Prof. Mike Young* and Jim McColl**

* Research Chair, Water Economics and ManagementThe University of Adelaide

** Research Fellow, CSIRO Land and Water

Wine Industry Environment Conference2nd August 2007

Water reform and the wine industry

What's different, what matters?

2

Water withdrawals per capita

0

1000

2000

3000

4000

5000

6000

Au

stralia

Un

ited K

ing

do

m

New

Zealan

d

Iraq

(Australia = 135/161 countries)

“We have a water management problem not a water supply problem!” Business Council of Australia 2006

Australia = “The driest inhabited continent in the world.”

3

Total Murray-Darling Basin inflows Annual flows (year ending June) showing forecast for 2006/07

Source: Craik, MDBC

21 years

4

National Plan for Water Security Outcomes

$10 Billion over 10 years ($10,000,000,000)

Referral of powers to Commonwealth Really to Murray Darling Basin Authority

Control over all ground and surface water and all interception

Solve “over-allocation” for once and for all time

5

Balanced water sharing

Outcome 1The reservation of a minimum base-flow entitlement for each system

that cannot be eroded as climate changes

coupled with explicit definition of the remaining water entitlements as shares allocated to

the environment and

to all other water users.

Powers and Functions1. A capacity to establish Basin-wide allocation & management

principles and give statutory approval to catchment water sharing plans.

2. A capacity to require all overland flow, unregulated, regulated and groundwater resources in each catchment to be managed as one.

3. An exclusive capacity to define bulk water entitlement pools and allocate water to shares in them.

6

Hydrological integrity

Outcome 2

An entitlement and allocation system coupled with a land-use control system that ensures that all

adverse forms of water interception and

interactions among water bodies are accounted for

in a regime that prevents over-allocation from recurring.

Powers and Functions

1. A capacity to require that the effects of all significant forms of interception on water entitlements be off-set.

2. A capacity to define the rules by which shares and allocations in one entitlement pool may be transferred to another pool.

7

Investment security

Outcome 3

An entitlement register and an allocation accounting system whose contents are guaranteed.

Powers and Functions

1. Access to and control of all water entitlement registers and allocation accounts coupled with a power to make them consistent.

2. A capacity to set and vary conversion and exchange rates..

8

Continuously efficient resource use

Outcome 4

A low-cost trading system free of any administrative barriers to the inter-regional transfer of shares and allocations.

Powers and Functions

1. A capacity to set pricing and trading rules and prevent any organisation from impeding structural adjustment.

2. A capacity to regulate charges for the supply, delivery and management of water and water infrastructure.

9

Water Quality

Outcome 5

A Basin whose water resources and associated water-dependent ecosystems do not degrade below defined limits.

Powers and Functions

1. A capacity to manage both Instream salinity and land-use practices that increase the probability that increase salinity risk.

2. A capacity to provide salinity credits to States and individuals.

10

Optimal storage management

Outcome 6

Allocation rules and accounting rules that ensure the efficient inter-seasonal use and storage of water in response to market and environmental needs.

Powers and Functions

1. A capacity to make allocations and decide how much water may be held as a strategic reserve.

2. A capacity to allow carry forward of water unused allocations from season to season and define carry forward rules.

11

Resolution of over-allocation

Outcome 7

Definition of all environmental entitlements and all user entitlements so that, in aggregate, they align perfectly with defined bulk entitlement sharing rules.

Powers and Functions

1. A capacity to acquire entitlements, cancel entitlements and equitably redefine entitlements as shares in a defined water resource.

2. A requirement to place entitlements acquired for the environment in one or more Independent Environmental Trusts.

12

Over-allocation & modernisation

$3 billion to buy entitlements

Enough to purchase between 1,500 and 5,000 GL depending upon entitlement type purchased

MDB Market current max trade is 100 GL/ year

$5.8 billion to be spent on infrastructure modernisation Reform sequencing reforms is VIP

Massive investment that could go wrong $721,302 per irrigator in the Southern-Connected MDB

$573,374 per irrigator in the entire MDB

$9.9 billion is the current market value of all water entitlements

13

Over-allocation & Over-entitlement

Options

1. Voluntary acquisition

2. Market-assisted pro-rata compulsory acquisition

Paid 2 years in advance

No administrative charges for a trade

All exit fees paid

Tax advantage for some

14

Political and public accountability

Outcome 8

Regular, transparent assessments of performance against defined benchmarks.

Prescribed accountability to a Minister and to Parliament.

Ministerial powers of direction defined and specified.

Powers and Functions

1. A requirement to consult widely, be transparent and make information available in a timely manner.

2. Ministerial intervention authorised whenever Authority decisions are inconsistent with agreed outcomes and powers.

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What matters?

1. That we get the detail right

2. That Australia solves this problem for once and for all

Single system managed apolitically

Efficiently

Equitably

In harmony with the environment

3. A system that enables Australia to retain its “clean and green reputation”

Contact:

Prof Mike YoungWater Economics and ManagementEmail: Mike.Young@adelaide.edu.auPhone: +61-8-8303.5279Mobile: +61-408-488.538 www.myoung.net.au

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