Rose Niu: Close the funding gap

By Rose Niu, Chief Conservation Officer

China’s environmental protection budget can be increased by drawing more investment from the private and civil sectors

A report released by the Paulson Institute estimated that financial flows into global biodiversity conservation were $124 billion to $143 billion in 2019, only 0.12 percent to 0.14 percent of the global GDP. To reverse the decline in biodiversity by 2030, the report suggests that, globally, we need to spend $722 billion to $967 billion each year over the next 10 years. That puts the biodiversity financing gap at an average $711 billion per year, and current spending only accounts for a meager 15 percent of the finance needed.

China spent an estimated 379.6 billion yuan ($58 billion) on ecological protection in 2019, accounting for around 0.38 percent of that year’s GDP, which is higher than the global average. However, a deeper look into the spending structure tells us that the majority of the funds have been spent on major ecological restoration projects, while the most important areas of biodiversity protection, such as establishment and management of protected areas and protection of wildlife, face a severe funding shortage. Only by greatly increasing investment in these areas can China effectively protect its remaining wildlife and their habitats, as well as the critical natural ecosystems.

Because much of the spending is by the government and the public sector, there is a lot of room to grow China’s nature conservation budget by drawing more investment from the private and civil sectors. The government, however, has a very important role to play in this process. It should create an optimum policy environment and motivation mechanism to incentivize nature conservation efforts from companies and other types of social capital. Furthermore, the government should introduce laws and regulations that effectively discourage corporate production and construction activities that harm nature, in order to reduce the future funding need for ecological restoration. To close the funding gap in ecological conservation and restoration, China should prioritize the following three areas.

First, China should rapidly mobilize more funding from various sources beyond the public sector. A good example for mobilizing funds from society is the Friends of the National Parks Foundation created by the US National Park Service. National parks are a globally recognized effective and extremely important means of biodiversity conservation. In 1967, the National Park Foundation was chartered by the US Congress as a charitable partner of the National Park Service. Since its establishment, the foundation has been working to preserve the country’s national parks and historically significant sites. The foundation now receives around $300 million in charitable donations each year, effectively making up for the shortage in government funds. As China is building its own national park system, one tip it may learn from the United States is to establish an organization similar to the Friends of the National Park Foundation as a platform to connect philanthropic partners, whether businesses, nongovernmental organizations, or individuals to raise private funds in support of the development and management of national parks.

China should incentivize ecological conservation and restoration efforts through green finance products and policies, such as green bonds. China leads the world in green finance, but most of the funds raised through green finance products have been invested in projects related to energy conservation, emissions reduction and renewable energy, with little investment in biodiversity protection and ecological restoration projects. There is a lot of room to increase the application of green finance products, such as green bonds, green loans and green insurance, in ecological conservation and restoration.

Second, China should reduce the harm done to the ecological environment. A widely accepted approach for biodiversity conservation is the biodiversity offset mechanism. As economic instruments based on the “polluter pays” approach, biodiversity offsets are measurable conservation outcomes designed to compensate for adverse and unavoidable impacts of development projects, in addition to prevention and mitigation measures already implemented. If a developer causes damage to an ecological system such as a wetland, it must pay for the restoration of the same type of ecological system elsewhere of the same size or larger, or a company that emits more greenhouse gases than it is allowed can purchase carbon credits in the carbon trading market to offset its environmental footprint.

China is about to launch its national carbon market. China should gradually include carbon sequestration projects with multiple benefits, such as green and blue carbon sequestrations created by forests, wetlands and grasslands, into the national emissions trading market, so that businesses with emissions reduction goals can purchase such carbon credits to offset some of their emissions. In this way, the carbon trading market could generate new revenue for ecological conservation and restoration.

Finally, China should increase the efficiency of public and private funds invested in ecological conservation. Currently, the vast majority of government and private funds are channeled into engineering projects for ecological restoration, rather than the more cost-effective nature-based solutions, which delivers important ecosystem services to humanity. Therefore, in most cases, it is half the result with twice the effort.

China should draw on best international practices concerning the better deployment of existing funds and smarter policy and investment choices. To provide Chinese people with better and more ecological service and products, China should make the best of the important ecosystem services provided by nature to humanity.

As China further advances the building of an ecological civilization and the concept of “lucid waters and lush mountains are invaluable assets” is implemented nationwide, the Chinese government has unveiled a string of policies and measures on ecological conservation and ecological compensation, creating a very good policy environment. Although the public sector cannot provide all the finance needed, China has a bright future in rapidly mobilizing substantial amounts of funds from society for biodiversity protection, as long as the government puts in place the right regulations and smart incentives, and when the technological means and trading platform have gradually improved.

This article first appeared in China Daily in April 2021.