Designing and choosing incentives

Knowing what incentives to use in particular circumstances is a challenge for regional managers. Incentives can be designed in different ways to meet a range of objectives. The design of incentives depends on the problem being addressed and who pays for the public and private benefits. Incentives will differ, for example, if they are for transitional assistance to landholders to help them meet new requirements, or if they are for voluntary management.

The National Framework for the Management and Monitoring of Australia’s Native Vegetation 478 provides information about the design and use of environmental incentives. Appendix B, for example, describes the best practice attributes of a range of incentive programs including grants, property right and market-based measures, revolving funds, differential rating and taxation measures, and offsets and performance/assurance bonds. Because of the importance of using incentives to encourage on-ground change, some approaches that are being promoted are explored further below.

Choosing Between Incentive Mechanisms for Natural Resource Management 479 has been developed as a practical guide for regional NRM bodies in Queensland, but many findings have wider applicability. Indeed, the website based on this approach is being considered as a model for other States. This report is designed to assist regional NRM bodies decide if, when, how and what incentive mechanisms should be applied to particular situations, and contains the following sections:

• A summary of some of the ideas behind the choice of management tools;
• A list of incentive mechanisms that regional NRM bodies can directly and indirectly use to influence environmental outcomes;
• Background questions a regional NRM body should answer before attempting to choose an incentive mechanism;
• A series of questions designed to help regional NRM bodies choose the appropriate mechanism for the situation they are looking at;
• Other considerations surrounding the tailoring of the chosen incentive;
• A list (with internet links where possible) of key references.
• An appendix with brief discussion of incentive mechanisms and their most appropriate uses;
• A second appendix that summarises the main benefits, problems and suitability of different incentives, as well as suggesting possible methods of indirect support by regional NRM bodies.

	Action: 4.29
	Before choosing the most appropriate incentive mechanism for native vegetation management in your region, read the report and access the website developed in Queensland.
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Table 20 lists incentives that are available at National and State level. These change over time so it is important to check what schemes are still current or which new ones have been introduced.

Table 20: A range of incentives available for managing native vegetation and biodiversity at the National and State level

National and State  480, NSW  481, Qld  482,

SA  483, WA  484, Tas  485^,  486

Delivering incentives

Within regional areas, there is a strong interest in the potential to use various incentives to increase the sustainability of NRM. Two recent projects on the delivery and use of incentives, which are described in detail below, have identified the following common themes: recognising diversity, developing trust, evaluating outcomes and integrating incentives.

	Action: 4.30
	Regional managers should identify the range of current incentives programs operating in their area.
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The first project on Arrangements to Enhance the Effective Use of Incentive Mechanisms in Natural Resource Management 487 focused on the potential for a wider range or various combinations of incentives and their contextual application. The project developed principles and arrangements to facilitate the appropriate use of diverse mechanisms to achieve regional NRM outcomes. The project developed nine principles to guide arrangements for effective use of incentives (Box 6). A framework for improved institutional arrangements was then postulated so that the principles can be tested further in a systems context.

Box 6: Principles to guide arrangements for the effective use of incentives in NRM.



Source: Chudleigh P, Simpson S (2003) ‘Arrangements to Enhance the Effective Use of Incentive Mechanisms in Natural Resource Management.’ Social and Institutional Research Program, Land & Water Australia, Fact Sheet: Research Project AGT13, Canberra, ACT

The second recent study on the regional delivery of incentives used the results of a series of workshops to develop principles that were common across States 488. The key concepts for each of the following principles are underlined.

• The need to integrate incentives across the range of NRM outcomes sought by NHT and NAP. Further integration of conservation, NRM and agricultural production was seen as a critical approach at several workshops. Furthermore, incentive approaches should recognise that biodiversity conservation is difficult to separate from the cultural values
  of land held by indigenous people.
• Collaboration and communication is needed across the range of individuals, groups, agencies, organisations and tiers of government involved in the development, delivery and/or uptake of regional incentives. There was a strong call across the workshops for all these groups to work together more effectively to achieve NRM goals. Trust was seen as a central tenet of improving relationships at all State workshops, between those involved in the delivery or uptake of incentives.
• Flexibility in program delivery was seen as important in all States. Approaches need to be tailored to meet the different economic, social and environmental contexts found in different regions.
• Recognising and accommodating community values and diversity were considered central issues in the development of incentives for biodiversity conservation.
• The need for simple, timely approaches was emphasised, reflecting frustrations with previous national NRM programs.
• The value of existing programs was acknowledged with the emphasis that one should not “reinvent the wheel”. Evaluation of past and current programs was seen as highly desirable as was the sharing of the learnings of these evaluations.
• Getting the right mix of incentive approaches to achieve conservation objectives was seen as an important consideration at several workshops.

	Action: 4.31
	When delivering incentives for native vegetation management at the regional level, incorporate the findings from the two reports on incentives into your program of activities.
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Market-based approaches

Market-based instruments are being widely promoted as an important tool for managing natural resources. They are designed to provide economic or financial incentives to improve environmental management practice and outcomes. Market-based instruments include environmental levies and charges, tradable licences and permits, refund systems and regulatory relief initiatives. They may be designed and administered either in the context of formal public regulation or voluntary initiatives. Recent approaches in relation to native vegetation management have included increased use of auctions to allocate property rights, such as the Bush Tender 489 scheme in Victoria.

Bush Tender offers landholders the opportunity to receive payment for the provision of management services that improve the quality or extent of their native vegetation. These services are based on management commitments over and above those required by current policy guidelines and legislation. Habitat services may include active management beyond current obligations (e.g. weed control, pest control, revegetation) and/or forgoing existing use rights (e.g. stock grazing, removal of fallen timber for personal use etc.) to either maintain or improve the quality of a patch of native vegetation. While agreements are with individual landholders, if enough people are involved the approach can contribute to catchment and regional policies, and targets for protection of certain types or areas
of vegetation.

An ‘auction’ system is used, where landholders make an offer to receive a given price for entering into management agreements, based on economic theories outlined in Mechanisms for Biodiversity Conservation on Private Land 490. A first trial was conducted in two areas of northern Victoria in 2001–02 and a second in the Trafalgar, Bairnsdale East and Buchan-Snowy areas of Gippsland during 2002–03. Landholders tender for the payment they require for their management services during the trial period, with the successful bids being those that offer the best value for money. The approach favours selection of landholders who have threatened vegetation types and whose management activities will deliver the most biodiversity gain. The auction approach has been extended under the National Market-based Instruments Pilots to include multiple benefits. This is described in greater detail in Question 5.

	Action: 4.32
	Read the article on Mechanisms for biodiversity conservation on private land to understand the application of market-based principles to native vegetation management.
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Paying for the ecosystem services provided by native vegetation has become increasingly popular. Carbon credits are already being trialled, and the auction system used in the Bush Tender pilot trials could be seen as an initial attempt at biodiversity credits. Despite the potential benefits of this approach, considerable risks associated with the use of ecosystem service payments and other mechanisms have been identified 491. This study identified that without very careful design, there is a risk that these mechanisms could result in significant misallocation of resources. The risks are outlined in Box 7. Many risks are understood by catchment and regional managers and are the focus of trials.

Box 7: Potential risks identified for payment mechanisms associated with ecosystem services



Source: Young M, Shi T, Crosthwaite J (2003) ‘Duty of Care: An Instrument for Increasing the Effectiveness of Catchment Management.’ Department of Sustainability and Environment, Melbourne VIC

Cost sharing

The principles for sharing the costs of biodiversity conservation between individuals, groups and the general community have been explored in Cost Sharing for Biodiversity Conservation 492 that develops a conceptual framework on cost sharing. This report focuses on cost sharing for on-ground activities that are undertaken at the property, catchment and/or regional level and illustrates situations in which the different cost sharing principles may be relevant. It also highlights some issues that arise in determining who should pay for biodiversity conservation. Two principles are explored that can form the basis of cost sharing arrangements to achieve conservation outcomes – the ‘polluter pays’ and the ‘beneficiary pays’ principles. The ‘beneficiary pays’ principle requires those who benefit from an activity to contribute to the costs of undertaking it. Clarifying property rights is identified as an important step in determining which principle should be adopted as the basis for cost sharing. Four case studies are used to illustrate different ways of cost sharing, focusing on the regional scale.

The rationale for adopting cost sharing, including the role of government, is considered in Cost-Sharing for On-ground Works 493. Principles are explained and four examples of frameworks described. The application of the principles to action planning at the regional level is also explored. The report Robust Separation: A search for a generic framework to simplify registration and trading of interests in natural resources 494 considers how to establish a robust, economically efficient and equitable system of defining, allocating and managing use of natural resources. Such a system defines interests, rights and obligations that sit within an economically efficient trading system. The issues of pricing, charging or how to convert from existing systems is proposed for reports that follow.

	Action: 4.33
	Examine the different frameworks for cost-sharing identified in the report on cost-sharing for on-ground works to understand the principles underlying the approach to natural resource management.
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Local Government plays an important role in the management of native vegetation (see section 4.2c) and is in a powerful position to establish incentive schemes that encourage private landholders to become partners in conserving remnant vegetation. This is illustrated in five case studies from Queensland, South Australia and Victoria presented in Incentives for Sustainable Land Management 495. This report found that the uptake of landholders was likely to increase when a ‘package’ of different incentives was provided. The potential for success would increase when the council worked in partnership with the community in policy, resource and administrative terms and with other government and non-government organisations. The same lessons would apply to regional organisations. Seven steps for setting up a financial incentives scheme are identified, the last being a cost-benefit analysis.

One of the Local Government case studies used in Incentives for Sustainable Land Management is in the Coorong of South Australia 496. The Coorong Council, located at the southern end of the Murray River, developed a seven-year local action plan (1995–2002) to revegetate and rehabilitate degraded land, conserve 29,000 ha of native vegetation and wetlands, explore options for addressing erosion, combat dryland salinity and promote sustainable agriculture. Detailed cost sharing arrangements are based on the ‘beneficiary pays’ principle, as described above. The plan offers incentives for revegetation and projects that protect existing native vegetation and wetlands.

In the Coorong, funding is geared towards projects that have the greatest impact on reducing recharge to groundwater. The rate of incentive payment in this scheme was determined by the private versus the public value of the project and includes a maintenance period of five to forty years depending on the rate of the incentive. This example demonstrates how incentives can be used to address multiple natural resource management issues.
As a comparison, the report Investment Programs and Institutional Arrangements for Effective Natural Resource Management 497 examines the application of the ‘Cost-sharing for on-ground works’ approach in the Liverpool Plains (NSW).

Cost Sharing Arrangements for Revegetation and Remnant Bush Protection 498 provides a detailed outline of the criteria for cost-sharing developed for the south-west of WA. The criteria are based on the value of a particular action to both conservation and agricultural production. An example of a criterion that addresses conservation outcomes is ‘Revegetation uses multiple species of local provenance in a way that provides an important habitat for locally threatened species.’ When considering the value of revegetation for sustainable agriculture, an example is ‘Revegetation provides a resource for a commercially prospective industry e.g. oil mallees’. The report includes supporting information for each criterion and detailed analysis of the cost of revegetation using seedlings.