1.5.1 Understanding public finance solutions: government policies and budgets

Governments play an essential role in financing biodiversity. Domestic budgets account for approximately 50 percent of the total invested in biodiversity annually. If ODA and biodiversitypositive policies are added, the public sector accounts for 75 percent of all biodiversity expenditures. A study in Latin America and the Caribbean found that governments directly supported 60 percent of protected area management costs on average.

Despite being primarily financed through public budgets, financial allocations to the environment (and biodiversity) tend to be low as there are fewer interest groups or political rewards involved. At a local level, most natural areas have potential alternative uses, such as agriculture, housing, fishing, etc. These economic activities result in clear individual benefits. Arguing to forgo those individual benefits requires clear explanations of how both society and individuals will be better off if they retain nature rather than allowing for its conversion.

Integrating biodiversity targets into long-term strategic planning is one important means of assuring that biodiversity is adequately financed and supported by government fiscal and regulatory policy. Lobbying for fiscal reforms and larger budget allocations often requires an anchor in the national vision and planning process. These documents and planning processes result in multi-year public investment plans, in turn informing annual budgets. The SDGs offer an opportunity for this, with many countries adapting their national strategies to align with them.

Environmental ministries and civil society can shift allocations in favour of nature only if they present powerful arguments responding to a country’s development goals, often focusing on economic development. To address how biodiversity targets can support economic development, proponents should provide estimates for job creation, contribution to GDP, costs avoided from protection against natural or climate changerelated disasters or agricultural failures. This engagement requires presenting biodiversity values in the language of economics and finance used by the ministries of finance and planning.

Public finance management frameworks usually describe the rules governing taxes, subsidies, fees, fines, intra-governmental transfers, monetary policy, debt management, budgeting and regulatory mechanisms. Policymakers seeking to use fiscal and associated regulatory tools to achieve biodiversity objectives should make every effort to understand the system within which these tools work. Most fiscal policies affect markets and are difficult or costly to reverse once established.

Figure 1.5 describes the main steps undertaken in public finance management. Public budgeting is informed by national planning and the fiscal framework, in turn determining allocation priorities, revenue targets and budget caps. A detailed analysis of the budgeting process, key decision makers, timing of decisions, and specific types of targets and indicators helps to develop strong conservation plans, increasing the likelihood of approval.

The macroeconomic context can limit the availability of public finance—fiscal space. If governments allocate more budget to nature, they may thus decrease allocations to other sectors. Although BIOFIN and others have identified many opportunities to realign public expenditures counterproductive to social welfare (e.g. greening subsidies), many countries still operate under severe public finance constraints leading to investment trade-offs.