A Natural Investment Project: A Regional Development Case Study

Final Report A Natural Investment Project: A Regional Development Case Study

30 JULY 2010

Prepared for

Victoria Naturally Alliance 60 Leicester Street Carlton VIC 3053 43283561

A Natural Investment Project

Project Manager: URS Australia Pty Ltd Bill Unkles Principal Economist Project Director:

Level 6, 1 Southbank Boulevard Southbank VIC 3006 Australia T: 61 3 8699 7500 F: 61 3 8699 7550

Ray Jeffery Principal Economist Date: Reference: Status:

30 July 2010 43283561/01/01 Final

Š Document copyright of URS Australia Pty Limited.

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A Natural Investment Project

Table of Contents Executive Summary ..................................................................................................v 1

2

3

4

Introduction .......................................................................................................1 1.1

Context................................................................................................................ 1

1.2

Project Background and Objectives ................................................................ 2

1.2.1

Overall Aims .....................................................................................................................3

1.2.2

Specific Objectives ..........................................................................................................3

1.3

Selected Sites and Field Visit ........................................................................... 4

1.4

Project Advisory Committee............................................................................. 5

1.5

Report Outline .................................................................................................... 5

Approach ...........................................................................................................6 2.1

Types of Economic Evaluation......................................................................... 6

2.1.1

Land...................................................................................................................................7

2.2

Assessing Regional Employment and Income Impacts................................. 8

2.2.1

Assessment Stages and Models ....................................................................................8

2.2.2

Types of Restoration .......................................................................................................9

2.2.3

Indentified Areas for Restoration within Habitat 141 .................................................10

2.2.4

Scenario and Sensitivity Analyses ..............................................................................10

2.3

Data Sources .................................................................................................... 11

2.3.1

Carbon Capture..............................................................................................................12

2.4

Investment Funds Required............................................................................ 12

The Case Study Area: Background ...............................................................13 3.1

Location ............................................................................................................ 13

3.2

Demographic Characteristics ......................................................................... 14

3.3

Economic Structure......................................................................................... 14

3.3.1

Value of Agricultural Output .........................................................................................17

3.4

Current Land Uses........................................................................................... 17

3.4.1

Zone 1..............................................................................................................................18

3.4.2

Zone 2..............................................................................................................................18

3.4.3

Zone 3..............................................................................................................................19

Current Policy and Institutional Settings for Achieving LargeScale Habitat Outcomes .................................................................................20

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5

6

ii

4.1

Overview ........................................................................................................... 20

4.2

Victoria’s Native Vegetation Policy and Legislative Framework................. 21

4.2.1

Regulations Controlling the Clearing of Native Vegetation ......................................22

4.2.2

Purchase of Ecosystem Services from Freehold Landholders and Support for Voluntary Restoration Actions ................................................................22

4.2.3

Securing Our Natural Future.........................................................................................23

4.3

Community Groups and Philanthropy ........................................................... 23

Framework for Assessing the Regional Economic Impact of Large-Scale Habitat Restoration....................................................................24 5.1

Stage 1: Estimating the Per Hectare Impact of Land-use Change for Habitat Restoration on Expenditure, Revenue and Employment ..................................................................................................... 24

5.1.1

Stage 1 Model Inputs and Assumptions......................................................................26

5.2

Stage 2: Estimating the Impact of Large-scale Habitat Restoration on Regional Employment and Income...................................... 26

5.2.1

Stage 2 Model Inputs and Assumptions......................................................................28

5.2.2

Scenario and Sensitivity Analyses ..............................................................................29

5.3

Estimating the Financial Investment Required to Undertake Large-Scale Habitat Restoration .................................................................... 29

Findings: Implications for Regional Economic Activity ..............................31 6.1

Stage 1: The Impact of Land-use Change for Habitat Restoration on Expenditure, Revenue and Employment ............................. 31

6.2

Stage 2: The Impact of Large-scale Habitat Restoration on Regional Employment and Income ................................................................ 32

6.2.1

Regional Income ............................................................................................................32

6.2.2

Employment ...................................................................................................................34

6.3

Sensitivity Analyses ........................................................................................ 35

6.3.1

3 per cent Real Discount Rate ......................................................................................35

6.3.2

Restoration for Carbon Storage Purposes Only: Breakeven Analysis ....................35

6.3.3

Relaxation of Assumption of No Loss of Agricultural Production from Landcare Restoration in Zones 1 and 2.......................................................................36

6.4

Financial Investment Required to Undertake Large-scale Habitat Restoration ....................................................................................................... 36

6.4.1

Cost per Tonne of Carbon Sequestered......................................................................39

6.5

Summary........................................................................................................... 40

6.5.1

Regional Economic Impact ...........................................................................................40

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6.5.2

7

8

Financial Analyses.........................................................................................................41

Unquantified Benefits of Large-scale Habitat Restoration ..........................43 7.1

Introduction ...................................................................................................... 43

7.2

Increased Ecosystem Resilience: Improved Biodiversity and Conservation Outcomes ................................................................................. 44

7.3

Improved Landscape Amenity........................................................................ 45

7.4

Improved Water Management Outcomes ...................................................... 45

7.5

Improved On-farm Productivity ...................................................................... 46

Next Steps: Achieving Large-Scale Habitat Restoration .............................47 8.1

Implications of Findings.................................................................................. 47

8.2

Government Leadership.................................................................................. 47

8.3

Protecting Existing Native Vegetation ........................................................... 48

9

References.......................................................................................................49

10

Limitations .......................................................................................................50

Tables Table 3-1

Population Trends and Projections – Habitat 141 Local Government Areas in ............. 14

Table 3-2

Five yearly annual average population growth and projections – Habitat 141 Local Government Areas in Victoria ......................................................................................... 14

Table 3-3

Employment located in Habitat 141 Local Government Areas by number of jobs – 2006 ........................................................................................................................................ 15

Table 3-4

Employment located in Habitat 141 Local Government Areas by share of jobs – 2006 16

Table 3-5

Changes in total employment and agricultural employment 2001 to 2006..................... 16

Table 3-6

Estimates of annual Gross Value Added for Agriculture in the Habitat 141 region ........ 17

Table 3-7

Key features of the selected sites of Nurcong, MECU and the French Property ........... 18

Table 3-8

Proposed restoration activity and protection arrangements for the selected sites of Nurcong, MECU and the French Property...................................................................... 19

Table 5-1

Expenditure Categories for Zone 2: Existing Agricultural Enterprises and Restoration Activities .......................................................................................................................... 25

Table 5-2

Habitat restoration roll-out schedule for Zones 1, 2, and 3 under Scenario 1 ................ 27

Table 5-3

Primary restoration purposes for Zones 1, 2, and 3 over 30 years under Scenario 1.... 27

Table 5-4

Projected carbon storage from habitat restoration for Zones 1, 2, and 3 under Scenario 1 ...................................................................................................................................... 28

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Table 6-1

Yearly $ per hectare revenues and expenditures for agriculture and habitat restoration (2010$)............................................................................................................................ 31

Table 6-2

Yearly $ per hectare revenues and expenditures for agriculture and habitat restoration (2010$) – Nurcong, MECU and the French Property ..................................................... 31

Table 6-3

Direct and indirect employment impacts of agriculture and habitat restoration for Zones 1, 2 and 3 – FTE per hectare .......................................................................................... 32

Table 6-4

Projected impact of Scenario 1 on regional income for Zones1, 2, and 3 (NPV 2010$) 33

Table 6-5

Projected impact of Scenario 2 on regional income for Zones1, 2, and 3 (NPV 2010$) 33

Table 6-6

Projected impact of Scenario 3 on regional income for Zones1, 2, and 3 (NPV 2010$) 34

Table 6-7

Regional employment impacts of agriculture and habitat restoration for Zones 1, 2, and 3 – FTE per annum ......................................................................................................... 34

Table 6-8

Projected impact of large-scale restoration for Scenario 4 on regional income for Zones1, 2, and 3 (NPV 2010$) ....................................................................................... 35

Table 6-9

Regional employment impacts of agriculture and habitat restoration for Scenario 4 – FTE per annum ............................................................................................................... 36

Table 6-10

Funds required for Scenario 1 over 30 years (254,650 hectares).................................. 37

Table 6-11

Funds required for Scenario 2 over 30 years (305,580 hectares).................................. 37

Table 6-12

Funds required for Scenario 3 over 30 years (203,720 hectares).................................. 38

Table 6-13

Funds required for Scenario 4 over 30 years (150,391 hectares).................................. 38

Table 6-14

Summary: Investment funds required for scenarios over 30 years ................................ 39

Table 6-15

Summary projected regional impact for Scenario 1 and Scenario 4 for Zones1, 2, and 3 ........................................................................................................................................ 40

Table 6-16

Summary projected investment funds for Scenario 1 and Scenario 4 for Zones1, 2, and 3 ...................................................................................................................................... 41

Figures Figure 3-1

Location of Case Study Area - Zones 1, 2, and 3 of Habitat 141 ................................... 13

Appendices Appendix A

iv

Estimating the Impact of Expenditure on Regional Employment

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Executive Summary Background The natural environment and biodiversity of Victoria is widely accepted as being under serious threat and the condition of Victoria’s natural assets and biodiversity continues to decline despite concerted efforts, such as through landcare, over the past three decades to reverse the decline. Much of the decline is attributable to the loss of native vegetation through the extensive clearing of land for agriculture. There is now the additional concern that climate change will put Victoria’s natural assets and biodiversity under further stress.

Study Objectives Against this broad context, the objective of the Victoria Naturally Alliance (refer to Footnote 2, page 1) in commissioning this study was to investigate the benefits (and any downsides) of increased public and private investment in large-scale habitat restoration. The Habitat 141 project was to be used as a case study and a 30 year investment period was selected.

Habitat 141 Habitat 141 is a visionary large-scale habitat restoration project, which is being driven by Greening Australia. To make the vision a reality, an alliance was formed in 2008 involving several government agencies and non-government organisations (refer to Section 1.2). Its aim is to restore and reconnect the landscapes, covering an area of 18 million hectares, that straddle the 141° longitudinal line (the South Australia and Victoria border) from the coast to inland Australia over the next 50 years (refer to Figure 3-1). Restoration activities will focus on linking patches of existing native vegetation guided by the latest conservation planning expertise and science.

This study focuses on the Victorian sections of Zones 1, 2 and 3 of Habitat 141 (refer to Figure 3-1).

These zones have been extensively cleared for agriculture over the past 175 years. Only about 20 per cent of the original native vegetation remains across the three zones and much of this has been severely modified. Most of Zone 2 and much of zone 3 are more than 90 per cent cleared.

Selected Case Study Sites Based on the advice of Greening Australia, three illustrative sites were selected for use as specific case studies, known as of Nurcong, MECU and the French Property. The sites are located in the northerly section of Zone 2 just south of the Little Desert National Park and to the west of the City of Horsham. They were selected because land use is being changed form agriculture to native vegetation through habitat restoration, which meant that expenditure and revenue data were available for both land-uses for the same site and could be compared directly.

Another consideration was that different types of restoration would be undertaken at each of the sites.

Obtaining the actual expenditure incurred on restoration at the three sites was significant because this data provided the basis for estimating the expenditure for restoration across the three zones of Habitat 141 in the Study Area. The key features of each site are as follows: • Nurcong:

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187 hectares of which 130 hectares of mainly heathy woodlands was cleared in the 1930. Main agricultural activity involved grazing unimproved pasture for wool production. Purchased by Greening Australia, the property is being restored for biodiversity and the storage of carbon which will be sold.

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• MECU

200 hectares consisting of 100 ha of sand which was cleared in the 1970s and 100 hectares of loam containing remnant grassy woodland vegetation. Main agricultural activity involved grazing of semi-improved pasture for wool production. The property was purchased by MECU and is being restored for biodiversity and carbon storage with the carbon stored to be used for voluntary offsets.

• French Property 100 hectares of which 15 hectares was cleared in the 1930s. The remnant plains woodland vegetation contains rare stands of Casuarina obesa. Main agricultural activity involved grazing unimproved pasture for wool production. A permanent lease over the property has been purchased by Trust for Nature and Green Australia to undertake biodiversity restoration involving Bulokes which are very slow growing and would only store small amounts of carbon.

Types of Analyses In order to investigate the benefits (and any downsides) of increased public and private investment in large-scale habitat restoration, three main types of analyses could be used. Although each analyses is concerned with the impact of a change in land use from agriculture to native vegetation, and much of the information and data required is the same, each analyses addresses different aspects and needs to be distinguished. The analyses are: • Social benefit cost analyses — these analyses involve identifying the benefits and costs of investing in habitat restoration from the perspective of society or the wider community. With respect to habitat restoration, all potential benefits that would arise, and the costs that would be incurred in generating those benefits (including the costs of forgone agricultural production), over a specified period would be identified. By addressing all benefits and costs from the perspective of the wider community, there is no need to take into account the ownership of the assets, sources of investment funds, or region where the investment occurs. Where data are available, the magnitude of the benefits and costs are quantified in dollar terms and discounted to determine the net value today of future benefits and costs, commonly referred to as Net Present Value (NPV — refer to Footnote 3, page 7). If not available as is frequently the case for the services provided by natural assets, qualitative descriptions of the benefits and costs are generally provided.

• Regional economic impact assessments — these assessments involve estimating the change in the level of total economic activity, hence employment, within a region from a change in the level of purchased inputs for, and/or revenue received from, particular activities such as agricultural production compared with habitat restoration/native vegetation. The assessments are based on Australian Input-Output Tables of the Australian Bureau of Statistics and involve assessing the direct employment effects for the sector in which the change has occurred and the flow-on effects of that change for employment in other sectors of the regional economy (known as indirect employment). Compared with social benefit costs analysis, economic impact assessments are narrower and consider the impact from the perspective of a particular region.

• Financial analyses — these analyses are from the perspective of the investor for example in habitat restoration to change land use from agriculture to native vegetation. They involve determining the funds required for the initial capital investment, the costs of other inputs over the life of the investment, the residual value of the capital asset and the revenue stream generated. In essence, the analyses seek to determine if a potential investment would be financial viable, such that the revenue generated would meet all operating, depreciation and interest costs.

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The analyses undertaken for this study were a regional economic impact assessment and financial analyses. Mainly because the values of the unpriced benefits from native vegetation were not available, a full social benefit cost analyses could not be undertaken for this study. These benefits however are described qualitatively.

Land The type of analysis that is being undertaken will determine how the cost of gaining access to land to change its use from agriculture to native vegetation should be assessed. In essence, the cost of land should only be included in undertaking financial analyses. For the other types of analyses, if the cost of land were to be included, this would have the effect of counting the value of the land twice. This arises because the value of land is determined by the potential income which could be earned.

However, this income stream, and the costs incurred to generate it, constitutes the benefits and costs that are included in a benefit cost analysis. Likewise, for the expenditures and revenues that are included in regional economic impact assessments.

The situation is different for financial analyses in that funds are required to either purchase freehold land, or achieve equivalent access through permanent lease arrangements, or other arrangements such as through BushTender in order to change land use to native vegetation. Provided the NPV of the benefits from an area of land are assessed as being greater by a potential purchaser from native vegetation than the NPV from existing agriculture as assessed by the current owner, the potential exists for a change in ownership and land use. Of significance is that the price to secure access does not necessary reflect the discounted value of the future benefits from native vegetation. Rather, it is the price that has to be paid to effect a land-use change, essentially to compensate the present owner for the loss of income from agriculture.

Data and Assumptions To undertake the above three types of analyses in investigating the benefits of increased investment in large-scale habitat restoration, data were obtained from a number of sources; there was also a need to make a number of assumptions. Two spreadsheet models were also developed with which to analyse the data within the context provided by the assumptions; these two models are described below under the analyses undertaken for Stage 1 and Stage 2. With respect to social benefit cost analyses, the non-priced benefits associated with native vegetation were not valued quantitatively and have, given the scope of this study, only been described qualitatively.

Regional Employment and Income In order to estimate the regional impacts of expenditures on agriculture and habitat restoration, a regional Input-Output matrix was developed for Victoria and the Horsham West Wimmera areas (refer to Appendix A). The matrix was based on the Australian Input Output table 2004-05 (ABS, 2008) and the relationships established between the inputs and outputs of different economic activities within the various sectors of the Victorian economy. It was used to estimate the impact on regional labour per hectare due to the different expenditures on inputs associated with agriculture and habitat restoration.

The output from applying the matrix was expressed in terms of full-time equivalents (FTEs) per hectare for both direct farm (enterprise) labour and indirect labour associated with provision of goods and services to the enterprises by non-farm enterprises.

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Agricultural Expenditures and Revenues Expenditure and revenue data for existing agricultural land uses were sourced as follows for Zones 1, 2, and 3: • Zone 1 — Australian Bureau of Australian Bureau of Agricultural and Resource Economics (ABARE), Annual Agricultural Surveys – Australian Lamb.

• Zone 2 — ABARE, Annual Agricultural Surveys – Australian Lamb and Greening Australia, local landholders and a local Landcare Group.

• Zone 3 —ABARE – Annual Agricultural Surveys –Australian Grains.

With respect to Zones 1 and 2 and the use of agricultural survey data sourced from ABARE, the data was obtained from a region that covers both zones and from enterprises which were grazing based.

This type of land use was not considered the most representative for Zone 2, which is more mixed grazing and cropping. Consequently, the income and expenditure figures for agricultural enterprises in Zone 2 were derived from the ABARE – Australian Lamb data adjusted according to actual enterprise data provided by Greening Australia, local landholders and a local Landcare Group.

Restoration expenditures The restoration expenditures that were being incurred at the selected sites of Nurcong and the French Property were obtained from Greening Australia and those for the MECU site form the local landcare group undertaking the restoration. These expenditures were broken down into three phases of restoration to capture the different level of activity and inputs required. These phases were: • Restoration Phase — activities undertaken during the first two years to prepare a selected area for restoration, undertake any restoration plantings and/or protect and nurture the replantings or recovering native vegetation; • Establishment Phase — activities undertake during years three to five to protect and nurture restoration replantings and/or regenerating native vegetation so that they become fully established and largely self sustaining; and • Consolidation Phase — activities undertaken from year six largely to protect the restoration replantings and/or recovering native vegetation from such threats as fire, pests and weeds.

For analysis purposes, the per hectare cost of restoration for these three selected sites were assumed to apply throughout the study area.

Types of restoration In addition to the different phases of restoration, information was also obtained for three different types of restoration, namely: • Carbon storage —restoration on land for the purpose of storing carbon and revenue generation.

This restoration would also contribute to achieving biodiversity outcomes; • Biodiversity —restoration primarily for achieving specified biodiversity outcomes — any carbon stored is not treated as a potential source of revenue.

• Landcare —revegetation of selected areas of farms, including creek-lines, shelter belts and for erosion control. Farming activities continue largely unchanged in many situations and no revenue is expected to be generated from any carbon stored.

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Based on the information obtained, the following assumptions were made about the expenditures associated with the different types of restoration: • the costs of restoration for landcare purposes is 60 per cent of the cost of restoration for carbon storage: • the cost of restoring areas for high quality biodiversity is 165 per cent the cost of restoring areas for carbon storage; and • the cost of restoring Buloke (for biodiversity purposes) in Zone 2 is the same as for carbon storage.

Restoration Roll-out Schedule The land to be restored, and the type of restoration, in specific locations were provided to URS as “targets” by Greening Australia. These targets were determined for the Habitat 141 project using the Conservation Action Planning process (CAP) developed by The Nature Conservancy.

The CAP process involves a detailed viability assessment of the major ecosystems occurring within a given area and has a strong emphasis on long-term goal setting, based on the core requirements of, and threats to, target ecosystems and focal species. The process results in the identification of conservation priorities which, for the study area, all involve a mix of revegetation, enhancement of existing remnant vegetation, and protection of existing remnant vegetation in the areas identified for restoration.

The “targets” established by Greening Australia for each of Zones 1, 2 and 3 were for six, five year periods, with less restoration scheduled for the first and last five year periods than during the middle four periods. The targets are shown in Table 1 and define a potential roll-out scenario, which is termed Scenario 1: Greening Australia Targets. Overall, 254,650 hectares would be restored over 30 years under this scenario. Presented in Table 2 are details of the proposed roll-out by restoration type.

Table 1

Restoration roll-out schedule for Zones 1, 2, and 3 over 30 years

Five year period

Period 1

Period 2

Period 3

Period 4

Period 5

Period 6

(Years)

(1-5)

(6-10)

(11-15)

(16-20)

(21-25)

(26-30)

Annual roll out rate

1%

4.8%

5%

4.4%

3.4%

1.4%

Share total restoration area

5%

24%

25%

22%

17%

7%

Area to be restored Zone 1

4,259 ha

20,442 ha

21,293 ha

18,738 ha

14,479 ha

5,962 ha

Area to be restored Zone 2

4,324 ha

20,754 ha

21,619 ha

19,025 ha

14,701 ha

6,053 ha

Area to be restored Zone 3

4,150 ha

19,920 ha

20,750 ha

18,260 ha

14,110 ha

5,810 ha

Total area to be restored (Annual restoration rate)

12,733 ha (2,546ha)

61,116 ha (12,223 ha)

63,662 ha (12,732 ha)

56,023 ha (11,205 ha)

43,290 ha (8,658 ha)

17,825 ha (3,565 ha)

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Table 2

Primary restoration purposes for Zones 1, 2, and 3 over 30 years

Restoration purpose

Zone 1

Zone 2

(ha)

(ha)

(ha)

(ha)

Carbon storage

65,000

50,391

35,000

150,391

Biodiversity

5,100

26,596

30,000

61,696

Landcare

15,073

9,490

18,000

42,563

Total

85,173,

86,477

83,000

254,650

Zone 3

TOTAL

Carbon Stored The potential carbon capture yield from habitat restoration for the three zones, by type of restoration, were derived from carbon yield estimates provided by Greening Australia based on adjustments to the National Carbon Accounting Toolbox (NCAT). These adjustments were based on measurements of the potential carbon yield for each zone. These measurements were undertaken using methodologies approved by the Commonwealth Department of Climate Change and Energy Efficiency.

Given the 30 year period selected for analysis purposes, only 65 per cent of the potential carbon would have been stored in that time on the land subject to restoration. The amount stored is calculated to have reached 90 per cent by the year 60. The effect of discounting, however, will mean that any carbon stored after 30 years will have a very low value in NPV terms. Hence, although about a third of the carbon will be stored after the 30 year assessment period, this is not expected to have a significant influence on the results presented in informing land-use decisions.

The estimates of the amount of carbon that would be stored in each of the six, five year period for Zones 1, 2 and 3 are shown in Table 3. Based on the proposed restoration of 254,650 hectares under Scenario 1, 17.8 million tonnes of additional carbon is estimated to be stored in the three zones over the 30 year period.

Table 3

Projected carbon storage from habitat restoration for Zones 1, 2, and 3

Five year period

(Years)

1

2

3

4

5

6

Total

(1-5)

(6-10)

(11-15)

(16-20)

(21-25)

(26-30)

Zone 1 (tonnes CO2)

29,748

303,709

1,182,360

2,405,129

3,316,327

3,733,034

10,970,307

Zone 2 (tonnes CO2)

12,272

126,112

494,926

1,014,423

1,402,553

1,581,863

4,632,149

Zone 3 (tonnes CO2)

6,580

63,737

240,298

488,268

673,159

757,489

2,229,531

Total (tonnes CO2)

48,601

493,558

1,917,585

3,907,820

5,392,040

6,072,386

17,831,990

Scenarios Assessed A number of scenarios were analysed to gain a better appreciation of the potential impact of largescale habitat restoration on regional employment and income. These scenarios involved changes in the area to be restored relative to Scenario 1 and the undertaking of restoration for carbon storage only. The scenarios were: • Scenario 1: Greening Australia Targets involving the restoration of 254,650 hectares over 30 years and the storage of 17.8 million tonnes of carbon; • Scenario 2: Greening Australia Targets plus 20 per cent under which a total of 305,580 hectares would be restored and 21.4 million tonnes of carbon stored;

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• Scenario 3: Greening Australia Targets minus 20 per cent under which a total of 203,720 hectares would be restored and 14.3 million tonnes of carbon stored; and • Scenario 4: Carbon Storage under which only the area identified by Greening Australia for carbon storage would be restored, namely 150,391 hectares and 17.8 million tonnes of carbon stored.

Analyses The investigation of the benefits (and any downsides) of increased public and private investment in large-scale habitat restoration for the above scenarios was undertaken in two stages. Each stage involved the development of a spreadsheet with the results from Stage 1 being used to inform Stage 2. In line with the guidelines of the Department of Treasury and Finance, Victoria, a real discount rate of 5 per cent per annum is used — all revenue and expenditures are expressed in 2010 dollars or real terms.

Stage 1: Estimating the per hectare impact of land-use change on expenditure revenue and employment.

Using the data obtained about the expenditures and revenues for existing agricultural enterprises, combined with expenditure and revenue data for restoration, the model developed for this stage was used to express the different revenues and expenditures in NPV terms and on a per hectare basis for Zones 1, 2, and 3.

The model was also developed to assess the impact on regional employment, as measured by fulltime equivalents (FTE) per hectare, arising from differences in expenditures associated with the use of land for agriculture compared with native vegetation. To assess these impacts a number of assumptions were made, namely: • the share of off-farm purchases of goods and services made in the same local government area was assumed to be 75 per cent for both current agriculture and restoration cases in each zone except for labour; • the predominant agricultural enterprise in Zone 1 is fat lamb production area; • the predominant agricultural enterprise in Zone 2 is mixed grazing and cropping • the predominant agricultural enterprise in Zone 3 is cropping; • the value of a farmer’s own labour was equal to that of a plant operator; and • the number of jobs per $1m expenditure for each of the industry groups which supplied goods and services to farms was equal to the Victorian average as of June 2009.

Stage 2: Estimating the impact of large-scale habitat restoration on regional employment and income The model developed in the second stage was used to assess the aggregate impacts of the largescale implementation of habitat restoration in each of Zones 1, 2, and 3. This was achieved by using the per hectare income and expenditure data developed under the first stage, and combining this with the expected type and rate of restoration that would occur within these zones, as well as the type of agricultural production that would be displaced as the restoration occurred. The revenues associated with carbon storage were separately attributed on a per hectare basis to the land restored for this purpose in the aggregation model. The revenue from the storage of carbon was the only revenue from native vegetation included in the analyses undertaken.

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Executive Summary

In essence, the analysis involved estimating expenditures and revenues for different current land uses and restoration activities for selected parcels of land over the 30 year assessment period. The model was constructed so that the existing agricultural land-uses, for a given area of land, formed the Base Case (or business-as usual scenario) against which the restoration options were compared and assessed.

A carbon price of $25 per tonne (2010$) was selected for analysis purposes. This price is consistent with the prices projected by the Australian Treasury in its report on the Economics of Climate Change Mitigation, prepared in 2008. For example, the price projected by Treasury for a 5 per cent reduction in emissions under the proposed Carbon Pollution Reduction Scheme was $35 per tonne (real) at 2020. Treasury also projected that the price of carbon would rise to $115 per tonne (real) by 2050.

As for Stage 1, a number of assumptions were made: • the use of land for carbon storage and biodiversity restoration results in an immediate removal of that land from agricultural production; • agricultural revenue from land restored for landcare purposes is reduced by 5 per cent in Zone 3 due to the significance of cropping in this zone — no allowance is made for loss of agricultural production in Zones 1 and 2 where grazing dominates.

• revenue from the sale of carbon is only received from restoration undertaken for carbon storage.

Sensitivity Analyses Breakeven analyses were undertaken for Scenario 1 and Scenario 4 with respect to the price of carbon stored, whilst sensitivity analyses were undertaken for the first three scenarios regarding removing the assumption that there would be no loss of agricultural production from landcare restoration in Zones 1 and 2. The impact of using a 3 per cent real discount rate instead of 5 per cent was also assessed for Scenario 1.

Sensitivity analyses were not undertaken for different potential ranges of expenditures and revenues as these were already factored into the averages used to derive the estimates used. In essence, the averages derived were considered “best estimates” of likely expenditures and revenues.

Results Given that the only benefit from habitat restoration included is from the storage of carbon, the results obtained do not constitute a social benefit cost analysis concerning whether the net benefits to Victoria would be greater from using land for agriculture compared with the its use for native vegetation. Such an analysis would require the inclusion of the unquantified benefits that would accrue from restoration and the resulting change in land use from agriculture to native vegetation. The quantification of such benefits lay outside the scope of this study, However, the results obtained provide an insight to how large these benefits would need to be in order to offset the loss of revenue from the agricultural enterprises displaced that are not offset from the income derived from carbon storage.

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Regional Economic Impact Regional Employment A positive impact on regional employment was achieved under all scenarios assessed. This applied to both direct labour and indirect labour and was driven by the higher expenditures involved in habitat restoration compared with the agricultural activities displaced by the restoration. The results obtained for Scenario 1 and Scenario 4 are presented in Table 4, where the projected increases in both direct and indirect employment were 37 and 29 FTEs per annum, respectively.

Table 4

Regional employment impacts of agriculture and habitat restoration for Habitat 141 – FTE per annum

Scenario

Restoration

Displaced agriculture

Increase in jobs from restoration

1

109

72

37

4

76

47

29

These results indicate that habitat restoration will have a positive impact on regional employment for as long as restoration activities are undertaken on a similar scale. In addition, there is a possibility that the improved landscape amenity and other attributes of the restored native vegetation could results in an increase in tourism, which would also have a positive impact on regional employment.

Regional Income Based on the results obtained for Scenario 1, large-scale habitat restoration would result in a loss in net regional income of an estimated $236 million (NPV in 2010$), which is less than 0.5 per cent of the gross value added from agriculture in the three zones over 30 years. For Scenario 4, the loss in net regional income is estimated at $88 million (NPV in 2010$). These results are presented in Table 5.

Table 5

Summary projected impact of Scenario 1 and Scenario 4 on regional income for Habitat 141 Scenario 1

Scenario 4

(254,650 ha restored, 17.8 m tonnes carbon stored)

(150,391 ha restored, 17.8 m tonnes carbon stored)

Expenditure on agriculture displaced2

$443m

$244m

Expenditure on restoration and ongoing agriculture1

$616m

$343m

Net change expenditure

$173m

$99m

Gross revenue from agriculture displaced2

$654m

$379m

Gross revenues from carbon storage and ongoing agriculture1

$589m

$390m

Net change revenue

$65m

$11m

Change in net regional income

$238m

$88m

Breakeven price for carbon (no change in regional income)

$62.80 per tonne

$39.00 per tonne

3

1, 2, 3

Refer to explanation provided in notes to Table 6-4.

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A major reason for the reduction in regional income under both scenarios is the expenditure that would be required to achieve the desired restoration sought through Habitat 141. Compared with the NPV of expenditure for existing agriculture of $443 million under Scenario 1 for example, the expenditure for restoration has an estimated NPV of $616 million.

By contrast, the NPV of gross revenue for agriculture and restoration (based on the carbon price of $25/tonne) are more aligned at $654 million and $589 million respectively for Scenario 1. With respect to gross revenue alone, if the price of carbon were to increase by $10.40 per tonne to $35.40 per tonne, the gross revenue from carbon storage would be the same as that currently estimated for agriculture.

Given the estimated reduction in regional income of $236 million under Scenario 1, the price of carbon would have to increase by $37.80 per tonne from the assumed price of $25 to $62.80 per tonne of carbon stored in order to break even and for there to be no change in regional income. Under Scenario 4, the price of carbon would have to increase to $39.00 per tonne to break even. Once again, such prices are consistent with those projected by the Australian Treasury. Furthermore, the figures presented do not take into account that the restored land constitutes an asset which could be sold in the future.

Financial Analyses The expenditure on restoration is also the major driver of the funds required to undertake large-scale habitat restoration and exceeds that required to secure access to enable a change in land use from agriculture to native vegetation. The total funds required for Scenarios 1 and 4 are summarised in Table 6. For Scenario 1, the costs of restoration account for 75 per cent of the estimated $446.7million (NPV) funds needed and 69 per cent of the $277.5 million for Scenario 4.

Table 6

Summary projected investment funds for Scenario 1 and Scenario 4 — Habitat 141 Scenario 1

Scenario 4

(254,650 ha restored, 17.8 m tonnes carbon stored)

(150,391 ha restored, 17.8 m tonnes carbon stored)

$333m

$190.7

Land access funds (NPV)

$113.8m

$86.8

Total Investment funds (NPV)

$446.7m

$277.5m

Net revenue from restoration and ongoing agriculture (NPV)

-$26m

$48m

Value of unquantified benefits to maintain land value (NPV) ($/ha)

$139.8m ($549)

$38.8m ($258)

Value of unquantified benefits to maintain land value per hectare per year (NPV)

$36

$17

Restoration funds required (NPV)

The funds required for land access were estimated based on the purchase price for freehold land, expressed in NPV terms, in order to effect a land-use change from agriculture to native vegetation. As such, since the value of land is determined by the discounted value of expected future profits/net benefits, the price of land access is the profit forgone from no longer using the land for agriculture.

The funds required may be less if access were to be secured through permanent leases but, as yet, a permanent lease market has not evolved. However, it is also likely that the price of access would be

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similar to that for the purchase of freehold land because the price for both will be informed by the same potential income earning considerations.

Overall for Scenario 1 and 4, the net revenue from restoration and ongoing agriculture is negative $26 million and (positive) $48 million respectively. Given the estimated cost of land access for these two scenarios of $113.8 million and $86.8 million, this indicates that the NPV of the unquantified benefits from native vegetation would need to be $139.8 million and $38.8 million respectively in order for the land to have an equivalent value when used for native vegetation. Expressed on a per hectare of restored land basis, these values are equivalent to an NPV of $549 per hectare ($139.9m÷254,650 hectares) for Scenario 1 and an NPV of $258 per hectare ($38.8m÷150,391 hectares) for Scenario 4.

In turn, and assuming that they are distributed evenly over the 30 year period, the unquantified benefits would need to be around $36 per hectare per year for Scenario 1, and $17 per hectare per year for Scenario 4, in order for there to be no impact on the value which is placed on land.

Accordingly from the perspective of potential investors, provided they (and some have already made this decision) place a value of at least these amounts on the unquantified benefits, they would find it worthwhile to invest to secure access to land and change its use from agriculture to native vegetation.

Unquantified benefits As just discussed, the decision to invest in large-scale habitat restoration will be justified by a number of attributes of natural ecosystems that are valued by members of the wider community but which are not priced explicitly as is the case for agricultural production. Despite the difficulties in seeking to place a value on them, such unquantified benefits form an essential component in undertaking a social benefit cost analysis of changing land use from agriculture to native vegetation.

The value placed on these aspects will also be influenced by a range of social and cultural values that, in turn, influence our goals and aspirations, not only as Victorians but also increasingly on a global scale. The recent release of the consultation draft of Australia’s Native Vegetation Framework under the auspices of the Natural Resources Ministerial Council, and of the White Paper by the Victorian Government, entitled Securing our Natural Future, both illustrated the fundamental importance of maintaining the non-priced benefits provided by native vegetation. With reference to large-scale habitat restoration, these benefits would include: • • • •

increased ecosystem resilience and resulting improved biodiversity and conservation outcomes; increased provision of ecosystem services; improved landscape amenity including spiritual and cultural values; and improved water management outcomes.

A guide to the amount which the wider community would be prepared to pay for these benefits is provided by the prices paid by the Victorian Government under its BushTender initiative. This initiative involves asking landholders to bid how much they would be willing to accept to undertake restoration activities to achieve particular restoration outcomes sought by the government. Since it commenced in 2002, most prices have been in the range of $2,500 and $3,500 per hectare (in NPV terms).

However, these prices are more reflective of the payment required to effect a land-use change than of the value of the total benefits to the wider community from the resulting improvement in ecosystem assets and associated services.

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Conclusion The results obtained from investigating the benefits of large-scale habitat restoration enable a number of conclusions to be drawn. In general, these conclusions are driven by the higher expenditure on restoration activities compared with the expenditure that would be incurred on the agriculture displaced by restoration. This higher expenditure has a small but positive impact on regional employment. However, the higher expenditure also means that, at a selected carbon price of $25 per tonne (real), there will be a loss in regional income.

Given this loss of regional income, the decision concerning whether to change land use from agriculture to native vegetation will be dependent on the value placed on the unquantified benefits just noted, and/or an increase in the price of stored carbon. With a carbon price of $25 per tonne, the value of the unquantified benefits under Scenario 1 would need to be around $36 per hectare per year in order to maintain the value of land. If no value is assigned to these benefits, the breakeven price for carbon was calculated at $62.80 per tonne.

The high costs of restoration also reinforce the approach of the Victorian Government under its native vegetation framework of avoiding, in the first instance, the adverse impacts on native vegetation such as through clearing. Accordingly, the granting of future permits to clear existing native vegetation should only be made after analysing the full implications with respect to carbon emissions/storage and the value of the unquantified benefits provided to Victoria from the native vegetation.

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Introduction

1.1

1

Context

Victoria’s natural environment and biodiversity are widely recognised as being under serious stress.

The 2002 National Land and Water Resources Audit found that nearly half of Victoria’s bioregions are in poor condition, the highest proportion for any state. Close to half of Victoria’s native plants and 30 per cent of animals are now threatened/endangered and some are already extinct. The recent drier climatic conditions, possibly due to climate change caused by human activity, is putting further pressure on Victoria’s native fauna and flora.

The current state of Victoria’s environment is of great concern, as the natural environment sustains all life and underpins human survival, wellbeing and economic activity. In recent decades, there has been improved understanding of the importance and value of the natural environment and, hence, of the need to maintain and enhance the health of that environment. This has resulted in the implementation of a range of environmental policies and initiatives by the Victorian Government.

Despite this, the available evidence indicates that the condition of Victoria’s land and water resources and biodiversity continues to decline. This decline is reflected in, for example, the Victoria 2008 State of Environment Report prepared by the Commissioner for Environmental Sustainability (CES 2008) and the Catchment Condition Report 2007, prepared by the Victorian Catchment Management Council.

Much of the decline in Victoria’s natural environment and biodiversity is the result of past land-use decisions, which involved the large-scale removal of native vegetation, often with the explicit encouragement by governments, to enable the undertaking of commercial agricultural enterprises over the past 175 years. In turn, these enterprises became a source of income and employment for associated local communities and for the wider Victorian and Australian economies.

In recognition of the need to act to improve Victoria’s environment, the Victorian Government undertook to prepare a White Paper on Land and Biodiversity at a Time of Climate Change which it released in December 2009. The White Paper, which is titled Securing Our Natural Future, sets out a range of policies and actions for achieving better land and biodiversity outcomes for Victoria.

A key action outlined in the White Paper is the implementation of regional-scale biolinks. These are broad geographic areas within which large scale restoration of habitat is planned, with a major focus being on reconnecting existing bushland/remnant native vegetation. Benefits include building ecosystem resilience and sustaining the productivity of landscapes. As stated in the White Paper, the achievement of these benefits “will require a significant increase in shared investment, action and cooperation over the next 50 years or more” (DSE 2009, p 15). Furthermore, if the decline in Victoria’s natural environment and biodiversity is to be reversed, even slowed, it will require changes in land-use and associated management practices over a significant proportion of the landscape.

Just as there are concerns held by many about the decline in Victoria’s natural environment and biodiversity, there are others who hold concerns that such significant changes in land-use and commercial agricultural production could impact adversely on the income to, and job opportunities within, local regional communities. Indeed, some people may hold concerns about both aspects. A further dimension is that the expenditure incurred to restore native vegetation and implement regionalscale biolinks could give rise to increased employment opportunities in the relevant regional areas.

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The importance of these aspects is acknowledged, for example, by the Victorian Government in its current priorities as detailed in the 2010 Statement of Government Intentions1.

The Government considers that it is “well placed to apply innovative solutions to the range of economic, social, and environmental challenges we face.” Its priorities include: • Making the most of opportunities to create jobs, secure investment, and keep Victoria competitive.

• Applying the principles of sustainability across all our actions and taking action to reduce the impact of climate change.

In its discussion paper, entitled Provincial Victoria, Directions for the Next Decade (DIIRD 2009), the Government identifies a range of strategic directions for regional Victoria. The paper highlights that, in the face of climate change impacts, regional communities and industries are being challenged to diversify their economic base. Building green economies and improving natural infrastructure to maintain and enhance Victoria’s land, water and biodiversity is included as one of a number of potential areas for action.

Through another initiative, entitled Action Plan for Green Jobs, the Victorian Government stated its intention to make Victoria a centre for investment in green jobs and industries (DIIRD 2010). The focus of the action plan is on construction, energy and low emissions industries. The action plan notes that traditional green jobs are associated with conserving, protecting and restoring ecosystems and biodiversity. However, it does not consider how to achieve the investment required, and associated jobs, to achieve the restoration needed to reverse the decline of Victoria’s natural environment and biodiversity.

1.2

Project Background and Objectives

Against the context just outlined, this project involves the use of a regional case study in Western Victoria to investigate the regional development benefits (and costs) of significantly increasing the level of investment in large-scale habitat restoration, including the impact on regional employment.

This project has been commissioned by the Victoria Naturally Alliance2 to investigate the benefits (and any downsides) of increased public and private investment in large-scale habitat restoration (natural infrastructure). This study has used the Habitat 141 project as a case study.

Habitat 141 is a visionary large-scale habitat restoration project. It covers an area of 18 million hectares, encompassing a diverse range of ecosystems including rangelands, heath, mallee, red gum forests and floodplains, grassy woodlands and the coastal plain.

This study focuses on the Victorian sections of Zones 1, 2 and 3 of Habitat 141 (see Figure 3-1).

These zones have been extensively cleared for agriculture over the past 175 years. Only about 20 per cent of the original native vegetation remains across the three zones and much of this has been severely modified. Most of Zone 2 and much of zone 3 are more than 90 per cent cleared. Four out of Australia’s five most cleared bioregions are found in Western Victoria (CES 2008).

1

. The Victorian Government Priorities for 2010 http://www.premier.vic.gov.au/component/content/article/9287.html 2 The Victoria Naturally Alliance consists of nine peak environment groups led and hosted by the Victorian National Parks Association (VNPA). The other members of the alliance are The Wilderness Society, Australian Conservation Foundation, Environment Victoria, Bush Heritage Australia, Trust for Nature, Greening Australia (Victoria), Bird Observation & Conservation Australia and Invasive Species Council.

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Over the next 50 years, Habitat 141 aims to restore and reconnect the landscapes that straddle the 141° longitudinal line (namely the South Australia and Victoria border) from the coast to inland Australia (see Figure 3-1). Restoration activities will focus on linking patches of existing vegetation and will be guided by the latest conservation planning expertise and science. Habitat 141 aims to maintain and restore functional ecosystems that can support their full complement of species through well planned, long term and carefully monitored action.

The achievement of this will involve land-use change that, in some areas, would be on a scale equivalent to that which occurred with the initial clearing of native vegetation for agriculture. Its achievement must necessarily involve the coordinated and sustained efforts by many landholders (both public and private), community and industry organisations, as well as government at the local, state and national levels.

The vision for Habitat 141 is being driven by Greening Australia. To make the vision a reality, an alliance was formed in 2008 involving several government agencies and non-government organisations. The alliance partners are: Greening Australia, Victoria Naturally Alliance, The Wilderness Society, Glenelg Hopkins Catchment Management Authority (Vic), Mallee Catchment Management Authority (Vic), Wimmera Catchment Management Authority (Vic), SA Murray Darling Basin Natural Resource Management, South Eastern Natural Resource Management (SA), Department of Environment and Heritage (SA), Department of Sustainability and Environment (Vic), and Parks Victoria,. The Habitat 141 Alliance aims to involve the many community conservation/landcare and indigenous groups within the area.

1.2.1

Overall Aims

The overall aims of this project are to: • contribute to a better understanding and awareness of the benefits of large-scale habitat restoration to the wider community, and of the efforts required to achieve those benefits, by policy makers, decision makers, land holders, and the general public; • establish a robust framework for assessing the benefits and costs (including the opportunity costs associated with existing land uses) of large-scale habitat restoration and, hence, for making natural infrastructure investment decisions; • identify any policy/regulatory barriers to the achievement of large-scale habitat restoration outcomes; • influence the development and implementation of policies of Australian Governments designed to secure large-scale habitat restoration; • contribute to a better understanding of the level of investment required to achieve large-scale habitat restoration in Victoria; • identify potential sources of public and private investment funds; and • facilitate the timely undertaking of large-scale habitat restoration activities.

1.2.2

Specific Objectives

The more specific objectives for undertaking the study include to: • identify the net long term benefits to the wider community (economic, environmental, and social) of investment in large-scale habitat restoration through Habitat 141 including potential statewide and regional development benefits in the short term;

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• develop estimates of the level of investment required over the next five years and up to 25 years to provide the foundation needed to secure the 50 year vision of Habitat 141 to restore and reconnect the distinct landscapes along that straddle the South Australian and Victorian Borders; • gain an appreciation of the level of investment needed for additional large-scale habitat restoration projects across Victoria.

• gain an appreciation of the number of direct and indirect jobs provided by investment in Habitat 141 and additional large-scale habitat restoration projects across Victoria.

• investigate current State and Federal Government policy drivers and barriers and outline policy changes that could facilitate and hasten the achievement of large-scale habitat restoration; • influence the development and implementation of future landscape restoration policies of the Victorian Government, including the implementation of the Government’s Land and Biodiversity White Paper; and • overall, encourage increased public and private sector investment in large-scale habitat restoration.

The first four specific objectives will enable the impact on the level of regional economic activity as result of changing existing land uses to undertake habitat restoration to be assessed. This assessment will involve comparing the impact on regional employment and income under the existing agricultural land uses with that which would occur if the area of land were to be used for habitat restoration. The assessment is for a 30 year period from 2010 to 2040.

Although non-priced benefits, such as increased ecosystem resilience and improved landscape amenity, are likely to be significant in making investment decisions to undertake large-scale habitat restoration their valuation lies outside the scope of this project. There are no readily available data for estimating the value of these benefits as is the case for estimating the value/cost, for example, of purchased inputs for agriculture or habitat restoration. However, given their significance, the nonpriced benefits associated with habitat restoration are discussed qualitatively (refer to Section 7).

1.3

Selected Sites and Field Visit

Based the advice of Greening Australia, three illustrative sites were selected for use as specific case studies, known as of Nurcong, MECU and the French Property. The sites are located in the northerly section of Zone 2 just south of the Little Desert National Park and to the west of the City of Horsham.

They were selected because land use is being changed form agriculture to native vegetation through habitat restoration, which meant that expenditure and revenue data were available for both land-uses for the same site and could be compared directly. Another consideration was that different types of restoration would be undertaken at each of the sites. Obtaining the actual expenditure incurred on restoration at the three sites was significant because this data provided the basis for estimating the expenditure for restoration across the three zones of Habitat 141 in the Study Area.

To gain an understanding of existing land uses and the restoration activities at the three selected sites of Nurcong, MECU and the French Property, a field visit was undertaken to each on the 18 July 2009.

This visit also provided the opportunity to gain an appreciation of the general condition of native vegetation in Zone 2 as well as of the main agricultural enterprises. In addition, a meeting was held in Horsham on 30 November 2009 to seek feedback on the approach to the project and to confirm the areas which were likely to require restoration for use in this study. This meeting involved key people associated with Habitat 141 from Greening Australia and Trust for Nature.

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1.4

Project Advisory Committee

The Victoria Naturally Alliance formed an Advisory Committee with expertise in landscape restoration and regional development to provide advice on project implementation. This group was used to provide input to the project, test ideas and comment on findings.

This committee meet three times, namely on the 28 May 2009, 1 September 2009 and on the 7 June 2010. A presentation on the proposed approach for the project was presented to the first meeting and the preliminary results about the impact of habitat restoration activity on regional employment and income were presented to the second meeting. The third meeting involved a discussion of the final results and the implications of those for achieving large-scale habitat restoration. The members of the Advisory Committee were as follows: Name

Organisation/position

Andrew Bradey

Habitat 141 Coordinator, Greening Australia

Ben Carr

Regional Strategy Team Leader, Bush Heritage Australia

Brendan Sydes

Principal Solicitor, Environment Defenders Office

Christine Forster

VicSuper board member

Geoff Park

Knowledge Broker, North Central CMA

Karen Alexander

Project Leader, Victoria Naturally Alliance

Simon O’Connor

Economist, Australian Conservation Foundation

Dr Ruth Beilin

Associate Professor, School of Land and Environment, University of Melbourne

In addition to the contribution of members of the above committee, the completion of this project was greatly assisted by the contributions of Ron Dodds, Dale Tonkinson and Paul Koch from Greening Australia.

1.5

Report Outline

Presented in Section 2 is a description of the approach used to evaluate the benefits and costs of large-scale habitat restoration. Background demographic and current agricultural land-use information for Zones 1, 2 and 3 of Habitat 141 is provided in Section 3. Contained in Section 4 is a description of the current policy and institutional settings for achieving large-scale habitat restoration outcomes.

Section 5 describes the framework and models used to assess the regional economic impacts of large-scale habitat restoration. The findings from these models and the implications of large-scale habitat restoration on regional economic activity are presented in Section 6.

Presented in Section 7 is a qualitative description of the benefits of large scale habitat restoration for which data are not available to estimate the value of the benefits quantitatively. The potential next steps for achieving large-scale habitat restoration are presented in Section 8.

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2

Approach

2.1

Types of Economic Evaluation

To assess the impact of large-scale habitat restoration on regional employment and income, the first step was to determine the most appropriate economic evaluation analytical framework. In essence, there are three analytical frameworks that could be used: • Social benefit cost analyses — these analyses involve identifying the benefits and costs of different potential investment options from the perspective of society or the wider community. They involve the identification of all potential benefits that would arise from an investment, over a specified period, and the costs incurred in generating those benefits for that period, including incorporating any residual value of the assets generated/constructed by the investment at the end of the selected period. By addressing benefits and costs from the perspective of the wider community, there is no need to consider aspects such as ownership of the assets, sources of investment funds, and/or region in which the investment occurs for example.

Where data are available, the magnitude of the benefits and costs are quantified in dollar terms and discounted to determine the net present value of the benefits. Frequently, particularly with respect to natural assets and the value of the services provided, data are not available to measure the size of the benefits and/or costs associated with changes in the quality of the natural assets and services provided. In these circumstances, qualitative descriptions of the benefits and costs are generally provided.

• Regional economic impact assessments — these assessments involve estimating the change in the level of total economic activity within a region from a change in the level of purchased inputs for, and/or revenue received from, particular activities such agricultural production compared with habitat restoration. The assessments are based on Australian Input-Output Tables of the Australian Bureau of Statistics and involve assessing the direct employment effects for the sector in which the change has occurred and the flow-on effects of that change for employment in other sectors of the regional economy (known as indirect employment).

Compared with social benefit costs analysis, economic impact assessments are narrower and consider the impact from the perspective of a particular region. This means that the consequences of a change in activity in one region on, for example, employment in other regions are not taken into account; these consequences can only be assessed in a General Equilibrium Model such as the model of the Australian economy of the Centre of Policy Studies at Monash University.

• Financial analyses — these analyses are from the perspective of an individual business or firm.

With respect to potential investments, they involve determining the funds required for the initial capital investment, the costs of other inputs over the life of the investment (or a specified period), the residual value (if any) of the capital asset and the revenue stream generated from the asset. In essence, the analyses seek to determine if a potential investment would be financial viable, such that the revenue generated would meet ongoing operating, maintenance, depreciation, and interest costs.

Fundamentally, the three types of evaluation address different questions. With respect to land use change from agriculture to native habitat through restoration, the questions are: 1. Social benefit cost analysis — Will the net benefits to society be greater from the use of an area of land for agriculture compared with the use of the same area of land for habitat restoration?

2. Regional economic impact assessment — What will be the impact on the regional economy of a change in land use from agriculture to habitat restoration particularly for employment; and

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3. Financial analysis — What investment is required to gain access, such as through the purchase of freehold title or permanent lease to an area of land in order to secure the change is use required for restoration purposes?

The current project was largely a regional economic impact assessment, which sought to determine the impact of a change in land-use from agriculture to habitat restoration on the value of purchased inputs and revenue generated with respect to the land subject to the use change. The impact of these changes in purchased inputs and revenue on direct and indirect employment are also estimated. In addition, and from a financial analysis perspective, an estimate is provided of the magnitude of investment required to secure access to land, and undertake the required restoration, in order to achieve the habitat restoration outcomes sought through Habitat 141.

2.1.1

Land

The treatment of the cost of land is determined by the type of economic evaluation being undertaken.

Land is a unique asset because it is geographically fixed. Its price is determined by the income earning potential of that land from commercial activities as estimated by potential buyers and/or the value which potential buyers place on the future flow of services from the land which are not priced.

These different benefit streams from different uses of a given area of land are the benefits that are taken into account in undertaking social benefit cost analyses to determine that use which will maximise the net benefits to society. Accordingly, if an allowance for the value of land were to be included in undertaking a social benefit cost analysis, this would have the effect of accounting twice for the value of land, once in the allowance and then again in the form of discounted future income streams that are used to determine the value of land and the allowance.

Similarly with respect to regional impact assessments, it is the change in the revenue and expenditure streams associated with different land uses that determine the impact on regional employment and income and which, in turn, impact on the value of land. Once again, if an explicit allowance were to be made for the value of land, this would have the effect of accounting twice for the impact of changes in the revenue and expenditure on regional employment and income.

The situation is different for financial analyses from the perspective of potential buyers for, and sellers of, particular parcels of land which could be used for habitat restoration purposes. To secure access in order to change land use requires the purchase of freehold title to the land, or equivalent access entitlements through permanent lease arrangements, or other arrangements such as through BushTender or landcare activities. Provided the Net Present Value (NPV)3 of the benefits (both priced and non-priced) from an area of land are assessed as being greater by a potential purchaser from native vegetation than the NPV from existing agricultural uses for that land to the current owner, the potential exists for a change in ownership and land use.

3

The NPV of future costs and benefits is calculated by discounting the stream of costs and benefits that are expected to occur over a given period, in this case of 30 years, using a selected discount rate. By discounting, adjustments are made for differences in the timing of expenditure and revenues associated with potential alternative investments and the resulting NPVs can be compared to determine which investment to undertake. Normally, provided the NPV is greater than zero (that is, the net present value of future benefits is greater than the net present value of future costs), the investment with the highest NPV is the preferred investment. The discount rate chosen will be determined by the preferences of investors as influenced by the rate of return they want to receive on the investment given the risks involved and/or how quickly they wish to pay-off fully the investment. It is important in calculating NPVs that the costs, benefits, and discount rates are either all expressed in real dollars (such as $2010) or all in nominal dollars which includes the expected influence of inflation on costs and benefits. The use of a real discount rate means that inflation is expected to have the same influence on the prices for all goods and services.

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Of significance is that the price paid to secure access does not necessary reflect the discounted value of the future benefits from native vegetation. Rather, it is the price that has to be paid to effect a landuse change, essentially to compensate the present owner for the loss of income from current land uses. In order to be able to compensate and gain access and then undertake restoration activities requires funds. Thus, the availability of funds and investors are important determinants of the restoration that will occur. In turn, the availability of funds and investors may be influenced by the expected change in the value of land as an asset after restoration.

2.2

Assessing Regional Employment and Income Impacts

To assess the impact of land-use change on regional employment and income requires information and data about: 1. the location and area of land that could be subject to land-use change in order to achieve largescale habitat restoration; 2. current land uses for the areas identified in 1, the value of purchased inputs and of production sold and the timing of when the inputs are purchased and revenues are received over the 30 year assessment period; and 3. the type of restoration proposed for the areas identified in 1, the value of purchased inputs and of production sold (or rewarded such as through carbon sequestration) and the timing of when the inputs are purchased and revenues are received over the 30 year assessment period.

The broad location of the land that could be subject to land-use change for restoration purposes is defined through the selection of Habitat 141 as the case study for this project. With reference to Figure 3-1 and for the purpose of this study, this broad location is defined as those areas of Zones 1, 3 and 3 of Habitat 141 which lie within Victoria. The corresponding Local Government Areas (LGAs) on which available statistical data are based include Glenelg, Southern Grampians, West Wimmera, Horsham, and Hindmarsh.

It is the difference in the net value of purchased inputs, relative to the value of production, associated with current land uses for a given parcel of land compared with the restoration of that parcel, which will determine the impact on regional employment and income, hence on local communities, of large-scale habitat restoration. For example, even though there will be a loss of income from current agricultural enterprises, the impact of this loss may be more than offset by the inputs purchased from local suppliers for restoration purposes.

In this context, the current agricultural activities and associated expenditure and revenues are treated as the “business-as-usual� or Base Case. The impact of restoration activities are then determined by the changes that would occur relative to this Base Case. All impacts are assessed on a per hectare basis.

2.2.1

Assessment Stages and Models

Given the number of potential factors that influence decisions to change land use from agriculture to native vegetation, together with the potential scale of land-use change, the assessment of the resultant impact on regional employment and income was undertaken in two stages. A spread sheet model was developed for each stage to assess these factors, the scale of restoration and resultant impacts (refer to Section 5 for model details).

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The first stage involved obtaining data about the costs and revenues associated with existing agricultural land uses for land on which natural habitat would be restored. It also involved obtaining data about the expenditure that would be incurred in terms of magnitude and timing in undertaking the restoration, as well as about size and timing of any potential revenue that may be received from the restored habitat. The model for this stage was developed to enable the different expenditures and revenues that would be incurred or realised over the 30 year assessment period to be expressed in NPV terms and on a per hectare basis for Zones 1, 2, and 3. In accordance with the guidelines of the Department of Treasury and Finance, Victoria, a real discount rate of 5 per cent per annum is used — all revenue and expenditures are expressed in 2010 dollars or real terms.

The second stage involved developing a model to assess the aggregate impacts of the large-scale implementation of habitat restoration in each of Zones 1, 2, and 3. The model involved using the per hectare income and expenditure data developed under the first stage, and then combined this with the expected type and rate of restoration that would occur within these zones and the type of agricultural production that would be displaced by the restoration undertaken. The revenues associated with carbon production were separately attributed on a per hectare basis to the land restored for this purpose in the aggregation model (refer to Section 5.1).

It is likely these values will vary over time. For example, over the 30 year period small to moderate changes in agricultural productivity would be expected to occur as a result of climate change, new techniques and market forces. As data are not available to estimate the nature and extent of such change, current values were used as the best estimate of future values.

In essence, the assessment involved estimating expenditures and revenues for different current land uses and restoration activities for selected parcels of land over the 30 year assessment period. The model was constructed so that the existing agricultural land-uses, for a given area of land, formed the Base Case (or business-as usual scenario) against which the restoration options were compared and assessed. It also provided the ability to discount all cost and income data over the assessment period to derive the NPV of different land uses which could be compared. The NPV of the restoration projects is defined as the discounted value of 30 years cash flows for restoration revenues less costs from the lost value of agricultural production (revenue less costs).

The impact on regional labour included the direct on-farm labour and the volume of labour associated with provision of goods and services to the farm sector by non-farm enterprises. This required the development of a regional Input-Output matrix for Victoria and the Glenelg, Horsham and West Wimmera and Hindmarsh areas. This matrix was derived by adjusting the Australian Input Output Table 2004-05 (ABS, 2008) for the Victorian and then regional economies by reference to the June 2009 ABS National Accounts data for Victoria and the ABS Census of Population and Housing 2006 data which details employment by industry by Local Government Area.

2.2.2

Types of Restoration

To reflect the different inputs required for restoration purposes, as well as the associated loss of existing agricultural production and potential income from carbon capture, three types of restoration were defined to facilitate the assessment of the impact of large-scale habitat restoration on regional employment and income. All carbon storage and biodiversity sites were considered to constitute a land-use change from agriculture to native habitat. Some will be entire properties, while others will be parcels of land within ongoing farming enterprise.

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The restoration types were: • Carbon storage — refers to restoration on land for the purpose of storing carbon and revenue generation. This restoration would also contribute to achieving biodiversity outcomes; • Biodiversity — refers to restoration primarily for achieving specified biodiversity outcomes — any carbon stored is not treated as a potential source of revenue.

• Landcare — refers to revegetation of selected areas of farms, including creek-lines, shelter belts and for erosion control. Farming activities continue largely unchanged in many situations (refer to Section 5.2.1) and no revenue is expected to be generated from any carbon stored.

In the case of restoration for carbon storage and biodiversity, the restoration will generally involve fencing (to keep stock out), removal of unwanted plant species, soil preparation, plantings of native seeds and/or seedlings, nutrient and water management, together with ongoing fire protection and weed, pest and disease management. For landcare, the restoration is likely to involve fencing of the selected area, the removal of unwanted plant species, limited plantings of native seeds and/or seedlings, together with ongoing fire protection and weed, pest and disease management.

2.2.3

Indentified Areas for Restoration within Habitat 141

The area of land to be restored, and the type of restoration, in specific locations were provided to URS as “targets” by Greening Australia. These targets were determined for the Habitat 141 project using the Conservation Action Planning process (CAP) developed by The Nature Conservancy.

The CAP process involves a detailed viability assessment, involving the use of Geographic Information System (GIS) analysis, of the major ecosystems occurring within a given area and has a strong emphasis on long-term goal setting, based on the core requirements of, and threats to, target ecosystems and focal species. For example with respect Zone 1 of the Habitat 141 region, Manna Gum, Herb-rich Woodlands and Grassy Woodlands were identified as fragmented and depleted ecosystems requiring broad-scale revegetation. These same ecosystems also required habitat protection programs for the remaining remnant vegetation to maintain long-term ecosystem viability and maintain critical species interactions. The area identified for restoration was also influenced by considerations concerning the area that could feasibly be restored each and the productivity of the soil for agricultural (land-use change in highly productive areas is usually avoided except in the most critical areas required for biodiversity reasons).

The Conservation Action Plans for Zones 2 and 3 of the Habitat 141 region have likewise identified conservation priorities based on existing conditions and opportunities. These priorities all involve a mix of revegetation, enhancement of existing remnant vegetation, and protection of existing remnant vegetation in the areas identified for restoration.

The “targets” established by Greening Australia for each of Zones 1, 2 and 3 are shown in Table 5-3.

Combined these “targets” represent a potential roll-out scenario, which is termed Scenario 1: Greening Australia Targets, and involves the restoration of 254,650 hectares over 30 years.

2.2.4

Scenario and Sensitivity Analyses

To help gain a better appreciation of the potential impact of large-scale habitat restoration on regional employment and income, three other roll-out scenarios were modelled in addition to Scenario 1.

These were:

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• Scenario 2: Greening Australia Targets plus 20 per cent — under this scenario, the area for restoration is projected to be 20 percent greater in each of the three zones compared with the targets set by Greening Australia, giving a total restoration area of 305,580 hectares.

• Scenario 3: Greening Australia Targets minus 20 per cent — under this scenario, the area for restoration is projected to be 20 per cent less in each of the three zones compared with the targets set by Greening Australia, giving a total of 203,720 hectares.

• Scenario 4: Carbon Storage — under this scenario, the area to be restored consists of the projected areas within the targets set by Greening Australia that are to be restored for carbon storage in the three zones, namely a total of 150, 391 hectares.

Except for the last scenario, the areas to be restored would be in the same proportions with respect to carbon storage, biodiversity and landcare in each zone as for Scenario 1. In addition to these scenarios, breakeven analyses were undertaken with respect to the price of carbon stored for both Scenario 1 and 4. Sensitivity analyses were also undertaken for Scenarios 1, 2 and 3 by relaxing the assumption that there would be no loss of agriculture production associated with landcare restoration in Zones 1 and 2 and replacing it with an assumption that there would be a five per cent loss as for Zone 3.

2.3

Data Sources

A number of sources were used to obtain the data required for the above models developed by URS. These sources included a number of publications of the ABS. In addition, expenditure and revenue data for existing agricultural land uses were sourced as follows for the Zones 1, 2, and 3: • Zone 1 — Australian Bureau of Australian Bureau of Agricultural and Resource Economics (ABARE) annual agricultural surveys (refer to Section 9, ABARE A – Australian Lamb) • Zone 2 — Australian Bureau of Australian Bureau of Agricultural and Resource Economics (ABARE) annual agricultural surveys (refer to Section 9, ABARE A) and Greening Australia, local landholders and a local Landcare Group.

• Zone 3 — Australian Bureau of Australian Bureau of Agricultural and Resource Economics (ABARE) annual agricultural surveys (refer to Section 9, ABARE B – Australian Grains).

With respect to Zones 1 and 2 and the use of agricultural survey data sourced from ABARE A, the data was obtained from a region that covers both of these zones and from enterprises which were grazing based. This type of land use was not considered the most representative for Zone 2, which is more mixed grazing and cropping. Consequently, the income and expenditure figures for agricultural enterprises in Zone 2 were derived from the ABARE A data which was adjusted based on actual enterprise data provided by Greening Australia, local landholders and the local Landcare Group.

With respect to restoration expenditure, this was obtained from the expenditure being incurred at the three selected sites of Nurcong, MECU and the French Property; more detail about these sites is presented in Section 3.4.2. As discussed below, these sites were also selected because of the different types of restoration that would occur on each of the sites. For Nurcong and the French Property, the expenditure estimates were provided by the costs incurred by Greening Australia to restore those sites. In the Case of MECU, the expenditure estimates are based on the costs incurred by the local landcare group for restoration purposes at that site.

The expenditure incurred for habitat restoration was broken down into three phases of restoration to capture the different level of activity and inputs required. These phases were:

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• Restoration Phase — activities undertaken during the first two years to prepare a selected area for restoration, undertake any restoration plantings and/or protect and nurture the replantings or recovering native vegetation; • Establishment Phase — activities undertake during years three to five to protect and nurture restoration replantings and/or regenerating native vegetation so that they become fully established and largely self sustaining; and • Consolidation Phase — activities undertaken from year six largely to protect the restoration replantings and/or recovering native vegetation from such threats as fire, pests and weeds.

The costs of undertaking the different types of restoration have been assumed to be similar within and between Zones 1, 2, and 3. Based on this assumption, the expenditure estimates for these three sites were used to derive expenditure estimates on a per hectare basis for the different restoration activities. These per hectare expenditure estimates were then used to determine total restoration expenditure in the three zones, individually and collectively, over the 30 year period based on the potential area that may be restored. This area was informed by the targets provided by Greening Australia as outlined in Section 2.2.3. Within the models developed (refer to Section 2.2.1), the area to be restored by type of restoration can be readily adjusted to assess the consequential impacts on regional employment and income.

2.3.1

Carbon Capture

With respect to potential carbon capture yield from habitat restoration for the three zones, these were derived from carbon yield estimates provided by Greening Australia based on adjustments to the National Carbon Accounting Toolbox (NCAT). These adjustments are based on measurements of the potential carbon yield for each zone. These measurements were undertaken using methodologies approved by the Commonwealth Department of Climate Change and Energy Efficiency.

Given the 30 year period selected for analysis purposes, there is a need to note that only 65 per cent of the potential carbon would have been stored in that time on the land subject to restoration. The amount stored is calculated to have reached 90 per cent by the year 60. The effect of discounting will mean that any carbon stored after 30 years will have a very low value in NPV terms. Hence, although about a third of the carbon will be stored after the 30 year assessment period, this is not expected to have a significant influence on the results presented in informing land-use decisions.

2.4

Investment Funds Required

The investment funds required will be determined by the amount of money required to i) secure access to land by either purchase or permanent lease, and ii) undertake restoration activities including ongoing operation and maintenance costs. In turn, the funds required will also be determined by the area of land to which access is sought. In some instances, access to the land may take the form of a “gift” from the current land holder and not involve financial outlay. However, there may be a cost borne by such landholders associated with the benefits forgone if the land were to be used for another purpose, perhaps continued agricultural production.

Because the restoration is being proposed to occur over a 30 year period, not all of the funds would be needed immediately and would be spread over the 30 year period based on the an overall restoration schedule. Depending on the establishment of a market for carbon, earlier plantings could provide an internal source of funds to finance later restorations. Nevertheless, the total investment funds required will be the same with or without a market for carbon and are estimated in Section 6.3.3.

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The Case Study Area: Background

3.1

3

Location

Presented in Figure 3-1 is the location of the study area, which only includes the Victorian sections of Habitat 141 Zones 1, 2 and 3. Zone 4, the Coastal Zone and areas within South Australia and New South Wales are not included in this study. In the following sections, totals for Habitat 141 refer to totals for Zones 1, 2 and 3 that are within Victoria, and not to the wider Habitat 141 area.

Figure 3-1

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Location of Case Study Area - Zones 1, 2, and 3 of Habitat 141

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3.2

Demographic Characteristics

The Local Government Areas of Glenelg, Southern Grampians (mainly Zone 1), West Wimmera, Horsham (Zone 2), and Hindmarsh (Zone 3) are included in the study area. These areas have experienced mixed population growth over the past ten years and a slight increase in population is expected in the area over the 20 years from 2006 to 2026 according to the Department of Planning and Community Development projections. The rate of population growth is expected to slow over the 20 years to 2026. These population details and associated growth rates are detailed in Table 3-1 and Table 3-2.

Table 3-1

Population Trends and Projections – Habitat 141 Local Government Areas in

Year June 30th

1996

2001

2006

2011

2016

2021

2026

Glenelg (S)

20848

20392

20,525

21,081

21,405

21,670

21,961

Southern Grampians (S)

17548

17132

17,187

17,348

17,423

17,563

17,709

West Wimmera (S)

5187

4882

4,614

4,347

4,030

3,712

3,474

Horsham (RC)

17939

18586

19,098

19,620

20,044

20,459

20,829

Hindmarsh (S)

6864

6596

6,235

5,944

5,633

5,352

5,124

Victoria Habitat 141

68,386

67,588

67,659

68,340

68,535

68,756

69,097

Source: DPCD, Victoria in Future, 2008.

Table 3-2

Five yearly annual average population growth and projections – Habitat 141 Local Government Areas in Victoria

Year June 30th

2001

2006

2011

2016

2021

2026

2006-20

Glenelg (S)

-0.4%

0.1%

0.5%

0.3%

0.2%

0.3%

0.3%

Southern Grampians (S)

-0.5%

0.1%

0.2%

0.1%

0.2%

0.2%

0.1%

West Wimmera (S)

-1.2%

-1.1%

-1.2%

-1.5%

-1.6%

-1.3%

-1.4%

Horsham (RC)

0.7%

0.5%

0.5%

0.4%

0.4%

0.4%

0.4%

Hindmarsh (S)

-0.8%

-1.1%

-1.0%

-1.1%

-1.0%

-0.9%

-1.0%

Victoria Habitat 141

-.0.2%

0.02%

0.20%

0.06%

0.06%

0.10%

0.10%

Source: DPCD, Victoria in Future, 2008.

The Shires of West Wimmera and Hindmarsh, which cover parts of Zones 2 and 3, are both expected to experience a decline in total population over the period to 2026. Partly this will be due to population drift to the larger centres such as the Rural City of Horsham but would also reflect continued improvements in agricultural productivity. Apart from the Rural City of Horsham, most of the expected growth in population is expected to occur in Glenelg Shire within Zone 1.

3.3

Economic Structure

The employment structure of the LGAs in each of the three zones are reasonably similar with Agriculture forestry and fishing being the dominant sector of employment for Glenelg, Southern Grampians, West Wimmera and Hindmarsh; for the more urbanised Rural City of Horsham Retail trade is the largest sector.

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Based on ABS Census of Population and Housing Working Population Profiles, a total of 27,707 persons were employed within the Habitat 141 region in 2006. Table 3-3 and Table 3-4 provide breakdowns of employment by LGA by numbers employed and share of total employment respectively.

Table 3-3

Employment located in Habitat 141 Local Government Areas by number of jobs – 2006

Industry

Glenelg

Habitat Southern West Grampians Horsham Wimmera Hindmarsh 141

Agriculture, forestry & fishing

1197

1454

844

950

664

5,109

Mining

8

245

34

27

0

314

Manufacturing

1607

410

416

41

189

2,663

Electricity, gas, water & waste services

88

61

178

5

24

356

Construction

418

456

545

55

78

1,552

Wholesale trade

192

225

382

16

62

877

Retail trade

901

878

1218

94

210

3,301

Accommodation & food services

473

441

531

51

80

1,576

Transport, postal & warehousing

417

204

307

74

176

1,178

Information media & telecommunications

40

79

107

5

4

235

Financial & insurance services

110

135

211

21

24

501

Rental, hiring & real estate services

91

46

93

0

3

233

Professional, scientific & technical services 198

246

304

15

27

790

Administrative & support services

133

102

197

17

12

461

Public administration & safety

304

463

573

91

80

1,511

Education & training

510

617

567

128

167

1,989

Health care & social assistance

860

982

1156

175

401

3,574

Arts & recreation services

66

50

89

12

6

223

Other services

251

251

442

39

66

1,049

Inadequately described/Not stated 79

48

54

13

21

215

Total

7,393

8,248

1,829

2,294

27,707

7,943

Source: Source: Australian Bureau of Statistics, Working Population Profiles, Census of Population and Housing, 2006

As the ABS changed the reporting structures for employment between the 2001 and 2006 Censuses, a direct comparison of industry growth is not possible. However, the change in the total of numbers employed can be provided and reasonably good comparison of jobs in the Agriculture, forestry and fishing sector can be made as that category did not change significantly. Over the whole area employment numbers grew by 0.7 per cent per annum though this growth was concentrated in Horsham and the other southern municipalities. Agricultural employment fell by an average of 2.5 per cent per annum. As illustrated in Table 3-5, all LGAs experienced a decline in employment in this sector.

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Table 3-4

Employment located in Habitat 141 Local Government Areas by share of jobs – 2006

Industry

Glenelg

Southern Horsham Grampians

Agriculture, forestry & fishing

15.1%

19.7%

10.2%

51.9%

28.9%

18.4%

Mining

0.1%

3.3%

0.4%

1.5%

0.0%

1.1%

Manufacturing

20.2%

5.5%

5.0%

2.2%

8.2%

9.6%

Electricity, gas, water & waste services

1.1%

0.8%

2.2%

0.3%

1.0%

1.3%

Construction

5.3%

6.2%

6.6%

3.0%

3.4%

5.6%

Wholesale trade

2.4%

3.0%

4.6%

0.9%

2.7%

3.2%

Retail trade

11.3%

11.9%

14.8%

5.1%

9.2%

11.9%

Accommodation & food services

6.0%

6.0%

6.4%

2.8%

3.5%

5.7%

Transport, postal & warehousing

5.2%

2.8%

3.7%

4.0%

7.7%

4.3%

Information media & telecommunications

0.5%

1.1%

1.3%

0.3%

0.2%

0.8%

Financial & insurance services

1.4%

1.8%

2.6%

1.1%

1.0%

1.8%

Rental, hiring & real estate services

1.1%

0.6%

1.1%

0.0%

0.1%

0.8%

Professional, scientific & technical services 2.5%

3.3%

3.7%

0.8%

1.2%

2.9%

Administrative & support services 1.7%

1.4%

2.4%

0.9%

0.5%

1.7%

Public administration & safety

3.8%

6.3%

6.9%

5.0%

3.5%

5.5%

Education & training

6.4%

8.3%

6.9%

7.0%

7.3%

7.2%

Health care & social assistance

10.8%

13.3%

14.0%

9.6%

17.5%

12.9%

Arts & recreation services

0.8%

0.7%

1.1%

0.7%

0.3%

0.8%

Other services

3.2%

3.4%

5.4%

2.1%

2.9%

3.8%

0.6%

0.7%

0.7%

0.9%

0.8%

100.0%

100.0%

100.0%

100.0%

100.0%

Inadequately described/Not stated 1.0% 100.0%

Total

West Wimmera

Hindmarsh Habitat 141

Source: ABS Working Population Profiles Census of Population and Housing 2006.

Table 3-5

Changes in total employment and agricultural employment 2001 to 2006

Local Government Total Employment Area 2001 2006

Yearly change 20011

20061

Yearly change

Glenelg

0.9%

1,323

1,197

-2.0%

7,604

7943

Agriculture, forestry and fishing

Southern Grampians 7,086

7,393

0.9%

1,779

1,454

-4.0%

Horsham

7,803

8,248

1.1%

982

844

-3.0%

West Wimmera

1,893

1,829

-0.7%

963

950

-0.3%

Hindmarsh

2,380

2,294

-0.7%

765

664

-2.8%

Habitat 141

26,766

27,707

0.7%

5,812

5,109

-2.5%

Note 1: Some of the change in numbers between years may be due to a change in the definition of employment in the Agriculture, forestry and fishing sector.

Source: Australian Bureau of Statistics, Working Population Profiles, 2001 Census and 2006 Census

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3.3.1

Value of Agricultural Output

While there are no published estimates of the value of output for agriculture in the Habitat 141 study area, estimates of the value of outputs have been derived from the Input Output model of the Victorian economy developed for this project (refer to Section 2.2.1). To derive the estimates, it was assumed that value added per effective full-time employee by sector is uniform throughout Victoria.

Accordingly, the estimates should be regarded as indicative only of the value of agriculture in each LGA. Presented in Table 3-6 are the estimates of the value of agricultural outputs derived based on the 2004-05 Input-Output Tables of the ABS for the relevant LGAs in the Victorian part of Habitat 141.

Overall, the gross value added of agricultural production (contribution to Gross Regional Product) is estimated at $3.061 billion a year in 2004-2005 dollars. If this estimate is updated to 2010 dollars through the application of the GDP deflator (chain linked) published by ABS, the estimate of currentgross value added is $3.564 billion a year; the deflator used was 89.4 in June 2005 and 104.1 in December 2009. If it is assumed this value remains constant for the 30 year assessment period, the NPV of the value added of agricultural production would be $54.8 billion in 2010 dollars4. This estimate provides a reference with which to compare the size of the potential change in the value of agricultural production as a result of large-scale habitat restoration.

Table 3-6

Estimates of annual Gross Value Added for Agriculture in the Habitat 141 region

Local Government Area

Gross Agricultural Value Added (20042005$)

Glenelg

$421m/yr $763m/yr $234m/yr $1,110m/yr $499m/yr $3,061m/yr ($3,564m/yr in 2010$)

Southern Grampians West Wimmera Horsham Hindmarsh Victoria Habitat 141

3.4

Current Land Uses

An understanding of current land uses for agricultural purposes is essential in order to assess the impact on regional employment and income of undertaking large-scale habitat restoration. This is because some land which is currently used for agriculture will be used instead for providing native vegetation. With this change, the current expenditure on purchased inputs for the agricultural enterprise and the revenue received from the associated production will be displaced, but replaced with the expenditures and revenues of the habitat restoration that occurs on the same land. Major determinates of both current agricultural land use and native vegetation is soil type, its fertility and rainfall.

4

As noted in 2.2.1, over the 30 year assessment period, there are likely to be small to moderate changes in agricultural productivity as a result of climate change, new techniques and market forces but these changes cannot be determined now with any accuracy, hence the making of this assumption is considered reasonable.

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3.4.1

Zone 1

The major agricultural land use in Zone 1 is the growing of improved pastures for grazing, with minor cropping in the more northerly parts of the zone. Major grazing enterprises include sheep for wool and fat lamb production, beef cattle and dairying, with wool and fat lamb production being the most dominant. For this reason, the associated expenditures and revenues for this type of enterprise were used to assess the impact of changing land use from agriculture to native vegetation on regional employment and income. Over the last 15 years there has been significant land use change in this zone from agriculture to forestry.

3.4.2

Zone 2

In Zone 2, land uses for agricultural purposes are more mixed and involve both cropping and grazing enterprises. Grazing for wool production on both improved and unimproved pastures is a major enterprise through the zone. Accordingly, the expenditures and revenues for this type of enterprise were used to assess the impact of changing land use for restoration purposes.

Illustrative restoration sites in Zone 2: Nurcong, MECU and the French Property The three illustrative restoration sites of Nurcong, MECU and the French Property are in Zone 2. They were selected because they were in the process of land-use change form agriculture to native vegetation (refer to Section 2.3). The features of these sites are summarised in Table 3-7.

Table 3-7

Key features of the selected sites of Nurcong, MECU and the French Property

Site

Area (ha)

Soil type (General)

Native vegetation

Area cleared (ha)

Agricultural Enterprise

Carbon

Nurcoung (Greening Australia)

187

Light, low fertility of low carrying capacity

Cleared heathy woodland and regenerating heathy woodland

130 (cleared during the 1960s)

Mainly unimproved pasture for grazing for wool production

To be sold

MECU — (Restoration

by Kowree Tree Group)

200

100 ha sand and 100 ha of loam

Sand: Heathy woodland; Loam: Grassy woodland

100 of sand (cleared during the 1970s)

Semi improved pastures for grazing for wool production

Carbon is to be used to provide voluntary offsets

French Property (Trust for Nature & Greening Australia)

100

Light, low fertility of very low carrying capacity

Plains Woodland (Rare stands of Casuarina obesa)

15 (cleared during the 1930s)

Unimproved pasture for grazing for wool production

Restoration is largely Buloke, which has negligible carbon value

The proposed restoration activity for each selected site, together with details the arrangements for protecting the restored native vegetation, are summarised in Table 3-8. Also shown are details of ownership and/or access arrangements to the land on which the restoration activity has occurred and to whom any future revenue from the restored vegetation will accrue.

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Table 3-8

Proposed restoration activity and protection arrangements for the selected sites of Nurcong, MECU and the French Property

Site

Ownership/ access

Restoration activity

Restoration Responsibility

Protection arrangements

Restoration revenues

Nurcoung

Freehold title owned

by Greening Australia (Purchase price of $253,000)

Habitat revegetation on cleared land Habitat enhancement on regenerating heathy woodland

Greening Australia

Covenant on freehold title

Greening Australia

MECU

Freehold title owned

by MECU ($200,000)

Habitat revegetation on cleared sandy land Habitat protection on uncleared loamy land

MECU

Covenant on freehold title

MECU

French Property

Permanent access lease held by Trust for Nature & Greening Australia — Freehold title by current owners ($50,000 lease )

Habitat revegetation on cleared land Habitat protection on uncleared land

Trust for Nature and Greening Australia

Covenant on freehold title

Current property owners

3.4.3

Zone 3

Cropping dominates most of this zone, however on marginal sandy sites and heavier soils in the far north, grazing contributes increasingly to farm activities. The expenditures and revenues for cropping were used to assess the impact of changing land use for restoration purposes. Expenditures and revenues are higher on a per hectare basis for cropping than grazing.

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Current Policy and Institutional Settings for Achieving Large-Scale Habitat Outcomes

4

4.1

Overview

Prime responsibility for land-use decisions, hence the management of native vegetation, rests with the States and Territories under the Australian Constitution. Nevertheless, the Commonwealth has a significant role to play in the management of native vegetation arising from its responsibilities associated with: • matters of National Environmental Significance under the Environment Protection and Biodiversity Conservation Act 1999; • meeting Australia’s obligations under international law, conventions and treaties; • the control of exports and imports, including biosecurity and quarantine; and • being a land holder.

A key international obligation for Australia is our commitments under the United Nation’s Convention on Biodiversity. The National Strategy for the Conservation of Australia’s Biological Diversity, released in 1996 and known as the National Biodiversity Strategy, provides the policy framework for meeting these commitments. The National Biodiversity Strategy is currently being revised.

Accordingly, the Commonwealth has a significant interest in seeking to secure an integrated approach to the management of native vegetation across all jurisdictions. To this end, a National Framework for the Management and Monitoring of Australia’s Native Vegetation was developed in 1999 under the auspices of the Australian and New Zealand Environment and Conservation Council (ANZECC); this framework was ultimately endorsed by the successor of ANZECC, the Natural Resource Management Ministerial Council (NRMMC) in August 2001. A key outcome sought through this framework was the “reversal in the long-term decline in the extent and quality of Australia’s native vegetation”.

This framework is currently being updated and the NRMMC released a consultation draft, entitled Australia’s Native Vegetation Framework, in February 2010 — the public consultation period ended on 7 April 2010. The proposed framework is being developed to contribute to achieving the goals of the National Biodiversity Strategy. Its stated vision was: “Native vegetation across the Australian landscape is managed in an ecologically sustainable way in recognition of its enduring environmental, economic, social, cultural and spiritual values in a changing climate”.

Five goals were presented through which this vision would be achieved, namely: • “Increase the national extent of native vegetation to build ecosystem resilience and improve the productive capacity of the landscape.

• Maintain and improve the condition of native vegetation.

• Maximise the native vegetation benefits of carbon markets.

• Build capacity to understand, value and effectively manage native vegetation by all relevant stakeholders.

• Progress the engagement and inclusion of Indigenous peoples in the management of native vegetation.”

In addition to the above responsibilities and initiatives, the Commonwealth can also influence the way in which native vegetation is managed through its taxation powers and ability to fund specific programs. These include such as the National Action Plan for Salinity and Water, Natural Heritage

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Trust (replaced by the Caring for Our Country program), National Forest Policy Statement and the National Reserve Strategy.

Illustrative of the influence of the taxation measures of the Commonwealth were the measures which provided a full deduction for income tax purposes of the capital cost of expenditure on “the destruction and removal of timber, scrub or undergrowth indigenous to the land”. These provisions were removed in 1983. They have been succeeded by measures which provide a tax deduction to landholders for fencing off remnant native vegetation and other landcare type activities.

Such taxation measures can have a significant influence on the incentives faced by landholders and their decisions to clear native vegetation in one instance and to protect or restore native vegetation in other instances. Careful consideration therefore needs to be given to these influences so that the resulting behaviour of landholders is consistent with the native vegetation outcomes sought by the wider community. As far as possible, the taxation measures should have a neutral effect on the decisions of landholders regarding land use.

4.2

Victoria’s Native Vegetation Policy and Legislative Framework

The achievement of the above goals at the national level will largely be effected through the policies and strategies of the state and territories supported by the relevant legislation. In the case of Victoria, clearing controls have been in place since the late 1980s/early 1990s. The Government’s policy with respect to native vegetation was progressed through its strategy document, entitled Victoria’s Native Vegetation Management: A Framework for Action, which was released in 2002.

The strategy was developed to implement Victoria’s Biodiversity Strategy and the National Biodiversity Strategy noted above. Its focus was to “protect, enhance and revegetate Victoria’s native vegetation”, with the overall goal to “achieve a reversal, across the entire landscape of the long-term decline in the extent and quality of native vegetation, leading to a net gain” (DNRE, 2002). This goal was to be achieved on a whole-of-catchment basis through a three step approach of: • avoiding adverse impacts on native vegetation such as through clearing; • minimising the potential adverse impacts where such impacts cannot be avoided; and • requiring the provision of offsets where clearing must occur.

Responsibility for the development of a whole-of-catchment approach rested with the Catchment Management Authorities established under the Catchment and Land Protection Act 1994 (CaLP Act).

The authorities are required to address the native vegetation management issues through the development of the five year Regional Catchment Strategies for their respective catchments. Once accredited by the Victorian and Commonwealth Governments, these strategies provided the basis through which the government funds were allocated to activities to achieve, for example, specified native vegetation management outcomes.

With respect to the management of native vegetation on freehold land, four main approaches are pursued by the Victorian Government namely: • the use of regulations to control the clearing of native vegetation; • the establishment of the Trust for Nature under the Conservation Trust Act 1972 to assist with the administration of conservation programs on private land including the use of binding covenants which are registered on the title of land in perpetuity in order to protect native vegetation;

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• the purchase of ecosystem services from freehold landholders; and • the provision of support for voluntary restoration action by landholders and community groups.

4.2.1

Regulations Controlling the Clearing of Native Vegetation

The regulations relating to the clearing of native vegetation are established under the Planning and Environment Act 1987 (P&E Act), within the overall policy objective noted above of achieving a net gain in native vegetation — there is no specific native vegetation legislation in Victoria as in the case, for example, of the Native Vegetation Act 2003 in New South Wales. Under the P&E Act landholders must obtain a planning permits for the removal, destruction or lopping of native vegetation (with some exemptions). As stated in the Government’s response to the recent inquiry into Environmental Regulation by the Victorian Competition and Efficiency Commission (DTF 2010), a condition that will have to be met if a permit is to be granted is that there will be “no-net-loss” in native vegetation as a result of the permitted clearing.

The granting of permits is generally by Local Councils in their role as Responsible Authorities under the P&E Act. In determining whether to grant a permit, and the conditions that may be applied, Local Councils will refer an application to number of other government agencies, known as Referral Authorities, for their assessment and consistency with legislative requirements and/or government policy. The key Referral Authority with respect to the clearing/removal of native vegetation is the Department of Sustainability and Environment (DSE), which means that DSE becomes the decision maker regarding the granting of a permit in many instances. Other Referral Authorities could include the Department of Planning and Community Development, the Department of Primary Industries, the Catchment Management Authorities, Melbourne Water, and the Rural Water Authorities.

Given the Government’s policy objective of a net gain in native vegetation, a frequently applied condition to permits to clear native vegetation relate to an obligation of the landholder to make reparation, or offset, the loss of native vegetation from clearing. It is expected that the offset will achieve the regulatory requirement of “no-net-loss” and be equivalent in terms of the quality and quantity of native vegetation destroyed (this equivalence is measured in terms of a scoring system known as habitat hectares).

4.2.2

Purchase of Ecosystem Services from Freehold Landholders and Support for Voluntary Restoration Actions

The actions of the Victorian Government in purchasing of ecosystem services from freehold landholders, and providing support for voluntary restoration action by landholders and community groups, are directed at achieving the net-gain objective articulated in its 2002 native vegetation framework. A major initiative of the Government was the development of a market-based approach to the purchase of ecosystem services from freehold landholders, known as BushTender. In essence, BushTender involves the specification by the Department of Sustainability and Environment of the native vegetation outcomes that would contribute to a net gain and providing the opportunity to landholders to bid how much they would be willing to accept to undertake the required restoration activities. A number of trials have been conducted, with most prices to undertake the required restoration being in the range of $2,500 and $3,500 per hectare (in NPV terms).

Support for the voluntary restoration actions is provided in a number of ways including through the activities of the Catchment Management Councils and under the umbrella of local Landcare Groups.

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Frequently these actions are supported financially through funds provided by both the Commonwealth and Victorian Governments, which augment the “in-kind” contributions of local landholders and community members. However, there are many examples of where landholders have taken action to improve the condition of native vegetation on their properties without any support from other parties.

4.2.3

Securing Our Natural Future

In December 2009, the Victorian Government released its Land and Biodiversity White Paper, entitled Securing Our Natural Future, which has the potential to significantly influence the future management of native vegetation in Victoria and the achievement of the objectives of Habitat 141. The vision articulated for managing Victoria’s environment is: “Victorians acting together to ensure that our land, water and biodiversity are healthy, resilient and productive.”

The White Paper articulates a number of outcomes and associated actions and policies which will be implemented to achieve those outcomes. Of particular relevance to Habitat 141 is the new framework for action proposed by the Government and which consists of three main elements, namely: • to build ecosystem resilience across Victorian landscapes; • to focus attention on landscapes that provide the people of Victoria with important ecosystem services; and • to improve connectivity within important landscapes identified as biolinks.

With respect to the third element, Habitat 141 is referred to as “a green artery connects states”. It is used a case study to illustrate how aspects of the new framework could apply (DSE, 2009, page 15).

4.3

Community Groups and Philanthropy

As illustrated particularly by Landcare, there has been extensive involvement of landholders and community organisations/groups in undertaking cooperative actions to achieve improvements in conservation and native vegetation outcomes at the landscape scale within particular regions/catchment. Although frequently supported by funding contributions from governments, this cooperative action is dependent largely on the contributions of many individuals in terms of time, equipment and funds. Another example in the absence of a formal mechanism is the development of voluntary carbon offset schemes though which the restoration of native vegetation can be supported.

Philanthropy is frequently a source of funds. Given the importance of such funds, and with reference to the influence of the taxation incentives faced by individuals, once again there is a need for the taxation system to treat the contributions by philanthropists in a neutral way regardless of the purpose for which their contributions are made.

The significance of the contributions of individual landholders, community groups and philanthropists is recognised in both the consultation draft of Australia’s Native Vegetation Framework and the Securing Our Natural Future White Paper of the Victorian Government. As stated in the consultation draft, native vegetation management actions “can be undertaken at a range of scales” and “every Australian has a role to play in implementing Australia’s Native Vegetation Framework”. The same sentiments are captured in the Vision expressed in Securing Our Natural Future noted above.

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Framework for Assessing the Regional Economic Impact of Large-Scale Habitat Restoration

5

As noted in Section 2.2.1, the assessment of the impact on regional employment and income of undertaking habitat restoration was undertaken in two stages, with each stage involving the construction of a spreadsheet model. For Stage 1, the objective was to determine, on a per hectare bases for each of the three zones, the expenditures and revenues associated with: • existing agricultural land uses; and • undertaking restoration activities on land that is currently used for agriculture and, hence, of converting the use of that land to native vegetation.

The change in expenditures and revenues between these two land-use situations was then used to determine the likely impact on regional employment and income.

With respect to Stage 2, the objective was to combine the information about the per hectare changes in expenditure and revenue with the timing, type and area of potential restoration activity in order to estimate the overall impact of large-scale habitat restoration on regional employment and income.

This was done for each zone individually and for all zones collectively.

The models for both Stage 1 and Stage 2 were developed to enable adjustments to be made to a number of model inputs. For example, both models use a 5 per cent discount rate but this could be changed readily to another rate such as 3 per cent. Similarly, the 30 year investment assessment period could be changed to be another period. Other adjustments could also be readily made with respect to the type of existing agricultural land use that would be displaced, the nature of restoration undertaken, the area of land restored, the time of restoration, the carbon yield and the price received for carbon. These later adjustments could be made on a zone by zone basis and for different time periods over the selected assessment period.

More detail about the models developed for each stage, together with information about the inputs and assumptions in order to run the models are discussed in the next two sections. A discussion on the treatment and estimation of the financial investment required to achieve large-scale habitat restoration is then presented.

5.1

Stage 1: Estimating the Per Hectare Impact of Land-use Change for Habitat Restoration on Expenditure, Revenue and Employment

To estimate the impact of land-use change on expenditures and revenues involved obtaining details of the annual expenditures and revenues for existing agricultural enterprises and the equivalent details for proposed habitat restoration activities and the restored habitat. The different types of expenditure (delivered to property) for which data sought was sought for existing agricultural enterprises and for undertaking restoration activities for Zone 2 associated with the three selected sites of Nurcong, MECU and the French Property are shown in Table 5-1. With respect to plant and equipment, this was assumed to be owned and operated by the land holder for existing agricultural enterprises and to be hired for habitat restoration purposes as it is only needed once. Revenue data on a per hectare basis was also obtained for these selected sites.

The expenditure and revenue for existing agricultural enterprises for the sites was supplemented by data on the expenditure incurred by a local landholder associated with his grazing for wool production enterprise, within Zone 2.

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As noted in Section 2.3, the main source of expenditure and revenue data for existing agriculture enterprises in Zones 1 and 2 were based on the annual ABARE agricultural reports for Lamb Production (ABARE A) and, for Zone 3, ABARE agricultural reports for Copping (ABARE B), respectively, for land likely to be used for restoration purposes. For Zone 2, this data was adjusted based on information provided for actual enterprises obtained from Greening Australia, local landholders and a local Landcare Group. Concerning expenditures for restoration this was based on the expenditures being incurred at the three selected sites in Zone 2; separate expenditure data was not sought Zones 1 and 3.

Table 5-1

Expenditure Categories for Zone 2: Existing Agricultural Enterprises and Restoration Activities

Existing Agricultural Enterprises

Restoration Activities

Plant and equipment (landholder owned and operated)

Plant hire Equipment (includes fuel/oil) Operator labour

Fuel/oil

Fuel/oil

Fertilizer

Fertilizer

Seed

Seed/seedlings

Herbicides and pesticides

Herbicides and pesticides

Veterinary

Fencing (Initial capital expenditure)

Fencing: repairs and maintenance

Fencing: repairs and maintenance

Machinery: repairs and maintenance

Vehicle: repairs and maintenance

Contract labour

Other contract labour

Own labour

Own labour

Professional services Legal Accountant

Professional services Legal Accountant Monitoring/certification

Rates

Rates

Other

Other Technical advice Ecological advice

Once existing annual per hectare expenditures and revenues had been determined, a model was developed to allow these revenues and expenditures over 30 years to be discounted and compared in NPV terms. All revenues and expenditures were expressed in 2010 dollars and discounted at a real rate of 5 per cent per annum.

In addition to identifying the revenues and expenditures, the likely employment impacts were identified. These were based on the levels of expenditure associated with each type of agricultural enterprise. The employment impact comprised both on farm labour (direct) and estimates of the labour requirement of off-farm suppliers based on state-wide intensity measures of employment by industry type.

Further indicative analysis of the multiplier impacts of the activity in the region were estimated at this stage based on assumptions about whether the expenditure on inputs were from local suppliers or

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from suppliers located outside the study LGAs. In doing so, a broad indicator of the possible flow-on benefits related to expenditures from agriculture and restoration activities is provided.

5.1.1

Stage 1 Model Inputs and Assumptions

In order to operate the model developed to derive estimates of the per hectare impact of land use change on expenditures, revenue and employment, there was a need to make a number of assumptions. As noted above, a key assumption was that the cost of restoration would be the same in each zone and that the per hectare cost of restoration for the three select sites in Zone 2 (Nurcong, MECU and the French Property) would also apply throughout the study area. Other key assumptions made were: • the share of off-farm purchases of goods and services made in the same local government area was assumed to be 75 per cent for both current agriculture and restoration cases in each zone except for labour; • the predominant agricultural enterprise in Zone 1 is fat lamb production area; • the predominant agricultural enterprise in Zone 2 is mixed grazing and cropping • the predominant agricultural enterprise in Zone 3 is cropping; • the value of a farmer’s own labour was equal to that of a plant operator; and • the number of jobs per $1m expenditure for each of the industry groups which supplied goods and services to farms was equal to the Victorian average as of June 2009.

5.2

Stage 2: Estimating the Impact of Large-scale Habitat Restoration on Regional Employment and Income

Stage 2 involved the development of a model to allow for a gradual roll out of the restoration projects over a period of 30 years and to provide for an analysis of the benefits over this period in discounted flow terms. The same roll-out period was used for each of the Zones 1, 2 and 3.

A detailed potential roll-out schedule for the implementation of restoration was provided by Greening Australia, with the same schedule applying to each of the three Habitat 141 zones. The roll-out schedule is shown in Table 5-2. It includes six, five year periods, with less restoration scheduled for the first and last five year periods than during the middle four periods.

The total area to be restored was also split into types of restoration activity in terms of the primary purpose or restoration outcomes. As defined in Section 2.2.2, these outcomes were: 1. Carbon storage.

2. Biodiversity.

3. Landcare The total area to be restored for each of these restoration outcomes for each of the three zones is presented in Table 5-3 for Scenario 1: Greening Australia Targets. For this scenario, a total of area of 254,650 hectares would be subject to land use change from agricultural production to native vegetation for the three zones over the 30 year period.

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Table 5-2

Habitat restoration roll-out schedule for Zones 1, 2, and 3 under Scenario 1

Five year period

Period 1

Period 2

Period 3

Period 4

Period 5

Period 6

(Years)

(1-5)

(6-10)

(11-15)

(16-20)

(21-25)

(26-30)

Annual roll out rate

1%

4.8%

5%

4.4%

3.4%

1.4%

Share total restoration area

5%

24%

25%

22%

17%

7%

Area to be restored Zone 1

4,259 ha

20,442 ha

21,293 ha

18,738 ha

14,479 ha

5,962 ha

Area to be restored Zone 2

4,324 ha

20,754 ha

21,619 ha

19,025 ha

14,701 ha

6,053 ha

Area to be restored Zone 3

4,150 ha

19,920 ha

20,750 ha

18,260 ha

14,110 ha

5,810 ha

Total area to be restored (Annual restoration rate)

12,733 ha (2,546ha)

61,116 ha (12,223 ha)

63,662 ha (12,732 ha)

56,023 ha (11,205 ha)

43,290 ha (8,658 ha)

17,825 ha (3,565 ha)

Table 5-3

Primary restoration purposes for Zones 1, 2, and 3 over 30 years under Scenario 1

Restoration purpose

Zone 1

Zone 2

(ha)

(ha)

(ha)

(ha)

Carbon storage

65,000

50,391

35,000

150,391

Biodiversity

5,100

26,596

30,000

61,696

Landcare

15,073

9,490

18,000

42,563

Total

85,173,

86,477

83,000

254,650

Zone 3

TOTAL

The land-use changes that would occur under the above roll-out schedule, if implemented, will drive the impact which large-scale habitat restoration would have on regional employment and income over the 30 year assessment period. Combined the schedule identifies the area of agricultural land which will be taken out of commercial production and when that will occur. It also identifies the types of restoration that will occur and the potential revenue that will be received.

At this stage, the only restoration that is expected to give rise to a revenue stream is carbon storage for which a price of $25 per tonne is assumed.5 No benefits from carbon storage from habitat restoration undertaken for landcare and biodiversity purposes are included and, hence, there is no potential revenue stream which could have an ongoing impact on regional income and employment.

In the case of landcare restoration, which is generally government funded, the offsets generated are counted towards national emissions reduction targets. If the carbon stored were priced, this would have the effect of double counting of offsets. The non-priced benefits associated with restored native vegetation are discussed further in Section 7.

The amount of carbon stored was calculated per hectare, per annum as determined by the storage potential of different types of vegetation proposed to be restored. Details about the potential carbon storage capacity associated with the proposed restoration in each of the three zones were provided by Greening Australia Greening Australia based on adjustments to the NCAT (refer to 2.3). Carbon has only been counted from areas targeted for carbon storage restoration.

5

This price is consistent with the prices projected by the Australian Treasury in its report on the Economics of Climate Change Mitigation prepared in 2008 (refer to page 19). For example, the prices for the medium term at 2020 ranged from $35 per tonne (real in $2008) for a 5 per cent reduction in emissions under the proposed Carbon Pollution Reduction Scheme to $50 per tonne (real) for a 15 per cent emissions reduction. Furthermore, prices are expected to rise over this time with the respective (real) prices at 2050 projected at $115 and $158 per tonne under these two scenarios.

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In Zone 2, there is a large area targeted to be restored with Bulokes (Allocasuarina luehmannii). This is a very slow growing woodland tree, which is considered to store negligible carbon.

Therefore, the area targeted for restoration with Bulokes has been classified as being for the purpose of biodiversity restoration. According to the targets provided by Greening Australia in Zone 2, 21,596 hectares is projected to be restored with Bulokes.

The estimates of the amount of carbon that would be stored in each of the six, five year period for Zones 1, 2 and 3 are shown in Table 5-4. Based on the habitat restoration proposed under Scenario 1 (counting only the carbon stored from carbon storage plantings), a total of 17.8 million tonnes of additional carbon is stored in the three zones over the 30 year period.

Table 5-4

Projected carbon storage from habitat restoration for Zones 1, 2, and 3 under Scenario 1

Five year period

(Years)

1

2

3

4

5

6

Total

(1-5)

(6-10)

(11-15)

(16-20)

(21-25)

(26-30)

Zone 1 (tonnes CO2)

29,748

303,709

1,182,360

2,405,129

3,316,327

3,733,034

10,970,307

Zone 2 (tonnes CO2)

12,272

126,112

494,926

1,014,423

1,402,553

1,581,863

4,632,149

Zone 3 (tonnes CO2)

6,580

63,737

240,298

488,268

673,159

757,489

2,229,531

Total (tonnes CO2)

48,601

493,558

1,917,585

3,907,820

5,392,040

6,072,386

17,831,990

To estimate the impact of large-scale habitat restoration on regional employment and income, the model for Stage 2 was developed to combine the per hectare expenditure and revenue data derived in Stage 1 with the per hectare expenditure and revenue data for the three zones associated with the timing, type and area of restoration that would occur in each zone. All inputs were on a per annum basis in 2010 dollars and discounted at 5 per cent real to derive NPVs.

5.2.1

Stage 2 Model Inputs and Assumptions

As for the Stage 1 Model, a number of assumptions were made in order to estimate the impact of large-scale land-use change on regional employment and income. In addition to using the per hectare expenditures and revenues from Stage 1, the target areas for restoration each year for different restoration purposes (refer to Table 5-3), and the use of the price for carbon of $25 per tonne, the key assumptions were: • the use of land for carbon storage and biodiversity restoration results in an immediate removal of that land from agricultural production; • agricultural revenue from land restored for landcare purposes is reduced by 5 per cent in Zone 3 due to the significance of cropping in this zone — no allowance is made for loss of agricultural production in Zones 1 and 2 where grazing dominates. This was due to the potential benefits to livestock from shelter belts and the ability to restore land, such as riparian zones, which are not likely to impact on existing grazing enterprises; • revenue from the sale of carbon is only received from restoration undertaken for carbon storage (there could, however, be carbon stored under some biodiversity plantings which could be traded); • the costs of restoration for landcare purposes is 60 per cent of the cost of restoration for carbon storage:

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• the cost of restoring areas for high quality biodiversity is 165 per cent the cost of restoring areas for carbon storage; and • the cost of restoring Buloke in Zone 2 is the same as for carbon storage.

5.2.2

Scenario and Sensitivity Analyses

As outlined in Section 2.2.4, a number of scenarios were analysed to gain a better appreciation of the potential impact of large-scale habitat restoration on regional employment and income. The scenarios involved changes in the area to be restored relative to Scenario 1 and the type of restoration undertaken namely for carbon storage purposes only.

The scenarios were: • Scenario 1: Greening Australia Targets involving the restoration of 254,650 hectares over 30 years and the storage of 17.8 million tonnes of carbon; • Scenario 2: Greening Australia Targets plus 20 per cent under which a total of 305,580 hectares would be restored and 21.4 million tonnes of carbon stored; • Scenario 3: Greening Australia Targets minus 20 per cent under which a total of 203,720 hectares would be restored and 14.3 million tonnes of carbon stored; and • Scenario 4: Carbon Storage under which only the area identified by Greening Australia for carbon storage would be restored, namely 150,391 hectares and 17.8 million tonnes of carbon stored.

Because averages were used to derive estimates of expenditures and revenues, sensitivity analyses were not undertaken for different potential ranges as these are already factored into the averages. In essence, the averages derived were considered “best estimates” of likely expenditures and revenues.

Breakeven analyses were undertaken for Scenario 1 and Scenario 4 with respect to the price of carbon stored, whilst sensitivity analyses were undertaken for the first three scenarios regarding removing the assumption that there would be no loss of agricultural production from landcare restoration in Zones 1 and 2. The impact of using a 3 per cent real discount rate instead of 5 per cent was also assessed for Scenario 1.

5.3

Estimating the Financial Investment Required to Undertake Large-Scale Habitat Restoration

As stated in 2.1, funds are required to gain access to a significant area of the land, such as through the purchase of freehold title or permanent lease, in order to secure a change in land use from agriculture to native vegetation. Accordingly, the funds that could be required for these purposes under the above four Scenarios, in each of the six, five year period, was calculated and expressed in NPV terms.

The prices paid per hectare for access to the three selected sites of Nurcong and MECU were used as a guide to the price that would need to be paid for access in all three zones. In estimating the funds required, it was assumed that this would be through the purchase of freehold title and that, for landcare restoration, there was no need to secure assess. A reason for using access by land purchase was the availability of reliable market price information. Such information is not available for permanent lease arrangements as the market for such arrangements has yet to be established. Even if such a market were to be established, there is likely to be very little difference between the cost by

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freehold compared with permanent lease because both will be informed by the same potential income from the land is used for either agriculture or native vegetation.

The funds required for restoration purposes were derived from the analysis undertaken in Stage 2. It is assumed that the outlays to gain access and to undertake restoration all occur within the relevant roll-out period.

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6

6

Findings: Implications for Regional Economic Activity

6.1

Stage 1: The Impact of Land-use Change for Habitat Restoration on Expenditure, Revenue and Employment

Presented in Table 6-1 are the per hectare expenditure results for agriculture and habitat restoration for each of the three zones and types of restoration. Also shown is the estimated revenue per hectare from existing agriculture as contained in the data sources presented in Section 2.3. The equivalent information for the three selected sites of Nurcong, MECU and the French Property is presented in Table 6-2 and which is representative of the situation for more marginal agricultural land. All results are presented in 2010 dollars.

Table 6-1

Zone

Yearly $ per hectare revenues and expenditures for agriculture and habitat restoration (2010$) Agriculture

Restoration expenditure (Habitat revegetation)

Revenue

Expenditure

Restoration

Establishment

Consolidation

($/ha/yr)

($/ha/yr)

(Yrs 1&2, $/ha/yr)

(Yrs 3-5, $/ha/yr)

(Yrs 6+, $/ha/yr)

1

162

79

858

204

49

2

141

107

858

204

49

3

200

155

858

204

49

Table 6-2

Site

Yearly $ per hectare revenues and expenditures for agriculture and habitat restoration (2010$) – Nurcong, MECU and the French Property Agriculture Revenue

Restoration expenditure (Habitat revegetation) Expenditure

Restoration

Establishment

Consolidation

($/ha/yr)

($/ha/yr)

(Yrs 1&2, $/ha/yr)

(Yrs 3-5, $/ha/yr)

(Yrs 6+, $/ha/yr)

Nurcong

58

41

868

153

48

MECU

46

41

410

51

47

French Property

37

31

1220

279

52

Based on the data presented in Table 6-1 and Table 6-2, the expenditure per hectare on habitat restoration is significantly greater than the expenditure that would have been incurred for agriculture during the restoration and establishment phases, namely the first five years. By contrast, expenditure during the consolidation phase from year six is less than that which would have occurred with agriculture, particularly in Zone 3 due to the higher purchased inputs associated with cropping. Such expenditure would be mainly for ongoing protection of the native vegetation from grazing and pest and weed management. However, for Zone 1, restoration expenditure during the consolidation phase remains at around 60 per cent of the expenditure that would have occurred under the predominant grazing enterprises within this zone.

Presented in Table 6-3 are the results of using the regional Input-Output matrix developed for Victoria and the Glenelg, Horsham and West Wimmera and Hindmarsh LGAs (refer to Section 2.2) to estimate the impact on regional labour per hectare due to the different expenditures on inputs associated with agriculture and habitat restoration; this matrix consists of a series of relationships between the inputs and outputs of different economic activities within the various sectors of the Victorian economy. They

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are expressed in terms of full-time equivalents (FTEs) per hectare for both direct farm (enterprise) labour and indirect labour associated with provision of goods and services to the enterprises by nonfarm enterprises. More details about the Input-Output matrix are presented in Appendix A. Table 6-3

Zone

Direct and indirect employment impacts of agriculture and habitat restoration for Zones 1, 2 and 3 – FTE per hectare Agriculture (FTE/ha)

Habitat restoration (FTE/ha)

Direct

Restoration

Establishment

Consolidation

Direct

Indirect

Direct

Indirect

Direct

Indirect

Indirect

1

0.0004

0.0002

0.0037

0.0015

0.0003

0.0002

0.0002

0.00005

2

0.0004

0.0003

0.0032

0.0013

0.0007

0.0001

0.0004

0.00004

3

0.0002

0.0002

0.0037

0.0015

0.0003

0.0002

0.0002

0.0001

6.2

Stage 2: The Impact of Large-scale Habitat Restoration on Regional Employment and Income

Presented in Table 6-4 is a summary of the impact of large-scale habitat restoration on regional employment and income for Zones 1, 2, and 3 and in total for the study area of Habitat 141. The impact has been determined by using the per hectare data generated during under Stage 1. Overall, the impact is driven by: • the area of land to be restored (refer to Table 5-2); • the type of agricultural production displaced (refer to Section 3.4 and Table 3-1); and • the type of restoration undertaken, combined with the projected quantity and value of carbon to be stored (refer to Table 5-4).

As the analysis is concerned with differences in expenditures and revenues from different land uses on the same land, no allowance is made for cost of land (refer to Section 2.1.1). The cost of land is considered in Section 6.4 in determining the funds required to effect a land-use change from agriculture to native vegetation.

6.2.1

Regional Income

The results presented in Table 6-4 are for Scenario 1 and the restoration of 254,650 hectares of land within Zones 1, 2, 3. The results indicate that overall there would be a loss in the NPV of regional income of $236 million over the 30 year period.

This loss consists of the $26 million by which the costs of restoration exceeds the projected revenue from native vegetation plus the $210 million net revenue that would have been received from continued agricultural production if it had not been displaced through restoration for native vegetation.

Such a loss would represent a decline of less than 0.5 per cent in the estimate of $54.8 billion (refer to Section 3.3.1) for the NPV of the value added by agriculture to gross regional income for the study area.

Presented respectively in Table 6-5 and Table 6-6 are the results for the Scenario 2 (305,580 ha) and Scenario 3 (203,720 ha).

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Table 6-4

Projected impact of Scenario 1 on regional income for Zones1, 2, and 3 (NPV 2010$) Zone 1

Zone 2

Zone 3

Habitat 141

Habitat Restoration

(85,173) ha

(86,477) ha

(83,000) ha

(254,650) ha

Gross revenues from carbon storage and ongoing agriculture1

$233m

$164m

$192m

$589m

Expenditure on restoration and ongoing agriculture1

$170m

$203m

$243m

$616m

Net revenue from restoration and ongoing agriculture1

$64m

-$39m

-$51m

-$26m

Gross revenue from agriculture displaced2

$212m

$187m

$255m

$654m

Expenditure on agriculture displaced2

$104m

$142m

$198m

$443m

$108m

$45m

$57m

$210m

-$44m

-$84m

-$108m

-$236m

Agriculture

2

Net revenue from displaced agriculture Combined Impact Change in net regional income3 1

Refers to ongoing agricultural activities on land which will ultimately be restored but where restoration is still to occur and the land continues to be used for agriculture in the meantime.

2

Refers to the agriculture activity (or business-as-usual) that is displaced as the land is progressively restored over the 30 year period.

3

The change in net regional income is the difference between the net income from restoration and ongoing agriculture and the net income from displaced agriculture.

In order to breakeven under Scenario 1, the price of carbon would have to increase by $37.80 per tonne from the assumed price of $25 to $62.80 per tonne of carbon stored — this price was estimated by running different carbon price iterations until the net change in regional income was zero. In making this comparison, no account is taken of the potential unquantified benefits of large scale habitat restoration for biodiversity and landcare restoration purposes. A price of $62.80 is also within the range of potential future carbon prices modelled by the Australian Treasury (refer to Footnote 5).

Table 6-5

Projected impact of Scenario 2 on regional income for Zones1, 2, and 3 (NPV 2010$) Zone 1

Zone 2

Zone 3

Habitat 141

Habitat Restoration

(102,208) ha

(103,772) ha

(99,600 ha)

(305,580 ha)

Gross revenues from carbon storage and ongoing agriculture1

$280m

$197m

$230m

$707m

Expenditure on restoration and ongoing agriculture1

$203m

$243m

$292m

$738m

Net revenue from restoration and ongoing agriculture

$77m

-$46m

-$62m

-$31m

$254m

$225m

$306m

$785m

$125m

$170m

$237m

$532m

$129m

$55m

$69m

$254m

-$53m

-$102m

-$131m

-$285m

Agriculture Gross revenue from agriculture displaced2 2

Expenditure on agriculture displaced

2

Net revenue from displaced agriculture Combined Impact Change in net regional income3 1, 2, 3

Refer to the explanations provided in the notes to Table 6-4.

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Table 6-6

Projected impact of Scenario 3 on regional income for Zones1, 2, and 3 (NPV 2010$) Zone 1

Zone 2

Zone 3

Habitat 141

Habitat Restoration

(68,138 ha)

(69,182 ha)

(66,400 ha)

(203,720 ha)

Gross revenues from carbon storage and ongoing agriculture1

$187m

$131m

$153m

$471m

Expenditure on restoration and ongoing agriculture1

$136m

$162m

$194m

$492m

Net revenue from restoration and ongoing agriculture

$51m

-$31m

-$41m

-$21m

Gross revenue from agriculture displaced2

$169m

$150m

$204m

$523m

Expenditure on agriculture displaced2

$83m

$113m

$158m

$354m

$86m

$37m

$46m

$169m

-$35m

-$68m

-$87m

-$190m

Agriculture

2

Net revenue from displaced agriculture Combined Impact Change in net regional income3 1, 2, 3

Refer to explanation provided in notes to Table 6-4.

Under Scenario 2, 21.4 million tonnes of carbon would be restored and 14.3 million tonnes for Scenario 3.

6.2.2

Employment

The impact of large-scale habitat restoration on regional employment is driven largely by differences in the direct labour inputs for agriculture compared with restoration and the indirect labour associated with non-farm inputs. The indirect labour requirements for both land uses are driven by expenditure on purchased inputs. Given the area to be restored, and the proposed restoration to be undertaken and agricultural enterprises displaced, the labour requirements associated with agriculture and restoration for the different scenarios are presented in Table 6-7.

Table 6-7

Regional employment impacts of agriculture and habitat restoration for Zones 1, 2, and 3 – FTE per annum

Zone

Restoration

Displaced agriculture

Increase in jobs from restoration

1

33

24

9

2

42

36

6

Scenario 1 (254,650 ha)

3

34

12

22

Habitat 141

109

72

37

1

40

29

11

2

51

43

8

3

41

14

27

Habitat 141

132

86

46

27

19

8

Scenario 2 (305,580 ha)

Scenario 3 (203,720 ha) 1

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Zone

Restoration

Displaced agriculture

Increase in jobs from restoration

2

34

29

5

3

28

10

18

Habitat 141

89

58

31

Overall, the results indicate that the undertaking of habitat restoration will have a positive impact on regional employment. This is because restoration is more labour intensive, particularly relative to cropping in Zones 2 and 3, and expenditure on purchased inputs is higher.

6.3

Sensitivity Analyses

6.3.1

3 per cent Real Discount Rate

If for Scenario 1, a 3 per cent discount rate were applied instead of 5 per cent, the overall impact is to increase the reduction in regional income from negative $236 million to negative $303 million. This increase arises mainly because the lower discount rate increases the present value of revenue from forgone agricultural production and of the expenditure on restoration which is greater than that for agriculture.

6.3.2

Restoration for Carbon Storage Purposes Only: Breakeven Analysis

Given the expected situation that a revenue stream from large-scale habitat restoration would most likely only arise from carbon storage, a further scenario was modelled where restoration is only undertaken for this purpose; that is, there would be no restoration undertaken solely for biodiversity or landcare purposes. Under this scenario, 17.8 million tonnes of carbon would be restored, the same as for Scenario 1. The results for Scenario 4 are presented in Table 6-8.

Table 6-8

Projected impact of large-scale restoration for Scenario 4 on regional income for Zones1, 2, and 3 (NPV 2010$) Zone 1

Zone 2

Zone 3

Habitat 141

Habitat Restoration for Carbon Storage

(65,000 ha)

(50,391 ha)

(35,000 ha)

(150,391 ha)

Gross revenues from carbon storage and ongoing agriculture1

$196m

$108m

$86m

$390m

Expenditure on restoration and ongoing agriculture1

$132m

$115m

$96m

$343m

Net revenue from restoration and ongoing agriculture1

$64m

-$7m

-$10m

$47m

$162m

$109m

$108m

$379m

$79m

$82m

$83m

$244m

$83m

$27m

$25m

$135m

-$19m

-$34m

-$35m

-$88m

Agriculture Gross revenue from agriculture displaced2 2

Expenditure on agriculture displaced

2

Net revenue from displaced agriculture Combined Impact Change in net regional income3 1, 2, 3

Refer to explanation provided in notes to Table 6-4.

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In order to breakeven (that is, no change in net regional income) the price of carbon would have to increase by about $14 per tonne from a price of $25 to around $39 per tonne. Once again this is well within the range of potential future carbon prices modelled by the Australian Treasury (refer to Footnote 5).

The impact on employment for this scenario is presented in Table 6-9. As for the other scenarios modelled (refer to Table 6-7), there is a positive impact on regional employment from restoration compared with agriculture.

Table 6-9

Regional employment impacts of agriculture and habitat restoration for Scenario 4 – FTE per annum

Zone

Restoration

Displaced agriculture

Change

Carbon storage only (159,391 ha) 1

31

20

11

2

28

20

8

3

17

7

10

Habitat 141

76

47

29

6.3.3

Relaxation of Assumption of No Loss of Agricultural Production from Landcare Restoration in Zones 1 and 2

The Stage 2 Model was also run to assess the impact of replacing the assumption that there would be no loss of agriculture production from the undertaking of landcare restoration in Zones 1 and 2 with an assumption that there would be a five per cent reduction, the same as for Zone 3 (refer to Section 5.2.1). The results obtained indicated that there would be a very small loss in gross revenue from ongoing agriculture for all three scenarios modelled. There was no discernible impact on regional employment between the two scenarios.

6.4

Financial Investment Required to Undertake Large-scale Habitat Restoration

Presented in Table 6-10 though to Table 6-13 are details of the area to be restored and of the funds required to gain access to land and to undertake restoration activities. A summary of the information contained in these tables is presented in Table 6-14. With respect to Scenario 1 for example, the total funds required are estimated at $446.7 million (NPV) of which $333 million (75 per cent) is for restoration and $113.8 million (25 per cent) for access to land.

In terms of access to land in order to effect the land-use change required for restoration this is assumed to be through the purchase of freehold title. A reason for doing so is the availability of information about the market price for agricultural land (refer to Section 5.3). However, in using this approach, it is recognised that this may overestimate the funds required to achieve the required change in land use compared with, for example, permanent lease arrangements as illustrated by the French Property or through Bush Tender type arrangements. It should also be recognised that the land which is restored for landcare purposes is generally made available by landholders without payment, hence no allowance has been made for gaining access to land for landcare restoration.

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In addition, there is a need to recognise that the restored land constitutes an asset which could be sold in the future. Hence, in terms of the incentives to invest and funds required, the potential value of the land should be considered in determining the net-worth position of the landholder/investor.

Table 6-10

Funds required for Scenario 1 over 30 years (254,650 hectares)

Period

1

2

3

4

5

6

(Years) Zone 1

(1-5)

(6-10)

(11-15)

(16-20)

(21-25)

(26-30)

Total

Area to be restored (ha)

4,259

20,442

21,293

18,738

14,479

5,962

85,173

NPV cost of access ($m)

5.0

18.8

15.3

10.6

6.4

1.7

57.8

NPV restoration costs ($m)

6.2

25.6

27.3

21.9

15.9

7.6

104.5

NPV total investment ($ m)

11.2

44.4

42.7

32.5

22.3

9.3

162.3

Area to be restored (ha)

4,324

20,754

21,619

19,025

14,701

6,053

86,477

NPV cost of access ($m)

2.3

8.6

7.1

4.9

2.9

0.8

26.6

NPV restoration costs ($m)

6.5

26.5

28.2

22.6

16.4

7.9

108.1

NPV total investment ($ m)

8.8

35.2

35.3

27.5

19.3

8.6

134.7

Area to be restored (ha)

4,150

19,920

20,750

18,260

14,110

5,810

83,000

NPV cost of access ($m)

2.5

9.6

7.8

5.4

3.3

0.9

29.4

NPV restoration costs ($m)

6.8

29.6

31.6

25.3

18.3

8.8

120.4

NPV total investment ($ m)

8.2

34.7

35.8

28.2

20.1

9.3

136.3

Total restoration area (ha)

12,733

61,116

63,663

56,023

43,291

17,826

254,650

NPV total investment

$29.4m

$118.7m

$117.3m

$90.6m

$63.2m

$27.6m

$446.7m

Zone 2

Zone 3

All zones

Table 6-11

Funds required for Scenario 2 over 30 years (305,580 hectares)

Period

1

2

3

4

5

6

Total

(Years) Zone 1

(1-5)

(6-10)

(11-15)

(16-20)

(21-25)

(26-30)

Area to be restored (ha)

5110

24,530

25,552

22,486

17,375

7,155

102,208

NPV cost of access ($m)

6.0

22.6

18.4

12.7

7.7

2.0

69.4

NPV restoration costs ($m)

7.4

30.7

32.8

26.2

19.0

9.1

125.3

NPV total investment ($ m)

13.4

53.3

51.2

38.9

26.7

11.2

194.7

5,189 2.8

24,905 10.4

25,943 8.5

22,830 5.8

17,641 3.5

7,264 0.9

103,772 31.9

Zone 2 Area to be restored (ha) NPV cost of access ($m) NPV restoration costs ($m)

7.8

31.8

33.9

27.1

19.7

9.4

129.7

NPV total investment ($ m)

10.5

42.2

42.3

33.0

23.2

10.4

161.6

4,980

23,904

24,900

21,912

16,932

6,972

99,600

Zone 3 Area to be restored (ha) NPV cost of access ($m)

3.1

11.5

9.4

6.5

3.9

1.0

35.3

NPV restoration costs ($m)

8.2

35.5

37.9

30.3

22.0

10.6

144.5

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Period

1

2

3

4

5

6

Total

(Years) NPV total investment ($ m)

(1-5) 11.3

(6-10) 47.0

(11-15) 47.3

(16-20) 36.8

(21-25) 25.9

(26-30) 11.6

Total restoration area (ha)

15,149

73,339

76,395

67,228

51,949

21,391

305,580

NPV total investment

$35.3m

$142.4m

$140.8m

$108.7m

$75.8m

$33.1m

$536.1m

179.8

All zones

Table 6-12

Funds required for Scenario 3 over 30 years (203,720 hectares)

Period

1

2

3

4

5

6

(Years) Zone 1

(1-5)

(6-10)

(11-15)

(16-20)

(21-25)

(26-30)

Area to be restored (ha)

3,407

16,353

17,035

14,990

11,583

4,770

68,138

NPV cost of access ($m)

4.0

15.0

12.3

8.5

5.1

1.4

46.3

NPV restoration costs ($m)

5.0

20.5

21.9

17.5

12.7

6.1

83.6

NPV total investment ($ m)

9.0

35.5

34.1

26.0

17.8

7.4

129.8

Area to be restored (ha)

3,459

16,604

17,296

15,220

11,761

4,843

69,182

NPV cost of access ($m)

1.8

6.9

5.6

3.9

2.4

0.6

21.3

NPV restoration costs ($m)

5.2

21.2

22.6

18.1

13.1

6.3

86.5

NPV total investment ($ m)

7.0

28.1

28.2

22.0

15.5

6.9

107.7

Area to be restored (ha)

3,320

15,936

16,600

14,608

11,288

4,648

66,400

NPV cost of access ($m)

2.0

7.6

6.2

4.3

2.6

0.7

23.5

NPV restoration costs ($m)

5.5

23.7

25.3

20.2

14.7

7.0

96.3

NPV total investment ($ m)

7.5

31.3

31.5

24.5

17.3

7.7

119.8

Total restoration area (ha)

10,316

48,893

50,930

44,818

34,632

14,260

203,720

NPV total investment

$23.5m

$95.0m

$93.9m

$72.5m

$50.5m

$22.1m

$357.5m

Total

Zone 2

Zone 3

All zones

Table 6-13

Funds required for Scenario 4 over 30 years (150,391 hectares)

Period

1

2

3

4

5

6

(Years) Zone 1

(1-5)

(6-10)

(11-15)

(16-20)

(21-25)

(26-30)

Total

Area to be restored (ha)

3,250

15,600

16,250

14,300

11,050

4,550

65,000

NPV cost of access ($m)

4.6

17.4

14.2

9.8

5.9

1.6

53.6

NPV restoration costs ($m)

5.0

20.2

21.5

17.2

12.5

6.0

82.4

NPV total investment ($ m)

9.6

37.6

35.8

27.1

18.4

7.6

136.0

Zone 2 Area to be restored (ha)

2,520

12,094

12,598

11,086

8,566

3,527

50,391

NPV cost of access ($m)

1.5

5.7

4.6

3.2

1.9

0.5

17.4

NPV restoration costs ($m)

3.8

15.6

16.7

13.4

9.7

4.7

63.9

NPV total investment ($ m)

5.3

21.3

21.3

16.6

11.6

5.2

81.3

Zone 3

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Period

1

2

3

4

5

6

Total

(Years) Area to be restored (ha)

(1-5) 1,750

(6-10) 8,400

(11-15) 8,750

(16-20) 7,700

(21-25) 5,950

(26-30) 2,450

35,000

NPV cost of access ($m)

1.4

5.1

4.2

2.9

1.8

0.5

15.8

NPV restoration costs ($m)

2.7

10.9

11.6

9.3

6.7

3.2

44.4

NPV total investment ($ m)

4.0

16.0

15.8

12.2

8.5

3.7

60.2

Total restoration area (ha)

7,520

36,094

37,598

33,086

25,566

10,527

150,391

NPV total investment

$19.0m

$74.9m

$72.9m

$55.8m

$38.5m

$16.4m

$277.5m

All zones

Table 6-14 Scenario

Summary: Investment funds required for scenarios over 30 years Area to be restored (ha)

Investment funds (NPV) Restoration

Land Access

Total

Scenario 1

254,650

$333m

$113.8m

$446.7m

Scenario 2

305,580

$399.5m

$136.6m

$536.1m

Scenario 3

203,720

$266.4m

$91.1m

$357.5m

Scenario 4

150,391

$190.7m

$86.8m

$277.5m

The above estimates of the funds required to undertake large-scale habitat restoration for Zones 1, 2, and 3 of Habitat 141 provide a guide to the funds that would be required to undertake additional restoration projects across Victoria. This is because the costs of land access and, in particular, the costs of restoration are not expected to be significantly different on a per hectare basis. However, data are not available about the other major determinants of the funds required, namely the area to be restored and type of restoration to be undertaken, as well as the timing of the restoration.

The generation of such data would require the identification and prioritisation of the areas to be restored and the development of a roll-out schedule to achieve the “targets� established similar to that provided by Greening Australia for Zones 1, 2, and 3. The development of this data would be a significant exercise and outside the scope of this study.

6.4.1

Cost per Tonne of Carbon Sequestered

With reference to Table 6-13, the total investment required to restore 150,391 hectares under Scenario 4 is $277.5 million; 17.8 million tonnes of carbon are estimated to be stored under this scenario. This gives an estimated cost of carbon storage of $15.60 per tonne.

Included in this amount, through the cost of gaining access to land, are the costs of agricultural production forgone in changing land use to native vegetation. However, given that land is an asset, and assuming that after restoration the land will have an equivalent value, the total cost of restoration is $190.7 million if the $86.8 million paid for land access is removed. In this situation, the estimated cost of carbon is around $10.70 per tonne. For Scenario 1, the cost of carbon storage is estimated to be $18.70 per tonne excluding the purchase price of land.

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6.5

Summary

With reference to the different types of economic analyses discussed in Section 2.1, the results presented above relate mainly to regional economic impact assessments and financial analyses. The regional economic impacts, as measured by changes in regional income and employment, are presented in Table 6-4 through to Table 6-9 and the financial analyses in terms of the investment funds required in Table 6-10 to Table 6-14.

Given that the only benefit from habitat restoration included is the potential income from the storage of carbon, the results presented do not constitute a social benefit cost analysis concerning whether the net benefits to Victoria would be greater from the use of an area of land for agriculture compared with the use of the same area of land for native vegetation. Such an analysis would require the inclusion of the unquantified benefits that would accrue from restoration and the resulting change in land use from agriculture to native vegetation. The unquantified benefits associated with large-scale habitat restoration are discussed further in the next section. However, the results presented do provide an insight to how large these benefits would need to be in order to offset the loss of revenue from the agricultural enterprises displaced that are not offset from the income derived from carbon storage.

6.5.1

Regional Economic Impact

With reference to the results obtained for Scenario 1 presented in Table 6-4, large-scale habitat restoration would result in a loss in net regional income of an estimated $236 million (NPV in 2010$), which is less than 1 per cent of the gross value added from agriculture in the three zones over 30 years. For Scenario 4, the loss in net regional income is estimated at $88 million (NPV in 2010$).

The changes in expenditures and revenues associated with the change in land use from agriculture to native vegetation that gave rise to these net changes are summarised in Table 6-15.

Table 6-15

Summary projected regional impact for Scenario 1 and Scenario 4 for Zones1, 2, and 3 Scenario 1

Scenario 4

(254,650 ha restored, 17.8 m tonnes carbon stored)

(150,391 ha restored, 17.8 m tonnes carbon stored)

Expenditure on agriculture displaced2

$443m

$244m

Expenditure on restoration and ongoing agriculture1

$616m

$343m

Net change expenditure

$173m

$99m

Gross revenue from agriculture displaced2

$654m

$379m

Gross revenues from carbon storage and ongoing agriculture1

$589m

$390m

Net change revenue

$65m

$11m

Change in net regional income

$236m

$88m

Increase regional employment from restoration

37 (FTE)

29 (FTE)

Breakeven price for carbon (no change in regional income)

$62.80 per tonne

$39.00 per tonne

3

1, 2, 3

40

Refer to explanation provided in notes to Table 6-4.

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A major reason for the reduction in regional income is the expenditure that would be required to achieve the restoration necessary to secure the biodiversity and conservation outcomes sought through Habitat 141. Compared with the NPV of expenditure for existing agriculture of $443 million under Scenario 1 for example, the expenditure for restoration has an estimated NPV of $616 million.

By contrast, the NPV of gross revenue for agriculture and restoration (based on a carbon price of $25/tonne) are more aligned at $654 million and $589 million respectively for Scenario 1. With respect to gross revenue alone, if the price of carbon were to increase by $10.40 per tonne to $35.40 per tonne, the $65 million difference in gross revenues would be cancelled. Such a price is consistent with the range of carbon prices modelled by the Australian Treasury (refer to Footnote 5).

Given the estimated reduction in regional income of $236 million under Scenario 1, the price of carbon would need to increase by $37.80 per tonne from the assumed price of $25 to $62.80 per tonne in order to break even and for there to be no change in regional income. Under Scenario 4, the price of carbon would have to increase to around $39 per tonne. to break even. These figures, however, do not take into account that the restored land constitutes an asset which could be sold in the future.

The significance of restoration expenditure is also illustrated by the impact of restoration on regional employment. For all scenarios analysed, there is a small positive impact on employment driven by the greater expenditure per hectare on inputs compared to agriculture — respectively 37 and 29 (FTEs) for Scenario 1 and 4. This positive impact will continue for as long as restoration activities are undertaken on a similar scale to that analysed.

6.5.2

Financial Analyses

The expenditure on restoration is the major driver of the funds required to undertake large-scale habitat restoration and exceeds that required to secure access to enable a change in land use from agriculture to native vegetation. The total funds required for Scenarios 1 and 4 are summarised in Table 6-16. Of the estimated $446.7million (NPV) for Scenario 1, $333 million (75 per cent) is for restoration and $113.8 million (25 per cent) for access to land to secure the required land-use change through the purchase of freehold title. Similarly for Scenario 4, the funds required for restoration account for around 69 per cent of the total funds required.

Table 6-16

Summary projected investment funds for Scenario 1 and Scenario 4 for Zones1, 2, and 3 Scenario 1

Scenario 4

(254,650 ha restored, 17.8 m tonnes carbon stored)

(150,391 ha restored, 17.8 m tonnes carbon stored)

$333m

$190.7

Land access funds (NPV)

$113.8m

$86.8

Total Investment funds (NPV)

$446.7m

$277.5m

Net revenue from restoration and 1 ongoing agriculture (NPV)

-$26m

$47m

Value of unquantified benefits to maintain land value (NPV) ($/ha)

$139.8m ($549)

$39.8m ($265)

Value of unquantified benefits to maintain land value per hectare per year (NPV)

$36

$17

Restoration funds required (NPV)

1

From Table 6-4 and Table 6-8 respectively.

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6 Findings: Implications for Regional Economic Activity

With reference to land access, the funds required have been estimated based on the purchase price for freehold land, expressed in NPV terms, in order to effect a land-use change from agriculture to native vegetation.6 As such, since the value of land is determined by the discounted value of expected future profits/net benefits, the price of land access is the profit forgone from no longer using the land for agriculture (that is, the opportunity cost of agriculture).

Thus, for Scenario 1 and 4 for example, and with reference to Table 6-4 and Table 6-8 respectively, the net revenue from restoration and ongoing agriculture is negative $26 million and (positive) $47 million respectively. Given the estimated cost of land access for these two scenarios of $113.8 million and $86.8 million, this indicates that the NPV of the unquantified benefits from native vegetation would need to be $139.8 million and $39.8 million respectively in order for the land to have an equivalent value when used for native vegetation. Expressed on a per hectare of restored land basis, these values are equivalent to an NPV of $549 per hectare ($139.9mรท254,650 hectares) for Scenario 1 and an NPV of $258 per hectare ($39.8mรท150,391 hectares) for Scenario 4.

In turn, and assuming that they are distributed evenly over the 30 year period, the unquantified benefits would need to be around $36 per hectare per year for Scenario 1, and $17 per hectare per year for Scenario 4, in order for there to be no impact on the value which is placed on land.

Accordingly, provided potential investors (and some have already made this decision) place a value of at least these amounts on the unquantified benefits, they would find it worthwhile to invest to secure access to land and change its use from agriculture to native vegetation. The unquantified benefits associated with large-scale habitat restoration are discussed further in the next section.

6

The funds required may be less if access were to be secured through permanent leases, however, the lease payments will be for specific situations and it is not possible to estimate the payments that will be made. It is also likely that, should a permanent lease market develop, the price of access will be similar as that for the purchase of freehold land because the price for both will be informed by the same potential income earning considerations whether used for agriculture or native vegetation. This arises because the price of land is determined by the income expected to be derived from the land given the proposed use with the only difference being the way in which payment is made for that use.

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Unquantified Benefits of Large-scale Habitat Restoration

7.1

Introduction

Based on the analyses presented in the previous section, the decision to invest in large-scale habitat restoration will be justified by a number of attributes of, and services provided by, natural ecosystems that are valued by members of the wider community but which are not priced explicitly as is the case for agricultural production. However, with reference to the different types of economic analyses described in Section 2.1, the valuation of the non-priced benefits is required to undertake a social benefit cost analysis of changing land use from agriculture to native vegetation, despite the difficulties in seeking to place a value on them.

Furthermore, the value placed on these aspects will be influenced by a range of social and cultural values that, in turn, influence our goals and aspirations, not only as Victorians but also increasingly on a global scale. The adoption over the past two decades of the principles of ecological sustainable development under the auspices of the United Nations by many countries, and current international efforts to address the potential impact of climate change, are illustrative of the increasing importance that is placed on natural ecosystems.

The following section sets out some of the main unpriced benefits of large scale habitat restoration.

Although unpriced here, there is an increasing trend internationally to undertake detailed analyses to value natural assets and the services they provide to the benefit of human communities.

The international studies have highlighted the high economic values of the services provided by the natural environment around the world. One such study published in the journal Nature found that globally, environmental services are worth US$33 trillion annually.7 On a smaller domestic level, a recent study by the Australian Conservation Foundation (ACF) demonstrated that one healthy wetland, the Hattah Lakes in northern Victoria, provides services of $14.5 million per annum through direct benefits of tourism and indirect benefits of water filtration, flood control, water storage and habitat provision.8 Most relevant to this report are ecosystem services provided by natural habitats; the ACF report cites economic data that the ecosystem services provided by each hectare of habitat restored is valued at $217 per annum.

These studies indicate that the economic benefits derived from the ecosystem services provided by healthy natural environments are significant to specific industries, local communities or societies. The services are provided in many forms and support, either directly or indirectly, commercial economic activities such as agriculture and tourism, as well as the health and well-being of people and of the communities in which they live. The services include the storage of carbon, the purification of water and air, the prevention of soil erosion, the protection of habitat for natural predators of agricultural pests or providers of pollination services, and the provision of shade and shelter, all of which underpin the profitability and competiveness of our agricultural businesses and industries.

The following section highlights the breadth of benefits that would be derived from large-scale restoration of native vegetation. Based on the international studies and the results obtained through this study, these benefits are likely to outweigh, perhaps many times over, the costs of restoring native vegetation on a large scale, including the opportunity cost of agricultural production forgone.

However, no attempt is made to put values on these benefits.

7

Costanza, R., d’Arge, R., Groot, R. de, Farber, S., Grasso, M., Hannon, B., Limburg, K., Naeem, S., O’Neill, R.V., Paruelo, J., Raskin, R.G., Sutton, P., Belt, M. van den, The Value of the World’s Ecosystem Services and Natural Capital, Nature, vol. 387, 15 May 1997 8 Australian Conservation Foundation, Wetlands: underpinning a robust rural economy. A briefing paper on the economic benefits of Australian wetlands – Hattah Lakes case study, accessed at: http://www.acfonline.org.au/articles/news.asp?news_id=2880

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7 Unquantified Benefits of Large-scale Habitat Restoration

7.2

Increased Ecosystem Resilience: Improved Biodiversity and Conservation Outcomes

The major unquantified benefit from large-scale habitat restoration stems from the increased resilience of ecosystems, resulting improved biodiversity and conservation outcomes and associated improved provision of ecosystem services. But more fundamentally, the value of these outcomes is influenced by loss of native vegetation, and associated fauna, that has occurred as a result of clearing mainly for agricultural purposes. This clearing has had a number of adverse impacts on natural ecosystems, namely that: • some native vegetation classes across the landscape are now rare, with a high risk that those classes may not survive; • the survival of fauna indigenous to, and dependent on, those vegetation classes may become threatened and some individual species may become extinct (which may have already occurred); • the loss of some habitat may reduce the presence of beneficial species which provide, for example, biological control services or pollination services for commercial enterprises; and • overall, the resilience of the areas of remnant native vegetation and indigenous fauna is likely to be significantly weakened because of the lack of connectivity between the areas Given the extent to which native vegetation has already been cleared, part of the benefit that people value from habitat restoration stems from avoiding of these adverse impacts — the avoidance of these impact also underpins the Victorian Government’s Native Vegetation Framework which requires a planning permit in order to clear native vegetation on freehold land with the first consideration being avoidance of clearing native vegetation. In addition, the benefit experienced by people derives from the increase in the area of native vegetation and associated quantity and quality of ecosystem services provided. The change in the quality and quantity of ecosystem services also affects other non-priced benefits that are discussed below.

Although the cause and nature of the benefits in terms of improved resilience of natural ecosystems and services provided are relatively easy to describe, the magnitude of the benefits is harder to determine. This is due mainly to the absence of markets for ecosystems services and, hence, there are no market prices which can be used to estimate their value. There are several reasons for this including that native ecosystems will generally cover a number of individual freehold properties and, hence, the services provided by these assets cannot be assigned to particular properties as ‘entitlements” which can be traded (the storage of carbon is an exception).

Another reason is that the nature of the potential benefits of ecosystem services, such as the value attached to retaining the natural diversity of species, can be realised without the need to pay the property holders concerned (referred to generally as positive externalities or spillovers).

Conversely, and particularly in the past, such properties holders would most unlikely factor such values held by other parties in their decision to clear native vegetation, resulting in a divergence between private costs and benefits and social costs and benefits.

In economic terms, ecosystem services exhibit strong public good characteristics in that the consumption of the services are largely non-rival (value derived by a person does not affect the potential value of ecosystem services to others) and people who do not pay cannot be excluded from realising at least some of the benefits. Given these characteristics, people do not have the need to express how much they are willing to pay for maintaining ecosystems and/or for ecosystem services — hence there is no market.

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In this situation, and as illustrated by the BushTender initiative of the Victorian Government, there is a need to create a demand for ecosystem services on behalf of the wider community. The BushTender initiative illustrates that, through our political processes, there is recognition that too many of Victoria’s ecosystems are at risk and that there is now a need to encourage individual property owners to change land use and undertake restoration activities. These property owners are asked to bid how much they would be willing to accept to undertake the proposed restoration activity to achieve particular restoration outcomes.

If acceptable to the Government, the price paid represents a measure of the value which the Government places, on behalf of the wider community, on the unquantified benefits; since BushTender commenced in 2002, most prices to undertake the specified restoration have been in the range of $2,500 and $3,500 per hectare (in NPV terms). However, the prices paid are reflective more of the payment required to effect a land use change rather than of the value of the total benefits to the wider community from the resulting improvement in ecosystem assets and associated services.

In order to estimate the value of the total benefits to the community from large-scale habitat restoration would require the undertaking of studies to estimate the willingness of people to pay for those benefits.

Choice Modelling is one technique which could be used to develop relatively reliable estimates. This technique was used, for example, by the Victorian Environmental Assessment Council (2008), to estimate the value that people placed on different habitat outcomes, and associated presence of desired species, relative to different potential forest management regimes for the River Red Gum forests along the Goulburn and Murray Rivers.

7.3

Improved Landscape Amenity

In addition to increasing the quality and quantity of ecosystem assets and services, the undertaking of large-scale habitat restoration will lead to change in the landscape and associated amenity (including spiritual and cultural values). With a return to a more natural habitat state, there is a high probability that the landscape will provide greater amenity value to many people compared with the amenity associated with the use of land for agriculture. This greater amenity is likely to give to health benefits through, for example, people feeling more comfortable and relaxed within the restored landscape.

The resulting higher amenity, together with particular features of the landscape, may also provide a stimulus for increased tourism activity in the associated region in the future, particular after the restored area reaches maturity.

If such an outcome is achieved, the increased economic activity from tourism would act to offset the loss of regional income from the agricultural activities undertaken before restoration. It would also contribute positively to regional employment. Although they are likely to be positive, it is not possible to estimate the monetary value of these potential benefits in advance.

7.4

Improved Water Management Outcomes

Another potential benefit associated with large-scale habitat restoration and the return to more natural vegetation types and cover, is the concurrent return to more natural hydrological flows/conditions.

This is likely to result in an increase in soil absorption, and reduced surface runoff, which could reduce the risks of erosion, flood damage to property, as well as increase both soil moisture and groundwater supplies. In addition, the greater absorption by the soil can also lead to an increase in water quality.

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7.5

Improved On-farm Productivity

For particular areas, large scale habitat restoration could have the effect of creating microclimates, and/or of providing shelter, which could have a positive effect on the productivity of the agricultural enterprises on adjacent farm land. This positive effect could arise from the native vegetation providing habitat for biological control agents for pests and weeds, or through increased lambing percentage due to reduced exposure to chilling winds at birth.

Once again, significant data about the drivers of on-farm productivity before and after restoration would be required to estimate the magnitude of these benefits. However, there is some evidence to suggest that the benefits are positive as illustrated by the assumption that there is no loss in the value of grazing agricultural production associated with landcare restoration in Zones 1 and 2.

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8

Next Steps: Achieving Large-Scale Habitat Restoration

8.1

8

Implications of Findings

Based on the results presented in Section 6, the costs of undertaking habitat restoration, particularly through revegetation of land cleared for agriculture, are high. Although the expenditure on restoration has a positive impact on regional employment, the high costs involved suggests that great care needs to be applied when: 1. determining the type and extent of restoration required to secure the required change in ecosystem assets and associated ecosystem services (that is, in specifying the habitat outcomes sought at the landscape scale); and 2. selecting the parcels of land that need to be restored to achieve those outcomes taking into account both the differences in the value of agricultural production forgone, restoration costs, value of carbon stored and conservation outcomes The cost of restoration relative to the potential revenue from stored carbon (at $25 per tonne) in the short term means that the decision to undertake large-scale habitat restoration will influenced largely by the value to the wider community associated with the unquantified benefits that are inherent in the habitat outcomes sought. A major source of these benefits is the improved biodiversity and conservation outcomes secured and associated increased ecosystem services and landscape amenity and potential health benefits. The avoidance of further harm from the loss of native habitat as a result of clearing for agriculture (and, to a lesser extent mining and urban development) is also likely to be another significant influence.

However, if future prices for carbon stored were to increase above $30 per tonne, and were more in line with the prices projected by the Australian Treasury, the undertaking of large-scale habitat restoration would become increasingly financial viable in its own right. Consequently, there would be less need to rely on the unquantified benefits to justify the undertaking of investments to change land use from agriculture to native vegetation.

8.2

Government Leadership

The potential benefits from large-scale habitat restoration are dependent on achieving the required restoration in an integrated, connected way across different native vegetation classes over a wide landscape area — from the coast to inland Australia in the case of Habitat 141. Such restoration cannot be achieved through actions of individual property holders alone or, indeed in some situations, by the actions of individual state governments. As noted in Section 7.2, this is because of the public good nature of ecosystem services per se, as well as with respect to the investment needed to determine the ongoing condition of native vegetation across the landscape and to specify the desired restoration outcomes.

Accordingly, there is an underlying need for government at the state and, where appropriate, national levels to provide the support and resources to undertake the necessary research and development in order to determine and specify: • the biodiversity and conservation outcomes that should be pursued to maximise, in this case, the benefits to Victoria; and • the actions required across the relevant landscape to secure those outcomes.

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The next responsibility for government relates to securing the funds needed to undertake the necessary actions to achieve the outcomes sought. Unless responsibility for these aspects is accepted by government, there is a high risk that the necessary investment will not occur because of the public good nature of the services provided by natural ecosystems — there is no other organisation/social construct that would have the same incentives and standing to accept these responsibilities.

The above considerations, however, do not mean that all of the funds required should be provided by government; indeed there are private benefits to be realised by individual landholders from increased ecosystem services and others will invest for philanthropic reasons. Rather the role of government is to provide the framework needed to guide all investments so that, collectively, the desired habitat outcomes are achieved in an integrated way across target landscapes. (This could be a key role for the proposed new Natural Resource and Catchment Council announced by the Victorian Government in its White Paper, entitled Securing out Natural Future, released in December 2009.)

8.3

Protecting Existing Native Vegetation

The analysis undertaken provides a number of insights to the protection of existing native vegetation for the various ecological vegetation classes across the landscape. Given the high costs that would be incurred to restore habitat on, for example, land cleared for agriculture, any approval granted under the Planning and Environment Act 1987 to clear native vegetation on such land should only be granted if the removal would not compromise landscape scale outcomes (refer to Section 4.2.1). In making such decisions from the perspective of the wider community, approval should only be given if the NPV of total benefits (priced and unpriced) to society from clearing were likely to be greater than the NPV of total costs to society of doing so.

In essence, this means that from the perspective of Victoria, for example, approval to clear native vegetation should only be granted if the expected revenue from the future land use were greater than: • the costs incurred in clearing the land and preparing it for the alternative use such as pasture establishment; • the decline in the value of the unquantified benefits provided by ecosystem services arising from the loss of native habitat (refer to Section 7); and • the costs associated with any increased carbon emissions from clearing and the subsequent landuse.

In addition to these costs, and particularly in the situations for remaining native vegetation that is now rare in particular landscapes, such as some native grassy ecosystems, the expected revenue would need also to offset the existence and bequeath (value to future generations) values that is placed on such native vegetation by society. In some situations, such as for 500 year old Bulokes, these values could be very high — once destroyed such natural assets are effectively lost which lead to the loss of a particular ecosystem in the wider landscape. Although they would be difficult to estimate, they should nevertheless be taken into account from an integrated landscape perspective in determining whether to grant approval to clear native vegetation in response to applications to do so by individual landholders. These applications should be assessed taken into account the full spectrum of unquantified benefits provided to Victoria from the native vegetation.

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9

References

9

Australian Bureau of Agricultural and Resource Economics (ABARE A), Australian Lamb 09.1, AGPS, Canberra, June 2009.

ABARE B, Australian Grains 09.1, AGPS, Canberra, May 2009.

Australian Bureau of Statistics (2008a), Catalogue 5209.0.55.001 Australian National Accounts: InputOutput Tables - Electronic Publication, 2004-05 Final, Canberra, November 2008.

Australian Bureau of Statistics (2008b), Catalogue 5220.0 Australian National Accounts: State Accounts, Table 3. Expenditure, Income and Industry Components of Gross State Product, Victoria, Chain volume measures and current prices, June 2008, Canberra, September 2008.

Australian Bureau of Statistics (1990c), 5220.0 Australian National Accounts Introduction to InputOutput Multipliers, Canberra, 1989-90.

Australian Conservation Foundation, Wetlands: underpinning a robust rural economy. A briefing paper on the economic benefits of Australian wetlands – Hattah Lakes case study, accessed at: http://www.acfonline.org.au/articles/news.asp?news_id=2880 Australian Treasury, Economics of Climate Change Mitigation, 2008 Catchment Management Council, Victorian, Catchment Condition Report, 2007, Commissioner for Environmental Sustainability (CES), Victoria, State of Environment Report, 2008 Construction Forestry and Mining Employees Union, Plant Operators on Construction (state) Award, http://www.cfmeu-construction-nsw.com.au/pdf/wrtplops.pdf, accessed 2 September 2009 Costanza, R., d’Arge, R., Groot, R. de, Farber, S., Grasso, M., Hannon, B., Limburg, K., Naeem, S., O’Neill, R.V., Paruelo, J., Raskin, R.G., Sutton, P., Belt, M. van den The Value of the World’s Ecosystem Services and Natural Capital, Nature, vol. 387, 15 May 1997.

Department of Environment and Heritage, Commonwealth (Natural Resource Management Ministerial Council), National Framework for the Management and Monitoring of Australia’s Native Vegetation, 2001.

Department of Environment, Water, Heritage and the Arts, Commonwealth (Natural Resource Management Ministerial Council), Australia’s Native Vegetation Framework, Consultation Draft, 2010.

Department of Innovation, Industry and Region Development, Victoria, Provincial Victoria, Directions for the Next Decade, 2009.

Department of Innovation, Industry and Region Development, Victoria, Action Plan for Green Jobs, 2010.

Department of Natural Resources and Environment (DNRE), Victoria, Victoria’s Native Vegetation Management: A Framework for Action, 2002.

Department of Planning and Community Development, Victoria, Victoria in Future, 2008.

Department of Sustainability and Environment, Victoria, Securing Our Natural Future, A White Paper on Land and Biodiversity at a Time of Climate Change, 2009.

Department of Treasury and Finance, Victoria, Victorian Government Response to the Victorian Competition and Efficiency Commission’s Final Report, A Sustainable Future for Victoria: Getting Environmental Regulation Right, 2010.

Productivity Commission, Impacts of Native Vegetation and Biodiversity Regulations, Report No.29, 2004.

Victorian Environmental Assessment Council (VEAC), River Red Gum Forests Investigation, Final Report, 2008

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Limitations

URS Australia Pty Ltd (URS) has prepared this report in accordance with the usual care and thoroughness of the consulting profession for the use of Victoria Naturally Alliance and only those third parties who have been authorised in writing by URS to rely on the report. It is based on generally accepted practices and standards at the time it was prepared. No other warranty, expressed or implied, is made as to the professional advice included in this report. It is prepared in accordance with the scope of work and for the purpose outlined in the Proposal dated 1 May 2009.

The methodology adopted and sources of information used by URS are outlined in this report. URS has made no independent verification of this information beyond the agreed scope of works and URS assumes no responsibility for any inaccuracies or omissions. No indications were found during our investigations that information contained in this report as provided to URS was false.

This report was prepared between 1 May 2009 and 30 July 2010 and is based on the conditions encountered and information reviewed at the time of preparation. URS disclaims responsibility for any changes that may have occurred after this time.

This report should be read in full. No responsibility is accepted for use of any part of this report in any other context or for any other purpose or by third parties. This report does not purport to give legal advice. Legal advice can only be given by qualified legal practitioners.

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Appendix A Estimating the Impact of Expenditure on Regional Employment

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Appendix A

A.1

Input-Output Multipliers

Input-Output Multipliers are used to predict the impact on all industries in an economy of changes in demand for the output of any one industry. Thus they can provide a means of estimating the total impact of a decision to invest in any one area. As multipliers are based on a static model of the economy, it is assumed that the existing relationships between industry sectors are maintained, that is the change in activity in one sector will not significantly affect the operating capacity of another sector.

That is it assumes there is spare capacity in the economy, the analysis also assumes that changes in demand are generated from outside of the economy in question. On this basis, multipliers can provide a useful indicator of the total impact of an externally driven change in demand for a local economy.

A.2

Deriving the Victorian and regional input output matrices

In order to estimate the full regional impacts of expenditure on agriculture and restoration projects URS developed a regional Input-Output matrix for Victoria and the Horsham West Wimmera areas.

These were derived from the Australian Input Output table 2004-05 (ABS, 2008). The method for deriving these tables is outlined in the following text.

The national Input-Output framework is published as a 105 sector industry matrix. This table was then reduced to a 34 sector matrix. This was done to enable the application of State based national accounts data to ensure that the industry outputs used in the state Input-output matrix reflected the structure of the Victorian economy. This data at the 34 sector level is published by the ABS in the quarterly Australian National Accounts.

Victorian matrix The Victorian Input Output model was developed initially as a 34 sector matrix by scaling the expenditures in each column in the 34 sector Australian Input-Output model by the sum of Victorian Gross operating surplus & mixed income and Compensation of employees for each sector. This data was extracted from the ABS State Accounts Table 3, (ABS,2008b). The values used were based on the 2004-05 financial year, the same year on which the Australian table was based.

This approach provided the estimates for quadrant 1 of the table, which details intermediate usage by industry sector. The estimates for quadrant 2 (final demand) and quadrant 4 (Primary inputs to final demand) were derived by scaling the values in each column by the same row total in quadrant 1. This assumes that the share of total household incomes, consumption and capital expenditures and exports to Total Supply will be the same for Victoria as for Australia. The quadrant 3 (Primary inputs to production) were based on the column estimates of Gross operating surplus & mixed income and Compensation of employees for each sector and the totals for the remaining variables - Taxes less subsidies on products, Other taxes less subsidies on production, Competing Imports, and Complementary imports - were extracted from the ABS state accounts (ABS 2008b). These totals were then prorated by industry sector. If the value of Australian imports multiplied by Gross Value Added for Victoria was greater than the estimated value of imports using the previously described methodology, it was assumed the difference would be the value of imputed state imports.

The input-output multipliers were then derived in the standard manner as described in the ABS Information paper – Introduction to Input-Output Multipliers (ABS 1990c). That is calculation of the direct requirements coefficients matrix (A) based on quadrant 1, constructing a unit matrix (I) with all the central diagonal values being equal to 1, subtracting the direct requirements matrix from this unit matrix (I-A) and then inverting this (I-A)-1.

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Appendix A

The Household income impacts are then derived by repeating this process with the Household income column and Compensation of employees row added to the previous matrix and then repeating the process.

The total amount of output induced by the requirement from all industries to produce output to satisfy the demand from an industry and by the associated spending of wages and salaries earned by householders is the Type 2A multiplier. This multiplier is used to estimate the total flow on impacts of the initial changes in expenditure on the area being examined. The type 2A multiplier is the sum of: • the initial effects of the expenditure on an industry, plus • the first round effects of demand for inputs from other industries, plus • the industrial support effects which are the impact of meeting the demand related to first round output plus • the consumption induced effects which reflect the impact of expenditures by wage and salary earners.

Regional matrix The regional matrix was derived by reducing the 34 sector Victorian Input Output matrix to an 18 sector matrix. This was required as the regional data required was available at this level of industry disaggregation. The regional model was derived by scaling column estimates for industry in quadrants 1 and 2 of the Victorian model using the share of Full Time Equivalent Employment (see next section) for the combined Horsham and West Wimmera Local Government Areas to total Victorian Full Time Equivalent Employee (FTE) numbers for Victoria. Quadrants 3 and 4 were adjusted by scaling using the ratio of regional industry value to total Victorian industry value for each row. These results were further adjusted to reflect the different industry structures in the region, by scaling in the same manner using the regional location quotient. This measure is the ratio of the share of industry FTE to total regional FTE divided by the share of industry FTE to total state FTE. This top down approach to estimation will not provide an exact model of the regional economy as it relies on an assumed common value of output per FTE (hence the same ratio of FTE per $1m of output) throughout the State. However, it does provide useful estimates of the regional multipliers which reflect the likely interactions between industries in a particular region reflecting the size of these industries. The production of a more accurate regional input-output matrix would require detailed surveys of a large sample of local industries, an exercise which seldom justifies the cost involved.

Full Time Equivalent Employed Persons The estimates of supply chain FTEs were based on a combination of the estimates drawn from the ABS estimates of the employment by industry by hours worked using the 1993 ANZSIC categories for Statistical Local Areas counted in the 2006 census. This data had been specially purchased from the ABS by URS. This data was used to estimate the number of Full Time Equivalent Employed Persons based on an 38 hour working week.

In each case, it was not possible to ascertain the extent to which materials used were imported into the country and did not provide supply-chain employment. Therefore estimates were made based on the average percentage of imports that are demanded for the industry sector to which the input belongs. These were derived from the input-output tables for the study.

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