Reimbursing the future: an evaluation of motivational, voluntary, price-based, property-right, and regulatory incentives for the conservation of biodiversity
Biodiversity Series, Paper No. 9
M.D. Young, N. Gunningham, J. Elix, J. Lambert, B. Howard, P. Grabosky and E. McCrone
CSIRO Division of Wildlife and Ecology, the Australian Centre for Environmental Law, and Community Solutions
Biodiversity Unit, Department of the Environment, Sport and Territories, 1996
ISBN 0 642 24429 4
The more we get out of the world the less we leave, and in the long run we shall have to pay our debts at a time that may be very inconvenient for our own survival.
—Norbert Weiner, The Human Use of Human Beings, 1954
For many Australians, 'biodiversity conservation' is a new term. However, there are a number of groups within the community who have a long standing involvement and interest in management of biodiversity – landholders and managers, government officers, scientists and community organisations. For these groups, gaining a greater understanding of threatening processes, and acting in a concerted way as a community to overcome these processes are priorities.
The Convention on Biological Diversity, Australia's National Strategy for the Conservation of Biological Diversity, the Intergovernmental Agreement on the Environment and the National Strategy for Ecologically Sustainable Development all stress the importance of conserving biodiversity. Collectively, these and other policies are implemented via many interdependent government programs and legislative requirements.
Biodiversity is defined in the National Strategy for the Conservation of Australia's Biological Diversity as "the variety of all life forms – the different plants, animals and micro-organisms, the genes they contain, and the ecosystems of which they form a part."
There are three widely recognised levels of biodiversity. The first is the diversity of entire ecosystems, such as the Great Barrier Reef, the arid systems of central Australia or the tropical rainforests of north-east Queensland. Within these ecosystems is the second level of biodiversity, that is, the variety of different species which live and interact with each other. Finally, there is diversity within each of those species – genetic differences which allow a species to survive and adapt to changes in its environment, such as disease or other unpredictable events.
Humans derive their food, many medicines and industrial products from domesticated and undomesticated biodiversity. There are also aesthetic and ethical reasons for protecting biodiversity. In the end, biodiversity is essential in the maintenance of human life on earth, and is vital for an ecologically sustainable society.
Australia's flora and fauna is 'megadiverse' – a term used to describe ecosystems of exceptional variety. However, Australia has a very bad record in the area of biodiversity conservation. More than half our major biogeographic regions are either not represented or are poorly represented in a national park or nature reserve. At least six animal species have become extinct in the last 50 years. In 1990 land clearing for agriculture contributed an estimated 27% of Australia's total net emissions of greenhouse gases.
Biodiversity has a number of distinguishing features which differentiate it from more conventional resource management issues. First, in many circumstances, biodiversity loss is irreversible. Once lost, a species is lost forever. Second, many species – especially the invertebrates, microbes and viruses – have yet to be discovered. Much of the biodiversity loss that is occurring is in the form of loss of species we have yet to discover. Scientists argue that this is one of the prime reasons for protecting biodiversity. Third, ecosystem diversity exhibits threshold effects. There are limits to the ability of ecosystems to withstand the stress imposed by environmental degradation. If stressed beyond these limits, ecosystems will collapse. Fourth, information about the responses of species to biodiversity loss is extremely limited. Fifth, many biodiversity problems cannot be solved merely by proscribing certain behaviour, but only by ensuring positive ongoing management: thereby emphasising the importance of developing the custodianship ethic. Sixth, much of biodiversity has no immediate economic value, giving rise to substantial tensions between public and private interests. Seventh, the causes of genetic, species and ecosystem losses are extremely diffuse in nature, and involve many different sectors and forms of economic activity. Biodiversity conservation also has to address a variety of threats caused by actions both on and off the site where the valued attribute exists.
The most important conclusion reached in this report is that there are no simple solutions to the complex problem of protecting our biodiversity and using biodiversity in ecologically sustainable ways. Rather, strategies need to be developed by communities, industry and government, working together with scientists, and taking account of specific biodiversity threats, development opportunities and local and national community aspirations.
Twenty six General Recommendations (referred to as G1 - G26 in this Summary) are made which canvass the broad directions to be undertaken in addressing biodiversity protection. Sixty three Specific Recommendations propose more detailed action, and many of these could be put into place immediately.
These recommendations have been developed by Project Team members with expertise in the areas of ecology, economic assessment, regulatory control, institutional change, natural resource management and community consultation. This expertise has been used to provide a new vision for biodiversity in Australia. The vision is based on the undeniable evidence presented in the report that Australia's future holds enormous prospects if we can harness the wealth of our biodiversity and prevent it being squandered on short term and unwise investment.
The report focuses on 'off-reserve' protection of biodiversity (G2). However, the effectiveness of 'off-reserve' proposals will depend on the existence of a comprehensive, adequate and representative reserve system (G1). The report concludes that Australia has been, and still is, under-investing in its biodiversity, and that the whole Australian community needs to make a contribution to redressing the situation. In particular, protection of biodiversity needs to be recognised as a goal which is as important as economic development (G3).
In compiling this report, the Project Team has developed a vision for Australians' future interactions with biodiversity. The Australian community of the next generation, and future generations, will benefit from development processes that integrate biodiversity protection and ecologically sustainable development at the earliest possible stages. Community and industry participation will occur at all levels of government decision making and will become an essential part of day to day management of the natural environment. Incentives for biodiversity conservation will be embedded in economic policy. Industries which use biodiversity resources, and the institutions that guide them, will have adopted approaches to biodiversity protection which ensure that its use is within the limits that allow for the needs of current and future generations. Use will occur only within limits necessary to preserve future options. Non-government organisations will be actively involved in managing assets of special value to the nation.
Planning and decision making will be based on the available scientific information about biodiversity values, threats to biodiversity and ways to overcome the threats at a regional, catchment and local level. Where information is not available, actions with irreversible consequences will be avoided.
Rather than biodiversity being an issue of conflict, stakeholders will work together to develop common goals and strategies. The approach will be strategic and adaptive. Partnership arrangements between the stakeholders will be developed in response to specific biodiversity needs and the aspirations of local communities.
Protection of biodiversity will be the priority consideration in future planning for economic development, and this will be enacted at the highest levels of government, and implemented at every level of government. A precautionary approach will underpin all development, which in itself takes into consideration precautionary standards for biodiversity protection.
The project team has undertaken an exhaustive review of the available information on the use of incentives both within Australia and overseas. An extensive consultation process was undertaken at thirteen locations around Australia, and six case studies were conducted. The outcomes provide valuable directions for activity now, which will protect biodiversity in the future.
Experience in the use of incentives both within Australia and overseas is rich and many new approaches are being canvassed and developed both here and elsewhere. As part of this project, a wide range of relevant information was collected from computer-based searches and submissions from interested groups and individuals. From this it was apparent that several Australian states have begun to shift the focus of biodiversity conservation to include more efforts outside the protected area network. Generally, Australian governments recognise the need for significant policy shifts to occur, but have yet to make the necessary changes. Alternative approaches – giving stronger incentives to community, local government and non-government organisations to take action – have yet to be implemented.
Three hundred and eight people attended the general consultative forums and 57 attended those forums which focused specifically on ecotourism. Over both streams, 90% of participants completed individual questionnaires. The largest sectors represented among questionnaire responses were environment (43%) and agriculture (33%). In the ecotourism forums, 22% of questionnaire responses were from the environment sector and 37% from the tourism sector.
Some clear directions emerged from the consultative process, and although there were both regional and sectoral differences in priorities, these were not as large as might have been expected based on common perceptions of urban/rural and conservation/resource use divisions. The directions for action fell into four broad categories:
- the need to enhance community understanding and appreciation of biodiversity, including increasing the perceived value of biodiversity;
- the need to identify who should take action and how, including roles for local communities, individuals and governments at all levels;
- the need to increase funding for biodiversity conservation and clearly identify who should pay and how; and
- the need to allocate responsibility to identified stakeholders and provide appropriate support.
The case studies
The case studies show that specific mixes of instruments will be required to address specific sets of threats. They demonstrated that there is an untapped potential of community goodwill and ideas that are practical and applicable at a grassroots level.
A lack of information was frequently mentioned during case study interviews as a barrier to the understanding of threats and the appreciation of biodiversity values. However, the threatening processes are sufficiently well understood, at least by experts, to mean that a precautionary approach to biodiversity conservation could and should be taken. The barrier to more individual and community action appears to be in the distribution of information, rather than the lack of it.
Non-interventionist and financially-attractive incentives layered on top of a set of precautionary standards designed to prevent irreversible declines in biodiversity values, emerged as the best strategy. The complexity of the threats to biodiversity values and the range of objectives for its use and protection means that no single policy opportunity is likely to offer a general solution.
The emerging opportunity of nature based and ecotourism shows that there is a chance to learn from the mistakes of older industries. Incentive instruments and mechanisms can prevent this new industry from becoming its own worst enemy.
Aboriginal people, because of their close association with the land and its ecosystems, have a significant role to play in developing this new industry in an ecologically sustainable manner. The sense of stewardship which Aboriginal people feel towards the land, needs to be reflected in action for biodiversity conservation across Australia.
Development of evaluation criteria
The need for evaluation criteria – against which the various incentive instruments could be measured – was a recurring theme. It was also a key element of the Project Brief. Through the Literature Review, Consultation Process and Case Study work, the Project Team worked towards defining such criteria.
The OECD's economic evaluation criteria for environmental policies were considered extensively by the Project Team and adapted to account for the special features of biodiversity. In this report, instruments and mechanisms are assessed for their:
- economic efficiency;
- dynamic and continuing incentives that encourage innovation and improvement through time;
- dependability or certainty in delivering desired objectives;
- administrative feasibility and cost; and
- community and political acceptability.
As biodiversity conservation involves a multitude of objectives and interdependent considerations across a diversity of locations, an optimal mix of policies, strategies and incentives is needed, including a regulatory safety net that prevents significant irreversible change. The complexity of this situation means that evaluation of individual instruments or mechanisms is almost impossible. Instead, the characteristics of the various instruments need to be identified, and the ways they will interact clarified, in order to ensure that optimal outcomes are achieved.
As well as the evaluation criteria, four key guidelines were developed to help in the design of policy mixes that promote the active conservation of biodiversity. These are that (all things being equal):
- policy changes should seek to reduce underlying threats to biodiversity such as institutional failure, market failure or incompletely specified property-right structures, as well as the direct threatening processes;
- preference should be given to mixes that motivate communities and industry to conserve biodiversity;
- less interventionist instruments should be preferred to more interventionist instruments; and
- where an ongoing and active contribution to the conservation of biodiversity is desired, financially-attractive instrument mixes should be preferred to those that reduce the net welfare of those asked to conserve biodiversity.
National Goals and Guidelines were developed following the consideration of the above aspects of the overall project. In developing these, the Project Team ensured that they are consistent with the National Strategy for the Conservation of Australia's Biological Diversity, the Intergovernmental Agreement on the Environment, and other relevant initiatives.
In building the set of policies and programs necessary to ensure that Australia's investment in biodiversity conservation is adequate, there is a need to recognise that:
- many of the benefits from our total investment in biodiversity conservation are public in nature and involve non-market as well as market considerations;
- biodiversity conservation will be most efficient if the suite of mechanisms used encourages those who use resources, to protect biodiversity; and
- the most effective mix of instruments at any location will involve the coordinated integration of a suite of mechanisms that arise from the interaction of decisions made by different organisations and individuals.
The report suggests that Australia should work towards ensuring that:
- biodiversity conservation and protection is undertaken as a fundamental part of and necessary precondition for ecologically sustainable development and the implementation of the precautionary principle;
- responsibility for maintaining biodiversity is shared between government, community and industry in a transparent manner;
- appropriate incentives are put in place to encourage the protection of biodiversity and to encourage its use only in ways which are ecologically sustainable;
- appropriate mixes of incentives are developed and appropriate weightings given to motivational, voluntary, property-right, price-based, and regulatory instruments in ways which vary according to the biodiversity threat and bioregional and social characteristics;
- the institutional capacity at all levels of government and within the non-government sector is capable of supporting a national approach to biodiversity protection through the use of incentives; and
- the Australian community as a whole – as well as users and beneficiaries of biodiversity – contribute towards the provision of incentives to land managers charged with primary responsibility for biodiversity protection.
The following guidelines have been developed to assist decision making about appropriate incentive mixes, and improving institutional capacity:
When considering trade-offs
- as information about biodiversity is uncertain and adverse consequences are irreversible, the emphasis in choosing between efficiency, equity and ecological considerations should be on ensuring that maintenance of biodiversity values is the priority;
With regard to institutional considerations
- biodiversity conservation should be fully integrated into regional plans and sectoral plans such as those for forestry, agriculture, coastal zones and rural development;
- rather than expecting accountability to result simply from reporting mechanisms and processes, accountability mechanisms should also be built into the funding mechanisms available at all levels of government;
- authority and accountability for implementing the various aspects of the National Biodiversity Conservation Strategy should be given to the lowest level of government at which it can be effectively exercised;
With regard to the instrument mix
- fundamental to any policy mix to address threats to biodiversity are motivational incentives which work to involve communities and industries in biodiversity protection and ecologically sustainable use, at planning, decision making and implementation levels;
- precautionary standards, enforced by regulation, are a necessary underpinning of any incentive mix;
- since no single instrument or type of instrument has dependability, more than one instrument and instrument type will usually be necessary;
- each level of government should set precautionary standards for biodiversity protection, and no level of government should be empowered to undermine any precautionary standard set by another level of government, a community or an industry.
With regard to financial considerations
- the Australian community as a whole should take financial responsibility for protecting biodiversity when the costs of doing so cannot be recovered by the use of market mechanisms;
- the cost of controlling and preventing threatening processes should be borne primarily by those who cause these processes;
- all those who benefit from non-market dimensions of biodiversity conservation, either directly and indirectly, should contribute to the cost of its maintenance;
- in using the attributes of biodiversity, provision must be made for ongoing management to control the threats that will arise from that use;
- landholders who draw attention to the presence of an endangered species or other important attributes of biodiversity not previously identified on their land should be eligible for compensation for commercial opportunities foregone;
- as most property ownership embodies a speculative dimension, compensation for the loss of a private land development option should be used only as a transitional measure when absolutely necessary to obtain community acceptance of a change in property rights; and
- when compensation is paid it should be associated with a clear change in property rights guaranteeing the protection of biodiversity values in perpetuity via a conservation covenant or other similar mechanism.
Following the identification of the outcomes of each part of the project and consideration of the National Goals and Guidelines, opportunities for action were identified. These include opportunities to build institutional capacity and to develop appropriate and effective incentive mixes. Incentives under consideration in this report generally fall into the five categories of motivational, voluntary, property-rights based, regulatory and price based, with the price based mechanisms being the primary method of paying for biodiversity conservation.
Opportunities to build institutional capacity
The role of governments at all levels should be to:
- build administrative structures that empower local communities and industries to protect biodiversity (G4);
- provide access to instruments necessary for their operation;
- address problems where local initiatives fail or are incomplete; and
- give consistent signals to resource users and consumers about the importance of conserving biodiversity.
The appropriate boundaries for government decision making on biodiversity are bioregional (G8). However, local governments, whose boundaries are rarely consistent with bioregional boundaries, have close and identifiable ties with the community, and provide an appropriate base for biodiversity action (G9).
Biodiversity conservation needs to be integrated into every day decision making, at all levels of government, in the community and in industry (G6, G7). Stakeholders in decisions about biodiversity need to involved in the relevant decision making and advisory bodies. They need to be resourced to participate (G10), but they also have a responsibility to ensure that their own internal processes allow real opportunities for the involvement of those at a "grassroots level". The Project Team recognises that there are pitfalls to greater involvement of the community and industry in key decision making. There is potential for self-interest and local needs to dominate over consideration of biodiversity, and conflict within decision making forums will be a constant concern. Transparent monitoring and accountability mechanisms are therefore essential pre-requisites of increased community and industry involvement, as are the development of appropriate and effective conflict resolution and facilitation processes.
Most of the underlying causes of biodiversity loss arise from decisions made by existing bodies. It is therefore more efficient to use and adapt existing administrative and institutional structures where possible to address biodiversity conservation (G5), rather than to create new structures.
Opportunities to develop motivational incentives
Incentives aimed at increasing levels of knowledge and understanding are based on the strong views put forward in all parts of this project that environmentally responsible behaviour is far more likely to result when people have a basic knowledge of the issues at stake.
Motivational incentives encourage people to share information and contribute efficiently to biodiversity conservation. The more motivated people are, the less the need for highly expensive enforcement and monitoring activity. This means that motivational incentives are a core mechanism for biodiversity conservation (G11). Not only is the content of the information presented important, the method of transferring information is pivotal. The report shows that information on biodiversity needs to move out from centralised repositories and be delivered to people on the ground in ways that have credibility with the target audience (G12). One proposal for increasing the commitment to gathering and distributing information is the development of community monitoring schemes, which have the additional benefit of giving those involved in biodiversity activity important feedback on their work. Although not seen as a high priority by participants in the community consultation forums, there is evidence that prizes and awards can play a role in raising awareness of biodiversity issues (G13). Their main benefit is the free publicity that accompanies them which, in turn, motivates others to conserve biodiversity.
Opportunities to develop voluntary incentives
As defined in this report, voluntary incentives are those for which the government contribution is only part of the total, and people are free to choose whether or not they should participate. Voluntary incentives are perceived as non-interventionist and regarded as equitable within the community. There are opportunities to use such incentives in circumstances where applicants have a genuine interest in protecting biodiversity, and little interest in obtaining a financial concession for themselves.
Targeting of voluntary incentives is particularly important (G14). Examples of voluntary incentives which achieve those criteria are the incorporation of biodiversity considerations into property management plans and assessment and accreditation processes.
Opportunities to develop property-right incentives
The report canvasses the two types of property right incentives – those called covenants or management agreements, which cannot be separated from a specific resource, and those like licences to catch fish, shoot kangaroos and use water, which can be moved from one location to another. Management agreements can be used to reimburse people for the costs of biodiversity protection which are not able to be recovered through normal market mechanisms (G15), for example, to encourage landholders to undertake specified management activity on private land adjacent to public conservation reserves. Conservation covenants are particularly effective in protecting remnant vegetation, and can be used to underpin management agreements (G16).
The use of conservation covenants can also be linked to other incentives, for example, the Local government rating systems, to recognise the value of uncleared land.
Licence and permit systems are used where there is a need to link biodiversity protection with an economic activity, for example, pollution permits, ecotourism operator licences, clearing licences and licences for kangaroo shooting. However, in the design of licence systems, there is a need to place emphasis on the dependability of the licence to protect biodiversity in an efficient and equitable manner (G17).
Tradeable rights systems are often advocated by economists, but have rarely been demonstrated to succeed in maintaining biodiversity values. The benefits of transferable property rights are more apparent in areas where one can trade equivalent units (eg fisheries) than where the units traded are not necessarily equivalent (eg wetland mitigation schemes). Where biodiverse resources are used commercially, tradeable rights have a role but should never be seen as the sole solution. In virtually all cases, they need to be supported by an appropriate network of regulatory, financial and institutional measures.
Opportunities to develop regulatory incentives
Despite the emphasis in this report on motivational, social and market based incentives, there remains an important role for regulation, because, acting alone, bundles of less interventionist, financially positive and motivational instruments are not sufficient to protect biodiversity in all circumstances. Regulations provide precautionary standards and signals that act to protect against market failure to value biodiversity appropriately. They provide an essential safety net in a way that other instruments may not, to protect against the recalcitrant few not persuaded by other attributes of the incentive mix (G18). Each level of government needs to set such standards (G19), and for this to be dependable, no level of government should be able to undermine the standard set by another level of government, by a community or industry.
As regulatory incentives provide protection against those who do not respond to other measures, they are particularly important when threats to biodiversity are likely to become irreversible, for example, in the case of land clearance. As the community is a major stakeholder in biodiversity decision making, there is also a need to allow the opportunity for challenge by interested parties other than the resource users themselves (G20).
Opportunities to finance biodiversity conservation
A key issue under consideration in this report is the degree to which incentives should be funded from general revenue, compared to the degree to which they should be funded by imposing costs on those that use the attributes of biodiversity, or be made part of the normal costs of production. Many of the benefits of biodiversity have no market value, and therefore no price. This can be overcome by making polluters pay, and making users pay for the cost of resource use including the cost of conservation of biodiversity (G21). When prices reflect the risks imposed by threats to biodiversity, industry is encouraged to search for efficient ways to reduce the threatening processes. However, the community consultation forums indicated a strong view that biodiversity conservation is a national community responsibility, and should not become an additional cost burden solely for the users or direct beneficiaries of biodiversity. As some biodiversity conservation is a public good, at least the non-marketable public good portion should be borne by government (G22), and thus ultimately by all Australians both rural and urban. At the same time, however, as much as possible should be made part of the normal costs of economic activity.
The removal of perverse incentives is an important aspect of reducing the cost of biodiversity conservation (G24), as are the removal or change of government programs which have caused unintended declines in biodiversity values. The tax system is an important area for reform, particularly when taxation incentives are recognised to be the most cost effective means of encouraging altruistic investments in biodiversity conservation by the private sector (G26).
Another method of ensuring that users pay, is the imposition of levies and charges. These have the additional benefit of making users of biodiversity aware of the cost of managing their activities (G23). Acceptance of such levies is likely to be improved if the funds raised are clearly seen to be working towards biodiversity protection, preferably by being placed in conservation funds administered by the community or industry concerned (G25).
The full report from the Project Team provides extensive details on the proposals put forward above. The full list of General (G) and Specific Recommendations follows.