Sven Wunder CIFOR What scope for future application of conservation auctions? Own biases - PES partisan, not tender background - LDC rather developed country experience - Selected topics in 2nd round synthesis What are we talking about? • Mechanism for allocating PES (or PES-like) contracts (Uwe) – “no PES, no auctions!” – i.e. a niche tool! • Designed to increase (…not necessarily “maximize”!) cost efficiency through competition • From “games” to “simulated markets“ (monopsonies) in principal-agent setup – but not always gov’t buyers • Should help in: “Getting the right landowners to participate in PES at a not-too-high price” • Evaluating env impact success of allocation (auction or not) will depend much also on action contract (PES) Drivers (& killers) of auctions 1. Budget scarcity (vs. abundance) => lots of money, no cost efficiency incentives …EU budget crisis to play in favour of auctions? 2. Liberal ideology (vs. market skepticism, socialism) => political cycles determine “auction waves” …and current winds may blow against “markets” 3. Env. concern dominates (vs. secondary to: - ES provider poverty alleviation - buying landholder votes - promoting regional development - provide farmers income support to mock WTO => if main objectives depend on putting rents in farmer pockets, then auctions make little sense! Drivers (& killers) of auctions (cont’d) 4. Relative homogeneity of ES/ proxies (vs. unique ES bundles) – easier for carbon mitigation than for watershed protection => Need comparable ES / mgt proxy units for market-simulated competition to make sense Environmental efficiency vs. fairness • Tinbergen (John + Peter): cannot achieve both with one single tool (= auction-based PES) – do not overload objective function, stay with env. goals! • …but often sine qua non implementation constraint– not only for auction, but also for subsequent PES contracts (non-compliance, leakage, crowding out, perverse incentives…)! • Fairness is subjective, multi-dimensional (participants price, compliance) varies cross-culturally – more so in context-diverse LDCs (ex: cheating). => All auctions (and all PES) need to adequately address short-term efficiency vs. fairness tradeoffs Allocation of contracts in space Δ EBI (i) Targeting cost (i) Auctions Maximize cost-efficient ES provision of plot (i) • Three dimensions (Wünscher et al. 2008): 1) Service levels (“EBI”) 2) Leverage for change -- threat, opp. (“Δ”) 3) Costs => From costs to additionality: when could auction allocation positively affect effectiveness (1+2) (Kelsey), or perhaps rather harm it (Peter)? Variable leverage/ threats in space Variable leverage/ threats in space ⇒ Adverse selection bias particular to conservation PES Of 1000 forest plots, only 3 vanish (0.3%) => Targeting/ cost framing prior to auction? Typically ES come unequally in space! => Get high-priority areas conserved “no matter what” (Jason) – buy out,Locatelli, PA, PES Imbach & => Maybe auctions apply best to the larger Wunder residual of medium-sized EBI (2013) plots? Design for efficient PES: 1. Target on high-service areas 2. Target threat/ leverage areas 3. Pay acc. to customized cost levels 4. Strengthen conditionality (rules, monitoring, sanctions) - If variability in 1+2 > 3, then targeting impacts efficiency more than auctions - Do auctions affect outcomes of 1,2, and 4? How to sell the auctions concept? • Often ideologically perceived exclusively as a neoliberal tool to squeeze landowner rents • Can alternatively be seen as adaptive-collaborative tool – especially if PES contracts are negotiated tool – help aligning allocations equitably to costs (Tobias) • Participation in markets is a way of cooperation between actors that promotes equity (Henrich et al 2010, Science) => Breakdown of negative image of auctions can reduce more irrational fears Scaling up auction-based PES? • Auctions need min. size for competition to work • Few of us believed in large national-level auctions… • …yet we have US-CRP ex (Dan). Preconditions: a) lots of EBI info for overlay b) plot-specific bid caps = “competition within narrow confines”, rather than unleashing markets’ powerful invisible hand! => Auctions are hard sell to national policy makers, for political side-objectives and lack of admin ease… Sum up: how much auctions in 10 years? • My biggest workshop surprise: even auction partisans half-to-full skeptics on large-scale uptake • Relevant to a subset of PES cases: a niche market • Probably few national ones: too complex, recipients unpredictable => political objections • Strategic demonstration of cost-efficiency (John) • Strong information gathering tool, especially in info-poor, variability-rich LDCs, to inform subsequent price & contract discrimination (Kelsey) => Perhaps strongest potential for auctions as pilots for explicit information gathering?