The ‘menu’ of policy instruments available to governments falls into four broad categories:

• Suasive approaches: policy tools that encourage changes in behaviour through the provision of information, such as via general education programs, guidelines and codes of practice, training programs, extension services and research and development.
• Regulatory approaches: require changes in behaviour by introducing penalties for parties who don’t comply with the regulatory provisions. Types of regulatory instruments include standards (including planning instruments), licensing, mandatory management plans and covenants.
• Market based instruments: policy tools that encourage behavioral change through market signals rather than through explicit directives. There are a range of types of market based instruments including trading schemes, offset schemes, subsidies and grants, accreditation systems, stewardship payments, taxes and tax concessions.
• Public provision of services: often used where the management solution has the characteristics of a ‘public good’ which make it difficult for the service to be provided by the private sector, e.g. national parks.

With MBIs, governments do not require detailed information on who is best placed to make changes and how, rather this information can be ‘revealed’ by the market. MBIs deliver equivalent outcomes at lower cost by allowing firms / land managers the flexibility to decide on whether to change their actions or incur higher costs. In this way, land managers who face the lowest costs will make the environmental improvements.

MBIs with appropriate regulatory support are also used to bring third-party resources to environmental problems. For example, the use of offset provisions for urban development has seen investment in rural land management to secure native vegetation and greenhouse gas offsets.

Using a regulatory approach without MBIs imposes uniform requirements on all land managers, yet the cost of, for example, protecting remnant vegetation will vary, as will the benefits from various ecological communities. Using a regulatory approach can promote inefficiency, inhibit innovation, and impose unnecessary costs.

MBIs generally operate as either a price or quantity based instrument, although instruments aimed at improving the operation of existing markets–termed ‘market-friction’ instruments–are sometimes included as MBIs, as illustrated in the figure 1* below.

Figure 1 ‘menu’ of policy instruments