Prof. Mike Young Research Chair, Water Economics and Management The University of Adelaide “Water, wine and horticulture: A Scholefield Robinson Horticultural Services Seminar” Chifley Hotel, 18 th September 2007 River Murray Water Supply Where is your future headed?

2 Changes in rain and water supply

3 Sydney - 25% - 75%

4 If it gets drier Less rain means much less water

5 Melbourne

6 Year (financial year ending) Inflow to Lal Lal Reservoir (ML) Lal Lal, Victoria in-flow Levels Average post ,600 ML Average pre ,400 ML

7 Total Murray-Darling Basin inflows Annual flows (year ending June) showing forecast for 2006/07 Source: Craik, MDBC 21 years

8

9 900 GL for use

10 Salinity at Morgan

11 Salinity Lake Alexandrina

12 Lake Alexandrina Level -0.5 m

13 Problems 1.Over-allocation  When too much is allocated to users and not enough to the environment and for system maintenance & operation 2.Over-entitlement  When more is allocated than exists 3.Interception  Activities that by reducing river flow debase reliability 4.Inefficient storage management  When too much or too little is left in storage and in the system itself 5.Administrative inefficiency  When transactions take too long to complete  When there is un-necessary duplication  When there are barriers to adjustment

14 Over-allocation and over-entitlement A dredge was put in the Murray Mouth in October 2002 – before the drought! Nature’s solution to this problem is to debase the reliability of your entitlement. Governments can purchase entitlements and either Cancel them when over-entitlement is the problem Re-assign them to the environment when over- allocation is the problem Can change fixed volume entitlements into shares

15 Flow interception Flow reducing activities 1.Increased forestry 2.More farm dams 3.More groundwater development 4.Increased irrigation efficiency 5.More lined channels and more piped water 6.More salinity interception Two Risks 1.Climate change 2.Bushfires

16 Language SA is unbundling its holding and taking licence system Entitlements  A share of the amount allocated for use in any year Allocations  The amount that is allocated for use or for trade

17 Risk management reforms 1.Guaranteed allocations Once made, they can not be reduced without compensation 2.Access to the system’s dams  Carry forward with adjustment for evaporation 3.A tradeable share of the cap as a maximum delivery entitlement

18 Entitlement reliability reform 1.Transfer SA entitlements to a common register with NSW and Vic  No state differences between SA, Vic or NSW entitlements  A formal allocation for River maintenance and operation 2.A guaranteed flow to the sea and no guaranteed flow over the SA boarder 3.Entitlements defined as shares of the available water in two reliability pools in each part of the system  High security adjusted for long run trend  General security varies with seasons

19 Trading reforms 1.Internet-based access to your water account 2.Guaranteed register integrity 3.Instantaneous trading of allocations 4.Announcement timing synchronised across the Basin 5.Low-cost and speedy entitlement trading Two days maximum time Less than $60 per trade Electronic mortgage clearance and settlement 6.Unbundled entitlements, allocations and use approvals

20 Adjusting to a new regime 1.The system has been seriously over-allocated for some time 2.Adjustment styles  Impede  Facilitate  Expedite 3.Avoid any program that impedes structural adjustment 4.With much less water there must be less irrigation and fewer environmental assets  Sacrifice on both sides will be necessary

21 Environmental water reform 1.Hold entitlements in a trust at arms length from any decision making about seasonal allocations and trading rules 2.Support counter-cyclic trading 3.Source water using off-market mechanisms

22 Options 1.Continue to debase your entitlement 2.Bring all flow reducing activities into the allocation regime 3.Voluntary acquisition 4.A market-assisted step change  Paid 2 years in advance for a percentage reduction in your entitlement  Paid above market value => Just terms  Waive all water trading charges for two years  Pay all exit fees  For income tax purposes defined as compulsory acquisition Ending Over-allocation & Over-entitlement

23 What you can do Manage your own risk 1.Determine the breakeven price at which it pays to sell rather than use water Review your assets carefully 2.Expect minimal allocations for the next few years 3.Invest in water entitlements in NSW and Victoria 4.Carry forward water if you can 5.Invest in river water entitlements that are outside irrigation districts and, hence, exempt from exit fees Trade allocations in but think twice before trading entitlements into a district

Contact: Prof Mike Young Water Economics and Management Phone: Mobile: Subscribe to our Droplets at