A ‘market’ is any place where sellers of a good or service can meet buyers of that good or service. Markets are historically associated with the buying and selling of tangible products or intangible items such as stocks and shares. However, harnessing the competitive pressure of commercial markets is increasingly being used as a policy tool to reduce the costs of securing environmental outcomes and to create greater flexibility for delivering natural resource management (NRM) outcomes.
By using policy tools called market-based instruments (MBIs), governments, regional NRM groups and others natural resource managers are applying the economic principles of supply and demand to the management of the natural resources such as water, biodiversity, habitat, water quality and forests. MBIs rely on market signals to positively influence behaviour.
MBIs come in many forms. Some MBIs use market forces by creating a price for natural resources. Others restrict the available quantity of a natural resource, using the market principle of scarcity. Finally, some MBIs provide information to allow consumers, investors and producers to make informed decisions about the environmental consequences of their actions or purchases.
By harnessing the competitive pressure of markets, MBIs can cut the cost of securing environmental outcomes, or provide greater flexibility in delivering NRM outcomes, or both. This means better value for money for regional NRM bodies, government agencies, licensed polluters and land managers subject to environmental regulation.
In NRM, MBIs work by providing a framework for a market exchange between buyers of environmental services (such as government agencies, regional NRM bodies or licensed polluters), and willing sellers of these services (such as farmers). Under an MBI framework:
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‘buyers’ of environmental services are provided with a marketplace in which to choose the best value outcomes
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land managers (and others) are given a business incentive to become suppliers, or ‘sellers’ of innovative environmental services.
In this way, MBIs entail the creation, introduction or facilitation of markets where none existed before, or modify the function or use of existing markets to achieve enhanced environmental outcomes.
MBIs have been successfully used to:
- improve existing incentive processes
- target intervention by engaging specific land managers
- engaging land managers in specific management activities to improve the management of natural resources
- gain greater results for less funding.
MBIs can be used to:
- alter market prices
- set caps on the use of resources
- improve the way a market works
- create a market where one previously did not exist.
Examples of MBIs include:
MBI principles can also be used with:
MBIs are already being used by regional NRM groups and government agencies to meet regional NRM planning targets. Find out more about regional NRM plans and targets .
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