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Mr Rob Butterworth
Head, Policy Coordination Division
Commonwealth Department of the Environment and Heritage

After Dinner Speech
to the
Melbourne Business School Seminar on
Risk Analysis and International Agreements

10 February 1999


Imagine for a moment, that you're the managing director of one of Australia's top 10 companies. You've just spent 50 years building up your business, steadily increasing your domestic market share and carving out new markets abroad.

Thousands of Australians rely upon you each week for their paychecks, and your business has become the backbone of communities across every state and territory.

Suddenly it comes to your attention that the Commonwealth Government has decided to commit Australia to an international agreement which cedes national sovereignty and has the potential to dramatically alter the prospects of your business.

On television, you see the Foreign Minister saying that while there may be some losers, the benefits to the nation as a whole justify this loss of sovereignty, (and presumably this loss of business for your company). Australians have to try to appreciate the big picture.

Familiar story?

Yes indeed. And as you'll all have guessed, I'm not thinking of an environmental agreement, but of course -- the General Agreement on Tariffs and Trade.

International Agreements and Ceding National Sovereignty:

I mention this scenario, because it's important that we keep in mind that every agreement to which the Commonwealth government commits Australia involves some ceding of sovereignty. Very often, these agreements also impact upon the activity of individual companies or entire even sectors.

However, we tend not to hear many complaints about the loss of sovereignty involved in the signing of trade liberalisation agreements. Nor have we heard much complaining about the loss of sovereignty involved in deregulating the financial sector.

Yet, loss of sovereignty is commonly invoked as part of the case against multilateral environmental agreements (MEAs). Aside from being a case of selective application of an argument, it is not always an accurate observation when it comes to MEAs.

For example, it ignores the reality that environmental agreements can actually enhance national sovereignty in certain circumstances -- the Prior Informed Consent arrangements for the export of hazardous chemicals and pesticides to developing countries is one obvious example.

Also commonly invoked in opposition to MEAs is the suggestion that they necessarily contravene free trade arrangements without justification.

I'd agree that there is necessarily a tension between our national trade and environmental objectives. I'd also agree that we need to be careful to ensure that non-tariff barriers are not "dressed-up" as environmental protection.

But we shouldn't always presume that there is an international hierarchy of needs which says that trade objectives must always prevail ahead of the environmental objectives of the global community. Both are legitimate, and they need to be reconciled.

MEAs can be far from perfect, but they are an essential part of our efforts to bring about sustainable development worldwide. They are also the only way to address numerous transboundary environmental threats which have consequences for Australians and their environment.

MEAs reflect environmental problems of a regional or global nature -- things which simply cannot be adequately addressed by individual nations acting alone. They are no different in this sense to agreements which promote trade liberalisation or nuclear non-proliferation.

There is always going to be some give and take on all sides. To my mind, it's reasonable to expect that all signatories should expect to shoulder a commitment in exchange for the benefits likely to accrue from the agreement -- whether they be environmental benefits or gains from trade.

Looking back, the agreements themselves have a mixed record -- the Montreal Protocol to phase out ozone-depleting substances is a shining example of how successful international co-operation on environmental matters can be. Some agreements, such as the Basel Convention have been less successful, and the jury is still out on a few.

But, by and large, I think we have to accept that Australia's membership in these agreements has been vindicated over time. So, I'm not sure that questioning our membership in existing MEAs is really a very worthwhile debate to have.

However, what certainly is a legitimate discussion is whether the risks associated with agreements currently being negotiated are being adequately assessed.

It's a very timely discussion to have too, since Australia is currently engaged in some very crucial negotiations, including:

Risk Assessment and the Precautionary Principle:

Risk assessment and risk management is an increasingly important element of environment policy. Ecologically sustainable development is about meeting the economic, social and environmental aspirations of the present generation while managing the risk that today's consumption might limit the choices of future generations.

There are various elements of risk involved -- not just scientific and environmental risks -- and they should all be adequately assessed:

If we say yes to any development, we are simply discounting the importance of risks which could seriously limit the choices of future generations. But saying no to everything is not a panacea either, because economic benefits forgone to day just as surely limit choices in the future as long term damage to the environment.

So, our task often involves making difficult assessment based on incomplete information about risks of many kinds. And because our information is so often incomplete, we tend to adhere to what is commonly called the precautionary principle -- that is to err on the side of caution where there is scientific uncertainty, but sufficient evidence that environmental threats pose significant and irreversible damage.

This is an important underlying element of our approach whether we're assessing an application for a development next to the habitat of an endangered species or developing Australia's negotiating position in an international environmental agreement.

And as such, the more information we have about the risks involved the better able we are to ensure that appropriate developments are allowed to proceed.

Risk Assessment and Multilateral Environmental Agreements (MEAs):

Looking back at Australia's involvement in international agreements, I think it's fair to say that we would have benefited from better risk assessment procedures. The current government has acknowledged this in making some important changes to enhance our assessment processes when it comes to international agreements, many of which involve the environment.

In May 1996, Parliament established a Joint Standing Committee on Treaties which enhanced the ability of the legislature and stakeholders in the wider community to contribute to the risk assessment process.

The Committee is able to examine any question relating to a treaty which has been referred to it by either house of parliament, or any Minister. The Committee also examines the National Interest Assessments (NIAs) which are prepared by the Department of Foreign Affairs and Trade as a matter of routine, where new agreements are being considered.

The NIA should include "a discussion of the economic, environmental, social, and cultural effects of the treaty where relevant; the obligations imposed under the treaty; its direct financial costs to Australia; how the treaty will be implemented domestically; what consultation has occurred and whether the treaty provides for reservations, withdrawal or denunciation."

The analysis tends to be a bit "broad-brush," and there is probably scope to improve our assessment processes -- particularly for MEAs. However, that's a bit easier said than done as there are a number of factors which complicate risk assessment processes involving environmental issues.

Which risks?

First and foremost -- which risks should we consider? And which costs and benefits should we consider, given that our decision analysis has to incorporate not only the likelihood we place on various risks, but also the costs and benefits associated with those risks.

For example:

We have to consider the environmental risks --

We have to consider the economic risks -- We also have to consider a range of risks which businesses are often able to ignore when developing their own assessments. Governments have to consider social, political, and diplomatic risks -- for example:

And What if these risks, costs and benefits are intangible?

And when it comes to incorporating our assessment of risks into an analysis of the costs and benefits associated with an MEA, how do we take account in our equations for things which are impossible to quantify reliably?

If there's a 25% chance that Climate Change will cause the loss of one of our endangered species, how do we incorporate that into our analysis when it is impossible to quantify the value of that species or its ecosystem?

How do we place a figure on the value Australians place on protecting whales through the International Whaling Commission, or preventing the trade in endangered species through the Convention on International Trade in Endangered Species?

And how do we quantify the intangible diplomatic benefits associated with international agreements -- how, for example, do you put a dollar value on the goodwill created towards Australia through our involvement in an MEA, or in providing environmental aid abroad?

And while we might be able to make some projections for sectors of industry likely to shed sales and jobs as a result of Australian involvement in an MEA, how do we quantify the economic and employment growth likely to accrue to Australian companies who might gain from Australian involvement, especially when the said companies may not even yet exist?

Consider that the global market for environmental technologies is already estimated to be worth US$400 billion. That figure only grows each time the world agrees to take measures which further improve its environmental performance, and Australians are in many cases at the leading edge of environmental innovation.

Who pays? --

We also have to consider who pays for risk assessment. I'm not sure it's reasonable or productive to expect affected industries to shoulder the burden alone, any more than it's reasonable to expect the environmental movement to do so.

It's not reasonable because it's unfair to expect either to spend resources in part elucidating the other side's case, and it's not productive because neither side will ever ultimately provide an entirely objective report.

It's easy to expect the government to invest in risk assessment, but it is often a question of allocating scarce resources between competing priorities -- and let's face it there is no limit to the amount of money you could spend on risk assessment.

For these reasons, I'm not sure how practical it is to try to impose a consistent set of risk assessment guidelines to each potential MEA as it comes up.

Where the national interest is pretty unambiguous one way or the other, and the case is clear cut and convincing, applying the same set of rigorous assessment procedures could be a fairly inefficient use of resources.

Alternatively, its possible that a standardised approach could be inadequate in some cases. I think we do need to rely on stakeholders on all sides to as much light as possible on the risks, costs and benefits as they see them. And how do we assess the trade-offs? -- Finally, once we have assessed the risks, costs and benefits how do we make what are often extremely difficult trade-offs.

Say, scientists tell you that exposure to a toxic substance is associated with death in a one in a million people. Where do you set the acceptable environmental standard for exposure? And does your standard you set change depending on whether the cost of banning the substance is $500,000 or $500 million?

In the United States, this very dilemma led the Congress to include provisions in the Clean Air Act which explicitly forbade the USEPA from considering cost-benefit analysis in assessing appropriate environmental standards for protecting human health. It's just as fraught with danger to try placing a value one of our native endangered species, or a whole range of other intangible environmental, social and cultural values.

So, even if our risk assessment processes are thorough, and incorporate the whole range of costs and benefits involved across society, the equation they give us ultimately provides no definitive answer?

Instead, what they give us is a snapshot of the various risks at the current time -- a picture which is distorted by a range of intangibles we can't properly quantify, and blurred by the knowledge that things could be different a year or even a week from now.

That's not to say that the assessment is not important -- it is. However, we need to understand the limitations. Ultimately governments will always have to make a judgement call about what's likely to be in the national interest based on what information they have, and what information they lack. Conclusion: In closing, it is a fact of life that some environmental issues require us to work with other nations to forge common goals and accept shared responsibilities. Inevitably, this involves assessing and managing risks.

In many instances, some of the risks relate to the ongoing commercial interests of Australian businesses, and these are an important component of our assessments of the broad national interest.

Our success and determination in getting a fair deal for Australian in the Kyoto Protocol is testimony to how seriously we take the risks and costs which MEAs can impose on Australian business.

But as we assess our broad national interest, we have to consider the issue from all sides. And there are often benefits which can offset some risks:

Australia's willingness to play an active role in the formulation of multilateral environmental agreements has been vindicated over the years. We continue to recognise that in order to shape the outcome, we need to be a part of the negotiations.

The more involved Australian business is in assessing the risks of MEAs, the better positioned we are as a government to factor their interests into our assessments about the national interest.

As we look towards further negotiations on climate change, a Biosafety Protocol, and a convention on Persistent Organic Compounds, input from all sections of the Australian community about the risks, the costs and the benefits is extremely important.

This conference will certainly assist in focusing the minds of many on the importance of MEAs, and of assessing the whole range of risks associated with them -- and I congratulate the Melbourne Business School for taking the initiative in putting the event together.

Commonwealth of Australia