Market forces — operating through prices, property rights and other mechanisms — can provide strong incentives for individuals and organisations to conserve the resources they use, including natural resources. Mechanisms such as water pricing and covenants on property can strengthen these incentives, encouraging ecologically wiser choices and thereby assisting biodiversity conservation.

The objective is to require consumers and businesses to face the costs of the pollution they cause and the natural resources they use (for example, the waste assimilation services of water). This is known internationally as the ‘user pays’ (or ‘polluter pays’) principle. It involves accounting for the environmental costs of production and resource use and, through charges or other means, ensuring that these costs are passed on to the user wherever feasible.

Price incentives are not always practicable. High administration costs, for example, may rule it out. However, other mechanisms which work with the grain of the market, such as placing covenants on property, and encouraging the use of codes of practice, can also act to ensure that environmental costs are taken into account in decisions. In this way, markets can still work to encourage innovative responses to environmental problems such as loss of biodiversity.

Better recognising the cost of our actions
If resource users and consumers are to pay prices based on the full life-cycle costs of providing goods and services, these costs have to be estimated. For example, with some forms of agriculture and mining, the full costs of environmental management can incorporate the protection of biodiversity as well as the disposal of wastes. Where activities generate pollution or disturb local ecosystems, the costs of avoiding, remedying or mitigating the disruption, such as the costs of containment or abatement, should be included.

When publicly owned natural resources are harvested, the cost of conserving biodiversity and maintaining healthy ecosystems and communities should be taken into account. An example is including the cost of keeping forest ecosystems healthy. The Victorian Government, like other governments in Australia, is committed to the full-cost principle,¹⁴ which implies moving towards pricing that reflects full costs.

Informing markets and clarifying rights
Often, undertaking a valuation of the services provided by nature can provide a useful basis for costing our actions – or for placing conditions on development. There will always be uncertainties about economic valuations of the services provided by biological resources, since factors such as options for future generations are involved, but the values can nevertheless be used for guidance, taking into account the uncertainties involved.

Clearly specified property rights can assist biodiversity objectives. Throughout Victoria, existing property rights to take water are being better defined. As this is done, previously 'unallocated' water will be recognised as the environmental allocation. If this allocation is insufficient to maintain environmental and biodiversity values, a clear option exists to reallocate water from other uses, whether through a public agency buying rights in the market, or otherwise.

Using financial support incentives
Given the ‘public good’ nature of biodiversity conservation, there is a case for governments providing financial incentives to speed the adoption of practices that help conserve biodiversity. Where incentives are judged to be appropriate, they can be linked with other preferred practices. For example, under the Sunraysia Salinity Plan, participation in an irrigation management course is a prerequisite for a range of financial incentives for improved irrigation systems. Increasingly, support is delivered directly to community groups where joint action is required to overcome a common problem. Where there are compelling reasons, such as social factors, for maintaining subsidies on the use of natural resources, those subsidies should be clearly stated. However, any disincentives for biodiversity conservation need to be carefully examined. Natural resource allocation arrangements such as the tender process for resource access, bulk water entitlement specifications, and accounting for resource harvesting activities should be open to scrutiny.