Are market-based instruments delivering for Australia?
Market-based instruments (MBIs) have been widely promoted in Australia in recent decades to deliver environmental outcomes at lower cost than traditional policy approaches. Although the use of market-based instruments in Australia has accelerated in recent decades, they are often applied in a piecemeal fashion and not always where they can provide the greatest gains. Others have been misdirected or narrowly applied – giving up the compliance flexibility and cost savings offered by efficient market-based instruments. And some simply have no real incentive force.
Although MBIs have the potential to contribute to efficient regulatory reform, regulatory assessments of MBIs themselves are sometimes sidestepped when politically opportunistic and ignored when not. This paper draws on recent examples to highlight a number of problems with how MBIs are being used in Australia. The paper can be downloaded here.
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Environmental rent-seeking, choice modelling and Australian waste policy
In seeking to gauge the extent of benefits that may be realised through increased recycling, governments have typically been influenced by vocal community groups. In more recent years, governments have explored the use of survey based techniques such as choice modelling, to directly elicit the community’s willingness to pay for increased recycling. This paper canvasses shortcomings inherent in both approaches, and calls for changes in how recycling benefit valuations are made. The paper can be downloaded here.
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Threats to effective environmental policy
Recent decades have seen the accelerated use of market based instruments for environmental management in Australia. Not all instruments, however, have been well directed, appropriately designed or effectively implemented. Drew Collins recently addressed the Productivity Commission roundtable on Promoting Better Environmental Outcomes, canvassing examples of where instruments have been poorly applied.
Drew also discussed the emergence of a ‘sustainable consumption’ ideology gaining prominence in policy circles to the detriment of effective reforms. Drew argues that narrowly-based incentives, particularly those directed at influencing specific consumption choices rather than underlying resource-management problems, will rarely be the best policy intervention. Drew’s paper can be downloaded here.
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Sustainable consumption
Policy makers are being urged to take measures that will ensure sustainable consumption. Drew Collins and Professor Jeff Bennett recently explored the meaning of sustainable consumption and how it is being applied internationally. They provided an economic critique of the concept and considered the implications for policy in Australia.
They argue that the concept has been used as justification for a wide range of intervention strategies with popular appeal that has allowed their introduction without rigorous critique. They conclude that policies invoked in the name of sustainable consumption need to satisfy the core requirements of any public policy – that they are both efficient in their use of scarce resources and equitable in their treatment of people. Their paper was published in the Australasian Journal of Environmental Management, Volume 16, March 2009 and can be downloaded here.
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Tradeable rights for water quality management
Despite the successes to date in Australia, more widespread use of tradeable emission rights is constrained by a number of factors. Drew Collins presented a paper to the 2008 International Expo on Water and Sustainable Development in Zaragoza, Spain, reviewing experiences with water quality trading in Australia, and emerging directions including the shift from point-point permit trading to alternative market structures that incorporate diffuse sources.
Drew argues that resistance to the adoption of water quality trading has often focused on scientific discomfort in establishing environmental equivalence ratios and administrative means to cost-effectively monitor and enforce liabilities. While these are significant challenges to be overcome, all policy interventions face these problems, it is just that the assumptions used and ultimate performance of other approaches is generally less explicit. Policy choice is inevitably one of relative imperfection, and market based instruments and alternative policy approaches need to be judged on equal terms. Drew’s paper can be downloaded here.
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Natural Resource Buybacks
BDA Group’s report on natural resource buybacks, funded by Land and Water Australia, raises a number of concerns relevant to the Australian Government’s Water for the Future buyback program. The report demonstrates that no single instrument is likely to be effective in meeting the diversity of environmental watering demands faced under the Living Murray and more broadly across Australia. A key factor underlying this conclusion is the significant variability in watering demands over time within and between different sites.
The report demonstrated the importance of tailoring market instruments to suit the characteristics of individual environmental demands and prevailing water markets. The challenges will be compounded where environmental managers will have to build water portfolios to meet a suite of environmental watering demands with varying levels of complementarity and connectivity. The potential rewards from an effectively constructed portfolio will also be commensurately larger. The report can be downloaded here.
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ACT Cotter Dam Investigation
BDA Group prepared a submission to the ACT Independent Competition and Regulatory Commission to promote sound water policy decision making in the ACT. The submission can be downloaded here.
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