Why can’t we get it right on offsets?

A newspaper article couple of weeks ago caught my attention by headlining that offsets are found to bring large savings to those who use them. The article refers to a leaked report commissioned by the NSW government, presumably looking at the effects of the new Biodiversity Conservation Act 2016, whose practical implementation commenced in late August, 2017. The report itself is not publicly available, so it is a little hard to say just from the newspaper article what are exactly its findings.
The Biodiversity Conservation Act 2016 is about much more than just the Biodiversity offset scheme, which is the focus of the article. And the apparent outrage brought by that article is that the offset scheme under the new Act is likely to create savings to those who participate in the scheme. But, there is nothing surprising there. That’s exactly what an offsetting scheme should do: attain the desired environmental and conservation objectives at lower costs. There is no point in miners or other developers paying more to attain a given environmental objective. Unless of course we want to tax them more on their activity, which is a completely different issue and, which by the way I support.
So, the issue is not in the savings for developers, even though perhaps the media likes to present it that way in order to create a sensationalist effect. Rather, the issue is with the conservation objectives embedded in the Act. Those are the ones to be scrutinised and criticised. If they are too lax, we may be further endangering our flora and fauna, irrespective of which instrument to attain those objectives is chosen.
Offsets are not perfect instruments (see couple of previous posts on this blog). No instrument is. But blaming the offsets for doing their job, i.e. reducing the costs of meeting conservation objectives is not very constructive or helpful. Rather, the focus should be on examining the objectives themselves, while making sure that offsets deliver on their promised conservation effectiveness.

Author: Tiho Ancev

Tiho Ancev is a Professor of Agricultural and Resource Economics in the School of Economics, University of Sydney. His main research areas are agricultural, environmental, natural resource and energy economics. Tiho’s main contributions have been in water economics and policy, economics of energy, economics of air pollution and climate change policies, and economics of precision agriculture and agricultural input use. He has published widely on these topics in top international peer reviewed journals. Tiho has led and contributed to national and international research projects in these research areas. He is currently the Managing Editor-in-Chief of the Australian Journal of Agricultural and Resource Economics.