Prof. Mike Young Research Chair, Water Economics and Management The University of Adelaide 4 th Annual Australian Water Summit, Sydney, 29 th April 2008 Tackling Australia’s water crisis

2 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

3 Future-proofing the Basin 1.Replace the Cap with an enforceable sharing system Maintenance water Shares for all non-flood water 2.Build a new register and accounting system designed to facilitate change 3.Use trusts to make the environment a shareholder 4.Require off-set of all processes that erode entitlement reliability 5.Review system configuration from top to bottom

4 $5 billion now or up to $10 billion over 10 years? Pay $3.5 billion just and fair compensation now to Southern Irrigators for a future-proofed regime to commence in 3 irrigation season’s time. (A confident step change, a new Agreement, a sustainable future)

5 Benefits of a new regime 1.An end to the erosion of entitlement reliability 2.A property-right regime that is secure 3.Investment confidence 4.Efficient and speedy interstate trade 5.Efficient adjustment with a level playing field among irrigation companies and irrigators 6.Reduction of opportunities for speculation 7.Immediate injection of money into communities

6 The Murray Darling Basin? Where’s the most urgent problem?

7 P1. Lack of Planning for long drys DRY WET Total River Murray System Inflows (including Darling River)

8 Re-live from

9 P2 Interception & double counting 0GL1,200GL2,400GL3,600GL Plus salinity interception Plus overland flow capture Solution Require interception to be offset (save GL) Surrender entitlements equal to deemed impact

10 P3. Infrastructure modernisation 1.Accounting  Seepage and leakage already goes to the river  As a general rule, modernisation is borrowing from the future 2.Adverse economic impacts  Selective modernisation investments impede efficient investment  Selective modernisation investments discourage innovation  Uncertainty hurts communities in efficient irrigation areas Solution As required under the NWI, all irrigators should have to pay the full cost of supplying water to them Would a confident once-off payment be better?

11 P4. Inefficient storage management Back to empty Inflows have dropped 68% but use has only dropped 12% Solution Allow saving (Carry forward) of all water with an adjustment for evaporative losses

12 P4. Borrowing from the future Date (month/year) 0.5 Level with Maximum Net Evaporation (1982) Conditions Level with 90th Perc. Evaporation / 10th Perc. Rainfall Conditions Observed Lower Lakes Levels /08 10/084/09 0.0m -0.5m -1.0m Lake Alexandrina Level: Forecasting from 19 March 2008

13 P5. Insufficient planning for less water - 1% - 3%

14 Adverse climate change Mean supply 10,000 River & Storage Evap 2,000 Flow to sea 2,000 Deliverable water 6,000 Environment Use 1,500 Consumptive Use 4,500 0 Mean supply 7,000 River & Storage Evap 2,000 Flow to sea 2,000 Deliverable water 3,000 Environment Use 1,500 Consumptive Use 1,500 0 In Mediterranean climates, a 10% decline in mean rainfall results in around a 30% decline in mean storage inflow 10% less rain water means a 67% reduction in allocations unless the system is resized

15 P6. Over-allocation The environment is the interest that always loses  Irrigation security at cost of Environmental Security  83% reductions from environment  17% reduction from users Solution Give the environment a share that has the same status as that given to all other users (as in NWI) Entitlement purchases for environment is doing this!

Volume of Water in the System Indicative template for sharing water among States and with the environment

17 P7. Governance and Administrative Failure 1.Lack of investment security MDB Agreement run by a senior official’s group Water Sharing Plans suspended 2.The current volumetric cap on diversions is not enforced and not enforceable Solution Replace a cap on diversions with a sharing regime designed to cope with adverse climate change Formal announcement system Use an independent authority to - determine how much water is needed for maintenance - Allocate rest to share holders

18 Future-proofing the MDB Future-proofed entitlement systems  First commitment is to maintain the system  Then to share the remaining non-flood water Environment as equal shareholder Enforceable register and accounts Efficient storage and adjustment markets  Carry-forward  Instantaneous, low cost trading Require offset of all increases in un-metered and un-meterable water use  Forestry, dams, salinity interception, leakage prevention, etc No selective government investment in infrastructure  A level playing field with full cost pricing  Financial recompense paid to all entitlement holders and adequate warning about the nature of the once-off change to be made

19 CoAG’s MOU & future-proofing 1.New Authority under Commonwealth Minister 2.Maintenance water => Critical Human Needs 3.Sustainable cap from 2011? Ok if % share of inflows after maintenance (or a limit on max diversions)  To states & changes the MDB Agreement immediately  To environment 4.Sustainable Cap enforcement => New incentive system could require 5.Offset of interception => missing 6.Speedy interstate trading & announcement discipline=> ACCC may be able to achieve 7.Carry forward of water in all states => SA for critical but not irrigation or env 8.Investment and savings issues to be resolved  Full-cost pricing but Commonwealth investment?? 9.Refilling the system  Can the system that got the River into trouble get it out of trouble if the long dry continues?  Unless it rains, purchasing and modernising may not be fast enough  Does environment get entitlement identical to users from savings? 10.Downsizing and reconfiguring the system => State projects? Will States address the big reconfiguration opportunities

20 An Agreement, an Act& an MoU? 1.An MDB Agreement to set C21 foundations An Independent Authority River maintenance and interstate sharing rules Storage sharing Interception offset 2.An Act & Basin Plan to guide planning and implementation 3.An MoU that sets in place the transitional strategy

21 Ways forward 1.Stakeholder consultation 2.Ensure due diligence on savings 3.An immediate implementation trigger 1.If inflows stay low 2.If salinity at bottom of system remains high 4.An implementation trigger requiring Sustainable caps expressed as shares of inflows & recharge Independent Authority assessing amount needed for maintenance and then allocate remainder to state and env shareholders 100% offset of interception SA Access to dams but no border guarantee Financial recompense to expedite change

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