Abstract: This is the final report for the research project ‘Developing an effective conservation and sustainable use economy in Arnhem Land: Options for payment for environmental services’. The research was undertaken at the Centre for Aboriginal Economic Policy Research (CAEPR) at the Australian National University (ANU). The Tropical Rivers and Coastal Knowledge (TRaCK) research hub funded the research. This report provides a preliminary assessment of the management needs and costs for two Indigenous Protected Areas (IPAs) in Arnhem Land, as well as a preliminary cost-benefit analysis (CBA) of the social benefits and costs associated with the management of the protected areas. The project commenced in July 2009 and was completed in March 2011. This report is aimed at helping decision-makers in communities, businesses, non-government organisations and government agencies consider payment for environmental services alongside continued public funding to support economic development in remote Indigenous communities. Crucially, this report highlights the need for better information and alternative economic perspectives in relation to the capacity of payment for environmental services to support the regional economy of Arnhem Land. This information is critical to addressing both opportunities for and barriers to the development of an effective conservation and sustainable use economy in this region and beyond. The research was carried out in collaboration with two Indigenous Ranger groups in Arnhem Land, the Djelk Rangers (Bawinanga Aboriginal Corporation) in Maningrida and the Dhimurru Rangers (Dhimurru Aboriginal Corporation) in Nhulunbuy. The two groups manage the Djelk IPA and the Dhimurru IPA respectively. The Djelk IPA was declared in 2009. It extends over 6,732 km2 stretching from the Central Arnhem Plateau to the Arafura Sea in the Arnhem Coast sub-bioregion ARC-2. The Djelk IPA has outstanding environmental and cultural values for the diversity of its landscapes and languages, and the wealth of community assemblages and species. The Dhimurru IPA was established in 2000. It covers around 920 km2 of land and 90 km2 of adjacent marine areas in the Gove Peninsula. The IPA contains areas of important cultural and environmental values, hosting a significant representation of Australia's Arnhem Coast sub-bioregion ARC-3. Both IPA’s are generally considered to be in near pristine condition. The two IPAs face quite different environmental management problems. The Djelk Rangers’ priorities focus on land and sea management including fire, weed and feral animal control and coastal surveillance. Among the most important issues for the Dhimurru IPA is managing the growing demand for the recreational uses of its environmental and cultural resources. Recreational activities could damage sensitive ecological systems, spread weeds and invasive ants through vehicles movement, disturb native flora and fauna, and damage cultural and sacred sites. The bauxite mine and processing plant adjacent to the Dhimurru IPA also have a serious impact on the integrity of the natural environment and cultural landscape. Both the Djelk and the Dhimurru rangers finance their management activities mainly through public funding. Djelk’s revenues are split between government grants (78%) and fee-for-service earnings (22%). The Djelk Rangers use these finances to employ over 35 Indigenous rangers as well as to cover the operational costs of a range of activities including weed and feral animal control, fire management, and coastal patrols. Four activities—weed control, fire management, customs patrols, and marine debris patrols—generate 85 per cent of Djelk’s total expenditure. The major source of Dhimurru’s revenues is public funding (69%), and it is supplemented by Dhimurru’s own generated income (20.5%), private contributions (9.2%) and fee-for-service income (1.6%). Dhimurru's activities have interconnected goals: people management, environmental monitoring, conservation and restoration, and heritage and cultural protection. People management includes issuing general and special access permits to non-Indigenous visitors, checking permit compliance, camp site maintenance, fencing, and rubbish pick-up. It accounts for over 74 per cent of Dhimurru’s total expenditure. Weed control and crocodile management account for another 17 per cent of the Dhimurru’s expenses. Public funding and fee-for-service revenues are the cost to society of this provision of environmental services through Indigenous ranger organisations. Both funding streams originate largely from institutional responsibilities of government. A variety of Commonwealth programs such as Working on Country (WoC) and Indigenous Protected Areas (IPAs) are based on this principle. Here the government outsources some of its responsibility to protect the environment by contracting local Indigenous rangers to provide environmental services. In return, Indigenous rangers are required to provide some measure of accountability for their work through management plans, progress reports and financial reports. However, the compensation for this service is calculated on the basis of the government’s accounting rule for granting funding and on what the ranger organisations estimate it will cost for them to deliver the service. They are not based on estimates of the benefits that the rangers’ activities generate for the Australian public. Lack of data, methodological limitations, and a short timeframe, severely restricted the quantitative assessment of the demand for environmental services. Therefore it is not possible to contrast the benefits of Indigenous provision of environmental services in the two IPAs with either the social costs or the organisations’ private expenditure. As a result, the data presented here is not sufficient to demonstrate in economic terms that the benefits of environmental service provision within the IPAs justify their social cost. Similarly, it was not possible to assess the feasibility of financing Indigenous provision of environmental services in the IPAs on the basis of the benefits it generates at the local and national levels. Further research is necessary to collect more data on such issues over longer time periods. A robust analysis of the costs and benefits of Indigenous provision of environmental services needs to account for temporal and spatial variability, and take into account the fluctuations in environmental, economic and social conditions. Priority should also be given to the collection of basic ecological data. This is necessary to assess the effectiveness of management practices in reaching environmental outcomes.