Economic Incentive Mechanisms for the Protection and Use of Biological Diversity in the Russian Federation

Abstract

This paper explores economic incentive mechanisms for the protection and sustainable use of biological diversity in general and more specifically of animals (often referred to as “wildlife”). Based on the author’s analysis of wildlife and tax legislation provisions and law enforcement practice, it concludes that the Russian Federation lacks effective and efficient economic incentives to promote the protection and use of wildlife. It proposes incentive measures for the implementation of legislative norms and economic regulation regarding the protection and sustainable use of the animal world. These incentives are intended to provide tools for sustainable use of wildlife and enhance the dialogue with business entities regarding the prioritisation of environmentally friendly economic activities.

Keywords

Economic incentive mechanism sustainable use wildlife incentive measures tax incentives subsidies business entities

Humanity’s growing awareness of the negative consequences of anthropogenic impacts on the environment has led to the establishment of various mechanisms for implementing the international legal principles of sustainable development. In the Russian Federation (RF), one of the priorities of State environmental policy is to ensure a reasonable balance between ecological and economic interests, providing the necessary guarantees for citizens’ rights to a favourable environment. Measures that stimulate entrepreneurs’ interest in environmentally-oriented economic activities have proven their effectiveness.

A legal incentive is “a regulatory driver to law-abiding behaviour, creating a favoured mode to satisfy the subject’s interests” (Matuzov and Malko, 2004). Stimulating the private sector’s interest in the protection of biological diversity and its components is carried out at an international level and within the framework of national legislation. Most European and developing countries are aware of their responsibility to preserve the planet’s biodiversity for future generations. As a result, their governments support the formation of environment-oriented legislation, as well as raising the awareness of a range of interest groups regarding environmental protection.

Bearing in mind the natural potential of the RF, such a policy could generate new advantages at the national level. According to WWF’s Living Planet Report 2016, the RF accounts for about nine percent of the total planetary biocapacity (1.2 billion of the earth’s 13.6 billion hectares of biodiversity landscape). Unlike China, India, the EU and the US, however, the RF is an “ecological creditor” rather than a debtor – that is, its biocapacity is greater than its ecological footprint. In this respect, Brazil is the only country in the world that surpasses the RF. Brazil actively uses this “ecological superpower” advantage in the global political and economic processes (WWF, 2016). Thus, to increase the competitiveness of the national economy, it is necessary to develop and improve environmental priorities in the economic activities of business entities through the provision of various incentives for the protection of biological diversity.

In general, incentive measures have an economic dimension and aim at obtaining additional material benefits for business entities, which encourage them to take the potential adverse environmental impacts of their economic activities into account. The inadequacy or lack of such financial incentives has a significant negative impact on the ecological balance. Currently, relevant legislation in the RF focuses on implementing environmental legislative norms, which may include economic incentives for environmental protection. These provisions are weak and sometimes declarative in character.

An economic incentive mechanism should be developed and implemented, to encourage efforts to conserve and sustainably use wild fauna. Such a measure is particularly important and suggestions for it are proposed in this paper. This paper may also be of interest to people researching the relationship between ecological and economic benefits for the State and society, or interested in the problems and trends in the development of economic activities focused on the conservation of biodiversity and its components in the RF.

1 Effectiveness of Economic Incentives

One of the core necessities for economic development, that ensures stable industrial relations, is a balance between those activities aimed at increasing material wellbeing, and measures for environmental protection and social equity. In addition to attempting to solve the global problem of biodiversity conservation, it is necessary to provide a high degree of coherence between ecological and economic policies at the national level.

1.1 Objectives

Such measures would be designed to ensure the successful implementation of various goals related to equitable and sustainable development. In this regard, the organisation of productive relationships between business entities, the State and society to ensure economic growth and preserve environmental and social resources is of great importance (Tretyakova and Alferova, 2012). In 1972, at the United Nations Conference on the Human Environment in Stockholm, the world community concluded that it was necessary to change humanity’s attitude towards natural resources, stressing that human activities inflict harsh and often irreversible damage on the environment, and human beings and the natural world are on a collision course.

In 1992, the United Nations Conference on Environment and Development adapted the principle of sustainable development for application in the environmental context. It declared that development could only be considered environmentally sustainable, when it satisfies the vital needs of the current generation without threatening the ability of future generations to meet their own needs due to the depletion of natural resources and environmental degradation (World Commission on Environment and Development, 1989). Therefore, respect for biological diversity and concern for the living conditions of future generations should be a defining principle of decision-making in today’s world (Barshinov, 2009).

According to the World Wide Fund for Nature, “biological diversity” is defined to include “all the diversity of life on earth, millions of species of plants, animals, microorganisms with their sets of genes and complex ecosystems that form the living nature” (WWF, 2016). The Convention on Biological Diversity (CBD) adopted a different definition: “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 a part; this includes diversity within species, between species and of ecosystems” (cited in Danilov-Danilyan, 2000). In general, biodiversity includes all the diversity of animal and plant species, as well as ecosystems (places where communities of micro-organisms, plants and animals coexist in a harmonious environment).

1.1.1 Benefits of Biodiversity

All levels of biological diversity are necessary for the most critical environmental function – continued survival of species and natural communities (Krivolutsky, 1994). Biodiversity also improves quality of life, bringing aesthetic pleasure and bearing cultural significance for many people. All these biodiversity benefits determine its high economic value.

1.1.2 Causes of Biodiversity Loss

Human activities directly lead to biodiversity loss through pollution or other deterioration of biological resources and ecosystems. There are three main direct economic causes of degradation and biodiversity loss: 1) unsustainable use of biological resources and reduction of their availability; 2) use of destructive methods for extraction of natural resources that negatively affect biodiversity; and 3) changes in environmental quality and functions that support the biodiversity of ecosystems.

1.1.3 Environmental Incentives

From an economist’s perspective, the best way to conserve biodiversity is to promote and stimulate the efficient and sustainable use of wildlife. The primary goal of creating economic incentives for biodiversity is to influence people’s behaviour during economic activities while preventing biodiversity depletion and degradation. With the proper stimulation, the behaviour of the subject (acting or refraining from action) can have a positive effect (or reduced negative impact) on the environment.

The effectiveness of the stimulus is determined by the correspondence between the actual result and the stated aim. The incentive, as an external influence on decision-making, should be realised and accepted by the subject, who is motivated to take the desired action to an extent that the State can count on its effectiveness. The subject’s reason for taking the action (or refraining from committing it) may be the threat of punishment or the opportunity to get additional benefits – the choice of which of these is applied is not of primary importance; the State achieves the desired objectives in any case. Clearly, persons or entities undertaking business activities would not comply with the standards for emissions of pollutants into the air if such activity is not punished or tied to an incentive, just as they would not be interested in investing in resource-saving technologies without receiving any compensation from the State (Barshinov).

Economic incentives for biodiversity conservation can take various forms and are likely to be most effective if the chosen form is appropriate to the specific objective. This suitability depends on a wide range of social, political and economic factors. Correct choice and application of economic incentives for biodiversity conservation will allow effective response to specific concerns, including biodiversity loss.

The following types of economic incentives for the protection and sustainable use of biological diversity should be identified:

direct incentives: measures aimed at achieving specific biodiversity conservation goals through the provision of particular types of tax benefits, loans and other incentives;

indirect incentives: measures to reinforce the creation of favourable business conditions by converting to environmentally preferred production processes; and

disincentives: rules of legal liability for violation of environmental requirements that lead to the reduction and degradation of biodiversity (Emerton, 2000).

1.2 Effectiveness Criteria

Unfortunately, there is no single assessment for the majority of incentive mechanisms (Casey et al., 2006). To assess the effectiveness of economic incentives, knowledge is needed about four factors: the initial state as created by existing legal regulations, the objective (or “target” state) that the legislator seeks to bring about, the positive changes that occurred as a result of incentive measures adopted, and the related legal costs (Fatkullin, 1977).

Where the legislator’s objective is to promote the protection of biodiversity, there are two main criteria: environmental performance and economic efficiency, which can be assessed by considering several indicators, specific to the incentive, evaluating their performance in three main objective areas: ensuring sustainable use; preserving individual components of biodiversity or the whole ecological system; and implementing programmes, plans and strategies for the conservation and sustainable use of biodiversity. An incentive mechanism for protection of a particular ecosystem or species protection is only deemed effective as such when that specific result is achieved, i.e., the targeted ecosystems have been restored, or the number of separate populations of wild animals has increased.

For an incentive to stimulate action, however, it must also meet several criteria of economic efficiency, including indicators of profitability beyond added financial costs to business entities, which can be expected to weigh the financial costs against their own benefits from a specific incentive mechanism. Their benefit analysis may not include benefits from achievement of the underlying goal of preserving the components of biodiversity.

There will always be conflicts between attempts to simultaneously increase the commercial part of business entities’ activities and the fulfilment of environmental requirements for the conservation and sustainable use of biodiversity. For example, the provision of subsidies from the State budget can stimulate economic entities to expand their activities in areas which are far from the historical habitats of certain species of wild animals. At the same time, it can lead to threats of a reduction in the number of other wildlife species, living in the areas of production. It is necessary to provide business entities with more significant opportunities for choosing benefits and other fiscal or financial incentives, to resolve conflicts between economic and environmental feasibility. They will contribute to a substantial modernisation of the entire production cycle, and reduce emissions and environmental discharges to preserve biodiversity.

1.3 Summary

The mechanism of economic incentives for sustainable use and protection of biodiversity includes a set of financial and administrative methods, ways and tools, aiming to influence the economic activities of business entities. The combination of such measures creates a material incentive regarding optimisation of processes and the organisation of waste-free production, which will significantly reduce environmental pollution and preserve biological diversity.

2 Comparing National Approaches

In any State, the achievement of environmental and economic priorities is a prerequisite for reducing social, political and demographic tensions. Virtually any disruption of the ecological balance that results from economic activities initially occurs within the framework of national jurisdiction. Practical and scientific advances in the field of financial regulation and stimulation of environmental activities are necessary for the further development of the economy and preservation of biodiversity. The transition to what has come to be called a “green economy” requires States to fulfil their obligations by developing effective mechanisms for the economic regulation of environmental protection. The mechanism of economic regulation may consist of the following elements:

actions assessing the level of environmental impact;

actions regulating the level of environmental pollution;

economic evaluation of the role of natural resources in stimulating resource conservation;

imposition of financial charges, as a tool for encouraging the regulated community to take actions necessary to sustain the normative quality of the environment and to solve resource conservation problems, including

fees to be paid by those whose actions produce ecological pollution;

payments for the use of natural resources;

sanctions for violation of environmental legislation; and

fiscal incentives and other benefits in the implementation of activities aimed at improving the efficiency and effectiveness of environmental management (Krivetskaya and Shulak, 2016).

These are many different aspects of the mechanism governing the protection and use of biodiversity in general. At the same time, to maintain the balance between the ecological, economic and social interests of society, the State and business, it is necessary to apply them (Delia, 2019).

The central elements of the economic mechanism of environmental management at present already include payments for use of natural resources, for emissions and discharges of pollutants and waste disposal, as well as fines and compensation payments for damages. This payment system produces funds for the State budget as a source of funding for the protection and use of biodiversity components, as well as stimulating fiscal functions.

2.1 Approaches

The following discussion compares a range of other States’ approaches, including those of EU Member States, the US and Belarus.

2.1.1 Non-tax Environmental Charges

European countries are currently using the following types of environmental charges: payments for environmental pollution; payments for the use of municipal sewage treatment plants; and resource payments. However, it is noted in the literature that the introduction of payments for environmental pollution has turned out to be a measure with limited efficiency since it is often more profitable to pay than to build environmental facilities.

There is a need to ensure that economic incentives actually encourage users of natural resources to carry out activities for the conservation of biodiversity. A set of specific measures needs to be developed and implemented by government agencies, business, public organisations and citizens to preserve biodiversity and its components (Bulte et al., 2003). With the development of economic relations, federal authorities set themselves the task of developing a system of measures to stimulate the growth of the country’s economy, taking into account the ecological requirements and thus preserving biodiversity for present and future generations. The development of such measures is not an easy task since it may directly oppose the interests of a majority of business entities. Building an effective incentive policy requires the legislator to develop appropriate measures of economic incentives and implement them in the current legislation.

2.1.2 Environmental Tax Incentives

The environmental policy of many developed countries is moving toward the treatment of taxes as an effective means of promoting compliance with environmental legislation. The use of environmental taxes and fiscal incentives to stimulate natural resource users to conserve biological diversity and its components is considered by many States to be the driving force of the entire amount of measures within the framework of their environmental policy (Kreiser, 2000). Examples of such incentive measures include a transport fuel tax (especially regarding fuel with high-lead content), or taxes on the use of certain types of fertilisers and pesticides (Panayotou, 1994). Environmental taxes, in one form or another, have begun to appear in all economically developed countries of the European Union since the adoption of the first EU Environment Action Programme.

In addition to environmental taxes, States widely use tax breaks as incentive measures. The introduction of tax incentives for certain types of activities related to ensuring environmental safety and environmental protection will create prerequisites for the investment attractiveness in this sector of the economy. Tax concessions can be granted to business entities for income tax, through tax rebates on accelerated depreciation of environmental protection equipment or reduction of tax on motor vehicles using non-polluting fuels, and so on. This incentive tool is widely distributed in European countries, since tax benefits directly affect the income and additional profits of enterprises, in contrast to profit taxes differentiation, which is realised through pricing mechanisms. Similarly, in the US, where environmental taxes were widely used in the 1990s and represented an extensive system for taking the interests of both producers and consumers into account. Businesses have been allowed to reduce their obligation to pay federal taxes by the costs incurred in purchasing equipment for their facilities that enables them to use solar or geothermal energy to fulfil their needs for electricity, heating, cooling or hot water (US Internal Revenue Code, 2001).

In Europe, accelerated depreciation of fixed assets has been actively used to support environmental activities, reducing the amount of profit subject to taxation (Wood, 1999). Such a system has long been used in Japan and the US. An annual 20–25 percent write-off of the cost of cleaning equipment has been considered to be optimal.

2.1.3 Subsidies

Some authors point to the advantages of subsidies compared to tax benefits. In European countries, subsidies as incentive measures are used widely and effectively, for example, to preserve existing wetlands and other habitats of wild animals. Subsidies function as State assistance to users of natural resources in carrying out environmental protection measures. They are implemented in the form of grants: free financial aid from the State to business entities for the implementation of a project to significantly reduce environmental pollution; and low-interest loans to business entities to improve technology.

2.1.4 Emission Trading

Another useful measure of economic incentives to reduce the negative impact on the environment is the emission trading model in Western Europe and the US (Hirsch, 2006).

2.2 Effectiveness

Economic measures confirm their effectiveness in practice. In this sense, it should be noted that in developed countries, more than 150 different economic incentive measures have been applied, of which over 50 percent are environmental payments, about 30 percent are subsidies and the rest are other financial incentives (Magejo, 2007). They should be recognised among the most effective approaches to biodiversity conservation. For example, in 2001, in the Republic of Belarus, tax rates based on the use of natural resources were increased by a factor of 1.3, and for pollutant emissions they were doubled. By 2009, these rates had risen fourfold and sevenfold, respectively. In 2004, it was further recommended that the country switch to liquefied and compressed gas, instead of gasoline, to reduce transport-related pollution, noting that this type of fuel reduces the coefficient used for calculating the tax for emissions of pollutants by 25 percent (Bely, 2004).

A wide variety of economic incentives exists in European countries, which promote the conservation of biodiversity and its components at the lowest financial cost. They encourage the development and improvement of a green economy. Moreover, economic instruments such as tax concessions, loans and quota trading systems can accumulate revenues for the State budget, benefitting the national economy and society.

3 Economic Incentives for Wildlife Protection and Sustainability in the RF

In wildlife conservation, as in all of the above examples, one of the most critical areas needing improvement is the creation of practical and useful incentives. Incentives that stimulate wildlife protection should serve as the organisational mechanism that would bridge the interests of further economic development and protection of wildlife. Given that environmental incentives embody the use of two methods: encouragement and coercion (responsibility) (Danilenko, 1989), this implies an increase of measures for the protection of the animal world in the context of serving the interests of legal entities, individual entrepreneurs and citizens in the implementation. This includes careful and rational use of both the animal world and its environment (water bodies, forests); reduction and cessation of emissions of harmful substances into the atmosphere and water bodies; and use of the latest technologies aimed at minimal adverse environmental impact (Anisimov and Ryzhenkov, 2014).

It is generally accepted that “the preservation and continuous maintenance of the quality of the natural environment would guarantee the continuation of life on Earth and the well-being of humanity should have priority over any type of economic benefit for living generations of people through the industrial exploitation of natural resources or other use of the environment” (Kolbasov, 1976). The achievement of a harmonious combination of the needs of economic development with the goals of protecting fauna and its environment could focus on purely organisational measures, including especially incentives for its protection, reproduction and sustainable use. The basis for the implementation of such measures is the “user pays principle”.

In the RF, under the Federal Law no. 52-FZ “On the Animal World”, economic regulation and regulation of the protection and use of wildlife aim at creating a stable financial basis for the protection, reproduction and sustainable use of animal specimens and their parts and products. To achieve this goal, it imposes an economically sound system of payments for the use of wildlife and aquatic biological resources, as set out in RF tax legislation. RF law also specifies other fees stipulated by law regarding hunting and conservation of hunting resources. These funds accumulate in the federal budget and are recorded as charges by the Federal Treasury. These funds finance measures for the conservation, reproduction and sustainable use of fauna.

This legislation recognises organisations and individuals (including individual entrepreneurs) who receive permission to harvest wildlife resources as payers of the fees for the use of fauna.

Tax legislation establishes an exhaustive list of terrestrial and aquatic fauna, the removal of which is based on payments. Only those species can be removed from their habitat based on the relevant permits. It is assumed (and supported in judicial practice) that the removal of other unlisted species is not subject to taxation. Thus, for example, in 2011, the Kanevsky District Court in Krasnodar determined that specimens of unlisted wildlife species could be taken without payment of the fee set out under RF Tax Code Article 333.2. This suggests that the legally mandated use of fees to support sustainable use will apply only to listed species.

The limitation of these activities to a short list of species is inappropriate for a variety of reasons: firstly, in addition to being able to hunt the listed terrestrial and aquatic animal species with a permit, Article 43 of the Federal Law “On the Animal World” allows the issuance of permits for removal activities that are not related to hunting these species. This raises another question: Why are these types of activities not subject to taxation? In this situation, the establishment of an exhaustive list does not comply with the law’s inclusion of the user pays principle, which applies to all animal species, including those that are not related to hunting and aquatic biological resources. Therefore, fees for the use of wildlife should be, without exemption, applied for all animal species, the removal of which is based on a permit.

Secondly, there is a need to expand that list of species, based on both international and national law. In particular, the 1992 CBD establishes the responsibility of States for the conservation of their biological diversity and sustainable use of their natural resources. In addition, according to the Federal Law “On the Animal World”, one of the tasks for the economic regulation, protection and use of wildlife is the creation of a stable financial basis for the protection, reproduction and sustainable use of fauna. Thus, the legislation on the animal world aims at ensuring the reproduction and sustainable use of the whole variety of wildlife resources. At present, however, such tax legislation provides for financial support of the conservation and sustainable use for only certain types of hunting and aquatic biological resources.

In order to ensure the stability of legal relations in the field of protection and sustainable use of the animal world, as well as to respect the existing balance of interests, it is advisable to expand the Tax Code’s list of wildlife resources provided to include animal species that may not be considered to be hunting and fishing resources. These measures would allow the establishment of a unified approach to ensure the sustainable use of fauna within a framework that includes tax legislation and legal provisions on the animal world.

Payments for the use of wildlife play an essential role in ensuring the sustainable use of wildlife. They are a potent regulator of the economic activities of organisations and stimulate the preservation and reproduction of populations of animal species and their habitats. In order to overcome problems associated with charging a one-time fee for re-issuing long-term licences, it is necessary to revise these fees taking into account real economic indicators, ensuring implementation and creating optimal conditions for the sustainable use of hunting resources.

One of the most critical areas for improving the conservation and sustainable use of wildlife is the creation of effective and efficient incentives. Stimulation of activities for the conservation and sustainable use of the animal world should serve as an economic tool that helps bridge the interests of further economic development and the sustainable use of wildlife. Such a system implies better implementation of standards for the conservation and sustainable use of wildlife.

Along with compulsory payments, the formation of an effective economic incentive mechanism that allows for the implementation of environmental, economic and social concerns is an important measure to ensure the sustainable use of the animal world. The RF’s system of financial incentives is provided by tax, banking and budget legislation. According to the Tax Code, for example, only those categories of taxpayers whose activities are directly related to the use of the animal world are exempted from paying a fee for the right to use the animal and aquatic biological resources. However, wildlife is negatively impacted as a result of the activities of industrial enterprises and agricultural organisations. Inherently, no manufacturer is interested in preserving the animal world, since economically and technically they can produce more at lower costs if they do not spend money on wildlife preservation. Therefore, the task of introducing environmental tax incentives is to encourage enterprises to change their technological processes in favour of cleaner production.

In the legal literature, it is noted that, although the establishment of sewage treatment plants can result in cleaner production, it will also increase costs. Tax benefits, in this case, compensate for some of the financial losses mandatorily incurred to reduce emissions and dumping.

Tax breaks can also stimulate the replacement of the production of a less ecologically sound product by another, more environmentally friendly one (Kireenko et al., 2014), in cases where the former produces a harmful substance as a by-product. Noting the importance of economic incentives for the preservation of the animal world, it is necessary to develop a mechanism for providing tax incentives for legal entities and citizens whose activities currently have a negative impact on wildlife species and their habitats in the process of production, cultivation or other activities, to encourage them to change their behaviour.

Among the economic incentives for the protection, reproduction and sustainable use of wildlife resources, the Federal Law “On the Animal World” also includes the provision of concessional loans to legal entities. However, banking legislation contains no mechanism for implementing this provision. Similarly, in environmental legislation, the relevant sections of the law are very sketchy, consisting of blanket and declarative rules, indicating unpreparedness for practical application. Such laws assume the substitution of other (usually subordinate) legislative regulations, which are expected to be instructive, systematic and methodical (Petrova, 2000). Providing legal entities with preferential loans to carry out work on the preservation and reproduction of animal species involves the provision of funds at reduced interest rates under certain conditions. In credit institutions and commercial banks, there are no relevant programmes for the provision of such concessional loans. Thus, the provisions of Article 54 of the Federal Law “On the Animal World” are declarative, referring to special legislation, which, in its turn, does not provide a legal mechanism for the implementation of economic incentive measures.

It should be assumed that concessional lending programmes in public-private partnerships could act as financial incentives for users of wildlife resources, including individual entrepreneurs or legal entities, banks or credit institutions and RF executive authorities. Under such a programme and with guarantees from the executive power, the bank would provide a loan at reduced interest rates to a legal entity, which would also have to justify the need to finance a specific project, for instance the implementation of high-tech cleaning equipment. Such partnerships between the State, individuals and legal entities constitute one of the ways to ensure a balance of public and private interests.

As noted from examination of the practice of implementing legal norms which reinforce measures to encourage sustainable use and preservation of wildlife, the relevant legislation is not sufficiently developed, and the provisions of some of the norms are declarative. In this connection, the following suggestions are offered:

introduce fixed taxes, applying an increased rate for industrial enterprises and agricultural organisations whose activities, although not directly related to the use of wildlife, cause significant damage to wild animals and their habitat. The introduction of higher taxes will be aimed at reducing the number of enterprises that have a negative impact on the environment;

develop tax breaks for those legal entities and individual entrepreneurs whose activities are focused on the preservation of animal species and their habitats;

ensure the provision of subsidies – from the budget of the RF constituent entity – for the use of the latest technologies to prevent negative impacts on the animal world; and

introduce partnerships between the State, individuals and legal entities aimed at the implementation of programmes for the conservation and sustainable use of the animal world.

These measures, if used by representative and executive bodies of the RF, should serve as the basis for the development of economic regulations for the sustainable use and protection of wildlife.

4 Conclusion

The conceptual framework for sustainable development regarding the protection and sustainable use of wildlife is consistently implemented in the RF. Based on the analysis of certain relevant legislative provisions and related law-enforcement practice, however, it is argued that the system is currently incomplete – lacking measures to stimulate activities for the protection and sustainable use of fauna. Individual, piecemeal measures, not combined as a full policy set, have yielded few results.

This article proposes the use of economic incentive mechanisms that will ensure the sustainable use of wildlife resources and direct the efforts of business entities towards environmentally friendly activities.

Taking into consideration the relevance and significance of the use of economic incentives for the protection and use of wildlife resources, it is advisable to study and apply the most effective relevant practical experience of European and other countries in the application of such measures.

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