1. Facilitating and Expediting Adaptation: Learning from Australia Adaptation to climate change in the desert Southwest, Tucson Arizona, January 2009 Prof Mike Young, Executive Director Research Chair, Water Economics and Management The Environment Institute The University of Adelaide

2. Big step changes occur! - 1% - 3%

3. Year (financial year ending) Inflow to Lal Lal Reservoir (ML) Lal Lal, Victoria Average post 1997 11,600 ML Average pre 1997 27,400 ML

4. Long drys – River Murray DRY WET Total River Murray System Inflows (including Darling River) 8 yrs 12 yrs 52 yrs

5. Reduced flow means much, much less use! Users Over bank flows River Flow Overbank flows River Flow Users “X% less flow” misleads resource users and resource managers

6. Two speed policy Need separate instruments for –Climate shifts Moving average of allocations? –Drought Annual Variability One signal should not mask the other All should receive both including those who hold senior water rights

7. Robust institutional arrangements Governance –Expertise-based Property Rights –Designed to withstand the test of time –Designed to evolve –Designed to facilitate change as fast as system shifts occur Not integrated but designed to work in an ever-changing world by –Identifying limits and exposing missing signals –Autonomously adjusting

8. State of the Art Shares in “Senior” and “Junior” pools Size of senior pool a function of moving average of allocations Unbundling of rights so that equity, allocation use, downstream impacts local environmental impacts and can be managed independently Appeals only to system-wide rules about change not individual transactions

9. Structural adjustment Activity and resources among firms, industries and regions A process without beginning and without end Much autonomous – outside control of govt Exposure to competition is a necessary to maintain and increase wealth Involves opportunity coupled with risk Smart systems assign responsibility for managing risk to businesses and households Climate change and climate shifts simply increase the need for structural adjustment

10. A simple 3 point adaptation policy evaluation Impede –Loans and assistance to those who did not plan adequately for the shift –Rewards for lack of preparedness Facilitate –Low cost, rapid water markets that operate without administrative of legal interference Expedite –Exit payments –Retraining programs –Welfare payments not linked to production

11. Australian Reviews – a two-edged sword Assistance to some, erodes the competitive position of non-recipients Failure to understand how measures in one market have adverse affects in other markets Farm businesses compete with one another in three markets: –The market for their products; –The market for the land they use; and –The market for production inputs, including water

12. Australian self criticism Impeding change –Increases resource degradation and ultimately makes communities poorer –Encourages innovative people move to places where there is opportunity –Encourages investment elsewhere

13. Australian self criticism Too easy for governments to impede adaptation in response to local pressures & failure to manage social and environmental externalities –Hinders those adjustments of greatest value to the community and even to an entire region Better to improve institutional arrangements –Clear definition of interests, rights and obligations –Charge full costs of resource use Better to enable dynamic market responses to changing conditions –Improve understanding of issues involved –Provide increased access to information and training –Invest in specific and targeted development and adjustment packages that expedite change

14. Concluding remarks Australian history is rich with stories of the adverse effects of attempting to shore up existing businesses rather than allowing others opportunity to adapt Where unacceptably adverse impacts might occur, the first best option is to address underlying policy and institutional arrangements

15. Contact: Prof Mike Young Water Economics and Management Email: Mike.Young@adelaide.edu.au Phone: +61-8-8303.5279 Mobile: +61-408-488.538 www.myoung.net.auwww.myoung.net.au Download our reports and subscribe to Jim McColl and my droplets at www.myoung.net.au