A Multi-Faceted Natural Asset Trust for the Great Barrier Reef

The Great Barrier Reef is arguably Australia’s most famous natural icon. Yet, the ecological health of the reef has declined over the last 150 years following intense development.¹ In addition to the terrestrial pollution, the reef is under threat from invasive species, overfishing, and climate change.² Development has focused on enhancing built capital and facilitating economic growth, with little recognition of the vast ecosystem services that are provided by the reef.³ Attempts to preserve the reef have been underway at all levels of government for many years, however, there have been no notable improvements to its health. The most recent government initiative has been the establishment of a Reef Trust that seeks to leverage funds to improve coastal habitat and water quality throughout the reef’s catchment area, offering the first glimpse of the broad-spectrum approach that is needed to save this extraordinary resource.⁴

An Unbalanced Approach to Social, Human, Natural, and Built Capital in the Reef

Intensive development along the Great Barrier Reef has created a strong portfolio of built capital. However, this development has come at the cost of the Reef itself, which sustains the ecosystems that draw so many people to the area in the first place. Recent estimates have valued the ecosystem services provided by the Reef at between AUD $15 and $20 billion each year.⁵ These ecosystem services are at risk due to such widespread development. At the regional scale, agriculture presents one of the greatest threats to the Reef.⁶ There is now a clear consensus that degraded water quality due to agricultural fertilizers is linked to the reef’s higher susceptibility to coral bleaching.^7,8 Tackling agriculture is just one issue requiring a system-wide approach to managing the Reef.

The imbalance between natural and built capital is exasperated by a myriad of governance issues. Given the link between terrestrial pollution and reef health, an obvious challenge is the jurisdictional split of management: the Australian government is responsible for the Great Barrier Reef Marine Park, while the Queensland government manages the adjacent coastal area.⁹ At the Commonwealth level, financial incentives are provided to improve water quality, while state regulations have been set to minimize agricultural pollution.^10,11

The effectiveness of these incentives and regulations is being called into question even as the Reef faces one of its biggest challenges yet—climate change.^12,13 With little meaningful global cooperation, carbon dioxide concentrations are likely to exceed the ‘dangerous’ threshold of 2oC.¹⁴ Exceeding this threshold would lead to significant destruction of most corals within the Reef.¹⁵ The impact of climate change on the reef could be partially ameliorated by significant improvements to water quality.¹⁶ While reductions in dissolved inorganic nitrogen concentration of up to 80 percent would be required to offset a global temperature rise of 2oC,¹⁷ such an approach would go a long way to saving the reef, provided regional players can work more effectively together.

A Multi-Faceted Natural Asset Trust

A solution that seeks to manage the asset base of the Reef in a consolidated fashion is more likely to be effective at the regional scale rather than the global scale. The recently established Reef Trust could be classified as a quasi-natural asset trust. These trusts are well-developed mechanisms for managing natural assets on behalf of the owners of those assets, namely, in this case, the public citizenry.¹⁸ A few tweaks, including the addition of market incentives and regulation, could turn the current trust into the guardian that the Reef needs at this crucial time.

Assurance Bonds for Major Projects

Issuing mandatory assurance bonds for all major developments along the Reef is a crucial first step. Firstly, it would provide sufficient funding in the Reef Trust for any necessary environmental remediation activities. Secondly, the interest earned on bonds would become a revenue stream to support projects that secure the environmental health of the Reef. Bonds would be held in the Reef Trust until the development is complete, and returned to the developer if certain pre-set conditions are met. As suggested by Mathis and Baker,¹⁹ the bond price should be set at a level required to fund remediation activities for the worst case scenario. Careful and transparent analyses would need to be undertaken to determine both the worst-case scenario and the level of funding required in that scenario. In the first instance, only projects that directly impact Reef health would be required to pay an assurance bond. This could be extended to other projects, nationally and globally, to include projects that indirectly impact the Reef, such as projects generating greenhouse gas emissions. By internalizing the cost of environmental impacts, assurance bond payments would go some way to minimizing the imbalance between built and natural capital.

Water Quality Trading Scheme

Water quality is a major issue for the Reef because there is no financial impost for polluters. A ‘cap-and-trade’ water quality scheme would be effective in reducing dissolved inorganic nitrogen concentrations in the Reef catchments. A cap-and-trade system is preferable to a tax, as it enables the overall level of pollution to be reduced, over time, to a set level.²⁰ Polluters would be required to purchase permits to discharge degraded run-off into Reef catchments. Revenue from permit sales would fund projects that specifically deliver water quality improvements. A market would be established where firms and individuals could exchange discharge permits. To reduce the number of permits in circulation and consequently minimize pollution, the Reef Trust could purchase permits. A target to reduce the concentration of dissolved inorganic nitrogen by 80 percent is suggested in order to offset the predicted impact of a rise in global temperature of 2oC.²¹ A water quality trading scheme internalizes the costs of water pollution.

Such a scheme would impose a financial burden on the agricultural sector. There needs to be a comprehensive understanding of any social or economic consequences of water quality improvement strategies.²² Different economic activities result in variations in the type and volume of pollutants discharged among the 35 Reef catchments.²³ To achieve a fair allocation of permits and minimize undesirable economic impacts, permits should be allocated on a catchment-by-catchment basis. Catchments with higher rates of pollution would initially be allocated more permits. Polluters could purchase sufficient permits to continue current operations, and enter a transition period where they could reduce water pollution over time.

Increased Tourism Charge

Further revenue could be generated through an increase to the existing charge for tourist visits to the Great Barrier Reef Marine Park. The existing charge is AUD $3.50 per tourist per day.²⁴ This rate is disproportionately low, given that the tourism industry generates AUD $5.1 billion in direct expenditures annually.²⁵ There are approximately 42.8 million paid visitor days in the Reef region each year.²⁶ Assuming that all these visitor days are spent undertaking activities that attract the charge, revenue from the tourism charge represents only three percent of direct tourism expenditure. The charge could be doubled to AUD $7.00 per day, with minimal impact on the tourism industry, generating an additional $150 million for the Reef Trust.

Shareholder Decision-Making

There is a unique opportunity to build social capital in the Reef through involving citizens in decision-making on Reef Trust projects. As shareholders of the Reef Trust, citizens would be allocated voting rights in order to determine projects suitable for funding. Proposals for projects that enhance the environmental health of the reef would be submitted to an independent governing body. The governing body would undertake a quality assurance role to ensure value for money, and to ensure that proponents have the necessary experience to deliver the project. Projects could then be listed on a website, and citizens could use their shares to vote. Shareholder votes would then be used to assist the governing body to make decisions on funding allocation. This promotes strong public engagement in decision-making, and transparency around the use of Reef Trust funding. The human capital of the Reef community could be bolstered with education campaigns that clearly articulate the scientific evidence demonstrating the need to maintain the Reef.

A natural asset trust is a regional approach to reef management that provides a range of market incentives to leverage a more appropriate balance between built and natural capital. This solution does not deal with the risk and uncertainty associated with global climatic change, but does go some way to offset the potential impacts of a rise in global temperature.