Water markets are not perfect, but vital to the future of the Murray-Darling Basin

Neal Hughes, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES)

Water markets have come in for some bad press lately, fuelled in part by the severe drought of 2019 and resulting high water prices.

They have also been the subject of an Australian Competition and Consumer Commission inquiry, whose interim report released last year documented a range of problems with the way water markets work in the Murray-Darling Basin. The final report was handed to the treasurer last week.

While water markets are far from perfect, new research from the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) has found they are vital in helping the region cope with drought and climate change, producing benefits in the order of A$117 million per year.

To make the most of water markets, we will need to keep improving the rules and systems which support them. But with few “off-the-shelf” solutions, further reform will require both perseverance and innovation.

Water markets generate big benefits

Australia’s biggest and most active water markets are in the southern Murray-Darling Basin, which covers the Murray River and its tributaries in Victoria, NSW and South Australia.

Each year water right holders are assigned “allocations”: shares of water in the rivers’ major dams. These allocations can be traded across the river system, helping to get water where it is most needed.

Water markets also allow for “carryover”: where rights holders store rather than use their allocations, holding them in dams for use in future droughts.

Our research estimates that water trading and carryover generate benefits to water users in the southern Murray-Darling, of A$117 million on average per year (around 12% of the value of water rights) with even larger gains in dry years. Carryover plays a key role, accounting for around half of these benefits.

Together water trading and carryover act to smooth variability in water prices, while also slightly lowering average prices across the basin.

There’s room for improvement

One of many issues raised in the Australian Competition and Consumer Commission interim report was the design of the trading rules, including limits on how much water can move between regions.

These rules are intended to reflect the physical limits of the river system, however getting them right is extremely difficult.

The rules we have are relatively blunt, such that there is potential at different times for either too much water to be traded or too little.

One possible refinement is a shift from a rules-based system to one with more central coordination.

For example, in electricity, these problems are addressed via so-called “smart markets”: centralised computer systems which balance demand and supply across the grid in real-time.

Such an approach is unlikely to be feasible for water in the foreseeable future.

But a similar outcome could be achieved by establishing a central agency to determine inter-regional trade volumes, taking into account user demands, river constraints, seasonal conditions and environmental objectives.

While novel in Australia, the approach has parallels in the government-operated “drought water banks” that have emerged in some parts of the United States.

Some of the good ideas are our own

Another possible refinement involves water sharing rules, which specify how water allocations are determined and how they are carried over between years.

At present these rules are often complex and lacking in transparency. This can lead to a perceived disconnect between water allocations and physical water supply, creating uncertainty for users and undermining confidence in the market.

Although markets in the northern Murray-Darling Basin are generally less advanced than the south, some sophisticated water sharing systems have evolved in the north to deal with the region’s unique hydrology (highly variable river flows and small dams).

Beardmore Dam at St George in Southern Queensland, where water markets operate under a capacity sharing system.
ABARES

There is potential for the southern basin to make use of these northern innovations (known as “capacity sharing” or “continuous accounting”) to improve transparency and carryover decisions.

Don’t throw the market out with the river water

Governance failures in the water market have led to understandable frustration.

But it is important to remember how vital trading and carryover are in smoothing variations in water prices and making sure water gets where it is needed, especially during droughts.

The ACCC’s final report (due soon) will provide an opportunity to take stock and develop a roadmap for the future.

Water markets will be discussed at Today’s ABARES Outlook 2021 conference in an online panel session at 3-4pm AEDT.

Neal Hughes, Senior Economist, 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.

Morrison government plan to scrap water buybacks will hurt taxpayers and the environment

Quentin Grafton, Crawford School of Public Policy, Australian National University

The Morrison government today declared it will axe buybacks of water entitlements from irrigators, placating farmers who say the system has damaged their livelihood and communities.

Instead, Water Minister Keith Pitt says the government will scale up efforts to save water by upgrading infrastructure for farming irrigators in the Murray Darling Basin.

The move will anger environmentalists, who say water buybacks are vital to restoring flows to Australia’s most important river system. It also contradicts findings from the government’s own experts this week who said farm upgrades increase water prices more than buyback water recovery.

The government has chosen a route not backed by evidence, and which will deliver a bad deal to taxpayers and the environment.

A farmer stands in the dry river bed of the Darling River — The government will no longer buy water from farmers for the environment.
Dean Lewins/AAP

A brief history of water buybacks

Farmers along the Murray Darling are entitled to a certain amount of river water which they can use or sell. In 2008, the federal Labor government began buying some of these entitlements in an open-tender process known as “buybacks”. The purchased water was returned to the parched river system to boost the environment.

In 2012, the Murray Darling Basin Plan was struck. It stipulated that 2,750 billion litres of water would be bought back from irrigators and delivered to the environment every year. The buyback system was not universally supported – critics claim buybacks increase water prices, and hurt farmers by reducing the water available for irrigation.

The Coalition government came to office in 2013 and adopted a “strategic” approach to water buybacks. These purchases were made behind closed doors with chosen irrigators.

In a review of these buybacks released last month, the Australian National Audit Office found many of these taxpayer-funded deals were not good value for money.

The federal government ordered the review after controversy involving the 2017 purchase of water from two Queensland properties owned by Eastern Australia Agriculture.

The government paid A$80 million for the entitlements – an amount critics said was well over market value. The deal was also contentious because government frontbencher Angus Taylor was, before the purchase, a non-financial director of the company. The company also had links to the Cayman Islands tax haven.

Keith Pitt speaks in Parliament as Prime Minister Scott Morrison watches on — Water Minister Keith Pitt, pictured during Question Time, is the minister responsible for the new approach.
Mick Tsikas/AAP

Infrastructure subsidies: a flawed approach

The Coalition government is taking a different approach to recover water for the environment: subsidising water infrastructure on farms and elsewhere. This infrastructure includes lining ponds and possibly levees to trap and store water.

The subsidies have cost many billions of dollars yet recover water at a very much higher cost than reverse tenders. This approach also reduces the water that returns to streams and groundwater.

The justification for water infrastructure subsidies is that they are supposedly less damaging to irrigation communities. But the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) concluded in a report published this week that on-farm water infrastructure subsidies, while beneficial for their participants, “push water prices higher, placing pressure on the wider irrigation sector”. This is the very sector the subsidies purport to help.

So why would the government expand the use of water infrastructure when it costs more and isn’t good value for money? The answer may lie in this finding from the ABARES report:

Irrigators who hold large volumes of entitlement relative to their water use (and are frequently net sellers of water allocations) may benefit from higher water prices, as this increases the value of their entitlements.

Farmers with limited entitlement holdings however may be adversely affected, as higher water prices increase their costs and lowers their profitability.

In other words, the “big end of town” benefits – at taxpayers’ expense – while the small-scale irrigators lose out.

Missing water

Adding insult to injury, the Wentworth Group of Concerned Scientists released a detailed report this week showing the basin plan is failing to deliver the water expected, even after accounting for dry weather. Some two trillion litres of water is not in the rivers and streams of the basin and appears to have been consumed – a volume that could be more than four times the water in Sydney Harbour.

The Wentworth Group says stream flows may be less than expected because environmental water recovery has been undermined by “water-saving” infrastructure, which reduces the amount of water that would otherwise return to rivers and groundwater.

This infrastructure, on which taxpayers have spent over A$4 billion, has not had the desired effect. Research has found those who receive infrastructure subsidies increased water extractions by more than those who did not receive subsidies. That’s because farmers who were using water more efficiently often planted thirstier crops.

Dusk at Menindee Lakes in the Murray Darling Basin — The government took a strategic approach to water buybacks in the Murray Darling Basin.
Shutterstock

We deserve better

It’s clear taxpayer dollars are much better spent buying back water entitlements, through open tenders, rather than subsidising water infrastructure. We can, and must, do much better with water policy.

Today, the federal government has doubled down on wasteful spending at taxpayer expense – in a time of a COVID-induced recession.

So what is on offer from the Morrison government? Continuing to ignore its own experts’ advice and delivering yet more ineffective subsidies for water infrastructure. Our rivers, our communities, and all Australians deserve much better.

Quentin Grafton, Director of the Centre for Water Economics, Environment and Policy, Crawford School of Public Policy, Australian National University

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

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.

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.

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.

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.

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.

Don’t blame the Murray-Darling Basin Plan. It’s climate and economic change driving farmers out

Sarah Ann Wheeler, University of Adelaide

For the thousand or so farmers in Canberra in the past week venting their anger at the federal government, it’s the Murray-Darling Basin Plan to blame for destroying their livelihoods and forcing them off the land.

We can’t comment directly on their claims about the basin plan. But our research, looking at the years 1991 to 2011, suggests little association between the amount of water extracted from the Murray-Darling river system for irrigation and total farmer numbers.

That’s not to say there aren’t fewer farms in the basin now than a decade ago – there are – but our analysis points to the more important drivers being the longer-term influences of changing climate, economics and demographics.

Indeed our study predicts another 0.5℃ increase in temperature by 2041 will halve the current number of farmers in the basin.

Hostility to water recovery

The waters of the northern basin run to the Darling River and the waters of the southern basin run to the Murray River.
MDBA

Over many decades state governments in Queensland, New South Wales, Victoria and South Australia licensed to farmers more entitlements to water than the river system could sustain. The basis of the Murray-Darling Basin Plan, enacted in 2012, was to rectify this through buying back about a quarter of all water licences to ensure an environmental flow.

A water entitlement, despite its name, does not guarantee a licence holder a certain amount of water. That depends on the water available, and that is determined by the states, which make allocations to each type of licence based on its type of security and current conditions.

With drought, farmers have seen their allocations severely cut back, sometimes to nothing. And partly because they see there’s still water in the River Murray, some are very angry.

Hostility to water recovery in fact predates the plan’s enactment, to when the federal government began buying back water entitlements in 2008. The Commonwealth now holds about 20% of water entitlements across the basin. More than two-thirds of these licences were recovered between 2008 and 2012.

Lack of correlation

Our research thus covers the period of most significant water buybacks. It also covers the period of the Millennium Drought, from 2001 to 2009, when the amount of water extracted from the river system dropped by about 70%.

Yet we see little evidence reduced water extractions led to more farmers exiting the industry.

As a very broad overview of the situation, the following graph illustrates the lack of correlation between measured water extraction in the Murray-Darling Basin and decreasing farmer numbers.

Water extractions have varied significantly between years, with a big decline over the decade of the 2000s even while farmers’ need for irrigated water increased due to lack of rain. La Niña brought record rains in 2010-11. The current drought across the basin took grip from about 2017.

Yet farmer numbers have declined at a relative steady rate. Within the basin in the time-period we modelled, they fell from about 90,000 in 1991 to 70,000 in 2011. This can be seen as part of a wider trend, with total farmer numbers in the four basin states falling from more than 230,000 in 1976 to barely 100,000 in 2016.

It might be argued that because irrigated farms make up only a quarter of all farms, the overall numbers might mask a greater correlation between water extractions and decline in irrigated farms. While the specific impacts on irrigation farming in recent years warrant further study, there’s no signal in our data pointing to extractions making a discernible contribution to farmer numbers throughout the basin.

Modelling farmer movement

Our findings are based on a specialised data set of population and agricultural census information from statistical local areas from 1991 to 2011. We used climate risk measures from 1961 onwards.

The following infographic shows the exit pattern of farmers by local area between 1991 and 2011.

We included as many climate, economic, farming, water and socio-demographic characteristics as possible to capture historical farmer movements and create a model able to predict movements based on variables such as average temperature.

Need for a multifaceted response

Overall our modelling results suggests the most significant and largest influences on farmer exit are rising temperatures and increased drought risk, followed by the economic factors that have have been reducing the proportion of the population engaged in farming for more than a century.

Declining commodity prices, higher unemployment and urbanisation are strongly associated with farmer exit. Urbanisation, for example, has made it attractive for farmers on city fringes to sell their land to property developers and exit the industry.

Research suggests irrigators in psychological distress are more likely to want the basin plan suspended. Our research suggests their distress is probably not primarily driven by the federal government buying water entitlements from licence holders who sold them willingly. Water recovery and the basin plan is simply an easier focal point of blame than the longer-term trends making the farming lifestyle less viable.

Nothing will be gained by focusing on short-term “fixes” at the cost of longer-term environmental harm. The problems facing all farmers cannot be addressed in isolation from longer-term global climate and economic trends.

As a society we have to decide what we value: do we want to see such a mass exodus of farmers from the land in the face of a drying climate? If not, future policy for the Basin must consider the real long-term drivers of farm exit and take a multi-faceted approach to climate change, water, land, drought and rural development.

Sarah Ann Wheeler, Professor in Water Economics, University of Adelaide

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

Fish kills and undrinkable water: here’s what to expect for the Murray Darling this summer

Dry conditions will make for a difficult summer in the Murray Darling Basin.
AAP/Dean Lewins

Jamie Pittock, Australian National University

A grim summer is likely for the rivers of the Murray-Darling Basin and the people, flora and fauna that rely on it. Having worked for sustainable management of these rivers for decades, I fear the coming months will be among the worst in history for Australia’s most important river system.

The 34 months from January 2017 to October 2019 were the driest on record in the basin. Low water inflows have led to dam levels lower than those seen in the devastating Millennium drought.

No relief is in sight. The Bureau of Meteorology is forecasting drier-than-average conditions for the second half of November and December. Across the summer, rainfall is also projected to be below average.

So let’s take a look at what this summer will likely bring for the Murray Darling Basin – on which our economy, food security and well-being depend.

A farmer stands in the dry river bed of the Darling River in February this year.
Dean Lewins/AAP

Not a pretty picture

As the river system continues to dry up and tributaries stop flowing, the damaging effect on people and the environment will accelerate. Mass fish kills of the kind we saw last summer are again likely as water in rivers, waterholes and lakes declines in quality and evaporates.

Three million Australians depend on the basin’s rivers for their water and livelihoods. Adelaide can use its desalination plants and Canberra has enough stored water for now. But other towns and cities in the basin risk running out of water.

Governments were warned well before the drought to better secure water supplies through infrastructure and other measures. But the response was inadequate.

Some towns such as Armidale in New South Wales have been preparing to truck water to homes, at great expense. Water costs will likely increase to pay for infrastructure such as pumps and pipelines. The shortages will particularly affect Indigenous communities, pastoralists who need water for domestic use and livestock, irrigation farmers and tourism business on the rivers.

Water in major storages as reported at 13 November 2019.
Murray Darling Basin Authority

As we saw during the Millennium drought, when wetland soils dry some sediments will oxidise to form sulfuric acid. This kills fauna and flora and can make water undrinkable.

Red gum floodplain forests and other wetland flora will continue to die. Most of these wetlands have not had a drink since 2011. The desiccation, due to mismanagement and drought, is likely to see the return of hypersalinity – a huge excess of salt in the water – with river flows too weak to flush the salt out to sea.

If drought-breaking rains do come, as they did in 2010-11, this would create a new threat. Floodwaters would inundate leaf litter on the floodplains, triggering a bacterial feast that depletes the water of oxygen. These so-called “blackwater” events kill fish, crayfish and other aquatic animals.

The risk of blackwater events has largely arisen because government authorities have failed to manage water as they had agreed. In particular, the NSW and Victorian governments have not worked with farmers to allow managed river flows to inundate floodplains.

The prospect of thousands of dead fish in the Murray Darling Basin looms large again this summer.
AAP/GRAEME MCCRABB

How did we get here?

The severity and impacts of this drought should not come as a surprise. In the 1980s, the CSIRO’s first projections of climate change impacts in the basin foreshadowed what is unfolding now.

Despite the decades-old warnings, water management authorities in some catchments favoured water extraction by irrigators over rural communities, pastoralists and the environment. For example, the NSW Natural Resources Commission in September found that state government changes to water regulations brought forward the drying up of the Darling River by three years.

Since the basin plan was adopted in 2012 our federal and state political leaders have reduced the volume of real water needed to keep the rivers healthy, supply water to people and flush salt out to sea. For example, in May 2018 the federal government and Labor opposition agreed to reduce water allocated to the environment by 70 billion litres a year on average, without a legitimate scientific basis.

The basin plan is based on historical river flow records, without explicitly allowing for diminished inflows resulting from climate change. Australian water management has followed what’s been termed a “hydro-illogical cycle” where drought triggers reform, but government leaders lose attention once it rains. This suggests meaningful reform must be implemented when drought is occurring and politicians are under pressure to respond.

Severe drought and mismanagement means a dire summer for the Murray-Darling river system.
Dean Lewins/AAP

How to fix this

Governments must assume that climate-induced drought conditions in the basin are the new normal, and plan for it.

Action should include:

Revising water allocations consistent with climate change projections
Investing in managed aquifer recharge to supply more towns with reliable and safe water
Restoring rivers by reallocating enough water to sustain their health
Increasing wetland resilience by reconnecting rivers to their floodplains in wetter years
Improving river health, such as by fencing out livestock.

Investing in these adaptation actions now would provide jobs during the drought and prepare Australia for a much drier future in the Murray-Darling Basin.

Jamie Pittock, Professor, Fenner School of Environment & Society, Australian National University

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

Paddling blind: why we urgently need a water audit

There’s broad support from communities and farmers for proper water audits.
John/Flickr, CC BY-SA

Quentin Grafton, Crawford School of Public Policy, Australian National University and John Williams, Australian National University

In the wake of a damning royal commission and an ABC Four Corners investigation, the federal government has created an Inspector General for the Murray-Darling Basin, to combat water theft, ensure water recovery and efficiency projects are delivered properly, and essentially make sure everyone is acting as they should.

While this is a laudable aim, the Inspector General – currently former Australian Federal Police Commissioner Mike Keelty – cannot hope to do this job without knowing how much water is being used in the Basin, by whom it is used, and where.

This might seem like basic information, but the Bureau of Meteorology, the Murray-Darling Basin Authority and state water accounts are not up to the task.

We urgently need a comprehensive audit to track the water in the Murray Darling Basin, so Inspector General Keelty can effectively investigate what he has already described as a “river ripe for corruption”.

Up the creek

Back in 2004 all governments in Australia agreed to track and provide information on water in terms of planning, monitoring, trading, environmental management, and on-farm management.

But water accounts still lack many essential features including double-entry accounting. When applied to water, double-entry accounts means that when one person consumes more water, someone else must consume less.

The technology to track this already exists: satellites that can quantify surface water are successfully being used used in the United States.

If we had monthly water consumption measurements, we could see how much water is being used, by whom, when and where. This would help decision makers see problems before they emerge, such as the mass fish deaths in the Darling River, and respond in real time.

As a recent report from the Natural Resources Commission shows, without proper accounting, too much water is taken upstream – seriously harming downstream communities.

Wide support for an audit

An independent Basin-wide water audit is supported by communities and some irrigators.

In July NSW farmers voted in support of a federal royal commission into “the failings of the Murray Darling Basin Plan”. In our view, this vote shows many farmers support much greater transparency about how much water is being consumed, and by whom.

Double-entry water consumption accounts would help identify whether the billions of dollars planned in subsidies to increase irrigation efficiency will actually deliver value for money. But irrigation improvements only generate public benefits when more water is left or returns to flow in streams and rivers. Such flows are essential to healthy rivers and sustainable Basin communities.

Irrigators’ crops benefit from increased efficiency, so subsidies help farmers greatly – but it is very unclear whether they do anything for the public good. In fact, they seem to reduce the amount of water that finds its way back into the rivers. Research also shows infrastructure subsidies to improve irrigation efficiency typically increases water consumption at the Basin level.

Our research, published earlier this year in the Australasian Journal of Water Resources shows federal irrigation infrastructure subsidies may have reduced net stream and river levels. This is even after accounting for the water entitlements irrigators provided to the government in exchange for these subsidies.

Independent audits

Just like financial accounts, water accounts must be independently audited.

For the average taxpayer, who has to justify every dollar they get from the government, it’s hard to imagine how some corporations can be given millions of dollars in subsidies without actual measurements (before and after) of the claimed water savings.

If Newstart recipients need to report and manage their income and have a job plan, as part of a system of appropriate checks and balances, shouldn’t the Australian government also be checking whether billions spent on subsidies for irrigators actually saves water?

A water audit would cost less than 1% of the money already spent on water infrastructure subsidies in the Basin. Unlike irrigation infrastructure subsidies, a water audit is value for money.

Importantly, independent water consumption accounts would allow the Inspector General for the Murray-Darling Basin to effectively manage our most critical nature resource, water.

Quentin Grafton, Director of the Centre for Water Economics, Environment and Policy, Crawford School of Public Policy, Australian National University and John Williams, Adjunct Professor Environment and Natural Resources, Crawford School of Public Policy, Australian National University

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

NSW’s water plan is ‘not working’ but we can save the Barwon-Darling

Barry Hart, Monash University

The plan to manage water in the Barwon-Darling is not working, according to a draft review released last week.

The New South Wales Natural Resources Commission, which released the draft report, found the Barwon-Darling is an “ecosystem in crisis”. The report provides a robust blueprint for a more sustainable water-sharing plan.

The review confirms criticism the existing plan gives too much water to irrigators and has added to pressures on the entire Murray-Darling ecosystem.

What the plan covers

The draft review examines the 2012 Water Sharing Plan for the Barwon-Darling, which covers 1,600km of the river from Mungindi to Wilcannia. The river here flows south-west through a relatively narrow floodplain with a tightly meandering channel and a highly variable flow pattern.

The river is unregulated and depends heavily on upstream rivers for its water (for example, Condamine–Balonne, Border rivers, Gwydir and Namoi).

January’s massive fish kills around Menindee are only the most recent example of the pressures on the river’s ecosystems. Alongside the fish deaths, research has shown that other aquatic species in the system, such as river mussels, have suffered losses that will take many decades to recover.

Communities that live along the river told the commission people can no longer fish, swim or drink the river water. Graziers struggle to provide water for their stock because the river dries up more often.

Indigenous communities are particularly affected because without water their strong connection to the river – the Barka – is being damaged. A Barkandji elder told the commission:

The river is everything. It’s my life, my culture. You take the water away from us, we’ve got nothing.

Bad priorities

While the review found drought, upstream water extraction in NSW and Queensland and climate change have all contributed to these problems, the greatest effect comes from inappropriate water-sharing rules, particularly when water levels are low.

The law underpinning river management in NSW prioritises protecting the environment and basic landholder rights (including native title) over irrigation. However, the commission found the current plan does not achieve this.

In fact, the plan has been highly controversial since it was enacted in 2012. This in large parts arose because major changes were made between the draft plan circulated in 2011 and the actual plan gazetted in 2012. The commission documents 16 such changes in the review and rates six as substantial.

The NSW government did not publicly explain the reason for such significant alteration in 2012, but there has been much speculation powerful vested interests influenced the government to provide more water for irrigation.

The most important effect of these changes was letting irrigators take water even when the river is very low. The review concludes:

These provisions benefit the economic interests of a few upstream users over the ecological and social needs of the many.

What to do?

The review recommends the NSW government urgently change water-sharing rules so these better comply with the legal requirements to protect the environment and other water users, restore community trust and make the river more resilient to future shocks.

Key priorities for the NSW government are:

redesigning the water-sharing rules so environmental protection and basic landholder rights cannot be harmed by lesser priorities such as irrigation
introduce new flow targets to more effectively protect critical ecosystems and enhance river health
change rules relating to water extractions by A Class licence holders during critical low-flow periods, particularly those relating to commence-to-pump, cease-to-pump, and the size of pumps.
introduce and enforce more effective metering and monitoring
develop strategies and rules that address the inevitable impacts of climate change
develop and implement more integrated management of water resources in the northern Murray-Darling Basin.

The commission did note there have been positive changes to the NSW government’s approach to water policy and management since the ABC 4 Corners report Pumped in 2017 and the subsequent Ken Matthews report.

However, the Murray-Darling Basin Plan required NSW to complete a new water resource plan for the Barwon-Darling River by June 2019. The state missed this deadline. The NSW water minister has requested an extension to December 31 2019. A recent assessment by the Murray-Darling Basin Authority suggests NSW is still some way from completing this water resource plan.

While NSW delays, the Barwon-Darling river system and its communities suffer. The NSW government now has an excellent blueprint for a new plan. It must urgently implement the review’s 29 recommendations and complete a new plan for the Barwon-Darling before the end of 2019.

Barry Hart, Emeritus Professor Water Science, Monash University

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

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

Neal Hughes, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES)

Water prices in the southern Murray-Darling Basin have reached their highest levels since the worst of the Millennium drought more than a decade ago. These high water prices are causing much anxiety in the region, and have led the federal government to call on the Australian Competition and Consumer Commission to hold an inquiry into the water market.

Inevitably, whenever an important good becomes more expensive – be it housing, electricity or water – there is a rush to identify potential causes and culprits. In the past few years high water prices have been blamed on foreign investors, corporate speculators, state government water-sharing rules, new almond plantings and the Murray-Darling Basin Plan.

While some of these factors have had an effect on the market, they are in many ways a distraction from the simpler truth: that high water prices have mostly been caused by a lack of rain.

Supply drives the market

Market reforms in the 1980s and 1990s enabled water trading in many parts of Australia. By far the most active market exists in the southern Murray-Darling basin, which covers the Murray River and its tributaries in northern Victoria, southern New South Wales and eastern South Australia.

The market allows users – mostly irrigation farmers – to trade their water allocations (effectively shares of water in the rivers’ major dams). This trading helps ensure limited water supplies go to the farmers who value them the most, which can be crucial in times of drought.

Historical data shows the main driver of water market prices in the southern basin is change in water supply.

The following chart shows storage volumes (in orange) and water prices (in red) in the southern basin since 2006. Prices peaked at the height of the Millennium drought in 2007. During the floods of 2011, they fell near zero. Prices have increased again during the latest drought, and are now at their highest levels in a decade.

Water allocation prices and storage volumes in the southern Murray-Darling Basin.
State government trade registers, BOM, Ruralco Water, ABARES estimates.

Lower rainfall, higher temperatures

While water prices have always been higher in dry years and lower in wet, we’ve been getting a lot more dry years in recent decades.

Over the past 20 years, rainfall, run-off and stream flow in the southern basin has been far less than historical conditions.

The below chart shows modelled flow data for the Murray River, assuming historical weather conditions and no water extraction, over the past century. It shows that average water flows this century are about 40% below the average of the 20th century.

Modelled ‘without-development’ annual Murray River flow, 1900 to 2018.
Murray-Darling Basin Authority.

We know these reductions are at least partly related to climate change, driven by both reduced winter rainfall and higher temperatures.

Lower rainfall and higher temperatures also make crops thirstier, increasing demand for irrigation water. This was evident in January, when temperatures exceeded 35℃ for 14 days and irrigators’ demand for water spiked from about 4.5 gigalitres to 7 gigalitres a day.

The basin plan in perspective

The Murray-Darling Basin Plan seeks to improve the environmental health of the river system by recovering water rights from irrigation farmers. To date, more than 1,700 gigalitres of water rights – about 20% of annual water supply – have been recovered in the southern basin.

By reducing supply, water recovery was always expected to increase water prices. However, the effects of water recovery on supply – while significant – are still small relative to the effects of climate over the same period, as shown in the below chart.

Water allocation use in the southern basin with and without water recovery.
State government agencies, Department of Agriculture, ABARES estimates.

Measuring the precise effect of water recovery on prices is difficult. Water buybacks are straightforward and have been modelled by ABARES and others. But the effects of infrastructure programs – where farmers return a portion of their water rights in exchange for funding to upgrade infrastructure – are harder to estimate.

‘Carryover’ rule changes

Historically farmers had to use water allocations within a 12-month window. The introduction of “carryover” – most recently in Victoria in 2008 – means users can now hold their unused water in dams. This rule change was a good thing, as it encourages farmers to conserve water and build up a buffer against drought.

But it might also have contributed to anxiety about the water market’s operations.

Since water allocations can be bought and held for multiple years, information about future conditions can have a big effect on prices now. For example, we see large jumps in price following news of worse-than-expected supply forecasts. This may have helped fuel concern about “speculators”.

Over the longer-term, the ability to store water helps to “smooth” water prices, with slightly higher prices in most years offset by much lower prices in drought years. Again this is a good thing, but it may have added to the perception of higher prices in the market.

Water demand is rising

When a profitable new irrigation activity is willing to pay more for water – as is the case with almond farms in the southern basin – competition for limited supplies can potentially drive up prices.

ABARES’ research shows that between 2003 and 2016 there was little change in irrigation demand (aside from that linked to rainfall). Growth in demand from expanding activities such as almonds and cotton was offset by reductions in others including dairy, rice and wine grapes. However, there is evidence since 2016 that demand for water has started to increase, contributing to higher water prices. Longer-term projections suggest this trend may continue.

With drought and climate change reducing water supply, and demand for both environmental and irrigation water increasing, high water prices are only likely to become more common in the basin in future.

Neal Hughes, Senior Economist, 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.

Memo to the environment minister: a river does need all its water

Paul Humphries, Charles Sturt University and R. Keller Kopf, Charles Sturt University

Given her new role as federal environment minister, one of Sussan Ley’s comments in an interview with Nine Newspapers was eyebrow-raising, to put it mildly. She said:

Sometimes the environment doesn’t need all its water but farmers desperately do need water.

This is inaccurate and concerning, but not all that surprising, given the attitude to water and rivers of some in the community and federal government.

In this age of water sharing and trading, and storing water in dams, it is easy to lose sight of what water is to a river, and how every drop of water that enters (or should enter) a river defines the character and function of that river.

Ultimately, the community – not scientists or even river managers – decides how much water a river should get. But it’s essential to be honest about the effects these decisions have on rivers and the ecosystems they support. This is vital for long-term environmental sustainability, upon which all our industry, agriculture and indeed our society are based.

Crises and concerns

Recently the Murray-Darling river system has suffered several crises, including fish kills, hypoxic water, acid-sulfate soils, and algal blooms. These are all wake-up calls that the way we manage rivers are not working.

But besides these disastrous incidents, there are many other ways in which river ecosystems are changing, that are not as obvious to the general public.

Contraction of native species’ ranges, local extinctions, success of invasive species and the “need” to stock non-native recreational fish species are just a few of the insidious symptoms of a general malaise.

Water to a river is like air to a balloon. Let out a little air and the balloon is still balloon-shaped, albeit less taut than before. But let out more air and there comes a point, which is hard to predict exactly, when the balloon suddenly collapses. By this analogy, the Murray-Darling Basin is very deflated indeed.

The point is that if we take water out of a river, or change the patterns of its flow, we inevitably change the nature of that river. Irrigators undoubtedly need water. But we shouldn’t kid ourselves that we’re not altering the river and its ecosystems by allowing them to take it.

Do we want healthy rivers?

Our job as river scientists is not to say what type of river the community wants. Our job is to inform people on what the actions of changing river management will do to a river and its life.

We already have seriously degraded river ecosystems. Restoring them is exceedingly unlikely under current demands and management. But if we take even more of a river’s water away, we need to acknowledge that the river will become yet a different river, and in some cases, one that we hardly recognise.

The public backlash following the fish kills earlier this year suggests that the community has decided that further degradation of our rivers is not acceptable.

Paul Humphries, Senior lecturer in Ecology, Charles Sturt University and R. Keller Kopf, Research fellow, Charles Sturt University

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

5 ways the government can clean up the Murray-Darling Basin Plan

Barry Hart, Monash University and Martin Thoms, University of New England

The health of the Murray-Darling Basin, Australia’s largest and most complex river system, is in rapid decline, and faces major challenges over the next 30 years as the climate changes.

In our view, there are still major problems with the implementation of the Murray-Darling Basin Plan. These must be addressed to make sure the system is resilient enough to have a reasonable chance of bouncing back from future shocks to the river’s ecosystems, particularly due to climate change.

Here are five ways the government can clean up the Murray-Darling Basin Plan so the river system has a chance of surviving in the long term.

1. Allow the rivers to spill into the floodplain

There are restrictions in all states on deliberately using environmental water (water set aside to keep the rivers healthy) to go over the river bank and inundate the floodplain. When this happens, it’s known as “overbank flow”, and is restricted to areas and times of year when it’s permitted.

Overbank flow is the connection between rivers and their floodplain, and is essential for two reasons.

Populations of water birds like pelicans are not recovering as well as they used to after drought and flood cycles in the Basin.
Shutterstock

The first is to ensure floodplain wetlands and forests are resilient. For example, without additional water, the current red gum forests along the River Murray are likely to die and be replaced with black box trees, which need less water.

The second is for the exchange of nutrients and organic matter between rivers and floodplains. Without these inputs from the floodplain, the river system would only be able to support a much smaller number of fish.

Governments have been reluctant to work towards increased overbank flows, largely because of a potential backlash from landholders who don’t want their floodplain land to be flooded.

But in several regions, such as the Edward-Wakool system in New South Wales, landowners and government officials are working through the issues that infrequent flooding has on riverside agricultural land, such as stock being unable to graze flooded areas, crops being innundated by floodwaters, and loss of access to parts of their property through road flooding.

We hope their discussions will lead to a balance, where overbank flows can still occur with minimum impact on landholders.

Still, without changes to state policies on overbank flows, parts of the Basin’s floodplain systems are unlikely to have sufficient resilience to absorb future stresses.

2. Better management of the rivers

The Commonwealth and states now have almost 3 trillion litres (3,000 gigalitres) of dedicated environmental water, purchased from irrigators, many of whom have made significant water savings by upgrading their irrigation equipment.

This is called “held” environmental water. Currently, there is around 3 trillion litres of held environmental water, and 13.7 trillion litres of water allocated to irrigators in the Murray-Darling Basin.

Management of this environmental water is relatively new, compared with the management of water for irrigators, which has been occurring for the better part of 80 years in rivers such as the Murray, Goulburn and Murrumbidgee.

There is a major difference in when environmental and irrigation water is needed through the year. Farmers have their highest water demand for irrigation in late spring and summer, while the major environmental water demand is often highest in late winter and early spring. This is when high natural inflows would have filled river channels and spilled into floodplain forests and wetlands.

The use of the river channels to deliver irrigation water has lead to large flows in the summer when naturally the river flows would have been low. This has resulted in environmental problems, such as bank erosion and the wrong triggers for fish breeding.

3. A greater focus on river refuges

During periods of low or no flow, many of the Basin’s rivers exist as networks of waterholes. In such dry periods, these waterholes are vital habitats, or “refuges”, for fish, frogs, waterbugs, and other species that need permanent water.

Changes in land use, flow regimes and the condition of riverbank vegetation all threaten the ability for these waterholes to act as refuges for these species. These waterhole refuges also need a full set of structural habitats, such as snags and riverbank vegetation.

Maintaining a “mosaic” of refuges with different levels of connection is required for the full suite of species to be able to survive droughts.

4. Better protection of planned environmental water

Runoff – rainwater that drains from the land and into the rivers – will be seriously affected by climate change.

A predicted 20% reduction in rainfall is expected in the southern Basin by 2050. This would translate to a 40-50% reduction in runoff, and would impact on all water in the Murray-Darling Basin.

Disturbingly, the current policy in the Basin Plan safeguards the entitlements to irrigation water and held environmental water, but not the rest of the flow – which is largely also “environmental” water. Currently, this makes up around half of the total flow (32.5 trillion litres per year) in the Murray-Darling Basin a very large volume.

Drought stricken wetlands of the Murray-Darling Basin. We need a more coordinated management of all of the Basin’s natural resources.
Shutterstock

The effect varies over the basin, but by 2030, overall losses are predicted to be two to three times greater for water that is outside of these entitlements, compared with irrigation water and held environmental water.

Unless this policy is changed, climate change will have an excessive impact on the river’s health. Entitlement-holders will continue to take the same amount of water while the overall river flow drops dramatically. This deficiency must be addressed when the Basin Plan is reviewed by 2026.

5. Linking water and other natural resource management

The Basin’s water resources do not exist in isolation from other “natural capital”, such as riverbank habitats, floodplain land, and the surrounding catchments.

Before the Basin Plan, the Murray-Darling Basin Commission had in place an integrated natural resource management strategy, but this has now been discontinued.

River scientists know “the catchment rules the river”. But the water and catchments are now managed separately, despite many calls over the years for better integration.

Poor agricultural practices result in sediment, nutrients and salt entering the rivers in runoff. This reduces water quality and harms the Basin’s ability to provide essential “ecosystem services”, such as water quality improvement and the effective functioning of the ecosystem.

We believe a more coordinated management of all natural resources in the Basin, and attention to other complementary measures, should be addressed when the current Basin Plan is reviewed in 2026.

We submit that continuing with the existing Basin Plan, it’s unlikely the Murray-Darling Basin will be resilient enough to withstand future climate impacts, and we will see major detrimental changes to the basin’s ecosystems.

At the very least, we must properly implement the current Basin Plan by addressing the first three issues above, and also make the necessary policy change to ensure the other two issues – protection of planned environmental water and better links with other natural resources – are addressed in the next Basin Plan in 2026.

Barry Hart, Emeritus Professor Water Science, Monash University and Martin Thoms, Professor – Faculty of Humanities, Arts, Social Sciences and Education; School of Humanities, Arts, and Social Sciences , University of New England

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

Water markets generate big benefits

There’s room for improvement

Some of the good ideas are our own

Don’t throw the market out with the river water

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A brief history of water buybacks

Infrastructure subsidies: a flawed approach

Missing water

We deserve better

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Two types of water recovery programs

Water recovery has increased prices

Farm upgrades increase prices more than buybacks

No easy answers

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Hostility to water recovery

Lack of correlation

Modelling farmer movement

Need for a multifaceted response

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Not a pretty picture

How did we get here?

How to fix this

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Up the creek

Wide support for an audit

Independent audits

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What the plan covers

Bad priorities

What to do?

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Supply drives the market

Lower rainfall, higher temperatures

The basin plan in perspective

‘Carryover’ rule changes

Water demand is rising

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Crises and concerns

Do we want healthy rivers?

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1. Allow the rivers to spill into the floodplain

2. Better management of the rivers

3. A greater focus on river refuges

4. Better protection of planned environmental water

5. Linking water and other natural resource management

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