Establishing and managing protected areas costs money. There are significant running costs associated with ensuring that protected areas are effectively protected, that local communities benefit from them and that the value of protected areas are maintained in perpetuity. Three separate studies estimated the total annual cost for effective management of the existing protected areas in developing countries ranges from US $1.1 billion to $2.5 billion per year and the funding shortfall (total cost minus current funding) between US $1 and 1.7 billion per year. Governments are conscious of these estimated shortfalls and, in adopting the programme of work on protected areas, they called for increased financing, including external financial assistance for developing countries and countries with economies in transition.

The Conference of the Parties therefore urged Parties, other Governments and funding organizations to “mobilize as a matter of urgency through different mechanisms adequate and timely financial resources for the implementation of the programme of work by developing countries, particularly in the least developed and the small island developing States amongst them, and countries with economies in transition, in accordance with Article 20 of the Convention, with special emphasis on those elements of the programme of work requiring early action” (paragraph 9 of decision VII/28). The Conference of the Parties also called on Parties and development agencies to integrate protected area objectives into their development strategies (paragraph 11 of decision VII/28).

Requirement in the programme of work: Goal 3.4: “To ensure financial sustainability of protected areas and national and regional systems of protected areas”.

Target for goal 3.4: “By 2008, sufficient financial, technical and other resources to meet the costs to effectively implement and manage national and regional systems of protected areas are secured, including both from national and international sources, particularly to support the needs of developing countries and countries with economies in transition and small island developing States”

Through a diversified mix of conventional funding sources (e.g., national budgetary allocations, overseas development assistance) and innovative funding sources (e.g., payments for ecosystem services, trust funds and green taxes), countries can achieve stable and sufficient long-term financial resources to support their protected area systems.

Financial sustainability is not only about the amount of money, but also about how effectively money is spent, how well benefits are provided to local stakeholders, and other factors.

What is Financial Sustainability?

Protected area financial sustainability may be defined as “the ability to secure stable and sufficient long-term financial resources, and to allocate them in a timely manner and appropriate form, to cover the full costs of protected areas (direct and indirect) and to ensure that PAs are managed effectively and efficiently”. It is clear that achieving financial sustainability will require major changes in the way that funding is conceptualised, captured and used.

The Programme of Work emphasized the need for both national and international sources of funding. Fully implementing the Programme of Work will undoubtedly require increased external funding (e.g., GEF, ODA) to assist developing countries and countries with economies in transition. A range of innovative national sources are starting to play an increasingly important role in meeting funding needs. Examples include fees on tourism and other resource uses, raising funds from new markets (such as carbon offsets, water, or other payments for ecosystem services), finding new donors (such as large corporations, private philanthropists, other government agencies or tax revenue-sharing), sharing costs and benefits with local stakeholders (e.g., private landholders and local communities), employing new financial tools (such as business planning), improving wider policy and market conditions (such as reforming environmentally-harmful subsidies and creating positive incentives), and devolving funding and management responsibilities (for example to NGOs, local communities, individuals or businesses).

Various routes towards financial sustainability

It is important to identify various routes to financial sustainability, as they:

• Identify the most cost-effective course of actions
• Establish an adequate institutional framework
• Address institutional capacity issues
• Accelerate the achievement of goals
• Transparency and accountability

Various routes towards financial sustainability inter alia include:

• Financial gap assessment (income versus expenses)
• Assessment of the financial and administrative system
• Reselection of financial mechanisms including payments for ecosystem services
• Administrative reform or and environment tax reform
• Feasibility assessment of mechanisms (investment and rate of return)
• Development of financial plans
• Implementation of financial plans
• Transparency and accountability
• Measurement of fulfilment of fiscal objectives.

What is a sustainable Finance Plan?

A sustainable finance plan is an iterative and broadly owned plan to attract sufficient and sustainable financial resources to effectively manage the protected area system. It Identifies, prioritises, and presents strategies to fill funding gaps. To date, most financial analyses and plans have been conducted at the level of individual protected areas, and there is no widely accepted methodology for national-level financial analysis and planning. In general, however, Parties will need to answer three questions:

• What is the current level of protected areas financing, what are its sources, what is it being spent on and how efficiently and effectively are funds being used
• Taking existing and planned protected areas into account, what are the unmet financial needs over the next decade or so?
• What is the range of options for filling the funding gap and what is the potential of each option to generate revenue for the protected area system?

The answers, taken together, will form the basis of country-level “sustainable financing plans”, which will likely include necessary regulatory, legislative, policy, institutional and other measures. These financial plans will form part of the business plans (see chapter 9) developed for protected areas. Actions ideally focus on both revenue and expenditure and can consider innovative funding mechanisms including payment for environmental services. Specific steps could include:

1. Analysis of current income and expenditures, overall financial needs, gaps and opportunity costs;
2. Definition and quantification of protected area goods and services, potential sources of demand for such goods and services, and contributions to achievement of poverty reduction and MDGs;
3. Screening and feasibility analysis of potential financial mechanisms;
4. Elaboration of a comprehensive plan for ensuring long-term financial support for the system of protected areas;

Critical steps in development of sustainable Finance Plan

Critical steps in developing a sustainable finance plan include:

1. System level financial gap analysis (what does it cost to fund the system and meet conservation goals vs. what is currently funded).
2. Assessment of the financial and administrative processes for the protected areas system
3. Screening of existing and new financial mechanisms
4. Feasibility assessment of existing and new financial mechanisms at the site and system level
5. Formulation of System level financial sustainability plan
6. Implementation of plans at system level

Key steps in PA system level financial Gap Assessment

Various steps in PA system gap assessment include:

• Develop cost estimates for protected area creation and management needs over 10 year time horizon (activity based costing)
• Identify existing funding sources and financial gap ( needs vs. funding)
• Cost reduction
• Identify and prioritise potential new conservation finance funding mechanisms and/or sources to fill financial gap
• Identify necessary fiscal and policy reforms to implement priority conservation funding mechanisms and/or sources

Identify two levels of funding gaps: (i) Mission critical level of operations (ii) Optimal level

Case study of Granada financial gap assessment:

Assessment of the financial and administrative processes for the protected areas system

This includes:

• Accounting and budgeting system
• Salaries and other benefits
• Expense categories (standardization)
• Flow of financial resources
• Administrative complexity
• Transparency (availability and access to financial information)
• Decision making and accountability
• M&E, reporting and auditing (internal and external)

Important considerations are:

How much is invested in the environmental sector (including biodiversity) and how much is spent?

What percentage of the national budget is set aside for protected areas?

How much is lost because of inefficient use of the resource?

Example from Brazil (Brazil Federal Government, 2000-04, in US $ 2005)

Screening of existing and new financial mechanisms

There are various existing and new financial mechanisms for protected areas and their impact, applicability and complexities are needed to be examined. Some mechanisms, which are currently in vogue for both system and site level planning are listed below. Their details are discussed in section 3.5.

• User fees
• Volunteers
• Adopt a park
• Merchandise and gift shop
• Collect spare currency
• Membership campaign
• Voluntary add-ons to hotel/restaurant and other bills

Screening of financial mechanisms should be linked to protected area goods and services with potential customers. This also links to Environmental Policy Reforms (EPR) with the following critical steps:

• Use of fiscal instruments to solve environmental problems
• Shift from policies of control and command to economic instruments
• Government improvement in the environmental sector including institutional fragmentation, transparency, accountability and auditing
• Multiple benefits

Feasibility assessment of existing and new financial mechanisms at the site and system level

Key elements of the feasibility assessment of existing and new financial mechanisms include:

• Description
• Assumption
• Cost/benefit analysis
• Market analysis (e.g., customers, demand, competitors, market, costs, providers, location, resources, staff)
• Policy barriers and political risk analysis/fiscal reform
• Financial analysis
• Risk analysis
• Comparative analysis
• Recommendations

Formulation of System level financial sustainability plan

On the basis of steps 1-4 formulate system–level financial plans taking into account the following components:

• Need–based gaps
• Revenue generation scenarios
• Cost recovery level at sites
• Return on investment analysis (including investment required)
• Fiscal policy reform facts
• Staffing plans and capacity building
• Legal and institutional aspects

Implementation of plans at system level

Various steps for the implementation of system level financial plans include:

• Step-by-step implementation strategy to improve the financial management system and supportive administrative reform
• Step-by-step implementation strategy for each of the national financial mechanism and financial goals
• Strategy for policy reform required to support the selected national financial mechanism
• Overview and guide to a national communication strategy
• Outline of system level strategic resource allocation (gap filling approach)
• Outline of system level staffing plan (dedicated staff) & responsibilities
• Strategy and guide for Measuring and Effectiveness, accountability and auditing
• Identification of cost and funding sources

Existing strategies for raising protected area

Over recent decades a wide range of protected area financing mechanisms has been developed. Extensive technical guidance on all aspects of conservation finance is available from a number of sources. These sources contain comprehensive information and decision tools on a wide range of finance mechanisms. A checklist of financing alternatives for protected areas, adapted from Pablo (2003) is presented below (box 1). A majority of these mechanisms are currently available in many countries (grants, trust funds, loans etc.). Some others are still in their early development stage (e.g. carbon sequestration, or developing systems of payments for environmental services). A few others are still conceptual but nonetheless merit consideration (e.g. an international system of payments for the global commons and a global energy tax). A detailed description of these mechanisms along with examples and case studies are available in the resources documents mentioned earlier. In addition, a wealth of information on these mechanisms is also available in the papers presented in the “Sustainable Finance Stream: Building A Secure Financial Future “ during the fifth World Parks Congress, Durban South Africa, September 2003.

The relative strengths and weaknesses of some of these mechanisms are summarized in Table 1.

Table 1. Strategies for Financing Protected Areas: Advantages and Disadvantages (Source: Spergel 2001)

Strategy	Advantages	Disadvantages
Government Funding: direct governmental budget allocations to support protected areas	Government funding may be more sustainable than private or international donors because the priorities of outside funders may shift, and frequently they do not provide long-term funding Increased government support can demonstrate that conservation is an important national priority rather than simply the concern of private organizations	Government funding may be vulnerable to shifts in national spending priorities and to across-the-board budget cuts in times of economic crisisPolitical patronage and political agendas may guide decisions that should be based on conservation criteria
Grants: donations from individuals, foundations, the private sector and international donor agencies	There is a vast network of donors that are often interested in making a significant impact in an individual park or through a specific project	Donors often shift their priorities and frequently provide only short-term supportParks can find themselves managing projects for objectives determined by donors, rather than for the objectives or best interests of the park
Debt-for-nature Swaps: agreements whereby national debt is forgiven by banks or purchased by conservation organizations in exchange for the debtor country “repaying” the cancelled debt by spending local currency on conservation programmes	Swaps offer a way for conservation organizations and international donor agencies to leverage their funds and finance a much greater number of conservation activities in the debtor country. Swaps offer a way for developing country governments to reduce their international debt by using local currency to fund worthy projects inside the country, rather than sending scarce hard currency out of the country to repay creditors	Swaps may be extremely complex to execute and may require the involvement of technical experts from multiple government agencies The financial leverage achieved by a swap may be eroded by subsequent local currency devaluation or inflation. The problem can be mitigated if the debtor government links local currency payments to the US dollar or some other external standard
Conservation Trust Funds: money or other property that (a) can only be used for a specified purpose or purposes (in this case specified conservation purposes), (b) must be kept separate from other sources of money, and (c) is managed and controlled by an independent board of directors	Can provide sustained, long-term funding for protected areas Are a way of channeling large international grants into many small local grants, and extending the lifetime of the grant over a longer period Can be used to strengthen “civil society” by appointing NGO and private sector representatives to the board and giving them equal power as government representatives May have high administrative costs, especially if the fund’s capital is relatively small or if the fund provides substantial technical assistance to grantees in designing and implementing projects	May generate low or unpredictable investment returns, especially in the short term, if they do not have a well-conceived investment strategy
User fees, taxes, and other charges earmarked for protected areas: fees such as entry fees to parks, recreational permit fees, surcharges on airports, cruise ships and hotel rooms, fees and royalties to extraction industries, taxes on pollution, and watershed conservation fees, among others	The various taxes and fees can generate large amounts of money from previously untapped sources. The “user pays” principle and the “polluter pays” principle are widely recognized as fair ways of apportioning costs for protecting the environment	It may be politically difficult to charge fees for use of what was previously treated as a free public resource The income from many kinds of user fees and earmarked revenues can unexpectedly decline. Tourist numbers may suddenly drop as a result of domestic or international, political or economic crises. Fees for natural resource extraction and payment for environmental services may decline if the resource dries up or if the resource price drops. User fees are an effective conservation tool only if they are specifically earmarked for protected areas. Otherwise, governments may be tempted to spend the revenue from user fees and tourism taxes for other purposes.

In a recent study, IUCN categorized protected area funding mechanisms on a spectrum from public to private sources, and between those, which rely on external inflows and self-generated revenues. A typology of protected area financing mechanisms is depicted below:

Figure 1: A typology of protected area funding mechanisms (Source, IUCN 2006)

These three categories include a range of financing mechanisms, which can be grouped according to how funds are primarily raised and used:

1. Financing mechanisms, which are concerned with attracting and administering external flows, include government and donor budgets, NGO grants and private and voluntary donations, from both international and domestic sources.
2. Cost-sharing and benefit-sharing, investment and enterprise funds, fiscal instruments and arrangements for private or community management of protected area land, resources and facilities are primarily mechanisms for generating funding to encourage conservation activities among the groups who use or impact on protected areas.
3. Resource use fees, tourism charges and payments for environmental services all make market-based charges for protected area goods and services.

IUCN described these mechanisms focusing on their current status, obstacles and opportunities for their use, future potential and challenges to be addressed, using case studies. Conclusions of this study are summarized in tables 2, 3 and 4.

Table 2: Mechanisms for attracting and administering external inflows: status, potential and needs (Source IUCN 2006)

Mechanisms	Status	Main potential	Needs and actions required
Domestic government budgets and foreign assistance	Remain a core component of PA funding. Some evidence that overall amounts of funds declining. Major reorientation to poverty reduction and sustainable development goals. Alone, are note enough: need additional financing mechanisms	Existing flows can be maintained or increased. Important as source of direct budgetary support for PA agencies. New opportunities for PA funding through sustainable development and poverty reduction windows	Continuing focus on core commitments and obligations to fund PAs Reorientation of PA funding in line with sustainable development and poverty reduction goals Increasing awareness among development and conservation decision-makers of PA-development links
Private voluntary donations	An important, although rarely major, source of overall PA funding. Can be critical at the level of individual PAs, species or conservation goals. Increased interest in PAs from the corporate sector	Continuing support to PA funding, especially at micro-level. Potential for increasing corporate sponsorship and funding	Need to sustain and increase public interest in PA concerns Increasing interaction with private sector Development of new approaches and marketing of PA causes
Debt for nature swaps and environmental funds	A major source of finance for PAs through the 1980s and 1990s Have declined in popularity and are less common now	Can provide substantial and secure amounts of funding overall, and for individual PAs Important as source of direct budgetary support for PA agencies. New opportunities for PA funding through sustainable development and poverty reduction windows	Reorientation of PA funding in line with sustainable development and poverty reduction goals Convincing donors to release large amounts of funds and devolve decision-making to fund managers Convincing PA agencies to invest funds for the future

Table 3: Mechanisms for generating funding to encourage conservation activities: status, potential and needs (Source IUCN 2006)

Mechanisms	Status	Main potential	Needs and actions required
Fiscal instruments	Traditionally not applied to conservation goals or environmental sectors Increasing use for protected areas both to raise funds and to change consumer and producer behaviour	Source of budgetary revenues and funding transfer mechanism to producers and consumers. Substantial potential to apply to protected areas Opportunities to increase their use as funding and motivational tools	Factoring protected areas into broader fiscal systems Strengthening priority accorded to protected areas by economic planners Enhancing awareness among conservation decision-makers about potential to raise funds and change behaviour
Benefit-sharing and revenue-sharing	Now recognized as integral component of protected area management and funding Not usually accorded primary priority in use of protected area budgets	Major potential to offset local opportunity cost Growing need to balance rising local pressure on protected area lands and resources	Reinforcing importance of integrating local funding into protected area financing strategies Increasing availability of local funding. Tapping into development finance sources. Improving the form in which benefits and revenues are shared
Cost-sharing	Recent rise in use. Traditional focus on government as sole managers and funders of protected areas	Large potential to meet cash flow and finance gaps in individual protected areas, and to take burden off government budgets. Untapped potential to solicit voluntary and mandatory cost-sharing by private sector and NGOs	Encouraging protected area managers to devolve responsibility and funding monopoly. Making cost-sharing mandatory in some cases. Responding to willingness and ability of other groups to share in costs. Defining reciprocal rights and responsibilities. Developing supportive regulations and legislation
Investment, credit and enterprise funds	Becoming available to small to medium size organisations with a pro conservation charter although protected area management agencies would not normally have access to these funds	Potential lies mostly with community based organizations wishing to provide services to protected area visitors on a for profit basis.The application of business principles to capital projects within protected area agencies represents a step towards sustainable financing of the protected area.	Loan funds need to be repaid from profits and hence sound business principles must be followed.

Table 4: Mechanisms for market–based charges for protected area goods and services: status, potential and needs (Source IUCN 2006)

Mechanisms	Status	Main potential	Needs and actions required
Tourist charges	Remain a core component of protected area funding. Demand for nature-based tourism growing	Opportunities to improve extent to which recover costs of providing facilities, and reflect visitor willingness to pay Potential to diversify tourist markets and services offered Can be used to manage demand between protected area sites	Improved calculation of prices and charges Investment required to develop facilities Additional expertise often required to market and operate facilities
Resource use fees	Remain a core component of protected area funding. Diversification of products and extractive activities which are carried out in protected areas	Prices still need to be improved in line with economic values Remaining potential to diversify markets and charges for protected area products Support a range of secondary or value-added industries	Better calculation of prices and charges Improvements in institutional capacity, and clarification of role of different agencies, in setting and collecting prices often required Needs to integrate ecological sustainability concerns into extractive use regimes
Payment for environmental services	Relatively new financing mechanism, whose use has grown considerably over recent years	Provide opportunity to generate revenues from non-extractive management regimes Can act as effective scheme for compensating landholders for biodiversity conservation	Development of supportive policy and legislative frameworks Require improved methodologies for collecting and analysing data to demonstrate biophysical linkages, set prices, monitor impacts

Thus, there is a wide range of mechanisms with considerable potential for raising protected area finances. There however remains the question of whether they will be sufficient enough to generate adequate and long-tern financing for implementing the programme of work? To a large extent, the majority of these approaches are yet to be institutionalized. There is a need to gather and disseminate information on lessons learnt, experiences, opportunities and constraints. Investments in building capacity (for using different strategies described) and organization of training workshops to implement conservation finance initiatives should therefore be a high priority for donors, Governments, and international conservation organizations.

To date, protected area financial strategies have mainly focused on the establishment of a variety of financial mechanisms, which in many cases have limited financial analysis and insufficient policy backup. However, there are many financing mechanisms that have been successful . Furthermore, the links of financial strategies to protected areas management plans are often weak. Although financial plans normally include income, expenditure and gap analyses, and financial projections and fundraising plans (targeting traditional international donors), they often fail to assess the performance of existing financial instruments. Additionally, conventional financial plans lack business-oriented approaches in which different financial instruments (site-based, national, regional and international) are combined. Consequently, with few exceptions, the great majority of protected areas are seriously under funded. Better design and business approaches to protected area financial management are required urgently.