RRRD039: Regulations versus voluntary mechanisms to improve adoption of best management practices in GBR catchments

Sallyann Harvey1, John Rolfe1, Bruce Taylor2 and Stuart Whitten2

1 Centre for Environmental Management, Central Queensland University
2 CSIRO Ecosystem Services

pdfDownload the RRRD039 Harvey et al Research Outcomes Report1.62 MB

Executive Summary

Research on water quality improvements available from the adoption of improved management practices indicates that there is potential to generate both private and public benefitsfor agricultural industries in the Great Barrier Reef (GBR) catchments and the health of the GBR respectively. Both voluntary and regulatory mechanisms have been used to increase adoption of improved practices, with the introduction of the Great Barrier Reef Protection Amendment Act 2009 marking the introduction of regulatory approaches for cane and grazing in high risk catchments. However these regulations are currently on hold and have been replaced by industry best management practice programs. A key question for management of agricultural runoff for improved water quality is: Are regulatory mechanisms needed for agricultural management because voluntary approaches are not delivering sufficient or timely adoption of improved practices?

As part of the Reef Rescue R&D project RRRD039, we used a net benefits framework and a policy assessment matrix to analyse the application of voluntary, economic and regulatory instruments to meet the objective of improving the quality of water entering the GBR. Voluntary instruments include information and extension services, regulatory mechanisms include regulations, permits and other controls, while economic instruments include taxes and charges, grants and subsidies and tradeable emissions permits.

The selection of policy instruments needs to be tailored to the problem characteristics; for example extension and positive incentives can be appropriate when there are private net benefits available from changing management practices, economic mechanisms can be more efficient when there is large variation in the costs of making changes, and regulatory mechanisms can be more appropriate when there are large numbers of nonpoint source polluters or heterogeneity in damage costs. As the drivers of water quality issues in the GBR catchments are diverse, multiple instruments may be necessary. The key findings and recommendations from the report can be summarised as follows.

  • Not all actions that generate environmental damages should be addressed, or some may require only low level intervention. Management actions that generate private benefits in excess of public costs should be allowed to continue. When the additional transaction costs of making changes are considered, then many other potential controls over actions become uneconomic. The main actions where some form of intervention is justified is where the public benefits that can be gained are higher than the private costs or losses involved.
  • Where action is justified, there are a range of different policy mechanisms that are available to encourage landholders, with varying levels of intensity, to change management practices. While different classifications are possible, they have been categorized in this report into three key groupings: information and extension mechanisms, economic instruments, and regulatory mechanisms. Economic instruments can be further divided into three broad areas of taxes and charges, grants and subsidies, and market based mechanisms.
  • Each policy instrument has different advantages and disadvantages. As well, many instruments have flow-on effects on incentives and landholder returns and motivations, and can cause crowding-in or crowding-out effects. This means that policy makers need to take care in selecting policy mechanisms.
  • The instruments that are available are not very substitutable. The available policy instruments meet different goals, and relate to different tradeoffs between public and private costs and benefits (Figure 3). Policy makers choosing between instruments need to consider the type of problem and conditions that exist to select the appropriate mechanism for the situation.
  • Where there are private benefits to be gained from changing management practices, the use of information and extension mechanisms is recommended. However, these are not sufficient when private net costs are involved, requiring the transition to more economic instruments.
  • Many studies in the region into the adoption of improved practices have consistently found that landholders are heterogeneous in their pollutant abatement costs, risk perceptions and motivations for farming. This provides a strong justification for the use of economic instruments to facilitate the selection of landholders and projects that have lower costs. However, grants and subsidies are not very efficient relative to other types of economic instruments.
  • Regulatory instruments can be optimal in some situations.Governments will often prefer non-voluntary mechanisms over voluntary ones because of their administrative simplicity in applying uniform requirements on all farms being regulated and the certainty in outcomes provided. However regulatory instruments come with large hidden costs because of their compliance requirements and lack of flexibility, and can impose substantial adverse impacts.