Economics, Trade and Incentive Measures


Biodiversity generates and helps to maintain the supply of ecosystem services that are essential for human well-being and economic development. Agriculture, for example, would simply not be possible without biological diversity and its contribution to the development of seed varieties and the breeding of domesticated livestock, as well as through the numerous species interacting with agriculture, such as pollinators or symbionts.

When left alone, markets fail to adequately reflect the values of biodiversity. For instance, biodiversity underpins ecosystem functions and the provision of ecosystem services. If market prices fail to properly include the losses to society arising from biodiversity degradation, societal actors – individuals, companies and governments alike – are given no incentives to use biodiversity in a sustainable manner.

The reason for this failure is simple. Even while some biodiversity components have values that are appropriable by the individual, many others bear characteristics of “public goods”, including the key characteristic of public goods that nobody can be excluded from their use. Consequently, individual societal actors often have insufficient, if any, incentive to conserve biodiversity and use it in a sustainable way: While they would have to bear the costs associated with their effort individually, most, if not all, of the associated benefits would accrue to society-at-large.

The Convention’s economic work aims to elicit the economic value of biodiversity through appropriate valuation tools and to "internalize" this value into market prices through the use of appropriate incentive measures - while bearing in mind that there are various types of values attached to biodiversity and a number of them cannot be captured by economic analyses.

Incentive measures usually take the form of a new policy, law, or economic or social programme. A single incentive measure functions within the broader set of incentives governing human behavior, and its effectiveness depends upon support from the existing social, economic and policy environment. Accordingly, the Conference of the Parties has encouraged Parties to review existing policies to identify and promote incentives for conservation and sustainable use of biodiversity, and to develop supportive legal and policy frameworks for the design and implementation of incentive measures. Furthermore, the Conference of the Parties has taken a broad approach to the design and implementation of incentive measures that includes social and institutional measures, in addition to formal economic instruments. For instance, stakeholder participation, capacity-building and information provision are recognized as key elements of a successful implementation strategy.

A range of incentive (and disincentive) measures is available to encourage the conservation or sustainable use of biological diversity.

  • A positive incentive measure is an economic, legal or institutional measure designed to encourage beneficial activities. For instance, positive incentives for the conservation and sustainable use of biodiversity can be generated through agricultural land set-aside schemes, public or grant-aided land purchases or conservation easements, or payments for ecosystem services. They can also be generated through community-based natural resource management.

  • Negative incentive measures or disincentives are mechanisms designed to discourage harmful or unsustainable activities. Examples of disincentives are user fees or pollution taxes. They are sometimes used in conjunction with positive incentive measures - for instance, polluting industries adjacent to a lake could be charged with an effluent fee whose receipts are earmarked for cleanup activities.

  • The creation or strengthening of markets seeks to change the relative costs and benefits of specific activities in an indirect way. Trading mechanisms and other institutional arrangements create or improve markets for biological resources, thus encouraging the conservation and sustainable use of biological diversity. Examples include, inter alia, individual transferable fishing quotas and other trading schemes, biodiversity prospecting, and the commercialization of biodiversity-based products, possibly including certification and eco-labeling initiatives.

A related objective is addressing policies or practices that generate "perverse" incentives , that is, incentives that promote activities that are harmful to biodiversty and thus accelerate its loss. Examples include those public subsidies that support unsustainable farming, forestry or fishery activities. The Conference of the Parties to the Convention urged Parties and other Governments to prioritize and significantly increase their efforts in actively identifying, eliminating, phasing out, or reforming existing harmful incentives for sectors that can potentially affect biodiversity.

The use of appropriate valuation tools is an important component of policies that aim to correct the incentives of societal actors. As explained above, eliciting the hidden value of biodiversity is an important precondition to the internalization of this value in their decision-making. In addition, by raising awareness among societal actors of the hidden values of biodiversity, valuation can also act as an incentive measure in its own right.

Addressing the interlinkages between international trade rules and the provisions of the Convention forms another important area of the economic work under the Convention. While the Convention does not require measures that are directly related to international trade, there is a close relationship between many of its provisions – as well as those of its Biosafety Protocol – and the provisions of the multilateral trade agreements of the World Trade Organization (WTO). The trade-related work of the Convention is part of a broader effort of the international community to ensure harmony and mutual supportiveness between trade rules and international environmental law, in order to both maintain biodiversity and promote international trade, for the common goal of sustainable development.