Prof. Mike Young Research Chair, Water Economics and Management The University of Adelaide NRM Committee, SA Parliament, 27 th February 2008 A future-proofed MDB?

2 The Murray Darling Basin? What’s the problem?

3 Changes in rain and water supply - 1% - 3%

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

5 Re-live from

6 Adverse climate change Mean supply 10,000 River & Storage Evap 2,000 Flow to sea 2,000 Deliverable water 6,000 Environment Use 1,500 Consumptive Use 4,500 0 Mean supply 7,000 River & Storage Evap 2,000 Flow to sea 2,000 Deliverable water 3,000 Environment Use 1,500 Consumptive Use 1,500 0 In Mediterranean climates, a 10% decline in mean rainfall results in around a 30% decline in mean storage inflow 10% less rain water means a 67% reduction in allocations unless the system is resized

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

8 Lake Alexandrina Level m

9 Problems 1.Lack of planning for long dry periods 2.Over-allocation 3.Interception 4.Over-entitlement ground & surface water 5.Inefficient storage management 6.Governance and administrative failure

10 Elements of a solution 1.Hydrological integrity Complete and full accounting for all water use including groundwater and interception 2.A step-change to a new future-proofed bulk entitlement system Designed to cope with long dry periods 3.An environmental entitlement Empower environmental managers 4.Timely, just and fair financial recompense Empower irrigators Empower irrigation companies

Volume of Water in the System A template for a future-proofed regime Volumetric allocation for evaporation, required transfers and losses

12 Detail 1.Decide how hard to work the River What % of shared water for the environment? 2.Issue bulk entitlement shares in surface water bodies to states in proportion to their share of the cap 3.Establish an Authority to make allocations to shared water in all ground and surface water systems 4.Allow water all allocations to be carried forward but carry-forward spills first and may need a delivery entitlement 5.Guaranteed allocations & disciplined announcements 6.Offset of all forms interception All effects of forestry, farm dams and salinity interception must be offset

13 $5 billion now or up to $10 billion over 10 years?

14 A way forward (continued) 7.Empower the water market to facilitate change Instantaneous allocation trading Unencumbered entitlement trades within two days 8.Option to move individual entitlements to bulk register 9.Retain key State responsibilities for land use control 10.Leave water delivery businesses as they are 11.Review river-configuration Explore opportunities to reduce evaporative losses and facilitate efficient management of environmental water 12.Incentive payments for State Competition payments

15 A fair and equitable transition 1.A new Agreement that assigns bulk entitlement shares to each state and to environment trusts Individual entitlements can remain in place But allow migration to system register 2.Timely Financial recompense Payment up-front so that all can plan with confidence 1.Option 1 - Put around $0.5 billion aside for the Darling and $1 billion for restructuring, then transfer the remainder to industry as soon as a new MDB Agreement is in place Cheques to irrigators Cheques to irrigation companies (= Termination fee) Waive govt. entitlement trading charges 2.Option 2 – Start with smaller environmental share and use major share buy back to secure remaining percent as quickly as possible  Environment starts with, say, 10% of shared water  Tender to buy the rest

16 Implications for SA 1.Environmental water managed by a trust with trustees appointed by Minister 2.A guarantee to keep the River full and a min flow to the sea 3.Access to dams in Victoria and NSW 4.Need to decide how many shares SA wants in the Murray, Murrumbidgee and Goulburn systems. 5.Need to decide whether to have one, two or three security pools 6.Need to be ready for downsizing and reconfiguration review

17 Benefits An end to the erosion of entitlement reliability A property right regime that is secure Investment confidence Efficient and speedy interstate trade Efficient adjustment with a level playing field among irrigation companies and irrigators Reduction of opportunities for speculation Immediate injection of money into communities

18 Which future is best?  One that gets the fundamentals right, now?  A system that can confidently explained as able to cope -- whatever future arrives  One that commits all to more decades of reform and uncertainty?  Incrementalism

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