Table 1.

Classification of common policy instruments along economic principles.

Economic instrument	Steward Earns	Beneficiary Pays	Polluter Pays	Innovation	How it works
User fees & surcharges					Imposes fees or charges for the use or consumption of goods, services or activities associated with the natural environment. These may be used to generate revenue, recover costs and/or manage demand. If the aim is to generate income, all or some of the fees are retained and reinvested in conservation (or channelled to fund the people who manage the land, resources or facilities for which charges are being made). Common examples of user fees include protected area entry fees; parking, waste disposal and sanitation fees, timber royalties; fishing, hunting and trophy fees; other resource-harvesting fees (firewood, medicinal herbs, wild plants, etc.); bioprospecting fees, charges for the use of tourist facilities (climbing, hiking, camping, etc.), restaurant, hotel and land concessions and rental fees.
Payments for Ecosystem Services (PES)					Landholders or resource managers are rewarded or compensated for managing land and resources in a way that generates specified ecosystem services. Payments are made by the beneficiaries of ecosystem services, and may be provided in cash or in kind (e.g. via monetary payments, contributions of infrastructure, technical training, access to loans, etc.). PES are most frequently made to regulating services such as water quality and supply, landscape enhancement, biodiversity conservation and disaster risk reduction.
Carbon payments					A special form of PES which involves the sale of certified emissions reductions (carbon credits), generated by undertaking land and resource uses which sequester carbon, or which avoid or reduce carbon emissions. Carbon payments are particularly relevant for implementation of the UN programme towards ‘Reducing Emissions from Deforestation and Forest Degradation’ (REDD + ).
Direct payment (e.g. conservation concessions & contracts, compensation etc.)					People are provided with performance-based payments for undertaking agreed conservation actions. These payments can occur within PES schemes, but they are often made by international agencies, governments, companies or NGOs and not necessarily by the beneficiaries of the ecosystem services. They typically focus on compensating the opportunity costs of foregoing a particular land or resource use in order to secure conservation goals.
Insurance schemes					Insurance schemes compensate local people for cost or damages related to conservation (e.g., crops or livestock eaten by wildlife).
Voluntary donations and corporate sponsorship					Individuals or companies interested in conservation, or who benefit from ecosystem services, or accept that they play a role in the degradation of ecosystems, voluntarily sponsor activities that enhance biodiversity or channel funds to local communities.
Taxes					Activities that use ecosystem services or run the risk of harming biodiversity and ecosystem services are subject to ‘ecological’ tax or to relatively higher tax rates.
Tax reliefs, subsidies					The government supports products, technologies, investments and practices that minimise or prevent environmental degradation, or contribute towards conservation goals by relatively lower tax rates, tax exemptions, or payments.
Ecological fiscal transfers					Redistribute public revenue according to certain criteria, including conservation measures. Payments compensate for the costs of conservation measures (including opportunity costs) and reward the provision of public benefits.
Benefit/revenue-sharing					A flat fee or percentage of public revenues or private income streams generated from conservation products and services are shared with local residents. The intention is to recognise that local people play a key role in conserving the environment and enabling the revenue streams that are generated by it, and to provide them with positive incentives and tangible benefits to continue to do so.
Prizes, awards & other recognition					Prizes, awards or other honours are used as a way of recognising and rewarding individuals, groups or villages/towns which display particularly good environmental practices.
Fines, penalties & legal liabilities					People who overuse, harm, or pollute the environment are legally obliged to pay for the damage they cause. The aim is to motivate individuals and companies to avoid or minimise environmental impacts or, if damage is already done, to oblige the responsible party legally and financially to compensate for it.
Tradeable quotas, rights & permits					Sets overall or individual limits on the use, conversion or pollution of the environment. Resource users, land developers or polluters who wish to exceed their quota or right must buy permits from others. The sellers of these permits are those who are not using their own allocation, or who have gained credits from conserving the resource or ecosystem service elsewhere.
Auctions & tenders					Auctions are a mechanism to decide which landowners receive a contract that pays them to change land use and carry out landscape conservation measures on their land. So several landowners make competing propositions or bids for the price they ask to implement conservation measures and a buyer (government or private) will decide which one to accept (usually lowest price for comparable measures).
Biodiversity offsets, habitat/mitigation banking					Companies whose activities damage biodiversity or destroy natural habitats (e.g. agriculture, forestry, oil and gas, mining, transport or construction) invest in biodiversity conservation elsewhere in order to balance or compensate for damage. Biodiversity offsets are usually pursued as a final step after on-site environmental harm has been reduced and alleviated as much as possible. When a conservation bank (or ‘mitigation banking’) is established, a landowner who acts to conserve the natural habitat is seen as making a deposit in the bank and receives credits. Another landowner who wants to develop the habitat or otherwise impact on it must purchase a credit from the bank.
Debt-for-nature swaps					A portion of debt is forgiven in exchange for environmental conservation measures.
Deposits & performance bonds					Individuals or companies undertaking activities which threaten the environment or require some form of mitigation, remediation or management plan are required to make a (usually refundable) deposit of funds against the expenditure involved.
Green products & markets (alternative income & employment sources)					Income streams are developed from products based on the sustainable use of land and natural resources, which use environmentally-friendly production processes, or which replace environmentally-damaging sources of income and employment. This may involve reforming existing products and markets or establishing new ones. Common examples include wild nature-based products (e.g. honey, fruits, natural cosmetics, handicrafts), domestication of wild species (e.g. flowers, medicinal plants, commercial species, or eco-tourism.
Certification & eco-labelling					Eco-labelling and certification are voluntary trademarks awarded to products or services deemed to be environmentally sustainable. The idea is to enable them to charge a price premium and reach new markets − thus providing an incentive for businesses to operate in a way compatible with biodiversity conservation. Common examples include fisheries, timber, eco-tourism, and organic agriculture.
Credit & loans					Credit and loans or preferential terms and conditions are explicitly granted to green products and enterprises, or may stipulate certain environmental requirements in their terms of agreement.
Green investment facilities (conservation bonds, green investment funds, etc.)					These are larger-scale sources of credit and investment for green or biodiversity-based enterprises. While most of these facilities operate on a commercial basis, some provide funding on preferential or concessional terms. Bonds for instance are tradable capital market instruments issued by sovereign governments, states, municipalities or corporate entities to raise upfront funds, backed up by the promise to repay the investor the value of the bond plus periodic interest payments.
Land/resource management & usage rights					The allocation of clear, secure and enforceable use and/or management rights is often a prerequisite for the implementation of economic instruments.
Environmental training & education programmes					Training and education is often a prerequisite for the implementation of economic instruments. For example, may enable entrepreneurs and producers to take up new practices or technologies, trigger behavioural change, or increase consumers’ awareness of the range of options open to them and the positive benefits of green products and practices.

Sources: UNEP (2004), Chambers and Toth (2005) Chapter 2, UNEP (2009), CFA (2008).