Mainstreaming biodiversity and ecosystem services – Norwegian and European Experiences

Rapport 2016/13

Henrik Lindhjem, Kristin Magnussen og Haakon Vennemo

Mainstreaming biodiversity and ecosystem services – Norwegian and European Experiences

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Underkategori(er)	EvalueringUtviklingssamarbeidMiljø
År	2016
Rapportnummer	13
Forfatter(e)	Henrik Lindhjem Kristin Magnussen Haakon Vennemo
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R	E	PORT	 	
2016/13
 	Mainstreaming biodiversity and
ecosystem services 	–	 Norwegian and
European Experiences

Henrik Lindhjem, Kristin Magnussen and Haakon Vennemo
VISTA ANALYSE AS

Norwegian Environment Agency

Mainstreaming biodiversity and ecosystem services 	– Norwegian and European Experiences

Report details
Vista Analyse AS	 	Report num	ber 	2016/	13
Title	 	Mainstreaming biodiversity and ecosystem services
– Norwegian and European Experiences
ISBN	 	978	-82	-8126	-270	-6
Authors	 	Henrik 	Lindhjem, Kristin Magnussen and Haakon
Vennemo
Date for completion	 	04.05.2016
Pro	ject manager	 	Henrik Lindhjem
Peer review	 	Ståle Navrud
Client	 	Norwegian Environment Agency
Access	 	Public
Publis	hed	 	www.vista	-analyse.no
Key words	 	Biodiversity	, ecosystem services, mainstreaming,
Norway, Europe, China	, non	-market valuation.

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Preface
The Norwegian Environment Agency (NEA) 	has ongoing cooperation with 	the Chinese
Research Academy of Environmental Sciences (CRAES) on 	the 	project “Mainstreaming
Biodiversity and Ecosystem Service Values into Policy	-making in China”.	 As part of
establishing 	a common knowledge base for the project, this report 	aim	s 	to describe
Norwegian and European experiences with mainstreaming of biodiversity and ES into
policy, decision	-making	 and planning	, with an emphasis on 	specific	 case examples.
The work on the report	 was led by Henrik Lindhjem, with contributions from co	-authors
Kristin Magnussen and Haakon Vennemo. Ståle Navrud has provided internal review of
the report.
The project manager from NEA was Kirsten Grønvik Bråten, who together with
colleagues Mari	e Sneve	 Martinussen and Borge Håmsø, have provided important
comments and inputs to the report. F	urther,	 we would like to acknowledge 	constructive
comments from Professor 	Zhang Fengchun 	and from 	participants at the	 project
workshop 31. March 2016 in Beijing, wher	e a dr	aft of the report	 was presented	.

Henrik Lindhjem

Pro	ject manager
Vista Analyse AS

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Contents
Preface	 ................................	................................	................................	........................	 1
Executive summary	................................	................................	................................	....	 5
1. 	Introdu	ction	................................	................................	................................	.........	11
1.1	 	Background and motivation	 ................................	................................	.........	11
1.2	 	Aim	 of the report	 ................................	................................	.........................	12
1.3	 	Outline	 ................................	................................	................................	........	12
2. 	Mainstreaming biodiversity 	and	 ES	 values: 	Principles	 and practice	 ..............	15
2.1	 	Defining ecosystem services and biodiversity	 ................................	.............	15
2.2	 	Interpretation and purpose of mainstreaming biodiversity and ES values	 ....	18
2.3	 	ES and biodiversity non	-market valuation: From promise to practice	 ..........	18
2.4	 	Towards mainstreaming and integration of values	 ................................	......	20
3. 	Environmental management and biodiversity & ES values in Norway	 ...........	24
3.1	 	Introduction: Norway’s natural and socio	-economic environment	 ................	24
3.2	 	Institutional framewor	k for en	vironmental management	 in Norway	 ..............	26
3.3	 	Overview of m	ainstreaming biodiversity and ES values 	in Norway	 ..............	27
3.4	 	Experiences and progress to date?	 ................................	.............................	34
4. 	Examples of mainstreaming from Norway and Europe	 ................................	...38
4.1	 	Introduction to the examples	 ................................	................................	.......	38
4.2	 	Voluntary forest 	conservation (Norway)	 ................................	......................	40
4.3	 	Mainstreaming 	biodiversity and 	ES in EIA/CBA (Norway)	 ...........................	46
4.4	 	Ecological Fiscal Transfers 	(France and Portugal)	 ................................	......	53
4.5	 	Other mainstreaming examples	 ................................	................................	..59
Refer	ences	 ................................	................................	................................	.................	68

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Executive summary
There is a	 growing	 interest and urgency both in China and Norway to better integrate
(mainstream) 	concerns about biodiversity and the benef	its people obtain from nature
(ecosystem services	 – ES)	 into policy	-making, planning and decision	-making. Economic
valuation of 	such	 benefits to demonstrate their importance for human welfare	 is 	viewed
as 	an	 important	 tool	 for achieving this goal.	 This report	 first presents 	the concept of
mainstreaming	; and	 outlines possible policy instruments and applications where
biodiversity and ES	, and their economic values	, can 	be 	mainstreamed	/integrated	. Then
several examples	 from Norway and other European c	ountries	 are presented in order to
demonstra	te how 	the provision of more and better information and incentives 	can
increase biodiversity conservation. The potential relevance of the examples to the
Chinese context is discussed.
Background and motivatio	n
The Norwegian Environment Agency (NEA) 	has ongoing cooperation with 	the Chinese
Research Academy of Environmental Sciences (CRAES) on 	the 	project “Mainstreaming
Biodiversity and Ecosystem Service Values into Policy	-making in China 	(2015 	-2017	)”.
The aim of the project is to “Promote the mainstreaming of biodiversity issues into policy	-
making, planning and decision making through linking biodiversity and 	ecosystem
services (	ES	), and where possible economic valuation, as a contribution to improve th	e
management of biodiversity and ES	.”
The most important arenas for mainstreaming (or integration)	 in the Chinese context 	are
envisaged to be	:
(1)	 	Payment schemes:	 such as payments for ES, eco	-compensation, etc.	;
(2)	 	Tools for trade	-off analysis	 to help balancing economic development and
environmental protection, and
(3)	 	Performance assessment systems	 	on different government levels,
supplementing GDP with environmental targets.
To better understand how mainstreaming of biodiversity and ES values ca	n be 	integrated
into policies and decision	-making	 in practice	, a good place to start is learning from
ongoing initiatives in different countries	. This report aims to contribute to that.
Objectives	 of the report
As part of establishing a common knowledge base for the project, this report 	aim	s to
describe Norwegian and European experiences with mainstreaming of biodiversity and
ES into policy, decision	-making	 and planning	, with an emphasis on 	specific	 case
examples	. The assignment is	 divided into two parts:
(1)	 	A broad overview	 of how Norway has mainstreamed biodiversity and ES into
government processes, and
(2)	 	A more specific description and evaluation	 of relevant examples of 	tools and
instruments (‘techniques’) for main	streaming	.
The main emphasis is	 put	 on part 	(2)	, while part 	(1)	 will show the bigger picture and
indicate where instruments like the examples in part 	(2)	 fit in. 	Before going into the
practical examples we discuss how to interpret the concept of mainstrea	ming biodiversity
and ES and their values into policy, decision	-making and planning. 	The purpose of

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mainstreaming, or integrating	, values of 	ES 	and biodiversity 	into public (and private)
policy, decision	-making and planning	 is to contribute to reducing the	 current (	in many
places 	accelerating) loss of biodiversity and many important ES. A better knowledge
base, including knowledge of 	economic 	values of biodiversity and ES, can help improve
decisions	. This means that that 	higher welfare for more people	, comp	ared to the status
quo situation	, will be achieved.	 We 	look 	primarily 	at 	efforts to promote biodiversity and
nature conservation, and 	not 	at the full range of ES	, although many ES flows will increase
through the advancement of biodiversity conservation.
The concept	s of ES and biodiversity
The concept of ecosystem services (ES) was	 brought into common use by the
Millennium Ecosystem Assessment	 (MA	), a global initiative set up in 1999 to assess how
ecosystem change would affect human well	-being (MA 2005).	 The MA defined ES as
“the benefits that people obtain from ecosystems”.	 This encompasses goods such as
timber, and services such as air purification. 	Biodiversity	1 is 	typically placed in the	 middle
of the natural system, reflecting the current evidence that	 biodiversity loss reduce	s the
capacity and efficiency of ecosystems to produce many ES. 	There is some debate about
the role of biodiversity in the production of different services. Some recreation	al 	activities
and	 other cultural services may	 for example n	ot be particularly dependent on a certain
level of biodiversity. P	eople may enjoy both use and non	-use benefits of biodiversity,
regardless of its role in the functions of ecosystems.
Biodiversity and ES often have no market value and are overused and deg	raded
One of the main problems is that many ES	, and most of the biodiversity that is
threatened, are 	public goods that are 	currently not 	traded in the market 	with prices and
market transactions 	like private	 goods and services. 	Such	 public goods 	have no 	price to
signal their scarcity	, they 	are 	often 	perceived to be “free for all”, 	and are then	 typically
overused and degraded. This has been the case 	in countries 	woldwide, including both
China and Norway, at least for some nature types and environmental pro	blems	. Hence,
knowledge of the costs of degradation (or the flip	-side: the benefits of nature protection)
may be useful or even necessary to make better decisions. The economic values of
changes in biodiversity and ES can be estimated by 	the 	use of interna	tionally recognized
environmental 	valuation methods.	 Different	 policy 	uses of economic value information
will 	require different levels of accuracy in in the value	 estimates. For example, if the aim
is to raise awareness, accuracy does not need t	o be high. 	If estimated values are used
for litigation	 to determine the level of ES damage compensation 	or 	for 	determining 	the
optimal 	level of 	environmental taxes	, accuracy needs to be 	much 	higher.
Options for mainstreaming values of biodiversity and ES
Once there	 is reliable economic valuation information, there is the question of 	how and
in what sense one can 	best 	mainstream	, or integrate	, such values in 	policy	-making,
planning and decision	-making	. T	hree main policy leve	ls or instruments 	for
mainstreaming have 	been suggested	 internationally	 (TEEB 2011) (see Figure A):	 (1)
Providing information	 for biodiversity and ES policies (or policies and projects that have
impact on biodiversity and ES), 	(2) 	Setting incentives	 to stimulate behavioural change,
and 	(3) 	Regula	ting use	 of natural resources directly.
Providing information helps in measuring what we manage. Setting incentives is about
setting the right price and other signals for different actors to change behaviour that is
damaging or beneficial for biodiversity	 and ES. Finally, regulating use of natural

1 Widely assumed to mean the number of different species present, but in reality is more complex.

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resources directly is often more about direct regulation, e.g. in the form of 	establishing
protected areas.	 All instruments can utilize information about 	economic 	values of ES and
biodiversity.

Figure	 A 	TEEB’s	 proposed options for mainstreaming values of ecosystem services
and biodiversity into policy	-making. Source: 	Adapted from 	ten Brink (2011)
The three instruments can then be linked to a number of specific policy options	, tools	 or
applications, illustrated with the row of boxes at the end of the arrows that may utilize
combinations of the three instrument types (	as there is uncertainty about some links,
some 	arrows	 are 	dotted	). Th	e types of instruments	 include among others	, star	ting from
the 	bottom 	left 	in 	figure	 A; reforming national accounting systems (beyond G	ross
Domestic 	Product	,GDP	), making benefits and costs more explicit in 	cost	-benefit analysis
(CBA	) and environmental impact assessments (EIAs), rewarding benefits (e.g. p	ayment
for ES), reducing harmful subsidies, and so on	.
Overview of m	ainstreaming efforts in Norway
Norway has implemented a number of initiatives 	along the lines in Figure A 	over the last
few years with the aim to strengthen biodiversity conservation. In	 terms of providing
better information to decision	-makers, Norway has developed and maintains sustainable
development indicators, including the pioneering of a Nature Index to provide an
important basis for evaluating the state of biodiversity. Norway also	 has a relatively
advanced system for requiring cost	-benefit analysis (CBA) of large public investment
projects, where ES are gradually being included in the considerations (see below).
Norway recently also set up its own national TEEB committee to advance	 biodiversity
and ES concerns in management	 across all sectors	.
In terms of setting incentives, Norway has relatively few 	payment schemes or 	taxes	 and
subsidies with a specific aim to stimulate biodiversity conservation. One important
exception is the vol	untary forest conservation program (see below). Recently, a Green
Tax commission delivered its report, which 	recommended	 a new 	tax on the ”consumption
of nature” or on different land uses with high biodiversity impacts.
Finally, in terms of 	regulating the direct use of natural resources, this has traditionally
been the most important means for conserving and protecting nature in Norway.
Recently, with the establishment of the Nature Diversity Act, Norway 	has	 an important
legal framework	 for f	urther strengtening the sustainable use and protection of
biodiversity. Despite important mainstreaming efforts, Norway still has some way to go
in terms of for example reaching a satisfactory level of nature protection, as 	also 	pointed

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out by the OECD. Ce	rtain nature types are somewhat degraded	, and have seen 	a decline
in recent years. Finally, it is also the case that economic value information has played a
limited role in mainstreaming efforts so far, though this may be about to gradually
change.
Spe	cific examples from Norway and Europe
Figure B provides an overview of the three specific examples 	we have chosen for further
analysis 	(green text in figure)	: (i) 	voluntary forest conservation in Norway, 	(ii)
incorporation of ES and biodiversity in cost	-be	nefit analysis and environmental impact
assessments in Norway, and 	(iii) 	ecological fiscal transfers in Portugal and France. In
addition, we provide a number of shorter examples (black text in 	Figure	 B) of other
initiatives. The 	top layer of the figure 	mak	es the link to the options for mainstreaming in
Figure A	. O	ur main focus here is on setting incentives and providing information. 	The
lower layer in 	Figure	 B relates the examples to the most relevant arenas for
mainstreaming biodiversity and ES in China	.

Figure	 B 	In-depth (green text) and short case examples of mainstreaming
biodiversity and ecosystem services
Notes: NO = Norway, FR = France, PO = Portugal, UK = United Kingdom, EC = European Commission, EU
= European Union, MAES = Mapping and Assessment 	of Ecosystems and their Services, NEA = National
Ecosystem Assessment, * = Piloting or ongoing development	/discussion	 of instrument.
Voluntary forest conservation in Norway
The Norwegian voluntary forest conservation program is a good example of 	a PES	-lik	e
scheme aimed at preserving biodiversity. 	Compensation to forest owners	 for 	establishing
nature 	reserves	 is paid on the basis of opportunity costs	 (in terms of the future 	loss of
timber income) calculated using a standard formula	. Biodiversity values are 	assessed
using non	-monetary biological criteria 	compared with	 conservation targets and gaps	. N	o
extra payment is made for biologically richer areas	. The program has increased the
number of forest reserves, 	and has been relatively successful in creating a c	limate of
cooperation between government and the many small, private forest owners in Norway.
However, the program could be strengthened both in terms of getting more conservation
for the same (still limited) budget, 	and 	in terms of targeting and increasin	g the preserved
area of 	forest types that are still underrepresented in the reserve network. The
experiences from the program may be relevant for China’s efforts to draw “ecological red
lines”	, and establish a national spatial development and protection sy	stem. Incentives

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for 	establishing	 protected areas and managing them have been reported to be lacking in
many 	parts of 	China. A compensation	-based system similar to the Norwegian system
may be able to overcome some of the incentive problems.
Mainstreaming b	iodiversity and ES in EIA/CBA in Norway
A good example of a 	tool for trade	-off	 analysis (the second category in Figure B above)
is the ongoing work on integrating biodiversity and ES information	, including monetary
and non	-monetary values	, into CBA and EIA. Compared to the forest conservation
program, the aim is to 	reflect 	better 	the full ES framework, not just biodiversity.	 Currently	;
official, public guidelines on CBA and EIA use a methodology for considering impacts
(typically environmen	tal) that are not valued (	i.e. 	non	-priced impacts). This method is
currently being supplemented with integration of elements from the ES framework	, and
with gradually increased economic valuation of ES, at least in some sector applications.
For example, Vi	sta Analysis is 	developing 	methodology 	for economic valuation of ES 	for
the Norwegian Coastal Administration to value ES loss from oil spills from ships in
economic terms	. These ES values will be 	include	d in 	their 	CBA 	manual for assessment
of prevention me	asures to reduce the probabilities of	 ship 	accidents	 with resulting oil
spills	. This is a good example of how a non	-market valuation method (contingent
valuation in this case) can be used in practice, and how it may improve decision	-making.
The implementat	ion of the ES framework, and potentially increased economic valuation
of ES into guidelines and practices	, is an area of continuous development and
improvement 	in Norway 	at the moment.	 Given the large number of costly infrastructure
projects	 in China	, and 	hence the need to give priority to the projects that provide the
highest net benefits, the potential 	benefits of in	creased use of CBA is expected to be
large	. The ES approach may be useful in CBA as well as in combination with EIA	. I	t
should be noted that 	use of the ES approach does not necessitate 	the 	use of 	economic
valuation of ES	, though this makes it easier to compare with impacts that are typically
monetize	d, 	such as investment	 and operational	 costs.
Ecological fiscal transfers in France and Portuga	l
The third category in Figure B 	of county	-level performance assessment systems	, which
are of interest in China, 	has no obvious counterparts	 in Europe.	 Ecological fiscal
transfers (EFT), which is a combination of incentives and performance assessment on
the municipal level	, may be relevant for county level performance assessment in China.
Fiscal transfers from the central and regional level	s to the local level is a feature of both
the European an	d Chinese system of government.	 EFT	 is a branch of fiscal t	ransfers in
which the level of transfer depends on ecological	 objectives, in practice often 	targets 	for
biodiversity	 conservation	. The transfers are meant	 both to compensate local
governments for their cost of biodiversity conservation	, and to motivate loc	al
governments to volunteer for biodiversity conservation (	i.e. 	the incentive aspect). 	It is the
municipality or 	an	other local administrative unit that is the recipient of the ecological fiscal
transfer. 	EFT is currently in use in France and Portugal, 	but 	is also 	considered 	for use 	in
other countries in Europe (including Germany and Norway).	 The performance of EFT in
terms of environmental effectiveness or cost effectiveness has not 	yet 	been assessed
carefully, but it is a potentially promising instrument t	hat may have particular relevance
to China. China’s official strategy to move towards the ecological civilization, has
specifically mentioned that economic policies 	including pricing, fiscal, taxation and
financial policies should	 motivate and guide variou	s entities to actively take part in the
development of ecological civilization. In this context, EFT deserves close consideration.

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Other examples
Finally, we also consider a number of shorter examples that demonstrate payment and
incentive schemes, tools for trade	-off analysis and county level performance and
indicator systems. Two perhaps particularly illuminating examp	les 	of information for
trade	-off analysis and making policy priorities	 include the UK National Ecosystem
Assessment 	(UK NEA), 	and the Mapping and Assessment of Ecosystems and their
Services 	(MEAS) 	in 	the EU	.

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1.	 In	troduction
1.1	 Background and motivation
For the 	past two decades, Norway has successfully cooperated with China on various
environmental projects addressing problems such as pollution, climate change and
biodiversity loss. In June 2015, the Norwegian Environment Agency (NEA) signed a new
contract with t	he Chinese Research Academy of Environmental Sciences (CRAES) on
the	 joint cooperation	 project “Mainstreaming Biodiversity and Ecosystem Service Values
into Policy	-making in China”. The project is scheduled to be implemented from 2015 to
2017. 	The project 	will combine research, case studies and the establishment of five pilot
counties to improve the understanding of the value of biodiversity and ecosystem
services (ES) and demonstrate how to mainstream these values in policy	-making,
planning and decision	-ma	king at the county level.
The aim of the 	overall 	project is to “Promote the mainstreaming of biodiversity issues
into policy	-making, planning and decision making through linking biodiversity and ES,
and where possible economic valuation, as a contribution 	to improve the management
of biodiversity and ES.” The most important arenas for mainstreaming (or integration)	 in
the Chinese context (and more generally)	 are envisaged to be:
• 	Payment schemes:	 such as payments for ES	2 (PES for short), eco	-
compensation, pa	id use of natural resources etc.
• 	Tools for trade	-off analysis	: the development of tools to improve trade	-offs
between biodiversity conservation and economic development in pilot
counties
• 	Performance assessment systems:	 a county	-level performance assessment
system that is currently based on contribution to GDP.
“Eco	-compensation” refers to 	many new ideas and methods central and provincial
governments in China are investigating primarily to improve supply	-side and demand	-
side management of water resources. T	his includes many experiments with market	-
based environmental policy tools.	 Paid use of natural resources is similar to PES, except
targeting materials, not ecosystem services.
Regarding the third arena for mainstreaming, 	China is currently using gross do	mestic
product (GDP) as a single criterion for the assessments of the performance of
governments, sectors, and individuals working for the government. The assessments
include annual assessment, term assessment (for the whole period of the term of service
of an official	, usually every five years), assessment for the officials who 	are	 about to be
promoted or transferred, and other assessments. China recently emphasizes that the
environmental factors (including biodiversity) should be mainstreamed into the cri	terion
systems	.

2 An	 international concept referring to a 	voluntary conditional agreement between at least one
‘seller’ and one ‘buyer’ over a well	-defined 	ecosystem	 service 	– or land use presumed to provide
that service.

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In order to further the mainstreaming agenda on these three fronts, international
experiences may be very relevant to China.
1.2	 Aim	 of the report
The second of five components	3 of the 	joint 	project is the establishment of a common
Chinese and	 Norwegian knowledge base	 in this area	. Important outputs from this
component 	are	 one	 report assessing existing performance assessment systems and two
reports describing techniques for mainstreaming biodiversity and ES into policies,
decision	-making and pl	anning. One will be focused on China, and the other on Norway
and Europe. The latter report will be the task of the current assignment.
The aim of this report is to describe Norwegian and European experiences with
mainstreaming of biodiversity and ES into	 policy, decision	-making	 and planning	, with an
emphasis on 	specific	 case examples. The assignment is divided into two parts:
(1)	 	A broad overview	 of how Norway has mainstreamed biodiversity and ES into
government processes, and
(2)	 	A more specific description and	 evaluation	 of relevant examples of 	tools and
instruments (‘techniques’) for mainstreaming	.
The main emphasis is 	put	 on part two, while part one will show the bigger picture and
indicate where instruments like the examples in part two fit in. 	Before going	 into the
practical examples we discuss how to interpret the concept of mainstreaming biodiversity
and ES and their values into policy, decision	-making and planning. 	We primarily focus
on efforts to promote biodiversity and nature conservation, and do not 	look at the full
range of ES (though many ES flows will increase through the advancement of
biodiversity conservation).
1.3	 Outline
In the next 	chapter 	we first 	briefly discuss how to interpret the concept of mainstreaming
biodiversity and ES	 and their valu	es into policy, decision	-making and planning	. Three
generic (policy) instruments or arenas for mainstreaming are identified, where economic
value information may be useful: (1) Providing information, (2) setting incentives and (3)
regulating use of natural	 resources	 directly	. Within these categories there are a number
of more detailed mechanisms and tools that can be used.
In chapter 3 we provide a brief overview of how Norway has approached the issue of
mainstreaming biodiversity 	(and ES	), i.e. part one o	f the report. 	As noted, w	e focus in
particular on nature and biodiversity conservation policies, rather than policies that may
affect the full range of ES. 	We also make some observations about 	experiences and
effects of 	these 	mainstreaming efforts	 and how 	economic valuation information has been
used.
Chapter 4 first makes the link between the three most important arenas of mainstreaming
in the Chinese context (as mentioned above), and a number of case examples from

3 The other four components are: (1) Project management, (3) Valuation of biodiversity and
ecosystem services, Mainstreaming biodiversity into policy	-making processes, (5) Capacity
building and dissemination 	of results.

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Norway and Europe more generally. We go mo	re into depth on 	the following 	three
examples:
1. The voluntary forest conservation program in Norway, a payment for ecosystem
service (PES)	-like scheme;
2. The use of Environmental Impact Assessment (EIA) and cost	-benefit analysis
(CBA) as a tool for trade	-off analysis; and
3. Ecological Fiscal Transfers in Europe, an intragovernmental fiscal transfer
mechanism based on nature protection performance.
We also provide shorter examples from Norway and 	Europe 	of information provision	 and
incentive 	setting. For each	 of the more detailed examples, we provide some thoughts on
the relevance of the experiences for the Chinese context.

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2.	 Mainstreaming bio	diversity 	and	 	ES	 	values	:
Principles	 and practice
This chapter 	first 	defines the concept of e	cosystem services 	(ES) 	and biodiversity	, and
discusses and motivates why it is seen as important to better try to include the values of
biodiversity and ES in 	policy, decision	-making	 and planning. 	Note that we do not cover
the full range of ES, but focus our main attention on the conservation of nature and
biodiversity (through which many, though not all, ES will also increase in abundance,
see below).
We then provide a short overview of the main n	on	-market valuation methods and the
methodological and practical challenges of measuring biodiversity and ES values.
Finally, we interpret and discuss the concept of mainstreaming such values, through the
instruments of providing information, setting incen	tives and regulating use of resources,
an approach used by The Economics of Ecosystems and Biodiversity” (TEEB) initiative.
2.1	 Defining ecosystem services and biodiversity
The concept of ecosystem services (ES) was brought into common use by the
Millennium E	cosystem Assessment	 (MA	), a global initiative set up in 1999 to assess how
ecosystem change would affect human well	-being (MA 2	00	5).	 The MA defined ES as
“the benefits that people obtain from ecosystems”.	 This encompasses both	 goods, such
as timber, and se	rvices such as air purification. The MA	 divided these services into four
categories:
i. 	Supporting services:	 These are services, such as nutrient cycling and soil
formation, which are needed for the production of all other services.
ii. 	Provisioning services:	 Pro	ducts obtained from ecosystems, such as food
or timber.
iii.	 	Regulating services:	 The benefits obtained from the regulation of
ecosystems, including services such as purification of water, flood control, or
regulation of the climate via carbon sequestration.
iv.	 	Cu	ltural services:	 The benefits people obtain from ecosystems through
spiritual enrichment, cognitive development, reflection, recreation, and
aesthetic experiences.
Following the MA, a number of national and international initiatives have emerged,
including	 “The Economics of Ecosystems and Biodiversity” (TEEB), launched in 2007	4.
The TEEB 	centre	s on economic	 valuation	 and	 aims to help decision makers recognise
the economic	 benefits of biodiversity 	and ES 	and the growing cost of ecosystem
degradation	 (TEEB 	2010).
In Europe, in 2011, the European Commission adopted the Biodiversity	 strategy to 2020.
Target 2 of the strategy 	has as its 	aim that	:
“by 2020, ecosystems and their services [will be] maintained and enhanced and 	[to]
assess the state of ecosystems 	and their services in their national territory by 2014,
assess the economic value of such services, and promote the integration of these values

4 http://www.teebweb.org/

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into accounting and reporting systems at EU and national level by 2020” 	(Maes et al.
2014).
To this end, the Ma	pping	 and Assessment of Ecosystems and their Services (MAES)
initiative	 was set up, and produced a framework for ecosystem assessment to	 ensure a
harmonised appr	oach across the EU (M	AES	 2013).	5
MAES uses the Common International Classification of Ecosyste	m Services (CICES)
system for classifying ecosystem services. CICES	 builds on the MA and TEEB
approaches but aims for a	 system more suitable for accounting. Compared to the MA
classification above it includes the regulating and supporting services in one c	ategory
with the name “regulation and maintenance services”, by doing so trying to avoid double
counting of overlapping services. There are some other differences in subcategories of
services etc., but the main ideas are the same.
The conceptual framework	 of MAES (also reflecting the thinking of MA) is shown in the
much	-cited “butterfly”	, see	 Figure 2.1, depicting the connection between natural and
socio	-economic systems and how these interact to produce services, benefits and
(monetary and non	-monetary) values for human well	-being, with feedback to the natural
system.
 	Figure	 2.1 The conceptual framework drawn up by the MAES	 initiative	. Source: 	MAES
2013)
Biodiversity	6 is placed centrally in the middle of the natural system, reflecting the current
evidence that biodiversity loss r	educe	s the capacity and efficiency of ecosystems to

5 This work also contributes to progress towards assessing ecosystem services on a global level,
coordinated by the Intergovernmental Platform on Biodiversity and Ecosystem 	Services (IPBES)
established by the UN in 2012.
6 W idely assumed to mean the number of different species present, but in reality is more complex
(EEA 2015). The definition used by the Convention on Biological Diversity, which is also used

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produce many ES (Cardinale et al	. 2012). 	There is some debate about the role of
biodiversity in the production of different services. Some recreation and other cultural
services may, for example, not be p	articularly dependent on a certain level of
biodiversity. A biologically relatively monocultural park, for instance, may give important
recreation services. 	In this framework, biodiversity may also be placed as part of cultural
services, as people may enjo	y both use and non	-use benefits of biodiversity, regardless
of its role in the functions of ecosystems.	 In this report we look particularly at
mainstreaming biodiversity values. When conserving biodiversity, other services giving
both use and non	-use values will follow (though some services not dependent on
biodiversity will not be included).
The MAES initi	ative also makes clear that ES 	represent	 “the realized flow of services for
which there is demand”	. Thus, 	its 	‘natural capital’ might encompass stocks 	– a forest for
example 	– but	 the provisioning service itself is the flow of harvested timber	, as shown in
Figure 	2.2. In some cases a ‘flow’ is harder to quantify 	– enjoyment of	 a beautiful view,
for example 	– but the basic concept remains the same:	 an 	ES	 is only an 	ES	 when it is
providing	 a realised benefit	 to people.	 Figure 2.2 also illustrates the natural 	abiotic assets
and flows as part of the concept of natural capital	, for example wind and solar energy	.
CICES also includes abiotic elements in its classification system.	7
 	Figure	 2.2 Adapted from EEA (2015), illustrating the different components of our natural
capital, encompassing both ecosystem	 stocks and service flows.

within the EU MAE	S framework, is this: “The variability among living organisms from all sources
including, inter alia, terrestrial, marine and other aquatic ecosystems and the ecological
complexes of which they are part; this includes diversity within species, between spec	ies and of
ecosystems”	.
7 http://cices.eu/

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2.2	 Interpretation and purpose of mainstreaming	 biodiversity
and ES values
We have now pr	ovided the essentials of the	 ES and biodiversity 	concept	s. The purpose
of mainstreaming, or integrating	, values of 	ES 	and biodiversity 	into public (and private)
policy, decision	-making and planning	 is to contribute to reducing the current (	in many
places 	accelerating) loss of biodive	rsity and many important ES	 (especially non	-market,
non	-provisioning)	. A better knowledge base, including knowledge of 	economic 	values of
biodiversity and ES, can help improve decisions. That means decisions that achieve
higher welfare for more people comp	ared to the status quo situation, within the bounds
and limits of the ecosystems. 	Many scientists argue that 	that	 economic growth and
development have	 been given a higher weight compared to biodiversity and important
ES	 to date	, and that the current 	path	 is not sustainable on a global scale	 (e.g. Rockström
et al. 2009)	. At least 	this is 	the opinion of the MA (2005) and a number of researchers
and policy	-makers.
One of the main problems, as is well known, is that many ES and most of the biodiversity
that is 	threatened, are currently not direct parts of the market economy with prices and
market transactions on par with other goods and services. Hence, when such public
goods do not signal their scarcity and value and therefore are perceived to be “free for
all”	, they are typically overused and degraded. This has been the case wold	-wide,
including both 	in 	China and Norway, at least for some nature types and environmental
problems (e.g. Norwegian forests according to the Norwegian Nature Index	8 and
environmental pollution and biodiversity loss in many areas of China).	 Hence, knowledge
of the costs of degradation (or the flip	-side: the benefits of nature protection) may be
useful or even necessary to make better decisions.
2.3	 ES and biodiversity non	-market valuation: From promise to
practice
To counter the grave trends in biodiversity and ES loss	 TEEB	 and other 	national and
international initiatives (for example under 	the 	auspices of the Convention on Biological
Diversity) have increased awareness an	d have started to move governments and other
actors from the current situation in the direction of 	”recognizing	” values, via
”demonstrating	” to 	”capturing	” values in decision	-making (TEEB terminology). The last
stage of capturing values 	ha	s still some way 	to go in most countries.
In order to be able to reach the stage where values of biodiversity and ES are more fully
integrated in decision	-making, a better knowledge base of the 	(economic) 	values of ES
and biodiversity 	is desirable.	9 Many of the relevant s	ervices and 	biodiversity 	can only be
valued 	economically 	by use of non	-market valuation methods (Champ et al. 2002).
These typically include revealed preference (RP), stated preference (SP), and benefit
transfer (BT) 	(sometimes termed value transfer) 	metho	ds (Freeman 2003). RP methods
use observational data on decisions people make in markets to estimate the value 	placed

8 The Nature Index (NI) was established to provide an overview of the state and development of
biodiversity in the major ecosystems in Norway, the marine, freshwater and terrestri	al
ecosystems, and thereby measure progress towards the goal of halting the loss of biodiversity.
More on this in chapter 3.
9 We focus primarily on economic valuation methods and values in this report, though TEEB and
other literature also mention the pos	sibility of using non	-economic valuation methods for some of
the more intangible values. EC (2015) for example recognize the need also to consider integrated
valuation, the inclusion of different value domains.

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on	 changes in ES flow	s, and include among others the travel cost method (TCM) to
estimate recreation benefits (a cultural ES). 	Note that t	he RP methods by definition can
only value use values, since the methods are based on tracking people’s behaviour in
markets that reveal some form of use related to biodiversity or ES.
SP methods use data generated from 	questionnaire 	surveys eliciting peop	le’s contingent
preferences in constructed (hypothetical) market scenarios, and include contingent
valuation (CVM), choice experiments (CE), and variants of these. The aim of the SP
methods is to estimate the affected population’s willingness to pay	 for	 the public offer	,
directly or indirectly, to obtain a positive stream of ES or biodiversity benefits or avoid
further reduction.	 In other words, they give up a part of their income, which can provide
them other goods and services, for obtaining an increase i	n an ES or avoid a decrease.
The SP methods, in contrast to 	the 	RP	 methods	, can include both use and non	-use
values. 	The latter value type is often found to be important in nature conservation	,
especially in including many species and types of biodiversity	 with no obvious role or
”purpose” in producing services in the ecosystem	.
The	 third group of (secondary) valuation methods is BT (Johnston et al. 2015; Navrud
and Ready 2007; Lindhjem and Navrud 2008). BT uses value information from existing
studies or d	ata in the literature to transfer to a relevant policy context in need of such
information. BT is a much	-used method in practice and may be precise enough in some
contexts.	 In recent literature, BT methods have explicitly focused on use in ES valuation
(se	e e.g. UNEP 2013, Johnston and Wainger 2015, Ferrini et al. 2015).
While the 	economic 	valuation methods have been tried and tested for many years,
applications using the ES framework fully are relatively recent, as noted by TEEB (Kumar
2010). In the last 1	0 years or so, there has been an explosion of valuation studies using
the ES framework. Even if many of these studies provide reliable information about
welfare implications of ES and biodiversity loss, the academic literature also calls for
more careful v	alidity testing and triangulation of the methods to achieve 	a higher level of
precision and credibility, especially for SP methods since these are hypothetical by
nature (Kling et al. 2012, Haab et al. 2012).
In addition, challenges remain in conducting ES 	and biodiversity 	valuation studies that
are specifically designed for decision	-support and cost	-benefit analysis (CBA), not just
awareness raising in general (Kumar 2010), and that deal directly with issues t	hat arise
in practical contexts (Börger et al. 2014).	 This is also the case in Norway, though more
applied and practical valuation studies for policy use are being conducted. 	Scientific
uncertainty, spatial explicitness and temporal stability of values, de	finition of affected
populations and aggregation over both ES use and non	-use values, are important
questions	 in practice	 (Luisetti et al. 2011; Raheem et al. 2012; 	Sanchirico	 et al. 2013).
One specific challenge in the context of this report is that biod	iversity in itself may not
always be straightforward to value (see e.g. Lindhjem et al. 2015 and Lindhjem and
Navrud 2011 for an attempt at valuing forest biodiversity conservation programs in
Norway). In the cases biodiversity is important for certain ser	vices, it may be a better
approach to value the associated services	 rather than biodiversity in itself	. This also
avoids double counting. In the case biodiversity primarily provides non	-use values,
choosing a stated preference method that value biodiversit	y directly is the only choice.
Moving research into resolving both methodological and practical challenges in ES
valuation is seen as one of the most important frontiers of ES research (Guerry et al.
2015, TEEB 2010) and economic valuation research in gen	eral (Pearce 2005).

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Even though the knowledge on monetary (and non	-monetary) values of ES and
biodiversity is still not complete or perfect in any sense of the term in any country, there
is an urgent need to use what we have where relevant and to conduct 	new studies,
designed specifically as support for policy	-making, planning and decision	-making. It is
not possible to wait for value information to “become perfect”. 	As discussed more in
chapter 3.4, the 	required level of 	accuracy of the value information c	an also vary with its
use (so some uncertainty may be acceptable depending on the application).
Methodological issues in valuation and practical challenges in using and mainstreaming
economic 	valuation information in different contexts, for example 	in 	the 	context of the
county level realities in China, will have to be improved and solved through trial and error
and continuous learning through pilots and testing. This is in the spirit of the CRAES and
NEA cooperation project. It is important both to have the	 knowledge of valuation methods
and what value information can (and cannot) tell us, and how to use such information
appropriately in the right contexts and for informing the right policy instruments and
decisions.
2.4	 Towards mainstreaming and integration of 	values
While there is ongoing methodological development on how to measure and obtain
reliable ES and biodiversity values, there is also an ongoing discussion on how and in
what sense one can 	best 	mainstream or integrate such values in 	policy	-making, plann	ing
and decision making	. Since thi	s is such a central topic of this report	 and the CRAES and
NEA project, we try to clarify some of the ways in which valuation information may be
used and how.
A simplified, generic illustration is provided in Figure 	2.3	. Decisions by private and public
actors have impacts 	on ecosystems and biodiversity which in turn 	provide services and
benefits that have value that 	in principle, and in 	many 	cases in practice, 	can be measured
in monetary terms. These values can then 	in t	he next step in the figure 	provide
information to institutions of various kinds	. Once	 institutions learn and adopt this new
information, the final stage is to design incentives that translate this information into
price/value signals to all the 	private and	 public 	actors that make decisions that affect ES
and biodiversity based on value signals and other factors.

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Figure	 2.3 A simple framework showing how ecosystem services can be integrated into
decision	-making. 	Source: Daily et al. (2009).

A more specific and detailed framework 	for mainstreaming ES 	was developed by TEEB
in their work on “The Economics of ES and biodiversit	y in national and international
policy	-making” (s	ee Figure 2.4) (ten Brink 2011), and ”For local and regional policy	-
makers” (TEEB 2011). 	The three main policy leve	ls or instruments as seen	 by	 these
authors 	 are:
• 	Providing information	 for biodiversity and 	ES policies (or policies and projects
that have impact on biodiversity and ES),
• 	Setting incentive	s to stimulate behavioural change, and
• 	Regulating use	 of natural resources directly.
Providing information helps in measuring what we manage. Setting incen	tives is about
making the right price and other signals for different actors to change behaviour that 	is
damaging or beneficial for biodiversity and ES. Finally, regulating use of natural
resources directly is often more about direct regulation, e.g. in th	e form of setting up
protected areas.
All instruments can utilize information about 	economic 	values of ES and biodiversity. The
three instruments can then be linked to a number of specific policy options	, tools	 or
applications, illustrated with the row of	 boxes at the end of the arrows that may utilize
combinations of the three instrument types (the reason for the dotted arrows). This
include among others	, starting from the left in the figure;	 reforming national accounting
systems (beyond GDP), making bene	fits and costs more explicit in CBA and
environmental impact assessments (EIAs), rewarding benefits (e.g. payment for ES),
reducing harmful subsidies, and so on. 	There are a number of studies recently that
provide good examples of mainstreaming, for exampl	e the high	-profile UK National

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Ecosystem Assessment (UK NEA) (discussed more in chapter 4) (a summary can be
found in Bateman et al. 2013).

Figure	 2.4 TEEB’s proposed options for mainstreaming values of ecosystem services and
biodiversity into policy	-making. Source: 	Adapted from 	ten Brink (2011)
The three policy/decision	-making contexts initially identified as most relevant in the
Chinese context of the	 CRAES	-NEA project (mentioned 	in Chapter 1	) are linked with
several of the specific policy options in Figure 	2.4	.
Payments may be interpreted as an incentive mechanism rewarding benefits (or
compensating for damages). The tools for trade	-off analysis are 	perhaps primarily an
information instrument to improve the information basis for making decisions, for
example specifically linked with (extended	10) CBA (which is the main tool in economics
for analysing trade	-offs). But such tools can also be used as basis	 for setting incentive
levels. 	All these applications will benefit from economic value information of biodiversity
and ES. 	Finally, a county	-level performance system as considered in China has a link to
reforming accounting systems, although direct rewards	 to individuals working in
government for reaching certain (environmental) targets is, to our knowledge, not
common in western countries.
UNEP (2013) makes its own list of 	policy	-making, planning and decision making 	contexts
in which the economic valuati	on of 	ES and biodiversity	 may be	 useful	. These very much
correspond and overlap with the uses in Figure 2.4	, including:
• 	Raise 	awareness	 of the value of the environment
• 	Reveal the 	distribution	 of costs and benefits of a project among winners and
losers
• 	Design the most effective tools for environmental 	management
• 	Design appropriate 	fees	 for use of 	ES
• 	Calculate potential 	returns on investment	 for projects that impact the
environment
• 	Compare 	costs and benefits	 of different uses of the environment
• 	Calculate 	values for 	ES	 and natural capital for input into 	green accounts

10 As we discuss in chapter 4.3, standard CBA	 applications in Norway do not usually include
monetary values of ES, though there is change under way to include more such values.

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• 	Calculate environmental 	damages	 and set 	compensation
With this framework of policy instruments and applications for mainstreaming economic
value information in mind, we proceed in the next 	chapter by giving an overview of
environmental management and mainstreaming of biodiversity and ES and their values
in Norway.

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3.	 Environmental management and biodiversity &
ES values in Norway
This chapter first provides an overview of the natural and socio	-economic conditions 	and
the institutional framework for environmental management 	in Norway, as a backdrop to
the discussion o	f mainstreaming instruments	. We 	then discuss the most important
national initaitives and laws for providing information, setting i	ncentives and regulating
use. We focus primarily on biodiversity and nature conservation policies here, though
many (if not most) policies will have an impact on the full range of ES.
3.1	 Introduction: Norway’s natural and socio	-economic
environment	11
Norway	 comprises the western part of the Scandinavian Peninsula. Its borders are
shared with Sweden, Finland and Russia. Norwegian jurisdiction encompasses vast
ocean areas, including the island of Jan Mayen and the Arctic archipelago of Svalbard.
Norway has a l	ong rugged coastline which stretches over 2.500 km, broken by fjords and
thousands of islands. Norway is also a mountainous country with many glaciers and
some of the highest waterfalls in the world. The mountains draw Arctic terrestrial species
all the wa	y from the north to the southern part of the country	. T	he climate is mild
considering its high northern latitude, and Norway is the northernmost country in the
world to have open waters. This is due to the Atlantic trade winds and the Gulf Stream.
The lati	tude also results in great seasonal variations in daylight. The high mountain
ranges, running north	-south, also play an important part in shaping the Norwegian
climate.
In terms of biodiversity, 	Norway cannot compete with areas as rich as tropical rain forests
(or the variation found in China) 	for sheer numbers of species. However, the rugged
topography and geological diversity, 	and 	people	’s varied 	use	s, make for a highly varied
natural environmen	t. Geological forces have left their mark on the Norwegian landscape.
Ice ages, glacial rebound and erosion have created jagged mountains, gentle U	-shaped
valleys, canyons, deep fjords, moraines and lakes. 	Hence, t	he result is a wide range of
landscapes, e	cosystems and habitats in a limited area, and some 	spe	ctacular mountain
and coastal scenery	. These conditions also provide the basis for a large variation in
ecosystem services from different nature types and habitats.
The distribution of area by land cove	r type is given in Figure 3.1, showing that mountain
and forest areas are the dominant terrestrial land 	areas	, and indicating their importance
also for biodiversity and ES 	(in addition to the oceans not included in the figure). Almost
1/3 of mainland Norwa	y is covered in forests and about 60	 per cent	 of the species so far
recorded are associated with forest habitats. Hence, forests have a special importance
for biodiversity. 	Many other species are dependent on special conditions that are only to
be found in	 cultural landscapes or in wetlands such as peat bogs. Through history,
people have made use of most of mainland Norway for farming, hunting and other
activities that still set their mark on the vegetation and species diversity today.	 The 	total
number of s	pecies recorded in Norway has risen to about 44 000. The real number,

11 Parts of this section are based on the public information website 	www.miljostat	us.no

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including those that have not yet been identified, is probably around 55 000
(www.miljostatus.no)	.12

Figure 	3.1 Land cover types in Norway
Although population	 (5.2 mill) and population 	density 	are	 low	 (ca. 16 per km	2) and more
than 80	 per cent	 of the population live in cities/villages	, many species and habitat types
are under threat in Norway	 (more on that below)	. The most important driver of
biodiversity loss is land use change, including infrastructure development, new buildings,
fragmentation of natural habitat and the 	(re)	colonisation of open landscapes	 previously
maintained by agriculture and grazing animals	 by	 trees and shrubs. In addition, climate
change is a growing threat	 in Norway as elsewhere.
The Norwegian economy is open and mixed, with a combination of private and public
ownership. The public sector has considerable ownership in key industrial sectors,	 such
as in the oil and gas sector, hydroelectric energy production, aluminium production,
banking, and telecommunications.	 Much of Norway's economy depends on the use of
its natural resource base. For this reason, Norway is dependent on governmental
regul	ation in order to balance economic and environmental interests	, as we discuss
below	. The countr	y is rich in natural resources, 	including oil and gas, hydropower, fish,
forests and some minerals. The development of the hydroelectric energy sector at the
beg	inning of the 20th century triggered industrial growth, particularly within the
aluminium and ferroalloy industry, and fertilizer production. The discovery of large
reserves of oil and gas in the late 1960s, gave further boost to the economy. Norway is
the	 third largest shipping nation in the world, and aquaculture is	 currently	 the second
largest export industry. Other 	economically 	important sectors include oceanic fisheries
and forestry	, though the latter is in relative decline (as is the oil and gas secto	rs)	.

12 In comparison, the total number of species globally is estimated at around 13	-14 million
(according to 	www.miljostatus.no	)

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3.2	 Institutional framewor	k for en	vironmental management	 in
Norway
In 1972, Norway as the first country in the world 	established	 a ministry at cabinet level
with special responsibility for environmental matters. Environmental awareness became
a factor in	 Norwegian management at the end of the 1960s	, at a similar time as for other
Western countries	. Local environmental problems due to hydro power generation were
seen as some of the challenges the country had to face. There was focus on establishing
protect	ed areas, and cleaning up local sewage and eutroph	ication	 problems in the Oslo
fjord and some inland waters, including Mjøsa, Norway’s largest lake. Industry and point
source pollution also became more strictly regulated under the Pollution Control Act,
pa	rticularly in areas where there were health implications.	 While the focus initially was
on pollution problems (and to some extent the protection of unique natural areas as
national parks), biodiversity loss and extended nature protection (and very recently	: the
concept of ES) have with time gradually moved up the priority list.
Norway’s environmental policies are closely linked with development in the European
Union (EU), even though 	Norway is not a member. However, as part of the European
Economic Area (E	EA), it has agreed to transpose 	most of 	EU directives into national law	.
Except	ions are made for directives	 in agriculture and fisheries	 and some others,	 such as
directives for 	nature	 protection. As a result, Norwegian	 environmental policy has 	in
recent years 	been strongly influenced by the EU	 and has had some influence on	 EU
environmental policy	.
In the national context, responsibility for co	-ordinating work on sustainable	 development
lies with the minister of finance, aided by state secretari	es 	(“deputy ministers”) 	from
various	 ministries. The Ministry of Finance co	-ordinates policies on the economy, taxes,
the budget	 and financial markets, and participates actively in structural and sectoral
policy making.	 Sustainable development is seen as a	 core, long	-term policy framework
in which	 co	-ordination and integration of economic, environmental and social policies are
fundamental. The main objective is to make sustainable development central to policy
making.
National environmental governance in 	Norway is organised in a hierarchical manner. At
the top is the Ministry 	of 	Climate and Environment which is the leading government
institution regarding environmental issues. Much of the work is delegated to a set of
subordinated directorates:
�x 	The Norwegi	an Environment Agency
�x 	Directorate for Cultural Heritage
�x 	Norwegian Polar Institute
�x 	Norwegian Radiation Protection Authority
�x 	The Norwegian Mapping Authority
The directorates generally buy services from research institutions and consultants to
cover environme	ntal monitoring and assessments. Much work is, furthermore, delegated
to the County Governors, of which there are 19, and the 4	28	 local municipalities also
play an important role in the	 practical	 implemen	tation of environmental polic	ies, for
example throug	h Environmental Impact Assessments (EIAs) and land use planning on
the municipal level.
Many of the important 	choices regarding	 biodiversity management can be found on the
local level in Norway, as 	local communities	 according to Norwegian law and practice
have 	the rights to manage local resources for often much	-needed economic

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development	, within the regulations set for 	spatial 	planning	. However, many of the 	local
natural resources are in many respects public goods of national importance	, and there
may be	 conflict of interest between the local and the national level	 in management of
these resources. This	 is an important challenge for 	practical 	environmental management
in Norway	 (NOU 2013).
In the next section we describe 	on an overall level 	how	 Norway incl	ude biodiversity and
ES in policy	-making, planning and decision	-making, and the role of economic value
information. We focus primarily on the national level initiatives (that of course also will
have implications locally). In chapter 4 we go more 	into 	deta	il on a few specific examples
from Norway	 (and Europe)	.
3.3	 Overview of m	ainstreaming biodiversity and ES values 	in
Norway
Sustainable development has continued to provide an overarching framework for
environmental policy 	in general 	and its integration with	 economic and other policy areas
in Norway	. The Norwegian government and the Storting (the Norwegian Parliament)
determine the ambitions of 	the country’s	 environmental policy. The environmental policy
has been divided into various fields, each with specifi	c national objectives.	 The current
list includes 26 targets, split between six priority areas: biodiversity, climate change,
pollution, outdoor recreation, the cultural heritage and the polar regions.	 Indicators have
been developed to make it possible to t	rack developments and progress towards the
targets	 (see below)	. The environmental directorates under the Ministry of Climate and
Environment are responsible for assessing whether satisfactory progress is being made.
To reach these targets, a number of acti	ons have been taken and planned through the
instruments of providing information, setting incentives and regulating natural resource
use directly, the three channels of mainstreaming discussed in chapter 2. Most targets
have some link with ES. We will not 	go into detail on all instruments currently in use, but
rather provide a brief overview of some important actions for mainstreaming of direct
relevance for biodiversity and ES. We provide more detail on two examples in chapter
4.
Providing information	 for 	biodiversity and ES policies (or policies and projects
that have impact on biodiversity and ES)
The set of instruments or applications under this heading is about making the impact on
biodiversity and ES more visible, either as non	-monetary or monetary value information.
On the national level Norway has since 2005 had a set of 	sustainable developmen	t
indicators	 maintained and updated by Statistics Norway. In 2007 the Norwegian strategy
for sustainable development was included in the National Budget for 2008, as a means
for more closely integrating such concerns with economic planning and budgeting. T	he
national indicator set is designed to provide information about status and progress 	with
regards sustainable development	. Currently there are 17 indicators, of which 9 are
environmental or resource indicators. These include energy intensity, greenhouse 	gas
emissions, local air pollution, health and environmentally damaging substances, loss of
agricultural land, fish stocks, condition of protected cultural heritage buildings, and a
specially designed nature index covering oceans and coasts, and terrestria	l and
freshwater environments. 	Th	is Nature Index 	(NI) was	 first presented in 2010	 to provide
a basis to evaluate the state of biodiversity and to link the state to the management of
nature. The NI is currently based on more than 300 indicators covering all	 major
taxonomic groups and ecosystems	. It includes 154 species of national management

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interest. 	The most recent report from 2015 tracks the status and trends in biodiversity,
and also makes the link to ecosystem services (Framstad 	2015). We discuss the NI	 more
in detail in chapter 4.5. 	The 	environmental and resource 	indicators provide non	-
economic information, and do currently not include biodiversity or ES directly	 (though the
NI	 is designed to capture important biodiversity aspects and also in its most r	ecent
version makes links with ES and accounting systems)	.
Statistics Norway has since the 1970s collected and maintained statistics on
environmental impacts of economic activities. More recently in the 1990s the
development of green accounts was suggeste	d (and tried, at least at the research level)
as a supplement to standard national accounts (or more accurately, as an environmental
correction to national accounts). This has not been realised, and the environmental
impacts are reported in non	-monetary fo	rm as “satellite accounts” which together with
the sustainable development indicators provide information about the status and trends
of environmental and resource impacts.
In the last few years Norway has also participated in the development and piloting	 of a
system of experimental ecosystem accounting together with the World Bank, FAO and
the EU commission (United Nations 2014	, Obst 2015	).13 The aim of this initiative is to
include data on the flow of ES and how economic activities impact the quality and
magnitude of the services, based on physical units but expressed in monetary values. A
separate non	-monetary accounting system is suggested for biodiversity. Testing in
several countries is now ongoing.
A second example of an information tool and also a re	gulation is the system for closer
consideration of impacts of public projects. In Norway, large investment projects	, for
example plans for railways or roads, of a certain size undergo a so called “choice of
concept analysis”	. This system 	has elements that 	are 	similar to a strategic impact
assessment (SEA).	 Further downstream, when project concepts are closer to
implementation, Norway has a comprehensive system for assessing the full range of
impacts, increasingly also biodiversity and ES impacts. 	According 	to Norwegian law
(regulations o	n Environmental Impact Assessment, pursuant to the Planning and
Building Act), E	IA	 shall be carried out for projects of a certain size and character. The
purpose of EIA is, according to §1 in the regulations: «	..to ensure that 	impacts	 for the
environment and society are considered in preparing plans, and when it is decided if,
and 	on	 which terms, the plans are allowed to be carried out. 	The EIA system in Norway
is similar to that in other countries.
Another importa	nt regulation is the so	-called 	“assessment rule	” (“utredningsinstruksen	”),
which states that all larger public projects shall be assessed sufficiently to enable good
decisions for society. One of the tools much used 	for projects of some size 	is cost	-benefi	t
analysis (CBA). For CBA there are some 	guidelines	 issued	 by the Ministry of Finance 	in
2014	 about how CBAs for public projects should be carried out. Further, guidelines for
best practice CBA are developed from the Norwegian Government Agency for Financi	al
Management (	NGAFM 2014	), and from time to time so	-called expert committees are
appointed	 in order to evaluate and suggest how CBAs should be carried out in the
coming years	. T	he 	most recent	 expert committee which gave their recommendations
was in 2012, 	published in a public report 	series	 (NOU 2012).	 Both the EIA and	 CBA

13 Norway has contributed with financing for development, but without testing the 	system in
Norway. Norway has also contributed resources to the international TEEB initiative and the
international W AVES initiative (Wealth Accounting and the Valuation of Ecosystem Services),
administered by the World Bank.

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guidelines	 state how impacts on nature and ecosystems, and hence 	biodiversity and ES	,
could and should be taken into account	. Normally, such impacts are currently included
in the analysis	 as “un	-priced” impacts, i.e. the seriousness of impacts is described by
use of a rating system that is not based on economics. However, there are 	at present
some	 processes of 	experiments and 	revisions of current guidelines for different
government directo	rates in order to include the ES impacts more explicitly and for some
impacts also value them in economic terms. The current system and the most recent
thinking of including biodiversity and ES impacts are provided as one of the examples in
chapter 4.3.
Finally, an important vehicle for providing information for the integration of biodiversity
and ES values in decision	-making in Norway was the public report from the Norwegian
TEEB expert committee on the value of ecosystem services from 2013 (NOU 2013). Th	is
report provides analysis and information of relevance also for setting incentives and
direct regulation of natural resource use.	14 There is some information on economic
values of ES in Norway, however, a problem is the relative lack of such valuation stu	dies
in Norway. We provide a short summary of some of the report’s recommendations in
Textbox 3.1.
Textbox 3.1 	The	 Norwegian TEEB committee	 2011	-13

In December 2015 a government White Paper 	(titled “Nature for Life”) 	provided a plan
for biodiversity in Norw	ay, the first such strategy in 14 years (St. Meld. 14 2015/16). This
plan follows up some of the recommendations from the national TEEB committee report.
It provides a broad	- based strategy for “mainstreaming” the importance of biodiversity in
policy, deci	sion	-making and planning. Non	-monetary valuation of biodiversity and ES is
not the most important tool in that respect, though the White Paper states that it will
contribute to making values more transparent, and work for the development of valuation

14 A summary in English is available at 	https://www.regjeringen.no/en/dokumenter/nou	-2013	-
10/id734440/
In October 2011, the Norwegian Government appointed an expert Commission to assess
and study the value of	 ecosystem services	, a national follow	-up of the international TEEB
initiative	. The Commission was asked, among other things, to describe the consequences
for society of the degradation of 	ES	, to identify how relevant knowledge can best be
comm	unicated to 	decision	-makers, and to make recommendations about how greater
consideration can be given to 	ES	 in private and public decision	-making. On 29 August 2013,
the Commission submitted its recommendations to the Minister of the Environment in the
form of a Norwe	gian Official Report entitled NOU 2013: 10 Natural benefits 	– on th	e values
of ecosystem services.
The report makes a number of recommendations, including the increased use of economic
valuation methods to demonstrate the values of ES and biodiversity cons	ervation. The
Committee also notes challenges associated with such methods, and recommend them as
an important supplement to quantitative and qualitative considerations, including indicators
and accounting systems. In Norway, there are large gaps in the kn	owledge of natural
processes, ecosystems and services that also need to be in place to better assess the
significance of services to people’s well	-being. The report also outlines a number of policy
recommendations and discusses the role of economic and oth	er (value) information in the
role of such instruments. Government is currently considering various avenues of follow	-up
on the recommendations.

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metho	ds, including economic methods. It is also stated that Norway will continue the
support for development of accounting systems for ES and biodiversity.
Setting incentives	 to stimulate behavioral change
Incentives are about providing price signals about ES a	nd biodiversity impacts to various
actors to stimulate change in behavior. 	Norway was one of the pioneering 	countries to
introduce environmental taxes and fees in the area of air pollution, including carbon tax
on mineral oils (in 1991) and some harmful/to	xic substances. Many of these taxes were
(at least partly) based on information about the economic value of environmental
damages. The value information was often based on national and international valuation
literature relating environmental (and health) 	impacts from air and water pollution with
certain pollutants.
However, in the area of biodiversity and nature management, economic instruments are
relatively rarely used to date to stimulate conservation directly or “punish” behaviour that
have negative b	iodiversity and ES impacts. Under sector laws and regulations (see next
section) there are various support schemes, though not primarily designed for this
purpose. One important exception is the voluntary forest protection program established
in 2000, as a	 response to conflict with forest owners over the more traditional command
and control approach to conservation. This programme has similarities with a PES
program, we go more into detail on the program in the next section and in chapter 4.2.
A more recent	 exception is an economic support scheme under the relatively 	new	 Nature
Diversity Act (see next section) that stimulates the management of certain habitats and
species.
A recent important national initiative was the report from the public expert committee	 on
Green Taxation from December 2015 (NOU 2015). The mandate was to investigate the
increased use of environmental taxes, combined with lower general taxation, to achieve
a “double dividend” of better environment and strengthened economy. The report cover	s
the most important environmental impacts, with its primary weight on local air pollution
and greenhouse gas emissions. The report does also follow up on certain
recommendations from the national TEEB report, and investigates instruments to reduce
biodive	rsity and ES impacts. A central conclusion is to work towards better reflecting the
full cost of environmental impacts in taxes and fees, i.e. getting the prices right. In the
area of nature protection, the committee recommends further exploration of a pro	posed
instrument that would levy a tax on the use of natural areas (“nature tax”) for various
technical installations or other impacts to include the full cost of biodiversity and ES
impacts. This tax would have to be (partly) based on estimates of the eco	nomic value of
such impacts from new valuation studies (long term strategy) or by using benefit transfer
methods from the international literature (short term, until more domestic valuation
studies are available). The nature tax proposal is an important st	ep forward for
“mainstreaming” the value of biodiversity and ES impacts in Norway. Although it remains
to be seen whether it will reach the stage of implementation.
Regulati	ng use of natural resources directly
This section contains a brief overview of	 the main direct regulation policies of relevance
to biodiversity	, and many of the important ES	. In June 2009, Norway 	established	 the
Nature Diversity Act, which includes all previous laws related to land 	use and biodiversity
in one act (see Textbox 3.2).	 This act is the most important legal framework for all
foreseeable	 regulatory and economic instruments in the area of biodiversity conservation
– both inside and outside protected areas. The act regulates two relatively new economic
support instruments fo	r management of priority species and selected habitat types 	(see
short description in chapter 4.5)	. Th	e act is also the primary instrument for Norway to

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follow up on its international commitments under the Convention on Biological Diversity,
to which Norwa	y is a signatory. Norway has also signed most (if not all) other
international treaties, such as e.g. the Convention on International Trade in Endangered
Species (CITES), the UN framework convention on climate change, RAMSAR, 	and 	the
Bern Convention.	 Howev	er, despite having a close relationship with the EU as
mentioned above, Norway has not yet adopted the EU 	Habitat Directive	.
The prime “command and control” instrument used historically by the Norwegian
authorities for biodiversity conservation purposes n	ationally is the establishment of
protected areas, primarily based on appropriation of private land (against compensation)
of biologically rich areas. 	This has a relatively long history in Norway. 	The first p	lan for
creating national parks in Norway was	 pa	ssed	 in 1967	. The legal and regulatory
frameworks to protect biodiversity have been strengthened, and conservation efforts
both in terms of the number of protected areas and the certification of forest production
have increased since the 1970	’s. Since 	the 	use of command and control has met	 with
strong	 opposition and conflict	 in recent years	, especially from forest owners,	 it was
superseded by a voluntary 	forest conservation 	scheme	, as mentioned above	. The
command and control way of establishing protected ar	eas 	is currently almost dormant,
and it is unclear whether it will continue to be so. That depends primarily on the progress
and results of the voluntary scheme	, which currently seem promising. We present and
discuss the voluntary forest conservation schem	e in chapter 4.2.
There are a range of laws and regulations, within the broad category of “direct regulation”
that may also potentially have bearings on activities (forestry and others) that have
impacts on biodiversity	 and ES	. Chief among these 	is perha	ps the spatial planning
apparatus (on local, regional and national level), including requirements for 	EIAs	 and
CBAs 	etc.	, as we discussed above.	15 There	 are 	also 	a number of policy instruments that
may affect biodiversity conservation	 and ES	, which were 	introduced for other reasons.
Many of these instruments that are chiefly handled by non	-environmental ministries and
directorates	, may have negative “side effect	s” on biodiversity	 and ES	. The perhaps most
prominent sector policies worth mentioning here are	:
�x 	Forestry policy
�x 	Agricultural policy
�x 	Energy 	policy
�x 	Infrastructure policy
�x 	Regional development and distributional policies

Each of these policy areas contains both direct regulation and various economic
instruments. Forestry policy is mainly aimed at 	promoting timber harvesting and has a
much longer history than environmental policies	 in Norway	. There are a range of
economic instruments in operation aimed for example at increasing tree planting,
thinning and other silviculture and harvesting in areas w	here 	harvesting 	costs are high.
Agricultural policies are numerous and complex. Many of the economic instruments are
targeted a	t increasing 	production, while some are directed more towards environmental

15 There is for example also a specific law (“Markaloven”) that has recently	 entered into force,
governing the management of forests around Oslo for recreation purposes. Recently, areas have
been singled out for protection based on a methodology that identifies both recreational and
biological values, although not assessed or quan	tified in monetary term	s. See:
https://www.fylkesmannen.no/Oslo	-og	-Akershus/Miljo	-og	-klima/Marka/Markavern/

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stewardship	 that may benefit biodiversity and ES (tho	ugh such support is low	 compared
to the total agricultural support	).
Support for renewable energy and various types of infrastructure (roads, power lines
etc.) 	is 	importan	t, and 	projects in these sectors have potentially large impacts on
biodiversity	 and 	various ES	. Wind power development, for example, have impacts on the
threatened sea Eagle populations along the coast, and other infrastructure such as roads
and railways may make migration routes harder for various animals.
The main channel of including 	biodiversity and ES impacts in these areas are the work
towards reducing environmentally harmful subsidies (such as support for construction of
forest roads and harvesting in steep terrain) and capturing and mitigating impacts during
the planning stages, b	efore implementation. For this, the planning system mentioned
above, that increasingly also is considering ES and biodiversity impacts should be able
to 	make the environmental 	costs of projects and activities that have such impacts 	more
visible in the deci	sion	-making process 	(see also discussion in chapter 4.3).

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Textbox 3.2	 The	 Norwegian 	Nature Diversity Act	 from 2009

The Nature Diversity Act	 (Naturmangfoldlov	en	 LOV	-2009	-06	-19	-100) is the most
central law for nature management. The Act embraces all nature and all the sectors
that manage or make decisions that have consequences for nature. The law defines
explicit conservation objectives that need to be considered	 in all decision	-making about
nature. It has two main instruments to achieve it aims: through nature protection and
through regulations for sustainable use.
1. Aims to establish protected areas
The Act has a general decision in	 § 33 about the purpose to estab	lish protected areas
that includes the protection of:
1. The range of variation of natural types and landscapes
2. Species and genetic diversity
3. Threatened nature
4. Areas with important ecological functionality for priority species
5. Larger areas of pristine 	ecosystems
6. Nature that has been shaped by anthropogenic use through time.
The Act defines four categories of protected areas that are relevant for forest protection
each of them aimed at the different conservation objectives listed above.
National parks	 are aimed to protect larger areas of ecosystems or landscapes that
have very limited anthropogenic intervention and that are representative of a particular
type or that have particular characteristics. 	Landscape protection areas	 are aimed
to protect natu	ral or cultural landscapes of ecological or cultural value. Land	-use forms
at the time of establishment can continue. 	Nature reserves	 are established on areas
that have natural values that are threatened, rare or vulnerable, that can represent a
particular	 type of nature, or that have particular importance for biodiversity protection
or for research. In nature reserves all human activities can be banned if the
conservation objectives are threatened. 	Habitat protection 	aims at protecting areas
that have an e	cological function for one or more particular species. It can be used for
all species either they are protected or not. Under all these forms, particular
conservation objectives are defined when the protected areas are established.
2. Aims about sustainable 	use
The Law establishes that through regulation of use, the diversity of natural types is
maintained within their natural geographical ranges, including their characteristic
diversity of species and ecological processes. The aim is also that the structure,
functions and productivity of the ecosystems is maintained. Use and management
decisions will be based on scientific knowledge about	 species population status, the
distribution of natural types, their ecological status, and about the effects of use on
the	se conditions.
The principle of environmental and ecologically friendly techniques and praxis 	§ 12
provides guidelines about the choice of techniques, practices and of the location of
activities that will provide the best result for society. Generally, th	e best solution for the
environment will be chosen even if it results in extra costs. In that case, the best
alternatives for society will be chosen, weighing in the protection of biological diversity
as an important factor.	 In the Law § 13, 	the King of No	rway has the authority to
establish the quality standard for biodiversity	. The standard can be related to the
occurrence of particular natural types or species, or other conditions that have
relevance for the biodiversity.	 Source: Barton et al. (2012).

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3.4	 Experiences 	and progress 	to date?
In the previous sections we reviewed the way Norway has used combinations of different
approaches to mainstream the importance of biodiversity and ES. In this section we first
briefly discuss the status of progress and t	hen consider the role of economic value
information in Norway’s work to date.
Effects of mainstreaming efforts
How does Norway perform in terms of biodiversity conservation? Are the mainstreaming
efforts bearing fruits or is the level of ambition too low	 to make progress? We are not
going to answer these questions, only make a few observations.
First, 	one way of capturing 	the status and progress of biodiversity conservation is through
the Nature Index. Remembering that a value of 1 indicates a reference 	state (with no or
little human disturbance) and a seriously degraded state, the most recent report from
2015 concludes the following:
�x 	Status:	 The index shows considerable variation. The highest values are
recorded in freshwater (0.75) and marine ecosyste	ms (0.62	-0.72), while the
lowest are recorded in forest (0.37) and open lowland ecosystems (0.47).
�x 	Trend:	 The trend for pelagic sea bodies has been positive until 2010. For
wetlands and open lowlands the trend is very clearly negative while there is
a slig	ht improvement for forests since 1990. For other ecosystems, there is
no clear trend. There is further little variation across the country or sea areas.
Although these figures should be interpreted with care	16, the	y suggest	 that even though
Norway has a lar	ge forest cover, which is important for biodiversity, the forest habitats
are very degraded compared to a (near) natural state. Open lowland also has a relatively
low value. Given both status and trends, 	this 	source of biodiversity information in Norway
illustrates	 that there are challenges for further mainstreaming of biodiversity and ES
values.
OECD’s environmental performance review from 2011 for Norway states that the number
of species threatened by extinction is relatively low by OECD standards	 (OECD 2011)	.
The review generally supports the conclusions of the Green Tax Commission, mentioned
above, in stressing the potential to reduce environmentally harmful subsidies, to scale
back exemptions and increase revenue from environmental taxes. The co	untry is given
credit for a “strong analytical framework for integrating environmental, social and
economic considerations”. The OECD has in mind the National Sustainable
Development Strategy and the indicators, discussed above.
In the specific area of bi	odiversity policy, OECD states that “	Norway has developed an
ambitious biodiversity policy, and significant progress has been made to provide the
means to achieve its goals. The new, innovative Nature Diversity Act (2009) brings
together many biodiversity	-related issues, and introduces new pr	inciples and tools for
sustainable management of biodiversity. In addition, several sectoral laws have been
revised and new laws enacted that strengthen biodiversity protection. The area of land
under protection has increased significantly. Sea management 	plans could open the way
for better protection of marine areas. More broadly, there has been substantial
investment in expanding the biodiversity knowledge base, including the establishment of

16 There are both methodological and data availability 	challenges in using the Nature Index in
practice.

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a Biodiversity Information Centre. These activities have been s	upported by a substantial
increase in public expenditure on biodiversity, especially in recent years.”
Even so, the OECD also notes that Norway still faces major challenges in the
conservation and sustainable use of biological diversity: 	“Protected areas d	o not
sufficiently cover all nature types; on land, the low percentage of forests under protection
is of particular concern. Norway lacks overall targets and objectives for forest protection,
though a voluntary forest protection programme is beginning to p	ay	-off five years after
implementation. The conservation of biodiversity within protected areas is not sufficiently
secured. Increasing aquaculture, including cod farming, poses a threat to fish stocks,
water quality and biodiversity in Norwegian coastal w	aters and possibly beyond.
Although Norway’s four large carnivore species (brown bear, lynx, wolf and wolverine)
show a slight upward trend, they are all listed as threatened on the 2010 Red List.
Protection targets are set at levels too low to maintain vi	able populations. Spatial
planning has not been effective in halting the loss of large “wilderness” areas, nor in
preventing building in coastal zones and along lakes and rivers.
Hence, even though several new initiatives have been proposed and implement	ed since
this 2011 review, many of the concerns noted by the OECD remain today. In that sense,
it is likely that the values of biodiversity and ES have not yet been well	-reflected in these
areas, despite increasing policy efforts in recent years.
The rol	e of economic 	value information
Even though there is still potential for improvement, some progress has also been made.
It is difficult to assess the role of economic value information in the information provision,
incentive setting and regulation of reso	urce use, as discusse above.
Once a policy instrument has 	been designed and implemented, it is not always easy to
assess in detail to what extent economic valuation information has been “actively used	”
or if value information has had any impact on the fin	al design (even if such information
has been “actively used” in some stages of the process). The conception	 and
implementation of any policy instrument involves a political process that shapes the
outcome, often substantially as compromises and deviations 	from the ideal instrument
take place in negotiation rooms.
In this process monetary value information may provide one part and other non	-monetary
and monetary interests and values are also represented. In some cases information
about the importance of bio	diversity or certain ES may have played a part, but the
information may 	not have been in economic terms.
Considering the situation in Norway reviewed above, it is clear that economic value
information of biodiversity and ES has played a very little role i	n decision	-making and
policy development in this area.	17 In the area of biodiversity and nature management,
various forms of direct regulation (e.g. spatial planning laws, nature protection) has been
the norm. Often this means that no direct, economic valua	tion information has been used
in the design of these laws and regulations. Even so, they reflect a value position of
those who manage biodiversity and nature on behalf of the population. Hence, decisions
such as these (e.g. the strength and ambition of la	ws) reflect an implicit value of ES and
biodiversity, when these are affected.

17 Though, as noted, economic value information played a part in the design of the pioneering
environmental taxes on pollution in Norway in the 1990s.

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It is important to remember that design of direct regulation may also benefit from 	explicit
monetary (and non	-monetary) value information, not just economic instruments. Hence,
even if Norwegian regulation has developed without direct economic information, it does
not mean that these regulations would not have been more efficient and in some cases
stricter if appropriate and more transparent value information were available.
The lack of economic valuation information was at least the case before the international
TEEB initative and the national public TEEB committee, where the economic sigificance
and value of ecosystems was lifted and emphasized both in policy	-makers’ and the
public’s minds. Results from economic valuation studies were presented in that report,
which contributed to awareness raising, if not (yet) providing direct basis for design of
policy instruments. In the report from the Green Tax Commission, there was also	 a
discussion of the economic valuation methods and available results as basis for setting
a nature tax. Hence, such value information has increased in acceptability, though there
are still few such studies commissioned for policy assessments/CBA and instr	ument
design purposes (we return to an example of this in chapter 4.3).
Even if little economic valuation information has been used in shaping policies to date,
the policy developments we have reviewed above do reflect the importance and non	-
monetary valu	es placed on biodiversity (and indirectly ES). Further, the trend is that
monetary value information is both sought and used more often, even though there is
also some scepticism and reluctance towards letting economists measure such values
based on the pr	eferences of people (rather than experts).
A final note on the strengths and weaknesses of different instruments
Each of the 	 policy 	instruments (or combinations of them) 	disucssed above 	have their
well	-known theoretical and practical strengths and weakne	sses in addressing different
environmental problems (see e.g. Sterner 2003). Direct regulation is more suitable than
tax or subsidies under certain conditions. For example, if the marginal costs of complying
with a policy vary and the marginal environmenta	l damages of land use activities are 	are
fairly constant over the landscape	, it may work well (i.e. be relatively efficient) to levy a
tax on the damaging activity in order to align marginal costs across actors (see e.g. Vista
Analyse 2015). 	This was discu	ssed by the Green Tax Commission for the nature tax.
If instead, the marginal damages (or benefits) to ES and biodiversity vary a lot over the
landscape, it may work better to use direct regulation or combinations of instruments etc.
Assessing the optimal 	instrument both in theory and practice may be complicated, and
assessing the impact of an instrument over time and in combinations with other
instruments and regulations, even more so (Goulder and Parry 2008).	 We have not tried
to do that here, and only po	int out that most countries likely need to combine economic
instruments	 and information with some degree of direct regulation to achieve biodiversity
and ES goals. And regardless of which instruments and combinations of instruments are
chosen, economic value information may be useful in deciding level of ambition and
specific	 design.
Finally, each of the policy 	instruments	 will have different requirements for the accuracy
and reliability of value information for such information to be useful (Navrud and Prückner
1997). 	See Figure 3.4, where five types of uses of valuation inf	ormation are distinguished
at the left hand side. Each of these have different requirements for accuracy.
Green n	ational or county/provincial accounting systems, for example, may require less
accurate/precise information than design of incentive instrume	nts (that in the case of
taxation, for example, needs a firm legal basis). Hence, in some cases values that come
from the literature (i.e. benefit or value transfer) may be good enough while in others a

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new 	primary, carefully designed RP or SP study would 	perhaps be desirable. This also
means that while value information may have been utilised in the design of a specific
instrument, it may not have been accurate enough or entirely suitable for the purpose.
We discuss the role of economic value information 	in more detail 	in the next chapter.
Figure	 3.2 Use of economic valuation information

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4.	 E	xamples of mainstreaming from Norway and
Europe
4.1	 Introduction to the examples
In this chapter we provide 	an	 in-depth description of three case	 examples	 of
mainstreaming biodiversity and ES and their values in Norway and Europe.	 Figure 4.1
provides	 an overview of the three examples 	(green text in figure) 	of voluntary forest
conservation in Norway, incorporation 	of ES and biodiversity in cost	-benefit analysis and
environmental impact assessments in Norway, and ecological fiscal transfers in Portugal
and France	. In addition, we provide in section 4.5 shorter examples (black text in figure)
of a number of other init	iatives.
Examples and links with TEEB instruments and Chinese context
Figure 	4.1 	places the examples within the categories of instruments for mainstreaming
discussed by TEEB (top line in figure	) and introduced in chapter 2. 	Direct regulation is
not includ	ed here, as the main interest is on more market	-based or economic
instruments. 	Setting incentives (or more broadly: conveying the real costs and benefits
of policies or projects to decision	-makers), for example, are related more or less strongly
too all th	ree types of examples. Dark blue in the figure indicates a primary purpose of
the	 instrument. Both the use of EIA/CBA and the Norwegian Nature Index	 are	 concerned
with	 providing	 better information (with or without monetary values)	 that may lead to more
con	servation	.
The mid layer in the figure include our example cases. 	The lower layer in the figure
relates the	se	 examples and the 	two 	TEEB instruments to the most relevant arenas for
mainstreaming biodiversity and ES in China, as discussed in chapter 1 and 2	. It is not
meaningful to make 	sharp divisions	 between categories	. Ecological fiscal transfers can
for example be considered a county level performance system but at the same time this
instrument is also about setting incentives (therefore the dotted arrow	). Further, including
ES and biodiversity in CBA/EIA is primarily a way to provide better information, but
ultimately also about setting the right incentives for decision	-makers.

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Figure	 4.1 In-depth	 (green text) and short case examples of mainstreaming biodiversity
and ecosystem services
Notes: NO	 = Norway, 	FR	 = France	, PO = Portugal	, UK = United Kingdom	, EC = European Commission, EU
= European Union, MAES = Mapping and Assessment of Ecosystems and 	their Services, NEA = National
Ecosystem Assessment	, * = Piloting or ongoing development	/discussion	 of instrument.
Motivating choice of examples
Some of the examples (indicated by * in 	Figure	 4.1	) are under piloting or undergoing
development and 	refinement to better include biodiversity and/or ES. In the first category
of payment schemes, the Norwegian voluntary forest conservation program is a good
example of a fairly successful, PES	-like scheme	 aimed 	at 	preserv	ing	 biodiversity	.
Considerations of	 ecosystem services more generally are not included to date.	 In this
program p	ayments (compensation to forest owners) are primarily paid on the basis of
opportunity costs, and biodiversity benefits 	considered in choosing which forest plots to
enrol in the 	scheme 	using qualitative criteria. 	The 	program is relatively well	-documented
(for example Lindhjem and Mitani 2015; Mitani and Lindhjem 201	2) (see next sub	-
chapter).	 W	e also include 	in 	the first 	category 	of payment schemes 	a couple of shorter
examples, fir	st the support scheme under the Norwegian Nature Diversity Act for
managing and protecting priority species and habitats, and the piloting of biodiversity
offsets and habitat banking in the 	EU and 	UK (	currently under implementation).
In the second categor	y in the figure, tools for trade	-offs, a good 	example	 from Norway is
the ongoing work on integrating 	biodiversity and ES information (including monetary and
non	-monetary values) 	into CBA 	and	 EIA.	 Compared to the forest conservation program,
the aim is to i	nclude the full ES framework, not just biodiversity.	 This is an area of
continuous development	 and improvement at the moment	, where the inte	gration of the
ES framework 	has 	only recently been operationalised	. For example, Vista Analysis 	is
working on method	ology development for the Norwegian Coastal Administration to value
cultural 	ES loss from oil spills from ships to include in CBA of prevention measures
(Lindhjem et al. 201	4; Vista Analyse 2016	). This is a good example of how 	a non	-market
valuation method	 (contingent valuation in this case) 	can	 be 	used 	in practice, and how it
may improve decision	-making.	 Further, we have included two shorter case examples
demonstrating spatially explicit, integrated valuation of biodiversity and ES: European
Commission’s 	initiative on the 	Mapping and Assessment of Ecosystems and their
Services	 (MAES) and the UK National Ecosystem Assessment	 (NEA)	, both shining
examples of how mapping and assessment 	(and economic valuation	 in the case of UKE
NEA	) of ES may help 	evaluating	 trade	-offs, 	and 	provide useful information for decision	-
making.
Finally, the last category of county	-level performance assessment systems ha	s no
obvious counterparts, to our knowledge, in Europe. 	Indicator systems, such as those
discussed in chapter 3 fo	r Norway, are related. E	cological fiscal transfers (EFT), which
is a combination of incentives and performance assessment on the municipal level, 	is in
place in for example 	France	 and Portugal (Ring and 	Schröter	‐Schlaack	 2011). This may
be relevant for cou	nty level performance assessment in China. 	EFT has also been
floated as an idea for Norway, but not yet carefully 	been 	investigated. 	We there	for	e
choose 	ecological fiscal transfers 	as our main example in this category. Finally, we
include a shorter example	 of the Norwegian Nature Index, as a useful information 	and
indicator/performance 	tool and a way to track status and trends in biodiversity.
Eventually, this index may also be disaggregated to lower administrative levels (for
example regions or municipalit	ies) and connected more closely with ES mapping	 and
performance assessment	.

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Structure and content of the case examples
The 	three 	in-depth cases follow the same structure:
�x 	Background and aim of instrument
�x 	Description of how the instrument works in practice
�x 	Experiences and lessons to date (including 	use of value information, 	plans for
refinement	 of instrument	)
�x 	Relevance for China
As noted in chapter 3, 	assessing the optimal instrument both in theory and practice may
be complicated, and assessing the impact 	of an instrument over time and in combination
with other instruments and regulations, even more so (Goulder and Parry 2008	). It is also
har	d to assess if and how economic value information has played a role	 in the
conception, design and implementation of a	n instrument	. Even so, 	 we are able to draw
some 	tentative conclusions	 based on known theory/principles, available data, previous
evaluation studies and impressions of actors involved. Overall success of an instrument
is usually assessed by economists on t	he basis of economic efficiency (a policy’s
aggregate net benefits) and its close relative, cost	-effectiveness (to reach a target at
lowest possible costs). Other important criteria are the distribution of costs and benefits
(equity) and the ability to add	ress uncertainties (an important aspect in ES and
biodiversity management). 	We try to cover some of these aspects in summing up
experiences and lessons from the in	-depth case	 examples	.
4.2	 Voluntary forest conservation (Norway)
Background and aim of policy 	instrument
Traditionally, the main regulatory instrument for 	biodiversity 	conservation	 in (con	iferous)
forests 	in Norway, in addition to the forest law and forest certification schemes, has been
state appropriation of private forest land for forest 	reserves	 against compensation based
on t	he value of the standing timber (i.e. opportunity costs were compensated).
Conservation on privat	e land is a very important vehicle for biodiversity	 conservation in
Norway since around 90 per	 cent of the productive f	orest land is owned by	 private forest
owners or 	(to a lesser extent) 	organisations. 	Th	e traditional	 ”command	 and control”
conservation 	approach	 was	 the source of serious conflicts between forest owners, the
state and environmental NGOs in the 1990s	, as not	ed in chapter 3	 (Bergseng and Vatn
2009)	. Conservation progress was slow.
A 2002 natural science evaluation of	 forest conservation showed uneven distribution of
conservation	 areas 	with 	respect 	to geography, natural conditions and type of	 forest.
Productiv	e forest under conservation at the time amounted	 to 	only 	about 1 per cent of
the total, while 4.6 per cent was deemed	 necessary to meet 	biodiversity 	conservation
needs	 (Framstad et al. 2002)	.
As a response to the untenable situation and lack of progress,	 the voluntary conservation
program 	was 	proposed	 by the 	Federation of	 Norwegian Forest Owners	 (“Norges
Skogeierforbund	”) in 2000 and has	 enjoyed wide political support. Since 2003 nearly all
new processes	 to conserve forest on private land have been in the	 form of	 voluntary
conservation, not as traditional	, mandatory	 conservation	.18

18 The last such conservation area of a relatively large	 size was established in 2009, the
Trillemarka nature reserve	.

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By 2016 around 3 per cent of the productive forests are protected (a total of 162 km	2) in
forest reserves, where no forestry is allowed	. There are particular gaps in conservation
areas in low	-land, produc	tive forests in the South and Central	 parts of Norway, where a
large part of the coniferous, productive forests are located 	(see 	Figure	 4.2	). In the plans
for 2016, a large new conservation area in Vikerfjell	 in Southern Norway	 ha	s just	 been
proposed.

Figure	 4.2 Forest cover and protected area network in South	-Central	 Norway	. Source:
Barton et al. (2012).
Note: “Conservation areas” are the total areas, while “forest under 	conservation” is the part that
is forest.

Description of policy instrument
Voluntary conservation	 processes differ from traditional conservation processes first and
foremost in the start	-up and early phases. From then on, voluntary	 conservation follows
almost 	the same process as traditional conservation	 of nature reserves under the Nature
Conservation Act. Traditional conservation starts	 with the compiling of inventories,
assessment of conservation	 (non	-monetary) 	values and drafting of proposals for
conservation areas under the	 direction of the environmental authorities. Compensation
cannot	 be considered before the conservation plan is finally approved.	 Voluntary
conservation, on the other hand, begins formally by	 forest owners submitting a proposal
of voluntary conservation to	 the County Governor. Prior to this a closed,	 informal process

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has been carried out 	involving the forest owner(s), Federation of	 Norwegian Forest
Owners, County Governor’s environmental	 department and 	Environment Agency	. When
the	 County Governor announces the start of the conservation	 planning process, forest
owners and 	the 	County Governor will have	 agreed on the area’s borders, conservation
regulations and	 compensation	 (Skjeggedal et al. 2010)	.
The forest owner is then compensate	d using the same formula as for the mandatory
scheme, usually through a present value	 based	, one	-time payment covering discounted
timber revenues, subtracted harvesting costs.	 Compensation is calculated based on a
felling plan for the two most mature felli	ng classes at current timber prices (net of
harvesting cost) within a 10 year horizon, applying a discount rate of 5	 per cent	. For the
remaining timber in lower felling classes, an additional, standard value is calculated.
The ownership of the reserve rem	ains with the forest owner, but he 	or she 	relinquishes
all rights to forestry activities for perpetuity. 	Hunting, mushroom, and berry picking and
other recreational activities that do not involve setting up permanent facilities in the
reserve are allowed. 	In some areas, there are expectations of developing more
commercial activities in the future, such as construction of recreational homes, or special
tourism or hunting activities	 (Mitani and Lindhjem 2015)	. In addition to direct and indirect
use values, th	e reserves also provide important non	-use values for the public, including
some forest owners.
This time feature 	of the voluntary program 	makes the Norwegian scheme quite unique
since other countries’ schemes, including agro	-environmental schemes, for exam	ple, the
“Trading in Natural Values” program in Finland or the Conservation Reserve Program in
the USA, typically have time	-limited contracts (Mäntymaa et al. 2009). This time feature
is clearly good for conservation purposes once the agreement is made. Ho	wever, it may
require stronger incentives for forest owners to participate 	in the first place 	(Mitani and
Lindhjem 2015). 	The rules of compensation are quite similar between the mandatory and
the new voluntary approach: the main difference compared to 	mandatory conservation
lies in the process steps and the central element of voluntariness (Skjeggedal 	et al.
2010).
It is the element of voluntariness and payment accoridng to opportunity costs (	plus	 in
practice a small markup	, see below	) that makes the s	cheme similar to a payment for
ecosystem service (PES) program.
Experiences and lessons
The instrument has not undergone a full impact evaluation to assess conservation
effectiveness. A recent assessment concludes that especially low lying, productive
for	ests and endangered species and habitat types in Southern Norway	 (see Figure 4.2
above) 	are still highly underrepresented in the protected area network (Framstad et al.
2010). 	An important reason these areas are under represented is that they are still ver	y
valuable for commercial forestry and that voluntary conservation is not attractive enough.
Another	 reason why some of these areas are not well	-covered is that some of the	m may
not be forestry areas, e.g. could be remnants close to urban areas where the m	ain
threats are urbanization and infrastructure development. Even so, compared to the
traditional conservation approach, it is clear that the government loose	s some control
over the conservation outcome	 using the voluntary approach	.
Further, enrolling suf	ficient 	non	-industrial private forest owners	 into the scheme will be
crucial to achieving conservation objectives. 	The f	orest area is owned by ca. 120 000
indivual, 	private forest owners, many of which are organized in forestry organizations
(the 	Federatio	n of	 Norwegian Forest Owners	 is the biggest). A handful of them own large

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areas, while the majority of the holdings are small and owned by the non	-industrial
private forest owner category. Currently, the main obstacle to further progress of
enrolling more 	forest owners 	seem to be 	lack of sufficient budget in the Ministry of
Environment.
Regarding cost effectiveness, we do not have much quantitative information to base the
assessment on. Compared to the mandatory scheme that preceded the voluntary
scheme, t	here are indications that the voluntary scheme is less costly in terms of process
and litigation costs (i.e. key components of transaction costs). This is due to the voluntary
element of the process. The costs in terms of compensation payments compared to
environmental values (“value for money”), are uncertain. One study indicates that
compensation 	payments are slightly higher under the voluntary scheme (Skjeggedal et
al. 2010), though the formula for calculation of the compensation payment has formally
not	 changed. It may be that the attitude from the authorities is to be slightly more
generous	 (for example to avoid conflict and keep the good cooperation environment)	,
though this is not confirmed	 officially	.
Given the high hostility and conflict level 	associated with the mandatory scheme, the
voluntary approach has a higher legitimacy and acceptability among forest owners
(which is of course as expected since the largest forest owner association proposed the
scheme). However, among conservation NGOs and	 to some extent other stakeholders,
the voluntary approach ha	d a lower acceptability	, at least initially	. This is because they
doubt that the remaining, prime areas (and areas of sufficient size) will ever be enrolled
through voluntary means. Hence, they a	rgue that the mandatory approach should be
used in parallel to better cover	 gaps 	in the protected area network. There seem to be
some movement on the forest owners’ position in this respect, although their general
argument still mainly holds, that (re)intr	oduction of the mandatory scheme will undermine
trust and goodwill among forest owners to continue with the voluntary scheme. It seems
that the 	Environment Agency a	nd the political community in general, still put
considerable faith in the mechanism as the 	main scheme to be used for the future.
Hence, it 	seems that	 it is the low conservation budgets, rather than lack of biologically
interesting offers, that now hinders progress in reality.
The voluntary scheme has many advantages, but as mentioned the conse	rvation
progress 	has been relatively 	slow compared to ambitions. A major hurdle is the low public
budgets to compensate those forest owners who have submitted proposals for
conservation reserves. Also the mapping of priority forests for conservation which 	is a
pre	-requisite set by the 	Environment Agency	 slows the process down. Maybe more effort
could be put 	into 	a description of habitats or kind	s of forest stands that forest owners
could identify on their property	 (Skjeddedal et al. 2010)	. There may also be	 other ways
to improve	 the scheme.
However, it is likely that increased budget is not enough on its own: additional
measures	/instruments	 or changes to the current voluntary scheme may be needed to
address gaps in the conservation targets that as of now hav	e been difficult to cover
through the voluntary scheme. If the mandatory scheme is (re)introduced	, transaction
costs are likely to rise and legitimacy of the whole conservation enterprise may again be
under threat.	 Hence, this may be counterproductive
Mita	ni and Lindhjem (2015) have studied the voluntary conservation program based on
a large postal survey of non	-industrial private forest owners in Norway.	 Since the
program requires participants to relinquish all rights to forestry for eternity, including
future generations	, it is important for	 achiev	ing	 an efficient conservation strategy 	to
understand what drives strong enough motivations to participate on such terms. 	Their

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econometric analyses 	of forest owner’s stated reasons for willing to participate (or 	not)
suggest that forest owners’ expectation of sustainable non	-timber income enhanced by
the program, positive attitude towards stricter conservation regulations, and lower share
of mature forest have strong positive effects on the likelihood of participa	tion	. Even if
participation is forever, forest owners are still willing to participate if the conditions and
expectations are right and biologically such long lasting programs are much preferred.
To get the most biodiversity for their buck	 (i.e. increase 	cost	-effectiveness)	, Mitani and
Lindhjem (2015) 	suggest that conservation authorities should not only target but market
the 	voluntary conservation program in specific ways. Those variables that a priori are not
expected to be negatively correlated with hig	h biodiversity values could be used for
targeting first (e.g. relatively young forest owners not residing locally near their relatively
small forest plots). Encouraging owners of mature forest plots, typically containing higher
biodiversity values, need st	ronger convincing to take part, e.g. as 	their 	analysis shows
one could give more weight to income	-generating, non	-timber activities in and around
reserves.
Interestingly, 	their 	results are confirmed by the thinking of the public committee behind
the new 	Nature Diversity Act in Norway from June 2009	 (cf. Textbox 3.2)	. This committee
recommended stimulating future conservation by allowing and providing support to
income	-generating activities both within and around forest reserves (	Norwegian Ministry
of Envi	ronment 2004)	. Results of the practical implementation of this intention remain to
be seen, but 	Mitani and Lindhjem’s results 	 confirms that it may indeed be a good idea if
long	-term biodiversity conservation is to be substantially increased.
In anothoer s	tudy based on the same data, Lindhjem and Mitani (2012) find that many
forest owners have preferences for conservation values on their own land, indicating that
they could accept lower compensation than proposed by the forest conservation
program. They als	o identify other characteristics of the forest owners and the their
specific forest holdings that can be used for more cost effective targeting. They find for
ex	ample that c	osts of reaching conservation goals c	ould	 be saved by targeting small and
relativel	y less productive forests and absentee owners first, before considering
increasingly expensive forest areas. 	They qualify this conclusion by saying that this
assumes that 	desirable biological characteristics are not substantially less likely to be
found in	 such areas	.
One	 market mechanism to exploit such charateristics to reduce conservation costs
through targeing or ”price discrimination” 	has 	recently 	been proposed, at least in
academic circles	. It involves 	co	mbining	 the voluntary program with the cost eff	ectiveness
of auction mechanisms (Romstad et al. 201	2). Conservation auctions have been tested
and implemented in other countries, such as Australia and the USA. 	An auction	 would
involve forest owners submitting	 compensation	 bids and competing on the level	 of
compensation required and biological value of the land	 proposed as a reserve	. In
addition it is possible to provide a so	-called agglomreation bonus if land areas are
adjacent to each other (which is beneficial for biodiversity). 	Well	-functioning auctio	ns
allocate	 conservation contracts to least	-cost providers and lowers the	 compensation
payments needed for landowners to voluntarily	 accept 	setting aside their forest for
reserve 	(Vatn et al. 2011	, Romstad et al. 20	12	).
Non	-market valuation methods have not been used in the design of the current voluntary
conservation mechanism. The compensation is based on an economic calculation of the
opportunity cost of protecting the land and making commcercially viable forestry
impo	ssible for eternity. Further, the biodiversity values are assessed using non	-monetary
biological criteria in comparison with conservation targets and gaps, and no extra

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payment is made for biologically richer areas. Other additional ES that may be co	-
benef	its of conservation are currently not assesed at all	. In principle, 	offering 	higher
rewards to forest owners that through their stewardship have preserved both biodiversity
and important 	ES, for example recreation benefits, will result in a more dynamicall	y
efficient instrument. However, this is currently not under consideration in practice (except
in the discussions refered to in chapter 3 on a more general incentive instrument called
”nature tax”).
Relevance for China
To strengthen ecological protection the State Council of China (2011) issued “State
Council’s Opinions on Strengthening Environmental Protection” (GF [2011] No. 35). This
document made clear that important ecological function areas, terrestrial and marine
ecology sensitive areas, fragile areas and some other areas there should be drawn
ecological red lines	 of protection. 	Later th	e Third Plenary of the 18	th CPC Central
Committee put forward ecological red lines as a key ingredient in the effort to construct
an ecological civilization. The “Decisions on Several Major Issues of Comprehensively
Deepening Reform” at the Third Plenary explicitly requested “to delineate ecological red
lines and establish a national spatial development and protection system”. From b	efore
China has a number of protected areas	, see 	section 	4.4	.
It has been reported that incentives are lacking to set up and properly manage protected
areas, and a	 similar problem may arise with areas protected by ecological red lines.
CCICED (2014) for example, tells of a protected mangrove forest in Qinmeigang near
Sanya, Hainan where
«Hotels have blocked and diverted flow from some lateral streams that formerly	 fed into
the mangroves. Hotels discharge waste water into the nature reserve and considerable
pollution emanates from ongoing construction of additional hotel complexes upstream of
the reserve, including direct discharge of excess concrete and untreated s	ewage. One
section of about 2 ha of the nature reserve has been opened up and is used to store rocks
and other construction materials for the surrounding hotel developments. A pipe remains
that was used for sucking dredged sand out of the reserves main riv	er bed to be used in
neighbouring construction» CCICED (2011, p 51)
The voluntary compensation based conservation scheme reported here is in principle
able to overcome some of the incentive problems plaguing China’s protected areas and
possible zoned area	s. A proper monitoring system is of course needed in addition to
mak	ing	 sure that the area is indeed conserved. Forests and land in China are not
privately owned and the unit receiving compensation and entering into a contract for
conservation will not be 	a private individual. But the scheme itself is independent of the
exact nature of the contract parties. A contract could be made between the owner,
whoever he may be (a local government unit perhaps) and the central or provincial
government.	 In any case, i	n order to stimulate increased conservation, the opportunity
costs incurred by the local party of conserving nature needs to be compensated.
China has its own experiences with PES	-schemes, such as the sloping land conversion
program, by some termed “the 	world’s largest”	 PES	-scheme 	(Liu and Henningsen 2016).
It may be possible to share experiences from these programs, as commonalities with the
Norwegian forest conservation program are probably there.

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4.3	 Mainstreaming 	biodiversity and 	ES in EIA/CBA (Norway)
Background and aim of tool for trade	-off	 analysis
As	 we discussed in chapter 3, a	ccording to Norwegian law (regulations of Environmental
Impact Assessment, pursuant to the Planning and Building Act), Environmental Impact
Assessment (EIA) shall be carried o	ut for projects of a certain size and character. The
purpose of EIA is, according to §1 in the regulations: «	.. to ensure that impacts for the
environment and society are considered when plans are prepared, and when it is decided
if, and under which terms,	 the plans are to be carried out.
We have also described (in chapter 3) 	 the so	-called “assessment 	rule	”, which states that
all larger public projects shall be assessed sufficiently to ensure good decisions for
society	, the rules	 for C	ost	-benefit analysis	 (CBA)	 for public projects 	stated by the Ministry
of Finance 	in 2014	 and the g	uidelines for best practice CBA developed from the
Norwegian Government Agency for Financial Management	 (NGAFM 2014)	.
The Norwegian Public Roads Administration (NPRA) is respons	ible for many large road
projects all over Norway. Road projects typically involve large costs and benefits to
society 	- and potentially substantial environmental impacts. NPRA has worked
particularly 	on	 combin	ing	 the tools of CBA and EIA for their 	road 	projects, and has
developed guidelines 	– called Manual V712	 - for incorporating CBA as well as EIA
regulations and guidelines	 (NPRA 2014)	. Several other public agencies have adopted
NPRA’s guidelines as their own, particularly the methodology for 	EIA	. This 	has been
done either by adapting NPRA’s guidelines to other sectors, or by referring to that
NPRA’s guidelines can be used to assess environmental impacts in CBA (and EIA).
NPRA’s manual for CBA and EIA therefore is important. This is not only due to the 	fact
that road projects is an important part of Norwegian infrastructure projects, which may
impact the environment in many ways, but also because the	 EIA/CBA methodology
serve as important inspiration and 	is used in several other sectors and projects.
In 	the following sections we will 	provide	 a brief description of which environmental
impacts are included, and how they are included in the present edition of the NPRA
manual. Then we go on to discuss how the ecosystem services approach could be
included in t	he methodology, how NPRA is working in this field at present and how other
government agencies and other	 government directorates	, such as	 the Norwegian
Coastal Administration, Jernbaneverket (Norwegian Government’s Agency for Railway
Services) and Statnett	 (the system operator in the Norwegian energy system). All these
agencies currently use NPRA’s manual or similar manuals to assess the environmental
impacts of their infrastructure projects	. They also presently	 carry out pilot project	s with
the aim to incl	ude ecosystem services and/or more pricing of environmental impacts in
CBA.	 As such, this case example is broader than both the voluntary forest conservation
program above and the ecological fiscal transfer example in the next section. Both of
these have a	s their primary purpose	 to increase nature protection for the benefit of
biodiversity.
Description 	of tool
According to 	the guidelines from 	NGAFM costs and benefits of projects and measures
should 	first 	be quantified in physical units, and then valued in m	onetary units as far as
possible, either by use of market prices (if these exist) or by use of valuation methods
developed for non	-market goods and services	 (as discussed in chapter 2)	. Whether an
effect should be valued in monetary terms 	or not 	depends on	 whether this is justifiable,
professionally and considering the costs of conducting costly primary valuation studies

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compared to the benefits of receiving this “extra” information. The impacts 	that are not
value	d in monetary terms must be assessed and hig	hlighted. These impacts should be
quantified to the extent possible, and th	e impacts 	that 	cannot be quantified should be
assessed qualitatively.
NGAFM’s guidelines recommend what they call «the plus	-and	-minus method”, this is
equivalent to the method whic	h the NPRA (2014) recommend and which they call the
«impact	 fan» (	”konsekvensviften	”), or, alternatively, a qualitative, verbal assessment and
statement for these non	-priced impacts.
The plus	-and	-minus	 method is based on NPRA’s manual V712	 (NPRA 2014	), and is
effectively a non	-monetary valuation or rating method	. The manual identifies five
categories of environmental impacts	:
�x 	Landscape/	aesthetics impacts
�x 	Recreation and local community	 impacts
�x 	Nature and biodiversity	 impacts
�x 	Cultural heritage, mon	uments a	nd cultural environment impacts
�x 	Natural resources impacts
Co	nsequences (or impacts) are assessed on a scale ranging from very negative impact
(- - - -) to very positive impact (+ + + +). 	The impact of a project o	r measure is a function
of “value” and 	the 	scope/size	 of the effect	. The value of an area or resource 	is a measure
of how valuable 	the affected 	place (area or resource) is, while the scope/size deals with
the si	ze of the change (impact) that the project or measure leads to 	for the	 area	 or
resource	 in question	.
The value of an area or resource is graded as either 	small, medium, or large, and the
size is 	graded from large	 negativ	e, via 	medium	 negativ	e, and little/no change	, to 	medium
positiv	e, and	 large	 positiv	e. In manual V712 there are guidelines 	for how the
geographical area for non	-priced impacts should be 	de	limited, and there are deta	iled
des	criptions	 of the grading of value and size for the main environmental impacts	 in the
bullet list above,	 to be considered	. The consequences (impacts) of a pr	oject or measure
is compiled by use of the “	impact	 fan”, see 	Figure 4.	3.

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Figure	 4.3 «Impact	 fan	» («konsekvensvifte») for non	-priced impacts.	 Source: NPRA (2014).
Left axis: Large positive to large negative scope of impact from top to bottom, Right axis:
Small, medium, large value. The combination of the two dimensions yield an overall impact
or consequence.
NGAFM (2014) states that this method (in princip	le) may be used 	for	 all non	-priced
impacts	, no	t just 	environmental impacts.
Lessons learned
The advantages of this method	 is that it gives a systematic, unified and professional
compilation of non	-priced impa	cts, highlight non	-pric	ed 	impacts and give a rath	er
pedagogic	 description of these impacts	.
From an economic point of view an advantage of this methodology i	s that it highlights
that the 	positive and negative 	impacts 	should be assessed with respect to size and value.
This is a	n approach which parallels 	the approach for assessment of priced impacts in
economic analyses	 (i.e. unit price/value times the units affected is the total economic
value)	.

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On the other hand	, there are some potential 	disadvantages	, mainly related to misuse of
the method, e.g. by 	lack	 of 	documentation of how value and size is assessed or lack of
objective assessment of value and size. 	According to NGAFM (2014) a verbal
description o	f non	-priced impacts may be used as an alternative. 	However, they stress
that even if a verbal descriptio	n is used, a thorough assessment and description of 	the
value and size of 	the 	impact 	in question 	should be the basis for the assessment.	 Each
environmental effect is evaluated according to the value/significance of the resource
impacted and size of impact,	 in order to define the consequence (impact) 	– using the
“impact fan”.
The 	ES	 framework as such is rarely included in existing Norwegian guidelines and
manuals for CBA or EIA, but 	substantial 	work is 	currently on	going in order to include 	and
operationalise	 this approach and to 	value 	more of the environmental effects	 in monetary
terms	. Most 	of the 	work 	is taking place in 	research and case studies	. It will be 	important
and necessary to be able to incorporate 	this approach 	in guidelines and handbooks later
on	, and then in actual standard practice in project assessments	.
Ongoing development and improvements
The present	 version of V712 	(NPRA 2014) 	does not 	mention 	the 	term	 “ecosystem
services	”. Th	e 	current 	version (edited in 2014) 	was published	 too 	soon	 after the NOU
(2013) which recommended use of the ES approach as a supplement to Norwegian
environmental management	 (see chapter 3)	.
As	 we described in the former section, the methodology with plusses and minuses
represent a comprehensive and systematic 	tool for handling environmental impacts. It is
open to discussion to which degree the un	-priced 	environmental 	effects are taken 	into
account in project decisions	. Some would argue that the priced effects are given too
much emphasis in decision	-making, and 	that environmental concerns	, that are often left
unpriced,	 are not given enough weight. However, the rather few publications that have
studied this, suggest that road projects are not prioritized according to the cost	-benefit
ratio, and that “other” consid	erations are more important for decision makers.
There is also s	ome discussion	 about	 whether the 	current system for un	-priced 	impacts
are appropriate	 for use in cost	-benefit analyses, as the	 system is based on expert
judg	ment on how landscape, biodiversity	, natural resources etc. are effected, and not so
much on how the population’s preferences are affected. However, no	-one has come up
with an alternative system which is generally accepted.
More recently, there is a growing interest in incorporating the ES 	approach in nature
management and in methodology used in nature management and in projects with
environmental impacts. There also seems to be a growing interest in 	the 	pricing of
environmental impacts. We will give some examples 	of ongoing methodological w	ork in
this area 	in a few Norwegian governmental agencies, as mentioned above.
NPRA revises and updates their manual V712 for CBA and EIA more or less continually,
and they are now preparing a new revision, planned to result in a revised manual in 2017.
Th	e work is in progress, and there is not yet a revised draft available. However, from
Vista Analysis’ work as an editor for the revision, we know that NPRA probably will
continue to use the plusses	-and	-minuses method as the core approach for assessment
of e	nvironmental impacts in CBAs of road projects. However, they are currently
investigating if and how the ES approach can be included in their manual, as a
supplement to the expert judgement. It is not yet decided how this approach will be
implemented, but p	robably they will continue with including environmental impacts as
non	-priced effects. Exceptions are made for air pollution, including nitrogen oxides

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(NOx), particulate material (PM), and climate gases (CO2	-equivalents), and noise.
These impacts have bee	n included as priced effects in several editions of the manual.
The 	Norwegian Coastal Administration	 (NCA) 	presently 	work 	to introduc	e ES as their
approach	 for assessment of e	nvironmental impacts, and efforts to include more pricing
of environmental impac	ts. NCA ha	s a preliminary manual in CBA (NCA 2007) in which
environmental impacts are treated as un	-priced effects, using the same methodology as
NPRA. NCA is in the process of revising their manual in CBA. One difference from NPRA
is that NCA does not hav	e the aim that their manual should fulfil the guidelines for EIA
in addition to CBA. This makes the task a little less complicated, and NCA can emphasise
the economic perspective to a larger extent than NPRA.
Vista Analysis presently work with NCA in orde	r to suggest methods for including the ES
approach and if possible pricing of ES as part of their CBA guidelines. This work is in
progress. However, so far the work has emphasized screening of which ES may be
affected by NCA projects, and using priced ecos	ystem services effects as an alternative
to the common framework for un	-priced effects. So far, a two	-step screening process is
suggested, and for the less important/hardly impacted ES, the ES are still treated as un	-
priced effects with 0, one or two pluss	es or minuses. For those ES which may be
important	 for decision making	, we suggest some prices which may be used, based on
benefit transfer of these ES. However, the final report from this project is still in progress
(to be finished during 	May	 2016).	 A large economic valuation (stated preference) study
has been conducted to estimate the welfare loss associated with ES impacts caused by
accidental oil spills from ships along the Norwegian coast. This study aims primarily to
cover the impact of such oil	 spills on cultural ecosystem services, especially recreation
and non	-use values associated with conserving clean sea and coasts. Commercial
values, for example impacts on fisheries and tourism sectors, are covered separately.
The value estimates will be u	sed to assess the benefits of safety and prevention
measures conducted by the NCA to ensure safe passage for ships along the main
transport routes. We provide more detail about this study in Textbox 4.	1 It is one of the
best 	recent 	examples of a large scal	e valuation study for the use in CBA in Norway.

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Textbox 4.1 	Economic valuation of ES impacts from accidental oil spills from ships along
the 	No	rwegian coast	 for use in cost	-benefit analysis

Vista Analysis 	is 	working on methodology development for the No	rwegian Coastal
Administration to value ES loss from oil spills from ships to include in CBA of prevention
and safety 	measures (Lindhjem et al. 201	4; Navrud et al. 2016; Vista Analyse 2016	). This
is a good example of how it could be done in practice, and h	ow it may improve decision	-
making.	 When an oil spill occurs, the flow of ES will normally be reduced for a period of
time, as shown in Figure 4.4. This loss can be reduced through oil recovery, cleaning and
restoration efforts (as indicated in the figure),	 but in any case there will be a residual loss.
This loss depends among other things on the size and type of oil spill, weather and currents,
habitats and sea areas affected, and the number of species of birds, mammals and other
marine life that will be af	fected.

Figure 4.4	 Temporary loss of ES from an oil spill gives a corresponding welfare loss
To estimate the economic value of different sizes of environmental damages, a contingent
valuation stated preference survey was designed. This survey used fiv	e typical oil spill
cases in five representative areas along the Norwegian coast. Damages from four oil spill
sizes and types (from marine diesel to heavy fuel oils) were assessed by use of oil spill
distribution modelling and a method for assessing impact	ed resources, based on
environmental expert inputs. The research team had tested in focus groups which types of
damages people care the most about. These included damage to sea bird populations, to
sea mammals, to the coastal zones (especially areas used f	or recreation such as beaches)
and marine life more in general (including seafood concerns). The responents in each of
the coastal oil spill regions were then presented in a websurvey a table distilling and
presenting the environmental damage information i	n condensed form (see Figure 4.5, an
example from the Oslo fjord case). This table showed the potential damages in case of an
oil spill, that would happen unless the Coastal Administration implement more safety
measures. This oil spill could either cause s	mall, medium, large or very large ES loss
(colours indicating seriousness from left to right). If measures were implemented and paid
for by society, the present condition would instead be maintained.

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Another 	case 	project 	which is testing a syst	em with 	pricing of 	ecosystem services is
under development for 	Jernbaneverket (Norwegian Government’s Agency for Railway
Services	; NGARS	) applying the	 ecosystem services	 approach	 as an alternative to the
(textbox continued)
The respondents were then asked in turn their willingness to pay (WTP) for preventive
measures to avoid each of the four damage levels, for the oil spill in their region (assuming
that people residing in the local region would care the most about avoiding 	an oil spill there).
For each of the regions, mean WTP for avoiding each of the oil spill damages are calculated
(work in progress). The aim is to calculate the aggregate WTP for the affected population
in each region. The next step to use this information	 in CBA is to combine it with information
about accident probability changes as a result of new preventive measures by the Coastal
Administration. The result would then be expected net benefits from avoiding each of the
damage levels for each of the five r	egions. This value information will then be used for
CBAs of different preventive measures for the next few years, providing a better basis for
good decisions that also include the values of ES and biodiversity.

Figure 4.5 Example of d	amage/loss table u	sed in the Contingent Valuation (CV)
survey to describe four different loss levels for different ecosystem services (ES)
from an oil spill 	(this case is the	 Oslo Fjord area	).
Source: Navrud, S. et al. (2016)

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usual framework for un	-priced effects 	for a planned railway project 	in 	the Grenland area
in south	-eastern Norway. This is a CBA carried out on a strategic level, and normally
environmental impacts are included using a simplified version of the plusses	-and	-
minuses methodology. In this case envi	ronmental impacts are assessed using the un	-
priced methodology which is normal procedure. However, NGARS further has initiated a
case study which tests use of the ecosystem services approach and which aims at
putting a price tag on these environmental impa	cts. The case study make use of
information gathered as part of the normal plusses	-and	-minuses method and benefit
transfer.
The last 	example 	we w	ant	 to 	mention	 is a project for 	Statnett (the system operator in the
Norwegian energy system)	. Statnett also no	rmally uses the plusses	-and	-minuses
method in order to assess environmental impacts of their projects. However, in this
project they wanted to identify methods which can be used for pricing environmental
impacts, and to implement this methodology in a case	 study for an on	-going project which
involves potential removal of high voltage overhead transmission lines in the south	-
western part of Norway. We have suggested that they apply an ES approach in order to
do this. It turned out that the area in the case s	tudy was mainly developed areas or
agricultural land, which could still be used as agricultural land or be transferred to
developed area for houses and commercial buildings. The project therefore identify
valuation methods appropriate to value these kind o	f ES.
Relevance for China
China carries out many large infrastructure projects, building roads, railways, energy
operating systems, etc., like the agencies we describe above. Like Norway, China has
an EIA system in place which is part of the project cycle	. As far as we know, CBA is not
part of the project cycle at present. Given the large number of costly infrastructure
projects, and hence the need to give priority to the project	s that provide the highest net
benefits	, the potential for 	increased use of 	CB	A is expected to be huge. The ES approach
may be useful in CBA as well as in	 combination with	 EIA, and it should be noted that use
of the ES approach does not necessitate use of price	-tags. Pricing of ES is of particular
interest when CBAs or other economi	c methods are used for analyses, because they
enable us to compare environmental impacts with other economic impacts.	 The use of
the ES framework, even without the explicit economic valuation of ES impacts, may still
provide useful information	 as it can hi	ghlight services that otherwise would not be
considered.

4.4	 Ecological Fiscal Transfers 	(France and Portugal)
Background and aim of policy instrument
More often than not, successful biodiversity conservation requires c	ooperation between
local, regional and 	central government	. A	ctions and policies to conserve biodiversity 	tend
to be 	decided at the central or regional level	 and 	enacted at the local level. Hence the
central and 	regional level	s depend on the local level for 	enactment and 	implementation.
The cent	ral, regional and local levels of government might view advantages and
disadvantages of biodiversity conservation differently. Advantages of biodiversity
conservation are 	usually 	national and regional in scale. Biodiversity conservation
benefits the region	 and the nation, and sometimes the globe. By contrast, disadvantages
of biodiversity take the form of limitations on industrial activity, 	on 	infrastructure

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investment, 	on 	residential construction etc. Although the disadvantages 	do matter for 	the
national a	nd regional level 	as well, 	they are mostly local in scale. Hence a characteristic
of biodiversity conservation is that 	incentives are not aligned: T	he national and regiona	l
level of government 	may 	emphasize	 the 	advantages, while the local lev	el may
emphasi	ze	 disadvantages. Th	e lack of alignment 	of incentives 	may give rise to difficulties
in implementation	 and a sub	-optimal solution 	may	 result	.
There is also an equity issue to consider. When biodiversity conservation is
implemented, and given the fact that 	the local level 	carries	 a disproportionate share	 of
the disadvantage or cost, the national and regional level in effect asks local communities
to 	take on	 the cost of biodiversity conservation	. This would have been defendable from
an equity perspective if a	ll localities had areas to protect, but that is obviously not the
case. 	Since biodiversity values are not present everywhere	, efforts to conserve
biodiversity may seem inequitable.
In their authoritative survey of Ecological Fiscal Transfers, 	Schröter	-Schlaak et al. (2014)
indicate that the problems just mentioned are prevalent in Europe	, but e	cological fiscal
transfers may provide a solution. They point out that
“In Europe, the Natura 2000 network of protected areas established under the Habi	tats
Directive (EC, 2011) is the centerpiece of nature conservation and biodiversity policy. Its
aim is to assure the long	-term survival of Europe’s most valuable and threatened species
and habitats. However, decisions about where protected areas are to be	 sited are
frequently taken at higher levels of government whereas the costs of withholding such
areas from other socially and economically beneficial uses are borne by local
governments and communities. While there are numerous ways to compensate private
land users for such losses (e.g., payments for environmental services (PES) or agri	-
environment schemes) no financial incentives exist to offset the conservation costs
incurred by public stakeholders (Ring, 2008). Hence there is an emerging rationale for
using 	ecological fiscal transfers	 to give local governments the financial resources they
require to maintain or enhance biodiversity conservation and ecosystem services within
protected areas whose environmental benefits extend beyond municipal boundaries.”
In this chapter we consider ecological fiscal 	transfers	 in some detail. 	We describe their
properties and how they are intended to work. We discuss experiences and lessons from
applying them, and we ask what China may learn from the European experience wit	h
ecological fiscal transfers.
Description of ecological fiscal transfers
Fiscal transfers from the central and regional level	s to the local level is a feature of both
the European an	d Chinese system of government. 	In Europe, transfers from other levels
of government account for almost half of subnational expenditure (Schröter	-Schlaak et
al. 2014). Transfers are used to finance local level expenditure on public goods and
services	. In addition, many countries in Europe use transfers to redistribute from
rela	tively richer to relatively poorer communities. This is called «fiscal equalization».
Transfer	s are mostly	 unconditional. That means 	that transfers are as a rule 	not
committed to any particular 	expenditure 	objective.	 However, some specific, earmarked
trans	fers also exist across Europe.
Ecological fiscal transfer	s is a branch of fiscal transfers in which the level of transfer
depends on ecological	 objectives, in practice often objectives 	for 	biodiversity
conservation	. The details of the objectives differ	, as	 do the restrictions applied to the
protected areas	. The transfers are meant	 both to compensate local governments for their
cost of biodiversity conservation (the equity aspect) and to motivate local governments

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to volunteer for biodiversity conservation (	the incentive aspect). 	It is the 	municipality or
other 	local administrative unit 	that 	is the recipient of the ecological fiscal transfer.
In the 1990’s 	Brazil 	became 	the first country to introduce ecological fiscal transfers, the
so	-called	 ICMS Ecológico	. The stated purpose in Brazil was to compensate
municipalities for land	-use restrictions imposed by protected areas (e.g., Ring 2008). In
2007 Portugal introduced an indicator tied to protected areas to 	the fiscal 	transfer 	system
from the national to the 	local level (e.g., Santos et al., 2012). 	This became the first
ecological fiscal transfer in Europe. 	France compensates municipalities lying within the
core areas of land	-based and marine national parks (e.g., Borie et al. 2014).
Schröter	-Schlaak et al. (	2014) contains a useful overview of how far four European
countries have come in implementing ecological fiscal transfers. They distinguish four
phases of the policy cycle: 	problem identification and agenda setting, policy formulation,
decision making, imp	lementation, and evaluation and improvement. While Portugal and
France have taken ecological fiscal transfers all the way to evaluation and improvement,
Germany and Portugal have hardly passed the policy formulation stage, see 	Table 	4.1.
Table 	4.1 	Progress of European countries in implementing ecological fiscal transfers
Stage	 	 	Steps in designing and implementing 	ecological fiscal
transfers
Country examples
 	 	PT 	FR 	DE	 	PL
Problem identification and
agenda setting
Make the case for biodiversity conservation by providing
evidence of losses, ecological and economic impacts	.
Demonstrate the fiscal needs of local 	authorities in relation
to implementing and managing protected are	as.
Include	 consideration of ecological indicators in fiscal
transfers 	as part of	 the policy agenda	.
√ 	√ 	√ 	√
Policy formulation	 	Develop indicators demonstrating the quantitative and/or
monetary values associated with local conservation action	.
Develop indicators reflecting local governments’
conservation costs	.
Develop indicators to measure the conservation
performance of local governments	.
Identify entry points to integrate ecological i	ndicators in fiscal
transfer schemes	.
Formulate alternative policy options, e.g., 	provide 	different
ecological indicators and entry points for transfer calculation	.
Recommend the most suitable option(s) to be adopted	.
√ 	√ 	(√) 	(√)
Decision making	 	Identify 	potential beneficiaries and cost carriers based on
scenario analysis and modelling	.
Find majorities for a subset of policy options	.
Decide on the EFT design options to be implemented	.
√ 	√
Implementation	 	Integrate the selected ecological indicators int	o the fiscal
transfer system	.
Identify beneficiaries and cost carriers in practice	.
Take account of time lags between implementation and
visibility of policy outcomes	.
√ 	√
Evaluation and
improvement
Determine criteria for policy evaluation	.
Collect 	information through monitoring	.
Conduct evaluation of ecological fiscal transfers	.
Draw lessons and propose policy improvements	.
√ 	√

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Note: PT = Portugal, FR = France, DE = Germany, PL = Poland.
Source Schröter	-Schlaack et al. (2014).

Ecological 	fiscal transfers in Portugal
Being the first European country to implement ecological fiscal transfers, and arguably
the country that has applied such transfers the most consistently, Portugal deserves
particular attention.
Portugal is a fairly small 	European country of about 10 million people. The country is
divided into 308 municipalities (	“concelhos	”) that 	range 	in size 	from 	8 km	2 to 1720 km	2.
Since 2007 Portugal has integrated ecological fiscal transfers into annual transfers from
the national gen	eral	 budget to muni	cipalities, in order to 	compensate	 for land	-use
restrictions imposed by protected areas and the Natura 2000 sites. Ecological fiscal
transfers were introduced in Article 6 of the Local Finances Law. The article states that
“the financial	 regime of municipalities shall contribute to the promotion of economic
development, environmental protection and social welfare.” This objective is supported
by several mechanisms including ecological fiscal transfers.
The ecological criteria in the law a	re “total area under protection” and “percentage of
municipal land designated as protected area”. 	The score on these criteria contribute	s to
the allocation of the General Municipal Fund (FGM)	, in the following way:	 30 	per cent	 of
the FGM is allocated to mu	nicipalities depending on i) the municipalities’ total area, and
ii) the amount of land designated as conservation area (Natura 2000 or any other national
protected area). In 	further 	detail, the allocation rule is as follows:
�x 	In municipalities where less t	han 70 	per cent	 of the territory is protected area, 25
per cent	 of FGM is allocated in proportion to area	 weighted by elevation levels	,
and 5 	per cent	 in proportion to land designated as protected area.
�x 	In municipalities where more than 70 	per cent	 of the 	territory is protected area,
20 	per cent	 is allocated in proportion to area and elevation, and 10 	per cent	 in
proportion to land designated as protected area.
Hence, 5	 or 	10 	per cent	 of FGM is allocated to 	municipalities 	that contain protected
areas.
Revenue from the 	FGM 	is not earmarked and hence does not reward environmental
activities. 	There is no incentive effect on the revenue spending side.
Ecological fiscal transfers in France
The main fiscal transfer instrument to municipalities in France is c	alled the DGF. DGF
consists of a i) an amount per inhabitant in the municipality, ii) an amount proportional to
the surface area of the municipality (	with a higher rate for 	mountain areas 	than for r	egular
areas), iii)	 an amount aimed at compensating munici	palities for the loss o	f other tax
revenue, iv) a complementary allo	cation to stabilize the transfer between years, and v)
an «ecological allocation» for municipalities that lie within national parks or 	adjacent to
marine park	s.
It is the ecological alloc	ation that represents the French ecological fiscal transfer. Like in
Portugal it is compensation that is the motivation for the ecological fiscal transfer. In
France it is called ecological solidarity.
The ecological allocation is based on the following fo	rmula:

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PV	MA
CO	MA	EA
To tal
Core

Here, 	EA	 is the ecological allocation, 	MA	Core	 is the municipal park core area, 	MA	Total	 is
the total municipal area, 	PV	 is the «point value», basically a factor of proportionality, and
CO	 is a coefficient = 1 	if the park area 	is less than 5000 km	2 and = 2 if the park area is
more than 5000 km	2.
As can be seen from the formula the 	size	 of the ecological allocation depends on the
point value 	PV	, which is determined by the amount that the French government sets
aside for the ecolo	gical allocation in total. 	In practice the size set	 aside	 for ecological
purposes 	is rather small. In 2008 there were 36	 800 municipalities in France. Only 150
municipalities were eligible for the ecological allocation. In 2011 just 0.02 	per cent	 of
DGF wa	s allocated on the basis of ecological considerations.
Experiences and lessons
Environmental effectiveness	 of ecological fiscal transfers has not been explicitly
addressed in the literature (Vatn et al., 2011). 	Both in Portugal and in France 	the transfer
is designed as a compensatory measure that in itself does not include any environmental
objectives. However, the size of the ecological transfer is adjusted every year in
recognition of additional protected area that comes into being. 	This fact should give
municipalities an incentive to welcome additional protected areas within their territory.	 Of
course, in general the incentive is greater the higher is the transfer.
Despite the seemingly small size of ecological fiscal transfers in Portugal, analysis of
Sa	ntos et al. (2012) suggests that the changes to the fiscal transfer system enacted in
2007 did bring about considerable revenue change for some municipalities in which the
land gra	nted conservation is a large part of overall territory. The simultaneous
mod	ification of several parameters in the system has made it difficult for municipalities
to disentangle the ecological component, however. Furthermore, as Vatn et al. (20	11)
point out,	 indicators of quantity 	such as size of protected area 	must be complemente	d
by indicators of quality to also provide incentives for the management of those areas.
Since the use of ecological transfers is not earmarked it is possible for municipalities to
spend them on ecologically harmful activities as well as beneficial activit	ies. This is
another reason why it is important to consider quality	-related indicators in ecological
fiscal transfers.
Presently the 	efficiency	 of ecological fiscal transfers is high. Costs of introducing this
policy instrument are low since protected are	a coverage is an indicator that already is
measured. Implementation costs are also low since new institutions and new
bureaucracy is not needed. Again the basic reason is that protected area coverage is
measured and 	monitored in Europe independently of eco	logical transfers.
Should ecological fiscal transfers be extended to quality, i.e., the operation of protected
areas, implementation costs may increase some	what	. But monitoring for quality is 	in fact
required anyway in the Natura 2000 network. Therefore, 	to maximize efficiency quality
monitoring for ecological fiscal transfers should build on regular conservation monitoring
activities executed by conservation authorities.
Equity	: As noted above ecological fiscal transfers in Portugal and France are intende	d
to compensate municipalities for the economic burden of having “idle” protected areas
in their jurisdiction. Since the municipalities in question often are rural and sparsely

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populated the ecological fiscal transfer system will on all accounts be equitab	le in most
countries.
Since ecological fiscal transfers are not earmarked it is not clear that municipalities will
use them to compensate local populations that are asked to move or give up their
traditional life	-style, or others who are directly affected	 by protection efforts. To preserve
equity,	 it is important to compensate the affected individuals and families, especially if
they are poor.
Relevance for China
China is among the 12 mega	-biodiverse countries in the world (CBD 2014).	19 In 2008,
an overall inventories report indicated the presence of more than 35,000 species of
higher plants (of which 17,300 are endemic, ranking China third in the world after Brazil
and Colombia), 6,445 species of vertebrates (667 being endemic) and 10	 per cent	 of the
world’s invertebrates throughout the country. Among them are 1,371 species of birds
(placing China first in the world) and 3,862 fish species (which account for 20.3	per cent
of the world’s total). China is also one of the eight centers of or	igin for crops, with nearly
10,000 species of crops, including their wild relatives. China is clearly one of the most
important countries globally for conservation of biodiversity and China is a signatory to
the international Convention on Biological Diver	sity (1992)	.
Notable achievements have been made in regard to in situ conservation. At the end of
2011, China had established 2,640 nature reserves at different levels (not including
those in Hong Kong, Taiwan and Macao), covering 149.71 million ha, repres	enting 14.93
per cent	 of the total land area (the global average is 12	 per cent	). There are 335 national
reserves, 2,747 forest parks (covering 1.83	 per cent	 of China’s total land area), including
746 national parks, 225 national scenic areas, 213 pilot na	tional wetland parks and 219
national geological parks. In this light, the total protected area throughout the country
thus covers about 17	 per cent	 of China’s total land area, to which must be added 17
national marine reserves and 113 national field sites	 and protected areas for the
conservation of genetic resources and domesticated animals.	 Recently the concept of
ecological red lines has been added to the repertoire, although it is not fully clear what
this concept means and whether an additional 	system 	of designated areas is actually
needed (Qin, 2014)	, see also section 	4.2	. In any case China has indicators to build on
should it introduce ecological fiscal transfe	rs. Given the question	-marks given to the
operation of some of the protected areas 	it seems important to include quality indicators
in a system in China.
The case for ecological fiscal transfers in China seems to be supported by the 2015 Party
document on	 Ecological Civilization.	20 The document states that economic policies
“including pricing, fiscal, taxation and financial policies” should “motivate and guide
various entities to actively take part in the development of ecological civilization	”. In future
work the broad statements of the Party document will be elaborated on and made more
concrete. Ecological fiscal transfers is an idea that deserves close consideration.

19 The data about biodiversity in China is taken from the Convention on Biological Diversity’s (CBD
2016) country profile of China.
20 A Chinese language text is found here: 	http://paper.people.com.cn/rmrb/html/2015	-
05/06/nw.D110000renmrb_20150506_3	-01.htm	. Geall (2015) gives an interpretation and
commentary in English.

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4.5	 Other mainstreaming examples
This 	section	 provides a number of shorter case examples	 from Norway and Europe	, in
textboxes, organised in 	sub	-sections according to the most importan	t areas for
mainstreaming biodiversity in China: payment	 and incentive	 schemes	, tools for trade	-off
analysis and county	-level performance systems and indicators.
We provide brief introductory comments to each example, and leave the reader to check
the details in the textboxes.
Payment 	and incentive 	schemes
In thi	s section we include 	two examples:
�x 	Payments for 	management and conservation of specific species and ha	bitat
types under the Norwegian Nature Diversity Act 	(as described in Textbox 3.2)
(Textbox 4.2)
�x 	Biodiversity offsets and habitat banking in the EU and UK	 (Textbox 4.3)
The first example is a type of small PES scheme explicitly designed to conserve
biodive	rsity.
The second example is a type of measure that is increa	singly considered across Europe	,
where a developer can “offset” its ecosystem impacts on	- or off	-site	 (obligation to
compensate under environmental liability	 law	). If used on its own, biodiversity can be
considered a direct regulation. 	Habitat banking is a particular case of biodiversity offsets,
introduction a trading element for offset actions (credits) that are delinked both in space
and time from the specific de	velopment requiring compensation (debits)	. This makes
biodiversity offsets a marked	-based instrument that creat	e price signals of	 the costs of
biodiversity impac	ts.

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Textbox 4.2	 	Incentives for 	management and conservation of specific species and
habitat typ	es under the 	Norwegian 	Nature Diversity Act

The Nature Diversity Act makes specific provisions for what it terms “priority species” and
“selected habitat types”. The former term means specific species that have a 	critical
population status, have most o	f its distribution in Norway and/or are covered by specific
international commitments. Selected habitat types have a similar interpretation as for priority
species, except that 	the concept	 relates to habitats and has a fourth assessment criterion
related t	o whether the habitat is important for any priority species. For priority species where
active management is required to maintain the population, action plans are developed. A
dedicated support scheme for management and other measures has been established.	 This
is not compensation, but “positive incentives” that are meant to stimulate landowners, rights
holders, organizations/institutions and municipalities to take care of these species. In some
way this scheme is an “embryonic” PES scheme in the Norwegian 	context. The required
measures will depend on the type of threat, e.g. from urbanization vs. forestry activities. There
is a similar support scheme for the selected habitat types	. The 	Norwegian Environment
Agency	 has designed an online application system, 	where each support scheme has its own
application form. The application is sent to the county governor’s office for assessment. It is
unclear exactly how proposals 	are	 evaluated and how the size of the incentive is determined.
In 2015, the scheme changed a	lso to include rare habitat types and threatened species.
The support schemes have very recently been introduced and it is a bit early to tell how they
will function. In terms of conservation effectiveness, a gap in the current conservation policy
has been	 covered with the introduction of specific legal status and the accompanying support
for management linked to the protection of 	specific 	species and habitat types. In that respect,
the mechanism should give clear biodiversity benefits. However, it is not a	bsolutely clear how
(and how many) species and habitat types will 	eventually 	be chosen, how extensive the
support scheme will be and how the impacts of the law will play out on other activities that
may have to be abandoned or considerably revised in the f	ace of the new law. 	The first list
of 8 prioritized species and 5 selected habitat types were decided in 2011, with the aim to
continually update the lists.
It is likely that the new measures will have a positive impact on conservation objectives,
though it is too early to tell at what cost. Further, distributional impacts and legitimacy
concerns may also have to be judged once impacts of the specific implemen	tation of the
schemes have been observed for a few years. The two support schemes for management of
species and habitat types are promising, though they are relatively minor 	in size 	compared
to for example the voluntary forest protection scheme	 (see sectio	n 4.2)	. As such, the direct
regulation elements of the fairly comprehensive Nature Diversity Act, of which priority species
and selected habitat types are only one of several elements, is likely to be more important for
conservation benefits, than the 	incentives created through two small support schemes. It is
also important to note that many of the species and habitat types will be outside the forestry
decision making sphere, as they are not influenced by forestry activities directly.	 Even so, it
is a 	first step towards the use of economic instruments in biodiversity conservation in Norway,
in addition to the voluntary forest conservation program discussed in section 4.2.
Source: Barton et al. (2012).

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Textbox 4.3	 	Biodiversity offsets and habitat b	anking in the 	EU and UK

Habitat banking 	can be defined 	as: “a market where the credits from actions	 with beneficial
biodiversity outcomes can be purchased to offset the debit from	 environmental damage.
Credits can be produced in advance of, and without 	ex	-ante	 links to, the debits they
compensate for, and stored over time”. Biodiversity credits	 can 	include both habitats and
species.	” (EFTEC 2010).
Actions that create credits	 can	 include the restoration or creation of habitats or measures
that enhance the	 viability of species populations (e.g. removal of alien predators).They can
also include the protection of valuable habitats that are at risk of loss or	 degradation (the
so	-called risk aversion offsets), even though the additionality that	 these actions ma	y provide
is a complex issue. Additionality of an	 action refers to the requirement that the outcomes it
delivers would not have	 occurred without the action.
In the case of offsets, the debit and credit are quantified separately for each and	 every case
(even though offset delivery may be undertaken in a single location to	 satisfy demand for
more than one offset requirement). This is not the case in habitat	 banking: credits can be
assessed once, created in different quantities and locations	 and stored. Th	ey need not be
designed to match a specific debit at the time of	 creation, although they still need to fulfil
equivalence requirements (i.e. be like for	 like or better) for the debit they are subsequently
used to compensate for. The	 independence in the tim	ing of credits from debits at the
creation stage is the key	 feature distinguishing habitat banking from offsets.
Biodiversity offsets have the potential to compensate for biodiversity loss, but a number of
technical, ecological, geographical and economic c	onstraints mean that this is not possible
or appropriate in all circumstances. In cases of particularly vulnerable and/or irreplaceable
biodiversity, ‘like for like’ offsets should be preferred. Where the biodiversity affected is not
vulnerable or irreplac	eable, ‘trading up’ to conserve higher conservation priority biodiversity
may be the best outcome. For habitat banking and offsetting to be successful, there is a
need for a strong regulatory framework to create demand, establish basic standards, and
drive	 the process.
The UK is currently piloting biodiversity offset schemes and the EU exploring the possibility
and potential of habitat banking schemes.
Source: More information can be found here:
 http://ec.europa.eu/environment/enveco/biodiversity/

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Tools for trade	-off analysis
This section includes two examples:
�x 	Mapping and Assessment of Ecosystems and their Services (MAES) in the EU
(Textbox 4.4)
�x 	UK National Ecosystem Assessment	 (UK NEA) 	(Textbox 4.5)
As noted in chapter 2, the MAES work in the EU is important in its strategy to conserve
biodiversity and better manage ecosystem services. The mapping tool is 	a mean	s to help
in policy uses such as natural resource accounting and spatially targeting policy
instruments.
The UK NEA was	 a pioneering effort internationally to map and value key ES i	n a
spatially explicitly manner, providing a very clear message of the welf	are gain of including
explicit economic values of ES.

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Textbox 4.4	 	Mapping and Assessment of Ecosystems and their Services (MAES)	 in the
EU

In line with the Millennium Ecosystem assessment (MA), the objective of the EU
assessment is to provide a critica	l evaluation of the best available information for guiding
decisions on complex public issues. The work being carried out is important for the
advancement of biodiversity objectives, and also to inform the development and
implementation of related policies	, on water, climate, agriculture, forest, and regional
planning. Robust, reliable and comparable data are also important for the planning and
implementation of individual projects.
Wh	at is the purpose of 	mapping?
Maps are useful for spatially explicit prioritisation and problem identification, especially in
relation to synergies and trade	-offs among different ecosystem services, and between
ecosystem services and biodiversity. Further, maps can be used as a communi	cation tool
to initiate discussions with stakeholders, visualizing the locations where valuable ecosystem
services are produced 	(such as in the UK NEA, see Textbox 4.5) 	or used 	for	 explaining the
relevance of ecosystem services to the public in their terri	tory.
MAES Analytical Framework	:
A first outcome is the development of a coherent analytical framework to be applied by the
EU and its Member States in order to ensure consistent approaches are used. It is therefore
framed by a broad set of key policy que	stions. It is structured around a conceptual
framework that links human societies and their 	well	-being with the environment (see Figure
2.1 in Chapter 2.1, which is central to this approach).
A first version of a European ecosystem map covering spatially	 explicit ecosy	stem types for
land and freshwater at 1 ha spatial resolution	 has been developed	. Ecosystems are mapped
by interpreting available land cover data on the basis of the European habitat classification.
For the marine part the maps ha	ve	 been dev	eloped using global data sets such as sea bed
conditions, bathymetry, etc. 	This map is also avai	lable in the MAES digital atlas (see
http://biodiversity.europa.eu/maes/maes	-digital	-atlas	). The MAES digital atlas is designed
to present in a systematic way maps of ecosystem types and ecosystem services. Only
maps which have been published online at European, national or subnational scale 	are
integrated 	there.	 The mapping work is then aimed 	to be the basis for policy use, for example
in natural capital accounting and in spatially targeting and differentiating policies to take
account of ES and biodiversity values.
MAES work is ongoing. The most recent report on the progress and challenges of 	European
ecosystem services was published in March 2016.
http://catalogue.biodiversity.europa.eu/uploads/document/file/1328/3rdMAESReport_Con
diti	on.pdf
Source: More information can be found here: 	http://biodiversity.europa.eu/maes

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Textbox 4.5	 	UK National Ecosy	stem Assessment	 2009	-11

The UK National Ecosystem Assessment (UK NEA) was the 	first analysis of the UK’s natural
environment in terms of the benefits it provides to society.	 The UK NEA commenced in 2009
and reported in 2011	 (a follow	-on phase was implemented from 2011 that we do not report
from here)	. It was an inclusive process inv	olving many government, academic, NGO and
private sector institutions.	 It was a pioneering effort internationally to map and value key ES in
a spatially explicitly manner. The project started with assessing current status and trends in
UK ecosystems and ES	. This analysis showed decline in many ES (around 35 per cent of the
services) and a need for action. Six scenarios for the future (year 2060) were then developed.
The scenarios put weight on different aspects from continued economic growth and free trade
to a more environmental protection focus. Substantial work was then carried out to project the
development in ES flows in each of the scenarios, and value these biophysical changes in the
ES flows. No new, primary valuation studies were carried out, but ex	isting literature was used
in a benefit transfer exercise to estimate the economic values (see the February issue of the
journal Environmental and Resource Economics for an overview of some of the economic
valuation work). The values were made spatially ex	plicit on maps, as seen in Figure 4.6 below.
In this figure the results of a comparison between welfare gains/loss for the two scenarios
“World Markets” and “Nature at Work” are shown relative to the baseline. The time horizon is
from 2010 to 2060, i.e. 50	 years. The resources or services valued in economic terms included
agricultural production (a provisioning service), greenhouse gas emissions (regulating
service), recreation values (a cultural service) and urban greenspace (cultural service). In
addition	, biodiversity was measured by use of a non	-monetary measure: a bid diversity index.
The results show that compared to the status quo, the “Nature at W ork” scenario contributes
to a net welfare gain of £17,920 million per annum. On the other hand, the “Wor	ld Markets”
scenario causes a net loss of £18,990 million per annum. This shows clearly that by other
priorities, and more spatially differentiated policies, large welfare gains can be achieved.
 	Figure 	4.6 Result from the UK NEA 	scenario work for 2060, where net welfare
implications are estimated for two scenarios “World Markets” and “Nature at Work”.
Source: Further information can be found at: 	http://uknea.unep	-wcmc.org/

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County	-level performance 	assessment 	and indicator systems
In this section we include more details on the Norwegian Nature Index (NI)	 (Textbox 4.6)	.
We have also briefly commented on this index in chapter 3 as well. 	Th	e index	 is primarily
used as an information pro	visioning instrument. However, there have been
methodological developments and considerations to potentially use the NI both on a
more disaggregated geographical scale (e.g. municipality level)	, as input to consider
status and trends in biodiversity, and a	s a basis for political targets in biodiversity
conservation.
As such the NI may potentially also be used as a basis for for example ecological
transfers between national government and lower administrative levels to reward
environmental performance as mea	sured by the NI. This is however a future prospect,
not currently possible	, due to data limitations (challenges in disaggregating the index)
and for other reasons.

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Textbox 4.6	 The Norwegian Nature Index

The Nature Index (NI) in Norway has been 	developed to provide a basis to evaluate the
state of biodiversity and to link the state to the management of nature. The Norwegian NI
is currently based on more than 300 indicators covering all major taxonomic groups and
ecosystems (Nybø 2010). The indica	tors can represent any aspect of biodiversity from
genes to ecosystems, but in the current implementation for Norway, the indicators are
mainly species (Skarpaas & Pedersen 2012), although in the case of forests, the
important habitats for forests	 are incl	uded. It has been envisaged that the NI can be
applied to assess the overall state and trends of biodiversity, particularly regarding the
report of progress towards the national 2010 and 2020 targets of the Convention on
Biological Diversity (Skarpaas & Pe	dersen 2012).
The NI has been recently incorporated 	int	o the set of indicators of sustainable
development reported annually in the National Budget and several studies explore other
applications that link the indicators with human activities and management	 plans
(Skarpaas & Pedersen 2012). A fundamental concept built into the NI is that the indicators
are scaled relative to a reference value, i.e. their value at a reference state (Certain et al.
2011). It is assumed that the reference state for each indicat	or reflects an ecologically
sustainable state, and the scaled value measures the deviation from this state: a value
of 1 means that the indicator is in the reference state, whereas a value of means a
seriously degraded state. The NI can then be calculate	d for a particular geographical
area (e.g. municipalities), biome and particular time, as a weight	ed	 average of the scaled
indicator values providing an overall metric of the state of biodiversity in each case, along
a sustainability gradient. The referenc	e state can therefore be potentially considered as
a target for improved conservation measures, new instruments and sustainable
management of, e.g. a particular area, biome or nature type.	 Figure 4.7 below shows an
example of the calculated NI value for fo	rests in Norway in 2010, Figure 4.8, the different
values for different types of ecosystems in 2014.
The data basis of the NI sets the boundaries of its applicability in terms of the spatial
extent, the degree of spatial detail, the comparability betwee	n geographical areas, and
the time interval at which it can be calculated. At present, for a set of well	-known taxa,
estimates originate from monitoring programs and mode	lling of population dynamics, but
the bulk of the information in the NI comes from exp	ert assessments of indicators. Such
information is useful for evaluation of long	-term trends and goals like the 2020 target, but
is less well suited for reporting of short	-term changes (such as the annual sustainability
indicators in the National budget) a	nd for devising management goals and options for the
future (Skarpaas & Pedersen 2012). Ongoing improvement of the knowledge base about
the statistical structure of the data will contribute to more reliable assessments and widen
the applicability of the NI	 in the future (Pedersen & Skarpaas 2012). The degree of
uncertainty in the data is also reflected in the difficulties in forecasting future states based
on current conditions. These projections of the NI into the future would provide a
reference or benchm	ark of a ‘business as usual’ state. A series of methods have been
evaluated to improve forecasting of future states, which appears to be a promising
avenue for future applications of the NI (Skarpaas & Pedersen 2012).

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Figure	 4.7	 The Nature Index for forests in Norway in 2010 	(1 = “undisturbed by
humans”). Source: DN (2010).

Figure 	4.8 The status of Norwegian Ecosystems in 2014, in terms of NI value
(second axis) and per cent of total land area (first axis). Sou	rce: Framstad (2015)

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