La Unidad Productora de bienes o servicios (UP) en los que intervendrá el

Service Investment Fund

In August 2000 New South Wales’ Department of Land and Water Conservation published its “Salinity Strategy” for reducing river and land salinity by 2010. The strategy is compatible with a broader Murray-Darling Basin Salinity Strategy. Currently, 40% of private land managers in New South Wales are severely affected by dryland salinity, and irrigation salinity is estimated to affect 15% of irrigated land, with a further 70-80% of irrigated land threatened.

Land and water salinity results where groundwater recharge exceeds outflow and water tables rise to the surface. In New South Wales, increased ground water recharge has resulted from large-scale land clearing and removal of native trees and vegetation. As water tables rise they bring with them natural salts that limit vegetation growth, damage aquatic life and poison drinking water. To counter salinity a number of activities are being encouraged, including the protection and management of native vegetation, increased water use efficiency, and the use of salt-affected lands.

To achieve its objectives, the government is looking to combine regulatory meas- ures with market-based approaches. The system would be based on the

introduction of a series of end-of-valley salinity caps and the allocation of salinity permits that award polluters the right to emit salinity. To ease implementation of these requirements, the government will permit trading of permits so emitters with excess permits can sell them to others that exceed their allowances. It would also allow for emitters to purchase salinity offsets, or credits, from landowners who invest in salinity reducing land management activities, such as tree planting. Landowners would effectively be rewarded for the salinity control benefits their forests provide.

Environmental Service Investment Fund – auctioning payments

To manage salinity credit trading, and to ensure salinity control is achieved at least cost, the strategy proposes the creation of a clearing-house in the form of an Environmental Services Investment Fund. This Fund would supply credits to buyers, and purchase credits from landowners. To ensure that payments are channelled to the most effective salinity reduction measures, the Fund would operate an auction system for salinity credit contracts. Auctions would require landowners to compete in terms of the number of credits they would offer for a given price. Moreover, to minimise risks for buyers, the Environmental Service Investment Fund would offer an accreditation service.

Employing exchange rates

A key issue that still requires clarification before an auction system can be imple- mented is that of exchange rates between different activities and their salinity impacts. Salinity control benefits of tree planting are likely to vary between the land-based activity, soil types, climates and species. Consequently, it is critical that exchange rates are calculated to permit conversion from one to another and calculation of the total salinity impact. CSIRO has made a first step in establishing these exchange rates through its modelling of recharge impacts of different land uses, taking account of climatic and soil features. With this information, salinity credits can be measured in terms of “deep drainage impact” for different land uses. However, due to high levels of uncertainty at this stage, it is proposed that

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a 50% safety buffer be employed, such that the loss of 1 unit of salinity control must be compensated by at least 1.5 credits.

Source: New South Wales Department of Land and Water Conservation (2000); Salinity Experts Group (2000)

With respect to developing a competitive system on both the demand and supply side, the USA has probably made the greatest advances through its promotion of watershed pollutant (or effluent) trading. By setting an overall water quality target within designated watersheds and allocating responsibility for achieving these targets to major point source emitters (i.e. direct dischargers such as waste-water treatment plants and industrial emitters), the government has created individual demand for water quality credits. Because water quality credits may be generated through a number of activities, ranging from emissions reduction amongst point-source polluters or land-based activities often

including tree planting, there is also competition amongst suppliers. Yet the system is not without risks of anti-competitive behaviour. Box 25 describes the USA trading system and the difficulties of distinguishing anti-competitive behaviour from necessary cooperation in a nascent market.

Box 25: Cooperation or collusion in watershed markets: insights from the USA

The USA market for water quality credits emerged following the Environmental Protection Agency’s publication of a draft framework for watershed-based trad- ing in 1996. This framework builds on the Clean Water Act (1972), which introduced the National Pollutant Discharge Elimination System and Total Maximum Daily Load standards for impaired water bodies. The latter establish maximum pollutant loading capacity consistent with federal water quality stan- dards. In determining Total Maximum Daily Loads, states must allocate pollutant loads amongst the main point and non-point source dischargers32_{. The}

Environmental Protection Agency’s guidance document assists states to design trading schemes that help them comply with federal water quality standards in a cost-effective manner. While the Clean Water Act focuses on point source polluters, the Environmental Protection Agency emphasises the opportunities for offsetting point source pollution with non-point source reductions. While most emphasis on non-point source pollution is on agricultural best management practices, trees often have a role to play.

Following a period of inaction, implementation of trading frameworks is taking off. Since the 1980s, 11 effluent trading and offset programmes have been implemented across the USA. Another 5 have been recently approved, 6 planned and 12 proposed (Environomics, 1999). Trading systems fall into two camps: • Cap-and-trade systemswhere the authority sets a basin-wide cap on pollution

and allocates tradable permits up to this limit – usually within the Total Maximum Daily Load programme; and

32. Non-point source pollution refers to land use-based pollution channelled via erosion and runoff. Key sources of non-point source pollution include agriculture, silviculture, urban development, construction, land disposal and the modification of channel flow (Environmental Protection Agency, 1996).

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