Transcript 20041019_csiro_powerpoint_template.pot

Note these slides formed the basis of a full morning seminar/workshop with water
managers and water users in Wellington on 9th February 2007 and then again in
Christchurch on 13th February 2007. For a more complete understanding of this material
it is recommended that readers download the following two other documents located on
our at the links below
http://www.myoung.net.au/water/publications/cwrj300165.pdf
http://www.myoung.net.au/water/publications/Sharing_water_060221p.pdf
C21 water policy opportunities for NZ
Prof. Mike Young
Research Chair, Water Economics & Management
School of Earth and Environmental Sciences
The University of Adelaide
Friday 9th February 2007
River Murray Inflow
5400
GL/yr
6300
GL/yr
Source: MDBC 2006 & Craik 2005
2
High level water reform agenda
Year
Major policy
1994
COAG Water Reform Framework within National Competition Policy
1995a
1995b
MDB Cap introduced
Water reform implementation linked to competition payments
1998
MDBC commenced Pilot Interstate Water Trading Trial
2001
National Action Plan for Salinity and Water Quality
2002
MDBMC started Living Murray process
2003
COAG agreed, in principle, to implement a NWI
2004
COAG finalised NWI
2007
Howard Water $10 billion Plan for Water Security
3
Major Australian mistakes
1. Serious Water accounting errors
2. Poor consultation and engagement
3. Mis-communication of what an entitlements are
4. Failure to act early on over-allocation problems
5. Introduced trading without addressing over-allocation simultaneously
6. Forgot to plan for change
7. Forgot to build registers with attention to detail and integrity
8. Forgot to design for low transaction costs
9. Poor pricing policy and charging policies
10. Allocated water to corporations not individuals
11. Plans not statutory
12. Created a “run to Canberra” for money game
4
A Robust System
Single Title
to
Land & Water
Water
Land
Tradeable Rights
Entitlement
Shares
in perpetuity
Channel Capacity
Shares
CoAG’s
1990’s Vision
Bank-like
Allocations
Channel Capacity
Allocations
Price
Use licences
with limits &
obligations
Salinity
Shares
Solution for
C21?
Salinity
Allocations
5
Theoretical Design Foundations
Tinbergen Principle (NP in 1969)
 For dynamic efficiency
=> One instrument per objective
Mundell’s Assignment Principle (NP in 1999)
• For dynamic stability
=> Pair instruments and objectives
for greatest leverage
Coase Theorem (NP in 1999)
 To minimise adverse effects of entitlement
mis-allocation on economic activity
=> Ensure very low transaction costs
Water Policy Goals
•
Distributive Equity
•
Economic Efficiency
•
Manage Environmental
Externalities
Three Part Separation
Entitlements
=> Equity instrument
Allocation
=> Efficiency instrument
Use licence
=> Externalities instrument
Entitlements
Allocations
Use Approvals
8
Generalised framework
Scale
Policy Objective
Distributive
Equity
Economic
Efficiency
Externalities
Individual Entitlements Allocations
Use licences
(approvals)
Total
System
Catchment
Plans
Water
allocation
plans
Trading
Protocols &
Accounting
Rules
Register integrity
River Capacity
Administrative Error Management Rules
Risk
Bulk water licence
& ownership
Channel Capacity
Shares
This Feburary
Delivery
Return Flow &
Drainage Rules
Trading Fees
Administrative
Dilution Risk
Delivery Charge
A Water
Licence
Trading opportunity Permanent
Salinity Pollution
Right
Climate Change
Risk
Seasonal Variability
Risk
Trading opportunity Temporary
Split Environment &
Consumptive Use
Impact of use - on
river
Impact of use - on
groundwater Impact of use Local
Access to Sales
Water (Vic)
Carry over rules
Integrity of
(NSW)
Register, mortgages
10
Why unbundle?
Delivery
charges
Salinity
obligations
Ownership
Restrictions
Tenure
Water
Concession
or Permit
Registered interests
Low cost
trading
Water
Allocation
Volume for
use or trade
Return flow &
drainage
Delivery
Priority
Expected
Reliability
Periodic Allocations & Trading
Account Name: NZ Irrigation
Statement No: 24
Date
1/07/2001
Balance bought forward
1/09/2001
Periodic allocation
1000 shares translates to 2000 ML of
water that may be consumed
Debit
Credit
Balance
400
2000
2400
12/10/2001 Transfer from XYZ Pty Ltd
3/11/2001
Cheque No. 1234 5678
Use from 1/9/01 to 1/11/01
500
500
2900
2400
(Pumped 1000 ML and deemed to have
used 50%)
3/11/2001
Transfer from AB&CD Smith
Electronic RN 9876543
30/04/2002 Use from 2/11/01 to 30/4/02
300
2700
660
2040
420
1620
(Pumped 1320 ML and deemed to have
used 50%)
30/05/2002 Unused water not available for carry
forward to 2002/03 season
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Allocation Trading
Date ____________
Pay ____________________________________________
________ML
The sum of ________________________________ ML of 2000/01 Water
Water Trading Australia
Signature______________________
807512 085 249:0223 7851
BPay
WPay
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Entitlement definition?
1. Area that may be irrigated
2. Volume that may be stored
3. Max pump size and capacity
4. Access time &/or flow height
5. Volume that may be pumped
6. Volume pumped less estimated Qty
returned
14
Recharge Credits for return flows
Evapotranspiration
Extraction
45 ML
Gross entitlement = 100 ML
Return = 50 ML
Actual amount used
5 ML
Drainage
50 ML
100 ML
Water that returns
to the aquifer
Unconfined Aquifer
15
Water quality policy
1. Zoning to control new uses
2. Trading rules to encourage trade out of
high impact areas
3. Irrigation efficiency regulations
4. Off-set policies
5. Levies to fund investment
16
Recharge Accounts Trading
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
Rebate @ $0.10 per KL
$500
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Groundwater South East of SA
1. Standardised Crop Area Equivalent
2. Install meters
3. Volumetric conversion
4. Carry over rules
5. Define maximum volume and return flow
rules
6. Define entitlements as shares
7. Set announcement rules
8. Set trading rules
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A Robust Solution?
Single Title
to
Land & Water
Water
Land
Tradeable Rights
Entitlement
Shares
in Perpetuity
Delivery Capacity
Shares
Bank-like
Allocations
Delivery Capacity
Allocations
Price
Use licences
with limits &
obligations
Salinity
Shares
Salinity
Allocations
Unbundle, share and design for change
Contact:
Prof Mike Young
Water Economics and Management
Email: [email protected]
Phone: +61-8-8303.5279
Mobile: +61-408-488.538
National Water Initiative
Broadly, water planning by States and Territories will
provide for:
ii)
resource security outcomes by determining the shares in the
consumptive pool and the rules to allocate water during the life
of the plan.”
….
“28. The consumptive use of water will require a water access
entitlement, separate from land, to be described as a perpetual
or open-ended share of the consumptive pool of a specified
water resource, as determined by the relevant water plan.”
21
Evaluation criteria
1.
Sustainable Yield
2.
Salinity
3.
Efficient Investment
4.
Transaction Costs – For water users
5.
Administrative Costs – For Board & Govt
6.
Distributive Equity
7.
Policy Consistency – with NWI, NRM Act 2004,
Catchment Plan & Water Allocation Plans
22
South East - Eight major issues
1. “Gross” or “Nett” shares
2. Non-metered water affecting activities
3. How many entitlement pools
4. Should shares be unbundled from use approvals
5. Type of shares
6. Allocating under-allocation
7. Managing over-allocation
8. Announcement period
23
Gross or Nett Entitlements?
Evapotranspiration
Extraction
45 ML
Gross entitlement = 100 ML
Nett entitlement = 50 ML
Actual amount used
5 ML
Drainage
50 ML
100 ML
Water that returns
to the aquifer
Unconfined Aquifer
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Extracted volume
Collective Implications
Assumed aquifer return
Gross
Drainage to other aquifers,
management areas or the sea
Nett
Evaporation and Transpiration
5%
50%
100%
% of extracted volume not returned to aquifer
25
“Gross”, “nett” or “mixed” system?
Irrigation industry
Gross
Nett
Allocation cuts as
others improve
technology
More efficient use
Mixed
Arguments about inequity
may emerge
Community
Need to manage the politics
of justifying and defending
an inconsistent system.
(Inconsistencies are
emerging.)
Board and DWLBC
Reduce allocations
periodically
Less monitoring
No reductions
Need to track use
and define “assumed
aquifer return”
Criteria supporting
option
Policy Consistency
(with the rest of the
State)
Administrative Costs
Efficient Investment
Sustainable Yield
Distributive Equity
Transaction costs
Other Criteria
Salinity Control – Salinity can be controlled under either system
Indicative option
Nett allocation system coupled with a modification to the
volumetric conversion process to include evaporation in the base
26
allocation. (Remainder called an “Assumed Aquifer Return”.)
Gross or Nett Entitlements?
Evapotranspiration
Extraction
45 ML
Gross entitlement = 100 ML
Nett entitlement = 50 ML
Actual amount used
5 ML
Drainage
50 ML
100 ML
Water that returns
to the aquifer
Unconfined Aquifer
27
Water Affecting Activities
Surrender
Irrigation industry
Quarantine above a
threshold
Simplicity with
re-issue guarantee
Community
Quarantine all forestry
Existing get allocation
Inconsistent between
new & old plantations
Board and Govt
Small numbers only
Need to manage
ongoing use
Criteria supporting
option
Transaction Costs
Administrative Costs
Distributive Equity
Other Criteria
Efficient Investment, Sustainable Yield, Salinity Control
Indicative option
• Surrender coupled with a re-issue guarantee
• Surrender would apply to all significant non-metered water affecting
activities. Require any new significant water affecting activity to offset the
likely impact of that effect by surrendering entitlements equivalent to the
annual estimated mean impact of that effect.
• Authorisation would take the form of a permit authorising the significant
effect and containing clause guaranteeing permit surrender will result in
share re-issue.
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• Consider a small risk premium.
Policy Consistency
Distributive Equity
How many entitlement pools?
One share pool +
Surrendering for trees
Two share pools
+ water affecting
Three or more share pools
Irrigation industry
Simple system
Reviews focus on
sustainability issues.
Change often favours one
group over another
Community
Changes can’t favour
one over another.
Board and Govt
Focus on sustainability.
Need to manage nonmetered offsets
Difficulty in maintaining a
consistent approach
Complexity = cost
Criteria supporting
option
Sustainable Yield
Transaction Costs
Administrative Costs
Distributive Equity
Efficient Investment
Policy Consistency
Other Criteria
Salinity Control
Indicative option
A single pool for all metered use coupled with surrender
arrangements to account for water affecting activities
Arguments
about fairness
Even more arguments
29
How should shares be recorded?
Irrigation industry
Statement in
Amend existing
Management Plan holding and taking
licences
Unbundle and create
a separate share
register + use
approvals
Registration of
mortgages difficult
Lower trading costs
Increased investment
options
Environmental issues
still managed with
allocation issues
Community
Alignment with policy
change in Victoria and
elsewhere
Board and Govt
Significant change to
current policy
Criteria supporting
option
Policy
Consistency
Efficient Investment
Transaction Costs
Administrative Costs
Salinity Control
Other Criteria
Sustainable Yield, Distributive Equity
Indicative option
Unbundle and establish a separate share register coupled with
the introduction of a water accounting system to allow people to
identify how much water they have and have not used
30
Unit or Proportional Shares
Unit shares
Irrigation industry
Proportional shares
Less opportunity to change
boundaries and land use when all
agree that the change should be made
Community
Board and DWLBC
Very difficult and expensive to make
minor modifications to boundaries and
to manage changes in non-metered
use
Criteria supporting option
Transaction Costs
Administrative Costs
Other Criteria
Sustainable Yield
Efficient Investment
Distributive Equity
Salinity Control
Indicative option
Issue unit shares
Policy Consistency
31
Under-allocation
Pro-rata among
existing shareholders
Ministerial Reserve
Profit and opportunity
remains in the region
but distributed among
existing licensees
If water is auctioned
the money received
returns to
consolidated revenue
Irrigation industry
Community
Board and DWLBC
Criteria supporting
option
Policy Consistency
Other Criteria
Efficient Investment, Sustainable Yield, Transaction Costs
Distributive Equity, Administrative Costs, Salinity Control
Indicative option
Ministerial Reserve. The Board may, however, hold the view that a
pure market model should be used. If this is the case, then any
unused water should be distributed amongst all shareholders –
including the Minister – on a pro-rata basis
32
Over-allocation
Immediate
pro-rata cut
Irrigation industry
Bridging allocation
Have to buy
allocations
Community
Increase borrowing
and carry-forward
provisions
Necessary for efficient
allocation
Some see as more
equitable
Board and DWLBC
Carry forward &
borrowing to manage.
Borrowing penalties
Criteria supporting
option
Sustainable Yield
Efficient Investment
Other Criteria
Transaction Costs, Administrative Costs, Distributive Equity
Salinity Control, Policy Consistency
Indicative option
Immediate pro-rata cut in PAV to align with sustainable yield
coupled with the introduction of appropriate carry-forward and
borrowing rules.
33
Announcement frequency
Irrigation industry
Every 5 years
5 years but an option to
make an earlier
variation
5 year moving
average of annual
announcements with
thorough review
Sudden dramatic
changes should be
expected
Dramatic changes
would be phased in
Continuous signalling
of the direction of
change
Obligation to watch for
early signals of a
climate change
Rolling process that
encourages all to
accept that both
climate and weather
change continuously
Community
Board and DWLBC
Criteria supporting
option
Administrative
Costs
Efficient Investment
Sustainable Yield
Transaction Costs
Other Criteria
Distributive Equity, Salinity Control, Policy Consistency
Indicative option
Announce sustainable yield annually, convert these
announcements into a 5 year moving average.
Coupled with a 5 year review of aquifer hydrology.
34
Preferred model
1.
Define each entitlement in nett terms
2.
Use surrender approach for significant non-metered water
affecting activities with re-issue guarantee. (Risk premium?)
3.
Allow trade in surrendered forest permits, issue new permit to
existing forest activity if requested.
4.
Define each share holding on a separate share register with
separate use approval system
5.
Separate set of volumetric water accounts for each user
6.
Unit shares to define proportion of each consumptive pool held
7.
1 share per kilolitre of entitlement
8.
Place any unallocated water in a Ministerial Reserve
9.
Use carry-forward and borrowing to allow rapid alignment with
the sustainable yield in over-allocated areas
10. Estimate sustainable yield annually but allocate 5-yr rolling ave
35