Green Growth That Works: Natural Capital Policy and Finance Mechanisms Around the World

Green Growth That Works: Natural Capital Policy and Finance Mechanisms Around the World


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Rapid economic development has been a boon to human well-being. It has lifted millions out of poverty, raised standards of living, and increased life expectancies. But economic development comes at a significant cost to natural capital—the fertile soils, forests, coastal marshes, farmland—that support all life on earth, including our own. The dilemma of our times is to figure out how to improve the human condition without destroying nature’s. If ecosystems collapse, so eventually will human civilization. One answer is inclusive green growth—the efficient use of natural resources. Inclusive green growth minimizes pollution and strengthens communities against natural disasters while reducing poverty through improved access to health, education, and services. Its genius lies in working with nature rather than against it.

Green Growth That Works is the first practical guide to bring together pragmatic finance and policy tools that can make investment in natural capital both attractive and commonplace. The authors present six mechanisms that demonstrate a range of approaches used around the globe to conserve and restore earth’s myriad ecosystems, including:

  • Government subsidies
  • Regulatory-driven mitigation
  • Voluntary conservation
  • Water funds
  • Market-based transactions
  • Bilateral and multilateral payments

Through a series of real-world case studies, the book addresses questions such as: How can we channel economic incentives to make conservation and restoration desirable? What approaches have worked best? How can governments, businesses, NGOs, and individuals work together successfully?

Pioneered by leading scholars from the Natural Capital Project, this valuable compendium of proven techniques can guide agencies and organizations eager to make green growth work anywhere in the world.

Product Details

ISBN-13: 9781642830033
Publisher: Island Press
Publication date: 09/12/2019
Pages: 336
Sales rank: 907,248
Product dimensions: 6.40(w) x 8.30(h) x 0.70(d)

About the Author

Lisa Mandle is a Lead Scientist at the Natural Capital Project at Stanford University. Mandle has worked with governments, multi-lateral development banks, and nongovernmental organizations to incorporate this understanding into development decisions, particularly in Latin America and Asia. She has also led trainings around the world on natural capital-based approaches and tools for decision-making.
Zhiyun Ouyang is professor and director of Research Center for Eco-Environmental Sciences, Chinese Academy of Sciences. He leads unparalleled efforts to bring understanding of the earth system to bear on crucial societal issues of extreme poverty and environmental degradation research in a wide range of areas. He serves as the president of Ecological Society of China, and the board member of International Association of Ecology. He has won three national Science and Technology Achievement awards of China.
James Salzman is the Donald Bren Distinguished Professor of Environmental Law with joint appointments at UCLA Law School and the UC Santa Barbara, School of Environment. Salzman’s research ranges from drinking water and policy instrument design to conservation and trade conflicts. Author of over 90 articles and 10 books, his publications have been downloaded over 100,000 times.
Gretchen C. Daily is Bing Professor of Environmental Science at Stanford University, where she also serves as Senior Fellow in the Stanford Woods Institute for the Environment; Director of the Center for Conservation Biology; and cofounder and faculty director of the Natural Capital Project, a global partnership driving innovation to value nature explicitly and systematically in policy, finance and management. She is a fellow of the US National Academy of Sciences, the American Academy of Arts and Sciences, and the American Philosophical Society. 

Read an Excerpt


The Case and Movement for Securing People and Nature

Lisa Mandle, Zhiyun Ouyang, James Salzman, Ian Bateman, Carl Folke, Anne D. Guerry, Cong Li, Jie Li, Shuzhuo Li, Jianguo Liu, Stephen Polasky, Mary Ruckelshaus, Bhaskar Vira, Alvaro Umaña Quesada, Weihua Xu, Hua Zheng, and Gretchen C. Daily

Growth in human population and economic activity has dramatically transformed our planet since the Industrial Revolution. While driving significant improvements in human well-being, these forms of growth also deeply eroded the natural capital embodied in Earth's lands, waters, and biodiversity. Rapid economic development has lifted hundreds of millions of people out of poverty and raised the standard of living and life expectancies of many more, but the costs of this success cast a long shadow over future well-being.

Massive degradation and loss of forests, wetlands, coral reefs, grasslands, and other ecosystems — along with their waters and species — are creating grave risks. Severe inland and coastal flooding, sand and dust storms, extreme climate events, and unhealthy air and water threaten the security of food, water, climate, energy, health, and livelihoods. Taken together, these harms constitute a sobering counterbalance to economic growth.

Yet the world is waking up. Policymakers, development organizations, businesses, and private investors are joining civil society organizations and scientists in forging a new development model. The quest is ambitious: to improve the human condition while securing nature's life-support systems — in other words, to create pathways toward inclusive green growth.

Over two decades of innovation in research and implementation demonstrate the feasibility of this ambitious yet urgent and vital goal. The challenge now is to move from ideas to action on a broader scale (Guerry et al. 2015). Doing so requires a clear focus on values and mechanisms.

Moving to inclusive green growth necessitates a rigorous understanding of the significance and values of natural capital for human well-being — today and for the future. Whether in the public or private sector, decision makers will need to be persuaded of the benefits from major investments in nature and nature-based solutions compared to their costs. This understanding has been advanced rapidly through scientific research (going back to Jansson et al. 1994 and Daily 1997), as well as via international efforts such as the Millennium Ecosystem Assessment (2005) and the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES).

Going from ideas to action also requires creating innovative, effective policy and finance mechanisms that drive regeneration and promotion of natural capital and the provision of ecosystem service benefits (Daily and Ellison 2002). These approaches typically have deeply intertwined, dual goals of securing the well-being of both nature and people.

In this book, we put the emphasis on the natural capital dimensions underpinning inclusive green growth, highlighting the recent, rapid innovation in demonstrating the economic and national security — as well as the inclusive and ethical — case for securing nature. And we emphasize the experience in diverse countries worldwide in implementing innovative policy and finance mechanisms. Our focus on natural capital complements other efforts around inclusive growth (de Mello and Dutz 2012), inclusive development (Teichman 2016), and green economies (Jacobs 1993).

Recognition of the value of natural capital is not new: one can find examples of wise conservation practices from societies throughout history. Yet, today, many human activities not only fail to consider natural capital but actively degrade its value. Because services from natural capital are generally public goods and not reflected in market prices, their loss is often unrecognized — or at least unchecked — until the consequences become too large to ignore. A famous case is China, where massive deforestation in the upper reaches of the Yangtze River led to devastating flooding in 1998. In 1999, China began to launch what is still the largest payment for ecosystem services program in the world — the Sloping Land Conversion Program — with dual goals of flood mitigation and poverty alleviation (Liu et al 2018).

Society's most vulnerable members often have the greatest immediate dependence on nature, and the lowest ability to cope with or substitute for loss of ecosystem service benefits (Gadgil and Guha 1992; MEA 2005). In the face of natural disasters and extreme climate events, poor and marginalized individuals and communities are often most likely to end up in harm's way (Hamann et al. 2018). Thus the deterioration of natural capital often hits the most vulnerable people the hardest, making considerations of inclusivity and equity imperative in the context of ecosystem services (Vira 2015). Ultimately, however, all people depend on nature for their well-being. Although wealth provides a buffer, no one is secure from the escalating risks of continuing on our current path of depleting natural capital.

As the consequences of natural capital losses have grown more pronounced, their impact has sparked innovations over the past two decades by visionary leaders around the world. In 2000, the term ecosystem services was scarcely known. There are now over 500 payment for ecosystem services (PES) programs around the globe with annual payments exceeding US$36 billion (Salzman et al. 2018). Such programs have become a central component of China's nationwide human development, environmental protection, and national security strategy (Ouyang et al. 2016; Bryan et al. 2018). These innovations initially took the form of custom, one-off mechanisms. Over time, they are developing into more complete, tested tools and strategies on which policymakers can draw with confidence.

One question in these efforts has remained central: how can economic and other incentives be designed to make investments in natural capital attractive and commonplace? The legal regimes in place to date have been primarily regulatory, relying on prescriptive statutes to direct behavior. These are important, but have clearly proven inadequate. Focusing on the incentive structure for landholders and other ecosystem service providers — the stewards of natural capital stocks of forest, wetlands, grazing lands, and coral reefs — provides a complementary strategy that is just now starting to reach its potential.

Accurate valuation of natural capital and effective local mechanisms to protect and restore it are necessary, but not enough. The overarching challenge lies in achieving action at a magnitude and extent capable of effecting global change. This requires scaling and adapting these approaches so that they become mainstream. Fortunately, recognition of the need for action is growing, and momentum behind transformation is building. Interest from governments, private institutions, and society at large is evident globally in a number of international initiatives.

The 2030 Agenda for Sustainable Development, adopted in 2015 by governments worldwide, sets out a universal agenda for achieving the triple bottom line of sustainable development — economic, social, and environmental (Elkington 1998). The year 2020 will see an update of the Convention on Biological Diversity's strategic plan, providing what is hoped to serve as a "New Deal for Nature": a framework for the international community to "ensure that the solutions and benefits nature provides are integrated in systemic, inclusive, and transformative actions to benefit human well-being, the economy, and the planet." The Natural Capital Coalition has, since 2014, brought together nearly 250 businesses and other organizations from around the world to advance the vision for a world where businesses conserve and enhance natural capital. The Natural Capital Project, a partnership among scientific research institutions and conservation organizations, works to mainstream the value of nature in decisions made by governments, businesses, multilateral development banks, and others. It has worked directly in over 60 countries. The Natural Capital Project's data and science platform, anchored by the InVEST software suite, has been used in over 180 countries to map, quantify, and value ecosystem services in support of a diversity of policy and finance mechanisms.

Reflecting the growing demand to collect and describe important policy and finance solutions to securing natural capital, this book has its origins in a request from the leadership in China's central government. In 2017, the Department of Development Planning of the National Development and Reform Commission asked for a report on international experience in green finance and development. Chinese President Xi Jinping has declared that it is "China's dream" to become "the ecological civilization of the 21 century." This means pioneering, testing, and implementing a comprehensive, transformational system of policy and finance mechanisms that deliver improvements in human well-being — especially in poor and vulnerable communities — and that conserve and restore ecosystems and their ability to provide goods and services now and into the future.

In drafting the report, we found many examples of important policy and finance innovations for green and inclusive development. But these were scattered across the academic literature, white papers, and reports, or locked in the minds of the leaders who shepherded them from idea to implementation. In synthesizing this information for China's leaders, we realized it would usefully serve a wider, global audience.

This book has been designed to provide a practical guide to how policies and finance mechanisms have been implemented in the real world, across a diversity of contexts, in order to secure and enhance natural capital and ecosystem service benefits on the pathway toward inclusive green growth. Through a series of case studies, we address key questions such as the following: How can economic and other incentives be channeled to make conservation and restoration attractive and mainstream? Which approaches have been successful, under what conditions? What roles can governments, businesses, landowners, nongovernmental organizations, and other actors play, and how can they complement each other? What are the opportunities to scale and improve these successful models?

In the remainder of this chapter, we introduce several key concepts (box 1.1) that run throughout the rest of the book, provide an overview of the book's format and organization, and make suggestions for steps forward.

How This Book Is Organized

This book surveys the range of policy and finance mechanisms that channel economic resources and other benefits toward securing and enhancing natural capital. These mechanisms typically also aim to increase equity and well-being, both through poverty alleviation and in access to ecosystem goods and services. Illustrative examples have been contributed by a range of experts who come from the natural and social sciences, government, private companies, financial institutions, and civil society organizations. Authors have been involved in all aspects of policy and finance, from design and implementation to evaluation and scaling up these mechanisms — and the examples come from both developing and developed countries worldwide.

In part 1, we provide an overview of the state of practice and implementation of initiatives to integrate natural capital into societal decisions, and of pathways to scaling mechanisms toward global change.

Part 2 presents six chapters, each focusing on a specific policy or finance mechanism for conserving or enhancing natural capital. These include government subsidies, regulatory-driven mitigation, voluntary conservation, water funds, market-based transactions, and bilateral and multilateral payments (figure 1.1). To ground the discussion in practice and demonstrate the wide range of approaches around the globe, every chapter provides a set of detailed case studies. To make comparisons straightforward, the case studies follow a common format with the following sections, when applicable:

Key Concepts

Inclusive green growth is "efficient in its use of natural resources, clean in that it minimizes pollution and environmental impacts, and resilient in that it accounts for natural hazards and the role of environmental management and natural capital in preventing physical disasters. Importantly, green growth is not inherently inclusive. Its outcome will likely be good for the poor, but specific policies are needed to ensure that the poor are not excluded from benefits, and are not harmed in the transition. The welfare impacts of green policies will be greater if efforts are made to make the policies inclusive" (World Bank 2012, p. 30). Such an approach is sometimes labelled inclusive green development or green economy (UNEP 2011). The common principles are reducing poverty and improving access to health, education, and infrastructure services, while investing in the natural assets on which livelihoods and economies depend.

Natural capital refers to stocks of nonliving and living elements of ecosystems that provide benefit streams to people. Prominent nonliving natural capital assets include ores and minerals. We are focused here primarily on living stocks of natural capital, including ecosystem assets such as fertile soils, forests, coastal marshes, farmland, and the diversity of life living in ecosystems.

Ecosystem goods and services flow from stocks of natural capital, often coproduced in combination with flows from other capital, including human labor, ingenuity, and manufactured goods. These benefits — also referred to as nature's contributions to people (Díaz et al. 2018) — are vital to human well-being and, indeed, our very existence. They include everything from food, fuel, and fiber; to the provision of clean water; to mitigation of extreme events such as coastal storms and inland flooding. Ecosystem services also include a diversity of nonmaterial benefits, such as psychological and physical health, cultural identity, sense of place, and nature-based tourism and recreation.

Interactions and trade-offs are inherent in the dynamics of ecosystems, where everything is interconnected. It is therefore key to analyze trade-offs in the production of ecosystem goods and services (Howe et al. 2014). For example, timber can be a valuable source of income, but timber extraction can reduce an area's recreational value and water quality regulation services, leading to increased sediments in downstream water bodies.

Resilience is the capacity of a system to retain essential structures, processes, and feedbacks in the face of shocks or disturbances and continue to develop (Walker et al. 2004). This capacity includes linked social and ecological dimensions, such as the regenerative ability of ecosystems and their ability to deliver ecosystem services in the face of change, as well as the system's capacity for self-organization, learning, and adaptation (Folke et al. 2002).

The Problem explains the challenge that the policy seeks to address. It may be contamination of drinking water sources, loss of biodiversity, or rural poverty. This initial framing is important because choosing the most appropriate policy instrument hinges on the nature of the specific problem.

The Ecosystem Service(s) describes the biophysical basis for how the benefit will be provided. Not all natural capital is equally effective in service provision. Focusing on upstream forest conservation may be more effective to ensure flood protection and water quality, for example, than downstream grasslands.

Ecosystem Service Beneficiaries sets out which parties stand to either benefit from service provision or risk experiencing the loss of service. Payment schemes are driven by demand: by the perceived scarcity of ecosystem services. The scarcity may concern water quality, flood protection, climate stability, or loss of biodiversity. Because many services are public goods, demand may need to be amplified through regulation. This prevents free-riding and overcomes the collective action costs of organizing diffuse beneficiaries.

Ecosystem Service Suppliers sets out who provides the service. In most cases, this is landowners. To change their behavior, the incentives must be competitive with the opportunity costs, to make conservation as attractive as, for example, the values of timber or palm oil plantations.


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Copyright © 2019 Island Press.
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Table of Contents

PART I. Introduction and Background
Chapter 1. The Case and Movement for Securing People and Nature  
Lisa Mandle, Zhiyun Ouyang, James Salzman, Ian Bateman, Carl Folke, Anne D. Guerry, Cong Li, Jie Li, Shuzhuo Li, Jianguo Liu, Stephen Polasky, Mary Ruckelshaus, Bhaskar Vira, Alvaro Umaña Quesada, Weihua Xu, Hua Zheng, and Gretchen C. Daily
Chapter 2. Scaling Pathways for Inclusive Green Growth
Mary Ruckelshaus, Gretchen Daily, Stuart Anstee, Katie Arkema, Onon Bayasgalan, Carter Brandon, Becky Chaplin-Kramer, Helen Crowley, Marcus Feldman, Annette Killmer, Cong Li, Jie Li, Shuzhuo Li, Michele Lemay, Jianguo Liu, Carl Obst, Zhiyun Ouyang, Steve Polasky, Enkhtuvshin Shiilegdamba, Samdanjigmed Tulganyam, Ray Victurine, Greg Watson, Weihua Xu, and Hua Zheng
Chapter 3. Amplifying Small Solutions for System-Wide Change
Eric F. Lambin, Jim Leape, and Kai Chan
Chapter 4. Collaborative Approaches to Biosphere Stewardship
Carl Folke, Beatrice E. Crona, Victor Galaz, Line J. Gordon, Lisen Schultz, and Henrik Österblom
Chapter 5. The “Five Ps”: Policy Instrument Choice for Inclusive Green Growth
James Salzman
PART II. Policy and Finance Mechanisms for Natural Capital, Ecosystem Services, and Livelihoods
Chapter 6. Government Payments
Lisa Mandle
Chapter 7. Regulatory Mechanisms
Lisa Mandle, Rick Thomas, and Craig Holland
Chapter 8. Voluntary Mechanisms
Lisa Mandle and Meg Symington
Chapter 9. Water Funds
Kate A Brauman, Rebecca Benner, Silvia Benitez, Leah Bremer, and Kari Vigerstøl
Chapter 10. Market-Based Mechanisms
Rebecca Chaplin-Kramer and Lisa Mandle
Box 10-1. The Forest Resilience Bond: Connecting Private Capital to Restoration Projects that Reduce Fire Risk and Provide Ecosystem Service Co-Benefits
Benjamin P. Bryant, Zachary Knight, Phil Saksa, and Nick Wobbrock
Chapter 11. Bilateral and Multilateral Mechanisms
Rick Thomas
PART III. Successful Experience in Inclusive Green Growth around the World
Chapter 12. China: Designing Policies to Enhance Ecosystem Services
Zhiyun Ouyang, Changsu Song, Christina Wong, Gretchen C. Daily, Jianguo Liu, James Salzman, Lingqiao Kong, Hua Zheng, and Cong Li
Chapter 13. Costa Rica: Bringing Natural Capital Values into the Mainstream
Alvaro Umaña Quesada
Chapter 14. United States: Blending Finance Mechanisms for Coastal Resilience and Climate Adaptation
Katie Arkema, Rick Bennett, Alyssa Dausman, and Len Materman
Chapter 15. United Kingdom: Paying for Ecosystem Services in the Public and Private Sectors
Ian Bateman, Amy Binner, Brett Day, Carlo Fezzi, Alex Rusby, Greg Smith, and Ruth Welters
Chapter 16. Caribbean: Implementing Successful Development Planning and Investment Strategies
Katie Arkema and Nicola Virgill-Rolle
Box 16-1. Valuing Nature in Myanmar as the Basis of Economic Development and Decision-Making
Hanna Helsingen, Nirmal Bhagabati and Sai Nay Won Myint
Chapter 17. Cities: Incorporating Natural Capital into Urban Planning
Perrine Hamel, François Mancebo, Clément Féger, and Stéphanie Hamel
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