Aligning ecological fiscal transfers in national and state policy mixes

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International Conference on Policy Mixes in Environmental and Conservation Policies Aligning ecological fiscal transfers in national and state policy mixes Irene Ring, Peter H. May and Rui Santos 25 27 February 2014 Leipzig Germany

Overview 1. What are ecological fiscal transfers? 2. Ecological fiscal transfers in POLICYMIX case studies Brazil Portugal Germany 3. Aligning ecological fiscal transfers in policy mixes

1. What are ecological fiscal transfers? Fiscal transfer schemes: Public revenue is redistributed through transfers from national and subnational governments to local governments Federal State (Länder) Local National Local Purpose: Help lower-tier governments cover their expenditure in providing public goods and services Compensate decentralised governments for expenditure in providing spillover benefits to areas beyond their boundaries Ring 2008

Why consider fiscal transfer systems for conservation purposes? Substantial source of income for subnational governments: e.g., on average 60% in developing and transition countries, non-nordic Europe 46%, Nordic Europe 29% Fiscal compensation today Urban agglomerations Rural and remote areas Mostly not considered: Ecological services involving spatial externalities: spillover benefits

Rationales for ecological fiscal transfers Benefits: Goods and services of national and global relevance Costs: Regionally and sectorally unequal distribution Environmental services involving spatial externalities: Local / state costs and spillover benefits Opportunity costs of conservation; usually reduced tax income (land, business, income taxes) Conservation management costs Fiscal equalisation / distributive fairness Ring Page et 5 al. in POLICYMIX Report No. 2/2011

2. Ecological fiscal transfers (EFT) in POLICYMIX case studies Impact evaluation of existing EFT to the local level: Brazil (cross-state comparison, NW Mato Grosso) Portugal Scenario evaluation of EFT as a new instrument from federal to state level: Germany

Ecological fiscal transfers in practice Portugal Local Finances Law 2007 promote sustainable local development Natura 2000 and other nationally protected areas as indicators for fiscal transfers to municipalities Brazil (since 1991) 13 out of 26 states consider protected areas for distributing state-level value-added tax to municipalities (ICMS Ecológico) Ring Page et 7al. in POLICYMIX Report No. 2/2011

Brazilian states with ICMS Ecológico (ICMS-E) State Year Environmental criteria Biodiversity conservation (%) Other criteria (%) Paraná 1991 2.5 2.5 São Paulo 1993 0.5 0.0 Minas Gerais 1995 0.5 0.5 Rondônia 1996 5.0 - Amapá 1996 1.4 - Rio Grande do Sul 1998 7.0 ( 1 ) - Mato Grosso 2001 5.0 2.0 Mato Grosso do Sul 2001 5.0 - Pernambuco 2001 1.0 5.0 Tocantins 2002 3.5 9.5 Acre ( 2 ) 2004 20 - Rio de Janeiro 2007 1.125 1.375 Goiás ( 2 ) 2007 5.0 - Ceará 2007-2.0 Piauí 2008-5.0 Pará ( 2 ) Undergoing definition Undergoing definition Ring et al. in POLICYMIX Report No. 2/2011

Evaluation of EFT in the policy mix Effectiveness? Could be related to the quantity and quality of the conservation indicator that is newly introduced in fiscal transfers, here protected areas (PA) Recent introduction: Changed revenues due to EFT / Protected areas Ring et al. in POLICYMIX Report No. 2/2011

Growth in protected areas up to 1991 and from 1992 to 2009, Paraná, Brazil Protected areas Prior to 1991 (ha) Up to August 2009 (ha) Increase (%) Federal conservation units 584,622.98 714,913.10 22.3 State conservation units 118,163.59 970,639.05 721.4 Municipal conservation units 8,485.50 231,072.02 11,338.8 Indigenous areas 81,500.74 83,245.44 2.1 RPPN 0 42,012.09 0 Faxinais (traditional community) 0 17,014.56 0 Permanent Protection Areas - APP 0 17,107.69 0 Legal Reserves RL 0 16,637.73 0 Special Sites SE 0 1,101.62 0 Other connective forests OFC 0 3,245.62 0 Total 792,772.81 2,096,988.92 164.5 Source: Wilson Loureiro, IAP/DIBAP-ICMS Ecológico for Biodiversity, in Ring et al., POLICYMIX Report No. 2/2011

Cross-state comparison: Creation of protected areas before and after ICMS-E Minas Gerais Paraná Acre Rondônia No clear explanatory power of before/after ICMS-E introduction in relation to average PA creation per year May et al., POLICYMIX Report No. 5/2012

Creation of protected areas before and after ICMS-E Detailed analysis at the local level: Mato Grosso No clear explanatory power of before/after ICMS-E introduction in relation to average PA creation per year May et al., POLICYMIX Report No. 5/2012

Detailed analysis of ICMS-E in North West Mato Grosso 5% for Conservation Units and Indigenous Lands (2002) Is the ICMS-E an effective instrument for conservation? How fair is the intra-municipal allocation of ICMS-E revenues? What legal and institutional arrangements could allow an improvement of effectiveness and equity effects? Comparison of 2 municipalities Juína and Cotriguaçu ICMS-E revenues can compete with revenues from livestock and logging! But need for capacity building and qualitative criteria.

The Portuguese 2007 Local Finances Law (LFL) (15. Jan. 2007) Art 6 Promotion of Local Sustainability Financial regime of municipalities shall contribute to the promotion of economic development, environmental preservation and social welfare This objective is assured namely by the: Positive discrimination of municipalities with area under Protected Areas or Natura 2000 status, in the scope of FGM (General Municipal Fund) Santos et al., POLICYMIX Report No. 6/2012

Ecological component in FGM Local Finances Law establishes that 5 to 10% of FGM shall be distributed according to the area included in Natura 2000 and national protected sites Municipal general fund (FGM) allocation criteria: Equal allocation to all municipalities 5 % Population 65% Total area 20-25% 30% Protected Areas & Natura 2000 5-10% Transfers per hectare PA are higher if protected area coverage in relation to municipal area is beyond 70% Lump-sum payments municipalities decide upon use of money Santos et al. (2012)

Relevance of ecological signal for local budgets of a sample of municipalities (2008) with more than 70% conservation areas with less than 70% conservation areas Municipalities Share of fiscal transfers as a proportion of total municipal revenue Share of ecological fiscal transfers Share of conservation areas to total municipal area Campo Maior 89% 25% 100% Murtosa 78% 6% 80% Porto de Mós 75% 11% 76% Aljezur 70% 16% 73% Barrancos 97% 26% 100% Terras de Bouro 94% 22% 95% Freixo Esp Cinta 93% 21% 91% Castro Verde 90% 34% 76% Lisboa 25% 0% 0% Grândola 71% 2% 9% Viana do Castelo 60% 0.5% 24% Lamego 80% 1% 33% Almeirim 62% 0% 0% Peso da Régua 87% 0.4% 12% Évora 62% 1% 16% Vimioso 96% 8% 38% Santos et al. (2012)

EFT in Portugal problems Crossover effects: significant number of simultaneous changes makes the ecological component of the new scheme difficult to grasp for the affected stakeholders Economic crisis: municipalities receive in 2012/13 more or less the same as in 2007 s 3.000 ro 2.750 E u n 2.500 ilio m 2.250 2.000 1.750 1.500 1.250 1.000 750 500 250 0 2007 2008 2009 2010 2011 2012 2013

EFT in Portugal: Future design challenges The EFT mechanism has a relevant potential but needs to be revised and improved. Fill the information gap communication strategy to disseminate and interact with municipalities Isolate and make clear the incentive signal Complement with a quality criterion

Scenario evaluation: EFT in the German policy mix Schröter-Schlaack et al. 2013, POLICYMIX Report No. 1/2013 19

Step 1 NATURA 2000 1 A terrestrial 1 B terrestrial + marine Stepwise integration of conservation indicators Step 2 Step 3 Nature and species conservation terrestrial Nature and species conservation Landscape conservation Building on indicator Nature and species conservation (IÖR) terrestrial terrestrial Step 4 Nature and species conservation Landscape conservation Landscape fragmentation terrestrial terrestrial Step 5 Nature and species conservation Landscape conservation Landscape fragmentation National responsibility terrestrial terrestrial

Future scenario for ecological fiscal transfers in Germany Ökologischer Länderfinanzausgleich Per capita changes (euros) in relation to current fiscal transfers to the German Länder as of 2010, if National Parks, Natura 2000-sites and Nature Reserves were included in German fiscal equalisation Schröter-Schlaack et al. 2013, POLICYMIX Report No. 1/2013

Future of EFT in Germany? Zero sum-game, no earmarking, but.. Leverage effect of EFT: acknowledging biodiversity conservation as public responsibility recognising associated costs as eligible for compensation via fiscal transfers Provide impetus for EFT at municipal level Help mainstreaming biodiversity conservation into sectoral policies at state level (land-use planning, infrastructure development etc.) Provide / secure funding for PES schemes Extend to spatial externalities from ecosystem service provision

3. Alignment challenges of ecological fiscal transfers (EFT) Goal: Compensating subnational governments for conservation costs (opportunity and/or management costs) as well as spillover benefits of protected areas (PA) Actors addressed: Public actors (national to local; state to local; national to state) align with instruments for private actors Conservation effectiveness: Incentive to increase quantity and quality of PAs (especially when beneficiary of transfers can influence quantity and quality of PAs) Monitoring important!

Alignment challenges of EFT Associated costs: low transaction costs, building on existing mechanisms (fiscal transfer schemes and PA regulation); secure no double funding Social impacts: depending on entry point of PAs in fiscal transfer scheme; fiscal transfers as such address inequalities between jurisdiction distributive instrument Legal and institutional requirements: PA coverage as a indicator for biodiversity conservation: easy to grasp, monitor and information available; introduction of new indicators often needs constitutional changes and new laws, requiring political majorities

Ecological fiscal transfers in the conservation policy mix Build on PA regulation Complement e.g. PES Requires info and involvement Actors addressed by incentive: public actors Governance levels addressed: governments at different levels national / state / local Associated with: Constitution, Protected area regulation Potential complement: PES private actors; Conservation support prog. management costs Relevant: Good information policy to increase knowledge and motivation of actors addressed Schröter-Schlaack and Ring in POLIYMIX Report No. 2/2011

and the wider picture: 2013 CBD strategic plan to 2020: mobilisation of financial resources for implementing biodiversity targets Mainstreaming biodiversity in public finance and fiscal transfer schemes Raising biodiversity finance and promoting biodiversity conservation and sustainable use through Environmental Fiscal Reform (EFR) Create synergies between instruments addressing public and private actors

Further EFT presentations: this afternoon Policy mixes for biodiversity conservation and species protection (2) Schröter-Schlaack et al.: EFT in Germany and their role in the policy mix for biodiversity conservation Cassola and Ring: EFT for biodiversity conservation in Brazil: options for a federal-state arrangement May, Gebara et al.: The effectiveness and fairness of the ICMS-E as a fiscal transfer for biodiversity conservation. A tale of two municipalities in Mato Grosso, Brazil

References May, P., Andrade, J., Vivan, J., Kaechele, K., Gebara, M., Abad, R. (2012): Brazil: Assessment of the role of economic and regulatory instruments in the conservation policymix for the Brazilian Amazon a coarse grain analysis. POLICYMIX Report Issue No. 5/2012. REDES, UFRRJ and ICV, Brazil OECD (2013): Scaling up Finance Mechanisms for Biodiversity. Paris. Ring, I. (2008): Biodiversity governance: Adjusting local costs and global benefits. In: Sikor, T. (Ed.): Public and Private in Natural Resource Governance: A False Dichotomy? Earthscan, London, 107-126 Ring, I., May, P., Loureiro, W., Santos, R., Antunes, P., Clemente, P. (2011): Ecological fiscal transfers. In: Ring, I., Schröter-Schlaack, C. (Eds.) (2011): Instrument Mixes for Biodiversity Policies. POLICYMIX Report No. 2/2011. Helmholtz Centre for Environmental Research UFZ, Leipzig, pp. 98-118 Santos, R., Ring, I., Antunes, P., Clemente, P. (2012): Fiscal transfers for biodiversity conservation: the Portuguese Local Finances Law. Land use policy 29(2): 261-273 Santos, R., Antunes, P., Clemente, P., Ribas, T. (2012): Portugal: Assessment of the role of economic instruments in the Portuguese conservation policymix a national coarse grain analysis. POLICYMIX Report Issue No. 6/2012. CENSE - Center for Environmental and Sustainability Research, Universidade Nova de Lisboa, Caparica, Portugal Schröter-Schlaack, C., Ring, I., Möckel, S., Schulz-Zunkel, C., Lienhoop, N., Klenke, R., Lenk, T. (2013): Assessment of existing and proposed policy instruments for biodiversity conservation in Germany: The role of ecological fiscal transfers. POLICYMIX Report Issue No. 1/2013. Helmholtz Centre for Environmental Research UFZ, Leipzig Schröter-Schlaack, C., Ring, I. (2011): Towards a framework for assessing instruments in policy mixes for biodiversity and ecosystem governance. In: Ring, I., Schröter-Schlaack, C. (Eds.) (2011): Instrument Mixes for Biodiversity Policies. POLICYMIX Report No. 2/2011. Helmholtz Centre for Environmental Research UFZ, Leipzig, pp. 175-208. All POLICYMIX Reports available at http://policymix.nina.no

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