Over the last decade, market-based policy instruments (MBIs) for improving environmental protection have been promoted by many international institutions as possible mechanisms for the valuing of forest environmental services. While much attention in the international literature has focused on the potential of MBIs to reduce environmental impact/degradation, issues related to social and cultural implications of these instruments on local communities and the availability of conditions necessary for implementing these mechanisms have not been widely discussed. However, with the increased advocacy and use of MBIs in environmental policy, it is important to examine the compatibility of these instruments with multifunctionality and the broader goals of sustainable forest management (SFM) as forestry sectors and governments increasingly look to the private sector to finance SFM. In this context, we look closely at MBIs for forest environmental services and their implications for sustainable forest management. The key questions are: Are MBIs compatible with SFM and the concept of multifunctionality? And, if so, under which conditions can they contribute to all goals of sustainable development?
In the paper, we discuss the links between sustainable forest management and the role of MBIs in valuing forest environmental services. Then we look more closely at the concept of MBIs in general. This is followed by a focus on the creation of biodiversity markets, pointing out the range of commodities and payments that have been used in different parts of the world and the extent of their use. Finally, we consider key limitations of MBIs in relation to SFM that need to be addressed to enhance the compatibility of MBIs with SFM.
MBIs are now part of the environmental/forest policy portfolio but there is a need to ensure the development of an effective policy mix to achieve a variety of goals and strengthen coherence between policies. The challenge is to find and design the best market tools that, together with the right mix of policies, support all dimensions of SFM and that do not engender a uniquely economic approach to the protection of environmental public goods. Market development for MBIs needs to be based on comprehensive feasibility studies that consider the social, economic and ecological costs and benefits, that assess the distribution of impacts, risks and the potential for political resistance.
Governments and international donors and NGOs and other key actors have important roles in ensuring that MBIs and policies do not exacerbate problems contributing to biodiversity loss. All actors need to reflect principles of environmental governance increasingly expected of national governments and multilateral institutions. It has been generally recognized that forest decline is the result of the complex interplay between market failures, negative elements introduced by various policy and institutional failures and some fundamental features of societies such as the distribution of political and economic power and cultural factors. While market failure may not be the main underlying cause of forest decline in all situations, MBIs have the potential to contribute to increased private inducement to SFM. They will not, however, provide the complete solution.
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Enhancing the compatibility of market-based policy instruments for sustainable forest management. Idées pour le débat 23/2004, ex Les documents de travail de l’Iddri 4. http://www.iddri.org/Publications/Collections/Idees-pour-le-debat/id_0423_wilson&gueneau.pdf.