A future-proofed MDB? Prof. Mike Young Research Chair, Water Economics and Management The University of Adelaide CEDA Luncheon, Melbourne, 22nd February 2008

The Murray Darling Basin? What’s the problem?

Changes in rain and water supply - 1% - 3%

If it gets drier Less rain means much less run-off much less water

Total River Murray System Inflows (including Darling River) DRY WET

2014 Re-live from 1938 2007 is the blue year 2014 is when it gets wet again Run from 1938

Problems Over-allocation Interception Over-entitlement ground & surface water Inefficient storage management Governance and administrative failure Lack of planning for long dry periods

Elements of a solution Hydrological integrity Complete and full accounting for all water use including groundwater and interception A step-change to a new future-proofed bulk entitlement system Designed to cope with long dry periods An environmental entitlement Empower environmental managers Timely, just and fair financial recompense Empower irrigators Empower irrigation companies

A template for a future-proofed regime Volume of Water in the System Volumetric allocation for evaporation, required transfers and losses

Detail Decide how hard to work the River What % of shared water for the environment? Issue bulk entitlement shares in surface water bodies to states in proportion to their share of the cap Establish an Authority to make allocations to shared water in all ground and surface water systems Allow water all allocations to be carried forward but carry-forward spills first and may need a delivery entitlement Guaranteed allocations & disciplined announcements Offset of all forms interception All effects of forestry, farm dams and salinity interception must be offset

$5 billion now or up to $10 billion over 10 years?

A way forward (continued) Empower the water market to facilitate change Instantaneous allocation trading Unencumbered entitlement trades within two days Option to move individual entitlements to bulk register Retain key State responsibilities for land use control Leave water delivery businesses as they are Review river-configuration Explore opportunities to reduce evaporative losses and facilitate efficient management of environmental water Incentive payments for State Competition payments

A fair and equitable transition A new Agreement that assigns bulk entitlement shares to each state and to environment trusts Individual entitlements can remain in place But allow migration to system register Timely Financial recompense Payment up-front so that all can plan with confidence Option 1 - Put around $0.5 billion aside for the Darling and $1 billion for restructuring, then transfer the remainder to industry as soon as a new MDB Agreement is in place Cheques to irrigators Cheques to irrigation companies (= Termination fee) Waive govt. entitlement trading charges Option 2 – Start with smaller environmental share and use major share buy back to secure remaining percent as quickly as possible Environment starts with, say, 10% of shared water Tender to buy the rest

Which future is best? One that gets the fundamentals right, now? A system that can confidently explained as able to cope -- whatever future arrives One that commits all to more decades of reform and uncertainty? Incrementalism

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Adverse climate change In Mediterranean climates, a 10% decline in mean rainfall results in around a 30% decline in mean storage inflow 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 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 10% less rain water means a 67% reduction in allocations unless the system is resized