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PDF file

• National Market Based Instrument Pilot Program Round One : An Interim Report (PDF - 434 KB)

About this report

Round one of the Market Based Instrument (MBI) Pilot Program began in 2003 after an open call for proposals in 2002. In round one of the program 11 pilots were selected from locations in five different states. The pilots investigated the use of auctions (4), cap and trade approaches (3), offsets (2), a leverage fund (1) and conservation insurance (1). Using the interim and final reports of nine of these pilots, and an overview report by the National MBI Working Group, a number of important insights were obtained. These findings, given below, will assist in the delivery of the National Action Plan for Salinity and Water Quality.

• Auctions, cap and trade (for point sources) and offsets can be successfully used to address a wide variety of water quality, salinity and environmental problems in the Australian landscape;
• MBIs, especially auctions, can deliver large cost savings relative to traditional natural resource management;
• To effectively implement MBIs there needs to be very good bio-physical modelling at the farm or paddock level, and adequate monitoring and enforcement of landholders’ actions;
• To generate cost savings MBIs require adequate testing and adaptation prior to implementation and well-developed communication strategies to maximise participation by landholders; and
• There is no one-size-fits all approach to environmental problems and MBIs will need to be tailored and adapted to particular circumstances.

Despite the successes of the round one pilot program in addressing key knowledge gaps about the use of MBIs for conservation purposes, a number of important issues still need to be examined. Some of these knowledge gaps are best answered with a follow up set of pilots. Suggestions as to what might be the research priorities should there be a second round of pilots, and how these pilots might be conducted, are provided below.

• Research funding should focus on moving MBIs from the trial to implementation phase and of all the approaches, auctions offer the greatest potential;
• Another trial of offsets would be helpful to further explore the possibility of trading between non point and point sources and to provide a better understanding of the value of offset banks;
• Given the uncertainty associated with achieving environmental outcomes, some testing of the relative merits of price versus quantity based instruments is required;
• Priority should be given to testing whether a mix of MBIs offers a more cost-effective approach to conservation than a single MBI approach;
• A comparison is required on the merits of environmental quality and outcome-based rights and contracts versus input-based approaches that control landholders’ actions;
• The choice of pilots in a second round should involve a ‘natural’ experimental design to provide information on how robust MBIs are to successful implementation by explicitly accounting for differences in landscapes and capabilities of local catchment and/or conservation authorities; and
• Funding should be provided to establish a technical committee to support future pilots, to improve the technical reporting from pilots, and to ensure they help answer the identified knowledge gaps in a timely manner.