Traditional forms of environmental regulation have been successful in achieving substantial environmental improvements. However, it is becoming increasingly clear that they will be inadequate to achieve environmental goals in a cost-effective and sustainable way. This has motivated the NSW EPA to implement a number of economic instruments to provide industry with incentives for better environmental performance.

Working with industry and the community, the EPA successfully implemented Australia’s first significant emission trading scheme — the Hunter River Salinity Trading Scheme. The scheme resolved a long-standing and acrimonious dispute between coal mining and irrigation interests, and has allowed new developments to proceed while ensuring water quality objectives are achieved. The EPA has also implemented a bubble licence for a group of sewage treatment plants on the Hawksbury-Nepean River and is currently developing a tradeable emissions scheme for NOx emissions into the Sydney airshed.

The EPA has introduced a waste disposal levy on household and industrial (solid) waste, and overhauled its pollution licensing system to focus on the use of load limits as the primary discharge control tool. Under load-based licensing (LBL), a charge directly related to pollution loads, the harmfulness of pollutants and the state of receiving environments is levied on discharges. LBL is a practical application of the polluter-pays principle which provides licensees the incentive as well as the flexibility to determine low-cost means of pollution reduction. It will also provide for the estimation and public disclosure of emissions, and through the establishment of load estimation and reporting infrastructure, provide the ‘currency’ for the introduction of further emission capping and trading schemes.

In this paper, the experience in developing and implementing these instruments is described. From the EPA’s perspective, economic instruments are now beginning to deliver some of their great theoretical promise. They are a method of capturing some of the rewards of competition and innovation for the environment, hitherto applied solely to private benefit.