Applying economics to natural resource management

Applying economics to natural resource management

Those of you with an interest in environmental economics and market-based instruments will probably find this useful, even though the National Market-based Instruments Pilots Program does not relate explicitly to waste (and comes from Australia’s national action plan for salinity and water quality).

The Commonwealth, States and Territories of Australia have agreed to a new A$10 million programme to look at how the marketplace might help conserve and sustain Australia’s natural resources.

The Natural Resource Management Ministerial Council, which is made up of Australia’s environment and agriculture ministers, is inviting applications for funding to run pilot projects testing the use of market mechanisms such as trading schemes, auctions and price signals to encourage better management of natural resource issues like salinity, waste water and vegetation management. Co-chairs of the Council, the Minister for the Environment and Heritage, Dr David Kemp, and the Minister for Agriculture, Fisheries and Forestry, Warren Truss, said the National Market-Based Instruments Pilots Program also aimed to stimulate public debate on the issues.

“Market-based instruments (MBIs) work by using market signals to encourage more sustainable practices, and are a widely used tool for natural resource management in some countries,” Mr Truss said. MBIs may include creating new markets or removing existing barriers to market activities. An example is the ‘cap and trade’ mechanism that is used successfully in the Murray-Darling Basin to encourage water trading. This is when governments determine the overall allocation of water for irrigated agriculture in a certain region, and landholders can trade with other landholders if they find they need more or don’t need as much water as they are initially allocated.

Dr Kemp said governments could use MBIs to regulate wastewater discharge into waterways. This would work by limiting the total discharge from all industry in a region to a level that was environmentally sustainable, then creating a market system where companies could trade their rights to discharge. “Apart from taxes and subsidies, Australia is still at an early stage in developing and using MBIs. Many schemes are still being designed or have only recently been implemented,” Dr Kemp said.

“MBIs are not a quick fix, and many require legislative underpinning and support. There is still much to learn and all jurisdictions are facing the same questions about their practical application. “Nevertheless, it is clear that MBIs have huge potential to achieve ‘more from less’, to drive innovation, place environmental considerations in the mainstream and give economic incentive for good natural resources management,” Dr Kemp said.

The National Market-Based Instruments Pilots Program will be implemented in two phases. In the first phase A$5 million will be allocated to pilot projects over about two years. If this is successful, a further A$5 million may be allocated for further pilots.

The National Market-based Instruments Pilots Programme

Proposals are now invited for the National Market-based Instruments Pilots Program, funded under the Action Plan. Market-based instruments (MBIs) are attracting much interest – both in Australia and overseas. They are a promising new addition to existing natural resource management tools but significant gaps in knowledge and impediments limit our ability to use MBIs.

MBIs use trading mechanisms, auctions and price signals to change behaviour. Rather than prescribing behaviour or technology use, MBIs give more flexibility in the sustainable use and management of our natural resources. Like other countries, Australia is still in the early stages of using MBIs. We face many questions about how they can work.

To help find some answers, all Australian governments have joined together by funding A$5 million in the first round of MBI pilot projects.