Role of economic instruments in managing the environment

Economic Instruments Complement Other Environmental Protection Measures

Economic instruments, such as levies/charges and tradeable permits, when used appropriately can entail least cost solutions to environmental problems, provide greater flexibility and encourage innovation. Economic instruments can be used on their own or in combination with other measures to improve the efficiency of environmental protection efforts, according to a staff research report released today by the Industry Commission.

The report, Role of Economic Instruments in Managing the Environment, reviews the application of a number of economic instruments to key environmental problems in Australia and examines areas where the use of such instruments could be extended.

In addressing key environmental issues such as native vegetation retention and dryland salinity, the report explores the scope for extending the use of economic instruments. Expanding the use of management agreements and conservation covenants to protect native vegetation and the possibility of extending the salt credits scheme currently operating in irrigation areas to dryland areas are some of the options canvassed in the report.

At present, Commonwealth, State and local governments use economic instruments such as effluent charges, load based licensing schemes, performance bonds and tradeable permit schemes to address a number of environmental problems associated with air, water and land.

The report highlights the need for obtaining adequate information about key environmental problems and developing effective mechanisms to monitor and evaluate measures used to address these problems. It argues that effective implementation of incentive based mechanisms to address environmental problems requires devolving responsibility and authority to the lowest practical level.

Background information

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