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Chapter 1 Introduction

This study examines options for using market-based approaches to maximise the value and sustainability of New Zealand’s marine resource. These can be powerful tools for achieving policy goals through the use of prices and profit opportunities. Depending on the circumstance, they can sometimes be used in conjunction with or as an alternative to regulation, though some degree of regulation will invariably be required to establish the supporting rules and framework for a market instrument.

Nations around the world are focusing on the opportunities and challenges associated with managing their marine resources – and the role that market-based instruments (MBIs) might play in an optimised policy approach. MBIs are achieving an increasing following among policymakers as tools for promoting an efficient alignment of economic and environmental values. A shortlist of potential benefits highlighted by the United Nations Environment Programme (UNEP) is reproduced in Box 1.1.

Box 1.1: Potential of economic instruments in resource management

Economic instruments (EIs):

1. Provide flexibility in achieving the overall cost of reducing emissions – EIs ensure that the overall economy-wide cost of meeting specific emission targets are reduced by allowing the market to determine how much pollution each specific firm can reduce. In this way they encourage firms whose emission reduction is less costly to abate more rather than forcing every firm to meet a specific emissions level.

2. Act as incentives for the use of innovative abatement technologies – Since firms can trade in emissions, and because emission reductions have financial value, firms have a continued incentive to invest in abatement technology innovation since extra reductions can be sold to others.

3. Allocate environmental and natural resources to parties who value them most –Properly structured EIs ensure fair allocation of environmental and natural resources and encourage their sustainable utilization while at the same time raising revenues for the government in the form of resource rents.

4. Guarantee self-enforcement by aligning public and private interests – EIs create a decentralized and self-enforcement system for environmental policies by creating an incentive for agents with vested interests to ensure the proper use of environmental and natural resources. Thus the burden of control is taken away from the state.

5. Increase transparency in resource use and allocation – Application of EIs in environmental and natural resource management is appealing in the sense of their openness as the costs and rights associated with many EIs are more visible through trading levels, prices, ownership patterns and fee receipts. This makes it easy to evaluate investment trade-offs and discourages practices such as lobbying for special privileges or exceptions.

6. Help in cost-recovery of publicly provided services – In the provision of publicly owned or delivered resources such as drinking water or oil, market pricing is applied in many markets. In others, their prices are set at levels that recover the full cost of providing them. The revenues can then not only be used to finance continued provision of these services but also in activities that encourage increased conservation.

Source: UNEP (2005), pp 9–10.

The potential – and challenge – in applying these instruments lies in establishing conditions in which behaviours and outcomes driven by profit seeking (and cost minimisation) are in harmony with broader community objectives.

These objectives will often reflect the enormous wealth embodied in the oceans resource – and its potential to support income-earning activity and economic growth – as well as its significant environmental value and contribution to social and cultural values. There is a need to recognise and achieve a balance across these ‘value’ dimensions so that the stream of community benefits can be maximised over the long term.

However, MBIs can be more suited to some situations than others. Their focus on economic incentives and market structures can reduce their applicability to some environmental management problems, and issues of cost, effectiveness and – in some cases – public acceptability can also diminish their suitability as public policy tools. They also need to be designed and implemented in a way that builds on, and integrates with, existing regulatory frameworks.

The following chapters expand on these issues. They provide an overview of the suite of MBIs available to policymakers in developing an effective management regime for New Zealand’s marine resources, and analysis of the characteristics that can promote or diminish the potential of an MBI to deliver targeted outcomes.

Chapter 2 provides a brief overview of the main categories of market-based instruments and their key characteristics. It also examines the use of these instruments in natural resource management situations.

Chapter 3 examines the preconditions or features that are necessary for the operation of these instruments and the features that can affect their performance in achieving cost-effective outcomes.

Finally Chapter 4 examines key marine policy objectives and the suitability of MBIs for application in these areas. This analysis develops a framework for assessing the potential for MBIs to promote marine policy outcomes.

This work is supported by a hypothetical case study in which this analysis is applied in the formulation of a marine resource management approach.

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