Intergovernmental Fiscal Transfers, Forest Conservation and Climate Change

Properly designed intergovernmental fiscal transfers (IFTs) present an innovative instrument that creates incentives for public actors to support conservation. Whilst much of the literature on payments for environmental services has focused on private actors, such as smallholders and companies, and their forgone benefits due to conservation (Wunder, 2007), the economic implications of conservation for public actors have received less attention. Yet, this group of stakeholders should not be overlooked. When the state claims ownership of land – a situation common in many tropical forest-rich countries (Tacconi et al., 2010) – public actors are responsible for maximising the revenues from resource utilisation. This does not imply that revenue maximisation is, or should be, the only parameter used by governments to make decisions concerning natural resources. There is evidence, however, that it is a significant determinant of resource management, as noted, for example by Barr et al. (2006) and Andersson et al. (2006). Conservation, however, restricts public actors from generating public revenues, as they can no longer issue permits to pursue income-generating activities in areas designated for conservation. Local governments usually obtain a share of revenues from those resources. As these revenues can no longer be generated due to conservation, compensation to reconcile local costs with the benefits that reach beyond local boundaries is required for local governments to support conservation.