Dryland salinity

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• Dryland salinity
• Economic Issues at Farm, Catchment and Policy
  Levels
• Policy Mechanisms for Salinity Management
• Gary Stoneham

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1. Local groundwater systemleaky groundwater
system (external costs lt opportunity costs)
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Policy options

• Type of problem
• Optimal control problem
• State variables
• Control variables
• How fast should land be degraded?
• Key issues
• Discount rate
• Full information
• RD and productivity change
• Policy issues
• How much/what type of RD?
• Does this have implications for the total
  allocation of funds to RD, and to the allocation
  of funds?
• Incentives/regulations to manage external costs
  associated with on-farm solutions
• Irreversible outcomes

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2. Leaky groundwater system External costs gt
opportunity cost of land-use change
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Policy options

• 1) Technology fix
• Change production possibilities
• Reduce the leakiness of farming systems
• eg. Mallee oils
• Improve productivity on degraded land
• eg. salt tolerant crops
• Change the landscape
• Engineering solutions
• eg. salt interception schemes
• Change land-use
• eg. native or other non-commodity vegetation

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Policy options

• 2) Incentives through existing markets (price
  theory)
• markets unlikely to take hold
• basic pre-conditions for markets violated (Prod.
  Comm. 2002)
• full information, clear and enforceable property
  rights, low transaction costs, competition etc.
• example - tax on salt externality
• Efficient tax would require site specific
  marginal tax rate marginal damage

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Policy options

• 3) Create market-like mechanisms (information
  economics, game theory, contract theory)
• markets often fail because of missing and or
  hidden information (Akerlof 1970, Stiglitz 2000)
• opportunity cost of land-use change - asymmetric
  information
• cause and effect - missing information
  (hydrology, ecology)
• Additional policy mechanisms
• auctions for land-use change
• cap and trade
• information disclosure
• part of a broader policy mix

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Key issues

• Multiple benefits
• net benefits from landscape/land management
  change
• complements (trees water table carbon)
• competing (trees water table carbon - surface
  water)
• Opportunity cost
• needs to be revealed not estimated
• Is intervention sensible?
• Dont know until have information about
  opportunity cost and impact (hydrology, ecology)

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Policy issues

• 1. Sustainability and salinity
• communication with public and policy makers
• a strategic response to salinity
• help for policy advisers in States and
  Commonwealth
• which natural resource problems are important?
  (dryland salinity, irrigation salinity, water
  quality, biodiversity)
• what needs to be done from here (a strategic
  plan)
• myths and bad ideas
• eg. Veg.Bank, trees as the magic bullet, dryland
  salinity credits, private sector involvement etc.
• Need to build the knowledge base and develop ways
  of communicating key messages
• NAP 1.4b (seven years)
• the role of RD in natural resource use
• future productive capacity of the economy

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Policy issues

• 2. Design of market-like mechanisms
• auctions
• contract design
• efficient contracts (distribution of risk between
  principal and agent)
• auction format and design
• multiple outcome auction design
• the use of virtual markets
• connection with hydrology information
• connection with other markets eg. water, carbon
• fixed price vs. discriminating price
• bidder information (full/partial)
• sequential design issues
• reserve price
• eco-labelling
• role of government

Theory experiments
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Policy issues

• 3. Policy mix
• transaction cost context
• regulation, duty of care, market-like mechanisms,
  RD etc.
• application to different situations
• eg. local groundwater