Friday, May 15, 2009

Financing ecotourism #1: The role of government

This blog serves partly as a forum to talk about the next big ideas in ecotourism and sustainable development. But too often these well-intentioned policy innovations are never successfully implemented, and the intended conservation outcomes never happen.

And often it is financing that's the missing piece. Environmentally friendly projects, such as investments in energy efficiency, typically generate positive returns but are passed over in favor of even more lucrative projects. (Energy efficiency investments often take many years to pay for themselves.) The tight credit markets don't help, but this problem is not unique to recessionary periods.

So we'll start using this blog to discuss new financing mechanisms that increase access to capital and thereby expand the use of responsible development practices in ecotourism. And the first topic is the role of government-led financing.

Developing countries routinely receive funding from the world's richest economies - through the big development (e.g., massive lines of credit) and from the private sector - to support economic development and environmental protection. The Global Environment Facility (GEF), for example, sends money directly to national governments, which then have discretion over how the money is used. More and more, the World Bank and related institutions are giving these governments leeway over how they use the money and, more generally, how they set and enforce environmental regulations.

Many developing countries also enjoy a robust tourism sector, which often dominates local economies. And it's becoming increasingly evident that consumers want more responsible tourism experiences.

So there is money available from two sources (development banks and tourists) that demand environmental protection. And some investments in environmentally friendly development (like energy efficiency) often don't get made because scarce capital is employed in more readily available projects with shorter payback periods.

What if a national government administered a revolving loan fund to support tourism development that simultaneously meets national goals for economic development and environmental protection? Good projects would get the capital they need, while less environmentally friendly forms of development would be discouraged implicitly (though not outlawed entirely).

The mechanism would invest in projects that meet high standards of environmental performance, recognizing that such environmental performance often requires significant capital investment above and beyond that required for a viable development. The revolving fund could even specifically target investments that normally don't get funded, like investments with a payback period of seven years or more.

The method for evaluating the environmental performance of tourism developments must include a quantitative, outcome-oriented analysis of whether (and how) each stands up to a set of environmental standards, like in our EcoValuator scorecard.

A revolving fund would return capital to the national government, with a small return to pay for costs of administration and to ensure the financial sustainability of the program over time.

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