Part 3. Economic evaluation of biological diversity

Presently the development of biodiversity conservation economics is at its beginning both in the world and in Russia. In this connection, materials prepared in Russia within the inception phase of the GEF grant Biological Diversity Conservation in Russia (1994 - 1995) are worth attention. A number of economic recommendations on biodiversity conservation was elaborated in the course of the unfinished experimental effort for 12 pilot protected areas carried out by RF SCEP and its regional agencies in 1993 - 1995.

Transient nature of Russian economy aggravates dramatically the issue of biodiversity conservation along with the ecological situation as a whole. The economy has already lost its centralized planned character though has not acquired the market status. This lends uniqueness and extra challenges to the current situation in Russia when the use of world-wide accepted economic practices, mechanisms and tools is dramatically hampered. Russian transient economy reflects clearly negative consequences for biodiversity resulting from inefficient state management under the process of market formation, including the following: - understated cost for biological resources; - uncertainty in the rights of land and resources property; - underestimation of external factors; - open access to biological resources for all population pools; - lack of clear understanding of biodiversity as public benefit, etc.

Russian priority areas in the development of biodiversity conservation economics are the following: - economic evaluation of biodiversity and biological resources; - analysis of key economic reasons for biodiversity reduction; - macroeconomics policy, evaluation of the effect of current economic reforms on biodiversity conservation; - economic mechanism of incentives for biodiversity conservation (payments for environment pollution, taxation, environmental funds, environmental insurance, etc.); - evaluation of biodiversity conservation investment efficiency, investment criteria; - correlation and economic evaluation of development options for areas in terms of biodiversity value. All the above priority areas are underdeveloped in Russia. Among them, a top-priority issue is designing and testing of biodiversity economic evaluation methods. Currently determination of biodiversity value is facing problems due to deficient data on quality, quantity and diversity of biological resources. Adequate data on benefits from biodiversity conservation, goods and services based on it have been also unavailable so far. Of special note is the lack of the land market in Russia which is a key natural resource.

A concept of total economic value (cost) seems promising for determining biodiversity value. Along with direct use, indirect use and option values, it enables to estimate rather fine aesthetic and ethic values as well as non-use cost. The latter is especially important for biodiversity evaluation. Table 25 lists basic components of biodiversity total economic value.

Table 25 Total economic value (cost) of biodiversity

It is also necessary to develop more feasible approaches to biodiversity economic evaluation, particularly those on the basis of expenses (replacement cost approach, etc.), rent and opportunity cost. These approaches are widely employed in world practice.

In Russia there are examples of biological resources evaluation based on the above approaches with the use of the following methods:

- total economic value (cost) of biodiversity (Pereslavl state natural and historical national park, biological resources of Moscow oblast, the Chikoi river watershed in Chita oblast, forest resources of Vologda oblast). Table 26 contains the figures of total economic cost calculated for Moscow oblast biological resources; - biodiversity restoration costs (rare animal species, hunting animals of Moscow oblast, national parks). Table 3 gives costs for hunting animal population restoration; - expense approach (protected areas, rare animal species); - evaluation based on damage to biodiversity (Siberian fauna in the vicinity of building grounds of Katun and Turukhansk hydroelectric power plants, Surgut oil-refining complex); - rent approach (Caucasian zapovedniks, hunting forests of Moscow oblast).

Table 26 Total economic value (cost) of Moscow oblast biological resources (Biodiversity Economics, 1995)

Of special note are efforts on indirect use cost-based evaluation of biological resources within the concept of total economic value. Determination of this cost is challengeable not only for Russia but also for the world community. Three results are identifiable: indirect use cost evaluation through CO2 and water controlling functions (Pereslavl national park), through CO2 and carbon credit (Vologda oblast) and through remedial recreation effect (Moscow oblast).

Advances in the efforts on determination of indirect forest-use cost through CO2 and carbon credit may be important for Russia. The efforts are planned within the implementation of the World Bank (WBRD) Framework Program in the forest sector (Forest Loan) having started since mid-1997. The Program provides for the implementation of Framework Principles of Wood Harvesting and Working which could assist Russia in fulfilling international obligations under the Convention on Biological Diversity and the UN Framework Convention on Climate Change. Russia possesses 22 % of global forest resources and 15 % of global carbon sink. The implementation of the above international conventions would allow this country to link up to an international transfer mechanism of mutual allowances in carbon balance. Functioning of this mechanism is hampered without determination of indirect use cost and evaluation of carbon credit.

Table 27 Cost of hunting animal population restoration in Moscow oblast

An important phase in economic evaluation of biodiversity in Russia is the work on registration and socio-economic assessment of biological resources coordinated by the Department of Economy and Finances under the RF Ministry of Natural Resources. This research effort was carried out by specialists of ministries and sectoral agencies, scientific research institutions and, specifically, Harvard Institute for International Development in compliance with the RF Government Act (1993) on conducting the experiment on registration improvement and socio-economic evaluation of natural resources basing on preparation of complex cadasters of natural resources to be used as grounds for management decision-making (Registration and Socio-Economic Evaluation of Natural Resources. Collected Analytical and Regulatory-Methodical Materials. RF Ministry of Natural Resources, Department of Economy and Finances. M.:SEMC, RF Ministry of Nature, 1996).

Economic evaluation of biodiversity in Russia is necessary for solving a lot of significant problems such as:

• making efficient economic decisions;
• identifying priorities for investments to protected areas;
• adequate definition of priority economic indicators for country's development.

To make an economic decision it is necessary to determine economic efficiency and compare costs and benefits. Once biodiversity value is lacking or understated, benefits from biodiversity conservation become apriori underestimated. As a result, if the options are compared, the option that takes into account true biodiversity losses is inferior to traditional decisions which can yield readily assessable benefits. Under Russian conditions, this tendency is vividly seen in decision making practice in favor of the fuel and energy complex as well as forestry and agrarian sectors.

Biodiversity evaluation is important for determining efficiency of investments to protected areas due to the following reasons: it is a compulsory step of project review, a basis for distributing limited material resources, a criterion for ranking biodiversity conservation-focused investment efforts, and a critical condition for receiving funding.

A considerable problem lies with the choice of the state economic policy based on standard economic indicators such as, gross internal product (GIP), gross national product (GNP), etc. As environment degradation and biodiversity reduction do not affect these indicators and therefore do not cause their decrease, the state is free to pursue anti-sustainable policy. This problem is especially pressing for Russia owing to a great environmental and biodiversity damage along with depletion of natural resources caused by multiple accidents, wear and tear of equipment and labor-consuming technologies. For example, about 35,000 accidents per year happen on oil pipelines. Depreciation of equipment, including cleaning facilities, achieves 80 - 90 % in basic industries and transport. Continuing operation of such equipment leads to a drastic increase of accidents and ecological disasters. Hence, here is also needed adequate evaluation of biodiversity to be included into national green accounting.

Russian biodiversity depletion is affected by a number of factors that pertain to different spheres, levels and have different scales of impact:

• macroeconomics policy as a whole leading to the extensive use of natural resources;
• unbalanced investment policy resulting in disproportion between resource-operating, processing (reprocessing) and infrastructural sectors;
• inefficient sectoral policy (fuel and energy complex, agriculture, forestry);
• inadequate legislation;
• uncertain rights of property on natural resources;
• lack of ecologically balanced long-term strategy and incomplete evaluation of sustainable development potentialities;
• underestimation of biodiversity conservation economic value;
• on regional and local levels - underestimation of biodiversity conservation indirect effect (both economic and social) and global benefits;
• economic crisis and unsustainable economy impede implementation of long-term projects, including those targeted at biodiversity conservation;
• resource-focused export; - existence of an operative incentive in the form of high and rapid profit from intensive exploitation and/or sale of natural resources (oil, gas, wood, ores, etc.), this being an anti-incentive for biodiversity conservation, etc.

Economic measures that influence biodiversity conservation may fall in two categories:

• macroeconomics measures;
• efforts specifically focused on biodiversity conservation.

Implementation of balanced macroeconomics policy is of top-priority for biodiversity conservation.

In Russia, biodiversity conservation is characteristic of a need for expanding protected areas, limiting economic activities in adjacent areas, etc. This approach does not seem to be most attractive from either environment or economy standpoint. A wish to conserve nature inside nature does not bring the best result in all cases.

Russian current macroeconomics policy fosters a tendency to technogenic and resource-intensive development. This finds reflection, first of all, in deterioration, or gaining weight, of the economic structure in terms of environment: growing specific weight of resource-consuming sectors in production and primary-economics investments.

It is believed that under the decline in industry the ecological situation should tend to improve due to a drop in production, decrease in consumption of many natural resources and reduction of emissions and pollution. Yet, specific indicators for natural resources consumption and pollution per unit of end product have grown.

This situation is extremely dangerous for the country's future. Currently formation of a future economic system model is underway to be evolving in the next century. Should this embryo of the Russian economic future bear anti-ecological symptomsin its genes, a sharp build-up of environment and biodiversity degradation could be expected once economic growth begins.

In this connection, the following important macro-level trends of environmental-economic transformations beneficial for biodiversity conservation can be identified for Russia in the framework of total economics:

• resource-saving restructuring of economy;
• generation of a system of environmental taxes, credits, subsidies, trade tariffs and duties;
• clear identification and reforming of property rights for natural resources; demonopolization;
• improvement of privatization vehicles in terms of the environmental factor (account of the past environmental damage, obligations for conducting rehabilitation efforts, environmental insurance, etc.);
• re-focusing of investment policy towards ecologically balanced priorities in economic activities, etc.

Most of economic measures specifically focused on biodiversity conservation can be undertaken within the work on the improvement of the economic mechanism being formed in Russia. Among its key components are the following:

• payments for environmental pollution;
• economic incentives based on taxation and financing-crediting policy;
• environmental funds;
• environmental insurance;
• environmental programs.

A core element in economic stimulation of biodiversity conservation is taxation and financing-crediting policy. The following approaches may be used for stimulating biodiversity conservation:

• tax relief for biodiversity conservation performance;
• tax exemption for biodiversity conservation-targeted funds;
• introduction of special taxes (environmental taxes, excises) on products manufacture of which produces adverse impact on biodiversity;
• subsidies, refundings, privileged credits, etc. for biodiversity conservation performance;
• accelerated depreciation of fixed assets used for biodiversity conservation performance.

At present environmental funds are actually the only operative element in the structure of distributing financial resources for environmental purposes. However, these resources are absolutely insufficient, particularly after environmental funds having been deprived of the non-budget target status and consolidated in the budget. Nevertheless, these funds could play a certain role in biodiversity conservation projects, including those financed by the Global Environment Facility:

• the funds could become extra sponsors for biodiversity conservation projects;
• the funds could be among the elements of the management structure for the projects implementation.

Environmental insurance for inflicting damage on biodiversity contributes to resolving two problems: to recover up to 45 % loss incurred by recipients from environment pollution and to create an additional source of biodiversity conservation financing.

A number of recommendations on biodiversity conservation was made in the course of the economic experiment on protected areas carried out by RF SCEP and Russian Forestry Management assisted by their regional agencies in 1993 - 1995. The experiment was aimed at the consolidation of the system of zapovedniks and other protected areas and their higher ranking in environmental status, generation and testing of complex scientific-organizational, financial-economic and ecological education efforts on strengthening the financial base of protected areas, budget funding of which is insufficient under new economic conditions.

Twelve protected areas were involved in the experiment: Valdai national park (Novgorod oblast), Voronezh biosphere zapovednik (Voronezh oblast), Vodlozersk national park (Republic of Karelia), zapovednik Kivach (Republic of Karelia), Kandalaksha zapovednik (Murmansk oblast), Kostomuksha zapovednik (Republic of Karelia), Lapland zapovednik (Murmansk oblast), Oka zapovednik (Ryazan oblast), Pereslavl natural and historical national park (Yaroslavl oblast), national park Meshchera (Vladimir oblast), Teberda zapovednik (Republic of Karachaevo-Cherkessia), and Central Forest zapovednik (Tver oblast). Unfortunately, the experiment was not completed though certain economic mechanisms for protected areas functioning were proposed.

Russia is currently lacking sustainable scientific structures or teams of specialists in biodiversity conservation economics. There are independent teams of specialists working at Economy and Geography Departments of the Moscow State University, in the Institute of Market RAS, Institute of Geography RAS, Higher School of Economics, Scientific and Educational-Consultative Center and economic divisions of RF SCEP and RF Ministry of Natural Resources, and Harvard Institute for International Development. It would be reasonable to unite their efforts under the GEF project Biodiversity Conservation.

To proceed with the work on biodiversity conservation economics in Russia it would be expedient to establish coordination with the World Bank Ecological Department where large experience in this pool of issues has been accumulated.

In the Russian Federation, no regular efforts on the evaluation of biodiversity conservation funding amounts and sources are carried out. No indicators have been so far accepted to judge if these or those funds could be assigned to biodiversity conservation costs. Actually any expenditures aimed at nature protection and sustainable development of the country and regions may be looked at as such. That is why state statistics structures and even specialized agencies have no efficient mechanisms for singling out the money allotted to biodiversity conservation from the whole bulk of environmental expenditures. At best, the information on funding of individual incentives can be found available. For example, the annual state report On the Russian Federation environmental status (1996) contains the data on the state financing of capital assets for the guard and reproduction of wild animals, birds, sea mammals, setup of zapovedniks and other protected areas. Yet, there are no appropriate tools that would facilitate separating the part of funds intended for biodiversity out of such expense items as protection and use of forest and water resources, fish stock, etc. Unfortunately, state budget makers (state financing constitutes 50% of the total) employ methods that do not infer any information on the biodiversity conservation funding and hence main donors do not demand this information.

Recently an attempt to introduce a complex evaluation of target finances for biodiversity conservation has been made in the Russian Federation. This evaluation can serve a basis for concluding on the average financing rate of nature protection in Russia estimated as $ 45 - 50,000,000 (here and after a dollar equivalent is used as, despite lagging behind the inflation level, the dollar cost changes allow to demonstrate vividly a financing rate of environmental actions).

These studies and individual expert evaluations bring us to the conclusion on the insufficient financing being approximately 2 - 4 times less than the required minimum.

The most disastrous situation in financing has been created in such fields, as support to protected areas, informational technologies, ecological education, efforts on rare and extinguishing species protection, monitoring of the biodiversity status, etc.

Below are given three levels of biodiversity conservation expenses worked out in terms of various approaches to calculations. The most probable values can be secured only under regular monitoring of financing conducted by a special division of the RF SCEP. A one-time evaluation will not give a true vision of the biological conservation funding status.

In 1996, the Global Environment Facility 5-year Project on Biodiversity Conservation in the Russian Federation with the total cost of $ 20,000,000 has been launched. The project suggests special investigations on the identification of financing priorities and level of biodiversity conservation efforts and creation of a specialized Information-Analytical Center that, among its goals, sets an objective of the annual evaluation and forecast of the investment level and directions. By the end of 2000, the systematized information on financing will have become available for all concerned persons and structures and first of all to those who are responsible for biodiversity conservation policy making.

Current expenses on biodiversity conservation. The initial material being insufficient, only preliminary evaluations and methods for their making are given. The proposed materials can serve a basis for the elaboration of a set of methods to evaluate biodiversity conservation financing levels. A part of the data enables to get a general idea of funding sources and amounts and may be of use in planning efforts on attracting investments. To have a more vivid picture of financing amounts, most of the data are given in US dollars basing on the following average annual rates: 1994 - 2,000 rubles per $ 1; 1995 - 4,548 rubles per $ 1; 1996 - 5,192 rubles per $ 1.

Methods for general evaluation. In estimating funds used for biodiversity conservation in Russia, most challengeable is the identification of this money sources and the part of funding that is directly allotted to biodiversity conservation. This is associated with the absence of a strict registration of finances provided by state structures for this purpose, including those flowing from specialized environmental and natural resources agencies. To illustrate the number of funding sources, below is tabulated a list of expense items of the Russian Federal budget for 1996 (table 28). This list is far from being complete and comprises the items under which direct or indirect actions facilitating biodiversity conservation can be financed.

Table 28. Items of the 1996 Russian Federal Budget. Average rate of US dollar = 5,192.

The above articles are rather conventional, yet, even summing over figures of the items that are most close to biodiversity conservation (8.1., 8.2., 8.3., 18) will yield less than 473 billion rubles (excluding 1 trillion for Forest Resources), i.e. 0.75 % of the total. An assumption may be made that indirect costs having effect on biodiversity conservation will be no less than this sum. Other funding sources such as local and regional budgets, international agencies, foreign investments, domestic and foreign foundations, commercial investments, public and non-commercial organizations, etc. were not considered here.

Methods for evaluation of target funds. In evaluating biodiversity costs, a more simple definition of expenses is employed most often: they imply target funding allotted to flora and fauna conservation, protected areas, scientific research efforts directly associated with nature protection, monitoring of biodiversity conservation, and ecological education (including propaganda over television and other mass media). Even under such a narrow consideration of expense articles, the evaluation of their size is challengeable. Actually this kind of work was carried out in Russia only once - in the process of the Preparation Phase to the GEF Biodiversity Conservation Project. The results obtained are listed in Table 29.

Table 29. Biodiversity conservation financing in 1994. Average rate of US dollar = 2,000.

This work was done in terms of the results of financial investments for 1994. After that no similar studies have been undertaken in Russia since no order was made.

Unfortunately, GEF experts have not taken into account a lot of funding sources, for instance, quite a large amount of finances gained by some environmental structures as a result of their own activities (see p...7 in Table 30). These very assets are often more effective in biodiversity conservation as they have no connection with a multi-step system of the money donor-recipient pathway. Specifically, most of the money allocated to biodiversity conservation in Russia by the US government in 1994 was used by US organizations on salaries of their employees and consultants, high-cost travels, management costs, etc. Besides, in Russian experts' opinion, about 50 % of highly-paid American specialists proved professionally inadequate for solving Russian biodiversity conservation problems.

In addition, there was almost no work performed relative to the identification of priority areas for Russian investments in the same way as it was done for foreign sources (Fig. 1). This selective approach has roots in a failing information supply from ministries and state sectoral agencies.

The same pattern is observed in defining regional distribution of investments (Fig. 2). Virtually, taking into consideration territorial ties of the USA, one of the key donors, with the Far East Region, it is impossible to conclude on the insufficient financing of other regions basing on the below chart.

During this period, the structure of funding biodiversity conservation research has undergone a substantial change. In 1997, no funds were actually allotted for the SCEP program "Ecological Security of Russia" although finances to the amount of more than 6 billion rubles were provided for relevant scientific projects carried out by institutions of the Ministry of Science and RAS. These projects included the subprogram "Biodiversity" (5.001 mln rubles), priority genetic studies (500 mln rubles), comparative studies of mountain and lowland waterbodies (15 mln rubles), forest genofund survey (30 mln rubles), oceanographic exploration (100 mln rubles), investigation of cultured plants (100 mln rubles) and forest diversity (50 mln rubles), ecological transect for the estimation of outcomes of global climate changes (50 mln rubles).

In terms of rather slow changes in the disbursement system of ministries and sectoral agencies budgets, a per cent ratio of the total financing amount provided by specialized ministries (Ministry of Nature, Russian Forestry Management) and finances allotted by these bodies to biodiversity conservation may be presumed as unchanged in 1996 versus 1994. This presumption gave grounds for the calculation of biodiversity conservation target funds assigned by these bodies in 1995 - 1996 (Fig. 3).

This gap results from a sharp rise in the US dollar exchange rate for the 3 years (over 2.5 times)*, although if consider the exchange rate falling behind inflation the picture becomes even more discouraging. In fact, the biodiversity conservation target financing was cut over all state financing items. In 1997, the total financing, in absolute values, is likely to fall down to the level of 1994.

Methods for partial evaluation of key donors and recipients. According to the GEF experts' evaluation findings, to facilitate rough analysis of the financing amount, a number of key donors and recipients can be singled out and regular (annual) questionnaire-assisted surveys of their opinions conducted. Dynamics of financing amounts defined on the basis of questionnaires reflects a general status of biodiversity conservation performance. Yet, even this kind of relatively low-cost studies has not been carried out since 1994.

As an example of such evaluation, data on one of the key recipients - Russian state zapovedniks for 1995 - 1996 and one of the donors - World Wildlife Fund (WWF) for 1994 -1995 - 1996 is discussed herein (Fig 4).

The World Wildlife Fund is among the key foreign non-governmental donors that finance biodiversity conservation in Russia. The goal of the WWF is to preserve nature and ecology on Earth through the conservation of the genetic, species and ecosystem diversity, support to the sustainable use of renewable natural resources at present and in future, propaganda of activities on rational resource and energy use, and environment pollution abatement.

For the last years (since 1994) the World Wildlife Fund has been influencing considerably biodiversity conservation activities in Russia. During the first years of its work in this country, the WWF had focused on the system of nature reserves providing about 5 % financing of zapovedniks. The next projects addressed a complex approach to all biodiversity conservation aspects in regions (with zapovedniks as their part), target funds for rare and extinguishing species conservation (including zapovedniks as places of their habitat and reproduction; e.g. project for Ussurian Tiger conservation), all-Russia projects pertaining to the ecological education, legal support, generation of financing vehicles, etc (table 30).

A conclusion can be made on a switchover in the donors' policy from patching state budget funding to the issues that influence state policy in biodiversity conservation.

Table 30. Financing of RF state zapovedniks in 1995 - 1996. Exchange rates of $: 1995 = 4,548, 1996 = 5,192.

As seen from Table 30 and Fig. 5, the bulk financing (about 50 %) is provided by the Federal budget. Zapovedniks request federal funding in the approximate amount of $ 19,000,000. They compensate deficient finances by revenues from their own activities and local sponsor support. Thus, a state economic decline facilitates indirectly strengthening of the role as regional environmental centers which engage local authorities, commercial structures managers and local population in tackling nature protection problems.

On the other hand, deficient federal financing of zapovedniks (below 30 % of that required) has led to a one-third reduction of full-time personnel in zapovedniks (including security service). As for funds on maintaining economic infrastructure, including motor transport and water vehicles, aviation rent and others, they are actually not allocated. Zapovedniks have considerable utilities fee indebtedness, suffer a drastic deficiency in equipment, transport, fuel and lubricants. This petrifies the work of all divisions and, first of all, security service. The lack of required finances does not allow to equip inspection service for the state zapovedniks guard with modern communication means, viewing devices, high-quality tabular guns, uniforms, field and special gear and outfits.

Research departments in all Russian zapovedniks are surviving not only an acute shortage of advanced technical facilities, devices and computers but also have no money to cover travel expenses and purchase of special literature. This state of affairs minimizes research efficiency.

Deficient budget allocations cast doubt on a further existence of rare animal species breeding sites created in a number of zapovedniks to preserve genofund of unique domestic fauna: European bison, extinguishing stork species, predatory birds and many others.

The efficiency of protected sea area and coastline zone guarding in 11 Arctic and Far East zapovedniks has been reduced to zero for lack of adequate sea vessels.

All the above puts the system of state zapovedniks on the brink of financial disaster.

Conclusions. The above materials enable to make a conventional evaluation of a general level of target financing amounting to about $ 45 - 50 mln. per year. A minimum level of biodiversity conservation funding in Russia requires $ 100 mln., i.e. 586 - 600 billion rubles annually. Under budget deficit conditions and lack of biodiversity conservation priorities in the state environmental policy, donors, their allocations being remunerated by various tax benefits, and a more correctly focused activity of local ecological foundations may become a real source of such funding.

* In compliance with the laws on Federal budget for 1994 and 1995,

98,622.8 mln. rubles in 1994 and 110,058.8 mln. rubles in 1995 were allotted to the Russian Federation Ministry on Environmental Protection and Natural Resources (presently - RF State Committee on Environmental Protection). 707,597.1 mln./1994 and 761,467.4/1995 mln. rubles were assigned to the Russian Forestry Management.

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