The Productivity Commission has valued trees over lost farm incomes

1. Allocation of property rights tradable under zero transaction costs;
2. Allocation of property rights tradable under non-zero transaction costs;
3. Delimitation of property rights by government through regulation or legislation.

In the first two theorems, trading of property rights is demonstrated to move the economy to a more efficient allocation and use of resources by correcting the original allocation of property rights. Different outcomes emerge under zero transaction costs than under non-zero transaction costs. The difference being determined by how much transaction costs influence choice relative to a non-zero transaction costs situation.

The third Coase theorem, whereby government delimits property rights and no opportunity exists for market correction of the initial allocation, has two underlying assumptions:

1. Governments can approximate and compare the welfare effects of alternative delimitations of rights at relatively low cost; and
2. Governments act in a way that approximates fairness and impartiality.

A correctly structured graphical model of the problem will demonstrate theoretically that the optimal outcome between vegetation management and community environmental values is not zero land clearing. The Draft Report’s conclusions and recommendation are consistent with this theoretical analysis. Thus the underlying assumptions of fairness and impartiality are breached in Australian vegetation management legislation. It can be inferred therefore that the proposed current policy direction of zero land clearing in Queensland is more about politics than overall economic welfare of the community.

Delimitation of property rights prohibiting clearing of remnant vegetation will deny the community its right to the optimal solution between vegetation clearing and environmental values. Unless some common sense prevails, the proposed policy direction will be very costly in social welfare terms to the wider community. Delimitation of rights to include some form of property rights trading would solve this problem of excessive social welfare diminution. The question now becomes: how might this be structured?

Possible solutions

A possible solution lies in the second Coase theorem. Government delimits property rights that structure a framework under which environmental groups and rural producers could trade property rights. This would become possible if the proposed compensation package was made available to active environmental groups for the purpose of purchasing rural property rights directly from producers. Market forces would structure suitable and attractive financial contract conditions necessary to entice producers to forego proposed land clearing. In this way a market assessment of the community’s willingness to pay would be identified. Budgetary costs would be clearly identifiable in budget papers. Costs to the community would be measurable in terms of foregone provision of health, education, law enforcement and infrastructure expenditure. Accountability and transparency of the environmental problem would be established and might optimistically reduce the political agenda-driven solutions now on offer.

At the coalface, scientific identification of environmental issues would still be required. Local government would be ideally positioned to zone regional levels of risk according to scientific analysis and local knowledge. The environmental movement, armed with compensation monies, would be in a position to approach landowners in a risk situation with a desire to negotiate a suitable contract. Alternatively, at-risk landowners would be free to approach the environmental movement once their risk levels were known.

It would be sensible to require environmental contracts to comply with WTO Agreement on Agriculture exempt-payments provisions. As public monies would flow to the rural sector, WTO regulations would require this to be accounted for either as an exempt payment or included in Australia’s Aggregate Measure of Support (AMS) for agriculture. An awareness of this would avoid future problems with WTO regulations as AMS are reduced over time.