‘Fungibility’ could sink Convention on Biodiversity’s funding mechanism Decision 15/9 (commentary)

That common sense is anything but common is a truism. Professors of economics often invoke common sense to explain resource allocation. The fungibility problem is exemplary. This esoteric term comes from finance and is synonymous with “adverse selection”: an economic policy selects adversely whenever the beneficiaries would have taken the same action anyway, the action is fungible, and should not be undertaken.

Common sense for billionaire philanthropists means identifying a public good that the state would not have otherwise financed: fungible proposals should not be candidates for private largesse. Non-fungible proposals in the eight-figures are far fewer than the number of multi-billionaires that now roam Planet Earth (some 1,623, according to Forbes). Aside from the crucial issue of economic rents, which was addressed in my previous commentary for Mongabay, the development of a $250 million “demonstration case” for Decision 15/9 of the UN Convention on Biological Diversity (CBD) would appear to meet the fungibility criterion.

But appearances deceive.

As an example unrelated to biodiversity, to make adverse selection and fungibility less abstract, compare the emissions from state-of-the-art cars with that of smoke-billowing jalopies. The U.S. federal policy of “Cash for Clunkers” (the CARS program, to get inefficient old automobiles off the road) seems commonsensical. Economists have shown, however, that half of the clunkers would have been junked by their owners anyway. “Cash for Clunkers” selected adversely and the retirement of the jalopies was fungible. The federal government would have better spent the $3 billion on other public goods with more reduction in air pollution, such as interconnectedness of isolated networks of bicycle lanes. Although construction of the networks was publicly funded, larger scale and greater interconnectedness are non-fungible. Pro-car interests prevail in the U.S.

Good-faith philanthropists should be financing non-fungible public goods. In so doing, however, they hazard the wrath of powerful lobbies and subordinate legislators. One thinks of the scorn heaped on George Soros, who has financed reform of criminal justice and immigration policy, which are quintessentially non-fungible public goods.

Section 10 of Decision 15/9 can be interpreted as mandating financial support for conservation projects by recognizing that “the monetary and non-monetary benefits arising from the use of digital sequence information on genetic resources should, in particular, be used to support conservation and sustainable use of biological diversity and, inter alia, benefit Indigenous peoples and local communities.” A significant percentage of these conservation projects will be fungible, and thus belong to the same class of policymaking as “Cash for Clunkers.”

See related commentary: Will a billionaire bankroll biodiversity? CBD Decision 15/9 as potential ‘goldmine’

An example directly related to biodiversity can further clarify. Migration from countryside to city has created demand for watershed restoration in many metropolises. One thinks of the watersheds of Beijing, Sao Paulo and Nairobi, where Indigenous and local communities also live. Restoration is a public good of high national priority, i.e., a fungible public good, so under Section 10 of Decision 15/9, watershed restoration would qualify for support from the global fund of the mechanism. But does restoration need such financing? Would the disbursement prevent as much extinction as, say, the protection of biodiversity hotspots in more remote and scarcely populated areas of China, Brazil and Kenya? The answers are, respectively, no and resoundingly no. Section 10 thus violates both efficiency and fairness, which are criteria in Section 9. Good-faith philanthropy in developing Decision 15/9 will have been for naught.

Bad-faith philanthropy also exists. Cynical billionaires view philanthropy as a tax, de facto rather than de jure. For developing Decision 15/9, they will studiously ignore the fungibility problem along with the rest of the relevant economics. All that matters is that the de facto tax be lower than what may become the de jure tax. They take stock that socialist politicians are calling to tax billionaires out of existence. The bad-faith philanthropist will reason, why bother with due diligence? Easier to dump money on august conservation organizations and first-tier institutions, which will do the public relations and keep the socialists at bay. Fungibility becomes the F-word, as much for the billionaire philanthropist as for the stakeholders plying the “policy experiment,” “flagship projects” or whatever is the euphemism to sell Decision 15/9. Economists are killjoys.

In the short-run, biodiversity needs Parties to the Convention on Biological Diversity not to do something, i.e., not to open highways into primary forests, not to dam rivers and not to drain wetlands. In the long-run, biodiversity needs ‘Half-Earth,’ the clarion call by famed naturalist E.O. Wilson. Incentives are needed to transition culturally, socially and psychologically into a world of limits. Transitioning could be funded through the collection and distribution of economic rents through a Global Multilateral Benefit-Sharing Mechanism, which is Article 10 of the Nagoya Protocol.

Will common sense persuade?

Decision 15/9 imposes an ultimatum in Section 19 by deciding to “review the effectiveness of the multilateral mechanism at the eighteenth meeting of the Conference of the Parties, including, inter alia, the criteria laid out in paragraphs 9 and 10 of the present decision.” Although economists are loath to predict, I shall predict that without economic rents and the alignment of incentives, the review of effectiveness at COP18 will be dismal.

Extinction will have continued unabated through COP16 and COP17. Discouraged by the review at COP18, user and provider Parties – how many, I cannot say – will undertake measures to withdraw from the Convention on Biological Diversity.

Withdrawal awaits COP19. Only with economic rents, and incentives to live within limits, can the tragedy be averted.

Joseph Henry Vogel is professor of economics at the University of Puerto Rico-Río Piedras. He has published widely on the Convention on Biological Diversity and served as advisor to the Ecuadorian delegation at COP2 and COP9.

See the related commentary by this writer:

Will a billionaire bankroll biodiversity? CBD Decision 15/9 as potential ‘goldmine’ (commentary)

See a related feature here at Mongabay: