Prof. Mike Young* and Jim McColl** * Research Chair, Water Economics and Management The University of Adelaide ** Research Fellow, CSIRO Land and Water Wine Industry Environment Conference 2 nd August 2007 Water reform and the wine industry What's different, what matters?

2 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.”

3 Total Murray-Darling Basin inflows Annual flows (year ending June) showing forecast for 2006/07 Source: Craik, MDBC 21 years

4 National Plan for Water Security Outcomes $10 Billion over 10 years  ($10,000,000,000) Referral of powers to Commonwealth  Really to Murray Darling Basin Authority Control over all ground and surface water and all interception Solve “over-allocation” for once and for all time

5 Balanced water sharing Outcome 1 The reservation of a minimum base-flow entitlement for each system that cannot be eroded as climate changes  coupled with explicit definition of the remaining water entitlements as shares allocated to  the environment and  to all other water users. Powers and Functions 1.A capacity to establish Basin-wide allocation & management principles and give statutory approval to catchment water sharing plans. 2.A capacity to require all overland flow, unregulated, regulated and groundwater resources in each catchment to be managed as one. 3.An exclusive capacity to define bulk water entitlement pools and allocate water to shares in them.

6 Hydrological integrity Outcome 2 An entitlement and allocation system coupled with a land-use control system that ensures that all  adverse forms of water interception and  interactions among water bodies are accounted for in a regime that prevents over-allocation from recurring. Powers and Functions 1.A capacity to require that the effects of all significant forms of interception on water entitlements be off-set. 2.A capacity to define the rules by which shares and allocations in one entitlement pool may be transferred to another pool.

7 Investment security Outcome 3 An entitlement register and an allocation accounting system whose contents are guaranteed. Powers and Functions 1.Access to and control of all water entitlement registers and allocation accounts coupled with a power to make them consistent. 2.A capacity to set and vary conversion and exchange rates..

8 Continuously efficient resource use Outcome 4 A low-cost trading system free of any administrative barriers to the inter-regional transfer of shares and allocations. Powers and Functions 1.A capacity to set pricing and trading rules and prevent any organisation from impeding structural adjustment. 2.A capacity to regulate charges for the supply, delivery and management of water and water infrastructure.

9 Water Quality Outcome 5 A Basin whose water resources and associated water- dependent ecosystems do not degrade below defined limits. Powers and Functions 1.A capacity to manage both Instream salinity and land-use practices that increase the probability that increase salinity risk. 2.A capacity to provide salinity credits to States and individuals.

10 Optimal storage management Outcome 6 Allocation rules and accounting rules that ensure the efficient inter-seasonal use and storage of water in response to market and environmental needs. Powers and Functions 1.A capacity to make allocations and decide how much water may be held as a strategic reserve. 2.A capacity to allow carry forward of water unused allocations from season to season and define carry forward rules.

11 Resolution of over-allocation Outcome 7 Definition of all environmental entitlements and all user entitlements so that, in aggregate, they align perfectly with defined bulk entitlement sharing rules. Powers and Functions 1.A capacity to acquire entitlements, cancel entitlements and equitably redefine entitlements as shares in a defined water resource. 2.A requirement to place entitlements acquired for the environment in one or more Independent Environmental Trusts.

12 Over-allocation & modernisation $3 billion to buy entitlements Enough to purchase between 1,500 and 5,000 GL depending upon entitlement type purchased MDB Market current max trade is 100 GL/ year $5.8 billion to be spent on infrastructure modernisation  Reform sequencing reforms is VIP Massive investment that could go wrong  $721,302 per irrigator in the Southern-Connected MDB  $573,374 per irrigator in the entire MDB  $9.9 billion is the current market value of all water entitlements

13 Over-allocation & Over-entitlement Options 1.Voluntary acquisition 2.Market-assisted pro-rata compulsory acquisition  Paid 2 years in advance  No administrative charges for a trade  All exit fees paid  Tax advantage for some

14 Political and public accountability Outcome 8 Regular, transparent assessments of performance against defined benchmarks. Prescribed accountability to a Minister and to Parliament. Ministerial powers of direction defined and specified. Powers and Functions 1.A requirement to consult widely, be transparent and make information available in a timely manner. 2.Ministerial intervention authorised whenever Authority decisions are inconsistent with agreed outcomes and powers.

15 What matters? 1.That we get the detail right 2.That Australia solves this problem for once and for all  Single system managed apolitically  Efficiently  Equitably  In harmony with the environment 3.A system that enables Australia to retain its “clean and green reputation”

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