Download Changing agricultural fiscal policies to stimulate sustainable

Changing agricultural fiscal policies to
stimulate sustainable economic growth, food
production, and reduced deforestation Session Brief: Global Landscapes Forum, 11.30 - 13.00, Sunday, 6 December, 2015
Written by Gabrielle Kissinger (Consultant, UNEP) with input from Ivo Mulder (REDD+ Economics
Advisor, UNEP) and Johan Kieft (Green Economy Advisor, UNORCID) UN-REDD Programme
What you will learn
1.
How fiscal tools can be used to change from business-as-usual to more
sustainable production in land use sectors,
2.
The keys to success that can be applied in different national contexts and across
different soft commodities
3.
How funding for REDD+ and other forms of climate finance can be used to
encourage greater compatability in incentives across land use sectors.
The Context
Agriculture is estimated to be the direct driver for around 80% of deforestation
worldwide. In order for countries to contribute to mitigating climate change in the
land use sector, they need to tackle both the direct and underlying or indirect drivers
associated with the production of agricultural commodities such as palm oil, soy and
beef. In many countries these underlying drivers include include government fiscal
policies and incentives that directly or indirectly promote agricultural expansion
into forests.
Our global population is rising to at least 9 billion people by 2050. We are increasingly
coming to understand that the economic and ecological stability we have come to rely
on in the past is at risk, as natural capital depletion and increasingly marginal food
production circumstances become the norm. Our agricultural systems underperform
due to poor and inefficient practices, policies and market signals, and often depend
1 on spatial expansion into forests, rather than increases in yield per hectare, for
production increases.
Brazil and Indonesia together provided over $40 billion in subsidies to palm oil,
timber, soy, and biofuel sectors between 2009 and 2012, which is more than a
hundred times the $346 million these countries received through REDD+ (reducing
emissions from deforestation and forest degradation in developing countries as well
as stimulating conservation, sustainable management of forests and enhancement of
forest carbon stocks).1 Domestic subsidies or incoherence in fiscal policies causing
deforestation vastly outweighs the international REDD+ funding seeking to prevent it.
International climate finance will not deliver the intended outcomes unless
parallel efforts focus on bringing coherence to fiscal incentive frameworks to
align sustainable economic growth, with food production and reduced
deforestation.
Fiscal incentives supporting agricultural production, however, have the potential
to promote sustainable land use and support multiple land use sector
objectives, if they are conceptualized and designed to do so2. Decoupling
economic growth from deforestation and land degradation is possible, and provides a
pathway toward sustainable land use and sustainable inclusive economic growth.
Defining fiscal incentives
Fiscal policy is the means through which governments adjust spending and income
through subsidies and taxes, and which can therefore have a large effect on the
national economy. The definition of fiscal policies and incentives must be broad
enough to capture the range of fiscal instruments that affect land use and forest cover
change. Thus, the World Trade Organization’s (WTO), Food and Agriculture
Organization of the United Nations (FAO) and Global Subsidies Initiative definitions of
subsidies are all applicable (see below).
1
McFarland, W., S. Whitley, G. Kissinger, 2015. Subsidies to key commodities driving forest loss: Implications for private climate finance. Overseas Development Institute, London. 2 Kissinger, G., 2015. Fiscal incentives for agricultural commodity production: Options to forge compatibility with REDD+. UN-­‐REDD Programme Policy Brief #7. 2 Fiscal incentives occur at different stages in commodity supply chains, ranging
from land access to production, downstream processing and manufacturing, and
domestic and international demand-side measures such as market-price support or
fuel blending mandates. A number of different types of fiscal incentives is shown
below. Please note that this list is not exhaustive.
Source: Kissinger, G., 2015.
Why look at compatibility in fiscal incentives across sectors now?
This past September, the United Nations General Assembly, comprised of 193
Member States, adopted the 2030 Sustainable Development Agenda. The 17
Sustainable Development Goals (SDGs) highlight the key goals of halting and
3 reversing land degradation and biodiversity loss, sustainably managing forests,
ensuring sustainable production and consumption patterns, and promoting inclusive
and sustainable economic growth among other goals. One sustainable development
target specifically calls for the phasing out of inefficient fossil fuel subsidies that
encourages wasteful consumption and market distortions (see box below). In
addition, the Aichi Biodiversity Target No. 3 calls for the elimination and reformation of
incentives and subsidies harmful to biodiversity by 2020.
2030 Sustainable Development Goals of relevance:
Goal 12: Ensure sustainable consumption and production patterns
Ø
Key targets include achieving the sustainable management and efficient use of natural
resources by 2030 and rationalizing inefficient fossil-fuel subsidies that encourage
wasteful consumption by removing market distortions. This includes restructuring
taxation and phasing out harmful subsidies to reflect their environmental impacts, being
attuned to national circumstances and minimizing the possible adverse impacts on
developing countries, and poor and affected communities.
Goal 13: Take urgent action to combat climate change and its impacts
Ø
Key targets include integrating climate change measures into national policies, strategies
and planning and mobilization of $100 billion annually by 2020 for mitigation action.
Goal 15: Sustainably manage forests, combat desertification, halt and reverse
land degradation, halt biodiversity loss
Ø
Key targets include promoting the implementation of sustainable management of all
types of forests by halting deforestation, restoration of degraded forests and increased
afforestation and reforestation globally by 2020, and achieving a land degradationneutral world by 2030. The Warsaw framework for REDD+ encourages governments and others to take
action to reduce the drivers of deforestation and forest degradation, and reaffirms the
importance of addressing these pressures in the context of the development and
implementation of REDD+ national strategies and action plans by REDD+
countries, depending on their national circumstances. However, very few countries, if
any at present, call out the need to review and reform existing fiscal incentives as part
of their REDD+ readiness activities, based on reviewing 43 country REDD+ readiness
plans.3 4
However, in order for countries to achieve sustainable economic growth by placing
the Sustainable Development Goals (SDGs) at the helm of economic and
3
Salvini, G., M. Herold, V. De Sy, G. Kissinger, M. Brockhaus, M. Skutsch, 2014. How countries link REDD+ interventions to drivers in their readiness plans: implications for monitoring systems. Environmental Research Letters. 4
Kissinger, G., M. Herold, V. De Sy. Drivers of Deforestation and Forest Degradation: A Synthesis Report for REDD+ Policymakers. Lexeme Consulting, Vancouver Canada, August 2012. 4 development planning, fiscal incentives that promote agricultural expansion need
to become better aligned with REDD+ objectives. The recent New Climate
Economy report for example notes that many countries subsidize key agricultural
inputs, such as irrigation water and fertilizer, in order to boost productivity, but
evidence suggests these subsidies can also lead to waste and environmental
damage.
What can REDD+ countries do about agricultural fiscal incentives?
There is no one-size-fits-all solution for countries to amend agricultural fiscal
incentives. National circumstances differ and each country will have a varied
approach to identify how their fiscal policies and incentives can overcome inherent
conflicts between sectors and competing land uses, serve multiple objectives, and to
send the right signals to the private sector. Success stories of fiscal incentive reform
include:
Ø In Brazil, a change in Central Bank policy prevented US$1.4 billion from being
loaned to unsustainable agricultural practices as these loan applications did not
comply with Brazilian environmental regulations. This change in policy contributed
to a 15% decrease in deforestation in the Amazon between 2008 and 2011. Brazil
made deforestation a crime back in 1998, and the ability to access rural credit
dependent upon legal compliance with existing laws, guided by a biome-wide
management plan and related sector development plans. Noncompliant biome
municipalities were blacklisted and denied access to agricultural credit and
subjected to product supply embargoes until the municipality registered 80% of its
properties in the Cadastro Ambiental Rural mapping system and lowered
deforestation rates.
Ø In Niger, changing a regulatory incentive that encouraged farmers to remove trees
from their farms resulted in the regeneration of 4.8 million ha of land and an
increase of farmer household incomes of 18 – 24%.
Ø India sought to overcome the perverse incentives that state and local governments
had to undervalue and mismanage forests, and declining revenue from forests due
to the implementation of the National Forest Policy. India’s 14th Finance
Commission made a slight shift in 2015 to the intergovernmental fiscal transfer
system, by: 1) increasing the amount of revenue allocated to states by 10%, and
2) Assigning a 7.5% weight to forest cover in the allocation formula of revenue
going to states. The percentage weight allocated to forest cover is expected to
deliver US$6 billion a year to Indian states, which is perhaps the largest revenueneutral fiscal incentive in the world to keep forests standing.
5 Indonesia’s peat fires and related haze in 2015 have resulted in one of the worst
environmental catastrophes in recent memory. At least 19 deaths have been
reported, 550,000 people suffer acute respiratory infections, and daily greenhouse
gas emissions have been greater than from the entire US economy. While not entirely
to blame, the lack of enforcement of Presidential Decree No.32/1990 mandating no
deforestation on deep peat provided in-kind incentives for companies to log on peat
soils. Indonesia’s challenge now is to redefine the full suite of land use regulations
and fiscal incentives that influence peat clearance. One option is a tax on peat land
use, administered as a special tariff of the Land and Buildings Tax for large-scale
license holders. As almost 60% of all fires have occurred outside concessions, there
is high probability that the intergovernmental fiscal transfer system could incorporate
incentives to promote better peat land planning at provincial and regency levels.
The speakers at this High-level Dialogue will provide insight in their views how to
achieve success to meet tomorrow’s challenges. The audience will also be actively
stimulated to provide constructive suggestions and feedback to find the best
pathways forward.
Questions for discussion
1. How can we envision change from business-as-usual in land use sectors, and
how can all relevant stakeholders, including government ministries and private
sector partners be brought along?
2. Getting governments to work in a holistic manner takes enormous political
leadership at the highest levels. What are the keys to success that can be
applied in different national contexts and across different commodities?
3. How can funding for REDD+ and other forms of climate finance be harnessed
to redesign incentives that stimulate agricultural production and economic
growth, but not at the expense of continued forest loss? Are the panelists aware
of recent success stories?
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