Using incentives to buy land-use change in agriculture for environmental benefits David Pannell University of Western Australia

Context  Environmental programs that seek changes in private land management  Australia: Natural Heritage Trust National Action Plan for Salinity and Water Quality  US: Conservation Reserve Program Environmental Quality Incentive Reserve Program Conservation Security Program  EU: Rural Development Regulation

Various mechanisms available for seeking changes on private lands  beneficiary-pays mechanisms  subsidies, conservation auctions and tenders  polluter-pays mechanisms  command and control, taxes, permits, offsets  extension, education, suasion  Technology development, R&D  No action

Problems with “incentives”  paying incentives to do things in places that won’t achieve NRM outcomes  paying incentives when extension would do  paying incentives when technology development better  Paying small, temporary incentives when you need large, permanent ones Two distinct roles for incentives

(a) encourage trialling  incentives can be small and temporary  bait not sustenance  expect farmers will like being hooked  mainly accelerate adoption rather than increase it

(b) compensate people  incentives need to be big, and probably permanent  sustenance, not just bait  like throwing fish food off a jetty  if feeding stops, fish drift away

Possible projects

Simple rules 1. No positive incentives for land-use change unless public net benefits of change are positive. 2. No positive incentives if landholders would adopt land-use changes without those incentives. 3. No positive incentives if private net costs outweigh public net benefits.

Simple PP framework

Cost of incentive

Iso-BCR lines

Lag to adoption

Need to cover learning costs

Envelope: BCR ≥ 1 Learning cost } Lag is long enough to be worth paying incentive

BCR ≥ 1 (or ≥ extension)

BCR ≥ 2 Incentives should be targeted. Easy to spend on wrong projects. If public net benefits low, no incentives. If public net benefits high, only a narrow range of private net benefits suit incentives. Two different roles for them.