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Market-Based Instrument approaches to implementing priority revegetation in the South Australian Murray-Darling Basin

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  • Ward, John
  • Bryan, Brett
  • Gale, Glenn
  • Hobbs, Trevor
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    Abstract

    Resource condition targets have been specified for river salinity, biodiversity conservation, and wind erosion mitigation in the South Australian Murray-Darling Basin (SA MDB). The revegetation of cleared, privately owned agricultural land with deep rooted perennials has been widely promoted as one approach to satisfy the resource condition targets. Current estimates indicate the scale of revegetation necessary to meet the targets is extensive and associated with high establishment and opportunity costs, largely borne by private landholders. In this paper we evaluate the potential of three classes of market based instruments (MBI) to motivate private revegetation of deep-rooted perennials. We conclude: that a singular reliance on an auction or tender based instrument without associated commercial opportunities to augment farm incomes, will yield a small contribution to natural resource management targets given current levels of funding. There is limited potential for quantity based cap and trade instruments due to limited differential in the marginal costs of revegetation, and limited numbers of potential traders. Revegetation needs to form the basis of an alternative farming system that is commercially viable. The elimination of institutional barriers to provide better access to existing and newly created markets provides the best opportunity to motivate revegetation-based farming systems. We develop quantitative, spatially explicit models of the economic viability and resource condition contributions of biomass production and carbon trading for the entire SA MDB. Our results demonstrate that both biomass and carbon production are potentially economically viable alternative farming systems and make substantial contributions to regional natural resource management targets. For large scale adoption of these alternative farming systems three actions need to occur. Firstly, a biomass industry needs to be developed in the region. Secondly, institutional barriers to trade in the European carbon market need to be removed (or an Australian Market expanded). Thirdly, widespread uptake of these alternative farming systems by private individuals is required. We recognise that the actual level of adoption is partially contingent on a number of complex, interacting factors. These include individual attributes and behaviours, cultural norms, traditions and conventions, social institutions, the ease and predictability of land use change, and the effectiveness of communicating the economic benefits of new farming systems relative to current agricultural production These are aspects of ongoing and future research.

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    Bibliographic Info

    Paper provided by Australian Agricultural and Resource Economics Society in its series 2006 Conference (50th), February 8-10, 2006, Sydney, Australia with number 139924.

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    Date of creation: 2006
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    Handle: RePEc:ags:aare06:139924

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    Postal: AARES Central Office Manager, Crawford School of Public Policy, ANU, Canberra ACT 0200
    Phone: 0409 032 338
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    Keywords: Environmental Economics and Policy; Financial Economics; Political Economy; Resource /Energy Economics and Policy;

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    1. Kurt Stephenson & Patricia Norris & Leonard Shabman, 1998. "Watershed-Based Effluent Trading: The Nonpoint Source Challenge," Contemporary Economic Policy, Western Economic Association International, vol. 16(4), pages 412-421, October.
    2. Jeffery Connor, 2003. "Reducing the cost of South Australia of achieving agreed salinity targets in the River Murray," Natural Resource Management Economics 03_005, Policy and Economic Research Unit, CSIRO Land and Water, Adelaide, Australia.
    3. Gary Stoneham & Vivek Chaudhri & Arthur Ha & Loris Strappazzon, 2003. "Auctions for conservation contracts: an empirical examination of Victoria's BushTender trial," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 47(4), pages 477-500, December.
    4. Uwe Latacz-Lohmann & Carel Van der Hamsvoort, 1997. "Auctioning Conservation Contracts: A Theoretical Analysis and an Application," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 407-418.
    5. M. D. Young & J. C. McColl, 2003. "Robust Reform: The Case for a New Water Entitlement System for Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 36(2), pages 225-234.
    6. Hahn, Robert W, 1989. "Economic Prescriptions for Environmental Problems: How the Patient Followed the Doctor's Orders," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 95-114, Spring.
    7. Michael A. Taylor & Brent Sohngen & Alan Randall & Helen Pushkarskaya, 2004. "Group Contracts for Voluntary Nonpoint Source Pollution Reductions: Evidence from Experimental Auctions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(5), pages 1196-1202.
    8. Dieter Helm, 2005. "Economic Instruments and Environmental Policy," The Economic and Social Review, Economic and Social Studies, vol. 36(3), pages 205-228.
    9. Stoneham, Gary & Chaudhri, Vivek & Ha, Arthur & Strappazzon, Loris, 2003. "Auctions for conservation contracts: an empirical examination of Victoria’s BushTender trial," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 47(4), December.
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