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Subsidies to the Use of Natural Resources

Environmental Economics Research Paper No.2
This report was prepared by a consultant,
the National Institute of Economic an Industry Research (NIEIR),
for the Department of the Environment, Sport and Territories.
Commonwealth of Australia, 1996
ISBN 0 642 24864 8

7. Use of publicly owned natural attractions for recreation and tourism

7.1 Introduction

In Australia natural attractions such as coastlines, forests, rivers, mountains, deserts and grasslands are mainly, but not solely, publicly owned, predominantly by the States. Most, but not all, have a reserve status, which means that many potential uses are proscribed; specific permissible uses vary from area to area. These areas are important repositories of flora and fauna and are important for preservation of genetic diversity. However, control of access to them and monitoring of direct (visitor) use impacts appears to be very variable.

Subsidy issues arise because of their public ownership (e.g. what areas to reserve for public parks, etc. and how to pay for them) and partly because of their multipurpose use (protected repositories of fauna and flora, forestry operations, recreation/ tourism use, etc.). Natural areas are associated with a wide range of values — from the purely commercial (e.g. logging) to the purely aesthetic (e.g. enjoyment of a vista).

Direct and indirect use add a further complexity. Indirect users of natural areas include people who may not visit the area but who value its existence. Thus the existence of natural areas confers positive externalities and damage to or removal of these areas confers negative externalities. A brief discussion by Driml of value categories (existence, bequest, option and quasi-option) associated with indirect use of a natural area is provided in the following box.

There is also a body of opinion which regards free access to natural areas as a right of citizenship; almost a mark of national identity, by contrast with the privately enclosed parklands of Europe.

The range of values associated with natural areas makes for difficult economic valuation of these areas and their associated financial and environmental subsidies, as many of these values are not available from market data. Indirect use or public goods values, which may be significant, provide a possible rationale for the major part of resource costs being covered by general taxation and not from direct users. Direct use by foreigners not subject to Australian general taxation could be charged at a higher rate; this might be judged equitable but impractical administratively and politically. An alternative which may be feasible, would be to increase the departure tax for persons travelling on foreign passports.

Direct use of natural areas for recreation and tourism activities should be charged for as most of the benefits of this direct use flow directly to the participants in those activities. Considerations involved in establishing charges for direct use are as follows.

(i) Recovery of management costs and costs of repairing damage caused by direct users.
(ii) Rationing of resource use to limit damage to the area, that is the higher the access charge the lower the access demand.
(iii) Earning a rate of return on publicly owned resources. This is a difficult concept to apply to natural areas due to the probably substantial but uncertain values of indirect use benefits.
(iv) Costs of excluding direct users, costs that can be very high in some areas.

Except for (i) and (ii) estimation of values associated with these considerations is difficult, but from an economic perspective the alternative uses of these areas demand that an attempt should be made. In practice attempts are being made to estimate values associated with consideration to (i) and to some extent (ii) and (iii).

Another approach is to consider what private benefit values to direct users are associated with protection of natural areas and to apply estimates of these values to direct user charges. Estimating these values is, however, difficult. Despite these estimation difficulties it is hard to argue that direct users should not be charged for their use of natural attraction areas. Revenues from these charges make it more practicable for governments to maintain these natural areas and to protect them from alternative uses. The issue of direct user charges is discussed further in the financial subsidies section below.

The numbers of direct users, i.e. visitors to the areas, have greatly increased over the past ten years , with the rise of creating the “ecotourism” industry. Estimates for three major natural areas in Australia is presented in Table 17.

Environmental impacts of visitor use to natural attraction areas are recognised in the National Ecotourism Strategy (NES) which also cites potential benefits from ecotourism.

“The environment can also gain benefits in that ecotourism can:

– be an incentive for conserving natural areas;
– provide resources (both financial and physical) for environmental conservation and management, and incentives to ‘repair’ degraded ecosystems or ‘improve’ biological diversity through, for example, client participation in captive breeding programs or volunteer holiday programs; and
– engender an environmental ethic that goes beyond the ecotourism context.

These benefits are often difficult to quantify and, in the absence of work to clarify the effects, tend to be dismissed.”

The potential benefits from ecotourism cited in the NES promote the values associated with natural areas. This value promotion, together with the economic growth and employment stimulated by ecotourism, tend to increase public and private resources dedicated to preservation of these areas.

Table 17 Estimated visitor numbers of some major natural attractions, 1982–1992


Great Barrier Reef
Marine Park
Kakadu National Park Uluru National Park
1982, 1982–83 45 800 87 871
1984, 1984–85 1 119 000 75 200 110 160
1986 131 000 141 219
1988 220 000 175 536
1990 238 000 218 160
1992 2 291 000 205 000 250 000

Source:Driml, op. cit., p.5.

 

Driml discussion of natural area economic values


Many attributes of natural environments are not regularly traded in markets. One reason for this may be historical. Protected natural environment areas are public lands and it has not been usual to charge for the services they provide. Another reason is that many of the services of natural environments have the characteristic of public goods and it is not possible to divide them up for exclusive sale, so it is not feasible to trade them in conventional markets. Clean air, biodiversity and functioning ecosystems, for example, have public good characteristics. The values of natural environments that are not able to be observed in markets are given the term non-market values by economists.

The total economic values of the protected areas covered in this study include both market values and non-market values. Non-market values are of two types; direct and indirect use values. Direct use values include the benefits accruing to people who visit, or live in,an area and enjoy its attributes. This obviously includes people who visit for tourism and recreation. Indirect use values accrue to people who may never visit an area but who nevertheless value the fact that it exists in its natural state.

It is widely acknowledged that natural environments produce a range of values to society associated with their roles as havens for conservation of biodiversity, contribution to global life support systems, and amenity arising from knowledge that wild and natural areas exist. Existence, bequest, option and quasi option values have been identified as legitimate indirect use values arising from natural environments.

Existence value is the value people place on ensuring an area remains as a natural environment; bequest value is the value they place on ensuring it is available to future generations; option value is the value they place on ensuring that it remains as a natural environment so that they may visit in the future; and quasi-option value is the value people place on conserving a natural environment for the new information which may emerge in the future.

Together, market and non-market values cover all the benefits to humans flowing from the resource whether or not these are normally measured in dollar terms. Economic values are necessarily anthropocentric and do not recognise any value of nature conservation to the non-human elements of nature involved.

It is important to point out that monetary transactions observed from markets that are not working in a competitive mode will not reflect total economic benefits. This is generally the case for tourism and recreation in the protected areas studied. Park management agencies do not charge access (entry) fees from private recreation or commercial tours to cover the full costs of providing the services of the natural environment, in the way a private supplier operating in a competitive market would. It follows that entry fees and prices of commercial tours are below what they would be in a competitive market and do not reflect the full willingness to pay by visitors.

In order to measure total economic benefits of indirect uses and those direct uses where competitive markets do not exist, economists attempt to measure willingness to pay using a variety of valuation techniques. These include related market methods and the Contingent Valuation Method (CVM). In the former method, markets for related goods are examined to provide information on how the market for the good in question might function. The most relevant example for protected areas is the travel cost method where expenditure on travel to the areas is used to estimate how much visitors would be willing to pay for entry, if entry fees were charged at market rates.

The CVM involves asking people what they would be willing to pay contingent upon a proposed change in the state of things, for example to provide more nature conservation reserves or to avoid damage to existing reserves. The contingent valuation approach can in theory be used to address public good issues and to cover the full range of direct and indirect non-market values that people perceive to flow from protected areas. Considerable debate is occurring about philosophical and technical aspects of this approach (Wilks 1990). It would be fair to say that CVM is not totally accepted inside and outside the economics profession, yet no satisfactory alternative to actually asking people what they would be willing to pay for non-market values has been developed.

Source:Driml,S.,Protection for Profit:Economic and Financial Values of Protected Areas,Research Publication No.35, Great Barrier Reef Marine Park Authority, 1994, pp 57–58.

7.2 Financial subsidies

In the case of publicly owned areas the level of charges for the use of the area’s resources, along with access provisions, are the major factors affecting use patterns, user impacts and the long term condition of the areas. Access charges never appear to be set at full cost levels, i.e. at levels based on the opportunity cost of the area’s use, the costs of management, at levels based on users’ willingness to pay for access to the area (see below) or on the opportunity costs of the area’s alternative uses. Valuations of the land and resources involved in natural attraction areas is difficult and is seldom attempted.

In general charges, where they apply, are currently set to meet some part of management costs and not to cover full costs of the resource provision, nor to ration access and cover damage that use might cause to the natural area. Where collection costs are likely to absorb a high proportion of potential revenue, i.e. where exclusion costs are high, it might be judged better not to attempt imposition of charges. Where exclusion costs are high an alternative is spot-checking of visitors to ensure access permits are held. Such a system is used in the Tasmanian Wilderness World Heritage Area.

In a study undertaken by Hundloe, et. al.(see Note 1 below) in 1987 and cited by Driml (see Note 2 below), the mean willingness to pay an entrance fee to coral sites on the Great Barrier Reef (GBR) was estimated to be $13 (in 1994 dollars) per adult compared to a $1 fee introduced in 1993. This example, albeit in one location, indicates a willingness to pay for access to a natural area that is significantly higher than the fees actually charged. Throughout Australia, access fees to national/ State parks are quite variable ranging from zero to $12 for a single visit, and appear to average around $5 per visit where payable (see Table 18). Most charges are based on a flat entry rate for each vehicle and where camping is permitted fees also vary considerably (see Table 18). In Victoria in 1993–94 revenues collected averaged about 30 cents per visitor day from a total of just above 10 million visitor days to these areas; total revenues were only about 12 per cent of total National Parks Service expenditures.(see Note 3 below)

In the eight major natural attraction areas studied by Driml, 1991–92 revenues from users totalled just under $15 million, against a management budget for the areas of $61 million. (see Note 4 below)

Assuming that these revenues increased to about $20 million in 1994–95, that revenues from other natural areas totalled about $20 million in 1994–95, (see Note 5 below) the total revenues from Australian natural areas might have totalled about $40 million in 1994. (see Note 6 below)

State and Federal budget papers indicate that in 1994–95 Australian governments will spend about $450 million (see Note 7 below) on national parks, wildlife and conservation. These expenditures cover all aspects of public agency management of these fields, including access management, visitor services, restoration of areas from previous and current use, and wildlife preservation work. It is not possible to determine precisely what proportion of these total expenditures is attributable to the management of natural attraction areas for the provision of services to direct users. Of the $450 million, however, the limited information available in agency reports suggest that these management expenditures could total $200 million.

The other $250 million of agency expenditures is here attributed to public goods aspects of the agencies’ work. As indicated above, from Driml estimates and a survey of State and Territorial agencies (see Table 18), fees actually collected in 1994 appear to have totalled about $40 million, leaving a net deficit of $160 million.

If this deficit is regarded as a subsidy to direct users, direct user fees would have had to be quintupled to balance revenues and costs in 1994. (see Note 8 below)

Note 1 Hundloe, T., Vanclay, F. and Carter, M., 1987, Economic and Socio Economic Impacts of Crown of Thorns Starfish on the Great Barrier Reef, Institute of Applied Environmental Research, Griffith University, Report to the Great Barrier Reef Marine Park Authority, Townsville.
Note 2 Driml, op. cit., p.78.
Note 3 Information collated for NIEIR by the Victorian Conservation and Natural Resources Department, National Parks Service from National Parks Service annual reports.
Note 4 Driml, ibid, p.vi.
Note 5 Estimate from limited data available in agency reports; see Table 18 note.
Note 6 Although this seems to be a reasonable estimate that attempts to balance data limitations it could understate revenue, for example in Commonwealth managed areas such as Jervis Bay National Park where substantial revenue is generated.
Note 7 The possibility of some double counting, because of transfer payments from the Commonwealth to the States,in this estimate is acknowledged (see Section 1.2 for discussion of this general problem).
Note 8 It should be noted that substantial revenues can only be raised in protected areas where visitation levels are high (usually because near large population centres) and that many of the more than 1,000 protected areas in Australia have little prospect for raising significant amounts of revenue even though some incur substantial management costs.

Table 18: Access, entrance fees, revenues, etc. to national parks in Australia,1994


Jurisdication Fee descriptions Revenue estimates
($ millions)
Western Australia Annual pass of $35; unlimited entry. Daily pass of $5 per car single entry charge; non-car entry free. Camping fee of $5 per night per adult, $1 per night per child . $1.800
South Australia Access fees charged for only 5 of 200 parks in South Australia. Fees range from $1–3 per person depending on access mode. Camping fees average about $3 per night per person. $2.860
Victoria Access fees are charged for 9 of Victoria’s 35 national and State parks. $3–$9 per car single entry charge; other $0–$5 per visit; large vehicles (10 plus seats), $13–54 per visit; annual pass $42. Camping fees, $2–$12 per night per person. $3.200
New South Wales Access fees charged for 60 parks at $7.50 per vehicle. Annual entry fee is $50–$60 depending on parks. Camping fees range from $5–$15 per night (two persons) depending on facilities available.

Kosciusko ($12 per vehicle) included in Driml estimates, not in these, had user revenue of about $13 million in 1994.

$6.470
Queensland No access fees for national parks; variable fees for access to recreation areas (Fraser Island, Green Island, etc.) Camping fees: $3 per person per night. $0.660
Tasmania Daily fee of $8 per car or $2.50 per person for non-vehicle entry and for vehicles of more than eight persons. Annual fee for all parks of $40 or $15 for any one park. (New fee structure from 1 November, 1994). Camping fees vary up to $10 per night per site. $1.300
Northern Territory No access fees. Camping varies up to $10 per night per site.
Australian Capital Territory No access fees. Camping fees of $9 per night (two persons) per site.
TOTAL $16.290

Note:

  1. Excludes revenues from “Driml”areas estimated separately from Driml, op. cit. Some licences, fees, charges appear to be included in other aggregated report items and in other agencies; hence total revenues were estimated at $20.000 million.

Source:State and Territorial parks agency annual reports and personal communications.

7.3 Environmental subsidies


The environmental effects of activities in natural attraction areas include:

Control of environmental impacts is generally by regulation but, as noted above, reports of damage by users indicate that regulatory administration is often inadequate in natural areas. Current regulatory control covers , depending on the area, restrictions on activities such as shooting, camping in non-designated areas and entry of domestic pets; the regulations are generally backed up by fines for non-compliance. In some areas such as Victoria’s Point Nepean National Park, visitor numbers and access are restricted to reduce damage to the area’s environment.

Valuation of the negative externalities associated with direct use of natural attractions areas is difficult. Several attempts have been made, however, to estimate conservation values of such areas using contingent valuation analysis, damage and control cost assessments.

Using contingency valuation based on the 1987 willingness to pay survey by Hundloe, et. al., Driml also estimated that the economic value of conservation in the Great Barrier Reef area was about $86 million ($ 1991–92) per year (see Note 9 below), that is removal of the area would result in an estimated $86 million (1991–92) loss in conservation values. The conservation value estimates covered willingness to pay for management of the area by non-users, research into the control of the Crown of Thorns Starfish by non-users and additional access fees for conservation management.

Willingness to pay for prevention or repair of tourism damage was not included, however, in the information sought in the Hundloe survey and subsequent estimates by Driml. The damage may be considerable. For example, the ESD-Fisheries final report indicates (p.82) that studies on rocky foreshores show that for every two kilometres there are an average of 20 people every day collecting 6 or 7 crabs, 4 sea urchins, and 12 turbo snails; some species have been so severely depleted that they require total protection. These “collection” activities, together with erosion from walking tracks, etc. and waste impacts on flora and fauna, can cause significant damage to natural areas that are not captured by the Hundloe/Driml analysis.

Reducing direct user numbers by charging higher access fees, as suggested in the financial subsidies section, would reduce damage by users for natural areas. Economics would suggest raising charges till the marginal direct use revenue was equal to the marginal cost of damage from, and management for, direct use of the area.

Estimating damage costs and difficulties with actually repairing damage may mean that in some areas raising access fees, except to some very high level, may not be adequate for control of damage. It might be argued that a distinction should be made between reversible and irreversible damage, and that the cost and possibility of irreversible damage in some areas might be so high that direct use, except for limited scientific investigation, should be precluded or strict access restrictions applied .

Note 9 Driml, op.cit., p.79. This estimate was derived from a survey of direct users and non-direct (vicarious) users, and made up of willingness to pay for conservation management and research/control of the Crown of Thorns Starfish (COTS) damage.

Besides anecdotal comments on the damage caused by direct users,and some scattered estimates of damage repair costs, there does not appear to be any estimates of environmental externalities associated with the direct use of natural areas. The above financial subsidy estimate only covers the management costs for natural attractions and even though this may include some damage repair, damage costs might be of similar magnitude, but much more work is required to give credibility to such an estimate. Thus much more detailed work on the environmental impacts of visitors to Australian natural attractions would be needed before an estimate could be prepared.

 

7.4 Summary


The review indicates that in the financial subsidy area direct user fees should be set at levels based on management costs associated with direct use, willingness to pay surveys, and perhaps the need to ration access. The evidence is that this pricing approach would raise substantially more revenue than is currently collected. Environmentally this would have the effect of reducing damage to the areas by reducing the funding pressure on public management agencies and allowing construction and maintenance of protective infrastructure, such as defined walking tracks. Raising charges may be insufficient to control damage and therefore direct regulation, including access restrictions, may also be required. In the environmental subsidy area the review indicates:

(a) a sparsity of data; and
(b) controversy over interpretation of data that is available.

However, we consider that the costs of damages attributable to environmental impacts of direct users of natural attraction areas are significant. For example the disturbance of wildlife by vehicles and walkers, picking of wild flowers, introduction of feral species and the erosion of stream banks. Together with the estimate of financial subsidies to direct users this would have required very significant increases in user charge — perhaps by a factor of over five in 1994–95.

More work is necessary on damage, control cost and contingent valuation approaches to evaluating financial and environmental subsidies to direct use of natural areas, for example by assessing damage costs and the possible costs of repairing damage. Other work required is investigation of damage irreversibility in natural attraction areas, and the role of natural attraction direct use in environmental education.

In practice charges are slowly being raised, access restrictions are being introduced in some areas and some restoration work is proceeding.

A summary of financial and environmental subsidies for natural attractions is presented in Table 19.

Table 19: Summary of financial and environmental subsidies,1994, natural attractions


Activity element Financial subsidies
($ millions,1994)
Environmental subsidies
($ millions,1994)
Subsidy removal
instruments
Fiscal implications
($ millions,1994)
Public agency costs Higher direct user charges Significantly higher direct user revenues — mainly accruing to the States and tribal owners.
– additional revenues from direct users1 160 Access restrictions in areas of high conservation values.
Environmental subsidies2 Not estimated.
TOTALS $160 million $160 million

Notes

  1. Most costs of preserving these areas are currently attributed to the community at large. That is, the public goods element of total costs of maintaining these areas is claimed to be high. However, it seems that much higher direct user fees could be imposed to contribute to public management costs, to restrict access and to pay for damage caused by visitors. See text.

Estimates of public agency expenditures on parks, flora and fauna conservation

$ million

$ million

New South Wales — national parks and wildlife
Budget estimates,1994–95
Net cost of services
Capital (at 10 per cent of amount)


$98.5
2.7



101.2
Victoria — national park service
Budget estimates 1994–95
Net cost of services
Capital (at 10 per cent of amount)


45.5
0.8



46.3
Queensland — conservation
State budget, 1994–95
Program outlays
Capital (at 10 per cent of amount)


114.3
2.7



117.0
Western Australia — conservation and land management
Program statements, 1994–95
Net recurrent outlays
Capital (at 10 per cent of amount)


25.4
0.9



26.3
South Australia — resource conservation and protection
Estimates of receipts and payments, 1994–95
Recurrent outlays
Capital (at 10 per cent of amount)


47.9
1.0



48.9
Tasmania — Crown land and asset management wildlife and heritage
The Budget,1994–95
Recurrent services
Works and services (at 10 per cent of amount)


24.1
1.2



25.3
Commonwealth — national estate and parks
Budget Statements,1994–95

84.1
TOTAL

$449.1

2. Surveys indicate a significant willingness to pay for prevention or repair of damage to these areas in Australia from recreational and other uses (e.g. mining , forestry), but valuations are very contentious because of the valuation methods that have been used. No estimates of damage caused by the direct use of natural attractions appear to have been made. See text pp.112–113.


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