Enhancing biodiversity through economic mechanisms

Ecosystem services provided by nature, such as purification of water and air, are vital for the societies and economies. However, biodiversity is declining, and urgent actions are needed to halt this trend. Economic incentives are also necessary to curb the loss of biodiversity and support its preservation.

A recent study, conducted by Tyrsky and Pellervo economic research PTT and published by Sitra,  has identified 17 examples of economic mechanisms to promote biodiversity worldwide. These examples fall into three main categories: the polluter pays principle, payments for ecosystem services, and voluntary solutions in the private sector.

For instance, in the United Kingdom, a biodiversity net gain (BNG) approach has been implemented based on the polluter pays principle. This new regulation aims to mitigate the impacts of new property and infrastructure developments on biodiversity and promote sustainable land management. To obtain a planning permit, developers must demonstrate how they will offset the biodiversity loss caused by their projects either on-site or elsewhere, using biodiversity credits if necessary, to ensure that the state of nature is improved post-development compared to the baseline.

Payments for ecosystem services, on the other hand, are usually incentives paid to actors such as landowners to guide them towards changing current practices or adopting new ones that promote biodiversity. These subsidies are usually led and funded by the state. Voluntary solutions in the private sector include various certifications, voluntary land-use compensation, and incentives set within a company’s supply chain to support biodiversity-friendly actions.

Read more about the mechanisms and case examples from the report.