Water policy reform – moving ahead Presentation for the Water Policy in the MDB Workshop 22 October 2010 Will Fargher, General Manager Water Markets and Efficiency Group 1

National policy developments

National Water Initiative

A nationally compatible market, regulatory and planning based system

Fundamental NWI reforms Unbundled water rights and markets Clarity and security; efficient allocation; flexibility during challenging times Pricing and best practice institutional arrangements Encourage efficient and sustainable water use; promote efficient investment; encourage innovation and ensure appropriate service delivery; manage externalities Environmental water management Plans to include clear and measurable objectives and associated water required; secure entitlements; accountability in management and reporting

Reform agenda, implementation and assessment

Some Commission assessment and information products First published in 2007 Provides independent assessment of progress in water reform Biennial Assessment of Australian Water Reform Published annually (2008, 2009) Statement of market trends and activities Market performance as an institution Australian Water Markets Report National Performance Reports (NPR)Impacts of water trading in the sMDB Published 2010 Assessment of economic, social and environmental impacts in southern MDB Produced again in 2012 Published annually (2007,2008,2009) Reports on performance urban and rural water service providers

Water entitlement reform

Water trading

Achievements of tradable entitlements and markets Major benefits in managing the drought, facilitating autonomous adjustment, accessing finance, and encouraging investment Realising benefits at farm, industry and regional level Total trade in of around $2.8 billion High reliability entitlements trade around $2000/ML Total trade of entitlements was 1800GL in , up 95% from the previous year Around 7% of total entitlement volume was traded in Australia in

Achievements of best practice pricing and institutional reforms Separation of policy, regulatory, service delivery functions Prices set independently to recover efficient costs and return on investment Increased transparency; cross-subsidies largely eliminated Elimination of allowances and property value based charges Application of two part tariff; uniform usage charge applying to all water used and based on long run marginal cost Efficiency improvements and greater utilisation of capital enabled real price reductions in 1990s Profitability has improved and businesses can expect a commercially viable return

Achievements of environmental reforms Increased awareness of environmental water Improved water plans to promote environmental water management A view expressed on how much is needed for sustainability (versus how much can be spared) Institutional arrangements in place for Purchase of entitlements for environmental purposes Environmental water managers established Conditions on licences (particularly in absence of extensive water plans, i.e. TAS, NT, WA)

Climate change and drought

Climate change and flood

New pricing and institutional challenges Planning and institutional failure – evidenced by shortages, suspensions, protracted restrictions and rush for government to invest in new infrastructure Evidence of inefficiency in supply augmentation and demand management measures Risks (e.g. climate change, growth, population, energy nexus) and responses mean a new higher- cost path for water supply and management Not enabling or incentivising the emergence of an optimal mix of supply and demand side measures for efficient and sustainable water management

Further unbundling of surface and groundwater Clearer specification of entitlements to new sources and products Tradable entitlements for major urban water users and groundwater Improving timeliness and quality of information Accounting, registers, metering, compliance Structural reform of the urban water sector to create competitive pressures for water supply and delivery Scarcity and externality pricing Further institutional and governance reform Future reforms to underpin markets and pricing

Falling short on holistic environmental water management

Plans clearly specifying conservation values and achievable environmental outcomes More clearly defined and delivered held and planned environmental water Authority and resources to provide sufficient water at right time and place to achieve identified outcomes, including across borders Monitoring, review and reporting on outcomes, and the adequacy of water provision and management arrangements in achieving outcomes Reconsider objectives and mechanisms in an adaptive management approach Further opportunities for environmental water reform

Deal with structural adjustment Remove measures to address concerns about the localised community impacts which cause confusion, distort smooth adjustment, add unnecessary cost, and undermine confidence in water management Recognise that NWI fundamentals are critical to dealing with change Encourage individuals and entities to make decisions Invest to understand and monitor adjustment issues The success of national water reform may depend on how well the adjustment process proceeds in irrigation dependent communities

To ensure that water reforms endure, it is essential that they be accepted by the community Tough decisions still need to be made, but Australians are more likely to accept decisions involving some hardship if they understand and support the goal Better communicate costs and benefits Especially those benefits flowing from more sustainable levels of extraction and a more sustainable, confident and certain irrigation sector Public and industry not always clear on the case for reform Get the soft stuff right – community partnerships and communication

What the NWC is doing Priority rural and urban projects in include Review of water pricing reform under the NWI Australian water markets report Assessing factors affecting the development of water markets Storage access provisions: costs and benefits of further reform Investigating structural adjustment programs and policies Australian environmental water management report Making the economic case for reform Developing future directions in the urban water sector Focussing on concerns about optimal investment in and use of a mix of supply and demand side measures Informing the need for, the shape and key elements of contemporary national water reform