Prof. Mike YoungResearch Chair, Water Economics and ManagementThe University of Adelaide“Water, wine and horticulture: A Scholefield Robinson Horticultural Services Seminar”Chifley Hotel, 18th September 2007

River Murray Water SupplyWhere is your future headed?

2

0

500

1000

1500

2000

1911

1914

1917

1920

1923

1926

1929

1932

1935

1938

1941

1944

1947

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

Rai

nfal

l (m

m)

14% less 20% less

Rainfall for Jarrahdale

0

100

200

300

400

500

600

700

800

900

1000

19

11

19

14

19

17

19

20

19

23

19

26

19

29

19

32

19

35

19

38

19

41

19

44

19

47

19

50

19

53

19

56

19

59

19

62

19

65

19

68

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

Str

eam

flo

w (

GL

)

N o te s : S tre a m flo w is fro m Ma y o f la b e lle d ye a r to th e fo l lo w in g Ap ril

48% less66% less

S tre a m in flo w fo r P e rth d a m s (P rio r to S tirlin g D a m )

PERTH

Changes in rain and water supply

3

Warragamba + 3 Nepean Dams (Inflows & annual rainfall)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Year

Inflo

w G

L

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Rainf

all (m

m)

892 GL pa

2,027 GL pa

572 GL pa

780 mm pa 907 mm pa 681 mm pa

Sydney

- 25%

- 75%

4

If it gets drier

Less rain means much less water

5

Melbourne

6

0

10,000

20,000

30,000

40,000

50,000

60,000

1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Year (financial year ending)

Inflo

w to

Lal

Lal

Res

ervo

ir (M

L)Lal Lal, Victoria in-flow Levels

Average post 1997 11,600 ML

Average pre 1997 27,400 ML

7

Total Murray-Darling Basin inflows Annual flows (year ending June) showing forecast for 2006/07

Source: Craik, MDBC

21 years

8

9

900 GL for use

10

Salinity at Morgan

11

Salinity Lake Alexandrina

12

Lake Alexandrina Level

-0.5 m

13

Problems

1. Over-allocation When too much is allocated to users and not enough to the

environment and for system maintenance & operation2. Over-entitlement When more is allocated than exists

3. Interception Activities that by reducing river flow debase reliability

4. Inefficient storage management When too much or too little is left in storage and in the system

itself5. Administrative inefficiency When transactions take too long to complete When there is un-necessary duplication When there are barriers to adjustment

14

Over-allocation and over-entitlement

A dredge was put in the Murray Mouth in October 2002 – before the drought!

Nature’s solution to this problem is to debase the reliability of your entitlement.

Governments can purchase entitlements and either • Cancel them when over-entitlement is the

problem • Re-assign them to the environment when over-

allocation is the problem• Can change fixed volume entitlements into

shares

15

Flow interception

Flow reducing activities

1. Increased forestry2. More farm dams3. More groundwater development4. Increased irrigation efficiency5. More lined channels and more piped water6. More salinity interception

Two Risks1. Climate change2. Bushfires

16

Language

SA is unbundling its holding and taking licence systemEntitlements A share of the amount allocated for use in any year

Allocations The amount that is allocated for use or for trade

17

Risk management reforms1. Guaranteed allocations

• Once made, they can not be reduced without compensation

2. Access to the system’s dams Carry forward with adjustment for evaporation

3. A tradeable share of the cap as a maximum delivery entitlement

18

Entitlement reliability reform

1. Transfer SA entitlements to a common register with NSW and Vic

No state differences between SA, Vic or NSW entitlements A formal allocation for River maintenance and operation

2. A guaranteed flow to the sea and no guaranteed flow over the SA boarder

3. Entitlements defined as shares of the available water in two reliability pools in each part of the system

High security adjusted for long run trend General security varies with seasons

19

Trading reforms

1. Internet-based access to your water account2. Guaranteed register integrity3. Instantaneous trading of allocations4. Announcement timing synchronised across the

Basin5. Low-cost and speedy entitlement trading

• Two days maximum time• Less than $60 per trade• Electronic mortgage clearance and settlement

6. Unbundled entitlements, allocations and use approvals

20

Adjusting to a new regime

1. The system has been seriously over-allocated for some time

2. Adjustment styles Impede Facilitate Expedite

3. Avoid any program that impedes structural adjustment

4. With much less water there must be less irrigation and fewer environmental assets

Sacrifice on both sides will be necessary

21

Environmental water reform

1. Hold entitlements in a trust at arms length from any decision making about seasonal allocations and trading rules

2. Support counter-cyclic trading3. Source water using off-market

mechanisms

22

Options 1. Continue to debase your entitlement2. Bring all flow reducing activities into the allocation regime3. Voluntary acquisition4. A market-assisted step change

Paid 2 years in advance for a percentage reduction in your entitlement Paid above market value => Just terms

Waive all water trading charges for two years Pay all exit fees For income tax purposes defined as compulsory

acquisition

Ending Over-allocation & Over-entitlement

23

What you can do

Manage your own risk1. Determine the breakeven price at which it pays to sell

rather than use water• Review your assets carefully

2. Expect minimal allocations for the next few years3. Invest in water entitlements in NSW and Victoria4. Carry forward water if you can5. Invest in river water entitlements that are outside

irrigation districts and, hence, exempt from exit fees• Trade allocations in but think twice before trading

entitlements into a district

Contact:

Prof Mike YoungWater Economics and ManagementEmail: Mike.Young@adelaide.edu.auPhone: +61-8-8303.5279Mobile: +61-408-488.538 www.myoung.net.au

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