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Options for developing a natural resource-based economy in Arnhem Land: Payments for environmental services

Nanni Concu, Australian National University, 10 November 2009

NANNI CONCU: So, there have been several proposals for economic and social reform in Aboriginal Australia based on establishing natural resource management [NRM]-based economies. But what are they? Basically, NRM-based economies generate economic returns from the stock of natural and cultural resources for the benefits of the owners; so they have an economic incentive to maintain them. Economic returns are generated from trading environmental goods and services to local and non-local buyers, or actors, or NGOs [non-government organisations], government, business, you name it. They have the potential to address economic growth and conservation. On paper they look very good because they focus on an integrated approach.

Indeed, why are we talking about NRM-based economies? Well, you surely are aware that Australia, in the last decades, has experienced a substantial economic growth. But in terms of social-economic wellbeing and opportunities, several studies indicate that – for instance, in terms of regional indicators – there has not been much income convergence.

So inequality, income inequality, is still there, at least up until 2001. More recent studies, indeed, also show that even if income inequality has been decreasing since 2000, relative poverty has increased. Relative poverty is defined as the number of people living on less than 50 per cent of the median income.

This poverty indicator [indecipherable] is important when we talk about Indigenous people, because Indigenous median income is only 59 per cent of the non-Indigenous population. That means that at least 50 per cent of Indigenous people live in poverty, or very close to the poverty threshold.

Also, we know that on a range of indicators – child mortality, employment, education, health – Indigenous people and non-Indigenous people are quite different.

Also, economic growth in Australia, and in general around the world, has proceeded alongside major environmental transformation. In Australia, we know that at least half of the ecosystems – especially in coastal areas and in the Murray–Darling Basin – are under severe pressure and in decline. And 39 per cent of Australian bio regions are under threat.

Also, we know that Australia ranks among the highest CO2 [carbon dioxide] emitters and energy users; also the recent drought has exposed the severe water allocation problems and the vulnerability to changing climate conditions.

Indeed, the IPCC predicts loss of biodiversity for Australia, and increasing water security problems and declining productivity in agriculture and forestry.

So basically, on one side we are concerned about the environment, the conditions of the environment; on the other, we have had at best limited results, in terms of poverty reduction and income inequality reduction. So, these two elements are the basic rationale behind the idea of NRM-based economies.

Indeed, in the past 20 years, there have been several programs that have tried to tackle, on one side, declining living standards in rural Australia, and [on the other side] a decline also of the environment.

The major programs, on a national level, were the National Landcare Program, the National Heritage Trust, and the National Action Plan for Salinity and Water Quality. They were all based on the rationale that these should build capacity, increase NRM awareness and produce a kind of environmental stewardship ethics.

They mainly targeted, basically, sustainability at the farm landscape level, and basically they try to promote sustainable agriculture use and sustainable use of vegetation, water, and land.

For some programs, farmers joined in large numbers and basically managed to set up networks between farmers, community groups, government and businesses. The reality is that basically, over the life of these programs, they have used $4.5 billion of taxpayer money.

There is a general, however, understanding that these programs haven’t been successful at all. Yes, they have increased NRM awareness; indeed, around 40 per cent of farmers across Australia have joined one or more of these programs, one or two of these programs; but however, they have mostly driven this program for the provision of services for production activities, and basically, no environmental changes have been reported yet.

So, it’s basically fairly inefficient use of taxpayer money, and also, there was a lack of scientific inputs to solve environmental problems that to some degree, like salinity, are quite complex.

In terms of Indigenous engagement, also these programs have performed quite poorly, in terms of Indigenous participation and access to funds. You know, this hasn’t happen much.

In terms of Indigenous NRM, the major national program that I’m aware of is the Indigenous Protected Areas program. It was established in 1996 as part of Australia’s commitment to set up the National Reserve system and then meet Australia’s obligation under Article 8 of the International Convention on Biological Conservation.

Indigenous Protected Areas are basically Aboriginal land, over which the traditional owners have entered a voluntary agreement with the Federal Government for the protection of biodiversity and conservation of Indigenous culture.

Currently, there are 33 declared IPAs; there are over 40 that are in process, and overall they contribute to 23 per cent of the National Reserve system.

[shows image] In this slide, I’ve collected some basic information from a sample of the declared Indigenous Protected Areas. What’s important to note there is that, in terms of financial commitment from the government, all this land – the millions of hectares the traditional owners have donated to the National Reserve system – hasn’t required any financial commitment from the government so far.

Further, as some of the land that has been purchased by or returned to traditional owners, was previously used for pastoral or agricultural use, it was highly degraded, so the traditional owners have taken it on themselves to restore and to care for their country - again, with very little financial commitment from the Federal Government.

IPAs are usually reputed a very successful story of collaboration between traditional owners and the government. And indeed from the point of the country, Australia has acquired a very significant [amount of] land in terms of biodiversity in a very cost-effective way, with minimal expenditure. For the traditional owner, IPAs basically are ways to pursue some social, economic and cultural goals and I dare to say that to some degree, at least in my experience with IPAs, they have managed to cut an Aboriginal space within the political and economic boundaries of Australia. So it’s successful for them in this regard. Just quickly, there’s clearly a gap. Aboriginal people seem to be committed to practice, life projects, principle and places, and this commitment gives them reasons to actions that are largely independent from financial motives. On the contrary, farmers still clearly have some of these commitments o, but they are also heavily embedded in the market economies, so they have very heavy market commitments. Their production is basically driven by their consumption need. So overall it seems that NRM or environmental conservation promoted by appealing to the farmers’ bottom line, hasn’t been very successful overall. There’s probably a gap that here needs to be –recognised

Clearly IPAs are not only successful stories; there are lots of problems. One of the major [problems] is the coordination with other government programs.

The Closing-the-Gap framework seems to be in direct conflict with traditional owner aspirations to stay on country and care for their country, but also, the voluntary nature of this agreement doesn’t require from the government any major involvement, especially in terms of changing legislation. So you have the case, for example, that an IPA doesn’t extinguish mining rights, so you have IPAs – for instance in the case of the Djelk IPA, 30 per cent of the IPAs is under a mining exploration lease.

So whenever the miners want to open a mine, they go and do it.

There’s also a strong case for more public money to be invested in the IPAs. We also should be aware that traditional management practice or Aboriginal management practice may not be suited to address new and emerging environmental threats like weeds and feral animals. So the government should provide some skills in NRM for rangers; but also, traditional owners residing in remote communities, or in their traditional estates, are the best places to monitor reports, address emerging environmental threats.

So there is a case for public investment in training in this regard; and also, what needs to be done, at least where the IPA is involved, [is to have] much more non-Indigenous scientific input to understand what’s the baseline there what are the basic environmental conditions, to understand what has been happening. And clearly, [we] need to train the scientists also, when they get in contact with Indigenous people.

The limited success of programs such as the Landcare program, but also similar programs across different countries, has pushed for the search for different ways to promote conservation. And one of these tools is the Payments for Environmental Services [program]. We must we say that most of the push is coming from large organisations such as the World Bank

Payments for Environmental Services are basically born from the simple idea that with increasing scarcity of environmental services, these could be potentially traded. So basically an environmental services buyer can make direct contractual or conditional payments to landowners for them to adopt conservation measures, so that there is some good environmental outcomes. On the other side, these payments could provide some support for landowners’ livelihoods.

This is the very basic idea of payments. PES are one of those sorts of instruments called ‘market based instruments’. Basically they try to address market failure by creating a market. And these are the basic features or logic behind PES. Basically, most of the benefit from conservation activities doesn’t accrue to the landowners, so the landowners benefit only marginally from conservation activities.

And when these benefits from conservation are less than the benefit the landowners get from other use of their lands, such as agriculture and forestry, and this use produces some negative environmental externalities, the community that suffers could pay some amount of money to the landowners so they will adopt conservation management practices.

So it’s very simple. Clearly it’s simple, but there are so many problems here. First of all, if you want to use PES, there must be a market failure, so current activities should be producing negative environmental externalities that could be addressed by adopting conservation strategies. You also need to be able to identify land managers. We need to identify the beneficiaries of environmental conservation, and this beneficiary needs to be also willing to pay something.

And also implied in these dollar signs is that we are also able to estimate at least a little bit of value of these services, okay – what is the opportunity costs a year. So the benefit from productive use of the land is quite straightforward, but usually it is very difficult to estimate, to put a dollar value to these environmental services.

I believe this is very straightforward, but I believe also that it doesn’t really apply to Indigenous land. I think that the picture in Aboriginal-held land is best described by this slide up here [shows image]. It’s generally agreed that traditional owners have very little opportunity cost, because the land has a very low natural fertility, or because the land was previously used for agriculture and for other activities that have degraded the natural productivity of the soil. So, very little opportunity cost.

It’s also agreed in general that traditional management practices may have a very positive effect on the environment. So where are the problems in Indigenous-held land coming from? The environmental problems, where are they coming from? Well, we can argue that some of the problems are mostly related to policies: agriculture, forestry, mining, the population trends, and the collapse of Aboriginal traditions. We may argue what goes into this list, but I believe most of the problems that we’ll find down here are related to policy distortions.

And as any economist will tell you, before you address a problem with a market-based instrument, you address policy distortion. That’s the first, best solution. Only after you address this policy distortion, you may use PES instruments or a PES type of instrument to provide economic incentives, for instance, to traditional owners to stay on the land, take care and produce positive environment externalities.

And indeed this is the best framework that I could find that describes the existing PES type of schemes currently operating in Indigenous NRM.

The first one is the WALFA project, or West Arnhem Land Fire Abatement project, that is basically based on agreements between traditional owners from the Djelk and Warddeken IPAs and the Darwin Liquefied Natural Gas, brokered by the Northern Land Council and the Northern Territory Government. Under this agreement the traditional owners and Indigenous rangers provide strategic fire management to reduce the number of late-season, high-CO2 emission fires through strategic burning early in the season over 20,000-28,000 square kilometres in the Djelk and Warddeken IPAs.

So reducing late-season fires creates some carbon credit that offset the emissions from the DLNG gas plant in Darwin. And for these, DLNG pays around $1 million per year for 17 years.

Another example of a PES type of scheme for Indigenous NRM is the AQIS [Australian Quarantine and Inspection Service] Fee for Service program. Basically, AQIS contract Indigenous rangers to provide weed and insect and illegal fishing vessel monitoring for bio-security.

AQIS pay for a vehicle or a vessel and full pay for up to two rangers per day. This program doesn’t provide start-up support, so if you are an Indigenous ranger group that doesn’t have a boat, you can’t do anything – you know, illegal fishing vessel monitoring, your own patrols. They provide some training, and the funding is also year by year, they are not ongoing fundings.

There is little data about this project but from what I know of, for instance in the Dhimurru Aboriginal Corporation in Nhulunbuy last year, they gained around $8000 from the AQIS contracts; and Dhimurru runs a $2 million operation, so AQIS contracts have little financial impact, really. And some talks with AQIS officers basically have showed that not many Aboriginal rangers are interested in taking up insect and weed monitoring so financial incentive may not be enough.

Another example of PES for Indigenous NRM is the Australian Customs Indigenous Rangers program. Basically, Customs engage rangers to provide maritime surveillance and border protection. It started in 2005 as a pilot program to target illegal fishing and border protection. The Djelk rangers were the first to enter this pilot project;

They received $250,000 per year to have a boat and two rangers patrolling the coast, and since then Djelk rangers have actually intercepted several illegal fishing vessels and have provided evidence for successful prosecutions. The program was extended in 2007 to the Bardi Jawi rangers in WA [Western Australia] and the Arukun rangers in Queensland. I believe there are other rangers groups involved in Customs on an on-off basis basically, and the Federal Government in 2007 committed around $600,000.

There’s no much info, again, about this program in terms of data available, really.

Yes, so what can we say about these PES programs for the -Indigenous rangers? Well, I believe there are some constraints for Indigenous communities and traditional owners to take up this kind of contractual commitment. First of all, the low opportunity cost implies they have little negotiating power when it gets to demand money. And you need to realise that AQIS and Customs have paid very little money.

They also need initial capital investment to purchase boats or vessels or any other asset that is required, and indeed the WALFA project is working because the traditional owners have had the support of a very well funded Indigenous rangers group and Outstation resource agency. And training may be required. So the more complex the PES scheme, the more the training required, and I believe, in my experience, that some environmental service buyers may not be willing to provide this training, especially some federal and state agencies. They will have to provide law enforcement and compliance training, and they are not really willing to relinquish some powers to give them to Indigenous rangers.

PES works best when traditional management matches current activities, and also is best if payments are ongoing, because they signal a strong commitment from the buyers. And also we have to be aware the financial incentive may not be enough. There are critical aspects we need to consider, that market exchange through PES implies that environmental and cultural elements need to be commodified, and that could involve conflating a complex system of environmental and cultural elements into a commercialised one, with possible detrimental effects to the whole system.

We have to be aware that PES schemes connected to offset schemes have zero effects on the environment, as in the case of the WALFA project, and need to consider the overall effect on the economy. Indeed, there are studies that show that participants in a PES scheme had no gain at all because the PES scheme wasn’t linking properly to the local economy, and that, you know, brings us to the last point that we probably need to be creative also when we think about the form of payments of these schemes.

Some concluding comments: I believe – this is my opinion, of course – Aboriginal NRM have been successful so far when traditional owners have managed to cut a space of autonomy from the government and from bureaucracy, but there’s also the weakness of the project. Indeed, there’s nothing stopping government in terms especially of … the government won’t be held back by the prospect of losing substantial investments when this type of Indigenous NRM doesn’t fit into the political agenda or into the interests of more powerful economic operators.

I also believe that equality and environmental conservation cannot be realised only through market mechanism. Indeed, the economic discourse seems to be crowding out any other consideration when it comes to environmental conservation and cultural protection; and indeed, Indigenous NRM are highly dependent on policy agenda, and we need to address this policy distortion before we probably go into market-based instrument. Thanks.

Date published: 19 July 2010