• Biodiversity

As subnational governments look for new ways to close the biodiversity finance gap, fiscal policy is emerging as a powerful tool for conservation. In Brazil, the states of Paraná and Rio de Janeiro have demonstrated how rewarding municipalities that implement environmental protection policies with ecological fiscal transfers, can improve ecosystem protection as well as environmental management.

By linking a share of tax revenues to environmental performance, these mechanisms transform biodiversity conservation into a long-term financial incentive, encouraging local governments to invest in protected areas, ecosystem restoration, sanitation, and sustainable territorial management.

Turning tax policy into biodiversity finance

Achieving the goals of the Kunming–Montreal Global Biodiversity Framework requires not only new sources of finance but also innovative ways to direct existing public resources toward nature. Ecological fiscal transfers offer one such solution by redistributing tax revenues in tune with environmental criteria, rewarding municipalities that contribute to biodiversity conservation and ecosystem services. 

The State of Paraná pioneered this approach in 1991 with the creation of the Ecological ICMS, becoming the first Brazilian state to establish an ecological fiscal transfer mechanism. In recognizing that municipalities hosting protected areas and  crucial watersheds often face restrictions on economic development while providing essential ecosystem services, the mechanism compensates local governments through additional tax revenue based on the quality and extent of their protected areas and water resources. 

More than three decades later, the Ecological ICMS remains a cornerstone of Paraná’s biodiversity policy. Protected areas and watersheds are evaluated annually using qualitative and quantitative indicators, ensuring that municipalities adopting effective conservation policies receive greater financial transfers while environmental degradation can reduce eligibility.

In 2025 alone, the programme distributed more than R$659 million to municipalities, helping finance protected area management, payments for environmental services, support for traditional communities, and local conservation initiatives. 

Rewarding environmental performance at the municipal level 

Building on a similar principle, the State of Rio de Janeiro introduced its own Ecological ICMS in 2007, adapting the model to reward broader environmental performance across all 92 municipalities. Despite their similarities, the main difference lies in the extension of the policies. Rather than focusing exclusively on protected areas, Rio’s mechanism evaluates municipalities through the Final Environmental Conservation Index (IFCA), which assesses environmental management across multiple dimensions, including protected areas, solid waste management, wastewater treatment, and complementary environmental planning instruments. 

Each year, technical data submitted by municipalities are analyzed by Rio de Janeiro’s State Secretariat for Environment and Sustainability (SEAS), the State Institute for the Environment (INEA), and the State Foundation for Statistics, Research and Public Servants Training (CEPERJ). The resulting rankings determine how 2.5% of the municipalities’ share of state ICMS revenue is redistributed, creating a transparent and performance-based incentive for environmental action. 

The programme now distributes more than R$ 300 million annually. To qualify for the resources, municipalities are encouraged to structure and strengthen their own Municipal Environmental Systems, through the expansion and improvement of protected areas, the establishment of Municipal Environmental Funds and Councils, the strengthening of sanitation systems, and the integration of biodiversity into local planning. By linking financial transfers to the organization of this administrative infrastructure and to measurable environmental outcomes, Rio de Janeiro consolidates local governance, demonstrating that conservation is a strategic investment for sustainable development across the state.   

Lessons from more than three decades of ecological fiscal transfers

The experiences of Paraná and Rio de Janeiro demonstrate that biodiversity finance does not always require creating entirely new funding streams. Existing fiscal systems can be redesigned to reward municipalities that conserve nature, restore ecosystems, and strengthen environmental governance. 

Several lessons emerge from these experiences:

• Predictable financial incentives encourage municipalities to view biodiversity conservation as an opportunity rather than a constraint on development; 

• Transparent monitoring systems and clear environmental indicators strengthen accountability while encouraging continuous improvements in local environmental performance;  

• Ecological fiscal transfers help align the interests of different levels of government, ensuring that municipalities play an active role in achieving national and global biodiversity goals.  

Together, these experiences illustrate how subnational governments can transform public finance into a practical mechanism for protecting biodiversity while supporting local development and ecosystem resilience. 

Why this matters for COP17 

Closing the biodiversity finance gap will require mobilizing resources from every level of government. While international finance remains essential, the experiences of Paraná and Rio de Janeiro demonstrate that domestic public finance can also become a powerful driver of biodiversity action when designed to reward conservation outcomes. 

Ecological fiscal transfers provide a scalable model that other regions can adapt to their own governance systems, creating long-term incentives for municipalities to protect ecosystems. The resilience of this instrument is so significant that it is already preparing the regions for new economic scenarios: in light of the current transition in the Brazilian tax system, Rio de Janeiro is already articulating the construction of the future Ecological IBS (Tax on Goods and Services), preserving the environmental achievements attained. As governments prepare for COP17 and accelerate the implementation of the Kunming-Montreal Global Biodiversity Framework, these Brazilian states show how fiscal policy can help translate biodiversity commitments into measurable action on the ground. 

GBF targets addressed: 1, 2, 3, 4, 8, 11, 12, 18, 19, 20.
Focus area: Biodiversity finance; Ecological fiscal transfers; Municipal governance; Protected areas; Payments for ecosystem services; Public finance innovation.

Read more: 

• ICMS Ecológico Paraná

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