Water Reform: Learning from Australia Irrigation New Zealand Conf, 14 October 2008 Prof Mike Young, The University of Adelaide.

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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