Global Water Scarcity Gap – billions m 3

The Environment InstituteWhere ideas grow

Running out of waterWhat would a robust allocation system look like?

Mike Young Executive Director, The Environment Institute

The Environment Institute

Life Impact The University of Adelaide

Global Water Scarcity Gap – billions m3

After 2030 Water Resources Group



Change - an enduring process• Increasing demand

– Population– Wealth

• Changing prices and costs• New technology• Adverse climate change



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Rainfall for Jarrahdale

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48% less66% 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

- 1%

- 3%



With half as much water, how much can you use?

Users

Environment

River Flow

Environment

River Flow

Users

River Flow

Environment

Users



Robustness• Confident the regime will work, no matter what

climatic, economic and technological futures arrive

• Likely to withstand the test of time• Recover gracefully and autonomously from shocks• Three examples

– Companies– Double entry accounting– Torrens Title Land system



Three principles• Tinbergen Principle

– As many policy instruments as policy objectives• Mundell’s Assignment Principle

– Assign instruments for maximum leverage• Coase Theorem

– Minimize transaction costs



Volu

me

of W

ater

in t

he S

yste

mIndicative template – regulated river systems



A fully-specified system

9

Water needed to ensure conveyance

Entitlements Environment

Flood water

Shared WaterEntitlements

Volume of w

ater available

Environment with a fully-specified share



Water

Tradable Right PriceLand

Single Title to

Land with aWater Licence

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



Managing risk• Two entitlement pools

– High security– Low security

• High security pool – % of 10 year moving average of all allocations

• Individuals can hold any combination of high and low security entitlements

• Critical Human needs may justify a third“Very high security” pool



Water system accounting 101• Flaws have eroded River Murray Health• Dredge in Oct 2002• A few accounting flaws in our entitlements

– Forests– Dams– Groundwater– Return flow (increased efficiency)– Salinity interception

• When someone takes more, some-one else must take less• Better to be approximately right rather than comprehensively wrong



Environmental water• Need new language• Differentiate between maintenance of base

flow and watering beyond the stem of the river

• Full specification of entitlement– 100% = X + (1 – X)– Don’t need a cap nor a sustainable diversion limit



A single entitlement registerSouthern MDB

RiverFlow

Env CIT FloodWater

State Users

CIT

RIT

Other

SA Vic ACT NSW

CE

WH

Trust 2

Trust 3



text

Summary• At the global level Australia is leading

development of water policy

• But we are way behind where we should be• Our systems need robust specification• Is it “reasonable” for the Commonwealth to

insist that this happens

The Environment InstituteWhere ideas grow

www.adelaide.edu.au/environment

www.myoung.net.au

http://www.adelaide.edu.au/environment

http://www.adelaide.edu.au/environment

http://www.myoung.net.au/



Australian mistakes & innovations1. Regime arrangements

1. System connectivity => manage GW and SW as one2. Capped the wrong thing => cap entitlement potential not use3. Return flows => account for them4. Unmetered uses => include them5. Climate change => plan for an adverse shift6. The environment’s share => define it and allocate to it7. Storage Management => include in trading regime

2. Individual arrangements1. Registers => validate them early2. Entitlements => define entitlements as shares3. Trading => get transaction costs and settlement times down4. Not enough instruments => needed to unbundle5. Inter-seasonal risk management => allow markets to optimize carry

forward6. Company control => allocate entitlements to individuals

Global Water Scarcity Gap – billions m 3

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