Issues in Australian Natural Resource and Environmental Management

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Issues in Australian Natural Resource and
Environmental Management

• Jeff Bennett
• Professor of Environmental Management
• Asia Pacific School of Economics and Government
• Jeff.Bennett_at_anu.edu.au

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Some issues to contemplate

• Water
• Dryland salinity
• Weeds
• Protected areas
• Climate change
• Some consistent themes emerge!

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Water Policy Issues
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1. Water Demand

• Many and varied
• Extractive
• domestic, industrial, agricultural
• Environmental
• use, non-use, passive
• A range of users
• Frequently mutually exclusive

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2. Water Supply

• Stochastic, SR inelastic, LR elastic but with a
  global constraint
• Quality defined by contaminants and timing
• Relationship between quantity and quality
• Despite supply infrastructure, fundamental supply
  limitations

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3. Allocation Mechanisms

• 19th century - Common law
• 1890s drought - regulatory regime instituted
• Common property
• rent seeking opportunities
• over-allocation, subsidised, poorly defined
  rights
• Late 20th century
• add in environmental demands

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4. COAG reforms

• The introduction of market discipline
• set a cap - allowing for specific environmental
  flows
• define ownership, volume and reliability
• separate water rights from land title
• allow trade
• But trade in permanent rights is thin

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5. to progress further

• Two fundamental questions must be addressed to go
  further
• What is the efficient split between extractive
  and environmental uses?
• How can that split be achieved?

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6. Efficient Allocation

• Ideally MB MC
• Practically, iterate using a cost benefit
  analysis framework
• MC estimates are readily quantified
• MB??
• Need good science - predict outcomes
• Need good economics - value those outcomes

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7. Mechanisms

• Three basic points
• any current misallocation has come about through
  ignorance (science and economics) AND rent
  seeking politics. Avoid repetition!
• Work at the margin - be incremental, flexible
• Defend secure property rights because they
• promote economic strength
• promote resource use care
• are key to individual freedom and a cohesive
  society

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8. Options - Regulatory

• Compulsory reduction in entitlements without
  compensation
• Compulsory reduction in entitlements with
  compensation
• Closure of uneconomic irrigation areas
• Rules on water use, land use, capital use, plus
  taxes and subsidies etc (Wentworth Group formula)
• A Pigovian approach

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9. Options - Voluntary

• State buys entitlements on the open market
• State vacates the market allowing environmental
  groups/trusts/individuals to buy entitlements in
  the open market
• A Coasian approach

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10. Assessment - regulatory

• Regulatory approach fails almost all tests
• encourages rent seeking
• tends to be lumpy
• involves the erosion of property rights

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11. Assessment - voluntary

• Voluntary approach uses market discipline
• gradual, flexible, adaptive
• allows experimentation/discovery
• decentralisation reduces rent seeking
  possibilities
• allows for transparency
• lets price do the hard work water users
  discipline themselves in water use

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12. Remaining issues

• Need for innovative definitions of property to
  lower the transaction costs of market action
• Need for experimentation in the workings of
  markets where public goods are desired as outcomes

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13. Conclusions

• Sequence of complexities
• Legal issues (what are the rights currently held
  under the different licence categories?)
• Equity issues (efficient allocations will be
  different under different vestments of rights)
• Knowing where we want to be - MB revelation
• The voluntary, market-based approach requires
  regulators to surrender power, influence and rents

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Dry Land Salinity
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1. Externality or not?

• Actions of geographically distant parties affect
  the productivity of farms
• eg vegetation clearing, annual cropping and
  pastures, etc raise the infiltration of water and
  hence the water table.
• Salts brought to within the root zone.
• Difference between eastern and western Australia

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2. or a property rights problem

• Who owns the right to clear land, plant crops,
  and otherwise act in ways that cause dryland
  salinity?
• Who owns the right to use the groundwater sink
  as a waste disposal area?
• Aspects of rights that are not well defined

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3. And a transaction cost problem

• Property rights are not easily defended given
  gross uncertainties regarding the relationship
  between cause and effect in groundwater AND the
  time between cause and effect.
• Property rights system hasnt developed because
  the costs of defining and defending those rights
  are so high.

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4. Solutions?

• Pigovian and Coasian?
• Taxes/regulations or property rights based?
• Rent seeking
• High transaction costs
• static
• Property rights and trade?
• Encourages innovation in meeting transaction
  costs
• Encourages innovation in reducing salinity
• dynamic

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5. Actions to date

• Subsidies paid for anti-salinity actions eg tree
  planting
• Subsidies for mitigation works
• Research funding for the development of salt
  tolerant species
• Experimental trading in salinity rights
• Compensation for landowners not permitted to
  clear vegetation

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6. Potential actions

• Explore the prospects for the defence of existing
  rights.
• Eg rights to clear land are not disputed but
  rather become tradable.
• Those adversely affected can buy out the rights
  to clear farmers, conservationists
• but what about the transaction costs and free
  riders?
• A role for the state?

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Weeds
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1. Property rights defined

• Noxious Weeds Act gives rights to a weed free
  environment landowners with weeds are required
  to take reasonable action to control weeds on
  their properties.
• Local Councils are the monitoring and enforcement
  organisations.

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2. but not defended

• Courts unwilling to prosecute when landowners are
  in financial difficulties.
• Reasonable is interpreted in a very lenient
  fashion
• Costs of legal action against recalcitrant
  landowners relative to the gains from greater
  weed control discourages Councils from taking
  action

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3. Transaction costs also matter

• Can individual landowners sue weed infested
  property owners given the vestment of rights?
• Can the science support the law? Ie can the
  source of the infestation be traced to a source
  (linking cause and effect!)
• Precedent can play a role in lowering transaction
  costs

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Protected areas
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1. Public good

• Non-excludability for some services provided by
  protected areas (genetic reserve, existence
  values) is a function of high transaction costs.
• Free-riding may prevail
• Public sector provision?
• Equate marginal benefits with marginal costs to
  ensure efficient level of supply
• Measuring benefits?

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2. Non-market valuation techniques

• Revealed preference techniques
• Hedonic pricing
• Production function
• Travel cost
• Stated preference techniques
• Contingent valuation
• Choice modelling

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3. Private sector alternatives

• Private and public good mixes provide opportunity
  for joint production for profit
• Public ownership with private management
  contracted competitively
• Call for tenders from private landowners to
  supply protected areas ensures lowest marginal
  cost suppliers come forward.
• Eg Bush Tender scheme in Victoria
• Still requires a determination of efficient
  levels of provision

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Climate Change
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1. The science

• Greenhouse gases have increased in concentration
• More greenhouse gases ceteris paribus means
  higher global temperatures
• If increasing GHG concentrations have resulted in
  higher global temperatures remains in dispute but
  International Panel on Climate Change asserts
  that they do and project rising temperatures and
  other climatic effects.

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2. The economics

• What is the efficient level of GHGs to be
  released into the atmosphere?
• Where the expected marginal benefits of release
  equals the expected marginal costs OR where the
  expected marginal control costs are equal to the
  expected marginal damage costs.
• Is that where we are?

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3. Benefits and costs

• What benefits are expected to be achieved by
  reducing GHG emissions?
• Bjorn Lomborg (The Skeptical Environmentalist)
  suggests that meeting the Kyoto Protocol goals
  will mean that very little impact will result
  avoiding climate change by 2 or 3 years in 100)
• What expected costs are there in reducing GHG
  emissions?
• Lomborg asserts that the costs in one year alone
  would be enough to pay for every person in the
  world to have access to clean drinking water.

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4. Policy options

• Tax/subsidy route (Pigovian) Carbon tax,
  subsidisation for GHG reductions (eg the
  Greenhouse Gas Abatement Programme or support for
  the ethanol industry)
• Property rights (Coasian) Establish rights to
  the use of the atmosphere as a waste sink (to
  polluters or pollutees?) and allow trade in those
  rights.