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Market-based Approaches to Marine Environmental Regulation

Chapter 1 Introduction

Chapter 2 Market-based instruments: a taxonomy

Chapter 3 Factors affecting MBI relevance and performance

Chapter 4 Applying MBIs in a marine context

Bibliography

Appendix Multiple use in a coastal plan area – a case study

Chapter 4 Applying MBIs in a marine context

The marine environment represents a large and diverse common property resource. The legal powers of governments over that resource vary from sovereign rights in in-shore areas to ‘economic’ rights to off-shore areas. Oceans and marine areas produce a rich mix of economic, cultural and environmental outputs that need to be managed to ensure benefits are maximised and an appropriate balance is achieved between consumption aims and the desire to enjoy these benefits, undiminished, over the long term. In New Zealand, government action has been directed toward optimising this mix through regulating some activities, and access to key resources. Some activities are open to all but are subject to general constraints.

The challenge of managing the marine resource can take on different aspects because of the range of functions and services it performs, and competition to extract these benefits. The challenge also includes the physical remoteness and size of the marine environment, lack of information about the environment and impacts of activities on it, difficulty in monitoring activities and different types of jurisdiction in ocean precincts. A brief overview of key marine resource management and policy challenges, and the implications for using market-based instruments to address them, is provided below.

4.1 Challenges of marine resource management

Marine resource management involves a variety of challenges. A fundamental feature is the need to deal with a range of competing uses and services provided by a resource that is communal in nature. The deep ocean is also a largely unexplored resource, whose wealth and importance to coastal ecosystems is still the subject of scientific investigation. The legal powers of the New Zealand government over the marine environment vary from full sovereignty over the territorial sea to sovereign rights to explore, exploit, conserve and manage the natural resources of the Exclusive Economic Zone (EEZ) and the continental shelf.

New Zealand is in the process of refining a comprehensive and integrated oceans policy that takes in the littoral zone and its territorial waters and extends to the limits of its EEZ – up to 200 nautical miles offshore – and continental shelf beyond. A range of significant activities are underway or in prospect within New Zealand’s EEZ (see Box 4.1) – the imperative to effectively manage inshore areas can be expected to be even stronger due to the greater competition for space and amenity in these waters, and their exposure to land-based activities.

The dimensions and challenges of marine policy are also highlighted by the extensive content of the US oceans policy document – An Ocean Blueprint for the 21st Century (US Commission on Ocean Policy, 2004). This 522-page document (plus appendices) covers a wide range of issues in its 31 chapters including:

• managing coasts and their watersheds;

• guarding people and property against natural hazards;

• conserving and restoring coastal habitat;

• managing sediment and shorelines;

• supporting marine commerce and transportation;

• addressing coastal water pollution;

• limiting vessel pollution and improving vessel safety;

• preventing the spread of invasive species;

• reducing marine debris;

• achieving sustainable fisheries;

• protecting marine mammals and endangered marine species;

• preserving coral reefs and other coral communities;

• setting a course for sustainable marine aquaculture;

• connecting the oceans and human health; and

• managing offshore energy and other mineral resources.

These headings serve as a shortlist of the interconnecting issues that must be managed in the formulation of marine policy.

Nevertheless, despite the integrated nature of many of these issues, experience in other areas of resource management can be brought into play to help identify the characteristics that could lead to over-use or under-provision of the benefits that the ocean can provide, and opportunities to correct or alleviate these problems.

Source: Ministry for the Environment (NZ) (2005), p 2.

Sources of inefficiency in the use of marine resources

Common property characteristics

Much of the marine environment is freely available for use. There are no natural barriers that restrict access to it, and there is nothing to inhibit those that wish to enjoy – or exploit – the benefits that it can provide. In a wide range of common property resource examples (such as air pollution and downstream pollution discharge on water usage) experience has shown that an absence of consumption ‘rights’ has also tended to be associated with an absence of resource ‘responsibility’. In fact, signs that the resource is being depleted by over-consumption can lead to an expansion of effort to extract what is left before it is reduced further by someone else. The unco-ordinated consumption that is a hallmark of common property resources is an inevitable threat to ecological sustainability objectives; it is also associated with inefficiently high levels of harvesting or extraction effort, as productivity levels are reduced.

Common property and associated resource depletion problems are a well know feature of unregulated fisheries, and can also apply to other marine resources where over-crowding and unfettered access are characteristic. Recognition of these problems has, in many cases, led to a regulatory or market-based policy response. However, where present, these characteristics continue to act as a fundamental rationale for government action. The choice then becomes one of whether a regulatory or market-based approach represents the best response option.

Unpriced positive externalities

In addition to providing resources for wealth creation and private consumption, the marine environment also projects a range of social and environmental benefits that are enjoyed by the community. These ‘public’ benefits represent services that are freely provided and widely valued but go unpriced. The community value of these unpriced benefits represents a ‘threshold’ price that should be at least matched by any activity that would diminish the flow of these benefits. That is, policymakers must ensure, through appropriate valuation of prospective changes in social and environmental benefits, that marine-based economic activities enhance rather than diminish community wellbeing.

Positive externalities can be associated with biodiversity and ecological values, aesthetics and recreational amenity, health, cultural attachment, and water and air quality.

Spillovers and complementarities between activities can also be important. Examples could include opportunities to align offshore disposal with the creation of artificial reefs that benefit fish populations, aquaculture and recreational fishing and opportunities for eco-tourism.

Pollution and other negative externalities

The value and productivity of marine resources can also be threatened by pollution and other factors that impose costs that are not reflected in market processes. Just as the process of agreeing prices in a market framework can undervalue a resource when positive externalities are present (because the full set of beneficiaries are unrepresented), the presence of negative externalities can lead the market to over-estimate the value of (and hence over-produce) a good or activity.

Options for addressing these issues through the use of market-based instruments are discussed in the following section.

4.2 Aligning marine and MBI characteristics

It is possible to view the use of market-based instruments through the lens of marine issues and population characteristics. As noted, a range of location and stakeholder-specific issues can and will arise that mean that this exercise must be undertaken with expert input on a case-by-case basis.

Nevertheless, the critical and common MBI requirements identified in the previous chapter represent an initial filtering device for testing the applicability of MBIs to a broad set of marine policy challenges. A demonstration of this is provided in Table 4.1.

Table 4.1: Application of the MBI pre-condition checklist to high-level marine management issues

Prospective cases for the application of MBIs can then be evaluated more deeply in terms of the particular characteristics that are likely to lead to poor resource use outcomes, and the potential for an MBI to form part of an effective management package.

An example of this assessment process is provided in Table 4.2. In reality this would be a relatively detailed exercise recognising that MBIs are not passive policy tools, but can be adjusted and combined to fit particular circumstances. Greater detail is provided in a case study (Appendix A).

Table 4.2: Detailed assessment and design stage

A staged exploratory approach is likely to be required in developing a resource management regime that is appropriate to regional characteristics and the full set of community and resource values. This should have the aim of:

• achieving a solid understanding of the ocean resource (and its various dimensions);

• designing appropriate management tools that recognise and integrate those multiple uses and ensure community benefits are maximised; and

• putting in place robust arrangements that allow for changes and transferability in resource use, and protect the sustainability and underlying value of the system.

This approach is tailored to the values and issues associated with the marine resource, and the degree of certainty associated with these values. The scientific and valuation aspects of some resources may take considerable time to establish. In these cases, significant risks can be associated with early long term commitments to particular usage regimes and provision of property rights. These risks can be associated with loss of flexibility in future management or a failure to maximise the stream of community benefits from Crown resources.

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