Promoting Better Environmental Outcomes Roundtable Proceedings Canberra, 19-20 August 2008 The views expressed in this publication are those of the authors and do not necessarily reflect the views of the Productivity Commission. @ COMMONWEALTH OF AUSTRALIA 2009 ISBN 978-1-74037-277-0 This work is subject to copyright. Apart from any use as permitted under the Copyright Act 1968, the work may be reproduced in whole or in part for study or training purposes, subject to the inclusion of an acknowledgment of the source. Reproduction for commercial use or sale requires prior written permission from the Attorney-General’s Department. Requests and inquiries concerning reproduction and rights should be addressed to the Commonwealth Copyright Administration, Attorney-General’s Department, Robert Garran Offices, National Circuit, Canberra ACT 2600. This publication is available in hard copy or PDF format from the Productivity Commission website at www.pc.gov.au. If you require part or all of this publication in a different format, please contact Media and Publications (see below). Publications Inquiries: Media and Publications Productivity Commission Locked Bag 2 Collins Street East Melbourne VIC 8003 Tel: (03) 9653 2244 Fax: (03) 9653 2303 Email: [email protected] General Inquiries: Tel: (03) 9653 2100 or (02) 6240 3200 An appropriate citation for this paper is: Productivity Commission 2009, Promoting Better Environmental Outcomes, Roundtable Proceedings, Productivity Commission, Melbourne. JEL code: Q28 The Productivity Commission The Productivity Commission is the Australian Government’s independent research and advisory body on a range of economic, social and environmental issues affecting the welfare of Australians. Its role, expressed most simply, is to help governments make better policies, in the long term interest of the Australian community. The Commission’s independence is underpinned by an Act of Parliament. Its processes and outputs are open to public scrutiny and are driven by concern for the wellbeing of the community as a whole. Further information on the Productivity Commission can be obtained from the Commission’s website (www.pc.gov.au) or by contacting Media and Publications on (03) 9653 2244 or email: [email protected] Foreword The Productivity Commission convened a roundtable on Promoting Better Environmental Outcomes at Old Parliament House in Canberra on 19–20 August 2008. Participants included government officials, academics, consultants, journalists and representatives of environmental organisations and agencies. Keynote addresses were presented by Professor Gary Libecap from the University of California and Professor Robert Stavins from Harvard University. Over the past decade or so, the Commission has undertaken inquiries, prepared submissions and pursued its own research on a range of environmental policy topics. The focus has been on the efficiency and effectiveness of different policy options, the regulatory burdens they impose and the potential for unintended consequences. In many cases, the projected benefits of policy intervention have not materialised, reflecting the difficulties of formulating effective policy instruments. The Promoting Better Environmental Outcomes roundtable sought to address two questions central to developing good environmental policy: • under what conditions can governments improve environmental outcomes?, and • how should governments intervene to ensure effective and efficient results? The roundtable proceedings are being published to enable a wider audience access to the information and insights that emerged. This volume includes papers by the speakers and a summary of the key points covered in the discussion sessions. The Commission is grateful to the speakers and other participants whose contributions made the roundtable such a valuable exercise. Gary Banks AO Chairman February 2009 FOREWORD III Contents Foreword III 1 Introduction 1 Gary Banks Session 1 Stocktake of the effectiveness of current approaches to environmental issues 2 Allocation of and investment in the environment 13 John Freebairn 3 Threats to effective environmental policy in Australia 29 Drew Collins 4 Letting markets work for the environment 41 Arlene Buchan General discussion 53 Session 2 Market and cooperative solutions: strengths, limitations and the appropriate role of government 5 Promoting better environmental outcomes through property rights and markets: opportunities and limits 57 Gary D. Libecap 6 On common ground: designing strategic spatial governance to advance integrated natural resource management and environmental outcomes 85 David J. Brunckhorst 7 Greenhouse gases and nutrients: the interactions between concurrent New Zealand trading systems 103 Suzi Kerr and Marianna Kennedy IV CONTENT 8 Environmental policy for environmental outcomes 115 David Pannell General discussion 129 Session 3 Institutions and incentives for promoting better policies and outcomes 9 Getting serious about global climate change: post-Kyoto international climate policy architecture 133 Robert N. Stavins 10 Institutions and incentives for promoting better policies and outcomes: challenges of achieving environmental outcomes that require coordination across multiple jurisdictions 149 Wendy Craik and James Cleaver 11 New policies create a new politics: issues of institutional design in climate change policy 165 Henry Ergas General discussion 189 Session 4 Reflections for public policy 12 Reflections for public policy: a drawing together and drawing apart. Comments on proceedings 195 Geoffrey Brennan General discussion 207 Dinner address 13 Lessons for climate policy from monetary history 213 Warwick McKibbin Appendices A Roundtable program 229 B Roundtable participants 231 CONTENT V Figures 2.1 Externality correction 19 2.2 Least cost market instruments 23 2.3 Imperfect knowledge costs 24 2.4 Price versus quantity intervention 25 3.1 Stylised overview of water recovered and needed under the Living Murray Initiative 32 6.1 Separation and allocation of landscape resources for collective management across landscapes of property and policy 89 6.2 Summary diagram of the Eco-Civic regionalisation method and results for the state of New South Wales 97 6.3 Community Capture Index (CCI) for various administrative regions and Eco-Civic regions 98 7.1 Emission reduction/mitigation cost curves 110 7.2 Decision tree for allocation to address leakage and economic regrets 112 10.1 River Murray system inflows 1891–2008 151 10.2 Murray–Darling Basin Commission governance structure 153 10.3 Living Murray Icon Sites 155 10.4 The MDBC environmental water purchase was positively reported in the media 157 10.5 Options for works at the Gunbower, Koondrook, Pericoota Icon Site 158 10.6 Barmah-Millewa Forest environmental flow event, 2005–2006 160 VI CONTENT 1 Introduction1 Gary Banks Chairman, Productivity Commission Environmental amenities like clean water and air, or natural attractions like the Great Barrier Reef or the Snowy Mountains, are fundamental to the Australian community’s quality of life and sense of wellbeing. There has been a tendency to take them for granted, as enduring features of our way of life. But increasing population and economic pressures are changing this, posing threats to some important environmental ‘services’. While climate change is the biggest and globally most pervasive issue currently receiving policy attention, many others of purely domestic origin and reach are also manifest. Their impacts are felt not just by sections of the community with a heightened sense of the value of the environment, but also by many households and enterprises whose activities and interests are affected in various ways. Reduction in available water in the Murray Darling basin, for example, impacts directly and indirectly on a range of industries, other than irrigated agriculture. Runoff from disturbed acid sulphate soils poses a threat to much of Australia’s coastline, including sections of the Great Barrier Reef. Dryland salinity is reducing arable land in many inland areas. The policy challenges loom large, as exemplified by the current problem in sourcing the environmental flows to revive World Heritage wetlands like the Coorong. As in other countries, governments in Australia are responding to threats to the environment in various ways, with varying effectiveness. The nature and extent of policy responses depend in part on the pressures brought to bear by the perceived consequences of inaction. They also depend on how strongly the community feels about environmental protection relative to other goals. The policy response must take into consideration how much is being achieved by individuals and the private sector, as well as the potential effectiveness and efficiency of policy interventions. Indeed, concerns raised about environmental policy measures often have less to do 1 Opening remarks to the Productivity Commission Roundtable, Promoting Better Environmental Outcomes, Old Parliament House, Canberra, 20 August 2008. INTRODUCTION 1 with their objectives than with their effectiveness, the regulatory burdens they impose and the potential for unintended consequences. This conference principally addresses two questions central to developing good environmental policy: • First, under what conditions can governments improve environmental outcomes? The answer to this question will determine what are feasible objectives for environmental policy. • Second, how should governments intervene to ensure effective and efficient results? The answer