Water Sharing in the Murray-Darling

Last Updated on

… not a drop to drink

This is a third article on MDB water and the most difficult to write. It is aimed at giving a fairly comprehensive background on water terminology and the constraints faced when trying to ration water in a very dry land with vocal lobby groups speaking to the rural heartland. A few bits of cross-checking to do. The button below has all the caveats

Sources

Water as an economic good

The National Water Account

The Murray-Darling Basin Authority

and generally, ABS and ABARES data for analyses

MDB is short for Murray-Darling Basin. 

Gl means 1,000,000,000 litres of water - approximately the size of 400 Olympic swimming pools

Ml means 1,000,000 litres of water. This enough to cover a hectare to a depth of 10cm on a quarter acre block (~0.1 hectares or 1000 sq m) to 1 metre high.

Water is special

If we can manage complex things like money that is a virtual commodity these days, why is water and its use so difficult? This article is intended to give some insight to a vital issue for people and the environment we live in.

Water as a commodity

Let’s look at what makes water so unique and why it is hard to manage this limited, highly variable and valuable resource. Then we can have a detailed look at the inhibitors and enablers for management of water in a dry land.


Water is essential.

There is no life without water, no economic production, no environment. There is no human activity that does not depend on water. It is a vital resource. The same can be said about air, land, fuel and food.

No water, no life, whether this is in the rivers or for river communities. When river species die, this is a forerunner to what can happen to communities. Fish kills are a complex thing and do occur naturally. However, when they can be prevented with a little foresight and care, there is no need for endangered species that are slow to breed and live a hundred years or more to die due to lack of attention to the basics of river management.


Water is non-substitutable.

There is no alternative for water. Economic theory is based on the existence of choice. But what alternatives are there for water? There is no alternative, there is no choice. The only exception is coastal cities that could afford to produce fresh water from seawater through desalination.

Nothing else can take the place of water. If one energy source becomes scarce we can use another. Food can be substituted. Not water.


Water is finite.

The amount of fresh water available is limited by the amount of water that circulates through the atmosphere on an annual basis. All fresh water stems from the rainfall. The amount of rainfall that falls on land is finite.

You run out of water in Australia and you do not have many options.


Water is fugitive

Water flows under gravity. If we don’t capture it it’s gone. The availability of the water varies over time and so does the demand for water. It flows through our fingers unless we store it. Water is different from air and land, because these goods don’t need to be stored: they are stocks, whereas water is essentially a flux. There are of course also stocks of water: groundwater aquifers and natural lakes. But these lakes and aquifers only can be used sustainably if they are replenished by the flux. We can store water artificially but then the stock is small compared to the flux. Annual recharge rates determine safe and sustainable yields, not the stocks.

Many people see water running to the sea or down a river past them as wasted. Until the environmental impact of building dams was understood, building a dam was a sure-fire way to win votes. Dams and irrigation are referred to as harnessing water – controlling it for human purposes


Water is a system.

The annual water cycle from rainfall to runoff is a complex system where several processes (infiltration, surface runoff, recharge, seepage, re-infiltration, moisture recycling) are interconnected and interdependent with only one direction of flow: downstream. If the flow is interfered with upstream, downstream impacts result, and externalities and third party effects occur. Many downstream users depend on the return flows of (inefficient) upstream users; increasing the efficiency of those upstream uses will decrease return flows and impact downstream. If groundwater is abstracted from an aquifer, further down in the cycle at some later point in time less water will flow in the river. If waste is discharged at some point, damage is incurred somewhere downstream. A catchment is one single system and not the sum of a large number of subsystems that can be added-up or optimised in a regular economic model.

Not just the water cycle. The water cycle is integral to the environment we live in and yet, only part of it. The local environment we lived in once provided all we needed to become the dominant species on Earth. We still need clean air and water, food and shelter to live – regardless of how different all that looks to what it did 10,000 years ago. We are organic and the world we live in is the only place we can live for any length of time. Destroy an important part of it and we can destroy ourselves by destroying other parts of the ecosystem.

Complex adaptive systems in nature are very robust. They can withstand a wide variation in temperature and other factors that impact life. However, the capacity to adapt will at some point break down and there is an Environmental Collapse. Water seems to be one of the most critical factors in collapse scenarios studied by Jared Diamond and others.


Water is bulky.

Although water is essential for almost any economic activity, there are not many examples of water being transported over any considerable distance, particularly not against the force of gravity. Where these transfers nevertheless occur, they concern water destined for high value uses (for the domestic and industrial sectors) and, in some exceptional cases, for highly subsidised agricultural purposes. Although normal commodities are shipped and wheeled throughout the globe, we do not send super tankers with water to drought stricken areas. We transport the produce instead: grains, textiles, dried fruit, etc.; commodities that house more than 1,000 times their weight in virtual water, the water required to produce it.

Water carriage consumes large portions of the lives of people living without reticulated water. Its weight and difficulty finding suitable vessels for carrying it create significant social and economic pressures. Rivers handle the transport of water very well. That is what they are, water transport. Irrigation copies nature and builds channels to transport water in a controlled way and in large volumes needed to support industry, agriculture and domestic uses. If you have none within easy access, then you need to build the infrastructure needed to transport it in channels or pipes, frequently needing to pump it as well. Any method of transporting water up hill will be very expensive. Transport by truck is even more expensive.


Water is a problem for Economists

Until recent times, water was just part of the environment we lived in. What we did was constrained by available water and there was nothing much we could do about it. With the advent of water storage and distribution and especially irrigation, water has become a commodity that can be used for many competing purposes. Because water is so useful for so many purposes, there is competition for it. Wars have and will again be fought over it.

Water is also a problem for people. Almost everyone is aware of the need to diversify an investment portfolio. To manage economic risks – hoping for the best and planing for the worst. Money can be stored (bank accounts, investment instruments) and magically grows when stored for 98% of the time. The Great Depression and Great Recession were exceptions. Withdrawing money hardly reduces the amount, given small transaction fees charged. You have to earn money, it does not grow on trees or fall from the sky. It allows trading without the messy business of finding someone who wants to trade exactly what you have for exactly what they want to trade in return.

Dams store water but, unlike money, water disappears from storage (evaporation and seepage). Water does fall from the sky and you can collect it on your own land, even store it in dams. Water is hard to value and comes in different grades. Pure water is more valuable than polluted water and it is more valuable when scarce – its value varies due to Externalities.

Two competing economic approaches to managing water:- The free market approach focused on individuals maximising benefits to themselves has been the path of least resistance until scarcity forced alternative ways of thinking. Water as a common resource to be shared for greatest nett benefit to a whole economic unit requires a Paradigm Shift in thinking before it can succeed.

avatar


Free market or a commonly owned resource?

There is a kind of industrial water cycle of inflow, extraction and return

Opportunity Cost

Opportunity cost is another important consideration in economics. Any use of a resource produces a return (profit or similar) and there is a corresponding lost opportunity for other activities that could have used that resource. Therefore a farmer using a Ml of water to improve pasture might make a personal gain of $214 but the nursery downstream could have used the water to generate $17,0001.

Tragedy of the Commons

In the 19th century it became clear that common resources with an economic value would almost inevitably be taken over by those who could exploit them to the detriment of others. The English Common was the prime example, where an individual could consume or destroy what was supposed to be for the common good – especially for the poor. Tragedy of the Commons is the economic term to describe this and it is evident in fisheries, shared land and even air and water now. Then there is the associated economic assumption that there are no limits to natural resources.

Notable counter examples are evident with the traditional Aboriginal owners of Australia and other indigenous custodians 2

Losses

Losses are a kind of Externality in economic terms. Sources of loss include evaporation, absorption, diversion and unauthorised extraction. Keeping in mind that we are talking about a managed Basin.

Water Markets & Entitlement

The environment does not compete with economic and community beneficiaries for the use of water. The environment enables them to have water

Water in a dry land

Water is Finite. Water is essential. It opens up the dry interior to the west of the Great Dividing Range. The issue of who owns the water has been a vexed question. Federation could not solve the ownership of the Murray River and its water. When water flow slowed to a trickle in 1914, the rivers were no longer navigable and rail transport replaced riverboats for transport to the coastal cities. The following year saw the first water agreement with signing of the River Murray Waters Agreement in 1915, focused on resource sharing between the States. The response in 1918 was to build locks to ensure that the river would remain navigable. Those locks extend from below the confluence of the Darling up to Yarrawonga. Until the mid 1990s there were minor changes to the agreement, relating to the construction of dams and weirs.

Lots of detail about the basin and its characteristics here.

Prehistory 3extract

Gondwana

The Basin is made up of many geological units formed when Australia was part of Gondwana and long before it separated from other land masses (about 500 million years ago). Other units developed more recently (around 2 million years ago) as Gondwana split into its eastern and western halves; others developed about 140 million years ago when Australia and Antarctica split from India.

Over 400 million years, the tectonic units that form the foundation of the Basin eroded to a relatively flat land surface, however outcrops of the original rock remained in some regions. Volcanic activity, sometimes extreme, also created distinctive features on the landscape.

Basin development

Harsh sandy cliffs at Lake Mungo in New South Wales.
Lake Mungo, NSW

Over this ancient landscape the Murray Groundwater Basin formed around 60 million years ago. The southern part of the Great Artesian Basin underlies much of the northern Murray?Darling Basin, where the Darling River and its tributaries flow. The Murray Groundwater Basin underlies the riverine plains associated with the River Murray and its tributaries.

Basin facts

Ongoing erosion and weathering resulted in sedimentary rocks infilling the basins, while the ancient basement rocks continued to fold and change (metamorphose) at the perimeters and beneath the basins, forming the mountain ranges and outcrops that form the eastern and southern areas of the land surface of the Basin. The south-western rim of the Basin is basement rocks just beneath the surface, which form the Padthaway Ridge in South Australia and separates the Basin from the Southern Ocean.

The climate of 40–60 million years ago was much wetter than present. The basins contained large swamps and bogs, and thick sediments that were laid down in broad valleys. As streams and rivers ran from the eastern highlands, new valleys were eroded and sand and gravel were deposited as rivers fanned out across the plains. Great quantities of water accumulated in the Great Artesian Basin, which maintained connections to the ground surface or shallow aquifers. Up to 600 m of sediment was deposited in the Basin.

Rising and retreating sea levels

On the western side of the Murray Groundwater Basin, sea levels rose and retreated several times from 26 to 2.5 million years ago. The south-western corner of the basin became a sea, which at its peak (about 6 million years ago) reached Balranald and Kerang. Marine materials were deposited across the landscape in sand sheets until the sea retreated completely.

Compared with other continents, Australia has been remarkably free of volcanic or mountain-building activity in recent time. The Great Dividing Range in eastern Australia, the Flinders Ranges in South Australia and the extensive plains in between have been present for at least 20 million years.

Earth moving changes

Localised activity in the earth’s crust in ‘recent’ geological time had significant influences on soil characteristics, groundwater quality and the modern courses of the rivers.

Around 3 million years ago, the uplift of the Pinnaroo Block, near Swan Reach on the lower River Murray, blocked the flow of the river and over time created the massive but shallow Lake Bungunnia. The lake is thought to have covered 50,000 km², from Blanchetown in South Australia, to past Lake Mungo in the north, to Boundary Bend on the Murray in the east and arms extending southwards to near Sea Lake in the Victorian mallee. Salt lakes through the region, such as Lake Tyrrell, are believed to be remnants of the ancient Lake Bungunnia.

Lake Bungunnia existed for 2 million years during a time when the climate was much wetter or there was considerably less evaporation, conditions were humid and the landscape was heavily vegetated. About 600,000 years ago, the Pinnaroo Block was breached and the ancient and much wider River Murray cut a deep gorge through sediment to makes its way to the sea.

The main sedimentary rock deposited in Lake Bungunnia, and underlying much of the Mallee — the Blanchetown Clay — provides a barrier between surface water and underlying saline aquifers in modern times. In many areas, the layer slows down leakage of irrigation water into the river. However, as the river carved a new course, new aquifers formed that provided a direct connection between the salt store in the soil and the Murray.

In the central catchment, the course of the Murray and several other rivers changed about 25,000 years ago as a result of an uplift of land from Echuca to Deniliquin, called the Cadell Tilt — effectively a large block that stopped the Murray and Goulburn rivers and two very large lakes formed. Over time and with the melting of glaciers in the Great Dividing Range about 20,000 years ago, water headed north to create the Edward River, and the Murray created a new course to the southwest (now called the Barmah Choke), to follow its current course, created by the ancient Goulburn River, to Swan Hill. Green Gully, west of Mathoura is believed to be the former course of the Murray, as are the lower reaches of the Wakool River.

The Barmah Choke has resulted in regular flooding of a large area of the floodplain in the area, enabling the establishment of the largest stand of river red gums in Australia in the Barmah–Millewa Forest. The choke provides a challenge for water management as it limits flow to 10 ML/day, so downstream supply of irrigation or urban water needs to be scheduled to avoid unseasonal flooding of the red gum forests.

River formation

The most significant period in the formation of the rivers, dunes and alluvial plains of the Basin was during the glacial cycles of 10,000 to 100,000 years ago, when melting glaciers carried vast amounts of water and sediment from the mountains that formed the eastern highlands.

Australia’s general flatness and mostly arid climate means that the river systems are generally slow flowing, and in some cases, ephemeral. Rather than flowing directly from source to sea, the Basin’s rivers generally meander across the giant floodplains of the interior, making many twists and turns on their way to the ocean


Recent History

Aboriginal people have lived in the lower Darling and Murray river basins for at least 40,000 years. They managed to do so sustainably and had agricultural practices that were in advance of most of the rest of the world, especially Europe. Some 75,000 Aboriginal people live in the area. They have something to say, via The Murray, Lower Darling River Indigenous Nations (MLDRIN) :

Over 150 years of land clearing, water extraction, physical disruption of waterways and devaluing of Indigenous knowledge have seen the environment of the Basin severely degraded. Recent research highlights the critical condition of many Basin ecosystems and threatened species.

The Basin waterways are impacted by high levels of salinity, poor water quality, toxic blue-green algae outbreaks and infestations of invasive European carp.

Iconic native fish such as the Murray Cod and Macquarie Perch suffer from reduced river connectivity, cold water pollution from dam-releases and altered flow patterns.

In 2012, the Australian Government implemented The Murray Darling Basin Plan to address some of these issues. The Basin Plan is supposed to return the equivalent of 3200 gigalitres (GL) of water back to the river, as environmental flows.

The Murray-Darling Basin has also undergone a significant loss in the surface of land occupied by wetlands.

MLDRIN identify five key issues impacting the ecology:

  • Salinity
  • Blue-Green Algae
  • Desertification
  • Poor water quality
  • Low flows

How did it happen?

We can see a trend in favoured policy tools, from centralised regulatory directives towards reliance on market-based approaches, generally classed as quantity or price instruments. Quantity instruments, often requiring a cap, have been used as an alternative to direct regulation, commonly in the framework of a market with tradeable property rights (Rolfe and Mallawaarachchi 2007). While there has been increased use of price instruments, there seems to be a tendency to shy away from direct water pricing. For example, cost recovery for water was only ever limited to operational costs, and does not capture environmental costs of extraction. [4 So price instruments come commonly in the form of auction-style tenders, grants and rebates (Rolfe and Mallawaarachchi 2007). While subsidies have largely fallen out of favour, we appear to have come full circle, with the most recent policy, the National Plan for Water Security, embracing the use of direct subsidies to ‘modernise irrigation’.

The need for balance between environmental and extractive demands came to light as Australia’s water economy moved into its mature phase, symbolised by the signing of the Murray-Darling Basin Agreement in 1992 (Quiggin 2001). The 1994 COAG Water Reform (Water Reform) marked the initial shift in natural-resource management towards market-based solutions, and was integral to the Federal Government’s National Competition Policy for competitive neutrality in key industries. The Cap was also introduced in 1995, alongside the water reform to enable transferable property rights for water. The water-reform process was tied in with National Competition Payments to motivate its implementation, although this financial incentive had varying degrees of success in promoting the full water-reform agenda. The Payments represented the first of a string of Federal funding towards environmental management in the years to follow. It can be regarded as a precursor to the weak correlation between government spending and outcome in natural-resource policies.

Problems contributing to stagnating progress since the 1994 Water Reform related to institutional factors in water-sharing arrangements, pertaining to the specification of property rights for extractive and non-extractive uses which compromised the security of water entitlements. In 2004, the national Water Initiative was introduced to overcome these sticking points, resulting in an agreed public–private cost-sharing arrangement if environmental flows were to be increased (Freebairn 2005). It was also agreed that priority would be given to the provision of water for the environment ahead of extractive use, representing a fundamental shift from the view that water management is designed to coordinate increased water use (Connell and Grafton 2008). Discussions on missing property rights over externalities associated with return flows also took place, in particular on the impact of increased water-use efficiency on downstream users; and the implications that water trade between hydrological systems has for water quantity and quality. Following from this was the introduction of ‘exchange rates’, in part to try and capture transmission gains or losses for interregional trading. This was in spite of there being significant knowledge gaps in understanding hydrological systems, which raises concern over the prudence of using those exchange rates. Another example where a rush for action overshadowed the need for robust information and evaluation is the Landcare program. Government failure in this instance led to excessive and poorly distributed public expenditure on small on-ground works (Pannell 2008).

Other prominent programs developed during this period include the Living Murray Initiative and Basin Salinity Management Strategy. The Living Murray began in 2002, aiming to deliver environmental improvements through the Water Recovery and Environmental Works and Measures Programs. The 2001 Basin Salinity Management Strategy focused on salinity-related problems in the Basin, and is linked to the National Action Plan for Salinity and Water Quality. The relevant governments also agreed to build salt-interception schemes under the Joint Works Program to achieve salinity reduction at Morgan, South Australia (which is at the end of the Basin). These initiatives represent substantial funding to deliver environmental improvements at target sites, with increasing reliance on market mechanisms, although still conspicuously avoiding direct buy-back. This shift away from ‘command-and-control’ policies reflects greater public acceptance of economic instruments in environmental management.

Further policy development came in January 2007, when the Federal Government announced the National Plan for Water Security — since renamed ‘Water for the Future’ by the succeeding government in 2008. The strategy of this Plan was in accordance with the objectives outlined in the National Water Initiative; specifically; to address over-allocation, to modernise irrigation, and to create a transparent water-management system. By this stage, market-based instruments have become fairly mainstream, with one-third of the funds to be directed at buying back entitlements. Water information has also become a priority area, and for the first time irrigators are required to disclose water-use information to public institutions. This was done in parallel with efforts to improve basin-wide hydrological modelling.

Finally, the Murray Darling basin Plan was developed to implement over $10 billion of funding to restore the health of the MDB. So much could be written about this, however I will refrain and point you to this: MDB Plan. I offer the caveat that there are many divergent views on the effectiveness of the Plan in its iterations.

Wet years through the 1950s-70s masked the underlying problems so clearly identified by MLDRIN. Dam building was at its peak. Economic development in rural areas was a sure vote winner. Fertiliser and irrigation produced bumper crops. More land was cleared on more marginal landscapes. Imported crops and orchards spread across a fundamentally dry landscape evolved for drought and flooding rains. Dams and the water they stored could solve all problems. Until …

The Millennium drought

Water is Non Substitutable. When there is no water, you cannot grow crops. Even if you have on farm storage, that runs out. The big dams, of course hold much more water, however that water is controlled by someone else. So, when the millennium drought came along there was a crisis. Farming had become dependent on abundant water and previous droughts had only resulted been speed-bumps in progress.

What was different in the Millennium drought is that the environment had reached a tipping point. Extraction of water from the MDB exceeded the amount available. Low flows in the rivers and low dam storages combined to stop some agriculture completely. Adelaide had stinking, almost undrinkable water. Dying trees were visible signs of environmental collapse. Fish kills were prominent. Salinity problems were more evident. Blue-green algae was a widespread problem. We had an inevitable surprise that was foreshadowed in earlier droughts and low flow in 1944, ’68, and the early 1980s. Basin Communities were on the verge of collapse and it all came down to having enough water.

Damn Dams

Water is Fugitive. That is why dams are so popular in a dry land. Water will run to the sea if given the chance and people have tried a lot of methods to capture water and use it for themselves. On farm dams are the most obvious way to capture water however there is evidence to suggest that (often illegal) diversion and use of groundwater are of similar orders of magnitude in their consumption of water.

While water runs to the sea, it still contributes to economic value. You cannot water-ski or fish in a dry river. Recreational benefits (economic and social) flow 4with the water. regulated water in dams and locks benefit the local communities and those who do not receive the “natural flows” lose the benefit.

Dams are a way of managing risk. Risk that there may not be enough water the next year. Risks that there may be a flood destroying produce and infrastructure. It is assumed that the environment can look after itself and that personal economic concerns are paramount. In the early years after a dam is built choices follow along the lines predicted by economics. Water risks are managed and therefore farmers can be more confident with fewer risks to manage.

A decade down the track, and the dam is no longer considered as managing risks. It is part of the new normal. A normal that creates an expectation that consumers of the water are entitled to access for increased economic growth. It is the fault of Government if there is not as much water as your farm’s strategic plan requires.

As a result you get radical ideas such as the Tilt Australia Policy 5 to divert water from the north and inland from the Great Divide “so that XXX Gl of water does not just run to the sea”. The reason these measures do not work is …

Water is Bulky. This is why it cannot be stored conveniently. Large scale storage is expensive and requires a collective effort to build and manage. Government is the most likely owner and builder of such infrastructure and this is the case in the MDB. Water is also heavy in bulk. A cubic metre weighs a tonne – literally. Lifting a tonne of water up a 500m slope requires more than 20 kWh of electricity or around $2-3 at industrial prices. Therefore, one Gl of water pumped that way would cost $2-3 million. Plus other infrastructure costs like pipes, pumps and land for them to cross.

When someone who lives on tank water needs to import water by truck, it costs around $50-100 per 1,000 litres. You only need to see these trucks struggling to get up any decent hill to know that it is heavy. The good thing is that it is easy enough to pump the water, although time consuming if up hill.

Rivers are highly efficient water carriers by comparison with any other mechanism. The water flows under gravity and the carrying capacity of large rivers is very flexible. But, if you are any distance away form a river you are faced with an expensive pumping setup to get the water to you.

Irrigation co-operatives solve this problem by funding (usually with Government support) the construction of irrigation channels or, more recently, pipes. Branches and local channels distribute the water over the “last mile”. This mechanism separates the water used for irrigation from the water in the river channel. That has quite a few consequences for wastage and ownership.

Entitlements and how they came about

Entitlements for water came about when it was recognised that more than just a Cap on extractions was needed to regulate a complex system of rivers with vastly differing environmental concerns, usage patterns and population densities.

NSW passed legislation in 2000 effectively granting water entitlements to landholders, the link gives an idea of how complex and inconsistent are the underpinnings of regulation for these notional entitlements. This one gives an idea of how difficult it is to track and account for water.

A Cap was put in place in the mid 1990s as a temporary measure to avoid potential disaster (as nearly happened in the early 1980s). The cap is now regarded as over generous and established entitlements that could not be met in most years. To address this institutionalises overallocation, water was to be bought back. Incorrectly, this is usually referred to as returning the water to the environment. No water is actually returned it is just an accounting term. If anything it is a measure that allows transfer of water from one place of use to another.

No matter how it is analysed, the notional entitlements that landholders have for water greatly exceeds the amount available, even in a good year. Given that forecasts are for 10% or more reduction in long term water in the MDB, due to climate change, there is more pressure on available water.

Allocations against entitlements can be expected to be well below 100%. In some regions there have been 0% allocations due to no water flowing in rivers or irrigation channels. This is at a time when evaporation rates are increasing. Less water available – more water needed. Not a promising equation.

Administering Entitlements

The Water Act is the legislative mechanisms for regulating water use in the MDB. It defines the environmentally sustainable level of take (ESLT) and the Sustainable Diversion Limit (SDL). There is a Baseline Diversion Limit (supposedly as at June 2009) that subsequent ESLT and SDL work from.

The task of setting the ESLT is the key to achieving the objectives of restoring Basin water resources to environmentally sustainable levels of extraction. The Basin Plan 2012 (Cth) is the formal mechanism for achieving the objectives through the determination of an ESLT, an annual long-term average sustainable diversion limit for the entire Basin (SDL), and for every water resource area. Those SDLs must reflect the ESLT.

The setting of the SDL identifies the volume of water by which Basin-wide diversions need to be reduced in order to achieve the SDL. i.e. it identifies the volume of water aimed to be recovered Basin-wide and annually for the environment (recovery amount). That recovery amount is calculated as the difference between the June 2009 baseline and the SDL. The Basin Plan was legislated in November 2012 and set the SDL at 10 873 GL per year, producing a recovery amount of 2750 GL.

See the National Water Account 2017 for an example of these mechanisms in action. You can give it a miss …

Entitlements and Allocations

From MDBA

In short an Entitlement is enduring. An Allocation is what you are able to get in a given year, based on multiple factors that amount to the notional amount available after taking into account the needs of the environment, social/urban/town needs, channel flows and downstream needs. The above figure shows how variations may exist across dry and wet years.

Notionally, you could sell an excess Allocation in a wet year (for you) to another location that had a dry year or who wants to store the water in a dam for use in a subsequent year. You can also sell an Entitlement which transfers the ongoing right to water for ever. The way trading of Entitlements and Allocations plays out is complex and, due to having been in place barely 10 years, the market is not stable at all. Scenarios ranging from farm irrigation abandonment (relying on rainfall and perhaps groundwater) through to playing the water markets for gains on the margin are being realised. Generally speaking Government is not keen on either of these extremes.

The value of water Entitlements and Allocations is market driven now. There is a water trading market that determines the value of each. Allocation value is more dynamic, changing in tune with supply and demand models. More expensive in dry years and less in wet ones. In a year with water abundance the water market shows clear benefits and in low flow water years there are opportunities for trading Allocations and not growing an annual crop (i.e. rice or cotton) and growing silage pasture or agistment of cattle. However, with an immature market, Market Failures are common – farmers are not making these choices, while agribusiness is more likely to do so.

When there is talk of buying up water rights for say, Cubby Station, it is generally about buying the Entitlement – the enduring right to the water. This is where discussion of Government purchase for the environment comes in. Yes, such purchases do go into the Environmental Water Account, however that does end up as water in the rivers and facilitates release of water to be used for agriculture that might otherwise have been reserved for High Security needs such as town water. It is a complex interrelationship. I may have mentioned this once or twice.

Groundwater

Groundwater facts from MDBA

Ground water is a somewhat difficult matter when talking about water Entitlements and Allocations. At the time when the Basin Plan was being developed, understanding of how best to manage Sustainable Diversion Limits was not sufficient to include in the regulations. However, it is known that extraction of groundwater is an important part of the basin’s hydrology. It is also known that extractions are higher than the replenishment rate. I suggest that when it has been fully analysed, groundwater will be recognised as a critical issue to address.

Unseen, ground water has been traditionally extracted without concern for the long term or other potential users. Because it is underground and out of mind it can be quite easily over exploited unequally – possibly more than surface water.

Surface Water

NWA 2017

Surface (fresh) water is what we see in rivers, lakes, dams and wetlands. It is visible and can be measured. New techniques are being used to track water from satellites and other mechanisms aimed at identifying water theft/diversions. It is one of the most fought over resources in the world. allocation of this precious resource in the MDB is critically important. Here is how it is divided up. I have used some of the NSW Government water Allocation rules terminology, since this is most relevant for what I am discussing.

High Security Water

A High Security Entitlement is a permanent right to a Share of water. This class of right is nearly always available and Town water is one example. Intriguingly some agricultural water rights are also High Security, such as the water Entitlements that Cubby Station has. High Reliability is another term used for this

General Security Water

This is the water available after the High Security water is allocated and is a flexible amount determined through multiple mechanisms. Allocations are intended to share the resources on an equitable basis. Another term that means a similar thing is Low Reliability.

Delivery Allocation

Delivery Allocation is a variation to the notional Allocation, due to restrictions in the system. Sometimes there is not water flowing due to infrastructure issues or an inability to cope with demand. These variations are local more than centralised.

Water Usage

NWA Usage 2017. Selected regional usage highlighted

Water Allocations that are not used (extracted or sold) can be carried over to future years. Availability constraints may restrict that use and there appears to be some differences in State regulation around whether you can sell these on and the exact mechanisms can change according to where the delivery of water comes from, especially when Irrigation Infrastructure Providers are involved. These variations are sometimes due to specific local factors and sometimes just because managing a large system that is new to all the regulators means there are differences in rules and interpretation.

Environmental Water

MDB Summary 2017 extract from the NWA

2017 was a year of above average rainfall. Note that total water rights (Entitlements) are 7,000,000 Ml above the amount of actual water available. In a very good year. The outlook … a decrease in water assets in storage. It brings to mind the parable of the grasshopper and the ant.

Environmental water is approximately that water which is held in the MDB to ensure the ongoing environmental health of the system. The thinking behind this is that a healthy ecosystem provides environmental, social and economic services to the Basin. The term Commonwealth Environmental Water Recovery is more a label of convenience than an actual thing that recovers water for the environment only. As previously considered, the water is in the MDB and will be subject to the Water Allocation Rules of States and the Commonwealth. Water held for environmental purposes is usually stored in dams for release when the conditions are right for maximum benefit per Gl. The owner of this water is the Commonwealth Environmental Water Holder.

This is accounted for in the National Water Accounts. The latest is found here. This is shown as a balance sheet of assets and liabilities. The liabilities are about one quarter of the assets. Add the liabilities to the entitlements and you actually have a deficit of 17% of the assets. Most organisations would consider that a crisis in their balance sheet.

It is Complex

From the MDBA page on Water Markets

The underlying basis of the water market is that it is a free market subject to all the difficulties experienced when the participants are not fully informed, there is scope for large players to dominate and it is relatively easy to circumvent the regulations. This is discussed in the next part of the article. Now look at the number of CLASSES of entitlement. History and multiple layers of Government who find it hard to agree on water have led us to this amount of complexity. Tragedy of the Commons scenarios have landed upon fertile ground.

NSW order of water Allocation

The simplified description of High Security, General Security, Surface Water, Ground Water and Sustainable Diversion Limits is much simplified. Yet even that is hard to understand. The reality of managing the MDB requires a large workforce of specialised skills and, ideally, a stable political environment to build the tools and techniques to manage the Basin. It may one day come to be.

Government and governance

This should make it all clear … Click to see a PDF about it

To make a complex system work, there needs to be clear decision making accountability and shared responsibility for implementing the key decisions around Allocations and delivery. Of course, when there is uncertainty over what the overall Plan says must be done, then there is much more scope for interpretation and ad-hocery.

Basin States and their responsibilities are outlined in the document you can view by clicking the image above. It all seems sensible, until you have a look at who fulfils some of the roles.

Count Dracula, Director of the Blood Bank

The title may be a little extreme, however the facts are that the Leader of the National Party 6 was able to make determinations and influence the way water was used. To most eyes this would be seen as a conflict of interest. It is not just one view, but shared by the farming lobby 7. Much more is contained in the Murray Darling Basin Royal Commission Report. Also Four Corners investigated illegal extractions. Overall, there seems to be significant departure from the standards one would expect from decision makers and senior officials.

The MDBA now gets to assess its own performance, since the abolition of the National Water Commission that previously performed a nationally focused review role.

A list of some of the more egregious (in)actions:

  • Excluding Basin Indigenous communities from the decision making processes for the Basin and Basin Plan
  • Placing a cap on environmental water recovery at 1,500 Gl when nearer to 3,000 Gl is required
  • State Ministers allowing (if not actually authorising) extraction outside the agreed limits and entitlements
  • Failure to recognise Climate Change as a factor to be addressed in ESLT and SDL (see below)
  • Under investment in monitoring and audit of extraction
  • Unhelpful and inaccurate use of Triple Bottom Line as an argument for preferencing economic uses of water versus the environment. 8

Water Trading

Finally, we get to water trading and some of the key things to know.

Pricing

Pricing is based on a free market trading model that trades Permanent water (Entitlements) and Temporary water (Allocations). Terms such as sale of water licenses and leases approximately line up with Entitlements and Allocations but not universally. I have seen a lengthy table listing equivalent terms for Qld, NSW, Vic and SA. Federalism did not address water back in 1900 and we pay the price for that when states make up their own language and rules. Remember that 150 different classes of water right?

The MDBA is tasked with making sure that States, local authorities and those involved in training do so fairly. However, the ACCC has a role in monitoring trading too. Then the States have their own regulatory mechanisms. I choose not to describe what happened when NSW and Vic decided to block trading of water rights across state boundaries …

Pricing of water increased when COAG allowed confirmation of water rights, especially High Security. A number of the activities noted above have also distorted the “free” market. Some of the lessons are yet to be learned.

The price of water entitlement trading is interesting 9 and shows that the market is operating to classical economic theory to a large extent.

What we need to take out of this is:

1. That water pricing in the MDB is immature because it is new and patchily understood.

2. That it is unequal because there is substantially differential economic and political power between small farmers and agribusiness.

3. Valuing water at a farm gate works for individual small, however in terms of Basin economics we see economically irrational behaviours with market distortion and failures.

We can and should do better.

Notes and Further Reading
  1. See Water use in the Murray Darling.
  2. hunter-gatherer mostly but not exclusively
  3. MDBA
  4. About $5 billion per annum in recreational revenue
  5. initially a stunt by the Chaser team at the expense of Alan Jones, but later became a serious proposal to divert water from coastal rivers
  6. Article related to the Royal Commission and referring to actions by Barnaby Joyce
  7. Guardian Article
  8. Triple Bottom Line was an analysis method used when developing The Living Murray First Step Proposal. It was intended to balance the needs of the environment, economy and people. The work done found that all three bottom lines required a sustainable level of river flow and that economic and social benefits could only be realised with a healthy river
  9. http://agriculture.gov.au/water/markets/market-price-information

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.