Public and private benefits and choice of environmental policy instruments

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Public and private benefitsand choice of
environmental policy instruments
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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

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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

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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

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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).
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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.

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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

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Simple public-private framework
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• 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

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Lag to adoption
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Extension
Extension has learning costs, and reduces, but
doesnt eliminate, the lag to adoption
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Positive incentivescan speed adoption that would
have occurred eventually
Lag is long enough to be worth paying incentive
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New map for positive incentives and extension
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Technology changecan move a project
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BCR 1
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BCR 2This version is more targeted
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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

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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

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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