Better Bays and Waterways

CCI Interim Offsets Project

Introduction

Overview Offsets Project

Progress to date

Key challenges for water pollutant OffsetsConclusion

The key aim of this project is to explore the use of offsets as a tool to improve water quality

A key task is to build a market for offsets where no market currently exists and to test these ideas in a market trial

In doing so, we wish to:• inform use of offsets to protect bays and waterways• build State’s capacity to use offsets to deliver environmental outcomes• add to state of knowledge• develop an important sustainability tool

Introduction

Offsets as a tool for sustainability?

Sustainability is not leaving future generations worse off.

Yet many activities in our catchments do leave us worse off by adding increased loads to our catchments (some even when adopting best practice!)

Offsets are a tool that can enable development / activities to occur while ensuring there is no net detriment.

Offsets are “off-site actions that counterbalances a polluting or emission source/activity on-site”

There has been considerable work on a Project design– Original project - consultant examine literature and explore feasibility of offsets for dealing with key pollutants– However, sensitivity of using market mechanisms and market design considerations in environmental issues– This led EPA to explore a collaboration with DSE Economics Unit to deliver this project– Builds on success of Native vegetation offset work in DSE– Access to experimental economics approaches– Increase capacity with DSE and EPA and government more broadly– Retain knowledge

The working group with representatives from key agencies has agreed that the project will first consider nitrogen in Port Phillip Bay

Project design

Project Design

Literature review

Legislative and Policy Tools

Scientific capability of models to inform offsets

Design overall market architecturePrescribed architecture (understanding the constraints of the market)

Way offset market is segmented

Spatial and temporal aspects

Offset exchange rates

Discretionary architecture (aspects of market we can design)

Market type (auction etc)How buyers and sellers will engage

Discrete or continuous

Supporting institutions

Project overview

Design & build the components of the marketLegislative and policy basis for offset market

Contract design and entitlement design

Identify relevant players

Identifying the ‘trigger’ needed to force buyers to purchase offsets

Consider the metrics required and report on technical feasibility of estimating this information

Consideration of priority works and investments

Market testing in laboratoryExperimental economics

Creating a small market in controlled environment to test whether the design market achieves the desired policy outcomes.

Evaluation and reassessment

Project overview

•WorkshopRecognised what offsets can and cant achieve

What a successful pilot will look like

Features of a good outcome (design criteria)

Gaps

Informed project outline

•Review of current legislative and policy tools•Literature review

Informed by documents information provided by MW; DSE; EPA; DPI

Other CCI projects

Overseas

•Scientific capabilityCentred on discussion between the key catchment &

receiving model experts and identification of current

limits/gaps

Progress to date

Any legislation in Victoria that may inform offsets decisions for Port Phillip and Westernport, including• Environment Protection Act 1970• MMBW Act 1958• Planning and Environment Act 1987• Planning and Environment (Planning Schemes) Act 1996 (Victoria Planning Provisions)• Fisheries Act 1995• Victoria Planning Provisions

Review of legislative and policy tools

EP Act is considered to have broad powers to enable and support an offset system.

Includes heads of power, principles,

regulation and guidance making powers

Requirements for certain sites (creating demand for offsets)

Monitoring, Enforcement

Environment Protection Act 1970

• Powers & duties of EPA (S. 13) “to develop economic measures for the purpose of providing an economic incentive to avoid or minimise harm to the environment or any portion or segment of the environment by a particular activity…”

• Principles of Environmental Protection (S 1B – 1 L)integration of economic, social and environmental considerations;

· precautionary principle; · intergenerational equity; · improved valuation, pricing and incentive mechanisms; · integrated environmental management; · enforcement .

• Economic Measures (S. 19AA – 19AC)Enables authority to consider offsets or trading schemes

Head of Power

• SEPPConsider offsets for water & develop guidance

• RegulationsS. 71 provides broad head of power for economic instruments

“… regulating the implementation of economic measures, including prescribing conditions to which particular schemes are subject and the circumstances under which the Authority may alter, suspend or terminate the entitlements held under a scheme.”

 

Head of Power

The EP Act has some Principles of Environmental Protection. These are mandatory.

How these translate into Offset principles is something being considered by the working group. Some examples

– Before an offset will be considered, environmental impacts must be avoided by using all cost-effective prevention and mitigation measures– An approved offset measure must not create unacceptable local impacts – Offset agreements must include operational requirements that are time bound and clearly specified – Offsets must be enduring – they must offset the impacts for the period that the impact occurs.

Principles

• Limited application of offset markets in Australia and overseas• Offsets are becoming increasingly used • Require legislative /policy framework• Have potential to allow development to occur with no net increase – providing good design• Considerations in design:

– information available on polluters– transaction costs– environmental integrity– property rights/contract design– monitoring and enforcement– risk

Literature review

Policy and framework issues

Economic design issues

Information/modeling required to inform offset investments Durability/persistence of offsets over time

Spatial boundaries for offsets and ‘exchange’ rates

Under what circumstances should offsets be required under a ‘1-for-1’, or greater, basis?

Approvals process (incl. links to licensing, other regulations)

Enforcement

Key challenges

One of key challenges at present is to examine role of models to provide:•profile of the pollutants being discharged across the region•Identify the type/form of pollutant discharged by source•Assess water quality equivalence of pollutant reduction at different discharge points

Role of modelling

Although there is still a lot of work in designing an offsets market to be tested…

Offsets offer policy makers a useful tool to enable development to occur with no net detriment to the environment and will provide a useful tool for tackling pollution issues in the catchment

Conclusion