Critical factor: finding market value of ecosystems to determine which policy and financial interventions can work
LOS ANGELES -- Located at the nexus of three continents, Israel is home to a diversity of complex ecosystems. But as population density has increased over the past decade, there has been a spike in commercial and residential development in areas that once supported a wealth of animal and plant life, creating an urgent need for conservation. Efforts to date— based on regulatory policies and designating land as national parks— have proven ineffective, pointing to the need for new solutions.
The Milken Institute and Israel's Ministry of Environmental Protection brought together a diverse group of scientists, capital market experts, governmental officials, foundation executives, architects, and land developers for a Financial Innovations LabA(R) to evaluate potential incentive programs and other financial mechanisms that could be used to appropriately value Israel's biodiversity. The market-based approaches identified during the course of Lab discussions, though developed with Israel in mind, can also be applied to other regions where biodiversity is under threat— in any nation with a functioning market economy.
Proposals from the Lab for helping conserve biodiversity include:
• Payment for "ecosystem services
?: Based on data that place an appropriate value on such services (e.g., flood control, improving water quality, preventing erosion, stopping the spread of disease, preventing pollution, and creating amenities such as wetland restoration), payments can incentivize landowners to opt out of ecologically destructive behavior.
• A biodiversity banking scheme: This approach allows a developer to pay into a compensation program that funds set-asides of bio-similar land parcels— to help offset the effects of developing a particular parcel of land.
• Biodiversity auctions: a leading mechanism in Australia for biodiversity protection, these involve a bid system which creates competition for conservation services, the capital from which is then used to finance the preservation of other land parcels.
These solutions are described fully in "Biodiversity Conservation in Israel,
? which summarizes the proceedings and findings of the Lab.
"Conserving biodiversity requires the participation of both the private and philanthropic sectors, along with financial solutions that appropriately value natural assets,
? observed Glenn Yago, Senior Director, Milken Institute Israel Center and Founder, Financial Innovations Labs. "In Israel, for example, limited land and the lack of quantitative research for economic modeling are serious roadblocks— but there are countries that have begun to use data to value ecosystem services to appropriately incentivize landowners to make choices that support ecosystems instead of destroy them.
?
According to the Lab report, protecting habitats depends on pricing the assets based on their environmental, social and financial values, a process that involves determining the value of so-called ecosystem services along with data-based economic and ecological study. Assigning them a real price forces recognition by markets, governments, and communities of the significance of biodiversity and its contribution to sustainable economic growth.
"Financial tools— such as incentives, conservation banking schemes, auctions, and revolving funds— combined with policy reform, can be utilized to appropriately value ecosystem services, and that's essential to setting up protective mechanisms,
? said Yago.
Download "Biodiversity Conservation in Israel
? free of charge at http://www.milkeninstitute.org/publications/publications.taf?function=d…
About Financial Innovations LabsA(R) Financial Innovations LabsA(R) bring together researchers, policy makers, and business, financial, and professional practitioners to create market-based solutions to business and public policy challenges. Using real and simulated case studies, participants consider and design alternative capital structures and then apply appropriate financial technologies to them.
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