OPTIMISING THE SOCIO-ECONOMIC OUTCOMES UNDER THE MURRAY- DARLING BASIN PLAN – Water Policies and Programs Presentation to ABARES Outlook Conference, Canberra

OPTIMISING THE SOCIO-ECONOMIC OUTCOMES UNDER THE MURRAY-DARLING BASIN PLAN –

Water Policies and Programs

Presentation to ABARES Outlook Conference, Canberra 2 March 2011

by Tony Slatyer, Water Reform Division

www.environment.gov.au

The Government’s objectives

“They key challenge before the Parliament is for this

to be a term in which action is taken across the

Basin to restore the system to health. We need to

do this in a way which delivers three core outcomes: healthy rivers strong communities food production”Minister for Sustainability, Environment, Water, Population and Communities, 25 October 2010


The broad policy context

Water resource constraints

Environmental decline

Climate uncertainty

Socio-economic factors


Resource constraints: the effect of drought on Victorian Murray and Goulburn system allocations

0

50

100

150

200

250

Murray Gouburn Linear (Gouburn) Linear (Murray)


Resource constraints: the effect of drought on Murrumbidgee River Valley allocations

0

20

40

60

80

100

120

140

1608

2-8

3

84

-85

86

-87

88

-89

90

-91

92

-93

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-95

96

-97

98

-99

00

-01

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-03

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-05

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-07

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-09

pe

rce

nt


River regulation and water diversions have resulted in:

doubling of the average period between environmentally

beneficial flooding of the major floodplain and wetland

systems (to at least 3.5 years)

average period between the flood events, which are

required to flush the Murray river mouth, has increased

from 1.2 years to 2.2 years

Environmental decline


The scale of environmental decline

20 out of 23 catchments

rated poor to extremely poor

Source: MDBA Sustainable Rivers Audit


Economic costs of environmental decline

Reduced water quality, increasing treatment costs

Reduced scope to harvest native fish

Reduced tourism

Reduced recreation opportunities

Increased erosion and sediment accumulation

Reduced natural flood control

Risk to natural pollination services

Risk to natural pest control services


Uncertainty about climate change impacts

Impact of climate change on average surface water availability

0

500

1,000

1,500

2,000

Avera

ge w

ate

r availa

bility

(G

L/y

)

Historical climate

Median 2030 climate

0

1,500

3,000

4,500

6,000

CSIRO (2008) Water Availability in the Murray-Darling Basin


Climate change risks Median water availability decline = by 2030

4% reduction in average diversions under current plans

24-30% further reduction in average end of system flows

“Current surface water sharing arrangements in the MDB

would generally protect consumptive water users from

much of the anticipated impact of climate change but

offer little protection to riverine environments” CSIRO (2008)

Water Availability in the Murray-Darling Basin



Socio-economic context Basin population increasing slowly

4.3% between 2001 and 2006, compared to an increase

of 5.8% for Australia as a whole

many Basin towns have had long term population decline

Agricultural sector employment falling rapidly

down by 12.4% (2001 to 2006) while total Basin

employment has increased by 8.3% in this period.

unemployment rate similar to national average

Exchange rate up by 50% (trade weighted)


Total water use in the Basin fell in the drought from

10,500 GL (2000-01) to 3,100 GL (2007-08), while ABS

has estimated the Gross Value of Irrigated Agricultural

Production (GVIAP) remained steady

rapid growth in water trade (6% per annum average

growth in allocation trades)

rapid improvement in water use efficiency (eg rice by 90

per cent and fruit by 76 per cent) (ABS Cat No. 4610, 2007-08)

Socio-economic context (continued)


The policy response: the Basin Plan

Basin wide planning framework

sets the ground-rules for states based plans

considers future water availability, and all significant water uses,

in setting new limits on water use in the Basin

placing water use in the Basin on a more sustainable footing

enabling people to plan for their future with greater

confidence

must optimise economic, social and environmental outcomes.


The ‘optimisation’ requirement

“... where a discretionary choice must be made between a

number of options the decision-maker should, having

considered the economic, social and environmental impacts,

choose the option which optimises those outcomes”

Australian Government Solicitor 2011


The policy response: ‘Bridging the Gap’

Current diversion limit

Sustainable diversion limit

Water recovery

Basin Plan comes into effect

Temporary Diversion Provisions (if required)

Water recovery to bridge the gap through

water purchase and investmentin water saving infrastructure


The role of the water buyback

Government purchase of water entitlements to progressively and directly recover water for the environment while respecting water property rights no compulsory acquisition

As at 31 January 2011, Government has recovered

entitlements that will provide 670 gigalitres (GL) of water on

average, or 22 percent of a 3,000GL reduction.


The role of infrastructure programs

Infrastructure and efficiency investments of around $4.9

billion in Basin

water efficiency savings are retained for use in

irrigation, as well as water being returned to the

environment includes funding for infrastructure planning


Sustainable Rural Water Use and Infrastructure Program

SRWUIP

State Priority Projects $3.7b

Other Policy Announcements

13 State Led Projects

4 Commonwealth Led Projects

33 Components, including:

Vic $1.103b

SA $420M

QLD $160m

NSW $708m

ACT $85m

NSW PIIOP $650m

SA PIP $110m

Modernisation Planning $5m

On-Farm IrrigationEfficiency $300m

Strengthening Basin Communities $200m

Hot-spots $23mother


Examples of SRWUIP investments to dateFirst round of the On-farm Irrigation Efficiency Program

~$33M to Murray Irrigation Limited ~$24M to Ricegrowers Association of Australia ~$26M to Goulburn Broken CMA ~$12M to Australian Processing Tomato Research Council Inc ~$4M to Lachlan CMA ~$1.5M to SA Murray-Darling Basin Natural Resources

Management Board Total $100M

Round 2 round is open now and closes in March 2011


Examples of investments to date (continued)

Private Irrigation Infrastructure Operators Program in NSW (PIIOP)

Round 1 grants:

~$51M to Coleambally Irrigation

~$50M to Murrumbidgee Irrigation

~$9.5M to Marthaguy Irrigation Scheme

~$37.5M to Tenandra Scheme

~$115M to Trangie-Nevertire Irrigation Scheme

Total $263M

Round 2 opened 18 February 2011


Policy response: other reforms

Market opening reforms

transparency

consistency

trading rules

National Water Market Common Registry System

Water information reforms

BOM Water data


Net impact of reforms Will depend on the size of the ‘gap’ and the final location, type and sale of infrastructure investments Effects if a 3,500 GL SDL scenario occurs, and Water for the Future investment, based on current

infrastructure investment proposals:

Without Water for the Future

investment

Effect of Water for the Future

investment

Net effect with Water for the

Future investment

Irrigation Gross Value ($) -15.1% +5.0% -10.1%

Irrigation Profit ($) -7.8% +3.2% -4.6%

Regional employment (no.) -0.1% +0.2% +0.1%

Economic Activity (GDP) ($) -1.3% +0.6% -0. 7%

Note: Effect of SDLs with and without Government water recovery actions – change from baseline (no SDLs) in per cent for the whole Basin in 2018


Net impact of reforms

Forecast of economic growth (GRP) in the Basin under a 3,500 GL reduction scenario

79.3

63.4

78.3 78.7

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2010 2018

Baseline (no policy change)after SDLsafter SDLs and WftF

$ billion

From ABARES study


In summary:To ensure sustainable water use into the future, there will be new

limits on water use in the Murray Darling Basin. In deciding these limits, the MDBA must optimise social, economic

and environmental considerations. The Commonwealth’s Water for the Future policies programs aim

to assist irrigation communities to adjust to these changes, with: buybacks to protect remaining entitlement holder from reductions

infrastructure investment to improve water use efficiency;

funds to assist local governments to improve local water security

market opening

water information reforms

Documents

OPTIMISING THE SOCIO-ECONOMIC OUTCOMES UNDER THE MURRAY- DARLING BASIN PLAN – Water Policies and Programs Presentation to ABARES Outlook Conference, Canberra