1. Dual Instruments or Needless Duplication? Evaluating the Combined Use of Environmental Flow and Salinity Targets Lisa Lee and Tiho Ancev, Agricultural and Resource Economics, The University of Sydney

2. Background Part of a larger PhD project. Part of a larger PhD project. The initial aim of that project was to determine cost-effectiveness of alternative ways to reduce salinity impact from irrigated cotton production. The initial aim of that project was to determine cost-effectiveness of alternative ways to reduce salinity impact from irrigated cotton production. An interim result was that salinity impact reduction targets and the environmental flow targets are interrelated. An interim result was that salinity impact reduction targets and the environmental flow targets are interrelated. The question is: should targets for salinity impact reduction be imposed when there is already reduction in surface water availability? The question is: should targets for salinity impact reduction be imposed when there is already reduction in surface water availability?

3. Introduction Increasing focus on water resource management in Australia in the last 15 years. Increasing focus on water resource management in Australia in the last 15 years. Over-allocation and under-pricing of water drives inefficient use. Over-allocation and under-pricing of water drives inefficient use. Public pressure for more effective management of scarce water resources. Public pressure for more effective management of scarce water resources. Water Reform Framework, National Water Initiative, Living Murray First Step, and the most recent Commonwealth Water Plan – aimed at efficient and sustainable water use. Water Reform Framework, National Water Initiative, Living Murray First Step, and the most recent Commonwealth Water Plan – aimed at efficient and sustainable water use.

4. Water management situation Water Sharing Plans (WSP) introduced for NSW Catchments: Water Sharing Plans (WSP) introduced for NSW Catchments: Extractive rules Extractive rules Environmental flows Environmental flows Also Groundwater WSPs, addressing over- allocated aquifers. Up to 90% reduction. Also Groundwater WSPs, addressing over- allocated aquifers. Up to 90% reduction. Salinity concerns. Based on past negative experiences with irrigation induced salinity. Salinity concerns. Based on past negative experiences with irrigation induced salinity.

5. Irrigation induced salinity Occurs as irrigation water leaks below the root zone and deep-drains (or percolates) into groundwater aquifers. Occurs as irrigation water leaks below the root zone and deep-drains (or percolates) into groundwater aquifers. On its way it may mobilise salt, which can subsequently result in increased stream and soil salinity. On its way it may mobilise salt, which can subsequently result in increased stream and soil salinity. This is a most serious problem along the main stem of the River Murray in SA, but end-of-valley salinity targets also introduced in NSW. This is a most serious problem along the main stem of the River Murray in SA, but end-of-valley salinity targets also introduced in NSW.

6. Study Area Case Study - The Mooki Basin

7. The Mooki Mainly cotton growers – high salt tolerance of 1,700 µS/cm. Mainly cotton growers – high salt tolerance of 1,700 µS/cm. EC reading for Mooki at Breeza is 534 µS/cm EC reading for Mooki at Breeza is 534 µS/cm (342kg salt per ML deep drainage). (342kg salt per ML deep drainage). Within Catchment Blueprint limit of 550 µS/cm. Within Catchment Blueprint limit of 550 µS/cm. Salinity damage not a significant issue in the catchment. Salinity damage not a significant issue in the catchment. No private incentives to internalise the externalities caused by salt loading. No private incentives to internalise the externalities caused by salt loading.

8. Potential salinity impacts Main concern is downstream impact on the Barwon- Darling system. Main concern is downstream impact on the Barwon- Darling system. End-of-valley salt load target for Namoi is 127,600 t/yr. End-of-valley salt load target for Namoi is 127,600 t/yr. Mooki at Ruvigne had a reading of 3,000t of salt in 2003/04. An unusually low reading caused by well below average flow. Mooki at Ruvigne had a reading of 3,000t of salt in 2003/04. An unusually low reading caused by well below average flow. 1% of the whole Namoi basin area contributes 2.3% salt load 1% of the whole Namoi basin area contributes 2.3% salt load

9. Objectives Compare economic and environmental outcomes under surface water reduction targets and under deep-drainage targets. Compare economic and environmental outcomes under surface water reduction targets and under deep-drainage targets. Assess the usefulness of a dual instrument to control joined “pollution”. Assess the usefulness of a dual instrument to control joined “pollution”. Determine which instrument is less costly? Determine which instrument is less costly?

10. Previous studies Caswell (1991); Heaney and Beare (2001) Caswell (1991); Heaney and Beare (2001) Highlight the negative and positive role of drainage on downstream users (quantity and quality) Highlight the negative and positive role of drainage on downstream users (quantity and quality) Ancev et al. (2004); Caswell et al. (1990); Khanna et al. (2000) Ancev et al. (2004); Caswell et al. (1990); Khanna et al. (2000) Proposed drainage taxes to encourage ‘cleaner’ technology and practices. Proposed drainage taxes to encourage ‘cleaner’ technology and practices.

11. Previous studies Legras and Lifran (2006) Legras and Lifran (2006) Decoupled policy instruments separately for water quantity and for salinity impact. Found inefficient when the two are related. Decoupled policy instruments separately for water quantity and for salinity impact. Found inefficient when the two are related. Whitten et al. (2005); Weinberg et al. (1993) Whitten et al. (2005); Weinberg et al. (1993) Significant gap in hydrological understanding Significant gap in hydrological understanding Water instrument in own right is sufficient Water instrument in own right is sufficient

12. Analytical framework: A stylised story Catchment manager imposes reductions in surface water allocations to ensure environmental flows. The manager is not worried about salinity impacts. Catchment manager imposes reductions in surface water allocations to ensure environmental flows. The manager is not worried about salinity impacts. The catchment manager may come under pressure from the manager of the whole basin, to impose salinity impact reduction targets in order to ensure that the end-of-valley target is not breached. The catchment manager may come under pressure from the manager of the whole basin, to impose salinity impact reduction targets in order to ensure that the end-of-valley target is not breached. How can the catchment manager evaluate this “dual” instrument? How can the catchment manager evaluate this “dual” instrument?

13. Analytical framework: An optimisation model S.t. Objective Function:

14. Decision variables: Decision variables: Crop choice Crop choice Source of water Source of water Crop acreage Crop acreage Irrigation system Irrigation system Water trading Water trading All indexed over space and time, and simulated over 10 years All indexed over space and time, and simulated over 10 years

15. Biophysical Model Biophysical model – Soil and Water Assessment Tool (SWAT). Biophysical model – Soil and Water Assessment Tool (SWAT). Catchment divided into sub-basins, based on GIS data. Catchment divided into sub-basins, based on GIS data. Sub-basins further divided into Hydrological Response Units (HRUs). Sub-basins further divided into Hydrological Response Units (HRUs). Homogenous land units with specific soil type and land use Homogenous land units with specific soil type and land use We focus only on irrigated cotton HRUs, comprising 397km 2.(out of around 900km 2 for the whole catchment. We focus only on irrigated cotton HRUs, comprising 397km 2.(out of around 900km 2 for the whole catchment.

17. Biophysical Model HRUs simulated under various landuses: HRUs simulated under various landuses: Irrigated cotton; Irrigated cotton; Dryland cotton; Dryland cotton; Dryland wheat; Dryland wheat; Dryland sorghum. Dryland sorghum. Irrigated cotton simulated using furrow, pivot, and drip irrigation. Irrigated cotton simulated using furrow, pivot, and drip irrigation. Also sourcing from surface and groundwater. Also sourcing from surface and groundwater.

18. Biophysical Model Biophysical information on crop yield, water use, and deep drainage obtained through SWAT simulations. Biophysical information on crop yield, water use, and deep drainage obtained through SWAT simulations. Net revenue for each HRU calculated. Net revenue for each HRU calculated. This information was used as input to create activities in each HRU, which were subsequently entered in a programming model. This information was used as input to create activities in each HRU, which were subsequently entered in a programming model.

19. Methodology Two scenarios simulated: Two scenarios simulated: Base Case – Comparison point Base Case – Comparison point Water trade Water trade Surface and groundwater availability according to WSPs Surface and groundwater availability according to WSPs Scenario One – Water Cap Scenario One – Water Cap Water trade Water trade Gradually tightening surface water caps (water availability constraint) Gradually tightening surface water caps (water availability constraint) Scenario Two – Deep Drainage Cap Scenario Two – Deep Drainage Cap Water trade Water trade Gradually tightening deep-drainage caps (DD constraint) Gradually tightening deep-drainage caps (DD constraint)

20. Results Base Case – Comparison Point Base Case – Comparison Point Deep-drainage of 22,913ML = 7,836tonnes of salt load per year Deep-drainage of 22,913ML = 7,836tonnes of salt load per year EC of 534 µS/cm = 342kg salt per ML drainage. EC of 534 µS/cm = 342kg salt per ML drainage. NPV ($, 7%, 10yrs) Deep Drainage (ML/yr) Surface water use (ML/yr) Ground-water use (ML/yr) Total water use (ML/yr) 286,898,46522,91359,00049,883108,883

21. Results NPV ($, 7%, 10yrs) Deep Drainage (ML/yr) Surface water use (ML/yr) Ground-water use (ML/yr) Total water use (ML/yr) 286,898,46522,03355,00049,883104,883 284,184,27419,83345,00049,88394,883 282,260,78617,63635,00049,88384,883 280,149,53815,36525,00049,88374,883 Scenario One – Water Caps. Scenario One – Water Caps.

22. Results Scenario One – Water Caps (cont.) Scenario One – Water Caps (cont.) Surface Furrow Ground Furrow Surface Pivot Ground Pivot Surface Drip Ground Drip Dryland Wheat Dryland Sorghum Dryland Cotton

23. Results NPV ($, 7%, 10yrs) Deep Drainage (ML/yr) Surface water use (ML/yr) Ground-water use (ML/yr) Total water use (ML/yr) 284,985,28920,00059,00037,49296,492 283,500,55318,00059,00028,90487,904 281,795,81316,00050,12528,70078,826 280,049,65614,00041,03428,70069,735 Scenario Two – Deep Drainage Caps. Scenario Two – Deep Drainage Caps.

24. Results Scenario Two – Drainage Caps (cont.) Scenario Two – Drainage Caps (cont.) Surface Furrow Ground Furrow Surface Pivot Ground Pivot Surface Drip Ground Drip Dryland Wheat Dryland Sorghum Dryland Cotton

25. Performance of DD reduction targets vs. surface water reduction targets DD cap Extra cost of DD cap Extra envi. flow Extra DD reduction Reduction in expected salt load ML AUD mill.ML t/yr 22,913 -0.3103311 22,000 0.2-4,000933319 20,000 0.72-9,0001,833627 18,000 1.47-14,0002,733935 16,000 2.21-10,1253,6361,244 14,000 2.96-6,0354,5061,541 12,000 3.75-2,6915,3651,835 10,0004.551,0776,2252,129 8,0005.354,8447,0842,423

26. Results Comparison of cost curves for DD reduction Comparison of cost curves for DD reduction

27. Results Comparison of cost curves for environmental flows Comparison of cost curves for environmental flows

28. Results Comparison of total water use and deep drainage Comparison of total water use and deep drainage

29. Discussion When there is a reduction of surface water availability, the costs of attaining deep-drainage reduction without imposing an explicit deep-drainage target are very similar to the costs of attaining deep-drainage reduction when explicit targets are imposed. When there is a reduction of surface water availability, the costs of attaining deep-drainage reduction without imposing an explicit deep-drainage target are very similar to the costs of attaining deep-drainage reduction when explicit targets are imposed. Reduction of surface water occurs when explicit deep- drainage reduction targets are imposed. The costs of attaining reduction in surface water use are much greater under deep-drainage cap, then under surface water reduction rules. Reduction of surface water occurs when explicit deep- drainage reduction targets are imposed. The costs of attaining reduction in surface water use are much greater under deep-drainage cap, then under surface water reduction rules.

30. Discussion Imposing additional explicit deep-drainage reduction targets in circumstances where surface water availability is reduced adds high cost in the catchment, and offers only moderate reductions in the expected salt load. Imposing additional explicit deep-drainage reduction targets in circumstances where surface water availability is reduced adds high cost in the catchment, and offers only moderate reductions in the expected salt load. This is a result of a clear interrelation between surface water used and the deep-drainage occurring in the catchment. This is a result of a clear interrelation between surface water used and the deep-drainage occurring in the catchment.

31. Conclusion Irrigation induced salinity has been a very serious problem in the Murray-Darling Basin system in Australia. Irrigation induced salinity has been a very serious problem in the Murray-Darling Basin system in Australia. Based on past experience with irrigation induced salinity, deep-drainage reduction targets have been imposed, or are currently being considered in many catchments in NSW. Based on past experience with irrigation induced salinity, deep-drainage reduction targets have been imposed, or are currently being considered in many catchments in NSW. In the circumstances were surface water availability declines, deep-drainage targets are not necessary and may impose high cost on irrigators that are already under financial stress. In the circumstances were surface water availability declines, deep-drainage targets are not necessary and may impose high cost on irrigators that are already under financial stress.