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Water Reform: Learning from Australia
Irrigation New Zealand Conf, 14 October 2008
Prof Mike Young, The University of Adelaide
Which future is best?
– One that gets the fundamentals right, now?• A system that can be confidently explained
as able to cope -- whatever future arrives
– One that commits all to more decades of reform and uncertainty?• Incremental progress • No guarantee of resolution of current
problems
Definitions
• System– Catchments, rivers, groundwater, etc
• Regime– Rules, rights, obligations, administration
• Entitlements– Long-term property right
• Allocations– Water available for extraction
• Use approval– Consent to apply water to land
Australian water reform
Year Major policy initiative
1994 COAG Water Reform Framework within National Competition Policy
1995a1995b
MDB Cap introducedWater reform implementation linked to competition payments
1998 MDBC commenced Pilot Interstate Water Trading Trial
2001 National Action Plan for Salinity and Water Quality
2002 Living Murray – getting the environment a larger share
2003 National Water Initiative agreed, in principle
2004 National Water Initiative finalised
2007-8 Commonwealth Water Act
• “We don’t have all the answers – nobody does – but before we start laying bricks and mortar, we have got to get the foundations right, otherwise the cathedral will tumble with the smallest of tremors.”
Peter Cullen Wentworth Group of Concerned Scientists
Things Australia got right
• Freeing up trade before the drought• Setting a cap
– Totally stopping the allocation of any more consents (too late but better late than never)
• Defining entitlements as shares– Moving on from entitlement security and
reliability
• Giving control of irrigation schemes to irrigator-owned companies
• Salinity trading– Requiring damage to be offset
Scarcity and Trading
Source: Murray Darling Basin Commission, 2007.
Murray-Darling Basin Water Entitlement Transfers - 1983/84 to 2003/04
0
100
200
300
400
500
600
700
800
900
1 000
1 100
1 200
198
3/8
4
198
4/8
5
198
5/8
6
198
6/8
7
198
7/8
8
198
8/8
9
198
9/9
0
199
0/9
1
199
1/9
2
199
2/9
3
199
3/9
4
199
4/9
5
199
5/9
6
199
6/9
7
199
7/9
8
199
8/9
9
199
9/0
0
200
0/0
1
200
1/0
2
200
2/0
3
200
3/0
4
Tra
ns
fer
Vo
lum
e (
GL
)
0
100
200
300
400
500
600
700
800
900
1 000
1 100
1 200
1983/8
4
1984/8
5
1985/8
6
1986/8
7
1987/8
8
1988/8
9
1989/9
0
1990/9
1
1991/9
2
1992/9
3
1993/9
4
1994/9
5
1995/9
6
1996/9
7
1997/9
8
1998/9
9
1999/0
0
2000/0
1
2001/0
2
2002/0
3
2003/0
4
Intrastate Temporary (GL)
Intrastate Permanent (GL)
Interstate Temporary (GL)
Interstate Permanent (GL)
Trading has enabled • Adoption of new technology and “Greenfield” development• Rapid structural adjustment in times of extreme adversity
Benefits of trading
400
500
600
700
800
900
1000
1100
1200
2000 2001 2002 2003 2004 2005 2006
Year
Cotton Index
Sugar Index
Total crops sector Index
Total Livestock sectorIndexMilk Index
Total prices received Index
Total Grains Index
Waterdex
Psi-Delta 2007
Bjornlund and Rossini 2007
Unbundling consents
Water
Tradeable Rights Price
Land
Single Title to
Land & Water
Entitlement Shares
in PerpetuityBank-like Allocations
Use licences with limits & obligations
Delivery Capacity Shares
Delivery Capacity Allocations
SalinityShares
SalinityAllocations
National CompetitionPolicy 1993/94Plus Cap
National Water Initiative2004
Costs of not getting fundamentals right
Lessons
• Markets are servants not masters
0
500
1000
1500
2000
19
11
19
14
19
17
19
20
19
23
19
26
19
29
19
32
19
35
19
38
19
41
19
44
19
47
19
50
19
53
19
56
19
59
19
62
19
65
19
68
19
71
19
74
19
77
19
80
19
83
19
86
19
89
19
92
19
95
19
98
20
01
20
04
Ra
infa
ll (
mm
)
14% less 20% less
Rainfall for Jarrahdale
0
100
200
300
400
500
600
700
800
900
1000
19
11
19
14
19
17
19
20
19
23
19
26
19
29
19
32
19
35
19
38
19
41
19
44
19
47
19
50
19
53
19
56
19
59
19
62
19
65
19
68
19
71
19
74
19
77
19
80
19
83
19
86
19
89
19
92
19
95
19
98
20
01
20
04
Str
ea
mfl
ow
(G
L)
N o te s : S tre a m flo w is fro m Ma y o f la b e lle d ye a r to th e fo l lo w in g Ap ri l
48% less
66% less
S tre a m in flo w fo r P e rth d a m s (P rio r to S tirlin g D a m )
PERTH
Sudden shifts caught us by surprise
- 1%
- 3%
Planning for long drys
DRY WET
Total River Murray System Inflows (including Darling River)
8 yrs 12 yrs 52 yrs
River Murray inflows
With half as much water
Users
Environment
River Flow
Environment
River Flow
Users
Trading has been an essential – without it few would have survivedCarrry forward is proving critical too
Water accounting mistakes• When one person is allowed or takes a larger
share, someone else must get less!
• Return flows– Increases in efficiency have eroded everyone’s stake in the
system
• Ground – surface water interaction– Should groundwater entitlement holders have river system
shares & vice versa?
• Effects of forestry on run off and recharge
=>Water entitlements and allocation systems must be consistent with hydrological realities
Water accounting mistakes
0
200
400
600
800
1000
1200
1400
1600
0 500 1000 1500 2000 2500 3000
Annual Rainfall (mm)
An
nu
al E
vap
otr
ansp
irat
ion
(m
m)
Forest
Mixed veg.
Pasture
unknown
Schrieber (forest)
Schrieber (grass)
250 mm = 2.5 ML/ha/yr @ $3000 /ML * 0.80% = $6000/ha
Grass
Trees
Sharing regimes
Generalised framework
Scale Policy Objective
Distributive Equity
Economic Efficiency
Environmental Externalities
System-wide Management(Strategy)
Sharing regime
Seasonal allocation of water to pools
Trading Protocols
Catchment Plans
River flow and quality protocols
Individual users (Using the market)
Individual entitlements
Individual allocations
Water-use approvals
Volu
me o
f W
ate
r in
th
e
Syste
m
A robust sharing regime and allocating regulated water systems
Give the environment an equivalent entitlement
An unregulated systems
Volume available in river and storage
Vo
lum
e allocated
to en
titlemen
t ho
lders
(x)
(1-x)
Consent systems
Lessons from across the trench
1. Sharing regime arrangements1. System connectivity – manage GW and SW as one2. The sustainability limit – cap the total entitlement pool3. Unmetered uses – include them4. The environment’s share – define it and allocate water to
it5. Climate change – design for an adverse shift
- differentiate between river & environmental water
2. Consent arrangements1. Shares – issue them in perpetuity2. Registers – establish them and validate them early3. Meters – use them4. Trading – get the costs and time to settle a trade down 5. Inter-seasonal risk management – allow markets to
optimise carry forward and aquifer storage6. Use approvals – give them in advance
A way forward 1. Develop a principled and visionary national water
reform agenda for this century• Focus on the reform sequence early• Plan to stay out of trouble
2. Require each region to develop a robust entitlement regime.
• One that can be explained confidently as likely to work.
3. Issue entitlement shares and make allocations in a manner that has
• Hydrological integrity• Environmental integrity• Economic integrity
4. Develop share and allocation trading protocols • Don’t freeze out innovation – allow trade, expect and facilitate
change
5. Unbundle consents for control• Give yourself enough levers to be able to manage the complexity
6. Minimise the role of courts
The foundations
to your cathedral
are waiting to be built!
Contact:
Prof Mike YoungWater Economics and ManagementEmail: [email protected]: +61-8-8303.5279Mobile: +61-408-488.538 www.myoung.net.au
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