These instruments can be used to change people’s behaviour towards desired policy objectives. Fiscal instruments can in principle be used to correct policy and/or market failures and reinstate pricing that takes account of environmental and social costs. Financial instruments, in contrast, are often extra-budgetary and can be financed from domestic sources or foreign aid, external borrowing, debt for nature swaps, among others.

Ecological Fiscal Transfers

Ecological Fiscal Transfers (EFT) distribute a share of intergovernmental fiscal transfers and revenue sharing schemes according to ecological indicators such as protected areas or watershed management areas. These conservation areas thus become a source of income for the receiving governments. EFT were invented as a compensation scheme for municipalities. Today, EFT are often seen as an instrument that incentivizes decentralized conservation efforts. There are exisisting EFT schemes at subnational level in Brazil and national level in Portugal.

Biodiversity Offsets

Biodiversity offsets are measurable conservation outcomes that result from actions designed to compensate for significant residual biodiversity loss that arise through development projects. They are intended to be implemented only after all reasonable steps have been taken to avoid and minimise biodiversity loss at the development site i.e. they are the last step in the so-called mitigation hierarchy. Offsets aim to internalise the external costs of development by imposing a cost on the activities that cause biodiversity loss, and are based on the polluter pays approach (OECD, 2016).

Ecosystem accounting

Ecosystem accounting is a coherent and integrated approach to the assessment of the environment through the measurement of ecosystems, and measurement of the flows of services from ecosystems into economic and other human activity. The scale on which the accounting may be conducted varies: the ecosystems measured may range from specific land cover type areas, such as forests, to larger integrated areas, such as river basins, and may include areas considered to be relatively natural and those that are heavily affected by human activity, such as agricultural areas.

Payment for Ecosystem Services

Payment for ecosystem services (PES) is a type of market-based instrument that is increasingly used to finance nature conservation. Payment of ecosystem services programmes allow for the translation of the ecosystem services that ecosystems provide for free into financial incentives for their conservation, targeted at the local actors who own or manage the natural resources. These programmes have been increasingly established across the globe in the last few years.

Non-Timber Forest Products Exchange Programme

The Non-Timber Forest Products Exchange Programme (NTFP-EP) in South and Southeast Asia empowers forestry-based communities to manage forest resources in a sustainable manner. To this end, the NTFP-EP catalyses and supports activities that strengthen the capacity of their partner organisations in their work with forest-dependent communities, particularly indigenous peoples.