»Designing MBIs»When should an MBI be used?
When are MBI's appropriate NRM tools to use?

The Designer Carrots program is developing a web-based tool that will help to make informed decisions about the use of market-based instruments (MBIs) and other policy tools to manage natural resource management (NRM) projects.

A hard copy version of the MBI decision support tool is available. The web-based tool will be available from May 2008.

It is best to use MBIs when there are many ways of solving a problem but each solution has a different cost to individuals and the community. MBIs can reduce compliance costs by encouraging greater change where change is relatively cheap or easy, rather than asking all participants to make the same level of change. Some MBIs rely on a regulatory framework to operate effectively. MBIs are likely to out-perform other instruments when:

  • large variations exist in the ability of potential participants to provide the desired outcomes
  • there is flexibility in the range of responses that will deliver the desired outcome 
  • regulatory approaches are difficult to design, implement and administer
  • there is scope for innovation in improving natural resource management.

MBIs alone cannot achieve improvement to our natural assets, they should be used with a range of other responses.

An MBI approach may be warranted:

  • where MBIs offer a more effective and efficient policy approach compared to alternative policies (e.g. conservation tenders offer greater efficiencies than traditional devolved grants).
  • where there are many different ways of fixing the problem, providing scope for innovation, particularly where the environmental services wanted can be measured as outcomes without the need to specify particular inputs or approaches (e.g. improving water quality, can be achieved by revegetation, fencing, increasing soil cover, stopping fertilisers and chemicals entering waterways).
  • where there are many land managers within a catchment or region with potential to provide the types of services needed to address an environmental problem and competitive pressures can be used to reduce costs of providing environmental services.
  • to encourage NRM change where there are public net benefits from the change proposed, but private net costs (e.g. significant water quality benefits in a catchment from increasing groundcover, but significant financial costs to farmers from reduced stocking rates).
  • to discourage negative impacts to environmental objectives where there are net private benefits but net public costs (e.g. actions to reduce soil erosion attributable to urban development, increasing costs to developers, but avoiding costs to the broader environment).
  • where there is variability in the benefits and costs to different land managers from the actions targeted or the natural resource being used and gains from trade/exchange are likely (the generation of a market which trades in natural resources such as water or the ability to cause limited environmental damage such as the vegetation clearing).

MBIs are already being used to manage greenhouse gas emissions, waste management, emissions to water and air, vegetation management, wetland management, salinity management, soil quality and other environmental management issues such as loss of habitat and biodiversity.

MBIs are not appropriate for all NRM problems. Their use must be considered within the environmental (scope and scale), economic and institutional context of the NRM problem to be addressed and after consideration of the full suite of policy options available.

More information on when and how to use MBIs is available in the Designer Carrots fact sheets, case studies, guidelines and on the different types of MBIs page. For help in deciding on the right instrument to use, try the Decision support tool document.