Estimating supply functions for agri-environmental schemes: Water quality and the Great Barrier Reef

Funding programs to improve water quality into the GBR are difficult to evaluate, and administering agencies typically need to allocate funds without a clear assessment of the cost-effectiveness of proposals. This is particularly the case for agri-environmental schemes where policy makers set targets for improvements in water quality from agricultural lands and then need to identify funds and programs to encourage changes in practices. The priorities for actions are often driven by bio-physical assessments of risks on the natural environment with little information about the opportunity costs and challenges in changing land management. The goal of the research reported in this paper is to develop a supply function for water quality improvements in agricultural lands in the Great Barrier Reef catchments. Costs of supply have been estimated from multiple sources, including modelling, expert opinion, and the analysis of water quality tenders and Reef Rescue grant programs. The study addresses challenges in reconciling cost estimates from different sources, dealing with heterogeneity across industries and catchments, and managing different influences on costs from factors such as risks, adoption issues and transaction costs.