Allocating and managing water scarcity in an ever- changing world: Lessons from Australia 23 October 2009 Prof Mike Young Director, The Environment Institute Research Chair, Water Economics and Management The University of Adelaide

Water The irrigation industry depends on access to water Adapting to change –Urban and industrial demand is drawing water away from agriculture; and –Supply may be decreasing Industry prosperity will depend on its capacity to rapidly access water in an rapidly changing world.

Some Australian mistakes Climate shifts –We forgot to plan for shifts to a dryer regimes –We still call what’s happening “a drought” Rights, policy and governance –We embraced water reform without establishing a property right system that was designed for trading

Insufficient planning for step changes - 1% - 3%

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

River Murray Inflows (GL) In 2006/07, we broke the month by month minimum inflow record for 11 months Inflows have been well below evaporative losses Managed by running down stocks and reducing evaporation by closing off wetlands and not replenishing lakes This last year has been the third driest ever!

Robust planning and water entitlement regimes are essential. Communities rarely plan for severe adversity! When dramatically adverse climate change occurred, many management plans has to be suspended! Last year, high security licences in SA on 18%. This year they start with 2%!

Symptoms - The River Murray Over-allocation –Dredges in its mouth since Oct 2002 –Level below the sea –Rising salinity –Serious acid- sulphate soil problems

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 Now buying back water for the MDB environment $3.1 billion

Which future is best? One that gets water fundamentals right, now? A system that can be confidently explained as one that will enable the irrigation industry to cope -- whatever future arrives One that facilitates autonomous adjustment and change One that creates opportunity One that is always behind, always playing catch up? No guarantee of resolution of current problems Lots of impediments to change Beyond Triple Bottom Line to system design for autonomous adaptation

Australian water rights & policy Share rather than seniority system –In rivers, usually two surface water pools High security pool Low or general security pool Formal volumetric allocation systems –All use is metered and use limited to allocation Minimal role for courts and lawyers –Allocations and rules decided by government of the day –Legislative plans that fully specify the rules of the game –Right to trade held by individual water users not irrigation districts

Water Rights Reform & unbundling 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 Now trying to fix the problems created by the naive introduction of markets bolted onto an entitlement regimes that lacked hydrological, environmental & economic integrity

Scarcity and Trading  Source: Murray Darling Basin Commission, Trading has been good for the Australia’s irrigation industry Water Reform Trading opened up

Reform Outcomes Positive –Facilitated considerable greenfield development Grapes Almonds –Massive innovation –Massive wealth creation –Many more irrigators survived the current long dry –Movement of water out of areas with salinity environmental problems Negative –Over-allocation still not solved

Water reform created Wealth Psi-Delta 2007 Bjornlund and Rossini 2007

Water reform Driven by political realization about the importance of getting water right States have referred MDB planning powers to Federal Government –New independent Authority of 6 people to produce a new Basin Plan Buying water entitlements for the Environment Investing in water efficiency Trying to remove remaining barriers to trade Taking climate change risk seriously

CSIRO Sustainable Yield Project, 2008

Advice from the lessons Aust has learned Regime arrangements 1.System connectivity – manage GW and SW as one 2.Capping use – cap entitlement potential not use 3.Return flows – account for them 4.Unmetered uses – include them in the entitlement system 5.Climate change – plan for an adverse shift 6.The environment’s share – define it and allocate to it Individual license arrangements 1.Registers – validate them early 2.Entitlements - define entitlements as shares of defined pools 3.Trading – Get costs and settlement time down & keep lawyers out 4.Control – Unbundle so you can manage at different scales 5.Inter-seasonal risk management – allow markets to optimize carry forward (don’t worry about beneficial use) 6.Exit fees – Allocate water to individuals or them to trade out of districts – communities will be OK 7.Trading risk – develop tagged trading

19 Water Use-Efficiency in Australia  Australian irrigators have increased water use efficiency significantly – water use per hectare down by 50% –Area under irrigation only reduced by 6%  This has been driven by –Low rates of agricultural protection –Water reform - since 1994 Improved entitlement and risk specification Water trading Separation of policy from delivery –Impact of prolonged drought since 2001

20 Trends in Rice productivity, MIA Source: Modified from Humphreys and Robinson (2003). Over last 25 years rice yields have risen from 5 to 10 tonnes per hectare

21 Administrative separation - Murrumbidgee  Source: After Young et al Separation of policy from water supply has lowed costs. Allow irrigators to own and run their supply systems

Water reform and your industry 1.Encourage discussion of and planning for very long drys – build your system to cope with very little water before a big dry comes 2.Encourage transfer of ownership to individuals 3.Encourage replacement of seniority system with a share system designed for adverse climate change 4.Encourage connected management of ground and surface water as a single system 5.Encourage preparedness for a different water future and need to trade water on a daily basis Embrace water reform – trial it Without reform you do not have a secure future!

Contact: Prof Mike Young Water Economics and Management Phone: Mobile: Download our reports and subscribe to Jim McColl and my droplets at