Market-Based Instrument approaches to implementing priority revegetation in the South Australian Murray-Darling Basin

• Published in: IDEAS Working Paper Series from RePEc
• Main Authors: Ward, John, Bryan, Brett, Gale, Glenn, Hobbs, Trevor
• Format: Paper
• Language: English
• Published: St. Louis Federal Reserve Bank of St. Louis 01.01.2006
• Subjects: Agricultural production; Biomass; Carbon; Farming; Natural resource management

Resource condition targets have been specified for river salinity, biodiversity conservation, and wind erosion mitigation in the South Australian Murray-Darling Basin (SA MDB). The revegetation of cleared, privately owned agricultural land with deep rooted perennials has been widely promoted as one approach to satisfy the resource condition targets. Current estimates indicate the scale of revegetation necessary to meet the targets is extensive and associated with high establishment and opportunity costs, largely borne by private landholders. In this paper we evaluate the potential of three classes of market based instruments (MBI) to motivate private revegetation of deep-rooted perennials. We conclude: that a singular reliance on an auction or tender based instrument without associated commercial opportunities to augment farm incomes, will yield a small contribution to natural resource management targets given current levels of funding. There is limited potential for quantity based cap and trade instruments due to limited differential in the marginal costs of revegetation, and limited numbers of potential traders. Revegetation needs to form the basis of an alternative farming system that is commercially viable. The elimination of institutional barriers to provide better access to existing and newly created markets provides the best opportunity to motivate revegetation-based farming systems. We develop quantitative, spatially explicit models of the economic viability and resource condition contributions of biomass production and carbon trading for the entire SA MDB. Our results demonstrate that both biomass and carbon production are potentially economically viable alternative farming systems and make substantial contributions to regional natural resource management targets. For large scale adoption of these alternative farming systems three actions need to occur. Firstly, a biomass industry needs to be developed in the region. Secondly, institutional barriers to trade in the European carbon market need to be removed (or an Australian Market expanded). Thirdly, widespread uptake of these alternative farming systems by private individuals is required. We recognise that the actual level of adoption is partially contingent on a number of complex, interacting factors. These include individual attributes and behaviours, cultural norms, traditions and conventions, social institutions, the ease and predictability of land use change, and the effectiveness of communicating the economic benefits of new farming systems relative to current agricultural production These are aspects of ongoing and future research.