Environmental Management Policies (HSC SSCE Economics): Revision Notes

Environmental Management Policies

Introduction

Environmental management policies aim to address issues of environmental sustainability. These policies focus on:

• Preserving natural environments
• Managing pollution and climate change
• Controlling the use of renewable and non-renewable resources

Like microeconomic policies, environmental policies influence the long-term behaviour of households, businesses and industries. Policymakers use two main tools: regulations and market-based policies. Research bodies and government targets guide environmental management, and international agreements between nations shape policy direction.

Government targets

The Australian Government uses targets to guide its environmental policies. The most significant targets relate to reducing carbon emissions.

In 2022, the Albanese Government legislated two key emissions targets under the Climate Change Act 2022:

• 2030 target: 43% reduction in emissions compared to 2005 levels (this is a minimum target)
• 2050 target: Net zero emissions

The Climate Change Authority, an independent government agency, provides advice on setting future targets. In 2023, the Government established the Net Zero Authority to support the energy transition needed to achieve the 2050 target.

Regulations

What are regulations?

Regulations are laws or rules that govern economic behaviour. In environmental policy, regulations can:

• Prohibit actions that cause environmental damage (such as illegal waste dumping or producing polluting chemicals)
• Specify how goods or services must be produced or consumed (such as agricultural or mining techniques)

In Australia, environmental regulations can be made by local, state or federal governments, or by their agencies.

Quality standards

Some regulations require that goods meet environmental standards. For example:

Fuel Quality Standards Act 2000: This legislation regulates fuel quality in Australia. Its aim is to reduce pollutants and emissions from fuels that may cause environmental and health problems.

Environmental procedures

Regulations can require firms and individuals to follow certain environmental procedures.

In response to the 2021 State of the Environment Report, which found significant deterioration in Australia's flora and fauna, the Australian Government is establishing a new national Environmental Protection Agency to strengthen monitoring and compliance with environmental regulations.

Broader regulatory frameworks

Broader regulatory frameworks can also relate to environmental issues. For example, the Australian Competition and Consumer Commission published a 2023 report, Greenwashing by Businesses in Australia. This raised concerns about claims businesses make regarding the environmental impact of their products and services. Of 247 businesses examined, 57% made claims that "raised concerns", including vague statements lacking evidence or confusing use of third-party symbols.

Case study: The Great Barrier Reef

The Great Barrier Reef is the world's largest living structure, covering 344,400 km² with 3000 coral reefs, 1625 fish species, 133 shark and ray species, over 200 bird species and 600 coral types. As the world's largest coral reef ecosystem, it became a UNESCO World Heritage site in 1981. The reef attracts over 2 million visitors annually, contributing approximately $6.4 billion to the economy.

Environmental challenges: The reef is suffering from climate change effects. Changes in ocean temperatures threaten the delicate ecosystem. The latest Great Barrier Reef Outlook Report downgraded the reef's condition from "poor" to "very poor". Recent surveys indicate around two-thirds of the reef has suffered coral bleaching.

Key policy priorities include:

• Ecosystem health and biodiversity
• Water quality improvements
• Community and economic benefits
• Governance

Key policy elements include:

• Establishing the $40 million Great Barrier Reef Trust
• Banning disposal of dredging material within the Marine Park
• Additional protections for turtles and dugongs through anti-poaching laws
• Reversing water quality decline associated with agriculture ($35 million ongoing funding plus $100 million over five years)
• Reducing crown-of-thorns starfish presence to support coral populations

In 2022, the Albanese Government increased funding for the Reef 2050 Plan. Overall, federal and Queensland Governments are jointly investing $2 billion to protect the reef.

Market-based policies

Understanding market failure and externalities

Many environmental problems arise because of market failure. Environmental costs (or benefits), known as externalities, are borne by all of society but are not taken into account by producers and consumers in the marketplace.

The following diagrams illustrate this problem and its solution:

Taxes and levies

A market-based response to negative externalities is to levy a tax or fee on production approximately equal to the environmental costs. This is sometimes called "internalising the externality" because it makes consumers and producers pay for environmental costs.

Governments generally prefer taxes over subsidies when influencing economic behaviour because taxes:

• Discourage environmentally damaging activities
• Raise government revenue for other environmental programs
• Send price signals to guide behaviour

Environmental tax revenues vary between countries. In OECD countries, they range from less than 3% of total tax revenue in the United States to more than 11% in India. Australia's environmental tax revenues are around 5% of the total tax base.

Subsidies

Subsidies are grants provided by government to producers with the aim of reducing production costs and promoting environmentally beneficial activities.

Market development

Over time, policy has shifted towards facilitating market development and supporting private sector investment rather than direct government intervention.

Example - Nature Repair Market Bill 2023: This Bill sets out a framework for a voluntary national nature repair market, which would issue tradeable certificates for projects that restore and protect nature. This rewards landowners for supporting biodiversity and enables businesses to invest in nature repair.

Water management

Water management is a contested area of environmental policy that has adopted market-based reforms. A recent Productivity Commission review found that governments' water management efforts had been successful in:

• Lowering household water use
• Increasing water allocations to the environment
• Making industry water use more efficient

The review created clear property rights for water, established water markets and improved water planning. However, it also found that existing efforts were insufficient to meet future challenges associated with population growth and climate change. It recommended changes including water recycling and use of stormwater.

Case study: Murray-Darling Basin

Australia's Murray-Darling Basin is one of the world's largest river systems. It covers 14% of the country, spanning from Queensland through NSW and Victoria to South Australia. It provides water for two million residents, industry and agriculture. For decades, the government has faced challenges managing the basin due to competing economic, social and environmental interests, and recurring water shortages.

The problem: By the early 21st century, conflicts between water users were damaging the basin's health, and insufficient water was reaching downstream users.

Queensland, NSW and South Australia signed the new plan. Victoria delayed signing due to concerns about social and economic impacts on agricultural communities.

Climate change policies

The scale of the challenge

"Decarbonising" economies (reducing carbon emissions from economic activity) is widely regarded by economists as the greatest economic reform challenge of the 2020s. Climate change poses profound threats to:

• The global economy
• The stability of international relations
• The environment

Scientists are recording growing evidence of rising sea levels, more intense droughts and floods, and more extreme and unpredictable weather events. Despite widespread agreement on the seriousness of climate change threats, it has been very difficult for governments worldwide to agree on how to respond and who should bear the costs.

International agreements

The Kyoto Protocol (1997): This was the first international agreement requiring industrialised countries to set internationally binding emission reduction targets. 160 nations reached this agreement limiting emissions of carbon dioxide and other greenhouse gases.

The Paris Agreement (2015): Representatives from nearly 200 countries committed to keeping "the increase in global average temperature to well below 2 degrees Celsius above pre-industrial levels". This is the benchmark scientists believe is necessary to prevent the most dangerous impacts of climate change.

The Paris Agreement is significant because, for the first time, it included developing nations such as China and India alongside the United States. It has mechanisms for transparency and monitoring progress, but its weakness is that individual countries set their own targets for emissions reduction. The Agreement came into force in November 2016 and has 193 signatories.

Australia's emission reduction targets

Australia has negotiated lower targets for emission reductions than most other advanced economies, arguing that reliance on emissions-intensive industry and fossil fuels for energy makes it more expensive to achieve 'emissions abatement'. Over time, this has resulted in growing global criticism of Australia's efforts to address climate change.

Australia's emission reduction targets centre on three key dates:

2030 target: This was a major issue in the 2022 Federal election. The Coalition parties committed to a 26–28% reduction by 2030 on 2005 levels, while Labor promised to increase this to 43%. Labor won the election and the 43% target was passed into law in the Climate Change Act 2022. The law specifies that 43% is a minimum target, that climate policies should benefit regional communities, and that advice must be sought from the Climate Change Authority before setting future targets.

2050 target: Australia has committed to achieving "net zero" emissions by 2050. This requires reducing greenhouse gas emissions so that the amount the economy produces equals the amount removed.

Market-based policies for climate change

Individual governments have implemented various market-based policies to meet emissions reduction targets.

Carbon pricing scheme (2012-2014): The Gillard Government's carbon pricing scheme put a price on each tonne of carbon dioxide emitted as part of energy or industrial production processes. This gave Australia's 500 largest polluters a financial incentive to switch to lower-emissions processes. The carbon price was initially fixed and was due to be replaced by a "cap and trade" emissions trading scheme. In 2014, the Abbott Government abolished this scheme, arguing it was adding to business and household costs and damaging economic growth.

Emissions Reduction Fund: Under the previous Coalition Government, this was the centrepiece of emissions reduction policy. Firms were paid to reduce emissions from their production processes, at the lowest cost of abatement. The lowest-price emissions were purchased by the government via an auction where firms bid to sell their emissions reduction projects. After 15 rounds of auctions, the Fund had purchased 217 million tonnes of CO₂ abatement. Uptake declined over time as low-cost abatement opportunities were exhausted.

Safeguard mechanism: This is a baseline level of emissions that top polluters cannot exceed or must account for. This baseline and credit scheme is a market mechanism but not an emissions trading scheme. In 2023, the Albanese Government reformed the safeguard mechanism to improve its effectiveness. From July 2023, top polluters across mining, manufacturing, transport, oil, gas and waste are required to gradually reduce emissions in line with Australia's emissions reduction targets. Firms must reduce their absolute emissions in line with a maximum annual cap that will decline over time.

Regulatory approaches to climate change

Regulations ensure that newly produced goods meet environmental standards consistent with Australia's emission reduction aims.

Examples include:

• 2007: Australia banned older-style incandescent light bulbs, replacing them with more energy-efficient fluorescent and LED bulbs
• 2010: Planning laws in several states changed to require newly constructed homes to comply with six-star energy ratings involving improved insulation, water recycling and other features
• Government policy decisions around agriculture, mining and transport also have major effects on carbon emissions

International agreements

The need for international cooperation

For environmental management policies to be successful, they often require international cooperation. Collective action is necessary because:

• Individual nations cannot successfully address global environmental problems on their own
• Nations are reluctant to impose strict environmental management policies if other nations are not willing to do the same

The Montreal Protocol: A success story

The depletion of the ozone layer (the atmospheric layer that filters out dangerous ultraviolet radiation) is related to emission of chlorofluorocarbons into the atmosphere from industry refrigeration units and aerosols.

The tragedy of the commons

A number of other international environmental agreements are in force. In many cases, international agreements are required to prevent the overuse of common international resources. This issue is known as the "tragedy of the commons".

For example, the United Nations Fish Stocks Agreement (to which Australia is a signatory) was developed to ensure long-term conservation and sustainable use of highly migratory fish stocks.

Marine protection

In 2023, an international agreement was reached for a new treaty to protect seas and oceans outside country boundaries, which cover 60% of the earth's surface. This agreement was supported by Australia and will establish Marine Protected Areas (MPAs) and processes for environmental impact assessments.

Australia's participation in international treaties

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