Why is biodiversity important and what are the impacts of its decline?
Biodiversity underpins food, water, health, economies and ultimately, prosperity. Therefore, biodiversity loss poses a substantial, material risk not only to economic growth and resilience, but communities directly, especially those most dependent on natural resources for their livelihoods. However, biodiversity loss also affects all communities and families worldwide, through rising food prices and insurance premiums as well as wider economic instability. To sustainably mitigate these effects, governments, facing increasing fiscal constraints, must repurpose public financial flows harmful to biodiversity, including subsidies, and invest in natural capital in addition to offsetting damage from economic activities. When backed by finance at scale, biodiversity conservation can be a powerful vehicle for sustainable development, climate action and food security.
What are subsidies?
Building on the OECD definition, a subsidy is an economic, legal or institutional measure used by a government to encourage economic development in certain sectors, help disadvantaged groups or advance other national socio-economic objectives. However, subsidies can have unintended negative effects on biodiversity, encouraging undesirable environmental outcomes by obscuring the true cost of environmental harm. For example, the OECD finds that around US$500 billion in subsidies designed to support agricultural production are damaging ecosystems and biodiversity through habitat destruction, land degradation and nutrient pollution, impacts which can also have the unintended consequence of harming agricultural productivity in the long run. Decision 10/44 of the Convention on Biological Diversity acknowledged that subsidies may not be cost-efficient or even successful in fulfilling their socio-economic objectives, and urged Parties to increase their efforts to identify, eliminate, phase out or reform perverse incentives harmful to biodiversity, including subsidies.
Why are some subsidies harmful for nature?
According to UNEP’s State of Finance for Nature report, harmful subsidies are estimated to total USD $2.4 Trillion per year, compared with just USD $190 Billion invested annually in nature’s protection and recovery from public budgets. While many subsidies harmful to biodiversity were created with good intentions, such as lowering the cost of farming or transportation, they were not designed with today’s sustainability challenges in mind and tend to work against sound environmental practices. For example, artificially lowering fossil fuel prices incentivizes the car use contributing to climate change and slows the switch to electric vehicles, while subsidies for industrialized agriculture encourage intensive farming practices that degrade productive soils, harm biodiversity by clearing critical habitat, and pollute waterways.
According to UNDP’s Biodiversity Finance Initiative (BIOFIN) The Nature of Subsidies report, there are two broad types of harmful subsidies:
- Those that underprice the use of natural resources, encouraging consumption beyond sustainable levels.
- Those that increase production, which can lead to more pollution, damaging production methods, or unsustainable transformation of ecosystems.
Through these mechanisms, subsidies can exacerbate all five drivers of biodiversity loss, including land- and sea-use change, overexploitation of natural resources, the spread of invasive species, pollution, and climate change.
These subsidies are also financially costly in their own right: they distort price signals and interfere with market mechanisms, leading to overuse of scarce resources. However, governments may find it difficult to address harmful subsidies due to status quo bias, loss aversion, institutional inertia, or issues with public trust and perception of subsidy reform, according to research conducted by BIOFIN and Sciences Po.
What is BIOFIN and how is it addressing harmful subsidies?
Managed by the United Nations Development Programme (UNDP), the Biodiversity Finance Initiative (BIOFIN) works with over 130 countries to help close the global nature-funding gap. BIOFIN assists governments in auditing their public spending, identifying harmful subsidies, and redesigning those fiscal policies to redirect capital away from environmental destruction and into nature-positive solutions, while maintaining socio-economic benefits.
What is KMGBF Target 18?
The Kunming-Montreal Global Biodiversity Framework (KMGBF) is a global blueprint adopted in 2022 by 196 nations to halt and reverse nature loss. It explicitly addresses harmful subsidies through Target 18, which states:
“Identify by 2025, and eliminate, phase out or reform incentives, including subsidies, harmful for biodiversity, in a proportionate, just, fair, effective and equitable way, while substantially and progressively reducing them by at least 500 billion United States dollars per year by 2030, starting with the most harmful incentives, and scale up positive incentives for the conservation and sustainable use of biodiversity.”
Target 18 continues the aspirations of Aichi Target 3, one of the most underachieved of the pre-2020 targets under the Convention on Biological Diversity (CBD). It is tracked through two headline indicators — one for biodiversity-positive incentives and one for biodiversity-negative incentives.
Adequately addressing Target 18 would enable the implementation of other KMGBF Targets – notably Target 7 on reducing pollution, Target 8 on minimizing the impact of climate change, and Target 10 on sustainable production systems; and accelerate progress on Targets 15 and 16 on businesses reducing negative impacts and enabling sustainable consumption choices, respectively.
What are positive incentives?
Far from solely being drivers of biodiversity decline, subsidies and other economic incentives are also key solutions in halting and revering biodiversity loss. Biodiversity-positive economic incentives such as green bonds, biodiversity credits and Payments for Ecosystem Services attempt to account for the economic value of ecosystem services generated by biodiversity as well as the economic cost of its decline.
KMGBF Target 18 calls for governments to “scale up positive incentives for the conservation and sustainable use of biodiversity.” BIOFIN helps governments to do this by implementing innovative finance solutions such as biodiversity credits, green bonds, and blended finance models that combine public and private capital to mobilize resources for nature at scale.
How can countries identify and tackle harmful subsidies?
Addressing subsidies harmful to biodiversity doesn’t mean eliminating them entirely. The goal is to “screen and green” them — reducing their harmful effects while preserving the intended social benefit. Even repurposing a fraction of these subsidies can have a transformative impact for the environment and people.
BIOFIN has been spearheading a methodology for screening and greening harmful subsidies, helping countries determine ways to reduce their negative impact and redirect them toward more positive outcomes. This includes helping governments track both biodiversity-positive and biodiversity-negative incentives using clear indicators, and mainstream biodiversity and ecosystem services into national accounting systems.
In practice, governments can repurpose subsidies to incentivize activities aligned with the Sustainable Development Goals and Rio Conventions without necessarily spending more — for example, redirecting fossil fuel subsidies toward renewable energy while using the same funds to ensure a just transition for affected workers, or replacing support for industrial agriculture with support for regenerative, small-scale farming and agroforestry.
Repurposing subsidies also requires genuine stakeholder engagement — going beyond superficial involvement to proactively account for the needs of affected workers and businesses. This can include compensating affected stakeholders before changes take effect or framing the narrative around justice. This requires taking inventory of existing harmful subsidies, being transparent about strategies for repurposing, working across ministries, and engaging stakeholders so changes are politically and socially acceptable as well as resilient to societal and political change.
What are some examples of countries successfully repurposing harmful subsidies or implementing positive incentives?
Successes in India, Thailand, Ecuador and Colombia, among others, are showing that repurposing harmful subsidies can benefit public budgets and nature alike, while ensuring no one gets left behind.
For decades, India has spent $90 billion annually (2.7% of its GDP) on agricultural subsidies—primarily targeting fertilizer, electricity, and food pricing—which incentivized wheat and rice production at the expense of crop diversity, groundwater levels, and climate resilience. To address these environmental pressures, the government is shifting toward crop-neutral incentives that encourage farmers to transition from paddy to sustainable alternatives like pulses, oilseeds, and millets. By simply repurposing existing funds rather than increasing public spending, this new model promotes resource conservation and climate mitigation while promoting national food security.
Thailand is shifting away from its billion-dollar “grey” coastal infrastructure after discovering that artificial seawalls degrade biodiversity and natural flood barriers. The government recently canceled over $300 million in seawall subsidies to fund nature-based solutions, successfully restoring native dunes and grasses at sites like Mrigadayavan Palace while mandating public consultations for all future coastal projects.
Ecuador’s CONAFIPS has disbursed nearly $1 billion in green microgrants to small businesses in sectors like renewable energy and sustainable forestry, prioritizing traditionally excluded groups by directing over half of the loans to women and a quarter to young adults. While the country still spends comparable public funds on environmentally harmful subsidies, this initiative helps offset that damage and establishes a regional standard for inclusive, eco-friendly financing.
In Colombia, the public agricultural finance institution, FINAGRO, evaluated its rural support schemes and realigned $1.93 billion with environmental criteria, targeting $9.9 billion in total green credit by 2026 with the aim of reducing agriculture-driven deforestation. By integrating social and environmental safeguards directly into its lending, FINAGRO proved that agricultural subsidies can be transformed from drivers of environmental degradation into powerful tools for sustainable resource management.
CBD COP 17 — Harmful Subsidies and positive incentives in the spotlight
When world leaders gather in Armenia for the UN Biodiversity Conference (COP17) in October 2026, repurposing subsidies harmful to biodiversity and scaling-up positive incentives will take center stage. To meet global nature goals — including raising $30 billion annually for developing nations by 2030 — countries must stop funding activities that destroy ecosystems. Repurposing these multi-billion-dollar harmful subsidies into nature-positive investments is a vital strategy for funding the implementation of the Kunming-Montreal Global Biodiversity Framework, transforming how both public and private capital flows toward protecting the environment, communities and the economy.
BIOFIN will be hosting side events at COP17 along with partners to highlight the transformative potential of repurposing of harmful subsidies as a strategy for implementing the Kunming-Montreal Global Biodiversity Framework. Events include “Accelerating the Implementation of Target 18 of the Kunming-Montreal Global Biodiversity Framework” on October 21st, hosted alongside IISD, Conservation International, Business for Nature, and the Government of Finland; as well as the event “Reforming Biodiversity-Harmful Financial Flows: Accelerating Action Towards Target 18” hosted on October 29th in partnership with the Dutch government.