The Emerging Institutional Risks from Widespread Adoption of an Ecosystem Services Market Approach to Environmental Governance

Best practice commercial management involves two distinct mindsets, harnessed for separate purposes. The innovative mindset is concerned with the creative side of enterprise – entrepreneurship, innovation, strategising and commercialisation). However this is also married to a more pessimistic mindset focused on the identification and avoidance of what might go wrong- (risk management). The modernist paradigm for environmental governance stresses scientific model-based estimation to determine resource use-limits, legally specified property rights to fractions of the environment, market or market like mechanisms for allocation of interests, and scientific methods of performance of the strategies. These elements exist in varying forms regardless of whether the instruments are market-like (eg government incentives based on auctions), full market (eg cap and trade), or hybrids (eg eco-services valuation based payments). There is ample evidence of the innovative and entrepreneurial mindset dominating the narrative about market-oriented governance, with negligible evidence of risk-focused thinking. This is lopsided and dangerous policy-making, that falls well short of the private sector standards that are lauded as the basis for the modernist paradigm. There is also ample evidence that all forms of instrument, no less market-oriented instruments, often fail in practice. The risks are not theoretical, they are real and the adverse consequences are well-demonstrated in practice. This paper is intended to provide a carefully developed framework, supported by empirical evidence, to provide a framework for risk-assessment of potential market instruments. As in the commercial world, the application of this less utopian view of innovation is not Luddism, it is intended to strengthen that innovation itself, by ensuring that risks are not ignored but are managed. The paper will consider the following aspects of risk with economic instruments including eco-system services approaches, illustrated empirically by Australian examples. A conceptual framework for governance policy/strategy analysis, including a typology of risks. The demonstrable risks from the embrace of science as the determinant of legal rights and obligations. The risks to economic and cultural values arising from the proliferation of fragmented environmental rights, and the perverse effects upon the use of markets for the environment from the proliferation of instruments. The potential challenges to democratic institutions and the capacity of government that is arising from conversion of environmental issues from the social arena into the economic arena of jurisprudence. The transaction costs and administration of justice impacts of the rush to instrumental innovations, unmatched by a careful reframing of the foundational legal institutions needed to make these instruments effective. The paper will conclude with an outline of directions for law reform to better manage the risks of modernist instrumental thinking, whilst exploiting the advantages that are potentially available from such instruments