Financial Mechanisms to Improve the Supply of Ecosystem Services from Privately-Owned Australian Native Forests

Abstract

Abstract:Much of Australia's native forest is privately-owned and is needing investment to maintain and improve the supply of a wide range of ecosystem services. This paper reviews mechanisms presently used in Australia to improve the supply of ecosystem services, with particular emphasis on financial mechanisms. Auction, green bond and biobanking schemes are widely and, so far, successfully used in a number of States, especially in projects where the actions required and ecosystem services can be readily measured. Measurement of biodiversity and biodiversity-based services remains problematic, despite some fairly widespread application of different measurement systems. Inadequate or variable measurement systems could engender a loss of investor interest if equivalence or gains cannot be appropriately verified. A new Biodiversity Investment Scheme is proposed, based on the structure used commercially in Managed Investment Schemes. The choice of mechanism, however, will be mainly determined by landowner attitudes to assignment of property rights, and by scale, the extent of public versus private consumption goods, and the transaction costs and risks.

Ecosystem Services Auctions: The Last Decade of Research

“…In the laboratory, transaction costs are often neglected for experimental reasons [89], but there are exceptions: Messer et al [90], for instance, include a submission fee for each parcel submitted to mimic transaction costs. In practice, however, transaction costs are a significant factor in instrument selection [91], incentive type [92], mechanism design decisions like number of rounds [93], and bid selection rules like targeting [94]. In ECOSEL, data and model development demands represent significant transaction costs that could conceivably determine the mechanism's viability [40,95].…”

“…Leakage is also context-dependent: in Malawi, resource inequalities lowered auction leakage relative to random allocation [26], and motivational crowding may induce leakage in some settings [15] (see Section 3.5). Additionality is not just an outcome measure: additionality metrics inform BushTender's WDP [91], and onerous additionality requirements can limit participation, constraining supply [30]. In forward auctions, the belief that bids will produce additional benefits shapes contribution decisions [67].…”

“…Collusion subverts the competitive dynamic underpinning auction efficiency [21,91]. In the laboratory, collusion can be measured by comparing bidding under different communication treatments, for instance [63,64].…”

“…ES indicators can facilitate bid ranking, but may be expensive at finer spatial scales; additional granularity may yield diminishing returns, particularly where "landholder engagement, information sharing, and trust-building" is feasible [115] (see Sections 3.3.3 and 3.5.3). Developing standardized measures for certain ES (e.g., those based on biodiversity) represents an important technical problem: without reliable outcome-measuring systems, investor interest in novel MBIs may be difficult to attract and maintain [91]. Asymmetric information about biophysical processes often favors procuring agencies, who can model ES response to management alternatives more reliably than landowners [10,101].…”

Identifying Green Infrastructure as a Basis for an Incentive Mechanism at the Municipality Level in Biscay (Basque Country)

“…This innovative landscape approach for PES, which values the provision of multiple services, involves only a buyer-the provincial government-and a seller-the municipality-and benefits all community members. This GI-based PES-like scheme solves most of the limitations common to most PES approaches, such as high establishment and transaction costs [27], limited ecosystem service provision, and low inclusivity of participation [30,84,85]. Furthermore, in a situation such as the one proposed here, where multiple ES act at different scales from local to global, the only feasible approach is financial support by a government body [86].…”