Transferable Mitigation of Environmental Impacts of Development: Two Cases of Offsets in Australia

Abstract

Transferable offsets are a means of mitigating the adverse environmental impacts of resource developments. Based on insights from institutional economics, there are three elements that need to be in place for offsets to be effective: (1) property rights over the mitigating good can be defined and assigned; (2) a difference exists between the marginal cost of supplying the mitigating good and the community's marginal value for it; and (3) the transaction costs of exchanging the mitigating good are less than the trade benefit. We suggest that these elements can be used to evaluate the design and performance of offset schemes and illustrate how this can be done using two Australian environmental offset schemes. Trade-offs between cost and environmental outcomes are apparent in the design and operation of these schemes.

Keywords:

• offsets
• transferable mitigation
• institutional economics
• property rights
• transaction costs
• policy design

Acknowledgements

The authors would like to thank the participants in the two case study offset schemes who gladly gave their time to be interviewed for this study. The authors would also like to thank the Australian Governments Marine and Tropical Science Research Facility (MTSRF) for financial support for this research. Errors and omissions remain the responsibility of the authors.

Notes

More information on offsets in these states is available on the Victorian Department of Sustainability and Environment (DSE) website: www.dse.vic.gov.au and the NSW Department of Environment and Climate Change (DECC) website www.environment.nsw.gov.au.

This includes a better understanding of the biophysical outcomes of alternative mitigation actions as well as the values held by society for those outcomes.

Transferability refers to possibility to change the location of mitigation. Tradability refers to the possibility to change the owner (and legal responsibility) of the mitigation requirement. The two can coincide and occur independently. Substituting the type of action such as financial mitigation is also likely to result in a location substitution.

While there is much literature suggesting that resources are used and managed optimally if they are private goods, others such as Schlager and Ostrom (1992) suggest that the establishment of rules and entitlements over a bundle of property rights that is not necessarily a full allocation of property rights, can result in appropriate resource management without making a good private (with a full set of property rights). To be transferable, however, as is the case with transferable mitigation, the good does need to have a fully defined suite of property rights assigned to it.

Australia is a federation of states. The responsibility for land-use planning and development control is largely devolved to the state and local governments (Williams, 2007). Since 1999, however, the federal government has become more involved in environmental planning and development control where matters of ‘national significance’ are concerned via the introduction of the Act (Australian Government, 1999). The Act works alongside and sometimes overrides state legislation.

Three were awaiting decisions, two had been withdrawn from assessment and one had elapsed. The numbers had not changed significantly between the time of the initial analysis and interviews in 2009 and the writing of this manuscript in 2011/12.

This has improved somewhat with the introduction of an amended offset policy which was released in 2012 (Australian Government Department of Sustainability Environment Water Population and Communities, 2012).

This process also has some significant constraints. An EPBC Act 1999 agreement is between the Minister and the developer and is not on title. If a developer owns another property that can be supplied as a credit, this form of agreement is relatively straightforward. However, this form of agreement will be very difficult for another supplier, since that would involve an indirect relationship between federal government and the offset supplier (via the developer). This leads to problems of monitoring and compliance over the life of the offset.