Incentive Measures and WTO Rules

Brief
Date period
1 March 2006

Article 11 of the Convention of Biological Diversity (CBD) calls on Contracting Parties to “adopt economically and socially sound measures that act as incentives for the conservation and sustainable use of components of biological diversity”. The Article seeks to address the failures of markets to adequately reflect the value of biodiversity. Such failures arise from the public goods characteristics of many biodiversity components. Since nobody can be excluded from using these components, individuals often have insufficient incentives to conserve biodiversity and use it sustainably. Incentive measures seek to internalise the public-good value of biodiversity into the decision-making of private actors or at least to bridge the profitability gap between unsustainable activities and their sustainable alternatives. A range of instruments is available to achieve this objective:

• Positive incentive measures are economic, legal or institutional measures designed to encourage beneficial activities, such as agricultural land set-aside schemes or conservation easements.

• Negative incentive measures or disincentives, such as user fees or pollution taxes, are mechanisms designed to discourage harmful or unsustainable activities.

• Indirect incentive measures seek to change the relative costs and benefits of specific activities in an indirect way by creating or improving markets for biological resources. Examples for such trading mechanisms are individual transferable fishing quotas, species commercialisation, emissions trading schemes and eco-labelling initiatives.

At the same time, perverse incentives can induce unsustainable behaviour that destroys biodiversity, often as unanticipated side effects of policies designed to attain other objectives. Such “policy failure” can include government subsidies or other measures which fail to take into account the existence of environmental externalities.

Valuation tools quantify the hidden value of biodiversity and are thus an important precondition to the internalisation of this value and – by raising awareness among societal actors of the hidden values of biodiversity – can act as an incentive measure in their own right.

Incentive measures usually take the form of a new policy, law, or economic or social programme. As single measures function within the broader set of incentives governing human behaviour, the Conference of the Parties (COP) has encouraged Parties to review existing policies to identify and promote incentives for the conservation and sustainable use of biodiversity. Subsidies are among the measures that can take the form of both positive and perverse economic incentives with regards to biodiversity. As they also have effects on countries’ competitiveness and international trade patterns, the World Trade Organisation (WTO) has set up a regulatory framework that determines the kinds of subsidies that Members can or cannot use under specific conditions. Moreover, when launching the current Doha Round of trade negotiations in Doha, Quatar, in 2001, WTO Members put a number of issues onto the trade negotiation agenda that are directly related to economic incentives to promote biodiversity and to the removal of perverse incentives, notably in the areas of agriculture and fisheries.

This issue brief presents a broad overview of the linkages between the CBD’s work programme on incentives and related developments in the WTO negotiations. It aims to provide stakeholders in the biodiversity community and policy-makers with information about biodiversity-relevant aspects of the world trading system in an effort to enable them to help shape the trade agenda in a way that is conducive to sustainability.