The role of the commonwealth environmental water holder in annual water allocation markets

In recent years, the Government of Australia has bought back a significant amount of water entitlements in the Murray‐Darling Basin (MDB) through its Commonwealth Environmental Water Holder (CEWH) agency. This has been a welcome development, as it is an efficient way of securing water for the environment in the basin. However, the question of how to best manage water holdings held by the government is as yet unresolved. In particular, the question of whether and how should the CEWH engage in water markets is still grappling the government and academia alike. This paper addresses that question by evaluating total benefits to a range of water users, including the environment, under a variety of hydro‐climatic conditions. This is approached through running simulations based on environmental benefit function that varies with prevailing hydro‐climatic conditions. The findings indicate that the benefits are greater when CEWH actively participates in annual water allocation market and that such participation enables the CEWH to secure most water when it is needed the most by the environment. This suggests that policy should encourage the CEWH to further explore opportunities to engage with the water markets to the benefit of communities and the environment in the MDB.     

Coexistence of GM and non-GM crops with endogenously determined separation

The possibility that genetically modified (GM) crops may contaminate non-GM crops through pollen-mediated gene flow presents a challenge to coexistence of GM agriculture with conventional and organic farming systems. In this paper an analytical model of coexistence is developed that allows for endogenous derivation of efficient widths and allocation of pollen barriers to limit contamination of non-GM crops. To reflect the uncertainty that surrounds pollen dispersal mechanisms the model contains a stochastic contamination function and safety rule decision mechanism, constraining the level of contamination to remain below a tolerated adventitious presence with a given probability. Two policies are considered and their performance is tested: the tolerance level of adventitious presence, and the allocation of responsibility for implementing coexistence measures to either GM or non-GM farmers. The relative size of GM rents (the value of productivity gains and the non-pecuniary benefits from GM crops), rents for identity preserved non-GM crops (price premiums realised over the GM crop price), characteristics of farms, and possible variation in agricultural landscapes are also taken into account. The findings indicate that conventional adventitious presence tolerances can be met without ex ante mandating large widths of pollen barriers. At the policy level, the findings of this paper are relevant for setting region-specific pollen barriers widths, and/or for establishing institutions that facilitate cooperative coexistence.     

In or out: efficient inclusion of installations in an emissions trading scheme?

Regulators around the world are currently considering national emissions trading schemes (ETS) as cost-effective instruments to reduce greenhouse gas emissions. In the process, they are confronted with numerous design issues. The coverage of installations in an ETS is one such issue. While “blanket coverage” that includes all industrial emitters of greenhouse gases in an economy has some intuitive appeal, and seems equitable, it does not take into full account all the costs related to the extent of coverage. This paper shows that an alternative approach of “partial coverage” based on benefit–cost analysis can achieve the same emission reduction outcome at lower social cost. The approach is based on maximizing the benefits from inclusion of installations in an ETS at the same time as taking all relevant transaction costs into account. A broad definition of transaction costs is used, which covers the regulatory costs to the government as well as regulatory costs imposed on covered installations. We find that particularly for relatively modest emissions reduction targets the cost savings of a “partial coverage” compared to “blanket coverage” are significant.     

Size matters: Optimal management of dynamic systems with varying size

Many natural and economic systems are managed to deliver the highest benefits to society but are subject to regime shifts. We specifically consider the variability of the size of the system itself as a key driver of a regime shift. We address the question of how the optimal management of these systems should vary with its size. Put simply, certain management options might work when the system is of a given size, while others might be preferred when the system has grown or shrunk. In this paper, we develop a model that allows us to analyse the effect of the size of the system on its optimal management. We apply this model to a case of water pollution in a reservoir/lake that varies in size over time: sometimes the lake is deep and sometimes it is shallow. Numerical simulations were conducted to compare optimal management of the reservoir with and without explicitly modelling its size variation. The findings show that the overall social costs of optimally managing pollution are significantly smaller when the variability in size is taken into account. This is due to differences in the timing and magnitude of the optimal control. The key implication is that the variability of the size of a system should be explicitly considered in this type of management problems.