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Market-based instruments (MBIs) are not suitable for every natural resource management (NRM) problem. Also, different MBIs are better suited to different NRM situations. The challenge is to consider what MBI (or suite of MBIs) is most appropriate to address the target NRM problem.
MBIs are just one of a suite of policy and program tools at a regional NRM group's disposal to address priority NRM issues.
The most effective MBIs are designed in response to the specific circumstances of the problem faced. They are put in place only after significant background consideration of the particular environmental, economic and institutional context, the case for intervention, identification of opportunities for an MBI; resource and capacity requirements; design requirements and processes; landholder characteristics; and likely implementation requirements.
This section introduces a framework to assist regional NRM groups in determining whether an MBI may be appropriate to address a particular NRM problem, and what MBI, or suite of MBIs may be most appropriate. This framework is discussed in more detail in the decision support document, along with case studies and associated information.
Generally the types of MBIs in use in natural resource management include:
A general framework has been developed to help decide when a situation requires a policy intervention, when MBIs might be the right tool to choose, and which MBI might be the best option.
Step 1 – Understanding the policy context. What is the extent and nature of the environmental problem? Could a management change fix the problem? If so, how? Does the community know about the problem and are they motivated and able to help solve it? What is stopping the problem being solved?
Step 2 – Identifying the case for intervention. Following from Step 1, an assessment of the private, public and net benefits from an NRM change will help establish whether a policy intervention is appropriate, and what form of policy intervention it should take (i.e. encourage a positive NRM change, or discourage a negative NRM change). Where there are large differences in the ability and cost of different participants to make NRM changes, an MBI is more likely to be effective.
Step 3 – Identifying opportunities for an MBI. More detailed analysis of the NRM ‘market’ will help decide whether an MBI is an appropriate solution to the problem. If the issue is being distorted by existing government policies, focus should be on reforming these policies. Where information barriers are the problem, a ‘market friction’ MBI could help solve the problem. Where the NRM market is incomplete or missing, quantity or price MBIs could be designed to provide incentives for better outcomes.
Step 4 – Design features for the MBI. Closer attention to the biophysical, management and institutional factors of the problem can reveal important features affecting the design of an MBI. Biophysical factors include data quality and availability, the existence of thresholds and the potential for metrics to be developed. Management factors include the nature of management solutions (are they known or is there scope for innovation?), whether changes will be isolated or widespread, and whether prices for change differ by location and landowner. Institutional factors relate to current rules and regulations, funding, administration and monitoring capacities.
Step 5 – Potential design elements. The first four steps can help remove some unfeasible options for MBIs from the decision-making process. To simplify the implementation process (Step 6 in the figure below), a preliminary analysis can be made based on effectiveness, efficiency, administrative workability, and fairness.
* Collins, D and Scoccimarro, M (2008) MBI Decision Support Tool.
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