Innovative regulatory instruments

Several jurisdictions have implemented, or are considering implementing, innovative regulatory instruments with the potential to improve the efficiency and effectiveness of aquaculture regulation, including demerit schemes, environmental assurance bonds, offsets, and industry management agreements.

Demerit schemes

Demerit schemes for environmental management can operate in a similar way to schemes applying to motor vehicle drivers. For example, poor practices or breaches of licence or approval conditions could result in the accumulation of demerit points, and potentially in licence revocation.

A ‘demerit system’ operates for aquaculture in Tasmania under the Living Marine Resource Management Act 1995 (ss. 242 - 250) and the Marine Farm Planning Act 1995 (ss. 121 - 124). Features of the Tasmanian model include:

• a demerit point is allocated for each ‘penalty unit’ imposed — demerit points are allocated to the person committing the offence, and to the relevant licence under which the person was operating when the offence was committed (but not to the lease);

• demerit points are carried over for a period of five years; and

• accumulation of 200 demerit points results in licence disqualification.

The introduction of a demerit system was identified in a review of legislative arrangements for aquaculture in Western Australia, where it was noted that:

… a demerit point system similar to that introduced in Tasmania has been suggested as a means to warn licencees of any transgression of licence conditions, such as being outside the licence boundaries. An offence could be a penalty of 50 points with a total of 200 points resulting in the loss of license or formal prosecution. (Ciffolilli 2003, p. 77)

Some potential benefits of a demerit scheme may be to:

• encourage licence holders to take their licence obligations more seriously;

• facilitate a hierarchical system of penalties that would be readily understandable, given the familiarity within the community generally with demerit systems; and

• increase transparency in the enforcement system, and operators understanding of the consequences of any breaches.

However, development of such a system could involve considerable start up costs.

Maintaining formal records could also add to the existing administrative burden on regulatory authorities.

Environmental assurance bonds

Environmental assurance bonds (EABs) are a policy instrument that can be used to help ensure that the costs of environmental damage are borne by parties undertaking certain activities. Prior to beginning operation, a business may purchase EABs that specify environmental performance over a set time period. At the end of the time period, the business either receives a refund of its commitment or the bond is used to ameliorate environmental damage that may have occurred.

EABs or similar instruments have been applied in a number of natural resource management contexts to shift the cost of ameliorating environmental damage onto

producers, thereby increasing the incentive for sound environmental management.

The Great Barrier Reef Marine Park Authority, for example, has used funds held under a performance bond scheme to pay for the removal of a damaged tourist pontoon, and also to manage the pollution risk associated with the passage of transport ships through reef waters (ABARE 1993). In the mining industry, most jurisdictions use some type of bond payment to manage the rehabilitation of mining sites (for example, see Robinson and Ryan 2002, and Victorian DPI 2003b).

A key challenge for the design and use of EABs is the extent to which it is possible to calculate a bond amount that accurately reflects the risks associated with production. Where such risks cannot be equated with a level of bond payment (for example, if potential damage is very large, uncertain and/or irreversible), then other approaches (including direct regulation or prohibition) will need to be considered. A further challenge is ensuring that the level of payment does not impose undue liquidity constraints on producers. The use of EABs may be inappropriate when monitoring and enforcement costs are high. The cumulative impact of the use of different EABs by various agencies may also be an issue for some producers.

EABs could be applied to a range of aspects of aquaculture production, including site rehabilitation and the recapture of escaped fish. For example, Mathis and Baker (2002) describe the potential for EABs to be used in the Texas shrimp farming industry (Gulf of Mexico) to fund the ‘clean-up’ of escaped shrimp.

Ciffolilli (2003) notes that some jurisdictions in Australia already have provisions for aquaculture permit holders to enter into bond agreements. For example, s. 152(d) of the Fisheries Management Act 1994 (New South Wales) specifies that aquaculture permit conditions may include:

… conditions requiring the permit holder to enter into a bond or guarantee or other financial arrangement for the due performance of the holder’s obligations under this Act (including for the destruction of noxious fish and the restoration of, or removal of material from, the area in which the aquaculture has been undertaken)…

Under this provision, lease bonds were introduced for oyster leases in 2001 to ensure the post-production rehabilitation of lease sites (NSW Fisheries 2001).

Potentially, bonds could be used for all leases of public water or land where site rehabilitation works may be necessary.

Offsets

Offsets allow a business to conduct an activity that may have negative environmental impacts in exchange for positive offsetting actions. For example, a

business may be allowed to alter a wetland substantially if it agrees to undertake activities to protect, restore and/or enhance another wetland (Murtough et al 2002).

A potential benefit of this approach is that businesses must directly account for environmental costs within investment and production decisions. However, to be effective, offset rates must accurately reflect the relationship between environmental damage and mitigating action. In some instances, it may not be feasible to resolve the scientific uncertainty associated with calculation of such a measure.

An aquaculture application using offsets, suggested by Brennan (2002), is to allow the development of prawn farms where prospective aquaculture producers buy and retire land used for sugar cane as an offset for prawn farm discharges. In this way, prawn farms could be developed without increasing overall nutrient and chemical loads in particular catchments. A significant implementation issue is the determination of an offset rate between prawn farms, which generate point source discharges, and land used for sugar cane, which generates diffuse source discharges with a potentially high level of variation. Further, this type of offset would not address other potential environmental impacts associated with prawn farms, such as the potential spread of pathogens or disease to wild stock.

The possible application of offsets was also raised in the New South Wales Georges River – Botany Bay Inquiry, which suggested that development applications with significant water quality impacts could still be granted if businesses ‘can demonstrate a net benefit by the use of offsets’ (HRC 2001, p. 49). Following the inquiry, the New South Wales Government noted that ‘green offsets’ could be applied to activities that impact on river and estuarine environments, to safeguard both environmental values and activities dependent on environmental values, including recreational fishing and oyster farming. In this case, offsets could be used to distribute the responsibility of maintaining environmental quality amongst resource users, including non-aquaculture primary producers, government (in recognition of the ‘public good’ nature of positive environmental outcomes), and the oyster growers themselves (NSW Government 2002).

Industry management agreements

Another potential approach is for producer cooperatives or groups to be given greater powers and responsibility for resource management. For example, an industry group for aquaculture in a particular area, such as a bay or estuary, could be given responsibility to manage aquaculture production subject to the achievement of agreed government/industry objectives (ACIL Consulting 1999).

Resource management by industry groups is occurring in some sectors of the fishing industry. For example, in the Challenger scallop fishery near Nelson in New Zealand, the Challenger Scallop Enhancement Company (CSEC) (an unlisted public company wholly owned by around 35 quota holders) works cooperatively with the New Zealand Government. CSEC has responsibility for a range of activities, including research, stock enhancement, and the management and enforcement of catch levels. CSEC enters into contracts with fisheries participants and its activities are funded through a statutory fee on landings (Townsend 2002).

Townsend (2002) notes that, historically, with respect to fisheries management, cooperative management may be best suited to homogeneous sectors with a small number of participants. For the aquaculture industry in Australia, there are several sectors, such as tuna in South Australia and salmon in Tasmania, for which cooperative management opportunities may exist.