Redesigning Environmental Regulation: The Case of Biodiversity Conservation

REDESIGNING ENVIRONMENTAL REGULATION:
THE CASE OF BIODIVERSITY CONSERVATION
Neil Gunningham*
Australian Centre for Environmental Law
The Australian National University*
Mike Young*
CSIRO Division of Wildlife and Ecology
I. INTRODUCTION
Despite decades of experimentation with very different strategies, the holy grail of efficient, effective and equitable environmental regulation, has continued to elude policy-makers and regulatory theorists. In the 1990s, the less than satisfactory performance of both of the main government, and market. approaches to environment protection has led to a critical re-examination of current regulatory strategies and to an exploration of the role of alternative policy mechanisms such as market-based instruments, self-regulation, information-based strategies and "communicative" instruments such as education.
While there is much of value in some of these innovative approaches, there remains a tendency amongst policy analysts and regulatory theorists to treat the various policy instruments as alternatives to one another rather than as complementary mechanisms. As a result, they have tended to embrace one or other of these approaches without regard to the virtue of others. Predictably, economists focused on incentives-based approaches, lawyers on regulation and so on.
In this article, we argue that this "single instrument" or "single strategy" approach is misguided, because all instruments have strengths and weaknesses, and because none are sufficiently flexible and resilient to be able to successfully address all environmental problems in all contexts. Accordingly, we argue that (in) an optimal strategy will seek to harness the strengths of individual mechanisms while compensating for their weaknesses by the use of additional and complementary policy instruments. That is, in the large majority of circumstances, a mix of instruments (regulatory, market, voluntary and institutional) is required, tailored to specific policy goals.
This (does)is not advocate a smorgasbord approach, nor do we assume that any combination of instruments will be better than a single instrument approach. On the contrary, the introduction of a new instrument to the existing policy mix could have a variety of effects, not all of which are positive. These range from synergy (where the interaction of two instruments enhances each other`s effects) to neutralisation (where the introduction of one instrument negates or dilutes the effects of the another). For example, the introduction of financial incentives for some landholders, at the same time as their neighbours are still subject to mandatory constraints, is likely to generate intolerable tensions which undermine the effectiveness of either approach. Similarly, subsidies for certain types of agricultural production and tax deductions for expenditures incurred in land clearance may effectively neutralise incentives for the conservation of remnant vegetation.
What is needed then, is not simply the introduction of a broader range of policy tools, but the matching of tools with the particular suite of environmental and resource management problems at issue, with the party or parties best capable of implementing them, and with each other . The crucial question thus becomes: how, in what circumstances, and in what combinations, can the main classes of policy instruments achieve optimal policy mixes?
In the remainder of this article we focus on one particular, and pressing, environmental problem: biodiversity conservation. We argue that there is a need for a new approach which both incorporates and goes beyond conventional instruments and which makes greater use of incentives and a broader range of policy instruments. Consistent with a set of evaluation criteria, we demonstrate how specific combinations of instruments and institutions are most suited to achieve optimal economic and environmental outcomes, and how best to combine the vast array of instruments and mechanisms available. Finally, we identify a set of design criteria which will be paramount in conserving biodiversity.
Our evidence is drawn principally, but far from exclusively, from the Australian experience of biodiversity conservation. (While the examples used in this article are drawn disproportionately from Australia - in a country with more reason than most to develop an effective biodiversity conservation strategy - the lessons drawn apply generally..). For reasons identified below, Australia has a particular responsibility for protecting biodiversity and, in part for that reason, is exploring a range of innovative and imaginative policy options. However, the problems it confronts and the dilemmas it faces are substantially similar to those which many other nations must address. Accordingly, there is good reason to believe that the lessons we draw, the policy design criteria we identify, and the solutions we suggest, will have a broader resonance and applicability to other developed nations seeking to conserve biodiversity, including the United States.
II. THE CONTEXT FOR POLICY-MAKING
A. The importance of biodiversity conservation
Biodiversity refers to the broadly diverse forms into which organisms have evolved and is considered at three levels:
1. Genetic diversity: variation in genes enabling organisms to evolve and adapt to new conditions;
2. Species diversity: the number, types, and distribution of species within an ecosystem; and
3. Ecosystem diversity: the variety of habitats and communities of different species that interact in a complex web of interdependent relationships.
Biodiversity is esssential in the maintenance of human life on earth, and scientists have long acknowledged that the preservation of biodiversity is, by definition, vital for an ecologically sustainable society. Humanity derives all its food and many medicines and industrial products from both domesticated and undomesticated components of biodiversity. Biodiversity is also important as a source of current benefits created by natural ecosystem processes that are not yet fully understood, such as water purification, soil fertilisation and groundwater recharge. Loss of genetic diversity could imperil agriculture. As one recent policy document points out:
...biological diversity is the primary source for fulfilment of humanity’s needs and provides a basis for adaption to changing environments.
An environment rich in biological diversity offers the broadest array of options for sustainable economic activity, for nurturing human welfare and for adapting to change.
Apart from the obvious benefits for national productivity and the long-term security of the ecosystems that support us, there are also aesthetic and ethical arguments in favour of preserving biodiversity. The existence of natural landscapes contributes to the emotional well being of a society, and offers many passive recreational benefits to people. Loss of genetic, species and ecosystem diversity subsequently invites the loss of cultural diversity. Many indigenous cultures have been driven to extinction by the same forces which have destroyed and continue to threaten non-human species. It is estimated that since 1900 more than 90 tribes of aboriginal peoples have become extinct in the Amazon Basin alone.
Many people believe that humanity has a moral duty to avoid the extinction of other species. However, despite this recognition of the special features of biodiversity, the alteration of ecosystems, species loss and declines in genetic diversity continue at rates far greater than that which occurs naturally.
B. Threats to biodiversity
The general decline in levels of biodiversity world-wide is an issue which is of international, as well as national, importance. This recognition led to the rapid ratification of the Convention on Biological Diversity which was one of the three international environmental treaties signed at the 1992 earth Summit. The causes are many, but include habitat loss and fragmentation, human exploitation, and competition from and predation by introduced species. Currently, more than 10,000 species become extinct globally each year. While precise calculation is difficult, it is certain that this rate has increased alarmingly in recent years.
Nearly every habitat on earth is at risk of loss of biodiversity: the rainforest and coral reefs of the tropics, the salt marshes and estuaries of the coastal regions, the tundra of the circumpolar north, the deserts of Asia and Australia, the temperate forests of North America and Europe, and the savannahs of Africa and South America. In many countries, relatively little natural vegetation remains untouched by human hands: in Bangladesh only 6% of the original vegetation remains; forests around the Mediterranean Sea probably covered ten times their current area; and in the Netherlands and Britain, less than 4% of the lowland raised bogs remain undamaged.
For example, tropical rainforests cover only 7% of the planet’s surface. Within these, live 50-90% of the world’s species. About 17 million hectares of tropical forest are now being cleared annually as trees are cut for lumber or land cleared for agriculture or other development. Scientist’s estimate that at these rates roughly 5 to 10% of tropical forest species may face extinction within the next 30 years. This could mean that 60,000 of the world’s plant species, and perhaps even higher proportions of vertebrate and insect species, could become extinct in this period. Worldwide, nearly as much temperate rain forest has also been lost.
The largest number of recent extinctions have been on oceanic islands. Approximately 60% of plant species endemic to the Galapagos Islands are endangered, 42% in the Azores’ and 75% in the Canary Islands. In Mediterranean climates such as California, South Africa, central Chile, and southwestern Australia at least 10% of all plant and animal species are endangered. A drop of fungal species diversity by 50% or more has been recorded in Europe over the past 60 years. The biodiversity of marine and freshwater systems also face serious loss and degradation on a global scale.
C. Australia`s biodiversity record
Australia’s flora and fauna is ‘megadiverse’ - a term used to describe ecosystems of exceptional variety.and uniqueness. There are only eleven other countries which come within this classification. As the only developed country in this group, Australia has a special responsibility to address the problem of conservation of biodiversity.
Since European settlement, Australia’s record of species extinction and habitat decline has not been a proud one. During this time Australia has had the highest known rate of extinction of mammal species in the world. This poor record of biodiversity conservation is not merely an historical event. Half of all animal extinctions in Australia have occured this century. Of our 258 known species of mammals, 138 are either extinct, endangered or vulnerable. This includes 10 species of original marsupial fauna and 8 species of native rodents.
Australia was one of the top 10 land clearing countries in the world for 1983-93. Native vegetation in the 6 Australian States is still cleared at about 5000,000 hectares a year, which does not include land cleared illegally, land clearance not requiring a permit, land cleared for urban development or land cleared in the Territories. If these types of clearing are taken into account, the figure could be as high as 1,000,000 hectares a year. Seventy six species of Australian vascular plants are presumed to have become extinct and 5,031 vascular plant taxa are considered to be rare or threatened. In contrast, since 1947, 463 exotic plant species have been introduced to Australia. Only 5% of these have proved useful as fodder, and 13% have become problem weeds.
Ecosystems ranging from temperate grasslands, through coastal heathlands and mangrove communities to a variety of arid communities have been identified as urgently requiring protection. Since 1788, between 70 and 95% of all vegetation has been modified by human activity and Australia has lost 75% of its rainforests and 40% of all forests. More than half of all major biogeographic regions in Australia are not represented in a National Park or Nature Reserve.
D. Biodiversity`s special features
Biodiversity has a number of features which distinguish it from more conventional resource management issues and which must be taken into account in designing policy mixes. First, in many circumstances, biodiversity loss is irreversible. Once lost, a species is lost forever. Second, many species - especially the invertebrates, microbes and viruses - have yet to be discovered. Much biodiversity is lost before we even know it is there, and before we know either its ecological role or its potential contribution to humankind. Scientists argue that these are amongst the prime reasons for protecting biodiversity. Third, ecosystem diversity exhibits threshold effects. Current scientific evidence suggests that:
there are limits to the ability of ecosystems to withstand the stress imposed by environmental degradation. If stressed beyond these limits, ecosystems will collapse. By reducing ecological resilience, biodiversity loss increases the likelihood that thresholds will be breached... the possibility of a major environmental catastrophe or system collapse cannot be ruled out.
As a consequence, any policy which compromises the resilience of ecosystems may have uncontrollable effects and even small policy changes can have dramatic but unforeseen results. Information about the responses of species to biodiversity loss is extremely limited. For example, there is considerable uncertainty about the nature of ecological thresholds and about the consequences of transgressing them. Fourth, many biodiversity problems cannot be solved merely by proscribing certain behaviour, but only by ensuring positive ongoing management: thereby emphasising the importance of developing the custodianship ethic. Fifth, much of biodiversity has no immediate economic value, giving rise to substantial tensions between public and private interests.
Finally, the causes of genetic, species and ecosystem losses are extremely diffuse in nature, and involve many different sectors and forms of economic activity. That is, biodiversity is pervasive to social and economic systems, being affected by land and water-use decisions, by pollution and by economic use generally. For example, a site which contains several endangered species, for example, may be threatened by agricultural practices such as the prospect of clearing to plant more crops, pollution from fertilisers and pesticides used on farms some 10 kilometres away, and salinity induced by tree clearing high up the catchment. This same site may also be the source of pollution endangering a fish population in an estuary at the bottom of a catchment. Simultaneously other policy objectives like enhancement of agricultural and fishery production and the development of ecotourism may be held for the site. Sometimes this means that biodiversity and more general resource management problems coincide.
E. Evaluation Criteria
In assessing guidelines for mixing instruments and mechanisms, various authors have developed lists of evaluation criteria. Our preferred list is:
i) Dependability or certainty - the instrument will deliver the desired biodiversity target, even when knowledge about likely responses is uncertain;
ii) Precaution - the instrument avoids the chance of serious or irreversible consequences, especially when there is scientific uncertainty about outcome;
iii) Equity - no group of people, including future generations, is unfairly disadvantaged or favoured by the instrument’s operation;
iv) Economic efficiency - with regard to implied and actual values, the chosen trade-off between production and conservation is achieved at least cost (productive efficiency) and no reassignment of property-rights will improve production or biodiversity objectives without making some-one worse off (allocative efficiency);
v) Dynamic and continuing incentive - the mechanisms used continue to encourage technical innovation, improvement of biodiversity beyond the official policy target and automatically adapts to changing technology, prices and climatic conditions;
vi) Administrative feasibility and cost - monitoring and information costs are minimal (low information cost), government enforcement is cost effective, can be financed from available revenue and self enforcement is encouraged (low administrative cost), the instrument’s requirements are simply explained (communicative simplicity), and the decision-making processes associated with the instrument can be understood by all parties (transparency); and
vii) Community and political acceptability - the community is motivated to ensure that biodiversity conservation objectives are achieved, are perceived as being legitimately formulated and delivered, add to social harmony, are consistent with government commitments and attract bipartisan support.
Because biodiversity underpins virtually all economic activity, and in most national and international strategies biodiversity conservation is stated as a precondition for sustainable development, we give pre-eminence to dependability. Lack of knowledge plus the prospect of irreversible loss means that the second spot must go to precaution. Criteria three to seven are anthropocentric. The first two criteria have implications for all species on earth.
III. TOWARDS AN OPTIMAL POLICY MIX
Matching the evaluation criteria stated above against the many instruments suited to biodiversity conservation at a context and threat-specific level would be an exhausting and impractical task (see Table ? INSERT IT). To simplify the task (and), as summarised in Figure 1, we have developed a sub-set of instrument categories which, whilst informative, are not exclusive (for example, many property-right mechanisms combine regulation, price-based and institutional incentives into a single package). In this section we identify the main strengths and weaknesses of the main instrument categories, we examine the circumstances in which each can most appropriately be used, and we suggest the most appropriate combinations of instrument categories.
Figure 1: Major Types of Policy Instruments
A. Motivation, information and education-based instruments
Motivational approaches, including information and education, frequently repay substantial dividends in terms of influencing behaviour. Moreover, they can make a particular contribution in reinforcing and making more effective each of the other categories of instruments and mechanisms. For this reason they are located at the base of our instrument mix, implying that instruments from this category should be included in almost all policy mixes.
Instruments falling within this general category include: information supply ; research and the dissemination of the results ; education campaigns ; advertising and awards ; and biodiversity audits . One of the most effective ways to build motivation is to pursue structures that build community and industry ownership of decisions about biodiversity. If changes are to be achieved, individuals must be supportive and directly involved in conserving biodiversity.
In most circumstances, such instruments can be implemented at modest administrative cost, yet the evidence (is) they can have a substantial impact on attitudes, and on behaviour, even in circumstances where it is not in an individual’s self interest to protect biodiversity. As such they are cost effective.
They are also perceived by resource users as equitable (eg information is usually widely disseminated and nobody is disadvantaged by it), non-interventionist, socially acceptable, and encourage rather than coerce behavioural change. Where they provide information that harnesses self-interest, they are also financially atttractive and self-enforcing, and provide continuing incentives for biodiversity conservation and sustainable use.
If people are positively motivated, and persuaded that biodiversity conservation is worthwhile, they are more likely to respond positively to a range of instruments: voluntary, property-right, price and regulatory. For example, those who have been informed of the advantages of biodiversity conservation in certain contexts (eg eco-tourism) will be more inclined to develop self-regulatory mechanisms that seek to maintain biodiversity values by, for example, agreeing not to drop boat anchors on coral reefs and to drive only on designated tracks. Those who understand the reasons for government regulation, and can identify with its underlying purposes, will similarly be more accepting of it. If school children, for example, can explain why regulations are needed to protect native vegetation then their farming parents are more likely to accept these regulations.
For these reasons, we believe that motivational instruments and mechanisms are so fundamental to a successful incentives-based biodiversity conservation package that they should be invoked in almost all circumstances, and incorporated in almost all policy mixes. Put differently, they form a necessary foundation upon which all other instruments must rely if they are to achieve their optimal impact.
However, there is also evidence that there is sometimes a considerable gap between attitudes and behaviour. That is, even when people perceive the need for biodiversity conservation, they will not necessarily take appropriate action if this conflicts with other goals and interests. Thus the main weakness of motivational instruments is that they contain no precautionary elements and cannot be depended upon to conserve biodiversity when there is a significant gap between private and social objectives. For this reason, it would be most unwise to rely on motivational approaches alone to protect biodiversity.
Beyond this, we conceive that in most circumstances an optimal package will require some combination of voluntary instruments, market based incentives and regulatory instruments. We emphasise that the particular instruments within each segment, the relative size of each segment, and the precise combination of instruments and sectors will vary with the nature of the threat and with the social, economic and political context in which it arises. However, at a conceptual level, some general principles concerning the respective roles of voluntary, property-right, price and regulatory incentives can be identified which will assist in designing optimal policy mixes.
B. Voluntary instruments
A variety of instruments and mechanisms can be classified under this heading, their main characteristics being that they rely neither on coercion nor substantially on continuijng financial incentives, but rather on voluntarism and self regulation. These mechanisms include self-regulation by industry; support for projects undertaken by non-government organisations, community groups or landholders (where the financial support is partial and there is heavy reliance on voluntary effort for successful completion); and direct contracts with landholders (eg whereby they agree to impose restrictions on future use which will run with the land).
Self-regulation and voluntarism have the considerable virtues of low administrative costs (often minimal in the case of self regulation), high community acceptability and minimal equity implications. They also promote an ethic of custodianship of the land. However, none of these qualities are significant unless voluntarism and self-regulation are also dependable in delivering biodiversity conservation. Here, much will depend on the extent of the gap between the public interest in biodiversity protection and the private interests of land users. Generally, the less the gap the more dependable voluntary mechanisms will be.
Where landowners perceive their own (short-term as well as long-term) self-interest as being to protect biodiversity, (ie where society’s interest in protecting biodiversity and the land user’s interest substantially coincide) self-regulation may be a cost-effective and appropriately non-interventionist strategy. However, even here, voluntarism can only work if resource users appreciate the value of biodiversity protection, and their own self-interest in protecting it. Informational and educational incentives will be extremely important in this respect, again illustrating the point made immediately above: that motivational incentives can almost invariably reinforce other policy instruments.
Even when resource users do have full awareness of their self-interest in protecting biodiversity, there is still some danger in relying solely on voluntarism to the exclusion of more interventionist mechanisms. Not all resource users will necessarily behave with rationality. Policy must also take account of the minority who may be irrational, incompetent or intransigent, underlining the need for a regulatory safety net.
Unfortunately, in the large majority of circumstances, there is a considerable gap between the public interest in biodiversity conservation and the private interests of individual land users. For example, whereas many land users may identify with the soil conservation objectives of voluntary land protection schemes, their self interest in protecting biodiversity is not so readily apparent, at least in the short term. More commonly, there is a perceived tension between maximising the use of productive land and protecting remnant vegetation. While the preservation of such vegetation may arguably provide long term benefits to land users (acting as a windbreak, reducing salination etc) these benefits are less tangible and immediately realisable than the increase in short term productivity which remnant removal promises. For land users who are economically marginal, the evidence is that short-term production pay-offs are often perceived to outweigh possible longer term benefits of conservation, and this suggests a major limitation of self-regulation and other motivational-based approaches to biodiversity protection.
History suggests that in these circumstances, voluntarism lacks sufficient dependability to be relied upon as an exclusive instrument to deliver biodiversity conservation and that in virtually all cases they need to be supported by other mechanisms like price and property-right mechanisms and regulation. Nevertheless, voluntarism still has an important role, particularly where the threats to biodiversity require active participation.
The challenge in designing voluntary mechanisms is to build, rather than hinder the development of a custodial ethic, and to make biodiversity conservation part of the ‘community norm’. Well designed policy mixes use voluntary incentives to harness altruistic behaviour. In doing this, policy makers need to be aware of the traps of over-using financial incentives. If payments for biodiversity conservation are the norm, and these payments are subsequently withdrawn, then the benefits of that conservation may be lost unless measures, like a conservation covenant, are used to prevent the work paid for being undone. Moreover, removal of the financial support may convert a carefully cultivated custodial ethic into one that is antagonistic towards the non-local benefits of biodiversity conservation. One mechanism used to reduce the risk of this last problem is to make it clear that any payments will only be of a transitional nature.
More generally, notwithstanding the need to recognise and design policy to take account of self interest, it must be emphasised that it is not a full explanation of behaviour. On the contrary, altruism and respect for broad conservation objectives may be evident on the part of some, and mechanisms which seek to support and harness such behaviour can play a supporting role in the policy mix, provided they can be justified in cost benefit terms. For example, if limited resources were put into encouraging and supporting landholders willing in principle to enter voluntary agreements, this might provide a cost effective mechanism, even though it is only applicable to a small minority. If it were coupled with appropriate tax concessions, then many more landholders might be encouraged to participate.
In Australia, such programs as Land for Wildlife in Victoria have successfully persuaded many landowners to voluntarily manage land as wildlife habitat without offering any direct financial assistance. Such programs have the added benefit that they may also promote awareness of biodiversity conservation, thereby contributing to motivational change - a factor acknowledged in the Convention on Biological Diversity. .
To summarise, except in those limited circumstances where the public interest in protecting biodiversity conservation and private interest substantially coincide, and where biodiversity loss is reversible, voluntary mechanisms should be used to build a biodiversity conservation ethic and to supplement other instruments. In the large majority of cases they need to be supported by mechanisms that ensure dependability and recognise the need for precaution to avoid irreversible loss.
C. Property rights and price-based incentives
In the case of biodiversity conservation, market failure is pervasive and results (inter alia) from externalities, the complete absence of markets for some aspects of biodiversity, and inadequately or completely defined property rights. Property-right mechanisms seek to compensate for, or reverse, market failure through mechanisms which make resource use opportunities consistent with social values. As with other market-based instruments, the aim “is to alter private costs and benefits so that any unaccounted social costs (and benefits) can be ‘internalised’ to ensure the desired environmental improvement”.
Most property rights begin by defining what may be done and then restrict this by using covenants and conditions to say what may not be done. Sometimes easements and other legislative arrangements are used to grant rights to other people. A conservation covenant, for example, might prohibit clearing. An individually transferable fishing right might keep fishing activity within the confines of a management plan.
The main mechanisms incorporating this general approach include:
· Exclusive-Use Rights: Economic theory suggests, controversially, that when people are granted an exclusive right to use and profit from a resource they have a greater incentive to conserve that resource and a lesser incentive to exploit it unsustainably. Examples include private parks, and rights to exclude people from areas of high value for recreation. Once a right or value is created, the owner has an incentive to maintain that value so that they can maximise the profits that accrue from selling that right;
· Bioprospecting Contracts: Bioprospecting contracts are a special form of exclusive right used to maintain equity and encourage people to maintain a resource in the hope that people will find an asset which can be marketed. They seek to make biodiversity protection the ‘highest and best use’ for a resource;
· Individually Transferable Property-Right Mechanisms: These are rights to use specified resources which can be transferred to another person whithout having to obtain prior consent. The most common case is that of tradeable permits and licences such as transferrable fishing quotas. The strength of tradeable permits and licences is that they offer a dependable means to achieve a biodiversity target at minimum cost. As a mechanism, however, they are limited to resources that are relatively homogeneous;
· Covenants and easements: Covenants (and, in the American terminology, easements as well) are instruments which restrict a landowner`s ability to exercise particular rights over their property; for example, they can be used to prohibit the clearance of natural vegetation, or to preserve an area which supports certain types of wildlife. While property rights based, most covenants and easements might be classed as voluntary, in that they arise as a result of contracts voluntarily entered into between land users and either NGOs or government. More commonly, the inducement to enter into such agreements is a payment made directly to the landholder.
Because they are negotiated on an individual basis, covenants present the opportunity for careful targeting. The experience of a number of countries suggests that covenants and easements offer considerable scope for the “establishment of buffer zones, wildlife corridors and protected area management” although the costs of monitoring and enforcing compliance must be weighed against these benefits. Easements are particularly cost effective when the areas needing special protection are fragmented and the main requirement is to prevent an action such as clearing;
· Management Agreements: These are a form of a conditional use right whereby landholders are reimbursed for the incremental cost of providing non-marketable biodiversity services and the capital costs associated with building fences necessary to conserve biodiversity. The normal mechanism used is one whereby landholders are offered the opportunity to agree, in return for a payment, to contribute to the maintenance of biodiversity not expected of that person`s market competitors. They are a crucial mechanism for providing on-going protection of habitat;
· Offset Arrangements: Under these arrangements, industry is given the choice between off-setting the damage they cause or paying an authority to do it on their behalf. In the case of wetlands, for example, a developer may be asked to either pay for the cost of reclaiming a wetland whose environmental services are equivalent to those to be lost, or pay a local council to do this on the developer’s behalf. At least in the forms used so far, wetland mitigation schemes are not a dependable means of conserving biodiversity; and
· Leasing and Licensing: In their simplest form, licenses, leases and permits combine economic opportunity with a series of restrictions in the form of conditions tailored to a specific location - as such, they have some characteristics of regulation as well as of property rights. Their prime administrative advantage is that they give administrations a periodic opportunity to review progress and use conditions. They are probably the main mechanism used to control activity that has site specific implications for biodiversity.
In contrast to property-right mechanisms, which influence prices indirectly by changing the cost of certain activities and preventing others, prices can be influenced directly via charges, levies, transaction arrangements and users fees. Conceptually, such mechanisms could be used to control most threats to biodiversity but, in practice, this is rarely done. The reasons for this are that they cannot be depended upon to protect biodiversity in an efficient manner because markets assume reversibility, or at least the presence of good substitutes, and because it is administratively impossible to tune these instruments to cope with the diversity of problems found at each location and then adapt them through time. Nevertheless, in selected circumstances, pricing mechanisms do have a significant role in revealing the cost of preventing and controlling adverse impacts on biodiversity. Examples include:
· Charges, levies and use fees: These can be used to change the economic signals given to people whose actions threaten biodiversity values. To this end the OECD has made an important contribution by recommending ways to implement the Polluter-Pays Principle and, to a lesser extent, the User-Pays Principle. Collectively these principles imply that, where-ever possible, the costs of supplying access to biodiversity should be recovered from the direct beneficiaries of biodiversity conservation. Similarly, the costs of controlling and preventing direct threats to biodiversity should be recovered from the people who cause those threats. The money collected through the implementation of these mechanisms can be used both as a means to ration use so that it is kept within sustainable limits, and to finance research, management and protection. They can also be used as a means to raise government revenue. Links between management and resource users are strengthened. Political pressure for the administering authority to reduce costs emerges. Cost recovery is now being applied routinely in many industries;
· Tax instruments: From a tax perspective, biodiversity conservation can be assisted through two mechanisms. The first is by making greater economic use of its attributes. When this occurs, expenditure on biodiversity maintenance is tax deductible because it is expenditure made in the course of earning income. Use of the attributes of biodiversity also shifts the nature of threats faced. Taxation mechanisms can also be used as a mechanism to change the cost of undertaking various activities, and are already used as a means to close the gap between social and private values. They can also be used as a means to encourage people to contribute to national objectives.
However, taxation mechanisms can also work against biodiversity conservation by encouraging people to develop resources rather than conserve. Another argument against these mechanisms is that, when not channelled through a well developed non-government organisation or screening mechanism, they are prone to taxation rorts. It is also argued that they establish an open-ended entitlement which is not constrained by a budget restriction, with the consequence that these mechanisms could compromise other national objectives in a non-transparent manner. Furthermore, they are not targeted unless associated with an instrument such as a heritage agreement;
· Removing perverse incentives: A perverse incentive is any incentive that induces behaviour that results in loss of biodiversity or creates a threat to biodiversity conservation. These are the unintended affects of policies associated with the use of natural resources. Generally, such a mechanism is efficient because it addresses an underlying cause of a problem. However, care is necessary when perverse incentives are removed, because removal of incentives such as price support which encourages clearing of unique habitats, can create opposition to the entire notion of conserving biodiversity. From the perspective of a producer, the removal of perverse incentives as a means to improve biodiversity often has negative connotations. Transitional payments have a role to play in maintaining equity, gaining acceptance of the need to remove the perverse incentive, and maintaining a positive community attitude to the conservation of biodiversity;
· Hypothecation: one mechanism often used to increase acceptance of charges and levies is to give those whose incomes are affected by the charge or levy a say in determining how the resultant money is spent. Alternatively, a government can promise to commit the money collected to a cause. Known as hypothecation, this mechanism is used to underscore the point that communities should contribute directly to the financing of programs that improve the environment. For example, it is widely accepted that local government should be free to spend the rates it collects. When introduced, resource management authorities integrate financial instruments with the instruments available to them;
· Performance bonds: One alternative, which can be used when the arrangement is likely to be transitional, is a performance bond. These entail the user lodging a specified amount of money with the regulating authority, which would be returned to the user at the end of a specified period, but forfeited to the regulatory authority in the event of breach by the user;
· Cross-compliance: Related to redressing the effect of perverse incentives and market imperfections, cross-compliance involves the provision of support for one objective being made subject to prior compliance with another. Cross-compliance can occur at both the administrative level and the level of the resource user. At the administrative level, it is implemented by only making program money available, for example, to states that agree to implement a strategy. The approach builds consistency between national and state or local government objectives for biodiversity conservation. Stepwise entry mechanisms that give graded entitlement depending upon the degree of participation are possible.
It is a demonstrably cost-effective way of establishing congruency among biodiversity, production and social welfare objectives when perverse incentives cannot be removed. Adequate designation, monitoring and enforcement of provisions is an essential part of any effective cross-compliance provision and the costs of doing this need careful consideration;
· Conditional grants and payments: As with all government activities, it is necessary to make use of instruments which seek to conserve biodiversity as efficiently as possible. Consequently, it is common for governments to make grants and payments on the condition that certain practices are followed, and in the event of breach, that the money be at least reimbursed. The reasons for doing this are obvious, but in recent years there has been a growing interest in the extension of this principle to one that leverages payments made for other purposes via the use of cross-compliance mechanisms. From a social viewpoint, the result is a more efficient outcome as it reduces the impact of the perverse policy effects mentioned earlier. Resource users, however, tend to dislike such arrangements as it makes it harder for them to qualify for assistance.
In theory, the virtues of property rights and price-based incentives are their ability to: influence behaviour through price signals without the need for direct intervention in the affairs of individuals; encourage individuals to seek out the most cost effective (and often innovative) solutions to a problem; decentralise decision making to individuals who often have better information on how to solve a problem than government authorities; reduce the government`s enforcement costs as well as the resource user`s compliance costs; and to give resource users an ongoing incentive to develop better environmental approaches. Whether, in practice, these mechanisms necessarily demonstrate these virtues is less clear, because of the lack of empirical evidence. Since relatively few financial incentives have been implemented in the biodiversity policy area, and most of these only recently, we have very little experience of how they actually work. Significantly, even a very recent and comprehensive OECD report on this issue has been unable to reach any general conclusions about the effectiveness, efficiency, equity implications, acceptability or administrative implications of market-based instruments.
The extent to which property-right and pricing mechanisms can make a positive contribution to biodiversity conservation is likely to depend substantially on the particular contexts in which they are applied, the threats to which they are addressed, and the particular attributes of individual instruments.
There are nevertheless some generalisations that can usefully be made about the role of market-based and property-right approaches and about their relationship with regulatory strategies. In terms of cost-effectiveness or economic efficiency, market-based incentives, appropriately designed, are likely to be substantially superior to regulatory controls. This is because “regulatory instruments require the central authority to determine the best course of action, whereas economic instruments decentralise much of the decision-making to the single farm or household, which typically has better information for determining the appropriate individual response to given economic conditions. In addition, market instruments provide cost incentives to adopt ‘alternative’ resource inputs and processes, or to develop such improvements with time”.
Financial (and property-right) incentives that work on price have a further particular advantage over command and control mechanisms that tend to be “targeted” on specific outcomes. As the OECD has pointed out:
biodiversity is arguably different as an environmental and economic resource because its fate depends on many decisions made in many different economic sectors. That is, it is pervasive to the economic system, being affected by land and water use decisions, by pollution and by economic activity generally. As such, biodiversity conservation policies must themselves be pervasive, ie. they must be capable of filtering through the entire economic system.
All other things being equal, market-based approaches are less intrusive, more cooperative and can be designed to be financially attractive. However, contrary to claims made in some of the earlier literature, they are not self-enforcing and may involve considerable control costs. Indeed, one recent study concluded that “there is no reason to expect that the administrative costs of economic instruments are generally lower than those of regulatory instruments.” It must also be acknowledged that market-based and property-right instruments are not generally well understood, and perhaps for this reason, do not rate highly in terms of community acceptance.
Market-based approaches may also be less appropriate than regulation in addressing two key characteristics of biodiversity. These are first, that biodiversity loss is often irreversible, and second, that ecosystems have limits and if stressed beyond those limits, they will collapse. We explore the implications of this issue more fully below.
D. Regulatory Instruments
In contrast to market-based incentives, regulation directly seeks to control or restrict environmentally damaging activities, mandating the reduction or restriction of activities identified as harmful. As such it is much more prescriptive. The main regulatory instruments are well known and include zoning, land-use restrictions, standards and bans. Some licences and quotas are regulatory instruments.
Although regulation often lacks the flexibility and efficiencies associated with market-based approaches, it is perceived as being more certain (provided there is adequate monitoring and enforcement). At the general level, regulation also provides an efficient means to deal with forms of irrational behaviour that cannot be dealt with in an efficient manner through the use of voluntary, property-right and financial incentives. If all but one Ecotourism operator are complying with a voluntary code of practice, then regulation to stop the recalcitrant offender might offer the most efficient way of protecting biodiversity at least administrative cost.
Regulation is often referred to as a “command and control” approach because of the presence of a prohibition or restriction coupled with a direct “control” mechanism such as a fine, licence revocation or other penalty for contravention. This approach is commonly criticised by economists for being inefficient, unnecessarily intrusive and unduly expensive to administer. Some regulations may prevent innovation and stop people from searching for new, more efficient ways to use a resource. Moreover, regulatory instruments may be inequitable, and are slow to respond to new information. They can also build a sense of false security.
Notwithstanding these shortcomings, regulations have a particular role to play when biodiversity loss has proceeded to the extent that further net loss poses threats judged to be unacceptable. In principle, regulation`s strength in these circumstances is the certainty it provides, particularly where it takes the form of direct bans on destructive activity, supported by sanctions. In practice, regulation combined with license exceptions does not lead to certainty. Even without the licensing exception, it is true that there will remain a temptation to cheat, particularly where breaches are not transparent. How strong this temptation will be, and how likely people are to succumb to it, will depend in part on the perceived legitimacy of the regulation (reinforcing the need for education and motivation) and, in part, on the likelihood of detection and severity of sanctions.
Notwithstanding these constraints, regulation coupled with the moral force of law, will in general provide greater assurance of compliance (certainty) than market-based incentives. For example, it may be desirable to legislatively outlaw discharges of extremely hazardous substances, rather than seek to curtail their use through tradeable permits or emissions charges, the outcome of which is far less certain. The regulatory approach is particularly efficient in stopping actions which need to be prevented or excluded totally - obvious examples include bans on the shooting of endangered species and dumping of toxic waste in a national park. However, it must be acknowledged that for political reasons, it is only rarely that legislation is enacted in this form. More commonly, exceptions are permitted under license, thereby undermining the “certainty” rationale.
As with other incentives, the relative effectiveness of regulation is likely to be context specific. For example, regulation reinforced by sanctions cannot serve to achieve biodiversity maintenance on privately managed semi-natural systems. As Bowers demonstrates, “where maintaining biodiversity requires people to perform actions that are not economic, sanctions will not in general work since primary operators (farmers or foresters who work the land) are likely to respond by abandoning management altogether.”
In contrast, when the aim to preserve a natural system and prevent use, a regulatory sanction may be much more effective, given that regulation does not require any change of land but merely seeks to preserve the status quo. Because land-use change usually “cannot be brought about by doing nothing, the landholder...cannot frustrate the intentions of the controlling authority by passive resistance”, and defiance can be both identified and punished by law. However, even here it must be acknowledged that some positive management will be necessary to protect biodiversity from feral animals and other threats, and that for reasons stated below , management agreements can achieve such protection in a way that regulation alone cannot.
The role of precautionary regulation
There is one other role for regulation: to guide administrative process and warn when greater precaution is necessary. In the face of the uncertainty and complexity that characterises biodiversity, regulations and the standards associated with them can be used to indicate the need for existing institutions to proceed in a different manner. Consequently, in the case of biodiversity conservation, rather than seeing regulations as offering a “safe minimum standard” it can be more useful to envisage a continuum:
· beginning with a precautionary regulation (such as a requirement to obtain a permit) which is used to indicate the presence of an irreversible threshold and precautionary standards which indicate the need to change administrative procedures; and
· ending with minimum standards and targets.
Precautionary standards offer a cost effective means to trigger the adoption of different instruments and administrative procedures. As such, they should not imply a need to choose between regulation and other instrument categories, but rather an opportunity for complementary combinations of instruments. For example, a precautionary regulation, such as a requirement to apply for a clearing permit, might result in approval of clearing in one area conditional upon a conservation covenant being placed on another area supported by a management agreement that would re-imburse the landholder for the cost of completing special fencing requirements. This last example reveals another problem for biodiversity conservation - the tyranny of small decisions. As the total quantity of biodiversity declines the value of that which remains increases and becomes more vulnerable in both an ecological and an economic sense.
E. Mixing Property-Right, Price-Based and Regulatory Approaches
In this section, we explore the overall role of property-right, price and regulatory instruments in the broader policy mix, and the optimal relationship between these types of instruments. Before entering the details of this debate it is important to recognise that the distinction between regulation on the one hand, and economic instruments on the other, is commonly overstated. In practice, there is no strict dichotomy between these two categories of instruments, because economic incentives themselves commonly rely on a substantial underpinning of government regulation for their effective implementation. Individual transferable quotas for example, incorporate the flexibility and cost-effectiveness of market approaches, but are overlaid with a degree of government regulation that reduces the risk of their being systematically breached.
Nevertheless, some general conclusions can be drawn about the optimal relationship between these instrument groups. We begin with property-rights. As indicated above, property-right mechanisms offer a powerful means to encourage people to conserve biodiversity and limit its use to that which is sustainable. They do this by either constraining or expanding the opportunities available to resource users. Where markets for these rights can be created, often change can be achieved with less cost to society and with greater equity than is achievable under other mechanisms. A particular strength of property-right incentives is their lack of intrusiveness, and the fact that they can be tailored to site specific problems in an administratively efficient manner. These considerable virtues of property-right instruments suggest that they should play a central role in most policy mixes.
There are also strong arguments in favour of the use of price-based instruments. Mechanisms such as user charges and levies can be an important way of changing the economic signals given to those whose actions threaten biodiversity values, and are an important embodyment of the user-pays and polluter-pays principles. But should property-right and price-based instruments be combined solely with voluntary and/or motivational incentives, or do they also need to be underpinned by regulation?
This last question is central, because while both property based instruments, and price mechanisms, have considerable virtues, they also lack dependability. For example, a key characteristic of some price-based approaches is that a price is set and the market then decides how much biodiversity conservation to deliver. This encourages people to find efficient ways to profit from this trade-off and seek ways to do more or less damage depending upon the way that the instrument operates. However, setting prices at the optimal level to influence behaviour is a "hit and miss" approach, with the result that if the price is set too low (which may only be apparent with hindsight) it will not have the anticipated effect on behaviour. Similar problems beset property-right mechanisms, which set ecological constraints and then ask the market to trade-off profit opportunities within that framework. In the former, biodiversity objectives are tradeable. In the latter, prices and costs are traded as circumstances change.
A further problem with relying on prices and economic incentives rather than compulsion, is that prices are not well suited to dealing with those who will not respond "rationally" to those incentives and may provide less certainty than regulation. It may be that only those "at the margin" respond in the preferred direction. But for a variety of reasons, ranging from incompetence or ignorance to intransigence, there is likely to be a minority who, in the absence of more directive or even coercive policies, will continue to behave in a manner which threatens biodiversity conservation.
While relatively small, this minority cannot be ignored. If left unchecked, it will have a substantial impact on biodiversity, not just directly through its own behaviour, but also through its impact in demotivating other target group members-particularly in respect of voluntary mechanisms. For example, there is evidence that land users and others who contribute to voluntary programs such as the Australian organisation Landcare, may become dispirited if others are free to continue to degrade adjoining land. In many circumstances, the creation of a level playing field may be an essential prerequisite to the success of the sort of positive, less interventionist approach that we envisage for the large majority of circumstances.
In contrast, regulatory approaches decide how much conservation is required and then let the market reveal the economic consequences of doing this. The latter regulatory approach is often preferred as it is changes in physical processes and quantities, not prices, that affect ecosystems most directly. Arguably, there is more dependability when ecological constraints are set and then price, demand and technological forces are allowed to work themselves out.
In summary, where persuasion and education fail, where enterprises are unwilling to improve their environmental performances voluntarily, and where economic incentives or voluntarism lack dependability, then regulation may be the only technique capable of exerting pressure and compelling resource users and others to protect biodiversity. Thus even those who do not behave with economic rationality and respond to economic incentives can still be persuaded to halt destructive practices. A further advantage of regulation that it has a moral and educational influence which economic incentive based strategies lack. In some circumstances, the very fact that certain behaviour is prescribed by law may be sufficient to create moral inhibitions against engaging in that behaviour.
Our conclusion is that there is a tension between achieving dependability (which implies a need for regulation) on the one hand, and cost-effectiveness, flexibility and non intrusiveness (through property-right and price-based incentives and voluntarism) on the other. How should this tension be resolved?
The extent to which property-right or price-based incentives mechanisms (often in conjunction with voluntary and/or motivational incentives) need to be underpinned by regulation will depend on whether, in the circumstances to be addressed, there is a danger of irreversible biodiversity loss, and whether that loss may give rise to threshold effects giving rise to the possibility of a major environmental catastrophe or system collapse. In the latter circumstance, any policy which compromises the resilience of ecosystems may have uncontrollable effects and even small policy changes can have dramatic but unforeseen results. Therefore, dependability becomes the most important objective when irreversibility or threshold breach is at stake, but not otherwise.
In these circumstances we conclude that financially-attractive instruments are rarely adequate on their own and often need to be underpinned by precautionary instruments, and ultimately by a regulatory safety net to deal with recalcitrant resource users (who in well designed systems should be few in number). We explore the implications of this conclusion further in the section on design criteria below.
Ordering the evaluation criteria
In the above discussion, we have moved through a series of arguments that began by pointing out the need for instrument mixes and how the strengths and weaknesses of each instrument can be harnessed to build a framework that is as dependable as possible in terms of preventing irreversible losses and within this constraint trades-off criteria like efficiency, equity, precaution, dynamism, administrative costs and community acceptability. Having argued first for dependability, which implies the need for precautionary regulations and precautionary standards underpinned by a firm regulatory safety net that prohibits irreversible actions - the next weight should be given to mechanisms that build community support which requires that the standard be both equitable and have acceptable administrative costs.
The mere fact that the Government makes clear its willingness to escalate to regulation if voluntary, property-right and price mechanisms fail, means that the latter are likely to work more effectively, since resource users` decisions concerning the utilisation of voluntary and property-right incentives will be coloured by their knowledge of the existence of a background of regulation. So paradoxically, the backdrop of regulation is likely to render positive instruments more attractive - and thus more effective - to industry, by presenting them with an unpalatable alternative.
DESIGN CRITERIA
Having outlined the main instrument categories and the interactions between them in general terms, it remains to address more specific design issues. In this section we will argue that, drawing from the above analysis, ten guidelines are paramount in designing policy mixes that promote the active conservation of biodiversity and its ecologically sustainable use. In summary, (all things being equal):
· where ongoing and active contributions to the conservation of biodiversity are desired, financially-attractive instrument mixes should be preferred to ones that reduce the welfare of those asked to conserve biodiversity;
· to account for irreversibility and lack of knowledge, mixes building in dependability involving more rather than fewer instruments, will be necessary (“designing for precaution”);
· institutional arrangements which combine bottom-up administrative processes with top-down ones tend to be most dependable;
· at least one policy instrument should be used to allieviate each threat and to pursue each objective (the Tinbergen principle);
· lack of public knowledge about the distribution of biodiversity values gives rise to opportunistic behaviour on the part of individuals (the “First Mover problem”). This necessitates control measures which, in concert, make the incentive for (most) individuals to act in the public interest greater than the incentive to mask it in the pursuit of private gain;
· as far as possible, policy changes should seek to reduce underlying causes of threats to biodiversity such as institutional failure, market failure or incompletely specified property-right structures, as well as threatening processes;
· in some circumstances, instruments should be introduced in a particular order, which is likely to vary with the context and the nature of the threat to be addressed;
· Implicit in the use of a broader range of instruments is the use of a larger range of actors to implement them. It is important to take advantage both of the democratic benefits which direct stakeholder participation can bring, and of the leverage in implementation which broader third party engagement can provide. Again, most examples will be context and threat specific;
· different mixes will be appropriate in different socio-economic circumstances; and
· biodiversity conservation must be achieved at least cost to government. In cases where a permanent financial incentive is offered, particular questions of efficiency and administrative feasibility need to be addressed.
Financially Attractive Instrument Mixes
There is considerable evidence that, all else being equal, a policy instrument is more likely to produce both compliance and a positive attitude change if it is perceived as non-coercive. For example, voluntary instruments are likely to be preferred by resource users over direct regulation because they are flexible, give individuals greater freedom and the opportunity to utilise and experiment with knowledge not generally known, are less coercive. and , because they are seen as offering a choice, are likely to be perceived as more legitimate and may thus facilitate compliance.
In contrast, coercive instrument mixes must be used with great sensitivity and restraint given their very great potential to alienate not only their immediate target but also the target’s peers. Direct regulation may still be necessary, for reasons identified earlier, but the overall success of a policy regime will be substantially higher and the prospects for biodiversity conservation will be greater if direct regulatory approaches are overlain with a web of mechanisms that create a financially-attractive and voluntary atmosphere that encourages cooperation and the sharing of information. Only the latter approach is likely to induce resource users and communities to actively contribute to the maintenance of biodiversity values.
In many countries, it has become common to use financial incentives to close the gap between the private and public demands for biodiversity conservation. Often the incentive offered is less than the full cost of an action. For example, in Western Australia, landholders are offered 50% of the cost of fencing out remnant native vegetation and, if they sign a 30 year memorandum of understanding to maintain that remnant, a significant local government rate rebate will apply.
Financial inducements can also be used, when first introduced, to act as important `circuit breakers` during a transition to a new regime. For example, in South Australia, the introduction of widespread clearing controls was made politically palatable by coupling it with the provision of compensation, which was itself removed after an transitional period in which the land clearing controls gained a widespread acceptance.
Circuit breakers may achieve even more when initial participation is voluntary, because in these circumstances community acceptance of the circuit breaking change to a new regime, is strengthened. The result, even when financial support is removed, is a more genuine and more durable attitude change. Once agreement has been reached over the new regime, however, the mix can involve significant penalties. If a landholder, for example, enters into a management agreement, non-compliance with it could incur substantial penalties.
Financially attractive mixes are particularly important where there is a need to encourage ongoing management of a resource. Policy instruments which merely halt existing biodiversity loss are important, particularly in gaining breathing space during which more constructive policies can be developed, but they do not in themselves ensure that resources will be appropriately managed so as to preserve biodiversity. For example, although the South Australian experience suggests that compensation backed by legislation can have considerable success, even this mix remains, in one aspect, seriously inadequate. The South Australian model is essentially one of prohibition on clearance coupled with compensation, with only very modest provision for management of land subject to clearance controls. For this reason, it is likely to be far more successful in preventing clearance than in ensuring effective ongoing care of native vegetation and woodland habitat on private land.
Farrier, in particular, has argued that those who are forcibly constrained from clearing land are unlikely to be enthusiastic land managers, and that for this reason, regulation must be combined with adequate financial incentives but that "these should take the form of forward looking payments for management rather than backward looking compensation”. He suggests a reordering of current landcare initiatives as possible ways of meeting this objective. In his view:
The priorities of these initiatives need to be adjusted to ensure that greater emphasis in placed on the retention of existing native vegetation rather than replanting, and that restructuring in local communities is not based exclusively on short term productivity concerns, but also takes into account the much longer term economic interest that the community has in conserving biodiversity.
The final element is some mechanism (eg a covenant or easement) to ensure that protection is ongoing and does not cease with the termination of the management agreement.
To summarise the lessons of this section: instrument mixes which are net, financially attractive, maximise acceptance, are largely self-enforcing, and create a dynamic incentive to search for more cost effective solutions and, often, provide a continuing incentive to improve beyond the target. They are essential where there is a need to ensure ongoing management of a resource.
Designing for Precaution
Perrings and Pearce have argued that the existence of irreversible threshold effects (and often fundamental ignorance about the implications of crossing a threshold) introduces uncertainty which renders the development of economic instruments to achieve biodiversity conservation objectives problematic. If market incentives do not work as predicted, it may be too late to save the ecosystems or species concerned. Perrings and Pearce argue that in such situations, regulation is probably the most dependable strategy.
Unfortunately, economists such as Perrings and Pearce may well have an over optimistic view of the virtues of regulation in this context. For while regulation does have considerable advantages over the sorts of incentive-based mechanisms discussed above, regulations are not dependable enough to rely upon alone. Regulatory failure is not uncommon. Effective implementation and enforcement are crucially important to regulation`s dependability; failures at this level are well documented and widespread. In circumstances of biodiversity protection, where valued attributes are widely dispersed, enforcement resources are thin on the ground, and regulation is not supported by the local community, the possibility of regulatory failure cannot be discounted.
Our view is different to Perrings and Pearce. We do not suggest that regulation alone - or indeed any other policy instrument - has sufficient dependability to act as an effective safety net in its own right. On the contrary, we see regulation as a last line of defence which is fallible. Accordingly, one of the functions of other instruments and mechanisms, in concert with astute institutional arrangements, is to dissuade resource-users from actions that, with minor mis-judgement, could result in an irreversible change in an ecosystem type, the demise of a species or the loss of genetic traits. Regulation in this context is rather like an elastic safety net with holes in it: the greater the weight imposed on the safety net, the larger the holes become. One role on other mechanisms is to keep the weight off the safety net, because in the case of biodiversity conservation, the greater the expectation of regulation, the less effective regulation is likely to be.
Accordingly, given the severity of the consequences of policy failure and the limited dependability of regulation, we argue for a mixed approach which uses the full suite of instruments available. The logic is similar to that applied to aircraft design. Because the consequences of the failure of a single system without backup would be catastrophic, aircraft design deliberately incorporates multiple systems to compensate for the possible failure of any one in particular (fail safe mechanisms)
Setting administrative cost issues to one side, those mixes that involve more rather than fewer instruments are likely to be more effective in preventing irreversible loss. Put differently, emphasis on dependability and precaution means that the most cost-effective instrument mix will include mechanisms and instruments that appear to be redundant but are there because from time to time others are expected to fail. Under this approach, the role of non-regulatory instruments is to increase dependability by reducing the need for regulatory mechanisms to be used as the first and last line of defence.
Institutional Mixes
Central government has a vital role to play in the implementation of both national and international obligations concerning biodiversity protection and also holds most of the significant purse-strings. From a biodiversity conservation perspective, the role for central governments includes: setting the agenda of broad policy objectives to be achieved; providing resources and distributing funds; building a safety net which can take over when local processes fail to conserve biodiversity; co-coordinating policy, in particular inter regional, state and national plans and strategies on biodiversity; ensuring biodiversity input into other government programs eg salinity, timber, mining, telecommunications; resourcing biodiversity research where that information is unlikely to be provided through the market; regulation (with community input into design); monitoring and accountability (keeping in mind the vital role community groups can have in this area); and establishing necessary institutional arrangements which will ensure meaningful community participation.
However, it does not follow that central government also needs to be intimately involved in all aspects of the programs intended to meet either its national or international obligations. Indeed, there are compelling reasons why the role of central government, in respect of some instruments at least, should be that of steering the boat rather than rowing it.
The arguments for direct and substantial community and industry involvement are substantial. Ultimately, all conservation occurs at the local level. Moreover, the success of biodiversity protection programs depends, to a substantial degree, upon the attitudes of local people, on the capacity to harness local knowledge and on local ownership of solutions that are locally devised. This approach also reduces the costs of dealing with the lack of homogeneity and the complexity of many biodiversity problems. How then, can central and local roles in protecting biodiversity best be accomodated?
One means of achieving an appropriate combination of top down and bottom up mechanisms is by invoking the principle of subsidiarity: the transfer of authority and responsibility for aspects of the strategy to the lowest level at which it can be exercised effectively. Subsidiarity implies consultation and often the direct participation of the community and industry in decision making and implementation at local or regional level. This approach recognises that central government roles will be most efficient and effective if they use instruments and mechanisms that encourage local governments, industry and community to accept these broader responsibilities. One way of achieving this assumption of responsibility is to set targets that must be achieved by those responsible for protecting biodiversity. Another way is to specify the nature of decisions that must be taken in consultation with central Government.
It is important to avoid an inflexible approach in applying these principles, and to recognise that there may be circumstances where community decision-making should be local rather than regional. There may be grounds, for example, for locating both biodiversity and implementation of decision-making more narrowly at local level, if this is the level at which there is a “community of common concern”, but even then, regional oversight will usually be necessary. Similarly, it may sometimes be appropriate, for instance, to divide a catchment into an upper area and a lower area, or even into smaller divisions if this is necessary to generate effective local involvement. In other cases, an industry-focused structure may be more appropriate.
Adding to this consideration is the fact that bioregions (which are arguably the most appropriate level to locate much biodiversity policy) rarely coincide with other administrative boundaries like those used by local government and for the management of natural resources like forests, fish and rangelands. The size and nature of a “region” will also vary with the types of threat and land use and with the socio-economic context.
Institutional arrangements are particularly important when dealing with irreversibility and lack of knowledge. One failure with the top-down approach to biodiversity conservation is that if the “top levels” are accountable for biodiversity conservation, any failure to achieve this on their part could mean an entire system failure as there is no institutional back-up. Consequently, mixes that combine bottom-up administrative processes with top-down ones tend to be more dependable than pure top-down ones.
We conclude that that the entire mix is likely to be more dependable if each level in the administrative hierarchy has
a) full access to the suite of instruments available for biodiversity conservation; and
b) no level of government has the power to over-ride a decision to protect biodiversity.
At times, most levels in the administrative hierarchy need not act. However, whenever one level fails, another can and is empowered to step in and act to fill the void left by failure at another level.
In choosing between all the levels which could act careful consideration needs to be given to the costs of aggregating information and opportunity for initiative. In a significant number of cases, it can be more cost-effective to use non-government organisations to manage and implement programs. Experience suggests that, because of altruistic activity induced by such arrangements, money diverted through such channels can deliver between three and ten times as much activity as that managed solely by government.
The Tinbergen Principle
The Tinbergen Principle suggests that, in situations where there are multiple objectives and problems, at least one policy instrument should be used to alleviate each threat and pursue each objective. When this approach is taken, each part of the mix can be adjusted without compromising other objectives. The reason for saying at least one instrument is that each organisation interested in biodiversity may wish to modify the emphasis given by other organisations. This is only possible if the mix of policies enables them to either add weight to an existing policy or add an additional one.
Compliance with this principle ensures that, as knowledge, prices, technology and social values change over time, the resultant package can be adjusted efficiently and equitably. The reason for this is that if separate instruments are used for each link between a threat and an objective, then it is simpler to readjust the policy mix as circumstances change. Moreover, if the advantages of community and industry initiated conservation are to be pursued seriously, the number of instruments will need to be sufficient to accommodate each level of biodiversity and the web of institutions who act to conserve all attributes of biodiversity. Local government, industry and state government, for example, all need separate access to the means to protect an ecosystem of importance to them. As there are many threats and several objectives, the combination will involve more rather than fewer instruments.
This principle clearly applies to biodiversity protection which, as described above, is highly complex and involves many threats and levels. In these circumstances, any successful biodiversity strategy will need to rely upon a complex web of instruments and mechanisms.
The First-Mover Problem
Against the backdrop of considerable uncertainty about the consequences of biodiversity loss, and ignorance about its extent, one particular problem which must be addressed in choosing instrument options is that of deterring opportunistic behaviour which could inflict irreversible damage. As a public good, there is often a large gap between private values and the public interest in protecting biodiversity. Moreover, because of the lack of information about biodiversity, administrators are not always aware of the size of this gap. As Bowers has pointed out, from time to time unforeseen contingencies may arise which offer opportunities for profit at the expense of biodiversity. These situation will give rise to a special case of the First Mover Problem, namely: if others seize private opportunities and seek to profit from them by masking public values from the control authority, then they may damage biodiversity before the authority responsible for protecting biodiversity can act.
If, for example, a farmer discovers that remnant vegetation on her property contains an endangered species or, more seriously, one thought to be extinct, then unless there is a guarantee of compensation she has a strong financial incentive to hide this fact from the community. Similarly, there is a strong temptation for a person who applies for a clearing permit to omit to note the presence of an endangered species within the area covered by the application, or for a forester to shoot an endangered animal and remove all evidence of this in the area he wishes to log.
Well developed biodiversity conservation strategies pay careful attention to the first-mover problem and motivate resource-users to adapt arrangements so that biodiversity is conserved over the long term.
The first-mover problem arises from a lack of public knowledge about the distribution of biodiversity values. There are two means of dealing with this. The first is for governments to invest in detection, monitoring and information gathering so as to reduce the risk of the first-mover losses occurring. Given the limited capacity of most bureaucracies to anticipate and respond quickly to change, however, this strategy is not a dependable one. Moreover, the collection of more information takes time to implement. By the time the information is collated, an irreversible biodiversity conservation threshold may have been passed.
The alternative means is to design control instruments which reduce the first mover problem by providing incentives for individuals to act in the public interest. Mechanisms used to reduce the first mover-problem include sharing property-rights between government and resource users via co-management arrangements and negotiable property-right structures. If, through co-management and astute property-right arrangements, biodiversity conservation is seen as a community and industry responsibility, then arguably the risk of discovery will be greater, and hence the incentive to exploit a first-mover opportunity less. Industry and community responsibility can be developed via the use of motivational instruments such as the issuance of prizes, awards and accreditation. Motivation is heavily dependent upon the provision of information at a scale and in a form useable by local community and industry. Another common method is to offer compensation for the value of the income opportunity lost. This latter option, however, runs the risk of encouraging people to hold out for bigger and bigger rewards.
Finally, while planning would not overcome the first mover problem, it might at least serve to mitigate it. Specifically, a staged approach, beginning with environmental studies to identify the nature of the threats and species and habitats in need of protection, followed by a regional plan (incorporating both prohibitions on clearance in some areas and permission to clear in others) might pre-empt some of this problem by identifying biodiversity considerations (eg endangered species) in advance, and providing a strategy to protect them. This would, at the very least, reduce the number of first movers where the temptation was to ‘shoot, shovel and shut up.’
Preference for Underlying Causes
In broad terms, biodiversity policy might be directed at threats, underlying causes and, to a lesser extent, fundamental causes. Illustrations of each of these levels are provided in Table 2.
Table 2 Fundamental Causes, Underlying Causes and Threatening Processes
Fundamental èCauses ç Underlying è Causes ç Threatening Processes è Outcome
population market failure ecosystem & habitat loss species extinction
population growth property-right failure ecosystem & habitat decline lost ecological function
inequality institutional deficiency direct species loss lost ecological community
economic growth political deficiency gene loss
poverty information failure loss of value
knowledge deficiency climate change loss of options
An important question for biodiversity policy is: at which level or levels is should conservation instruments be directed? The case for treating underlying causes and, if possible, fundamental causes has been discussed at length by the OECD. As fundamental causes like population growth are deeply entrenched in complex policy agendas, faster progress and fewer irreversible consequences are attainable through a focus on the underlying causes of threatening processes.
Mechanisms that remove underlying causes of a threat can reduce the incentive for people to adopt actions that reduce biodiversity values. Often this is achieved via changes that affect market prices. Unless markets, as restricted by regulation, property-rights and social norms, take account of biodiversity values then biodiversity will continue to decline. When resource users are made to pay for the true costs of biodiversity degradation to society, they have an incentive to avoid causing that degradation. Removal of perverse incentives can have a similar impact. If, for example, a tax concession is causing unacceptable vegetation clearance then, all other things being equal, it is more economically efficient to remove the tax concession than to attempt to prohibit clearing.
As a general rule, instruments and policy approaches that reduce or remove the underlying cause of a threatening process will be more effective than those that act directly on the threat. In many situations however, simple treatment of the underlying cause of the threatening process may be insufficient. Thus, in practice, the most dependable strategy will require paying attention to the threatening process as well as the cause - at least until the threatening process is no longer observable. In the case illustrated above, the dependable strategy will include both removal of the tax concession, the introduction of clearing controls and other mechanisms designed to retain a positive attitude towards biodiversity conservation.
A further reason for focussing on underlying causes is that when and wherever they are removed, the administrative need for ongoing enforcement of programs designed to contain the threat is removed. Dynamic and continuing incentives for improvement are left in place and ongoing administrative costs are lower than would otherwise be the case.
Instrument Ordering
Even assuming that complementary instruments are available, and that an instrument mix is preferred to single instrument approaches, there may be reasons for ordering the introduction of the various instruments, rather than introducing them at the same time. For example, it would seem sensible to remove existing perverse economic incentives first, since these would otherwise distort or reduce the effectiveness of new policy instruments. Again, where more than one instrument or combination of instruments might achieve the intended policy outcome, and dependability is not of the essence, it would also be appropriate to introduce less intrusive and interventionist instruments before more intrusive ones. More generally, less interventionist incentive mixes, underpinned by regulations to prevent and exclude irreversible actions, are likely to deliver more efficient outcomes than more interventionist mixes,. The reason for this is that less interventionist incentives permit trade-offs and encourage innovation. They also address underlying causes of threats to biodiversity which if removed or countered by a compensating mechanism make further administrative action rarely necessary.
Beyond this, appropriate ordering is likely to emerge as each threat to biodiversity is individually addressed. For example, if the policy concern is with ecosystem sustainability and there is a serious possibility of thresholds being crossed, then the imposition of precautionary standards will be essential, and the highest implementation priority. However, in the longer term, it will be important to complement these standards with more positive instruments, including those which encourage ongoing management, and probably in combination with the use of market based instruments, for reasons discussed earlier.
Which Parties Should Implement Policy Mixes?
Implicit in the use of a broader range of instruments is the use of a larger range of actors to implement them. This means not only the involvement of governments (first parties) landholders or other users (second parties) but also a range of other interested actors (third parties). In this context it is important to note that scrutiny on the part of citizens` and public interest organisations can exceed vigilance by government agencies. We need to take advantage both of the democratic benefits which direct stakeholder participation can bring, and of the leverage in implementation which broader third party engagement can provide.
Again, most examples will be context and threat specific. The credibility and balance of biodiversity audits would be considerably strengthened if the audit team included not only scientific experts, and local resource users, but also a representative of a community group or other appropriate NGOs. Similarly, if clearing restrictions are challenged by landholders who wish to argue a case for further clearing beyond the legislative threshold, then third parties such as environmental groups should have a right of standing, thereby acting as a countervailing force. For example, in the United States, the right to bring "citizen suits" can enable local conservation groups to sue private developers where their activities threaten endangered species. This approach has the particular virtue of compensating for lack of resources, and sometimes lack of political will, on the part of government enforcement agencies, and of leveraging substantially increased enforcement capability. The "dob-in" factor is also an important one, capable of being harnessed in the public interest, although it may be of only limited value where illegal activity largely corresponds with local community mores. There are also more practical difficulties for individuals in relatively isolated communities acting in this role.
Economic conditions
A further factor for consideration is the socio-economic and biological conditions that exist at any location. Obviously, marginal agricultural land will provide a different economic context and require a different instrument mix from an area on the verge of intensive tourist development.
All else being equal, voluntary mechanisms and management agreements will be more attractive to the economically secure primary producer. By contrast, transferable tax credits and subsidies will be more appealing to those (such as the subsistence farmer) who are “up to their ears in red ink”. Accreditation and labelling schemes will be more applicable to those interests (such as the ecotourism industry) which may be influenced by purchasing power.
Making biodiversity conservation cost-effective
In cases where a permanent financial incentive is offered, questions of efficiency and administrative feasibility need to be addressed. The case for them is dependent upon the gap between public concern and private interest. As indicated above, the greater that gap, the greater the need for financial incentives to encourage ongoing management. Recognising that the administrative costs of any scheme involving annual payments are high, in many cases it may be more cost-effective to change property-rights either with or without a compensation payment.
Property-rights are often incompletely specified. Governments, on behalf of the community, usually retain the right to respecify the rights and obligations associated with a property entitlement. Where property-rights are unclear, the introduction of financial payments can act to turn a property-right still held by society into one held by a title holder. Several Australian states, for example, have introduced regulations that require people to obtain a permit to clear native vegetation. Prior to the introduction of these regulations, most landholders thought they had a right to clear land. In the United States, people are paid to keep land in Conservation Reserves which implies that these landholders have a legal right to destroy biodiversity values.
Recognition of these issues has led us to the conclusion that it is critical to distinguish between:
· reimbursement of non-marketable costs associated with protecting biodiversity values for society by, for example, fencing an endangered habitat;
· compensation for lost property-rights like the right to graze an area; and
· pricing policies that either internalise or subsidise the costs of controlling and preventing threats to biodiversity associated with economic activity.
Reimbursement of non-marketable costs
The first question we address is the case for reimbursing costs associated with biodiversity conservation that can not be recovered from the market place. Examples of these costs include fencing out an area of value to an endangered species so that it can not be grazed and then keeping the area free of vermin. As no market exists for the protection of habitats occupied by most endangered species, it is efficient for the beneficiaries of species protection (taxpayers on behalf of society) to reimburse those who incur the cost of protecting them. Efficiency criteria would indicate that reimbursement should be only for those costs incremental and in addition to those recoverable through market processes.
The World Bank’s Global Environment Facility describes this concept as one of reimbursing the incremental cost of providing benefits to society. The notion is simply one of paying people to do work which, if they did not do it, would be undertaken by government. Payments should be limited to expenditure which can not be recovered from the market place. Costs can be reimbursed either by periodic payments or a one-off payment associated with a conservation covenant or other similar arrangements that are binding on future land holders. In practice, such arrangements are also supported by provision of periodic advice and a program that motivates people to feel proud of the contribution they are making to society’s biodiversity conservation objectives.
Limiting compensation for a transitionary period
On equity grounds and to encourage efficient investment, most developed nations provide a right to compensation for the removal of a right that is being exercised. At the same time, however, most nations also reserve the right, from time to time, to redefine the bundle of unfettered economic opportunities embodied in a property-right and have encouraged people to speculate on the profits and losses associated with them. Thus, establishing a precedent for the payment of compensation for declines in land values should be seen as a very fundamental reform with immense budgetary implications. If speculation is allowed then the case for compensation collapses to one of the need to achieve and retain political and community acceptability during the transition period when assumed, but unspecified, property-rights are redefined.
The guideline is that where compensation is necessary, it should only be offered for a transitionary period as an equitable means of bringing about a faster and irreversible transition.
As with voluntary financial incentives for biodiversity conservation on land that remains in private ownership, the role of compensation is largely one of a circuit breaker to bring about the transition whilst maintaining motivation, equity and community acceptance. Administrative costs may be less if the initial policy change is accompanied by a plan to diminish the proportion of compensation payable by, say, 20% per annum. When this is done the transition is speedier and, as the threat is reduced more quickly, the mix may be more dependable.
CONCLUSION
The challenge for regulatory strategy in the late 1990s, is to move beyond the market-government dichotomy to devise better ways of achieving environmental protection at an acceptable economic and social cost. Such an approach would still involve government intervention, but selectively and in combination with a range of market and non-market solutions.
In the case of biodiversity protection, we have argued that there are a variety of mechanisms that as yet have only been used in a limited fashion, but which have the potential to make a substantial contribution to biodiversity conservation. In broad terms, these can be categorised as motivational, voluntary, property based, price based and regulatory instruments
In the large majority of circumstances, the multiple objectives of biodiversity conservation will be achieved most effectively via a mix of instruments and mechanisms targeted to the suite of threats extant at any location. An optimal strategy will harness the strengths of individual mechanisms while compensating for their weaknesses by the use of additional and complementary policy instruments. We have sought to indicate the circumstances in which each category of instruments might most appropriately be used, and to suggest optimal instrument combinations suited to particular contexts. We have also identified a set of design criteria which be believe should be paramount in constructing policy mixes.
Our analysis has, been pitched at a relatively abstract level-we have addressed instrument categories and examples of optimal mixes of instruments within those categories, but we have not, in the main, descended to the level of which mix of mechanisms is needed to target the suite of threats extant at a particular location. This is the next, and important, task of this type of research, for there are substantial limits to what can usefully be said at the abstract level. For biodiversity to be conserved adequately throughout the landscape or marine environment, it will be necessary for the mix to accommodate a vast array of ecological, political, social and economic contexts. So complex and various are the causes of biodiversity loss and the circumstance in which they arise that no single instrument, and indeed no single mix of instruments, could conceivably be successful in addressing all or even most of them. As a result, generalisations are extremely hazardous.The next stage of research needs to address these issues at a lower level of generality: to identify specific social problems in specific social, economic and institutional contexts.
In short, the complexities of social, economic and ecological processes preclude simple broad-brush solutions. The only answer to the question: "what is the optimal combination of instruments and mechanisms?" is: "it all depends, and that the optimal combination will change with time and context." As one recent study put it: " a priori rules are inferior to case-by-case analysis". Rather than seeking to identify optimal mixes in the abstract, a context and threat-specific approach is preferable.
Even so, a number of guidelines do emerge out of our broader brush analysis, which will be of value in more specific contexts. These include:
· in virtually all situations, a mix of instruments will be more effective than any single instrument;
· reference should be given to mixes that motivate communities and industry to conserve biodiversity;
· less interventionist instruments should be preferred to more interventionist instruments;
· where ongoing and active contributions to the conservation of biodiversity are desired, financially-attractive instrument mixes should be preferred to ones that reduce the net welfare of those asked to conserve biodiversity; and
· as far as possible, policy changes should seek to reduce underlying causes of threats to biodiversity such as institutional failure, market failure or incompletely specified property-right structures, as well as the direct threatening processes.
· where there are multiple biodiversity objectives and problems, separate policy instruments should be used to alleviate each threat and pursue each objective;
· efforts should be made to design control instruments which reduce the first mover problem, so that when an individual perceives an opportunity to profit by destroying valued biodiversity unknown to others, he/she acts instead to save this attribute;
· precautionary standards and regulations have an important role in making all other instruments more effective;
· regulations should be used as a safety net to underpin most incentive packages and prevent irreversible loss;
· motivational instruments and mechanisms are fundamental to a successful incentives-based biodiversity conservation package, and should be invoked in almost all circumstances, and incorporated in almost all policy mixes;
· for dependability, and because all mechanisms can fail in the presence of uncertainty, well designed strategies will include instruments that are rarely used and would in other circumstances be regarded as redundant; and
· policy instruments which halt existing biodiversity loss are important, particularly in gaining breathing space during which more constructive policies can be developed, but they do not in themselves ensure that resources will be appropriately managed so as to preserve biodiversity.