Overview of the Fitzroy Basin and opportunities for offset trading

A major project is being undertaken in Queensland to design how a market-based instrument in the form of an offset mechanism can be used to achieve improvements in water quality in the lower Fitzroy River. Like other river systems draining into the Great Barrier Reef lagoon, the Fitzroy River has deteriorating water quality levels with high sediment and nutrient loads. This may cause damage to estuaries, the coastal zone and the Great Barrier Reef, although the level of scientific knowledge about the linkages between poor water quality and potential environmental damage is incomplete. There is substantial public interest in improving water quality outflows to the Great Barrier Reef lagoon. The impacts on water quality come from a number of different sectors and regions within the Fitzroy Basin. Existing measures to improve water quality include regulatory controls over many point source discharges, and a range of education, persuasion and devolved funding grants over many non-point source discharges. The potential for introducing a market-based instrument (MBI) stems from the range of different opportunity costs for improvement actions between and within sectors, and the need to tailor incentives at the specific enterprise level. Offsets, competitive tendering and cap-and-trade mechanisms are the types of MBI mechanisms that may be used. A key issue in designing a market-like mechanism is to predict the gains from trade and the appropriate institutional arrangements. Asymmetric information means that much of that knowledge is hidden to system planners, so a non-market valuation mechanism termed Choice Modelling will be trialed in this project. Potential MBI participants will have a trading scenario described to them, and will then be asked to identify their preferred level of involvement from several trading options. The outcomes of a series of these questions will allow the identification of the range of opportunity costs involved and the market behaviour under different institutional structures. In this report, a summary of the water quality issues in the Fitzroy Basin is presented, together with an overview of the process that will be undertaken to complete the project.