Prof. Mike Young Research Chair, Water Economics and Management The University of Adelaide Research Tuesday Lecture University of Adelaide, 9 th October 2007 Water

2 Southern and Eastern Australia is running out of water All eastern and southern cities are on restrictions South East Queensland on Level 6 restrictions Irrigations allocations are at an all time low  Drier  Hotter  Warnings of adverse climate change How can Australia and, more particularly, South Australia turn this adversity into opportunity?

3 Turning adversity into opportunity 1.River and aquifer management 2.Water use strategies  Environment and River Maintenance  Irrigation  Urban  Industrial  Mining 3.Storage management 4.Infrastructure Access 5.Policy Reform 6.Governance In a changing world, what would SA have to do to become the recognised experts in water management and business?

4 Water withdrawals per capita Australia United Kingdom New Zealand Iraq (Australia = 135/161 countries) “We have a water management problem not a water supply problem!” Business Council of Australia 2006 Australia = “The driest inhabited continent in the world.”

5 Sydney Less rain means much less water! - 25% - 75% Annual rainfall Storage

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

7 Re-live from

8

9 Inflows plus Starting Storage Season to date and last year > 2,500 GL storage used last year

10 Lake Alexandrina Salinity forecast

11 Lake Alexandrina Projections 0.5 m

12 > 1,200 GL to refill Borrowing from the future Plus Lake Bonney & disconnected wetlands

13 There’s a hole in the bucket There's a hole in the bucket, dear Liza … So fix it, dear Henry … With what should I fix it, … With straw, dear Henry … But the straw is too long,... So cut it, dear Henry… With what should I cut it, … Use an axe, … But the axe is too dull, … So, sharpen it, … With what should I sharpen it, … Use the stone,... But the stone is too dry, … So wet it, … With what should I wet it, … With water, … With what should I carry it, … With the bucket, dear Henry, … There's a hole in the bucket, dear Liza, … a hole!

14 Out of adversity can come opportunity The world is now watching Australia and how it is dealing with change Australia and, more particularly, South Australia could become the “Israel” of C21  Renowned for its water expertise Develop a reputation as the world’s most innovative and successful water laboratory 1.Restoring health to rivers and building vibrant water-using communities in a changing world 2.Clarifying roles for government, enterprising businesses and markets

15 Rural water policy opportunities Unbundle water licences into their separate elements Define all use and environmental entitlements as shares Using separate institutions to manage  Connected river and aquifer systems as a whole  Local land use issues (via NRM Boards) Full accounting for all forms of interception and use Fast, low costentitlement and allocation trading

16 Murray-Darling Basin policy opportunities A new Basin plan (Agreement) that has hydrological integrity  Minimum flow to the mouth  Replace SA’s 1850 GL entitlement with 200 GL to the sea (accounting theory)  Continuous accounting and carry forward  Trade without carry-forward increases adversity (Brennan) Instantaneous trading on government guaranteed registers  River Murray shares rather than NSW, Vic & SA shares  Across state boundaries at the system level An environmental share held in an Environmental Water Trust  Risk-based management of environmental assets  Counter-cyclically trading of Environmental Allocations

17 Urban water supply and disposal Water source management Water distribution Water retailing Waste water purification, use & disposal Storm water

18 Cost of water restrictions Cost Sydney $223 million/yr (Grafton, 2007)

19 Significant urban opportunities 1.Embrace and develop all sources 2.Efficient pricing with equity 3.Allow competition for the supply of non- essential water 4.Open competitive access to distribution system 5.Open competitive access to sewage 6.Use businesses and markets to discover cost  In times of scarcity  Of securing security

20 Getting there – a supply template 1.Unbundle the storage, supply and treatment system 2.Allow private industry to build and sell water from desalination plants, etc (Whyalla, Port Augusta, Adelaide, etc.) 3.Expand dams and system connectivity  Without a reliable River Murray Adelaide needs more than one year’s storage 4.Stormwater Management Authority to encourage stormwater conservation by issuing credits 5.Allocate and manage urban groundwater Convert licences into tradeable shares and cap Credit for aquifer recharge 6.Require developers to source water prior to subdivision and business to source water for expansion 7.Urban water entitlement trading for industry, recreation and, possibly, households

21 Getting there – a price review template 1.Establish separate storage, distribution and sewage management businesses within SA Water 2.Set a fixed water supply and treatment charge  Currently minimum is $157.40/yr + $71/yr = $228/yr 3.Raise prices for all water to full cost in each area  Rebates for essential household water (e.g. 100 KL reduced to, say, $1.00/KL) 4.Convert remaining sewage payment into a land tax  Currently % of the capital value of your property 5.Identify water not needed for essential household purposes and transfer responsibly for managing access to the rest to water retail businesses 6.Use Independent Price Regulator to set infrastructure access charges & supply and treatment charges 7.Legislate to allow competitive third party access to  Dams, distribution system, wastewater & storm water 8.Remove all grants and subsidies

22 There is a hole in the bucket There's a hole in the bucket, dear Liza … So fix it, dear Henry, … With what should I fix it, dear Liza … With business, dear Henry … But we have postage stamp pricing, dear Liza … So change the price, dear Henry … But what about equity, dear Liza, … Use rebates, dear Henry, … But business needs access, dear Liza … So charge for access, dear Henry… So who sets the charge, dear Liza… An independent price regulator, dear Henry... But SA Water owns all the water, dear Liza… So lease some of it to business, dear Henry… But there is not enough water, dear Liza, … Recycle it, use groundwater, stormwater & seawater, dear Henry, … But we might need more, dear Liza … Let people trade water, dear Henry … Water businesses are growing, dear Liza, … That’s good, dear Henry, dear Henry, that’s good! So we don’t need restrictions, dear Liza, dear Liza … That’s right, dear Henry, dear Henry, … I think you have got it, dear Henry, we’ve got it!

Contact: Prof Mike Young Water Economics and Management Phone: Mobile: Subscribe to Droplets at