Environmental service procurement

Victoria now routinely uses an auction to allocate conservation contracts to private landholders. These contracts provide incentives for landholders to increase the supply of ecosystem services through; protection and expansion of habitat for threatened species, improved water quality, sequestration of carbon, and mitigation of dryland salinity. Since the initial pilot project, many other conservation programs, including those run by Commonwealth and other State Governments, have adopted the auction approach. More than 200,000 hectares of private farm land are now covered by conservation contracts allocated under this approach.

The CMD designed and implemented this innovative program illustrating the important role that modern microeconomics has to play in addressing significant public policy problems. Evaluation of bids in auctions of conservation contracts indicates that this mechanism resulted in a 30 per cent saving compared with the superseded policy mechanism. When first introduced, this program was awarded a number of prizes and acknowledgements for innovation in public policy design and implementation.