Maximising benefits from MDB water resource management Jeff Connor, Onil Banerjee, Darla Hatton MacDonald, Sorada Tapsuwan, Mark Morrison*, Anthony Ryan

Climate Adaptation as an Opportunity What are economics requirements of the MDBA plan? Basin water management that: optimises: economic, social and environmental outcomes (objective 3c, purpose 20d) Maximise net economic return to the Australian community (objective 3d(iii)) Achieve efficient and cost effective water management and administrative arrangements (objective 3g)

Climate Adaptation as an Opportunity But wait, there’s more… economics (all) analysis for the plan have: Act on the basis of the best available scientific knowledge (21.4.b) Have regard for the national water initiative (21.4.c.i)

Climate Adaptation as an Opportunity To an economist that sounds like BCA A superficially simple concept Benefits > Costs ? Practice challenges: Some benefits aren’t traded, don’t have an obvious price. The level of some benefits and costs, especially non-market environmental benefits, from change are uncertain Some benefits and costs are incurred on very different and even inter-generational time lines.

Climate Adaptation as an Opportunity Are economist up for BCA?, will it help? Objectives: Assess prospects for estimating meaningful non-consumptive use values and public good externality costs for MDBA plan BCA Assess prospects to utilize benefits estimates in ways that inform the dialogue on MDB water resource management

Climate Adaptation as an Opportunity Benefits come for multiple capitals Natural capital Build capital Social welfare Trade off curve Trade off curve with improved institutional capital Natural capital Build capital Social welfare Trade off curve Trade off curve with improved institutional capital Natural capital Build capital Social welfare Natural capital Build capital Social welfare Trade off curve Trade off curve with improved institutional capital Trade off curve Trade off curve with improved institutional capital Built capital Natural capital Trade-off curve Trade-off curve with enhance institutional capital Social welfare

Climate Adaptation as an Opportunity Ecological function as capital cost of increasing allocation = eroded natural capital ability to provide ecosystem services; ·thresholds involved: with steeply increasing, often irreversible damage to capacity to provide valued ecosystem services; Some built natural capital substitution possible (e.g. water treatment) Often costly in capital, energy etc. Example: irreversible time delayed impacts of Mallee clearing = loss of natural vegetation salinity regulation capacity Built capital substitute $300 M in salt interception infrastructure

Climate Adaptation as an Opportunity Can we value it? Yes we can! Some Related Market Possibilities, not so hard but not do yet: Travel cost Simple zonal models, more site types (regulated v. natural flow based values, north v. south) Treatment and damage cost Water quality process modeling linked to treatment and damage costs (Salinity, BGA, salt water intrusion) inclusion of thresholds consider energy and carbon for built capital substites At the margin

Climate Adaptation as an Opportunity Can we value it? Yes we can! Hedonic real estate and regional growth studies Relate real estate value or regional growth to local environmental attributes, all else equal Success internationally, in Australian capital cities Struggling in regional Australia; ways forward “environmental quality” indices accounting for things that determine human vs. ecologically value; better understand complementarity v. substitutability of natural and built capital

Climate Adaptation as an Opportunity Can we value it? Yes we can! Stated preference From individual to population WTP – what population for regional assets? Discounting estimates – the individual versus social time preference perspective Better understanding non-use versus use values in stated preferences Do people really understand and honestly answer the questions?

Climate Adaptation as an Opportunity Do people really understand and honestly answer the questions? Ignorance ErrorIrrelevance TabooUntopicality Incompleteness InaccuracyUncertaintyAbsence VaguenessProbabilityAmbiguity Distortion

Climate Adaptation as an Opportunity Benefits Transfer Extrapolating benefit values from existing (site specific) studies to new sites Point studies (direct transfer without adjustment) Transfer with value functions (adjust for population, site attribute differences Meta-studies (statistical generalisation from multiple studies) Challenges Even a few studies to general is from Studies in like (attribute) terms

Climate Adaptation as an Opportunity Adding it all up?

Climate Adaptation as an Opportunity If we value it, does it help? Yes: if we do it in a multiple capital, ecological dynamics framework Answers questions: What are costs of no change? Where are critical thresholds, costs of crossing them?

Climate Adaptation as an Opportunity The ultimate value proposition Where ever the MDBA Plan lands … Natural capital Build capital Social welfare Trade off curve Trade off curve with improved institutional capital Natural capital Build capital Social welfare Trade off curve Trade off curve with improved institutional capital Natural capital Build capital Social welfare Natural capital Build capital Social welfare Trade off curve Trade off curve with improved institutional capital Trade off curve Trade off curve with improved institutional capital Built capital Natural capital Trade-off curve Trade-off curve with enhance institutional capital Social welfare MAXIMISE BENEFIT THROUGH INSTITUTIONAL INNOVATION

Climate Adaptation as an Opportunity Maximise benefit through institutional innovation Build risk management strategies, not false certainty Build support culture of hedging Facilitate trading Allow dam shares and carry-over Flexible linked local / national environmental water holder Conjunctive ground and surface, spatial temporal mngt More sophisticated water products (options etc.)

Climate Adaptation as an OpportunityCSIRO Questions and follow up Dr Jeff Connor Group Leader Natural Resource Economics and Decision Science CSIRO Ecosystem Sciences & Water for a Healthy Country