A Commonwealth Environment Research Facilities funded Research Hub based at the Australian National University

Outcomes and Impacts

Environmental Economics Research Hub

Partner Institutions:

A Commonwealth Environment Research Facilities funded Research Hub based at the Australian National University

Environmental Economics Research Hub

Outcomes and Impacts

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ContentsPreface � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 4Foreword � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 5Acknowledgments � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 6Glossary of Terms � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 7Structure and Context of the Hub � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 8Statement from Dave Johnson from Commonwealth Environment Research Facilities (CERF) � � � � � � � � � � � � 9Statements from the Theme Leaders � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 10Future Directions for Environmental Economics Research � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 12The Three New Research Centres: � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 13

Australian Centre for Biosecurity and Environmental Economics � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 14

Centre for Climate Economics and Policy � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 20

Centre for Water, Economics, Environment and Policy � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 25

Communication Processes of the Hub � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 31The Benefits and Outcomes of the Hub as a Whole � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 32The Degree to Which the Hub has Effectively Achieved its Objectives � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 32The Appropriateness of the Approaches Used in the Development and Implementation of the Hub � � � � � � 33Project Key Findings and Outcomes � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 34

Project 1: Consumption-based water pricing and price elasticities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 34

A Little Bit about Consumption-Based Water Pricing and Price Elasticities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 34

‘Yes we can…’: Getting serious about water pricing in Australia � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 37

Highlighting the Work of John Rolfe and Jill Windle � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 38

Project 2: Estimating protection values at general and case-study levels � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 39

‘Yes we can…’: Valuing protection of the Great Barrier Reef � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 42

‘Yes we can…’: Using benefit transfer to inform environmental policy making� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 44

Project 3: Economically efficient strategies for the conservation of Australian biodiversity � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 46

Rangeland to Reef: Linking the costs and benefits of improving the water quality of run-off entering the Great Barrier Reef � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 48

Project 4: Designing metric assessments for biodiversity tenders � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 49

‘Yes we can…’: Improving the funding cost efficiency for natural-resource management � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 51

Project 5: Designing marine reserves for biodiversity and sustainable fisheries � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 52

Project 6: Environmental values and valuation over time � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 54

PhD Success Stories from Projects 6 and 7 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 56

Project 7: Integrating community preference into vegetation planning processes � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 56

Multicriteria Analysis and the Emperor’s New Clothes � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 60

‘Yes we can…’: Including the environment in public policy making � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 62

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Project 8: Divergence between public and expert valuation of environmental assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 64

How Does the Community Value Our Marine Reserves? A choice-experiment approach to valuing the Ningaloo and proposed Capes marine parks � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 66

‘Yes we can…’: Conservation values of the Kimberley tropical waterways and wetlands � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 67

‘Yes we can…’: Dealing with complexity when valuing environmental systems � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 68

‘Yes we can…’: Ensuring that people reveal their true preferences for environmental change � � � � � � � � � � � � � � � � � � � � � � � � � � � 69

Project 9: Salinity, uncertainty and property rights � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 70

Project 10: Adaptation and economic responses to climate change � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 74

Research with Policy Impact: EERH and Australia’s carbon pricing policy � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 76

Project 11: Improving Australia’s energy efficiency through faster development and adoption of technologies � � � � � � � � � � � � � � � � 77

11A: Modelling the international diffusion of carbon intensity reducing technology � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 77

11B: Australia and international climate change mitigation commitments—applying game theory � � � � � � � � � � � � � � � � � � � � � � 79

‘Yes we can…’: Carbon pricing through emissions trading with a price floor � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 81

11C: Potential interactions between the Australian 20 per cent Renewable Energy Target and the Carbon Pollution Reduction Scheme within the Australian National Electricity Market � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 83

11D: Design of climate change mitigation policy � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 85

‘Yes we can…’: Adjusting Australia’s climate target � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 88

11E: Household preferences for the Carbon Pollution Reduction Scheme in Australia � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 90

Project 12: Socioeconomics of on-farm renewable energy � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 92

Project 13: Designing environmental policy for Australia from an economic and social perspective � � � � � � � � � � � � � � � � � � � � � � � � � � 97

Project 14: The benefits and costs of biosecurity � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 101

‘Yes we can…’: Using cost–benefit analysis for biosecurity � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 104

Project 15: Learning from the irrational—a study of environmental preferences � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 106

Project 16: Valuing ecosystem services in agricultural production � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 107

Project 17: Waste policy—materials management and recycling � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 108

Project 18: Marine biodiversity � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 109

Project 19: Heritage values � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 110

Project 20: Value of biological collections � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 115

Theme F: Transition projects � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 116

Project A (Harvest): Total economic value framework for the Great Barrier Reef � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 116

Project B (Extension): Bioregion valuation, biodiversity and biosecurity � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 118

Project C (Extension): Biodiversity conservation, resilience and economic efficiency � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 120

Project D (Extension): Estimation of interstate values for protection of the Great Barrier Reef � � � � � � � � � � � � � � � � � � � � � � � � � 121

Project E (Extension): Estimating recreation values of the Great Barrier Reef in regional communities � � � � � � � � � � � � � � � � � � 123

Project F (Extension): Exploring community values for biodiversity conservation � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 125

Project G (Extension): Climate change adaptation—an assessment of links between water-resource and land management in Australia’s north � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 126

PrefaceTom Kompas Director of Crawford School

As Director of the Crawford School of Economics and Government, I am happy to acknowledge the work of the Environmental Economics Research Hub (EERH) and its contributions to both research and policy impacts in the field of environmental economics� The formation of the Hub provided funding for more than 20 research projects and 21 PhD candidates and has resulted in more than 100 specific research papers and reports� It is with great pleasure that I can also report that the EERH has spawned three significant research centres that will continue this fine work under the banner of the Economics and Environment Network, here at the Crawford School� The three centres are the Australian Centre for Biosecurity and Environmental Economics (AC BEE), the Centre for Water, Economics, Environment and Policy (CWEEP) and the Centre for Climate Economics and Policy (CCEP)� In all of this, I would especially like to acknowledge and thank the Commonwealth Environmental Research Facilities (CERF) Program, which funded the Hub, along with the EERH Director, Professor Jeff Bennett, from the ANU, and all of the project leaders and teams across the Hub and in our partner institutions� Four years goes all too quickly in the life

of a research project� This report demonstrates the significant achievements that have been made over the past three years, showing EERH has provided world-class research targeting policy needs� This impetus created by the EERH will be carried forward through the Economics and Environment Network and I look forward to this continuing story as the outputs of this research affect policy outcomes and the public policy decision-making process�

TOM KOMPAS / DIRECTOR OF THE CRAWFORD SCHOOL

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ForewordThe Environmental Economics Research Hub (EERH) was formed four years ago under the Commonwealth Environmental Research Facilities (CERF) and funded by the then Department of Environment, Water, Heritage and the Arts (now Department of Sustainability, Environment, Water, Population and Communities)� Over the history of the Hub, a wide range of environmental issues has been addressed in research projects that have had economics as their common disciplinary base� Biodiversity protection, non-market environmental valuation, biosecurity, water, heritage, waste and climate change are among the issues considered� Case studies have been geographically spread across Australia and have included a number of international dimensions�

The EERH was established, in part, to form a bridge between environmental economics research and the policy development process� Topics of research interest were matched with areas of policy concern� Researchers engaged with policy officers to provide research outputs that were of most value in the policy arena� A key final product of the Hub is therefore a listing of the funded research projects’ outputs and outcomes�

The goal of this publication is to make widely available the key findings of the EERH research projects and their associated policy outcomes� It is aimed at providing policymakers and their advisers with a readily accessible guide to material from the Hub projects that might be relevant to the environmental management issues they currently face and as an introduction to the researchers who have been driving the Hub’s research agenda�

JEFF BENNETT / DIRECTOR ENVIRONMENTAL ECONOMICS RESEARCH HUB

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AcknowledgmentsThe Environmental Economics Research Hub (EERH) was funded by the Commonwealth Environment Research Facilities (CERF) Program—an Australian Government initiative supporting world-class, public-good research� The Hub was hosted by the Crawford School of Economics and Government at The Australian National University and was partnered by Central Queensland University, University of Western Australia, University of New South Wales, Griffith University and Macquarie University�

The Hub was guided by a Senior Executive Group chaired by Dr Ken Henry, Secretary of Treasury, and we would particularly like to thank Ken for his commitment to the Hub� We also thank the other members of the group: Dr Deborah Peterson, Department of Primary Industries Victoria; Phillip Glyde, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES); Drew Collins, BDA Group; and department representatives Malcolm Thompson, James Horne, Marc Carter and David Boland� We also thank the two CERF Directors over the life of the Hub, Jacky Tierney and Dave Johnson, and their teams—in particular, Adam Cowell�

This report was produced by Meredith Bacon, Manager of the Environmental Economics Research Hub, and Cassandra Ledger on behalf of the Crawford School and was designed by Tara Macphail from Graphic Ark Pty Ltd�

Photographs courtesy of Darren Boyd, ANU, and the Crawford School�

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Glossary of TermsAARES Australian Agricultural and Resource

Economics Society

AC BEE Australian Centre for Biosecurity and Environmental Economics

AEDA applied environment decision analysis

ANUWI ANU Water Initiative

CBA cost–benefit analysis

CCEP Centre for Climate Economics and Policy

CERF Commonwealth Environment Research Facilities

CPRS Carbon Pollution Reduction Scheme

CQU Central Queensland University

CSIRO Commonwealth Scientific and Industrial Research Organisation

CVM contingent-valuation method

CWEEP Centre for Water, Economics, Environment and Policy

DAFF Department of Agriculture, Fisheries and Forestry

DCM discrete choice modelling

DEWHA Department of Environment, Water, Heritage and the Arts

EEN Economics and Environment Network

EERH Environmental Economics Research Hub

ETS emissions trading scheme

GBR Great Barrier Reef

GBRMPA Great Barrier Reef Marine Park Authority

IPCC Intergovernmental Panel on Climate Change

IWEGA International Centre for Water Economics and Governance in Africa

MDB Murray–Darling Basin

NEM National Electricity Market

NERP National Environment Research Program

NRM natural-resource management

OECD Organisation for Economic Cooperation and Development

PC Productivity Commission

SEG Senior Executive Group

SEWPAC Department of Sustainability, Environment, Water, Population and Communities

TEV total economic value

TRACK Tropical Rivers and Coastal Knowledge

TRIN Taxonomy Research and Information Network

UNEP United Nations Environment Programme

UNSW University of New South Wales

UWA University of Western Australia

WMO World Meteorological Organization

WTP willingness to pay

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Structure and Context of the HubThe EERH was one of seven hubs funded under the Commonwealth Environmental Research Facilities (CERF) Program� The other hubs are Tropical Rivers and Coastal Knowledge (TRACK), Applied Environment Decision Analysis (AEDA), Landscape Logic, Australian Marine Mammal Centre, Prediction and Management of Australia’s Marine Biodiversity, and Taxonomy Research and Information Network (TRIN)�

The EERH was based at the Crawford School of Economics and Government at The Australian National University and had five partner institutions: Central Queensland University (CQU), University of Western Australia (UWA), University of New South Wales (UNSW), Griffith University and Macquarie University�

The Hub consisted of four major themes, with two additional themes added during the course of the Hub� There were more than 20 projects and 16 project leaders and teams� A number of PhD students graduated as part of the Hub and will become the researchers of the future in this field� Three major centres were developed out of the Hub and a number of ongoing research projects were funded by other funding bodies such as the Australian Research Council (ARC) as follow-on projects of work from the Hub�

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Statement from Dave Johnson from Commonwealth Environment Research Facilities (CERF)The Environmental Economics Research Hub has contributed to this field and the department’s capacity by developing a solid body of work investigating the link between economic drivers and environmental policy� It has also helped lay the foundation for better integrating economics and science policy� To that end, CERF funding has resulted in work that has been published in numerous articles in respected journals�

In addition to these academic achievements, the Hub has enhanced the capacity of Australia’s academic community to undertake detailed economic assessment of natural-resource issues� This is particularly true with several new PhD graduates funded by the Hub having since entered the research community� From the department’s perspective, the Hub has assisted in increasing our staff’s capacity in, and awareness of, economic principles and their potential value to policy decision making�

DAVE JOHNSON

Director Scientific Research & Information Section (SRIS)(including the CERF & NERP Programs)Information Management DivisionDepartment of Sustainability, Environment, Water, Population and Communities (SEWPAC)Email: Dave.Johnson@environment.gov.auPh: 02 6274 2589 Fax: 02 6274 2271Mob: 0408 493 049Web: http://www.environment.gov.au/about/programs/nerp/index.html

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Statements from the Theme LeadersTheme A: Establishing viable markets to achieve environmental goals

PROFESSOR QUENTIN GRAFTON, THEME LEADER, THE AUSTRALIAN NATIONAL UNIVERSITY

This theme covers the critically important area of using markets and market-based instruments to increase economic efficiency� Three projects were undertaken in this theme: 1) consumption-based water pricing and price elasticities; 2) economically efficient strategies for the conservation of Australian biodiversity; and 3) designing metrics assessments for biodiversity tenders� While very different in their scope, the projects have made a major contribution to understanding what are the factors resulting in inefficient outcomes and what can be done from a policy perspective�

The consumption-based water-pricing project undertaken by Quentin Grafton has generated a new framework—dynamically efficient water pricing—that has been part of the official submissions to inquiries on urban water by the Productivity Commission and also the National Water Commission� The Australian biodiversity project led by Michael Ward has delivered key insights into how to invest scarce conservation dollars� The metric assessments are on the frontier of environmental economics in terms ensuring the most environmental benefits per dollar spent� All projects are in key policy areas, and have had and will to continue to have an important impact on environmental policy in Australia�

Theme B: Climate change analysis

DR FRANK JOTzO, THEME LEADER, THE AUSTRALIAN NATIONAL UNIVERSITY

Research under the Environmental Economics Research Hub’s climate change theme has made decisive contributions to the understanding of climate change policy options for Australia� It has helped bring concepts and ideas into the policymaking arena that are reflected in policy that is under development or under consideration, and in other instances has had significant influence in the public debate�

In the climate change policy and design space, key examples for research that has impacted policy thinking and policy making are the concept of a fixed permit price scheme (Jotzo); the idea of a floor price in emissions trading (Wood and Jotzo); analysis of interest group influence (Pezzey et al�); proposals for the design of permit auctions (Betz); and analysis of international linking of an Australian trading scheme (Jotzo and Betz)�

On international issues, notable contributions of the Hub’s climate change theme include analysis of China’s and India’s emissions targets (Stern and Jotzo) and a systematic comparison of targets under the Copenhagen Accord (Jotzo)�

On energy and climate change, the Hub made significant methodological and empirical advances in understanding the diffusion of energy-efficiency technology (Stern) and the link between development, energy and carbon emissions (Burke)�

In the emerging field of the economics of climate change adaptation, Hub researchers pioneered thinking around people’s preferences as well as the application of real-options theory to adaptation (Dobes), and highlighting the importance of people’s values in dealing with climate change (de Chazal)�

The Hub’s climate change theme actively pursued interactions with policymakers and analysts in the Commonwealth Government, especially the Department of Climate Change, and also the Department of Environment, Treasury and AusAID�

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Theme C: Advancing Australia’s capability for social and economic analysis of environmental issues at the regional scale

PROFESSOR TOM KOMPAS, THEME LEADER, THE AUSTRALIAN NATIONAL UNIVERSITY

This theme was designed to highlight and further develop the analytical methods needed for research and policy advice in the economics of the environment� Along with a series of new modelling techniques (for example, jump-diffusion processes in dynamic programming to describe optimal surveillance expenditures for ‘early detection’ of environmental pests), this theme contributed significantly to major thematic areas, including

• the modelling and consequences of marine reserve design with ecological uncertainty

• methods to ensure greater return on investment in environmental restoration

• the role of uncertainty in environmental and land management

• transparent risk assessment

• the potential for property rights regimes to achieve beneficial environmental outcomes

• optimal policy choices to mitigate salinity problems and encourage better land use

• optimal border quarantine activities to prevent the incursion of pests that could do substantial damage to plant, animal and human health, as well as the environment

• effective surveillance measures to ensure ‘early detection’ of environmental pests and diseases

• measures of environmental valuation relative to biosecurity concerns�

Researchers in this theme actively work with key public service and other agencies to disseminate and implement the modelling techniques that were developed, including the Department of Sustainability, Environment, Water, Population and Communities, the Australian Bureau of Agricultural and Resource Economics and Sciences, Animal Health Australia, and the Biosecurity Services Group at the Department of Agriculture, Fisheries and Forestry�

Theme D: Valuing environmental goods and services

PROFESSOR JOHN ROLFE, THEME LEADER, CENTRAL QUEENSLAND UNIVERSITY

Research under the Environmental Economics Research Hub’s environmental valuation theme (Valuing environmental goods and services) has demonstrated the accuracy and robustness of environmental valuation techniques, and identified some of the potential and constraints for value estimates to be transferred and reused in other applications� The range of case studies that has been analysed has shown how valuation techniques can be applied to a number of different environmental issues, and the results used to make important policy recommendations�

Within the environmental valuation theme, key examples of research that has addressed major environmental and policy issues include values for nature preservation (Bennett and Scheufele), protection values for the Great Barrier Reef (Rolfe and Windle), values for environmental assets in the Kimberley, Ningaloo Marine Park and south-west Australia (Burton, Cleland and Rogers), native vegetation protection in NSW catchments (Bennett, Mazur), values for recreation activities (Rolfe and Gregg) and values for reducing greenhouse gas emissions (Rolfe and Ivanova)�

The research has tackled a number of major methodological issues in non-market valuation, generating a better understanding of the factors that are important in designing studies and giving accurate estimates of results� The work by Bennett and Scheufele has shown that vegetation protection values are extremely stable over long periods, while the work by Rolfe and Windle shows that value estimates are stable across different survey formats, collection modes and framing differences, and values for iconic assets can be broadly shared across the Australian population� These results give policymakers a great deal of confidence that values from carefully designed non-market valuation studies are accurate�

The studies have also demonstrated where factors can influence values, and have linked this to underpinning economic theory� Burton, Cleland and Rogers (nee McCartney) have shown in several studies in Western Australia that values can diverge between community members and experts, while Bennett and Mazur, and Rolfe and Windle have shown in different studies that values are sensitive to the geographic scope that an issue is presented in� Rolfe and Windle have shown that the types of management actions involved can be important determinants of protection values for the Great Barrier Reef, and Rolfe, Windle and Ivanova, in different studies, have demonstrated that values are sensitive to perceptions of risk and uncertainty around issues and outcomes� This understanding is important to help policymakers use value estimates in benefit-transfer applications, thus improving the usefulness and cost-effectiveness of primary valuation exercises�

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The Hub’s environmental valuation theme has had close links with policymakers at different levels of government and in relevant agencies, helping to build awareness of activities and links for the ongoing adoption of results�

Theme E: Emerging and other projects; Theme F: Transitional projects

PROFESSOR JEFF BENNETT, THE AUSTRALIAN NATIONAL UNIVERSITY

A key feature of the research work performed within the EERH has been its responsiveness to the policy requirements of the department� This was achieved particularly through the establishment—in negotiation with the department—of a research agenda designed to address specific policy issues of the day� The emerging research issues theme and the transition projects were based on topics advanced by the department� Hub researchers responded to these project requests� A focus of the transition projects was the economics of biodiversity� The emerging research issue projects included the analysis of issues as divergent as the values of recycling household waste, the establishment of marine protected areas, cultural heritage protection, agriculture and biodiversity, rationality in water-use choices and the values of Australia’s biological collections� These projects have produced numerous research reports that are highly relevant to the policy determination process within the department� One aspect of the transition projects was the formulation of communication material that made the work produced in other Hub themes more accessible to the policy fraternity and the general public� The projects have also involved the development of innovative research approaches� The transition projects have explored biodiversity from a number of economic perspectives that complement the work of biophysical scientists and policy analysts�

Future Directions for Environmental Economics ResearchThe Environmental Economics Research Hub (EERH) addressed Australia’s major environmental management challenges—sustainable water use, soil loss and salinity, biodiversity loss and adaptation to climate change—by applying integrated economic research to inform and impact national and global environmental policy� EERH’s successes resulted in the development of the current Economics and Environment Network (EEN), which comprises three integrated centres

• Australian Centre for Biosecurity and Environmental Economics

• Centre for Water Economics, Environment and Policy

• Centre for Climate Economics and Policy�

Today, these centres continue the original CERF vision to generate environmental economics research that positively affects the public’s welfare�

We are also pleased to report that some of our partner institutions have secured ongoing research funding through the Australian Research Council (ARC) and funding partners, which will enable projects at UWA and CQU to continue to develop further research that originally started during the life of the Hub�

The goal of the EERH was to address Australia’s major environmental management challenges with integrated economic research that provides immediate and continuing policy impacts� It brought together leading environmental economists, scientists, educators and policymakers to face the challenges of sustainable water use, soil loss and salinity, biodiversity loss and adaptation to climate change� The Hub’s integrated research, modelling and capacity building encompasses the establishment of markets to achieve environmental goals, environmental valuation and the assessment and development of government intervention in environmental management� Its aim was to provide end users with the tools, understanding and framework to promote environmental sustainability in Australia�

CWEEP Director: Professor

R. Quentin Grafton

AC BEE Director: Professor

Tom Kompas

CCEP Director: Dr Frank Jotzo

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The Three New Research Centres: Australian Centre for Biosecurity and Environmental Economics . . . . . . . . . . . . . . . . .p14

Centre for Climate Economics and Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .p20

Centre for Water, Economics, Environment and Policy . . . . . . . . . . . . . . . . . . . . . . . . .p25

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AUSTRALIAN CENTRE FOR BIOSECURITY AND ENVIRONMENTAL ECONOMICS

Protecting the health of humans, animals, plants and the environment through economics

IT IS NOT THE STRONGEST OF THE SPECIES THAT SURVIVE, NOR THE MOST INTELLIGENT, BUT THE ONE MOST RESPONSIVE TO CHANGE� — Charles Darwin, Naturalist

ContactProfessor Tom KompasCrawford School of Economics and GovernmentCollege of Asia and the PacificJ�G� Crawford Building (Bldg 132)Lennox CrossingThe Australian National UniversityCanberra ACT 0200 AustraliaPhone: +61 2 6125 4765Email: tom.kompas@anu.edu.auWeb: http://www.acbee.anu.edu.au

MissionThe mission of the Australian Centre for Biosecurity and Environmental Economics (AC BEE) is to lead Australia and the region in research on biosecurity and environmental economics with an emphasis on policy applications� Our specialty is to utilise an economic approach to protecting the environment and plant, animal and human health from invasive species� We also provide broad expertise in applied research on environmental economics and natural resource management� AC BEE maintains a central focus on engaging with, and assisting in, the public policy process�

Biosecurity: Protecting people, industry and the environmentThe development of trade between regions and countries is an increasingly important characteristic of modern economies� With increased trade comes the risk of importing exotic diseases and pests� Biosecurity programs provide essential protection against such threats, safeguarding both consumers and producers from imported pests and diseases� Left unchecked, these threats can harm human, plant and animal health, damage local agricultural and industrial production and destroy environmental assets�

Our approach AC BEE leads the way in biosecurity economics to protect human, animal and plant health� While AC BEE delivers urgent and practical solutions to existing biosecurity issues, including world-class expertise in cost–benefit analysis, the centre also focuses on preventive and proactive measures, especially biosecurity measures� Through ‘early detection’ analysis, we work to prevent risks by assessing uncertainties before an invasion occurs, determining the optimal amount of expenditure for border quarantine and local surveillance against invasive threats� The results of our analysis are then channelled to authorities and policymakers to help them prepare and plan for resource allocation and program or policy development�

Biosecurity Research Areas• Early detection and local surveillance techniques�

• Harmful disease and pest prevention�

• Optimal containment�

• Eradication measures�

• Border quarantine�

• Economic and environmental valuation�

• Pre-border controls and risk–return analysis�

• Cost–benefit analysis�

• Bio-economic modelling�

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Recent Biosecurity Case Study Subjects• Eradication and containment of Australia’s red imported fire ants�

• The economic impact of restrictions on New zealand apple imports�

• Local surveillance against papaya fruit fly, Australia�

• Simulations of foot-and-mouth disease spread in livestock and wildlife and optimal economic surveillance measures�

• The association between outbreaks of Avian flu (H5N1) and migratory waterfowl�

Environmental Economics: Balancing human economies and environmental systems Our environmental economics programs focus on natural-resource management—from conservation costs and assessments to biodiversity issues and strategies� Environmental economics applies a broad and integrative perspective to environmental issues� It seeks to link up environmental economists, scientists, educators and policymakers, to face the challenges of sustainable water use, soil loss and salinity, biosecurity, biodiversity loss and adaptation to climate change�

Our Approach Integrating cutting-edge environmental and economic research is AC BEE’s expertise� Through applied research on the benefits and cost interactions between human economies and environmental systems, we aim to offer insights into improved environmental-management methods� Using strategies including theoretical modelling, cost–benefit analysis, and economic and environmental valuation, we examine such industries as water, oil, fisheries, marine and plant agriculture� We have had particular success in the area of fisheries management; as part of an award-winning research team, we directly contributed to policy change in Australia�

Environmental Economics Research Areas• Animal diseases�

• Weed control�

• Fisheries management�

• Species conservation�

• Agricultural productivity�

• Biodiversity�

• Soil and water management�

• Climate change�

Leading the Way to Policy Since the inception of AC BEE in 2009, we have been successful in solidifying our connection with policymakers and the public decision-making process, delivering substantial results in the policy arena� Recent examples of that success include work on the economics of quarantine for papaya fruit fly, ovine Johne’s disease, Severe Acute Respiratory Syndrome (SARS) and foot-and-mouth disease, along with substantial work on fisheries management and productivity for primary industries�

AC BEE seeks to form new and expanded relationships with science, government and public policy experts to deepen our impact in biosecurity and natural-resource management�

Recent AchievementsHonour Received for Work on Bio-Economic Modelling AC BEE Director, Tom Kompas, is acknowledged for work on bio-economic modelling for establishing fisheries targets� This directly impacted on a change in the Australian law on fisheries management� The honour was received in conjunction with scientists at the Commonwealth Scientific and Industrial Research Organisation (CSIRO), who also put much effort into this endeavour�

Eminent Scientists’ Group AppointmentAC BEE Director, Professor Tom Kompas, was appointed to the Department of Agriculture, Fisheries and Forestry’s Eminent Scientists’ Group—a major government advisory and consultative body for import risk assessment on biosecurity matters� This is a high-level review group, independent of Biosecurity Australia, which is tasked with providing external scientific and economic scrutiny of expanded import risk analyses�

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Keynote Speech by Honourable Peter Garrett AC BEE Launch, 23 November 2009Can I add my acknowledgement to the traditional owners of the land and say thank you for the invitation to launch this Australian Centre for Biosecurity and Environmental Economics on this site, and to have pointed out the way in which the building behind us does integrate both into the pre-existing built form that was here and also the natural environment as well� And I can’t think of any other part of Australia where quite so much attention to detail and consideration of impact is given to the siting of buildings of this sort, and I want to commend all those involved� As I congratulate the ANU and the Crawford School for its foresight in establishing the Centre for Biosecurity and Environmental Economics, itself�

There is no question at all that the expertise of this centre is urgently needed� When we look out across the landscape anywhere in Australia, we see a place already changed and occupied by invasive species, whether it’s eroded hillsides riddled with rabbit burrows or wetlands turned into muddy pools by the feral pigs, the fact is that we have a dismal record on environmental biosecurity with a history of introducing species without careful thought or assessment� It’s in that context that this centre is opened� And there is no question as well that with globalisation, new infrastructure, faster transport technologies, greater accessibility, greater vectors out there in the natural landscape, the risks posed by invasives will continue to grow� Our response will need to be stronger, more directed, more strategic�

Some of you will be well aware that there is graphic and growing evidence across the nation of the economic cost of invasive species and of plant and animal diseases� We can quantify biosecurity in economic terms, particularly with its impacts on agricultural production, fishing, tourism, recreation or other commercial activities, and we know of the large and measurable costs of managing pests and diseases already here in Australia�

Plant diseases and invertebrate pests of plants estimated to cost us around $2 billion per annum in control and lost production, for animal diseases and invertebrate pests, estimate at least $1�2 billion per annum�

Now it is more challenging to quantify the broader environmental impacts of pests and invasives, the flow-on effect of our natural and cultural heritage, but it is the case that from the first rabbit plague some 200 years ago to the devastation that camels are causing in our deserts today, it’s often only after the damage is done that we acknowledge that we actually have market failure and then we call in the economists; too late�

You will also know that after land clearing, invasive species also occupy the category of being the greatest immediate threat to Australia’s biodiversity� Astonishing numbers of feral cats have a major impact on native fauna, causing about $140 million or so in losses each year, predation on birds and small mammals, and of course the importation of Red Fire Ants detected in Brisbane in 2000; their impacts on the environment and social amenity are well documented� But if they were to become established, this one kind of tramp ant alone will cost Australia around $45 billion over 30 years� So by recitation of these figures, it makes it clear the economic costs and the economic consequences of not acting�

I think it is worthwhile reflecting on the fact that many invasive plants have been introduced intentionally as crops, as pastures, as garden plants, to prevent erosion� And a number of them have spread very quickly in the wild; mimosa, one that we know well, a native of tropical America, escaping from the Darwin Botanic Gardens over a hundred years ago, and by the 1990s occupying more than 800 square kilometres of the Top End in the Northern Territory, in Kakadu National Park, which I have stewardship for, costing us around a half a million dollars a year to control�

Whilst it is difficult to quantify the impacts on the environment, that makes it difficult to make the case for intervention and then to determine the appropriate level of intervention� It is a case that if you add in this environmental challenge to the climate change risks, then we’ve got to factor economic and environmental core issues into our planning, and we’ve got to do it at the earliest stage as possible� That is what I’m very focused on as Environment Minister, it is what I see as being the necessary kind of thinking change� Using the tools, the assessment methodologies, particularly those that environmental economics has to offer� And as we do that we have to look at the full range of values, not just the market values of our natural environment, and we’ve got to assess them in a holistic and a strategic way� Not species by species or ecosystem by ecosystem�

My challenge, Tom, to you and your colleagues is to think that way, because frankly a reductionist siloed scientific approach to invasives in the past hasn’t served us well, and I think that needs to be acknowledged�

The Honourable Peter Garrett

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Look at the issues that we now face in terms of problems around invasive species, how to prevent new species entering Australia—difficult with ever-increasing national trade and travel� How to boost surveillance to detect incursions; how to develop and implement emergency measures, should we have an incursion; how to develop cost-sharing arrangements between the beneficiaries, something which I know will be focused on later on with my fellow Ministers; how to implement programs and maintain the control on invasives that are already there�

Now we are, thankfully, taking a more strategic approach through improvements to Aus BIO SEC, the Australian biosecurity system for primary production and the environment, and here again, environmental economics has a crucial role to play with these reforms� Specifically helping decision makers like myself understand the costs and benefits of proposed actions, describing the potential trade-offs, and identify who will benefit from decisions to manage particular invasive species� Economic tools will also help guide decision making around invasives, particularly around emergency responses�

I know this particular issue that I am addressing now is being investigated by a working group of the National Biosecurity Committee� I understand that members of the centre have played an integral part of that process, so you’ve certainly got a few challenges to deal with� Setting discount rates that are appropriate to

ecological time frames, determining how to delineate threshold environmental conditions and the subsequent values that would be associated with them, and more�

For all of those reasons, I am pleased that the Commonwealth Environment Research Facilities or the CERF program, as you’d know, has been able to provide $7 million for the Environmental Economics Research Hub, the parent organisation for this centre, and this Hub aims to bring together leading economic and social scientists looking at new and improved ways of valuing environmental assets and determining the benefits and costs of different actions�

Now the mission of the Australian Centre for Biosecurity and Environmental Economics is to lead Australia and the region in biosecurity and environmental economics research, with an emphasis on policy application, engaging with and assisting the public policy process, by working in conjunction with Department of the Environment, Water, Heritage and the Arts (DEWHA) and Department of Agriculture, Fisheries and Forestry (DAFF) and other key Commonwealth and State agencies� This is a daunting mission, and I want to acknowledge and applaud the priorities that you have identified for your initial work� The benefits of early expenditures to ensure biodiversity conversation; to measure the value of Australia’s bioregions and their attributes using both market and non-market valuation; to examine the economics of border quarantine and local surveillance to protect Australia from the entry and spread of invasive species and to identify the costs and benefits of the containment and possible eradication of Red Imported Fire Ants and various weeds of national significance� There is much of importance to do as enumerated in those topics that I have identified�

We have 16 key research associates already assembled, people of eminence, well prepared to do this work and led by Professor Tom Kompas of the Crawford School, who is known for his work in bio-economic modelling and I think you’ve got a CSIRO medal for research achievement, it says here in my notes, Tom, so congratulations for that� But it does mean that you’re well equipped and your team as well, to protect our environment, our plant, animal and human health from the threats that confront us, so I do wish you all the very best with this important centre� I am delighted to be able to announce that it’s open today and wish Professor Kompas and his team every success� Thank you very much�

AC BEE Director Professor Tom Kompas and Honourable Peter Garrett

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Recent ProjectsThe Benefits and Costs of Biosecurity

Previously, an Environmental Economics Research Hub (EERH) project on biosecurity, this seeks to determine how, and to what extent, resources should be used to monitor, prevent and

manage potential incursions of exotic pests and diseases, especially those that can bring substantial (occasionally catastrophic) damage to the environment and local habitat� It attempts to answer the

question: how much should be spent on border quarantine and local surveillance activities, including cost-effective containment and eradication programs that balance all relevant costs and benefits for

those pests already in Australia?

The first stage of this project has been to develop ‘jump-diffusion’ models of pest spread and control, allowing for normal random spread patterns given an incursion, along with large jumps in environmental

state variables� The first two applications—used to develop the modelling framework—have only indirect environmental impacts

• optimal border quarantine measures against an ovine Johne’s incursion to sheep in Western Australia

• optimal surveillance against a potential papaya fruit fly incursion in Queensland�

Using this modelling context, the last two applications in the project will tackle the issue of recreational and environmental costs and benefits head on: 1) the control and local surveillance against red imported fire ants in Queensland; and 2) the eradication (along with preventing their spread to the rest of the mainland) of crazy ants in north-west Queensland and on Christmas Island� Professor John Rolfe at Central Queensland University will help establish these recreational and environmental values, and, when combined with the ‘jump-diffusion’ modelling context, they will provide an example of how to model, cost and control the potential entry of these harmful pests and their effects on the environment�

The Value of an Australian Bioregion and Biosecurity Measures Inception from the Environmental Economics Research HubThis project is designed to measure the value of an Australian bioregion and biosecurity measures by its main attributes� Measures are designed to be comprehensive and include social amenity values, recreational values, the value of agricultural production, the value of biodiversity, and option and existence values� The measures—principally obtained through stated preference techniques—will be used to help calibrate the potential damage that might result from a disease or pest incursion� The bioregion surrounding Brisbane is used as a primary case study�

The Benefits of ‘Early Expenditures’ for BiosecurityInception from the Environmental Economics Research Hub It is often the case that expenditures to ensure biodiversity and maintain a species at acceptable levels occur after a process of ongoing and often serious depletion� This project investigates the conditions under which ‘early expenditures’ to maintain biodiversity and species levels are justified� It has two components

• the examination of the effect of time-dependent and declining rates of discount, both formally and calibrated through stated-preference measures, on expenditure values

• the effect of stochastic shocks to species levels and the potential resilience effects that come with established reserves and maintaining species levels at high or non-depleted values�

Optimal Economic Strategies for Controlling Invasive WeedsIn this project, we address two questions regarding the optimal economic management of invasive weeds—namely, what level of expenditures for ‘early detection’ and the eradication and control of an invasive weed are the most appropriate, and how should resources be allocated to surveillance measures for early detection? The model can be applied to a wide variety of invasive weeds, and guides policymakers on the best economical approaches to the management of invasive species, with specific guidelines on what should be done in practical situations with a minimum set of parameter values� An application to orange hawkweed in Australia is provided as an example�

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Additional Projects• Fisheries Research and Development Corporation Project—Maximum economic yield: A case study of deepwater flathead and

bight redfish in the Great Australian Bight�

• Department of Primary Industries Victoria Project—Productivity and efficiency analysis for Victorian dairy farms: the impact of climate, irrigation and water use�

• A Great Barrier Reef Marine Park Authority Project—A supply-chain analysis for the Australian aquarium industry�

• A Department of Agriculture, Fisheries and Forestry Project—Cost–benefit analysis and the economics of biosecurity: animal health in China�

Summary of Recent AchievementsThe Australian Centre for Biosecurity and Environmental Economics (AC BEE)With the rise of global trade comes an increased risk of the importation of exotic diseases and pests� AC BEE’s focus on biosecurity and environmental economics is unique in the world, positioning the centre as a leader in natural-resource management and the economics of biosecurity� AC BEE’s strength lies in its ability to combine sophisticated economic modelling with policy approaches that are relevant to biosecurity and the protection of the environment� Work at the centre has had a direct impact on Australian law and resource and environmental policy� It has influenced the way in which countries throughout the region approach biosecurity measures� The recent and primary focus is on the ‘early detection’ of invasive species and other threats—a unique approach to the economics of biosecurity, which ensures that the damage from an invasive species, along with the costs of surveillance, eradication and containment, are minimised, efficiently protecting our environment from harmful and potentially devastating incursions�

In 2009, AC BEE founder and Director of ANU’s Crawford School, Professor Tom Kompas, was part of a research team examining economic modelling for fisheries management in Australia’s Northern Prawn Fishery� This modelling helped establish new harvest targets—now applicable to all Commonwealth fisheries� It was based on approaches that fully integrated biological and economic data and other relationships� The project resulted in the award of a CSIRO Medal for Research Achievement to Professor Kompas, as part of an interdisciplinary team of researchers at ANU, ABARE and CSIRO� This modelling—from fisheries management to biosecurity—now forms the basis for much of the work on the economics of biosecurity at AC BEE, including economic approaches to border quarantine; local surveillance; and cost–benefit measures for the containment and eradication of invasive species� As AC BEE Director, and in partial recognition of his work in fisheries management, Professor Kompas was appointed to the Department of Agriculture, Fisheries and Forestry’s Eminent Scientists’ Group—a major government advisory and consultative body for matters of biosecurity and import risk assessment� Working papers, books and journal articles by AC BEE research associates on matters of biosecurity and environmental economics have broken new ground in other areas, too� They have opened new ways to consider techniques for conservation management, environmental valuation and the modelling of measures to improve plant, animal and human health by introducing improvements to existing models and methodologies� Recent work on papaya fruit fly, foot-and-mouth disease and ovine Johne’s disease has set new standards in ‘early detection’ and established new and innovative approaches to the economics of biosecurity�

A vital strength of AC BEE is its ability to bring to the table multiple but complementary dimensions of research in biosecurity and environmental economics� AC BEE works with scientists, biologists, economists, policy specialists and public policymakers to generate collaborative and comprehensive approaches to biosecurity and natural-resource and environmental management� These types of linkages and networks are desperately needed in today’s rapidly modernising, globalised world, with its environmental and biosecurity challenges� It demands innovative solutions and multinational and intra-national organisational approaches that AC BEE is uniquely positioned to address, thanks to a world-class team of scholars, policymakers and professionals—recognised as experts in the field�

Professor Tom Kompas, Director of AC BEE and The Honourable Kevin Rudd MP,

Australian Minister for Foreign Affairs

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CENTRE FOR CLIMATE ECONOMICS AND POLICY

Research for better public policy

THE CLIMATE IS TOO IMPORTANT TO SAY WE ARE GOING TO WAIT UNTIL ALL OUR ECONOMIC WOES ARE OVER BEFORE WE ACT EFFECTIVELY� — Malcolm Fraser, former Prime Minister of Australia

ContactDr Frank JotzoCrawford School of Economics and GovernmentCollege of Asia and the PacificJ�G� Crawford Building (Bldg 132)Lennox CrossingThe Australian National UniversityCanberra ACT 0200 AustraliaPhone: +61 2 6125 4367Email: frank.jotzo@anu.edu.auWeb: http://ccep.anu.edu.au

MissionThe mission of the Centre for Climate Economics and Policy (CCEP) is to bring quality impartial research on the economics and policy of climate change to the public debate, and to influence policy for better outcomes� Our remit includes the analysis of cutting greenhouse gas emissions, as well as adaptation to climate change impacts� The focus is on Australia and the countries of the Asia-Pacific region�

The Climate Change Policy ChallengeClimate change poses formidable challenges for Australia’s economy and policy making� Designing and implementing economically sound policies to cut carbon emissions are among the hardest contemporary policy challenges faced by Australia and many other countries� Effective climate change policy will often require economic structural change, with attendant resistance from established economic interests� Policy needs to be developed under uncertainty about future climate change, with strategic interaction with other countries adding another layer of complexity�

In the longer term, climate change raises the spectre of the fundamental transformation of energy systems and land-based industries, as well as the need to adapt to climate change impacts and prepare for the risk of large-scale environmental change�

Sound economic analysis that is accessible to the public and the policy community is an essential prerequisite for good policy in fields as complex as climate change�

Our ApproachCCEP lies at the intersection of academic research, policy making and public debate� We conduct policy-relevant research across the spectrum of climate change topics, often linking economic theory and application with public policy analysis� We take our analysis to the public and to the policymaking community, with the aim of influencing policy decisions to achieve better outcomes�

We are a network of researchers and practitioners who work at The Australian National University, other institutions in Australia, and at selected institutions around the world� Most of the research is done by CCEP associates under their own programs and supported by their respective home institutions, with CCEP providing a platform for interaction, outreach and policy connections�

CCEP contributes to the ANU Climate Change Institute and the ANU Energy Change Institute, and works alongside other specialised units at ANU, such as the Centre for Climate Law and Policy and the Climate and Environmental Governance Network� CCEP is an organised research unit at the Crawford School of Economics and Government, benefiting from its unparalleled position as Australia’s premier institution for policy research and analysis�

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CCEP Expertise, Research and Growth Areas • Climate change mitigation policies: We research options for the design and implementation of emissions trading, carbon taxes

or mixed models, such as that proposed for Australia� We also investigate complementary policies in energy and other sectors, emissions markets and financing, and innovation policy for climate change�

• International policy and strategy: We analyse developments in international climate negotiations, evaluate countries’ pledges and commitments, and analyse climate policies in key countries� CCEP researchers also model strategic interaction between countries�

• International dialogue: CCEP facilitates the frank exchange of ideas and views across borders, through dialogue between researchers and senior policymakers from countries in the Asia-Pacific and beyond� Dialogue is fostered in public forums, through informal exchanges, and through concrete research collaborations�

• Trends in greenhouse gas emissions and mitigation options: We examine the historical and future links between economic growth and greenhouse gas emissions; the role of energy in economic growth; and the role of agriculture and forestry in reducing net emissions�

• Adaptation approaches: On the basis of the best available science, climate change to some extent is already inevitable, requiring adaptation to these changes and preparedness for the risk of future climatic change� CCEP research looks at novel approaches for adaptation policy, and highlights the options for applying economic principles across a broad portfolio of adaptation measures�

• Perceptions, attitudes and interests: We conduct studies of decision makers’ and citizens’ knowledge and perceptions of climate change issues, and their attitudes to policy approaches� We also investigate the political economy of climate policy, looking at the interaction of interest groups� This research can help inform the design and communication of climate change policies�

Towards the Future Climate change policy will be an ongoing and evolutionary process, and it is likely to increasingly enter the mainstream of economic policymaking� CCEP envisages that it will be a long-term companion to the evolution of climate policy in Australia and the Asia-Pacific, with the centre as a consistent source of reliable and relevant research, and a trusted broker of advice�

CCEP aspires to establish a permanent institutional presence, expand the network of actively involved researchers and analysts, deepen linkages with the policy community, increase the centre’s public visibility, and leverage funding to increase the amount of research done by CCEP and to allow a greater extent of international dialogue�

Recent AchievementsHigh-level Support at the Launch of the Centre for Climate Economics and Policy, October 2010The centre was officially launched at the Asia-Pacific Climate Change Policy Forum�

Dr Martin Parkinson, Secretary of Australia’s Department of Climate Change and Energy Efficiency, gave the keynote speech� Dr Parkinson noted that climate policy issues are complex and crosscutting, making the task of policy choice and design all the more demanding and important� He pointed out the advantages of the Centre for Climate Economics and Policy being located at the Crawford School—Australia’s leading institution for academic research on policy issues�

He encouraged the centre to actively engage in dialogue with policymakers as well as researchers in the Asia-Pacific region, and to be not just policy relevant but policy influential�

From left: Prof Stephen Howes, Director, International and Development Economics, Crawford School; Martin Parkinson, (then) Secretary of Department of Climate Change and Energy Efficiency, Prof Ross Garnaut, Melbourne University and ANU, Frank Jotzo, Director of CCEP, Tom Kompas, Director of the Crawford School and Prof Peter Drysdale, Crawford School celebrating the launch for the Centre for Climate Economics and Policy

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CCEP Associates Chosen as IPCC Lead AuthorsThe Intergovernmental Panel on Climate Change (IPCC) is the leading international scientific body for the assessment of climate change� CCEP Director, Frank Jotzo, and Associate Professor David Stern were nominated by the Australian Government and selected as lead authors for the IPCC’s Fifth Assessment Report� They are among just six lead authors from Australia for the IPCC’s next report on climate change mitigation�

The IPCC was established by the United Nations Environment Programme (UNEP) and the World Meteorological Organization (WMO)� The IPCC ‘provides the world with a clear scientific view on the current state of knowledge in climate change and its potential environmental and socio-economic impacts’ (www.IPCC.ch)�

Policy Impact in Australia’s Carbon Pricing PolicyResearch by CCEP—and under predecessor programs of the Environmental Economics Research Hub—has been influential in informing Australia’s public policy making on carbon pricing� Research published and promoted under the Hub and CCEP during 2009 explained and supported the option of a ‘fixed-price permit scheme’, with later transition to market-based emissions trading� This was the model chosen in early 2010 by the Australian Government�

Addressing the Asia-Pacific CommunityAs an example of the national and international standing of the centre, CCEP Director, Frank Jotzo, gave an invited talk on the climate change and energy challenge at the Asia Pacific Community Conference� The conference was convened by the Australian Government and attended by then Prime Minister Kevin Rudd� It brought together prominent academics, opinion makers and government officials from the Asia-Pacific region�

Recent ProjectsAdaptation and Economic Responses to Climate Change Dr Frank Jotzo, ANU

Analyse economic system responses to climate change, identify options for adaptation, and assess the transferability of Australian approaches to the Asia-Pacific region�

Climate Change Mitigation This project’s original scope in 2006 was to estimate short and long-run energy price elasticities and the extent of induced innovation in efficiency—hence the above title—but it has since been broadened to cover the economics of greenhouse gas control more generally� The aim of this project is now to use economic analysis to find ways to lower the overall cost and increase the overall effectiveness of policy measures to control Australian greenhouse emissions—particularly the roughly three-quarters of emissions consisting of carbon dioxide coming from burning fossil fuels—and to communicate these findings to policymakers� Such research could be directed at any, or all, of three major market failures: the lack of a natural market for emission control in itself, and hence the need to study emission pricing; the poor functioning of the existing market for innovating lower emission technologies; and the poor functioning of existing markets for energy efficiency�

CCEP Director Frank Jotzo

Associate Professor David Stern

Modelling the International Diffusion of Carbon Intensity Reducing TechnologyDr David Stern, ANU

Australia and International Climate Change Mitigation Commitments: Applying game theoryDr Peter J� Wood, ANU

Potential Interactions Between the Australian 20 Per Cent Renewable Energy Target and the Carbon Pollution Reduction Scheme Within the Australian National Electricity MarketDr Regina Betz, UNSW

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Design of Climate Change Mitigation Policy Dr Frank Jotzo, ANU

Climate change mitigation policy needs to be well designed in order to be cost effective and socially acceptable� The development of a comprehensive climate change policy regime in Australia, including through carbon pricing, throws up complex issues of incentives, distribution and the political economy of climate change mitigation� These need to be taken into account in economic mechanism design�

Household Preferences for the Carbon Pollution Reduction Scheme in AustraliaSonia Akter, ANU

The project aims to investigate the role that uncertainty plays in determining household willingness to pay for climate change policy in Australia�

Socioeconomics of On-Farm Renewable EnergyProfessor Tor Hundloe, Griffith University

Identify economic and environmental costs and benefits with the utilisation of biomass—in particular, in the dairy and corn industries—to produce electricity by cogeneration and distil ethanol�

Designing Environmental Policy for Australia from an Economic and Social PerspectiveDr Regina Betz, UNSW

Develop environmental policy options that deliver efficient, effective and operational outcomes, taking into account: imperfect information, uncertainty, transaction costs, complex property rights situations, imperfect competition, and social and behavioural aspects�

Estimating Protection Values at General and Case Study LevelsProfessor John Rolfe, CQU

Testing different approaches to specifying environmental benefits for specific protection actions in forms that are useful to policymakers�

Environmental Values and Valuation Over Time Professor Jeff Bennett, ANU

Analyse changes in environmental preferences in the Australian community over time, using quantitative and qualitative methods�

Community Values for Catchment ManagementProfessor Jeff Bennett, ANU

Non-market valuation techniques employed to aid the development of efficient natural-resource management policies�

Divergence Between Public and Expert Valuation of Environmental AssetsProfessor Michael Burton, UWA

Identify differences between public and expert preferences for environmental assets within various systems that capture differences in scale and setting�

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Summary of Recent AchievementsCentre for Climate Economics and Policy (CCEP)Climate change has emerged as one of the top challenges for economic policy making worldwide� CCEP produces independent research on climate change economics and policy, taking the insights to the policymaking process and the public debate� The centre is unique in Australia and aspires to be one of the key institutions of its kind in the Asia-Pacific region� CCEP was founded, and is directed by, Dr Frank Jotzo, one of Australia’s leading climate change economists� He has worked on climate change policy in Australia since the late 1990s, and has strong academic as well as policy advisory credentials� Dr Jotzo is a lead author of the forthcoming Intergovernmental Panel on Climate Change Fifth Assessment Report� He was economic and principal advisor to the Garnaut Climate Change Review and its Update, advised Indonesia’s Finance Minister, and has presented research to senior decision makers including government ministers� He is the author of several dozen publications on climate change economics and policy and related issues in economic reform and development� Dr Jotzo is a frequent contributor to the public debate in Australia and internationally�

The Research Associates are the lifeblood of CCEP� More than 30 of the most eminent and active researchers on climate change economics and policy in Australia and internationally are associated with the centre� Our Associates work at the top universities (including Oxford University and the Chinese Academy of Science, to name but two), occupy senior research positions in international and government organisations including the World Bank and the International Energy Agency, and direct research-oriented consultancy businesses� The field of CCEP Associates comprises both eminent persons and rising stars�

CCEP is young, growing fast and influential� It was established in October 2010, and produced more than a dozen working papers in its first five months� Building on earlier work, the centre has influenced policy making� Examples of where CCEP research has fed into policy development are: the ‘fixed-price’ carbon pricing model proposed by the Australian Government in early 2011; design of emissions trading; international climate policy and Australia’s strategy; carbon markets and finance; communication and perception of climate policy; and applying economic concepts to climate change adaptation�

CCEP is active in Masters-level teaching and executive courses on climate change economics and policy at the Crawford School� The centre has an active program of international engagement, facilitating informal exchanges between senior analysts and policymakers across the Asia-Pacific region and beyond� The centre holds frequent events and attracts top-level speakers—for example: Lord Nicholas Stern and the Hon� Greg Combet AM MP, Minister for Climate Change and Energy Efficiency, have addressed CCEP events�

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CENTRE FOR WATER, ECONOMICS, ENVIRONMENT AND POLICY

Delivering the world’s best technical and public policy insights for the supply, demand, management and governance of water

CWEEP: pronounced ‘sweep’, as in to survey so as to obtain a whole and continuous view of the world

MEN AND NATURE MUST WORK HAND IN HAND� THE THROWING OUT OF BALANCE OF THE RESOURCES OF NATURE THROWS OUT OF BALANCE ALSO THE LIVES OF MEN� — Franklin D� Roosevelt, Message to US Congress, 24 January 1935

ContactProfessor R� Quentin GraftonCrawford School of Economics and GovernmentCollege of Asia and the PacificJ�G� Crawford Building (Bldg 132)Lennox CrossingThe Australian National UniversityCanberra ACT 0200 AustraliaPhone: + 61 2 6125 6558Email: quentin.grafton@anu.edu.auWeb: http://cweep.anu.edu.au

MissionThe mission of the Centre for Water, Economics, Environment and Policy (CWEEP) is to become the leading global research centre on water economics and related water policy and water governance issues� Already, the centre has convened and joined with a global network of water researchers, educators and policymakers who share a mission to expand research into these global challenges and to channel its research towards making a difference in public policy�

Water is a Critical Global IssueThe Food and Agriculture Organization (FAO) of the United Nations estimates that about 3800 children die every day—almost exclusively in poor countries—as a direct result of unsafe drinking water and lack of proper sanitation� Without a fundamental change in how water is managed in both rich and poor countries, scarcity problems will become much worse�

Diverting water from one area or catchment to another is likely to increase in response to water scarcity� Unfortunately, in many parts of the world there are few locations where additional water is available without imposing substantial costs on both users in the locations to which the water is being supplied and the environment�

The issues of water security and scarcity are fundamental not only to the future of Australia but also to every other nation� Given the importance of water economics and governance, there has been surprisingly little work undertaken in these key areas� CWEEP is one of the key global centres on water economics and governance�

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Our ApproachAt CWEEP, we aim for a holistic perspective of the world’s water resources, enabling us to better address global water-related problems� Striving to make a difference in water issues, we seek opportunities to support policy making� CWEEP delivers the following outcomes

• builds relationships with policymakers, scientists, educators, government and the media

• supports its research associates who contribute to knowledge creation in water research

• initiates policy and technical discussions through workshops, plenary sessions and blogs

• pursues international collaborations to help achieve the Millennium Development Goals

• provides professional development and executive training in water economics and governance on behalf of outside agencies

• generates research outputs in the form of academic publications and research reports

• hosts an active web site that provides policy briefs, FAQs and briefs on water economics and water policy issues, in collaboration with UNESCO and the Global Water Partnership

• trains the next generation and encourages interest in water through active education outreach�

Our Objectives• To provide the world’s best technical and public policy insights into: the management of water under climate variability

and climate change; urban water supply and demand management; water markets; water pricing; trans-boundary water governance; and water management practices that promote environmental sustainability�

• To increase the skills, capacity, networks and potential of leaders and prospective water managers and policymakers, through a coordinated suite of learning modules that addresses key issues in water economics (water markets, water pricing, valuation), governance (especially trans-boundary issues and climate variability), and gender equity in integrated water-resource management�

• To strengthen and sustain institutional capacity (especially in southern Africa), by providing a platform for collaboration and institutional development, using professional courses, student exchanges, professional internships and flexible learning with the Global Water Partnership and the Global Development Learning Network�

• To develop innovative research, tools, case studies and insights on water economics, water governance and gender equity that extend global knowledge and support integrated water-resource management�

Current Water Economics Research Areas• Water buybacks and water reform in the Murray–Darling Basin�

• Climate risk�

• Links between climate, energy and water�

• Energy consumption in the urban water-supply chain�

• Water demands in the energy sector�

• Water and energy for food security�

• Water and energy demands in other industrial sectors, including chemical production, paper, transport, mining and beverages�

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Global Involvement The centre coordinates and links its global activities to UNESCO-IHE, the Global Water Partnership, the International Water Management Institute, Water Net, the International Centre for Water Economics and Governance in Africa (IWEGA), and the Water for Africa Research Project� Within Australia, the centre links its activities with the efforts of the National Water Commission, the Murray–Darling Basin Authority, the Department of Sustainability, Environment, Water, Population and Communities, the Department of Agriculture, Fisheries and Forestry and other organisations that promote integrated water-resource management�

In April 2010, CWEEP Director, Professor Quentin Grafton, was appointed to be the Chairholder, the UNESCO Chair in Water Economics and Trans-Boundary Water Governance at The Australian National University (ANU)� This is the first UNESCO Chair in the world that focuses on water economics�

The UNESCO Chair is a renewable four-year program that aims to create a pole of excellence in water economics and governance in Africa to meet the Millennium Development Goals and to provide socioeconomic expertise in: 1) water education training with capacity building and knowledge transfer in water economics and water governance; and 2) ‘Water and Society’ with a development focus on understanding the value of water and trade-offs across water users and between water use and the environment, with a special focus on gender equity�

Shaping Future Research for a Better EnvironmentCWEEP’s Principal Strategies

• To expand collaborative efforts between Australia and the international community for the exploration of solutions to global water issues and to produce actionable outcomes including: policymaking, events, publications, media, and education and outreach to serve all stakeholders in the public and private sectors�

• To increase media and public understanding of the role of water economics in global environmental sustainability�

• To interweave the knowledge of practitioners and researchers in water policy and management practice�

• To directly work on urgent water management projects, such as water reform in the Murray–Darling Basin in Australia, to support all stakeholders in finding the most effective solution for people, the environment and industry�

Recent AchievementsNational Press Club AddressOn 20 October 2010, CWEEP Director, R� Quentin Grafton, addressed the National Press Club on the urgent need for water reform in Australia� Grafton presented promising new directions that would require the partnering of knowledge, skills and leadership to develop and support vital services for natural-resource management�

CWEEP Receives ANU AwardAmong the several workshops organised by CWEEP in the past year, ANU Crawford Dialogue on the Murray–Darling Basin (held 15 October 2010) focused on water reform in the Murray–Darling Basin and received ANU’s award for ‘Biggest Leverage and Engagement through a Public Event 2010’� The award was based on the breadth of participation in the event by scientists, industry and policy experts and the resulting impact on policy change�

Recent Book CWEEP’s newest book is Water Resources Planning and Management (Cambridge University Press, 2011), edited by R� Quentin Grafton and Karen Hussey� It has been described by the Earl of Selborne, Chair of the UK Foundation for Science and Technology, as ‘a must read book for all who wish to make a difference in how to plan and manage our scarce water resources’� The book consists of 35 chapters from experts from all over the world and features foundation chapters on understanding water, water resources planning and management, and case studies of successes and failures in water management�

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Recent ProjectsWater Buybacks and Water Reform in the Murray–Darling BasinThe Murray–Darling Basin (MDB), over the period 2002–09, suffered its worst ever recorded drought� This had a devastating impact on communities, agriculture and the environment� The current water crisis has led to important water reforms over the past decade, including: the 2004 National Water Initiative, the Water Act 2007 and the 2008 Water for the Future package� Full integration of these worthy initiatives—with particular attention to: 1) society and communities; 2) the economics of water reform; and 3) the long-term sustainability of the environment—promises a viable future for those who work and enjoy the benefits of living in the MDB� The project evaluates the costs and benefits of reallocating water away from irrigation and to environmental flows�

Using the existing literature and some additional modelling, an economic assessment of the MDB will be provided on the

• effects of the current drought

• economic effects of water buybacks

• economic effects of water buybacks versus investments in on-farm irrigation efficiency�

The Climate Risk ProjectThe Climate Risk Project is an international study funded by the ANU Water Initiative (ANUWI) and led by CWEEP Research Associate Dr Daniel Connell� His team is investigating the management of climate risk in the world’s northern and southern temperate zones (southern Australia, southern Africa, south-west United States, the Mediterranean rim, China and South America)� These regions all share high climatic variability, long histories of attempting to manage droughts and increasing exposure to the negative impacts of climate change� The aim is to build an international network of researchers interested in social and economic resilience and governance issues relevant to the management of droughts and adaptation to climate change� Along with this, the Climate Risk Project is also building links with policymakers and managers� Because water policy and management practice are poorly documented in the research literature, it will be essential to also draw on the knowledge of practitioners�

Drought is used as the starting point for a wide-ranging analysis� Extreme droughts reveal strengths and weaknesses that are hidden in less stressful times� Underlying political priorities, cultural values and the fundamental characteristics of technical and institutional systems are often most evident when contentious policies have to be implemented and choices made between competing demands� Using as a starting point the tensions created by drought, the Climate Risk Project is investigating issues that include the capacity to

• act expeditiously in the face of crisis

• base policy on good science

• consult effectively with the wider community about contentious issues

• manage across political borders

• manage economic impacts and risks

• negotiate compromises between competing interests—for example, rural/urban, production/environment, upstream/downstream

• influence factors in the wider catchment impacting on water quantity/quality

• achieve compliance in contested situations

• promote cultural change that will support major reform programs

• take account of social justice and Indigenous issues

• adapt to novel circumstances not envisaged when the relevant institutional framework was first negotiated�

‘The Drought—Past and Future Conference’, held on 14–15 November 2008, was the first stage of the Climate Risk Project� The project has also developed a drought information database—a collection of both recent and historical work focusing on drought in Australia�

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Responding to Climate Change in the Murray–Darling BasinThis research addresses only the impacts of climate change on the Basin’s people, communities and industry� The final CWEEP report presents the findings conducted by the research team in response to the following issues

• the potential impact of climate change on people and industries including agriculture (irrigated and dryland) and other industries including forestry and tourism

• potential climate change impacts and the capacity and adaptability of three regions/communities dependent on water supplies beyond those used for human consumption, and three non-water-dependent regions/communities

• potential climate change impacts on, and any particular needs of, Indigenous communities within the Basin�

Consumption-Based Water Pricing and Price ElasticitiesEnvironmental Economics Research Hub—Establishing Markets Project The ‘big dry’ that has affected much of south-eastern Australia since 2001 has reduced the amount of water in storage in many locations� To help balance water supply and demand, governments and water utilities have used mandatory water restrictions to reduce demand by banning various outdoor uses�

Since March 2008, at least 75 per cent of Australians live with mandatory water restrictions�

Surprisingly, until now, there has been no published demand-based analysis that measures the welfare cost of mandatory water restrictions in Australian cities� We address this gap by measuring the loss in Marshallian surplus associated with mandatory water restrictions in Sydney over the period 2004–05�

Our results show that raising the volumetric price of water charged to households to achieve the same level of consumption would generate a much higher Marshallian surplus than the use of mandatory water restrictions�

The other aspects of our work are

• reviewing existing Australian and international studies of water rationing

• estimating the daily aggregate per capita water demand for Sydney

• calculating the difference in Marshallian surplus from using a market-clearing price versus water restrictions, and providing sensitivity analysis and implications of the results�

April 2010

Lawrence Cram, Deputy Vice Chancellor of the

ANU, Bob McMullan, Parliamentary Secretary for International

Development and R. Quentin Grafton, Director of CWEEP

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Summary of Recent AchievementsCentre for Water Economics, Environment and Policy (CWEEP)CWEEP is under the direction of one of the world’s leading environmental economists, Professor R� Quentin Grafton, Chairholder, UNESCO Chair in Water Economics and Trans-Boundary Governance at the ANU� He is the author of more than 100 journal articles and chapters in books and a dozen books� The strength of CWEEP is its network of Research Associates from around the world� Many are leaders in their fields of water research and also in the policy arena�

CWEEP is proud of the research projects initiated under its umbrella� These initiatives include the pricing of water in the urban environment; the costs and benefits of reallocating water from consumptive to non-consumptive uses; and innovations in water governance� CWEEP has ongoing linkages with Australian and international bodies, both scientific and governmental� Within Australia, the centre’s activities are connected to the efforts of the National Water Commission, the Murray–Darling Basin Authority, the Department of Sustainability, Environment, Water, Population and Communities, the Department of Agriculture, Fisheries and Forestry, and other organisations, to promote integrated water-resource management� Internationally, the centre is linked to UNESCO-IHE, the Global Water Partnership, the International Water Management Institute, Water Net, and the International Centre for Water Economics and Governance in Africa (IWEGA)�

Since its official launch in February 2010, the centre has organised several important workshops on water issues, including three separate workshops on water reform in the Murray–Darling Basin� One of these events, on 15 October, was awarded the ‘Biggest Leverage and Engagement through a Public Event 2010’ award by the ANU’s Vice-Chancellor�

The centre’s work on Australian water and environmental challenges, such as the Murray–Darling Basin, has brought it much media attention� In addition, the centre’s director has been asked to provide submissions to various governmental inquiries by such bodies as the Productivity Commission, the National Water Commission and also a parliamentary inquiry� His expertise on water is also sought outside Australia and he has been invited to present at various places internationally, including the US Library of Congress�

In the past two years, CWEEP has produced three books on water issues and helped to change longstanding and narrow, single-discipline based perspectives on water-resource management� It is also actively engaged in executive/professional education and has provided several courses and other training on water issues (hydrology, environmental flows, stakeholder engagement, hydro-economic modelling)� The Director of CWEEP established and convenes the Graduate Diploma and Masters in Environmental and Resource Economics at the ANU�

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Communication Processes of the HubThe Hub used a range of communication channels to disseminate its research findings and key messages� International and national conferences and peer-reviewed journals were primary tools for delivering findings to the academic and broader stakeholder community� The Hub web site provided a home for Hub Research Reports and Policy Papers and copies of the Environmental Economics Research Hub newsletter, Environomics� Project leaders were interviewed by media organisations� Round tables and workshops were organised on specific topics for departmental and industry stakeholders to inform and share research findings and engage stakeholders in discussions about their needs and areas of interest� There were also opportunities for linkages through overseas visitors and secondments, professional courses and training of the next generation of researchers� The Hub also linked into academic databases such as the Research in Economics Papers and AgEcon papers, which enabled the research to be spread to the wider international research community�

This report, Outcomes and Impacts, is a consolidation of all the work completed within the Hub�

The following listing shows the extent of communication mechanisms and training used during the course of the Hub

• books: eight

• book chapters: 16

• journal articles: 110

• conference papers, national: 82

• conference papers, international: 37

• invited papers/speakers: 10

• Hub Research Reports: 96 plus additional reports being prepared, taking the final report figure to approximately 110 reports

• Hub Policy Papers: 12

• Hub newsletters: 13

• stakeholder workshops, briefings and reports: 156

• professional courses: three

• media reports and opinion pieces: 51 recorded, but we anticipate more overall

• visiting researchers: nine

• visits to overseas research groups: 31

• secondments: two

• future researchers (PhD completions): 21

• new centre or newly funded research project: five

• model or tool: two�

Please also see http://www.crawford.anu.edu.au/research_units/eerh/index.php and http://een.anu.edu.au/

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The Benefits and Outcomes of the Hub as a Whole The EERH has provided a significant impetus to environmental and resource economic research in Australia� The team of researchers brought together under the auspices of the Hub now forms one of the key groups of scholars engaged in this field of endeavour internationally� The standing of Australian environmental economics scholarship has been significantly enhanced by the operations of the Hub� The graduation of high-quality PhD scholars supported by Hub funding has added to the capacity of Australian environmental economists to address pressing policy issues�

The individual research projects have produced a wide range of substantive research outputs� The Research Report series produced by the Hub includes well more than 100 papers that continue to be highly cited in the literature and regularly downloaded from the Hub’s easily accessible web site� As the key outputs of the projects, these Research Reports have addressed key intellectual challenges confronting economists in contexts that are relevant to contemporary policy making� A number of the projects that constitute the EERH were specifically designed in collaboration with policymakers to address pressing issues� The Research Report findings were summarised in ‘plain English’ abstracts to improve accessibility� A regular newsletter, Environomics, was produced to update interested parties about the activities of the Hub�

To facilitate uptake of the Hub’s research findings, short courses were provided to policymakers and advisers� These courses were tailored to the requirements of individual policy areas as well as providing more general background environmental economics training� Individual projects facilitated the uptake of their findings through the provision of seminars and workshops� Hub-wide symposia were also presented to extend the research results� These were organised as stand-alone events as well as in collaboration with professional societies including the Australian Agricultural and Resource Economics Society and the Environment Institute of Australasia� To enhance these events, a range of international experts was supported to attend and present�

In summary, the EERH provided high-quality research findings relevant to contemporary environmental policy issues and facilitated the uptake of those findings through training programs and a range of workshops and seminars� The immediate benefits so far produced are associated with improvements in government policy initiatives in spheres as wide ranging as biosecurity, water, biodiversity, climate change, solid waste and cultural heritage� The longer-term benefits relate to an improved capacity of the environmental economics profession to continue to provide enhanced analytical skills relevant to environmental policy formulation�

The Degree to Which the Hub has Effectively Achieved its Objectives The EERH has produced a sequence of 106 high-quality Research Reports that provide the results from the individual research projects that constitute the Hub� The quality of these reports is indicated by many of them being subsequently published in prestigious international journals� Their relevance is demonstrated by their frequent citation in the literature and their history of being downloaded from the Hub web site and through RePEc, a professional repository of papers (3000 downloads since the inception of the Hub)� Hub and theme leaders have been frequently interviewed for and written for the press on environmental economics issues over the course of the Hub’s life�

The capacity of the profession in Australian environmental economics has been considerably expanded� A number of early career researchers have had their skills and reputations consolidated through Hub research activities and new PhDs have been graduated to increase the supply of environmental economics analysts�

The level of understanding of environmental economics within the public service has been expanded through specifically tailored training exercises� Workshops and seminars both at the overall Hub level and on a project-by-project level have enhanced this skill development process�

The emphasis over the duration of the EERH has been on the production of high-quality, policy-relevant research outputs� Resources have been devoted to this substantive research objective with good effect� The bequest of the Hub has been a considerable bank of research findings, a stronger and larger contingent of environmental economics researchers and numerous better informed policy advisors� The outcomes have been (and will continue to be) better developed and more appropriate policy initiatives across a very broad range of contexts� Furthermore, the Hub has spawned a number of ongoing research groups, including specifically water, climate change and biosecurity centres at the ANU�

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The Appropriateness of the Approaches Used in the Development and Implementation of the HubThe Hub was designed on a decentralised basis with related projects grouped under themes� Synergies across projects were established in this way� Individual project leaders were charged with the responsibility of achieving project-specific goals and relating to specific policy contexts� This was successful because of the wide variety of contexts addressed� Central Hub activities focused on overall awareness-raising activities and the coordination of training activities including symposia and workshops� Such is the range of issues that was addressed by the Hub’s projects that the decentralised approach was the only one practical�

A Senior Executive Group (SEG) was formed to provide guidance to the Hub Director� Under the Chair, Dr Ken Henry, the SEG sought to engage the interests of the department� Frequent changes in the departmental representatives in the SEG limited its usefulness as a coordinating body but outside members provided useful direction to the Hub’s outreach activities�

With project leaders being responsible for their own outcomes, Research Report production and subsequent publication in high-quality journals were stimulated� The rate of report production is testimony to this approach� Sound relationships between project leaders and research output users were also established through the decentralised approach� Limitations to its success resulted from frequent turnover of departmental staff and the sometime disconnect between the time frames used by Hub researchers and those of policy advisers� The priorities of departmental officials were observed to change frequently due to political imperatives and away from Hub research-focused tasks� Hub research activities were therefore targeted at producing outputs that will have long-term usefulness in policy contexts rather than being focused at the highly specific ‘micro’ issues of day-to-day policy imperatives�

In summary, the focus of the Hub was on the production of quality research outputs� Highly motivated project leaders were the driving forces towards the achievement of this focus� Resources were devoted to the achievement of substance that will be useful both immediately and over the longer term and an increase in the capacity of the public service to utilise the results produced�

Crawford School of Economics and Government - home to many of the Hub researchers

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Project Key Findings and Outcomes

PROJECT 1: CONSUMPTION-BASED WATER PRICING AND PRICE ELASTICITIES

A Little Bit about Consumption-Based Water Pricing and Price ElasticitiesThis project generated a number of key outputs in terms of publications, including an analysis of consumption-based water pricing using household data from 10 Organisation for Economic Cooperation and Development (OECD) countries (including Australia) that is in press at one of the top water journals in the world (Water Resource Research), a highly cited paper on the economic costs of water restrictions in Australia’s foremost journal in economics (The Economic Record) and two books that include key chapters on urban water and water pricing (Economics of Water Resources published by Edward Elgar in 2009 and Water Resources Planning and Management published by Cambridge University Press in 2011)�

In addition to these outputs, Professor Grafton has been the keynote speaker at several key events in Australia where he has presented his results to policymakers� These include the 2010 Economic Forum, the annual conference of the Australian Competition and Consumer Commission (ACCC) in 2010 and as a keynote speaker at the Essential Services Commission of Victoria in 2011� In addition, he has been interviewed about his work on dozens of occasions (principally on radio) regarding water pricing, he was invited to give a presentation to the Productivity Commission (PC) and his work is cited and referred to by the PC in its review of urban water, and he also contributed to the recent review by the National Water Commission on urban water�

Project DescriptionThis project is part of Theme A: Establishing viable markets to achieve environmental goals�

Project ObjectiveUsing daily water consumption data and causal variables, models will be developed to evaluate various consumption-based pricing scenarios on short and long-term urban water consumption�

Key Findings• Volumetric price is the most effective policy lever available to water authorities to control household water consumption

relative to the promotion of water-saving devices or campaigns to promote water-saving behaviours�

• The expected cost from using supply-inflexible volumetric water pricing generates large welfare losses in excess of the annual average household water bill� These losses are attributable to ongoing water restrictions and premature supply augmentation, but could be avoided if dynamically efficient volumetric pricing were to be adopted by price regulators or water utilities in response to variability in water availability�

Key OutcomesMethods, series of analyses and submissions that provide a way to price urban water efficiently in Australia in periods of drought and that generate multiple billions of dollars worth of potential welfare gains�

Project Outputs

Books • Economics of Water Resources, a two-volume collection, edited by R�Q� Grafton, published July 2009�

• Grafton, R�Q� and Hussey, K� (eds) 2001, Water Resources Planning and Management, Cambridge University Press, Cambridge�

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Book Chapters• Ward, J�, McColl, J�, Nikolakis, W�, Taylor, B�, Abel, N� and Quentin Grafton, R� 2010, ‘A robust framework for sharing water in

northern Australia’, in Northern Australia Land and Water Science Review 2009, Department of Infrastructure, Transport, Regional Development and Local Government, Canberra, Chapter 28�

• Connell, D�, Grafton, R�Q� and Ward, J� 2010, ‘The case for a revised National Water Initiative for northern Australia’, in Northern Australia Land and Water Science Review 2009, Department of Infrastructure, Transport, Regional Development and Local Government, Canberra, Chapter 23�

• Grafton, R�Q�, Ward, J�, McClennon, S� and McColl, J� 2010, ‘A primer for water institutions and governance: concepts, definitions and measures’, in Northern Australia Land and Water Science Review 2009, Department of Infrastructure, Transport, Regional Development and Local Government, Canberra, Chapter 17�

• Grafton, R�Q� and Peterson, D� 2007, ‘Water trading and pricing’, in K� Hussey and S� Dovers (eds), Managing Water for Australia: The social and institutional challenges, CSIRO Publishing, Melbourne�

Journal Articles• Connell, D� and Grafton, R�Q� (in press), ‘Water reform in the Murray–Darling Basin’, Water Resources Research�

• Grafton, R�Q�, Chu, L�, Stewardson, M� and Kompas, T� (in press), ‘Optimal dynamic water allocation: irrigation extractions and environmental tradeoffs in the Murray River, Australia’, Water Resources Research�

• Qureshi, E�, Grafton, R�Q� and Kirby, M� 2011, ‘Understanding irrigation water use efficiency at different scales for better policy reform—a case study of the Murray–Darling Basin, Australia’, Water Policy, 12:1–17�

• Grafton, R�Q� 2010, ‘How to improve cost effectiveness of water reform and increase environmental flows in the Murray–Darling Basin’, Agenda, 17(2):17–40�

• Grafton, R�Q�, To, H�, Kompas, T� and Ward, M� (submitted 2011), ‘Residential water consumption: a cross country analysis’, Water Resources Research [available for download from cweep.anu.edu.au]�

• Grafton, R�Q� and Ward, M� 2008, Paper on welfare costs of water restrictions, Economic Record�

• Connell, D� and Grafton, R�Q� 2008, ‘Planning for water security in the Murray–Darling Basin’, Public Policy, 3(1):67–86�

• Grafton, R�Q� and Ward, M� 2008, ‘Prices versus rationing: Marshallian surplus and mandatory water restrictions’, The Economic Record, 84:S57–65�

• Grafton, R�Q� and Hussey, K� 2007, ‘Buying back the Murray: at what price?’, Australasian Journal of Environmental Management, 14(2):74–81�

Conference Papers/Presentations• Keynote speaker at Eighth Annual Water Summit, 26 October 2010�

• Keynote speaker at Australian Agricultural and Resource Economics Society Special Symposium on Urban Water, 30 September 2010�

• Keynote speaker at Australian Economic Forum, 6 August 2010�

• Keynote presentations have been made on urban water pricing to Australian Competition and Consumer Commission Eleventh Regulatory Conference, 30 July 2010, Gold Coast, Qld; and the Second Australian Conference of Economists, Sydney�

• Presentation on urban water management at Agri-Paris Tech, July 2010, Paris�

• Plenary speaker at Australia 21 Conference: Shaping Australia’s Resilience—Policy Developments for an Uncertain Future, 16 February 2010�

• Keynote address at Australian Mathematical Institute Annual Meeting, 2008�

• Chaired the Sixth Australian Water Summit, March 2008�

• Prices versus rationing for water, Paper presented to Third Annual Water Pricing Conference, 27 September 2007�

Workshops• Environment Institute of Australia and New zealand Counterintuitive Seminars, 4 November 2010�

• Public good versus private gain, Paper presented to the Water Matters Symposium, Academy of the Social Sciences in Australia�

• Instruments for adaptive water management, Paper presented to NeWater Workshop on Adaptive Management�

Research Reports• Grafton, Q�, Kompas, T�, To, H� and Ward, M� 2009, Residential water consumption: a cross country analysis, EERH Research

Report No� 23, Environmental Economics Research Hub, The Australian National University, Canberra�

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Policy Briefs• Grafton, R�Q� 2010, ‘Yes we can…’: getting serious about water pricing in Australia, EERH Policy Brief, Environmental Economics

Research Hub, The Australian National University, Canberra�

Media• Murray–Darling Basin Plan: river rescue or rural disaster, Address to National Press Club of Australia, 20 October 2010, Canberra�

• Op-ed article on water pricing, Sydney Morning Herald, 17 July 2008; and numerous radio interviews�

Reports, Submissions, Addresses and Briefings• Nikolakis, W�D� and Grafton, R�Q� 2011, Assessment of the potential costs and benefits of water trading across northern

Australia, March 2011, TRACK report�

• Economics of water reform in the Murray–Darling Basin, Invited address, 18 February 2011, Australian Embassy, Washington, DC�

• Water markets and transfers: US and Australian experiences, Invited address, 17 February 2011, Congressional Research Service, Washington, DC�

• Plenary address, Australian Agricultural and Resource Economics Society Annual Meeting, 9 February 2011�

• Moving forward with water reform in Australia, 20 August 2010, Department of Prime Minister and Cabinet, Canberra�

• Presentation on urban water, 8 April 2009, Department of Environment, Water, Heritage and the Arts, Canberra�

Grafton, R�Q�, Kompas, T� and Ward, M� 2007, Public submission to IPART Review of Prices for Sydney Water Corporation’s Water, Sewerage, Stormwater and Recycled Water from 1 July 2008, 12 October 2007, Independent Pricing and Regulatory Tribunal of New South Wales, Sydney�

Research Funding and Centre Establishment• $298 224: Murray–Darling Basin Authority, Potential Water Quantity and Quality Impacts in the Murray–Darling Basin from

Communities and Industry Responding to Climate Change, 2010�

• A new centre of water economics—Centre for Water Economics, Environment and Policy, directed by Professor Grafton—was launched in February 2010�

• $271 913: Charles Darwin University and North Australian Indigenous Land and Sea Management Alliance, Establishing Water Markets in Northern Australia, 2009�

PhD Submissions• Katic, Pamela 2011, Three essays on groundwater extraction, PhD submitted February 2011�

• Jiang, Qiang 2011, Water management in the Murray–Darling Basin, PhD submitted June 2011�

• To, Thi Dieu Hang 2010, Three essays on applied econometrics: testing for purchasing power parity, modifying the ESTAR model and factors affecting residential water demand, PhD awarded November 2010�

ContactProfessor Quentin Grafton, ANU Email: quentin.grafton@anu.edu.au

Project TeamResearchersQuentin Grafton (ANU), Project leaderHang To (ANU), PhD student and postdocTom Kompas (ANU), Team memberMichael Ward (ANU), Team memberQiang Jiang (ANU), PhD student

Research AssistantNoel Chan (ANU)

Effects of drought in the Murray-Darling Basin

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‘Yes we can…’: Getting serious about water pricing in Australia

R� QUENTIN GRAFTON1

Water matters; we know that� But what about the price we pay for it? The way water supply is managed in Australia is highly costly; it is high time we changed the way we price water in Australia�

Consumption and the Volumetric Water PriceAn average-income-earning household spends about 1 per cent of their total expenditure on their water bill� For low-income households, it can be three or four times as much�

The price of water affects how much we consume� In turn, this helps determine supply in our dams and storages� The higher the volumetric (unit) price we pay per kilolitre of water, the less water we consume (all else being equal)�

This negative relationship between price and consumption has been found in hundreds of residential water-demand studies conducted worldwide, including in Australia� These studies show that if the price of water increases by 10 per cent, water consumption will decline by less than 10 per cent� According to an analysis of 64 previously published residential water-demand studies, household water consumption would fall, on average, by about 3�5 per cent for a 10 per cent price increase (Dalhuisen et al� 2003)�

Water demand is affected by household income, household size, garden size, weather and the age of consumers� Unlike price, these household characteristics cannot be controlled by water authorities� Price as a control on water consumption is crucial during periods of drought and low inflows into catchments� If volumetric prices are not allowed to vary with water supply during such periods, the current demand for water can exceed supply�

Increasing Block Water TariffsInstead of increasing volumetric prices to balance supply and demand in periods of drought, water authorities and governments in Australia and elsewhere have chosen to impose mandatory water restrictions to reduce consumption� Where authorities and governments have raised prices in Australia and overseas, it has often been through an ‘increasing block tariff’� This means if a household uses water above a given consumption threshold, it pays a higher volumetric price for its water� Although this appears to encourage water conservation, an increasing block tariff has an unfortunate consequence: large and low-income households, who might have little choice about water use, pay a higher price for water than small and high-income households� Such pricing is inequitable� It is also inefficient because consumers who value an extra kilolitre of water more highly than someone else can end up using the same volume of water�

Mandatory Water RestrictionsMandatory water restrictions are frequently defined by trigger points based on how much water is stored in the dams� Such restrictions are appropriate to cope with short-term and unexpected shocks to supply, such as when the 2003 bushfires damaged Canberra’s catchments and affected water quality�

Mandatory water restrictions are neither an efficient nor a fair way to permanently control water demand� By rationing everyone’s outdoor water use, those people who value outdoor use highly (such as gardeners) are penalised� Yet there is no impact on others (such as those living in apartments)�

Restrictions are inefficient� This is because consumers who would otherwise pay a lot to water, say, their magnolias, are unable to do so� So even if an avid gardener were to reduce her indoor water consumption by using water-saving devices and taking only two-minute showers, she would still not be allowed to water her garden using the outdoor water tap because of mandatory water restrictions� She might be fined, or even prosecuted, if she were to try to use any of her indoor savings for outdoor uses�

Costs of Inefficient Water PricingMandatory water restrictions cost households hundreds of dollars a year relative to efficient water pricing that returns revenues that exceed costs back to consumers in the form of lower fixed water charges (Grafton and Ward 2008)� In Australia, the cost of mandatory water restrictions amounts to almost $1 billion a year (Productivity Commission 2008:28)�

Inefficient water pricing has long-term costs for water consumers and taxpayers� Water prices are, typically, set three to five years in advance by a pricing regulatory authority� The prices are set to avoid ‘monopoly pricing’ by water suppliers who could take advantage of being a single-source supplier�

The regulated price is based on what the pricing authorities determine to be the extra cost of supplying additional water� Prices vary in this ‘fixed-price’ approach only with the capital and operating costs associated with existing or just-augmented capacity, interest rates and inflation�

1 Director, Centre for Water Economics, Environment and Policy (CWEEP). Email: quentin.grafton@anu.edu.au

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The problem with fixed pricing is it ignores the effect of weather on supplies� If there is a drought and reduced inflows into catchments and dams then less water will be available�

With fixed pricing, the amount charged to consumers is unchanged and the price is set too low to balance demand and supply in dry years� To correct the imbalance, alternative measures (such as mandatory water restrictions) are used�

Where mandatory water restrictions have not been enough, or where ongoing water restrictions have been considered too costly, investments to augment water supplies have been made� In Australia, this has resulted in billions of dollars invested in desalination plants� Perth, the Gold Coast and Sydney all have operational desalination plants� Melbourne and Adelaide will also soon have them�

If water prices had been set high enough during droughts, however, some of these desalination plants (such as Sydney’s recently completed plant) would not have been needed�

Flexible Water PricingWhen dams have less water, and volumetric water prices rise, consumers receive a signal about the scarcity value of water� This helps reduce consumption when supplies are low resulting in longer-lasting water storages� It also postpones the need for costly supply augmentation, such as desalination plants� If the low inflows into dams are temporary—as was the case in Sydney—it gives an opportunity for the water storages to fill up� Then, when dams are near full again, the volumetric prices can be lowered� This scarcity, or flexible, pricing reduces the average price paid over time for water by consumers (Grafton and Kompas 2007)�

Flexible water pricing can bring huge benefits for consumers in highly variable climates (such as Australia’s) and when the cost of augmenting water supply is high� Fixed pricing, on the other hand, means that as soon as a desalination plant is built, consumers pay for the high capital and operating cost of the plant whether water storages are full or not� We can do better� We should price water flexibly and remove many of the water restrictions that exist in most Australian cities�

ReferencesDalhuisen, J�M�, Florax, R�J�G�M�, de Groot, H�L�F� and Nijkamp, P� 2003, ‘Price and income elasticities of residential water demand:

a meta-analysis’, Land Economics, 79(2):292–308�

Grafton, R�Q� and Kompas, T� 2007, ‘Pricing Sydney water’, Australian Journal of Agricultural and Resource Economics, 51(3):227–41�

Grafton, R�Q� and Ward, M� 2008, ‘Prices versus rationing: Marshallian surplus and mandatory water restrictions’, The Economic Record, 84:S57–65�

Productivity Commission 2008, Towards urban water reform: a discussion paper, Research Paper, Productivity Commission, Melbourne�

Highlighting the Work of John Rolfe and Jill WindleValuing the Protection of the Great Barrier Reef The Great Barrier Reef (GBR) is coming under increasing pressure from activities within the area such as recreation, fishing and shipping, and pressures from activities in adjacent areas such as agricultural and urban development� There are also concerns about potential impacts from climate change such as higher sea temperatures and ocean acidification�

A number of government initiatives are helping reduce these pressures on the GBR� The focus of this research theme was to provide policymakers with information that would help determine if the benefits of increased protection were sufficient to justify the investment and associated costs� The research helped fill some information gaps by

• quantifying the economic benefits of protecting the GBR from the adverse impacts of land-based and ocean-based activities as well as from climate change

• assessing the non-use benefits, which included

- existence values for maintaining the asset

- bequest values to ensure it is available to future generations

- option values to allow future use and avoid irreversible losses�

• also assessing the recreational-use benefits of the GBR�

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PROJECT 2: ESTIMATING PROTECTION VALUES AT GENERAL AND CASE-STUDY LEVELS

Project DescriptionThis project is part of Theme D: Valuing environmental goods and services�

Project ObjectiveTesting different approaches to specifying environmental benefits for specific protection actions in forms that are useful to policymakers�

Key FindingsThe main study assessed non-use values of the Great Barrier Reef (GBR) and focused on

• estimating marginal values (small changes in protection)

• testing whether the types of management options used are important (or just the end protection)

• testing whether the level of certainty that protection will occur is important

• testing whether values vary across different population groups�

Results of several choice-modelling valuation experiments show that the average annual household willingness to pay (annually for five years) is $22�50 per 1 per cent of the GBR that has improved condition� The 95 per cent confidence interval has been estimated at between $16 and $30 per household� In area terms, average willingness to pay per household (annually for five years) is $6�40 per 1000 sq km of the GBR that has improved condition�

When the health of the GBR is expressed in terms of key elements instead of a single GBR measure, the average household values (each year for five years) per 1 per cent improvement are estimated at

• area of coral reefs = $12�80

• number of fish species = $7�90

• area of seagrass = $4�90�

Whether the improvements were certain to occur was found to be very important in the way people made choices� The average value for each 1 per cent improvement in the certainty of protection outcomes was estimated at $7�50 per household�

Including information about how environmental protection is managed generated higher values� The highest values to protect the GBR were attached to options for increasing marine conservation zones�

Values held by people in regional cities close to the GBR, such as Townsville, were consistently higher than people in Brisbane�

Protection values per unit were much higher at the local case-study level, and then diminished as the area being protected increased� This demonstrates diminishing marginal values as geographic scope increases� Care has to be taken in transferring protection values from one case study to another�

Similar results have been demonstrated for a smaller project conducted on values held for reducing greenhouse gas emissions�

Key OutcomesThe project has generated a number of methodological and policy outcomes�

• A conceptual framework has been developed to describe how values for environmental protection might be sensitive to the amount (scale), context (scope) and levels of risk and uncertainty in the policy issues being addressed�

• The choice-modelling experiments have demonstrated that information about policy mechanisms and the certainty of outcomes are important in selecting protection options�

• Experiments have shown that information about risk and uncertainty of outcomes is also very influential in the values that Queenslanders hold for reducing greenhouse emissions in Australia�

• Tests have demonstrated that it is appropriate to use web-based collection techniques�

• Values for protecting the Great Barrier Reef have been estimated across a range of populations, geographic scopes, attributes and policy contexts�

• Tests have been conducted to show how values might be suitable for transferring to other case studies in ongoing policy applications�

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• The benefit estimates imply that for the Queensland public to receive the full benefit of the $200 million invested in the Reef Rescue five-year funding program, there would need to be between a 1�4 per cent and a 1�8 per cent improvement in the condition of the GBR� Alternatively, an improvement over an area of between 4800 and 6400 sq km would be needed�

Project Outputs

Journal Articles• Rolfe, J� and Windle, J� 2010, ‘Testing benefit transfer of reef protection values between local case studies: the Great Barrier

Reef in Australia’, Submitted to Environmental Economics, December�

• Rolfe, J� and Windle, J� 2010, ‘Restricted versus unrestricted choice in labelled choice experiments: exploring the tradeoffs of expanding choice dimensions’, Submitted to Canadian Journal of Agricultural Economics, November�

• Rolfe, J� and Windle, J� 2010, ‘Distance decay functions for iconic assets: assessing national values to protect the health of the Great Barrier Reef in Australia’, Submitted to Environmental and Resource Economics. Special Issue: Economics and Management of Marine and Coastal Systems, December�

• Rolfe, J� and Windle, J� 2010, ‘Testing for geographic scope and scale effects with choice modelling: protection values for the Great Barrier Reef in Australia’, Submitted to Australian Journal of Agricultural and Resource Economics, December�

Conference Presentations• Brouwer, R�, Dekker, T�, Rolfe, J� and Windle, J� 2009, Preference certainty and consistency in repeated choice experiments, Paper

presented at Seventeenth Annual Conference of the European Association of Environmental and Resource Economics, 24–26 June, Amsterdam�

• Gregg, D� and Rolfe, J�C� 2010, Experimental design for choice modelling: choosing between sampling parameters and between non-nested designs using simulated choices and the bootstrap, Paper presented at Fifty-Fourth Annual Australian Agricultural and Resource Economics Society Conference, 10–12 February, Adelaide�

• Ivanova, G� and Rolfe, J�C� 2010, Using choice modelling to assess the willingness to pay of Queensland households to reduce greenhouse emissions, Paper presented at Fifty-Fourth Annual Australian Agricultural and Resource Economics Society Conference, 10–12 February, Adelaide�

• Rolfe, J�C� and Windle, J� 2010, Valuing protection of the Great Barrier Reef with choice modelling by management policy options’, Paper presented at Fifty-Fourth Annual Australian Agricultural and Resource Economics Society Conference, 10–12 February, Adelaide�

• Windle, J� and Rolfe, J�C� 2010, Comparing choice modelling results using web and paper-based collection modes, Paper presented at Fifty-Fourth Annual Australian Agricultural and Resource Economics Society Conference, 10–12 February, Adelaide�

• Rolfe, J� and Windle, J� 2010, Valuing protection of the Great Barrier Reef with choice modelling by management policy options, Paper presented at Twelfth Annual BioEcon Conference, 27–28 September, Venice�

Seminars Presented• Rolfe, J� 2009, GBR Ecosystems and Non-Market Valuation, Mini-Symposium on the Ecosystem Services of the Great Barrier

Reef, 9 February, James Cook University, Townsville, Qld�

• Rolfe, J� and Windle, J� 2009, Presenting Uncertainty as a Labelled Option: Red Imported Fire Ants in Brisbane, Choice Modelling Workshop, 19–20 November, Christchurch, Nz�

• Rolfe, J�C� 2010, Protection Values for the Great Barrier Reef, Seminar presented at the CERF Environmental Economics Research Hub Workshop, Fifty-Fourth Annual Australian Agricultural and Resource Economics Society Conference, 10–12 February, Adelaide�

• Rolfe, J�C� 2010, GBR Protection Values, Seminar presented to the Commonwealth Environmental Research Facilities 2010 Conference, Canberra�

• Rolfe, J�C� 2010, Protection Values for the Great Barrier Reef, Presentation to the Fifth Australia and New zealand Choice Modelling Workshop, 22 July, Adelaide�

• Ivanova, G� 2010, Using Choice Modelling to Assess the Willingness to Pay of Queensland Households to Reduce Greenhouse Emissions, Economics and Environment Network Symposium, 22–24 November, The Australian National University, Canberra�

• Windle, J� 2010, Testing for Geographic Scope and Scale Effects with Choice Modelling: Application to the Great Barrier Reef, Economics and Environment Network Symposium, 22–24 November, The Australian National University, Canberra�

Research Reports• Rolfe, J�, Windle, J� and Bennett J� 2008, Designing choice experiments to incorporate tests for geographic scale and scope

differences, EERH Research Report No� 3, Environmental Economics Research Hub, The Australian National University, Canberra�

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• Rolfe, J� and Wang, X� 2008, Exploring scope and scale issues in choice modelling design, EERH Research Report No� 7, Environmental Economics Research Hub, The Australian National University, Canberra�

• Wang, X� and Rolfe, J� 2009, Incorporating issues of risk and uncertainty into choice modelling experiments, EERH Research Report No� 12, Environmental Economics Research Hub, The Australian National University, Canberra�

• Rolfe, J� and Windle, J� 2010, Valuing protection of the Great Barrier Reef with choice modelling by management policy options, EERH Research Report No� 57, Environmental Economics Research Hub, The Australian National University, Canberra�

• Rolfe, J� and Windle, J� 2010, Do values for protecting iconic assets vary across populations? A Great Barrier Reef case study, EERH Research Report No� 65, Environmental Economics Research Hub, The Australian National University, Canberra�

• Ivanova, G�, Rolfe, J� and Tucker, G� 2010, Using choice modelling to assess the willingness to pay of Queensland households to reduce greenhouse emissions, EERH Research Report No� 67, Environmental Economics Research Hub, The Australian National University, Canberra�

• Rolfe, J� and Windle, J� 2010, Testing for geographic scope and scale effects with choice modelling: application to the Great Barrier Reef, EERH Research Report No� 69, Environmental Economics Research Hub, The Australian National University, Canberra�

• Rolfe, J� and Windle, J� 2010, Valuing environmental improvements in the Great Barrier Reef: ecological and preference heterogeneity in local area case studies, EERH Research Report No� 66, Environmental Economics Research Hub, The Australian National University, Canberra�

• Rolfe, J� and Windle, J� 2010, Assessing national values to protect the health of the Great Barrier Reef, EERH Research Report No� 72, Environmental Economics Research Hub, The Australian National University, Canberra�

• Rolfe, J� and Brouwer, R� 2011, Testing for value stability with a meta-analysis of choice experiments: river health in Australia, EERH Research Report No� 95, Environmental Economics Research Hub, The Australian National University, Canberra�

Policy Papers• Rolfe, J�, Bennett, J�, Johnston, R� and Kerr, G� 2011, ‘Yes we can…’: using benefit transfer to inform environmental policy

making, EERH Policy Brief, April, Environmental Economics Research Hub, The Australian National University, Canberra�

• Rolfe, J� 2010, ‘Yes we can…’: valuing protection of the Great Barrier Reef, EERH Policy Brief, May, Environmental Economics Research Hub, The Australian National University, Canberra�

ContactProfessor John Rolfe, CQU Email: j.rolfe@cqu.edu.au

Project TeamResearchers

Professor John Rolfe (CQU), Project leaderDr Jill Windle (CQU)Dr Galina Ivanova (CQU)Professor Roy Brouwer (VU University, Netherlands)Dr Xuehong Wang (CQU)Daniel Gregg (CQU)

Research Assistant

Gail Tucker (CQU)

Reefs and atolls of the Great Barrier Reef

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‘Yes we can…’: Valuing protection of the Great Barrier Reef

JOHN ROLFE2

Valuing improved protection for the Great Barrier Reef has addressed a major policy gap�

Governments and policymakers are regularly asked to fund environmental protection and other worthy goals� But when should governments become involved and how much funding should be committed to these issues?

The challenges for governments and policymakers are to

• identify when a problem is worth addressing with public funding

• decide the extent of the support to address the problem�

Efficiently allocating resources and public funds is an economic issue� Applying economic principles to environmental issues has been limited, however, because of gaps in our knowledge of how the community values environmental protection�

• The role of economists is to compare the benefits of intervention with the costs involved� The benefits of protecting environmental assets are often diverse—they span a range of ecosystem services, direct uses and preservation values� The costs of protection might involve public and private funding, as well as other impacts on communities�

Cost–Benefit AnalysisEconomists use cost–benefit analysis to bring together a range of different costs and benefits (such as social and environmental impacts not revealed in markets) so they can be evaluated in a consistent way�

One of the main challenges of cost–benefit analysis is to value the environmental benefits of public policy programs in monetary terms� This can be done using specialist non-market valuation techniques, although in Australia to date there have been a limited number of these applications�

The Great Barrier Reef Case Study Protecting the Great Barrier Reef (GBR) is a major policy issue in Australia because of its iconic status and international significance� The area of approximately 35 million ha is protected by the Australian and Queensland Governments as a marine park, and has had World Heritage site status since 1981�

While the GBR remains one of the most healthy coral reef ecosystems in the world, its condition has declined significantly since European settlement and the overall resilience of the reef has been reduced� The 2009 GBR outlook report released by the Great Barrier Reef Marine Park Authority (GBRMPA) identifies climate change, declining water quality from catchment run-off and impacts from fishing as three of the key issues reducing the resilience of the GBR�

The Australian and Queensland Governments have been investing significant effort to avoid current and future declines in the condition of the GBR� Examples of increased protection include

• increasing conservation zones to 33 per cent of the reef (2004)

• reducing commercial fishing in the reef (ongoing)

• improving water quality entering the reef lagoon (the Reef Rescue program)

• proposals to limit the emissions of greenhouse gases�

These initiatives have public and private costs� A key policy issue is to identify whether the benefits of increased protection outweigh the costs� This type of economic analysis can also help determine whether further investment in protection will bring additional benefits�

Australians might value additional protection of the GBR for a number of reasons� Values for direct uses, such as fishing, tourism and recreation, have already been assessed� But we still lack information about values held by people who do not directly use the reef� These information gaps include

• existence values for maintaining the asset

• bequest values to ensure it is available to future generations

• option values to allow future use and avoid irreversible losses�

These benefits are known as ‘passive’ or ‘non-use’ values� They can be estimated together by applying techniques such as choice modelling� Choice modelling involves the presentation of contingent scenarios about future protection measures to a random sample

2 Professor, Centre for Environmental Management, Central Queensland University, Rockhampton. Email: j.rolfe@cqu.edu.au Thanks to Jill Windle, Xuehong Wang and Daniel Gregg for contributing to the project.

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of households in the community of interest� The choices households make of preferred scenarios reveal the protection the community prefers� Including protection costs in the contingent scenarios provides additional information about how people trade off increased protection against the investment needed� This allows estimates of value to be generated�

The Environmental Economic Research Hub study assessing non-use values of the GBR focused on

• estimating marginal values (small changes in protection)

• testing whether the types of management options used are important (or just the end protection)

• testing whether the level of certainty that protection will occur is important

• testing whether values vary across different population groups�

To help develop the survey instrument, we consulted a range of people and held a number of focus groups in Brisbane, Rockhampton and Townsville� To estimate protection values and conduct a range of different tests, more than 4000 households in Queensland completed the choice-modelling survey between 2008 and 2010� This involved more than 30 different versions of the survey to test how protection values were sensitive to different information and protection options�

Protection Values for the Great Barrier Reef Results of the choice-modelling valuation experiments show that the average annual household’s willingness to pay (annually for five years) is $26�37 per 1 per cent of the GBR that has improved condition� The 95 per cent confidence interval has been estimated at between $20 and $34 per household�

In area terms, average willingness to pay per household (annually for five years) is $7�53 per 1000 sq km of the GBR that has improved condition�

Net present values for improved protection of the GBR can be assessed from these estimates� Using a 10 per cent discount rate, and assuming that all 1�5 million households in Queensland hold similar values, the total value of Queenslanders for each 1 per cent improvement in the condition of the GBR is approximately $150 million� When interstate population values are included, total protection values will be higher�

When the health of the GBR is expressed in terms of key elements instead of a single GBR measure, the average household values (each year for five years) per 1 per cent improvement are estimated at

• area of coral reefs = $12�45

• number of fish species = $8

• area of seagrass = $6�10�

Whether the improvements are certain to occur was found to be very important in the way people made choices� The average value for each 1 per cent improvement in the certainty of protection outcomes was estimated at $2�42 per household�

Including information about how environmental protection is managed generated higher values� The highest values to protect the GBR were attached to options for increasing marine conservation zones� Slightly lower values were associated with improving water quality, while the lowest values were associated with reducing greenhouse gas emissions�

Few significant differences in values could be identified when the area to be protected was the whole GBR or just one of the four GBR regions� These results suggest people treat the GBR as a single asset (there is a very strong iconic effect)�

Values held by people in regional cities close to the GBR, such as Townsville, were consistently higher than people in Brisbane� This is likely to be because regional people have higher potential use of the GBR� As well, people in the GBR regional centres were more likely to think that the condition of the asset had declined, and wanted to see greater protection�

These research results allow some preliminary assessment of Reef Rescue and other protection measures� The benefit estimates imply that for the Queensland public to receive the full benefit of the $200 million invested in the Reef Rescue five-year funding program, there would need to be between a 1�2 per cent and a 1�5 per cent improvement in the condition of the GBR� Alternatively, an improvement over an area of between 4100 and 5300 sq km would be needed�

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‘Yes we can…’: Using benefit transfer to inform environmental policy making

JOHN ROLFE,3 JEFF BENNETT,4 ROBERT JOHNSTON5 AND GEOFF KERR6

The Use of Economic Analysis in Environmental and Resource Policy IssuesA number of current policy debates in Australia revolve around natural-resource and environmental management issues� In many cases, these issues have come to public attention through the efforts of special interest groups� Once such issues are accepted in the political process as requiring attention, policymakers must decide how to respond�

Economic analysis can assist these decisions in three main ways to

• provide insights into the reasons why an issue (or problem) exists at all, helping to identify whether an issue can be categorised as a spill-over effect (that is, externality), underprovided public good, market failure and/or government failure

• identify whether a problem is worth fixing by applying cost–benefit analysis (CBA) to evaluate whether and how society would be advantaged by a policy change

• evaluate the impacts of alternative potential policy solutions (such as extension, information and suasion methods, regulations, changing property rights, positive and negative incentives, and market-based instruments) to effect the change�

• Performing CBA is critical for four key reasons

• it evaluates objectively whether a proposed policy change will generate overall net benefits to society

• it can provide an independent test of the assertions of special interest or other groups (for example, that policy changes would benefit society as a whole)

• it can identify (and quantify) which groups in society might be winners and losers from a policy change

• it provides much of the underpinning information needed in the following stage of policy and instrument design�

Despite these uses and advantages, the use of CBA is often ignored or downplayed in Australia� In many cases, special interest groups—and the politicians who support them—do not welcome the independent scrutiny CBA provides, particularly when the resulting information might question the wisdom of a favoured policy solution� For policymakers, the challenges in applying CBA are that it is often expensive and time consuming� As well, policymakers are sometimes sensitive to critiques made by special interest groups about values estimated for different effects� Although there are some regulatory requirements for CBA as part of regulatory impact statements and environmental impact statements, this type of economic analysis is often bypassed�

Economic analysis of environmental and natural-resource trade-offs typically requires some assessment of impacts that are reflected in market transactions (for example, agricultural and tourism products), and impacts that are outside markets (for example, recreation, ecosystem service and environmental impacts)� To allow these impacts to be considered together in the CBA assessment framework, economists have developed a range of non-market valuation techniques� These techniques, when appropriately applied, provide well-defined measures of economic value for commodities that are not traded in markets� For convenience and transparency, these non-market values are typically expressed in monetary terms�

When time or expense constraints prevent the use of primary studies to estimate values, benefit transfer can provide an alternative approach� Benefit transfer uses a primary study conducted for another purpose to approximate values for a new site and/or policy for which values are desired but primary study results are unavailable� That is, values from a source study are transferred to other situations with appropriate adjustments� Benefit transfer can make cost–benefit analysis more accessible for policymakers because it reduces the costs and time involved in producing an assessment, and is increasingly used in policy analysis�

Non-Market Valuation and Benefit TransferThe application of non-market valuation techniques has been growing in Australia, with several hundred studies now carried out across a range of issues and non-market valuation techniques� While this is much smaller than the tens of thousands of international studies that are available, it provides an important base� Many studies have been funded through research programs, and show evidence of careful design and testing� There has also been a corresponding development of guides and protocols about minimum requirements needed to generate accurate values�

The applications of benefit transfer are much more limited in Australia� The relatively small amount of research and professional attention given to benefit transfer has meant that, to date, understanding about the accuracy of benefit transfer and the development of protocols to guide its use are still limited� While there is much potential for benefit transfer to make cost–benefit analysis more useful to policymakers and more easily assessed by them, more work is needed to provide confidence around processes and results�

3 Professor John Rolfe, Central Queensland University, Rockhampton.

4 Professor Jeff Bennett, The Australian National University, Canberra.

5 Professor Robert Johnston, Clark University, United States of America.

6 Associate Professor Geoff Kerr, Lincoln University, Christchurch, NZ.

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Researchers are still cautious about the accuracy of benefit transfer�7 Yet the technique is beginning to be applied by special interest groups to policy situations of interest� This can be illustrated by two recent examples in Australia�

The Oxford Consulting Group presented estimates of the value of the Great Barrier Reef� The Oxford report concluded that the present value of the whole GBR was $51�4 billion, and that the cost of total and permanent coral bleaching of the GBR from climate change would be $37�7 billion�

The Australian Conservation Foundation (ACF) released a report in 2011 entitled What’s A Healthy Murray–Darling Basin Worth to Australians?� The key conclusions of the report are that the protection values that Australians hold for improving the health of the Murray–Darling system and The Coorong at the mouth of the Murray have been estimated at $9�8 billion, and that these values substantially outweigh the costs of water reform in the basin�

The authors support the use of economic analysis to assess policy alternatives that have environmental consequences and the appropriate use of benefit transfer in informing such economic analysis� Benefit transfer studies can, however, be subject to a number of shortcomings� The most common of these are the following�

• Studies will often attempt to identify total values for an entire environmental asset (which might be close to infinity for large, important ones) instead of the policy-relevant question of marginal values for clearly specified changes in protection or condition� (Almost all policy issues involve only limited changes in protection or development of resources, and it is this change that should be valued�)

• Studies might inaccurately or imprecisely identify the key elements that provide economic value, leading to the potential for double-counting or omission of values when elements overlap or do not cover the full scenario of interest�

• Studies might attempt to transfer values between very dissimilar source and target studies� (The benefit-transfer literature shows that such practices can lead to very large biases�)

• Studies might rely on source studies that are not robust and do not follow best-practice standards� (A benefit transfer is only as good as the primary study upon which it is based�)

• Studies might attempt to transfer values without adjustment for variations in policy scale or geographic scope� (Benefit-transfer research shows that per unit protection values tend to be much higher in small, local case studies than regional or national ones, and unit values should not be transferred to larger geographic scopes without adjustments�)

• Studies might attempt to transfer values without adjustment for variations in other important factors, such as population differences�

• Studies might attempt to extrapolate values to larger populations than is appropriate, or ignore the fact that values can decline as one moves further from an affected resource or area�

• Studies might ignore the fact that iconic sites or resources will often have greater value than non-iconic sites or resources�

Improving the Benefit-Transfer FrameworkDebate about the accuracy of benefit-transfer estimates has been caused in part by an information vacuum� Governments often fail to invest in economic analysis of key issues, preferring to focus on political, policy and scientific responses� We call for a stronger commitment by government and public sector agencies to more regular, objective and thorough applications of CBA to natural-resource issues� This will make the economic consequences of policy decisions more transparent and provide information that is crucial for good policy decisions� A commitment to high-quality, defensible economic analysis will greatly reduce the scope for inaccurate analysis to influence public policy�

Problems with preparing and evaluating benefit-transfer applications also occur because there is a limited body of knowledge and few available guidelines in Australia about what constitutes best practice� No handbooks or guidelines are readily available through government finance departments� There is limited guidance available in the academic literature, although it is difficult for policymakers to identify or access this� We recommend that attention be paid to developing appropriate and easily accessed and interpreted guides and frameworks to help ensure that future studies are robust and policymakers have standards to evaluate them against� Where studies have been offered as contributions to the debate (as with the Oxford Economics and ACF reports) then review processes should be used to confirm their usefulness�

ConclusionsThe developing interest in non-market valuation and benefit-transfer applications to inform cost–benefit analysis in Australia is welcome� There is scope and need for much more systematic use of cost–benefit analysis to improve decision making with regard to environmental and resource management�

7 Johnston and Rosenberger (2010) provide a recent summary of methods and challenges in benefit transfer.

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While there is a well-developed literature and process to guide non-market valuation experiments, the process for benefit-transfer applications is still in a nascent stage� This leaves policy issues at some risk of inaccurate applications of benefit transfer being used to capture public attention�

We recommend a number of strategies to reduce the risks of inaccurate benefit-transfer applications� These include

• the need for benefit transfer and risks of inaccurate studies can be reduced by commissioning more high-quality primary valuation studies in key policy areas

• guidelines and best practices for benefit transfer should be published to allow more systematic application in public policy issues

• studies should be reviewed by appropriate experts to provide confidence in their results�

ReferencesJohnston, R�J� and Rosenberger, R�S� 2010, ‘Methods, trends and controversies in contemporary benefit transfer’, Journal of

Economic Surveys, 24(3):479–510�

Oxford Economics 2009, Valuing the effects of Great Barrier Reef bleaching, Report prepared for the Great Barrier Reef Foundation, Oxford Economics, Brisbane�

Australian Conservation Foundation (ACF) 2011, What’s A Healthy Murray–Darling Basin Worth to Australians?, 2 February 2011, Australian Conservation Foundation, Melbourne�

PROJECT 3: ECONOMICALLY EFFICIENT STRATEGIES FOR THE CONSERVATION OF AUSTRALIAN BIODIVERSITY

Project DescriptionThis project is part of Theme A: Establishing viable markets to achieve environmental goals�

Project ObjectiveThe development of a long-term ecological impact model, taking into account very fine-grained ecological data�

Key FindingsThis project identified priority areas for biodiversity conservation based on integrated economic and ecological modelling to maximise conservation return per dollar� A major finding of this analysis is that the marginal return on investment tends to be higher in the bioregions in the intensive land-use zones, despite the typically higher costs of conservation land� A second major finding concerns the decision to invest in a smaller amount of more highly threatened conservation land, at a typically higher cost per hectare, or in a larger amount of less threatened and typically cheaper land� A dynamic analysis of land markets accounting for uncertainty about the economic production value of potential conservation land tends to shift the optimal decision to invest in more immediately threatened land� Further methodological and practical findings emerged from the data analysis of land values in Australia, including novel non-parametric techniques for assessing the productive value of land characteristics and applications to climate change and dryland salinity�

Key OutcomesThis project produced substantial innovations in economic understanding of land markets and its implications for biodiversity conservation� Eight research reports resulting from this study either have been completed or are in preparation for publication in journals� A geographic information system layer with estimated land values and conservation priority zones is a key product� In addition, a dynamic spatial and temporal model of optimal conservation investment under uncertainty has been produced, which should help inform more efficient conservation priorities� Additionally, a review and assessment of various economic tools for biodiversity conservation have been produced, which should help identify which of the various levers—such as regulation, payments for environmental services, tradeable development offsets, or conservation purchases—are most effective under differing conditions�

Project Outputs

Journal Articles• Ward, M� and White, C� 2011, ‘A comparative assessment of economic tools for biodiversity conservation’, Submitted to

Ecological Economics, (August)�

47

• Ward, M� 2011, ‘A conservation reserve site selection analysis for Australia’, Submitted to Australian Journal of Agricultural and Resource Economics, (October)�

• Ward, M� 2011, ‘The impact of scientific and economic uncertainty on optimal conservation investments across space and time’, Submitted to Journal of Environmental Economics and Management, (November)�

• Ward, M�, White, C� and Akter, S� 2001, ‘What drives Australian public attitudes about the value of biodiversity conservation?’, Submitted to Environmental Education Research, (November)�

• Ward, M�, Dent, J� and Aisbett, E� 2011, ‘Spatially nonparametric hedonic analysis of land values, with an application to dryland salinity’, Submitted to American Journal of Agricultural Economics, (September)�

• Ward, M� and Dent, J� 2011, ‘A Ricardian assessment of potential impacts of climate change on Australian rural land values’, Submitted to Economic Record, (July)�

• Ward, M� and Kompas, T� 2010, ‘The value of information in biosecurity risk–benefit assessment: an application to red imported fire ants’, [Environmental Economics Research Hub Research Reports No� 50], Submitted to American Journal of Agricultural Economics, (September)�

Research Reports• White, C� and Ward, M� (forthcoming), How robust to model uncertainty are optimal conservation investment plans?, EERH

Research Report No� 92, Environmental Economics Research Hub, The Australian National University, Canberra�

• Ward, M� and Dent, J. 2010, Impacts of salinity on dryland property values in south west Australia, EERH Research Report No� 90, Environmental Economics Research Hub, The Australian National University, Canberra� [This report was jointly funded and produced by this project and Emma Aisbett’s Project 16�]

• Ward, M� and Kompas, T� 2010, The value of information in biosecurity risk–benefit assessment: an application to red imported fire ants, EERH Research Reports No� 50, Environmental Economics Research Hub, The Australian National University, Canberra�

Conference Presentations• Ward, M� 2010, Economically efficient strategies for biodiversity conservation, Economics and Environment Network

Symposium, 22–24 November, The Australian National University, Canberra�

• Presentation to Commonwealth Environment Research Facilities Conference, 24–26 May 2010, Canberra�

Workshops • Ward, M� and Dent, J� 2010, Impact of Climate Change on Australian Agriculture: Evidence from property values, Australian

Agricultural and Resource Economics Society Pre-Conference Workshop, Environmental Economics Research Hub 2010 Workshop, Adelaide�

• Ward, M� 2009, Economically Efficient Strategies for the Conservation of Australian Biodiversity, Australian Agricultural and Resource Economics Society Pre-Conference Workshop, Environmental Economics Research Hub 2009 Workshop, Cairns, Qld�

• Ward, M� 2008, Economically Efficient Strategies for the Conservation of Australian Biodiversity, Project 3, Environmental Economics Research Hub 2008 Workshop, The Australian National University, Canberra�

PhD Completions• Jared Dent will complete his PhD in 2012 after switching to part-time study� His thesis draft title is ‘Economics of land use and

land values in natural resource management’�

• Hoa Ngugen will complete her PhD in 2012� Her thesis draft title is ‘Essays in applied econometrics and environmental economics’�

ContactDr Michael Ward, ANUEmail: michael.ward@anu.edu.au

Project TeamResearchers

Michael Ward (ANU), Project leader Jared Dent (ANU), PhD studentHoa Nguyen (ANU), PhD student

Research Assistant

Christopher White (ANU) (Masters student), Research Assistant

48

Rangeland to Reef: Linking the costs and benefits of improving the water quality of run-off entering the Great Barrier ReefOne of the main threats to the environmental health of the Great Barrier Reef (GBR) is poor water quality entering the reef from adjacent catchments�

Annual run-off from GBR catchments contains an estimated 14�4 million tonnes of soil or about 5760 Olympic-sized swimming pools of soil� This is about 10 million tonnes of soil or 4000 more Olympic-sized swimming pools of soil than in pre-European times�

Support from the EERH helped researchers at Central Queensland University estimate the public benefits of improving water quality entering the GBR as well as the costs to landholders of providing those improvements�

The landholder costs of providing these improvements were derived from the results of conservation (water-quality) auctions held with farmers in the dairy, horticulture, sugarcane and grazing industries�

The results indicate that for each one unit change in water-quality improvements (sediment: 100 000 tonnes; nitrogen: 200 tonnes; phosphorus: 46 tonnes), the marginal benefits range between $66�7 million and $102�4 million, while the marginal costs range from $34�3 million to $145�6 million�

Economic valuation surveys were used to estimate the benefits of water-quality improvements.

Before

Photo: Courtesy of Romy Greiner

AfterRiver mouth

49

PROJECT 4: DESIGNING METRIC ASSESSMENTS FOR BIODIVERSITY TENDERS

Project DescriptionThis project is part of Theme A: Establishing viable markets to achieve environmental goals�

Project ObjectiveTo develop a non-market valuation study to assess community values for specific biometric components, allowing community weights for each component to be included in biometrics�

Key FindingsThe focus of the study has been to assess how water-quality improvements into the Great Barrier Reef lagoon can be assessed in a cost–benefit framework� This requires a process to summarise water-quality improvements into a series of key indicators, and then to assess the costs of achieving those indicators and the benefits of improvements that might be generated� A metric is used to consolidate complex science and management information into the key indicators and attributes of interest�

The results of the study demonstrate several approaches to estimate and compare the benefits and the costs of making water-quality improvements� Key findings can be summarised as

• the most appropriate way of making investment decisions is to compare the marginal benefits with the marginal costs of making water-quality improvements

• the marginal benefits for the Australian population have been assessed with a series of choice-modelling experiments at between $66�7 million and $102�4 million per one unit of improvement (1 per cent reduction in pollutants above pre-European levels)

• the marginal costs have been assessed with competitive tenders at between $34�3 million and $145�6 million per one unit of improvement�

Key OutcomesThe project results demonstrate several key outcomes�

• It identifies the appropriate economic approach to considering the costs and benefits of improving water quality, and demonstrates that other approaches can lead to very poor allocations of public funds�

• It demonstrates the use of different methodologies to assess both the benefits and the costs of achieving improved water quality�

• It shows that the costs of achieving water-quality improvements can vary widely across industries, catchments and individual landholders�

• It shows that the benefits of water-quality improvements can vary widely between different case studies and by the types of improvements that are generated�

• It identifies that schemes to improve water quality do not automatically generate net benefits, and governments should carefully evaluate the costs and benefits of different investment options�

Project Outputs

Journal Articles• Brouwer, R�, Dekker, T�, Rolfe, R� and Windle, J� 2010, ‘Choice certainty and consistency in repeated choice experiments’,

Environmental and Resource Economics, 46(1):93–109�

• Rolfe, J�C� and Windle, J� 2011, ‘Comparing a best management practice scorecard with an auction metric to select proposals in a water quality tender’, Land Use Policy, 28:175–84�

• Rolfe, J� and Windle, J� (forthcoming), ‘Using auction mechanisms to reveal costs for water quality improvements in Great Barrier Reef catchments in Australia’, Agricultural Water Management�

• Rolfe, J� and Windle, J� 2010, ‘Assessing community values for reducing agricultural emissions to improve water quality and protect coral health in the Great Barrier Reef’, Submitted to Water Resources Research�

Conference Presentations• Windle, J�, Rolfe, J� and Brouwer, R� 2009, Public values for improved water security for domestic and environmental use,

Paper presented to Fifty-Third Annual Conference of the Australian Agricultural and Resource Economics Society, 10–13 February, Cairns, Qld�

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• Rolfe, J�C� and Windle, J� 2010, Comparing water quality metrics with best management scorecards to select proposals in a water quality tender, Paper presented to Fifty-Fourth Annual Australian Agricultural and Resource Economics Society Conference, 10–12 February, Adelaide�

Seminars Presented• Rolfe, J� 2009, Pricing water quality improvements with market based instruments, Keynote speech, Pre-Conference on Water

Economics, Seventeenth Annual Conference of the European Association of Environmental and Resource Economics, 24 June, Amsterdam�

• Rolfe, J�C� 2010, Measuring and Evaluating Water Quality Improvements in Great Barrier Reef Catchments, Seminar presented at the CERF Environmental Economics Research Hub Workshop, Fifty-Fourth Annual Australian Agricultural and Resource Economics Society Conference, 10–12 February, Adelaide�

• Rolfe, J�C� 2010, Measuring and Evaluating Water Quality Improvements in Great Barrier Reef Catchments, Seminar presented at the Reef Rescue Forum, 12 May, Brisbane�

• Rolfe, J� 2010, Using Metrics to Evaluate Water Quality Improvements in Great Barrier Reef Catchments, Economics and Environment Network Symposium 2010, 22–24 November, The Australian National University, Canberra�

Research Reports• Windle, J�, Rolfe, J� and Brouwer, R� 2009, Public values for improved water security for domestic and environmental use, EERH

Research Report No� 18, Environmental Economics Research Hub, The Australian National University, Canberra�

• Rolfe, J� and Windle, J� 2009, Costing water quality improvements with auction mechanisms: case studies for the Great Barrier Reef in Australia, EERH Research Report No� 35, Environmental Economics Research Hub, The Australian National University, Canberra�

• Rolfe, J� and Windle, J� 2009, Comparing a best management practice scorecard with an auction metric to select proposals in a water quality tender, EERH Research Report No� 43, Environmental Economics Research Hub, The Australian National University, Canberra�

• Windle, J� and Rolfe, J� 2010, Assessing community values for reducing agricultural emissions to improve water quality and protect coral health in the Great Barrier Reef, EERH Research Report No� 84, Environmental Economics Research Hub, The Australian National University, Canberra�

Policy Paper• Rolfe, J� 2010, ‘Yes we can…’: improving the funding cost efficiency for natural resource management, EERH Policy Brief, May,

Environmental Economics Research Hub, The Australian National University, Canberra�

ContactProfessor John Rolfe, CQUEmail: j.rolfe@cqu.edu.au

Project TeamResearchers

Professor John Rolfe (CQU), Project leaderDr Jill Windle (CQU), Team memberProfessor Roy Brouwer (VU University, the Netherlands)Daniel Gregg (CQU), Team member

Research Assistant

Gail Tucker (CQU)

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‘Yes we can…’: Improving the funding cost efficiency for natural-resource management

JOHN ROLFE8

By focusing on outcomes rather than inputs, funding cost efficiency for resource management and water quality can be significantly improved�

Governments regularly provide incentives and support to stimulate better environmental outcomes from private land management� But how can funding be sensibly allocated when there is a wide variety of initiatives and projects to support?

Much government funding is allocated through bodies such as catchment management authorities or natural resource management (NRM) groups, which then allocate the money to landholders� On-farm projects that will have wider environmental benefits for the community—such as improving biodiversity conservation or water quality—receive much of the funding�

Proposals from landholders need to be assessed in a way that identifies preferred projects for funding� The reality is, public funds are often allocated with little knowledge of project outcomes�

In economic terms, public funding is best allocated when selected projects deliver the greatest public benefits relative to the costs involved� But because there is a lack of value estimates for many environmental improvements, net values are difficult to evaluate in a cost-efficiency analysis�

Where value estimates are not available, the next best option is to select projects based on cost effectiveness by identifying projects that meet objectives at least cost� Cost effectiveness is measured by each project’s cost compared with environmental improvements�

Natural-Resource Management Funding Funding is rarely allocated for environmental programs based on cost efficiency or cost effectiveness (and there is rarely enough detail reported in programs to allow assessment of either)� Instead, fixed grants are often allocated� These grants select key actions (inputs) and often maximise participation across landholders� Funding at the regional level focuses on meeting short-term objectives and achieving political outcomes�

It is difficult for public officers to allocate environmental funds because of information asymmetries� Often governments have limited knowledge of the trade-offs between farm management and environmental outcomes� Farmers tend to have limited knowledge of the environmental benefits of changing management practices� This results in significant variations in the cost effectiveness of farm management proposals�

Poor selection processes mean the most cost-effective proposals are not always selected� Allocating funding between regional groups can also be difficult as local politics and parochial interests mean each group claims large shares of funding�

Quantifying Environmental Benefits Many mechanisms for allocating environmental funding have focused on simply identifying landholder actions and management inputs� Although these are easy to assess, they involve a leap of faith that the project will result in benefits�

Case Study 1: A program to improve water quality from cane farms, Burdekin region, north QueenslandTwo methods to assess projects for funding were compared. The first involved a scorecard approach, typical of fixed-grant programs, to assess farm management practices. The second used a metric to predict changes in pollutants reaching the Great Barrier Reef. While the scorecard assessed what landholders were doing, it did not predict what the changes in emissions might have been. The metric was focused on assessing the change in pollutants that were affecting water quality, and was more than twice as successful at identifying environmental improvements from landholder proposals compared with the scorecard approach.

Environmental funding should at least be prioritised by the change in outputs� For water-quality proposals, this might be the change in on-farm pollutants or the change in emissions that reach the nearest stream� It is even better to predict the change in environmental outcomes such as the improvement in riparian health or fish stocks as a result of lower pollution�

A focus on environmental outcomes means predicting the consequences of management actions� The many information gaps are a key challenge� For example, assessing water-quality proposals involves predicting

• changes in emissions on-farm

8 Professor, Centre for Environmental Management, Central Queensland University, Rockhampton. Email: j.rolfe@cqu.edu.au Thanks to Jill Windle and Daniel Gregg for contributing to the project.

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• the rate at which pollutants are transported to streams

• the environmental improvements generated by reduced pollutants�

Evaluating proposals in terms of predicted environmental benefits will help identify science research priorities�

Selecting the Most Cost-Effective ProposalsFunding proposals need to be evaluated by comparing investment costs with the environmental benefits� The costs of making farm-level changes vary between landholders and the amount of improvement needed� At a State level, the costs of making environmental improvements vary across regions, across industries and across pollutant types� It is important to consider how the cost effectiveness of different proposals can vary when selecting which projects to fund�

Case Study 2: Water-quality tender, Burdekin regionThe potential variation in cost effectiveness between landholders was demonstrated in 84 proposals from the grazing and sugarcane industries to improve water quality.

The 10 most highly ranked projects would have cost $180 574. These projects were modelled to capture 47 510 kg of nitrogen ($1.70 per kg), 51.6 kg of pesticide ($1579/kg), and 29.8 tonnes of sediment ($117.40/tonne).

The 10 lowest-ranked projects would have cost $495 808. These projects were modelled to capture 870 kg of nitrogen ($290.78/kg), no pesticides and 18 tonnes of sediment ($13 480/tonne).

If policymakers had selected the 10 worst proposals, they would have achieved only a fraction of the environmental benefits that other farmers were prepared to achieve. Similar activities can generate very different outcomes across farms because of varying soil, climate, geographic and management conditions.

In summary, the efficiency of funding programs to improve environmental conditions can be improved by

• basing funding to catchments, regions and industries on the relative environmental outcomes, and avoiding scoring mechanisms such as multi-criteria analysis (these confound the objectives and are open to bias or manipulation)

• basing funding to farmers on the relative environmental outcomes they will achieve

• being sensitive to varying outcomes between farmers, and minimising the use of mixed grants�

PROJECT 5: DESIGNING MARINE RESERVES FOR BIODIVERSITY AND SUSTAINABLE FISHERIES

Project DescriptionThis project is part of Theme C: Advancing Australia’s capability for social and economic analysis of environmental issues at a regional scale�

Project ObjectiveExamination of the theory and practical implications of combining marine reserves with fisheries management tools�

Key Findings• An optimal, rotating marine reserve system is shown to be preferred in economic terms to a fixed reserve regime, but is

dependent on spill-overs from reserves to harvested areas, the nature of shocks to the environment, the size of the non-consumptive values and how they change with the biomass, and the sensitivity of profits to the harvest and biomass�

• Catch shares and reserves can be complementary and, when used jointly, promote: 1) lower total allowable catch if the harvest is relatively high; and 2) larger reserves when no-take areas are initially relatively small�

Key OutcomesMethods and results that provide a way to establish reserves that provide a ‘win-win’ for both the environment and fishers�

Project Outputs

Book• Hilborn, R�, Squires, D�, Tait, M� and Williams, M� (eds) 2010, Handbook of Marine Fisheries Conservation and Management,

Oxford University Press, Oxford�

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Book Chapters• Grafton, R�Q� and Nelson, H�W� 2007, ‘The effects of buybacks in the British Columbia salmon fishery’, in R� Curtis and D� Squires

(eds), Fisheries Buybacks, Blackwell Publishing, Malden, Mass�

• Fox, K�J�, Grafton, R�Q�, Kompas, T� and Che, T�N� 2007, ‘Capacity reduction and productivity’, in R� Curtis and D� Squires (eds), Fisheries Buybacks, Blackwell Publishing, Malden, Mass�

• Grafton, R�Q�, Hilborn, R�, Squires, D� and Williams, M�J� 2010, ‘Marine conservation and fisheries management: at the crossroads’, in R�Q� Grafton, R� Hilborn, D� Squires, M� Tait and M�J� Williams (eds), Handbook of Marine Fisheries Conservation and Management, Oxford University Press, Oxford�

• Kompas, T�, Grafton, R�Q�, Van Ha, P�, Che, N� and Cho, L� 2010, ‘Bioeconomic modeling of marine reserves with environmental uncertainty’, in R�Q� Grafton, R� Hilborn, D� Squires, M� Tait and M�J� Williams (eds), Handbook of Marine Fisheries Conservation and Management, Oxford University Press, Oxford�

• Squires, D�, Groves, T�, Grafton, R�Q�, Curtis, R�, Joseph, J� and Allen, R� 2010, ‘Fisheries buybacks’, in R�Q� Grafton, R� Hilborn, D� Squires, M� Tait and M�J� Williams (eds), Handbook of Marine Fisheries Conservation and Management, Oxford University Press, Oxford�

• Grafton, R�Q�, Hannesson, R�, Shallard, B�, Sykes, D� and Terry, J� 2010, ‘The economics of allocation in tuna regional fisheries management organizations’, in R� Allen, J� Joseph and D� Squires (eds), Conservation and Management of Transnational Tuna Fisheries, Wiley-Blackwell, Ames, Ia�

• Grafton, R�Q� 2008, ‘Canadian fisheries governance: the good, the bad and the ugly’, in N� Schneider (ed�), Breath of Fresh Air: Market based solutions for improving Canada’s environment, Fraser Institute, Vancouver�

Journal Articles• Grafton, R�Q�, Akter, S� and Kompas, T� (in press), ‘A policy-enabling framework for the ex-ante evaluation of marine protected

areas’, Ocean and Coastal Management�

• Little, R�, Grafton, R�Q�, Kompas, T�, Smith, A�D�M�, Punt, A�D� and Mapstone, B�D� 2010, ‘The complementarity of no-take marine reserves and individual transferable quotas for managing the coral reef line fishery of the Great Barrier Reef’, Conservation Biology, 2010�

• Yamazaki, S�, Grafton, R�Q� and Kompas, T� 2010, ‘Non-consumptive values and optimal marine reserve switching’, Ecological Economics, 2010�

• Squires, D�, Jeon, Y�, Grafton, R�Q� and Kirkley, J� 2010, ‘Controlling excess capacity in common-pool resource industries: the transition from input to output controls’, Australian Journal of Agricultural and Resource Economics, 54:361–77�

• Grafton, R�Q�, Kompas, T� and Hilborn, R� 2010, ‘Resource ownership, the intrinsic growth rate and dynamic BMEY’, Land

Economics, 86(3):609–13�

• Akter, S� and Grafton, R�Q� 2010, ‘Confronting uncertainty and missing values in environmental value transfer as applied to science conservation’, Conservation Biology, 25(5):1407–17�

• Kompas, T�, Grafton, R�Q� and Che, T�N� 2010, ‘Bioeconomic losses from overharvesting tuna’, Conservation Letters, 2010�

• Little, R�, Grafton, R�Q�, Kompas, T� and Smith, A�D�M� 2010, ‘Closure strategies as a tool for fisheries management of catastrophic events in metapopulations’, Fisheries Management and Ecology, 17:346–55�

• Grafton, R�Q�, Kompas, T� and Chu, L� 2010, ‘Maximum economic yield’, Australian Journal of Agricultural and Resource Economics, 54:273–80�

• Grafton, R�Q� 2009, ‘Adaptation to climate change in marine capture fisheries’, Marine Policy, 34:606–15�

• Lynham, J�, Costello, C�, Gaines, S�N�, Grafton, R�Q� and Price, J� 2009, ‘Response to letters to the editor on “Can catch shares prevent fisheries collapse”’, Science, 323:338�

• Yamazaki, S�, Kompas, T� and Grafton, R�Q� 2009, ‘Output versus input controls under uncertainty: the case of a fishery’, Natural Resource Modeling, 22(2):212–36�

• Grafton, R�Q�, Kompas, T� and Ha, P�V� 2009, ‘Cod today and none tomorrow: the economic value of a marine reserve’, Land Economics, 85:454–69�

• Grafton, R�Q� and McIlgorm, A� 2009, ‘Ex ante evaluation of the costs and benefits of individual transferable quotas: a case-study of seven Australian Commonwealth fisheries’, Marine Policy, 33:714–19�

• Grafton, R�Q�, Hilborn, R�, Ridgeway, L�, Squires, D�, Williams, M�, Garcia, S�, Groves, T�, Joseph, J�, Kelleher, K�, Kompas, T�, Libecap, G�, Lundin, C�-G�, Makino, M�, Matthiasson, T�, McLoughlin, R�, Parma, A�, San Martin, G�, Satia, B�, Schmidt, C�-C�, Tait, M� and zhang, L� 2008, ‘Positioning fisheries in a changing world’, Marine Policy, 42(4):630–4�

• Kompas, T�, Che, T�N� and Grafton, R�Q� 2008, ‘Fisheries instrument choice under uncertainty’, Land Economics, 84(4):652–66�

• Grafton, R�Q�, Kompas, T� and Hilborn, R� 2007, ‘The economics of overexploitation revisited’, Science, 318:1601�

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• Grafton, R�Q�, Kompas, T�, McLoughlin, R� and Rayns, N� 2007, ‘Benchmarking for fisheries governance’, Marine Policy, 31:470–9�

• Grafton, R�Q� and Kompas, T� 2007, ‘Pricing Sydney water’, Australian Journal of Agricultural and Resource Economics, 51(3):227–41�

Conference Presentation• Keynote speaker, The Pelagic Complex in the Northeast Atlantic Ocean, 9 September 2010, Faroe Islands�

Workshop• Presentation at the American Association of the Academy of Sciences: Economics of Climate Adaptation in Marine Capture

Fisheries, 21 February 2011�

Research Report• Grafton, R�Q� 2009, Adaptation to climate change in marine capture fisheries, EERH Research Report No� 37, Environmental

Economics Research Hub, The Australian National University, Canberra�

Guest Presentation• Presentation on Norway’s work on reserves at University of Bergen, Norway�

PhD Submissions• Satoshi Yamazaki, a PhD student funded from the CERF project, was awarded his PhD in 2009 and is now working at the

University of Tasmania� His thesis title is ‘Essays on fisheries: instrument choice and the design of marine reserves under uncertainty’�

• Long Chu completed his PhD in 2009� His thesis title is ‘A parametric linear programming approach to continuous time stochastic optimal control problems with binary variables’�

ContactProfessor Quentin Grafton, ANUEmail: quentin.grafton@anu.edu.au

Project Team

Researchers

Quentin Grafton (ANU), Project leaderSatoshi Yamazaki (ANU), PhD studentRich Little (ANU), PostdocNhu Che (ANU), Team memberTom Kompas (ANU), Team memberLong Chu (ANU), Team member

PROJECT 6: ENVIRONMENTAL VALUES AND VALUATION OVER TIME

Project DescriptionThis project is part of Theme D: Valuing environmental goods and services�

Project ObjectiveAnalyse changes in environmental preferences in the Australian community over time using quantitative and qualitative methods�

Key FindingReplication of an environmental valuation study carried out 30 years ago has demonstrated that community preferences for nature protection have remained relatively stable through time�

Key OutcomeEnvironmental managers now have the knowledge that, for an extended planning period, they can be assured that current values can be extrapolated to represent future values�

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Project Outputs

Journal Articles• Scheufele, G� and Bennett, J� (in progress), ‘Values across time’, to be submitted to The Australian Journal of Agricultural and

Resource Economics, (2011)�

• Scheufele, G� and Bennett, J� 2010, ‘Response strategies and learning in discrete choice experiments’, Submitted to Environmental and Resource Economics�

• Scheufele, G� and Bennett, J� 2010, ‘Effects of alternative elicitation formats in discrete choice experiments’, Submitted to Australian Journal of Agricultural and Resource Economics�

Conference Presentations• Conference paper presented to Economics and the Environment Network Symposium, 22–24 November 2010, Canberra�

• Scheufele, G� and Bennett, J� 2010, Values across time, Paper presented to Fourth World Congress of Environmental and Resource Economists, 28 June – 2 July, Montreal�

• Scheufele, G� and Bennett, J� 2010, Ordering effects and response strategies in discrete choice experiments, Paper presented to Annual Australian Agricultural and Natural Resource Economics Society Conference, 9–12 February, Adelaide�

• Scheufele, G�, and Bennett, J� 2010, Effects of alternative elicitation formats in discrete choice experiments, Paper presented to Annual Australian Agricultural and Natural Resource Economics Society Conference, 9–12 February, Adelaide�

Workshops• Participation in Choice Modelling Workshop, 19–20 November 2009, Lincoln University, Christchurch, Nz�

• Participation in the Annual Workshop of the Environmental Economics Research Hub, 10 February 2009, Cairns, Qld�

• Participation in the Annual Australian Agricultural and Natural Resource Economics Society Conference, 10–13 February 2009, Cairns, Qld�

• Presentation of research proposal at the Annual Workshop of the Environmental Economics Research Hub, May 2008�

• Participation at Choice Modelling Workshop, 1–2 May 2008, Brisbane Powerhouse, Brisbane�

• Participation in one-week Choice Modelling Seminar, February 2008, University of Sydney, NSW�

Research Reports• Scheufele, G� and Bennett, J� 2010, Ordering effects and strategic response in discrete choice experiments, EERH Research

Report No� 93, Environmental Economics Research Hub, The Australian National University, Canberra�

• Scheufele, G� and Bennett, J� 2010, Effects of alternative elicitation formats in discrete choice experiments, EERH Research Report No� 52, Environmental Economics Research Hub, The Australian National University, Canberra�

• Scheufele, G� and Bennett, J� 2008, Environmental value and valuation over time, EERH Research Report No� 6, Environmental Economics Research Hub, The Australian National University, Canberra�

PhD Submission• Gabriela Scheufele’s PhD study is scheduled for completion in October 2011�

Top-Five Outputs• Scheufele, G� and Bennett, J� 2010, Ordering effects and strategic response in discrete choice experiments, Paper presented to

World Congress of Environmental and Resource Economists, 28 June – 2 July, Montreal�

• Scheufele, G� and Bennett, J� 2010, ‘Response strategies and learning in discrete choice experiments’, Submitted to Environmental and Resource Economics�

• Scheufele, G� and Bennett, J� 2010, ‘Effects of alternative elicitation formats in discrete choice experiments’, Submitted to Australian Journal of Agricultural and Resource Economics�

• Anticipated submission of a further journal paper: Scheufele, G� and Bennett, J� (in progress), ‘Values across time’, To be submitted to Australian Journal of Agricultural and Resource Economics�

• The results of this project feed into policy deliberations that involve predicting values into the future�

ContactProfessor Jeff Bennett, ANU Email: jeff.bennett@anu.edu.au

Marit Kragt

56

Project Team

Researchers

Professor Jeff Bennett (ANU), Project leaderGabriela Scheufele (ANU), PhD candidateDr David Godden (NSW Department of Environment and Climate Change), Collaborator

PhD Success Stories from Projects 6 and 7

MARIT KRAGT

One of the highlights of the Environmental Economics Research Hub has been its contribution to Australian higher education and building international research capacity� Projects 6 and 7 have successfully trained three talented new researchers, with a total of 21 new researchers being trained across all Hub projects�

Marit Kragt came to the ANU from the Netherlands to do a Masters of Economics� The Hub subsequently supported her PhD research on ‘Using an integrated assessment approach to link biophysical modelling and economic valuation’� Her integrated research encompassed the development of a water-quality model for the George catchment in Tasmania; a Bayesian network approach to model impacts of natural-resource management and water quality on ecosystem features; and a choice-experiment study to estimate values for environmental changes� The several components were integrated in a Bayesian network modelling framework� Marit’s research was supported by the EERH and the Landscape Logic Hub�

The Hub provided Marit with a stimulating and challenging research environment� Over the course of her PhD, she worked with economists, biophysical scientists, policymakers and modelling experts� The Hub workshops broadened her view across a range of applications in environmental and resource economics�

Thanks to the Hub, she gained valuable multidisciplinary experience that kick-started her career as an environmental economist� After completing her PhD in 2010, she moved to Perth to work as an Assistant Professor at the UWA School of Agricultural and Resource Economics� She now teaches Environmental Economics and Management Decision Tools, and is supervising two Honours and two PhD students� Her research interest remains in environmental valuation using choice experiments� She is also doing research on the ‘economics of carbon farming’—bio-economic modelling of carbon sequestration in agricultural soils, and public preferences for carbon farming offsets�

Two more PhD students recruited for Hub Projects 6 and 7 are Gabriela Scheufele and Kasia Mazur� All three students were supervised by Professor Jeff Bennett and will take the Hub experience into their careers� Marit’s success story is just one example� Multiply her story by 21 and you will grasp the large body of new research experience that will contribute to better environmental economics in Australia and overseas�

PROJECT 7: INTEGRATING COMMUNITY PREFERENCE INTO VEGETATION PLANNING PROCESSES

Project DescriptionThis project is part of Theme D: Valuing environmental goods and services�

Project Objective

Non-market valuation techniques were employed to aid the development of efficient natural-resource management policies�

Key FindingCommunities hold positive values for environmental and social improvements resulting from natural-resource management investments in New South Wales and Tasmania that vary between urban and rural populations�

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Key OutcomeBenefit–cost analyses of natural-resource management investments have assisted catchment management authority staff in justifying past investments and planning future expenditures�

Project Outputs

Marit Kragt’s work

PhD Completion• M�E� Kragt was granted her PhD without revisions in October 2010� Her thesis title is ‘An integrated assessment approach to

linking biophysical modelling and economic valuation’�

Journal Articles • Kragt, M�E� and Bennett, J� 2011, ‘Investigating cost anchoring effects on scale heterogeneity and value estimates in choice

experiments’, Revised and resubmitted to Environmental and Resource Economics, (January)�

• Kragt, M�E� and Bennett, J� 2011, ‘Attribute framing in choice experiments: how do attribute level descriptions affect value estimates?’, Revised and resubmitted to Environmental and Resource Economics, (April)�

• Kragt, M�E� 2011, ‘Lessons from integrated bio-economic modelling in the Georges catchment, Tasmania’, in T� Lefroy, A� Curtis, T� Jakeman and J� McKee (eds), Landscape Logic: Integrated science for landscape management, CSIRO Publishing, Canberra�

• Kragt, M�E� and Bennett, J� 2011, ‘Using choice experiments to value catchment and estuary health in Tasmania with individual preference heterogeneity’, Australian Journal of Agricultural and Resource Economics, 55(2):159–79�

• Kragt, M�E�, Newham, L�T�H and Jakeman, A�J� 2011, ‘A conceptual Bayesian network approach to integrate economic valuation and catchment modelling’, Environmental Modelling and Software, 26(1):92–102�

EERH Research Reports• Aisbett, E� and Kragt, M�E� 2010, Valuing ecosystem services to agricultural production to inform policy design: an introduction,

EERH Research Report No� 73, October, Environmental Economics Research Hub, The Australian National University, Canberra�

• Kragt, M�E�, Bennett, J�W� and Jakeman, A�J� 2010, An integrated assessment approach to linking biophysical modelling and economic valuation tools, EERH Research Report No� 53, March, Environmental Economics Research Hub, The Australian National University, Canberra�

• Kragt, M�E� and Bennett J� 2009, What’s appropriate? Investigating the effects of attribute level framing and changing cost levels in choice experiments, EERH Research Report No� 17, September, Environmental Economics Research Hub, The Australian National University, Canberra�

• Kragt, M�E� and Bennett J� 2009, Using choice experiments to value river and estuary health in Tasmania with individual preference heterogeneity, EERH Research Report No� 16, September, Environmental Economics Research Hub, The Australian National University, Canberra�

• Kragt, M�E� and Bennett J� 2009, Integrated hydro-economic modelling: challenges and experiences in an Australian catchment, EERH Research Report No� 15, February, Environmental Economics Research Hub, The Australian National University, Canberra�

• Kragt, M�E� and Bennett J� 2008, Designing choice experiments to test for anchoring and framing effects, EERH Research Report No� 10, Environmental Economics Research Hub, The Australian National University, Canberra�

• Kragt, M�E� and Bennett, J� 2008, Developing a questionnaire for valuing changes in natural resource management in the George catchment, Tasmania, EERH Research Report No� 8, Environmental Economics Research Hub, The Australian National University, Canberra�

Invited Talks and Presentations• Integrated hydro-economic modelling: challenges and experiences in an Australian catchment, Invited talk, 22 April 2010,

University of Sydney�

• Attribute selection, attribute levels and attribute framing, Presentation to Choice Modelling Workshop, 19 November 2009, Christchurch, Nz�

• Community values for catchment management, Presentation to Environmental Economics Hub Annual Workshop, 10 February 2009�

• Integrating community preference into natural resource management decision support tools, Presentation to Environmental Economics Hub Annual Workshop, 20 May 2008�

• Discontinuous choices and key issues in choice experiments, Presentation to Choice Modelling Workshop, 2 May 2008, Brisbane�

58

Conference Papers/Presentations• Aisbett, E� and Kragt, M�E� 2010, Valuing ecosystem services to agricultural production: priorities for informing policy design,

Paper presented to Economics and Environment Network Symposium, 22–24 November, Canberra�

• Kragt, M�E�, Bennett, J�W� and Jakeman, A�J� 2010, An integrated assessment approach to linking biophysical modelling and economic valuation tools, Presentation to iEMSs2010, International Congress on Environmental Modelling and Software, 5–9 July, Ottawa�

• Kragt, M�E� 2010, Integrating biophysical modelling with economic valuation, Poster presented to National NRM Knowledge Conference, 19–21 April, Darwin�

• Kragt, M�E� and Bennett, J�W� 2010, The impacts of attribute level framing and changing cost levels on choice experiments value estimates, Paper presented to Fifty-Fourth Annual Conference of the Australian Agricultural and Resource Economics Society, 9–12 February, Adelaide�

• Kragt, M�E�, Newham, L�T�H� and Jakeman, A�J� 2009, A Bayesian network approach to integrating economic and biophysical modelling, Presented to Eighteenth World IMACS Congress and MODSIM09 International Congress on Modelling and Simulation, Modelling and Simulation Society of Australia and New zealand and International Association for Mathematics and Computers in Simulation, 13–17 July, Cairns�

• Kragt, M�E� and Bennett, J�W� 2009, Integrated hydro-economic modelling: experiences from an Australian catchment, Presented to Seventeenth Conference of the European Association of Environmental and Resource Economists, 24–27 June, Amsterdam�

• Kragt, M�E� and Bennett, J�W� 2009, What’s appropriate? Investigating the effects of attribute framing and changing cost levels in choice experiments, Presented to Seventeenth Annual Conference of the European Association of Environmental and Resource Economists, 24–27 June, Amsterdam�

• Kragt, M�E� and Bennett, J�W� 2009, Using choice experiments to value river and estuary health in Tasmania with individual preference heterogeneity, Paper presented to Fifty-Third Conference of the Australian Agricultural and Resource Economics Society, 11–13 February, Cairns, Qld�

• Kragt, M�E� 2008, Integrated assessment of environmental and economic uncertainty in catchment modelling, Presentation to Third Annual Conference of the Australia and New zealand Regional Organisation of the Society for Risk Analysis, 30 September – 1 October, Canberra�

Modelling Outputs• 2009: Developed a prototype integrated biophysical–economic model for assessing changes in the George catchment�

This model is based on a Bayesian network modelling approach and demonstrates how biophysical modelling results can be integrated with environmental valuation data in one modelling tool�

• 2008: Developed a water-quality model for the George River catchment in north-eastern Tasmania� This model is a stand-alone decision-support tool that can be used to assess the impacts of land management and land-use changes on erosion, sedimentation and nutrient pollution of waterways�

Kasia Mazur’s Work

PhD Completion• Kasia Mazur’s PhD was accepted in April 2011� Her thesis title is ‘Choice modelling in the development of natural resource

management strategies in NSW catchments’� Kazia’s PhD will be conferred at the ANU in 2011�

EERH Research Reports• Mazur, K� and Bennett, J� 2010, The effects of a provision rule in choice modelling, EERH Research Report No� 49, Environmental

Economics Research Hub, The Australian National University, Canberra�

• Mazur, K� and Bennett, J� 2009, Scale and scope effects on communities values for environmental improvements in the Namoi catchment: a choice modelling approach, EERH Research Report No� 42, Environmental Economics Research Hub, The Australian National University, Canberra�

• Mazur, K� and Bennett, J� 2009, Location differences in communities’ preferences for environmental improvements in selected NSW catchments: a choice modelling approach, EERH Research Report No� 21, Environmental Economics Research Hub, The Australian National University, Canberra�

• Mazur, K� and Bennett, J� 2009, A choice modelling survey of community attitudes to improvements in environmental quality in NSW catchments, EERH Research Report No� 13, Environmental Economics Research Hub, The Australian National University, Canberra�

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• Mazur, K� and Bennett, J� 2008, Using focus groups to design a choice modelling questionnaire for estimating natural resource management benefits in NSW, EERH Research Report No� 2, Environmental Economics Research Hub, The Australian National University, Canberra�

• Mazur, K� and Bennett, J� 2008, Choice modelling in the development of natural resource management strategies in NSW, EERH Research Report No� 1, Environmental Economics Research Hub, The Australian National University, Canberra�

EERH Policy Papers• Dobes, L� and Bennett, J� 2010, Multicriteria analysis and the emperor’s new clothes, EERH Policy Brief, June, Environmental

Economics Research Hub, The Australian National University, Canberra�

• Bennett, J� 2009, Including the environment in public policy making, EERH Policy Brief, Environmental Economics Research Hub, The Australian National University, Canberra�

Conference Papers and Presentations• Mazur, K� and Bennett, J� 2010, Framing for incentive compatibility in choice modelling, Paper presented to Fifty-Fourth Annual

Conference of the Australian Agricultural and Resource Economics Society, 9–12 February, Adelaide�

• Mazur, K� and Bennett, J� 2009, Location differences in communities’ preferences for environmental improvements in selected NSW catchments: a choice modelling approach, Paper presented to Fifty-Third Annual Conference of the Australian Agricultural and Resource Economics Society, 10–13 February, Cairns, Qld�

• Poster prepared for the Knowledge Fair, National Natural Resource Management Knowledge Conference, 20 April 2010, Darwin�

Workshops• Bennett, J� (speaker) 2010, Catchment planning in NSW, Australian Agricultural and Resource Economics Society Pre-

Conference Workshop, Environmental Economics Research Hub 2010 Annual Workshop, Adelaide�

• Participated in the Choice-modelling workshop, November 2009, Christchurch, Nz�

• Bennett, J�, Mazur, K� and Kragt, M� 2009, Community values for catchment management, Australian Agricultural and Resource Economics Society Pre-Conference Workshop, ANU Environmental Economics Research Hub 2009 Annual Workshop, Cairns, Qld�

• Bennett, J�, Mazur, K� and Kragt, M� 2008, Integrating community preference into natural resource management decision support tools, Environmental Economics Research Hub 2008 Annual Workshop, The Australian National University, Canberra�

Catchment Management Reports• Preparation of four ‘plain-English’ documents setting out the research findings for public distribution�

Briefings to Collaborators and Stakeholders• Presentation of results to NSW DECC staff by Bennett, 2009�

• Results being reported to NSW collaborators through regular project team and steering committee meetings, 2009�

• A presentation on the project was given by Bennett at a symposium held by ABARE and attended by a wide range of Canberra-based policy officers, 2008�

• Bennett presented study results to the Catchment Management Authority chairs in December�

ContactProfessor Jeff Bennett, ANU Email: jeff.bennett@anu.edu.au

Project Team

Researchers

Professor Jeff Bennett (ANU), Project leader Kasia Mazur (ANU), PhD candidate Marit Kragt (ANU), PhD candidate

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Multicriteria Analysis and the Emperor’s New Clothes

LEO DOBES9 AND JEFF BENNETT10

Despite its popularity, multicriteria analysis is arbitrary and fundamentally methodologically flawed�

Multicriteria analysis is prevalent within government�11 Major proponents are the Sustainable Ecosystems Division of the Commonwealth Scientific and Industrial Organisation (CSIRO) and the Bureau of Resource Sciences, both of which make available software toolkits based on multicriteria analysis�

Many other government agencies employ multicriteria analysis, either sporadically or as a matter of course� As Luskin and Dobes (1999:203) note, however, such analyses are rarely available for review, even by public servants in other government agencies� Requests by academics for access to analysis—such as that used to justify the Victorian Sugarloaf pipeline for transferring water from agricultural uses along the Goulburn River to Melbourne urban usage—have also invariably met with lack of success�

Notwithstanding a general lack of transparency, the key concern relates to the underlying methodology� Indeed, the flaws in the approach are so fundamental that it is only fair to ask whether the use of multicriteria analysis is a case of the emperor having no clothes�12

What is Multicriteria Analysis?The most common approach to undertaking multicriteria analysis is through a ‘goals achievement matrix’� As its name suggests, its purpose is to indicate the relative contribution of a selected group of impacts to the achievement of an overall objective or goal�

A simplified version in Table 1 deals with the hypothetical example of conserving a particular area of bushland� In this example, a total weight-adjusted score of +140 has been calculated� A cursory examination, such as might be made by a busy minister or other decision maker, might indicate that the project has scored ‘highly’, and should therefore be implemented� More detailed examination, however, reveals a number of fundamental problems�

Table 1: Hypothetical goals achievement matrix for evaluation of an environmental conservation project

Attribute (criterion) Units Impact Score (–4 to +4) Weight (%) Weight-adjusted scoreVegetation area ha 1500 2 20 40

Number of species saved # 3 4 40 160Water savings ML 15 1 10 10

People employed # 7 1 10 10

Cost $(000) 14 –4 20 –80Total 100 140

What is Wrong with Multicriteria Analysis?Conceptually, multicriteria analysis is no better than adding apples and oranges� While it is generally recognised that the addition of incommensurable units such as apples and oranges is invalid, the sequential manipulation of data in a goals achievement matrix does just that� Whatever sophisticated mathematical techniques are applied by academics or consultants, the fact remains that the procedure relies on a logically and mathematically flawed methodological base�

The first problem is the selection of the attributes or criteria that should be considered in assessing any particular project� Because there is no theoretical basis to guide the choice of criteria, analysts are left to make highly individual selections� No matter how objective the analyst’s intent, the criteria chosen will inevitably suffer from subjectivity�

In an attempt to avoid such subjectivity, the views of ‘key stakeholders’ are sometimes sought� Those with a personal interest in the outcome of the project—whether in favour of it or opposed—are, however, likely to choose criteria that best suit their own interests�

While seemingly sensible from a political perspective, choosing stakeholders with a major interest in a project can exclude the equally

9 Crawford School of Economics and Government, The Australian National University. Email: Leo.Dobes@anu.edu.au

10 Crawford School of Economics and Government, The Australian National University. Email: Jeff.Bennett@anu.edu.au

11 A quick search under ‘multicriteria analysis’ on the Department of Finance and Deregulation’s web site (http://agencysearch.australia.gov.au/search/search.cgi?collection=agencies&form=advanced&profile=finance&query=multicriteria%20analysis&scope=&scope_disable=on&start_rank=71) on 5 June 2010 produced a list of more than 70 documents, but the true extent of usage is likely to be far greater, including in State governments.

12 The allusion is to a story in which an emperor is tricked by rogue tailors into believing that he has acquired a suit of the finest cloth, but one that is invisible to anyone not worthy of their position, or simply stupid. Being vain and confirmed in his delusion by his sycophantic ministers, the emperor parades before his subjects in his non-existent suit. It is left to a child in the crowd to point out that the emperor in fact has no clothes.

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valid interests of those with less political influence, or who might not be considered to have a major interest in the outcome� Even if a ‘focus group’ of people is used to assist in selecting criteria, there is little guarantee that all of the interests of society as a whole will be reflected in the criteria used� There is therefore a very real risk that decisions will be made, or even manipulated, on the basis of narrow vested interests�

Each of the impacts that have been selected is measured and recorded by the analyst, as in the second and third columns of Table 1� Note that various physical, numerical (for example, count data for attributes such as the number of species saved) and financial units have been used�

In order to express the degree or significance of each of the impact categories, the analyst attaches a score to each� Again, the score awarded might be entirely personal, or determined by a focus group or a set of stakeholders� Except by coincidence, scores are unlikely to reflect the preferences of society as a whole� Whatever their real intentions, government analysts and decision makers (society’s ‘agents’) will take into account only the priorities and preferences of society (the ‘principal’) by chance, and can readily contrive to ignore them deliberately�

Scoring is usually carried out using a Likert scale such as –4 to +4 in the tabular example above, but larger ranges such as –7 to +7 or smaller ones such as –3 to +3 are also used� There is no definitive theory to guide the selection of the range� Obviously, a smaller range will limit the variability of the scores awarded, making it more difficult to distinguish between the degree of incidence of the various impacts�

In the next step, the analyst, a focus group or even ‘key stakeholders’ specifies a weight for each category to indicate the relative importance of the impact� In the example above, employment creation receives a weight of 10 per cent, and the number of species saved is given a weight four times greater� Specifying such weights in the absence of any supporting theory means that the procedure is not only highly arbitrary but can also be open to both conscious and unintended manipulation�

Lest it be thought that this emphasis on the arbitrariness of multicriteria analysis has been overstated, it is worth recording the experience of a self-selected focus group conducted in Canberra on 9 November 2009 to set weights for an index involving environmental impacts of building and construction materials�13 It became clear that—the focus group having completed its task of attaching weights to a large number of criteria—none of the (mostly public servant and consultant) participants had actually understood the meaning of categories such as ‘terrestrial ecotoxicity’ or the presence of ‘radionuclides’� The facilitators, however, did not consider this to be a major issue� More notably, there was no criterion at all to reflect the costs of alternative building products!

Ironically, multicriteria analysis also ends up monetising impacts, despite the avowed objection to doing so by many analysts who use it in preference to cost–benefit analysis� For example, equal weights have been allocated in Table 1 to the area of vegetation saved and to the cost of the project� By implication, the hypothetical analyst considers that saving 1500 ha of vegetation is equivalent in value to $14 000� No reputable economist doing a cost–benefit analysis would dare to calculate such a simplistic monetary value�

Finally, the weighted scores are aggregated to provide a single figure that is used by decision makers to assess the desirability of proceeding with a project� In other words, multicriteria analysis begins by taking cardinal values (the physical, numerical or financial units in which impacts have been expressed) and multiplies them by an ordinal scoring system and then an interval scale (the weights)� The result is a unit-less quantity that can be compared only with alternative projects (including a ‘do nothing’ option) of the same kind, with the same set of impacts, but cannot provide guidance on the social value of undertaking the project�

Some Popular Uses of the Multicriteria Analysis Approach One reason multicriteria analysis has gained such unquestioning acceptance within government decision-making processes might be its wider popularity� The regular publication of indexes purportedly measuring ‘quality of life’ in different countries, the ‘most liveable cities’ across the world, Green Star awards for ‘environmentally sustainable’ buildings and league tables of universities, for example, attracts significant, albeit generally uninformed media interest�

Such indexes are a form of multicriteria analysis� For example, The Economist Intelligence Unit (2010) ranked Vancouver, Vienna and Melbourne as the top-three ‘most liveable’ cities in the world� The index is composed of five broad categories that subsume more than 30 qualitative and quantitative factors, with percentage weights attached to each� The ‘infrastructure’ category aggregates incommensurable quantities such as the ‘quality of energy provision’ and the ‘quality of international links’� For qualitative variables, scores are simply determined by ‘in-house analysts and in-city contributors’� How valid such scores might be is anyone’s guess�

It is possible that indexes produced serially (for example, on an annual basis) can usefully signal changes in circumstances or conditions when overall scores or ranks change� The underlying methodological flaws and subjectivity of the constituent components of such indexes, however, mean that users cannot be confident that a change in score or rank is actually significant� It could also be difficult to discern the reason for any change if the producer of the index does not provide sufficient information on the construction of the index and the data sources used�

13 Part of a series of workshops, held predominantly in capital cities under the auspices of the Department of Innovation, Industry, Science and Research: ‘Buildings and Environment: Full Life Cycle Assessment National Environmental Weightings Workshops’, viewed 4 November 2009, http://www.edgeenvironment.com.au/index.php?a=weightings

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Cost–Benefit Analysis: The preferable alternative Despite a number of conceptual challenges of its own, cost–benefit analysis does not suffer from the same fundamental flaws and biases as multicriteria analysis� It is the most rigorous methodology available for evaluating the social worth of a project� In particular, the choice of variables and the valuation methodologies are well established within a coherent analytical framework� In contrast with multicriteria analysis, the results generated by cost–benefit analysis are broadly reproducible, irrespective of the analyst undertaking the evaluation�

Further ReadingDobes, L� and Bennett, J� 2009, ‘Multi-criteria analysis: “good enough” for government work?’, Agenda, 16(3):7–29�

Luskin, D� and Dobes, L� 1999, Facts and furphies in benefit–cost analysis: transport, Report 100, Bureau of Transport Economics, Canberra�

The Economist Intelligence Unit 2010, Global Liveability Report—January 2010, The Economist Intelligence Unit, London, viewed 6 June 2010, http://www.eiu.com/site_info.asp?info_name=The_Global_Liveability_Report&page=noads

‘Yes we can…’: Including the environment in public policy making

JEFF BENNETT14

An important precedent has been set for incorporating the full range of environmental impacts into public policy making�

Economists and public policy analysts have long recognised the power of cost–benefit analysis (CBA) as a tool to inform sound government decision making� In the past, however, when it came to policy choices that involved environmental impacts, there were concerns that not all the relevant costs and benefits could be incorporated in a CBA� In particular, impacts on environmental assets such as biodiversity were often left out�

Three key decisions taken over the past year have demonstrated the viability of an innovative approach to incorporating the full range of environmental impacts into public policy making� First, the Victorian Government embarked on a series of changes to the management of river red gum forests on public land along the Murray River� Second, the Environment Protection and Heritage Council supported the development of a national electronic-waste product stewardship system� Most recently, the NSW Minister for Planning announced the approval of the Metropolitan Coal Project�

Cost–benefit analysis was used as the basis for each of these public policy decisions� Specific recognition was given to a full range of environmental impacts� This was achieved through the use of choice modelling to value the environmental costs and benefits of the public policy options in monetary terms� Choice modelling thus enabled the environmental impacts of the public policy options to be assessed against their economic impacts� Each decision involved the integration of markedly different environmental and economic impacts�

In the river red gum case, forgone agricultural and timber profits had to be weighed against greater species protection and recreational benefits�

The costs of collecting and processing electronic waste, such as old computers and televisions, had to be compared with the benefits people enjoy from knowing that their used electronic equipment is not simply sent to landfill�

And in the case of the Metropolitan mine, the balance to be struck was between the wealth created by coalmining and the environmental harm caused to areas of Sydney’s water catchment through subsidence�

To allow environmental impacts to be integrated in the decision-making process in a systematic and rigorous manner, they must be valued in monetary terms� The monetary values of economic impacts can be readily drawn from market information� For instance, the profits from mining coal or harvesting timber and the costs associated with operating a fleet of trucks to pick up used computers can be easily observed� Many environmental impacts are more difficult to value� This is particularly the case for non-marketed environmental impacts such as those affecting biodiversity� It is here that choice modelling is proving to be useful in assisting decision making�

14 Professor, Crawford School of Economics and Government, The Australian National University. Email: jeff.bennett@anu.edu.au With thanks to Leo Dobes and Drew Collins for their insightful comments and valuable suggestions.

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Choice ModellingChoice modelling (CM) involves a sample of people who are likely to be affected by a public policy decision being asked to make a sequence of choices about their preferred policy outcomes�

• In the Metropolitan mine case, survey respondents in New South Wales were asked to choose between alternative mine-management futures described in terms of their environmental impacts�

• For the electronic-waste CM survey, recycling scheme options were described, in terms of the percentage of resource recovery and the collection method involved, to samples of residents in Sydney, Brisbane, Adelaide and Perth�

• Alternative river red gum management options were set out in terms of their impacts on species protection and recreation facilities for survey respondents across Victoria�

In each case, respondents were asked to consider the options in the light of the cost they would have to bear if their chosen option was implemented� Those who were included in the Metropolitan mine survey were offered environmental improvement options but at a cost of increased rates and taxes� Electronic-waste survey respondents could choose recycling schemes but would then face increased taxes and charges� Choice modelling thus involves people facing choices about the future that requires them to consider and decide between environmental gain and financial cost�

A CM survey presents a sequence of different choices to respondents� The choices involve a range of different environmental outcomes at different costs� From the choices people make, an estimate of the extent of their willingness to pay additional costs to achieve some environmental improvement can be quantified�

It is this ‘willingness to pay’ that can be directly included in the CBA of a policy initiative� It is the value of the environmental impact expressed in monetary terms�

Contribution to Public Policy MakingCost–benefit analysis is often seen as an ‘economic’ tool that ignores environmental impacts� This is more a result of confusion between ‘economic’ considerations and narrower ‘commercial’ interests� Cost–benefit analysis requires that any effect on the environment that has an impact on people’s wellbeing be taken into account as part of the ‘economic’ calculus� Until the development in recent years of techniques such as CM, however, the difficulty of credible valuation of environmental impacts has imposed a serious constraint on their inclusion�

The incorporation of the full range of environmental impacts in policy CBAs means that the decision-making process can be carried out in a more objective and transparent way� With objectively estimated values for the environmental costs and benefits included, vested interest groups have less scope to manipulate the decision-making process in their favour� With CM estimates included, the environment is no longer ignored in decision making—as it frequently was in the past when CBAs recognised only benefits and costs that could be observed from market transactions�

In the past there was a range of environmental issues where decision makers were confronted with two sets of arguments� For some, the environment must be given absolute priority in policy determination�

For others, the development of resources for jobs and profits should be the priority� The integration of outcomes that is fundamental to the CM approach enables the environment to be incorporated into a more wide-ranging analysis of the issues at stake�

The river red gum, electronic-waste and Metropolitan mine cases represent a significant shift in approach to public policy making where environmental impacts are involved� Prior to these studies, policymakers could be excused for being confused as to how to incorporate the environment into public policy deliberations� Despite policy pronouncements calling for ‘sustainability’, little if any government guidance has been available on how to reconcile economic and environmental considerations�

Increasingly, the policy focus of government is on environmental issues� CM enables a more complete range of environmental impacts to be incorporated into standard cost–benefit analysis as part of the public policy making process�

The opportunity now exists for governments to take decisions on environmentally sensitive issues based on a rigorous and comprehensive analysis of all the relevant benefits and costs to society.

Further ReadingThe River Red Gum Case http://www.veac.vic.gov.au/eefea.htm

The Electronic-Waste Case http://www.ephc.gov.au/sites/default/files/PS_TV_Comp__Willingness_To_Pay_For_EWaste_Recycling_Final_Report_Choice_Modelling_study_200907.pdf

The Metropolitan Mine Case http://majorprojects.planning.nsw.gov.au/files/35005/Reponses%20to%20PAC%20Submissions.pdf

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PROJECT 8: DIVERGENCE BETWEEN PUBLIC AND EXPERT VALUATION OF ENVIRONMENTAL ASSETS

Project DescriptionThis project is part of Theme D: Valuing environmental goods and services�

Project ObjectiveIdentification of differences between public and expert preferences for managing environmental assets within numerous systems that each represents different scales and settings�

IntroductionScientists play an important role in decision making by providing information and advice on technical matters� Scientists also consider issues beyond the technical; they are often asked to make value judgments under the assumption that they reflect the interests of the wider community� This raises an important question: are expert and public values mutually consistent?

Key FindingsThe answer is ‘yes’ for conserving a given suite of environmental assets in the Ningaloo Marine Park� That is, scientists and the public hold similar values for conserving coral, fish stocks, whale sharks and turtles� The answer is ‘no’, however, for conserving environmental assets in the Ngari Capes Marine Park and the Kimberley region� Whilst there is an overall preference to choose programs that achieve an improvement in conservation, there is a divergence between the values scientists and the public place on specific components of the system� For the Capes and Kimberley case studies, experts highly value components that are considered important for system integrity and resilience (for example, representative ecosystems), while the public has a relatively stronger preference for components with an iconic status (for example, iconic species and iconic places such as gorges)�

Knowledge factors can help to explain divergent values� In particular, a greater awareness of an area, or an improved understanding of a management scenario, is associated with converging values�

Key OutcomesCaution should be exerted when scientists consider issues beyond the technical and are asked to make value judgments� It cannot always be assumed that scientists reflect the interests of the wider community with regards to desired conservation outcomes� In cases of known or suspected divergence, awareness campaigns to educate the public on a potential policy intervention would be highly recommended�

Project Outputs

Journal Articles• Producing journal articles from the extensive list of research reports is a priority for 2011� Five articles are currently in

preparation from the reports and associated PhD thesis�

Conference Papers/Presentations• Rogers, A� 2011, Is choice modelling really necessary? Public versus expert values for marine reserves in Western Australia,

Paper presented to Fifty-Fifth Annual Conference of the Australian Agricultural and Resource Economics Society, Melbourne�

• Burton, M�, Rogers, A� and Cleland, J� 2011, Fish got to swim, birds got to fly: the impact of including or excluding attributes within a choice model, Paper presented to Fifty-Fifth Annual Conference of the Australian Agricultural and Resource Economics Society, Melbourne�

• McCartney, A�, Cleland, J� and Burton, M� 2010, Do scientists and the public see eye to eye? Valuing the Kimberley’s tropical waterways and wetlands, Economics and the Environment Network Symposium, Canberra�

• Burton, M�, Cleland, J�, McCartney, A� and Gibson, F� 2010, Public and expert preferences for environmental outcomes, Commonwealth Environment Research Facilities Conference, Canberra�

• McCartney, A� and Cleland, J� 2009, Knowledge bases and attribute selection, Choice Modelling Workshop, Lincoln University, Christchurch, Nz�

• McCartney, A� 2009, The policy relevance of choice modelling: an application to the Ningaloo and proposed Capes marine parks, Paper presented to University of Western Australia/Australian National University PhD Conference in Economics, Crawley, WA�

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• Gibson, F� and Burton, M� 2009, Preference stability of environmental assets: investigating the effect of information sets and cognitive processes using the new theory of consumer behaviour, Environmental Management and Development Forum, Canberra�

• McCartney, A� 2009, The policy relevance of choice modelling: an application to the Ningaloo and proposed Capes marine parks, Paper presented to Fifty-Third Annual Conference of the Australian Agricultural and Resource Economics Society, Cairns, Qld�

• Burton, M� 2008, Divergence between community and expert valuation of ecosystems, Environmental Economics Research Hub Workshop, Canberra�

• McCartney, A� 2007, The policy relevance of choice modelling: an application to Ningaloo Marine Park, Ningaloo Research Symposium, Murdoch University, Perth�

Research Reports• Rogers, A� and Cleland, J� (in progress), Conserving biodiversity in the southwest Australia ecoregion: the policy implications

of scientist and community values, EERH Research Report No� 91, Environmental Economics Research Hub, The Australian National University, Canberra�

• Rogers, A� and Cleland, J� 2010, Comparing scientist and public preferences for conserving environmental systems: a case of the Kimberley’s tropical waterways and wetlands, EERH Research Report No� 80, Environmental Economics Research Hub, The Australian National University, Canberra�

• Cleland, J� and Rogers, A� 2010, Putting the spotlight on attribute definition: a knowledge base approach, EERH Research Report No� 79, Environmental Economics Research Hub, The Australian National University, Canberra�

• Cleland, J� and McCartney, A� 2010, Putting the spotlight on attribute definition: divergence between experts and the public, EERH Research Report No� 77, Environmental Economics Research Hub, The Australian National University, Canberra�

• McCartney, A� and Cleland, J� 2010, Choice experiment framing and incentive compatibility: observations from public focus groups, EERH Research Report No� 76, Environmental Economics Research Hub, The Australian National University, Canberra�

• Burton, M� 2010, Inducing strategic bias: and its implications for choice modelling design, EERH Research Report No� 61, Environmental Economics Research Hub, The Australian National University, Canberra�

• McCartney, A�, Cleland, J� and Burton, M� 2010, The value of tropical waterways and wetlands: does an increase in knowledge change community preferences, EERH Research Report No� 60, Environmental Economics Research Hub, The Australian National University, Canberra�

• Gibson, F� and Burton, M� 2009, Choice experiments: identifying preferences or production functions, EERH Research Report No� 40, Environmental Economics Research Hub, The Australian National University, Canberra�

Policy Briefs• McCartney, A� and Cleland, J� 2010, ‘Yes we can…’: conservation values of the Kimberley tropical waterways and wetlands,

EERH Policy Brief, December, Environmental Economics Research Hub, The Australian National University, Canberra�

• Burton, M� 2010, ‘Yes we can…’: ensuring that people reveal their true preferences for environmental change, EERH Policy Brief, May, Environmental Economics Research Hub, The Australian National University, Canberra�

• Burton, M� and Gibson, F� 2010, ‘Yes we can…’: dealing with complexity when valuing environmental systems, EERH Policy Brief, May, Environmental Economics Research Hub, The Australian National University, Canberra�

PhD Completions• McCartney, A� 2010, The policy relevance of choice modelling: an application to the Ningaloo and proposed Capes marine

parks, PhD Thesis [accepted with minor revisions April 2011], University of Western Australia, Perth� [This PhD was not funded by the project�]

• Gibson, F� 2011, Comparing economic and psychology approaches to understanding community acceptance of recycled wastewater: a case study in Perth, Western Australia, PhD Thesis [accepted with minor revisions June 2011]� [This PhD was not funded by the project�]

Research Funding• Successful ARC Linkage bid for continuing research on this topic titled ‘Do scientist and public preferences diverge? Analysing

expert and public preferences for environmental and social outcomes for the Swan River’� See feature article on the research in Environomics, (13) (December 2010)� Project updates can be accessed via http://www.are.uwa.edu.au/research/projects/swan-river/ The CI’s are Professor David Pannell, Professor John Rolfe, Professor Michael Burton, Professor Jessica Meeuwig and RA’s are Abbie Rogers and Jonelle Cleland� Our partner organisation is the Swan River Trust�

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ContactAbbie Rogers, UWA

Email: abbie.rogers@uwa.edu.au

Project Team

Researchers

Dr Michael Burton (UWA), Project co-leaderDr Jonelle Cleland (UWA), Project co-leaderAbbie Rogers (UWA), Principal Research Associate, PhD candidate (topic related to project, funded elsewhere)Fiona Gibson (UWA), Research Associate, PhD candidate (not funded by project)

How Does the Community Value Our Marine Reserves? A choice-experiment approach to valuing the Ningaloo and proposed Capes marine parksSuccessful management of our marine reserve network requires consideration of what people value� Public consultation is an important component of environmental decision making; if public preferences are not considered, the community might reject conservation policies� Consultation techniques, such as choice modelling, are available that can quantify how much people are willing to pay to protect environmental assets, and identify which assets are of most value�

This study undertakes a choice-modelling valuation of the Ningaloo Marine Park, in the north-west of Western Australia, and the proposed Ngari Capes Marine Park, in the south-west, to establish how the WA community values conservation of various ecological components of each park�

In doing so, a comparison is drawn between the public values and an equivalent expert scientist valuation� The comparison aims to determine if expert advice adequately reflects public opinion, and hence offers a comprehensive means of informing policy, reducing the need for costly public consultation measures�

Values for Ningaloo conservation converge between public and experts, while divergence is present in the case of Capes� A possible reason for the difference is that there is a higher level of public awareness associated with Ningaloo� This might have resulted in the public recognising the ecological importance of the Ningaloo components valued, thereby prioritising their conservation similarly to the experts�

The public and experts were willing to pay the most to protect coral at Ningaloo, with values up to $108 a year for a 10 per cent increase in populations� For Capes, the public was willing to pay the most for whale protection, at up to $72 a year to achieve a 50 per cent reduction in boating collisions� The experts preferred to conserve Capes seagrass the most—willing to pay $261 a year for a 10 per cent increase in populations�

Preferences for marine park management are also considered in the study� Conservation outcomes are valued more highly when they are achieved by management processes that are not overly restrictive of human use of the reserves�

ContactAbbie RogersSchool of Agricultural and Resource EconomicsUniversity of Western AustraliaEmail: abbie.rogers@uwa.edu.au

Individuals were willing to pay up to $108 a year to conserve coral populations at Ningaloo

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‘Yes we can…’: Conservation values of the Kimberley tropical waterways and wetlands

ABBIE McCARTNEY15 AND JONELLE CLELAND16

Conservation success in the Kimberley will depend on incorporating divergent sets of values�

The WA State Government has recently proposed the Kimberley Wilderness Parks�17 This ambitious plan will add to the conservation estate in the Kimberley to deliver the largest interconnected system of marine and terrestrial reserves� The plan will also consider conservation priorities for the vast network of waterways and wetlands in the region� Conservation priorities must be managed in conjunction with pressures to utilise the region’s water resources for production and water supply� In the past, these competing interests have led to widespread debate and political controversy�

The State Government has recognised the contribution of experts to understanding the ecological values of the region, through its Kimberley Science and Conservation Strategy� It also acknowledges that public consultation is an important component of conservation planning and decision making� What is not known is whether experts and the public hold divergent sets of values for conservation in the Kimberley�

Choice modelling can be applied to elucidate differences in expert and public preferences for the conservation of various environmental assets� Choice modelling is a survey-based technique that is used to investigate the trade-offs that people are prepared to make between different goods or policies� In a choice experiment, respondents are presented with variants of the good or policy—described by a set of attributes—and are asked to choose their most preferred alternative� The appeal of choice modelling comes from the ability to identify the marginal values of the attributes and the willingness to pay for any alternative of interest�

The StudyThe broader WA community made up the public sample� The remote location and notions of wilderness associated with the Kimberley mean it is likely to be of value not only to locals and visitors, but also to non-users who might consider it important in terms of its pure existence values�

An expert sample was drawn from a consortium of scientists working on tropical ecology and conservation� It should be noted that there is currently a concerted research effort on water-management issues in northern Australia and experts are dispersed across Australia�

Attributes were selected based on relevant knowledge bases� A knowledge base is the particular ‘lens’ through which an understanding of a topic is gained and, if appropriate, used for a specific purpose� The concept is being used in evidence-based policy to account for different sources of information and perspectives in complex policy settings, with the intention of improving policy and program development�

The resulting attributes were the following�

Wild rivers: Although the public might conceive most rivers in the Kimberley as being untouched and wild, experts strictly define wild rivers as those rivers that are undisturbed by the impacts of modern society�

Iconic places: The powerful river systems, waterfalls and gorges are all iconic features of the Kimberley� Iconic features are characterised by their visual aesthetics, rather than their ecological integrity�

Representative ecosystems: Experts have divided Australia into a set of bioregions based on geomorphic and ecological features� The Australian Government intends to increase the reserve area within each bioregion to include more representative ecosystems�

• Threatened species: There is limited information on the populations of threatened species in the Kimberley� For a limited number of species, however, there is an understanding of impediments to population stability� A topical issue is that of the threatened freshwater sawfish and its migratory constraints� A barrier on the Fitzroy River prevents upstream migration of the sawfish when the river is not flowing high enough, and there has been lobbying to remove the barrier�

• Iconic species: Barramundi are associated with images of the Kimberley and have popular appeal� They are common and widespread throughout northern Australia� As for the sawfish, however, there are constraints on upstream migration due to barriers on the Ord River�

15 School of Agricultural and Resource Economics, University of Western Australia. Email: Abbie.McCartney@uwa.edu.au

16 School of Agricultural and Resource Economics, University of Western Australia. Email: Jonelle.Cleland@uwa.edu.au

17 http://www.dec.wa.gov.au/content/view/6171/2183/

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The ResultsThere is an overall preference to choose programs that achieve an improvement in conservation, endorsing the State Government’s increased commitment and investment in conservation planning for the Kimberley� There is, however, a divergence between the values experts and the public place on specific components of the system� Experts highly value components that are considered important for system integrity and species resilience, while the public has a relatively stronger preference for components with an iconic status�

The experts value the wild river, representative ecosystems and threatened species attributes most highly� Heterogeneity exists within the expert sample, driven by their individual experiences within the region and membership of conservation groups� In relative terms, the public typically places less value on these attributes than the experts�

The public values the iconic species and iconic place attributes positively� The experts, on the other hand, typically held monetary values for these attributes that were not significantly different from zero� Knowledge factors can help to explain divergent values� In particular, an improved understanding of a management scenario can influence values� The public respondents received surveys with different amounts of background information about the Kimberley waterways and wetlands� With respect to the iconic species attribute, the higher amount of information led to lower willingness to pay values for improving the migration of barramundi in the Ord River� With more information, it appears that the public has recognised that barramundi are not a critical species to conserve, given their present widespread status, and are thus valuing the attribute in a manner that more closely reflects the experts�

ImplicationsA systematic valuation of preferences is timely to offer insights into the Kimberley Wilderness Parks proposal, and to provide an understanding of people’s values in the event of future debate over the water resources�

The divergence between public and expert values for the Kimberley indicates that wide stakeholder consultation is a necessity for policy success� It should be acknowledged that the public will want to see conservation outcomes that deliver protection for iconic environmental assets� It is also worth noting, however, that resolving some differences between expert and public conservation priorities could be facilitated by awareness campaigns to educate the public on a proposed policy intervention�

The specific attribute value can also be used to inform management interventions� For example, there have been proposals to add a fishway on the Fitzroy River that would overcome the barrier to migration for the sawfish� The costs of adding the fishway could be compared with the value of the threatened species attribute, in terms of the willingness to pay for improved migration of the sawfish in the Fitzroy River, aggregated for the WA population�

Further Reading McCartney, A�, Cleland, J� and Burton, M� 2010, The value of tropical waterways and wetlands: does an increase in knowledge

change community preferences?, EERH Research Report No� 60, Environmental Economics Research Hub, The Australian National University, Canberra�

McCartney, A� and Cleland, J� 2010, Comparing scientist and public preferences for conserving environmental systems: a case of the Kimberley’s waterways and wetlands, EERH Research Report No� 80, Environmental Economics Research Hub, The Australian National University, Canberra�

McCartney, A� 2011, The policy relevance of choice modelling: an application to the Ningaloo and proposed Capes marine parks, Unpublished PhD Thesis, School of Agricultural and Resource Economics, University of Western Australia, Perth�

‘Yes we can…’: Dealing with complexity when valuing environmental systems

MICHAEL BURTON18

Acknowledging people’s understanding is important when interpreting the values they hold�

To improve the decision maker’s confidence in results from choice-modelling experiments, and generate values for environmental policy and management scenarios, a greater understanding is needed of how people process information about complex systems� A distinction must be made between people’s understanding of system processes and the values they assign to the system as a whole�

The natural environment is a complex system; it responds to change in countless ways� Scientists can document the outcomes of change at different levels and describe change in terms of different system processes� Scientists can also separate a system into its constituent elements on the understanding that those individual elements are integrated and contribute to the system as a whole�

18 Professor, School of Agricultural and Resource Economics, University of Western Australia. Email: michael.burton@uwa.edu.au

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Representation of multifaceted changes in the environment lies at the heart of choice modelling� Participants in choice-modelling experiments are presented with different policy or management options, and asked to choose between them� Each option is depicted in terms of the consequences for different elements of the environmental system�

For example, a researcher might want to understand people’s wetland rehabilitation option preferences� The options could be presented in terms of the type of vegetation reintroduced, the features used to attract native animals and the period the water remains in the wetland�

The choice-modelling technique assumes people are able to place a value on individual elements of an environmental system and are therefore willing to trade losses in some for enough gains in others� People might, however, think about these choices in a different way�

What if people have a vision of an acceptable environment in general terms, rather than a vision for each of the individual elements that make up the system? That would suggest, when given a set of specific changes, people will try to construct an image of what those changes mean for the environment as a whole� They then decide how they value that change�

Thinking about participants making their choices in this way suggests a two-step process in the choice-modelling experiment� First, an individual reconstructs the implications of what is being proposed at the system level; second, the same individual places a value on this perceived change� The first step shows knowledge and understanding of system processes; the second represents their preferences�

Variations between individuals that many choice-modelling experiments observe might not be caused by differences in values� Rather, it might be that individuals have different knowledge sets and understanding of how specific actions might change the environment�

For example, some people might place a lower weight on the importance of a species because they do not understand its role in an environmental system� Improved information and education could therefore contribute to people’s understanding of how the system works, while not changing their values for the system�

These considerations also have implications for the role of experts and the contribution of expert knowledge to a policy setting� Scientists are likely to have the best technical understanding of how an environmental system operates and how management actions can bring about change to that system; however, that does not mean their values align with those of the population as a whole� Technical understanding of how best to implement change needs to be combined with the broader values associated with that change�

Further ReadingGibson, F� and Burton, M� 2009, Choice experiments: identifying preferences or production functions?, EERH Working Paper No� 40,

Environmental Economics Research Hub Working, The Australian National University, Canberra�

‘Yes we can…’: Ensuring that people reveal their true preferences for environmental change

MICHAEL BURTON19

Being asked complex valuation questions does not prevent people distorting their true preferences�

There is increasing pressure to include environmental values in any policy decision relating to environmental change� Choice-modelling experiments are one source of such values�

To ensure the integrity of the policy process, there needs to be an understanding of whether values derived from choice-modelling experiments accurately reflect people’s true preferences� Choice-modelling experiments need to be designed in a way that ensures people do not misrepresent their preferences strategically�

Valuation of non-market environmental goods has relied on stated-preference methods (such as contingent valuation and choice experiments)� The contingent-valuation method has been in use for the past 30 years� This method could, however, suffer from ‘strategic bias’� To bias an outcome strategically means that someone with a particular interest can inflate the amount they state they would be willing to pay for an outcome, beyond the level they would give if they actually had to pay for that outcome�

Choice modelling—a relatively new approach to valuing the environment—might be able to avoid strategic bias� In a choice-modelling experiment, participants are presented with a number of scenarios� Each scenario contains several options for them to contemplate� Options are broken down into constituent elements, all of which vary in level or output� The task is to select the best option or rank the options from best to worst� The relative complexity of this process—compared with evaluating a single option—might make it difficult for people to manipulate the outcomes�

19 Professor, School of Agricultural and Resource Economics, University of Western Australia. Email: michael.burton@uwa.edu.au

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By its nature, strategic behaviour is difficult to identify; people’s true preferences are unobserved� In this study, students first completed a standard choice-modelling experiment on a well-known good (in this case, student housing)� To try to bias the outcomes in a predetermined way, the students were given a monetary incentive and asked to repeat the same experiment� The students who managed to distort the results the most were given increased chances of winning a lottery�

By changing the nature of the experiment and seeing how well the students could bias the outcomes, it was possible to identify which features of a design might protect a choice-modelling experiment from strategic bias� Design features included the number of options the students were given to choose from, whether the students had to select a preferred option or rank them all, and whether the students had to influence one or two of the elements contained within the options�

In cases in which students had to choose one option as their ‘preferred’ outcome, a high level of bias was recorded, regardless of the other features of the design� When the students had to rank all options, from best to worst, they seemed to be less able to influence the outcome� Even though bias was reduced in this case, the students did not revert to their original preferences, which had not been distorted by the monetary incentive�

The results from the study help guide the design of choice experiments� It is not enough to assume that the complexity of the task being presented to participants is enough to prevent them from following strategic behaviour� Instead, researchers need to continue to use appropriate designs that provide incentives for revealing truthful behaviour�

Further ReadingBurton, M� 2010, Inducing strategic bias, and its implications for choice modelling design, EERH Working Paper No� 61,

Environmental Economics Research Hub Working, The Australian National University, Canberra�

PROJECT 9: SALINITY, UNCERTAINTY AND PROPERTY RIGHTS

Project DescriptionThis project is part of Theme C: Advancing Australia’s capability for social and economic analysis of environmental issues at a regional scale�

Project ObjectiveAssessment of the impacts of uncertainty on decisions regarding incentive schemes for salinity abatement�

Key FindingsThe funding earmarked for water accounting under Water for the Future is inefficiently distributed and this could have long-term implications for water-use efficiency� Accurate water data are crucial for sustainable water planning in the Murray–Darling Basin� This is particularly important for ensuring adherence to sustainable diversion limits, which take into account water-quality (including salinity) impacts of extraction� The water-accounting function undertaken by the Bureau of Meteorology is imperative to the successful implementation of the sustainability objective under the Basin Plan� Accurate water accounting will ensure improved

Reflection on Geike Gorge

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security of water property rights and allow for the preservation of environmental assets� The public investment made in water metering and telemetry capacity is substantial (in the order of $1 billion under Water for the Future), in addition to private costs of subscription to satellite subscription fees or pay-for-radio-tower infrastructure through the fixed charge per entitlement� On the basis of cost–benefits, given about 20 per cent of licences account for 80 per cent of water use, metering of these large licences should capture the majority of water extractions; this means a majority of the funds will be spent on metering the remaining 80 per cent of licences to capture a further 20 per cent of water use� The value of entitlements might also be eroded as the fixed cost associated with irrigation rises, which might reduce the asset value of entitlements and also the relative importance of usage charges in providing a conservation signal� To justify the investment, the expenditure should demonstrate there are net water savings to be made� While trials are under way to determine the net benefits and water savings accruable, minimising the cost of water monitoring and accounting is one straightforward way of improving the cost effectiveness of the investment in water information�

Key OutcomesAccurate water accounting can be achieved at a fraction of the funding commitment and can also benefit irrigators by avoiding private costs associated with providing water data� One such solution is a low-cost means of auditing water use by way of identifying unusual production activities based on a system of self-reporting, which removes the need for heavy overheads associated with telemetry infrastructure� The reliability of self-reported information can be ascertained using a standardised ‘dissimilarity’ index measure, by which a farm can be assigned a score to indicate how much it varies from other farms (in terms of size of operation, or the combination of inputs used)� An irrigator would stand out as particularly dissimilar where its production relative to other farms is considerably different to the rest of its peers, based on its self-reported levels of input use and production� This allows the identification of individuals or groups of growers who have particularly different production activities to the rest of the sample, either due to random events, something systematic in their production practices or misreporting� As the method utilises low-cost self-reporting to obtain production data, enforcement costs for a target level of compliance can be minimised since it removes the need for significant public costs of investment in infrastructure, and benefits irrigators by removing the private costs of providing water data� It can also avoid adding to the fixed cost of utilising irrigation licences and thereby prevent the erosion of water entitlement value�

Project Outputs

Book• Development of a proposal for an edited book on Efficiency of Land and Water Management for Springer Publishing, which

has received an encouraging response from the publisher� Possible 2012 publication�

Journal Articles• Lee, L�Y�T� and Ancev, T� 2009, ‘Two decades of Murray–Darling water management: a river of funding, a trickle of achievement’,

Agenda: A Journal of Policy Analysis & Reform, 16(1):5–24�

• Lee, L�Y�T�, Ancev, T� and Vervoot, W� (submitted), ‘The opportunity cost of environmental flows in the Mooki, New South Wales’, Submitted to Agricultural Water Management�

• Lee, L�Y�T� and Fox, K�J� (submitted), ‘Efficiency analysis in uncertain operating environments: the problem with outliers’, Submitted to Journal of Environmental Economics and Management�

• Longden, T� (submitted), ‘Out of equilibrium trade, diversity and transaction costs—an agent based model of non-point source agriculture water trade for soy, rice and maize in the Murray–Darling Basin’, Submitted to Australian Journal of Agricultural and Resource Economics.

• Lee, L�Y�T� (submitted), ‘Measuring salinity under uncertainty’, Submitted to Agricultural and Resource Economics Review�

• Lee, L� and Lim, J� (submitted), ‘Game theoretic model of water use choices under uncertainty’, Submitted to Environmental and Resource Economics�

• Reynaud, A�, Heinzel, C� and Yu-Ting Lee, L� (submitted), ‘Optimal environmental policy and ambient pollution’, Submitted to Journal of Environmental Economics and Management�

Conference Papers/Presentations• Cheung, A� and Fox, K�J� 2009, Measuring the efficiency of market based instruments, Presented to Western Economic

Association International Conference, 29 June – 3 July, Vancouver�

• Lee, L� 2009, Managing salinity under uncertainty, Presented to Australian Agricultural and Resource Economics Society Meeting, 2009, Cairns, Qld�

Workshops• K�J� Fox invited to be a member of the ABARE/Grains Research and Development Corporation Expert Panel for a workshop on

Agricultural Productivity, 27 August 2009, Canberra�

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• Lee, L� 2009, Salinity, uncertainty and property rights, Presented to Environmental Economics Research Hub Annual Workshop, 2009�

• Environmental Challenges Workshop ’08, 7–8 December 2008, Sydney�

• Bellenger, M� 2009, Measuring agricultural resource productivity while accounting for resource degradation: a distance approach to salinity and soil acidity on Australian farms, Presented to Measuring Agricultural Productivity Workshop, Centre for Efficiency and Productivity Analysis, School of Economics, University of Queensland, 2 October 2009, Brisbane�

• Fox, K� 2008, Salinity, uncertainty and property rights, Presented to Environmental Economics Research Hub Annual Workshop, 2008�

Research Report• Lee, L�Y�T� and Ancev, T� 2008, Taking stock: seventeen years after the Murray–Darling Basin Agreement, EERH Research Report

No� 4, Environmental Economics Research Hub, The Australian National University, Canberra�

Media• ‘Economics of salinity’, Uniken, 46 (May/June 2008); ‘Sold down the river’, Uniken, 50 (March/April 2009); and articles in

Environomics, the newsletter of the Environmental Economics Research Hub�

• Media engagement and public outreach: research by postdoc Dr Lisa Lee featured in media reports, in particular an ABC AM radio interview: http://www.abc.net.au/am/content/2008/s2440090.htm; http://www.abc.net.au/am/indexes/2008/am_20081208.htm Also, interview and presentation recordings are available on YouTube: http://au.youtube.com/watch?v=hgNqEjE68a0; http://au.youtube.com/watch?v=akwVftej_28

Media Related to Lisa Lee’s Fellowship from the Australian Academy of Science, 2010• Lee, L� 2011, ‘Wildlife smuggling: could legalising trade stop a jumbo-sized problem?’, Knowledge@Australian School of

Business, 31 January�

• Lee, L� 2010, ‘The economics of wildlife trading’, Australian School of Business, School of Economics web site, November�

PhD Completions• Amy Cheung: PhD student, not funded by the grant, but aspects of research activity received support (hiring of research

assistant, conference support)� Amy will submit her PhD thesis, ‘Economic analysis of an environmental challenge: salinity, uncertainty and property’, in 2011� Given her training at the University of New South Wales and thanks partially to her involvement in this EERH project, Amy is now employed at the NSW Department of Environment, Climate Change and Water, in the Economics Services Section�

• PhD student Thomas Longden, not funded by the grant but working on related topics and engaged with the project research agenda, submitted his PhD thesis in 2010 on ‘Applied environmental economics: bridging the divide between policy and theory within the context of recycling, macro-level environmental indicators, and water trading’� Started employment at Fondazione Eni Enrico Mattei (FEEM), a ‘sustainable development and global governance’ research institute in Milan�

Hosting of Postdocs and Secondments and Awards• Li Na: Practicum PhD student, visiting from Hohai University, China� Her visit is partially supported by the grant�

• Dr Moriah Bellinger: A visiting PhD student from Oregon State University� She visited UNSW for a few months, attended a workshop at ABARE, and presented at a conference at the University of Queensland� Her visit was supported by the grant�

• Postdoctoral Fellow Dr Lisa Lee was awarded a Fellowship from the Australian Academy of Science in 2010 under their Scientific Visits to Taiwan scheme� She worked at Pingtung University in September and October, with the primary focus of the research visit being to explore environmental management practices, particularly in relation to illegal wildlife smuggling in Taiwan�

• A further (two-week) visit by Moriah Bellenger, PhD candidate from Oregon State University, in 2010� She continues to work on a paper on ‘Measuring agricultural resource productivity while accounting for resource degradation’, which she commenced during a longer visit with us in 2009�

• Dr Lisa Yu-Ting Lee, Postdoctoral Fellow, took up an offer of a secondment in 2009 funded by the Taiwan National Science Council—a government agency responsible for promoting research and development in the field of science—to conduct conservation research at Taipei zoo for two months� She devised economically viable solutions for managing pest populations of monkeys (Formosan macaques), which cause significant environmental damage and economic hardship on farmers�

• UNSW hosted Moriah Bellenger, PhD candidate from Oregon State University, for two months in 2009� Moriah’s visit was supported by the Hub� Her thesis is on productivity impacts of environmental degradation� Besides presenting her research at a conference, she interacted with UNSW PhD students, ABARE researchers and leading Australian academics during her visit� Several joint projects are likely to result�

• Hosted a three-month visit in 2009 by Dr Tiho Ancev (University of Sydney), during which time he worked with a postdoctoral fellow on preparing a research grant, and advancing research projects on water and salinity management�

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Collaboration• Working with ABARES on developing an Australian Research Council Linkage Grant application on agricultural productivity

taking into account environmental inputs� This is aimed at ensuring a continuation of this research agenda past the life of the Hub� Aiming for submission in 2011�

• Commencement of discussions with the US Department of Agriculture in 2010 on improving their price indices, which is necessitated by a rapidly changing agricultural sector�

ContactProfessor Kevin Fox, UNSW Email: K.Fox@unsw.edu.au

Project TeamResearchers

Professor Kevin Fox, Project leader

Dr Lisa Lee, Postdoc funded by the project

Amy Cheung, PhD student, not funded by the grant, but aspects of research activity received support (hiring of research assistant, conference support)

Thomas Longden, PhD student, not funded by the grant, but aspects of research activity received support (conference support)

Li Na, Practicum PhD student, visiting from Hohai University, China� Her visit is partially supported by the grant

Dr Moriah Bellinger, Visiting PhD student from Oregon State University� She visited UNSW for a few months, attended a workshop at ABARE, and presented at a conference at the University of Queensland� Her visit was supported by the grant�

Lake bed drying up due to drought

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PROJECT 10: ADAPTATION AND ECONOMIC RESPONSES TO CLIMATE CHANGE

Project DescriptionThis project is part of Theme B: Climate change analysis�

Project ObjectiveAnalyse economic system responses to climate change, identify options for adaptation, and assess the transferability of Australian approaches to the Asia-Pacific region�

Key FindingsInnovative economic approaches need to be taken in designing and delineating climate change adaptation policy, transcending the current narrow risk-management approaches based on expert judgments, and moving beyond commonly used modelling approaches� The economic concept of ‘real options’ provides a suitable framework for many adaptation decisions� Specific public policy decisions need to be informed by deep research on individual preferences� In modelling economy-wide impacts and adaptation, there is a long way to go in improving existing models, which do not adequately represent uncertainty and the valuation of non-market impacts�

Key OutcomesThe practice of adaptation planning and policy could be changed away from a ‘social planner’ approach towards one that puts individual preferences centre stage, and gives prominence to the real-options approach� The research could also support a paradigm shift in economy-wide modelling, with resources (for example, at the CSIRO) directed towards new approaches rather than ever-incremental improvements of existing models� Research findings have been discussed with the Department of Climate Change and Energy Efficiency, relevant other agencies, and under the National Climate Change Adaptation Research Facility�

Project OutputsKey research outputs: Dobes on real options and preferences, Jotzo on modelling, de Chazal on systems approaches�

Book • Richardson, K�, Steffen, W�, Liverman, D�, Barker, T�, Jotzo, F�, Kammen, D�M�, Leemans, R�, Lenton, T�M�, Munasinghe, M�, Osman-

Elasha, B�, Schellnhuber, H�J�, Stern, N�, Vogel, C� and Wæver, O� 2011, Climate Change: Global risks, challenges and decisions, Cambridge University Press, Cambridge�

Book Chapters• Jotzo, F� 2010, ‘Alternative perspective: economic modelling of climate change adaptation’, in B� Lomborg (ed�), Smart Solutions to

Climate Change, Cambridge University Press, Cambridge� [Reviewed and praised in The New York Review of Books, 7 April 2011�]

• Dobes, L� 2010, ‘Fiscal aspects of adaptation to climate change’, in World Bank, Climate change and fiscal policy: a report for APEC, Report No� 56563-EAP, The World Bank, Washington, DC�

• Jotzo, F�, Resosudarmo, I�A�P�, Nurdianto, D�A� and Sari, A�P� 2009, ‘Climate change and development in eastern Indonesia’, in B� Resosudarmo and F� Jotzo (eds), Development and Environment in Eastern Indonesia, ISEAS, Singapore�

• Jotzo, F� 2009, Attributed contribution to Copenhagen Climate Change Congress Synthesis Report, June, International Alliance of Research Universities�

Journal Articles• de Chazal, J� 2010, ‘A Systems approach to liveability and sustainability: defining terms and mapping relationships to link

desires with ecological opportunities and constraints’, Systems Research and Behavioral Science, 27:585–97�

• Bassino, J�-P� and van der Eng, P� 2010, ‘Responses of economic systems to environmental change: past experiences’, Australian Economic History Review. Special Issue: Response of Economic Systems to Environmental Change: Past experiences, 50(1):1–5�

• Jotzo, F� 2008, ‘Climate change economics and policy in the Asia-Pacific’, Asian-Pacific Economic Literature, 22(2):14–30�

• Dobes, L� 2008, ‘Getting real about adapting to climate change� Using “real options” to address the uncertainties’, Agenda, 15(3):55–69�

Major Conference Sessions and Workshops • Jotzo, F� (convenor and chair) 2010, The Economics and Costs of Adaptation, International Climate Change Adaptation

Conference: Climate Adaptation Futures, NCCARF and CSIRO, July, Gold Coast, Qld�

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• Jotzo, F� (convenor and chair) 2009, The Costs of Adapting and Not Adapting to Climate Change, Copenhagen Climate Change Congress, March, Copenhagen�

• Jotzo, F� (chair) 2010, Session at CSIRO national workshop on adaptation economics and modelling, June�

• Bassino, J�-P� (convenor) 2009, Workshop on economic system response to climate change, February, University Montpellier, France�

• van der Eng, P� and Bassino, J�-P� (convenors) 2009, Session on economic systems response to climate change, Fifteenth World Economic History Congress, August, Utrecht, Netherlands�

Selected Presentations • Dobes, L� (convenor) 2011, Adaptation to Climate Change, Special session, Australian Economic Society Annual Conference,

July, Canberra�

• Dobes, L� 2011, Invited speaker at Environment and Economics 2011: Australia’s Climate Policy Options Conference, March, The Australian National University, Canberra�

• Dobes, L� 2011, Financing adaptation to climate-induced coastal retreat from coastal inundation and erosion, Invited speaker, 28 March, Torquay, Vic�

• Dobes, L� 2011, Real options for adapting to coastal climate change, Invited speaker, Sydney Coastal Councils Group Seminar, 24 February, Sydney�

• Dobes, L� 2010, Our adaptive economy: it’s the flexibility stoopid!, Invited speaker, SA Premier’s Department Forum, November, Adelaide�

• Invited speaker 2010, The economics and costs of adaptation, International Climate Change Adaptation Conference: Climate Adaptation Futures, NCCARF and CSIRO, July, Gold Coast, Qld�

• Dobes, L� 2010, International Climate Change Adaptation Conference: Climate Adaptation Futures, Invited speaker, NCCARF and CSIRO, July, Gold Coast, Qld�

• Jotzo, F� 2010, Invited speaker at Commonwealth Environment Research Facilities Annual Conference�

• de Chazal, J� 2010, Invited speaker at National Forum: Understanding Rural Landholder Responses to Climate Change, 17–18 November, Charles Sturt University, Albury, NSW

• de Chazal, J� 2010, Invited speaker at Democratizing Climate Governance, Centre for Deliberative Democracy and Global Governance, 15–16 July, The Australian National University, Canberra�

• de Chazal, J� (convenor and moderator) 2010, What can a gender lens add to research on climate change mitigation and adaptation?, RMPA Argument Series, 6 and 13 May, The Australian National University, Canberra�

• de Chazal, J� 2010, ‘Facts’ and values in climate change adaptation, Environmental Economics Research Hub Third Annual Workshop in conjunction with the Australian Agricultural and Resource Economics Society Fifty-Fourth Annual Conference, 9 February, Adelaide�

• Jotzo, F� 2009, Invited plenary speaker at World Vision public panel discussion, September, Sydney�

• de Chazal, J� 2009, Invited plenary presentation, Fifty-Third Meeting of the International Society for the Systems Sciences, 12–17 July, Brisbane�

• Dobes, L� 2009, A new paradigm for adaptation to climate change, Crawford School, 4 June, The Australian National University, Canberra�

• Jotzo, F� 2009, Invited keynote speaker at Climate Change Forum, May, Adelaide University, SA�

• Dobes, L� 2009, Presentation to Australian Agricultural and Resource Economics Society Annual Conference, February, Cairns, Qld�

• Jotzo, F� 2008, Invited plenary speaker at Australia–Indonesia Governance Research Program Policy Forum, 1 December, Jakarta�

• Jotzo, F� 2008, Invited speaker at Commonwealth Environment Research Facilities Annual Conference�

• Jotzo, F� 2008, Adaptation and economic responses to climate change, Environment Economics Research Hub Annual Workshop, 20 May, The Australian National University, Canberra�

• Jotzo, F� 2008, Invited speaker at Copenhagen Climate Change Congress, March�

• Jotzo, F� 2008, Presentation to Australian Agricultural and Resource Economics Society Annual Conference, February, Cairns, Qld�

• Howes, S� 2008, How to go about costing and funding adaptation in developing countries, Invited speaker at Copenhagen Climate Change Congress, March�

Outreach• Hosted researchers from Indonesia at ANU in conjunction with the Australia–Indonesia Governance Research Partnership

(AusAID), 2007�

• F� Jotzo member of the steering committee of the Copenhagen Climate Change Congress, 2009�

• F� Jotzo participated in Department of Climate Change round table on the economics of adaptation, August 2008�

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• F� Jotzo participated at CSIRO internal workshop on economic modelling of climate change adaptation, November 2010�

• Leo Dobes, also F� Jotzo, ongoing dialogue with policymakers especially in Department of Climate Change and Energy Efficiency and other government departments�

• F� Jotzo, ongoing dialogue about approaches and methodologies with CSIRO Climate Adaptation Flagship, including participation in round table�

• Briefing at the Australian Parliament by Frank Jotzo and Will Steffen on Copenhagen Climate Change Congress, 18 March 2009� Five Senators and Members of House of Representatives in attendance�

Research Reports• de Chazal, J� 2010, Examining resilience and vulnerability as concepts conditional upon human values: a review, EERH Research

Report No� 82, Environmental Economics Research Hub, The Australian National University, Canberra�

• Dobes, L� 2010, Notes on applying real options to climate change adaptation measures, with examples from Vietnam, EERH Research Report No� 75, Environmental Economics Research Hub, The Australian National University, Canberra�

• de Chazal, J� 2010, A systems approach to liveability and sustainability: defining terms and mapping relationships to link desires with ecological opportunities and constraints, EERH Research Report No� 64, Environmental Economics Research Hub, The Australian National University, Canberra�

• Jotzo, F� 2010, Prerequisites and limits for economic modelling of climate change impacts and adaptation, EERH Research Report No� 55, Environmental Economics Research Hub, The Australian National University, Canberra�

• Dobes, L� 2009, People versus planners: social preferences for adaptation to climate change, EERH Research Report No� 41, Environmental Economics Research Hub, The Australian National University, Canberra�

• Jotzo, F� 2008, Climate change economics and policy in the Asia Pacific, EERH Research Report No� 11, Environmental Economics Research Hub, The Australian National University, Canberra�

Media• F� Jotzo: Several interviews on national radio and TV, as well as numerous interviews and mentions in the national press

including interviews on ABC Radio National Asia-Pacific and other programs and ABC Breakfast Radio�

ContactDr Frank Jotzo, ANUEmail: frank.jotzo@anu.edu.au

Project Team

Researcher

Dr Frank Jotzo (ANU), Project leader

Collaborators

Dr Jacqueline de Chazal, One-year postdoc appointment Dr Leo Dobes, Collaborator and contributor

Research with Policy Impact: EERH and Australia’s carbon pricing policyThe defining issue for environmental and economic policy in Australia over the life of the Hub was climate change� Research under the Hub’s climate change theme had direct impact on policy formulation for Australia’s carbon pricing scheme�

A choice example of research with policy influence is the work done by Dr Frank Jotzo, the Hub’s climate change theme leader, with Hub colleagues including Dr Peter Wood, Dr David Stern, Dr Steve Hatfield-Dodds, Dr Regina Betz and others, on carbon pricing policy for Australia� Their work provided analytical leadership and brought innovative analysis into the policy arena, and their findings are reflected in the climate policy package announced by the Government in July 2011�

One thread of this research with very direct policy impact was the work on a ‘floor price’ for emissions trading, to manage policy uncertainty and encourage investment� Hub researchers put the issue on the Australian policy agenda with a research report in 2009, and followed up with briefings to key policymakers as well as contributions through academic and public forums and the media� The proposal was subsequently up in 2011 in the Multi-Party Committee on Climate Change, which commissioned a paper by Dr Jotzo on the issue, and formed part of the Government’s 2011 carbon pricing policy proposal�

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Further aspects of Australia’s carbon policy—in particular, to start emissions pricing by way of a ‘fixed-price permit’ scheme—were also analysed and taken into the policy debate early on by Hub researchers� Similarly, Hub research on the Copenhagen climate targets by the main countries, and their implications for Australia’s emissions targets and international linking of the scheme, had a strong influence in the domestic policy debate�

Other important contributions by Hub researchers to Australia’s climate policy debate and development covered approaches for adaptation to climate change, energy-efficiency technology and policy, the design of permit auctions and market linkages� Among the highlights is the work of Adjunct Professor Leo Dobes on the application of ‘real-options’ theory to climate change adaptation� Much of this research has potential for direct policy impact in years to come�

These contributions have been appreciated and acknowledged� The former and current secretaries of the Department of Climate Change and Energy Efficiency, Dr Martin Parkinson and Blair Comley, both publicly lauded the contributions on climate change policy made by Hub researchers�

The work started under the Hub on climate change is being continued through the newly established Centre for Climate Economics and Policy at the ANU’s Crawford School�

PROJECT 11: IMPROVING AUSTRALIA’S ENERGY EFFICIENCY THROUGH FASTER DEVELOPMENT AND ADOPTION OF TECHNOLOGIES

Project DescriptionThis project is part of Theme B: Climate change analysis�

Project SummaryThis project’s original scope in 2006 was to estimate short and long-run energy price elasticities and the extent of induced innovation in efficiency—hence the above title—but it has since been broadened to cover the economics of greenhouse gas control more generally� The aim of this project is now to use economic analysis to find ways to lower the overall cost, and increase the overall effectiveness, of policy measures to control Australian greenhouse emissions—particularly the roughly three-quarters of emissions that are carbon dioxide coming from burning fossil fuels—and to communicate these findings to policymakers� Such research could be directed at any or all of three major market failures: the lack of a natural market for emission control in itself, and hence the need to study emission pricing; the poor functioning of the existing market for innovating lower emission technologies; and the poor functioning of existing markets for energy efficiency�

11A: MODELLING THE INTERNATIONAL DIFFUSION OF CARBON INTENSITY REDUCING TECHNOLOGY

Project DescriptionThis project is part of Theme B: Climate change analysis�

Project ObjectiveThe aim is to measure and understand the long-term factors behind trends in energy and carbon intensity in different economies and how improvements in energy efficiency diffuse globally� Of particular interest is the rate of diffusion from developed to developing countries and the factors that affect that diffusion� The analysis will show how fast countries adopt energy and carbon-reducing technologies, whether there is a convergence towards best practice over time, and how far behind the technology leader different countries are� Underlying trends in energy efficiency will be derived using an econometric production frontier model� A theoretical model of the adoption of energy-saving technology will be developed� This model will then be applied to the estimated energy efficiency trends and the implications for carbon emissions computed� The data will include Australia, and at a minimum the major European economies, the United States, Canada, Mexico, Japan, China and India� Outputs will be seminars, briefing papers and draft academic papers�

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A better understanding of the patterns of technology adoption and diffusion can inform policies directed at supporting research and development (R&D) in energy and carbon-saving technologies and their adoption including in developing countries� These have been identified as priorities for the global climate change mitigation effort by the International Energy Agency and others, and in the Australian context by the Garnaut Review� It will also be useful in improving models and projections of future emissions growth, such as those that were used in the Garnaut Review and Treasury modelling of the Carbon Pollution Reduction Scheme (CPRS)�

Key FindingsImproving energy efficiency is a key part of achieving reductions in greenhouse gas emissions cost effectively� The research has measured and helped understanding of the long-term factors behind trends in energy and carbon intensity in different economies and how improvements in energy efficiency diffuse globally� Globally, technological change is the most important factor in mitigating the increase in energy use due to economic growth, or reducing energy intensity� Most countries are in the process of convergence towards the global energy efficiency frontier, with advanced countries closer to the frontier but less energy-efficient developing countries such as China and India making rapid progress� China’s emissions intensity targets pledged at the Copenhagen climate conference imply significant policy effort, while India’s target implies little ambition�

Key OutcomesA better understanding of the patterns of technology adoption and diffusion can inform policies for supporting R&D and diffusion of energy and carbon-saving technologies� It can also be directly applied in improving models and projections of future emissions growth� Findings have been discussed with the Department of Climate Change and Energy Efficiency�

Project Outputs• Stern on estimating trends in energy efficiency�

• Stern and Jotzo on China’s and India’s targets�

• Stern and Lambie on costs of cutting emissions�

• Burke on economic growth and energy�

Publications• Stern, D�I� (revise and resubmit), ‘Modeling international trends in energy efficiency’, Energy Economics�

• Stern, D�I�, Pezzey, J�C�V� and Lambie, N�R� (resubmitted), ‘Where is it cheapest to cut carbon emissions?’, Australian Journal of Agricultural and Resource Economics�

• Stern, D�I� (in press), ‘Interfuel substitution: a meta-analysis’, Journal of Economic Surveys�

• Stern, D�I� and Jotzo, F� 2010, ‘How ambitious are China and India’s emissions intensity targets?’, Energy Policy, 38(11):6776–83�

• Stern, D�I� 2010, ‘Between estimates of the emissions-income elasticity’, Ecological Economics, 69:2173–82�

Hub Research Reports• Stern, D�I� and Lambie, N�R� 2010, Where is it cheapest to cut carbon emissions?, EERH Research Report No� 63, Environmental

Economics Research Hub, The Australian National University, Canberra�

• Stern, D�I� 2010, Modeling international trends in energy efficiency and carbon emissions, EERH Research Report No� 54, Environmental Economics Research Hub, The Australian National University, Canberra�

• Stern, D�I� and Jotzo, F� 2010, How ambitious are China and India’s emissions intensity targets?, EERH Research Report No� 51, Environmental Economics Research Hub, The Australian National University, Canberra�

• Stern, D�I� 2009, Between estimates of the environmental Kuznets curve, EERH Research Report No� 34, Environmental Economics Research Hub, The Australian National University, Canberra�

• Stern, D�I� 2009, Interfuel substitution: a meta-analysis, EERH Research Report No� 33, Environmental Economics Research Hub, The Australian National University, Canberra�

• Stern, D�I� 2009, Modelling the global diffusion of energy efficiency and low carbon technology, EERH Research Report No� 20, Environmental Economics Research Hub, The Australian National University, Canberra�

Presentations• Energy efficiency drivers and trends, Economics and Environment Network Symposium, 22 November 2010, The Australian

National University, Canberra�

• Modelling global energy efficiency trends, Commonwealth Environment Research Facilities National Conference, April 2010, Canberra�

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• Energy intensity modelling and emissions targets analysis, International Division, Department of Climate Change and Energy Efficiency, 1 April 2010�

• Australian energy efficiency in context, Prime Minister’s Taskforce on Energy Efficiency, Department of Climate Change, 2 March 2010�

• How feasible are developing country energy and carbon intensity targets? An econometric analysis (with Frank Jotzo), Australian Agricultural and Resource Economics Society, February 2010, Adelaide�

• Energy efficiency and emissions intensity trajectories, Environmental Economics Research Hub Third Annual Workshop, February 2010, Adelaide�

• China’s emissions intensity target: BAU, feasible, or infeasible?, Informal Workshop: China Climate Change Policy and Research, February 2010, Crawford School, The Australian National University, Canberra�

• Modelling global trends in emissions and energy efficiency, Australia New zealand Society for Ecological Economics Biennial Conference, October 2009, Darwin�

• Modelling the global diffusion of sulfur- and energy-efficiency, Discipline of Economics, Faculty of Agriculture, Food and Natural Resources, 26 March 2009, University of Sydney, NSW�

• Modelling the international diffusion of carbon intensity reducing technology, Environmental Economics Research Hub Second Annual Workshop, February 2009, Cairns, Qld�

Other• D� Stern selected as Lead Author for Intergovernmental Panel on Climate Change Fifth Assessment Report, Working Group III�

ContactDr Frank Jotzo, ANUEmail: frank.jotzo@anu.edu.au

David Stern, ANUEmail: sterndavidi@yahoo.com

Project TeamResearchers

Dr Frank Jotzo (ANU), Overall project leaderDavid Stern (ANU), Project leader

11B: AUSTRALIA AND INTERNATIONAL CLIMATE CHANGE MITIGATION COMMITMENTS—APPLYING GAME THEORY

Project DescriptionThis project is part of Theme B: Climate change analysis�

Project ObjectiveStrong global climate change mitigation is widely considered to be in Australia’s interest� It has been argued that Australia, through its policies and commitments, could influence the global mitigation outcome, even though Australia is a relatively small emitter� Classic game theory—in its analysis of political and economic policy strategies—suggests that such an outcome might be achieved through the help of binding unilateral pre-commitments to stronger action, as well as the threat of mutually painful action in case of failure of agreement�

This project will apply relevant game-theoretic approaches to various options to promote strong mitigation� These include arrangements with third parties as mechanisms for unilateral binding, as well as imposing coal export taxes and other possible threat mechanisms in case of failure of an international agreement�

The project will apply techniques from game theory to analyse how Australia should bargain for a desirable outcome (such as an appropriate stabilisation target) in international climate negotiations� This will include an analysis of how different bargaining techniques and climate change outcomes will affect the pay-offs of participants in the negotiations� One promising area of investigation is the application of implementation theory; this approach models the bargaining process as a game� If the game has an equilibrium that corresponds to a socially optimal outcome then the prospects for strong mitigation are much greater�

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Key FindingsAchieving international cooperation for strong climate change mitigation is seen as Australia’s core interest, but it is one of the hardest problems in climate change policy� Novel forms of national commitments could help engender cooperation between nations, and game theory can shed light on the options� When game theory is used to help us understand coalitions, outcomes are possible that are more cooperative than the relatively pessimistic predictions from treaty participation games� The key is for countries to make commitments that are conditional on others’ commitments, thereby matching ambition� More effective options than used in the climate negotiations to date can be identified�

Key OutcomesThe research can help inform the design of a future Australian climate change commitment, as well as the implementation of Australia’s pledge under the Copenhagen Accord� Findings have been communicated to the Department of Climate Change and Energy Efficiency� Follow-on project funding has been secured via an ARC Discovery Grant (Jotzo with Wood)�

Project Outputs• Wood on game theory�

• Jotzo on Copenhagen emissions targets�

Journal Articles• Wood, P�J� and Jotzo, F� 2011, ‘Price floors for emissions trading’, Energy Policy, 39(3):1746–53, http://dx.doi.org/10.1016/j.

enpol.2011.01.004

• Wood, P�J� 2011, ‘Climate change and game theory’, Annals of the New York Academy of Sciences, 1219:153–70, http://dx.doi.org/10.1111/j.1749-6632.2010.05891.x

Conferences and Public Events(All by P�J� Wood�)

• Climate change and game theory, Talk presented to Department of Basic Sciences and Environment, Faculty of Life Sciences, University of Copenhagen, 4 December 2009�

• Attended the 2009 United Nations Climate Change Conference in Copenhagen as part of the ANU delegation, 7–18 December 2009� In particular, followed the negotiations in the Contact Group on Annex I Parties Emission Reductions� Regularly blogged about the conference at climatedilemma.com

• Mitigation commitment games at Copenhagen, Presentation to Environmental Economics Research Hub workshop in conjunction with Australian Agricultural and Resource Economics Society, 9 February 2010�

• Climate change and game theory, Presentation to Australian Agricultural and Resource Economics Society, 10 February 2010�

• Presentation on the Copenhagen Accord to What Really Happened at Copenhagen?, 23 February 2010, The Australian National University, Canberra�

• A mechanism for coalition formation for international climate change mitigation, Presentation to Australian Agricultural and Resource Economics Society, 11 February 2011�

• Australia’s climate policy options, Presentation to conference, 31 March 2011�

Research Reports • Wood, P�J� and Jotzo, F� 2009, Price floors for emissions trading, EERH Research Report No� 36, Environmental Economics

Research Hub, The Australian National University, Canberra�

• Wood, P�J� 2010, Climate change and game theory, EERH Research Report No� 62, Environmental Economics Research Hub, The Australian National University, Canberra�

Policy Brief• Wood, P�J� and Jotzo, F� 2010, ‘Yes we can…’: carbon pricing through emissions trading with a price floor, EERH Policy Brief,

June, Environmental Economics Research Hub, The Australian National University, Canberra�

Policy Outreach• Wood, P�J�: Several climate policy-related posts on the blog Climate Dilemma, at http://climatedilemma.com/

Media• Wood, P�J�: Opinion piece on proposed amendments to the CPRS, The Canberra Times, 28 October 2009�

• Wood, P�J� and Burke, P�J� 2010, ‘We’re behind the world on a carbon price’, The Canberra Times, 10 October 2010�

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ContactDr Frank Jotzo, ANUEmail: frank.jotzo@anu.edu.au

Peter J� Wood, ANUEmail: peter.j.wood@anu.edu.au

Project TeamResearchers

Dr Frank Jotzo (ANU), Overall project leaderPeter Wood (ANU), Project leader

‘Yes we can…’: Carbon pricing through emissions trading with a price floor

PETER JOHN WOOD20 AND FRANK JOTzO21

Carbon pricing remains the foundation of efficient climate policy� A price floor could be a useful future Australian emissions trading scheme reform� It can also be compatible with carbon pricing before full emissions trading� Price floors feature in both US and UK legislative proposals�

The Australian Government has committed Australia to reduce its greenhouse gas emissions by 5 to 25 per cent below 2000 levels by 2020� Even the lower end of the range is a significant task in the face of strong underlying energy use and carbon emissions growth� Without a carbon price, these targets will be difficult to achieve, and ad-hoc policy interventions are likely to come at higher economic cost�

A floor price on emissions is one of the many possible reform elements to previously proposed legislation for emissions trading in Australia�

Price Floors to Manage UncertaintyUnder emissions trading with a price floor, the Government sets an emissions target but also specifies and enforces a minimum carbon price�

Such a ‘hybrid’ approach provides more certainty about the carbon price than a pure emissions trading scheme (ETS)� Hybrid approaches can also have a ceiling (or cap) on the carbon price, preventing the carbon price going above a certain level, and allowing emissions to go above the targeted level� Economic analysis suggests that hybrid approaches are more likely to achieve an efficient mitigation response under uncertainty (Philibert 2009; Roberts and Spence 1976), although there can be complex interactions with international linkage of emissions markets (Jotzo and Betz 2009)�

Price floors automatically provide an incentive for further emission reductions if the costs of emission reductions are lower than expected, thus improving economic efficiency and reducing cost uncertainty� They can also improve the investment climate for clean technology� A problem for investors in low-carbon facilities is that future carbon price uncertainty increases investment risks� Credible policy measures for price floors under emissions trading reduce these risks�

Price floors can be compatible with banking and borrowing of emission allowances, which also tend to reduce carbon price volatility� The design and implementation of price floors influence their effects on expected prices, public budgets, and to what extent they are compatible with international trading of permits (Wood and Jotzo 2009)�

Price Floors in US and UK Legislative ProposalsPrice floors are being proposed in both the United States and the United Kingdom� They also exist implicitly in countries where both a carbon tax and emissions trading are in place�

The US Clean Energy and Security Act—also known as the Waxman–Markey Bill—stipulates emissions trading with a reserve price when emission allowances are auctioned� The reserve price starts at US$10 per tonne of carbon dioxide and increases by 5 per cent above the rate of inflation each year� If enough permits were auctioned, rather than given out for free, and international permits were not available at cheaper prices, this would provide a floor price�

20 Resource Management in the Asia Pacific Program, Crawford School of Economics and Government, The Australian National University. Email: Peter.J.Wood@anu.edu.au

21 Resource Management in the Asia Pacific Program, Crawford School of Economics and Government, The Australian National University. Email: Frank.Jotzo@anu.edu.au

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The US Power Act—also known as the Kerry–Lieberman Bill—stipulates a reserve price when emission allowances are auctioned� The reserve price starts at US$12 per tonne and increases by 3 per cent per year above the inflation rate�

Neither bill is likely to be passed in the immediate future by the US Senate, but together they send a clear signal about the likely inclusion of price floors in US carbon pricing legislation if and when it comes into effect�

The UK Government is planning to introduce a price floor using a different mechanism� The UK proposal is a version of the ‘variable fee’ approach described by Wood and Jotzo (2009)� The United Kingdom takes part in the EU emissions trading scheme� A minimum carbon price in the United Kingdom would be implemented by charging carbon emitters an extra fee (known as the ‘reformed Climate Change Levy’), at a level yet to be determined� Firms would be able to offset the costs of purchasing ETS allowances against their liability for the levy� If the EU ETS price is above the level of the levy, no net charge would be payable; if it is below, the difference would be paid through the levy to the Treasury�

Several countries that take part in the EU ETS also have a carbon tax, including Sweden, Finland and the Netherlands� In those countries, the effective carbon price is the sum of the EU allowance price and the tax, so the carbon tax functions as a price floor�

Possibilities for Implementation in AustraliaA price floor could be implemented in Australia if and when emissions trading legislation is reintroduced� One option would be to amend the now-mothballed Carbon Pollution Reduction Scheme (CPRS, 2009) legislation to feature a reserve auction price (as under US legislative proposals) by amending the provisions on ‘policies, procedures and rules for auctioning Australian emissions units’�

Alternatively, firms could be required to pay an additional levy for each tonne of emissions when they surrender a permit� This change could be made within the draft legislation’s section on ‘how eligible emissions units are surrendered’� The fee could be variable depending on the price of permits, kicking in only when permit prices fall below the floor level, or it could be a fixed fee (Wood and Jotzo 2009)�

Yet another option to provide greater certainty about prices and costs is to start emissions trading with a fixed price� In this case, the Government sells an unlimited number of time-limited emissions permits at a set price� Suggested by Professor Ross Garnaut (2008) for the initial years of emissions trading, this approach was featured in the May 2009 revision to the CPRS and has been supported by the opposition Greens party�

Plans for the CPRS have been shelved, yet Prime Minister, Julia Gillard, has stated that Australia needs a carbon price after establishing ‘community consensus’� Policy approaches that provide carbon price signals independently of the CPRS are clearly of interest to policymakers�

With the National Greenhouse and Energy Reporting Act (2007) now in place, Australia has the technical and administrative basis to charge emitters a levy or tax for each tonne of emissions� In the absence of emissions trading, this would function as a carbon tax� If emissions trading is introduced later, the levy could cease, or it could continue and function as a floor price�

ReferencesGarnaut, R� 2008, The Garnaut Climate Change Review, Cambridge University Press, Cambridge www.garnautreview.org.au,

Chapter 14�

Jotzo, F� and Betz, R� 2009, ‘Australia’s emissions trading scheme: opportunities and obstacles for linking’, Climate Policy, 9:402–14 [earlier version published as Environmental Economics Research Hub Research Report No� 14]�

Philibert, C� 2009, ‘Assessing the value of price caps and floors’, Climate Policy, 9:612–33�

Roberts, M�J� and Spence, M� 1976, ‘Effluent charges and licenses under uncertainty’, Journal of Public Economics, 5:193–208�

Wood, P�J� and Jotzo, F� 2009, Price floors for emissions trading, EERH Research Report No� 36, Environmental Economics Research Hub, The Australian National University, Canberra, http://www.crawford.anu.edu.au/research_units/eerh/publications.php

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11C: POTENTIAL INTERACTIONS BETWEEN THE AUSTRALIAN 20 PER CENT RENEWABLE ENERGY TARGET AND THE CARBON POLLUTION REDUCTION SCHEME WITHIN THE AUSTRALIAN NATIONAL ELECTRICITY MARKET

REGINA BETz AND IAIN MACGILL

Project Description

This project is part of Theme B: Climate change analysis�

Project ObjectiveA number of major policy initiatives are currently being developed that are intended to reduce emissions from the Australian electricity industry� Expansion of the Renewable Energy Target to deliver a 20 per cent contribution of renewable energy to electricity supply could see about 10 000 MW of new renewable generation connected to the Australian grid before 2020� A Carbon Pollution Reduction Scheme (CPRS) was proposed in 2008–09 and was expected to introduce significant changes to electricity industry operation and investment with respect to the roles of brown coal, black coal and gas-fired generation� The Australian National Electricity Market (NEM) covers all Australian States and Territories other than Western Australia and the Northern Territory, and is hence the major focus of current electricity industry arrangements�

One important question to be answered is about the role of green certificate schemes as policy instruments to drive investment in renewables� Another includes mitigation scenarios to see if the expanded renewable energy generation will offset generation from some mix of existing and future fossil-fuel plants� The comparatively volatile supply characteristics of key renewable energy technologies such as wind have significant implications for the operation of relatively inflexible coal-fired plants� The impact of a carbon price on promoting low-emission and more flexible gas-fired generation would, however, facilitate wind-energy integration�

Given the importance of effectively and efficiently reducing emissions from the electricity industry and expanding the renewable industry, there is a clear need for research to learn more about spill-over effects in the renewable industry�

Key FindingsOver the course of the project, the expanded Renewable Energy Target was designed and implemented, whilst the CPRS was deferred to beyond 2011� The research of this project has been divided into the following strands of work�

• An empirical analysis of the impacts of wind generation in the SA region of the Australian National Electricity Market� For a range of reasons, almost half of Australia’s current wind-farm capacity is located in South Australia and this represents a world-leading wind-energy penetration� As such, the State represents an interesting test-bed for studying the potential impacts of the expanded Renewable Energy Target on the overall NEM� Our analysis has highlighted that wind generation would now appear to be having increasingly significant market impacts� At times of high wind generation, regional wholesale prices are typically lower than at times of low wind generation, taking into account the underlying variation of price with daily and seasonal demand patterns, and various other market uncertainties� Wind generation appears to be impacting the dispatch of a range of other conventional plant in South Australia, and also the NEM interconnector flows to Victoria� The lower average price received by wind generation compared with dispatchable generators in the State reflects the value of dispatchability in an electricity industry� To date, the NEM design appears to be relatively robust to such wind penetrations� Furthermore, the market is sending ‘price’ signals to wind-project developers about the lessening value of wind generation in a region that already has a significant penetration� Related work in this strand has looked at the economics of transmission constraints on wind generation in the State, and the potential market value of large-scale solar-generation projects� In all, this strand has resulted in three EERH discussion papers (see, for example, Boerema; Boerema and MacGill; Kay and MacGill), two peer-reviewed conference papers and a number of workshops and other industry conference presentations� A number of papers across the three strands of work have also now been submitted to high-quality journals and are currently under review�

• Modelling work that involved a Monte-Carlo simulation framework added to conventional deterministic optimal generation resource mix methods� The tool has been used to explore the potential implications of different carbon prices (and correlated gas and coal prices) on the expected costs and associated uncertainties of different possible generation portfolios� Three peer-reviewed conference papers have been published on this work�

• A policy analysis of green certificates on the basis of Poland and how they could be justified as a first-best response to market failure or in a second-best sense, as an instrument mitigating distortionary effects of the emissions externality�

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Key OutcomesThe work involved policy-relevant analysis, quantitative modelling and empirical market analysis strands and helped to better understand the impacts of high wind generation into the electricity market as well as carbon pricing� The Centre for Energy and Environmental Markets (CEEM) contributed several submissions to the formal Federal Government legislative process for the expanded Renewable Energy Target, which focused on the Australian experience to date with renewable energy certificate trading and relevant international learning� In order to disseminate our findings, we also presented at international and national conferences and organised workshops with relevant policymakers—for example, in South Australia�

Project Outputs

Work in Progress• Heinzel, C� and Winkler, T� 2010, ‘Tradable green certificates as a policy instrument? A discussion at the case of Poland’,

Accepted by Environmental Economics and Policy Studies�

Journal Articles• Betz, R� and Owen, T� 2010, ‘The implications of Australia’s Carbon Pollution Reduction Scheme for its National Electricity

Market’, Energy Policy, 38(9):4966–77�

• MacGill, I�F� 2010, ‘Electricity market design for facilitating the integration of wind energy: experience and prospects with the Australian National Electricity Market’, Energy Policy (Special Issue on Wind Power), 38(7) (July):3180–91�

• Twomey, P� and Neuhoff, K� 2010, ‘Wind power and market power’, Energy Policy (Special Issue on Wind Power), 38(7) (July):3198–210�

• Twomey, P� 2009, ‘Beyond the price is right: heterodox economic perspectives on renewable energy policy’, Proceedings of the Society of Heterodox Economists Annual Conference, December�

Conference Papers• Boerema, N� and MacGill, I�F� 2010, ‘The economics of transmission constraints on wind farms—some evidence from South

Australia’, in Proceedings of Solar2010, December, Canberra�

• Cutler, N�, Outhred, H�R� and MacGill, I�F� 2010, ‘Forecasting scenarios of wind power generation for the next 48 hours to assist decision-making in the Australian National Electricity Market’, in Proceedings of Solar2010, December, Canberra�

• Boerema, N�, Kay, M� and MacGill, I�F� 2010, ‘Renewable energy integration into the Australian National Electricity Market: characterising the energy value of wind and solar generation’, in Proceedings of Solar2010, December, Canberra�

• Vithayasrichareon, P� and MacGill, I�F� 2011, ‘Generation portfolio analysis for low-carbon future electricity industries with high wind power penetrations’, in Proceedings of IEEE PowerTech2011, June, Norway�

Conferences and Workshops• Contreras, z� 2010, The effects of environmental and renewable energy policies on the existence conditions for distributed

generators in electricity markets, Presented to Renewable Energy Research Conference: Renewable Energy Beyond 2020, 8 June, Norwegian University of Science and Technology, Trondheim, Norway�

• Contreras, z� 2010, The effects of environmental and renewable energy policies on the existence conditions for distributed generators in electricity markets, Presented to Seminar at University of Kiel, 18 June, Kiel, Germany�

• Cutler, N� 2010, Integrating renewable energy into the electricity market: a case study on wind generation and spot prices in the Australian National Electricity Market, Presented to the Renewable Energy Research Conference, 8 June, Trondheim, Norway�

• Contreras, z� 2010, Forecasting daily peak electricity demand in Australia with an economic based evaluation, Presented to Workshop in Empirical Methods on Energy Economics, 24 June, University of Surrey, Guilford, UK�

• Heinzel, C� 2010, Learning spillovers in the PV cell industry, Presented to Economics of the Family, Annual Conference of the Association for Social Policy, 9 September, Kiel, Germany�

• MacGill, I� 2009, Challenges and opportunities for bioenergy to contribute to an expanded Renewable Energy Target within the Australian NEM, Presented to From Opportunity to Implementation, Bioenergy Australia 2009 Conference, 8–10 November, Gold Coast, Qld�

Organised Conference/Workshop• Workshop: Challenges and Opportunities for Renewable Energy in South Australia, 17 May 2010, Hosted by RenewablesSA in

conjunction with EERH and CEEM, The Science Exchange (RiAus), Exchange Place, Adelaide�

• MacGill, I� 2010, Integrating High Levels of Renewables: Implications for the Australian National Electricity Market, CEEM Annual Conference, February�

• Barriers to Widespread Adoption of Renewable Energy, CEEM/CERPA Workshop, November 2010, University of New South Wales, Sydney�

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Research Reports• Boerema, N� and MacGill, I� 2010, The economics of transmission constraints on wind farms: some evidence from South

Australia, EERH Research Report No� 89, Environmental Economics Research Hub, The Australian National University, Canberra�

• Boerema, N�, Kay, M� and MacGill, I� 2010, Renewable energy integration into the Australian National Electricity Market: characterising the energy value of wind and solar generation, EERH Research Report No� 88, Environmental Economics Research Hub, The Australian National University, Canberra�

• Heinzel, C� and Winkler, T� 2010, Tradable green certificates as a policy instrument? A discussion at the case of Poland, EERH Research Report No� 58, Environmental Economics Research Hub, The Australian National University, Canberra�

• Cutler, N�J�, MacGill, I�F� and Outhred, H�R� 2009, The integration of wind generation within the South Australian region of the Australia National Electricity Market, EERH Research Report No� 38, 10 November, Environmental Economics Research Hub, The Australian National University, Canberra�

Supervision• zaida Contreras has been working on the effects of environmental and renewable energy policies on the existence conditions

for distributed generators in electricity markets, and submitted her PhD in April 2011�

• We were hosting Johanna Reichenbach, a PhD student from University of Kiel (Germany), and potential joint work on renewables was assessed�

• Two Honours students submitted their theses: Andrew Flint 2009, Learning spillovers in the PV cell industry, Honours Thesis in Economics, October; Tim Larsen 2009, Assessing the operational impacts of carbon pricing and expanded renewable generation in the Australian National Electricity Market, Honours Thesis, Bachelor of Engineering in Photovoltaic and Solar Energy Engineering, October�

Outreach• Workshop: Challenges and Opportunities for Renewable Energy in South Australia, Hosted by RenewablesSA in conjunction

with EERH and CEEM, 17 May 2010, The Science Exchange (RiAus), Exchange Place, Adelaide�

• Several workshops/seminars are planned to disseminate the work�

ContactDr Regina Betz Email: r.betz@unsw.edu.au

Iain MacGill Email: i.macgill@unsw.edu.au

Project teamResearchers

Iain MacGill (UNSW), Project leaderRegina Betz (UNSW), Project leaderChristoph Heinzel (UNSW), PostdocPaul Twomey (UNSW), PostdocNick Cutler (UNSW), Postdoczaida Contreras (UNSW), PhD student

11D: DESIGN OF CLIMATE CHANGE MITIGATION POLICY

Project DescriptionThis project is part of Theme B: Climate change analysis�

Project ObjectiveClimate change mitigation policy needs to be well designed in order to be cost effective and socially acceptable� The development of a comprehensive climate change policy regime in Australia, including through carbon pricing, throws up complex issues of incentives, distribution and the political economy of climate change mitigation� These need to be taken into account in economic mechanism design�

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Key FindingsClimate change mitigation policy needs to be well designed in order to be cost effective and acceptable to society� This project has analysed a range of contemporary issues connected to the ongoing development of a comprehensive climate change policy regime in Australia, in the context of international action, by way of research and policy briefs, frequent interactions with policymakers and stakeholders, sustained involvement in the public debate, and policy forums with participation by the Minister for Climate Change and Energy Efficiency and the secretary of the department� Highlighted research findings include

• that other countries’ Copenhagen targets are consistent with an Australian target in the middle of Australia’s target range

• that a price floor in emissions trading could have useful properties and could be designed to be compatible with international permit trading

• conditions and mechanisms for linking Australia’s planned emissions trading scheme internationally

• that free permits to emissions-intensive industries could impose a disproportionate burden on the rest of the economy�

Key OutcomesThe research and associated outreach activity have informed and influenced policymaking and high-level policy decisions on the issues listed above, through uptake of the research at the Department of Climate Change and Energy Efficiency, the offices of the minister and senators, and strong contributions to the public debate� Key elements of the project are being continued through the newly established Centre for Climate Economics and Policy (http://ccep.anu.edu.au) at ANU’s Crawford School�

Project Outputs• Jotzo on targets and trading�

• Wood and Jotzo on price floors and price caps�

• Jotzo and Betz on linking�

• Pezzey, Mazouz and Jotzo on free permits�

Journal Articles• Jotzo, F� 2011, ‘The Copenhagen targets: a basis for global climate action?’, Carbon Management, 2(1):9–12�

• Stern, D�I� and Jotzo, F� 2010, ‘How ambitious are China and India’s emissions intensity targets?’, Energy Policy, 38(11):6776–83�

• Pezzey, J�C�V�, Mazouz, S� and Jotzo, F� 2010, ‘The logic of collective action and Australia’s climate policy’, Australian Journal of Agricultural and Resource Economics, 54:185–202�

• Smith, K� 2010, ‘Stern, climate policy and saving rates’, Climate Policy, 10(3):289–97�

• Jotzo, F� and Betz, R� 2009, ‘Australia’s emissions trading scheme: opportunities and obstacles for linking’, Climate Policy, 9:402–14�

• Garnaut, R�, Howes, S�, Jotzo, F� and Sheehan, P� 2008, ‘Emissions in the Platinum Age: the implications of rapid development for climate change mitigation’, Oxford Review of Economic Policy, 24:377–401�

• Jotzo, F� 2008, ‘Climate change economics and policy in the Asia-Pacific’, Asian-Pacific Economic Literature, 22(2):14–30�

• Pezzey, J�C�V, Jotzo, F� and Quiggin, J� 2008, ‘Fiddling while carbon burns: why climate policy needs pervasive emission pricing as well as technology promotion’, Australian Journal of Agricultural and Resource Economics, 52(1):97–110�

• Garnaut, R�, Jotzo, F� and Howes, S� 2008, ‘A framework for a post-2012 global climate agreement’, Policy Quarterly, 4(4):6–10�

• Jotzo, F� and Pezzey, J� 2007, ‘Optimal intensity targets for greenhouse emissions trading under uncertainty’, Environmental and Resource Economics, 38(2):259–84�

• Jotzo, F� 2007, ‘Climate policy: where to and how’, Agenda, 14(1):17–34�

Book Chapters• Jotzo, F� 2009, ‘Economic tools to meet the mitigation challenge’, in K� Richardson et al� (ed�), Copenhagen Climate Congress

Synthesis Report, University of Copenhagen and AIRU�

• Garnaut, R�, Howes, S�, Jotzo, F� and Sheehan, P� 2009, ‘The implications of rapid development for emissions and climate change mitigation’, in D� Helm and C� Hepburn (eds), The Economics and Politics of Climate Change, Oxford University Press, Oxford�

• Garnaut, R�, Jotzo, F� and Howes, S� 2008, ‘China’s rapid emissions growth and global climate change policy’, in Ligang Song and Wing The Woo (eds), China’s Dilemma: Economic growth, the environment and climate change. China Update 2008, ANU E Press, Canberra�

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Research Reports and Policy Briefs• Jotzo, F� 2010, Comparing the Copenhagen emissions targets, EERH Research Report No� 78, Environmental Economics

Research Hub, The Australian National University, Canberra�

• Pezzey, J�C�V� and Jotzo, F� 2010, Tax-versus-trading and free emission shares as issues for climate policy design, EERH Research Report No� 68, Environmental Economics Research Hub, The Australian National University, Canberra�

• Smith, K� 2009, Saving the world but saving too much? Pure time preference and saving rates in integrated assessment modelling, EERH Research Report No� 39, Environmental Economics Research Hub, The Australian National University, Canberra�

• Pezzey, J�C�V�, Mazouz, S� and Jotzo, F� 2009, The logic of collective action and Australia’s climate policy, EERH Research Report No� 24, Environmental Economics Research Hub, The Australian National University, Canberra�

• Jotzo, F� and Betz, R� 2009, Linking the Australian Emissions Trading Scheme, EERH Research Report No� 14, Environmental Economics Research Hub, The Australian National University, Canberra�

• King, H� 2008, The challenges of finding efficient policy measures to reduce Australia’s agricultural greenhouse gas emissions, EERH Research Report No� 9, Environmental Economics Research Hub, The Australian National University, Canberra�

• Jotzo, F� 2010, ‘Yes we can…’: adjusting Australia’s climate target, EERH Policy Brief, May, Environmental Economics Research Hub, The Australian National University, Canberra�

Conferences and Workshops Convened (All by F� Jotzo�)

• Workshop on International Linking of Emissions Trading at ANU, April 2008: eight high-profile speakers, 120 participants, extensive media coverage�

• Round tables and seminars convened for visiting high-profile academics: Michael Hanemann (University of California, Berkeley), Axel Michaelowa (University of zurich), Cameron Hepburn (University of Oxford and London School of Economics), Felix Mathes (Oeko Institute, Berlin)�

Conferences and Public Events(All by F� Jotzo�)

• Opening presentation at inaugural Crawford Policy Forum, February 2010�

• Crawford Seminar, March 2010�

• Plenary presentation at ANU China–Australia Climate Change Forum, April 2009�

• Climate change policies in developing countries: comparing China and Indonesia, Plenary presentation at ANU Climate Change Institute Open Day, August 2009�

• Seminar at Department of Agricultural Economics, University of Sydney, August 2009�

• Invited lecture at climate change policy forum in Wellington, Nz (Victoria University and Nz Government), July 2008�

Policy Outreach(All by F� Jotzo�)

• Frequent informal interaction with senior Commonwealth officials, including at the levels of deputy secretaries and first assistant secretaries, predominantly with Department of Climate Change and Energy Efficiency, also Treasury, AusAID, Department of Foreign Affairs and Trade, and the Department of Environment�

• Briefings and closed seminars to officials at Treasury, Department of Climate Change and AusAID�

• Briefing at Indonesia–Australia bilateral ministerial meeting (in attendance: Treasurer, Wayne Swan, and Ministers Mulyani, Pangestu and Alisjahbana), November 2009, Jakarta�

• Testimony at hearing of the Senate Economics Committee, Inquiry into the exposure drafts of the legislation to implement the Carbon Pollution Reduction Scheme, 19 March 2009�

Opinion Pieces• Jotzo, F� 2011, ‘A carbon price for Australia: from tax to trading’, Resources for the Future Policy Commentary, [Washington,

DC], March�

• Jotzo, F� 2010, ‘Copenhagen and the case for 15%’, Climate Spectator, 25 October�

• Jotzo, F� 2010, ‘The real economics of an ambitious clean energy support’, The Canberra Times, 16 September�

• Jotzo, F� 2010, ‘A carbon price beats throwing cash at new car owners’, Crikey, 9 August�

• Jotzo, F� 2010, ‘Climate action an issue that will not fade’, The Age, 8 July�

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• Jotzo, F� 2010, ‘What China really delivered at Copenhagen’, East Asia Forum Quarterly, January–March�

• Jotzo, F� 2009, ‘Indonesia cutting emissions by up to 41 per cent: how?’, Jakarta Post, 14 October�

• Howes, S� and Jotzo, F� 2009, ‘More expensive, less effective’, Sydney Morning Herald, 13 August�

• Jotzo, F� 2009, ‘New government, new attitude, new optimism’, The Canberra Times, 20 November�

• Jotzo, F�: Several posts on East Asia Forum; 15 articles on climate change policy by Jotzo published by East Asia Forum between July 2008 and February 2011� See http://eastasiaforum.org/index.php?s=Jotzo

Media • A large number of mentions of Frank Jotzo in Australia’s major newspapers (Sydney Morning Herald, The Age, Australian

Financial Review, The Australian and others) as well as major international newspapers (The New York Times, The Guardian, and many others)�

• Highlights of print media coverage: extensive reporting by Ross Gittins in the Sydney Morning Herald and The Age on 17 November 2010 and 12 March 2011, on Hub-sponsored research on emissions targets and carbon pricing, respectively�

• A large number of interviews with Frank Jotzo about current research topics and climate policy on Australian radio, including national radio (ABC AM, PM, The World Today, Radio National Asia-Pacific and others) and international stations� Highlights: extensive interviews on emissions trading and carbon tax on ABC’s The World Today, and Triple J�

• Several TV interviews including on national broadcasts (ABC and SBS news and current affairs)� Highlight: interview on ABC 4 Corners program ‘Heat on the Hill’, 2009�

Other• Frank Jotzo selected as Lead Author for Intergovernmental Panel on Climate Change Fifth Assessment Report, Working Group III�

• Formation of Centre for Climate Economics and Policy at ANU Crawford School, as a successor to the climate change theme under the Environmental Economics Research Hub�

ContactDr Frank Jotzo, ANUEmail: frank.jotzo@anu.edu.au

Project Team

Researcher

Dr Frank Jotzo, ANU, Project leader

‘Yes we can…’: Adjusting Australia’s climate target

FRANK JOTzO22

The Copenhagen pledges by major developed and developing countries imply significant effort, and they fulfil Australia’s stated conditions for an up to 15 per cent emissions reduction by 2020�

The Copenhagen Accord is a political agreement� It falls well short of a new international climate treaty; it skirts around some issues that will need to be resolved for any comprehensive post-Kyoto global climate agreement� Yet, for the first time, all major countries have pledged action through emissions reductions or limitations� The Accord has shown that cooperation regarding climate change is politically feasible�

Countries representing more than 80 per cent of global emissions have now announced specific actions and greenhouse gas emissions targets for the year 2020� Although these targets are not binding, they are a clear indication of what countries are prepared to work towards� Developed countries have also pledged climate finance for developing countries�

But what does the Accord mean for Australia’s climate target?

22 Resource Management in the Asia Pacific Program, Crawford School of Economics and Government, The Australian National University. Email: frank.jotzo@anu.edu.au

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Australia’s PositionAustralia has set a range for its 2020 emissions target, depending on other countries’ commitments� The conditions, set out in May 2009 and reiterated in Australia’s formal submission to the Copenhagen Accord in January 2010, are

• a reduction of 25 per cent below year 2000 levels ‘if the world agrees to an ambitious global deal capable of stabilising…at 450 parts per million CO2-eq [carbon dioxide equivalent] or lower’

• a reduction of up to 15 per cent ‘if there is a global agreement which falls short of [450] and under which major developing countries commit to substantially restrain emissions and advanced economies take on commitments comparable to Australia’s’

• a reduction of 5 per cent, irrespective of other countries’ commitments�

The Government has, however, separately stated that for now it will not increase Australia’s emissions reduction target above 5 per cent, pending, among other things, clarity about other countries’ commitments and actions�

Global Ambition Typical estimates of the possible long-term warming under a Copenhagen trajectory range are between 2�4 and 3�5 degrees (for an overview, see Jackson and McGoldrick 2010)�

Such analyses are highly contingent on assumptions made about emissions levels after 2020� Nevertheless, it is clear that the possibilities for limiting climate change risks are being closed off� It is difficult to construct scenarios in which post-2020 emissions fall quickly enough to limit expected temperature increases to 2 degrees—a widely discussed goal� A ‘450’ stabilisation could be achieved only after substantial overshooting�

Comparing 2020 Emissions TargetsCountries have framed their commitments in very different terms� Developed countries have expressed their targets as percentage reductions in 2020 emissions relative to historical levels, but have chosen different base years� China and India have pledged a reduction in the emissions intensity of their economies (the ratio of carbon emissions to GDP) over the period 2005–20� A number of industrialising and developing countries—among them Brazil, Indonesia and South Africa—have pledged percentage reductions in emissions relative to (in many cases still undefined) business-as-usual scenarios at 2020�

An analysis that puts the different commitments on a common footing and compares them across the different metrics (Jotzo 2010) shows that the pledges given by both developed and developing countries imply significant effort, and that their impact is comparable between countries on several metrics�

Three Metrics for ComparisonFor absolute emissions levels, the targets imply very different trajectories� Growth in emissions would continue strongly in China, India and a number of other countries, while moderate decreases would occur in most developed countries and some developing countries� This reflects strongly differing prospects for economic growth and structural change� It also reflects differing levels of development and energy use, with India’s per capita emissions, for example, only about one-tenth of the average across rich countries� In aggregate, the main developed countries are targeting a reduction of about 15 per cent relative to 2005 levels� The pledges of the main developing countries imply limiting their emissions growth on average to about 40 per cent over the same period�

For emissions intensity, however, the targets imply similar reductions across countries� For most major countries (developed and developing alike), the targeted reductions in the ratio of carbon to GDP are clustered between 35 and 50 per cent, from 2005 to 2020� The intensity metric directly reflects the ultimate aim of climate change mitigation policy: to achieve economic growth with fewer and fewer greenhouse gas emissions� Developing countries generally have an advantage in that faster growth means more opportunities to install more efficient equipment� The similarities in targeted reductions are nevertheless striking�

Business-as-usual reductions are more difficult to establish� These reductions involve assumptions about what would have happened in the absence of dedicated policies� Nevertheless, on plausible assumptions, targeted reductions pledged by developing countries are broadly comparable with those implicit in the targets set by developed countries�

The most comprehensive metric for comparison would be the economic costs imposed by reaching each country’s target� Such a comparison is, however, inevitably model based; the difficulties of estimating business as usual are compounded by the need for a host of assumptions about abatement costs and economic flow-on effects�

ChinaA pivotal question for the international community is: what ambition is implied by China’s pledge to cut the emissions intensity of its economy by between 40 and 45 per cent, from 2005 to 2020? Detailed quantitative analysis (for example, Stern and Jotzo 2010) shows

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that without policy effort, future emissions intensity would be much higher� In fact, China’s total targeted reductions relative to business as usual, with continued fast carbon emissions growth, could be larger than the total targeted reductions in developed countries�

China’s existing policies to cut energy use and expand renewable energy sources will need to be continued and complemented by new policies� The potential policy package is not yet known and China is unwilling to enter a binding international commitment� But it is clear that China’s political leadership is determined to follow through with the target it has set itself�

Implications for AustraliaThe Copenhagen targets fulfil Australia’s stated conditions for an ‘up to 15 per cent’ reduction target; major developing countries have committed to substantially restrain emissions, while advanced economies have taken on commitments comparable with an Australian 15 per cent target�

With Australia’s stated interest in strong global climate action, the logical next step would be to take on a 15 per cent reduction target�

This would need a significant mitigation effort from Australia, as well as investment in reductions in developing countries (Treasury 2008)� Any reduction target must take into account the fact that Australia’s emissions are already well above year 2000 levels—and are likely to continue growing, in the absence of dedicated policies� Even a 5 per cent reduction target implies significant reductions relative to unconstrained emissions growth�

The recent shelving of plans for an emissions trading scheme (or carbon pollution reduction scheme) will make it much more costly for Australia to cut carbon emissions in the future� Every year that goes by without carbon pricing prolongs investment uncertainty in major industries, and delays progress towards cleaner energy systems and new carbon sequestration technologies� Regulatory policies might be successful in specific sectors, but they will inevitably be patchy� They also come with a much higher economic price tag than comprehensive emissions pricing�

ReferencesJackson, E� and McGoldrick, W� 2010, Climate Policy Post-Copenhagen: A new multilateralism?, April, The Climate Institute,

Melbourne�

Jotzo, F� 2010, Comparing the Copenhagen climate targets, Crawford Seminar, March, The Australian National University, Canberra�

Stern, D� and Jotzo, F� 2010, How ambitious are China and India’s emissions intensity targets?, EERH Research Report No� 51, Environmental Economics Research Hub, The Australian National University, Canberra�

Treasury 2008, Australia’s Low Pollution Future, Commonwealth of Australia, Canberra�

11E: HOUSEHOLD PREFERENCES FOR THE CARBON POLLUTION REDUCTION SCHEME IN AUSTRALIA

Project DescriptionThis project is part of Theme B: Climate change analysis�

Project ObjectiveThe project aims to investigate the role that uncertainty plays in determining household willingness to pay for climate change policy in Australia�

Key Findings• Low importance to climate change: A sample of more than 600 Sydney residents—about two-thirds of whom were concerned

about climate change and almost three-quarters of whom believed climate change was caused by human action—attached relatively low levels of importance to climate change in comparison with other competing policy issues in Australia�

• Negative relationship with cost: Support for the scheme varied negatively with its potential costs to households� At a relatively lower level of cost, more households were supportive of the policy� The support for the policy declined as cost increased�

• Beliefs of temperature rise: Respondents’ willingness to pay for climate change mitigation is significantly influenced by their beliefs of future temperature rise� Support for the policy increased at a decreasing rate as the perceived temperature change rose�

• Lack of confidence in the success of the mitigation measure: Sample respondents stated significantly lower chances of the mitigation measure being successful when the United States, India and China are not committed to the mitigation effort�

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Under the assumption that global cooperation is achieved, respondents’ best guess of the likelihood of the Carbon Pollution Reducation Scheme (CPRS) being successful did not exceed 50 per cent�

• Perceptions of policy failure have a significant negative impact on respondents’ support for the proposed mitigation measure� The higher the perceived likelihood that the measure would not deliver any outcome, the lower was the likelihood that respondents would support the policy�

• Global cooperation: Respondent preferences for the proposed policy are influenced by the possibility of reaching a global agreement on emissions reduction� Sample respondents stated significantly higher values for the policy when the biggest polluting countries implement a similar scheme�

• Mass-media exposure: Respondents’ willingness to take action against climate change—both at the national and at the household levels—is found to be influenced by their level of mass-media exposure� Particularly, those respondents who watched An Inconvenient Truth were significantly more likely to act for climate change mitigation than others�

Willingness to pay: On average, sampled households were willing to bear between A$17 and A$68 extra household expenditure per month� This amount is about 0�25 to 1 per cent of average monthly household income of the sample population and less than 50 per cent of the projected increase in household expenditure due to the introduction of the CPRS (Treasury 2008, Australia’s Low Pollution Future, Commonwealth of Australia, Canberra)�

Key OutcomesThe research findings have enhanced our understanding about the general public’s perceptions of and preferences for climate change mitigation in Australia� The results provide useful information to policymakers and will help shape climate change policy in Australia�

Project Outputs

Journal Articles• Akter, S� and Bennett, J� (forthcoming), ‘Household perceptions of climate change and preferences for mitigation action: the

case of the Carbon Pollution Reduction Scheme in Australia’, Climatic Change, available from http://www.springerlink.com/content/40775103j764q2h1/ or DOI:10.1007/s10584-011-0034-8

• Akter, S� and Bennett, J� 2008, ‘Preference uncertainty in contingent valuation’, Ecological Economics, 67(3):345–51�

Research Reports• Akter, S�, Bennett, J� and Ward, M�B� (in progress), Information distortion in choice experiments, EERH Research Report No� 106,

Environmental Economics Research Hub, The Australian National University, Canberra�

• Akter, S� and Bennett, J� 2009, Estimating non-market values under scenario and policy ambiguity: the case of climate change mitigation in Australia, EERH Research Report No� 932, Environmental Economics Research Hub, The Australian National University, Canberra�

• Akter, S� and Bennett, J� 2010, Testing construct validity of verbal versus numerical measures of preference uncertainty in contingent valuation, EERH Research Report No� 46, Environmental Economics Research Hub, The Australian National University, Canberra�

Conference Papers• Akter, S�, Bennett, J� and Ward, M�B� 2011, Preference uncertainty in choice experiments, Paper presented to Fifty-Fifth Annual

Conference of the Australian Agricultural and Resource Economics Society, 8–11 February, Melbourne�

• Akter, S� and Bennett, J� 2010, Two-option versus three-option alternatives in discrete choice experiments: further empirical investigations, Paper presented to Fifty-Fourth Annual Conference of the Australian Agricultural and Resource Economics Society, 9–11 February, Adelaide�

• Akter, S� and Bennett, J� 2009, A cognitive psychological approach of analysing preference uncertainty in contingent valuation, Paper presented to Fifty-Third Australian Agricultural and Resource Economics Society Conference, 11–13 February, Cairns, Qld�

Seminar and Conference Presentations• Paper presented to American Economic Association Meeting, 5 January 2010, Atlanta, Ga�

• Paper presented to Centre for the Study of Choice, School of Marketing, University of Technology Sydney, 2 March 2010, Sydney�

• Presentation to Fourth World Congress of Environmental and Resource Economists, 28 June – 2 July 2010, Montreal�

Media Release• Carbon scheme a high price to pay: survey, ANU News, 26 February 2009�

PhD Completion• Sonia Akter’s PhD was accepted in October 2010� Her thesis title is ‘Incorporating certainty in environmental valuation’�

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ContactDr Sonia Akter, ANUEmail: Sonia.Akter@ufz.de

Project Team

Researcher

Dr Sonia Akter (ANU), Project leader

PROJECT 12: SOCIOECONOMICS OF ON-FARM RENEWABLE ENERGY

Project DescriptionThis project is part of Theme B: Climate change analysis�

Project ObjectiveIdentify economic and environmental costs and benefits with the utilisation of biomass—in particular, in the dairy and corn industries—to produce electricity by cogeneration and distil ethanol�

Key Findings• There are sufficient on-farm wastes in particular industries, in particular locations, to allow for economically efficient

production of bio-fuels�

• The existence of a bio-diesel plant utilising waste poppy seeds, located in Tasmania, is proof of this�

• There are, however, very few agricultural industries where the flow of wastes is consistent over the year—due to the seasonality of production—and on-farm wastes would need to be accumulated during the harvesting season and stored if the aim is to have a (small) bio-fuel plant operating on a permanent basis� The only crop that is grown and harvested 365 days a year is bananas� It is also a crop with very high on-farm (processing-shed) waste�

• While there are numerous crops with significant waste and the storing of waste would be feasible, at a cost, farmers have preferences for other approaches to waste utilisation—in particular, if they do not come at an additional cost�

• There is considerable interest in the general farming community to find markets for what have traditionally been wastes, such as marked, spoiled or otherwise ‘unattractive’ product� Much of the research to date has been, and continues to be, in utilising these wastes to make consumer products such as purees� This is evident in the avocado industry (and many others)�

• Given the novelty of on-farm production of bio-fuels, farmers have a strong preference to have others acquire their on-farm wastes and treat them in centralised production units� That is, the farms (either as individuals or in cooperatives) are lukewarm at present about undertaking their own production� The success of using sugar cane for ethanol production and tallow for bio-diesel production results from the waste being generated off-farm and in large enterprises� That noted, the tallow producers (abattoirs) can—and do, if the price is right—sell the tallow to large-scale bio-diesel producers� There is also the case of flour milling producing waste at the processing stage that can be used to produce bio-fuels�

• Notwithstanding the favourable economics of on-farm, small-scale bio-fuel production—without the need for subsidies—only ‘enthusiasts’ are keen to go along this route� There are very few of them at present�

Key Outcomes• Vast amounts of data on on-farm wastes were collected in this research� It is of value to the wider community� With this in

mind, the researchers (T� Hundloe and A� White) are in the process of writing a book under the working title ‘Waste Not, Want Not: Searching for solutions to food waste in Australia’� The publisher is not settled on, however, CSIRO Publishing, which is producing the Hundloe and Crawford book The Value of Water in a Drying Climate, in 2011 is the front-runner�

• White, with two co-authors (one being Hundloe), has published a journal article on banana waste utilisation� The researchers have given a number of radio interviews, for example, with the ABC’s Country Hour� Amy White is using her knowledge gained from this research in her PhD on the utilisation of fisheries waste�

• Another PhD candidate, Jonathon Evers, who undertook some of the early research on the project, had to take leave-of-absence due to family matters� He has moved his research to Bond University, where both Hundloe and White are� Given his

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house was destroyed in the Brisbane floods, we have no clear idea of when his research will be finished� Due recognition of the funding under this project will be given when his research is completed�

Project Outputs

Outputs: 2007 to early 2008• Major literature review of current bio-fuel technology�

• Bio-fuel producers visited

- Biodiesel Producers Barnawartha Plant, Victoria

- Energetix Biodiesel Plant (Smorgan Group), Victoria

- Macquarie Oil (small-scale bio-diesel producer), Tasmania

- EcoTech Biodiesel, Queensland�

• Preliminary fieldwork conducted with visits made to potential feedstock suppliers including nut-processing plants, abattoirs and chicken farms�

Outputs: Early 2008 to October 2008• Two field trips to north Queensland (from Townsville to Cairns and on to the Atherton Tableland)� All relevant government

agencies have been visited—in particular, Queensland Department of Primary Industries and Fisheries Research Stations�

• A range of farmers (bananas, pawpaws, and so on) visited and farming operations, including packing of product, inspected� Detailed discussions were held with the farmers�

• The project was the subject of an ABC Country Hour slot prior to our visits�

• A prototype bio-diesel (hand) lawnmower has been put together (using private money) with the aim of illustrating the use of bio-diesel in small-scale machinery� At present, the mower is being inspected by Queensland’s major bio-diesel producer, EcoTech Biodiesel�

Outputs: October 2008 to early 2009• Completed the distribution of our questionnaire to banana growers (before the end of 2008)�

• Developed a life-cycle analysis framework in considerable detail�

• Analysis of banana case study under way�

Outputs: Early 2009 to the end of 2009• Much of the fieldwork has been completed as has much of the secondary data gathering� We have a reasonably accurate

description of the farm residues that are generated by Australian farms� We have attempted to cover all major crops as well as livestock production� What is, or is not, a residue becomes an interesting question� It is not unlike the matter of defining a fishery non-target species as a ‘by-catch’ or a ‘by-product’� Once a residue takes on a market price (a good thing), it is no longer ‘waste’� Animal fat at abattoirs fits the description of a by-product as it has long been used to make soap and, in recent times, bio-diesel� Tallow is the feedstock for two major, operating bio-diesel producers in Australia�

• Sought to identify regions where residues are generated in large quantities within a defined geographical area that makes local bio-fuel production—or other economic uses—potentially favourable� This narrows considerably the range of crops that can be economically utilised�

• Seasonality is a factor as continuous supply is important� This further narrows the list of potential candidate crops� Only bananas are grown and sold 365 days a year� They are a potential feedstock for ethanol and value-added food products�

• Where there are significant residues and they can be stored, it is possible to spread the production of a by-product throughout the year� While various crops fit these criteria, only one is close to commercial viability for bio-diesel production: poppy seed grown in Tasmania�

• Commenced drafting a book covering investigations and analysis undertaken for this research� By September 2009, the team had completed much of the planned fieldwork, visiting farms along the length of the Australian east coast plus some inland� In Tasmania, a range of different farms was visited, including some of Australia’s best merino and fine-wool producers, potato farmers, beef farmers and poppy farmers� In Victoria and New South Wales, the farms included dairy, sheep, cattle plus grain growers� In Queensland, the range was from wine-grape producers and sugarcane farmers in the south of the State to banana, mango, exotic tropical fruit and vegetable farmers in the north� In addition to farm visits, a small number of bio-fuel producers were visited, including a relatively large, new bio-diesel plant co-located with a rendering facility (in northern Victoria), a commercial waste-oil bio-diesel producer in Melbourne (utilising restaurant cooking oils), an experimental algae-based bio-fuel

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facility, a major bio-diesel producer using tallow, and a sugarcane-based ethanol producer (in Queensland)� On the basis of farm and industry visits, we have been able to determine the major variables associated with a successful bio-fuel business based on farm residues as feedstocks� These are

- price of the residue (for example, tallow that has other uses)

- volume of the feedstock (except for home and ‘backyard’ bio-fuel producers, there has to be a commercial level of residue)

- the energy intensity of the potential feedstock (there is a very large range)

- regular supply of the feedstock (most horticultural products are grown on a seasonal basis and, except where storage of wastes is both feasible and economic, these are not viable sources)

- transport costs (co-location of the bio-fuel plant and the waste-generating farms is desirable; there are exceptions)

- distribution outlets and extent of consumer demand for the fuel (except for blends B5 and E10, there are very few retail outlets, and there is still consumer resistance)

- price of the bio-fuel in relation to its conventional competitors (this is a ‘moving feast’ as petrol and diesel have fluctuated to a significant extent in price in the recent past)

- government policies, as they impact on prices and demand (subsidies and mandated ‘green’ energy targets are the main ones)�

• Using these variables as a guide, we have been able to eliminate a wide range of farm types and products as candidates for conventional bio-fuel production� This means that in the livestock industries tallow is the feedstock of choice, notwithstanding other wastes are generated on the farm or in meat production�

• With regard to fruit and vegetable growers, we first considered volumes produced, then where the products were grown and next their energy potential� We look for either very fatty foods (for bio-diesel) or very sugary foods (for ethanol)�

Outputs: End of 2009 to early 2010The major work was the preparation of a large document based on the banana case study�

The framework is a life-cycle analysis with an economics orientation� This means that the discard of bananas per se is not the end of the analysis, nor is the discovery of the reason they are discarded (the answer is the lack of aesthetic appeal of bent, double or blemished fruit—matters to be discussed in detail in the final report)� In our framework, the waste of resources embedded in discarded bananas is identified as a major inefficiency� The production of methane as waste fruit decomposes is—unless captured—an unnecessary addition to the planet’s greenhouse gas load (an externality)� Note that we are limiting our analysis to discards on farm�

We report that in the order of 50 per cent of total food production is thrown away as it moves from ‘paddock to plate’, but we leave that out of our research as it would be impractical to collect discarded fruit throughout the chain�

Farmers have a variety of methods for dealing with discarded fruit� In most cases, the fruit is put to some use, ranging from spreading in paddocks and dumping in a fallow field to rot, to giving to neighbouring livestock farmers and selling at roadside stalls� Some farmers found it worthwhile to sell discarded fruit to pulp processors� Banana chips sold in our shops are likely to be made overseas, and there is little scope at present to value add in this way in Australia�

Not only have we calculated the economic costs but also the nutritional opportunity costs of the discards� Given the economic loss involved with throwing away fruit, the major question we come to is: what is the optimum use of the discards? It could be as a food source or—where we started—as a bio-fuel feedstock�

Outputs: Since 2010 • A summary of our findings was presented to a selected group of banana farmers in north Queensland on 12 February�

The farmers are now considering options—both food and non-food—to deal with discarded fruit�

• Aspects of our research have attracted attention in the food and agricultural communities and Amy White has given three papers at a conference�

• The other research that has been under way in this most recent period includes

- documenting the use of waste poppy seeds (our Tasmanian case)

- mapping agriculture and the waste associated with it, across Australia

- seeking data on waste farm products at the processing stage—field work under way

- putting the farm-waste component of the bio-fuel industry into an overall energy perspective

- putting the mature parts of the industry into perspective (corn-based ethanol in the United States, palm-oil-based bio-diesel in Asia, canola in Europe, coconuts in the Pacific)

- considering the economic viability of a range of plant sizes and plant types (is farm-level bio-fuel production an economic prospect?)�

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• As of the end of September 2010, we completed fieldwork, with the exception of some ‘follow-up’ visits and interviews, and we are presently drafting chapters for the proposed book ‘Wasting the Farm’ (working title)� We refer readers to our report of 8 September 2010, which details our research activities from the inception of the project until March 2010� Since 2010, we have been writing up various aspects of our research under the following headings�

The Book Outline1� Background to farm production in Australia

• major products (quantities and value)

• where grown (in particular, areas of high concentration)

• form of harvesting

• where processed (on-farm, off-farm)

• residues on farm (type, qualities, present use/disposal)

• residues during processing (type, qualities, use/disposal)

• waste (disposal) of farm produce as it moves up the supply chain�

2� The major on-farm wastes

• according to the type of produce

• according to geographic location

• volume

• why ‘wastes’ (damage, rejection by major retailers, consumer preferences)

• wastes going into the market (volume, form and value)

• current treatment of the waste�

3� Exploring the opportunities to make use of wastes on farm

• fertilisers

• processing for human-grade food

• stock feed

• bio-fuels (small-scale, on the farm)

• other bio-products (for example, bio-plastics, pharmaceuticals)

• the market demand and supply consideration and opportunity costs�

4� The major waste at the point/s of processing

• according to the type of produce and processing

• according to geographic location

• volume

• why ‘waste’ (damage, quality, and so on)

• wastes going into the market (tallow, grain, and so on)

• wastes not going into the market (for example, pips/seeds)�

5� Exploring the opportunities to make use of processing wastes

• fertilisers

• processing for human-grade food

• stock feed

• bio-fuels (small-scale, on the farm)

• other bio-products (for example, bio-plastics, pharmaceuticals)

• the market demand and supply consideration and opportunity costs�

6� Conclusion

• The drafting of the book is a little slower than anticipated, mainly due to some necessary last-minute fieldwork� We do not envisage a first draft will be available until early 2011�

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Outputs

Book• Outline of book has been provided above, first draft to be available by mid-2011�

Journal Articles• White, A�, Gallegos, D� and Hundloe, T� 2011, ‘The impact of fresh produce specifications on the Australian food and nutrition

system: a case study of the north Queensland banana industry’, Journal of Public Health Nutrition, available on CJO 2010 doi:10.1017/S1368980010003046

Conference Presentations/Papers• Hundloe, T� and White, A� 2010, The costs of perfection—a case study of the north Queensland banana industry, Presented to

2010 Commonwealth Environment Research Facilities Conference, Canberra�

• Findings above presented to the Public Health Association Food Futures Conference, April 2010, and the Dieticians’ Association of Australia Food and Environment Professional Development Day, February 2010�

Workshop• Hundloe, T� 2008, Socioeconomics of on-farm renewable energy, Environmental Economics Research Hub Annual Workshop,

The Australian National University, Canberra�

Media• The Courier-Mail, [Brisbane], 14 February 2011, http://www.couriermail.com.au/ipad/queensland-ink-tully-dreams-broken/

story-fn6ck2gb-1226005352685

• Radio interviews including ABC Country Hour (2008) and 666 ABC Canberra�

PhD and Other Completions• Jonathon Evers, PhD candidate, had to defer his PhD for personal reasons� He has since moved his PhD to Bond University

where Professor Hundloe and Amy White are now based and will continue it there� His thesis title is ‘Environmental economics of ethanol production’, and due recognition of this project will be given when Jonathon completes his PhD�

• Amelia White submitted her Honours thesis during the project, entitled ‘The environmental, economic and social impacts of fresh produce specifications: a case study of the north Queensland banana industry’�

ContactEmeritus Professor Tor Hundloe, Bond University (formerly at Griffith University)Email: thundloe@bond.edu.au

Project Team

Researchers

Emeritus Professor Tor Hundloe (Griffith University), Project leaderAmy White (Griffith University), PhD studentJonathan Evers, B�Env�Man (UQ), Master of Environmental Law (ANU), PhD student

Research Assistants

Loren Angel and Craig Page (Griffith University), Research Assistants (advanced-year undergraduate students)

Solar and wind power on farms

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PROJECT 13: DESIGNING ENVIRONMENTAL POLICY FOR AUSTRALIA FROM AN ECONOMIC AND SOCIAL PERSPECTIVE

Project DescriptionThis project is part of Theme C: Advancing Australia’s capability for social and economic analysis of environmental issues at a regional scale�

Project ObjectiveDevelop environmental policy options that deliver efficient, effective and operational outcomes taking imperfect information, uncertainty, transaction costs, complex property rights situations, imperfect competition as well as social and behavioural aspects into account�

Key Findings• Given that the Carbon Pollution Reduction Scheme (CPRS) was of high policy relevance, all major findings of this project are

related to emissions trading design� The first topic is related to the initial allocation of permits� We developed a short-run and long-run model (Calford et al� 2010) and found that initial permit allocation might have an impact on the efficiency of the emissions trading market when market power in both the permit and the output markets exist� We show that in the Bertrand case, higher pass-through profit rates (similar to those that could be observed for the electricity industry under the EU ETS) are generated� We also show that in the short run under free allocation, permit-market efficiency is likely to increase with the strength of the emissions target� Further efficiency increases could be achieved by auctioning permits instead of handing them out for free� In an experimental study (Restiani and Betz 2010c), we demonstrate that auctioning provides higher compliance incentives than the free allocation taking a loose price cap and price floor into account� Furthermore, auctioning evidently generates higher static efficiency due to stronger price signals� What options for auctioning emissions permits exist and what are the advantages and disadvantages of the different auction designs formed another focus� We show that a set of ascending clock auctions is the preferable auction type to distribute permits (Betz et al� 2010)�

• The studies of the second topic were related to the impact of different penalty designs on market performance and were based on theoretical and experimental approaches (Restiani and Betz 2010a, 2010b)� We included the Australian proposal under the CPRS of tying the penalty rate to the auction price� We find that a make-good provision penalty provides stronger compliance incentives compared with fixed penalty rates� Most importantly, we observe a trade-off between investment incentives and efficiency of the permit market related to different penalty types, thus policymakers need to decide if they favour higher compliance rates to high efficiency of the permit market�

• Our third topic was focusing on linking options for the CPRS with other international markets (Jotzo and Betz 2010)� Our major findings show that there is a risk to public budgets and economic efficiency due to the price cap of the CPRS, because it can override the scheme cap but not the national emissions commitment� The price cap was seen as an important obstacle to bilateral linking with other schemes�

• Another topic was around the efficient coverage of an emissions trading scheme when transaction costs are included in the analysis (Betz et al� 2010)� We show that the approach of ‘partial coverage’ based on benefit–cost analysis can achieve the same emission reduction outcome compared with a ‘full coverage’ approach at lower social cost�

• Under the fifth topic, we developed a new approach called ‘additional action reserve’ in order to account for and encourage voluntary action when a cap-and-trade scheme is implemented (Twomey et al� 2010)�

• Finally, we were running prediction markets on the outcomes of the Copenhagen Climate Change Conference (COP15), to test whether such a mechanism could provide a reliable forecast and what crucial design choices have to be made for it to work� Our findings have shown that of the 17 markets, eight predicted the outcome correctly, seven did not and one was undecided� The definition of shares has to be clear and easy to understand and a sufficient number of trading participants have to be ensured in order to make such markets function�

Key OutcomesThe abovementioned findings could lead to policy changes as they can be taken into account in the design of any future emissions trading scheme in Australia and worldwide� In order to disseminate our findings, we have presented our research at various national and international conferences as well as special sessions with policymakers�

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Project Outputs

Book• Heinzel, C� 2009, Distorted Time Preferences and Structural Change in the Energy Industry. A theoretical and applied

environmental–economic analysis, Physica, Heidelberg�

Book Chapter• Bostian, A�A� and Golub, A� 2009, ‘Structural uncertainty in the DICE model’, in A�A� Golub and A� Markandya (eds), Modeling

Environment-Improving Technological Innovations under Uncertainty, Routledge, London, pp� 78–126�

Journal Articles• Betz, R�, Sanderson, T� and Ancev, T� 2010, ‘In or out: efficient inclusion of installations in an emissions trading scheme?’, Journal

of Regulatory Economics, 37(2):162–79�

• Betz, R�, Seifert, S�, Crampton, P� and Kerr, S� 2010, ‘Auctioning greenhouse gas emissions permits in Australia’, Australian Journal of Agriculture and Resource Economics, 54:219–38�

• Jotzo, F� and Betz, R� 2009, ‘Australia’s emissions trading scheme: opportunities and obstacles for linking’, Climate Policy, 9:402–14�

• Schleich, J�, Rogge, K� and Betz, R� 2009, ‘Incentives for energy efficiency in the EU emissions trading scheme’, Energy Efficiency, 2(1):37–67�

• Bostian, AJ�A� and Holt, C�H� 2009, ‘Price bubbles with discounting: a web-based classroom experiment’, Journal of Economic Education, 40:27–37�

• Bostian, AJ�A�, Holt, C�H� and Smith, A�M� 2008, ‘Newsvendor “pull-to-center effect”: adaptive learning in a laboratory experiment’, Manufacturing and Services Operations Management, 10:590–608�

• Betz, R� and Stafford, A� 2008, ‘The policy issues arising with the linking of international emissions trading schemes’, Australian Resources and Energy Law Journal� Special Issue: Emissions Trading, 27(1):86–104�

Research Reports• Twomey, P�, Betz, R�, MacGill, I� and Passey, R� 2010, Additional action reserve: a proposed mechanism to facilitate additional

voluntary and policy emission reductions efforts in emissions trading schemes, EERH Research Report No� 48, Environmental Economics Research Hub, The Australian National University, Canberra�

• Calford, E�M�, Heinzel, C� and Betz, R� 2010, Initial allocation effects in permit markets with Bertrand output oligopoly, EERH Research Report No� 59, Environmental Economics Research Hub, The Australian National University, Canberra�

• Betz, R�, Seifert, S�, Cramton, P� and Kerr, S� 2009, Auctioning greenhouse gas emissions permits in Australia, EERH Research Report No� 29, Environmental Economics Research Hub, The Australian National University, Canberra�

• Nemes, V� 2011, The implications of risk and uncertainty aversion in public good games, EERH Research Report No� 107, Environmental Economics Research Hub, The Australian National University, Canberra�

Work in Progress for Project 13This will lead to further publications in the next couple of months (for example, as EERH Research Reports)�

• Restiani, P� (in progress), A theoretical model of optimal compliance decisions under different penalty designs in emissions trading markets, EERH Research Report No� 86, Environmental Economics Research Hub, The Australian National University, Canberra�

• Restiani, P� and Betz, R� (in progress), The initial allocation mechanism and market efficiency: a laboratory study on emissions trading markets�

• Nemes, V�, Burfurd, I� and Gangadharan, L� (submitted), ‘Stars and standards: energy efficiency in rental markets’, Submitted to journal�

• Betz, R�, Cludius, J� and Twomey, P� (in progress), The Copenhagen prediction market—lessons from a field experiment to forecast climate change negotiations�

• Contreras, z� (in progress), Emissions from electricity generators in response to environmental taxes: evidence from Australia�

• Nemes, V� et al� (in progress), Combining tax and emissions trading: climate policy scenarios for Australia�

• Cludius, J� (in progress), Distributional and allocative effects of pollution control policies (this work will be in progress for the next three years as it is a PhD student just starting)�

Conference Papers• Boerema N� and MacGill, I�F� 2010, ‘The economics of transmission constraints on wind farms—some evidence from South

Australia’, in Proceedings of Solar2010, December, Canberra�

• Cutler N�, Outhred, H�R� and MacGill, I�F� 2010, ‘Forecasting scenarios of wind power generation for the next 48 hours to assist decision-making in the Australian National Electricity Market’, in Proceedings of Solar2010, December, Canberra�

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• Boerema N�, Kay, M� and MacGill, I�F� 2010, ‘Renewable energy integration into the Australian National Electricity Market: characterising the energy value of wind and solar generation’, in Proceedings of Solar2010, December, Canberra�

• Vithayasrichareon, P� and MacGill, I�F� 2011, ‘Generation portfolio analysis for low-carbon future electricity industries with high wind power penetrations’, in Proceedings of IEEE PowerTech2011, June, Norway�

Other Conference and Other Publications• Restiani, M� and Betz, R� 2010, Market performance under different penalty design: experimental evidence on emissions trading

scheme with auctioned permits, International Energy Workshop, KTH—Royal Institute of Technology, 21–23 June, Stockholm�

• Betz, R� and Cludius, J� 2010, Post-Copenhagen: a perspective from Australia and its Asian-Pacific neighbours, Auslandsinformationen 3/2010, Konrad-Adenauer-Stiftung e�V�, Berlin, pp� 123–6�

Presentations • Restiani, P� and Betz, R� 2010, Market performance under different penalty design: experimental evidence on emissions trading

scheme with auctioned permits, Presented to International Energy Workshop, KTH—Royal Institute of Technology, 21–23 June, Sweden�

• Ancev, T�, Betz, R� and Contreras, z� 2010, Evaluating pollution taxes in New South Wales, Presented to German Institute of Economic Research Seminar, 22 June, Berlin�

• Restiani, P� and Betz, R� 2010a, Market performance under different penalty design: experimental evidence on emissions trading scheme with auctioned permits, Presented to Institute of Information System and Management Workshop, 29 June, Karlsruhe Institute of Technology, Germany�

• Restiani, P� and Betz, R� 2010b, Does penalty design matter for emissions trading markets: a laboratory investigation, Presented to Economic Science Association World Meeting, 8–11 July, University of Copenhagen, Copenhagen�

• Calford, E�, Heinzel, C� and Betz, R� 2010, Initial allocation effects in permit markets with Bertrand output oligopoly, Presented to Economics of the Family, Annual Conference of the Association for Social Policy, 9 September, Kiel, Germany�

• Betz, R� and Gunnthorsdottir, A� 2009, Modelling emissions markets experimentally: the impact of price uncertainty, Presented to Eighteenth World IMACS/MODSIM Congress, 13–17 July, Cairns, Qld�

• Betz, R� and Owen, T� 2009, Carbon emission reduction policies—implications for Australia’s energy market, Presented to USAEE Conference, San Francisco�

• Betz, R�, Twomey, P� and MacGill, I� 2009, The governance challenge for implementing effective, efficient and fair market-based climate policies: case studies of the European Emissions Trading Scheme and the Australian Carbon Pollution Reduction Scheme, Presented to EGOS Conference, 2–5 July, Barcelona�

• Betz, R�, Sanderson, T� and Ancev, T� 2009, In or out: efficient inclusion of installations in an emissions trading scheme?, Presented to EAERE Conference, 23–25 June, Amsterdam�

• Betz, R� 2010, Experimental assessment of ETS design options, Presented to Environmental Economics Research Hub Annual Workshop, 9 February, Adelaide�

• Heinzel, C� 2008, Implications of diverging social and private discount rates for investments in new generation technology� A new case for nuclear power?, Presented to Verein für Socialpolitik [Association of Economists in German-speaking countries] Annual Meeting, 23–26 September, Graz, Austria�

• Restiani, Phillia and Betz, Regina 2010c, The effect of sanction design on investment decision and compliance level in a tradable permit market, Presented to Asian Economics Science Association Conference, 18–21 February, Melbourne�

• Calford, Evan, Heinzel, Christoph and Betz, Regina 2009, Impacts of strategic market interaction and initial permit allocation on the carbon price, Presented to EAERE Conference, 23–25 June, Amsterdam�

• Phillia, Restiani 2009, Penalty design, Presented to Climate Change and Environmental Sustainability Program Showcase,

18–19 May, University of New South Wales, Sydney�• Betz, Regina 2009, How to auction permits and predict the carbon price in Australia, Presented to Environmental Economics

Research Hub Meeting, 10 February, Cairns, Qld�

• Heinzel, C� and Winkler, T� 2009, Tradable green certificates as a means of environmental policy? Theoretical consideration and evidence from Poland and Romania, Paper presented to Environmental Economics Research Hub Annual Meeting, 10 February, Cairns, Qld�

• Twomey, P� 2009, The European Union’s Emissions Trading Scheme for greenhouse gases: are the futures markets contributing to dynamic efficiency?, Presented to Environmental Economics Research Hub Annual Meeting, 10 February, Cairns, Qld�

• Betz, Regina and Gunnthorsdottir, Anna 2009, An experimental study of investment decisions in carbon emission trading schemes: what determines efficiency?, Presented to Fifty-Third Australian Agricultural and Resource Economics Society Annual Conference, 11 February, Cairns, Qld�

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• Calford, E�, Heinzel, C� and Betz, R� 2009, Impacts of strategic market interaction and the initial permit allocation on the carbon price, Presented to Fifty-Third Australian Agricultural and Resource Economics Society Annual Conference, 11 February, Cairns, Qld�

• Heinzel, C� and Winkler, R� 2009, The implications of distorted time preferences and time-to-build in the transition to a low-carbon energy industry, Paper presented to Fifty-Third Australian Agricultural and Resource Economics Society Annual Conference, 11 February, Cairns, Qld�

• Bostian, A�J� 2009, Structural uncertainty in the DICE model, Presented to International Research Workshop, 20 February, University of New South Wales, Sydney�

• Heinzel, C� 2009, Discounting, and environmental and technology policies in the transition to a low-carbon energy industry, Presented to International Research Workshop, 20 February, University of New South Wales, Sydney�

• Twomey, P� 2009, The European Emissions Trading Scheme—some lessons for Australia, Presented to International Research Workshop, 20 February, University of New South Wales, Sydney�

• Heinzel, Christoph 2008, Distorted time preferences and structural change in the energy industry, Presented to Energy Showcase, December, University of New South Wales, Sydney�

• Twomey, P� 2008, A framework for climate change and energy policy interactions, Poster for Energy Showcase, December, University of New South Wales, Sydney�

• Bostian, A�J� 2009, Using clicker technology for large-scale classroom experiments in economics, Presented to Society of Economic Educators Annual Meeting, March�

• Bostian, A�J� 2008, Prediction market forecasting with an application to the Carbon Pollution Reduction Scheme, Presented to AETF Round Table, November�

• Betz, Regina 2008, Emissions trading: designing and implementing an effective, efficient and equitable greenhouse gas trading scheme: lessons learnt from the European Union, Presented to Conference of International Association for Energy Economics, Second Asian Meeting, November, Perth�

• Betz, Regina 2008, Carbon Pollution Reduction Scheme (CPRS)—policy and implementation, Presented to CarbonExpo, October, Gold Coast, Qld�

• Betz, Regina 2009, Carbon trading—implications for business, Presented to Australian Institute of Credit Management Annual Conference, 21 October�

Organised Workshops/Seminars• Auctioning permits under the Regional Greenhouse Gas Initiative (RGGI): lessons learnt for Australia, Presented by Dr William

Shobe, Research Professor at the University of Virginia and Director of the Center for Economic and Policy Studies (CEPS), and Adjunct Professor in the Department of Economics, 27 October 2009�

• The brave new world of carbon trading, Presented by Professor Clive Spash, jointly organised with IES, University of New South Wales, 3 March 2010�

• Internal seminar for some public servants of the Department of Climate Change, showing them the auction software and presenting the results of the penalty design experiments, 30 March 2010, University of New South Wales, Sydney�

• Michaelowa, Axel 2009, The CDM: current status and CDM reform proposals, Presented to Clean Development Mechanism, Internal workshop for the Department of Climate Change, 9 February�

• EU Emissions Trading System, Seminar by Dr Simon Marr, European Commission, Environment Directorate General, 31 October 2008, University of New South Wales, Sydney�

• Auctioning of CO2 Emission Allowances in Phase 3 of the EU Emissions Trading Scheme, Seminar by Dr Eva Benz, Centre for

European Economic Research (zEW), Mannheim, Germany, 13 March 2009, Sydney�

• Emissions trading for Australia: lessons from Europe, Public lecture by Dr Felix Matthes, Öko-Institut, Germany, 17 March 2008, University of New South Wales and The Australian National University�

• Workshop with Department of Climate Change on ETS design, 17 March 2008, Canberra�

• Climate change: what can market based instruments deliver?,Public lecture by Dr Barbara Buchner, International Energy Agency, France, 10 April 2008, University of New South Wales, Sydney�

• Addressing climate change beyond Kyoto: where might the Bali roadmap lead us?, Public lecture by Dr Erik Haites, Margaree Consulting, 14 April 2008, University of New South Wales, Sydney�

• International linking of emissions trading, Public forum, 15 April 2008, Canberra�

• Kyoto mechanisms: successes, challenges and reform, Public lecture by Cameron Hepburn, Deputy Director of the Smith School of Enterprise and the Environment at the University of Oxford, UK, 26 August 2008�

• Emissions trading in Australia—allocation challenges, Public forum organised by the Centre for Energy and Environmental Markets, the Institute of Environmental Studies (UNSW) and the Environmental Economics Research Hub, 1 September 2008�

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Supervision• Phillia Restiani (PhD student) submitted her PhD in September 2010� Her three papers will be published as EERH Research

Reports and submitted to journals�

• zaida Contreras (PhD student) submitted her PhD at the beginning of 2011� She has been working on the last paper on environmental policy evaluation for the Load Based Licensing Scheme in New South Wales�

• Two Honours students submitted their Honours theses in October 2008 and received a first and a second Honours degree: Sartor, Oliver 2008, The European Union’s Emissions Trading Scheme for greenhouse gases: are the futures markets contributing to dynamic efficiency?, Honours Thesis, University of New South Wales, Sydney; Calford, E� 2009, Impacts of strategic market interaction and the initial permit allocation on the carbon price, Honours Thesis�

Outreach2010

• The role of experiments in energy and environmental markets, Organised by Economic Policy, Department of Sustainability and Environment with The Market Reform Initiative, Department of Treasury and Finance and Economics and Policy Research, Department of Primary Industries, 19 April, Mercure Hotel, Melbourne�

• We ran a prediction market at the Copenhagen Conference� More than 100 people participated� The results of the prediction market will be published in an EERH Research Report�

2009• Gave evidence at the public hearing by the Senate Select Committee on Climate Policy�

• Op-ed pieces published in the Australian Financial Review, May�

• Betz, Regina 2009, Climate policy: comparing cap and trade and tax schemes, Invited presentation at Vital Issues Seminar on Carbon Tax and Emissions Trading, 17 March, Commonwealth Parliamentary Library, Canberra�

• Gave evidence at the public hearing by the Senate Economics Committee: Inquiry into the exposure drafts of the legislation to implement the Carbon Pollution Reduction Scheme�

ContactDr Regina Betz, UNSWEmail: r.betz@unsw.edu.au

Project Team

Researchers

Regina Betz (UNSW), Project leaderA�J� Bostian (UNSW), PostdocChristoph Heinzel (UNSW), PostdocPaul Twomey (UNSW), PostdocVeronika Nemes (UNSW), PostdocPhillia Restiani (UNSW), PhD studentzaida Contreras (UNSW), PhD studentJohanna Cludius (UNSW), new PhD student (to start mid-2011)

Research Assistant

Martin Jones (UNSW)

PROJECT 14: THE BENEFITS AND COSTS OF BIOSECURITY

Project DescriptionThis project is part of Theme C: Advancing Australia’s capability for social and economic analysis of environmental issues at a regional scale�

Project ObjectiveAn economic evaluation of measures to protect Australia’s environment from imported pests and diseases�

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Key FindingsEERH research in the economics of biosecurity for environmental assets helps determine economically optimal expenditures on border quarantine, local surveillance and containment and eradication measures against a host of potential invasive threats� Our research finds that it is optimal to detect environmental threats ‘early’, and calls for considerable expenditures for local surveillance, even with standard discount rates and growth rates of an invasive that are relatively low (for example, weeds)�

Key Outcomes‘Early detection’ expenditures are justified for a variety of potentially damaging invasive threats� Doing so minimises the potential damages from an invasive and the cost of the surveillance program itself� Case studies for hawkweed, papaya fruit fly and red imported fire ant are provided�

Project Outputs

Book Chapter• Kompas, Tom and Che, Nhu (forthcoming), ‘Cost benefit analysis for biosecurity decisions’, in Methods for Invasive Species Risk

Analysis and Management, Cambridge University Press, Cambridge�

Journal Articles• Kompas, Tom, Ha, Pham Van and Che, Nhu (submitted), ‘An optimal local surveillance measure for biosecurity: an application to

papaya fruit fly in Australia’, Submitted to Journal of Economic Dynamics and Control�

• Ward, Michael and Kompas, Tom 2010, ‘The value of information in biosecurity risk–benefit assessment: an application to red imported fire ants’, Australian Journal of Agricultural and Resource Economics�

• Kompas, Tom, Che, Nhu and Ha, Pham Van (submitted), ‘Practical optimal border quarantine measures’, Submitted to American Journal of Agricultural and Resource Economics�

• Rolfe, John and Windle, Jill (submitted), ‘Valuing the control of red imported fire ants in Australia using choice modeling’, Submitted to Australian Journal of Agricultural and Resource Economics�

• Kompas, Tom and Chu, Long (submitted), ‘A comparison of parametric approximation techniques to continuous-time stochastic dynamic programming problems: applications to biosecurity’, Submitted to Environmental Modeling and Software�

• Kompas, Tom, Chu, Long and Che, Nhu (submitted), ‘Optimal economic strategies for controlling invasive weeds’, Submitted to Australian Journal of Agricultural and Resource Economics�

Conference Papers• Kompas, Tom 2010, The economics of biosecurity: risk, border quarantine, local surveillance and containment and eradication,

Presented to Global Biosecurity 2010, March, Brisbane�

• Kompas, Tom 2010, Economics for biosecurity decisions, Keynote address, Society for Risk Analysis Annual Convention, March, Sydney�

• Kompas, Tom 2010, Biosecurity measures for biodiversity protection, Presented to Commonwealth Environment Research Facilities Conference, May, Old Parliament House, Canberra�

• Kompas, Tom 2011, The value of early detection for biosecurity measures, Presented to Annual Conference of the Australian Agricultural and Resource Economics Society, February, Melbourne�

• Akter, Sonia, Kompas, Tom and Ward, Michael B� 2011, Economic consequences of biological invasions in the wake of natural disasters: the case of biosecurity and catastrophic flooding in southeast Queensland, Presented to Annual Conference of the Australian Agricultural and Resource Economics Society, February, Melbourne�

• Kompas, Tom 2011, Optimal surveillance measures and the value of early detection, Presented to Economics and Environment Conference, March, The Australian National University, Canberra�

• Spring, Daniel 2011, Surveillance strategies for eradicating biological invasions: a red imported fire ant case study, Presented to Economics and Environment Conference, March, The Australian National University, Canberra�

Research Reports• Kompas, T� and Chu, L� 2010, A rule of thumb for controlling invasive weeds: an application to hawkweed in Australia, EERH

Research Report No� 70, Environmental Economics Research Hub, The Australian National University, Canberra�

• Akter, S� and Grafton, Q� 2009, Environmental value transfer and species conservation, EERH Research Report No� 26, Environmental Economics Research Hub, The Australian National University, Canberra�

• Kompas, T� and Chu, L� 2010, A comparison of parametric approximation techniques to continuous-time stochastic dynamic programming problems, EERH Research Report No� 71, Environmental Economics Research Hub, The Australian National University, Canberra�

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• Ward, M� and Kompas, T� 2010, The value of information in biosecurity risk–benefit assessment: an application to red imported fire ants, EERH Research Report No� 50, Environmental Economics Research Hub, The Australian National University, Canberra�

Policy Brief• Kompas, Tom 2010, ‘Yes we can…’: using cost–benefit analysis for biosecurity, EERH Policy Brief, May, Environmental

Economics Research Hub, The Australian National University, Canberra�

Presentations/Workshops• Kompas, Tom 2008, Optimal border quarantine and surveillance, Presented to Queensland Department of Primary Industries,

December, Brisbane�

• Kompas, Tom 2008, Optimal surveillance against an invasive pest or disease, Presented to Commonwealth Environment Research Facilities National Conference, September, Canberra�

• Kompas, Tom 2008, An optimal surveillance measure, Presented to Centre for Applied Economic Research, Workshop Themes: Salinity and Biosecurity, 2008, Sydney�

• Kompas, Tom 2009, Surveillance and quarantine measures against an invasive species, Presented to Australian Centre for Excellence in Risk Analysis, Resource Allocation Workshop, February, Canberra�

• Kompas, Tom 2009, The costs and benefits of biosecurity, Presented to Australian Agricultural and Resource Economics Society National Conference, Environmental Economics Hub Annual Workshop, February, Cairns, Qld�

• Australian Agricultural and Resource Economics Society National Symposium on Invasive Species and Biosecurity, September 2009, The Australian National University, Canberra�

• Launch of the Australian Centre for Biosecurity and Environmental Economics (AC BEE) at the Australian Agricultural and Resource Economics Society National Symposium on Invasive Species and Biosecurity, September 2009, The Australian National University� Formal launch of AC BEE at the Crawford School of Economics and Government, by the Hon� Peter Garrett, November 2009, The Australian National University, Canberra�

• Kompas, Tom 2009, Economic policy and biosecurity, Presented to Australian Agricultural and Resource Economics Society National Symposium on Invasive Species and Biosecurity, September, The Australian National University, Canberra�

• Bennett, Jeff 2009, Agricultural and environmental valuation, Presented to Australian Agricultural and Resource Economics Society National Symposium on Invasive Species and Biosecurity, September, The Australian National University, Canberra�

• Kompas, Tom 2009, The economics of biosecurity: risk, border quarantine, local surveillance and eradication measures, Presented to Australian Agricultural and Resource Economics Society National Symposium on Invasive Species and Biosecurity, September, The Australian National University, Canberra�

• Rolfe, John 2009, Valuing the benefits of eradication: red imported fire ants, Presented to Australian Agricultural and Resource Economics Society National Symposium on Invasive Species and Biosecurity, September, The Australian National University, Canberra�

• Ward, Michael 2009, The value of information in risk–return assessment, Presented to Australian Agricultural and Resource Economics Society National Symposium on Invasive Species and Biosecurity, September, The Australian National University, Canberra�

• Che, Nhu 2009, Integrating economic analysis and import risk assessment, Presented to Australian Agricultural and Resource Economics Society National Symposium on Invasive Species and Biosecurity, September, The Australian National University, Canberra�

• Kompas, Tom 2010, The economics of biosecurity, Presented to Australian Bureau of Agricultural and Resource Economics Outlook 2010, March, Canberra�

• Kompas, Tom 2010, The economics of biosecurity interventions, Presented to Emerging Infectious Diseases: The Global Perspective, November, John Curtin School of Medical Research, The Australian National University, Canberra�

• Akter, Sonia 2010, Economic consequences of biological invasions: understanding the impacts on bioregional attributes, Presented to Economics and Environment Symposium, September, The Australian National University, Canberra�

• Kompas, Tom 2010, Optimal surveillance measures to protect environmental assets, Presented to Economics and Environment Symposium, September, The Australian National University, Canberra�

• Che, Nhu 2010, Calibrating spatial bioeconomic models for biosecurity, Presented to Economics and Environment Symposium, September, The Australian National University, Canberra�

PhD Completion• Chu, Long 2009, A parametric linear programming approach to continuous-time stochastic optimal control problems with

binary variables: applications to bioeconomic models and marine reserves, PhD Thesis�

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ContactProfessor Tom Kompas, ANUEmail: Tom.Kompas@anu.edu.au

Project TeamResearchers

Professor Tom Kompas (ANU), Project leaderMichael Ward (ANU), Associate ProfessorNhu Che (ANU), Adjunct Associate ProfessorQuentin Grafton (ANU), ProfessorSonia Akter (ANU), PhD student

Research Assistants

Tijang HilmanLong Chu (ANU), PhD studentPham Van HaDaniel Spring

‘Yes we can…’: Using cost–benefit analysis for biosecurity

TOM KOMPAS23

Cost–benefit analysis can help ensure that appropriate and cost-effective biosecurity measures are taken�

The development of trade and tourism between regions and countries is an increasingly important characteristic of modern economies� In this regard, border quarantine and local surveillance programs have generally provided essential protection against the incursion and spread of exotic pests and diseases, protecting local industry, human health and the environment�

Border quarantine, as its name suggests, requires specific actions at the border, typically at airports and shipping docks (for example, inspection of containers, quarantine and customs inspections), to screen and secure against potential threats� But not all pests and diseases pass through border stations and customs checkpoints� Local surveillance provides for the early detection of pests and diseases in the local environment—for example, on farms, in national parks and in horticultural and tropical areas� Trap programs for fruit flies in northern Queensland—with pathways from the Torres Strait Islands—is a good example, as is local surveillance against the incursion of ants and weeds in protected areas�

Proposals from landholders need to be assessed in a way that identifies preferred projects for funding� The reality is public funds are often allocated with little knowledge of project outcomes�

Quarantine and surveillance programs, however, impose costs, in terms of both the cost of the programs themselves (for example, border inspection stations, traps, blood tests, and X-rays) and any trade restrictions that might occur as a result of potential or perceived threats� In some cases, vast expenditures might be required on quarantine and surveillance activities to take the probability of an incursion to near zero� In other cases, where disease or pest pathways are well known and controllable, far less expenditure might be required�

What is the role of cost–benefit analysis (CBA) in biosecurity measures? Policymakers and economists have long recognised that a sound CBA—measuring all the relevant costs and benefits of a policy measure to determine an implied rate of return or a ratio of benefits to the costs of a particular program—is a powerful tool for allocating public funds to various activities in an efficient way� For the most part, CBA in biosecurity decisions has been used to justify specific actions—often eradication and containment campaigns—after an incursion has occurred� The attempted control of red imported fire ants in Brisbane is a good example, and one supported by an extensive CBA� A CBA can, however, also be performed on a potential incursion so that measures of relative benefits and costs are known prior to specific actions, if and when required�

In this context, if done properly, a CBA for biosecurity must follow 10 basic principles�

• The measure of benefits from a biosecurity measure should be given by all known avoided losses, as a result of an eradication or containment campaign, associated with a potential or actual incursion (for example, losses to plant, animal and human health, damage to the environment, losses from trade bans, spill-over effects and social costs)� Partial measures of benefits—ones that often

23 Australian Centre for Biosecurity and Environmental Economics and Crawford School of Economics and Government, The Australian National University. Email: Tom.Kompas@anu.edu.au

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involve only direct impacts and ignore key environmental concerns—are often misleading and wrongly favour the control of a certain and narrow range of invasives and key primary industries�

• The measure of benefits is conditional on an area and density spread model and specific actions taken (and their likely effects)� Avoided damages, in other words, must be tied to the biology of spread, with accumulated damages that depend both on time and the control measures (if any) put in place� A CBA that simply calculates the maximum potential damages that might occur over (potentially) a very long period, at full saturation, with no assumed containment of eradication activity, will badly overstate the measure of potential benefits�

• The measure of cost is the cost of all specific quarantine, surveillance and containment or eradication actions (for example, sprays, vaccinations, screening, inspections, blood tests, public awareness, and so on)� The costs of a biosecurity activity are also time dependent, and vary considerably with the decision over eradication or various forms of containment�

• The measures of prices and costs in a CBA will generally vary over time� For example, marginal losses tend to rise rapidly over time for environmental assets, especially for those incursions that eventually imply loss of habitat and biodiversity� In some cases, the cost of a containment or eradication action can become infinitely large as time progresses� The first incursion of hawkweed in New zealand could, if detected early, have been easily eliminated� Now, in some areas, it is impossible to control� Incursions in specific industries (for example, foot-and-mouth disease in cattle) can also greatly alter the price of beef as supplies of meat vary through time�

• Where dollar amounts of costs and benefits cannot be measured by market values, non-market valuation methods must be used (for example, contingent value, hedonic pricing or choice-modelling exercises)� These survey techniques are now a well-developed and powerful tool available to CBA� Choice modelling, for example, asks survey respondents to make a series of choices over preferred policy outcomes, with costs attached to particular and chosen options� This ‘willingness to pay’ for a preferred option can be directly calculated, augmented and added into a CBA�

• Since streams of costs and benefits vary over time, and potentially occur at different points in time, all dollar amounts must be discounted to the present� As long as there is an interest rate, a dollar today is worth more than a dollar next year, since a dollar today can be invested and earn an interest payment� Discounting is simply compound interest turned ‘upside down’� It asks the question what is a dollar next year worth today�

• The discount rate is typically the real rate of return, or ‘Treasury Bill’ or ‘Bank Rate’ (that is, the common or ‘non-risk adjusted’ rate)� For environmental assets, it is becoming increasingly common to use lower and/or time-contingent discount rates (that is, rates that decline through the time horizon, or so-called ‘gamma discounting’)� A totally convincing justification for ‘gamma discounting’ has, however, yet to be provided� One possible rationale involves uncertainty over future interest rates, which, when probabilistically averaged in reasonable ways, results in discount rates that decline through time�

• The time horizon for discounting is normally contingent on the time over which damages occur (often endogenous to the discount rate)� Comparing different eradication or containment measures across various incursions with different durations or with varying time horizons requires ‘annual equivalent cost methods’�

• Measures of net present value and/or the benefit–cost ratio should reflect likely outcomes, based on given or estimated probability distributions of key parameter values (for example, Monte-Carlo draws based on a probability distribution for spread rates give a range of benefit–cost ratios with assigned likelihoods)� In many cases, the potential range of net benefits can vary widely, and policymakers need to know what the likely spread is�

• Sensitivity analysis on parameter values (to determine their relative importance) should be reported and, where possible, estimates of net present values or cost–benefit ratios with different ‘states of nature’ should be constructed�

Something is still missing, however, especially with regard to surveillance activities. If CBA in biosecurity is used to measure just the potential (or actual) damages and costs of an incursion—any arbitrary incursion of a pest or disease by any given amount—then it is doing far less that it can. CBA can also take a more active stance. It can help answer the question of how much should be spent to detect a potential incursion ‘early’. This is the point of optimal-surveillance activity.

Put simply, optimal-surveillance activity uses CBA to determine the appropriate trade-off between expenditures on ‘early detection’ and the resulting net damages of ‘waiting’ to find the pest or disease later in its spread cycle� Traps to detect fruit flies in the local environment are a good example� Without early detection activities, flies can spread through an environment and cause considerable damage before being detected� Once detected, depending on the extent of spread, they can also be harder to control, much less eliminate� Placing more traps and active surveillance to ‘catch’ flies earlier in their growth and spread process is, however, expensive� The optimal decision is to exploit this trade-off, to find a point of optimal early detection that balances the extra gains from early detection with more traps and surveillance expenditures—thus reducing future damages and costs in an otherwise standard CBA—against the extra cost of that added surveillance activity�

Early detection is often the key to good biosecurity outcomes� Unfortunately, in all of the recent cases that the Australian Centre for Biosecurity and Environmental Economics (AC BEE) has examined, relevant stakeholders have spent far less on early detection than what is optimal�

For further information, access www.acbee.anu.edu.au

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PROJECT 15: LEARNING FROM THE IRRATIONAL—A STUDY OF ENVIRONMENTAL PREFERENCES

Project DescriptionThis project is part of Theme E: Emerging research and other projects�

Project ObjectiveThe aim of this research is to understand the behaviour of people interacting with the environment that cannot be explained by neoclassical economic theory� These phenomena are often referred to as irrational behaviour as they fall short of being predicted by standard utility-maximising preferences� Rather than discarding these behaviours as ‘non-rationalisable’, one can learn from them� Understanding the different behaviours and analysing their patterns will help construct a working economic framework that in turn will help to make better predictions of people’s reactions to future interventions� These insights will help make environmental policies more effective and possibly widen the range of useful tools for intervention�

We will look at different important individual or household-level decisions that influence environmental outcomes� As stated above, the goal is to inform policymaking where people’s behaviour is not within the classical economic framework� As such, the project will not be limited to a single environmental domain or entity in the economy, but will cross from individuals to households to firms and from resource extraction to water consumption to recycling�

The project has three key objectives

• to inform policymaking about non-standard behaviour with regards to environmental outcomes

• to evaluate existing non-monetary mechanisms in place to affect people’s behaviour

• to suggest tools that enable adjustment of classically derived incentive structures or show new ways to steer people’s behaviour�

Key FindingsMany parts of Australia are facing threats of reoccurring periods of drought in the future� When thinking about securing future water supply, it is important to understand what drives Australian water demand� It is unclear from the literature if and to what extent non-monetary demand-management tools work to reduce urban water consumption� We use daily water-usage data controlling carefully for weather and find that the lion’s share of water savings is achieved by the introduction of water restrictions� Surprisingly, price changes have little influence on household water consumption in our data� Households are, however, significantly influenced by the public information campaign, and save more as dam levels fall�

Policy ImplicationsOur results extend to all utility services (water, electricity, waste and recycling, and so on)� First, non-monetary demand-side management tools should be considered and can contribute to desired savings in addition to those achievable through politically feasible price signals� We argue that, in particular with urban household water consumption, water-use restrictions are a very effective and necessary tool in combination with information campaigns to reduce consumption� We would argue that our results together with other findings in the literature suggest that when there is a true public urgency for conservation then restrictions effectively communicate this urgency and, together with changing behavioural norms, can achieve significant decreases in household consumption�

Project Outputs

Journal Article• Aisbett, E� and Steinhauser, R� (submitted), ‘Does anybody give a dam? The importance of public awareness for urban water

conservation during drought’, Submitted to Ecological Economics�

Research Report• Aisbett, E� and Steinhauser, R� 2011, Does anybody give a dam? The importance of public awareness for urban water

conservation during drought, EERH Research Report No� 100, Environmental Economics Research Hub, The Australian National University, Canberra�

Conference Presentations• Does anybody give a dam? The importance of public awareness for urban water conservation during drought, Presented to

Public Economics Seminar, 14 July 2011, Humboldt-Universitaet zu Berlin, Germany�

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• Water use adaptation and the role of demand side management, Presented to Eighteenth Annual Conference of the European Association of Environmental and Resource Economists, 29 June – 2 July 2011, Rome�

• Water use adaptation and the role of demand side management, Presented to Economics and Environment Symposium, 22–24 November 2010, The Australian National University, Canberra�

• Water use adaptation under climatic change: the role of demand side management, Presented to 2010 Environment Economics Research Hub Pre-Conference Workshop, Australian Agricultural and Resource Economics Society Annual Conference, Adelaide�

ContactDr Ralf Steinhauser, ANUEmail: ralf.steinhauser@anu.edu.au

Project Team

Researcher

Dr Ralf Steinhauser

PROJECT 16: VALUING ECOSYSTEM SERVICES IN AGRICULTURAL PRODUCTION

Project DescriptionThis project is part of Theme E: Emerging research and other projects�

Project ObjectiveThe objective of this study is to make a first attempt at valuing ecosystems on the basis of the economic value of the goods and services that they provide to agricultural production� Thus, conceptually we think of ecosystem goods and services as inputs to agricultural production� Valuation of these ecosystem inputs to agriculture is important—in contrast with, say, valuation of fertiliser inputs—because farmers can usually not internalise the benefits of ‘purchasing’ ecosystem inputs� The existence of positive externalities from ecosystem service inputs means that individual farmers will under-invest in ecosystems� Hence government intervention to increase the level of ecosystem service might be welfare improving� While the existence of positive externalities from ecosystem preservation to the broader community has received much attention, positive externalities to other farmers have been neglected in the policy debate to date regarding on-farm natural-resource management� Arguably, the ecosystem service with the largest economic implications for agriculture is water-table stabilisation for the prevention of salinity� Thus, salinity will be used as a case study for the valuation of ecosystem services to agricultural production�

Key FindingsThere is an ongoing policy debate regarding both how much government intervention there should be to protect ecosystems affected by agriculture and how the costs of these interventions should be distributed across different interest groups� In accordance with the policy focus in most countries, the majority of the valuation literature on ecosystem services and agriculture estimates the benefits that managed agricultural landscapes can provide to the rest of society� We argue, however, that the efficiency and equity of policies for ecosystem services related to agriculture can be further enhanced by understanding the value and sources of ecosystem services that agricultural production receives� In collaboration with Michael Ward’s EERH biodiversity project, this project has used state-of-the-art methods to estimate a hedonic pricing model for agricultural land in Western Australia to deliver more reliable estimates of the costs of dryland salinity to agricultural production in the region�

Key OutcomesThough only a preliminary project, we believe our findings suggest that farmers themselves are among the principle beneficiaries of efforts to increase the production of ecosystem services on agricultural land� This suggests that programs that involve cost sharing, collaboration between farmers to reduce inter-farm externalities, and education regarding the value of ecosystem services have the potential to be both efficient and equitable�

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Project Outputs

Research Reports• Ward, M� and Dent, J� 2010, Impacts of salinity on dryland property values in south west Australia, EERH Research Report No�

90, Environmental Economics Research Hub, The Australian National University, Canberra� (This report was jointly funded and produced by this project and Michael Ward’s CERF project on biodiversity land-cost assessment�)

• Aisbett, E� and Kragt, M� 2010, Valuing ecosystem services to agricultural production to inform policy design: an introduction, EERH Research Report No� 73, Environmental Economics Research Hub, The Australian National University, Canberra�

ContactDr Emma Aisbett, ANUEmail: emma.aisbett@anu.edu.au

Project Team

Researchers

Dr Emma Aisbett (ANU), Project leaderM� Ward, Team memberJared Dent, Team member

PROJECT 17: WASTE POLICY—MATERIALS MANAGEMENT AND RECYCLING

Project DescriptionThis project is part of Theme E: Emerging research and other projects�

Project ObjectiveGood policy practice requires that decision makers have available a full and reliable description of the costs and benefits associated with different policy options� These costs and benefits extend beyond the financial outlays and operating costs of different policy measures, to include the non-marketed or environmental costs and benefits to society� Some examples of these later costs and benefits include: aesthetic impacts of landfills or curb-side pick-up containers as well as greenhouse gases resulting from transport and decomposition of organic matter� This research will focus on determining these broader yet less readily observable social costs and benefits as applied to the disposal of residential putrescible waste in Australia� To develop understanding of these values, the research will use stated-preference techniques known as choice experiments that ask individuals to state their preferences among the different policy options� Variation in the attribute levels—for example, cost, within and across scenarios—imposes trade-offs, which allow statistical models to be estimated� These models are then used to quantify individuals’ values for the different aspects of waste disposal options� Important considerations of this research will include developing econometric modelling techniques that better account for heterogeneity of preferences among individuals, as well as testing different experimental designs and treatments� The ultimate aim is to generate reliable estimates and improve the efficiency of the methodology�

Key FindingOn average, Brisbane households would be willing to pay an additional $32 to $35 a year for a general waste bin in which food waste is split from general waste�

Key Outcome Whether the provision of a food-waste recycling scheme is economically efficient requires a consideration of all the potential costs and benefits� Other relevant costs and benefits for inclusion in a benefit–cost analysis would include those associated with bin replacement, any additional collection and transport costs, composting costs, revenues from compost sales and avoided landfill costs�

Project Outputs• Presentation of both reports to AARES 2012�

• Finalisation of draft reports, 2011�

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• Presentations of both reports made at the Economics and Environment Network (EEN) Symposium in November 2010�

• Papers will be prepared for publication in international journals� ‘Willingness to pay for kerbside recycling in the Brisbane region’ has already been submitted to the Journal of Environmental Planning and Management, 2011�

Research Reports• Gillespie, R� and Bennett, J� 2011, Willingness to pay for kerbside recycling in the Brisbane region, EERH Research Report No� 97,

Environmental Economics Research Hub, The Australian National University, Canberra�

• Gillespie, R� and Bennett, J� 2011, Willingness to pay for recycling food waste in the Brisbane region, EERH Research Report No� 96, Environmental Economics Research Hub, The Australian National University, Canberra�

ContactProfessor Jeff Bennett, ANU Email: jeff.bennett@anu.edu.au

Project Team

Researchers

Professor Jeff Bennett (ANU), Project leaderRobert Gillespie (Gillespie Economics), Consultant

PROJECT 18: MARINE BIODIVERSITY

Project DescriptionThis project is part of Theme E: Emerging research and other projects�

Project ObjectiveA number of the world’s marine ecosystems are under significant environmental stress as a result of human actions including, but not limited to, commercial fishing practices, agricultural run-off and pollution� A consequence has been the loss of biodiversity� This trend appears likely to continue without intervention� While the loss of biodiversity in many marine environments is well documented, the losses to societal welfare arising from decreased biodiversity are not well understood� This is particularly the case in temperate marine areas� These values are, however, important measures to include in the decision making of managing and establishing marine protected areas� Improving or maintaining biodiversity over current levels, however, has costs� The important question becomes whether the benefits of preserving biodiversity outweigh the costs, and, more precisely, what is the optimal level of biodiversity� This research will focus specifically on generating understanding of the benefits that accrue to community members from biodiversity in marine protected areas in south-eastern Australia� To accomplish this, stated-preference choice experimentation will be used� To address the large number of attributes that characterise biodiversity, the research will build into the experimental design and models individuals’ hierarchical information integration (HII) processes—heuristics that are used to condense large numbers of attributes into upper-level constructs� Experimental design features will allow both the constituent attributes and the upper-level constructs to be valued� The goals of this research are to provide reliable estimates of the benefits accruing to society from marine biodiversity in temperate waters, as well as improve the understanding and incorporation of heterogeneity of individuals’ HII processes in demand models�

Key FindingAustralian households would be willing to pay $104 for the establishment of marine protected areas (MPAs) that cover 10 per cent of the South-West Marine Region� Aggregating this mean willingness to pay estimate to 50 per cent of the population of Australian households gives an aggregate willingness to pay of $400 million�

Key OutcomeWhether the establishment of MPAs in the South-West Marine Region is economically efficient requires a consideration of all the potential costs and benefits� Other relevant costs and benefits for inclusion in a benefit–cost analysis would include those associated with displacement of commercial and non-commercial uses, additional planning, compliance and monitoring costs as well as any predicted increases in commercial and non-commercial use values�

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Project Outputs• Presentation of the report to AARES 2012�

• Paper will be prepared for publication in an international journal, 2011�

• Preparation of final report, titled Non-use economic values of marine protected areas in the South-West Marine Region, 2010�

• Presentation of draft report at the Economics and Environment Network Symposium, 2010�

• A stated-preference study was completed by Gillespie Economics in which the values of establishing marine parks in the south-west area (off the WA coast) were estimated� This involved extensive web-based surveying� The results have been presented in a Research Report on the Hub web site and a paper has been submitted for publication� The Department of Sustainability, Environment, Water, Population and Communities (SEWPAC) staff who assisted in the project (staff in Tasmania were the main contacts) have been given these outputs and Marc Carter, our liaison person in the economics area, has also been kept up to date with the study�

ContactProfessor Jeff Bennett, ANU Email: jeff.bennett@anu.edu.au

Project Team

Researchers

Professor Jeff Bennett (ANU), Project leaderRobert Gillespie (Gillespie Economics), Consultant

PROJECT 19: HERITAGE VALUES

Valuation of Cultural HeritageMeasuring the economic and cultural values of historic heritage places�

Project DescriptionThis project is part of Theme E: Emerging research and other projects�

Project ObjectiveThe objective of the project is to determine a methodology for a long-term study to estimate the use and non-use values of various attributes of historic heritage places� The outcome of the long-term study will be to provide a set of transferable monetary estimates of the values of various attributes of historic heritage places for use in the design of government policies and programs�

Development of the methodology will be the first stage of a larger research program, comprising four stages: 1) development of methodology; 2) development of the survey(s); 3) collection of data; and 4) analysis of data�

Key issues to be determined by the research methodology are the following�

• The measurement framework: The project will investigate the use of choice modelling in the evaluation of heritage, following from its application in similar studies measuring the non-market values of natural resources� Consideration will be given to whether choice modelling alone is appropriate in this context, or whether it could be used in conjunction with other measurement techniques that will provide a comprehensive estimate of values for heritage attributes (such as hedonic pricing)�

• How historic heritage types and sets should be categorised: There are various ways in which historic heritage places can be categorised for measurement—by type (for example, structures by category of use, landscapes by reference to land-use activity), by geographical grouping (for example, all historic heritage places in a particular area), or by population density (for example, urban, regional, rural and remote)� The methodology will determine the most effective method of categorisation of places in order to achieve the most meaningful data set to inform priority policy questions�

• The process for determining attributes to be measured: Historic heritage places are listed for their heritage significance determined by specific criteria� In the Commonwealth context, these criteria are set out in the Environment Protection and Biodiversity Conservation Regulations 2000� Each State and Territory also has its own heritage listing criteria, which roughly correlate with those at the Commonwealth level� The project will consider alternative processes for designating the heritage attributes to be measured�

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Achievements Since October 2010This project has been one of the last to be initiated in the Environmental Economics Research Hub, and began in earnest only in mid-2010� Detailed literature reviews and compilations of existing heritage assessment frameworks in use in Australia have been completed, and initial exploratory qualitative work through focus groups has been undertaken� A one-day workshop was held in Sydney on 4 November 2010 to discuss the project methodology� At the workshop, which was attended by 15 heritage professionals, two international visitors presented papers: Professor Randall Mason, who directs the Graduate Program in Historic Preservation at the University of Pennsylvania and has extensive experience in assessing the cultural value of built heritage, and Professor Ken Willis, who is Professor of Environmental Economics at the University of Newcastle in the United Kingdom and has undertaken a wide range of economic evaluation projects in the environmental and cultural heritage fields�

A paper derived from the project was presented at the Economics and the Environment Network Symposium held at the ANU on 22–24 November 2010� The Team Leader had a meeting in Canberra on 2 February 2011with staff from the Heritage Division of the Department of Sustainability, Environment, Water, Population and Communities to update progress and discuss the potential outcomes of the project�

Following the workshop, and in the light of discussions with departmental stakeholders, the survey instruments being developed in the project have been completely redesigned� They are currently being tested in small-group work before being finalised for application in a small-scale online trial� The survey instruments under development involve the administration of a discrete choice experiment and a contingent valuation questionnaire to separate groups of respondents� The two instruments are keyed to one another so that results will enable comparison between the two stated-preference methods� Online versions of the questionnaires are being discussed with the Centre for Social Choice at the University of Technology Sydney� CenSoC is one of the consultants from whom quotes for implementation of the online project are being sought�

Continuing WorkThe successful tenderer for carrying out the programming for the online administration of the surveys is expected to be decided by the end of March, with trialling of the instruments during April� Analysis of results and writing of the final report from the project will take place during May–June with an expected finish date of early–mid-July�

The purpose of this project has been methodological development� As such, it was not expected that it would have any empirical content� We have, however, been able to include at least small-scale empirical trialling of the instruments as part of this project, so that at the end of the project an immediately applicable methodology is expected to be available� It has always been understood that this developmental project would be followed in due course by a large-scale national application, for which separate funding would be needed� Whether or not such funding will be available will depend on the budgetary situation of the department in the forthcoming financial year�

Key Findings and OutcomesAs the project is ongoing, it is not yet possible to identify key outcomes or findings� We are, however, sufficiently advanced to be able to say with confidence that the objectives of the project will be achieved—that is, that it will yield a working methodology for assessing the economic and cultural values of historic heritage places� The methods are being trialled in respect of three categories of heritage (large-scale iconic heritage buildings and sites on national or State registers; small-scale heritage buildings and sites of local significance; and heritage residential houses and groups of houses)� The survey instruments will be adaptable for application to other categories of heritage�

The project findings will be presented in a single consolidated report, and specific aspects of the results will be written up for the academic literature�

DAVID THROSBY 17 MARCH 2011

Project Report at 1 July 2011

Objectives of the ProjectThis research project on the valuation of cultural heritage is developing a methodology for a quantitative valuation study of the use and non-use values of historic heritage places� The methodology developed in this project will provide a template for subsequent empirical applications to generate data for use in the formulation of heritage policies and programs� The principal techniques being developed for valuation assessment in the project are derived from discrete choice modelling (DCM) and contingent-valuation methods (CVMs)� A particular focus of the project is on the systematic integration of cultural and economic value assessments within a consistent theoretical framework, reflecting the need for an economic perspective on the significance criteria currently in use in heritage policy in Australia�

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Research Team24

The original research team to undertake the background and developmental work during the second half of 2010 was constituted as follows

• Professor David Throsby (Macquarie University), Team leader

• Dr Vinita Deodhar (NSW Department of Environment)

• Dr Bronwyn Hanna (Heritage Branch, NSW Department of Planning)

• Dr Bronwyn Jewell (Queensland Department of Communities)

• Dr zena O’Connor (Honorary Associate, University of Sydney)

• Anita zednik (PhD student, Economics Department, Macquarie University)�

Since January 2011, when the detailed methodological development and testing has been proceeding, the team has consisted of David Throsby and Anita zednik�

Distinctive Features of this Project

Accounting for Different Types of Cultural HeritageInstead of assessing built cultural heritage as a whole, we distinguish between five distinct categories of cultural heritage and analyse them separately�

• Important historic building or group of buildings� Examples: The Sydney Town Hall, the Queen Victoria Building, the row of colonial buildings on the eastern side of Macquarie Street, and so on�

• Local public building or group of buildings with historic connections� Examples: An old suburban church, community centre, municipal buildings, school, and so on�

• Residential house or group of houses from earlier times� Examples: Nineteenth-century Paddington terraces, Federation house or houses, colonial mansion, and so on�

• Rural landscape or townscape with historic structures� Examples: Streetscape in town such as Braidwood, NSW, landscape with country railway stations, silos, old homesteads, shearing sheds, and so on�

• Site or landscape of Indigenous significance� Example: Rock-art location, sacred site, a prominent site in Aboriginal history, and so on�

Disaggregation of Cultural Value into ComponentsCultural value can be broken down into distinct attributes� For each of the cultural heritage categories mentioned above, we obtain information on the importance to respondents of these attributes� In particular, we are looking at four attributes of cultural value

• beauty: whether a cultural heritage site is beautiful to look at

• historical importance: whether the site has strong historical associations

• identity: whether the site provides identity for people, or helps us understand who we are

• architectural significance: whether the site is a good example of a particular type or period of architecture or design�

24 Members of the Research Team who work in government departments participated in this project part-time as individuals and not as representatives of their respective organisations.

From left to right: the historic Customs House in Newcastle, the Blue Mountains and Sydney Harbour Bridge

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Providing Exact Monetary EstimatesThe project focuses on calculating a monetary value that Australians are willing to pay for preserving different kinds of cultural heritage buildings and sites, based on the cultural values the particular type of site entails� By breaking a cultural heritage site down into its components of cultural value, we allow for many different cultural heritage sites to be assessed� Taking into account all combinations of levels of the four cultural value attributes, we are assessing 81 different types of cultural heritage sites within each of the five categories, making a total of 405 different hypothetical cultural heritage sites�

Comparing Different MethodologiesWe employ three different methodologies for assessing the public’s willingness to pay for different types of cultural heritage� The three methodologies are briefly described�

• Discrete choice experiment: The majority of respondents take part in a discrete choice experiment online� We ask respondents to make choice(s) between conservation programs for a particular cultural heritage category where we vary the cultural value attributes and price levels of the hypothetical conservation programs systematically across respondents in such a way that information related to preference parameters of an indirect utility function can be inferred� We assess each cultural heritage category separately, which allows us to determine distinct parameter estimates independently for all cultural value attributes for each cultural heritage category� Respondents are presented with eight choice sets and asked to choose which one they would prefer� The screenshot below shows an example of such a choice set�

• Payment card contingent valuation: A subset of respondents is shown six different monetary amounts and asked to click on the amount that comes closest to the maximum dollar amount they would be willing to pay per year towards a heritage fund for conservation of a particular cultural heritage type�

• Open-ended contingent valuation question: A subset of respondents within each cultural heritage category is asked to give an estimate of the maximum dollar amount they would be willing to pay per year in the form of a tax-deductable levy towards a heritage fund for additional conservation efforts for a particular type of cultural heritage�

By not providing them with a particular dollar amount—as is the case in the discrete choice experiment and the payment card stream—we avoid a so-called ‘anchoring bias’ and allow respondents to respond freely� The outcome of this stream will provide a thorough check about the appropriateness of the monetary scale used in the other two methodologies�

Assessing Policy StrategiesThe survey instrument indicates that additional funds would be spent on an expanded heritage protection program, which would allow

• improved conservation of government-owned heritage

• expansion in heritage listing of buildings and sites regarded as being of cultural significance

• more financial assistance to private heritage owners who need help in restoring, maintaining and improving their heritage properties

• more government-owned heritage buildings and sites open to the public�

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For the questions investigating preferences over alternative avenues for government expenditure, it is indicated that increased funds could be allocated to

• placing more buildings of heritage significance on lists and registers to safeguard them from insensitive alteration, neglect or demolition

• providing more and larger grants to private and commercial owners of heritage buildings to assist them in maintaining and improving them

• more resources for looking after heritage buildings and sites that the Federal Government itself owns

• providing increased grants to State, Territory and local governments to assist them in the conservation of heritage under their care

• opening up more government-owned heritage buildings and sites to the public

• helping to protect more sites of significance for Indigenous people�

Expected Outcomes of the Research ProjectThe project will provide a deeper understanding of how cultural and economic values in cultural heritage preservation are related� In particular, the outcomes of this research will provide a clear understanding of

• the importance of different types of cultural value such as aesthetic value, historical value and architectural value for preserving cultural heritage buildings expressed by the Australian public

• whether the importance of the different types of cultural value differs across different heritage categories (such as local public buildings, residential buildings or Indigenous heritage)

• how much people are willing to pay for programs that aim at protecting sites of cultural heritage that differ in one or more cultural value attributes

• whether there are different groups of people who are distinct in what kind of cultural heritage they would prefer to see being preserved (for example, cultural heritage that is particularly beautiful to look at or that is particularly important architecturally) and how large these groups are in the population

• which cultural heritage types people see as priorities in regard to cultural heritage protection

• whether people differ in their valuations when they think about the importance of cultural heritage for Australian society as a whole or for themselves personally� The rationale is that whilst some people might not have a personal connection to one or more types of cultural heritage, it is possible that they find them nevertheless important for Australian society�

This project will enable policymakers to obtain monetary estimates of how much Australians are willing to pay for a program aimed at protecting a particular type of cultural heritage site� Providing monetary estimates of the public’s willingness to pay allows for comparison of different programs on the basis of how much people would be willing to pay for these� One possible use for the results of this research is that the willingness-to-pay functions derived from the results could allow estimates to be made of the non-market value of particular buildings or sites under certain conditions�

Project OutputsThe primary output from this methodological research project will be a fully operational online survey instrument for assessing the non-market values of built cultural heritage� The survey is designed to elicit the preferences of respondents for different heritage conservation strategies and to estimate their willingness to pay for conservation programs� The instrument is designed to be easily adaptable to a variety of different contexts, such that it can be applied to particular categories of heritage—for example, large iconic buildings, local buildings with historical associations, domestic heritage houses, and so on—and to particular stratified samples of respondents at local, regional or national levels�

When applied in any given context, the survey will yield information on people’s opinions on the importance of different categories of heritage to themselves and to Australian society, their assessments of the cultural values attaching to heritage, and their willingness to pay for heritage preservation with different characteristics� Willingness-to-pay functions estimated for particular applications will enable estimates to be made of the aggregate non-market value of a specific heritage item according to its assessed characteristics�

The project’s results are being written up in a series of Working Papers, the main one of which will be a full project report covering all aspects of the work� Additional Working Papers will deal in more detail with specific aspects of the research, including an overview of methodologies for assessing non-market values of heritage, and an account of the heritage significance criteria currently in use in various jurisdictions in Australia� Publication of the project results in the academic literature is also planned on completion of the project�

ContactProfessor David Throsby, Macquarie UniversityEmail: dthrosby@efs.mq.edu.au

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Research Team Professor David Throsby (Macquarie University), Project leaderDr Vinita Deodhar (NSW Department of Environment), Team member Dr Bronwyn Hanna (Heritage Branch, NSW Department of Planning), Team member Dr Bronwyn Jewell (Queensland Department of Communities), Team member Dr zena O’Connor (Honorary Associate, University of Sydney), Team member Anita zednik (PhD student, Economics Department, Macquarie University), Team member

PROJECT 20: VALUE OF BIOLOGICAL COLLECTIONS

Project DescriptionThis project is part of Theme E: Emerging research and other projects�

Project ObjectiveAustralia’s collections of biodiversity—including those of botanic gardens, universities, the CSIRO and so on—are diverse and geographically scattered� Their futures are less than assured given funding restrictions and the high costs of maintenance� This project aims to investigate the benefits that could be achieved by managing these collections in different ways� These alternatives will include various types of electronic cataloguing to enable the transaction costs of accessing the collections to be lowered� The goal is to provide government with information that will enable the formulation of improved policies for the management of the collections�

Key FindingsThe key findings from this study include the following�

• The survey of primary users of Australia’s biological collections yielded a mean willingness to pay (WTP) of approximately $224 a year for the creation of a new central database of biological collections that could generate larger net benefits to society�

• A parallel survey of visitors to botanic sites produced a consumer surplus per visitor of approximately $45–77 per trip to each botanic site, resulting in the total annual use value of between $23 and $272 million�

• Marginal WTP for access to the botanic gardens was investigated through payment vehicles of entry fees or higher parking charges� Results indicate a positive mean WTP of between $3 and $5 per trip per person�

Key OutcomesThese figures suggest that biological collections might have a higher potential value than is currently realised and policymakers should be aware of the relative value of these collections as they make allocation decisions�

Project Outputs

Journal Articles• Mwebaze, P� and Bennett, J� 2011, ‘Valuing Australian botanic collections: a combined travel-cost and contingent valuation

study’, Submitted to Ecological Economics, (March)�

• Mwebaze, P� and Bennett, J� 2011, ‘Valuing a change in the management of Australian biological collections’, Submitted to Australian Journal of Agricultural and Resource Economics, (April)�

Conference Papers• Mwebaze, P� and Bennett, J� 2011, Valuing a change in the management of Australian biological collections, Presented to XVIII

International Botanical Congress 2011, 23–30 July, Melbourne�

• Mwebaze, P� and Bennet, J� 2011, Valuing botanic collections: a combined travel-cost and contingent valuation survey in Australia, Presented to Fifty-Fifth Annual Australian Agricultural and Resource Economics Society National Conference, 8–11 February, Melbourne, available from http://www.alloccasionsgroup.com/AARES2011/

• Mwebaze, P� and Bennett, J� 2010, Valuing botanic collections: a combined travel-cost and contingent valuation survey in Australia, Presented to Economics and Environment Network Symposium 2010, 22–24 November, The Australian National University, Canberra, available from http://www.crawford.anu.edu.au/research_units/eerh/workshops/network_symposium/

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Briefing• In October 2010, Paul Mwebaze (Postdoctoral Fellow) briefed the Council of Heads of Australian Botanic Gardens and Herbaria

(CHABGH) at their annual meeting held at the Australian National Botanic Gardens in Canberra� In attendance were Judy West (Director, Australian National Parks), Phillip Moors (Director, Royal Botanic Garden Melbourne), Tim Entwisle (Director, Royal Botanic Garden Sydney) and other heads� The directors expressed interest and support for the methodology being used to value biological collections�

ContactProfessor Jeff Bennett, ANU Email: jeff.bennett@anu.edu.au

Project TeamProfessor Jeff Bennett (ANU), Project leader Paul Mwembaze (ANU), Postdoc

Theme F: Transition projects

PROJECT A (HARVEST): TOTAL ECONOMIC VALUE FRAMEWORK FOR THE GREAT BARRIER REEF

PROFESSOR JOHN ROLFE, CENTRAL QUEENSLAND UNIVERSITY

Project DescriptionThis project is part of Theme F: Transition projects�

Project ObjectiveThe Great Barrier Reef (GBR) generates economic values in a number of ways, including through direct uses (for example, recreation, tourism, fishing), indirect uses (for example, protection of coastal areas), and non-use (bequest, existence and option values)� The current CERF study has involved estimation of non-use values by the Queensland population for additional protection of the GBR� Those values are best understood in a total economic value (TEV) framework, where different value components are assembled to give estimates of total values�

The TEV approach was adopted by Oxford Economics (2009, Valuing the effects of Great Barrier Reef bleaching, Report prepared for the Great Barrier Reef Foundation, Brisbane) to provide a total value estimate for the GBR� The TEV approach adopted by Oxford Economics (2009) is, however, misleading in two main ways: first, they focused on estimating total values instead of marginal values� While the end result showed that the GBR had high value, there are problems with the methodology, and the results are not useful to policymakers analysing marginal policy improvements�

Second, their estimates of non-use values were extrapolated from limited data, as little prior information existed about these values�

If the TEV results from Oxford Economics (2009) were applied to policy situations, the artificially high values would support almost exclusive protection at the expense of recreation, tourism and other uses� A more accurate review is needed so that a summary of results is useful for policy purposes�

Values in a TEV framework are largely suitable for cost–benefit analysis studies� They can be applied for several different purposes, including

• identifying the benefits of increased protection measures across a range of different value components

• evaluating the net community benefits of major programs such as Reef Rescue

• identifying the offsetting benefits and costs of policy options that have varying impacts�

The values available for the TEV framework are largely at the scale of the whole GBR� Where possible, values will be reported at local or regional scales to allow some extrapolation to more targeted policy issues� The TEV framework will be assembled by identifying

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available studies that report value estimates relevant to the GBR� Much of the available literature has already been identified by Oxford Economics (2009)� This study will update that pool of literature by adding

• the range of estimates for non-use values that has been generated in the current CERF project; these have detailed the non-use protection values by a range of factors, including across regional areas and different population groups

• additional information about the value of recreation benefits in the GBR, and the sensitivity of those benefits to changes in environmental conditions; this information is available from recent work of Rolfe and his students (for example, Prayaga et al� 2010)

• any other recent studies�

This harvest project will summarise available information about values for the GBR into a TEV framework that is readily accessible to policymakers and other stakeholders� It will follow the same broad approach as the Oxford Economics (2009) report, but will incorporate the range of additional and more accurate value estimates for protection of the GBR as well as providing more policy-relevant marginal value analysis� There will also be discussion and analysis provided of where different use and non-use values are likely to be offsetting (such as for extractive and preservation purposes) and where they might be reinforcing (such as for eco-tourism and conservation purposes)�

Key FindingsThe focus of this study has been on three broad areas

• to establish an economic framework for assessing the marginal values for protecting and improving the health of the GBR when use, indirect use and non-use values are considered

• to review a range of past and current studies that provides information on these values

• to provide estimates of expected values for marginal improvements in the protection and health of the GBR�

A subsidiary aim has been to review and critique the report by Oxford Economics (2009), which used inappropriate methodology to report very high values for protecting the GBR�

The key findings can be summarised as follows�

• Economic analysis should be framed in terms of assessing values for marginal improvements to protection (instead of estimating ‘total’ value for the whole reef)�

• A range of newer studies is available, which fills key information gaps about non-use and recreation use values in particular�

• The three most important value categories for protection of the GBR are non-use (protection) values held by Australians, consumer surpluses generated from recreation and tourism, and indirect use values associated with coastal protection�

• A preliminary estimate of the total economic value of each 1 per cent improvement in GBR health for 25 years is $630 million�

Key OutcomesThe project has generated a number of methodological and policy outcomes�

• A conceptual framework has been developed to describe how total economic values for the GBR can be compiled and reconciled from a range of value estimates for component elements�

• The framework and results developed by Oxford Economics in the 2009 report have been critiqued to identify where the methodology and results are inappropriate�

• A summary of key research and value estimates relevant to different value components of the GBR has been made�

• The relative values of value components have been estimated, which allows better understanding of where protection efforts should be prioritised�

• Total value estimates of each 1 per cent improvement in protection of the GBR have been made�

Project Outputs

Research Report

• Rolfe, J�, Windle, J� and Prayaga, P� 2010, Assessing total economic value for protecting the Great Barrier Reef, EERH Research Report No� 94, Environmental Economics Research Hub, The Australian National University, Canberra�

Seminar Presented• Rolfe, J� 2010, A total economic framework for the Great Barrier Reef, Economics and Environment Network (EEN) Symposium,

22–24 November, The Australian National University, Canberra�

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PhD Submission• Prabha Prayaga’s PhD to be submitted in May 2011� The thesis title is ‘Estimating changes in values for recreation in the

Capricorn Coast region of the Great Barrier Reef’�

ContactProfessor John Rolfe, CQUEmail: j.rolfe@cqu.edu.au

Project TeamResearchers

Professor John Rolfe (CQU), Project leaderDr Jill Windle (CQU)Prabha Prayaga (CQU), PhD student (PhD being submitted in April 2011�)

PROJECT B (EXTENSION): BIOREGION VALUATION, BIODIVERSITY AND BIOSECURITY

PROFESSOR TOM KOMPAS, ANU

Project DescriptionThis project is part of Theme F: Transition projects�

Project ObjectiveA key missing aspect to both biodiversity and biosecurity planning is a well-established measure of bioregion values and the role these values play in biodiversity and biosecurity interventions� This project has three main objectives�

• The project is designed to model and implement measures of bioregional valuation for all of Queensland� In doing so, this project extends to other parts of Queensland work done through the existing EERH project that has developed bioregion values for the Brisbane area�

• Based on bioregion values, the project will construct a template for mapping potential or actual biosecurity events into potential losses in biodiversity and other relevant economic consequences of a potential disease or pest incursion�

• The project will illustrate the importance of bioregional valuation for biosecurity and biodiversity interventions, indicating how prior measures can assist with quick responses to actual or realised incursions� This will be done through a series of interactive workshops, detailing relevant bioregion attributes and valuation measures and their use in biosecurity and biodiversity interventions�

Key Findings• These studies report results from the first application of choice experiments to biosecurity policy in Australia� The first study

was conducted in south-east Queensland—one of the most vulnerable regions in Australia to invasive species threat� The aim of the study was to appreciate public understanding of biosecurity and provide an estimate of the non-consumptive use and non-use benefits people would derive from enhanced biosecurity measures in the region� A sample of about 400 south-east Queensland residents was interviewed using the choice-experiment method—a stated-preference class of non-market valuation technique� About one-quarter of our sample had never heard of the terms ‘invasive species’ and ‘biosecurity’ before the survey and they attached relatively low levels of importance to invasive species threat in comparison with other competing environmental threats facing the region� The majority of the respondents, however, believed that the threat posed by invasive species to the environment would increase over the next 50 years and they were willing to sacrifice a proportion of their income to promote corresponding biosecurity management actions to reduce the threat� On average, sampled households were willing to bear between $72 and $147 a year to support changes to the existing biosecurity measures� As economic theory predicts, household support for the changes in biosecurity policy varied negatively with its potential cost� At a relatively lower level of cost, more households were supportive of the policy� The support for the policy declined as cost increased�

• The second and third studies were conducted by drawing samples from six different bioregions in Queensland� The primary objective of the study was to provide an estimate of non-consumptive use and non-use benefits people would derive from enhanced biosecurity measures in Queensland� The secondary objective of this study was to examine if preferences for biosecurity policy vary across bioregions� A sample of 564 Queensland residents was interviewed using an Internet survey

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in January 2011� The sample was over-represented by the female population (64 per cent female respondents)� The median age of the sample respondent was also higher than the median age of the Queensland population� The sample was, however, fairly representative of the Queensland population with regards to the average weekly household income� We identified three bioregional attributes—1) native plant and animal species; 2) landscape and water bodies; and 3) backyard and outdoor recreation areas—to estimate non-marketed damage caused by invasive species in Queensland� A stated-preference choice experiment survey was designed in which households were asked for their willingness to pay for enhanced biosecurity measures that aim to: 1) save native plant and animal species from the threat posed by invasive species; 2) reduce the percentage of landscape and water bodies covered by invasive weeds; and 3) reduce the chances of invasive ants and other biting insects being established in backyard and outdoor recreation areas� Responses to these choice questions were modelled using a random parameter logit estimation technique� Four alternative models were estimated� First, a regression model was estimated by combining households from all six bioregions� Second, three separate regression models were estimated to identify differences in household preferences across different bioregions� Our results show that the sampled households have a positive willingness to pay for the three bioregional attributes included in the choice experiment� The average implicit price to save native plant and animal species varied between $22 and $34� Average willingness to pay to eliminate weed cover from the landscape and water bodies was $7� Household willingness to pay to reduce the chances of ants and other biting insects ranged from $93 to $232� The standard Poe et al� (1994) test was employed to examine if the differences between the implicit prices obtained from the all-of-Queensland sample and the bioregion-specific samples were statistically significant� The test results fail to provide sufficient evidence to reject the null hypothesis of equality between implicit prices� In other words, this implies that no statistically significant difference exists between households’ willingness to pay for bioregional attributes in Queensland�

• Finally, compensating surplus welfare measures were estimated for three alternative biosecurity policies� The measures were obtained by subtracting indirect utility of the status quo from indirect utility to be obtained from a changed policy measure� This provides an estimate of average household willingness to pay for biosecurity policy� On average, sampled households were willing to bear between $100 and $235 a year to support changes to the existing biosecurity measures� This is about 0�15 to 0�35 per cent of the average yearly income of the sampled households� This result suggests that enhanced biosecurity measures are likely to improve household welfare by better protecting the bioregional attributes from invasive species threat�

Key Outcomes• Non-market values for biosecurity for Queensland�

• Public perceptions of the value of biosecurity measures against weeds and ants in Queensland and Victoria�

Project Outputs• Akter, Sonia, Kompas, Tom and Ward, Michael B� 2011, Stability of environmental values in the wake of natural disasters, Paper

presented to Annual Conference of the European Association of Environmental and Resource Economists, June, Rome�

• Ward, Michael B� 2011, Public perceptions and preferences for environmental biosecurity in southeast Queensland, Presented to Economics and Environment Conference, March, The Australian National University, Canberra�

• Akter, Sonia, Kompas, Tom and Ward, Michael B� 2011, Economic consequences of biological invasions: the impacts of invasive species threats on Queensland’s bioregional attributes, Research Report, March�

ContactProfessor Tom Kompas, ANUEmail: Tom.Kompas@anu.edu.au

Project Team

Researchers

Professor Tom Kompas (ANU), Project leaderMichael WardSonia Akter, PhD studentHoa Nguyen, PhD student

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PROJECT C (EXTENSION): BIODIVERSITY CONSERVATION, RESILIENCE AND ECONOMIC EFFICIENCY

PROFESSOR QUENTIN GRAFTON, ANU

Project DescriptionThis project is part of Theme F: Transition projects�

Project ObjectiveIt is becoming progressively clear to scientists and policymakers that resilience provides an important set of insights to biodiversity conservation� Resilience is about the adaptability or otherwise of complex systems such as the environment and the economy and how they respond to shocks and external pressures at different time, spatial and institutional scales� Resilience can be either desirable or undesirable, but several factors are known to influence it, including diversity, modularity and feedbacks�

An important way of representing complex systems is through network structures� A network perspective provides valuable understanding about the interrelatedness of factors in a complex system� For example, networks can represent trophic relations in an ecosystem, or movement corridors in a landscape of habitats� Identifying key species in an ecosystem or locations in a reserve system has become an important goal for conservation biologists, as large, well-connected networks are believed to be more resilient to shocks and perturbations than small, unconnected networks�

Economic activity, however, can influence resilience, in such a way that there could be a trade-off between resilience and economic efficiency depending on the time horizons� We propose to develop a bio-economic model with the objective of showing the trade-off between economic activity and ecological resilience� This model will couple renewable resource extraction to a model of renewable resource dynamics that is part of a larger system or network�

By changing the topological properties of the network, we believe we can construct a renewable resource embedded in a larger system with variable resilience properties� Such a model has application in networks of marine or terrestrial reserves� This simulation model will serve as the underlying approach to provide valuable insights about critical variables, policy levers, feedbacks and lags, and the robustness of policy models�

The project will develop insights to manage economic activities (market and non-market) in ways complementary to resilience� Insights from the modelling and feedback with the Department of Environment, Water, Heritage and the Arts (DEWHA) Resilience Round Table (chaired by Charlie zammit) will be used to develop approaches towards biodiversity conservation in both terrestrial and marine environments� Where time permits, the project team will use data from DEWHA from the terrestrial environment and provide a comparison in terms of the design principles with the marine environment�

The project aligns closely with the priority areas of biodiversity and maintaining and building resilience for future changing threats: sustainable use of biodiversity and ecosystems� The approach will be to develop network models and ecological and economic approaches that could be applied and calibrated to particular locations (such as the Great Barrier Reef) to assess the interactions between network design, resilience and economic pay-offs (market and non-market)�

The expected outcome is better biodiversity conservation planning and investment that will feed through to DEWHA via its Resilience Round Table�

Key FindingsMany natural populations are spatially distributed and connected in such a manner that they form a larger meta-population� Migration is a key process contributing to ecological resilience in a meta-population, as immigration is able to aid a local population in the face of disturbance� Agencies can help to increase ecological resilience either by investing in more connections or by more effective connections between local populations� We develop a framework to show how management could make such decisions with a fixed conservation budget in a way that maximises Pimm resilience� The framework we develop includes local populations connected by different numbers of connections and by different qualities of connections� The model structure includes a local and a random disturbance on the meta-population under different connectivity arrangements, and we calculated the time it takes for the meta-population to recover to within a neighbourhood of its pre-shock population� Based on the Monte-Carlo simulation results, we derive iso-resilience curves that provide a guide to conservation managers about how to invest scarce conservation dollars so as to maximise resilience�

Key OutcomesA model and framework to understand the gains in resilience and possible trade-offs associated with networks of reserves�

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Project Outputs• A draft paper will be submitted to the Proceedings of the Royal Society in July 2011, entitled ‘Maximising resilience for

conservation budget’�

ContactProfessor Quentin Grafton, ANUEmail: quentin.grafton@anu.edu.au

Project TeamResearchers

Quentin Grafton (ANU), Project leaderRich Little (ANU), PostdocWilliam Nikolakis (ANU), Postdoc

PROJECT D (EXTENSION): ESTIMATION OF INTERSTATE VALUES FOR PROTECTION OF THE GREAT BARRIER REEF

PROFESSOR JOHN ROLFE, CENTRAL QUEENSLAND UNIVERSITY

Project DescriptionThis project is part of Theme F: Transition projects�

Project ObjectiveThe focus of the existing EERH valuation project for the Great Barrier Reef (GBR) has been to identify values for increased protection of the GBR, with specific focus on

• testing for differences in scope across local, regional and whole GBR case studies

• testing for differences in scope by the types of environmental assets involved

• testing changes in values according to different management options—specifically, conservation zone, water quality and greenhouse gas reduction options

• testing for population differences between major populations in Queensland

• testing for changes in values according to the certainty that outcomes will occur and that intervention mechanisms will work

• methodological issues including experimental design, survey collection modes, choice set dimensions and the presentation of uncertainty in choice experiments� The last issue has been tested with a separate experiment dealing with willingness to pay for greenhouse gas reductions�

Conduct of the project has involved a number of focus groups and pre-tests, as well as the collection of approximately 4000 surveys in Queensland in more than 35 different split-sample tests�

The surveys have been collected in Brisbane, Capricorn Coast, Townsville and Cairns communities� Several reports have been completed for the project, with more to be completed by the close of the project� All the project goals are being met with the current round of funding�

The existing study has focused on estimating values of different communities in Queensland for protection of the GBR� The proposed extension would involve sampling at least four interstate communities (Sydney, Melbourne, Adelaide and Perth) to identify interstate values for protection and to determine if those protection values differ between populations� It is proposed to conduct these experiments across two versions of the existing GBR surveys

• Version A focuses on a single ‘Health of the GBR’ attribute, together with a ‘Certainty’ attribute

• Version B focuses on multiple attributes of ‘Healthy coral’, ‘Healthy fish stocks’ and ‘Healthy seagrass’ to describe the GBR�

The extension of the project to assess interstate values would be timely and efficient because the survey formats have already been developed� At least two focus groups would be required to test whether the background information and questionnaire would need to be adjusted for interstate samples� The results of the study would allow national values for improved protection of the GBR to be estimated� It would also allow for testing of any differences in values held between different State populations�

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Key FindingsThe focus of this study has been to assess how protection values for the GBR are consistent across regional, State and interstate populations in Australia� An associated methodological question is to determine how protection values might be determined by distance-decay functions� A series of choice-modelling experiments has been conducted in Townsville, Brisbane, Sydney, Melbourne, Adelaide and Perth as part of the project�

The key findings can be summarised as follows�

• The average willingness to pay (WTP) across Australian households for each 1 per cent improvement in GBR protection is $21�68 per household per annum for five years�

• Protection values are higher for respondents with higher levels of education and income, respondents who live in Queensland, respondents who live further away, and respondents who plan to visit the GBR more often in the future�

• There is little evidence of distance-decay effects on protection values, suggesting the GBR is viewed as a national iconic asset�

• Apparent distance-decay effects appear to be explained by variations in future usage and State responsibility, rather than proximity�

Key OutcomesThe project has generated several methodological and policy outcomes�

• It has been identified that distance-decay effects can exist, but their effects are much more complex than previously thought� A key result is that distance-decay effects appear to be limited for iconic resources�

• In the single-attribute study, the protection values of the GBR declined by less than 50 per cent from the local population to the out-of-state populations, and remained relatively invariant outside the local State�

• These results identify that the relevant population base is larger when iconic resources are involved�

• The results indicate that the present value of Australian households’ value for a 1 per cent improvement in the health of the GBR ranges from a low of approximately $449 million to a high of $815�5 million depending on the underlying assumptions made�

Project Outputs

Research Report• Rolfe, J� and Windle, J� 2010, Assessing national values to protect the health of the Great Barrier Reef, EERH Research Report

No� 72, Environmental Economics Research Hub, The Australian National University, Canberra�

Journal Article• Rolfe, J� and Windle, J� 2010, ‘Distance decay functions for iconic assets: assessing national values to protect the health of

the Great Barrier Reef in Australia’, Submitted to Environmental and Resource Economics. Special Issue: The Economics and Management of Marine and Coastal Systems, (December)�

Seminar Presented• Rolfe, J� and Windle, J� 2010, Using metrics to evaluate water quality improvements in GBR catchments, Economics and

Environment Network (EEN) Symposium, 22–24 November, The Australian National University, Canberra�

ContactProfessor John Rolfe, CQUEmail: j.rolfe@cqu.edu.au

Project TeamResearchers

Professor John Rolfe (CQU), Project leaderDr Jill Windle (CQU), Team member

Research Assistant

Gail Tucker (CQU)

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PROJECT E (EXTENSION): ESTIMATING RECREATION VALUES OF THE GREAT BARRIER REEF IN REGIONAL COMMUNITIES

PROFESSOR JOHN ROLFE, CENTRAL QUEENSLAND UNIVERSITY

Project DescriptionThis project is part of Theme F: Transition projects�

Project ObjectiveThe focus of the existing valuation project for the Great Barrier Reef (GBR) has been to identify community values for increased protection of the GBR, with the key focus on assessing non-use values� Conduct of the project has involved a number of focus groups and pre-tests, as well as the collection of approximately 4000 surveys in Queensland in more than 35 different split-sample tests� The surveys have been collected in Brisbane, Capricorn Coast, Townsville and Cairns communities� Several reports have been completed for the project, with more to be completed by the close of the project� All the project goals are being met with the current round of funding� The focus of this extension project will be to assess the recreation values that the regional population holds for the Great Barrier Reef� This is a different component of total economic values for the GBR, and involves the application of different non-market valuation techniques�

Recreation activities and values associated with the GBR’s assets will be assessed in a sample of regional communities along the Queensland coast� The final selection will be confirmed in discussions with the Great Barrier Reef Marine Park Authority, but are likely to include the populations of Cairns, Townsville, Mackay, Rockhampton and one smaller township� Approximately 1000 households will be surveyed across the selected communities�

The project will address an important information gap� Most economic studies of recreation in the GBR have focused on the tourism market and the value of the tourism sector� This does not capture the value of recreation to local and regional residents, as they can access the resources directly without paying commercial providers� As a result, more specialised non-market valuation techniques are required to assess recreation benefits for this group� There is a very limited pool of previous studies that has assessed recreation values in the GBR� Some of the most relevant studies include

• Hundloe et al� (1987, as reported in Hundloe 1990) assessed recreation values for all visitors to the GBR

• Carr and Mendelsohn (2003) assessed the domestic (Australian) recreation value of the GBR as approximately US$400 million

• Kragt et al� (2009) assessed the value of recreational dive and snorkel trips at approximately $185 per trip

• Prayaga et al� (2010) assessed the value of recreational fishing in the Capricorn Coast region of the GBR at approximately $385 per fishing group�

The results of the study will help policymakers to evaluate different options that involve recreational uses in the regional areas� Key aims of the study will be to assess different rates of recreation access across population groups, recreation values for different GBR assets and whether recreation values vary across groups�

The most relevant valuation technique for assessing recreation values is the travel-cost method, where the value for using a recreation site is assessed in terms of the investment that people have made to reach the site (travel costs, travel time and other access and site costs)� The contingent valuation method can also be used for valuing recreation, and the contingent behaviour method can be used to identify how recreation values might change with different environmental and access conditions� Rolfe is an expert in the application of these techniques, with a number of recent Australian studies being published (for example, Prayaga et al� 2010; Rolfe and Dyack 2010)�

In this study, a sample of each community will be surveyed to identify their use and visitation of the GBR, and additional information about costs and activities� Telephone interviews will used to collect the responses, with approximately 1000 households to be sampled from across the regional communities� The interviews will be collected through the Population Research Laboratory at Central Queensland University, which is a CATI laboratory specialising in this type of collection� Data from the responses will then be used to identify recreation values� Respondents will be asked about their visitation patterns to four key assets: beaches, islands, marine areas for fishing, and marine areas for other recreation� Key information to collect will be annual visit rates to each type of asset, and their estimates of costs involved in the most recent visit� Respondents will also be asked about their key recreation activities, and their sensitivity to different environmental and access factors�

This study will be built on similar research conducted by a PhD student, Prabha Prayaga, in the Capricorn Coast region of central Queensland� Prahba has been supervised by John Rolfe and Natalie Stoekl� That study applied travel-cost, contingent-valuation and contingent-behaviour methods to household survey data to estimate recreation values for the GBR� The publication by Prayaga et al� (2010) is the first output to be published from the research�

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The extension of the project to assess recreation values would be timely and efficient because a pilot study has already been conducted in the Capricorn Coast region through the PhD studies of Prabha Prayaga� This means that the broad survey formats have already been developed and the modelling approach has been tested� At least two more focus groups would be required to test how the survey instrument can be adapted to different communities, as well as a consultation phase with other stakeholders� The results of the study would provide reef catchment natural-resource management groups and other stakeholders with more specific information about the benefits of different Reef Rescue projects focused on improving recreation experiences�

Key FindingsThe focus of this study has been to assess recreation values for the GBR across regional populations in Queensland� The study has focused on values that people have for beaches, fishing, islands and water-based recreation� A large survey has been conducted of households along the Queensland coast between Bundaberg and Cooktown� Information about recreation use, lifestyles, visitation costs and future visitation rates has been collected so that specialist travel-cost and contingent-behaviour models can be applied�

The key findings can be summarised as follows�

• The use of quantile regression models generated additional explanatory power besides the zero-inflated negative binomial models, and appears to be a promising methodological advance in analysis�

• The value of a trip to a ‘most preferred beach’ was estimated at between $245 and $346 per group�

• The value of a trip to an island was estimated at about $1400 per group�

• Values could not be accurately determined for fishing, boating and sailing trips, probably because of the variability in responses and behaviour�

• The value of each 1 per cent change in fish catch per trip was assessed at about $15�90�

• The value of each 1 per cent change in water quality per trip was assessed at about $16�90�

Key OutcomesThe project has generated several methodological and policy outcomes�

• More detailed statistical methods have been developed to account for the large amounts of variability in responses when general types of activities (for example, beaches, fishing, islands) are considered instead of the single-site activities that are normally assessed�

• The economic values of recreation activities have been assessed along the coast� These average values for the different recreation types are available for extrapolation and transfer into a range of studies�

• Contingent scenarios have been used to identify how visit rates and trip values would be significant to changes in factors such as water quality and catch rates (the latter only for recreational fishing)� The results show that recreational behaviour and trip values are sensitive to both environmental conditions and recreation outputs�

ReferencesCarr, L� and Mendelsohn, R� 2003, ‘Valuing coral reefs: a travel cost analysis of the Great Barrier Reef’, Ambio, 32(5):353–7�

Hundloe, T� 1990, ‘Measuring the value of the Great Barrier Reef’, Australian Parks and Recreation, 26(3):11–15�

Hundloe, T�, Vanclay, F� and Carter, M� 1987, Economic and Socio-Economic Impacts of the Crown of Thorns Starfish on the Great Barrier Reef, Great Barrier Reef Marine Park Authority, Townsville, Qld�

Kragt, M� E�, Roebeling, P� C� and Ruijs, A� 2009, ‘Effects of Great Barrier Reef degradation on recreational reef-trip demand: a contingent behaviour approach’, The Australian Journal of Agricultural and Resource Economics, 53:213–29�

Prayaga, P�, Rolfe, J� C� and Stoekl, N� 2010, ‘The value of recreational fishing in the Great Barrier Reef, Australia: a pooled revealed preference and contingent behaviour model’, Marine Policy, 34(2):244–51�

Rolfe, J� C� and Dyack, B� 2010, ‘Testing for convergent validity between travel cost and contingent valuation estimates of recreation values in the Coorong, Australia’, Australian Journal of Agricultural and Resource Economics, 54:583–99�

Project Outputs

Research Report• Rolfe, J� and Gregg, D� 2011, Valuing recreation of communities in the Great Barrier Reef, EERH Research Report No� 102,

Environmental Economics Research Hub, The Australian National University, Canberra�

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ContactProfessor John Rolfe, CQUEmail: j.rolfe@cqu.edu.au

Project TeamResearchers

Professor John Rolfe (CQU), Project leaderDaniel Gregg (CQU), Team memberDr Jill Windle (CQU), Team member

Research Assistants

Gail Tucker (CQU)Prabha Prayaga (CQU), PhD student (PhD being submitted in April 2011�)

PROJECT F (EXTENSION): EXPLORING COMMUNITY VALUES FOR BIODIVERSITY CONSERVATION

PROFESSOR JEFF BENNETT, ANU

Project DescriptionThis project is part of Theme F: Transition projects�

Project ObjectiveThe Australian Government is giving priority to the protection of biodiversity� To ensure that investments in biodiversity conservation are appropriately targeted, information on the biophysical response of ecosystems to policy investments is required� So too is information on the values society enjoys from biodiversity conservation� Information on values helps to substantiate the case for biodiversity conservation investments and to target more efficiently investments to community priorities� Yet little is known about these priorities and values� Economic studies of biodiversity value have, to date, been focused primarily on what society is willing to pay to protect specific species or other elements of an ecosystem� Such studies have ignored key features of biodiversity conservation� First, they have not taken a holistic view to account for the diversity across a range of biological assets� Second, they have failed to account for the aspects of risk and uncertainty facing ecosystems that are critical to management of biodiversity� This second omission has come to prominence with the emergence in the scientific literature of the concept of resilience� Resilience describes the capacity of an ecosystem to absorb disturbance so as to remain essentially in the same condition�

The goal of this proposed project is to explore the values held by the community for biodiversity conservation with specific attention being given to incorporating a holistic definition of biodiversity, including facets of resilience� The value information so generated will

• provide a way forward to further biodiversity valuation studies

• assist in prioritising which threats to biodiversity to manage

• assist in the setting of priorities for investing in biodiversity conservation

• assist in justifying future investments

• provide targets for market-based instruments for biodiversity conservation

• assist in the assessment of the performance of alternative policy approaches to the conservation of biodiversity�

The proposed project will involve surveying members of the public to ascertain their preferences for alternative biodiversity conservation management strategies� The context will be a peri-urban area where development pressures are causing threats to biodiversity� The location of this area will be determined in consultation with department staff� Possible future biodiversity scenarios will be presented to survey respondents so that they are able to demonstrate their preferences by making choices between the alternative scenarios� Description of the condition of the biodiversity under each scenario will be characterised by their holistic coverage� Aspects of the resilience of biodiversity under each scenario will be described in terms of the likelihood of a ‘flip’ from the current ecosystem condition to others and how ‘reversible’ the change is� Precise scientific predictions of the alternative scenarios are not required for the study as the survey questionnaire will use a range of potential and hypothetical scenarios in order to examine the relative importance people give to the characteristics of biodiversity conservation� When scientific evidence regarding the actual features of a policy’s outcomes becomes available, their values can then be estimated with reference to the ‘generic’ values established from this project� Hence, the proposed project offers a cost-effective mechanism to assign values to biodiversity�

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Key Findings• It is possible to successfully communicate the concept of ecosystem resilience to survey respondents—that is, survey respondents

understand this concept and are capable of expressing their preferences towards improvements in ecosystem resilience�

• Implicit prices of attributes determining ecosystem resilience of the Border Ranges rainforests are positive and significant�

• Willingness to pay for an improvement in ecosystem resilience of the Border Ranges rainforests is positive and significant�

Key Outcomes• Indications that ecosystem resilience is an important driver for biodiversity values stress the importance of ecosystem resilience

in the formulation of policy for biodiversity conservation�

• Values for ecosystem resilience are useful for prioritising the different threats to biodiversity for management and investment purposes�

Project Outputs• Scheufele, G� and Bennett, J� 2011, Valuing ecosystem resilience, Paper presented to Annual Australian Agricultural and Natural

Resource Economics Society Conference, 8–11 February, Melbourne�

• Scheufele, G� and Bennett, J� 2011, Valuing ecosystem resilience, EERH Research Report No� 98, April, Environmental Economics Research Hub, The Australian National University, Canberra�

• Scheufele, G� and Bennett, J� (submitted), ‘Valuing ecosystem resilience’, Submitted to Journal of Environmental Economics and Management�

ContactProfessor Jeff Bennett, ANU Email: jeff.bennett@anu.edu.au

Project Team

Researchers

Professor Jeff Bennett (ANU), Project leaderGabriela Scheufele (ANU), PhD candidate

PROJECT G (EXTENSION): CLIMATE CHANGE ADAPTATION—AN ASSESSMENT OF LINKS BETWEEN WATER-RESOURCE AND LAND MANAGEMENT IN AUSTRALIA’S NORTH

PROFESSOR QUENTIN GRAFTON, ANU

Project DescriptionThis project is part of Theme F: Transition projects�

Project ObjectiveA review of scientific assessments such as the Northern Land and Water Taskforce Science Review (2009) and the CSIRO Northern Australia Sustainable Yields (2009) project highlights water-management challenges for the north—including higher variability in rainfall, more intense precipitation events and increased evaporation, which could have impacts on the quality and supply of water resources across northern Australia� This study will further work undertaken in TRACK Theme 6�1, which examined the feasibility and viability of water markets across northern Australia, to understand strategies for adaptation to climate change in water-market frameworks� The work will also examine the level of integration of land management and water-resource management frameworks and determine the incentives for aligning the adaptation objectives for both in the context of tropical northern Australia� Importantly, the study will assess the policy framework to determine the level of support for adaptive measures�

This study will examine climate change adaptation measures in water and land management frameworks in northern Australia� Importantly, the work will explore incentive systems to support the achievement of adaptation objectives in jurisdictions across northern Australia� The work will focus on northern Australia—a key investment area for CERF� The study will examine economic and

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social values, resilience to future changes such as climate change, and examine the use of market-based instruments to achieve policy objectives (such as improving biodiversity)� The goal will be to develop policy insights to help determine strategies and priorities for climate adaptation in northern Australia� This study will be interdisciplinary, relying on economic and social methods to further the aims of the study, engaging closely with stakeholders from State/Territory and Federal governments, Indigenous groups, industry and recreational users� Preliminary findings of the research will be reported to the water-markets section of the Department of Environment, Water, Heritage and the Arts (DEWHA) for feedback�

The project proposal has been reviewed by Michael Douglas of TRACK and Sue Jackson of CSIRO� The project team will work closely with TRACK in the delivery of this exploratory study�

Key FindingsKey findings based on this work will be presented at the Fenner School at the ANU on 23 June� I have invited Charlie zamut (FAS at SEWPAC) and his staff to attend the presentation� I will also be meeting with him later to discuss the work and its implications for SEWPAC’s work�

Key Outcomes• A framework for understanding the constraints and challenges to adapting to climate change in northern Australia�

Adapting to Climate Change for Water-Resource Management: Issues for northern Australia• Climate change could pose direct threats to northern Australia’s water resources, with implications for economic, social,

cultural and ecological systems� There might be an increased risk of saltwater inundation and erosion in coastal areas, while inland areas might experience more extreme high temperatures, drought, flooding, dust storms and bushfires� Climate change impacts, when combined with increased population growth (especially in Darwin), could make water stress more acute, particularly during the dry season� As water stress increases, the need for a robust and adaptive framework to manage water becomes more important�

• Analysis of water plans and climate change adaptation strategies reveals limited knowledge of the interaction of a changing climate and the north’s water resources� In light of changing conditions, however, policymakers have for their use the ability to reduce water allocations and the capacity to review water plans� A more integrated (basin-wide) approach to water-resource management could help offset social and economic impacts from changing water availability by improving planning and coordination between governments and stakeholders�

Litchfield Swimming Hole, Northern Territory

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Are There Incentives to Integrate Land and Water Management Across Northern Australia?• Northern Australia accounts for more than half of the nation’s annual run-off and is recognised for its unique ecological and

cultural values� As well, the region makes a significant contribution to national exports and is increasingly viewed as the next frontier for irrigation development� Climate change is likely to have implications on land and water resources that are not well understood� These linear and non-linear forces could fragment the landscape, highlighting the need for integrated land and water management as a tool for adaptation� Integration can improve the coordination of government adaptation programs, as well as efforts between government and non-governmental actors (vertical integration), and encourage coordination between sectors (horizontal integration)�

• Our work reveals that most attempts at integration in northern Australia have been formal structural or policy efforts to encourage coordination between governments to improve efficiency and reduce duplication in their management and planning efforts; an example is the Sustainable Planning Act 2009 (Qld)�

• For integration to take comprehensive effect it must influence the behaviour of individual actors—this to date has been a major barrier to integration efforts� The use of incentives to better align land and water use among farmers and landholders is mostly informal across the north� The use of a Payment for Ecosystem Services and Tradable Rights Allocation System could offer ways to successfully implement integration and improve natural-resource management�

Project Outputs• Adapting to climate change for water resource management: issues for northern Australia, EERH Research Report No� 108,

Environmental Economics Research Hub, The Australian National University, Canberra� (A 61-page report completed in April 2011 that has been circulated among key stakeholders in the north�)

• Are there incentives to integrate land and water management across northern Australia?, EERH Research Report No� 109, Environmental Economics Research Hub, The Australian National University, Canberra� (A 36-page report completed in June 2011 that is being circulated among key stakeholders in the north�

• Both reports were written after extensive consultation with a wide range of stakeholders�

ContactProfessor Quentin Grafton, ANUEmail: quentin.grafton@anu.edu.au

Project TeamResearchers

Quentin Grafton (ANU), Project leaderWilliam Nikoloakis (ANU), PostdocAimme Nygaard (ANU), Team memberQiang Jiang (ANU), PhD student

Contact:

Environmental Economics Research HubCrawford School of Economics and Government College of Asia and the Pacific J.G. Crawford Building (Bldg 132) Lennox Crossing The Australian National University Canberra ACT 0200 Australia

Phone: +61 2 6125 0154 (Director Jeff Bennett)Fax: +61 2 6125 5448Website: http://www.crawford.anu.edu.au/research_units/eerh/