1. The Environment Institute Where ideas grow Lessons about water trading from across the ditch and elsewhere Mike Young Executive Director, The Environment Institute

2. The Environment Institute Life Impact The University of Adelaide World Population => 9 b?

3. The Environment Institute Life Impact The University of Adelaide Water scarcity gap – billions m 3 After 2030 Water Resources Group

4. The Environment Institute Life Impact The University of Adelaide International Trade After Hoekstar & Chapagain 2007

5. The Environment Institute Life Impact The University of Adelaide Major MDB Water Storages

6. The Environment Institute Life Impact The University of Adelaide Growth in Basin diversions 6

7. The Environment Institute Life Impact The University of Adelaide Questions I was asked to addressed 1.Scenario analysis of different trading models 2.Would extending water consents facilitate water trading? 3.Should owners of water receive rents for the commercial use of water? 4.Who is likely to profit from the different water trading models? 5.What is the impact of water trading on end users?

8. The Environment Institute Life Impact The University of Adelaide Consent Regime First come, first served – Lawyers paradise – No reward to innovation – Minimum incentive to become efficient Pools of water where access is shared in proportion to each person’s holding – Increased role for plans – nested governance – Diminished role for lawyers in adjustment processes – Separate instruments for each objective – Financial reward to innovation and efficiency

9. The Environment Institute Life Impact The University of Adelaide Consent hierarchy 1.Area-based consents – Take as much water as you need (like) per ha 2.Standardised crop area consents – Area that can be cropped is adjusted by crop type and management practice 3.Unmetered volumetric consents – Assumed volume per ha is used to work out the crop area you can irrigate but the system is not metered 4.Metered volumetric consents – Volume taken is limited and can be reduced proportionally – Priority is managed through on weekly basis 5.Unbundled share and allocation regimes – Separated accounts and registers – Sophisticated trading arrangements,

10. The Environment Institute Life Impact The University of Adelaide Consent reform & unbundling Water Tradable Right Price Land Single Title to Land with a Water Consent Entitlement Shares in Perpetuity Bank-like Allocations Use licences with limits & obligations National Competition Policy 1993/94 Plus Cap National Water Initiative 2004

11. The Environment Institute Life Impact The University of Adelaide Regime choice As you move up the regime hierarchy 1.Total productivity can be increased as Capacity to control scarcity and variability is increased Water use efficiency is increased Environmental and recreational values can be enhanced 2.Innovation and community wealth increases 3.More “management skill” is required Irrigation management skill Environmental management skill

12. The Environment Institute Life Impact The University of Adelaide Water Reform Trading opened up

13. The Environment Institute Life Impact The University of Adelaide Annualised return to water reform After Bjornlund & Rossini 2007

14. The Environment Institute Life Impact The University of Adelaide Rent collection Specify consents as diminishing shares If 2% rent is required Offer 2% of each share holding for sale every year Allow people to buy back if they want to

15. The Environment Institute Life Impact The University of Adelaide Mistakes Australia made Massive water accounting errors – Left lots of uses out of the system – Forgot about connectivity – Forgot about return flows Started with consent systems that lacked hydrological integrity – Should have capped total consents not “use” – Should have specified consents as shares of water allocation arrangements specified in plans – Many consents got diluted as people activated previously unused water – we forgot to plan for change

16. The Environment Institute Life Impact The University of Adelaide Result Over-allocation – On average, use has to be reduced by 22-29% which means consents have to be reduced by 27-37%! Government investing – NZ$3.9 billion to buy back water for the environment – NZ$7.7 billion on upgrading infrastructure with 50% savings going to the environment – =>NZ$702 thousand per irrigator (16,600 irrigators) – Plus NZ$1.3 billion on collecting new information

17. The Environment Institute Life Impact The University of Adelaide Governance Trying to use an Independent Authority to produce a new plan that gets the fundamentals right Defining conveyance water as water needed by all users including the environment Considering giving the environment a formal consent so all users face the same supply risks The system manager is not the environmental manager responsible for over-bank flows

18. The Environment Institute Life Impact The University of Adelaide It can get drier – much drier! Perth’s dam inflow experience is real Need a system that can work out how to adjust to much less water -Quickly -Efficiently

19. The Environment Institute Life Impact The University of Adelaide Water needed to ensure conveyance EntitlementsEnvironment Flood water Shared Water Entitlements Volume of water available Environment with a fully-specified share A robust sharing system

20. The Environment Institute Life Impact The University of Adelaide Australian trading experiences Enabled irrigation system to adjust quickly to sudden changes – Willing buyers quickly dealing with willing sellers saved a lot of business and saved a lot of plantations Has driven lots of innovation Has created lots of wealth and avoided regional economic disasters in drought Solved lots of water quality problems – People willingly moved water use away from problem areas But Australia traded the Murray into trouble – Australia got some accounting fundamentals wrong – Assigned most of the accounting error risks to the environment All the mistakes Australia made could have been avoided We are still searching for the right constellation of governance arrangements and increased clarity about nesting with clarity – National – Regional – Local – Consents issued to individuals and local managers

21. The Environment Institute Life Impact The University of Adelaide Concluding observations Trading is essential for prosperity and environmental health in a changing world Design your consent system to facilitate rapid adjustment in an ever changing world But get your accounting right Make sure the environment’s future is secure as all user’s future – force risks to be shared Design constellation of governance arrangements so there is nesting clarity Change at one level should automatically – change requirements at the next level down – allow autonomous adjustment – drive innovation

22. The Environment Institute Where ideas grow www.adelaide.edu.au/environment www.myoung.net.au