Public and private benefits and choice of environmental policy instruments

1. Public and private benefitsand choice of environmental policy instruments

2. Context • Policy aims to influence the behaviour of people to generate positive externalities or avoid negative externalities • For example, changes in land management to increase environmental benefits or decrease environmental costs

3. Public and private benefits • “Private benefits” relate to the landholder making the decisions (internal) • “Public benefits” relate to all others (external) • neighbours, downstream water users, city dwellers interested in biodiversity

4. Lucerne Farm B Lucerne Farm A Current practice Forestry in water catchment Possible projects Each dot is a set of land-use changes on specific pieces of land = a project. • Which tool? • Incentives • Extension • Regulation • New technology • No action

5. Alternative policy mechanisms for seeking changes on private lands AIncludes polluter-pays mechanisms (command and control, pollution tax, tradable permits, offsets) and beneficiary-pays mechanisms (subsidies, conservation auctions and tenders).

6. Simple rulesfor allocating mechanisms to projects 1. No positive incentives for land-use change unless public net benefits of change are positive. 2. No positive incentives if landholders would adopt land-use changes without those incentives. 3. No positive incentives if costs outweigh benefits overall.

7. Simple rules 4. No extension unless the change being advocated would generate positive private net benefits (the practice is ‘adoptable’). 5. No extension where a change would generate negative net public benefits 6. … 10. see web site

8. Simple public-private framework

9. That was based only on simple rules • The following slides account for additional complexities • Costs of learning/transition • Lags to adoption • Partial effectiveness of extension • Transaction costs

10. Lag to adoption

11. Extension Extension has learning costs, and reduces, but doesn’t eliminate, the lag to adoption

12. Positive incentivescan speed adoption that would have occurred eventually Lag is long enough to be worth paying incentive

13. New map for positive incentives and extension

14. Technology changecan move a project

15. BCR ≥ 1

16. Even if public benefits are high, incentives or extension are only selected over quite narrow ranges of private benefits. BCR ≥ 2This version is more targeted

17. Implications for public programs • Choice of policy tool matters greatly • Depends on individual situation of environmental assets • Case-by-case • Choice of assets to protect and policy tool should be made jointly • Best projects have private net benefits close to zero

18. Implications for public programs • Are we getting it roughly right in environmental programs? • In many cases, no • Over-used policy tools • Extension, small temporary grants • Under-used policy tools • Technology change • Tightly targeted larger grants or regulation

19. Acknowledgements • Affiliations of the INFFER team • University of Western Australia • Department of Primary Industries, Victoria • North Central Catchment Management Authority • Future Farm Industries CRC • Other key funders • Australian Research Council (Federation Fellow Program) • Department of the Environment, Water, Heritage and the Arts (CERF Program) • Department of Sustainability and Environment , Victoria