Economic perspectives on managing agricultural chemical waste

1. Economic perspectives on managing agricultural chemical waste Jeff Bennett Crawford School

2. Agricultural chemical wastes:What’s the problem? • Environmental contamination, health impacts • Impacts beyond the farm gate • Contamination, aesthetics, ‘waste’ of resources • Property rights are not well-defined • Market alone will not generate a socially optimal level of pollution control and recycling of containers

3. What’s the solution? • Complete definition of property rights with enforcement – provide for a decentralised market solution? • Problems of transaction costs • Large numbers of ‘buyers’ each with small benefits • High costs of defining and enforcing rights

4. (External) collective action? • ‘Top-down’, centralised process • Regulatory approach: • Statutory controls on actions • Compulsory recycling • Taxes/subsidies • Prosecution/criminal conviction • Also subject to transaction costs • Enforcement (the ‘chemical police’) • Ignores the relative costs and benefits of action with a ‘one-size-fits-all’ approach • Inflexible and inefficient

5. OR (internal) collective action? • Collective action can come from within the community rather than imposed by government • ‘Bottom-up’, decentralised process • Relies on voluntary action of individuals • Flexible – match actions to circumstances • Lower costs of coordination • Enforcement is decentralised

6. Incentives • But what is the incentive for voluntary involvement? • ‘Free-rider’ behaviour is problematic • Ostrom’s Nobel Prize (in 2010) was for identifying circumstances where voluntary action can work to provide ‘collective goods’ • Works best with small homogeneous groups to maximise peer group pressure to comply

7. Rural Examples • LandCare • 6000 Landcare and Coastcare groups nationwide • Volunteer rural fire brigades • Bush Heritage Australia • 32 reserves; 947,000 ha • Australian Wildlife Conservancy • 20 sanctuaries; 2,775,000 ha • Healthy Rivers Australia

8. Mixed model • All examples rely on a mixture of external and internal collective action • Question of determining the optimal mix to maximise net benefit (outcomes less costs of action and coordination) • Overall regulatory structure – rule of law • ‘Threat’ of external regulatory action • Internal ‘organisation’ on an industry level • Local voluntary coordination

9. Shifts to external collective action • Tendency to the ‘external’ end of the spectrum when voluntary action looks ‘inadequate’: • Eg water entitlements for the environment (CEWH) • Eg CFA/RFS expenditure after severe bushfires • Eg Flood ‘levy’ • OR when voluntary actions look ‘successful’ • Eg LandCare

10. ‘Crowding Out’ • Beware ‘crowding out’ of voluntary actions • Misses the spontaneous innovation and flexibility of decentralised action • Gains the burdens of centralised cost structures and inflexible operation • Opens the incentive to avoid the regulation and more transaction costs

11. General policy directions • Lever volunteer action with tax advantages (deductions for costs associated with environmental protection), conditional grants ($-for-dollar grants to match funds raised privately) etc to increase incentives for action (and decrease free riding) • Don’t throw money or regulations at the problem without careful consideration of the impacts and avoid crowding out

12. Agricultural chemical waste • A regulatory base for chemicals: • Supply and use restrictions • Eg Approval processes for release, ‘ChemCert’ training and accreditation and OH&S rules in use • High cost, external collective action on the basis of the expected high costs of misuse that are so avoided.

13. DrumMUSTER • Scheme for returning used chemical drums • Voluntary for product suppliers • Chemical users have access only for drums supplied by participating suppliers • Funded by a levy on drum sales (4c per litre/kg) • Funds used for collection facilities and activities (local councils provide collection points) • Over 16m containers collected since 1999

14. Levy allows a lowering of the costs to users in returning their drums (‘local’ drop-off – greater convenience) and so increases the probability of return • DrumMUSTER provides a combination of private good (removal of ‘rubbish’) and environmental public good (aesthetics, contamination)

15. The extent of public good benefit • Studies of other types of recycling indicate a community ‘willingness to pay’ for recycling • ‘e-waste’ and household waste in Brisbane • Choice Modelling used to test levels of support for alternative recycling schemes • Allows the estimation of the public good benefit • Engagement with DrumMUSTER supports these results – chemical users willing to support suppliers who participate despite the cost

16. Conclusions • Agricultural chemical waste management requires collective action • An opportunity to use decentralised, voluntary (internal) collective action • Offers lower transaction costs and greater flexibility • Be cautious of expansion of policies that impose centralised (external) collective action … ‘crowding out’

17. DrumMUSTER provides a useful example of a voluntary initiative that is cost effective and achieving environmental goals • What else could be done through leveraging of internal collective action rather than imposing external regulations?