Recovering water for the environment in the Murray-Darling: farm upgrades increase water prices more than buybacks



Murray Darling Junction, Wentworth NSW.
Hypervision Creative/Shutterstock

Neal Hughes, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES); David Galeano, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), and Steve Hatfield-Dodds, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES)

It’s been 13 years since the Australian Government set out to develop the Murray-Darling Basin Plan with the goal of finding a more sustainable balance between irrigation and the environment.

Like much of the history of water sharing in the Murray-Darling over the last 150 years, the process has been far from smooth. However, significant progress has been achieved, with about 20% of water rights recovered from agricultural users and redirected towards environmental flows.

One of the most difficult debates has been over how the water should be recovered.

Initially most occurred via “buybacks” of water rights from farmers. While relatively fast and inexpensive, opposition to buybacks emerged due to concerns about their effects on water prices and irrigation farmers and regional communities.

This led to a new emphasis on infrastructure programs including farm upgrades in which farmers received funding to improve their irrigation systems in return for surrendering water rights.

While these farm upgrades are more expensive, it was thought that they would have fewer negative effects on farmers and communities.

However, new research from the Australian Bureau of Agricultural and Resource Economics and Sciences finds that – while beneficial for their participants – these programs push water prices higher, placing pressure on the wider irrigation sector.

Two types of water recovery programs

The Murray-Darling Basin operates under a “cap and trade” system. Each year there is a limit on how much water can be extracted from the basin’s rivers, based on the available supply.

Water users (mostly farmers) hold rights to a share of this limit, and they can trade these rights on a market.

To date 1,230 gigalitres of these water rights have been bought from farmers via buyback programs at a cost of about A$2.6 billion.




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Drought and climate change are driving high water prices in the Murray-Darling Basin


The other type of program is farm upgrades which offer farmers funding to improve their irrigation infrastructure in return for a portion of their water rights.

To date 255 gigalitres of water has been recovered through farm upgrades at a cost of about $1 billion.


Annual volume of water rights recovered for the environment since 2007-08

For infrastructure projects the financial year refers to the contract date. The actual transfer of entitlements may occur in a later financial year. The volume of water recovered is expressed in terms of the long-term average annual yield. The estimates do not include water recovered through state projects (160 gigalitres) or water gifted to the Commonwealth (15 gigalitres). Off-farm infrastructure includes water recovered through projects that are a combination of on-farm, off-farm and land purchases.
Sources: Department of Agriculture Water and Environment, Commonwealth Environmental Water Holder

Water recovery has increased prices

As would be expected, the dominant short-term driver of prices is water availability, with large price increases during droughts. The dominant longer-term drivers include lower average rainfall related to climate change and the emergence of new irrigation crops including almonds.

While water recovery has played less of a role, buybacks and farm upgrades have still reduced the supply of water to farmers and increased prices to some extent.




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Our modelling suggests water prices in the southern basin are around $72 per megalitre higher on average as a result of water recovery measures, with the effects varying year-to-year depending on conditions.


Modelled water allocation prices with and without water recovery

Price refers to volume weighted average annual water allocation prices across the southern Murray Darling Basin. Water recovery reflects the cumulative volume of buybacks and farm upgrades at each year. Water recovery began in 2007-08.
ABARES modelling

Farm upgrades increase prices more than buybacks

Farm upgrades are often viewed as an opportunity to save water and produce “more crop per drop”.

But they can also encourage farmers to increase their water use as they seek to make the most of their new infrastructure: sometimes referred to as a “rebound effect”.

While there have been concerns about rebound effects for some time, there has been limited evidence until recently.

Less-wasteful irrigation can save water, as long as there’s no ‘rebound’

As would be expected, our study finds that upgraded farms have benefited in terms of profits and productivity. However, we also find large rebound effects, with upgraded farms increasing their water use by between 10% and 50%.

To get the extra water they need to buy it from other farmers, putting pressure on prices. We find the resulting price impact to be much more than the impact of buying back water. Per unit of water recovered, it is about double that of buybacks.

These higher water prices increase the risk that irrigation assets – including some newly upgraded systems – could become stranded as price sensitive irrigation activities become less profitable.

No easy answers

Recovering water through off-farm infrastructure is one alternative, however the most effective projects have already been developed, leaving cost-effective water saving schemes harder to find.

This brings us back to buybacks. Because buybacks are cheaper than farm infrastructure programs, there is more scope to combine them with regional development investments to help offset negative impacts on communities.

The challenge is that in a connected water market the flow-on effects on water prices and farmers can be complex and difficult to predict, making it hard to know where to direct development investments.




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Billions spent on Murray-Darling water infrastructure: here’s the result


A potential middle ground is rationalisation, where parts of the water supply network are decommissioned, and affected farmers are compensated both for their water rights and for being disconnected from water supply. This approach has less effect on water prices and allows regional development initiatives to be targeted to the affected areas.

However, rationalisation can be hard to implement given it requires negotiating with all affected farmers and all levels of government.

Given the complexity of the Murray-Darling Basin, water policy is far from simple. While it is clear more water will be needed to put the basin on a sustainable footing, there are no easy options.

Further progress will require careful policy design to help ease adjustment pressure on farmers and regional communities.The Conversation

Neal Hughes, Senior Economist, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES); David Galeano, Assistant Secretary, Natural Resources, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), and Steve Hatfield-Dodds, Executive Director, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES)

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Time to get real: amid the hydrogen hype, let’s talk about what will actually work



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Jake Whitehead, The University of Queensland; Peter Newman, Curtin University, and Thomas Bräunl, University of Western Australia

For 50 years hydrogen has been championed as a clean-burning gas that could help reduce greenhouse gas emissions. The idea of a “hydrogen economy” is now enjoying a new wave of enthusiasm — but it is not a silver bullet.

Amid the current hydrogen hype, there is little discussion about when the technology can realistically become commercially viable, or the best ways it can be used to cut emissions.

Australia must use hydrogen intelligently and strategically. Otherwise, we risk supporting a comparatively energy-intensive technology in uses that don’t make sense. This would waste valuable renewable energy resources and land space, increase costs for Australians and slow emissions reduction.

Here’s where we can focus hydrogen investment to get the best bang for our buck.

An industrial skyline
A poorly targeted hydrogen strategy will slow emissions reduction.
AP

Hydrogen sucks up energy and space

Hydrogen is the most abundant element in the universe, but rarely is it freely available. It must be unlocked from water (H2O) or fossil fuels such as methane (CH4), then compressed for transport and use. These steps waste a lot of energy.

To be transported, for example, hydrogen must be kept under high pressure or extremely low temperature. And in terms of energy storage, even heating up stones is more efficient.

Australia could become a renewable energy superpower in the future. But there are serious medium-term challenges, including constraints in the infrastructure that transmits energy.

The world must reach net-zero emissions within 30 years to avert the worst climate change. That means using renewable energy as efficiently as possible to maximise emissions reductions and minimise the land space required. So we must be strategic in how and where we use hydrogen.

Hydrogen pathways.
Staffell et al 2018. The role of hydrogen and fuel cells in the global energy system.

Use hydrogen in places electricity won’t go

In most applications, renewables-based electrification has emerged as the most energy efficient, and cost-effective way to strip emissions from the economy.

Yet there are some industries where electrification will remain challenging. It’s here renewable hydrogen — produced from wind and solar energy — will be most important. These industries include steel, cement, aluminium, shipping and aviation.

A renewable hydrogen export market may also emerge in the long-term.

Renewable hydrogen will also be important to replace existing hydrogen produced by fossil fuels. But this alone will require a significant increase in electricity generation, to reach net zero emissions by 2050. This is a major challenge.

Wind turbines on a hill
Australia’s renewable energy capacity would need to increase substantially to produce green hydrogen.
Mick Tsikas/AAP

What about cars and trucks?

Road transport is one area where we believe hydrogen will not play a major role. In fact, Telsa founder Elon Musk has gone as far as to call hydrogen fuel-cell vehicles “mind-bogglingly stupid”.

Hydrogen vehicles will always consume two to four times more energy than battery electric vehicles. This is simply due to the laws of physics, and cannot be resolved by technological improvements.

In the case of hydrogen-powered vehicles, this will mean higher costs for consumers compared to battery-electric vehicles. It also means far more space for solar panels or wind turbines is needed to generate renewable energy.

What’s more, electric vehicles already have longer driving range and continuously expanding charging infrastructure, including ultra-fast chargers.

Comparing the amount of electricity that is lost for hydrogen cars versus electric cars.
Volkswagen AG



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For hydrogen to be truly ‘clean’ it must be made with renewables, not coal


Most global car makers have recognised the lack of advantage for hydrogen cars and instead invested about US$300 billion in the development and manufacturing of electric cars. Toyota and Hyundai — the last main proponents of hydrogen cars — are also ramping up efforts on electric cars.

As for trucks, the US Department of Energy does not expect hydrogen semi-trailers to be competitive with diesel until around 2050, mainly due to the high cost and low durability of hydrogen fuel cells.

While hydrogen trucks may have a role to play in 20 to 30 years, this will be too late to help reach a 2050 net-zero target. As such, we must explore energy-efficient options already widely deployed overseas, including electric trucks, electrified roads and electrified trailers.

A hydrogen vehicle at a refuelling station
Hydrogen vehicles are less energy-efficient than electric vehicles.
Kydpl Kyodo/AP

A truly strategic plan

If Australia is serious about climate action, we must focus efforts on where renewable hydrogen can deliver the greatest environmental and economic benefits: regional ports.

Hydrogen derived from fossil fuels is currently used to make products such as fertiliser and methanol. Supporting the transition to renewable hydrogen for these uses will be an important first step to scale up the industry.

If produced at regional shipping ports close to aluminium, steel or cement plants, this will provide further opportunities to expand renewable hydrogen use to minerals processing, while creating new jobs.




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Don’t rush into a hydrogen economy until we know all the risks to our climate


As hydrogen production scales up and costs fall, excess hydrogen would be available at ports for fuelling ships — either directly or through a hydrogen derivative like ammonia. Hydrogen gas could also be used to make carbon-neutral synthetic fuel for planes.

If an international export market emerged in the future, this strategy would also mean renewable hydrogen would be available at ports to directly ship overseas.

Finally, if the development of hydrogen truck technology accelerates before 2050, renewable hydrogen would be available to power the significant number of semi-trailers that travel to and from shipping ports.

Shipping containers and cranes at a port.
A strategic hydrogen plan would link hydrogen production with Australia’s ports.
Daean Lewins/AAP

Let’s get real

Renewable hydrogen is a scarce and valuable resource, and should be directed towards sectors most difficult to decarbonise.

Delaying the electrification of road transport and energy on the promise of hydrogen will ultimately only benefit the fossil fuel industry.




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The Conversation


Jake Whitehead, Advance Queensland Industry Research Fellow & Tritum E-Mobility Fellow, The University of Queensland; Peter Newman, Professor of Sustainability, Curtin University, and Thomas Bräunl, Professor of Robotics; Director, WA Electric Vehicle Trial, University of Western Australia

This article is republished from The Conversation under a Creative Commons license. Read the original article.