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Joint Media Release
Minister for the Environment and Heritage
Dr David Kemp
&
Minister for Agriculture, Fisheries and Forestry
Warren Truss

20 June 2002

Applying Economics to Natural Resource Management


The Commonwealth, States and Territories have agreed to a new $10 million program to look at how the marketplace might help conserve and sustain Australia's natural resources.

The Natural Resource Management Ministerial Council, which is made up of Australia's environment and agriculture ministers, is inviting applications for funding to run pilot projects testing the use of market mechanisms such as trading schemes, auctions and price signals to encourage better management of natural resource issues like salinity, waste water and vegetation management.

Co-chairs of the Council, the Minister for the Environment and Heritage, Dr David Kemp, and the Minister for Agriculture, Fisheries and Forestry, Warren Truss, said the National Market-Based Instruments Pilots Program also aimed to stimulate public debate on the issues.

"Market-based instruments (MBIs) work by using market signals to encourage more sustainable practices, and are a widely used tool for natural resource management in some countries," Mr Truss said.

MBIs may include creating new markets or removing existing barriers to market activities. An example is the 'cap and trade' mechanism that is used successfully in the Murray-Darling Basin to encourage water trading. This is when governments determine the overall allocation of water for irrigated agriculture in a certain region, and landholders can trade with other landholders if they find they need more or don't need as much water as they are initially allocated.

"The Natural Resource Management Ministerial Council is keen to explore the potential of the market to encourage action to reduce salinity, improve water quality and conserve biodiversity," Dr Kemp said.

Dr Kemp also said some overseas and Australian State governments 'auctioned' funding for environmental work.

"In these cases, governments go to the marketplace with a list of environmental outcomes they want to achieve - such as conserving a number of hectares of native bushland or planting a number of trees - and invite landholders to bid for funding to undertake this work.

"In this instance governments are buying environmental outcomes and the market is dictating what it costs to achieve them. This system replaces traditional grants programs and benefits landholders who want to undertake this work as a part of their overall land management strategies, while determining the true cost."

Dr Kemp said governments could use MBIs to regulate wastewater discharge into waterways. This would work by limiting the total discharge from all industry in a region to a level that was environmentally sustainable, then creating a market system where companies could trade their rights to discharge.

"Apart from taxes and subsidies, Australia is still at an early stage in developing and using MBIs. Many schemes are still being designed or have only recently been implemented.

"MBIs are not a quick fix, and many require legislative underpinning and support. There is still much to learn and all jurisdictions are facing the same questions about their practical application.

"Nevertheless, it is clear that MBIs have huge potential to achieve 'more from less', to drive innovation, place environmental considerations in the mainstream and give economic incentive for good natural resources management," Dr Kemp said.

The National Market-Based Instruments Pilots Program will be implemented in two phases. In the first phase $5 million will be allocated to pilot projects over about two years. If this is successful, a further $5 million may be allocated for further pilots.

Mr Truss said the Program was part of the joint Commonwealth, State and Territory $1.4 billion National Action Plan for Salinity and Water Quality.

"MBIs are potentially one of the methods which may be used to address these serious environmental issues," Mr Truss said. "MBIs may be a means by which the wider community bears some of the cost of work undertaken or property rights sacrifices made by farmers and landholders for the common good."

For more information about the national Market-Based Instruments Program and the pilot projects please contact Christina Sickert (08) 8303 9339 or Rod Jenkins (08) 8303 9667, Program Coordination Group or visit www.napswq.gov.au.

Media contacts:
Dr Kemp's office Catherine Job (02) 6277 7640 or 0408 648 400
Mr Truss's office Tim Langmead (02) 6277 7520 or 0418 221 433

Commonwealth of Australia