Since the Millennium Drought of 2000-2010 (and particularly the devastatingly dry period of 2007-2010), Australians have significantly improved the efficiency of our water resource management. Much of the interest focused on reforms to rural water use, including the development of highly effective water markets in the Murray-Darling Basin.
But Australia learnt some really important lessons about urban water management too. In particular, in Melbourne, where I live, there was a real success story in achieving behavioural change to reduce water demand during the drought.
The 'Target 155' campaign urged all Melbournians to cut their personal water use to 155 litres per person per day, and this was a significant contributor to Melbourne's ability to survive the 2007-2010 drought without major cuts to industry and employment. Whilst increased water availability over the past five years has caused water use to drift upwards again (to over 166 litres per person per day), this is still considered low for urban use in a developed country. As the Target 155 is brought out again this summer, it's helpful to review just how powerful it was the first time around.
This article in the New York Times shows how important the behavioural change campaign was, and that one of the elements of success was working with the people of Melbourne, rather than imposing this limit on them.
The article is a really interesting read, and shows the crucial importance of tackling water demand rather than automatically (and only) reaching for supply augmentations (although Melbourne did both, by building the desalination plant as well as working to cut water demand).
Australia's water markets continue to be recognised as world leaders in supporting rapid, flexible, enforceable and cheap transfers of water rights, especially in the southern connected Murray-Darling Basin.
Everyone loves a good water market story, and one of the enduring tropes in the narratives of water markets is the 'evil' of big business speculators buying up water rights that might otherwise have been available to farmers. So when editors at The Conversation reached out to me to comment on this issue, it seemed like a good time to dig into the facts.
And the facts are, although there are still real threats to water markets as a tool for effective, efficient and equitable regulation of Australia's water resources, speculation by investors is (so far) not one of them.
Investors and speculators aren't disrupting the water markets
These markets are also huge – the estimated total value of water entitlements in the Murray-Darling Basin (MDB) was over $A11.5 billion in 2015-16. The sheer size of the markets has led investors to join the fray.
But there is now rising concern about investors in water markets. Will speculation drive up water prices, pricing out farmers? Do investment firms take water away from irrigators, or the environment? Is speculation impacting water resource management in the MDB?
The data shows these fears to be overblown. Investors make up only a tiny proportion of the water market and there are far greater concerns for those reliant on it – the climate, efficiency drives and political uncertainty among them. In fact, speculators may even be beneficial as they add flexibility to the market.
How water is traded in Australia
Water markets offer farmers the flexibility to manage risk by transferring water to its highest value or most profitable use. They also allow water to move to other socially-valued uses such as environmental watering. This is best exemplified during a drought, when farmers with perennial crops (e.g. trees or vines) can buy water rights from farmers with annual crops (e.g. cotton or rice), who decide not to produce. Water markets have saved many farmers and their crops during previous droughts.
Water resource management in the MDB is an example of the “cap and trade” system. The cap is a limit on how much water can be allocated for consumption. Under this system, water is “owned” either as shares or entitlements (a permanent right to receive ongoing water allocations). Available water is allocated against those shares/entitlements each year (e.g. during a drought farmers may receive 40% of their entitlement).
Both shares and entitlements can be owned by, or transferred to, other water users. This includes investors and “the environment”, under the guise of an organisation like the Commonwealth Environmental Water Holder. The decision by any owner to use or trade water will depend on the price of water, which varies among different parts of the catchment, and across years.
Functional water markets depend on four fundamentals – well-defined water rights, many buyers and sellers, easy transfer between different users/uses and locations, and reliable and adequate information. All four are present to varying degrees in the southern-connected MDB water markets as a result of a combination of historical factors and ongoing government investment.
What water speculation ‘looks like’
Speculation in any market takes two main forms – short-term arbitrage (simultaneous buying and selling where there is a price difference between different markets or exchanges) or long-term investing in water entitlements and then selling or leasing annual water allocations to users. Therefore, speculation, especially the long-term kind, can lead to “hoarding” of water by non-users (those without farm land), which could distort supply for farmers and increase prices.
But if we look at the changes to available water over the last decade there is little evidence that speculation is impacting the water market. The vast majority of water rights are still held by farmers. At most, Victorian estimates put speculation activity at around 5% of water market activity, which is not a significant proportion and unlikely to distort trade. Speculators also remain a very small proportion of total water holdings without land. Most water rights not attached to land are still owned by farmers.
In fact, water entitlement prices are mainly driven by periods of low/high supply climate events, as shown in the chart below. The millenium drought saw prices rise dramatically from 2006/07 until 2009/10 when the drought broke. Increases from 2013/14 correspond again to low supply, which in recent months has been reversed.
Goulburn Murray Irrigation District trade prices 1993-2016 (source: author provided).
Some may argue that water purchased from willing sellers through buybacks for environmental use has increased prices, but again this is unlikely. This argument is based on the idea that reallocating water to the environment has removed huge volumes from trade. But it ignores the fact that Commonwealth purchased entitlements are only around 13% of the total entitlement volume in the southern connected MDB and far, far less in the northern part of the Basin.
The concerns are unwarranted
According to the data, speculation is neither affecting water prices, nor driving significant changes in the way water is used. In fact, given the broader trends of water use in the MDB towards high value, perennial crops, as well as government incentives encouraging farmers to transform toward such systems, increasing the volume of water held by speculators could be beneficial.
By definition, speculators aren’t making use of their water entitlements. This water is effectively “uncommitted” to existing crops, which means during a drought the allocations can be sold to perennial farmers, enabling them to keep their crops alive.
All water users have a vested interest in maintaining the functionality of Australia’s water markets. But fear of water speculators is a red herring, and any negative impacts of speculators on the water markets are likely to be dwarfed by that of government intervention, efficiency incentives and ongoingpoliticaluncertainty.
As the water resources debate in northern Australia continues to take shape, it is essential that we do not overlook the need to address the historical exclusion of Aboriginal Australians from the water rights framework.
Water in northern Australia: a history of Aboriginal exclusion
In May, the Northern Territory government granted a major water licence for a cattle station near Pine Creek, west of Kakadu National Park, to use almost 14 million megalitres of water a year to irrigate crops.
In response, the Northern Land Council, which represents Aboriginal landholders, called for a moratorium on all further water allocations in the Territory, claiming the government had not fully consulted the community about the licence.
As we document in a new paper, this kind of debate has been happening ever since the colonisation of northern Australia, often on the premise that the north’s water resources are “wasted” without more economic development and subsequent increases in settler populations.
Since the early 20th century, huge amounts of public money have been invested in large-scale water infrastructure projects in northern Australia, such as the Ord River Scheme.
But the viability of this program has been widely critiqued on economic grounds since the mid-1950s. Prominent agricultural economist Bruce Davidson coined the phrase “the Northern Myth” to describe the widely held, but misplaced, belief in the north’s capacity to accommodate vastly expanded agriculture and irrigation because of its abundant water and land.
These developments also largely occurred without consulting Aboriginal people. Water was allocated to other users without taking account of traditional owners' longstanding cultural and economic practices with regard to land and water, stretching back thousands of years.
Indigenous land holdings in northern Australia. Red: Indigenous estates; beige: determined areas; blue: areas subject to claim. National Native Title Tribunal, Author provided
A colonial history of exclusion
After Britain acquired sovereignty of Australia, water use was regulated according to English riparian rights. Under this law, legal rights to use water, for example for farming, were given to whoever owned the land where rivers flowed. The link between water use and landholding remained in place, in one form or another, until the late 20th century.
This meant that Indigenous Australians, whose traditional ownership of land (native title) was only recognised by the Australian High Court in 1992, were largely denied legal rights to water.
Around the same time that native title was recognised, reforms (known as the National Water Initiative) were being pursued to increase the environmental sustainability of the Murray Darling Basin.
Unfortunately, however, these reforms largely failed to make substantive change in Indigenous water rights or to engage Indigenous people effectively. Today, Indigenous Australians have land rights and/or native title rights and interests over some 30% of the Australian continent, but own only 0.01% of water entitlements.
Problems continuing
In June last year the Commonwealth government released the latest version of its plans, the White Paper on Developing Northern Australia, which calls for yet more significant expansion of irrigation. Strong concerns have been expressed about the plan’s failure to incorporate environmental water reserves.
Aboriginal rights and interests still do not seem to be adequately catered for. In a speech at the Garma Festival, Northern Land Council chief executive Joe Morrison claimed Aboriginal people had again been largely absent from the process, saying:
Aboriginal people have an essential stake in the future of northern Australia … Aboriginal people must be front and centre in planning processes for the north. This is a fundamental gap in the national discourse about northern development … I’m not one to despair, but I do wonder when the day will come that we have a seat at the planning table.
Aboriginal people are a significant demographic group in northern Australia, with extensive landholdings. In the Northern Territory, for example, Aboriginal people represent more than 25% of the population and own more than 50% of the land. Any major reform proposal that does not adequately include Aboriginal people risks its own legitimacy.
To give Aboriginal people fair representation in northern water development, they must be accorded a fair share of the water. At the turn of the century, the Northern Territory government developed promising proposals to include “strategic indigenous reserves” in northern water resource plans. However, the policy was discontinued after a change of government in 2013.
Experience recovering environmental water in the Murray-Darling Basin has taught us that it is much easier to set aside a share of water while resources are still plentiful than embark on a process of buyback.
By and large, Aboriginal people recognise the case for economic development, not least because of the employment opportunities it creates for their own communities. But they also know the importance of protecting country, particularly sacred sites.
This is not to say that Indigenous water rights must be purely for cultural purposes. On the contrary, Indigenous people deserve commercial water rights too, especially given that they have been sidelined from agricultural expansion for so long.
Righting that historical wrong will mean giving Aboriginal people the same water rights that have been given to non-Indigenous users ever since colonisation.
Developing northern Australia remains a topic of interest, especially following the recent federal election, which returned (just) a coalition government.
On election night, Barnaby Joyce used his victory speech to remind voters that electing the coalition meant building new dams in Queensland in particular, and a commitment to developing water resources across northern Australia.
I've written about this issue in The Conversation a couple of times already this year, and the latest article caught the attention of Radio National's Counterpoint presenter Amanda Vanstone. She interviewed me on Monday about water resource management in northern Australia, and the importance of sustainable water planning.
Ahead of the election, the major parties have released different visions for developing northern Australia. The Coalition has committed to dam projects across Queensland; Labor has pledged to support the tourism industry.
The Coalition has pledged A$20 million to support 14 new or existing dams across Queensland should the government be returned to power, as part of a A$2.5 billion plan for dams across northern Australia.
Labor, meanwhile, will redirect A$1 billion from the fund towards tourism, including eco-tourism, indigenous tourism ventures and transport infrastructure (airports, trains, and ports).
It is well recognised that the development of northern Australia will depend on harnessing the north’s abundant water resources. However, it’s also well recognised that the ongoing use of water resources to support industry and agriculture hinges on the health and sustainability of those water resources.
Northern Australia is home to diverse ecosystems, which support a range of ecosystem services and cultural values, and these must be adequately considered in the planning stages.
Sustainability comes second
The white paper for northern Australia focuses almost solely on driving growth and development. Current water resource management policy in Australia, however, emphasises integrated water resource planning and sustainable water use that protects key ecosystem functions.
Our concern is that the commitment to sustainability embedded in the National Water Initiative (NWI), as well as Queensland’s water policies, may become secondary in the rush to “fast track” these water infrastructure projects.
Lessons from the past show that the long-term success of large water infrastructure projects requires due process, including time for consultation, environmental assessments and investigation of alternative solutions.
What is on the table?
The Coalition proposes providing funds to investigate the feasibility of a range of projects, including upgrading existing dams and investigating new dams. The majority of these appear to be focused on increasing the reliability of water supplies in regional urban centres. Few target improved agricultural productivity.
These commitments add to the already proposed feasibility study (A$10 million) of the Ord irrigation scheme in the Northern Territory and the construction of the Nullinga Dam in Queensland. And the A$15 million northern Australia water resources assessment being undertaken by CSIRO, which is focused on the Fitzroy river basin in Western Australia, the Darwin river basins in Northern Territory and the Mitchell river basin in Queensland.
Rethinking dams
New water infrastructure in the north should be part of an integrated investment program to limit overall environmental impacts. Focusing on new dams applies 19th-century thinking to a 21st-century problem, and we have three major concerns about the rush to build dams in northern Australia.
First, the process to establish infrastructure priorities for federal investment is unclear. For instance, it’s uncertain how the projects are connected to Queensland’s State Infrastructure Plan.
Investment in new water infrastructure across northern Australia needs to be part of a long-term water resource plan. This requires clearly articulated objectives for the development of northern Australia, along with assessment criteria that relate to economic, social and environmental outcomes, such as those used in the Murray-Darling Basin Plan.
Second, the federal government emphasises on-stream dams. Dams built across the main river in this way have manywell-recognisedproblems, including:
lack of environmental flows (insufficient water at the appropriate frequency and duration to support ecosystems)
flow inversion (higher flows may occur in the dry season than in the wet, when the bulk of rainfall occurs)
barriers to fish movement and loss of connectivity to wetlands
water quality and temperature impacts (unless there is a multi-level off-take).
As a minimum, new dams should be built away from major waterways (such as on small, tributary streams) and designed to minimise environmental impacts. This requires planning in the early stages, as such alternatives are extremely difficult to retrofit to an existing system.
Finally, the federal government proposals make no mention of climate change impacts. Irrigation and intensive manufacturing industries demand highly reliable water supplies.
While high-value use of water should be encouraged, new industries need to be able to adapt for the increased frequency of low flows; as well as increased intensity of flood events. Government investment needs to build resilience as well as high-value use.
Detailed planning, not press releases
In place of the rather ad hoc approach to improvements in water infrastructure, such as the projects announced by the federal government in advance of the election, we need a more holistic and considered approach.
The A$20 million investment for 14 feasibility studies and business cases in Queensland represents a relatively small amount of money for each project, and runs the risk of having them undertaken in isolation. The feasibility studies should be part of the entirety of the government’s plan for A$2.5 billion in new dams for northern Australia.
Water resource planning is too important and too expensive to cut corners on planning. Investment proposals for Queensland need to be integrated with water resource planning across the state, and across northern Australia, and with appropriate consideration of climate change impacts.
Fast tracking dams without considering ecosystem impacts, future variability in water supplies, and resilience in local communities merely sets the scene for future problems that will likely demand another round of intervention and reform.
The push for development in northern Australia is gathering momentum, with the government recently releasing a draft of its Northern Australia Infrastructure Facility to help finance large projects.
The development of northern Australia will crucially depend on harnessing the north’s abundant available water resources. Over the next five years the government will develop plans to manage these water resources.
However we have to get these plans right from the start to ensure the north’s waters are developed sustainably. To do so, we can start by looking south.
Full steam ahead
In June 2015, the federal government released its long-awaited northern Australia White Paper. Among commitments to agriculture in northern Australia, the white paper targets more efficient use of water resources across the north.
Over 60% of Australia’s total surface water runoff occurs north of the Tropic of Capricorn. A 2014 CSIRO review indicates that this could potentially support up to 1.4 million hectares of irrigated land, increasing Australia’s irrigated area by 50%.
Reaching this potential, however, would come at the financial and environmental cost of around 90 new dams and many weirs and other infrastructure.
The white paper promises sustainable development, but the problem is the timeframe. The paper commits, over the next two years, to assessment of the water resources in the initial priority catchments, and within five years, to the development of water resource plans. These plans will include a cap on water use, and a water market to trade water allocations.
But the paper is silent on what we know about northern ecosystems and how water infrastructure might affect them, and makes no allowance for climate change.
Learning from the south
There is much to be learned from the current implementation of the Murray-Darling Basin Plan, which will result in upgrades to existing water plans in Queensland, New South Wales, South Australia, Victoria and the Australian Capital Territory.
The past 20 years have seen almost continual reform in Murray-Darling, demonstrating how hard it is to achieve sustainability when water resources are over-used.
Australia is currently spending over A$13 billion to restore the Murray-Darling Basin catchments to something approaching the minimum needed to maintain the ecological health of the system.
Avoiding this will avoid a major overhaul in the future and provide investor confidence.
Managing this risk to wildlife
Northern Australia is home to 301 nationally threatened species, as well as the iconic Great Barrier Reef, already under threat.
In 2004 one of us (Barry) looked at environmental risks of new irrigation schemes then proposed for the north.
He identified four factors for sustainable irrigation, including urgently better understanding the north’s freshwater ecosystems, and developing a risk-based approach to making decisions on infrastructure.
Over the past decade we’ve considerably improved our knowledge of northern ecosystems, for example the Ord river system in Western Australia, Kakadu and the Daly river in Norther Territory, and the Mitchell, Burdekin and other coastal rivers and wetlands in Queensland. Although we know more, this knowledge needs to be synthesised before it can be used for planning.
We still don’t know exactly how irrigation projects might affect these ecosystems. To deal with this we suggest adopting an ecological risk-based approach to planning.
It is trite, but true, that one needs to know the risks before one can set about managing them. Ecological risk assessments assist in identifying the risks, assessing their relative importance, and identifying possible ways to mitigate the risks. This sort of process is a basic component of the requirements for plans being developed as part of the Murray-Darling Basin Plan.
Dealing with dams
The White Paper clearly sees new on-stream dams as part of increasing water use in northern Australia.
The planning process will set a cap on how much water can be used. But current evidence regarding the impact of dams on river flows shows that this will not be enough.
From the start, plans need to include environmental flow: sufficient water at the appropriate frequency and duration to support ecosystems. As well as a cap, this might mean creating legal rights for water held in the storage for the environment.
One of the intractable problems caused by dams in southern Australia has been seasonal flow inversion. River flows are higher in summer and lower in winter than the ecosystem needs.
In the north, flow inversion may occur with higher flows occurring in the dry season rather than in summer when the bulk of the rainfall occurs.
To avoid this, new water infrastructure in the north could be built off stream. This system is currently used in the Queensland section of the Murray-Darling Basin. But, unless planned for at the outset, these alternatives are extremely difficult to retrofit to an existing system.
Figuring out the sustainable level of water extraction for an aquatic ecosystem depends on considerable technical work (hydrological, ecological and modelling). This technical work needs to be guided by a clear set of objectives for each development, including the value the community (including Indigenous Australians) places on the local ecosystems.
The water market
The Murray-Darling Basin demonstrates that water markets are a highly efficient means for ensuring that the available water resource is effectively used. Additionally, the water market is also an efficient means for recovering water for the environment (although the overall process remains costly), and can also increase efficiency of environmental water management.
But to make the most of the opportunities created by water markets, the environment needs the institutional capacity to enter the market. In the south, the Commonwealth Environmental Water Holder owns and manages large volumes of water across the Murray-Darling Basin. At the state level, the Victorian Environmental Water Holder has also proved effective at streamlining decision-making and using the market to manage its holdings.
If environmental water in the north is to be managed efficiently in the context of a future water market, establishing a legal entity with the capacity to hold water, enter contracts and make decisions will be an essential piece of the puzzle.
The White Paper is a bold vision for developing northern Australia. Australia has learned many lessons about sustainable water allocation the hard way, at the cost of a great deal of time, money and ecosystem degradation.
We need to apply these lessons from the south to the north. Failing to adequately invest in new water resource development plans in northern Australia is effectively planning to fail. And we should know better.
It's been a long time between posts. 2016 is officially the Year of the Thesis, so I am working hard to finally get my PhD thesis submitted.
To bring you up to date...
In 2013, I attended a workshop to bring together water policy academics and practitioners from the Murray-Darling Basin and the Colorado, to share lessons on sustainable water management. Water policy is often seen as heavily context-specific, but there is always value in a multi-jurisdictional discussion. The underlying issues of water resource management are common, and even when the specific policies and tools differ greatly, there is still value in a discussion that encourages you to re-examine your own assumptions. The outcome of this workshop was a series of blog posts at the Global Water Forum, and they are well worth a read.
In late 2013, Rebecca Nelson and I chaired a national workshop, Mainstreaming Environmental Water Law and Policy, at the University of Melbourne Law School. This workshop brought together academics, policy makers, private consultants and NGOs from across Australia to discuss the emerging issues in environmental water management. The emphasis of this workshop was particularly on how environmental water has moved beyond the triage of drought and into the mainstream of water policy and planning. A full report of the workshop will be placed on the Melbourne University website and I'll link to that then.
Rebecca and I surveyed the attendees at this workshop, and the consistent feedback was that there are not enough of these kinds of opportunities for frank and open discussion between people from different states and sectors. I think academia is best placed to host these kinds of forums, and we should do it much more often.
2015 saw the publication of my first book chapter, co-authored with Dustin Garrick (who recently released his own great book on water resource management in the Murray Darling, Colorado and Columbia Basins), looking at the role of private organisations in environmental watering in Australia and the US. Not to give too much away, but we conclude that a combination of private and public organisations can generate the maximum efficacy, as well as long term legitimacy, for environmental watering.
Most recently, Barry Hart and I published a brief article in The Conversation on the future challenges facing water resource planning in northern Australia. I'll republish that article in full in the next post.
So it's been a busy couple of years, and there's a lot of exciting stuff happening this year - fingers crossed I find time to write about it!
