1. IAAE 2006 Water Resource Policy

2. IAAE 2006 2 Who is winning? Who is bravest?

3. IAAE 2006 3 Water Policy Reform Much in common  India, Vietnam, NZ, China, Australia and USA Important Observations  Substantial gains from trading  But be careful, look beyond water prices and markets (infrastructure, governance)  Setting up markets is a long and tortuous process Issues  Savings – who gets them?  Governance – what structure for large systems?

4. IAAE 2006 4 Water as commodity 1.Input into production system  Intensive margin (Technology)  Extensive margin (Land-use change) 2.Supplier of unpriced ecosystem services 3.Ground and surface systems are connected  Efficient production of all goods and services is the goal

5. IAAE 2006 5 Top down v’s bottom up market development China and India are trialling bottom-up  Evolving  Progressively expanding the scale Australia now trying to align its systems Research Questions 1.Decide where and how entitlements should be defined  How many types?  Farmer, village, regional and system level? 2.Governance systems that work across scales – who is responsible

6. IAAE 2006 6 Social v’s Private Contracts – Meenakshi Social Contract (equity) Private Contract Tube well owners also have land without wells Repeat player game

7. IAAE 2006 7 Vietnam – Jim, Mark & Claudia “Charge-subsidy” reveals problem with pricing approaches  Unusual way of describing the first step in a process of assigning quasi-entitlements and eventually establishing entitlement and allocation markets

8. IAAE 2006 8 Starting up markets – Irene Parminter Very difficult to begin, systems takes time to build. China is trialling bottom-up approach Australia fixing up problems that a plethora of systems created NZ is searching for a template for unregulated, fast changing systems  How many formal products in one region? Sequencing is critical  Markets can allow you to trade into trouble and increase the cost of fixing problems Theory  Trading prices for scarcity  Then only have to get a supply charges and contracts right and manage externality

9. IAAE 2006 9 China – Jinxia, Ric and Steve Moving to trade but have not started on price Challenges  Urban-Rural transfer (Australia & USA too)  Rural-Environment Major warnings  Infrastructure capacity  Supply reliability (India on electricity)  g-water connectivity Yellow River over-allocation solved administratively! (After 17 in 20 yrs no flow it reflowed in a drought)

10. IAAE 2006 10 Climate change and over-allocation John Quiggin Need state-contingent allocation rules Market v’s administrative control of storage? (Dams stop small floods) Unbundle at two scales  Individual and system level  Design of robust instruments to manage for system uncertainty is in its infancy

11. IAAE 2006 11 Salinity and Wetlands – Keith & David Reuse provides opportunity Discounting Compensating projects Permit trading and banking

12. IAAE 2006 12 Environmental water management - Anna Heaney As markets develop more and more products will emerge State contingent instruments (Portfolio)  Entitlements  Option contracts  Leases Counter-cyclic trading has big potential  but has challenging governance implications

13. IAAE 2006 13 Frontiers 1.Governance (Institutions) 2.Accounting Flow reducing activities (risks) System losses 3.Exchange rates 4.Infrastructure management (Privatize?) 5.Third party aspirations 6.Communication

14. IAAE 2006 Design Contact: Prof Mike Young Water Economics and Management Email: Mike.Young@adelaide.edu.au Phone: +61-8-8303.5279 Mobile: +61-408-488.538