Making the Market Work for the Environment

As nation we face many environmental challenges, arguably the greatest is to get markets working for the environment.

Environmental policy has long been dominated by an anti-market ideology, which sees markets, private ownership and commercial use as the problem.  Accordingly, the focus has been on government ownership, top-down regulations and restrictions on commercial activity.

Thankfully, a more pragmatic approach is gaining influence in policy circles.  One which attempts to use markets to advance environmental ends.

A recent series of research papers by the Productivity Commission highlights many of these initiatives and proposes some necessary reforms.

In truth there have been cells of enlightened people beavering away around the nation for some time.  For example, in the early 1990s faced with a plague of rogue crocodiles, the Northern Territory Government decided to auction the right to kill some of these beast to wealthy hunters with the proceeds going to research.  It was highly controversial but also high sensible and effective.  Similarly in the mid 1990s the Department of Conservation in WA auctioned the right to capture and breed a rare desert parrot with the money going to further research.  Again controversy followed, but so did the successful breeding of an endanger bird

Closer to home, the Victorian Government has recently initiated a scheme to contract-out biodiversity conservation.  Under the scheme, known as the BushTender, private landowners can make a bid to protect native vegetation.  If the bid is competitive on the basis of cost, service and the conservation value of site the government will provide the money.  This should not only provide value for conservation dollar but give a direct inventive to more farmers to be conservationists.

The most extensive adoptions of the new approach has taken place in water conservation.  Across the country, governments and irrigation authorities are shifting away from the old system of water allocation based on open-end, un-priced water entitlements tied to land ownership to a system of water markets.  Under the new system rights to water are limited in quantity and time, priced, tradeable and separable for land ownership.  In some systems such as in the Hunter Valley in NSW, the water trading system includes a salinity discharge component.

One of the most innovative example of private enterprise conservation is Earth Sanctuaries Ltd.  It is a listed company whose primary goal is wildlife conservation.  It operates by acquiring land, erecting vermin-proof fencing, removing feral animals, regenerating native vegetation and introducing native species.  Its funding comes from charges to view native animals and from the sale of accommodation, food and souvenirs.

The market-based approach, however, faces a number of major hurdles.  First, it faces strong resistance from the ideologies in the "environmental movement".  Second, the approach inevitably involves putting a monetary values on things that in the past were free and therefore gives rise to the difficult issues of compensation.  Third, private conservationist face a decidedly unlevel playing field with the tax, regulations, and subsidies tilted in favour of government provisioning.  Indeed this week Earth Sanctuaries announced major cuts to its activities this week in part from competition from free, untaxed and highly subsidies government operations.

Nonetheless governments appear to at least recognise these hurdle and some are actually trying to reduce them.

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