The Environment Institute Where ideas grow Running out of water What would a robust allocation system look like? Mike Young Executive Director, The Environment Institute

The Environment Institute Life Impact The University of Adelaide Global Water Scarcity Gap – billions m 3 After 2030 Water Resources Group

The Environment Institute Life Impact The University of Adelaide Change - an enduring process Increasing demand – Population – Wealth Changing prices and costs New technology Adverse climate change

The Environment Institute Life Impact The University of Adelaide - 1% - 3%

The Environment Institute Life Impact The University of Adelaide With half as much water, how much can you use? Users Environment River Flow Environment River Flow Users River Flow Environment Users

The Environment Institute Life Impact The University of Adelaide Robustness Confident the regime will work, no matter what climatic, economic and technological futures arrive Likely to withstand the test of time Recover gracefully and autonomously from shocks Three examples – Companies – Double entry accounting – Torrens Title Land system

The Environment Institute Life Impact The University of Adelaide Three principles Tinbergen Principle – As many policy instruments as policy objectives Mundell’s Assignment Principle – Assign instruments for maximum leverage Coase Theorem – Minimize transaction costs

The Environment Institute Life Impact The University of Adelaide Volume of Water in the System Indicative template – regulated river systems

The Environment Institute Life Impact The University of Adelaide A fully-specified system 9 Water needed to ensure conveyance EntitlementsEnvironment Flood water Shared Water Entitlements Volume of water available Environment with a fully-specified share

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

The Environment Institute Life Impact The University of Adelaide Managing risk Two entitlement pools – High security – Low security High security pool – % of 10 year moving average of all allocations Individuals can hold any combination of high and low security entitlements Critical Human needs may justify a third “Very high security” pool

The Environment Institute Life Impact The University of Adelaide Water system accounting 101 Flaws have eroded River Murray Health Dredge in Oct 2002 A few accounting flaws in our entitlements – Forests – Dams – Groundwater – Return flow (increased efficiency) – Salinity interception When someone takes more, some-one else must take less Better to be approximately right rather than comprehensively wrong

The Environment Institute Life Impact The University of Adelaide Environmental water Need new language Differentiate between maintenance of base flow and watering beyond the stem of the river Full specification of entitlement – 100% = X + (1 – X) – Don’t need a cap nor a sustainable diversion limit

The Environment Institute Life Impact The University of Adelaide A single entitlement register Southern MDB River Flow Env CIT Flood Water State Users CITRITOther SAVicACTNSW CEWH Trust 2Trust 3

The Environment Institute Life Impact The University of Adelaide text Summary At the global level Australia is leading development of water policy But we are way behind where we should be Our systems need robust specification Is it “reasonable” for the Commonwealth to insist that this happens

The Environment Institute Where ideas grow

The Environment Institute Life Impact The University of Adelaide Australian mistakes & innovations 1.Regime arrangements 1.System connectivity => manage GW and SW as one 2.Capped the wrong thing => cap entitlement potential not use 3.Return flows => account for them 4.Unmetered uses => include them 5.Climate change => plan for an adverse shift 6.The environment’s share => define it and allocate to it 7.Storage Management => include in trading regime 2.Individual arrangements 1.Registers => validate them early 2.Entitlements => define entitlements as shares 3.Trading => get transaction costs and settlement times down 4.Not enough instruments => needed to unbundle 5.Inter-seasonal risk management => allow markets to optimize carry forward 6.Company control => allocate entitlements to individuals