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Joint Media Release
Federal Minister for the Environment and Heritage
The Hon Dr David Kemp, MP

Federal Minister for Agriculture, Fisheries and Forestry
Warren Truss

16 April 2003

$5 Million for Innovative Environmental Management Program

The Commonwealth, State and Territory Governments will jointly fund $5 million for 10 natural resource management projects under the first round of the National Market Based Instruments (MBI) Pilots Program.

The projects - approved by the Natural Resource Management Ministerial Council following recommendations by an independent selection advisory panel - will investigate ways to use innovative financial arrangements to encourage better land and water management and to reduce salinity in irrigation-based agriculture. Pilots are expected to begin operating in June 2003 and be completed in mid-2005.

Market-based instruments (MBIs) use trading mechanisms, auctions and price signals to change behaviour to address important natural resource issues and fill knowledge gaps across jurisdictions.

For example, one pilot project is a scheme where irrigators can choose the most cost effective way to manage salinity levels in a river catchment. To ensure salinity levels do not increase, a cap or target is set for the whole irrigation area. The cap or target can be achieved by undertaking activities to reduce salinity levels or by purchasing credits from other landholders who can achieve the same results more cheaply.

"The overall result is that it costs less to reduce overall salinity levels in the catchment than if all farmers had to each achieve exactly the same results," the Federal Minister for Agriculture, Fisheries and Forestry, Warren Truss, said.

Mr Truss said MBIs can be used to encourage sustainable land management practices and their use as a tool for natural resource management is increasing in some countries.

The Natural Resource Management Ministerial Council is co-chaired by Minister Truss and the Federal Minister for Environment and Heritage, Dr David Kemp.

"One of the key criteria for selecting the pilots was that the knowledge gained from the project would be transferable across each of the State/Territory jurisdictions," Dr Kemp said.

"The program is also significant because it demonstrates partnerships between the Commonwealth and the States and Territories, and with the private sector.

"There is a lot of interest - both nationally and internationally - in MBIs. They are seen as offering great potential in the effort to conserve biodiversity, reduce salinity and manage water allocation within environmental limits - among many desirable outcomes.

"In Australia, we are still at an early stage in developing and using MBIs but expect the program to deliver real on-ground results in improving natural resource management."

Mr Truss said the 10 pilot projects were selected from more than 50 applications.

"These projects will provide significant information on how we might go about creating markets and where we need to oil the wheels of existing markets to make them more efficient," he said.

"Most importantly, they will examine a range of instruments to encourage improved natural resource management through market signals, rather than only through legislation or regulation.

"As part of this process, they will focus on three areas that offer potential to improve environmental policy design - 'cap and trade' schemes, auctions for the purchase of environmental services, and strategic information disclosure."

Dr Kemp said this round of pilots did not address the key issue of applying MBIs to dryland salinity.

"Given its importance for the National Action Plan for Salinity and Water Quality, we have agreed to fund a separate pilot to fill this national knowledge gap as soon as possible," he said.

"There will be a further announcement shortly, inviting tenders for this project according to a set of criteria now being developed."

Information on each of the pilot projects that have been offered funding is attached.

Media Contacts:
Dr Kemp's office (Catherine Job) 6277 7640 or 0408 648 400
Mr Truss's office (Annette Healy) 6277 7520 or 0408 627 227

National Market Based Instruments Pilot Program Projects

Multiple-outcome auction of land-use change

Lead Organisation: Department of Primary Industries, Victoria
National Action Plan Region: Goulburn-Broken, Victoria
Project description: This project will extend the auction approach successfully trialled in the Bushtender program to include salinity, water quality, water quantity and biodiversity. It will consider how intervention in the landscape can cause multiple outcomes. Planting trees, for example, may reduce accessions to groundwater tables (the cause of dryland salinity) and buffer nutrients from surface water, but trees also reduce the flow of surface water, which can adversely affect water quality in streams. This pilot also intends to address the development of appropriate duty-of-care benchmarks.

Tradable net recharge contracts in Coleambally Irrigation Area

Lead Organisation: CSIRO Sustainable Ecosystems
National Action Plan Region: Lachlan-Murrumbidgee, NSW
Project description: This project will test on the ground the effectiveness of trading schemes for managing salinity in existing irrigation. With the support of the Coleambally Irrigation Cooperative, the pilot will reward environmentally efficient farmers by setting up a trading scheme where irrigators can choose the most cost-effective way of managing recharge. Irrigators will be able to create credits either on or off-farm, or if it is more cost-effective, purchase credits from other irrigators. To ensure salinity levels do not increase, the cap for the scheme will be the current legislative cap for the irrigation area.

Farming Finance: Creating positive land use change with a Natural Resource Management Leverage Fund

Lead Organisation: Greening Australia
National Action Plan Regions: Lachlan-Murrumbidgee, NSW/South Coast, WA
Project description: This project will set up a fund to leverage private sector investment to deliver natural resource management outcomes and private returns to investors. By establishing a non-profit leverage fund supported by financial, natural resource management and public policy skills, the pilot will assess the potential for leveraging greater 'public good' outcomes using an investment fund model (rather than a grants-based 'purchaser-provider model'). The fund will broker customised financing for individuals and groups who propose to undertake natural resource management activities delivering public and private benefits.

The fund will work through:

Auction for landscape recovery (Southwest Australia)

Lead Organisation: World Wildlife Fund, Australia
National Action Plan Region: Avon, WA
Project description: This project will design and trial an auction to provide incentives for diffuse source salinity and biodiversity outcomes, where individual bid weighting would include the extent to which bids complement each other. It will evaluate the design of conservation auctions used as a landscape recovery mechanisms, through a government-NGO partnership under the auspices of a Regional Catchment Council. Auctions are a promising option for facilitating management interventions that are consistent with the economic capabilities of the farm enterprise, to provide landscape-scale environmental outcomes.

Adoption of New Land Management Practices through Conservation Insurance

Lead Organisation: Department of Water, Land and Biodiversity Conservation, SA
National Action Plan Region: Lower Murray, SA
Project description: This project will undertake a scoping study into the use of insurance as a means of supporting changes in farming practices where risk is perceived to be a major barrier to implementation. A Conservation Insurance scheme will be developed that addresses the issue of risk and encourages landholders to change management practices, with a particular focus on improving water use efficiency and reducing recharge in areas affected by salinity.

Cap and Trade for Salinity: Property Rights and Private Abatement Activities, a Laboratory Experiment Market

Lead Organisation: Department of Primary Industries, Victoria
National Action Plan Region: Lower Murray, Victoria/South Australia
Project description: This project will use experimental economics to examine the economic efficiency and cost-effectiveness of a cap and trade approach to managing salinity from irrigated agriculture, compared to current policy instruments. The comprehensive analysis proposed aims to provide a platform for developing detailed policy proposals throughout the Murray-Darling Basin and elsewhere.

Catchment Care - Developing an auction process for biodiversity gains and water quality outcomes

Lead Organisation: Onkaparinga Catchment Water Management Board
National Action Plan Region: Mt Lofty-Kangaroo Island, SA
Project description: This project will test a low-cost biodiversity and water quality assessment and auction tool for use by regional natural resource management bodies. It will also test how measures for 'risk reduction' and actions that cross property boundaries can be included in assessing bids. The pilot is aiming to develop units or 'metrics' for measuring biodiversity and water quality outcomes, thus facilitating wider adoption of the best features of the Victorian-based Bushtender program.

Green Offsets for Sustainable Regional Development

Lead Organisation: NSW Environment Protection Authority
National Action Plan Regions: Namoi-Gwydir/Macquarie-Castlereagh/Murray, NSW
Project description: This project will implement three field-based salinity offset schemes to demonstrate how offset works can facilitate economic expansion, while avoiding addition of salt loads to stressed rivers in the Murray-Darling Basin. Under the pilot, point source polluters will be able to offset their emissions by investing in works that reduce salinity from diffuse sources.

Establishing East-west Landscape Corridors in the Southern Desert Uplands

Lead Organisation: Desert Uplands Build-up and Development Committee
National Action Plan Region: Burdekin-Fitzroy, Qld
Project description: This project will investigate the design of auctions to create biodiversity corridors. It will pilot the use of payments distributed via an auction format that accounts for the interdependence of bids from neighbouring properties. That is, the value of alternative vegetation corridors will depend on strategic cooperation between landholders. This project will use as a case study the Southern Desert Uplands, a bioregion where rapid land development is placing pressure on the landscape.

Establishing the potential for offset trading in the lower Fitzroy River

Lead Organisation: Central Queensland University
National Action Plan Region: Burdekin-Fitzroy, Qld
Project description: This project will examine how a salinity trading scheme might work in new and developing irrigation areas. Rather than using experimental economics, it will use choice experiments, where industry, irrigation and grazing participants are asked to indicate the choices they would make under a variety of circumstances. The project will explore the potential use of cap-and-trade pollution permits using the Fitzroy River as a case study.

Commonwealth of Australia