Environmental Finance: Managing Risks and Improving Ecosystem Services in Murray Darling Basin

This article discusses the Murray Darling Basin Authority and its ecosystem services, market-based instruments for improving ecosystem services, potential effects of climatic change, and managing environmental risks using financial instruments.

Running head: ENVIRONMENTAL FINANCE
Environmental finance
Name of the Student
Name of the University
Author Note

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ENVIRONMENTAL FINANCE
Table of Contents
Introduction:...............................................................................................................................2
Discussion:.................................................................................................................................3
List of three of key ecosystem services provided by Murray Darling Basin:............................3
Ecosystem services in the absence of regulation:......................................................................6
Three examples of market based instruments intended to improve the provisions:..................6
Quantity based instruments:.......................................................................................................6
Potential effects of climatic change on the ecosystem services of Murray-Darling Basin
Authority:...................................................................................................................................8
Managing environmental risks using financial instruments:.....................................................9
Conclusion:..............................................................................................................................10
Reference lists:.........................................................................................................................11

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Introduction:
The assignment is prepared for addressing various questions in relation to the Murray-
Darling Basin Authority. This is related to ecosystem services provided by the basin along
with emphasizing the reason why it is an area of concern for government. Different market
based instruments have been identified for improving ecosystem service provisions and how
such instruments helps in determining market price of ecosystem services. Furthermore,
considerable attention has been given on the potential effects on the identified ecosystem
service due to climatic change. Moreover, management of environmental risks associated
with has been explained in terms of implementation of financial instruments by government
as strategy of managing such risks.
Discussion:
List of three of key ecosystem services provided by Murray Darling Basin:
The key ecosystem services that Murray Darling Basin provides is discussed based on
their categorization. Ecosystem services are categorized into four aspects that comprise of
provisioning, regulating, cultural and supporting.
Supporting Provisioning Regulating Cultural
Water cycling- A large
area of irrigation is
supported by water
resources of Murray
darling basin and this is
regarded as key factor
in the ongoing
prosperity and social
Fresh water
A series of water
quality target is carried
out by Basin plan that
provides user with the
assurance it is safe for
agricultural, drinking,
environmental and
Water Regulation
The water resources of
basin are managed by
Water Act, 2007 that
has the objective of
improving the security
of water for all the
basin water resources
Social relations
The areas of social
relations that are
assessed in the
ecosystem service
benefits include
description of
relationship between

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fabric of region. The
water management of
basin is a response to
environmental impacts
of level of water use
and recent climatic
change (Criscuolo and
Menon 2015.).
recreational purpose.
The flow of water is
managed by adopting
several measures such
as maintaining
dissolved oxygen at
target value
(Anderson 2016).
users. This leads to
optimization of social,
economic and
environmental
resources by managing
and promoting the use
of water resource of
basin.
economic and social
outcome provided.
Social relations have
improved due to
improvement made in
environmental
conditions of wetland
and basin rivers
(Ferreira 2016).
Soil formation- The
wetland in the Murray
darling basin was
affected by the acid
sulfate soils and it is
required to manage the
there is unlikely that
the risk posed by acid
sulfate soils will be
managed. A direct
connection was
provided between
Murray and salt store
in the soil by the new
course carved by river.
The rainfall leaking
directly through soil to
the groundwater supply
Food
Many opportunities are
provided by the history
and diverse geography
for tourisms that
includes enjoying wine
and food in visiting
historic townships and
fertile valleys.
Climate regulation
The climate of Murray
darling basin has
highly variable climate.
One of the major
challenges faced by
water resource
managers and river
operators and other
community is to plan
for this dry and wet
climate of the basin.
Cultural diversity
In the Australian
cultural heritage, the
basin has a crucial
place. Collective
identity is underpinned
by many of the iconic
heritage features of
Basin. Cultural
practices are supported
by conserve ecosystem
and protection of
aboriginal people in
their natural state.

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and increased runoff
have increased
dramatically with the
help of land cover
transformation and
increased runoff.
Nutrient cycle
The key function of
ecosystem is to dilute
nutrients and carbon
from soil and litter on
food plain. A source of
nutrient and carbon is
provided by the
interaction between
food plain and in
stream habitats. The
mouth of Murrays
remain open for
durations and at
various frequencies
that is sufficient for
enabling the
conveyance of
nutrients, salt and
sediment to the ocean
from basin with the
passing flow. In
Energy
There is efficient
transformation of
energy by the measures
employed by Murray
Darling Basin.
Water purification and
waste management
There is a long history
of development of
waterways of Basin
and the future well
being of Australia is
dependent on its
ecosystem. The water
of basin is recycled for
beneficial reuse that
includes commercial
crops for irrigation,
horticultural land
irrigation and recovery
and aquifer storage
(Ccsl.iccip.net 2018).
Knowledge system and
educational values
The knowledge system
of Murray Darling
basin involves lessons
on resources of water
that include water
cycle, salinity, running
the rivers, drought and
flood and water
quality.

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addition to this, the
supply of nutrient is
dominated by
allochthonous inputs.
Ecosystem services in the absence of regulation:
One of the important functions for economy of Australia is the Basin of Murray
Darling River that supports the several high valued ecosystem and large share in national
agriculture. The approach of river basin is employed by governmental organization of Basin
of Murray Darling River with most of the owners of policy lying on the territories and state
level. The conditions of usage of water, allocation of water and several can cut findings of
joint programs are determined by such policy. The management and water planning are done
by the authority of Murray Darling River for the decisions should be ratified by Territories
and states.
Three examples of market based instruments intended to improve the provisions:
The provisions of each ecosystem services can be improved by employment of market
based instruments that comprise of price based and quantity based instruments. Ecosystem
services that are identified are categorized into provisional, cultural, regulating and
supporting ecosystem services.
Quantity based instruments:
Under such instruments, standards are set for mitigation efforts and among those
providing mitigation, trade are allowed and two major variants forms the part of quantity
based instrument.

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Environmental offset- These are the actions that are set to meet any particular
standard such as reduction of environmental impacts or pollution at a site away where
environmental externality occurs due to any action. The actions can be taken by the party that
has caused externality or they can make the payment to make it done on their behalf.
Tradeable permits- Under such permits, rights at individual level are set to output
level, input level or performance standard. For instance, as a number of emission permits, an
allowable level of emission are granted to individual. If an additional permit is purchased by
individual from someone who is allowable under their allowable emission, then they are
permitted to exceed the standard level. Therefore, under this instrument, there is excess limit.
Elimination instrument of market barriers- This particular instrument intends to
increase the awareness of consumer about the attributes of environmental products that are
valued by focusing on improving the outcome of environment. Perhaps, the most widely
applied approach of market based instrument is the scheme of product labeling. Individual
valuing the associated improvement in outcome of environment are able to express their
preferences through market forces.
Price based instruments:
The instruments that are price based intend to subsidize mitigation actions or charges
for negative externalities for influencing environmental performance.
Incentive payments- Under this scheme, externality is mitigated by subsidizing the
cost of actions. The level of incentive payment is set at fixed rates.
Environmental charges- Individual are charged under this approach in relation to
level of environmental externality. Some alternative implementations involve any charge on

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externality input (Dey and Gibbon 2018). For instance, charging the vehicle registration
based on engine displacement rate.
Tendering- This approach is used for distribution of funds by auction or tender in the
form of incentive distribution. Offers are made by those seeking any incentive payment by
describing payment terms of cost sharing and mitigation action. The mitigation value forms
the basis of offer selection by the government.
The adoption of environmental sustainability practices becomes more financially
attractive using the market based instruments and there can be favorable outcome in relation
to environment in the absence of prescriptive regulation of command and control. Market
based instruments involves incurring of lower cost to achieve favorable outcome and
environmental performance standard (ten Brink and Russi 2016). However, there are some
challenges associated with the implementation of market based instruments such as lack of
capacity, lack of science, lack of information and lack of understanding the responses of
producer and consumers.
It is usually pointed by pollution level or sub optimal ecosystem provision assessment
that economic value of environment is reflected by absence of market. In this regard, the
market based instruments are viewed as appreciated as measures of value correction as it can
be addressed through regulatory mechanism.
Potential effects of climatic change on the ecosystem services of Murray-Darling Basin
Authority:
The critical factor in determining the usage of water resources of basin is effects of
climatic change. Climatic change impacts the availability of water that will be shared by
environment and consumptive users through the processes of standard water allocation.
Challenge that is faced due to variable Australian climate is management of environmental

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water. Ecosystem service of Murray Darling Basin such as fresh water provisions that makes
the availability of fresh water is directly and indirectly impacted by change in climatic
condition. It is projected that the basin has experience reduced availability of water since
1980 due to climatic change. In addition to reduced availability of water, there is increased
temperature and occurrence of extreme that are more frequent (Ando and Shah 2016).
Furthermore, there is occurrence of severe droughts comes as climatic change risk that has
the likelihood of increasing the period between wetland watering that is beyond the verge that
is withhold by species.
Managing environmental risks using financial instruments:
Some of the financial instruments that help in managing the environmental risks are
as follows:
Debt swap- The foreign currency dominated debt is sold by creditor of nation to an investor
buying debt at price enabling profit margin. This particular debt can be swapped by investor
in local currency with debtor nation. For environmental swap, debt swap cover the swap that
has typical focus on green projects and conservation. Financing of debt cost is done at no
extra fiscal cost because there is re routing of projects to domestic project coffers (Bos et al.
2015).
The advantage offered by debt swap is that government is not incurred with additional
fiscal cost. In addition to this, the development of pipeline of long-term projects would be
kick started with the help of environmental swaps debt.
On other hand, the disadvantage of debt environmental swap is that the contingency
of debt swap viability is dependent upon appropriate debt swap availability. Furthermore, it is
required by government to employ the process of centralized decision making depending
upon the expenditure program nature.

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Guarantees- This instrument ensures the project feasibility by placing the condition
that prevents the development of project using debt on terms to attract the capital. Risks
attributable to such project are mitigated by guarantees that reducing the risk of renewable
resources. The valuable factor for efficiency of financial energy investments is determined by
credit guarantees and performance through performance contracts of energy Service
Company (Howard 2015). A risk of purchaser of fuel going out of business or contracted
power off taker is covered under credit guarantees.
Advantage of guarantees it helps in promoting the development of project in sectors
that are risky and are considered critical for goals of climatic change. The contingent
liabilities can be ameliorated by government due to increased access to international
resources (Wang and Zhi 2016).
Guarantees leads to occurrence of increased contingent liabilities due to which fiscal
deficit might get impacted. It is certainly possible that requirement of technical capacity and
highly specialized information about new market.
The decision about employment of appropriate financial instrument or mechanism
should be initiated by having a clear standing of climatic change magnitude and nature that is
faced by country. The success of implementation of such financial depends upon the legal
and conducive environment (Froger et al. 2015). In order to understand the priorities of exact
climatic change, it is required by government to undertake further studies on comprehensive
technical, economic, political and environmental.
Conclusion:
The Murray Darling Basin River needs to be managed appropriately in light of
changing climatic conditions. In light of changing climatic condition, the associated problems
are maintenance of freshwater ecosystem and insufficient allocation of water. A river basin

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approach is implemented by government organization of Murray darling Basin with most of
policy power lying on the level of territories and state. The introduction of sustainable
diversion limits has replaced the plan of Basin in recent years. There is a long term
implementation that is incorporated in the plan of Basin because the users have lower total
access to water. Furthermore, new trading rules are incorporated in the Basin Plan that helps
in ensuring there is no restriction on water trade apart from environmental reasons that makes
the availability of sufficient market information.
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