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SCALETOOL IntroductionDriversBiodiversityPolicies and managementConnectivity and protected areas
SCALES and governance Green Infrastructure Site selections Management of network of protected areas Biodiversity monitoring and EU policy Ecological Fiscal Transfers Links to key nature conservation policy instruments

Ecological Fiscal Transfers - a response to the challenge of financial scale

Summary of problem

Nature conservation often comes along with local costs (opportunity and management costs) for private and public actors, while involving benefits far beyond municipal boundaries (spillover benefits). Therefore, local public authorities do not have many incentives to engage in nature conservation activities and often show a negative reaction towards conservation instruments such as protected areas, imposing new development constraints on their jurisdiction. With Ecological Fiscal Transfers we present a policy instrument recently introduced in Portugal and France that can strengthen the motivation for local public authorities to engage in nature conservation activities.
Local actors, public and private, play a key role for the success of nature conservation policies. While several instruments have been designed and implemented to create incentives for conservation efforts of private actors, such as farmers and landowners, less attention has been directed to local public actors. However, local governments may also adopt strategies and actions relevant to create and enhance the quality of conservation areas within their territories, but doing so, they often have to cope with opportunity and/or management costs while providing ecological benefits that reach beyond their boundaries (Ring 2008a; TEEB 2011). Without due compensation local public authorities do not have many incentives to engage in nature conservation activities or can have a negative reaction to conservation instruments imposing new development constraints.

Ecological Fiscal Transfers as a policy response

Ecologically-oriented fiscal transfers can strengthen the motivation of local authorities to create new conservation areas while at the same time maintaining and managing existing protected areas with high relevance for biodiversity conservation and ecosystem services provision in and beyond their territory. Considering ecological or conservation-based indicators to compute and allocate fiscal transfers between different administrative levels creates an opportunity for dealing with scale-related conservation problems in the sphere of public actors.
Intergovernmental fiscal transfer schemes redistribute public revenues from national and regional governments to local governments, providing the latter with the financial resources needed to discharge their local public functions while also helping to reduce fiscal imbalances across decentralised governments (Boadway and Shah, 2007). However, they can also be an effective instrument to support the local provision of ecological goods and services with spillover benefits (Ring 2002; Köllner et al. 2002; May et al. 2002; Ring 2008a; b). Ecological Fiscal Transfers (EFT) can be used to take account of conservation benefits generated in a given territory that reach beyond administrative boundaries, or to compensate costs resulting from land-use restrictions and/or local public expenditure on conservation actions. To date, Ecological Fiscal Transfers have typically been designed to compensate for the opportunity costs faced by public actors, as is the case with the Portuguese scheme (Santos et al. 2012) and the ICMS-Ecológico in Brazilian states (May et al. 2002; Ring et al. 2011).

EFTs are distributed according to ecological or conservation-based indicators, and allocated in the form of lump-sum or specific-purpose transfers (Ring et al. 2011). Several indicators, or sets of indicators, are currently used in EFT schemes. One common approach is to use a quantitative criterion (i.e. amount of protected area per municipality), but additional criteria are needed to take account of the management quality and the conservation values in place. EFTs acknowledge that many land-use decisions determining biodiversity enhancement or decline are taken by actors at the local level.

General recommendations for policy responses

A review of experience on EFTs in countries such as Portugal or Brazil (May et al. 2002; Santos et al. 2012; Ring et al. 2011) provided evidence for a set of recommendations for the design and implementation of this instrument. Policy makers should carefully address issues like stakeholders’ involvement and transparency, clarity of objectives, indicator(s) choice or earmarking.

When designing an EFT scheme some key aspects need to be taken into account:

  • relevant stakeholders shall be actively involved in the design and implementation of the EFT scheme from the very beginning of the process, in order to make the incentives clear and effective;
  • the objectives behind the instrument should be clearly established and aligned with the conservation policy goals;
  • the indicators used for the allocation of Ecological Fiscal Transfers need to reflect as closely as possible the objectives established for the instrument; the adopted ecological indicators shall be simple to implement and monitor in the initial phases of the instrument and gradually take account of more sophisticated and demanding issues (e.g. quality);
  • the decision on whether the beneficiaries (local governments) are free or not to decide upon the use of EFTs needs to take into account the fiscal legal framework and the objectives of the instrument;
  • the instrument must be transparent and easily understood by all stakeholders.
A flexible integration of EFTs in the conservation policy mix may provide opportunities, for example, to align incentives for local public and private actors, or to combine conservation policies with climate change or poverty alleviation objectives (OECD 2005), an important characteristic for designing policies in developing countries (Santos et al. 2010).

Applications in selected countries

The Portuguese Local Financing Law

With the 2007 amendment of the Portuguese Local Financing Law (LFL – Law 2/2007, 15th January), Portugal became the first European Member State to implement EFTs integrated in the annual transfers from the national to the local level (municipalities).

Acknowledging that municipalities (and landowners) face conservation costs (including opportunity costs), while providing benefits beyond their boundaries, the Portuguese EFT scheme introduced a positive discrimination of municipalities with land classified as Natura 2000 network or other nationally protected areas in the redistribution of public revenues from central to local governments (Santos et al. 2012). This mechanism in the Portuguese Local Finances Law establishes that 5-10% of the Municipal General Fund (FGM) shall be distributed according to the municipal area included in Natura 2000 and national protected areas networks.

The principle adopted for this intergovernmental fiscal transfer is non-earmarking, meaning that beneficiaries (local governments) are free to decide upon their use. The only ecological criteria in play in this law are the total area under protection and the percentage of municipal land occupied by protected areas.

The analysis of the ecological signal introduced by the new LFL (see Figure 1) shows that the ecological transfers vary widely among municipalities and that they are very significant in terms of both the total municipal fiscal transfers and the revenues. The Ecological Fiscal Transfers received per hectare of Classified Areas is higher in municipalities with more than 70% of their land designated as conservation area (Santos et al. 2012).

Figure 1: Ecological transfers in euros (first from left), ecological transfers in euros per hectare of land designated as conservation area (second from left), share of the ecological component in proportion to total municipal revenues (third from left) and share of the ecological component in proportion to total fiscal transfers (fourth from left).

Possible extension of the existing French EFT system

Every year each municipality in France receives intergovernmental fiscal transfers (DGF) from the central government. These financial allocations are based on several criteria, in particular the total population of the municipality and its total area. Until now, most municipalities in France do not benefit from the French fiscal transfer system for protected areas on their land and the relevant maintenance efforts. Only municipalities with land belonging to the core zone of a National Park, or in the perimeter of a Marine Park, receive some financial support in terms of Ecological Fiscal Transfers, representing less than 0.5% of all municipalities in France.

Options for development

However, there are numerous types of protected areas and they cover a significant proportion of the French territory. For this reason, based on the current French fiscal transfer system and in the context of the SCALES project, we developed simulations to explore how such a system could be extended so as to include a more robust ecological criterion – that is to take into consideration more categories of protected areas and to provide a more significant financial incentive for local decision makers.

We examined two methods for EFT allocation in southern France (Langue-Roussillon and Provence-Alpes-Côte d´Azur regions): (i) a “per hectare” method, based on the surface area of protected areas within municipal boundaries; (ii) a “population equivalent method”, where the surface area of protected areas is converted through weightings into virtual numbers of inhabitants. Both of these methods are based on the existing fiscal transfer system and on a redistributive principle in order to account for the limited amount of public funding. We tested different scenarios, including seven types of protected areas with different levels of regulation (such as National Parks or National Reserves with high restrictions and areas with more flexible regulations, e.g. Natura 2000 sites or Natural Regional Parks).

Results show that, with both methods, and when including the different types of protected areas, it would be possible to have a significant number of “winners” among municipalities – that is municipalities with an increase of received fiscal transfers (Figure 2). More importantly, we found that for the “losers”, the loss could be limited since the overall amount of losses would be shared among a high number of municipalities. We also found that the population-based method would lead to greater financial changes and, hence, can provide a strong incentive to encourage municipalities to develop their protected area policy.

However, this will require increased public funding to buffer financial losses for large municipalities, which have a low proportion of their land belonging to protected areas. The social acceptability of and interest in this tool for Green infrastructure implementation and further protected area designation are a key issue to address in the future. While more research is needed to assess the different options and effects related to the inclusion of an ecological criterion in the fiscal transfer system, our study suggests that it can be a way to give a concrete meaning to ecological solidarity.

Figure 2: Spatial distribution of municipalities receiving increased and reduced fiscal transfers (in %) for four scenarios B, D, F, H in southern France. B and F follow the "per hectare" (PH) approach but F disregards Natura 2000 sites. D and H follow the "population equivalent" (PE) approach but H disregards Natura 2000 sites. The level of regulation of protected areas and the number of inhabitants per municipalities are provided to support interpretation of results.

Useful links


Borie, M., Mathevet, R., Letourneau, A., Ring, I., Thompson, J.D., Marty, P. (2014): Exploring the Contribution of Fiscal Transfers to Protected Area Policy. Ecology and Society 19 (1): 9. http://www.ecologyandsociety.org/vol19/iss1/art9/.

Köllner, T., Schelske, O., Seidl, I. (2002). Integrating biodiversity into intergovernmental fiscal transfers based on cantonal benchmarking: a Swiss case study. Basic and Applied Ecology 3, 381-391.

Kumar, S., Managi, S. (2009). Compensation for environmental services and intergovernmental fiscal transfers: The case of India. Ecological Economics 68, 3052-3059.

Loureiro, W. (2002). Contribuiçao do ICMS Ecológico a Conservaçao da Biodiversidade no Estado do Paraná. Universidade Federal do Paraná, Curitiba.

Loureiro, W. (2008). ICMS Ecológico, uma experiencia brasileira de pagamentos por serviços ambientais. RPPN Mata Atlântica, No. 3. Conservaçao Internacional, Fundaçao SOS Mata Atlântica, The Nature Conservancy (TNC), Belo Horizonte.

May, P.H., Veiga Neto, F., Denardin, V., Loureiro, W. (2002). Using fiscal instruments to encourage conservation: Municipal responses to the ‘ecological’ value-added tax in Paraná and Minas Gerais, Brazil. In: S. Pagiola, J. Bishop, N. Landell-Mills (eds): Selling Forest Environmental Services: Market-based Mechanisms for Conservation and Development. Earthscan, London, pp. 173-199.

Mumbunan, S., Ring, I., Lenk, T. (2012). Ecological Fiscal Transfers at the provincial level in Indonesia. UFZ Discussion Papers No. 06/2012. Helmholtz Centre for Environmental Research – UFZ, Leipzig. http://www.ufz.de/index.php?de=14487

Ring, I. (2002). Ecological public functions and fiscal equalisation at the local level in Germany. Ecological Economics 42, 415-427.

Ring, I. (2008a). Integrating local ecological services into intergovernmental fiscal transfers: The case of the ecological ICMS in Brazil. Land Use Policy 25, 485-497.

Ring, I. (2008b). Compensating Municipalities for Protected Areas: Fiscal Transfers for Biodiversity Conservation in Saxony, Germany. GAIA - Ecological Perspectives for Science and Society 17, 143-151.

Ring, I., Drechsler, M., van Teeffelen, A.J.A., Irawan, S., Venter, O. (2010). Biodiversity conservation and climate mitigation: what role can economic instruments play? Current Opinion in Environmental Sustainability 2, 50-58.

Ring, I., May, P., Loureiro, W., Santos, R., Antunes, P., Clemente, C. (2011). Ecological Fiscal Transfers. In: Ring I., Schröter-Schlaack C. (ed.) Instrument Mixes for Biodiversity Policies, POLICYMIX Report No. 2/2011. Helmholtz Centre for Environmental Research – UFZ, Leipzig, pp. 98-118.

Santos, R., Ring, I., Antunes, P., Clemente, P. (2010). Fiscal transfers for biodiversity conservation: the Portuguese Local Finances Law. UFZ-Diskussionspapiere, No. 11/2010, Leipzig, http://www.ufz.de/index.php?de=14487.

Santos, R., Ring, I., Antunes, P., Clemente, P. (2012). Fiscal transfers for biodiversity conservation: The Portuguese Local Finances Law. Land Use Policy 29(2), 261-273.

Santos, R., Antunes, P., Ring, I., Clemente, P. (2014): Engaging local private and public actors in biodiversity conservation: the role of agri-environmental schemes and ecological fiscal transfers. Environmental Policy and Governance, in press

Santos, R., Ring, I., Antunes, P., Clemente, P., Ribas, T. (2014): Ecological fiscal transfers: A policy response to local conservation challenges. In: Henle, K., Potts, S.G., Kunin, W.E., Matsinos, Y.G., Similä, J., Pantis, J.D., Grobelnik, V., Penev, L., Settele, J. (Eds.): Scaling in Ecology and Biodiversity Conservation. Pensoft, Sofia, 124-127. Also available as ebook at doi: 10.3897/ab.e1169

Schröter-Schlaack, C., Ring, I., Koellner, T., Santos, R., Antunes, P., Clemente, P., Mathevet, R., Borie, M., Grodzińska-Jurczak, M. (2014): Intergovernmental fiscal transfers to support local conservation action in Europe. The German Journal of Economic Geography. Special Issue on “The economics of protected areas – a European perspective”, 98-114.

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