Productivity Commission Inquiries: Waste and Water

Most people know the Productivity Commission as an Australian icon of economic rationalism. Somewhat surprisingly, its also one of the more environmentally astute and (environmentally) progressive agencies in the (conservative) Australian government.

In some ways that shouldn’t be so surprising because, despite the misperception of green ideals as ‘standing in the way of progress’, most are actually about using our scarce resources efficiently. Woodchipping old growth forests in Tasmania is as much an economic outrage as an environmental one.

The Productivity Commission has conducted a number of often influential inquiries into environmental or environmentally-related issues. Its latest is an inquiry into Waste Generation and Resource Efficiency and a copy of the Issues Paper hit my desk yesterday.

Waste used to be the big environmental issue but it’s gone a bit quiet lately, overshadowed by climate change, water and biodiversity in particular.

The Terms of Reference state the issue:

Non-optimal levels of waste represent lost value and opportunities, while imposing undesirable economic and environmental costs on society. The objective of this inquiry is to identify policies that will enable Australia to address market failures and externalities associated with the generation and disposal of waste, including opportunities for resource use efficiency and recovery throughout the product life-cycle.

Some of the environmental and market issues to be examined are:

• Institutional, regulatory and other factors which impede optimal resource efficiency, recovery and optimal waste management;
• The adequacy of current data on material flows;
• The impact of international trade and trade agreements on the level and disposal of waste in Australia;
• Strategies that could be adopted by government and industry to encourage resource efficiency and recovery;
• The effect of government and commercial procurement practices; and
• The impacts of government support to production and recovery industries.

Some of the issues identified in the issues paper are:

• Arguments for government intervention (market failure – externalities, natural monopolies, public goods and market power issues);
• Recycling markets and policies that affect them;
• Energy recovery from waste;
• Pricing measures;
• Producer responsibility for waste.

Public submissions are invited and due by 8 February 2006. The Commission will also undertake public hearings in February and release a draft report in May.

Rural Water Use and the Environment: The Role of Market Mechanisms

At the same time, the Federal Treasurer has commissioned the Productivity Commission to undertake a study to assist State governments in meeting their obligations under the National Water Initiative. The Terms of Reference were released last week. The study will assess the feasibility of establishing workable market mechanisms:

• to provide practical incentives for investment in rural water-use efficiency and water related farm management strategies; and
• for dealing with rural water-management related environmental externalities

The study will look at take into account relevant practical experiences in other areas, such as with establishing tradeable salinity and pollution credits.

The Commission will report on the study in June 2006.

Both should provide some interesting material for anyone interested in the practical application of environmental economic policy.