11/02/2006 Plenary: ‘A 50 year Perspective on Agricultural and Resource Policy’ Natural Resources and the Environment 1 2 David Godden and Matthew Skellern 50th Annual Conference Australian Agricultural and Resource Economics Society 8-10 February, 2006, Sydney Abstract Australian environments and natural resources have changed substantially since the Society was founded in 1957, partly as a result of changes to the economy, society, technology, and global conditions. This paper documents changes in the stock and condition of Australia’s environment and national resources 1955-2005, considering how policy has both responded to and influenced those changes. New resources have been discovered (e.g. minerals and some fish stocks); some resources have experienced long-term stock decline in both quantity and quality (e.g. forests and fisheries); new uses have been found for known resources (e.g. coal exports and agricultural commodities); technology and investment have changed the ways resources are extracted and used; and increased incomes have increased demand for outdoor leisure and conservation. These changes have variously increased and decreased the pressures on resources and the environment. Society has responded – both reactively and proactively – to changing environmental conditions and pressures, including increased scales of effects (e.g. climate change and stratospheric ozone globally). Perceptions have also changed about the extent of and proper limits to environmental and resource degradation, and appropriate responses to such degradation.. Insights gained from this retrospective are used to consider prospects for future policy impacts, and in particular how economists might contribute to policy processes concerning the environment and natural resources. Nothing in this paper necessarily represents the policies or views of the NSW Government, the Minister for the Environment, or the Department of Environment and Conservation (NSW) 1. Department of Environment and Conservation (NSW), Sydney and Honorary Associate, Faculty of Agriculture, Food and Natural Resources, University of Sydney 2. Department of Environment and Conservation (NSW), Sydney 1. Introduction................................................................................................................................ 3 2. Thinking about policy................................................................................................................. 4 2.1 Economists analysing policy – induced institutional innovation 4 2.2 Australian institutional issues 5 3. Resources in mid-1950s............................................................................................................ 6 3.1 Agriculture 6 3.2 Forestry 7 3.3 Water 7 3.4 Fishing and marine 8 3.5 Minerals/Energy 8 3.6 Pollution emissions & waste disposal 9 3.7 Biodiversity & landscape conservation 10 3.8 Scourges 12 3.9 ’Of droughts and flooding rains’ 13 4. Resources circa 1980.............................................................................................................. 14 4.1 Agriculture 14 4.2 Forestry 15 4.3 Water 15 4.4 Fishing and marine 16 4.5 Minerals/Energy 17 4.6 Pollution emissions & waste disposal 18 4.7 Biodiversity & landscape conservation 19 4.8 Scourges 19 4.9 ’Of droughts and flooding rains‘ 20 5. Resources around 2005.......................................................................................................... 21 5.1 Agriculture 22 5.2 Forestry 22 5.3 Water 23 5.4 Fishing and marine 24 5.5 Minerals/Energy 26 5.6 Pollution emissions & waste disposal 27 5.7 Biodiversity & landscape conservation 28 5.8 Scourges 29 5.9 ’Of droughts and flooding rains‘ 30 6. Institutional & policy change 1955-2005..................................................................................31 6.1 Commonwealth/State relations 31 6.2 National Competition Policy 35 6.3 Environmental activism and litigation 36 6.4 Native title 38 6.5 Forest policy 40 6.6 Transfer pricing 44 6.7 Evolution of pollution management 45 7. About the future....................................................................................................................... 45 7.1 Trans-boundary 45 7.2 National 48 7.3 Regional 51 8. Role of economics in fashioning policies for current/future problems..................................... 55 8.1 Property rights and market based instruments 55 8.2 Information on economic values of environment 58 8.3 GIS and economics 60 8.4 Inter-temporal 61 8.5 Mythbusters 62 9. Conclusion............................................................................................................................... 65 References.................................................................................................................................. 68 2 1. Introduction It is trite (but correct) to observe that there was extraordinary social, political, economic and technological change in the second half of the twentieth century. The mid-1950s were the height of the Cold War, less than halfway through the Menzies reign, and preceded space flight, the transistor and the Beatles. This social, political, economic and technological change forms the context for the following examination of the Australian environment and natural resources, and related policy. Australian natural resource and environmental conditions and policy have also changed remarkably over the past 50 years.1 In the mid-1950s, agriculture contributed approximately 15% to GDP and comprised 80% of exports.2 Agricultural expansion was seen as essential for economic growth (McEwen1952), and major “national development” projects (such as the Snowy Mountains Scheme and 90 mile desert) were seen as essential to national (economic) development. Apart from icon sites (e.g. Broken Hill, Mt Isa, Kalgoorlie) and coal (still largely underground) for domestic use (iron/steel and electricity generation), mining was a small part of the economy; indeed iron ore exports were prohibited (from 1938-60).3 Environmental damage was highly visible in the agricultural sector, with some management successes.4 Elsewhere, environmental damage was literally visible but largely policy-invisible. By contrast, in the first half of the current decade, agriculture has shrunk to 2.7% of GDP and 23% of merchandise exports5 (notwithstanding valiant efforts to expand the ANZSIC definitions of “agriculture” to include related upstream and downstream activities).6 Mining has dramatically expanded to 6.5% of GDP, with mineral fuels, and ores and metals, each comprising about 20% of merchandise exports (with consequent impacts on the exchange rate and the agricultural sector; Gregory 1976, refined in computable general equilibrium e.g. Higgs 1986). Other natural resource extraction industries expanded beyond long-run sustainable output and have contracted (e.g. some fisheries),7 or became embroiled in controversy over extraction versus 1 Considerable effort has been expended in distinguishing between “(natural) resource” economics, “environmental” economics, “ecological” economics, etc. Nature has bequeathed resources, which can be explicitly exploited (agriculture, forestry, fishing and mining), implicitly exploited (by challenging nature’s “assimilative capacity” through emitting wastes and pollution), or conserved (exploitation prevented). These activities are different facets of related problems, and are addressed similarly by economic analysis; it seems unnecessary to maintain arbitrary and unprofitable distinctions, and we don’t. 2 The farm sector’s contribution to GDP fell consistently from 22-27% of GDP in the early 1950s to about 12% at the end of the decade. Farm exports fell consistently from over 80% of export value at the start of the 1950s to about 75% at the end. 3 for the prohibition, see the following; Blainey (1969, p.348) noted that the WA Government also refused to grant title to explore for iron ore until 1961: http://www.info.dfat.gov.au/info/historical/HistDocs.nsf/vVolume/435C7FF043C60155CA256B7D00810EBF 4 Following European settlement, poor understanding (even disdain) for Australia’s biophysical characteristics led to serious environmental damage which continued into the twentieth century. As part of the disastrous post-World War 1 soldier settlement, farmers were settled in drier margins and quickly succumbed to soil erosion. The WWII Rural Reconstruction Commission noted previous efforts at land clearing had been unwise (and uneconomic), identified serious errors in forestry clearing, and noted development of a “national conscience” about national parks. Even where regulation of land management was attempted, government failure was an ever-present risk. The Rural Reconstruction Commission drew attention to a variety of “unfortunate attempts at regulation and control”, including rabbit control, wind erosion and sand drift, and irrigation control. It noted that bores in the Great Artesian Basin were already beginning suffer reduced flow, or even to fail. A major success against an introduced pest had been achieved via biological control (prickly pear) although offset by the introduction of cane toads. (cf. Godden 1999a) 5 2000-01 to 2001-02; see for example Productivity Commission (2005, Fig 4.1) 6 see Econtech (2005); but note their disclaimer: “This work has been produced for the Australian Farm Institute Limited and Horticulture Australia Limited according to strict instructions. Econtech Pty Ltd makes no representation to, and accepts no liability for, reliance on this work by any