Transferable Mitigation of Environmental Impacts of Development: Two Cases of Offsets in Australia

Transferable offsets are a means of mitigating the adverse environmental impacts of resource developments. Based on insights from institutional economics, there are three elements that need to be in place for offsets to be effective: (1) property rights over the mitigating good can be defined and assigned; (2) a difference exists between the marginal cost of supplying the mitigating good and the community's marginal value for it; and (3) the transaction costs of exchanging the mitigating good are less than the trade benefit. We suggest that these elements can be used to evaluate the design and performance of offset schemes and illustrate how this can be done using two Australian environmental offset schemes. Trade-offs between cost and environmental outcomes are apparent in the design and operation of these schemes.