Prof. Mike Young Research Chair, Water Economics and Management The University of Adelaide CEDA Water Forum, Adelaide, 7 th April 2008 An implementation trigger for the MDB?

2 The Murray Darling Basin? What’s the problem?

3 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

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

5 Re-live from

6 P2 Interception & double counting 0GL1,200GL2,400GL3,600GL Plus salinity interception Plus overland flow capture Solution Require interception to be offset via the surrender of entitlements

7 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  Modernisation impedes efficient investment  Modernisation discourages innovation  Uncertainty hurts communities in efficient irrigations areas Solution As required under the NWI all irrigators should have to pay the full cost of supplying water to them

8 P4. Inefficient storage management 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

9 P4. Inefficient storage management 1.Without the capacity to save water use is too high 2.Dams are too low! Solution Allow saving (Carry forward) of all water with an adjustment for evaporative losses

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

11 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

12 P6. Over-allocation The environment is the interest that always loses  Long drys  Interception  Storage mis-management  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

13 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 Use an independent authority to - define the regime for managing allocations - treat the environment as an equal player

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

15 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  Efficient markets  Carry-forward  Instantaneous 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

16 COAG & 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 & overriding current plans  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

17 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.A trigger requiring Sustainable caps expressed as shares Independent Authority making allocations to states and env 100% offset of interception Access to dams so all manage risk Financial recompense to expedite change

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