Costing water quality improvements with auction mechanisms: case studies for the Great Barrier Reef in Australia

Australian governments continue to commit significant resources to the protection of the Great Barrier Reef. Funding for the Reef Rescue Programme is focused on reducing the impact of agricultural production on water quality. Information about the costs and benefits of funding proposals is limited. As a result, the key challenge for policy makers is to identify where funding is most efficiently applied. While there is adequate information about the costs of various inputs for reducing water quality, the costs of achieving various outputs is much more limited. Water quality tenders show the opportunity costs of changing agricultural practices. They allow policy makers to better understand the potential costs of misallocating public resources. It also helps them find better ways to improve water quality. Four pilot applications of tenders to improve water quality flowing into the Great Barrier Reef in Australia demonstrate how they can be used to reveal opportunity costs. The results demonstrate the potential for opportunity costs to vary substantially between agricultural producers, and across industries, catchments and pollutants.