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Water Security and Regional Development in Australia ARCRNSISS-ANZRSAI Conference Adelaide, 2 nd December 2008 Water Security and Regional Development in Australia ARCRNSISS-ANZRSAI Conference Adelaide, 2 nd December 2008 Prof Mike Young, The Environment Institute The University of Adelaide December 2008

Drought & climate shifts Drought & climate shifts

How did we get it wrong? • Robust policies were not in place • How did we get it wrong? • Robust policies were not in place • Lacked – – Hydrological integrity Economic integrity Environmental integrity Institutional integrity • Our social and biophysical scientists failed to communicate messages adequately

Water withdrawals per capita Australia = “The driest inhabited continent in the world. ” Water withdrawals per capita Australia = “The driest inhabited continent in the world. ” Iraq Australia New Zealand United Kingdom (Australia = 135/161 countries) “We have a water management problem not a water supply problem!” Business Council of Australia 2006

Urban Water Urban Water

Hydrological integrity – changing dsns - 1% - 3% Hydrological integrity – changing dsns - 1% - 3%

Economic integrity Lack competitive pressure – Full cost pricing – for every drop – Economic integrity Lack competitive pressure – Full cost pricing – for every drop – at every location – Scarcity pricing • Lack competitive pressure – Lack diversity – Recycling, stormwater, desalination, technology

Direct Costs of Water Supply/Demand Options (Sydney, Adelaide, Perth, Newcastle) Source: Marsden Jacob 2006 Direct Costs of Water Supply/Demand Options (Sydney, Adelaide, Perth, Newcastle) Source: Marsden Jacob 2006 • The price of urban water supply and security is rising! • Who should bear the financial risk for increased security in a world of climate shifts and change? • Security is expensive

Building and subdivision incentives Source: Marsden Jacob 2005 PMSEIC 2007 Developer & Builder ~ Building and subdivision incentives Source: Marsden Jacob 2005 PMSEIC 2007 Developer & Builder ~ 80% 1. – 2. 3. Owners & Occupiers ~ 20% Developers required to source urban water entitlements prior to subdivision Potential sources • • Irrigators Urban storm water credits Aquifer storage and recovery House design Urban infill and extensions under same regulatory disciplines as new homes Mandatory disclosure of water efficiency at house sale

Social integrity • Inclining block tariffs are inequitable • Especially when many fixed charges Social integrity • Inclining block tariffs are inequitable • Especially when many fixed charges in place – Target directly • Offer rebates to the needy • Charge for volume used

Environmental integrity NWI. . full cost recovery for water services to ensure business viability Environmental integrity NWI. . full cost recovery for water services to ensure business viability and avoid monopoly rents, including recovery of environmental externalities, – Use separate instruments and differentiate by externality typ • Upstream • Local • Downstream – Offset rewards – Stormwater credits – Sewage charges based on load and volume

Institutional integrity • Pricing decisions involve politics! – Why? • Appoint an independent price Institutional integrity • Pricing decisions involve politics! – Why? • Appoint an independent price regulator – Move away from uniform pricing – Move toward cost-reflective pricing in a world where third parties can compete • Institutional unbundling

South East Qld’s unbundled admin. structure GRID MANAGER South East Qld’s unbundled admin. structure GRID MANAGER

Rural Water - Murray Darling Basin Rural Water - Murray Darling Basin

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

With half as much water Users Environment River Flow With half as much water Users Environment River Flow

Hydrological Integrity • Ground - surface water connectivity • Interception by – Plantation forestry, Hydrological Integrity • Ground - surface water connectivity • Interception by – Plantation forestry, small farm dams, overland flow capture, salinity interception • Return flow erosion – Assign an entitlement to the environment – Require 100% offset of interception – Link ground & surface water entitlement systems

Environmental integrity • Dredges in mouth since Oct 2002 • Over-allocated and over-entitled – Environmental integrity • Dredges in mouth since Oct 2002 • Over-allocated and over-entitled – Secure entitlements for environment – New agreement once Act is passed – Transfer control of environmental entitlements in regional trusts

Social integrity • Restrictions on trade and adjustment have impeded rather than facilitated and Social integrity • Restrictions on trade and adjustment have impeded rather than facilitated and expedited change • Focused on infrastructure rather than changing entitlement regime – Speedier buyback – Exit payments for sale of entire entitlement – No restrictions on trade out of district – Payment of termination fees

Economic Integrity • Unrestricted water market • Faster settlement • Missing externality market – Economic Integrity • Unrestricted water market • Faster settlement • Missing externality market – Settlement within two days – Linked registers – Allocate salinity credits to individuals

Institutional integrity Flood water Volume of water available Entitlements Environment with a Environment fully-specified Institutional integrity Flood water Volume of water available Entitlements Environment with a Environment fully-specified share Water needed to ensure conveyance Shared Water All run by an independent Authority

The next MDB challenges 1. Backing the Murray Darling Basin Authority – Murray Darling The next MDB challenges 1. Backing the Murray Darling Basin Authority – Murray Darling Basin Authority and a new Basin Plan – A robust sharing regime – – Combine infrastructure and acquisition money ($3. 1 b is not enough) Expedite expenditure • What do we give up? How clever can we be? 2. Developing a Basin Plan that has climate and accounting integrity 3. Securing an environmental share in a timely manner 4. Reconfiguring the River, its lakes and wetlands 5. Removing all barriers to trade and rationalising infrastructure investment

“We don’t have all the answers – nobody does – but before we start “We don’t have all the answers – nobody does – but before we start laying bricks and mortar, we have got to get the foundations right, otherwise the cathedral will tumble with the smallest of tremors. ” Peter Cullen Wentworth Group of Concerned Scientists

Download our reports and subscribe to Jim Mc. Coll and my droplets at www. Download our reports and subscribe to Jim Mc. Coll and my droplets at www. myoung. net. au Contact: Prof Mike Young Water Economics and Management Email: Mike. [email protected] edu. au Phone: +61 -8 -8303. 5279 Mobile: +61 -408 -488. 538 www. myoung. net. au