments to farmers in mountain areas, M212 = Payments to farmers in areas with handicaps, other than mountain areas, M221 = First afforestation of agricultural land, M412 = Implementing local development strategies, M431=Running the local action group, acquiring skills and animating As regards EAFRD expenditure directed relevant to biodiversity, it can be noted that: No funds have been allocated to M213 Natura 2000 payments and payments linked to Directive 2000/60/EC, to M216 Non-productive investments, M224 Natura 2000 payments and M225 Forest-environment payments. Absorption capacity 1. Real absorption capacity 111

114 Although real needs to achieve EU targets as well as national targets have been acknowledged by the Member State, notably through the National Sustainable Development Strategy for 2013, 2020 and 2030, the definition of specific targets and objectives to characterise the real needs requires further improvements. Identifying the real needs for biodiversity protection - Romania s National Sustainable Development Strategy It was reported that Romania s vision for biodiversity through its National Sustainable Development Strategy (to 2020 and 2030) 98 lacks essential features to empower the country with a roadmap for biodiversity, in particular due to broad categories of objectives without any specific targets for biodiversity. The only specific objective was stated as To preserve biodiversity and the natural heritage by supporting the management of protected areas, including the implementation of the Natura 2000 Network and the lack of a budget estimate to achieve the stated objectives does not allow any consistent framework to be set for meeting the needs of the national biodiversity strategy. On the budget side: It was reported that no information on biodiversity-related expenditures is publicly available. This prevents a constructive discussion on the allocation of the national biodiversity budget and the current financial needs and potential opportunities. On the target side: the consequences of the limited scope of the national framework involves weak environmental protection overall and inadequate biodiversity protection, which are assessed as below the EU average. Significant efforts were deployed over the past few years to widen the magnitude of environmental protection (See Natura 2000 in practice below) 2. Financial absorption capacity Co-financing issues Co-financing issues in Romania have been explicitly identified in the past, and contributed to triggering an EU action plan in 2011 to specifically address the issues: Indicators suggest EU co-financing rates are particularly high and did not show any decrease along the budget period: for instance, the fraction of EU funding under the ERDF and CF was found to be (1) above both EU-27 average and EU-12 average and (2) increasing between 2007 (82%) and 2013 (85%) 99 As a consequence of these absorption challenges, the European Parliament and the Council adopted in 2011 a regulation providing for a temporary increase in EU co-financing rates that targeted four MS facing co-financing issues, with specific extra-provisions for Romania and Slovakia. 100 As a further element of this regulation, higher absorption rates were set as the condition for EU financial assistance. Conditions on national co-financing resources and expenditure spending efficiency were also set. 101 Support from the European Commission was designed to strengthen what was initiated in 2011, when the National Reform Programme formalized a Priority Action Plan. The Plan was developed with the contribution of the EC, and designed a roadmap for short-term to long-term improvement of absorption, with the long-term target of 90% absorption Programming absorption capacity 98 National Sustainable Development Strategy , available at : 99 Annex 1 from the Expert evaluation network on the performance of Cohesion policy , Directorate-General for Regional and Urban Policy, The (low) absorption of EU Structural Funds, Library of the European Parliament, Ibid. 102 National Reform Programme,

115 It was reported that Romania s vision for biodiversity through its National Sustainable Development Strategy (to 2020 and 2030) lacks essential features to empower the country with a roadmap for biodiversity. The roadmap mentions the establishment of a Natura 2000 network as a specific objective, but with little detail. Following its integration within the European Union on the 1 st January 2007, Romania made the first designations of its Natura 2000 sites in By the end of 2013, Romania had designated a larger share of terrestrial land (23%) as Natura 2000 than the EU-28 average (19%). Yet it was reported that the Natura 2000 area designation did not rely on any overarching study assessing their adequacy. 4. Administrative absorption capacity Issue with Romania s administrative capacity, stemming from a large variety of factors, is widely documented (e.g. through the Assessment of the 2013 national reform programme and convergence programme for Romania 103 ). Capacity of public authorities It was reported that programming issues were significantly correlated to two kinds of administrative challenges: technical capacity within relevant authorities and tendering processes. For example, in the case of Protected Area management: Firstly, there is a lack of sufficient expertise or technical resources in the relevant authorities, which might prove decisive when scrutinizing preliminary studies or reviewing tenders (e.g. GIS software experts to validate maps). Management Plans for more than 200 Natura 2000 sites and other protected areas, financed by OP Environment were under examination since the end of 2014 by the authorities. Most of them were approved only by autumn With the approval of a significant number of Natura 2000 management plans, their implementation (including financing) now needs to be addressed. However there remains a number of Natura 2000 sites without adequate management capacity Also qualified personnel might turn over too quickly to enable the build-up of adequate capacity within the administration. A number of areas of expertise (e.g. biologists) seem to be underrepresented in the administration. Secondly, the legislation currently seems to hinder prioritization of technical criteria when selecting programmes. In the vast majority of cases, tenders appear to be selected based primarily on cost, while feasibility or technical content come second. A major reform in the tendering process may improve the situation, but will require further examination. The reform should impose some more varied criteria in the selection process. 103 Assessment of the 2013 national reform programme and convergence programme for Romania, accompanying the document Recommendation for a COUNCIL RECOMMENDATION on Romania s 2013 national reform programme and delivering a Council Opinion on Romania s 2013 convergence programme for , {COM(2013) 373 final}, 2013, Brussels 113

116 Denmark Overview Group (EU15/EU13): Size (area - small/medium/large): EU15 Small Overall profile regarding EU funding: Member of the EU since 1973 characterized by above-average economic performance (e.g. GDP per capita: 3rd among EU28 in 2013) and high absorption rate of EU funds Expenditures dedicated to environment protection including biodiversity could be qualified as average among EU15. Eurostat figures for MS environmental protection expenditures show that Danish expenditures amounted to 0.58% of GDP, a figure close to EU28 average (0.62%) 104 There is no indicator in the literature suggesting Denmark could face any kind of barrier from financial or administrative points of view as regards EU funding absorption. As a matter of fact, Denmark seems to perform above EU28, and even EU15 in this field (e.g. absorption rate of Cohesion Policy funding at the end of 2015 was 90%, compared to 82% for EU28 and 86% for EU ). The key results of this analysis are: The general absorption of funds for biodiversity under ESIF in MFF was good (88% under ERDF/CF and 99% under EAFRD) Competency and capacity building allow financing projects of all sizes The main area of improvement seems to be the definition of biodiversity needs. Water issues are set as high priority and integrated projects thus hold significant potential to simultaneously address biodiversity issues (in particular for wetlands). Some absorption related challenges remain, in particular for project-level financing. It was reported that the EU funding system should encourage financing of a larger set of small-scale projects, rather than large projects. Also, there is a trade-off between more mature ESIF funding mechanisms and other instruments that are considered more flexible. Absorption of funds for biodiversity under ESIF in MFF ERDF and CF For ERDF and CF, 2.4% (EUR 6.1 million) of planned funds were directed toward biodiversity. Biodiversity-relevant expenditure amounted to 7.6 million, representing 4% of total expenditure. 100% of the expenditure contributed directly to biodiversity, through intervention field IF55 Promotion of natural assets 106. The absorption rates for biodiversity relevant allocations are on average higher than for the whole budget (Table 33), in particular for the specific absorption capacity. Breaking down the absorption rates by intervention fields, the following points can be highlighted: ERDF and CF funds have been allocated to a single programme Innovation og Viden which was linked both to IF55 and IF56 Protection and development of natural heritage ; No funds were allocated under ERDF and CF to IF51 Promotion of biodiversity and nature protection (including Natura 2000), IF46 Water treatment (waste water) and IF49 Mitigation and adaption to climate change. 104 Environmental protection expenditures per GDP unit: average value, and variation, available at: Funds Absorption Rate from DG REGIO, Rate/jk76-zjb6) 106 The same programmed allocation of EUR 6.1 million under the programme Innovation og Viden was linked both to IF55 and IF56. We count it as direct contribution as it is linked to IF 55 regardless of links to other IF. 114

117 Table 33 : Biodiversity financing under ERDF and CF in MFF in Denmark (EUR million) Total ERDF+CF Biodiversityrelevant Directly relevant Indirectly relevant a) Amount planned (programmed) b) Amount selected (allocated to projects) Executed (paid to beneficiaries) General absorption rate (executed/planned) Specific absorption rate (executed/selected) % 85% % 89% % 89% EAFRD Under EAFRD, 46% (EUR 267 million) of the planned funds (EUR 578 million) were directed toward biodiversity. Basically, all of this allocation has been absorbed (99.9%). Direct contributions to biodiversity represents 86% (EUR 229 million), largely through M214 Agri-environment payments and M216 Non-productive investments, while indirect contribution cover 14% (EUR 38 million) (see Figure 29). Figure 29: Contribution of EAFRD to biodiversity in MFF in Denmark by measure (left) with indicated absorption rates (right) M226 1% M221 3% Total biodiversity - relevant expenditure = EUR 267 million M227 1% M431 2% M111 6% M212 1% M431 M331 M323 M227 Absorption rate (executed/planned) 90% 92% 99% 133% M216 21% M226 M % 103% M221 99% M216 96% M214 65% M214 M % 107% M % Direct contribution: M214 = Agri-environment payments; M216= Non-productive investments, M225= Forest-environment payments Indirect contribution: M111 = Vocational training and information actions, M126 = Restoring agricultural production potential damaged by natural disasters and introducing appropriate prevention actions, M212 = Payments to farmers in areas with handicaps, other than mountain areas, M221 = First afforestation of agricultural land, M226 = Restoring forestry potential and introducing prevention actions, M227= Non-productive investments, M323=Conservation and upgrading of the rural heritage, M331= Training and information, M431 =Running the local action group, acquiring skills and animating For EAFRD expenditures that are directed towards directly relevant biodiversity measures, this analysis specifically found that: No funds have been allocated to M213 Natura 2000 payments and payments linked to Directive 2000/60/EC and M224 Natura 2000 payments M214 is the most direct important contributor to biodiversity with an allocation of EUR 173 million, which has been entirely executed All directly-relevant measures have absorption rate exceeding 100% except M216 with 96% 115

118 Absorption capacity 1. Real absorption capacity: The real needs for biodiversity and ecosystem services are high given the state of biodiversity in the country. Specifically, the Danish Natura 2000 was one of the early few to reach a Quite complete assessment by the EC 107, in 2007, indicating a satisfactory level of biodiversity protection within the network, but the extent of the network was below average with only 8,3 % of Denmark s land area designated as Natura 2000 (in January ). 2. Financial absorption capacity: No major issue was found in regards to co-financing of projects. 3. Programming absorption capacity This preliminary analysis found that the current programming policy of Denmark relies on a limited number of instruments to fund biodiversity: EAFRD, EMFF and to a lesser extent LIFE. Biodiversity issues may have lower priority than water issues in the country s programming. However, Denmark included a specific focus on the integration of biodiversity into more widespread water management measures, co-financed under the ESIF. For instance, the Danish RDP measure for the restoration of degraded peatlands, initially focussing on carbon sequestration, was adapted to incorporate biodiversity needs, both in the targeted and neighbouring areas (in order to improve habitat connectivity). Wetland projects are highly relevant given their potential to simultaneously address water and biodiversity objectives. 4. Administrative absorption capacity: Capacity of beneficiaries To support smaller beneficiaries (e.g. landowners), especially under the RDP, Denmark constructed a tight network of agricultural consultants to facilitate the uptake of EU funds. The Danish Ministry of the Environment and Food also supports capacity building among farmers and consultants, through workshops, seminars, leaflets, booklets etc. Capacity of public authorities Public authorities in charge of nature/biodiversity (at municipal and state level) are considered to have strong administrative capacity. For example, Danish municipalities promote schemes under EU funds to facilitate the fulfilment of conservation objectives in Natura 2000 management plans. Their capacity building is supported through the RDP. It is acknowledged that some small-scale biodiversity projects (e.g. targeting particular species) might be difficult to support within the EU funding system since the initial costs (establishment of subsidy schemes and approval by the EU Commission) and the subsequent administrative costs (control system) could be relatively burdensome. Initiatives for strengthening the capacity of local, small, beneficiaries have been implemented, such as the LIFEproject Smart Natura. 107 Qualitative analysis of the level of maturity of Natura 2000 areas development in 2007 and in 2010 (SCIs and SPAs), available at: Natura 2000 barometer available on the EEA website: network-statistics/natura-2000-barometer-statistics/statistics/barometer-statistics) 116

119 3.3 Discussion: Challenges and obstacles for absorption of funds for biodiversity and options for increased funding uptake This section discusses findings from the analysis of absorption across the EU and in a selection of Member States (above). It focuses on the challenges and obstacles regarding the extent to which available EU funding is used to meet the biodiversity commitments. First, we discuss if MS have taken advantage of biodiversity funding opportunities under European Structural and Investment Funds in MFF Table 34 presents a synthesis of absorption under ESIF in MFF Biodiversity relevant expenditure under the ERDF, CF, EAFRD and EFF has amounted to EUR 42 billion, representing 13,8% of total EU payments to beneficiaries. EAFRD is the largest funding source in absolute as well as relative terms, and absorption under EAFRD is almost 100% (by the end of 2015). Direct allocations to biodiversity under ERDF and CF were relatively small, and by the end of 2014 absorption thereunder had reached 75%, which is still significant. In the absence of detailed information on biodiversity-related commitments under EFF, absorption could not be assessed measure by measure. However, the general absorption rate across the EFF (71%) and the rates for each axis (61-83%) indicate that biodiversity-relevant absorption under the EFF most likely lags behind that of other funds. Table 34: Overview of biodiversity financing under ERDF, CF, EAFRD and EFF in MFF ERDF/CF EAFRD EFF Biodiversity relevant expenditure 3.6% the of total expenditure Planned: EUR 9.9 billion Executed: EUR 7.4 billion Absorption rate: 75% Biodiversity relevant expenditure 35% the of total expenditure Planned: EUR 34.3 billion Executed: EUR 33.9 billion Absorption rate: 99% Biodiversity relevant expenditure 24% the of total expenditure Planned: / Executed: EUR 732 million Directly relevant Indirectly relevant Directly relevant Indirectly relevant Directly relevant Indirectly relevant (1.2% of the total (2.4% of the total (26% of the total (9.6% of the total (20% of the total (4% of the total expenditure) expenditure) expenditure) expenditure) expenditure) expenditure) Planned: EUR 3.5 billion Planned: EUR 6.4 billion Planned: EUR 24.9 Planned: EUR 9.4 billion Executed: EUR 109 Executed: EUR 622 Executed: 2.5 billion Executed: EUR 4.9 billion Executed: EUR 9.2 million million Absorption rate: 73% billion Absorption rate: 77% Executed: EUR 24.6 billion billion Absorption rate: 98% Absorption rate: 99% In aggregate, it thus appears that planned EU funding opportunities for biodiversity were accessed and executed in significant proportion. Whether planned funding was adequate to address actual funding needs for biodiversity is a different issue from that of absorption, but is an important element of context. Also, analyses of absorption in a selection of Member States indicates that several obstacles remain to effectively access and execute EU funding opportunities for biodiversity in some MS. We discuss these issues and obstacles below, mainly on the basis of interviews conducted with stakeholders in Poland, Greece, Romania and Denmark (See Table 48 in the annex). 117

120 Lack of preparatory actions can limit the absorption of EU funds There is a broad consensus from the literature and the stakeholders interviewed that insufficient preparatory actions can significantly hamper the absorption of EU funds. The maturity of preparatory actions obviously differs among MS. Poland, for example, broadly completed the designation of its Natura 2000 sites and the drafting of their management plans, while Greece and Romania still need to adopt management plans for all their Natura 2000 sites. In Romania, substantial progress on absorption was observed following the elaboration, in 2011, of a dedicated Management Plan to address co-financing. It was also highlighted that output indicators such as the proportion of the country s terrestrial area covered by Natura 2000 sites or the proportion of sites with adopted management plans may fail to reflect significant issues such as inadequate designation of Natura 2000 sites or difficulties in the implementation of conservation activities, which can negatively impact absorption. ESIF judged broadly adequate for financing biodiversity if properly implemented Competing priorities for funding lead MS to focus on the socio-economic objectives of the funds (see Financing Natura 2000 Guidance handbook). Consequently, planned funding for Natura 2000 may be insufficient. However, the coverage of MS needs by EU and/or national funding source for directly promoting biodiversity is judged sufficient (European Court of Auditors report 109 ). The report however notes that in some MS (30% of replies) the adequacy of ERDF as an instrument for funding biodiversity is questioned because of a lack of compatibility with regional objectives or limited effects with regard to regional objectives. In this study, stakeholders in Greece, Romania and Denmark broadly considered ESIF adequate for financing biodiversity. Integrated projects could expand funding for biodiversity, and funding mechanisms could be adapted to small-sized biodiversity projects A broad consensus among interviewed stakeholders was that the number of projects featuring innovative biodiversity-driven integrated solutions like Green Infrastructure is insufficient under nonbiodiversity priorities (e.g. SMEs, flood mitigation, energy efficiency). Possible ways forward suggested during the interviews were to build capacity among managing authorities to reinforce their understanding of green infrastructure and its potential to address multiple challenges, both environmental and socioeconomic in nature. The prevailing small size of biodiversity projects (compared to e.g. infrastructure projects) was considered a non-issue by the interviewed managing authorities. Their capacity to administer them, given their experience, was deemed satisfactory. However, the small size of biodiversity projects often means that budgets to hire management-side professionals (financial engineering specialists, lawyers, public-procurement specialists, etc.) are not sufficient to handle administrative forms/processes designed with large infrastructure projects in mind. Without procurement processes adapted to small biodiversity projects, targeted technical assistance is likely needed to increase absorption. Also, biodiversity projects might need more flexibility in their execution, as they deal with higher complexity and uncertainty (living organisms, ecosystems, that are season and weather-dependent, multiple stakeholders, changing environment etc.) Thus, projects sometimes require rapid decisions which may not be compatible with rigid implementation and management rules. Effective communication between authorities and consultation with stakeholders are essential Communication between various departments (ministries, agencies, managing authorities, protected areas management) significantly impacts the efficient administration and funding of projects contributing to biodiversity. In some Member States, an intermediate body with a coordination role may prove valuable to enhance communication within government entities and with stakeholder. This is important to ensure not only good implementation, but also the relevance of deployed measures in addressing real needs. 109 Special Report n 12/2014: Is the ERDF effective in funding projects that directly promote biodiversity under the EU biodiversity strategy to 2020? 118

121 Programme Monitoring Committees were considered to have a positive role (addressing issues linked to projects, targets or objectives) but it was not possible to assess their direct impact on absorption. The capacity of beneficiaries, mostly at the local and regional level, needs to be reinforced In Poland and Greece, beneficiaries active at the national level were judged to broadly possess adequate technical and administrative capacity and experience to apply for EU-funds for biodiversity projects. However, the picture at regional level was more mixed. This suggests a need for additional support to local and regional authorities, NGOs and SMEs in building know-how on the successful uptake of EU funds, for instance through knowledge-transfer platforms or hands-on workshops. In Romania issues with administrative capacity of beneficiaries were identified at all levels which suggests a wider action to improve the situation in the future. In Greece the lack of successful LIFE applications in 2014 is considered to stem from a lack of experience of local and regional authorities, and the difficulty in adapting to the change of criteria for the evaluation of LIFE projects in the period (compared to the period). However this is likely a temporary issue as LIFE applicants are expected to adapt to the changes and learn from this experience. Other obstacles to absorption of EU funds in Member States include limited access for some beneficiaries (e.g. NGOs) through non-eligibility (exclusion) and the quality of programming of biodiversity-relevant objectives/investment priorities in operational programmes. 119

122 4. Private financing 4.1 Introduction The European Union and Member States contribute significant financial resources to the conservation of biodiversity and ecosystem services through a range of mechanisms including Shared-Management Instruments, Centrally- Managed Instruments and national programmes. Private funding for conservation could also contribute to the achievement of the targets of the EU Biodiversity Strategy to 2020 if appropriate incentives and opportunities were enhanced. Recent studies commissioned by the European Commission have concluded that nascent business areas beneficial to biodiversity face considerable implementation and financing barriers (Dickie et al. 2012). The aim of this analysis was thus to identify specific obstacles faced by private funding for the conservation of biodiversity and ecosystem services, and solutions to overcome them with a specific focus on payments for ecosystem services (PES). 110 Conservation finance systems based on Payments for Ecosystem Services allows beneficiaries of ecosystem services to remunerate providers of these services and are a rapidly expanding approach for some complex environmental issues. Although PES systems are only one of the approaches by which the private sector can engage in conservation finance they are being used in many Member States as well as numerous countries globally with a good degree of success. Some additional financing instruments that can engage private sector financing include private equities, green bonds, environmental certification, biodiversity offsets and compensatory measures, licensing rights, sponsorship, etc. Payments for Ecosystem Services are systems established to address environmental externalities where a group of beneficiaries of an ecosystem service (i.e. water regulation, pollination, etc.) risk losing that service due to the actions (or inaction) of another group of ecosystem service producers who benefit personally from some activity that degrades the ecosystem services. This can be described as a win-lose situation i.e. the ecosystem service providers win by degrading the ecosystems and the service beneficiaries lose by experiencing a degradation in service quality. The PES system seeks to compensate the producers for their lost revenue if they give up certain development rights (i.e. forgo agriculture and accept forests) by capturing user fees from the beneficiaries thus creating a win-win situation that funnels use fees to those who can impact the provision of ecosystem services. These types of systems have proven very effective for managing watersheds for hydroelectric facilities, watersheds for bottled water, reforestation of degraded lands, and other situations. This review explores the question of what potential policy and other incentives could the EU and Member States support to improve the effectiveness and scale of PES as a mechanism for engaging the private sector in conservation finance. Analytical framework for Study Payments for ecosystem services are based on the beneficiary-pays principle which is in contrast to the polluterpays principle. They aim to incite environmentally-favourable practice by translating non-market benefits of environmental services (ES) into financial transfers from ES beneficiaries to providers. Difference between Environmental Services and Ecosystem Services In part, due to the popularization of the term ecosystem services by the Millennium Ecosystem Assessment (MEA), the notion of payments for ecosystem services is widely used in current scientific work (Shelley 2011; Wunder 2015). Environmental services and ecosystem services are often used as synonyms in reports and debates (Wunder 2015) 111. An environmental service is de facto an intentional human contribution to the management of a given area with an environmental and collective aim (Aznar 2002; Toillier 2012), for example, land management 110 Payments for Ecosystem Services are also known as Payments for Environmental Services 111 Sven Wunder, a leading researcher of PES theory and practice, whose description of PES (Wunder 2005) is the most broadly quoted definition in the field so far, suggests that environmental services is more pertinent in terms of expression of PES, since many PES rewarded actions (e.g. tree planting on steep slopes, riparian vegetative regeneration, or biodiversity-friendly cropping practices) are not necessarily systemic nor bundled, but instead represent pragmatic marginal changes in land management practices, with likely tradeoffs among ES [ecosystem services] from the same ecosystem (Wunder 2015). 120

123 of natural reserves providing high scientific values and recreational benefits. While environmental services 112 are provided by mankind, ecosystem services by contrast, are provided by the functional ecosystems themselves. The provision of environmental services may result in an increased supply of ecosystem services, if the management actions implemented increase the ecological functions of ecosystems. PES schemes usually remunerate management actions, either practice changes or continuity. In other words, for various reasons such as the feasibility of output monitoring, the simplicity of payment estimation and of contract negotiation, etc., PES schemes usually do not remunerate directly ecosystem services, even though these services provided by ecosystems (such as the provision of services like water purification or recreational value) are their expected outcomes. It is generally assumed that environmental services will result in the provision of ecosystem services. To keep the distinction clear between services provided by mankind and those provided by ecosystems (which may result from the former), in this report the term PES will be used for payment for environmental services and payment for ecosystem services interchangeably, while ES will refer specifically to environmental service and EcoS will refer specifically to ecosystem service. Even though the term environmental services is used, it should be clear that, in this report, it refers only to environmental services targeting ecosystems and it does not include other activities such as water treatment, waste disposal, air depollution, etc. Definition of Payments for Environmental Services According to the textbook definition, a PES programme should meet the following requirements (Wunder 2015): (a) voluntary transactions; (b) between service users; (c) and service providers; (d) that are conditional on agreed rules of natural resource management; (e) for generating offsite services. Voluntariness is one of the basic criteria for PES. Both sides of participants (service users and service providers) should have made the choice to join the programme of their own free will, and hold the right to quit under legitimate conditions of PES agreements. In the quintessential Vittel case (France), the original motivation to propose a PES scheme was to meet French legislative requirements in nitrate concentration (Perrot-Maitre 2006). Nestlé Waters arbitrated between a PES scheme and traditional water treatment approaches. The resulting voluntary actions stemming from this constraining legislation are consistently recognised as a PES project. Thus, as long as regulations set mandatory goals but not the means to reach them, payments for environmental services undertaken to achieve these goals can be considered as voluntary. Nevertheless, hybrid situations may exist when the mandatory-payment situation results from a past voluntary choice from the (economic) agents involved. An example is the Wimbledon & Putney Commons local PES scheme (UK). In this case, two thirds of the payment to the ES provider come from the contributions of council tax-payers in the Levy area to the Commons Levy. These tax payers somehow chose to live in the area 0.75 miles around the Commons where the levy is collected (especially residents who moved after the levy implementation). Thanks to their proximity, they benefit from the associated EcoS. These households could thus be considered as willing to pay for the ES of green space protection (Smith et al. 2013). This example shows that the distinction between voluntary and mandatory engagement in ES market may eventually become less relevant as more government programmes involving geographical or usage taxes are established. 112 It is important to note that activities such as mitigation of the environmental damages caused by production can also be regarded as types of environmental services. However, these environmental services are set apart from those targeted in PES instruments (Shelley 2011). For instance, payment for waste water treatment service belongs to the polluter pays categories of instruments, and could be financed through environmental taxes or penalties. Further discussion about the differences between PES instruments and other public policy instruments can be found in the following paragraphs. In this report, environmental services refer strictly to environmental services targeted at ecosystems and do not include other types of services. 121

124 The conditionality criterion is fulfilled when the payment for the services is conditional either to the proven delivery of specific actions by ES providers or specific EcoS benefits resulting from those actions. Without dedicated monitoring and reporting processes, payments cannot be conditional as it is not possible to determine whether certain actions have been implemented or whether certain results have been achieved.. In practice, such monitoring and reporting is not adequately conducted in many PES cases which means the strict conditionality criteria is rarely met (however, benefits for biodiversity may still be generated, even if they are not monitored). The conditionality criteria could be considered as a way to support decision-makers to define the priorities of the PES (Wunder 2015). Among ecosystem services, support services (habitat, genetic diversity) constitute the foundation on which other provisioning, regulation and cultural services can thrive (TEEB 2010). Their direct use value to mankind is limited however: their main value is indirect and lies in the value of the provisioning, regulation and cultural services they help to generate. As a consequence, even though nothing prevents the design of PES targeting these support services in theory, the willingness to pay for them are likely to be low as most of the value lies in other generated services. Moreover these services are generally public goods, i.e. both non-excludable and non-rivalrous services, which means they are more suited to public PES or other economic tools than private PES (see 122

125 Table 35 below). In addition, schemes targeting the conservation of specific flagship species (such as the Amur tiger for instance) generally do not include any ecosystem service consideration and should not be considered as PES. Such schemes do not seek to enhance aesthetic or symbolic values (and most of the time do not even mention such EcoS considerations), they only seek to protect specific species for their intrinsic (non-use) value. An additional key criterion to ensure efficient PES systems 113 is additionality, though it is not included in the definition above. Additionality requires that payments are made only for actions over-and-above those which actors would generally be expected to undertake in a business as usual scenario (Smith et al. 2013). In reality, some real-world PES projects may lack additionality compared to baseline scenario. To determine additionality, it is necessary to establish a baseline and outcome indicators to measure services produced. The requirement of additionality was not added to the definition of PES used in this report as it is a design issue. However, without additionality, PES schemes are unlikely to provide significant contribution to the EU Biodiversity Strategy to 2020 targets. This issue is further discussed in the lessons learnt at the end of this chapter on Private financing. The aforementioned PES definition is a rather narrow description, which reveals the functioning of an ideal PES type (Wunder 2015). However, a much larger number of PES-like programmes exist and represent important conservation initiatives. They satisfy certain but not all criteria of the PES definition. We have therefore distinguished 4 categories of Textbook PES likeness: 1. Pure PES: where requirements a, b, c, d and e laid down above in the definition of PES are all met. 2. Quasi-PES: PES projects without well-defined conditionality of ES delivery or management practice performed (where requirement d of conditionality is not respected) 3. Non PES voluntary transaction: offsite services are traded voluntarily while the participants of two sides are vague or not strictly service users or / and service providers (where requirement(s) b or / and c is / are not clear, requirement d may be not respected) 4. Non-PES instrument: instruments such as compensation, environmental regulation, etc. (where there is no link or weak links with the PES definition). Based on this classification of textbook PES likeness, along with the nature of buyers and providers, each project can be classified into one of five following categories. 113 A list of criteria and advice to design efficient PES can be found in the PES guide provided by the UK s Department for Environment, Food & Rural Affairs (Defra) (Smith et al. 2013) 123

126 Table 35 - Classification of Project Category Category Textbook PES likeness Type of buyers Type of providers A/ Privately financed 1, 2, 3 Private Private/Public/NGO B/ PPP 1, 2, 3 Private and public Private/Public/NGO C/ Privately provided (but not financed) 1, 2, 3 Public/NGO Private * D/ Non-private 1, 2, 3 Public/NGO Public/NGO E/ Non-PES instrument 4 Private/Public/NGO Private/Public/NGO * Complementary public or NGO providers could also be involved but primary provider is private. General framework under which PES operate PES programmes usually follow a similar general organisation (see Figure 30below). The main roles involved in PES schemes include beneficiaries, buyers, providers and intermediaries. Although the terms described below were not used in this report, it is conceptually worth noting that buyers can be divided into three groups (MacGillivray 2013) according to the relation between buyers of ES and direct beneficiaries of EcoS. Primary buyers are individuals or businesses who buy improved EcoS provision on their own behalf (buyers = direct beneficiaries of EcoS). Secondary buyers purchase the service on behalf of others. Secondary buyers are typically water utilities, insurance companies and NGOs, while the direct beneficiaries of EcoS bought are usually water customers who benefit from better water quality or more stable water supply, local habitants who enjoy reduced flood risks, etc. When direct beneficiaries are the wider public, tertiary buyers such as governments are needed to simplify the process as well as to reduce transaction costs. In schemes involving secondary buyers and tertiary buyers, direct beneficiaries usually provide a monetary contribution (primary money collection) to the scheme, for example through water tariffs or levies. The major distinction between buyers and beneficiaries is that the former makes the decision to join the PES scheme and to pay for the provision of the environmental service, while the latter do not make any decision but benefit from the scheme nonetheless. As explained below, in many cases buyers and beneficiaries are actually the same persons (Figure 30 below takes this into account by defining a Buyer / Beneficiary Agent which can be unique). There exist two financial flows within the framework of PES projects: respectively money collection and money disbursement. Money collection concerns the payment transferred from direct EcoS beneficiaries to ES buyers, where the real payers do not always have the power to choose amount paid. On the other hand, money disbursement refers to the distribution of money collected from the intermediary to ES providers. For instance, in many PES cases promoted by water companies, money collection process is carried out through increased water tariffs or voluntary contributions from water customers to a relevant fund. Water customers are the payers of ES and meanwhile benefit directly from more sustainable water supply or superior water quality. Simultaneously, it is the water company who negotiates and signs a PES contract with farmers, to ensure ES delivery in effect, acting as an intermediary. However, in many PES cases, direct beneficiaries do not involve an outsized number of agents (unlike water customers), ES buyers and EcoS beneficiaries are then the same persons. As a result, a combined buyer / beneficiary agent grouping is indicated in Figure 30the figure below. Intermediaries also play an important role in facilitating project implementation and to ensure proper operation of PES. As shown in Figure 30, intermediaries involved in PES can often be divided into 4 types: policy makers, who design public policies to promote or to support PES projects in the first place; knowledge providers, who provide scientific or technical supports for project implementation and development (including resource management experts, valuation specialists, land use planners, landscape architects, regulators and legal advisors) (MacGillivray 2013); honest brokers, who help collect and distribute payments on behalf of multiple buyers or sellers; monitors, who supervise project operation and assess the efficiency of PES schemes. They can also be in the form of a trust fund that manages the finances that are part of the system this would be in the role of honest brokers. The existence of appropriate intermediaries can be essential for PES success, especially when faced with a complicated socio-economic context. 124

127 Figure 30 - General framework of PES programme Another important aspect to consider when discussing PES is how transactions are carried out (cf. the Disbursement - Disbursement mechanisms field in the PES database described in Annex 1). Payments for ES are carried out mainly by monetary transfers or by providing rights to use goods / services ( in-kind payments). Ecosystem services involved in PES projects are usually complex, and at times difficult to isolate for analysis, monitoring, and actions. In most cases, more than one ES is being offered to buyer(s), not only because of the technical difficulty to distinguish a sole ES in the scheme, but sometimes also for the purpose of accessing diverse funding sources (interested in different ES). Three main strategies of selling an ES package can be distinguished (Wunder and Wertz-Kanounnikoff 2009): Bundling. A bundle of services from the same land / habitat is sold to a single buyer. The latter pays not only for the main EcoS needed, but for other joint services as well (e.g. conservation of watershed). Service bundling is interesting for buyers with several simultaneous service interests. Sometimes, private firms also enlarge their purchase of ES to a bundling, in order to capture the public-relation benefits from being seen as holistically environmentally sensitive. Layering. Multiple services from the same area are sold to different buyers, in order to have all the beneficiaries paying for what they need / profit from. A layering strategy with different funding source components can make conservation a more competitive proposal. However, it might raise the problem of buyers-targeting and complexity of governance. Piggybacking. A single ecosystem service is sold as an umbrella service, while other services are integrated into the project without explicit or continuous payments. Free-riding could appear in a piggybacking strategy. Beneficiaries of other services are unlikely to pay for ES or share in the start-up cost of the project. Distinction between PES schemes and other conservation instruments Because a PES system is based on the user pays principle, the distinction between a pure PES scheme and other similar types of user pays systems has not been very consistent in the literature. Many schemes could be considered as falling into the a beneficiary pays for an ecosystem service category that is to say, literally, a payment for an ecosystem service. Schemes such as tourists paying an entrance fee for a protected area, or a foundation providing a grant to a conservation organization protecting the habitats of endangered species could for instance both be 125

128 considered as such payments. However, the term PES has come to mean a specific kind of voluntary conditional system as defined in section 0. As such, we have limited our analysis to systems that meet the criteria of the Wunder definition. For provisioning services, the distinction between services (and PES) and products may be blurred because provisioning services by definition generate products (food, biomass, medicinal products). If the contract aims to increase the capacity of ecosystems to produce these products, then it has been considered to be a PES system in this analysis. For example, if a forest company is paid to increase the stock of trees in a forest but the payments are not linked to any sale of timber, then the scheme can be considered a PES. On the other hand, normal timber business focuses only on the sale of products (timber) and may not seek to ensure a sustainable provision of timber, let alone long term ecosystem functions. Even if the forest is sustainably managed, the scheme does not belong to PES but to eco-certifications (such as Forest Stewardship Council, FSC). Recreational services are normally consumed on-site, i.e. beneficiaries need to visit the site where the services are generated in order to take advantage of them. In the typology of environmental public instruments, payments for such on-site services belong to the paying rights to use a resource or access rights for a nature space (tourist entrance fee) categories Figure 31 and not to PES. The boundary between PES concerning the above services and non-pes paying or access rights is rather ambiguous and is partly arbitrary. For instance, in cases where tourism businesses are able to choose how much they pay (donations) and that the revenues are used mainly to ensure the provision of the service in the long term, then the similarities with a pure PES case are hard to ignore. Cases fulfilling these conditions but where the services are consumed on-site have not been fully removed from the analysis (for instance the Visitor Giving project in the UK), even though they should be considered as access rights scheme and not PES. In the Danube PES programme - Maramures Heritage Trail (Romania), crowdfunding has been considered as a possible payment collection method, which makes the benefits of certain non-use values become offsite for the crowdfunding donators. This project has thus been considered as fulfilling the off-site criteria. Voluntary biodiversity offsets involving ecosystem services and payments to providers of ES in order to generate these ecosystem services can usually be considered as PES. Such offsets are indeed voluntary and beneficiaries are located offsite. Offsetting an impact is an objective and PES is one mean (among others) to achieve it. Conversely, PES can seek to reach many objectives and are not limited to offsetting impacts. Carbon voluntary offsets for instance can be considered as PES. When offsets results from regulatory mitigation hierarchies mandating net benefits to biodiversity and ecosystem services, they are clearly not voluntary anymore and leave the scope of PES. 126

129 Economic instruments in general Instruments Voluntary instruments in general Economic (financing modifies practices) Beneficiary pays Polluter pays Non-economic (financing supports management and administrative costs) PES Contracts Voluntary buyers Constrained beneficiaries Bilateral (2 agents or groups consisted of homogeneous agents) Collective (at least one of the parties consists of heterogeneous agents) Bilateral Collective Agreements of willingness between beneficiaries and providers of environmental services Contracts for service delivery, private bilateral agreements, bio-prospection agreements. Though its characteristics are similar, environmental certification does not belong to PES as it targets products and not environmental services. Voluntary and conscious contributions of various consumers, not necessarily beneficiaries, to reward practices which produce environmental services Donations used for rewarding environmental-favorable practices. Constrained and bilateral instruments Paying rights to use a resource. Access rights for a natural space, used for remunerating production practices. Taxes on a specific ES used for rewarding the practices. Mandatory contributions (deduction without direct link with the services) used for rewarding the practices Collective constraints. All kinds of taxes paid by beneficiaries / public subsidies allocated for environmental service practice remuneration. «Polluter pays» instruments Environmental taxes paid by polluters (based on levy, consumption, use of natural resource...). Compensations (residual impacts of an operation compensated by positive actions). Penalty reconstructing an environmental service. Credits, tradable quotas. «Non-economic» instruments Regulation and its implementation (monitoring, justice...). Standards, awareness, studies, direct intervention of administration on the ecosystems, etc. Figure 31 - General cartography of public political instruments for environment, position of PES and their variations (adapted from (Laurans, Lemenager, and Aoubid 2011) 127

130 Relevance of PES to solve ecosystem management issues Before reflecting on what instrument should be chosen in order to improve the management of ecosystems, it is necessary to describe correctly the ecosystem problem. PES instruments are not a silver bullet for all types of problems facing ecosystems. In certain situations, simple actions such as ensuring appropriate property rights in regards to ecosystems or their services could be more efficient than PES (see Figure 32below). Generally, PES instruments are most adapted for win-lose scenarios and lose-win scenarios. The former occur when improving the provision of ecosystem services (a win for society) results in net costs for the providers (a loss for them), for instance when municipalities downstream of a watershed enforce a ban on the use of fertilizers for upstream landowners, which reduce their output and margins. An example of the latter, lose-win scenarios, is a situation where downstream beneficiaries of water purification ecosystem services suffer from the deforestation ( loss ) conducted by upstream landowners to increase their agricultural output ( win ) (Wunder and Wertz- Kanounnikoff 2009)(Wunder 2015). 128

131 Figure 32 - The scope of payment for environmental services Issue Question Solution WHAT CAUSES ecosystem mismanagement? 1. Property rights issues 2. Lack of information about existing solutions 3. Capital market imperfections 4. Regulations incite detrimental land-use 5. Total costs exceed total benefits 6. Externalities Appropriate property rights Education and awareness building Access to credit Harmonisation of policies Technological innovation / regulations NON-PES SOLUTIONS WHAT ARE THE CHARACTERISTICS of externalities and the current situation? Compensation measures ; environmental tax ; subsidies Access / resource use charges Maintain status quo Set up access right fees Regulation in addition to PES Classical engineering approaches No No On-site externalities No No No No A. Existence of demand for the ecological function where its benefits can be enjoyed? B. Beneficiaries of the use value of externalities located off-site? C. Will EcoS provision be insufficient to meet demand in a business as usual scenario? D. Can potential providers change their management actions to provide more EcoS? E. Can the potential providers control the level of EcoS supplied (i.e. no other stakeholders can significantly influence EcoS level)? F. Do results of cost-benefit analysis indicate a preference for PES scheme (Green Infrastructure) rather than classical engineering approaches? PES Scheme Source: BIOTOPE, adapted from Engel, S. et al.(engel, Pagiola, and Wunder 2008) Additional explanations of the figure: 1. Property rights issues: the ecosystem does not belong to agent who could manage it effectively or they do not have any authority on its land-use; 2. Lack of information about existing solutions: the landholder lacks information about land-use practices that are in its own financial interest to adopt; 129

132 3. Capital market imperfections: the ecosystem managers are willing to adopt privately profitable technologies / practices that enhance ES provision but do not have access to capital to invest; 4. Regulations incite detrimental land-use: harmful subsidies and regulatory targets (e.g. renewable energy targets for biomass) encourage natural resource exploitation without ensuring sufficient consideration for biodiversity and sustainability. Solutions include the removal of harmful subsidies or biodiversity proofing of existing regulations; 5. Total costs exceed total benefits: private and public (= total) costs exceed private and public benefits, which means potential payments from beneficiaries of ecosystem services will be lower than the costs of providing them, even with public support. Innovation could reduce costs. If non-economic benefits are significant, non-economic regulatory instruments such as bans on the use of natural resources could be used to ensure the provision of the EcoS; 6. Externalities: the actions of the ecosystem managers result in costs or benefits to other economic agents; A. Existence of demand for the ecological function where its benefits can be enjoyed?: from the utilitarian point of a view of ecosystem services, if ecosystems provide an ecological function but there is no demand for it, then no service is provided (e.g. an isolated wetland may be able to purify water water purification is an ecological function it possesses - but without pollution source upstream and water consumer downstream, it is useless and does not provide any service), and thus no PES can be established. Another implicit characteristic that should be met by the externality is that the demand to take action on it is local, and cannot be met at another location without some costs (otherwise, companies that can relocate easily their activities will not need PES for instance). The demand should also be solvent: if a demand exists but the ability to pay of the beneficiaries is below the costs of provision of the services, then a PES cannot be implemented; B. Beneficiaries of the use value of externalities located off-site?: if the beneficiaries are located on site, then charging fees for entrance or resource use (access right for a natural space or paying right to use a resource) is more appropriate to internalize externalities. PES are relevant if the use value of ecosystem services are enjoyed off-site (e.g. water quality enjoyed downstream of a wetland that purified it). Non-use value benefits such as the existence value of a flagship species (e.g. polar bear) can always be enjoyed by beneficiaries outside the site where the ecosystem services are generated, and thus are not relevant for this question which focus only on use value.; C. Will EcoS provision be insufficient to meet demand in a business as usual scenario?: if, despite negative externalities, the baseline scenario i.e. what would happen in the absence of a PES - would already satisfy the demand for ecosystem services, then no additional measure is necessary and PES are not needed. This criteria points out that most Protected Areas (PA) are not suited for PES: one of their main goal is to conserve biodiversity and they cannot threaten to stop protecting biodiversity and EcoS if they do not receive payments, thus other stakeholders will consider that PA will continue to ensure EcoS provision in the business as usual scenario; D. Can potential providers change their management actions to provide more EcoS?: if potential providers have no way to change their current management practices to provide more EcoS compared to the baseline scenario, then PES are impossible to design; E. Can the potential providers fully control the level of EcoS supplied (i.e. no other stakeholders can influence EcoS level)?: under the hypothesis that PES are well designed (which means all relevant potential providers are involved in the scheme), if potential providers cannot fully control the level of EcoS, then regulations such as bans on certain activities or access may be necessary to prevent non-provider stakeholders to degrade EcoS provision; F. Do results of cost-benefit analysis indicate a preference for PES scheme rather than classical engineering approaches?: if traditional engineering approaches (e.g. the construction of large flood storage areas to prevent floods) display a better of cost-benefit ratio than PES schemes to solve ecosystem mismanagement, it makes more economic sense to implement them rather than PES and it may be hard to justify PES projects. When it is clear that a PES scheme can help to solve the ecosystem management issues, one additional question is whether a public or private scheme is most appropriate. 130

133 Figure 33 - The choice of publicly funded or privately funded PES PES Scheme G. Do individual users have sufficiently large shares of total EcoS benefits so it is unrealistic to free-ride? Intermediary H. Is the direct use value high? Privately funded PES Large share but some incentives to free-ride remain I. Is the number of beneficiaries small? No Low direct use value but high indirect use value No No Incentive to free-ride High transaction costs Publicly funded PES J. Is the EcoS a production input or key process of a business? Private-business funding No Private-invidivual funding Source: BIOTOPE, adapted from Engel et al. (Engel, Pagiola, and Wunder 2008) and Hartmann et al. (Hartmann and Suntken 2014) EcoS: ecosystem services. Club goods are excludable but non-rivalrous goods (at least until reaching a point where congestion occurs) 114. The table below provides an example of the application of such an analysis to an ecosystem service and three economic sectors: water quality: and Agriculture and livestock, Forestry and Natural area management. It demonstrates that PES can be relevant to provide water purification services for these three economic sectors under certain circumstances (detailed in the table), and that it can be relevant for the private sector to finance such PES if one or a few big industries (e.g. bottled water plant or water utility) are located downstream of the ecosystems purifying water. 114 Example of club goods include toll road: it is possible to exclude someone from using it by simply denying them access but it is not a rival good since one person's use of the road does not reduce its usefulness to others. 131

134 Table 36 - Example of analysis of the relevance of private PES to solve ecosystem mismanagement for water quality Main EcoS involved Economic sectors involved as relevant ecosystem managers Environmental problems Example of PES/PESlike case Water quality Agriculture and livestock Forestry Natural area management Water quality is degraded upstream of the watershed by inappropriate management of upstream ecosystems Agricultural inputs (fertilizers, pesticides) degrade water quality Lack or decline of forests to create buffer zones to purify water Lack or decline of protected wetlands or other ecosystems to create buffer zones to purify water Vittel Programme, France Copenhagen Energy Scheme, Denmark - Is a PES scheme demanded for solving the problem? 1. Existence of property rights issues? NO Farmers can choose their land uses YES Forest owners are not involved in the management of their forests (e.g. small forest owners or community forests with divergent interests) NO Forests owners are interested in their management YES Natural areas do not benefit from any protection status and / or the entities responsible of their protection cannot decide of their land use (e.g. they are owned by the private sector or by the Forestry administration and not the Protected Areas administration) NO Entities responsible of the protection of natural areas have full authority in their land uses 2. Lack of information about existing solutions? YES Farmers use more inputs (e.g. fertilisers) than is needed for production and could reduce if they were NO Farmers already use inputs rationally and decreasing them would reduce their output YES Forest owners are unaware of how they can sustainably manage their forests NO Sustainable forest management information is widely available and understood YES Natural area managers lack training on how to efficiently manage ecosystems NO The skills of natural area managers are not a limitation 132

135 Main EcoS involved Economic sectors involved as relevant ecosystem managers Water quality Agriculture and livestock Forestry Natural area management provided technical advice 3. Appearance of capital market imperfections? NO Decreasing inputs do not require high investments NO Plantations / management of ecosystems purifying water are not capital intensive and thus do not suffer from capital market imperfection 4. Regulations incite detrimental land-use? 5. Total costs exceed total benefits? 6. Ecosystem problems caused by externalities? YES Existing policies encourage agricultural output without taking into account the risk of over-farming NO Agriculture policies take into account the environment NO Public gains from better water quality usually outweigh private costs of adopting more environmentally-friendly practices YES The inputs used by farmers impact the quality of water consumed by others, which constitutes an externality YES Existing policies (especially renewable energy targets and policies encouraging the use of timber in construction) encourage forest exploitation without taking into account biodiversity NO Forestry policies take into account the environment YES Existing policies encourage the exploitation of natural resources without taking into account biodiversity NO Existing policies related to natural resources takes into account the environment NO Public gains from better water quality usually outweigh private costs of foregone incomes and adopting sustainable management practices YES If ecosystems are managed in a way that increase water purification upstream, it will benefit people downstream, which constitutes an externality 133

136 Main EcoS involved Economic sectors involved as relevant ecosystem managers A. Existence of demand for the ecological function where its benefits can be enjoyed? B. Beneficiaries of the externalities located off-site? Water quality Agriculture and livestock Forestry Natural area management YES Agricultural lands are usually located close to inhabited areas which could benefit from better water quality YES Forests are located near consumers (e.g. urban forests) NO Forests are located in isolated area YES Natural areas are located near consumers (e.g. urban parks) YES Benefits of improved water quality are enjoyed by inhabitants located outside the ecosystems purifying it NO Natural areas are located in isolated area C. Will EcoS provision be insufficient to meet demand in a business as usual scenario? YES As stated in the environmental problem: water quality is degrading YES Other pressures (e.g. agricultural or industrial pollutions) are degrading water quality over time NO Even though forests could do more to purify water, there is no immediate risk that water quality will degrade to insufficient levels YES Other pressures (e.g. agricultural or industrial pollutions) are degrading water quality over time NO Even though natural areas could do more to purify water, there is no immediate risk that water quality will degrade to insufficient levels D. Can potential providers change their management actions to provide more EcoS? (supposing 1 = NO) YES Farmers can change their practices to reduce water pollution (e.g. reduction of the use of fertilizer, etc.) YES Forest managers can change the existing land uses (through different species, types of habitats, etc.) to increase the water purification capacity of their forests YES The natural areas managed are critical to water purification and actions can be taken to improve their capacity to purify water NO The actions the natural area managers can take are too diffuse or unrelated to water quality and thus cannot significantly influence water quality 134

137 Main EcoS involved Economic sectors involved as relevant ecosystem managers E. Can the potential providers fully control the level of EcoS supplied (i.e. no other stakeholders can influence EcoS level)? F. Do results of costbenefit analysis indicate a preference for PES scheme rather than classical engineering approaches? Water quality Agriculture and livestock Forestry Natural area management YES Agriculture is the main polluting source NO Other pollution sources can influence water quality (e.g. industrial plants nearby) YES Usually, the costs of building new water treatment plants and running them exceed the costs (including foregone income) of reducing polluting inputs YES Most pollutants are produced upstream of the forests and go through it and no external pressures threaten the forests NO Some pollutants are produced in watercourses that do not go through the forests or pressures beyond the control of the forest manager threaten them (e.g. deforestation) YES Most pollutants are produced upstream of the natural areas and go through it and no external pressures threaten the areas NO Some pollutants are produced in watercourses that do not go through the natural areas, or pollution sources are located inside them (e.g. tourists) or pressures beyond the control of the natural area manager threaten them (e.g. deforestation) YES Usually, the costs of building new water treatment plants and running them exceed the costs (including foregone income) of ensuring sustainable management of ecosystems purifying water Should the PES be publicly funded or privately funded? G. Do individual users have sufficiently large share of total ES benefit so it is unrealistic to freeride? YES One or a few big industries (e.g. bottled water plant or water utility) significantly benefit from clean water NO No single beneficiary uses most of the water (e.g. downstream is mainly residential) YES One or a few big industries (e.g. bottled water plant or water utility) significantly benefit from clean water NO No single beneficiary uses most of the water (e.g. downstream is mainly residential) YES One or a few big industries (e.g. bottled water plant or water utility) significantly benefit from clean water NO No single beneficiary uses most of the water (e.g. downstream is mainly residential) H. Is the ES a private or club good? NO Water quality is a public good 135

138 Main EcoS involved Economic sectors involved as relevant ecosystem managers I. Is the number of beneficiaries small? Water quality Agriculture and livestock Forestry Natural area management NO All businesses and households that use clean water in the watershed depend on water quality J. Is the ES a production input or key process of a business? YES One or a few big industries (e.g. bottled water plant or water utility) are located downstream NO No business using water is located downstream (e.g. downstream is mainly residential) YES One or a few big industries (e.g. bottled water plant or water utility) are located downstream NO No business using water is located downstream (e.g. downstream is mainly residential) YES One or a few big industries (e.g. bottled water plant or water utility) are located downstream NO No business using water is located downstream (e.g. downstream is mainly residential) Conclusion PES if 2/ and 4/ = no and E/ = yes, otherwise other instrument(s) Public PES if I =yes Private PES if I =no PES if 2/ and 4/ = no and A/, C/ and E/ = yes, otherwise other instrument(s) Public PES if I =yes Private PES if I =no * In cases where the answer depends on the project circumstances, the two possible situations are described in italics. PES if 2/ and 4/ = no and A/, C/, D/ and E/ = yes, otherwise other instrument(s) (D/ is rarely met, thus other instruments are likely to be more relevant than PES) Public PES if I =yes Private PES if I =no 136

139 4.2 Methods An extensive scientific and grey literature review was conducted to produce a PES database for the project: it lists 154 potential PES projects in the EU. Among them, 131 PES and PES-like cases were identified. Applying the criteria defining PES discussed above may still lead to some classification controversies, for instance for projects with constrained beneficiaries, which made a choice leading to the mandatory imposition of levies (one of which we considered PES-like), or for projects involving the sales of licenses to access natural resources (sometimes classified as PES in scientific literature). In other cases, the strict application of the criteria would lead to the exclusion of projects from the PES category, such as biodiversity banking projects, which have been regarded as PES projects in many reports and should not automatically be excluded from the analysis. We have excluded such projects where they result from regulatory obligations to offset environmental damages and not from voluntary transactions to provide environmental services. Twenty three (23) projects classified as Non-PES instruments were identified in the database and were excluded from further analysis. For example, in the inventory of PES schemes in UNECE countries (UNECE 2011), certain cases were identified as regulations or pure regulatory compensation programmes, rather than PES schemes and have thus been rated as 4/ Non-PES instruments and E/ Non-PES instruments (see categories in Annex 1). A methodology of quick-collection of data was applied to collect key information for all the identified projects. Therefore, non-priority data are available only for a limited number of projects and data rely on the last publicly available reports identified. Some projects may have evolved in the meantime and, as such, the results of this overview should therefore be considered as macro-trends (e.g. rough percentages should be relatively accurate). When data are missing, either because of a lack of available data or because of a limited time to collect them, the label Insufficient data was used. A detailed explanation of the fact sheets applied for analysis and the different categories used to collect and classify data can be found in Annex 1. Additional data were collected for a shortlist of projects, based on the following criteria: projects of categories A/ Privately financed and B/ Private Public Partnership ; diversity of economic sectors, ecosystems and Member States. Well-known cases such as Vittel and Evian have been excluded from the shortlist, although secondary data were also collected for these projects. 5 projects were selected, in Romania, the Netherlands, Spain, Slovakia and the United Kingdom. Additional data was collected (including through interviews) to produce 5 in-depth case studies. To further refine the analysis, a workshop on private finance for biodiversity conservation and PES was organized in the context of this study. It gathered 29 participants and fed the analysis and recommendations of the study. 137

140 4.3 Results Overview of payments for environmental services in the European Union Analysis of more than 120 PES projects in the EU A range of analyses were performed on the database of over 120 PES project in the EU. The sections below explore the results of these different analyses and present the results in quantitative and graphical form. In most cases the analysis was not possible for all projects due to insufficient information. In those cases the projects are listed as insufficient data Type of Financing PES projects were categorized according to their financing. As shown in Figure 34, only 38% of PES programmes involved private funding. Public funding is still the main financial source for most PES projects for the moment. Conversely, private businesses and individuals are the main service providers, both for fully or partly (PPP) privately financed projects and for publicly funded projects (44% of the total). Figure 34 - Overview of Financing Natures of PES Projects in EU A/ Privately financed B/ PPP C/ Privately provided (but not financed) D/ Non-private Insufficient data 8 6% 58 44% 15 12% 32 24% 18 14% * The numbers represent the total amounts of corresponding projects; the % represent the percentages of projects. Member States PES projects were identified in more than 20 Member States (Figure 35). The UK was the Member State hosting the highest number of PES, which can be explained by the Defra s support for PES pilots, which raised both the number of PES pilots launched in the UK and the availability of data on these projects, including projects which failed (which may not be documented in other Member States). 138

141 Figure 35 - PES projects by EU Member States United Kingdom (40) Germany (14) Netherlands (10) Spain (9) 40 Denmark (8) France (6) Romania (5) Italy (4) Finland (3) Austria (3) Sweden (3) Ireland (3) Belgium (2) Greece (2) Bulgaria (2) Portugal (1) Poland (1) Slovakia (1) Slovenia (1) Latvia (1) Multicountry (4) Insufficient data (8) Project geography and scale The vast majority of PES projects are relatively local or regional (Figure 36). Most occur at a municipality level (local) or water catchment level that involves several municipalities (regional). In some countries, there are national level PES scheme but this is rare in the EU. The possible causes explaining the limited number of Member Statewide or cross-border schemes are: 1/ difficulties in implementing PES projects at a large scale due to the complexity of the context, 2/ high communication and transaction costs for large scale PES projects, which translate in higher costs but similar benefits for PES instruments compared to traditional economic instruments; 3/ the ecological processes generating EcoS rely on ecosystems that are usually limited in size: wetlands purifying water or forests attracting eco tourists usually only span over a few municipalities. The management of such ecosystems can thus be more efficient if it fits their geographical span (at a neighbourhood or catchment scale), meaning a local / regional scheme is usually more pertinent. This table reflects an analysis of the number of projects of different geographies but does not show the area covered by the different project types nor the size of the program. For example, there are many local PES project, but there could be a few large scale projects that cover much greater areas and that involve larger sums of money. Figure 36 - Overview of the Geographic Scale of PES Project in the EU Cross-border Member State Regional Local Insufficient data 44 34% 15 11% 8 6% 12 9% 52 40% Operational State 37% of the existing PES projects are operational while about 44% are between the concept and operational stage (Figure 37), which indicates that the interest for PES is growing and many new concepts or pilot have been considered. 139

142 Figure 37 - Overview of Development Stages of PES Project in EU 1-Concept 2-Concept / Pilot 3-Pilot 4-Pilot / Operational 5-Operational Insufficient data 25 19% 49 37% 9 7% 14 11% 32 24% 2 2% Status is based on the last publicly available reports identified status may have evolved. The development stage should also be compared with the success of the PES (some operational projects failed). Targeted Ecosystem Services PES in Europe tend to focus on water quality or target several EcoS (Figure 38). Support services (habitat, genetic diversity) are often targeted in PES schemes as well, especially in some conservation programmes or projects involving threatened species or habitats. PES targeting Multiple EcoS principally include schemes involving National Parks (providing a range of benefits such as recreation, carbon storage, habitat conservation) and farmers (providing habitat conservation, water purification, pollination, and of course food supply). Figure 38 - PES Projects Distribution on Basis of Main EcoS Targeted Multiple (34) Water quality (30) 34 Support service (species, habitat, genetical diversity) (25) Recreational (tourism and leisure) (8) Flood risk management (5) Water supply (2) Carbon storage (2) Biomass-based energy (2) Food supply (1) Pollination (1) Insufficient data (21) Payment Disbursement Method The methodology used to evaluate the amount of payment disbursed was difficult to identify for most projects. Figure 39 illustrates that most projects where it was possible to determine the method seem to practice cost targeting (e.g. payments to compensate foregone revenue or the costs of implementing management actions) 115. Only one project reportedly based its payments on the output: the NAU/BAU programme in Germany which modulated payment according to the results on indicator species. This lack of output based payments is probably due to the difficulty to estimate ES baseline as well as the final level of ES delivered, without incurring significant 115 Reminder: for each figure, the reader can refer to annex 1 to get the complete explanation of each option, e.g. benefit targeting, etc. 140

143 expenses and spending a significant amount of time for the monitoring. Almost all the projects where it was possible to determine how payments were transferred involved direct monetary transfers (Figure 40). Figure 39 - Overview of the Methodologies Used to Evaluate the Amount Disbursed in PES Projects in EU Input based - Benefit targeting Input based - Cost targeting Input based - Fixed payment per input unit Output based Insuficient data 94 72% 6 4% 25 19% 5 4% 1 1% Figure 40. Disbursement Mechanisms of PES Projects in EU 69 Monetary transfer 60 Technical assistance for production Awareness raising In kind Management agreement / Land access Insufficient data Economic Sectors Involved Data regarding the economic sectors involved in PES projects in the EU, either as buyers or providers, were collected only for projects involving private funding (including both A/ Privately financed and B/ Private Public Partnership). Other projects are classified as having Insufficient data because no data regarding the economic sectors involved were collected. Five sectors stand out, representing 80% of the sectors involved in these projects (Figure 41): Agriculture and livestock, Forestry, Water utilities, Natural area management, Tourism and leisure. Because of the nature of the products and services of these sectors, PES are more relevant for them and it is thus not surprising that they generated more PES projects. 141

144 Figure 41 - Economic Sectors Involved in PES Projects Agriculture and livestock Forestry Water utilities Natural area management Tourism and leisure Energy utilities Agri-business Real estate Other industries Fishing Extractive industries Insurance Insufficient data Projects can involve several sectors so the total is higher than the number of projects Programmatic Outcomes The success of PES projects to move from one implementation stage to the other (e.g. from concept to pilot, or from pilot to operational ) were assessed based on published literature and, for the five case studies conducted, on interview with stakeholders involved in their management. Figure 42 illustrates that less than a third of PES are successful or very successful based on these criteria. This rate is relatively low and reflects the early stage of most PES programmes and the rapid expansion of the PES concept: as the PES mechanism matures and practitioners improve design features, the rate of successful implementation should rise. Figure 42 is not an assessment of the efficiency or effectiveness of PES for the conservation of biodiversity and ecosystem services - it only assesses the success of the implementation of the PES: is the project still running? Did it reach its full size? Are payments actually collected? Etc. An assessment of PES efficiency and effectiveness requires a specific and extensive methodology that was not attempted here. Figure 42 - Success levels of PES Projects in EU Unsuccessful 2- Intermediary 3- Successful 4- Very successful Insufficient data 11 8% 27 21% 36 28% 4 3% 53 40% 116 The assessment of the success of most projects is mainly based on the screening of publicly available and sometimes outdated literature, thus the rate of success is likely over-estimated 142

145 Programme Developmental Stage and Target Ecosystem Services Figure 43 explores the link between the development stage (from the concept to the operational stage) of PES programmes and the EcoS they target. Three categories could be distinguished for the most advanced PES programmes according to their focus: Support Services, Water quality, and Multiple ecosystem services at once. PES projects focusing on other EcoS remain mostly at the concept or pilot stage. As explained in Definition of Payments for Environmental Services, the direct use value to mankind of Support Services is by nature very limited (while their indirect use value that is to say the direct use value of provisioning, regulation or cultural services is very high). Theory thus suggests private PES projects are not efficient to finance them. The results from the study confirms theory: among the ten operational Support Services schemes, only two are fully privately financed and one is a very small scale scheme (Adopt a Sheep, in the Netherlands; the other is the BeeOdiversity project in Belgium). PES targeting Support Services thus generally require public funding, or are limited to small scale schemes that deal more with environmental education (raising awareness about the importance of PES) than with significant funding of biodiversity and ecosystem service conservation. Figure 43 -Relations between Main EcoS Targeted by PES Projects and their Development Stage Main EcoS targeted by the PES Others Flood risk management Recreational Support service Water quality Multiple Insufficient data Insufficient data Concept Concept / Pilot Pilot Pilot / Operational Operational Development stage For each combination of [Development stage] x [Main EcoS targeted], the size of the circle is proportional to the number of related PES projects (displayed right of the circle). Lessons from two watershed PES showcases The Vittel and Evian PES schemes are two well-known success stories. Their good practices are briefly synthetized below and are included in the lessons learnt from this study. The Vittel Case The Vittel Programme is a privately financed PES scheme initiated in the late 1980s (Perrot-Maitre 2006). It was aimed at dealing with increasing risks of nitrate concentration in bottled water caused by agricultural intensification in the Vittel water source area. Nestlé Waters, owner of the Vittel brand, set up a partnership with the French National Institute for Agronomic Research (INRA) and launched a research programme in order to identify concrete environmental problems and to assess the feasibility of a PES-type programme. This partnership with the INRA 143

146 proved highly valuable in moving forward the PES programme. However, the real milestone was the creation of the subsidiary Agrivair, an intermediary organization responsible for negotiating and implementing the programme. Contracts with a duration ranging between 18 and 30 years were signed between farmers and Agrivair. Nestlé Waters promised to pay the farmers involved as well as provide them free technical assistance for production. In exchange, farmers would accept improved land management practices, for instance, giving up maize cultivation dedicated to animal feed, in order to reduce nitrate concentration in soils. An effective monitoring system was also established by the INRA and Nestlé Waters laboratory in Vittel to ensure the compliance of providers. Figure 44 below shows how the PES scheme functions in the Vittel Programme. Figure 44 - Framework of the Vittel PES Programme The business case identified in the Vittel Programme was 1/ to ensure the continuity of production of the well-known brand of bottled water, Vittel; and 2/ to reduce costs for providing high quality water while meeting strengthening legislative requirements. According to a case study supported by the Food and Agriculture Organization of the United Nations (FAO) (Perrot- Maître 2013), Vittel-like schemes are too costly for public institutions to be replicated. Nevertheless, the approaches of valuing research works at the early stage to design the system solutions based on science and of establishing an intermediary organism (such as Agrivair) to coordinate the scheme can be replicated, and even simplified to reduce costs, especially high transition costs. Other lessons learnt presented in the FAO case study included (Perrot-Maître 2013): A shared vision among key partners and effective internal coordination are essential. The creation of an intermediary such as Agrivair has not only successfully promoted the PES scheme, but was also highly valuable in building partnerships with local and regional governments. PES success is more likely when local development clearly relies on environmental quality (e.g. when a bottled water company is one of the main employers). Water quality and quantity can directly affect local development and this may help explain why watershed-wide PES schemes aiming at improving water quality are more common than other types of PES. These kinds of links between local development and environmental quality are more likely to be achieved in areas where development trade-offs are limited and the implementation of a PES can transform a win-lose situation (e.g. farmers win by increasing their output using fertilizers but Vittel loses because of increasing water treatment costs or a threat on its main business) into a win-win situation. The outcome is that payments and associated technical support improved the situation for farmers and Vittel gained more than it spent. Constant learning, experimentation and adaptation are required to ensure PES success. The context often changes over time and new challenges always arise. A good PES programme should adjust to its changing context in order to ensure a continuous success. 144

147 Another key lesson is that regulation can be key to incite private businesses to think about PES as alternatives to other investments. In France, the requirements to use the natural mineral water label are very stringent and almost no treatment is allowed: stability had to be achieved naturally (Perrot-Maitre 2006). PES is thus one of the few solutions available to deal with local pollution sources. In other water-related PES schemes, the targets of the Water Framework Directive in terms of water quality were instrumental in inciting water utilities to look for solutions to improve water quality, PES being one of them. The Evian Natural Mineral Water Case In the late 1980 s agricultural and urbanisation pressures increasingly impacted water quality and were gaining public attention. The multi sectorial water protection policy in the case of Evian Natural Mineral Water (Defrance 2011) emerged during the same decade as the Vittel Programme. Although the Evian Natural Mineral Water program was not reported to be involved in any pollution or quality degradation, the Evian Company decided to develop a water protection policy in order to preserve their natural mineral water quality. The water policy was based on downstream-upstream relationships as well as on voluntary agreements. It was officially launched in 1992 with the establishment of the Association for the Protection of the Catchment Area of Evian Mineral Water (APIEME, Association pour la Protection de l'impluvium de l Eau Minérale d'evian). APIEME is a public-private partnership with Evian Company, local authorities from the spring area and local authorities from the Impluvium (catchment area). One of the objectives of APIEME was to develop a sustainable agricultural management plan to maintain the natural mineral water quality. Voluntary agreements were signed between Evian Company and farmers in the catchment with the help of APIEME. Similar to the Vittel Programme, a partnership was developed between the Evian Company and the INRA, before the launch of project in 1990, aiming to better understand the specific problems and the local situation. The cooperation with the INRA also improved relations between the water company and local farmers, especially in terms of trust. However, unlike in the Vittel case, there was no land acquisition or direct compensation, such as hectare allowances, committed to farmers. The actions to ensure sustainable agricultural management were conducted through collective projects funded by APIEME, such as financial support to comply with standards of livestock buildings and other kinds of technical supports (Defrance 2012). The PES framework in the case of Evian Natural Mineral Water is as follows. Figure 45 - Framework of the Evian PES case The Evian watershed protection policy followed an essential principle that the actions taken should be favourable both for the natural mineral water resource conservation and for local development. This implied the existence of a strong business case not only for the Evian Company - to maintain their brand with less costs - but also for local farmers - to improve their land management practices. Lessons learnt in the Evian case are similar to those in the Vittel case: 145

148 Coordination and partnership with local stakeholders, especially good relationships with local and regional governments, is essential for project promotion and success. The creation of APIEME provided the opportunity to gather relevant stakeholders together to figure out a sustainable plan that was the most suitable for the local situation. A demonstrated private financial interest is key for driving the private sector towards a PES scheme. The main activities of the Evian Company depend highly on water purity and stability. The Evian Company was the main financial contributor to support the agricultural projects and the main beneficiary of the ecosystem services. The involvement of research institutes, including the ex-ante situation assessment, feasibility study, and advice during the project lifetime, was important to ensure the efficiency. Companies in both the Vittel and Evian case studies established a partnership with the INRA, which saved time in focusing on effective solutions and avoiding technical mistakes. The necessity of co-existence of PES schemes with other complementary measures, especially in watershed management, is also shown in the Evian case. In fact, the PES scheme was only one of the tools implemented by the multi sectorial water protection policy of APIEME. Obstacles faced by PES Numerous obstacles can delay, reduce the effectiveness and efficiency, and ultimately doom a PES programme. Obstacles can be external and difficult to predict or they can be internal - caused by a lack of knowledge or lack of attention to key design features. An analysis of PES obstacles was conducted as part of this study in particular for the 5 chosen case studies. Obstacles faced by PES programmes were classified into 3 levels according to their influence on the project implementation and operation including the fulfilment of its stated goals: Critical obstacles, which impede the implementation of the PES project, and must be eliminated for its further operation; Intermediate obstacles, which degrade the efficiency of the PES project but do not prevent its implementation if they remain unresolved but may pose implementation risks; Low obstacles, which do not have significant impact on the implementation or efficiency of the PES project, but should still be taken into account to improve its design and effectiveness. It should be noted that if the objectives of a PES project are not clearly defined or do not aim to provide net benefits for biodiversity and ecosystem services, then some obstacles may be considered negligible by the managers of the project, even though these design issues may represent significant hurdles to the actual achievement of net gains. For instance, many PES projects do not include any additionality objective nor have project designers established a baseline scenario describing the evolution of ecosystem services in the absence of the PES project. This is necessary to objectively determining the change in ecosystem service provision. However, most project managers do not consider that lack of baseline to be a critical obstacle because the scheme could still be implemented and operational even if in such cases the net benefits for biodiversity and ecosystem services may be limited, inexistent, or at best, unknown. Because of the lack of data reported on baseline and post PES programmes, this assessment is generally limited to operational issues primarily and does not review the actual impact on net gains for biodiversity and ecosystem services. These issues and elements (such as additionality ) associated with measuring net impact are discussed in the PES best practice guide (Smith et al. 2013) and are further discussed in the lessons learnt in the final section of this report. Seven broad categories of obstacles were distinguished, according to the type of solutions that need to be implemented to solve them. On the basis of data collected for existing European PES projects, several subcategories were identified, each one solved by one type of solution. The seven categories of obstacles are: 1. Inadequate and irregular funding - Lack of availability of adequate funding during the project lifetime; 2. Unsupportive regulatory framework - Inadequate legal framework (including regulations on ownership rights); 3. Institutional and governance failures and Collective Action Challenges (design, institutional and governance issues); 146

149 4. Scientific and informational uncertainties (usually linked to lack of knowledge, data and measuring methods for ES-related problems) 117 ; 5. Excessive technical and transaction costs 118 ; 6. Cultural and social barriers to trust based system - Lack of awareness and information among potential buyers and providers & cultural barriers; 7. Others - Obstacles which belong to none of the above categories. As stated above, obstacles were sorted according to the possible solutions to overcome them. This classification aims at providing an analysis of what could be done to solve obstacles faced by PES, by whom and how. Part of the how question is related to the expected average duration required to solve the problem: Short term: a few months; Medium term: up to 1 year; Long term: more than 1 year; Insurmountable: problems that cannot be entirely solved with current knowledge and technologies 119 ; Continuous: obstacles which cannot be definitely solved at one time, and need continuous treatment. In order to provide answers to the who question, solutions were classified according to the main stakeholder responsible for their implementation (though more than one stakeholder may be involved in the implementation): European Commission; Member States; Local authorities; Researchers/Consultants; PES project manager. A detailed analysis of each sub-class of obstacles and possible solutions is presented below: 117 For example, in many PES cases, the definition of the baseline scenario for ES provision as well as the understanding of the relationships between management practices and ESs delivered, could help not only to improve the determination of the payments, but also to set up appropriate objectives for PES schemes. 118 This category must be distinguished from the issue of Inadequate and irregular funding. When private costs outweigh private benefits but not public benefits, then the solution can be to involve the public sector: it is thus not a technical cost issue but rather an issue of availability of funding (category 1 above). This Private gains lower than private costs but public gains higher and lack of involvement of public funds subcategory is described in further details below. 119 No obstacle was identified as insuperable among the 5 case studies analysed. It may be explained by the fact that as soon as such unsolvable obstacle are identified, projects are abandoned. 147

150 Category Specific problems Importance to project realisation Possible solutions Stakeholders who need to lead the solution implementation Expected average duration to solve the problem 1. Lack of availability of adequate funding during the project lifetime 1.1. Economics of the value proposition do not lead to the possibility of profitable transactions. Public funding would be required on ongoing basis 120 Intermediate Demonstrating the public benefits generated by the project to convince public stakeholders to financially support it; Looking for other private funding sources (for public good EcoS); Identifying free-riders PES project manager Medium term 1. Lack of availability of adequate funding during the project lifetime 1.2. Risk on the long term sustainability of funding Critical Developing a viable business model; Private-public partnership PES project manager Long term 1. Lack of availability of adequate funding during the project lifetime 1.3. High initial costs unmatched by high initial funding 121 Critical The obstacle is a capital market imperfection: the solution should be to make affordable financing (e.g. loans) available, e.g. through the European Investment Bank; or to find other funding sources like the Natural Capital Financing Facility (NCFF). Member State or European Commission Long term 120 A PES scheme is considered as an appealing option when the total, i.e. public and private, gains of providing the ES are superior to the total costs. However, sometimes the benefits of ES provision are enjoyed not only by the identified (private) buyers who participate in the scheme, but also by the general public. In such situations, private buyers economic gains could be lower than the financial costs of providing the ES while the public gains would still outweigh the private costs and public money would be needed to secure the provision of the ES. For instance, in the Hull Flood Risk project (UK), an ex-ante study showed that beneficiaries targeted by the scheme (individual households and private businesses) were not able or willing to pay for a user-financed PES scheme to reduce flood risks as the expected individual benefits did not appear to exceed the individual costs, though the public gains of flood prevention outweighed its costs, which pointed out to the necessity of public investment. A partnership involving multiple stakeholders could also be a possible solution, especially in cases where multiple beneficiaries exist. The existence of local partnerships could ensure both better communication among stakeholders and more stable funding. 121 Start-up funding issues often arise when investment is concentrated in the initial stages of the project (e.g. when heavy restoration or ecological engineering works need to be conducted). 148

151 Category Specific problems Importance to project realisation Possible solutions Stakeholders who need to lead the solution implementation Expected average duration to solve the problem 2. Inadequate legal framework (including regulations on ownership rights) 2.1. Incompatibility with existing regulation 122 Critical To review, simplify and harmonize legislation. If a specific PES is incompatible with regulation, it might make sense to use a different instrument. There is a strong need to identify existing institutions and compatible fundinginstruments instead of thinking of new PES systems. Automacity is key to practical implementation. Member State (or European Commission or Local authorities, depending on the regulations involved, based on the subsidiarity principle) Long term 2. Inadequate legal framework (including regulations on ownership rights) 2.2. Lack of recognition by regulations of the ES provided, reducing its market value 123 Intermediate Modification of the definitions used in existing regulations to recognise the ES provided and its value; Review definitions and ensure it is reflected across EU policies / strategies Member State; Local authorities Long term 2. Inadequate legal framework (including regulations on ownership rights) 2.3. Uncertainties about the legality of some parts of the scheme or the best ways to use existing legislation to implement the scheme Intermediate Analyse existing legislation to optimise the scheme PES project manager Medium term 122 The interactions between on-going PES programmes and existing regulations can be complex and problematic, as in the Poole Harbour case (UK), where a PES project intending to allow economic development by offsetting nitrogen pollution is not fully coherent with the Nitrogen Management Strategy (RSPB 2013). Similarly, in the Mature Forest Reserves programme (Spain), the specific focus on the conservation of old-growth trees partly conflicts with the active forest management required by renewable energy targets (Górriz 2015; Prokofieva and Gorriz 2013). 123 Some voluntary initiatives require the support of regulations to create financing mechanisms based on a clear and predictable framework. For instance, in the Peatland Code project (UK), since peatland restoration in the UK did not count as carbon offsetting, the carbon credit provided by peatland could not be recognised in the national or international carbon accounting systems, and the carbon storage service provided by peatland was thus not sufficiently valued. 149

152 Category Specific problems Importance to project realisation Possible solutions Stakeholders who need to lead the solution implementation Expected average duration to solve the problem 3. Institutional and Collective Action Challenges 3.1. Inappropriate or ineffective process to select providers and ES to be provided (e.g. design of auction system) leading to the wrongful exclusion of some providers 124 Intermediate Redesign the selection process PES project manager Medium term 3. Institutional and Collective Action Challenges 3.3. Lack of willingness / ability to commit to long term management of ES (length of ES provision contracts) Intermediate Negotiation with (at least some) ES providers to increase the duration of their commitment to produce the ES; search for third parties willing to take the risks associated with periodic renegotiation of ES provision agreements (such as insurers) PES project manager Medium term 3. Institutional and Collective Action Challenges 3.4. Lack of intermediaries to facilitate / monitor / enforce PES (including for layering purpose, to sell to heterogeneous buyers; but excluding for payment collection or disbursement) 125 Intermediate Setting up one or several appropriate intermediary(ies) to coordinate and facilitates the actions of other entities or act as a bridge between them for monitoring or enforcement purpose PES project manager Medium term 3. Institutional and Collective Action Challenges 3.5. Lack of direct contact between providers and beneficiaries which hampers the engagement of beneficiaries Intermediate To develop an appropriate strategy to reach potential buyers and a governance structure to collect their payments PES project manager Long term 124 Some PES face many potential providers (e.g. watershed PES aiming at improving water quality) and must design ways to select the most appropriate providers. The design of this selection process is key to ensure providers that could provide better value for money (that is to say better ecosystem services for a given payment) than others are not excluded from the scheme. For example, in the Fowey River project (UK), the auction system forced land managers to bundle different capital investments (supposed to ensure the provision of ES) into one unique bid but the environmental benefits of each bid were difficult to assess due to the insufficient information collected by the selection process. Therefore many projects of great ecosystem service value were excluded. If information allowing a better assessment of the ecosystem service benefits of the bids had been collected, the selection could have been more efficient. 125 One type of intermediary that may be needed in a PES is a trusted entity which can receive payments from buyers. This entity may help provide transparency and trust to buyers who would not otherwise accept to pay. Intermediaries can also help to reduce transaction costs by reducing costs associated to payment collection or disbursement, but this is addressed by obstacle

153 Category Specific problems Importance to project realisation Possible solutions Stakeholders who need to lead the solution implementation Expected average duration to solve the problem 3. Institutional and Collective Action Challenges 3.6. Stakeholders other than providers also influence the provision of the ES Intermediate If appropriate, include these stakeholders in the PES as additional providers, otherwise use other tools than PES such as fines and prohibition PES project manager; Member State Long term 3. Institutional and Collective Action Challenges 3.7. Risks on the long-term and continuous leadership of the project Critical Establish a specific structure to manage the PES scheme with a sustainable funding source PES project manager Continuous 3. Institutional and Collective Action Challenges 3.8. Public institutions lack capacity to design, finance, and manage ES in general Intermediate Build capacity among public institutions Member State or European Commission or Local authorities Long term 4. Scientific uncertainties 4.1. Lack of knowledge on the links between management practices and ESs delivered Intermediate Conduct scientific research on the links between how an ecosystem is managed and the ESs it provides; Gather and publish data on management practices undertaken, input cost, outcome over time create a central open access data base including these data Researchers / Consultants Long term 4. Scientific uncertainties 4.2. Difficulties in quantifying and measuring the ESs provided by ecosystems (e.g. to monitor them) Low Conduct scientific research to develop better quantification of ES provision and new measurement tools Researchers / Consultants Long term 151

154 Category Specific problems Importance to project realisation Possible solutions Stakeholders who need to lead the solution implementation Expected average duration to solve the problem 4. Scientific uncertainties 4.3. Lack of data to identify baseline ecosystem services 126 Low 1/ Field surveys to bridge data gap; use of proxies (e.g. values defined in regulations, like in the US for habitant banking) to assess the initial ES status; these proxies can be refined and developed over the years. 2/ Collect and share baseline data on quality of ecosystems in the EU on a coordinated basis, i.e. with the same methodology 1/ PES project manager; European Commission; 2/ Member State Medium term 5. Technical and transaction costs 5.1. Technical (ecosystem maintenance / restoration) costs of providing the ES too high Critical 1/ Try to reap economies of scale by implementing widerscale projects (e.g. in river basins). 2/ Technical innovations to reduce costs. 3/ A theoretical solution that needs to be tested would be to identify ES that are required by society / business and develop a market so that potential providers can tender to provide the service. This should increase competition and reduce costs for key services. 4/ If the above solutions are not possible abandon of the PES. 1/ PES project manager; 2/ Researchers / Consultants 3/ Member State; Local authorities Long term 5. Technical and transaction costs 5.2. High transaction costs for payment collection and transfer Critical If the transaction costs result from the high number of buyers and the difficulty to match them with many providers, seek or create unifying structure such as Associations, communitybased organisations, key aggregation entities (i.e. hydroelectric company). If the transaction costs result from the number or costs (fees) of intermediaries, simplify the process by reducing the number of intermediaries. Other solutions could be to link to existing collection or disbursement (e.g. water bills, hotel registration), to work with a NGO who has a PES project manager Long term 126 The lack of an estimation of the ecosystem services provided by the ecosystems before the launch of any PES project prevent the assessment of the additionality of this PES. All PES should therefore establish such baseline. However, in the real world (and at any rate in the PES analysed in the overview of PES in Europe conducted for this study), few PES established such baselines, which did not prevent them for moving forward to the implementation stage. This obstacle remains thus low in terms of difficulties it causes to implementation. The consequences of a lack of additionality are further discusses in the lessons learnt. 152

155 Category Specific problems Importance to project realisation Possible solutions Stakeholders who need to lead the solution implementation Expected average duration to solve the problem certification that it works for the public good so it does not pay transaction taxes, to work with existing entities so as to reduce marginal costs of new transactions, and to develop an organisation providing a global standard for PES which would also lower marginal costs of assessing new PES (e.g. similar to the Forest Stewardship Council which is considering the integration of indicators related to ES delivery into its certification). 6. Lack of awareness and information among potential buyers and providers & cultural barriers 6.1. Lack of awareness of the (economic) benefits among potential providers Intermediate Improve communication towards potential providers about the payments provided by the PES scheme PES project manager Short term 6. Lack of awareness and information among potential buyers and providers & cultural barriers 6.2. Lack of understanding of ES / PES concepts among stakeholders (inappropriate ways of communication, marketing strategies, culture against natural solutions and pro hard engineering) 127 Intermediate 1/ Explain the concepts of ES and PES and adapt the marketing of the PES scheme to the local culture so that it is accepted by local stakeholders; 2/ Develop a culture of nature and biodiversity (e.g. education) 1/ PES project manager; 2/ Member State Short term 127 Solving this obstacle could increase the participation ratio of both ES providers and ES buyers, by convincing people to pay for ES, or making people think about the ES they use. The Hull Flood Risk project (UK) points out that a combination of pictures, icons and wider benefits of greenspace vocabulary instead of the ES jargon has proved to be a suitable approach to communicate the potential benefits of PES projects with stakeholders without technical background. 153

156 Category Specific problems Importance to project realisation Possible solutions Stakeholders who need to lead the solution implementation Expected average duration to solve the problem 6. Lack of awareness and information among potential buyers and providers & cultural barriers 6.3. Ethical objection to paying Intermediate Explain the share of public and private costs and benefits polluters 128 and demonstrate the net gains compared to the business as usual scenario PES project manager Short term 6. Lack of awareness and information among potential buyers and providers & cultural barriers 6.4. Low awareness of the (economic) benefits among potential beneficiaries / buyers not yet involved in the PES (including lack of understanding of the business case to invest in the provision of ES among Small and Medium sized Enterprises) Intermediate 1/ Raise awareness among targeted beneficiaries (if they are known) or the general public (including businesses) about the (economic) benefits provided by the ESs and the net gains provided by the PES. Raise awareness about the business case to pay for the provision of these ESs 129. Show added values of projects as well as the long-term sustainability. Show when and why PES is superior to other concepts or to doing nothing, e.g. show direct and indirect benefits to buyers. 2/ Conduct more detailed case studies 1/ PES project manager; 2/ European Commission Short term 6. Lack of awareness and information among potential buyers and providers & cultural barriers 6.5. Lack of awareness of the (economic) benefits among buyers currently involved in the scheme (resulting in sub-optimal payments) Intermediate Communicate among current buyers involved in the scheme about the results of assessments of its (economic) benefits PES project manager Short term 128 In some cases, payments to farmers seek to trigger practice changes (toward less polluting agricultural activities). Under these circumstances, the payment could be regarded somehow as paying polluters, which raises ethical objections. 129 Studies such as the Corporate Ecosystem Services Review conducted by the World Business Council for Sustainable Development (WBCSD) could for instance be initiated. 154

157 Category Specific problems Importance to project realisation Possible solutions Stakeholders who need to lead the solution implementation Expected average duration to solve the problem 6. Lack of awareness and information among potential buyers and providers & cultural barriers 6.6. Poor knowledge on how to solve issues faced by PES and implement an effective PES Intermediate 1/ Create guidance for PES: explain rules for successful scheme & give examples. 2/ Establish a PES accreditation system to certify in internationally recognized metrics the ES generated (this is especially important for private businesses, to foster trust for buyers)3/ Create community to facilitate exchanges between practitioners (such as the B@B platform ) 1/ and 3/ European Commission 2/ International body (similar to PEFC, which deals with forest products for instance) 1/ and 2/ Long term; 2/ Continuous 7. Others 7.1. Land availability to provide ES Critical Abandon the PES concept and develop solutions based on other policy tools PES project manager Short term 155

158 Presentation of the 5 in-depth case studies Selection criteria and summary table of in-depth case studies Five (5) PES cases covering a range of Member States, development stages, ES, and sectors were selected for indepth study. Basic information on the 5 PES case studies can be found in the table below (Table 37). The five case studies were selected to provide an overview of both successful and less-successful PES to learn both from what works and best practices, and from what does not work and pitfalls. The EU hosts several examples of very successful and well-documented PES such as the ones implemented by Vittel and Evian (described above). Table 37 - The five PES case-studies analysed in-depth Project name Country Project category Developm ent stage Main ecosystem service Economic sectors involved in the PES Success of the PES Adopt a field edge Netherlands A/ Privately financed Pilot Support service Agriculture and livestock Unsuccess ful Slovensky Raj National Park Slovakia B/ PPP Concept Multiple Natural area management Unsuccess ful Mature Forest Reserves Spain B/ PPP Operationa l Support service Forestry Successfu l Hull Flood Risk UK B/ PPP Concept Flood risk management Water utilities; Insurance Unsuccess ful Danube PES: Maramures Romania A/ Privately financed Pilot Recreational (tourism and leisure) Natural area management; Tourism and leisure Successf ul 156

159 Zonnestraal EC - STUDY O N B IO D IVE RS IT Y F IN A NC IN G Case study Adopt a field edge Member State Netherlands (Schouwen- Duivenland) Development Stage Pilot Category A/ Privately financed Implementation Scale Local Ecosystems/habitats Agricultural land Economic sectors involved Agriculture and livestock Ecosystem targeted Background Services Habitat for bumblebees (the provision of this EcoS also generates pollination and aesthetic value) The Adopt a field edge project was established to improve the management of field edges in local farms to create improved habitats for bumblebees which are important pollinators. The project was located on the Schouwen- Duivenland island of Zeeland Province in the south west of the Netherlands (Molenaar 2013). The idea of Adopt a field edge emerged for the first time around 1995, from an agricultural cooperation organism, akin to a not-for-profit foundation, called Zonnestraal, ( sunbeam in English). Farmers involved in Zonnestraal proposed to other citizens to donate money to adopt a field edge, that they would virtually own for a limited period of time. Adopters would then choose with farmers a number of plant species that the farmers would plant in the adopted field edges. These species would create a favourable habitat for bumblebees. Initiators from Zonnestraal sought financial support from the municipal and provincial government, as well as from the local water board. The proposal of a 3-year pilot programme was accepted, and thereafter Zonnestraal started the trial of the Adopt a field edge concept. Figure 46 - Field edge adopters visiting their adopted lands Around 1999, another wider project was launched on the island and included ten elements including the continuation of the previous Adopt a Field Edge initiative. The wider plan was initiated with support from the EU and from the national government through the Renovation of Rural Areas Programme (Vernieuwing Landelijk Gebied, VLG, in Dutch). The ten specific elements of the plan included a wide range of activities such as the construction of picnic places, the promotion of wagons pulled by farm horses for tourists, and the production of wild flower seeds. The plan provided a start-up fund to cover the initial costs of the Adopt a Field Edge programme while the long term funding was to be generated by the adoption mechanism (i.e. the PES) itself, through the donations of citizens interested in adopting field edges. 157

160 Zonnestraal EC - STUDY O N B IO D IVE RS IT Y F IN A NC IN G Zonnestraal had to provide significant effort to contact interested citizens and to keep in touch with them. Despite innovations such as the possibility to donate an adopted field edge to another person as a gift, the number of adopters remained too low, and the willingness to pay of each participant was relatively low, which barely covered the costs of running the project. No net revenue was generated and Zonnestraal stopped the PES project after 2 to 3 years. Later, around 2002, an Agri-Environmental Measures (AEM) programme was introduced by the national government and the EU. The Adopt a field edge project turned from a private PES scheme to a more constrained public subsidy programme. In 2015, in the province of Zeeland, 500 ha of field edges were involved in these AEM (from a starting point of 40 ha) which seeks to implement habitats favourable for birds in fallow lands and is supported by public subsidies. A subsidy of about EUR 1900 / ha is provided by the government for lost income as well as costs associated with fallows (de Koeijer 2015). What is the problem being addressed? The initial incentive to promote the PES project Adopt a field edge was to tackle the problem of bumblebee population decline. Flowers were intended to be planted to enhance habitat for bumblebees. Grassland and flower strips were thus promoted as agricultural field borders. Additionally, the goal was also to create connections between citizens and local farmers in order to increase the social acceptance of farmers production methods (de Koeijer 2015). Business case Figure 47 - Ecologist explaining the role of the edges In addition to the aesthetic and leisure benefits, donors, or the so-called ES buyers, benefited from a one-day visit on the farm every year, where they could see how crops are produced on the spot and were provided with a detailed explanation of the role of the edges by an ecologist involved on the project. The local farmers who were responsible for planting and maintaining the field edges benefited from a small amount of additional revenue generated by the donations. The business case of this project is weak in that the benefits of healthy bumblebee populations and landscape aesthetics are not closely related to the buyers. The benefits to buyers are very small and as such, buyers have a low willingness to pay lower than the costs to establish and maintain the habitat. PES framework The ES providers in the scheme were farmer members of Zonnestraal, while the potential ES buyers targeted were principally former tourists who had visited the site. The potential buyers were contacted by postal letters as well as through a website. A local accountancy company and a notary office also participated in the PES scheme as sponsors. With the payments, buffer zones (which did not exist before) of 6 m, 10 m or 12 m were established at the edge of cultivated field, and no fertilizers or pesticides were allowed to be used on these edges. Zonnestraal coordinated the project and acted also as a money collector and distributor between farmers and ES buyers. Zonnestraal is similar to a not-for-profit foundation: an administrative board supervises its activities and the government or auditors can control how it manages its money. Sandvicensis was another intermediary: an ecological consulting company who held the role of monitor (as presented in Figure 48). Sandvicensis was remunerated by the public subsidies provided after 1999 by the government to cover the initial costs of project. The company regularly conducted monitoring for birds, insects and macro fauna. The monitoring and its results helped motivate farmers and was used to communicate with ES buyers. 158

161 Figure 48 - Framework of Adopt a Field Edge programme Results of the PES With the prohibition of fertilizer and pesticide use, bird and insect abundances increased significantly (de Koeijer 2015). However, only a small part of available field edges were included in the programme, and in total less than EUR 2000 per year was collected from buyers, which was sufficient only to cover the costs of managing 1 ha of edges. The PES project stopped after approximately 2-3 years. Success The Adopt a field edge project proved the high ecological values of improved agricultural field edge management in terms of biodiversity improvement, but it also hinted at the limited potential for such PES projects involving the provision of support services which generate few direct benefits for the private buyers supposed to buy them. The project could not generate sufficient financial funds to support its continuation. The PES project can be described as unsuccessful in the end. Critical obstacles faced by the project since its inception 1.1. Economics of the value proposition do not lead to the possibility of profitable transactions. Public funding would be required on ongoing basis Specific problem Solution Implementation Time The costs of enhancing non-cultivated field edges require sums that cannot be provided by private individuals alone (because of the transaction costs in particular) but the private benefits of such field edges for companies are unclear. Big companies were targeted as sponsors at the beginning of the scheme without success. Either abandon the private PES and develop a Corporate Social Responsibility (CSR) programme (e.g. organise events linked to the field edges for the employees or customers of the sponsors) or look for public funds to pay for the EcoS provided. Regarding the CSR solution, there are not such companies on the island and large external companies thought the initiative was too small and local to be interested. Medium term 5.2. High transaction costs for both collecting money from buyers and distribution to sellers 159

162 Specific problem Solution Implementation Time High transaction costs: Zonnestraal put too much efforts in dealing with each donator, while each donator only had a willingness to pay of 20-30, thus costs exceeded incomes Social media may reduce costs Short term Another issue worth mentioning occurred when the Adopt a field edge PES concept was proposed initially, farmers and agricultural associations were against the project because creating field edges without cultivation was opposed to traditional agricultural views. However, the existence of the Zonnestraal structure helped the project initiators by providing them time to demonstrate good results, which finally changed the opinion of farmers and their organisations, and therefore allowed the project launch. Replicability The PES concept of adoption can be, and has been replicated (e.g. in the Netherlands) in projects involving animals (and not field edges) such as chickens, cows and sheep. For instance, ordinary households can donate money to adopt a sheep which supports a sheep herd and through its grazing, open meadows are preserved, increasing habitat diversity. However, similar problems appeared in other projects: things functioned well at the beginning while the adoptions declined slowly afterwards. Role of private financing Public money provided initial funding for the PES project but insufficient private financing limited the ability of the project to continue without government funding. The role for private financing in scheme targeting support services such as bumblebee habitats may be inherently limited because these services are public goods with no direct use value. The individual costs of providers far exceed their benefits of generating these services (in the absence of payments from beneficiaries) and economic agents can easily free-ride by letting other pays to provide the service. As a consequence, the involvement of public financing seems indispensable to fund such schemes. Public funds were actually involved in the follow-up of this project through the national AEM programme aiming at conserving bird habitats through buffer zones which was implemented in the Netherlands. Lessons learnt Public good ecosystem services with limited direct use value, such as habitat for pollinators, are highly unlikely to be funded only through private money and requires at least some involvement of public fund, or even fully public schemes. Since the early 2000s, the national government indeed introduced agri-environmental measures co-funded by the EU to fund similar measures, aiming at maintaining buffer zones favourable to biodiversity in field edges; The business case and the incentives for buyers to participate in PES schemes must be clear and strong, otherwise their motivation to continue their participation in the PES scheme will dip over time. One of the reasons why the Adopt a field edge project as well as other similar schemes ended unsuccessfully after 2 or 3 years, is that the links between ES buyers and ES benefits were too weak (which is mainly due to the public good and indirect use value of support services); External funding (e.g. public fund not provided by the buyers of the ES), especially at the early stages of the scheme, can be essential to launch PES (even in cases when future self-funding is probable, which was not the case of project #048). The Adopt a field edge project would not have been able to start without the initial financial contributions from the local water board as well as the municipal and provincial governments; Integration into broader local and national policies provide useful support and funding to PES projects (which with the external funding lesson above). The Adopt a field edge project benefited from a local programme in 1999 (which included 10 points and had other objectives), which among other things financed the monitoring work conducted by Sandvicensis; 160

163 Initial PES implementation may require changing attitudes of key interest groups. As illustrated in the Obstacle section above, solving environmental issues require environmental actors (such as Zonnestraal and the project initiators) to urge change in the face of conflicting interests (Mermet 2011). 161

164 Matej EC - STUDY O N B IO D IVE RS IT Y F IN A NC IN G Case study Slovensky Raj National Park Member State Slovakia (East Slovakia) Development Stage Concept Category B/ PPP Implementation Scale Local Ecosystems/habitats Gorges and caves Economic sectors involved Natural area management Ecosystem targeted Background Services Multiple (Natural heritage, timber production, tourism, water provision under consideration) The Slovensky Raj National Park PES was designed to improve the management of this exceptional Protected Area. The Slovensky Raj National Park, established in 1988, protects the area of the Slovak Paradise mountain range. It contains a UNESCO World Heritage Site - Dobšinská Ice Cave - and a part of the Park belongs to the Natura 2000 network. Most of the National Park land is publicly owned (about 50% by the state, 20% by municipalities/towns) while the rest is privately owned (20% by the church, and other private land owners, (M. Getzner 2009). A research project was commissioned by the Danube Carpathian Programme (DCP) of WWF international in 2010, with the purpose of estimating the feasibility of PES schemes in Carpathian Protected Areas (PAs), including the Slovensky Raj National Park. This feasibility study also considered two other PA: one in Poland and another in Romania, which is dealt with in another case study, see 0. In 2010, the Slovensky Raj National Park was managed by the National Forest Administration of Slovakia and not the National Park Administration (Michael Getzner 2015). At the time, the National Park Administration was very weak in Slovakia, and it still lacks the capacity and standing to efficiently manage PAs in the country (Švajda 2015). Management of the PA relied entirely on the state budget. Very little money was collected from the entry fees paid by tourists attracted by the gorgeous gorges and caves and the main beneficiaries of these fees were private land owners who charged them (Strobel 2010). Moreover, the PA management was focused on the core area while the surrounding areas of equal importance were not well managed. What is the problem being addressed? Figure 49. Slovensky Raj National Park Biodiversity conservation in the protected area is especially threatened by unsustainable logging and uncontrolled tourism infrastructure development (Strobel 2010). 162

165 Zdenek Svoboda EC - STUDY O N B IO D IVE RS IT Y F IN A NC IN G Business case An assessment of the Total Economic Value generated by EcoS in the PA and surrounding region was conducted before the proposal of a PES concept. However, no clear business case had been identified for the PES project beyond the fact that appropriate PA management could enhance regional sustainable development. The basic business case is that the tourists benefit from the Park (as do those businesses who profit from tourism) and as such there is an untapped willingness to pay for the recreational services which are not fully captured by the current entry fee system. The same is the case for forestry companies they are not paying the full amount for the benefits they receive. Figure 50 - Slovensky Raj National Park PES framework A PES concept was proposed at the end of the feasibility study (M. Getzner 2010; Strobel 2010) as presented in Figure 51. In this potential PES, tourists and forest companies, as the principal direct beneficiaries of local EcoS, were identified as potential buyers. It was also assumed that forest companies, who benefit directly from the timber provision within the PA could become ES buyers. Water provision was also considered as a potential target of a PES, but lacked identified potential buyers (Michael Getzner 2015). Figure 51 - Framework of Slovensky Raj National Park PES concept Results of the PES The PES has not moved beyond the concept stage since the feasibility study of 2010.Success The project was abandoned at an early stage and did not move toward implementation. At the time of drafting, no information indicated further progress had been made since 2010 (Švajda 2015). Critical obstacles faced by the project since its inception Three critical obstacles faced by the project have been identified: 163

166 2.1. Incompatibility with existing regulation Specific problem Solution Implementation Time In 2010, the Slovensky Raj National Park was managed mainly by the National Forest Administration of Slovakia. The National Park Administration s capacity to influence in the management of the park towards more biodiversity conservation was limited, although it is the Administration responsible for biodiversity conservation. Ensure national regulations entrust adequate authority to the National Park Administration regarding decisions and revenue collection related to the Slovensky Raj. Long term 3.7. Risks on the long-term and continuous leadership of the project Specific problem Solution Implementation Time No identified local project leader, even at the beginning of the project Involve local stakeholders, give them a sense of ownership of the PES project and establish an effective management committee which can ensure the longterm management of the PES Long term 3.8. Public institutions lack capacity to design, finance, and manage ES management in general Specific problem Solution Implementation Time At the national level, the National Park administration is not in charge of Slovakia's national parks and the management of protected areas in Slovakia was not (and may still not be) institutionally effective At the national level: building capacity among employees of the National Park administration and changing national laws to put the National Park administration in charge of all the Parks with biodiversity conservation missions Long term Financial problems, which appear rather important in many PES projects, do not weight much compared to institutional issues in this PES concept, precisely because it is still at the concept stage. Despite the existence of several obstacles linked to a lack of awareness, scientific uncertainties on park management and some legal resistance against the project implementation, the regulatory and institutional weaknesses stand out as the crucial problems to be solved. The lack of a clear business case was also an obstacle. Replicability The general process of implementation starting with a feasibility study including an EcoS valuation can be replicated. However, the error of failing to plan beyond the feasibility study and the EcoS valuation should not be reproduced: project #048 in Maramures, Romania, was part of the same Danube PES programme and thus applied the same process but succeeded to move towards the next steps (see the related case study below). Beside, each Member State finance its PAs differently and each PA may have a specific local context: these national and local specificities need to be taken into account in the design of PES scheme and it is not possible to replicate without significant changes a single PES solution in different PAs. 164

167 Role of private financing The PES concept was conceived so that it could involve private payments for wood supply. However, the idea was still at an embryonic stage and it remains unclear if private financing could have been really involved. Lessons learnt The analysis of this project and its comparison with the successful Danube PES: Maramures case study (which was launched through the same feasibility study in 2010) yield several lessons: One of the key functions of Protected Areas is to provide habitats for biodiversity. Such habitat support is a public good, which usually has a limited direct use value. Thus, private PES are thus very unlikely to fund 100% of the needs of Protected Areas management; PES are very difficult to implement without key prerequisites including: o Property / land use rights clear and understood; o Efficient institutions and legal framework; The European Commission may have a direct and clearer role to play in Member States with institutional gaps or weaknesses to build their capacity to manage their protected areas 165

168 Acciónatura EC - STUDY O N B IO D IVE RS IT Y F IN A NC IN G Case study Mature Forest Reserves (Sèlvans) Member State Spain (Catalonia) Development Stage Operational Category B/ Public Private Partnership Implementation Scale Regional Ecosystems/habitats Forest Economic sectors involved Forestry Ecosystem targeted Background Services Support service (typical mature forest biodiversity) The Mature Forest Reserves PES was aimed at conserving old growth forests and protecting the high level of biodiversity these forests host. In Spain, positive externalities generated by land management are recognised legally by the Forest Law as well as the Biodiversity and Natural Patrimony Law. However, no action plan has used the law to generate improved practices so far (Górriz 2015)(Michael Getzner 2015). The Mature Forest Reserves programme was initiated by an officer 130 of the Diputació of Girona (Girona provincial council), originally as a public scheme. The pilot programme started in 2005 in the Montseny Protected Area, and the programme was extended operationally to the whole Girona province in 2007 with the Catalan name Sèlvans (Gorriz and Prokofieva 2011; Esser 2015). Forest preservation agreements were signed between the Diputació of Girona and forest owners to ensure no artificial intervention in selected forest Figure 52 - Mature forests in Spain areas for 25-year period. Only forests that satisfied certain criteria, for example, a minimum number of mature trees of good genetic quality, could be involved in the scheme (Prokofieva and Gorriz 2013). The scheme was then both private and public: the idea was to use public money - tax income of the provincial government - to pay municipal forest owners, while private donations, from a private foundation and a provincial savings bank at the beginning (Esser 2015), were used to pay private forest owners. However, these private donations were eventually discontinued because the focus of the statutory powers of the provincial government is on municipalities, and the payments to private forest owners thus stretched the scope of its statutory powers. This impeded the continuation and further expansion of the project. To solve the private financing problem, an agreement between the Diputació and the NGO Land Stewardship Network (XCT) was signed in order to allow private funds to be channelled to support the Mature Forest Reserves programme (Prokofieva and Gorriz 2013). However, this agreement never crystalized any financial input into the program (Esser 2015). The Mature Forest Reserves programme was adopted by the NGO Acciónatura when the initiator of the project joined the NGO in The NGO sought to extend the programme to the entire Catalonian region and has been working with four provincial councils in Catalonia, i.e. Girona, Barcelona, Lleida and Tarragona and the Catalan government (Esser Figure 53 - Mature forests in Spain 2015). The Diputació of Girona is still the most active buyer among public bodies for ES provided 130 Jaume Hiddalgo 166

169 by municipal forest owners. It is planned to extend the project to achieve a larger scale, for instance, by including other Autonomous Communities of Spain. Private funding is not as straightforward and one idea has been to develop fundraising through a website, (Górriz 2015), which is also used to help finance other projects. The work, nevertheless, progresses at a slow rate due to limited financial as well as human resources (Esser 2015). Problems being addressed Mature forests hold a high value in terms of genetic conservation and habitat for biodiversity as well as scientific research. The project was initiated to tackle overharvesting of forests leading to a lack of old growth forests and their associated higher biodiversity. Business case Mature forest conservation generates great public social benefits, especially in education and research, but also in watershed regulation and maintenance of genetic diversity. However, no direct economic gains from the project were identified for potential private ES buyers, beyond possible image gains. For provincial governments, the expected benefit is the preservation of public goods such as high genetic biodiversity and habitats in mature forests. PES framework The PES framework for the Mature Forest Reserves involved two primary buyers of services (public and private) providing money through an intermediary (Acciónatura, an NGO) which paid private and public land owners for maintaining natural forest stands. Because of the constraints on the competencies of the provincial government, which should focus its financing support on communal forests, there are two financial streams: public money finance for public forest owners and private money finance for private forest owners 131. Understanding the impact of the PES compared to a baseline scenario without the PES is challenging; in theory, there is a change in practice where instead of normal harvesting, no human intervention is conducted in forest stands during 25 years (the duration of contracts). However, to qualify for the programme, forest strands must have been left intact in the past 80 to 100 years and it is not clear how likely it would have been that their owners would have cut them down in the absence of the PES. Payment for forest owners is based on a financial compensation for foregone income estimated by the potential timber profit foregone. From 2005 to 2012, government hired forest officers could check whether the contracts were enforced during regular field visits they conducted for other purposes (so there were no additional controls conducted only for the purpose of this project). Under the new scheme (Acciónatura), the NGO ensures ongoing contact with forest-owners. Non-compliance (i.e. harvesting) results in a repayment of the full subsidy and a penalty of EUR 5000 to the public authorities under the original scheme and of a percentage of the payment under the current scheme (run by Acciónatura). 131 Figure 54 provides a simplified overview of the Mature Forest Reserves PES programme to facilitate understanding for the reader and highlight key lessons from the scheme. One difference of the recent situation with the figure is that the public forests part of the scheme was extended and, in 2015, it operated under an agreement between the Diputació de Girona and a private financing bank, which channeled financing through provincial councils, the Catalan government, and NGOs (Esser 2015). 167

170 Figure 54 - Framework of Mature Forest Reserves PES programme Results of the PES In 2011, over 700 ha of mature forests were protected on 32 municipal forest stands and 39 private forest stands (Prokofieva and Gorriz 2013). Overall, the mature forest network is growing in size. However, some mature forests of great ecological value are still not enrolled in the scheme, while some plots involved may not display high biodiversity value. In some cases, evidence suggests forest owners had no intention of harvesting anyway and opportunistically joined the scheme: in these cases, the PES thus did not bring any clear additional benefits over the baseline scenario (Górriz 2015). Acciónatura also supports other initiatives through the Sèlvans programme, such as a project of Catalan Network of High Natural Value Forests. In addition to the PES 25 year agreement tool, the Sèlvans programme uses 50 year stewardship (non-pes) voluntary agreements, 5 year standby agreements (under which forest owners agree to preserve their forests for 5 years, while Sèlvans looks for funding to remunerate them), 15 year agreements foreseeing the implementation of a therapeutic 132 forest track, or 10 year collaboration agreements with public forest owners. Success The Mature Forest Reserves project is successful in terms of reaching the implementation stage. Despite a potential deadweight effect (forest owners who had no intention of harvesting their plots and who opportunistically joined the scheme), as noted above, the scheme also succeeded in protecting over 700 ha of mature forests and thus achieved some success in terms of ES provision. Its expansion to the whole region also demonstrates its success. Critical obstacles faced by the project since its inception 3.3. Lack of willingness / ability to commit to long term management of ES (length of ES provision contracts) 132 Related to the healing of disease. 168

171 Specific problem Solution Implementation Time No explicit long-term funding commitment to the programme by the provincial government Forest owners are paid the total compensation amount upfront after the agreement is signed and regular controls are then conducted to ensure they maintain the mature forests and do not harvest them Provincial government of Girona, as manager of the scheme Medium term Replicability The payment and contractual mechanisms in the Mature Forests Reserves programme are replicable in other countries with similar institutions and organisations, that is to say, where forest management is centralized, such as France. It may not be replicable in other EU countries and the rest of Spain where forest management is not as centrally managed. The existence of committed public agencies such as the Forest Ownership Center and other organisations who can engage in contracts (such as the NGOs Acciónatura and the Land Stewardship network or public authorities) constitutes a necessary condition to replicate this scheme. The Mature Forest Reserves programme originated from the initiative of one particular person (Jaume Hidalgo). Having a PES programme champion, willing to invest their time and commitment, is an important factor in PES programme success. Role of private financing This programme had two financing windows public and private. The private financing window was less consistent and has not reached the same scale as the public financing mechanism. As was the case with the project Adopt a field edge in the Netherlands, maintaining forests for their ecosystem services generates public goods support services with limited direct use value and as such it is difficult to harness high levels of private financing. Lessons learnt In complex PES programmes, generating financing from diverse sources (public and private) may require different administrative systems unless regulations and institutional competencies are adequate. Inadequate regulations (especially statutory powers of each level of government) may limit the operation of an integrated PPP and require the separation of public and private money. A compelling business case for private firms is necessary for attracting private money at good scales; Successful local schemes are more likely to be scaled up in areas with similar conditions. The work of Acciónatura to promote the scheme in the whole Catalonian region has demonstrated the feasibility of such upscaling. 169

172 Hull City Council EC - STUDY O N B IO D IVE RS IT Y F IN A NC IN G Case study Hull Flood Risk Member State UK (Hull) Development Stage Concept Category B/ Public Private Partnership Implementation Scale Local Ecosystems/habitats Urban area Economic sectors involved Water utilities; Insurance Ecosystem targeted Background Services Flood risk management (main target); Biodiversity; Recreation The Hull Flood Risk PES was a programme established to finance actions that reduced the likelihood of flooding in Hull City. Hull City had been suffering from flooding problems for a long time, partially because certain areas in the city are below sea level. In June 2007, heavy rains caused local drains to overflow and flooded large areas of North West Hull affecting nearly 900 properties (equivalent to 16% of all properties of the area), and had significant impacts on many local businesses (MacGillivray 2013). The Hull Flood Risk PES pilot research project was funded by Defra, and undertaken by the Land Trust in association with URSUS Consulting, and Groundwork in Hull in close partnership with Hull City Council (HCC) 133. The pilot project aimed at enabling better delivery of a bundle of EcoS, especially flood regulation. However, it was not imagined initially as a solution for the entire flooding problem but rather as an approach to increase local resilience for better green and blue urban sub-habitats management through the concept of SuDS (Sustainable Drainage Systems, (Wragg 2015). Because the flood was so damaging to the community, the programme designers choose to avoid the term flood in the descriptions to minimize negative connotations even though the goal was to reduce flood risk. Thus, the promoted aims of the projects were to create green spaces positively impacting the daily life of local habitants, while these green spaces would have a secondary function of letting water infiltrate and reducing flood risk during the rainy season. Two modalities of PES were Figure 55 - Flood risk map in Hull City considered during the design stage, one at the scale of a street, and one at the scale of an urban park (the Dane Park). In both schemes, the ES delivery would be achieved by SuDS construction, which contributes both to flood regulation and greenspace improvements. According to the former flood risk manager in HCC, who was also the pilot project manager Steve Wragg, the construction of large flood storage areas was preferred to the SuDS approach to deal with flooding issues. In 2015, there were 3 multi-million-pound flood storage area projects, one of which was under construction while the 2 others were still under design. The PES scheme has remained at the design stage and has not been implemented so far. 133 Referring to the Hull Flood Risk pilot page on the Ecosystems Knowledge Network (EKN) site: 170

173 URSUS Consulting EC - STUDY O N B IO D IVE RS IT Y F IN A NC IN G What is the problem being addressed? Although benefits of several ES have been mentioned in the PES design, the principal problem being addressed was the risk of flooding and flash floods following rain. Business case For the water utility in charge of the sewer system, Yorkshire Water Services (YWS), the use of SuDS could yield monetary savings in terms of reduced Figure 56 - Design of a small scale street level PES investment needs. The increased infiltration of scheme rainwater would indeed reduce the time needed for surface water to enter the sewer system, reducing the peak combined sewer load, and thus limit the investments needed to increase the sewer capacity to manage flood water. For households, that could mean a reduction of their surface water component in water bills. The PES design considered the possibility for households who would choose to participate in the street level PES scheme to additionally receive free technical assistance or a discount for SuDS installation. The business case for HCC was mainly to reduce the cost incurred by flood damage and to limit the expenses related to flood water management. Because insurance coverage for local inhabitants is insufficient- despite the high flood risks in the Hull area -, the local government generally has to provide financial support to households and businesses to recover from inundation damages. Therefore, limiting flood risks through the PES scheme would reduce the future expenses of HCC. Insurance companies would also benefit if damages caused by floods were limited: it would reduce their payments to policy holders. PES framework There were two main identified buyers for the service of establishing SuDS the YWS and the HCC (in part on behalf of households). The main providers of the service would have been the Hull City Council Parks Department and individual households. Monitoring would have been provided by HCC at the street level. The 10 largest insurance companies active in the area participated in a meeting during the research phase of the project (with financing from Defra). The meeting was held to discuss the use of flood risk information by the insurance companies in their area and the companies potential participation through the HCC (Wragg 2015). However, the discussions did not go much further and insurance companies were never buyers. 171

174 Figure 57 - Framework of Hull Flood Risk PES concept Results of the PES The Hull Flood Risk project halted after the pilot project manager changed jobs. Neither of the two PES concepts moved to the implementation stage. Different problems have been revealed within the pilot project, especially the lack of resources both internally and externally in HCC, only one person (the pilot project manager) was in charge of all the efforts and money and time were apparently insufficient for the required preparation and design work. The identified potential principal buyer, YWS, was kept informed about the general concept of the PES scheme but no formal discussions about its involvement in the PES were held. Success The Hull Flood Risk project is assessed as unsuccessful in terms of reaching the operational stage since its progress has been halted. However, it is possible that in the future or in other places, under different political and economic circumstances, such a PES scheme could reach the operational stage. Critical obstacles faced by the project since its inception Obstacles restraining the development of this PES are related to eleven of the sub-categories defined in section 0and include seven critical problems. Most of these critical obstacles have not been solved: this, and especially the lack of long term leadership, is a key explanatory factor for the project failure. The critical obstacles are described below; information about the other obstacles identified can be found in the corresponding table in AnnexError! Reference source not found Economics of the value proposition do not lead to the possibility of profitable transactions. Public funding would be required on ongoing basis Specific problem Economic recession: private businesses are not currently able to contribute to a PES Scheme; Government budget cuts 172

175 Solution Implementation Time Multiple partners where local government (public money) and partners could work together; economic valuation study that shows comparative costs and benefits to different potential partners. Local authorities Medium term 1.3. High initial costs unmatched by initial funding Specific problem Solution Implementation Time A combination of several adverse factors: a/ high initial costs (of building the SuDS) b/ unsatisfactory returns on investment for potential financers: b.1/ future returns in terms in future avoided costs and not in net cost reductions thus making a weak business case for conventional finance entities such as banks, venture capitalists and shareholders b.2/ despite the interest of the future avoided costs for the insurance sector, a large proportion of households in the study area do not hold sufficient insurance coverage, which means that the returns for insurance companies may remain limited Involvement of the insurance sector to finance the implementation of the SuDS (which itself faces a critical regulatory obstacle, see 2.2 below) through lower premiums (which may help households to increase their insurance coverage); focus on working with YWS as a potential buyer of the PES and develop grants for the lower cost treatments Long term 2.2. Lack of definition and integration of the ES provided in regulatory texts, reducing its market value Specific problem Solution Implementation Time No existing mechanism in the UK to involve insurance companies directly in a flood risk scheme such as a PES involving SuDS. There is no commonly agreed methodology to assess positive impacts of flood prevention actions for small scale properties. These benefits thus cannot be directly translated into premiums reduction for households who implement flood prevention actions. Develop a new mechanism - Flood RE (flood reinsurance) with the insurance sector in the UK. However, it will be dependent both on data to show how flood risks have been managed and on the quantification of the level of protection awarded by these measures Long term 3.4. Lack of intermediaries to facilitate / monitor / enforce PES (including for layering purpose, to sell to heterogeneous buyers) Specific problem Solution Complexity of land tenure in urban areas, which makes it difficult to target buyers (individual households); a PES scheme could be a large scale solution to flood risk issue but would require dramatic changes in the way decisions are made, urban development is planned, water bills are paid, etc. And this framework cannot be changed easily. This inertia in the decision-making process favours solutions that require less coordination and changes A tertiary buyer such as Local Government for the Dane Park PES and Yorkshire Water Services for the street level PE to buy a key ES such as flood regulation (or recreation for the Dane Park PES) on behalf of residents. Hydraulic engineering (large scale storage areas for excess rain water) 173

176 Implementation Time Medium term 3.7. Risks on the long-term and continuous leadership of the project Specific problem Solution Implementation Time Problem of continuity: the person in charge of the project moved on to another job, and project management changed; even before the job change, there was only one person dealing with flood risks at the strategic level. So at the Hull City Council, the resources were also too limited to move the project forward and solve the many issues faced by the project, a lot of time and efforts were needed to demonstrate the benefits of the approach, to solve regulatory issues, etc. To find another pertinent leader or to change the management structure so that other institutions and actors became involved. Continuous 4.1. Lack of knowledge on the links between management practices and ESs delivered Specific problem Solution Implementation Time Difficulties in quantifying the level of protection and monetizing the benefits (to translate them into lower insurance premiums) of SuDS flood risk prevention measures since many such measures are more ad-hoc rather than specifically designed and modelled Develop common methodologies for the insurance sector, such as Flood RE (Flood reinsurance) Long term 6.4. Low awareness of the (economic) benefits among potential beneficiaries / buyers not yet involved in the PES (including lack of understanding of the business case to invest in the provision of ES among Small and Medium sized Enterprises) Specific problem Solution Implementation Time Challenge of engaging with potential PES buyers in the current (austere) economic climate; even those who were badly flooded during 2007 now have very limited interest or capacity to be actively involved in discussions about preventing flooding Awareness raising, helping households, businesses and schools to identify opportunities and the best options for their situation Short term Replicability The Street level PES in Hull Flood Risk project was designed specifically for characteristics of Hull s typical local streets. It would also be relevant to other flood-prone areas of the UK with similar architecture (concrete in front of houses preventing absorption) and in other countries with similar urban landscapes. On the other hand, water utilities in the UK and their regulator Ofwat are very specific to the UK, consequently the governance structure designed for Hull cannot be directly copied to other Member States. Role of private financing No agreement with the insurance sector has been reached so far. YWS might have purchased the ES from local households if the scheme had been implemented. 174

177 Lessons learnt Insurance firms did not get involved in the PES due to the lack of a clear mechanism to lower premiums as well as the fact that many residents did not even own a flood risk insurance. A national flood reinsurance system is being developed in the UK and could facilitate the involvement of the insurance industry. Engagement of the private sector actors must start at the feasibility stage of the project to optimize opportunity. The perception by households of a lack of economic rationale to invest in flood prevention, potentially because of the investment s high initial costs, hampered the project s success; The necessity of a leader to champion and promote the project is clear. Communication with local stakeholders could also have been improved, especially in terms of promoting awareness of the EcoS values and PES benefits. 175

178 Mara Cazacu, WWF- Romania Milan Jousten EC - STUDY O N B IO D IVE RS IT Y F IN A NC IN G Case study Danube PES: Maramures Member State Romania (North Romania) Development Stage Pilot Category A/ Privately financed Implementation Scale Cross-border concept / local pilot Ecosystems/habitats Forests Additional 134 ecosystem targeted: High Nature Value Farmland Economic involved sectors Natural area management; Tourism and leisure Additional sector involved: Agriculture and livestock Ecosystem targeted Background Services Main EcoS targeted: Recreational (tourism and leisure) - cultural and aesthetic ecosystem services Additional ES targeted: Provisioning 135 The Danube PES: Maramures project is a PES project that sought to have ecotourism businesses and users provide financing to the protected area and local farmers to maintain aesthetically pleasing landscapes and high value ecotourism sites. The site Mara-Cosau- Creasta Cocosului is located in the Maramures county in Northern Romania and is one of the pilot sites under the WWF Danube- Carpathian Programme (WWF-DCP). The pilot site was selected to demonstrate and promote sustainable financing schemes, especially PES schemes, in the Danube River basin (Martini 2014). Figure 58 - HNV landscape in Mara- The pilot area includes seven local protected areas and two Natura Cosau-Creasta Cocosului area 2000 sites. These combined protected areas host rich biodiversity and diverse habitats as well as significant cultural values. This part of Maramures is recognized under the UNESCO World Heritage list 136 thanks to its wooden churches and traditional architecture both inside and outside the Protected Areas (PA). In September 2010, the Maramures county council also recognized the importance of natural values and ecosystem services, which have been integrated into the Local Sustainable Development Plan (Martini 2015a). The Danube PES project implemented during was funded by the Global Environment Facility in collaboration with the United Nations Environmental Programme (41.7%, UNEP GEF), by direct financing of WWF (48.1%, in cash), and with 10.2% through in-kind contributions from national and local partners. The funding has supported local capacity building, experience exchange, technical work to set-up and test PES schemes and knowledge dissemination activities. In the future, complementary funds are envisaged from local farmers through sales of High Nature Value (HNV) farming products, from individuals through crowdfunding, and from companies through sponsorships (Martini 2015a). Figure 59 - PA Rooster's Crest and Morarenilor Lake In July 2014 the Mara-Cosau-Creasta Cocosului area was recognized as an Ecotourism Destination by the Romanian government under its ecotourism strategy. Together with eight other areas with similar potential, it was 134 As described below, the Maramures project recently developed a sub-project targeting High Nature Value (HNV) Farmland through a scheme similar to an eco-certification. Its targets are referred as Additional in this summary table. 135 According to the WWF website of Maramures pilot site ( solutions/green_public_funds/pes/the_danube_pes_project/pilot_activities_/maramures_pilot_site/), the economic values of carbon capture, carbon storage and traditional landscapes and leisure services in the pilot area ( ha in total) have all been evaluated. However, the EcoS related to carbon have not been involved in the PES scheme so far because of feasibility issues. 136 Wooden Churches of Maramureş: 176

179 Lies Willaert EC - STUDY O N B IO D IVE RS IT Y F IN A NC IN G identified as such by the Romanian government (with technical support from the Association of Ecotourism in Romania AER), to benefit from a 4-year financial and technical support programme planned to start in May 2015 and mainly aimed at building capacity for the management of these eco-destinations (Martini 2015b). What is the problem being addressed? Tourists are attracted in Maramures by its unique semi-natural mosaic landscape and cultural heritage. However, irresponsible and uncontrolled tourism behaviours have triggered landscape degradation in the protected areas, which can be characterized in many cases by open access. Similar behaviours originate also from the local population due to low levels of education and poor awareness of protected areas values. There also exists a large need to provide sustainable livelihood to small farmers in order to ensure continuation of traditional practices beneficial to biodiversity. Business case Figure 60 - Cheese-making at a traditional sheepfold For farmers, guesthouses, camping sites and tour operators, which constitute the buyers, the business case stems from the expectation of higher returns from the growing ecotourism market (either through more tourists, or from higher profits per tourist). For local protected areas the providers the payment could partially fund their management and investment costs, making a very strong business case for the PES. Without the PES system, the continued degradation within these PAs would lead to decreasing tourism revenues and livelihoods. PES framework A Conservation and Sustainable Development Fund (CSDF or the Fund ) was set up to connect buyers and providers in the PES scheme (presented graphically in Figure 61). The CSDF is currently managed by the Center for Ecology and Tourism (CET) a local NGO. By the end of 2015, the management of the Fund will be transferred to the Destination Management Unit (DMU) of the eco-destination programme, which is currently managed by another local NGO named the EcoLogic Association. An Advisory Committee consisting of WWF Romania, the Association of Ecotourism in Romania (AER) and the CET will continue to be in charge of assessing funding proposals coming from the eco-destination managers, in order to ensure their respect of the principles of the Fund. These principles aim for 50% of funding targeting conservation and 50% targeting sustainable local development. One of the interests for buyers lies in their inclusion in the local Ecotourism Network, which will promote local businesses participating in the scheme (e.g. through the webpage As a result of a priority ranking analysis, two Protected Areas have been identified as potential key ES providers, and one of them has been finally selected as the first to be targeted by the scheme. WWF-Romania is also working on another parallel project that would create a type of ecolabel for farmers involved in high-value nature (HNV) products and which may be connected to the PES scheme (farmers are thus mentioned as providers in the figure below, even though they are not currently directly involved). 177

180 Figure 61 - Framework of Danube PES - Maramures Heritage Trail Scheme Tourism operators need wellmaintained natural sites for long-term business prosperity and are encouraged to implement responsible tourism practices Secondary payment collection Intermediary CSFD, managed by Ecodestination manager Disbursement Buyer Local guesthouses, Tour-operators Input-based payment by cash, technical assistance for responsible operation and awareness raising Buyer / Beneficiary Agent Intermediary Project promotor WWF Primary money collection Intermediary Eco-destination manager EcoLogic Association (Direct) Beneficiaries Tourists Intermediary Monitors CET (financial) & The Advisory Committee (technical) + the Local Partnership (including other local stakeholders) ES benefits Recreational, leisure, cultural and aesthetic values Provider Protected Areas administrators, Farmers Effective management of protected areas; implementation of responsible tourism practices Ecosystem Ecosystem Services Landscape beauty Environmental Services The two PAs currently targeted by the scheme were selected among several PAs of the Maramures area. One is managed by a State local administration while the other is a Natura 2000 site and is managed by a local NGO. Results of the PES At the beginning of the scheme, seven local guesthouses and three tour-operators agreed to contribute into the CSDF on a yearly basis 137. In October 2014, a camping site also joined the PES initiative (Martini 2015a). So far, only 600 have been collected from ES buyers and all efforts are currently focused on allocation of existing grant funds (mainly during the first year of operation of the project). Success The concept stage of Danube PES - Maramures scheme has successfully moved to a pilot stage. The PES pilot project is still ongoing and is slowly moving toward the operational stage. Obviously, the 600 euros collected during the first year is far from what the project operation requires. The governance framework established by the scheme (including the conservation fund) has been a major achievement and all is in place to move toward the next steps of the project, thus it has been rated as successful. However, it should be noted that no significant ecological benefits have been generated so far. Critical obstacles faced by the project since its inception 1.2. Risk on the long term sustainability of funding Specific problem Insufficient funds collected (causing problems such as insufficient level of equipment) due to the limited financial capacity of small local tourism businesses and to their initial doubts regarding the returns they would get from these payments (what increase in the number of tourists can the payments generate?). 137 Other identified potential stakeholders include small farmers currently supported to become local producers of HNV products as preliminary step towards further enlargement of the scheme for the same purpose of maintaining landscape beauty. 178

181 Solution Implementation Time Developing and implementing a fundraising strategy to increase the amount of money collected in the CSDF as well as proceeding with the development of the ecotourism destination (for example, new agreements in the medium term involving new types of contributors); raising missing funds through a crowd-funding campaign for conservation and related responsible business/sustainable development measures; involve local authorities from the destination; improved discussions between the destination managers and local stakeholders (guesthouses and protected area managers in particular) to choose priority actions to be conducted and show concrete results of how their money is spent (this evidence can convince them to increase their engagement). Continuous 3.4. Lack of intermediaries to facilitate / monitor / enforce PES (including for layering purpose, to sell to heterogeneous buyers) Specific problem Solution Implementation Time Administration of funds (designation of the entity responsible for the management of the fund) The solution (already successfully) implemented was to design non-governmental organisations as the entity responsible with the management of the fund since on the one hand, physical persons or organisations performing commercial activities cannot benefit from sponsorships and local authorities do not have legal attributes to manage activities such as a finance mechanism, and on the other hand, the amount of start-up capital for an association (NGO) is lower. The creation and designation of a foundation is also considered as a solution if the needs evolve in the future Short term 3.7. Risks on the long-term and continuous leadership of the project Specific problem Solution Implementation Time Risk that the project fizzles after the end of the UNEP-GEF funded project when WWF reposition its involvement in the area with respect to the PES initiative In order to limit this risk, several measures have been implemented: a structure has been established to involve all the stakeholders in the project: the Local Partnership. It chose a "destination" manager (Maramures is officially recognized as an ecotourism "destination" in Romania) to manage the Fund and further lead the initiative. Co-funding of the Romanian-American Foundation and the Foundation for Partnership pays for the associated costs (including the destination manager salary) and thus ensures mid-term continuity. WWF-Romania and AER continue to offer technical support. Continuous 6.2. Lack of understanding of ES / PES concepts among stakeholders (inappropriate ways of communication, marketing strategies) Specific problem 1) The fact that initial efforts are concentrated more on tackling development needs than on implementing concrete conservation activities can result in the dissemination of the wrong message, namely that social and financial capital forms are more important than the natural capital measures; 2) Guesthouses are reluctant to participate in training organized by the local environmental NGOs on sustainable 179

182 tourism. They also lack resources to implement these NGOs recommendations and to contribute to the finance mechanism (the PES). Solution Implementation Time 1) To rebalance the social and ecological goals by promoting more conservation actions; 2) A fundamental shift in the way people and institutions think and act; governmental authorities must develop the capacity to create visions of sustainable development correlated with the country s natural endowments and to plan strategically in support of policies that are coherently and harmoniously elaborated Short term 6.5. Lack of awareness of the (economic) benefits among buyers currently involved in the scheme (resulting in sub-optimal payments) Specific problem Solution Implementation Time Tour-operators and guesthouses involved in the scheme wanted to see immediate real benefits, such as an increase of the number of tourists, but it was not possible to show them the results of their donations synchronously (i.e. to demonstrate results in 2014 if their donations were made in 2014). Focus on setting up marketing tools (website, other promotion materials) for the ecotourism destination network, made of the tour-operators and guesthouses which participate in the PES, to provide them with a short term interest (promotion and an expected increase in turnover) to join the scheme. All the economic agents will benefit from the ecotourism destination though (even if they do not pay), through an expected increase in the number of tourists coming to the region. Short term Replicability The Danube PES - Maramures scheme is remarkable and provides a reference for future PES projects in protected areas (PA). The process (3 phases of implementation), the governance structure (with an Advisory Committee and Local Partnership), the establishment of a local steering committee and of a conservation fund, can be replicated in other places. These elements have been promoted by WWF and are already being taken up in other PA sites in Romania. The Danube PES - Maramures scheme has also taken into account both conservation and development in financing actions and fostered transparency in the project operation. Role of private financing Private financing for the project has so far been minimal (600 ) but guest-houses, tour operators and camping sites may increase their contribution as the PES demonstrates its benefits. The private sector the buyers is not the only stakeholder involved in the PES: promotion and coordination of the initiative continue to be supported by other financing sources, including WWF, the UNEP-GEF, the Romanian- American Foundation and the Foundation for Partnership (which together granted 100,000 for a four years period, and had granted 15,000 for the feasibility studies) and several local NGOs. Lessons learnt Maramures was part of the same Carpathian Programme as Slovenski Raj (#113) but several key elements have helped it move forward despite initial handicaps (heavy bureaucracy and lack of local interest): o Continuous project leadership has been ensured by the WWF team, and then transferred to the destination manager. o Establishment of a working governance structure, especially the creation of the Local Partnership. The grass roots work with local stakeholders even when the project looked like it 180

183 was failing was instrumental for the project continuation. Solutions were always sought and efforts came from all the local stakeholders concerned. Even though there is scope for increased self-funding in the future, so far the PES scheme relies on external funding (such as UNEP-GEF, the Romanian-American Foundation and the Foundation for Partnership) and the payments remain symbolic (600 in 2014). 181

184 Analysis of the relevance of PES as a tool to solve the ecosystem management challenges encountered in the case studies Table 38 - Analysis of the relevance of PES for each of the 5 in-depth case studies Case studies Criteria of relevance Adopt a field edge (#048) Slovensky Raj National Park (#113) Mature Forest Reserves (#096) Hull Flood Risk (#002) Danube PES: Maramures Heritage Trail (#019) 1. Property rights well defined? Farmers (providers) can choose their land use No Private ownership in the park; management of the park by the National Forest Administration instead of the National Park Administration Forest owners (providers) can choose how they manage their forests Local habitants and authorities (providers) can choose their land use The protected areas administration (providers) should be able to bring modifications to their land use (within the boundaries of their conservation objectives) 2. Existing solutions well-known? A no fertilizer, no spray practice has already started in the area in 1995 International best practices are easily accessible Mature forest conservation can be achieved through a simple solution: nonintervention and No : classical engineering solutions (e.g. storage areas) are well-known. No: ecological solutions such as SuDS are not wellunderstood by local stakeholders International best practices are easily accessible 3. Capital market efficient? No need for high capital investment No need for high capital investment No need for high capital investment Not Clear As the project stayed at concept stage, the costs and returns on investment remain unclear No need for high capital investment 182

185 Case studies Criteria of relevance Adopt a field edge (#048) Slovensky Raj National Park (#113) Mature Forest Reserves (#096) Hull Flood Risk (#002) Danube PES: Maramures Heritage Trail (#019) 4. Policy, laws or regulations do not incite detrimental landuse? CAP has been reformed to avoid inciting production at the expense of the environment No Forest exploitation allowed in the park; renewable energy policy may conflict with conservation aims Not clear No evidence of harmful regulations although there may be conflict with renewable energy policies 5. Total benefits exceed total costs? Not clear Total benefits include the unquantified high ecological value of the habitat for birds and insects which may be lower than the costs of their provision The EcoS generated by the park holds a great (assessed) value Not clear Mature forests hold an unquantified ecological and scientific value The benefits in avoided flooding-related costs should exceed the costs of the SuDS The EcoS generated by the park holds a great (assessed) value 6. Ecosystem management challenges caused by externalities? Good land management by farmers creates benefits for the general public (e.g. existence value of biodiversity, pollination services) Good park management would create benefits for the general public Good forest management creates benefits for the general public The implementation of SuDS by households reduces flood risks for other inhabitants of their urban area Good PA management would create benefits for the general public and the PA could also generate recreational services for external visitors A. Existence of demand for the ecological function where its benefits can be enjoyed? No Demand exists but it could be fulfilled with provision of the service somewhere else. Demand exists for leisure and cultural activities (such as climbing) No Demand exists but it could be fulfilled with provision of the service somewhere else. There is a clear need for flood risk reduction in Hull city, both for local residents and businesses Demand exists for leisure and cultural activities 183

186 Case studies Criteria of relevance Adopt a field edge (#048) Slovensky Raj National Park (#113) Mature Forest Reserves (#096) Hull Flood Risk (#002) Danube PES: Maramures Heritage Trail (#019) In addition, there is no demand from private businesses. In addition, there is no demand from private businesses. B. Beneficiaries of the use value of the externalities located offsite? No Only benefits of non-use values are provided No The recreational services are enjoyed on-site No Only benefits of non-use values are provided The SuDS are very local infrastructures and their benefits can be felt in a wider area No Direct beneficiaries (tourists) benefits from the services on site (even though buyers such as guesthouses benefit from more tourists off-site) C. Will EcoS provision be insufficient to meet demand in a business as usual scenario? The baseline showed a decline of species (bumblebees, etc.) on the fields Not Clear No evidence indicated an insufficient level of ES in the baseline Not clear Mature forests may be declining but some forest owners may not cut their forest stands even if they are not paid As past floods demonstrate, the flood risk in Hull City is significant Demand for leisure could grow but current offer is insufficient D. Can potential providers change their management actions to provide more EcoS? Farmers can better manage the field edges (if they receive sufficient financial support) The managers of the park could take actions to increase the supply of EcoS Forest owners can choose not to cut the trees Local habitants and authorities can choose to construct SuDS in their gardens or in public areas The PA can both improve their conservation actions and build infrastructure for tourism (but currently 1 = ) E. Can the potential providers fully control the level of EcoS supplied (i.e. no other stakeholders can influence EcoS level)? Farmers have the full control of their lands No Tourists and local habitants could also partially influence the EcoS provision (by Forest owners control the state of the forests on their land No If SuDS are implemented only in some parts of Hull City (and if these areas do not play a significant role in flooding), then their effect No Tourists and local habitants could degrade the landscape (trash dumping or degradation of hiking 184

187 Case studies Criteria of relevance Adopt a field edge (#048) Slovensky Raj National Park (#113) Mature Forest Reserves (#096) Hull Flood Risk (#002) Danube PES: Maramures Heritage Trail (#019) degrading the park and its tracks) on flood prevention will be limited paths) and thus influence the EcoS provision F. Do results of costbenefit analysis indicate a preference for PES scheme rather than classical engineering approaches? Not Clear No comparison with other ways to protect habitats and species has been conducted Not Clear No comparison with other ways to protect habitats and species has been conducted Not Clear No comparison with other ways to protect habitats and species has been conducted No Classical hydraulic engineering approaches (storage areas) are more competitive in terms of cost-benefits than a PES scheme Not Clear No comparison with other ways to protect habitats and species or to provide entertainment has been conducted If the answers to most of questions A to F above are, then a PES scheme can be efficient. G. Do individual users have sufficiently large shares of total EcoS benefits so it is unlikely there will be free-rider problem? No The individual share of the large numbers of beneficiaries of support service is low NA The EcoS targeted are not yet clearly defined No The individual share of the large numbers of beneficiaries of support service is low No No single household or business concentrate a large share of flood risk reduction benefits No The individual share of the large numbers of beneficiaries of support and recreational service is low H. Is the direct use value high? No Support services have limited direct use value (but high indirect use value as they support all other EcoS) NA The EcoS targeted are not yet clearly defined No Support services have limited direct use value (but high indirect use value as they support all other EcoS) Flood risk reduction has a direct use value: it reduces damage caused by floods Landscape services have high direct use value: they benefit tourists I. Is the number of beneficiaries small? No NA The EcoS targeted are not yet clearly defined No No Many households and businesses will benefit from lower flood risks No Beneficiaries include tourists, local guesthouses, tour-operators, etc. 185

188 Case studies Criteria of relevance Adopt a field edge (#048) Slovensky Raj National Park (#113) Mature Forest Reserves (#096) Hull Flood Risk (#002) Danube PES: Maramures Heritage Trail (#019) J. Is the EcoS a production input or key process of a business? No The support services generated are not production inputs. NA The EcoS targeted are not yet clearly defined No The support services generated are not production inputs. Flood risk is an input of insurance companies Recreational and aesthetic benefits are essential for the tourism industry Conclusion Public subsidies may be better suited to solve this environmental issue than PES schemes (question A = No ). If PES are considered, publicly funded PES scheme are preferred (questions G to I = No ) A PES scheme is not the right solution due to the existence of multiple challenges. Other measures such as ensuring the decisions on land-use are taken by the National Park Administration and harmonizing harmful policies, should be implemented first. Public subsidies may be better suited to solve this environmental issue than PES schemes (question A = No ). If PES are considered, publicly funded PES scheme are preferred (questions G to I = No ) PES is a possibility, but not the best choice because 1/of coordination issues (SuDS must be built in all areas contributing to floods), 2/ storage areas are more competitive. Regulation and classical engineering solution may be more appropriate. A PES scheme involving the tourism sector is theoretically applicable, but issues such as free-riding, the difficulty to collect money from all beneficiaries, etc. favour other instruments such as access right fees. 186

189 EC - ST U DY ON BI O DI VERSI TY FI N AN C IN G A N D T R A C KI N G BI ODIV ER S I TY-RELATE D EX PE N DI T U R ES IN TH E EU B U D GE T 4.4 Conclusions Key issues when considering and designing PES, and associated solutions Payment for Environmental Services (PES) programmes are a rapidly expanding approach for internalizing environmental externalities in business, households and the public sector. Hundreds of pilot programs have been started globally and some have matured into effective long term and self-funded programs. The goal of a PES is to close the finance and management loop between beneficiaries of ecosystem services and the people or groups that manage the ecosystems that enable these services. This usually implies changes in ecosystem management, through long term partnerships between stakeholders involved in ecosystem management, and by securing financing from those that will benefit. Payments received by ecosystem managers aim to compensate for opportunity costs or activity costs, to ensure key services are provided. These systems have been especially effective for upland watershed management, for drinking water and hydro-electric facilities. Ideally a PES programme should generate additionality. This means the scheme should bring additional benefits that would not have been achieved without its implementation. PES programmes seeks to improve ecosystem management through the beneficiary-pays or user-pays principle 138, and turning lose-win situations into win-win where ecosystems that provide value to beneficiaries are maintained through financial support from these beneficiaries. The beneficiary-pays principle is widely applicable, to solve a wide range of environmental issues, but PES is strictly focused on ecosystem management, and will only be appropriate in certain circumstances. Under what conditions is a PES the most effective management solution? PES are not silver bullets. They are challenging to establish and require a specific set of conditions to achieve success. An essential first step of any project should be to assess whether a PES would be the best instrument to deal with the environmental challenges identified. Even in the cases where they are the most effective, it is possible that preliminary actions such as awareness raising or establishing adequate property and land-use rights need to be carried out first, and will provide more immediate benefits, at lower cost. Early feasibility studies that address such questions can help avoid putting significant effort into projects that would likely not succeed in the medium term (as #048, Adopt a field edge or the difficulties of #096, Mature forest reserves show). PES are often not the best tool (as shown in Table 3). They can, however, be a second best solution when others cannot be implemented due to lack of funds or limited support from key stakeholders. Moreover, establishing a PES can also provide added benefits by strengthening governance, creating institutions, building capacity and raising awareness. Such benefits are well illustrated by the Local Partnership established by the Maramures project (Romania). Conversely, Table 38 and the case studies of Evian and Vittel (France) highlight that improving water purification through improved watershed management is one of the areas where PES are among the most effective tools for both aligning incentives for farmers to engage in favourable management and financing such management measures. Before any PES is considered (see also Figure 32and Figure 10), the fulfilment of the following key conditions for PES success must be assessed: 1. Basic preconditions are met, the most important of which are: o Enabling regulatory environment, where policies and regulations do not block or strongly impede the intended environmental goals (e.g. sectorial policies that create overridding incentives on land- 138 If the benefits of the ecosystem services are enjoyed on-site, then the payments to the providers of ecosystem services should rather be called payment for access or use right than PES Ernst & Young All rights reserved 187

190 uses).instead, a clear legal framework 139 provides visibility to buyers and providers (especially private stakeholders) and decreases the likelihood of unexpected changes in policies or other external incentives; o Adequate capacity to manage the target ecosystem, including technical (know-how and equipment), institutional (decision making processes, monitoring) and legal (land-use rights) capacity; 2. Total benefits exceed total costs: the public and private gains of providing the ES must be superior to the total costs. However, it should be clear that the demonstration that total economic benefits exceed total costs (e.g. through an economic assessment of the value of ecosystem services to the buyer / payer) is not sufficient in itself to ensure the success of a PES 140. As important, a return on investment must be visible to the buyer of the ecosystem service, especially if the private sector is to be involved (see below specific conditions for this); 3. Existence of demand and willingness to pay for the ecosystem services at the intended location, which can be satisfied by establishing a PES. The existence of successful, well-known and publicized ecosystem-based solutions 141 can also help steer stakeholders towards establishing a PES. It should be noted that none of these conditions alone ensures a PES will be successful, and a PES scheme could succeed in spite of some conditions not being met. They are, nevertheless, a useful starting point. Businesses of all sizes can contribute to the conservation of biodiversity. A strong business case for the involvement of the private sector in PES exists in many cases, especially for the provision of water quality ecosystem services (e.g. Evian and Vittel). However, businesses interest in ecosystem services are generally targeted on only a few such services that directly relate to their operations, namely water quality, support services and recreational services for water utilities, agriculture, livestock & forestry, and the tourism industry) or to their corporate social responsibility policies, namely carbon sequestration. If a PES is indeed relevant to a private company or sector, a second necessary step consists of assessing whether there is a clear business case for the involvement of the private sector. In many circumstances, public-private partnerships can be put in place if the PES could or has to be, at least partially, publicly funded. Typically, this is the case when there are also significant support services benefits to be obtained from the PES. Determinants of likely interest from the private sector include the following (cf. Figure 10): 1. The private company is dependent on the ecosystem service for its business model: if a business benefits from the direct use of an ecosystem service as one of its major production inputs (e.g. water for bottled water) or key process (e.g. water regulation services for hydro-electricity), then the potential cost savings or benefits can justify a privately financed PES. Conversely, when PES are established to supply support services with limited direct use value (e.g. habitats for species with no direct use), they often need to rely on public institutions and financing, as private costs are likely to exceed private benefits; 2. One or a few private companies receives a significant amount of the total ecosystem service benefit decreasing the incentive for others to free ride. Under the converse conditions when free-riding is a significant risk, public coordination and funding may be necessary; 3. Transaction costs are manageable: when benefits are concentrated on only a few buyers, or if a strong intermediary can reduce transaction costs, the chance of success will be higher. Because of the difficulty of brokering multi-stakeholder deals for PES, local authorities and governments often play a significant role (e.g. by playing the role of buyers) to reduce transaction costs and ensure the viability of such multi-stakeholders PES. Businesses with no direct links between their business model and ES provision may be interested to contribute to PES because of their Corporate Social Responsibility (CSR) policies, but their contribution will likely be uncertain and variable. Project #096 (Mature forest reserve) demonstrates that paying for support services without a clear 139 For example, PES were considered as tools to achieve good ecological status as defined by the Water Framework Directive, which allows Member States to choose and support water quality PES as appropriate solutions to achieving WFD targets For instance, the aim of the feasibility study conducted in Slovenski Raj was to assess the economic value of ES and recommend scenario for PES implementation but it was too early to consider PES as basic conditions were not met to make a PES an effective tool (#113, Slovenski Raj). 141 Including green infrastructures. 188

191 business model connection makes payments variable and many decrease over time as the novelty of engaging in a PES ebbs. In practice, PES cannot be considered as a pure market-based mechanism as most PES programmes have been dependent on some public support, especially in their early phases (even in the case of privately financed PES such as those of Vittel and Evian). Our overview of PES in the EU shows that some of the most successful PES (especially PES involving public goods or services which are not inputs of any private business) often work effectively as awareness raising and governance building instruments, more so than financing tools 142. Similarly, most of the PES identified did not use the economic value of ecosystem services to establish the payment amounts, but instead aimed at compensating the cost of providing the services ( cost targeting ) or the opportunity cost of changing behaviour. Best practices and pitfalls to avoid in the design of PES The effectiveness and efficiency of a PES program depends on the appropriate use of PES to solve a resource management issue and on the actual design of the PES system. In general, PES programmes should to be adapted to local situations and often require diverse, multi-layered institutional architectures (Lapeyre 2015). Because of the varied nature of ecosystems, and the complex institutional agreements PES usually require, they cannot easily be replicated as universally applicable ready-made or off-the-shelf solutions. Instead, they must be designed to fit a given situation. A legal basis, a strong economic case and technical solutions that enable the target ES to be provided at a reasonable cost (cheaper than the willingness to pay) are needed before setting out to design a PES. The design may consider economic (including financial feasibility), scientific (including uncertainties), regulatory, institutional and awareness issues. As the project matures, different challenges will emerge and the programme proponent must adapt its design. Defra, in the UK, noted that the awareness issue is a widespread concern that is often not adequately addressed. Our overview of the EU-wide experience, however, shows that it may not be the main obstacle faced by PES. The following best practices are recommended 143 : 1. Ensure early support and financing to go through the initial concept and pilot stages of the project. PES require significant time for their design, for coordination and for public consultation as they are not ready-made solutions and need to be adapted to local contexts to succeed (biodiversity and local governance can be both very specific which prevent ready-made solutions to be easily developed). This early support can be brought by international donors (e.g. the GEF and the American-Romanian Foundation in the Maramures case study) or by public authorities and through the involvement of individual donors (Mature Forest Reserves); 2. Set up an empowered steering committee to ensure the involvement of local stakeholders, e.g. local Partnership (Maramures) 3. Build on existing national or local policies / strategies and create partnership with national or local authorities, e.g. the Maramures PES project strengthens the region as a national ecotourism destination (Maramures), Defra finances pilot studies, the drafting of a PES guide, etc. (Hull), a local development plan which provided financial support for the edge adoption pilot (Adopt a field edge) 4. Establish partnerships with research institutes to support the monitoring process, improve knowledge on the provision of the ES and analyse the effectiveness of the scheme (Evian PES) 5. Look for a stable entity or person able to move the PES forward. Strong leadership is needed for a PES due to their complex nature and the need to align the interests and build confidence in a range of stakeholders. Many PES are small-scale and do not generate much profit. PES require dedicated individuals or entities ready to spend time and energy especially during the formative stages. The case studies indicated that at least one such leader is necessary and that PES risk failure if there is no leader or if he / she quits the project 144. This conclusion is complemented by the findings of the INVALUABLE project (Lapeyre 2015) 142 In both Maramures and the Schouwen-Duivenland island, the money collected was rather symbolic and barely covered the management costs of the PES, but project leaders valued their role and benefits as awareness raising tools. 143 These best practices originate from this study s overview of PES in the EU. 144 A job change at the Hull City Council contributed to the halt of the project (Hull); the lack of governance framework and of local leader contributed to the lack of progress for the Slovenski Raj protected area (Slovenski Raj). 189

192 which concluded that intermediary institutions (e.g. parastatal agencies, watershed stakeholders forums, etc.) role in procedural equity is essential in the success or failure of many projects; 6. Ensure the PES achieves additionality, i.e. creates changes in ES provision relative to an agreed (counterfactual) baseline or scenario. Most PES tend to lack assessments of the additionality or effectiveness in promoting ecosystem services and show inadequate attention to establishing baseline scenarios and ongoing monitoring. To design an effective PES, measurable change over a well-documented baseline should be the clear agreed upon target. As well, the link between inputs (management actions) and outputs (provision of ecosystem services) must be well understood - in particular the positive impact of management actions on biodiversity conservation. 7. Develop and establish high quality scientific knowledge, monitoring and enforcement procedures, all of which are essential to assure impact and effectiveness. Both privately and publicly funded schemes tend to require the involvement of public authorities or an effective intermediary for these procedures - which contradicts the dominant belief that market-based approaches to environmental protection are associated with less regulation as compared to classical command-and-control approaches (Lapeyre 2015). In general, the lack of robust science-policy interfaces in the field of biodiversity (Lapeyre 2015) hamper the design of ecologically-effective management measures and limit the effectiveness of PES systems (Naeem et al. 2015). 8. Demonstrate and communicate quickly on the results to private buyers, in order to keep them motivated and to continue to raise enough money from a sufficient number of buyers 145. But the need for rapid results may be incompatible with the long time required by ecosystems to react to management actions and produce ecosystem services. It should also be noted that ecosystem services does not equal biodiversity conservation. Projects targeting ecosystem services may favour certain species or habitats over other more natural systems that contribute more to biodiversity, but produce lower ecosystem services value. For instance, an urban park with low level of biodiversity could generate a high value of ecosystem services, while a mature forest with high biodiversity value as well as various developed ecological functions could provide low ecosystem service value to beneficiaries, if no beneficiary was located nearby to enjoy the provision service, the water purification service, etc. that it provides. Thus a PES project would make more sense in the urban park, even though protecting the mature forest would reap higher biodiversity benefits 146. Another risk is to change pro-conservation behaviour into a utilitarian conservation ethos no pay, no conservation - (Lapeyre 2015). Communication towards ecosystem service providers and institutional arrangements must thus be carefully calibrated to avoid such mind set transformations. Recommendation on further policy support to encourage effective and efficient PES in the EU The analysis of PES in the EU including the workshop on private financing and PES (please See Table 48 in the annex) led to the following recommendations: Public authorities o At the EU level: Consider drafting a PES guidance document 147 in order to explain the best practices that should be applied when designing PES (e.g. ensure additionality) and to provide practical advice on how to successfully implement PES schemes. For instance, provide examples of methodologies that could be used at the different steps of a PES project 145 Local guesthouses, camping and tour operators have been skeptical of the benefits a PES scheme to preserve landscape in Maramures national parks could bring them and therefore few participated at the beginning of the scheme and little money was collected. The project had to quickly start designing a nature trail to be partly funded by the money collected in order to demonstrate results (Maramures). Similarly, farmers in Schouwen-Duivenland had to organize one day on the farms every year and to keep in touch with individual donators, in order to keep them interested by the scheme. The operational costs exceeded the amount donated, which led to the end of the project in the Netherlands (Adopt a field edge) 146 However, in that specific example, services provided by the mature forests such as climate regulation may benefit humanity as a whole (global climate regulation) or populations far from the ecosystems (local climate regulation) and their value may make the mature forest more interesting than the urban park for a PES project; However, climate regulation services face other issues, including scientific uncertainties regarding the causality links and the quantification of the benefits. In any case, they are public goods prone to free-riding and therefore not suited for privately financed PES. 147 The need for such EU-level PES guidance was stressed by participants of the workshop dedicated to private financing organized during this study. 190

193 o such as how to identify beneficiaries of the services, how to understand their motivations, etc. It could be illustrated by examples and case studies. From the private business point of view, clarity on what best practices are and examples of successful projects would encourage companies to become more involved, with more positive impacts. Consider the possibility of establishing quantified targets to cover non-water ecosystem services in a manner similar to the Water Framework Directive targets for good ecological status of water bodies. If PES are relevant for such ecosystem services (which could be for instance flood risk prevention or pollination), they could significantly benefit from specific regulatory targets, as watershed PES benefited from the Water Framework Directive targets. Consider a refinement or revision of the potential greening payments in the next reform of the CAP to increase its effectiveness to provide specific agricultural related ecosystem services such as watershed management, pollination, etc. Greening payments under the European Agricultural Guarantee Fund (EAGF) account for a significant share of biodiversity expenditures in the EU budget, which means that increasing their ecological effectiveness could significantly contribute to biodiversity conservation. Identifying in details potential changes to the greening measures, if that element would be retained in the CAP post-2020, would require a dedicated and extensive study. Such changes should be based on scientific evidences of the ecological benefits of individual greening measures. Additional measures could be covered by greening payments if their ecological benefits are demonstrated (e.g. the provision of habitats for pollinators, associated with measurements of pollinator populations), as long as this does not complicate the rules of greening payments. Another option is to reallocate part of the greening payments budget to create a PES seed fund (or earmark it through the NCFF) in that it covers the initial costs of establishing a local PES system that achieves both the goals of the EAGF and those of enhancing biodiversity and ecosystem services. Such a refinement of existing instruments of the EU could be considered more broadly in the context of the next EU Multi-annual Financial Framework (MFF) for the CAP but also for other funds to steer the budget toward result-oriented measures through PES-like schemes. Support research and innovation in ecosystem management, through dedicated calls for proposals through Horizon 2020 on the key obstacles, which include knowledge on ecosystem management and multi-scale / multi-sectorial governance systems. At the Member State level: Track ongoing PES programmes at local / regional / national level and consider developing a database to assess their effectiveness and identify best practices, while providing a certain degree of transparency and seize the opportunity to build a community of practitioners for PES. Consider drafting national interpretation of EU guidance for PES; Consider introducing ES and PES concepts into the relevant national regulatory frameworks; Encourage more efforts in the definition of baselines for non-agricultural practices. For instance, minimum environmental requirements could be set up, which would highlight what goes beyond these good practices and thus help to draw a line between what a buyer is supposed to pay for and what a provider is supposed to provide without being paid for (Polluter pays principle); Maximize opportunities offered by the Community-led Local Development (CLLD) approach supported by the ESI Funds to lead local action groups composed of representatives of local public and private socio-economic interests to integrate and facilitate PES or PES-like approach in their local development strategies; Provide funding for PES pilot projects, following the example of the funding rounds for PES implemented and funded by the Defra in the United Kingdom. Such funding should be linked to the spread of best practices from the pilots and an assessment of their results. At the EU level, the Natural Capital Financing Facility can also contribute to PES pilot project funding; 191

194 Facilitate and support the role of brokers who might facilitate deals between buyers and providers of ES. Though Member States may play a direct brokering role, their support may be more efficient providing initial funding, national guidance and technical support to NGOs who could act as intermediaries; o Transversal actions that may be relevant both at the EU and Member State level: Build the capacity of national and local institutions to efficiently manage ecosystems, especially those in charge of the management of protected areas and environmental authorities; Fund research on links between management / ecosystems / ecosystem services / biodiversity to reduce uncertainties and identify the management practices that maximize biodiversity and ecosystem services output; Strengthen knowledge transfer platforms, for instance by creating or strengthening communities to facilitate exchanges between practitioners (such as the B@B platform 148 or OPPLA). Civil society (NGOs ) can play a key bridging role in the governance framework as they can act as intermediaries leading, facilitating or monitoring PES; Private businesses can optimise their business model and establish PES to benefit from natural capital or create new business model tapping into PES as funding sources; Knowledge providers (researchers, consultants) o Have a key role in developing the science to demonstrate the links between management actions and the provision of ES; o Guide buyers, providers and intermediaries to implement PES. The stakeholders whether public entities, NGOs or private businesses - taking the role of PES project leader should draw on the best practices mentioned above and: Assess the relevance of a PES scheme and of private financing to solve the environmental issue at hand (e.g. by answering the questions listed in Figure 32and Figure 10 of this report); Establish partnerships with local research institutes and other intermediaries (for knowledge provision, funding, monitoring, etc.); Empower local steering committees to maximize the local support for their scheme; Build on existing regulations as well as existing institutions to save resources and create synergies. PES, voluntary or mandatory biodiversity offsets, user or access fees, green bonds, eco-certification, sponsorship and trust funds could all play a role in increasing private financing for biodiversity and ecosystem services in the EU. These tools should be part of a mix of instruments and should be adapted to local context, especially the institutional architectures and network of stakeholders that are already in place. The characteristics of each ecosystem management issue also determines the best tools to be used: PES cannot be implemented to tackle all environmental issue or the pervasive lack of conservation funding, neither can voluntary biodiversity offsets or any other single tool. The most important issues to consider when choosing which instrument to use and who should finance it are the causes of the ecosystem mismanagement. Is it, for example, an externality or lack of harmonization of regulations? Identifying the actual demand for the benefits provided by ecosystems is also essential, as well as the distribution and relevance of these benefits among stakeholders (concentration of the benefits among a few stakeholders? key production input?) and the nature of these benefits (public good?). While promoting PES to achieve its Biodiversity Strategy targets, it is recommended that the European Commission clarifies that the polluter pays principle remains dominant and the beneficiary pays principle applies only when 148 Through the EU B@B Platform, the European Commission works directly with companies on specific workstreams including the Financing for Business Biodiversity and the Innovation for Business and Biodiversity workstreams. 192

195 the former does not. The EC could also provide guidance on which ecosystem services are likely to be the most suited to PES, in particular as regards privately financed PES. PES can be useful tools but they are usually best used complementarily with other tools. They in general cannot solve ecosystem mismanagement issues on their own, especially if existing issues such as harmful subsidies or lack of institutional capacity have not been solved beforehand. Despite recognized potential, however, further assessments are needed to better understand how they can be most effectively and efficiently used in fulfilling biodiversity objectives. 193

196 5. Annex 5.1 Current tracking approaches in the EU budget (Draft Budget 2017) and share of biodiversity contributions per fund 194

197 EC - ST U DY ON BI O DI VERSI TY FI N AN C IN G A N D T R A C KI N G BI ODIV ER S I TY-RELATE D EX PE N DI T U R ES IN TH E EU B U D GE T Table 39 - Current methodological options in the EU budget (Draft Budget 2017) and share of biodiversity contributions per fund Fund Methodology Description per EC a DB2017 DB2017 DB Biodiversity M Fund total M % Biodiversity M Fund total M (A) (B) (C)=(A)/(B) (D) (E) (F)=(D)/(E) % European Earth Observation and Monitoring Programme (Copernicus) 30% of the produced output from the Copernicus Land monitoring service. "Deliver accurate and reliable data and information to Copernicus users (The Copernicus Land monitoring service will provide information including on the dynamics of monitoring of biodiversity: operational continuity of Land Monitoring service is to be achieved by 2015 (30% of output produced attributed)) The Copernicus land monitoring service provides geographical information on land cover and on variables related, for instance, to the vegetation state or the water cycle. It supports applications in a variety of domains such as spatial planning, forest management, water management, agriculture and food security, etc. The service is operational since 2012." 107, ,4 1,8% 103,7 586,2 17,7% Horizon The Framework Programme for Research and Innovation Rio markers application at project/challenge level "These estimates for 2015 and 2016 have been calculated by applying the biodiversity tracking methodology (0%, 40% and 100%), generally at the level of the specific objectives/challenges. Given that the evaluation process for 2014 calls is still on-going, only partial information is available at this stage which might facilitate revision of estimates for Estimates for 2015 have been revised to take into account the experience of 2014 in those cases where enough information is available from finalised calls. For 2016, contribution to biodiversity objectives has been estimated at the level of specific objectives/challenges by taking into consideration both the past experience of 2014 calls and the first indications of topics to be included in the Work Programme. Revised estimates providing more accurate figures will be provided from next year onwards when the first full tracking results are available." 51, ,9 0,5% 200, ,4 2,10% HEADING 1a COMPETITIVENESS FOR GROWTH AND JOB 207, ,8 159, ,3 0,98% 304,5 European Regional Development Fund (ERDF) Based on intervention categories 2016 Ernst & Young All rights reserved An accurate estimation of the contribution of ERDF to financing biodiversity can be done globally, through the Member States' funding priorities as reflected by the categories of intervention, and expressed as a percentage of the budget to be made available in 2016 (2,7%). This tracking methodology covers 861, ,7 2,94% 808, ,1 3,00% 195

198 Fund Methodology Description per EC a DB2017 DB2017 DB climate and biodiversity objectives, in line with regulatory requirements. Estimating the contribution for both objectives at the level of thematic objectives is more challenging, as no direct and univocal correspondence can be established in all cases between categories of intervention and thematic objectives. Biodiversity M Fund total M % Biodiversity M Fund total M (A) (B) (C)=(A)/(B) (D) (E) (F)=(D)/(E) % Cohesion Fund (CF) Based on intervention categories "An accurate estimation of the contribution of CF to financing biodiversity can be done globally, through the Member States' funding priorities as reflected by the categories of intervention, and expressed as a percentage of the budget to be made available in 2016 (7,6%). This tracking methodology covers climate and biodiversity objectives, in line with regulatory requirements. Estimating the contribution for both objectives at the level of thematic objectives is more challenging, as no direct and univocal correspondence can be established in all cases between categories of intervention and thematic objectives. " 686, ,8 7,58% 660, ,5 7,56% HEADING 1b COHESION POLICY 1 415, , , ,5 4,04% 1 468,8 European Agriculture Guarantee Fund (EAGF) For 2014 and 2015: A Rio marker 1 is applied to 20% of Direct payments to account for cross-compliance From 2016: A Rio marker 1 is applied to greening payments; and to 10% of Direct payments to account for crosscompliance "As of Draft Budget 2016, with the new direct payments' schemes fully implemented, the contribution to biodiversity is calculated as follows: for the payment for agricultural practices beneficial for the climate and the environment (item ) a Rio marker 1 is applied; plus a Rio marker 1 is applied to 10% of the remaining direct payments taking into account cross-compliance (i.e. 4% of budget chapter 0503 Direct payments without payment for agricultural practices beneficial for the climate and the environment). For Budget 2015, the amount was established using the following methodology: 40% of 20% = 8 % of budget chapter Direct payments. " 6 063, ,6 14,12% 6 030, ,3 14,28% 196

199 Fund Methodology Description per EC a DB2017 DB2017 DB Biodiversity M Fund total M % Biodiversity M Fund total M (A) (B) (C)=(A)/(B) (D) (E) (F)=(D)/(E) % European Agricultural Fund for Rural Development (EAFRD) A Rio marker 2 is applied to Priority 4 commitments from which commitments related to areas facing natural constraints (ANCs) are excluded, and a Rio marker 1 is applied to Focus Area 5E. "In the programming period most of the measures with positive biodiversity impact were part of Axis 2. Since the beginning of the programming period the calculation of 40% of the annual commitments was used as an estimate of the size of the rural development contribution to biodiversity, which was in line with Commission's climate markers approach. Starting from DB 2016, the methodology for the calculation of the contribution to biodiversity is the following: 100% of the annual commitment in the Priority Area 4 with exception of the amounts for the areas facing natural constraints plus 40% of the annual commitment in the focus area 5E. Calculation based on the value of commitment for DB2016 and indicative allocation to focus areas taking into account 27 rural development programmes adopted by 15 February For comparative reasons the figures for Budget 2015 are revised in line with new methodology and taking into account the revised level of commitments in accordance with Draft Amending Budget No 2 for " 4 251, ,5 29,6% 5 529, ,8 30,43% European Maritime and Fisheries Fund (EMFF) Starting from DB2017, Rio marker 2 is applied to Priority 6 commitments "These forecasts are based on the allocation in the Operational Programmes to Thematic Objective 6 "Preserving and protecting the environment and promoting resource efficiency" (Rio marker 1 of the total applied to budget line ). The annual EMFF contribution is calculated in proportion to the EMFF tranche in the annual budget. t" 136,0 911,7 14,92% 134,0 896,7 14,94%% Programme for the Environment and Climate Action (LIFE) Contribute to a greener and more resource-efficient economy and to the development and implementation of EU environmental 49,5 45,70 policy and legislation* Halting and reversing the biodiversity loss, including the support of the Natura 2000 network and tackling the degradation of 165,5 157,20 ecosystems** Support better environmental governance and information at all levels *** 12,0 11,00 Contributing to increased resilience to climate change**** 21,2 23,00 197

200 Fund Methodology Description per EC a DB2017 DB2017 DB Biodiversity M Fund total M % Biodiversity M Fund total M (A) (B) (C)=(A)/(B) (D) (E) (F)=(D)/(E) % Programme for the Environment and Climate Action (LIFE) Rio markers applied to budget articles *Estimated to be 40% of the projects financed under the priority area resource efficiency (budget article total budget for 2016 is EUR 128,8 million, out of which EUR 114,1 million are devoted to projects); ** Estimated to be the 100% total operational budget for the priority area nature and biodiversity (budget article ); *** Estimated to be 100% of the projects focused on nature and biodiversity financed under the priority area governance and information (budget article total budget for 2016 is EUR 55,5 million, out of which EUR 19,2 million are devoted to projects, out of which EUR 11 million are for projects focused on nature and biodiversity). In the past, the calculation was done in the same way, but expressed in percentage of the total budget line rather than of the amount devoted to projects focused on nature and biodiversity; **** Estimated to be 40% of the total operational budget for the priority areas climate change adaptation devoted to projects and 100% of the amount for the Funding instrument Natural Capital Financing Facility (NCFF), since the interventions financed by it will contribute at the same time to climate adaptation and biodiversity objectives (budget article total budget for 2016 is EUR 48,8 million, out of which EUR 42,6 million are devoted to projects, including EUR 10 million for the NCFF)" 248,2 493,7 50,27% 236,90 462,8 51,19% HEADING 2 SUSTAINABLE GROWTH: NATURAL RESOURCES , , , ,5 18,22% ,0 European Neighbourhood Instrument (ЕNI) Rio markers applied to programming priorities. "The estimation of the contribution from bilateral programmes and Neighbourhood Investment Facility (NIF) is based on the priorities set in the programming documents. Biodiversity is targeted through various actions foreseen in the programming for the period. The majority of actions contributing to biodiversity are reported under specific objective 4. Calculations are based on the assumption that 100% of measures in the environment sector may indicatively contribute to biodiversity; and 40% of measures related to agriculture and rural development may indicatively contribute to biodiversity." 60, ,1 2,78% 76, ,5 3,49% 198

201 Fund Methodology Description per EC a DB2017 DB2017 DB Biodiversity M Fund total M % Biodiversity M Fund total M (A) (B) (C)=(A)/(B) (D) (E) (F)=(D)/(E) % Development Cooperation Instrument (DCI) Cf. description on the right "Based on the analysis of the Multiannual Indicative Programming Documents for DCI (geographic and thematic). Methodology for calculation of the amounts: 7,26 % of [operational chapter BL Commodities agreements BL Agreement with the Food and Agriculture Organisation (FAO) and other United Nations bodies BL Erasmus+ Contribution from the development cooperation instrument (DCI)] " 174, ,5 6,43% 76, ,9 6,74% Partnership Instrument for cooperation with third countries (PI) Cf. description on the right "FPI has used the RIO markers -as developed by DG DEVCO- to estimate the percentage of the 2016 budget that will be allocated to mainstreaming climate action and biodiversity. The annual reporting should confirm the contribution amounts entered in the Programme Statement The figure of EUR 7 million related to 2015 corresponds to the natural Capital Accounting and Valuation of Ecosystem Services, one of the programmes (Action fiches) that has been included in the AAP With regard to 2016, in the light of the MIP programing indicative financial allocations and previous experience with AAP 2014 and AAP 2015 referred to above, FPI estimate that EUR 4 million will constitute biodiversity expenditure in 2016" 3,5 133,7 2,62% 3,4 125,6 2,68% HEADING 4 GLOBAL EUROPE 245, ,70 238, ,3 4,74% 256,8 Other commitments 0, ,7 0, ,2 0,0% 0,00 Total , ,8 8,2% , ,8 9,2% (A) Funding allocated to biodiversity, in million euros, (B) Fraction of total funding allocated to biodiversity, in percent, (C) Fraction of total annual commitments, in percent a Description from Draft Budget

202 EC - ST U DY ON BI O DI VERSI TY FI N AN C IN G A N D T R A C KI N G BI ODIV ER S I TY-RELATE D EX PE N DI T U R ES IN TH E EU B U D GE T 5.2 Annex to section ERDF / CF / ESF biodiversity expenditure tracking Table 40 - Rio markers applied on Intervention field 149 Intervention field 017 Household waste management (including minimisation, sorting, recycling measures) 018 Household waste management (including mechanical biological treatment, thermal treatment, incineration and landfill measures) 019 Commercial, industrial or hazardous waste management 020 Provision of water for human consumption (extraction, treatment, storage and distribution infrastructure) 021 Water management and drinking water conservation (including river basin management, water supply, specific climate change adaptation measures, district and consumer metering, charging systems, leak reduction) Rio marker Justification No stated objective, expected results or possible significant benefits for biodiversity. Certain indirect and long-term benefits for biodiversity and ecosystems could be assumed. However, applying a Rio marker 1 would lead to significant overestimation of expenditure because these are usually rather large investments while the assumed benefits for biodiversity are likely to be insignificant in comparison. A conservative approach is therefore applied. No stated objective, expected results or possible significant benefits for biodiversity. Certain indirect and long-term benefits for biodiversity and ecosystems could be assumed. However, applying a Rio marker 1 would lead to significant overestimation of expenditure because these are usually rather large investments while the assumed benefits for biodiversity are likely to be insignificant in comparison. A conservative approach is therefore applied. No stated objective, expected results or possible significant benefits for biodiversity. Certain indirect and long-term benefits for biodiversity and ecosystems could be assumed. However, applying a Rio marker 1 would lead to significant overestimation of expenditure because these are usually rather large investments while the assumed benefits for biodiversity are likely to be insignificant in comparison. A conservative approach is therefore applied. No stated objective, expected results or possible benefits for biodiversity. Certain indirect and long-term benefits for biodiversity and ecosystems could be assumed. However, applying a Rio marker 1 would lead to significant overestimation. A conservative approach is therefore applied. The way this code is formulated is very broad and includes expenditure types which could be of some relevance for biodiversity. For example, river basin management projects could be classified as 40 per cent. If climate change adaptation measures are eco-system based, they could also be allocated a Rio marker 2 but whether they are eco-system based is not explicitly stipulated. However, other activities such as water supply, charging systems, consumer metering etc. are unlikely to have significant biodiversity benefits as their primary objective is improving the efficiency of the system. A conservative approach to the entire code is therefore applied. Alternatively, the application of a co-efficient could be considered. 149 Kettunen, M., Illes, A., Hart, K., Baldock, D., Newman, S., Rayment, M., Sobey M. and Medarova-Bergstrom, K. (2014) Tracking Biodiversity Expenditure in the EU Budget, Part II Fund specific guidance documents, Final Report for the European Commission DG ENV, Institute for European Environmental Policy, London/Brussels 2016 Ernst & Young All rights reserved 200

203 Intervention field 022 Waste water treatment 023 Environmental measures aimed at reducing and/or avoiding greenhouse gas emissions (including treatment and storage of methane gas and composting) Rio marker 1 0 Justification This code is likely to have tangible biodiversity benefits and therefore a Rio marker 1 is applied. However, it should be noted that these are considerably large infrastructure projects, some components of which (e.g. collection systems) might not necessarily be relevant for biodiversity. Still, a Rio marker 1 is justified as it is recognised that the entire project contributes to improving the status of EU waters and river basin quality, thus having relevance for biodiversity. No stated objective, expected results or possible benefits for biodiversity. 083 Air quality measures 0 No stated objective, expected results or possible benefits for biodiversity. 084 Integrated pollution prevention and control (IPPC) 085 Protection and enhancement of biodiversity, nature protection and green infrastructure 086 Protection, restoration and sustainable use of Natura 2000 sites 087 Adaptation to climate change measures and prevention and management of climate related risks e.g. erosion, fires, flooding, storms and drought, including awareness raising, civil protection and disaster management systems and infrastructure 088 Risk prevention and management of non-climate related natural risks (i.e The use of the Rio marker 0 is justified in the case of pollution control measures designed to enhance human health, sanitation and general environmental quality, without having a specific biodiversity objective, expected results and/or possible benefits. Some potential and long-term benefits for biodiversity could be assumed but they are likely to be insignificant compared to the volume of investment under this code. Therefore, a conservative approach is applied in order to avoid overestimation. Stated biodiversity objectives and assumed positive effects/benefits for biodiversity. Stated biodiversity objectives and assumed positive effects/benefits for biodiversity. The investment priorities set out in the ERDF and CF Regulations include supporting investment for adaptation to climate change, including ecosystem-based approaches. We propose to apply a Rio marker 1 assuming that some of the expenditure under this code would promote eco-system based approaches to adaptation where biodiversity preservation and enhancement is one of the main objectives and/or expected effects. However, it should be noted that it is possible that infrastructure-based solutions to climate adaptation (such as defence walls, dykes and civil protection) are also reported and are not likely to have positive effects for biodiversity. No stated objective, expected results or possible benefits for biodiversity. The main stated objective/expected effect of projects reported under this code is the reduction of risks (e.g. earthquakes and technological accidents). 201

204 Intervention field earthquakes) and risks linked to human activities (e.g. technological accidents), including awareness raising, civil protection and disaster management systems and infrastructures 089 Rehabilitation of industrial sites and contaminated land Rio marker 0 Justification The use of the Rio marker 0 is justified in the case of rehabilitation measures designed to enhance human health, sanitation and general environmental quality, without having a specific biodiversity objective, expected results and/or possible benefits. Rehabilitation projects often entail urban developments which have no relevance for biodiversity, such as building apartment blocks or shopping malls. Some potential and longterm benefits for biodiversity could be assumed (e.g. for projects related to improving soil quality) but they are likely to be insignificant compared to the volume of investment under this code. Therefore, a conservative approach is applied in order to avoid overestimation. 090 Cycle tracks and footpaths 0 No stated objective, expected results or possible benefits for biodiversity. 091 Development and promotion of the tourism potential of natural areas 1 It is assumed that natural areas include the preservation of natural capital and the promotion of eco-tourism. While there are no stated objectives or expected results for biodiversity, and the primary objective is tourism development, certain benefits for these natural areas could be expected, therefore a Rio marker 1 is applied. However, tourism in natural areas, if not eco-friendly, could also be harmful to biodiversity. An ex-post check should be considered. 202

205 5.3 Annex to section Programme for the Environment and Climate Action (LIFE) The table below includes the guidelines developed to apply Rio Markers at the project level as agreed in 2015 (Medarova-Bergstrom et al. 2015) and provides comments (through footnotes) from the study s team regarding the application of some markers, which might be improved. Sub-programme for Environment - Priority area Environment and Resource Efficiency - Thematic Priorities: Water Rio Marker 2 (100%) applied Rio Marker 1 (40%) applied Rio Marker 0 (0%) applied - aim to improve land-based and aquatic biodiversity in wetland areas used for agricultural purposes by reducing nitrate concentrations - focus on water availability but use of artificial recharge to protect and enhance water and land ecosystems - assess the ecological status of water bodies as required under the WFD (which can help to sustainably manage water resources in Europe) - use the natural ecosystem services provided by the sediments to remove nitrogen to reduce eutrophication of water bodies and aims to protect the long-term environmental integrity of the lakes No significant or explicit biodiversity or ecosystem services relevance Even if an indirect benefit for biodiversity is foreseen under the project, if the protection of ecosystems is not mentioned in the objectives or expected results of the project, a conservative approach is applied (it could be revised ex-post by looking at the actual results of the project and changed to 40 per cent if needed) Sub-programme for Environment - Priority area Environment and Resource Efficiency - Thematic Priorities: Waste + Environment and health + Air quality and emission Rio Marker 2 (100%) applied Rio Marker 1 (40%) applied Rio Marker 0 (0%) applied - - No significant or explicit biodiversity or ecosystem services relevance Sub-programme for Environment - Priority area Environment and Resource Efficiency - Thematic Priorities: Resource efficiency, including soil and forests and circular economy Rio Marker 2 (100%) applied Rio Marker 1 (40%) applied Rio Marker 0 (0%) applied - monitor the environmental status of forests in order to facilitate their future conservation - decontaminate soil when contaminated soil has a negative impact on biodiversity prevent soil degradation and improve soil quality so that soil provide food provisioning services but also contribute to biodiversity conservation No significant or explicit biodiversity or ecosystem services relevance Sub-programme for Environment - Priority area Nature and Biodiversity Rio Marker 2 (100%) applied Rio Marker 1 (40%) applied The primary objective of all listed projects under the Nature and Biodiversity priority area is the conservation and restoration of biodiversity and the maintenance of ecosystem services. Consequently, all projects are marked as 100 per cent The application of a Rio Marker 1 for such projects may be debated. The project which was used as an example, Demonstration of innovative soil washing technology for removal of toxic metals from highly contaminated garden soil (Medarova-Bergstrom et al. 2015), does not really impact biodiversity, it just mentions that in general contaminated soil negatively impact biodiversity (as do most waste ). 203

206 Rio Marker 0 (0%) applied - Sub-programme for Environment - Priority area Environmental Governance and Information Rio Marker 2 (100%) applied Rio Marker 1 (40%) applied Rio Marker 0 (0%) applied - conduct educational projects with the conservation and sustainable use of biodiversity as the main objective (e.g. awareness raising campaign aims to improve the conservation of large trees and mature forests or at supporting conservation actions focusing on Natura 2000 sites in Crete by motivating the public to participate in relevant decision-making processes) - carry out an awareness raising campaign on negative impacts, where awareness raising on impacts on ecosystem are a part (but not the main objective) of the campaign (e.g. campaigns on the impacts of cigarette butts discarded on coastal areas, in order to protect the coastal environment and safeguarding public health) No significant or explicit biodiversity or ecosystem services relevance Sub-programme for Climate Action - Priority area Climate Change Mitigation Rio Marker 2 (100%) applied Rio Marker 1 (40%) applied Rio Marker 0 (0%) applied - recover the ecological functions with a focus on increasing the carbon fixation capacity of the area and its resilience to climate change - harmonise the needs of wind farm developers with the conservation needs of EU biodiversity by minimising impacts of wind farms on biodiversity while the main aim is to support renewable energy sources - increase the environmental sustainability of the cultivation cycle of fishes and salt water molluscs 151 as a secondary objective of the development of eco-efficient technologies for aquaculture (which mainly aim to promote the usage of more efficient and low-carbon technologies in aquaculture) - demonstrate agroforestry carbon sequestration projects, while at the same time promoting active nature conservation with an expected effect of increased biodiversity 152 but with the main objective being climate change mitigation No significant or explicit biodiversity or ecosystem services relevance 153 Sub-programme for Climate Action - Priority area Climate Change Adaptation Rio Marker 2 (100%) applied Rio Marker 1 (40%) applied - enhance an ecosystem s or a species resilience to climate change and preserve ecosystems or species (e.g. Mediterranean forests, the Falco eleonorae), which directly benefits both biodiversity and climate change adaptation - promote the integrated management of a natural area (e.g. a lake) in order to reduce its vulnerability to the effects of climate change and anthropogenic measures and to maintain its ecological status and its benefits to society (e.g. bathing water quality) - build capacity (e.g. by building a comprehensive platform) for analysing climate change effects on ecosystems, assessing their vulnerability and monitoring their mitigation potential, with results which could potentially be used to increase the resilience of ecosystems to climate change and improve ecosystem services 151 The project used as an example was Eco-efficient technologies development for environmental improvement of aquaculture (Medarova- Bergstrom et al. 2015). Environmental sustainability does not equate with biodiversity. Thus a Rio Marker 0 may be more appropriate in that case 152 The project used as an example was Integrated agroforestry practices and nature conservation against climate change (Medarova-Bergstrom et al. 2015). This project is very similar with the De-urbanising and recovering the ecological functioning of the coastal systems of La Pletera project (described in this table as recover the ecological functions with a focus on increasing the carbon fixation capacity of the area and its resilience to climate change ), though it may also promotes ecosystem services other than carbon sequestration (it is not clearly stated in the elements used to assess its contribution to biodiversity). Applying a Rio Marker 2 to this project as it was done for the La Platera project would thus be logical, or the guidelines should at least be clarified to distinguish between such similar projects. 153 The project Sustainable management of shrub formations for energy purposes was applied a Rio Marker 0 in the guidelines (Medarova- Bergstrom et al. 2015) but fire prevention can be considered as an ecosystem service provided by ecosystems without shrub, and the project could thus arguably be applied a Rio Marker

207 - improve the ecological function of soils and integrate conservation practices into agricultural techniques in order to help soil adaptation to climate change promote reforestation in urban areas to improve quality of life and environment, with the improvement of forests ecosystem services, e.g. carbon sequestration and water retention, is regarded as an expected result (even if biodiversity conservation itself is not an objective) Rio Marker 0 (0%) applied No significant or explicit biodiversity or ecosystem services relevance A Rio Marker 0 is also applied to projects targeting invasive species but with no specific reference to biodiversity 155 Sub-programme for Climate Action - Priority area Climate Governance and Information Rio Marker 2 (100%) applied Rio Marker 1 (40%) applied Rio Marker 0 (0%) applied No example yet. No example yet. No significant or explicit biodiversity or ecosystem services relevance 5.1 Detailed analysis of partnership agreements 154 The project used as an example was Helping enhanced soil functions and adaptation to climate change by sustainable conservation agriculture techniques (Medarova-Bergstrom et al. 2015). As with the Integrated agroforestry practices and nature conservation against climate change project, its description is very similar to the De-urbanising and recovering the ecological functioning of the coastal systems of La Pletera project which was awarded a Rio Marker 2: the guidelines should clarify when projects seeking to improve ecological functions should be applied Rio Markers 1 and This guideline applied for instance to the Development & demonstration of management plans against the climate change enhanced invasive mosquitoes in South Europe (Medarova-Bergstrom et al. 2015). Invasive species could arguably be considered as biodiversity-related topic and a revision of the guidelines might be justified to award Rio Markers 1 or 2 to projects targeting invasive species. 205

208 EC - ST U DY ON BI O DI VERSI TY FI N AN C IN G A N D T R A C KI N G BI ODIV ER S I TY-RELATE D EX PE N DI T U R ES IN TH E EU B U D GE T Table 41 - Detailed set of gathered data - presence of explicit biodiversity related objectives within PA fund-specific objectives 156 "Biodiversity" only Including directly related themes Member States Biodiversity translation ERDF ESF CF EAFRD EMFF ERDF ESF CF EAFRD EMFF Comment BE Biodiversiteit No - - No No - - EMFF: "Marine ecosystems" BG биоразнообразието - No - EMFF: Natura 2000 CZ Biodiverzity - No - No DK Biodiversitet No No No Natura 2000 DE Biodiversität EE биоразнообразието IE биоразнообразието No - - No No - - EMFF: " Habitats, Birds and MSFD GR βιοποικιλότητα - - No - - EMFF: "diversity of ecosystems" ES Biodiversidad No - - No - - FR Biodiversité HR биоразнообразието No - No - IT Biodiversità CY βιοποικιλότθτασ No - No - No ERDF: "Natura" LV Bioloģiskās daudzveidības Low level of information on TO6 LT Biologinė įvairovė - - LU Biodiversité HU Biodiverzitás No - No No - No No ERDF: "Natura 2000","Ecosystems" MT Biodiversity - No No - No No NL Biodiversiteit No No AT Biodiversität PO Bioróżnorodność - - PT Biodiversidade - - RO Biodiversity - No - No SI Biotske raznovrstnosti No - No No - - ERDF: "Conservation", "Species", SK Biodiversity - No - No FI uonnon monimuotoisuuden SW Biologiska mångfald UK Biodiversity No - - No No - - No 156 : explicit mention in the fund objectives description under TO6; No : no explicit mention within the description; - : no identified description under TO 2016 Ernst & Young All rights reserved 206

209 5.2 Annex to section EAGF biodiversity expenditure tracking A. Methodology #1 Impacted land based analysis This global approach is based on the impact assessment for CAP reform towards performed by the European Commission in In the Annex 2D, the share of lands impacted by the greening payments (area which would have to be adapted with the measures) are assessed. Several scenarios are proposed for each measure: option 1 is the closest to the adopted scenario and will be the one retained in the calculation. Table 42 - Greening payments studied Measure Adopted in CAP a Option 1 b Option 2 b Option 3 b Crop diversification 3 crops, each crop must not cover more than 75% of the area 3 crops, each crop must not cover more than 70% of the area 3 crops, each crop must not cover more than 50% of the area 3 crops, each crop must not cover more than 70% of the area Permanent Grassland Must be preserved Must be preserved Must be preserved Must be preserved Ecological focus area Ecological focus area is fixed at 5% (then 7%) Ecological focus area is fixed at 5% Ecological focus area is fixed at 5% Ecological focus area is fixed at 10% Green Cover / 70% of arable and permanent crops land should be covered during winter time 70% of arable and permanent crops land should be covered during winter time 70% of arable and permanent crops land should be covered during winter time a. Regulation (EU) No 1307/2013 of December 2013 b. Commission Staff Working Paper, Impact Assessment, Common Agriculture towards 2020 (2001), SEC(2011) 1153 NB: Ecological set aside measure is considered as the same measure as EFA creates areas where agricultural practices are not allowed. Thus, these areas (EFA) are also set aside. 157 Commission Staff Working Paper, Impact Assessment, Common Agriculture towards 2020 (2001), SEC(2011)

210 Table 43 - Estimation of land share impacted by the greening payments Less conservative scenario (close to the adopted scenario) Measure (i) Crop diversification - Option 1 (ii) Ecological set aside - Option 1 (iii) Permanent Grassland % impacted land area a (a) 1.40% 2.30% 8.00% Rio Markers (b) 0% 100% 40% Greening payments impacts (% lands) (a x b) 0% 2.30% 3.20% Adopted scenario Biodiversity-relevant expenditure (MFF ) Cost ( ) - Impact on the same lands (Max (i, ii, iii)) 3.20% EUR 2.9 billion Cost ( ) - Impact on different lands (i+ii+iii) 5,50% EUR 5.0 billion a. Commission Staff Working Paper, Impact Assessment, Common Agriculture towards 2020 (2001), SEC(2011) 1153 Crop diversification and EFA measures are only implemented on arable lands according to R 1307/2013 of December Permanent grassland can be implemented on different land types. Therefore, the two first measures could concern the same land share and according to the farming, permanent grassland could impact the same or different land types from the previous ones. For the following calculations we use EUR billion as the total direct payments envelope for MFF and consequently EUR 91.5 billion for green direct payments (30%). The percentage of impacted land area is applied on the latter amount (green direct payments). The low hypothesis considers the lowest impact of each measures and each measure impacts the same area (Table 35) and the percentage of the impacted land area is 3.20% which translates into biodiversity-relevant expenditure of EUR 2.9 billion (Table 35). The conservative hypothesis consists of taking into account the highest impact (highest figure concerning the land share impacted by the greening payments) of each measure and considering that each measure impacts different kind of lands which corresponds to the percentage of impacted area of 5,5%. Thus biodiversity-relevant expenditure under this scenario corresponds to EUR 5 billion (Table 35). Without applying the Rio Markers, the highest land share impacted would be 11.7% (1.4%+2.3%+8%). 208

211 B. Methodology #2 Implementation cost-based analysis at EAGF level With the impact assessment for CAP reform, the same approach can be applied to the cost of the changes on land practices due to greening payments: from EUR 1.1 billion to EUR 2.3 billion. Table 44 - Estimation of implementation cost of the greening payments Less conservative scenario Measure (i) Crop diversification - Option 1 (ii) Ecological set aside - Option 1 (iii) Permanent Grassland Cost a (M ) (a) ,798 Rio Markers (b) 0% 100% 40% Biodiversity budget (M ) (a x b) ,119 Less conservative scenario Cost (M ) - Impact on the same lands (Max (i, ii, iii)) 1,119 Cost (M ) - Impact on different lands (i+ii+iii) 2,068 a. Commission Staff Working Paper, Impact Assessment, Common Agriculture towards 2020 (2001), SEC(2011) 1153 These two methodologies give a range of Biodiversity expenditures resulting from the implementation of greening payments, from EUR 1.1 billion for the implementation costs approach to EUR 2.1 billion for the impacted lands approach. These estimations are based on the scenario of the impact assessment that was closest to the adopted one. Appropriate time frame The next step requires identifying the appropriate time frame for which the payments would cover the estimated costs: The methodology adopted for the share of land impacted by the greening payments is directly linked to the total EAGF budget (from 3.20% to 6,06% of impacted land area to apply to the greening payment budget, that is 30% of the total EAGF from 2015 as a close estimate) The methodology adopted for the cost of implementation identifies a cost for reaching compliance as a first step. Once compliance is reached, it may be discussed whether the same amount should be taken into account for the following years. On the one hand, it can be argued that compliance would probably be given up if it was not enforced in the first place and that payments stopped. On the other hand, it is likely that the appropriate payment for maintaining compliance is lower than the appropriate payment for triggering action toward compliance. As a consequence, it can be defended that the appropriate estimate of payments for the first year would be equal to the cost of implementation, while subsequent years might raise more complex issues. 209

212 5.3 Detailed tables for EAGF analysis Table 45 - Application arrangements on greening payments at MS level Member State Permanent grassland obligation level Ratio and obligation applied at national level Ratio and obligation applied at regional level EFA Activation of EFA regional / collective approach Activation of EFA forest exemption Austria Belgium - Flanders Belgium Walonia Bulgaria Croatia Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Only collective impl. Poland Only collective impl. Portugal Romania Slovakia Slovenia Spain Sweden UK England UK North. Ireland UK Scotland UK Wales N of MS which applied the choice 23* 4* 2* 4* * number of countries (ex. Belgium - Flanders + Belgium - Walonia = 1 country) Source: EC, Direct payments post 2014 Decisions taken by Member States by 1 August State of play on Information note, available here: 210

213 Table 46 - Application arrangements on Ecological focus area at MS level c. Landscape features Member State a. Land lying fallow b. Terraces Hedges or wooded strips Isolated trees Trees in line Trees in groups and field copses Field margins Ponds Ditches Traditional stone walls Other landscape features under GAEC or SMR d.buffer strips e.hectars of agro-forestry f. Strips of eligible hectares along forest edges - NO PRODUCTIO N f. Strips of eligible hectares along forest edges - WITH PRODUCTIO ON g.areas with short rotatiio copice h. Afforested areas i.areas with catch crops or green cover j.areas with nitrogen fixing crops N of EFA activated Activation of Equivalent practices Austria No No No No No No No No No No No No No No No 4 Belgium - Flanders No No No No No 14 Belgium - Walonia No No No No No 14 Bulgaria No No No No No 14 Croatia No No No No No 14 Cyprus No No Activation in 2016 No No Activation in 2016 No No No No No No No No Czech Republic No No No No No 14 Denmark No No No No No No No No (GAEC7) No No No No No 6 Estonia No No No No No No No No No No No 8 Finland No No No No No No No No No (GAEC7) No No No No No No 4 France No 18 Germany No No 17 Greece No No No No No No No No No No No No No 6 Hungary No 18 Ireland No No Possible activation in 2016 No No (GAEC7) No No No Italy No 18 Activation in Activation in Activation in

214 Estonia 8 Finland No No No No No No No No No (GAEC7) No No No No No No 4 France No c. Landscape features 18 Germany No No 17 f. Strips of f. Strips of Greece No No No No No No No No No No No No No Other eligible eligible 6 g.areas with i.areas with Hungary Member State Hedges or Trees in No landscape hectares hectares h. j.areas with 18 Activation of a. Land lying Isolated Field Traditional d.buffer e.hectars of short catch crops N of EFA b. Terraces wooded Trees in line groups and Ponds Ditches features along forest along forest Afforested nitrogen Equivalent fallow trees Possible margins stone walls strips agro-forestry rotatiio or green activated Ireland No strips No field copses activation in No No under (GAEC7) No edges No- NO edges No - WITH areas fixing crops practices copice cover 2016 or SMR PRODUCTIO PRODUCTIO 11 Italy N ON No 18 Austria No No No No No No No Activation No in No No No No Activation No in Activation No in No 4 Latvia No No No No 2016 or No (GAEC7) No 2016 or 2016 or No No Belgium - Flanders No No No No No later later later 14 8 Belgium - Walonia No Activation Activation Activation Activation No No No No 14 Lithuania No No No No No No No No No No No No No Bulgaria from 2016 from 2016 from 2016 from 2016 No No No No No 2 14 Croatia Luxembourg No No No No No No No No No Cyprus Malta No No No No (GEAC7, Activation in Activation in No No No No No No No No No No No No No No No SMR3) No No No No No Czech Netherlands Republic No No No No No No No No No No No No No No No No No No No No 4 14 Denmark Poland No No No No No No No No No No No (GAEC7) No No No No No No 15 6 Estonia No No No No No No No No No No No Portugal No No No No No No No No No (GAEC7,SMR No No No No No 8 Finland No No No No No No No No No 2,SMR3) (GAEC7) No No No No No No 45 France Romania No No No No No No Germany Slovakia No No No No No No No No No Greece Slovenia No No No No No No No No No No No No No No No No No 63 Hungary Spain No No No No No No No No No No No No No No No 18 4 Sweden No No No No No Possible No No No No No No No No 6 Ireland No No activation in No No (GAEC7) No No No UK England No No No No No No No No No No No No No No Italy UK Northern Ireland No No No No No No No No No No No 18 9 UK Scotland No No No No No No Activation No in No No No Activation No in Activation No in No No 5 Latvia UK Wales No No No No No No No 2016 Noor No (GAEC7) No No No 2016 Noor 2016 Noor No No No 6 N of MS which applied later later later 8 Lithuania the choice 30 No 8 No 16 No 13 Activation Activation Activation Activation No No 7 No 10 No 20 No 12 No 11 No 8 No 22 No 15 No from 2016 from 2016 from 2016 from CHOICES ON ECOLOGICAL FOCUS AREAS EFA activated No EFA not activated Activation in 2016 Choice to activate a EFA after 2015 Source: EC, Direct payments post 2014 Decisions taken by Member States by 1 August State of play on Information note, available here: Source: 212

215 MS */ Terraces - Landscape features (LF)** Terraces Minimum height Hedges or wooded strips Maximum width Trees in groups and field copses Maximum area Table 47 - Application arrangements on Ecological focus area at MS level Field margins Ponds Ditches Traditional stone walls Minimum Maximum Minimum Maximum Maximum Minimum Height Belgium - Flanders Art. 45 Art. 45 Art. 45 Art. 45 Art. 45 Art. 45 EC - STUDY O N B IO D IVE RS IT Y F IN A NC IN G Belgium - Walonia 10 0, ,01 0,1 6 Same dimensions Bulgaria Not specified Art. 45 Art. 45 Art. 45 Art. 45 Art. 45 Art. 45 Art. 45 Maximum Height Minimum Width Maximum Width All terraces protected Field margins GAEC 7: size not specified Croatia 2 0,2 Art. 45 Art. 45 0,01 0,1 2 0,5 2 LOWER Stone walls: height not specified Czech Republic Not specified 0,3 Art Same dimensions Terraces: dimensions justified in description Denmark 0,01 0,2 LOWER Estonia 30 0,5 12 0,3 1,7 0,5 2,8 HIGHER Finland France Not specified Art. 45 Art. 45 Art. 45 Art. 45 Art. 45 Art. 45 Terraces: dimensions justified in description Germany Not specified Not specified 0,2 2 Not specified 2 Not specified LOWER Dimensions justified in description Greece Art. 45 Art. 45 Hungary 1 Art. 45 0,5 Art. 45 Art. 45 0,1 0,5 Art. 45 HIGHER Ireland 10 Art Same dimensions Italy 0,5 6 Art. 45 Art. 45 Art. 45 Art. 45 Art. 45 Art. 45 0,3 5 0,5 5 LOWER Latvia Art. 45 Art. 45 Art. 45 Art. 45 Art. 45 Luxembourg 10 0,3 Art. 45 Art. 45 0,01 0,1 Same dimensions Malta Art. 45 Art. 45 Art. 45 Netherlands Art. 45 Art. 45 Poland Art. 45 Art. 45 Art. 45 0,01 2 LOWER Romania Not specified Art. 45 Art. 45 Art. 45 Art. 45 Art. 45 Art. 45 Art. 45 Slovakia 3 0, Same dimensions Sweden Art. 45 UK England Art. 45 UK Northern Ireland 4 2 0,5 2,3 0,25 4 LOWER UK Scotland Art. 45 c. Landscape features UK Wales Art. 45 Art. 45 Approach MS (dimensions compared to Art. 45) NOTES 213

216 NOTES * MS which didn't activate any Landscape Features in 2015: AT, CY, LT, SL, SP; MS which chosen just LF where a dimension limit is not needed are also not indicated ** LF where a dimension is not requested in the notifications are not included (isolated trees, trees in line, other landscape features) LEGAL BASIS: Del Reg 639/2014 Article 45(4): Landscape features shall be at the disposal of the farmer and shall be those that are protected under GAEC 7, SMR 2 or SMR 3 as referred to in Annex II to Regulation (EU) No 1306/2013 as well as the following features Art. 45 MS which applied Article 45, no dimension limits to be spcified 10 In green: MS which used the same time limit of Art In red: different dimension limits compared to Art In yellow: dimension limits not provided in Art. 45 Column Approach MS: summary of the strategy used by MS for GAEC-SMR regarding dimension limits in comparison with values of Art. 45 Source: EC, Direct payments post 2014 Decisions taken by Member States by 1 August State of play on Information note, available here: Source: 214

217 Source: Commission Staff Working Paper, Impact Assessment, Common Agriculture towards 2020 (2001), SEC(2011) 1153 EC - STUDY O N B IO D IVE RS IT Y F IN A NC IN G Option 1 Option 2 Option 1 Option 2 Country PEA (ha) / ha of PEA Cost ( ) / ha of PEA Cost ( ) / ha of PEA Cost ( ) / ha of PEA Cost ( ) / ha of PEA Cost ( ) BE , , BG , , CY , , CZ , , DK , , DE , , EL , ES , EE , , FR , , HU , , IE , , IT , , LT , , LU LV , , MT , , NL , , AT , , PL , , PT , , RO , , FI , , SE , , SK , , SI , UK , , HR TOTAL Cost overestimated for Malta 215

218 5.4 Detailed tables for EAFRD analysis Please find below in four tables the list of allocated Rio markers for each RDP, as well as a summary of the number of Rio markers allocated at 0%, 40% and 100% for each {focus area ; measure} pair of the sample. Provided tables include priority 4, focus areas 5E, 5D and 2A. No non-zero Rio marker was attributed to other focus areas. Please find below the colour key for the tables: Rio marker 0 Rio marker 1 Rio marker 2 Unattributed: zero commitment 216

219 EC - ST U DY ON BI O DI VERSI TY FI N AN C IN G A N D T R A C KI N G BI ODIV ER S I TY-RELATE D EX PE N DI T U R ES IN TH E EU B U D GE T P4 Country Region M01 M02 M03 M04 M05 M06 M07 M08 M09 M10 M11 M12 M13 M14 M15 M16 M17 M18 M19 M20 UK England NA 0 NA 0,4 NA NA 0,4 0,4 NA 0,4 0,4 NA NA NA 1 0,4 NA NA NA NA Portugal Continente 0,4 0 NA 0,4 NA NA NA 0,4 NA 0,4 0,4 1 0 NA 1 0 NA NA NA NA Roumanie - 0,4 0,4 NA NA NA NA NA NA NA 0,4 0,4 NA 0,4 NA 1 NA NA NA NA NA Spain Andalucía 0,4 0,4 NA 0,4 NA NA 0,4 0,4 NA 0,4 0,4 NA 0,4 NA NA NA NA NA NA NA Bulgaria - 0,4 0 NA 0,4 NA NA NA 0 NA 0,4 0,4 0,4 0 NA 1 0 NA NA NA NA Poland - 0 NA NA 0,4 NA NA NA NA NA 1 0,4 NA 0 NA NA NA NA NA NA NA Netherlands - NA 0 NA 0,4 NA NA NA NA NA 1 NA NA NA NA NA NA NA NA NA NA Italia Campania 0 0 NA 0,4 NA NA 0,4 0,4 NA 1 0,4 NA 0,4 NA 1 0,4 NA NA NA NA Czech Republic - 0 0,4 NA NA NA NA NA 0,4 NA 0,4 0,4 1 0 NA 1 NA NA NA NA NA France Midi-pyrénées NA 0 NA 0,4 NA NA 0,4 NA NA 0,4 0,4 1 0,4 NA NA NA NA NA NA NA Ireland NA 1 NA NA 0,4 NA NA 0 0,4 0,4 0 NA NA 0 NA NA NA NA France Champagne Ardennes 0 0 NA 0 NA NA 0,4 0,4 NA 1 0,4 0,4 0,4 NA NA 0,4 NA NA NA NA Finland Mainland 0 0 NA 0,4 NA NA NA NA NA 1 0,4 NA 0 NA NA 0 NA NA NA NA Austria - 0 0,4 NA 0,4 NA NA 1 1 NA 0,4 0,4 0,4 0,4 NA 1 0,4 NA NA NA NA Croatia National 0 0 NA 0,4 NA NA 1 0 NA 1 0,4 NA 0,4 NA 0 0 NA NA NA NA Germany Bavaria NA 0 NA 0,4 NA NA 0,4 0,4 NA 0,4 0,4 NA 0 NA NA NA NA NA NA NA Germany Berlin-Brandenburg NA 0,4 NA 0,4 NA NA 0,4 0,4 NA 0,4 0,4 0,4 0,4 NA 0 0,4 NA NA NA NA Sample - Number of Rio marker 0 a Sample - Number of Rio marker 1 a Sample - Number of Rio marker 2 a a Allocated 0%, 40% and 100% do not total 17 since no Rio marker was attributed for {focus area ; measure} associated with zero commitments Ernst & Young All rights reserved 217

220 5E Country Region M01 M02 M03 M04 M05 M06 M07 M08 M09 M10 M11 M12 M13 M14 M15 M16 M17 M18 M19 M20 UK England NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA Portugal Continente 0 0 NA NA NA NA NA 0,4 NA 0 NA NA 0,4 NA NA 0 NA NA NA NA Roumanie - NA NA NA NA NA NA NA 0,4 NA NA NA NA NA NA NA NA NA NA NA NA Spain Andalucía NA NA NA NA NA NA NA 0 NA NA NA NA NA NA 0,4 NA NA NA NA NA Bulgaria NA NA NA NA NA 0 NA NA NA NA NA NA NA NA NA NA NA NA Poland - NA NA NA NA NA NA NA 0,4 NA NA NA NA NA NA NA NA NA NA NA NA Netherlands - NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA Italia Campania 0 0 NA NA NA NA NA 0,4 NA NA NA NA NA NA NA 0 NA NA NA NA Czech Republic - 0 NA NA NA NA NA NA 0,4 NA NA NA NA NA NA NA NA NA NA NA NA France Midi-pyrénées 0 0 NA 0 NA NA NA 0,4 NA NA NA NA NA NA NA 0 NA NA NA NA Ireland - NA NA NA NA NA NA NA NA NA 0 NA NA NA NA NA NA NA NA NA NA France Champagne Ardennes 0 NA NA NA NA NA NA 0 NA NA NA NA NA NA NA 0 NA NA NA NA Finland Mainland 0 0 NA NA NA NA NA NA NA NA NA NA NA NA NA 0 NA NA NA NA Austria - NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA Croatia National NA NA NA NA NA NA NA NA NA 0,4 NA NA NA NA NA NA NA NA NA NA Germany Bavaria NA NA NA NA NA NA NA NA NA 0 NA NA NA NA NA NA NA NA NA NA Germany Berlin-Brandenburg NA NA NA NA NA NA NA NA NA 0 NA NA NA NA NA 0 NA NA NA NA Sample - Number of Rio markers 0 a Sample - Number of Rio marker 1 a Sample - Number of Rio marker 2 a a Allocated 0%, 40% and 100% do not total 17 since no Rio marker was attributed for {focus area ; measure} associated with zero commitments. 218

221 5D Country Region M01 M02 M03 M04 M05 M06 M07 M08 M09 M10 M11 M12 M13 M14 M15 M16 M17 M18 M19 M20 UK England 0 0 NA 0,4 NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA Portugal Continente NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA Roumanie - 0 NA NA 0,4 NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA Spain Andalucía 0 0 NA 0,4 NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA Bulgaria NA 0,4 NA NA NA NA NA 0,4 NA NA NA NA NA 0 NA NA NA NA Poland - NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA Netherlands NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA Italia Campania 0 0 NA 0 NA NA NA NA NA NA NA NA NA NA NA 0 NA NA NA NA Czech Republic NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA France Midi-pyrénées 0 0 NA 0 NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA Ireland NA 0,4 NA NA NA NA NA 0 NA NA NA NA NA 0 NA NA NA NA France Champagne Ardennes NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA Finland Mainland 0 0 NA 0 NA NA NA NA NA NA NA NA NA NA NA 0 NA NA NA NA Austria NA 0 NA NA NA NA NA 0 NA NA NA NA NA 0 NA NA NA NA Croatia National NA NA NA 0 NA NA NA NA NA 0 NA NA NA NA NA NA NA NA NA NA Germany Bavaria 0 0 NA NA NA NA NA NA NA 0 NA NA NA NA NA NA NA NA NA NA Germany Berlin-Brandenburg 0 0 NA 0 NA NA NA NA NA 0,4 NA NA NA NA NA NA NA NA NA NA Sample - Number of Rio markers 0 a Sample - Number of Rio markers 1 a Sample - Number of Rio markers 2 a a Allocated 0%, 40% and 100% do not total 17 since no Rio marker was attributed for {focus area ; measure} associated with zero commitments. 219

222 2A Country Region M01 M02 M03 M04 M05 M06 M07 M08 M09 M10 M11 M12 M13 M14 M15 M16 M17 M18 M19 M20 UK England 0 0 NA 0 NA NA NA NA NA NA NA NA NA NA NA 0 NA NA NA NA Portugal Continente 0 0 NA 0 NA NA NA 0,4 NA NA NA NA 0 NA NA 0 NA NA NA NA Roumanie NA 0 NA 0 NA NA NA NA NA NA NA NA NA NA NA NA NA NA Spain Andalucía 0 0 NA 0 NA NA NA NA NA NA NA NA NA NA NA 0 NA NA NA NA Bulgaria NA 0 NA 0 NA NA NA NA NA NA NA NA NA 0 NA NA NA NA Poland NA 0 NA 0 NA NA NA NA NA NA NA NA NA 0 NA NA NA NA Netherlands - 0 NA NA 0 NA NA NA NA NA NA NA NA NA NA NA 0 NA NA NA NA Italia Campania 0 0 NA 0 NA 0 NA 0 NA NA NA NA NA NA NA 0 NA NA NA NA Czech Republic NA 0 NA NA NA NA NA NA NA NA NA NA NA 0 NA NA NA NA France Midi-pyrénées 0 0 NA 0 NA 0 NA NA NA NA NA NA NA NA NA 0 NA NA NA NA Ireland NA 0 NA NA NA NA NA NA NA NA NA NA NA 0 NA NA NA NA France Champagne Ardennes 0 0 NA 0 NA NA NA NA NA NA NA NA NA NA NA 0 NA NA NA NA Finland Mainland 0 NA NA 0 NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA Austria NA 0 NA NA NA NA NA NA NA NA NA NA NA 0 NA NA NA NA Croatia National 0 0 NA 0 NA 0 NA NA NA NA NA NA NA NA NA 0 NA 0 NA NA Germany Bavaria NA NA NA 0 NA NA NA NA NA NA NA NA NA NA NA 0 NA NA NA NA Germany Berlin-Brandenburg 0 0 NA 0 NA NA NA NA NA NA NA NA NA NA NA 0 NA NA NA NA Sample - Number of Rio markers 0 a Sample - Number of Rio markers 1 a Sample - Number of Rio markers 2 a a Allocated 0%, 40% and 100% do not total 17 since no Rio marker was attributed for {focus area ; measure} associated with zero commitments. 220

223 5.5 Annex to section on absorption capacity Table 48 - Selection criteria for the sample of Member States to investigate absorption issues (EY) Item # Examined criterion Instrument/ Mechanism Indicator Rationale A National Funding - Environmental protection expenditures per GDP unit: average value, and variation Independently of EU funding, low levels of funding for environment from national institutions might indicate that environment is not a high priority for the MS, or that the topic is not "mature" enough to allocate funds for actions in this field. Environmental expenditures is used as a proxy for biodiversity since national biodiversity expenditures are not directly accessible and that biodiversity is a subset of environmental topics. B EU Funding Structural funds (ERDF + Cohesion fund) C EU Funding Structural funds (ERDF + Cohesion fund EU Co-financing rates (ERDF and Cohesion Fund) in 2007 and in 2013 Planned distribution of ERDF and Cohesion Fund between broad policy areas in EU12 Member States (% Total MS allocation): Fraction allocated to "42 Environment and risk prevention" and shift Particularly low co-financing rates from Member States might indicate Member state financing issues and therefore financial absorption capacity issues. Particularly low allocation of ERDF and Cohesion Fund to Environment and risk prevention might indicate environment is not a priority to the Member State. Environment and risk prevention budget is used as a proxy for biodiversity since no budget is specifically dedicated to biodiversity and that biodiversity is a subset of environmental topics. D EU Funding EAGF Amounts of financial irregularities detected during period, and appeals against clearance of all accounts as of October 2013 (number of cases and total amounts) 158 E EU Funding EAFRD Fraction of RDP budget allocated to focus areas related to biodiversity (P4 + P5e) Particularly high amounts of financial irregularities indicate the Member States face difficulties to make correct use of the funds placed at their disposal by the EAGF and EAFRD, and that they have issues related to management and control systems ensuring that payments to beneficiaries are regular. Particularly low fraction of EAFRD programming dedicated to the focus areas most likely to be associated with biodiversity (P4 + P5e) 159 might indicate biodiversity is not a 158 Based on latest publicly available data at Member State level, available at : According to the IEEP study: Medarova-Bergstrom, K., Kettunen, M., Illes, A., Hart, K., Baldock, D., Newman, S., Rayment, M., and Sobey M. (2015) Tracking Biodiversity Expenditure in the EU Budget, Part II Fund specific guidance documents, Final Report for the European Commission DG ENV, Institute for European Environmental Policy, London/Brussels 221

224 Item # Examined criterion Instrument/ Mechanism Indicator Rationale F EU Funding EAFRD RDP budget allocated to focus areas related to biodiversity (P4 + P5d+ P5e) per unit of 2013 GDP G EU Funding Cohesion Policy Fraction of Cohesion Policy budget (ERDF+ESF+CF+EAFRD+EMFF) ; as per Partnership Agreements) allocated to Thematic Objective 6 "Protecting the environment and promoting resource efficiency" H EU Funding Cohesion Policy Absorption rates of adopted OPs for Cohesion Policy in 2013 and 2015, for budget period I EU Funding LIFE Comparison of project budget actually allocated to each Member State and indicative annual national allocations 160 (based on MS density, weight of SCI in the EU) strong priority to the Member States or other kinds of biodiversity-related absorption issues. Particularly low fraction of budget explicitly dedicated to the environment might indicate the environment is not a strong priority to the Member States or other kinds of environment-related absorption issues. Environment. Environment and resource efficiency budget is used as a proxy for biodiversity since no budget is specifically dedicated to biodiversity and that biodiversity is a subset of environmental topics. Particularly low rates of absorption for Cohesion Policy during both periods may reveal overall absorption capacity issues. Budget actually allocated to a Member State particularly lower than indicative annual national allocations might indicate the Member State faces difficulties in absorbing LIFE available funding. J K L Biodiversity Status Natura 2000 Qualitative analysis of the level of maturity of Natura 2000 areas development in 2007 and in 2010 (SCIs and SPAs) Fraction of mainland area dedicated to terrestrial SCI, SPA and total Natura 2000 area at the end of 2013 Development of Natura 2000 network between the end of 2005 and the end of 2013 (variation of the fraction of mainland area dedicated to SCIs and SPAs), for EU15 on the one hand and EU13 on the other hand Issues related to Natura 2000 network implementation (low level of maturity of Natura 2000 areas both in 2007 and in 2010, low share of associated mainland area and negative evolution of the share of dedicated mainland area) might indicate Natura 2000 network development, a mechanism strongly in favour of biodiversity, is not a priority to the Member State, or any issue regarding Natura 2000 programming and implementation. M Biodiversity Status Habitat Directive Fraction of species associated with "Unfavourable - Inadequate" or "Unfavourable - Bad" conservation status in 2008 MS self-assessment required by article 17 of the Habitat Directive 161 Particularly high fractions of species or habitats reported to be associated with an unfavourable conservation status by the Member State might indicate the Member States faces strong habitat-related issues it is not able to address. 160 According to Regulation (EC) No 614/2007 of the European Parliament and of the Council of 23 May 2007 concerning the Funding Instrument for the Environment (LIFE+), indicative national allocations are designed to ensure proportionate distribution of projects: The Commission shall ensure a proportionate distribution of projects by establishing indicative annual national allocations for the periods and , art Based on the latest publicly available reports at Member State level national data are not publicly available. 222

225 Item # Examined criterion Instrument/ Mechanism Indicator Rationale N Fraction of habitats associated with "Unfavourable - Inadequate" or "Unfavourable - Bad" conservation status in 2008 MS self-assessment required by article 17 of the Habitat Directive Ibid. 223

226 5.6 Annex to section on private financing References Alquezar Sabadie, Jesus Personal communication. Aznar, Olivier Services Environnementaux et Espaces Ruraux-Une Approche Par L économie Des Services. Université de Bourgogne. Crabbé, Bernard Personal communication. de Koeijer, Peter Personal communication. Defrance, Pierre Financial Compensation for Environmental Services: The Case of Evian Natural Mineral Water Learning from International Experience: Review of PES and the Case of the Evian Natural Mineral Water (Voluntary Agreement). presented at the National Water Policy Dialogue, Yerevan, April 11. Dickie, Ian, Sonja Gantolier, Graham Cooper, Andrew McConville, and Adam Dutton Innovative Use of Financial Instruments and Approaches to Enhance Private Sector Finance of Biodiversity. eftec, IEEP. Engel, Stefanie, Stefano Pagiola, and Sven Wunder Designing Payments for Environmental Services in Theory and Practice: An Overview of the Issues. Ecological Economics 65 (4): Esser, Stefan Personal Communication, September 15. European Commission Draft General Budget of the European Union for the Financial Year 2015, Working Document Part I Programme Statements of Operational Expenditure a. Statement of Estimates of the European Commission for the Financial Year 2016 (Preparation of the 2016 Draft Budget) b. Draft General Budget of the European Union for the Financial Year 2016, Working Document Part I Programme Statements of Operational Expenditure. FPI Excel File - PI Biodiversity Projects (Not Published). Getzner, M Economic and Cultural Values Related to Protected Areas Part A: Valuation of Ecosystem Services in Tatra (PL) and Slovensky Raj (SK) National Parks. WWF World Wide Funds for Nature Danube Carpathian Programme (DCP), Vienna Economic and Cultural Values Related to Protected Areas Part B: Promotion of Regional Development and PES (Payment for Ecosystem Services) Schemes in the Regions of Tatra (PL) and Slovensky Raj (SK) National Parks, and Maramures Natural Park (RO). WWF World Wide Funds for Nature Danube Carpathian Programme (DCP), Vienna. Getzner, Michael Personal communication. Górriz, Elena Personal communication. Gorriz, Elena, and Irina Prokofieva Analysis of Three Economic Incentives for the Provision of Forest Goods and Services in Catalonia (Spain). Spanish Journal of Rural Development 2: Hartmann, Tobias, and Suleika Suntken Markets for Natural Capital Status Quo and Prospects. Imrie, Alison Personal Communication, August 4. Lapeyre, Renaud Governing Biodiversity and Ecosystem Services through Market-Based Instruments? - THEORY AND PRACTICE FOR DECISION-MAKERS. Newsletter 6. INVALUABLE. Laurans, Y., N. Lemenager, and S. Aoubid Les Paiements Pour Services Environnementaux: De La Théorie À La Mise En Oeuvre, Quelles Perspectives Pour Les Pays En Développement?, June. MacGillivray, Anna Payment for Ecosystem Services (PES) Pilot on Flood Regulation in Hull. Final report. Martini, Monia Sustainable Financing in the Maramures Pilot Area. 224

227 . 2015a. Personal communication b. WWF Technical Report Sustainable Financing in the Maramures Pilot Area Annex: Latest Developments (January-June 2015). Medarova-Bergstrom, K., Marianne Kettunen, Andrea Illes, A. Hart, D. Baldock, S. Newman, Matt Rayment, and M. Sobey Tracking Biodiversity Expenditure in the EU Budget, PART II Fund Specific Guidance Documents. London/Brussels: DG ENV, Institute for European Environmental Policy. Mermet, Laurent Strategic Environmental Management Analysis: Addressing the Blind Spots of Collaborative Approaches, May. Molenaar, Karen Payments for Ecosystem Services (PES) Design Characteristics. Pardo López, Dørte Personal communication. Paul, Catherine. 2015a. Excel File DCI, ENI and EDF MIP Masterlist b. Personal Communication, November 6. Perrot-Maitre, Daniéle The Vittel Payments for Ecosystem Services: A perfect PES Case. International Institute for Environment and Development, London, UK, Perrot-Maître, Danièle The Vittel Case: A Public-Private Partnership in the Mineral Water Industry. In. Prokofieva, Irina, and Elena Gorriz Institutional Analysis of Incentives for the Provision of Forest Goods and Services: An Assessment of Incentive Schemes in Catalonia (North-East Spain). Forest Policy and Economics 37: RSPB The Feasibility of a Nitrogen PES Scheme in the Poole Harbour Catchment. Shelley, Barry G What Should We Call Instruments Commonly Known as Payments for Environmental Services? A Review of the Literature and a Proposal. Annals of the New York Academy of Sciences 1219 (1): Smith, Steven, Petrina Rowcroft, Mark Everard, Laurence Couldrick, Mark Reed, Heather Rogers, Tomas Quick, C. Eves, and Chris White Payments for Ecosystem Services: A Best Practice Guide. Defra, London. Strobel, David First Steps for Carpathian PAs towards PES. Švajda, Juraj Personal communication. TEEB The Economics of Ecosystems and Biodiversity: Mainstreaming the Economics of Nature: A Synthesis of the Approach, Conclusions and Recommendations of TEEB. Toillier, Aurélie Les PSE: Des Outils Incitatifs Pour Favoriser L intensification Écologique? Enjeux Pour La Recherche En Afrique de l Ouest. In Partenariat, Modélisation, Expérimentations: Quelles Leçons Pour La Conception de L innovation et L intensification Écologique?, 14 p. Cirad. UNECE Payments for Forest - Related Ecosystem Services: What Role for a Green Economy? Van Assche, Daniel Personal communication. Wragg, Steve Personal communication. Wunder, Sven Payments for Environmental Services: Some Nuts and Bolts Revisiting the Concept of Payments for Environmental Services. Ecological Economics. Wunder, Sven, and Sheila Wertz-Kanounnikoff Payments for Ecosystem Services: A New Way of Conserving Biodiversity in Forests. Journal of Sustainable Forestry 28 (3 5):

228 Summary of the Workshop on Private Financing (June 1 st, Brussels) The workshop on PES and private financing in the EU held in DG ENV in Brussels on 1 June gathered 29 participants, among which private businesses involved in the provision or use of ecosystem services (as well as their federations), representatives of the European Commission (EC), government and international institutions, researchers and consultants. The workshop objectives were to explore lessons learnt from 5 PES case studies and to deepen the analysis conducted in the study. After an introduction by the EC, the workshop consisted of a presentation of preliminary results from an overview of 127 PES projects in the EU and of the 5 case studies conducted for the study, as well as three working sessions intended to discuss obstacles and corresponding solutions for the development of privately financed PES in Europe. The importance of additionality and of the terms used, namely payment for ecosystem services or payment for environmental services (i.e. services provided by human actions on ecosystems) were underlined during exchanges following the introduction. The working groups' discussions on obstacles and solutions resulted in several key messages: It should be clear when beneficiaries pay schemes such as PES are relevant and when the established polluters pay principle should be applied. PES are not a silver bullet and their scope of relevance should be elaborated, as well as what additional benefits they provide (e.g. by defining industry good practices and paying only if practices go beyond them); The discussion about privately-funded PES is closely linked to public support (PPP, availability of credit especially at the project inception, creation of databases to inform on costs and effectiveness of different technologies / management actions); Existing policies could be harmonized at national and EU level to facilitate the development of PES (without necessarily creating new regulations), including through the removal of harmful subsidies. Existing PES in the database could be used to better understand what works best. A guidance at the EU level could be useful to provide inputs on best practices, financing flows, and standard contracts and methodology for the implementation of PES. The outputs of this workshop were integrated into the analysis of PES. 226

229 EC - ST U DY ON BI O DI VERSI TY FI N AN C IN G A N D T R A C KI N G BI ODIV E R S I TY-RELATE D EX PE N DI T U R ES IN TH E EU B U D GE T 2016 Ernst & Young All rights reserved 227

230 EC - ST U DY ON BI O DI VERSI TY FI N AN C IN G A N D T R A C KI N G BI ODIV E R S I TY-RELATE D EX PE N DI T U R ES IN TH E EU B U D GE T Your contacts Alexis Gazzo alexis.gazzo@fr.ey.com +33 (0) Fabien Quétier fquetier@biotope.fr Ernst & Young All rights reserved 228

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