Transcript 20041019_csiro_powerpoint_template.pot

Presentation to AARES Conference on “Australasia’s
Resource-Based Industries in a Future World”
Looking back on Australasian
water policy from 2027
Prof. Mike Young# and Jim McColl*
Research Chair, Water Economics & Management
The University of Adelaide
#
* Research Fellow, CSIRO Land and Water,
Queenstown, Thursday 15th February 2007
A caveat
Predicting the future is risky.
We do it to discover what might go wrong.
And how we can improve the future we actually
experience.
What follows is fictional,
It is offered in good faith.
We try to bring together what the profession is
recommending.
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3 Case study histories
Southern Connected River Murray System

Large surface water system with very large storage
indirectly connected to a series of slow moving
groundwater systems of varying quality
South East of South Australia

Pure unconfined groundwater water
Canterbury Plains

Fast-flowing, highly variable surface water system
with minimal storage

Connected to a fast flowing unconfined aquifer
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Climate shifts occur
8yrs.
11yrs.
A drought, Australia should have expected (not a 1 in 1,000 years event)
4
River Murray Inflows 2007/8
By May 2007, all Murray System dams empty
2007/8 inflows => 1,000 GL &
South Australia got its 1/3
=>
333 GL
But SA system evap. + losses =>
1,300 GL
Balance
– 967 GL
Add back Wellington weir + Lake Bonney
& triage L. Alexandrina and L. Albert
+ 1,100 GL
Available allocation to cities, vines, etc
+133 GL
Lakes became Southern Hemisphere’s Aral Sea!
5
New Governance
Well briefed, in Jan 2007 Howard requested referral of
MDB management powers to Commonwealth. Allocated $10b
to fix.
States finally agreed to an Independent Murray Darling
Basin Authority responsible for

Allocation announcements & trading rules

Entitlement registers

Stopping over-allocation from re-occurring
Moving from one political system to another was not
enough!
Interim arrangement until over-allocation fixed.
Minister for Env. and Water given complete control MDBC.
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MDB Act and new Agreement
In 2008, Act established an Authority using the “Uhrig”
Commission template

New MDB Agreement to be established as schedule
SA insisted on a detailed agreement

200GL minimum flow through Mouth to recover the Lakes and save
the Coorong

SA’s high security entitlements combined with NSW and Victoria’s
and Adelaide’s urban water tradeable

Carry over for all water in all States

Binding power referral only when over-allocation solved
(When the Agreement came into force, the Responsible
Minister was no longer Malcolm Turnbull!)
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Recovering from over-allocation
2008 Commonwealth started buying entitlements
Used simple one page buy-back offer

(The 2007 30+ page efficiency contract failed)
One year later 2,000 GL had been bought and
leased back for two years at cost of $3 billion
Some compulsory acquisition of isolated farms.
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SA’s South East Ground water system
Been progressively and quietly converting from area
licences, to meters, to volumetric allocations and then
shares over 8 years
Full volumetric allocation system from 2009 with capacity
to carry forward up to 90% of any allocation
Gave all an initial 25% carry over at the start
No-one complained. The SE NRM Board had been open,
inclusive and transparent.
Coonawarra wine just kept on coming from the system!
Dairy moved autonomously from the SA lakes to the SE.
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MDB Authority functions and powers
s. 9 The Authority, in the performance of its
functions, must pursue the objectives of

Ensure over-allocation does not recur

Efficient and cost effective management

Maximise economic efficiency in use of MDB water

Ensure accountability

Achieve cost-recovery targets
s.10 The Commission must do all things that are
necessary or convenient to be done for, or in
connection with, the performance of its functions.
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Neutralising flow-reduction activities
As the Aust. NWI gave states until 2010 to plan to fix
water interception, nothing was done until 2011
Economists, scientists, the Senate, the Productivity
Commission had repeatedly warned that about an
interception train wreck!
The 93/94 Cap was set so that only 28% of mean flow
went to the environment.
Since then flow interception by forests, by farm dams, by
increases in salinity interception, and by increases in water
use efficiency had reduced the mean flow allocation to
10%! And they were still going out backwards.
It was finally realised that this was why the lakes were
dead and a dredge was used to keep open Murray Mouth!
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Plantation Forestry offsets
South East introduced offset rules for rainfall interception
in 2006 and tapping by roots into aquifers in 2008
Forestry in top of MDB catchment costs $3,000 per
hectare in water entitlement erosion
All based upon science in Lu Zhang’s curves that forest
industry claimed was not good enough
In 2011, MDB Authority announced it was better to be
around 80% right than 100% wrong and ordered use of the
Zhang curves
States forced to surrender sufficient entitlement to offset
the estimated effect or the Authority would do it for them
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Water use efficiency and flow erosion
South East in 2006 converted area licences into
entitlements that recognised that under flood
irrigation 50% of groundwater returned to aquifer.
Decided if an irrigator moved to a more efficient
spray or drip system they would be allowed to
pump less => much less!
MDB Authority decided to try to deal with the
issue in the River Murray system.
Technical increases in water use efficiency
decreased river flow!
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Infrastructure investment and technical efficiency
Howard Plan

$3.1b for delivery efficiency gains

$1.6b for on farm efficiency gains

“savings” to be split 50:50
If the Plan went ahead 1,250 GL would have to be
purchased. => an additional 53% cost burden.
By 2009, it was realised that it was more carbon efficient
to stay with gravity fed systems and more economically
efficient to solve over-allocation by buying water and
fixing this accounting problem.
Leave structural adjustment to farmers and infrastructure
management to water supply companies.
By 2015, all water supply companies became carbon neutral
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Offsetting the effects of farm dam
As with trees, farm dams stop water flowing into
rivers.
In 2016, decided to make Local Government in
NSW and Victoria pay for the cost of offsetting
this impact. (SA had NRM board levies.)
Resulted in dramatic local government boundary
reform and transfer of NRM to local governments
now aligned with catchment boundaries.
The Authority’s power to do all necessary to stop
over-allocation from re-occurring was starting to
bite.
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Ground surface water connectivity
Under the NWI, 2014 was the D-day for Govt to
start paying compensation for scientific error.
But there was no allocation in the NWI or the Plan
for research.
New science in 2015 revealed connectivity
underestimated by 30%.
More entitlements would have to be purchased!
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Funding change
How could all this be financed?
Commonwealth already charged

A fixed fee per entitlement for system overheads

A fee in proportion to any allocation made
States charged

A fee in proportion to the volume used
In 2015, Parliament considered a return to the River.
Every year, 2% of each entitlement holding would be put up
for tender and the money used to support community
development and stop over-allocation.
The debate was whether or not to have a “River return”
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Counter-cyclical trading of Env. water
Environmental water managers can sell one year’s allocation
in a drought and use the money to buy entitlements.
By 2013, the MDBA held over 3,000 GL for the
Environment and it was a drought again.
Agreement was amended to allow counter-cyclical trading.
Early in 2014, a superannuation trust took the MDBA to
court for “insider trading”.
The claim was that the Authority announcements took into
account counter-cyclical trading opportunities.
In 2015, an Independent River Murray Environment Trust
was established.
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Water Supply Sharing
In 2014, the new Env. Trust moved immediately to broaden
the portfolio of water products it held.
Options contracts were ruled out.
Revived Murrumbidgee Irrigation’s “River Reach” Proposal
Trust purchased a “wet-period” share in a 50 GL
Murrumbidgee River entitlement.

Split allocations 50:50 split based on a 10 yr moving average

100% to irrigators when under the moving average

100% to Trust when over the moving average
Entitlement “time share” contracts were born.
By 2027, this accounted for 25% of the Trust portfolio.
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A climate-adjusted cap
In 2007, the South East decided to allocate water
volume on basis of moving average of last 5 years
recharge estimates.
Allocations would adjust autonomously with long
term supply shifts – to stop over-allocation.
Carry over of allocations allowed.
In 2010, when the MDB Authority commenced, it
immediately defined the cap as a 10 year moving
average.
The Authority defined all unconfined groundwater
within 5kms of the River as “surface” water.
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Water entitlements, registers and trading
While each MDB State has its own register, the
Howard Plan promised a single MDB register!

In 2007, new Minister for Water asked SA to unbundle
Water licence (Consent)
Entitlement
Shares
in perpetuity
Bank-like
Allocations
Use licences
with limits &
obligations
All registers transferred to Victoria.
Register integrity guaranteed.
Electronic trading of allocations started in 2009.
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Salinity Recharge Accounts
In 2016, applied to all land use not just irrigated land
Land use
Recharge rate
mm
Area
ha
Recharge
KL
Native vegetation
5
100
500
Plantation Timber
5
300
1,500
Dryland lucerne
10
400
4,000
Other Dryland
80
3,000
240,000
Irrigated
120
200
24,000
4,000
270,000
Total Groundwater load
Recharge Entitlement @ 70mm/ha/yr @ 4,000 ha = 280,000 KL
Farm Credit/Deficit
10,000 KL
Less credits sold
5,000 KL
Credits available for sale
5,000 KL
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Allocation announcements & derivatives
In late 2006, many MDB allocations were cut.
SA announced an 80% allocation and people started
trading, a month later it was cut to 70% and then another
month later to 60%.
Some NSW irrigators had water allocations they had
carried forward cancelled.
In 2008, the MDB Commission announced it would make
monthly announcements that were definitely available.
Allocations, once made, were guaranteed.
In 2009, a futures market emerged

Sydney Futures Market offered contracts on 600 ML of water to be
delivered at Griffith on 30th December.
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Barriers to water trading
In 2009, the World Bank reviewed Australian
water reform and focused on exit fees.
In 2010, the Authority enforced the ACCC’s 2006
recommendation that exit fees should not be
greater than 8 times the annual access charge.
Late in 2010, banks began were offering a 1%
discount on loans whose mortgaged was registered
on the Victorian entitlement register.
Water supply company shareholders revolted and
at AGMs across the country voted to devolve
entitlement ownership to each individual and
transfer them to the Victorian register.
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The business of water trading
Burnt by insider trading allegations in 2014, in
2015, the Authority ruled that no water supply
company could have any interest in any water
trading business.
Victoria was forced to sell off Goulburn Murray
Water’s Watermove internet trading business and
Queensland to sell off Sunwater’s trading business.
Purchased by Waterfind and the Water Exchange.
In 2018, water trading moved to the Bendigo
Stock Exchange’s electronic trading network.
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Learning from Australia - 2008
Critical to address governance, planning, allocation, trading
and Maori issues simultaneously.
Proposed new 10 point template for reform.
South Island Maori (Ngia Tahu) in partnership with fish
and game and irrigation industry leaders put forward a
vision – a proposal.
A pathway that would take NZ out of the seemingly
endless and expensive court room battles.
A way forward that would

resolve many NRM, environment and dev. issues associated with water

improve environmental quality and recreation

create opportunities for investment

autonomously adjust with climatic changes and variability
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NZ’s 10 Point Water Management Proposal
1.
Unbundling of consents into unit shares and use approvals.
2.
Shares in perpetuity with a 1% return to the Maori via tender.
3.
Independent Water Allocation & Management Boards responsible
for all connected surface and groundwater in a region.
4.
“WAM” Boards to make final non-appealable decisions on
environmental flow, abstraction limits, allocations, trading rules,
etc.
5.
No more consents when any part of a water body gets to 70% of
WAM estimate of abstraction potential. Remaining 30% shares
to be tendered. Classify water bodies as heritage, conservation
or working. There is very little abstraction in a heritage river.
6.
Credit for returns to ground and surface water systems.
7.
Mandatory off-set of impacts of forests, farm dams, and
increase in water use efficiency.
8.
Mandatory nitrate off-set trading in all pollution hotspots.
9.
Shares issued to individuals (not supply cooperatives).
10. Carry forward of unused groundwater and storage allocations.
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Insights from the future
1. Governance and robust accounting have been Australia’s
two biggest water management mistakes
2. Attention to detail is critical. Design systems for

Trading

Change (climate, technical, economic & social)

Wealth creation and environmental protection
3. Need to consider how “hard” each system is to be
worked.
Worth a Ph.D in 2027?
We hope not!
We think it is already possible to design a robust water
allocation and management system.
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The future depends upon how we talk about it
Contact:
Prof Mike Young
Water Economics and Management
Email: [email protected]
Phone: +61-8-8303.5279
Mobile: +61-408-488.538
www.myoung.net.au