The Uses and Value of National Parks: Does More Mean Worse?

Backgrounder

Conservation is not simply a matter of setting aside areas for special protection ... [it] requires that we all protect and preserve this heritage ... .

-- Bob Debus, NSW Minister for the Environment, State of the Parks, 2001 ⁽¹⁾

INTRODUCTION

Setting aside land or water for a park is only the first step in a perpetual trust undertaken by the whole community.  But when the decision is made to set aside and the activists depart and the forest falls silent, that is often the last that the general public hears of the park.

It is doubtful that most citizens could name more than a handful of parks, and many are visited only by the few.  The pressure to set aside land in parks is often exerted intensively on a quite narrow political front.  This pressure has been accommodated relatively painlessly in the short term in NSW and other States and Territories, largely by converting existing public forest estate and other Crown or leasehold land.  Accomplishing the objectives behind the set-aside is much harder and more continuously expensive.

The transfer of land to parks has been massive.  The land management task has grown in proportion.  The task is aggravated because parks are not just places on a map but also intellectual and emotional entities.  They are invested with the ideas of the community, scientists, environmentalists, recreational bodies, commercial enterprises, educators and many more.  From many points of view, they are what people think they are -- they are subjective.

Given the sheer size of the real estate involved, we ought to look beyond the idealised views and seek to know more about the function that parks perform and how well they are managed to do this.  We need to examine whether there is a mismatch between our expectations of the park system and the resources we are prepared to apply to it.  And, if there is a mismatch, what the different approaches to park management are that would allow us to better match the two.  These approaches could involve lowering expectations and providing more finance.  They could also involve more diverse use of parks than occurs now.

This Backgrounder focuses mainly on NSW, but the parks systems of all States and Territories are subject to the same ongoing debate.  The main themes are nationally relevant.

THERE IS NO SINGLE PARKS CONCEPT

Almost everyone would agree that parks are a good idea.  We all want to preserve beautiful landscapes.  Our enthusiasm for parks is reflected in their cumulative area and rapid rate of growth (see Chart 1).

There are now close to 670 Protected Areas in New South Wales (referred to as parks here for convenience).  They include National Parks, Nature Reserves, Conservation Areas and other reserves.  They cover 6 million hectares of land and 263,000 marine hectares.  Nearly half the NSW coast is in parks.  Most are managed by the National Parks and Wildlife Service (NPWS) within the Department of Environment and Conservation (DEC). Chart 1 shows the growth in NSW protected areas in recent years.  There has been a 50 per cent increase in park area since 1995 and a sixfold increase since 1970.  Parks comprise 7.5 per cent of the State.  The number of parks has doubled since the mid-1990s and increased from 88 to more than 650 since 1970. Chart 1:  Reserve Area GrowthSource:  NSW Auditor-General, Performance Audit -- Managing Natural and Cultural Heritage in Parks and Reserves, June 2004.

But the reasons behind the enthusiasm can differ sharply.

At one extreme, motocross drivers and downhill skiers want to tear through parks at high speed.  They need open space.  They use parks principally as a means to pursue highly specific activities.  They are more interested in the landforms and weather conditions than the detail of vegetation or fauna.  They are at the extreme "parks as sporting facilities" end of the spectrum.

At the other extreme, environmentalists and scientists may want to severely limit human activity over large areas, to preserve them in their so-called "pristine" state.  For environmentalists, this may simply be for preservation of unique environmental features.  Or it may be one plank of a broader philosophy that seeks to persuade society to turn away from material consumption towards what is seen as a more sustainable pattern of human activity.  For scientists, there is the opportunity to study diverse ecosystems relatively undisturbed by modern human activity.

Official policy gives primacy to conservation.  The succinct purpose, as stated in the NSW Budget papers, is "To protect biodiversity and cultural heritage. ..." ⁽²⁾  The National Parks and Wildlife Service (NPWS) 2001 State of the Parks document goes into the detail of this preservation function.  It then adds a reference to social and economic drivers (the human dimension).  The NSW Department of Environment and Conservation "Living Parks" publication ⁽³⁾ makes clear the conservation priority.  Human visitation must be "sustainable and culturally appropriate".

The bulk of the general public is blissfully unaware of these definitional refinements and, if asked, might not accept either extreme.  It generally objects to loud, intrusive activities in parks and might well be unhappy at the creation of "private" domains accessible only to self-selected groups of environmentalists or scientists.  In practice, seriously intrusive recreational activities are restricted and, depending on their level of fitness and interest, people can go almost anywhere they want in parks.  This allows for extensive park use for walking, cycling, camping, barbecuing, cross country skiing, swimming, canoeing and just standing around looking.

So the idea that parks are areas that are, or can be, preserved entirely in their natural state is no more valid than that they are, or should be, "open go".  "Pristine", incidentally, is now one of the most debased words in the language.  Virtually all Australian landscapes have been modified, often dramatically, by the action of the Aborigines who predated European settlement, the after-effects of their disappearance from large areas and the activities of the settlers that followed.  Then there are the often-dramatic natural processes of landscape modification brought about by climate, fire and other natural disturbances.  It is perhaps time that we reassessed the balance of park philosophy and were realistic about the inevitability of change.

WE LOVE OUR PARKS

Whatever the reason, there is no doubt of the wide appeal of our parks.

The real and practical expression of support for parks is by those who make the effort to go to them.  There are estimated to be around 21 million visits to NSW parks each year. ⁽⁴⁾  This is almost a quarter of the total visits to all Australian parks.  Most visitors are Australian and most of them are from within the State.  The visitation estimates are not entirely reliable and are possibly on the low side.

Visitation is highly concentrated geographically.  An estimated 3 million visit the Blue Mountains and one can wager that the majority don't stray far from the Three Sisters viewing area.  Jenolan Caves host one quarter of a million in a few hectares.  Likewise, Kosciusko National Park has visitation of over 1 million, but mainly concentrated in the 1 per cent of the park comprising the alpine resort areas.

This highly concentrated pattern of visits suggests a lot of unvisited park elsewhere.

Even aside from this, we should not exaggerate the broader economic and social importance of total park visitation.  It does not loom large in the overall figures for tourism.  Table 1 and 2 contain extracts of data collected by the Bureau of Tourism Research for Tourism NSW.  The Blue Mountains area is included as principally a park area.  The Hunter is mainly a commercial resort area.  The Snowy Mountains and North and South coastal areas have mixed use with a heavy sporting component and beach component respectively.  The Outback is a very low visitation area and Sydney is the tourism powerhouse with small areas of park.

Table 1:  Domestic and overseas visitors, 2002-3

	Blue Mountains	Hunter	Outback	Snowy Mountains	North and South Coast	Sydney	Total NSW
Domestic overnight visitors ("000)	668	2128	562	568	6254	8335	27275
Domestic visitor nights ("000)	1359	5671	1916	2188	24925	23382	93053
Average length of stay (nights)	2	2.7	3.4	3.9	4	2.8	3.4
Day trips ('000)	2004	4967	371	394	5204	17374	49876
International visitors ('000)	63	92	12	16	213	2337	2427
International visitor nights ('000)	366	1520	53	106	912	36090	43080
Average length of stay (nights)	5.8	16.9	4.4	6.7	4.3	15.3	17.8

Table 2:  Purpose of Visits by Domestic Visitors (%)

	Blue Mountains	Hunter	Outback	Snowy Mountains	North and South Coast	Sydney	Total NSW
Bushwalking, visiting park or garden	37	10	10	21	16	4	12
General sightseeing	38	24	30	24	35	25	30
Shopping for pleasure	18	17	14	11	26	30	25
Sport	5	13	13	25	24	5	14
Beach	-	13	-	-	48	10	22
Other	71	87	58	61	76	96	84

Source:  Bureau of Tourism, Research for Tourism New South Wales

The figures speak for themselves but it is worth noting that:

• The Blue Mountains draws about 2 per cent of total NSW tourist time (measured by day trips and nights stayed) and less than one per cent of international visitor time, despite its world heritage status and relative proximity to Sydney.
• This compares with 6.6 per cent for the Hunter, 1.3 per cent for the Outback, 1.5 per cent for the Snowies and 42 per cent for Sydney (which includes 84 per cent of international visitation).
• The two most well-known park areas (Blue Mountains and Snowies) together draw only 3.5 per cent of total tourist time and 1 per cent of international visitor time.
• This figure is roughly halved if we count only those visits to these two areas made specifically for the purpose of visiting parks and for sightseeing (people visit all these areas for diverse purposes, such as visiting relatives and friends, eating out, etc.).
• Visits to the Coastal Areas may have a strong parks element in the sightseeing and beach categories, but this is conditioned by the seaside holiday motive, and focuses on the narrow strip of sand by the water rather than forests, wetlands and coastal ranges.
• More people apparently go to the Outback to shop than specifically to visit parks.
• The active users of the parks (bushwalkers, campers, etc., rather than sightseers) would be a (varying) fraction of all the totals.

Overall, 12 per cent of Australian tourist visits in NSW are to a national park, a significant but not overwhelming number considering the size, distribution, public profile and functions of parks.

Parks are also there to be studied and researched, and countless papers of a scientific, educational and operational kind are in continuous production.  Many are no doubt of value in adding to the store of theoretical and useful knowledge.  Some seem to be political hobbyhorses and of doubtful value.

In the dimension outside of actual visits, parks seem to act as a sort of psychological security blanket for our predominantly urban population.  After all, 21 million visits are equivalent to about 3 visits per head of NSW population per year to any of the 650 parks.  So many will not visit at all.  But they like the idea of that large parks domain.  It is the idea as much as regular use that provides powerful political support for campaigns to increase the protected areas.  It is an open question whether this idea is matched by the reality.

BUT WE DO NOT KNOW HOW TO VALUE PARKS

None of the above provides a measure of the value of our parks.  In this, we do not mean just the financial or potential resource value, but the broader utility postulated in welfare economics.  This embraces all the values individuals ascribe to parks, some of which are subjective and hard to measure.

In the NPWS June 2003 financial statements, the value of the land (at "fair value") was close to $1.3 billion. ⁽⁵⁾  This seems modest for (then) 7 per cent of the State.  It is approximately $200 per hectare.  As undeveloped real estate, it would be a multiple of this.  As State forest, it would be at least three times this value.  The value in almost any conceivable alternative use would be several times this figure and, in some uses, would be many times.  Even though we have made the decision to quarantine most of the park areas from agricultural, forestry, development and other uses, it would surely be sensible to reveal the value of the asset in some of those uses or in mixed use.  This would indicate the opportunity cost of parks to the people of NSW.

The full value ascribed to its current use as park, rather than its "fair value", should also be estimated.  This would illuminate the decisions to create new parks.  It would allow reassessment of existing parks to take account of the inevitable process of change in factors such as scientific value, degradation and usage.  Valuation of amenity, environment, scientific inquiry and so forth would be legitimate (though difficult to measure) and subject to wide disagreement.  On the other hand, insofar as the land transferred was State forest, many of the environmental values had been and would be preserved anyway and scientific inquiry and public access were already encouraged.  In effect, the change to park might be no more than a rebadging of land, with banning of resource use and a reduced budget for maintenance and access.  Is this a net gain in value?

Yet it is the intangible values rather than simple real estate that drive the creation of parks and they should not be left unquestioned or subject to simple assertion.  It would be interesting to know how much individuals would be prepared to pay for these uses.  We assert below that they do not seem even to be willing to pay for normal upkeep through the agency of government.

Because we do not place a clear value on parks, it is difficult to measure them against alternative uses.  Thus, individual decisions to extend parks are often grounded in highly specific references to a few animal and/or plant species or physical features or biodiverse ecologies.  They are acts of faith to some degree and difficult to assess, let alone contest.  This is compounded by the lack of comprehensive data either on trends in the condition of parks or how well we look after them (see below).  Given that decisions to lock away land in this way have been virtually irrevocable, this is a serious deficiency.

AND PARKS DON'T COME FREE

Care of parks became much more demanding and costly over the 1980s and 1990s and this trend continues.

In part, this is due to the massive increase in size and geographical spread of the parks.  We are a long way from the 15,000 hectares of the first park (Royal) and the spread is now from the Strezlecki Desert in the remote North West to the Cape Howe dunes on the far South coast.

The size and spread is compounded by a comparable increase in diversity of landscapes and complexity of ecologies contained in parks.  Coastal, forest, grassland, alpine, bush and desert all require different management and care.

Added to this is the need to regulate and provide for increasing visitation, particularly in the most popular areas.  Without amenities, the public will loudly complain -- even as they heavily degrade their favourite places.

Perhaps most important is the cultural shift from acceptance of relatively straightforward park oversight and care to a demand for detailed management of the totality of the greatly expanded park environment.  It has enormous implications.  It involves gaining a much more intimate knowledge of all aspects of the parks' ecologies.  It requires intricate planning to manage those ecologies.  It demands extensive expert and physical resources to put the plans into continuous action within an increasingly restrictive regulatory regime.  Finally, it demands a continuous campaign of information and education to explain and justify parks.  Currently, these demands are more stated than met.

Then there are the opportunity costs.  Once a park has been locked up, these costs are usually forgotten but they continue to be incurred year by year.  To the extent that Australia depends upon use of natural resources, we deny ourselves forever the potential locked up.  It is worth looking at a few examples.

Perhaps the clearest Australian example of this near-sightedness was the decision in 1989 to ban a potentially rich mining development at Coronation Hill in a few relatively barren hectares of the 1.3 million hectares of Kakadu National Park in the Northern Territory.

In Queensland, the Government proposes to clone the existing Regional Forest Agreement to cover a million hectares of the western hardwoods region.  This will close down the local timber industry (which has been operating sustainably in the area) with uncertain environmental benefits.

A current NSW example is the pressure to declare the Pilliga State forest area as park and cease all forestry operations.  There is already a large area of park (80,000 ha) adjacent to the area.  The Pilliga forest has a viable, sustainable timber industry based mainly on the extraction of cypress pine for use as a building material.  Conversion to park would destroy an important part of the local economy and increase pressure to import timber.  A side-effect would be that the forest would gradually convert to thick scrub rather than the pre-European open woodland created by indigenous fire regimes.  It would periodically burn in large swathes, releasing huge quantities of greenhouse gases instead of locking the carbon up as timber in buildings.

A further example is the pressure to limit, and ultimately ban, the gathering of firewood.  The NSW National Parks Association (NPA), which disapproves of this use, estimates it at 1 million tonnes per annum. ⁽⁶⁾  The use of firewood is minuscule and highly efficient in terms of extraction and distribution costs.  One million tonnes is a tiny fraction of that burned in regular bushfires and much of it would probably burn in this way if not extracted.  This appears to be a non-problem imported from the Third World, where burning the forests for domestic fuel is a major cause of deforestation.

Incidentally, there is no attempt to measure, or account for, the ecological costs of major wildfires in parks.

Parks are not a free good.  They confer benefits and incur direct and opportunity costs.  There is no reason why we should not examine ways to increase the former and reduce the latter.

WE DON'T TREAT OUR PARKS WELL

The available evidence on the state of parks varies from incomplete to sketchy.  A new document on this matter is to be produced soon.  It will be interesting to see how comprehensive is the quantitative data on matters such as threatened species, pests, erosion and destruction by wildfire.

The available evidence suggests three things.  First, we don't have the data to make a sound judgement on the health of the parks.  Second, the evidence we do have suggests that all is not well.  Third, the NSW Government is not applying the resources required either to get the data or fulfil the land-management task.  This is not necessarily to criticise the parks service itself, which might well perform differently in more favourable financial circumstances.

DATA DEFICIENCY

In his 2004 performance audit of management of parks, ⁽⁷⁾ the NSW Auditor-General noted that that the parks service had yet to develop an adequate information base to measure its success.  Nor had it defined what would constitute success.  At the disaggregated level, park plans of management do not focus on performance indicators or include timeframes.  He concluded that the parks service could not judge its progress in conserving our natural and cultural heritage.  In measured Audit-speak this indicates a considerable planning and operational deficiency.

The difficulty with lack of data is not just that we don't know the size or gravity of the problems, but we also don't know whether they are growing or declining.  Parks are living entities and pests aren't a static quantity sitting waiting to be measured.  They spread.  The parks service undertakes control programmes and can measure their success in specific cases, such as killing foxes or removing bitou bush in specific areas.  These efforts are limited in time and space.  They tell us where and if the skirmishes are won but not the state of the war.

ALL IS NOT WELL

We do not know in detail what the state of the parks is, but there are disturbing indications that all is not well.  It is perhaps a little unfair to recount the litany of pest fauna that infest the parks.  But the foxes, dogs, pigs, goats, cattle, rats, cats, deer, horses, rabbits, hares, donkeys, camels, cane toads, feral bees and crazy ants are all present threats.  A similar list, headed by bitou bush, blackberry and lantana, could be made out for weeds.  This is not to mention uncontrollable wildfires or less obvious detriments such as theft of species and bush rocks.

There are some, more specific indicators:

• We know that 900 km of the coast is infested with bitou bush -- a 30 per cent increase since 1981.
• The 2002 Report by English and Chapple on management of feral animals in parks noted that "feral animals remain abundant" and that "the enormity of the task faced by the NWPS must be acknowledged". ⁽⁸⁾
• The National Parks Association has proposed a $40 million inter-agency programme to tackle pests.
• We know that one-quarter of the parks burned in the 2002 and 2003 fire seasons.  The limited fire-fighting resources were concentrated on saving life and property.  The environmental losses were enormous.
• The parks service has failed to prepare all the recovery plans under the Threatened Species Act.  The Act prescribes the required recovery task, which grows annually as new species are listed.
• The NSW Auditor-General referred to a substantial and growing deferred maintenance liability in the parks and noted the backlog in preparation of park management plans.
• Allocation of resources seems to be skewed.  In 2002-03, 23 per cent was allocated to assessment and planning, 33 per cent to management and 44 per cent to facilitation (presumably, doing the job).
• The 2002-03 employee statistics showed that 52 per cent were management, clerical and researchers, and 28 per cent were field officers.  No doubt the latter also have much paperwork.
• They also spend much of their time on visitors -- hence 90 per cent of fines collected were for traffic and parking violations rather than offences against the environment.

In some respects the parks service is placed in an impossible position by the clash of conflicting interests.  A successful performance in tourism, for example a new road, might be regarded as a disaster by environmentalists.  The Auditor-General referred to an "elaborate web of legal, policy and stakeholder accountabilities".  Reconciling these conflicts is a time-consuming task, doomed to fail.  The conflicting parties have no incentive to agree.

Operational deficiencies can be created artificially.  The micro-managing obsession of the NSW Government has given rise to a massively complex array of legislation and regulations relating to flora, fauna, land, water, fire, pests, roads, buildings, campsites and much more.  One small example is the narrowing of the window allowed for fire hazard reduction -- this when the demand for reduced fire risk is priority, when $50 million was spent fighting fires in the last emergency, and $23.5 million insurance is paid to cover the risk.

The weight and complexity of regulation places unrealistic demands on the parks service.  Failure to comply with unrealistic demands is not necessarily a sign of overall failure.  Nevertheless, the evidence is that all is not well.

RESOURCES ARE INADEQUATE

The Auditor-General commented that for the past six years the government had provided only half of the funds sought for management of new reserves.  Of course, agencies routinely do not get all the money they ask for, but they generally get more than half.  And if the parks service has been honest in its assessment of need (and there is no reason to think otherwise), then the deficiency of development and maintenance on the 1.5 million new hectares of park created in that period would be very large and accumulating.  The growth in the NPWS current budget lends support to the hypothesis of initially strong support for the increasing park area but a levelling, if not a decline, of real financial support in the latest years (see Chart 2).  If we look at the human resources applied for the latest year for which statistics are published (2002-2003), we find that there is a ratio of 22,700 hectares of park for each park ranger.  The rangers are the key professionals in the field.  Two hundred and sixty rangers to supervise 7.5 per cent of the State does not seem adequate.  When we take account of the concentration of rangers shepherding visitors in the busier places, the ratio of area to officer would be much higher.  The ratio of rangers to visitors is in excess of one to 80,000.  In recent years, the number of rangers and support staff in the field has levelled off as the parks have continued to grow.

Chart 2:  Growth in Service Recurrent Budget (real terms)Source:  NSW Auditor-General, Performance Audit -- Managing Natural and Cultural Heritage in Parks and Reserves, June 2004.

The tourism industry has no doubts about the state of park financing.  The Tourism and Transport Forum concluded in 2004 that "The findings make it clear that there is a funding crisis for parks and Protected Areas. ..." and "... most parks have insufficient funds to carry out both natural resource management and visitor infrastructure management simultaneously ..." ⁽⁹⁾

Similarly, the Commonwealth Department of Industry, Tourism and Resources has asserted that "Funding to park management agencies is insufficient to meet all expectations for conservation and visitor infrastructure". ⁽¹⁰⁾

These conclusions must be tempered by the knowledge that there is a sectoral bias in them.  Also, we won't ever meet all expectations for parks.  Excessive expectations are a problem in themselves.  Nevertheless, the tourism industry sees a genuine and substantial gap between current park performance and the necessary minimum.  It also sees an enormous, untapped tourism potential.  Nor is the industry simply rent-seeking.  It proposes public/private sector partnerships to overcome some of the deficiencies.

Comment from the parks service itself is naturally circumspect.  In the more open climate of the early 1980s, the service was stating that "... many Service areas managers are called upon to accept more responsibilities while being faced with inadequate resources ..." ⁽¹¹⁾  It would be interesting to take a confidential poll today.  It is likely that exactly the same comment would be made.  And the currently straitened NSW State budget is likely to yield fewer rather than more resources to parks in the period ahead.

The biggest cost drivers in parks are fire, pests and infrastructure.  In other words, they are either controlling pressing problems or satisfying the demand for human activities.

If we really believed in our parks, they would have much more human and material resources applied to them.  The $294 million applied to parks in 2004-05 ⁽¹²⁾ seems large, but the task is on an even larger scale.  Parks are the victim of the same self-defeating process affecting so many State government programmes.  This involves a sequence of over-ambitious governments over-promising to the public and over-committing limited budget resources.  In the end, nothing is done well and band-aids are applied to the most serious wounds.  Unfortunately for parks, their neglect becomes apparent only in intermittent spectacular fires and the gradual deterioration of the park lands.

DO WE NEED ANY MORE PARKS?

There is continuing, automatic political pressure to expand the number and extent of parks.

Ignoring for the moment the facts that we are running out of State forest areas, that we don't want to fund parks properly, that they are not overused and that there are private substitutes for them, is there a case for further significant expansion of parks?

The National Parks Association targets were for 10 per cent of the State to be reserved by 2003, 15 per cent by 2005 and 20 per cent by 2013. ⁽¹³⁾  This is impossibly ambitious.  Even to get to 10 per cent from where we are now would require 5 new Kosciusko-sized parks.

The Association would also like stronger conservation controls over other Crown land and private land.  Virtually all environmental groups favour expansion of parks and more controls over private land and they campaign more or less continuously for both.

The National Strategy for the Conservation of Biological Diversity (1996) proposed a system of voluntary reserves on private land to complement the park system.  Other schemes are for a continuous protected area stretching the length of the Great Dividing Range from Victoria to Queensland.  There is even a grand national plan by the Wilderness Society -- the WildCountry project. ⁽¹⁴⁾  For the more extreme groups, only a virtual return to nature would satisfy, implying a very large park estate.

From a not too extreme environmentalist point of view, it is possible to justify significantly greater expansion of the parks and control of private property for many reasons -- to protect threatened species, preserve habitat, enlarge riparian zones and so forth.  To provide areas representative of all ecological types and areas in the State could justify almost indefinite expansion of protected areas.  Much of the State could be argued to be ecologically unique.  Provision of "adequate" wildlife corridors implies quarantining large swathes of private property.  But such classifications are arbitrary in the end.  NSW already plans protection for 15 per cent of all ecosystem types (whatever they are) when international agreement prescribes only 10 per cent.

In practice, the narrow front political pressure tactics applied generally work.  The guerrilla forces of the Green movement have been able to defeat an immobile government tactically.  And politicians like to surrender;  they like to declare parks, especially if the land can be transferred relatively painlessly.  So there has been a rapid, substantial expansion in park areas as shown in Chart 1.

The counter to this inexorable process (founded on an almost automatic case for more parks) is to identify a point to stop.  This is always difficult when faced with the next pressing case for conservation of yet another threatened area/species.  But there are some persuasive arguments to suggest we are close to a reasonable level.

7.5 per cent of NSW is a large area and a large proportion.  It is not as representative as some would like but, as mentioned, if a fine enough filter were applied to representativeness, we could lock up a good proportion of the State.

Furthermore, we are clearly not willing to force government to apply the necessary level of resources to the existing protected area, which suggests that there is a strict limit on the value we place on more parks, which in turn weakens the case for further expansion.

Also, the parks system is also now complemented in several ways.  There are 2.3 million hectares of wildlife refuges on private land.  There are voluntary conservation agreements covering 1.7 million hectares.  There are significant areas reserved for indigenous people.  The counterpart of increasing the park area is that State forests have been reduced to a fraction of their original size, so the area of native vegetation available for commercial timber operation is now a fraction of what it was.

Perhaps the most dramatic change has been brought about by the regulation of broadscale clearing enforced in all States in the last ten years.  Table 3 shows the steep decline in broadscale clearing.  With Queensland legislation due to take effect next year, the rate of clearing will be reduced to a small magnitude there.  Significant broadscale clearing is virtually at an end in Australia (except for the large areas regularly cleared by wildfire).  In NSW, this state of affairs is reinforced by the Government's failure to provide a regime for private native forestry.

Table 3:  Indicative rates of broadscale clearing

	Period	Hectares per year
NSW	1980-1990	100,000
	1991-1995	50,000
	1995-1997	30,000
	1997-2000	14,000
Victoria	1983-1988	10,438
	1989-2001	2,500
Queensland	1980-1990	297,560
	1991-1999	330,555
	1999-2000	758,000
	2000-2001	378,000
Western Australia	1983-1993	26,028
	1994-2001	3,500
South Australia	1983-1993	11,630
	1996-2002	2,060
Tasmania	1983-1993	6,000
	2000-2002	1,500
Northern Territory	1983-1993	16,280
	1995-1999	1

Source:  Productivity Commission Report of Inquiry into Impacts of Native Vegetation and Biodiversity Regulation 2004

The implication is not just that the area of protected native vegetation on private land will cease to decline.  It is highly likely that it will "regrow" and thicken in regulated zones including over approximately 60 million hectares in SW Queensland. ⁽¹⁵⁾  This propensity is reinforced by the array of other legislation enacted over recent years designed specifically to protect native vegetation, threatened and endangered fauna and flora, riparian zones, steep slopes, wetlands and other environmental imperatives.  All tend to transform private land into quasi-parks and to force private landowners to fund public environmental objectives.

Some of this legislation is absurd and unadministrable, as we have pointed out to the Productivity Commission Inquiry into the regulation of native vegetation. ⁽¹⁶⁾  It will nevertheless tend to extend the protected domain into private, rural lands.  It will also tend to increase the (private) resources applied to conservation on those lands as private landholders struggle to comply with the regulations.  Incidentally, there is something of an irony in the attempt by the NSW Government to apply Property Vegetation Plans to the thousands of private rural properties when it has yet to apply them in national parks.

Taking a broader view, the international statistics (OECD) show Australia (with NSW at the Australian average) comparing well. ⁽¹⁷⁾  Table 4 shows the percentage of total land mass in protected areas for a selection of countries.  For its geographical area, Australia has a comparatively large park area.  (It would compare even better if the Great Barrier Reef Marine Park were included.)  But if we look at the percentage of protected area in the higher categories -- wilderness and national park as opposed to multiple-use zones -- or the hectares per head of population, then Australia (and NSW) excels.

Table 4:  Major protected areas, late 1990s

	Total size (square km)	Percentage of national territory	Hectares per 1000 people	Proportion in most highly protected categories (%)
Canada	953103	9.6	3178	45
USA	1988444	21.2	742	33
New Zealand	63338	23.5	1684	70
France	55723	10.1	96	8
Sweden	36547	8.1	413	56
Australia	597528	7.7	3226	78
OECD	4318584	12.4	392	40
World	13232275	9.9	227	45

Source:  OECD Environmental Data - Compendium 2002

Incidentally, other OECD data show Australia also comparing well in wetland reservation, forest harvesting, freshwater extraction and the proportion of species under threat.  This not only reinforces the case that we have sufficient protected area but that we are far from being the environmental vandals we are often portrayed to be.

What we have done, so far, is to increase the quantity of protected area.  The focus now should be on quality, on improving what we have got.  That will require a lot more thought than simply creating new parks.  Not only do we have no idea of what environmental outcomes we want in our parks (or for the State generally) but we have yet to accept that, whatever we want, the constantly changing environment will give us something different.

PARKS AND CONSERVATION

Questions about the size and management of parks are intertwined with the broader issue of conservation in NSW.  The creation of new parks is the clearest expression of conservation policy -- the appropriation and quarantining of areas of the State to preserve them.  Equally important is the large and growing body of regulation designed to effect conservation on private land referred to above.

This broad push to conserve immobilises more-or-less productive land and resources.  The push, by definition, mainly comes from those who do not make their living from the land that is being locked away.

The whole conservation process is reinforced by the enormous, detailed scientific effort being expended on investigating minute ecological relationships.  These "fine filter" studies of threatened species and threats to the environment help to create a climate of apprehension while at the same time generating a host of impossibly complex and onerous environmental management and recovery plans.  We have turned scientists into land managers -- a task for which they are unqualified and for which they need accept no responsibility for mistakes.

The result is a strategy of "more park is better" and "do less in the parks".  This approach is incompatible with sensible land management on either public or private land.  Perhaps for this reason, the private land manager is often "consulted" but has little influence in the policy formulation process.

A corollary is that we do not have a clear idea whether the current policies are the best, either economically or ecologically, for the State.  It may be that there are alternatives to the "more is better", "do less" strategies that would achieve most of the conservation aims at the same time as providing for a wider range of goods and services.

And there is a degree of hypocrisy here.  By far the biggest environmental impacts in NSW are generated by our cities and urban dwellers.  They are the source of most emissions and wastes.  They consume large quantities of energy and mined resources.  As reported recently, rising electricity consumption and increased motor vehicle use will increase NSW greenhouse gas emissions. ⁽¹⁸⁾

While supporting closure of sustainable Australian native forests, we import quantities of rainforest timber from Indonesia, the Philippines and Thailand.  At best, this is a double standard.  Even within its own (admittedly flawed) reasoning, it is adversely affecting the environment of poor countries in order to preserve our own.

We are an ambivalent society in this respect.  We support substantial expansion of parks to improve the environment, but reject much more important changes that might affect our personal behaviour and circumstances.

THINK OUTSIDE THE SQUARE -- WE NEED A NEW MODEL

It is clear that parks need more resources applied simply to do the basic environmental and recreational tasks.  They need even more to perform the enhanced and expanded duties imposed on them.

Aside from considerations of how well the current job is done, we have reached a stage where we can rethink both the use of parks and the complementary role of private conservation.  Instead of expanding the park area, we should make better use of the parks we have.

USE OF PARKS

The NSW tourism industry has offered a vision with much increased visitation to parks through what it describes as nature-based tourism.  There is evidence that Australians are overwhelmingly positive about international tourism.  We still draw only one per cent of world visitors, but this sustains over 300,000 jobs.  Expansion of visitation to parks will require active partnerships with the tourism industry and simpler regulation of planning permission and permits.  It will require more and better facilities.  It will press hard on the parks definition of "sustainable and culturally appropriate" visitation. ⁽¹⁹⁾  But it might well provide additional resources not just for tourism but also for the general budget of the parks.

In the same vein, the parks service could consider more effective charges for use of parks.  For example, it would be fair to charge more heavily those making really extensive use of the parks, through walking and camping in remote and "pristine" areas, as opposed to those using the more intensively visited and commercially supported places.  Equally, if the parks have great scientific value, some of their costs might be borne by the scientific bodies that currently make use of them.  The costs of locking up and maintaining parks are high and those that advocate and use them would presumably be willing to pay part of their cost.  This would still leave much of the cost with non-users through the State budget.

There are good arguments for increasing the resource use of parks.  This already occurs on a large scale in Kosciusko and the Blue Mountains with the harvesting of water.  With the growth of Sydney, this call on water resources is likely to increase.

With appropriate safeguards, there is also a case for selective forest operations.  This would no doubt generate cries of outrage.  It is conveniently forgotten that most of the park estate was once public forest.  It was maintained over many decades and continuously regenerated in a sufficiently good condition to qualify ultimately as park -- in some cases, even as old growth forest.  Indeed, we wonder whether the declaration of parks has done much more than ban sustainable resource use and reassigned the areas for neglect.  Extraction of timber on modern principles would extend effective management of the parks' forests.  It might help fund fire access trails (the Barrington Tops access road was originally a forest trail).  It would be a preferable alternative to the complete destruction of habitat and standing timber following major wildfires.  It might also partially substitute for the expensive and often ecologically suspect timber we import.

It is worth noting that Tanzania, with 25 per cent of its land in protected areas, makes ten times more revenue from the 10 per cent of tourists that are hunters than from the other 90 per cent. ⁽²⁰⁾  Perhaps we could make a virtue of necessity by allowing more liberal permits to hunt for pest or abundant species.

Grazing in parks has been the subject of much dispute.  It could be worth examining the potential for limited agistment of animals outside of the more sensitive park areas.  This activity was carried on for generations in the previous forest areas.  There may even be benefits in the reduction of fuel levels.  The ecological and economic viability of agri-environmental schemes (much broader than grazing) is well recognised and extensively practised internationally. ⁽²¹⁾

Mining has always been an anathema to environmental groups both within and outside parks.  The environmental effect of mining operations can now be much better controlled than was historically the case.  For many mining operations, the required area of operations is relatively small.  Closing off such a large percentage of the prospective mineral resources of the State permanently makes no sense when, with modern methods, they could be utilised.

CO-OPERATION

The park service already attempts to consult with many "stakeholders".  There may be the potential for improved management through:

• more input from local/adjacent land holders -- this could extend the coverage of data on rare species and pests, advise on increases in fire risk and mobilise assistance in some basic tasks such as access and hazard reduction.
• mobilisation of community groups, such as bushwalkers and campers, to monitor and collect information on the quality of parks -- this could significantly extend the geographical range and the depth of data collection.

PRIVATE CONSERVATION

Australia has about 500 million hectares of private non-urban land of which NSW would have more than 60 million hectares.  The National Strategy for the Conservation of Biological Diversity (1996) aimed by 2005 to establish "a system of voluntary or co-operative reserves or both and other management schemes on private lands to complement the protection provided ... in (public) protected areas". ⁽²²⁾

The experience of private conservation has been mixed.  Some initially successful projects, such as Earth Sanctuaries in South Australia, have found it difficult to generate sufficient sustained tourism receipts.  This is consistent with the tourism data discussed above.  Wildlife refuges on private land are numerous and extensive (1.7 million hectares) but there is little data on their effectiveness.

In the end, the coercive nature of environmental legislation may enforce conservation of a distorted kind on private landholders.  But the obsessive micro-managing implied in individual Property Vegetation Plans envisaged in NSW is bound to fail.  Individual rural holdings cannot be fitted into some kind of State-wide planned ecology.

All this is a long way from the "application of appropriate economic and market based measures to support the conservation of terrestrial native biodiversity" envisaged by the National Heritage Trust. ⁽²³⁾  US experience has shown that a proper regulatory framework can encourage private conservation.  In NSW, there are large areas of private native vegetation, including forest, which the landholders show no signs of clearing.  A more flexible regime which encouraged sensitive use of these areas, including selective timber extraction, might well result in a permanent extension of the protected area on private property in only a slightly modified form.

CONCLUSIONS

The conclusion is not necessarily a massive increase in finance for the NPWS, much less a massive increase in park areas.  There is a case for some increase in the financing of the conservation mandate together with some rethinking of priorities.  We need to improve quality not increase quantity -- clean up rather than extend.

But it is clear that the main pressure now and in the future will be from managing human visitation/tourism.  Instead of providing more public finance for these purposes, the answer lies in wholehearted co-operation with the private sector.  This will encourage investment in the required facilities.  It will widen and deepen public support for the parks.

We recommend that this be effected by:

• More active partnership with the tourism industry.
• Revised charging for park use.
• Controlled mixed use of parks, including native forestry and grazing.
• Further encouragement of private conservation.

We have had a headlong expansion of parks in recent times.  There has been an almost desperate drive to lock away land and think about the full implications later.  Now is later.  We should now be grown-up enough to modify the purist vision of national parks as undisturbed natural systems.  They never were and never will be.

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ENDNOTES

1.  National Parks and Wildlife Service, State of the Parks, 2001.

2.  NSW Attorney-General and Minister for the Environment, 2004-05 Budget, June 2004.

3.  NSW Department of Environment and Conservation, "Living Parks -- A draft sustainable visitation strategy for NSW national parks", 2005.

4.  Ibid.

5.  NPWS, Annual Report, 2002-2003.

6.  National Parks Association (NPA), "Key Policies and Targets for Nature Conservation in NSW".

7.  NSW Auditor-General, Performance Audit -- Managing Natural and Cultural Heritage in Parks and Reserves, June 2004.

8.  A.W. English and Rosalie S. Chapple, A Report on the Management of Feral Animals by the New South Wales National Parks and Wildlife Service, 5 July 2002.

9.  Tourism and Transport Forum, A Natural Partnership, 2004.

10.  Department of Industry Tourism and Resources, "Pursuing Common Goals -- Opportunities for Conservation and Tourism", 2003.

11.  NPWS, Annual Report, 1979-80.

12.  Minister for the Environment, NSW State Government Budget Estimates 2004-05.

13.  NPA, op. cit.

14.  The Wilderness Society, "WildCountry -- A New Vision for Nature".

15.  W.H. Burrows, B.K. Henry, P.V. Back, M.B. Hoffmann, L.J. Tait, E.R. Anderson, N. Menke, T. Danaher, J.O. Carter and G.M McKeon, "Growth and carbon stock change in eucalypt woodlands in northeast Australia:  ecological and greenhouse sink implications", Global Change Biology, 8, pages 769-784, 2002.

16.  Our Submission and Final Report of the Productivity Commission Inquiry into Impacts of Native Vegetation and Biodiversity Regulation, 2003 and 2004.

17.  OECD, Key Environmental Indicators -- 2004, Paris, France.

18.  NSW Auditor-General Report on "Action for Air" as reported in Sydney Morning Herald, 7 April 2005.

19.  See note 3.

20.  IUCN, World Commission on Protected Areas -- Protected Areas Program -- Parks, 13, (1), 2003.

21.  Ibid., 13, (2), 2003.

22.  National Strategy for the Conservation of Biological Diversity, 1996.

23.  National Heritage Trust.

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OTHER REFERENCES

NPWS, Annual Reports, 1969 to 2002.

Department of Environment and Conservation, "Mount Kaputar National Park, Draft Plan of Management", 2004.

NPWS, "Draft Fire Management Plan -- Wollemi National Park", 2005.

National Parks and Wildlife Act 1974.

Great Barrier Reef threatened: so where is the evidence?

Over the past four decades, not a year has passed without news reports of dire threats to the Great Barrier Reef.  Some have been new threats, others old ones, refurbished or just reiterated.  Typically the source is presented as an "expert".  None of these prophesies of doom have materialised and the GBR has remained a vast and essentially pristine natural region.  Of the nearly 3,000 reefs in the GBR complex, only a few dozen are regularly visited, and even these have relatively sparse usage with detectable human effects being rare or trivial.

Not a single one of the thousands of species of reef creatures has been exterminated since European settlement.  Not one is endangered.  The commercial and recreational fishing harvest is less than 1 per cent of the rate sustained by a broad range of reefs elsewhere.  No harmful level of toxins, nutrients or other chemical pollutants has been detected on the reef.  Although claims are made of increased sedimentation due to human activity, the evidence for this is indirect and uncertain.  In any case such evidence is restricted to near-shore waters and even then there is no indication of increased turbidity between the uninhabited Cape York region and the more populated regions to the south.

The big problem for truth and reality in this regard is that the reef is inaccessible, it is underwater and it is vast.  Anyone can claim anything and who's to know differently?

With so many alleged experts asserting there are problems, why should anyone believe me if I disagree?  The fact is they should not, nor should they believe any other so-called experts either.  Proper science is not based on authority but solely on reason and evidence.  Its history is littered with examples of consensus being overturned by new ideas that better explain the evidence.  When alleged experts fail to address evidence, engage in contests over credentials, or impugn credibility on the basis of affiliation, this is not scientific debate but simply politics masquerading as science.

Another problem is bias.  Researchers, administrators, environmentalists, the media and politicians all have a vested interest in threats to the reef.  The GBR is a beloved national icon and threats to it are assured attention grabbers.  For researchers threats mean funding;  for administrators, increased authority and budgets;  to environmentalists, the appeal is possible donations;  for the media it is dramatic headlines;  politicians envisage popularity with voters;  and to everyone, it focuses public attention with an aura of urgent import.  "Saving" the reef has become a veritable eco-industry.

The best available evidence strongly indicates that the claimed threats simply do not exist.  Consider the following key points.

Over the past four decades tens of millions of dollars have been spent researching the coral-eating Crown-of-Thorns starfish but no credible human causation has ever been found.  Meanwhile the CoT continues to come and go and reefs recover.  CoT population outbreaks have also been reported from many other places all over the tropical Indian and Pacific Oceans, and likewise, no correlation with human activity has been indicated.  Many marine creatures (including the CoT starfish) produce hundreds of thousands, or even millions, of eggs per individual spawning female.  Small variations in larval survival and distribution can result in large fluctuations of population.  In such creatures, such fluctuations are common and perfectly natural.

There has never been a major oil spill in the GBR region.  The worst-ever oil spill occurred in the Persian Gulf during the 1991 Gulf War.  Despite initial claims of an unprecedented environmental catastrophe and no clean-up effort, the damage was short lasting and the effect on reefs minimal.

Fishery statistics for the GBR amount to an annual harvest of a miniscule 17 kg/km².  Elsewhere, over a wide range of Pacific reefs, the annual harvest averages some 7700 kg/Km² and these reefs are generally considered by fisheries biologists to be sustainably harvested.

Coral trout are the most heavily fished GBR reef species and the Great Barrier Reef Marine Park Authority has funded extensive surveys of their populations for over two decades.  These surveys show trout are abundant everywhere and there is little to no difference between the most frequently fished reefs near population centres and remote, rarely visited, ones, nor between reefs open to fishing and those closed to it.  They clearly indicate that even the most heavily fished species are in fact being only lightly harvested.  Remarkably, this exceptionally valuable body of information has never been published but exists only as unpublished reports in the GBR Authority library.

Another extensive, decade-long study on the effect of line-fishing independently concluded that under all future projections considered, coral trout populations would remain "robust".  And, no evidence was found that fishing had any detrimental effect on biodiversity or the ecological integrity of the broader reef community.

The repeated claims of threats and disasters to the GBR are simply untrue.  They stem from ignorance, misinformation and those who benefit from promoting the idea of problems.  The purported problems are all hypotheticals.  They are things that might be, or that are postulated as a possibility for some indeterminate future.  In reality they either cannot actually be demonstrated or are trivial and temporary.  The best way to see for oneself is to take an extended flight or boat cruise over the reef.  At any time in any region of the reef only occasional boats are to be seen.  The reality is that on most of the reef most of the time no human activity or influence can be seen or detected.  For all practical purposes, 90 per cent of the GBR is already a protected zone.

Provided the GBR is "saved," why should we care about whether or not the reasons given are fraudulent?  Isn't it better to err on the side of caution in protecting a unique and beautiful natural heritage?  Well, perhaps, if there was any real threat, and if the effect of our actions was indeed only beneficial.  But, in reality, neither is the case.  There may appear to be no financial or environmental cost to precautionary restrictions, but in fact there are very real though non-obvious costs.  Ecology, like economics, is by nature holistic, and not all effects are immediate or obvious.  A balanced, sustainable use of resources makes possible a healthy human ecology.  Unnecessary restrictions on particular resources only puts more pressure on others.  The recently imposed increase in restrictions on fishing and taxpayer subsidised downsizing of what was only a very small harvest to begin with, is a clear example.

When such a valuable local economic activity as fishing is restricted, the supermarkets of the area turn instead to selling mostly imported seafood.  First, therefore, there is a negative effect on the employment of those formerly working in the fishing industry, and on the local economy from which income must be removed to pay for the imports.  Second, the environmental impact does not disappear but is merely transferred elsewhere.  Generally, where substitute seafood is imported, the impact is added to the already overexploited marine resources elsewhere, often in underdeveloped countries.  It also has to be paid for by local economic activity which, whatever it may be, has its own environmental impacts.  It is remarkable that politicians can introduce restrictive legislation without first demonstrating they have fully comprehended and analysed the likely consequences.

Beyond the misuse of a valuable resource, the false claims of threats to the GBR also entail a broader and even more important problem, the misuse of science itself.  Modern environmentalism has become much more than simply a concern for a healthy environment.  It has developed into a peculiar quasi-religious blend of new-age nature worship, science, left-wing political activism and anti-profit economics.

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Moomba to Adelaide Pipeline System: Revocation of Coverage under the National Gas Code

Energy Forum Papers

SUMMARY

Once meaningful competition is in place, it is generally agreed that regulation should be removed.  Determining the nature of meaningful competition has been a contentious issue in the gas supply industry but regulatory appeal body decisions and reports by the Productivity Commission have brought clarification.

Over recent years we have seen two authoritative reviews of regulators' decisions and a policy framework for regulation of these facilities set out by the Productivity Commission's Review of the Gas Access Regime.  Together these three reviews establish a strong body of well documented and rigorously argued material that provides a guide to when regulators should revoke regulatory coverage or not seek it in the first place.  In the context of gas pipelines, the findings of the reviews are that regulation is not appropriate when there are two pipelines of comparable capacity serving the same market.

Although once considered to epitomise natural monopoly, in less than a decade during which the statutory protection enjoyed by most transmission pipelines has been overturned by national competition policy, some important natural gas transmission pipelines are now in rivalrous supply situations.  There are now two sets of pipelines serving Sydney and Adelaide, and Brisbane is also likely to see competitive provision.

Decisions of regulatory appeal bodies have largely eliminated regulatory coverage of the two pipelines serving Sydney.  The SEAgas pipeline from Victoria to Adelaide has not sought coverage and at the present time is fully contracted.  The SEAgas pipeline is comparably sized to its competitor, the Moomba to Adelaide Pipeline, which is seeking revocation of its own coverage.

In line with the precedence established by regulatory reviews and the informed analysis of such respected bodies as the Productivity Commission, the National Competition Council should agree to the application by Epic Energy to remove coverage of the Moomba to Adelaide Pipeline.

INTRODUCTORY COMMENTS

Australian gas pipelines, having been considered to be natural monopolies are now increasingly facing competition.  This is both for sources of gas (MAPS/MSP) and Gasnet/EGP) but more importantly for customers (EGP/MSP, SEAgas/MAPS). ⁽¹⁾  A further competitive injection will take place once the PNG Pipeline to Brisbane is committed.

Hence, of the major pipelines, only the Gasnet system and the Dampier Pipeline in Western Australia will in the near future be likely to have monopolistic market power features.  Even with these two pipelines there are significant competitive disciplines.  In the case of Gasnet, for example, as well as the opportunity of other pipeliners to build bypass pipelines, there is competition from the Moomba link and from the Otways and the Port Campbell storage facility.

This was not expected by the Hilmer report which offered gas pipelines as an example of a "natural monopoly".  The development of competitive provision calls for the regulatory authorities to adopt a changed conceptual framework in addressing the regulatory arrangements they set for the industry.

Under Part IIIA of the Trade Practices Act, owners of monopoly infrastructure services like gas pipelines were required to grant access to allow third parties to transport their own product over the network.  Access to infrastructure facilities can be brought about in three ways.

• First by having "the Designated Minister or any other person" apply to the NCC to have a service "declared", requiring the owner to allow third parties to use the facility.  The terms and conditions of that access can then be negotiated and, in the absence of a negotiated outcome, these are determined by the Australian Competition and Consumer Commission (ACCC).
• Secondly, a provider or intending provider may approach the ACCC and offer an "undertaking" specifying terms and conditions of operations.  This grants immunity from legal challenge under the Trade Practices Act.
• Thirdly, by a State based regime that the NCC has recommended is an "effective" access regime to the Commonwealth Treasurer and where the Commonwealth Treasurer has accepted that recommendation.  In the Eastern States, State Regulatory authorities are responsible for distribution and the ACCC is the regulator of transmission pipelines.

The ACCC cannot accept an undertaking if the service is already "declared".  Nor may the NCC recommend a service be declared if it is subject to an access undertaking.

The MAPS has sought to become uncovered in the light of its competitive situation changes following the building of the SEAgas pipeline from Victoria.  This leaves it no longer dominant as a supplier to Adelaide and the region.  MAPS has a capacity of 418 TJ/day almost all of which is presently contracted but most of which will be out of contract during 2006.  SEAgas has a capacity of 411 TJ/day.  It is jointly owned by International Power, TXU and Origin Energy, the three major gas users/intermediaries in South Australia.

RECENT REVIEWS OF GAS PIPELINE
REGULATORY ARRANGEMENTS

Three recent reviews of significant regulatory matters concerning the Gas Access regime have been undertaken.  These were by the Australian Competition Tribunal regarding coverage of the Duke EGP;  the Commonwealth Minister regarding the coverage of the MSP;  and the Productivity Commission in several reports the most recent being the Report on the Gas Access Regime.  Together these reviews assemble a coherent and authoritative body of evidence regarding the appropriate regulatory arrangements for gas pipelines.

The three reviews base their prescriptions on the conventionally accepted view that a market rather than a regulator is a preferred means of setting price and other conditions of supply.  In principle this view is not contested by the NCC or the ACCC.

Recognising that a stylised perfect market is impossible with a gas pipeline system, each of the recent reviews set about trying to define workable conditions whereby the regulatory role can be reduced and declaration can be avoided or rescinded.

THE AUSTRALIAN COMPETITION TRIBUNAL ASSESSMENT RE THE DUKE (EGP) PIPELINE

The NCC in the Final Recommendation on the EGP sought to have the pipeline covered.  The NCC argued that the relevant services of a pipeline were the point to point services and not the markets it serves.  The former is a definition that is likely to greatly extend regulatory reach.

While the Tribunal took that view as well, it also quoted favourably Re Queensland Co-Operative Milling Association Ltd (1976) 25 FLR 169 at 190:

"A market is the area of close competition between firms or, putting it a little differently, the field of rivalry between them (if there is no close competition there is of course a monopolistic market).  Within the bounds of a market there is substitution - substitution between one product and another, and between one source of supply and another, in response to changing prices.  So a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive. ... Whether such substitution is feasible or likely depends [on a number of factors] ... in determining the outer boundaries of the market we ask a quite simple but fundamental question:  If the firm were to `give less and charge more' would there be, to put the matter colloquially, much of a reaction?"

In that judgement the market rivalry includes rivalry between different sources of supply.

The Tribunal considered separately Criterion (a) ⁽²⁾ and found "that EGP will not have sufficient market power to hinder competition based on the commercial imperatives it faces, the countervailing power of other market participants, the existence of spare pipeline capacity and the competition it faces from the MSP and the Interconnect."  The Tribunal said that the most important factor behind this reasoning was that EGP does not have market power and, "The arguments advanced by NCC and AGL were largely based upon a contrary assumption as to the existence of market power."

The important feature of assessing the market power was the nature of the competition and the supply base compared to market demand.  The Duke pipeline almost doubled the capacity into the main Sydney market.  Though demand is growing, this means that there is considerable rivalry for customers between the two main pipelines.

With regard to Criterion (b) ⁽³⁾ the Tribunal agreed that, "it would be uneconomic in a social costs sense to develop the Interconnect to provide the services provided by means of the EGP."

THE MINISTER'S DECISION ON THE MSP

The NCC had declined to revoke coverage of the MSP on four grounds:

• First they argued that the MSP could charge the suppliers monopolistically because, unlike the EGP on which the Minister had decided to overturn the NCC decision, there was no other outlet for their gas other than via that pipeline
• This interprets the reforms as being in place to protect suppliers, and very substantial suppliers at that, from others within the supply chain.
• Moreover, it is hardly the case that there are no other outlets for the Moomba gas when there are alternative outlets for gas through established pipelines to Brisbane and Adelaide.
• Secondly, they reported that the price was some 30 per cent above the levels they thought should prevail in the light of the costs
• The estimates were based on work commissioned by consultants and were based on the costs involved in the pipeline and not the competitive environment in supply;  in this respect, the NCC took the view that a 7.5 per cent price reduction on the MSP that had taken place due to the commissioning of the rival EGP facility was inadequate and represented on-going excessive market power.
• In seeking a reduction of 30 per cent in the MSP, a reduction of a similar magnitude would be forced on the EGP thus undermining the economics of that pipeline and the investment strategy of its owners (and others looking to build such facilities) since it is in direct competition with the MSP.  It is difficult for a regulator to say that a pipeline is charging too high a price since the parameters that determine the "fair" price are so uncertain and, in that particular case, different regulators came to different views of what the "fair" price actually should be.
• Thirdly, AGL's rights to a "most favoured nation" price under its Gas Transportation Deed impeded the incentive of MSP to offer competitive prices
• Overturning this would entail an inability of any business to sign foundation contracts with a pipeline in the expectation that these would not be undermined by future price discounts to competitive retailers.  It would destroy the basis on which pipeline capacity was sold and seriously reduce the capability of pipeliners to finance a new facility.
• Fourthly, the vertical linkages between MSP and AGL (which has a 30 per cent shareholding) would create incentives to distort competition
• This claim represents a serious misunderstanding of the way that businesses operate.  AGL retailers operate as profit centres whether or not they are ring fenced and, as evidenced by the activities of electricity retailers, will measure the value of offers from their host businesses against those from outside businesses.  This has led to the complete divorce of some businesses from their supply sources as well as some reintegration based on risk defrayment
• Irrespective of these commercial considerations, the imputation demonstrates a lack of awareness of the legal framework within which Directors control businesses.  With only 30 per cent of the ownership, AGL would be unable to dictate policy that led to a benefit to itself that was greater than its shareholding.  Directors who permitted this to occur would be acting unlawfully and be liable to punishment including imprisonment.  This aside, the remaining 70 per cent shareholding includes one major shareholder who would be expected to take particularly vigorous steps to ensure the 30 per cent minority owners were not receiving benefits over and above that level.

The Minister ⁽⁴⁾ based his decision to overturn the NCC judgement with regard to Criterion (b).  He was critical of the NCC's judgements that the "Eastern Gas Pipeline (EGP) to Sydney, should be excluded from this consideration because they do not accommodate the physical transport of gas between Moomba and Sydney (6.16)."  He pointed out that in considering the Duke EGP case, the Australian Competition Tribunal ("the Tribunal") found that:

there is no logic in excluding existing pipelines from consideration in determining whether criterion (b) is satisfied'.

He argued,

"24. A Moomba to Sydney gas transmission service in future may be contracted for via the Moomba to Adelaide System (MAPS) and SEAGas pipelines and either of the Interconnect or the EGP pipelines.  It is therefore no longer appropriate to think in terms of gas transportation as being only from a single well- head or processing plant along a single transmission pipeline to a single off- take point.  Yet this is largely the characterisation adopted by the Council for its consideration of the Moomba to Sydney Gas Pipeline System (3.3 and 6.15)."

He further said

"Insistence upon 'point-to-point' transportation along a single pipeline, or an associated requirement for physical duplication of an existing pipeline, is not justified in the context of a gas pipeline network.  This does not provide a sufficient justification for the Council's conclusion that 'no other pipelines currently provide the point-to-point transport services' of the MSP Mainline (6.15).  It would be unduly restrictive to conclude that a single transmission pipeline must provide the same point-to-point service as the MSP Mainline to be considered relevant to Criterion B."

With regard to Criterion A, the Minister pointed out that,

"Pipeline investors who perceive that access regulation has not taken proper account of commercial and market risks and has prevented them from earning reasonable returns on their investment, will either not develop an existing pipeline or only build a new pipeline fit for purpose.  Such outcomes would do little to assist in promoting competition in downstream gas markets longer term." (para 148)

He argued that the NCC was incorrect to say that coverage would bring lower tariffs at the same time as ensuring new entry.  He said, on the contrary, that coverage which brings lower regulated prices will deter competition in the form of entry by new suppliers.  He refused to accept,

"the Council's view that revocation of part or parts of the MSP Mainline would be at odds with the policy intent of all Australian governments in 1997 in applying coverage under Schedule A of the National Gas Code (7.448).  The purpose of the Code is to regulate gas transmission pipelines that may otherwise be capable of exerting market power, not to establish an immutable regulatory framework for gas access in its own right.  The fact that market structures have changed significantly over a period of five years does not invalidate the original decision to apply coverage to the MSP Mainline.  A fundamental policy objective of Australian governments has been to encourage a competitive national market for natural gas, including encouraging investment in the transportation of natural gas." (para 152)

THE PRODUCTIVITY COMMISSION

The PC ⁽⁵⁾ review was one of a series that has addressed infrastructure regulation.  While its analysis of the issues was exemplary, its recommendations tended to be less forceful than they might have been in promoting the market-based approaches that the report favours.

Deregulation of Existing Pipelines

The PC recognised that the existing Gas Access Regime as applied by the NCC and ACCC is likely to be distorting investment as firms seek ways to escape oversight.  The PC noted that,

"The Gas Access Regime's coverage test sets too low a threshold for cost-based price regulation.  That is, coverage decisions could involve the regulatory error of applying cost-based price regulation when its costs outweigh its benefits, including with respect to investment. ⁽⁶⁾

It also notes

The Gas Access Regime is likely to be distorting investment in favour of less risky projects, including altering the nature and timing of pipeline investments.  Pipeline construction might be delayed, for example, and there might be greater emphasis on building capacity that is essentially fully contracted prior to construction.  Such alterations can inhibit the emergence of competition in upstream and downstream markets and generate inefficiencies. FINDING 4.3

And it adds

Generally, cost-based price regulation should be considered only if service providers have substantial market power.  Where market power is not strong, such as where there is emerging competition, in the long run the costs of regulated prices are likely to outweigh the cost of the market failure that such regulation attempts to correct. FINDING 4.5

Unfortunately, the PC missed an opportunity to provide unambiguous clarification of the way forward, along the lines that there is an onus on the regulator to exit regulatory control once more than one pipeline of a significant size was serving a particular market, whether or not there was duplication of the pipelines.  This might have offered firm guidance about when regulatory agencies ought not to be routinely involved in price setting and access conditions.  Even so, the PC clearly took the view that the coverage criteria the regulatory authorities were applying was based on an unreasonably stringent view of monopolistic market power.

As it is, neither the NCC nor the ACCC has shown any indication of having learned from these important authorities.

Indeed, in an address in Sydney, ⁽⁷⁾ the energy Commissioner, Ed Willett, argued that the evidence of pipeline building, "rather put the lie to the industry's claim that ACCC regulation has, in the words of one major player "had a chilling effect" on investment". ⁽⁸⁾  The ACCC position remains one of unreconstructed faith in itself as an institution outperforming competition in creating efficiency.

Greenfield Sites

In its Inquiry into Part IIIA and the Energy Market Review the PC flagged a regulatory moratorium as a regulatory approach.  In the Gas Access Review, it recommended that the Minister should be able to offer a binding no-coverage ruling for 15 years with the pipeline remaining uncovered thereafter unless a successful coverage application finds otherwise.

However, that regulatory approach might be interpreted as a step back from that envisaged by the Energy Market Review which argued that it would be difficult to foresee a case for regulating new transmission pipelines and that regulatory strictures should be developed accordingly.  This may be aggravated by leaving the Gas Access review's recommendation that the decision on coverage be left with the Minister rather than setting a standard on which the NCC might recommend a deregulatory approach.

This is especially unfortunate in view of the expressed wish of the NCC to see all new pipelines regulated unless the pipelines offered competitive provision to the supply area as well as the market and unless they could be assured that the parallel pipes would operate non-collusively.  This very strict test of market power would never see a deregulated transmission system

CONCLUDING COMMENTS

The price on the SEAgas pipeline to Adelaide has been quoted at 63 cents per GJ.  The Moomba price at the present time is quoted at 49 cents per GJ.  In the light of the surplus capacity in serving the market, these prices are likely to soften.  However, supply prices do not simply ramp down to marginal costs.  If they did newspapers would be free, Foxtel would be $5, airline seats between Sydney and Melbourne would be $50 return and motor cars would be half their present price.

After all in most of these cases there is surplus capacity and there are high fixed costs.

Markets do not follow some naive theoretical economics approach and revert to marginal costing as soon as a surplus supply is in evidence.  If they did so nobody would invest in the first place.

Market imperfection is the norm in Australia.  The airline duopoly of first Qantas-Ansett then Qantas-Virgin has delivered vast price and efficiency gains once the parties were freed to compete openly and obligated not to collude.  Other markets with monopolistic features like telecoms, steel and cement also work efficiently.

The danger is that regulators will be dazzled by the prospect of free gains to consumers and will require prices and access that undermine the on-going viability of a supply by strangling its incentive to invest anew.  The three reviews addressed in this submission were mindful of these considerations, while the NCC (and in public fora the ACCC) have been in ignorance of them.

The Tribunal carefully examined the issue of supply to the main market by a second pipeline which the NCC had said should be regulated because the two pipelines may otherwise collude in increasing price and because in any event, competition required parallel pipelines.  It found that reasoning deficient in the light of the new competition from the EGP.  It accepted, as is commonplace, that rivalrous markets were better determinants of price and market supplies than regulatory decisions that try to shadow a genuine market.  It also recognised a disincentive to entrepreneurship if pipelines were to be regulated and their prices kept down to a level that is not commensurate with their costs and risks.  The Minister adopted a similar set of reasonings as has the Productivity Commission.

Both the Tribunal and the Minister were exercising their lawful responsibility to reject a decision of the NCC if they consider it to be ill-founded.  Both they and the Productivity Commission raised issues concerning the analysis and understanding of the NCC regarding the competition laws they are charged to uphold.  The Tribunal, for example, chided the NCC for using an improper interpretation of the Gas Pipeline Code in maintaining that one of its goals was to prevent inefficient duplication when such measures are not within the Code and the decisions are best left to the pipeline owners in search of private gain rather than a public body (para 64)

The NCC Issues Paper contrives to make itself consistent with the Tribunal's decision on EGP by regarding the latter's decision in adopting a point to point approach as binding authority.  But the Tribunal accepts that as being an obvious definition of a pipeline but irrelevant as to whether its coverage is necessary to promote competition.  The Tribunal concluded that Duke does not have and will not have market power and, accordingly, dismissed the arguments of the NCC (and AGL).  Those same issues are directly analogous in the MAPS case

The reasoning used by the Minister cannot be lightly dismissed, as they are in the Issues Paper, as "different views" (Para 5.10).  The Minister's decision was not a mere political override of a legal decision.  In fact it was a carefully assessed judgement, clearly assembled with the assistance of expert supporting advisers.  The Minister's judgements in terms of the legal and economic considerations clearly showed greater comprehension of the issues and better expertise than that demonstrated by the officials who comprise the NCC.  To dismiss this legal argumentation as mere political boondoggling is unfortunate in both treating this argumentation with contempt and an exercise of unwarranted hubris on behalf of the Council.  The NCC comprises an appointed body of officials.  It is not a High Court that can claim a certain infallibility in its decision making but it is, rather, a body charged with making judgements that are reviewable by higher authorities.

Those authorities' decisions must be considered to be precedent for other public bodies.

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ENDNOTES

1.  Moomba to Adelaide (MAPS);  Moomba to Sydney (MSP);  Gasnet (Victorian system);  Eastern Gas (EGP);  South East Australian (SEA Gas).

2.  (a):  "That access (or increased access) to services provided by means of the Pipeline would promote competition in at least one market (whether or not in Australia), other than the market for the services provided by means of the Pipeline".

3.  (b):  "That it would be uneconomic for anyone to develop another Pipeline to provide the Services provided by means of the Pipeline"

4.  Macfarlane I. (Minister for Industry, Tourism and Resources) 2003, Applications for Revocation of Coverage of Certain Portions of the Moomba to Sydney Pipeline System:  Statement of Reasons.

5.  Review of the Gas Access Regime, Productivity Commission, Report No. 31, 2004.

6.  P.107

7.  Ed Willett, Energy Market Access and Regulation, address to the Australian Energy & Utility Summit, 22 July 2004.

8.  In the same address on later occasions, the ACCC has cited the work of ACiLTasman in suggesting the benefit of the ACCC's regulation (of electricity plus gas) was somewhere between $2-11 billion.  That analysis was discredited at the ACCC's annual regulatory conference (30 July 2004) and also is heavily criticised in the PC Gas Access Review.