C21 water policy opportunities for Canada
Prof. Mike Young
Research Chair, Water Economics & Management
School of Earth and Environmental Sciences
The University of Adelaide
Tuesday 19th March 2007
Less rain means much less water!
2
0
3
2004
300
2004
2001
1998
1995
1992
1989
1986
1983
1980
14% less
2001
1998
1995
1992
1989
1986
400
1983
1980
1977
1974
1971
1968
1965
1962
1959
1956
1500
1977
1974
1971
1968
1965
1962
1959
1956
1953
1950
1947
1944
1941
1938
1935
1932
1929
1926
1923
1920
1917
1914
1911
Rainfall (m m )
PERTH
1953
1950
1947
1944
1941
1938
1935
1932
1929
1926
1923
1920
1917
1914
1911
S tr e a m flo w (G L )
2000
Rainfall for Jarrahdale
20%
less
1000
500
0
1000
900
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 )
800
700
600
500
4 8 % le s s
66%
le s s
200
100
Sydney
Warragamba + 3 Nepean Dams (Inflows & annual rainfall)
0
9,000
500
8,000
1000
7,000
780 mm pa
907 mm pa
1500
6,000
2000
5,000
2500
2,027 GL pa
4,000
Inflow GL
681 mm pa
3000
3,000
2,000
Rainfall (mm)
10,000
3500
572 GL
pa
892 GL pa
1,000
0
4000
4500
5000
1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Year
4
River Murray Inflow
5400
GL/yr
6300
GL/yr
Source: MDBC 2006 & Craik 2005
5
High level water reform agenda
Year
Major policy
1994
COAG Water Reform Framework within National Competition Policy
1995a
1995b
MDB Cap introduced
Water reform implementation linked to competition payments
1998
MDBC commenced Pilot Interstate Water Trading Trial
2001
National Action Plan for Salinity and Water Quality
2002
MDBMC started Living Murray process
2003
COAG agreed, in principle, to implement a NWI
2004
COAG finalised NWI
2007
Howard Water $10 billion Plan for Water Security
6
National Water Initiative
Broadly, water planning by States and Territories will
provide for:
ii)
resource security outcomes by determining the shares in the
consumptive pool and the rules to allocate water during the life
of the plan.”
….
“28. The consumptive use of water will require a water access
entitlement, separate from land, to be described as a perpetual
or open-ended share of the consumptive pool of a specified
water resource, as determined by the relevant water plan.”
7
Australian water policy mistakes
1. Serious Water accounting errors
2. Poor consultation and engagement
3. Mis-communication of what an entitlements are
4. Failure to act early on over-allocation problems
5. Introduced trading without addressing over-allocation simultaneously
6. Forgot to plan for change
7. Forgot to build registers with attention to detail and integrity
8. Forgot to design for low transaction costs
9. Used non-cost reflective and non-competitive pricing and charging
policies
10. Allocated water to corporations not individuals
11. Plans were more like funding applications than statutory instruments
12. Program design created a “run to Canberra” for money game
8
Register integrity
River Capacity
Administrative Error Management Rules
Risk
Bulk water licence
& ownership
Channel Capacity
Shares
This Feburary
Delivery
Return Flow &
Drainage Rules
Trading Fees
Administrative
Dilution Risk
Delivery Charge
A Water
Licence
Trading opportunity Permanent
Salinity Pollution
Right
Climate Change
Risk
Seasonal Variability
Risk
Trading opportunity Temporary
Split Environment &
Consumptive Use
Impact of use - on
river
Impact of use - on
groundwater Impact of use Local
Access to Sales
Water (Vic)
Carry over rules
Integrity of
(NSW)
Register, mortgages
9
Unbundling – robust separation
Delivery
charges
Salinity
obligations
Ownership
Restrictions
Tenure
Water
Concession
or Permit
Registered interests
Low cost
trading
Water
Allocation
Volume for
use or trade
Return flow &
drainage
Delivery
Priority
Expected
Reliability
Theoretical Design Foundations
Tinbergen Principle (NP in 1969)
 For dynamic efficiency
=> One instrument per objective
Mundell’s Assignment Principle (NP in 1999)
• For dynamic stability
=> Pair instruments and objectives
for greatest leverage
Coase Theorem (NP in 1991)
 To minimise adverse effects of entitlement
mis-allocation on economic activity
=> Ensure very low transaction costs
Water Policy Goals
•
Distributive Equity
•
Economic Efficiency
•
Manage Environmental
Externalities
Three Part Separation - Individual
Entitlements
=> Equity instrument
Allocation
=> Efficiency instrument
Use licence
=> Externalities instrument
Entitlements
Allocations
Use Approvals
13
Three Part Separation - System
Allocation plans
Trading protocols
Catchment plans
=> Equitable sharing
=> Efficient
adjustment
=> Externality
management
Allocation plans
Trading
protocols
Catchment
Plans
14
A Robust Solution?
Single Title
to
Land & Water
Water
Land
Tradeable Rights
Entitlement
Shares
in Perpetuity
Delivery Capacity
Shares
Bank-like
Allocations
Delivery Capacity
Allocations
Price
Use licences
with limits &
obligations
Salinity
Shares
Salinity
Allocations
Generalised framework
Scale
Policy Objective
Distributive
Equity
Economic
Efficiency
Externalities
Individual Entitlements Allocations
Use licences
(approvals)
Total
System
Catchment
Plans
Water
allocation
plans
Trading
Protocols &
Accounting
Rules
Periodic Allocations & Trading
Account Name: NZ Irrigation
Statement No: 24
Date
1/07/2001
Balance bought forward
1/09/2001
Periodic allocation
1000 shares translates to 2000 ML of
water that may be consumed
Debit
Credit
Balance
400
2000
2400
12/10/2001 Transfer from XYZ Pty Ltd
3/11/2001
Cheque No. 1234 5678
Use from 1/9/01 to 1/11/01
500
500
2900
2400
(Pumped 1000 ML and deemed to have
used 50%)
3/11/2001
Transfer from AB&CD Smith
Electronic RN 9876543
30/04/2002 Use from 2/11/01 to 30/4/02
300
2700
660
2040
420
1620
(Pumped 1320 ML and deemed to have
used 50%)
30/05/2002 Unused water not available for carry
forward to 2002/03 season
17
Allocation Trading
Date ____________
Pay ____________________________________________
________ML
The sum of ________________________________ ML of 2000/01 Water
Water Trading Australia
Signature______________________
807512 085 249:0223 7851
BPay
WPay
18
Recharge Credits for return flows
Evapotranspiration
Extraction
45 ML
Gross entitlement = 100 ML
Return = 50 ML
Actual amount used
5 ML
Drainage
50 ML
100 ML
Water that returns
to the aquifer
Unconfined Aquifer
19
How many entitlement types
1. High security – reliable supply that
varies only with long term trends
2. General security – varies according to
supply
 With these two any degree of reliability can
be achieved
Important to allow individual carry
forward
20
Water quality policies
1. Zoning to control new development
2. Trading rules to encourage trade out of
high impact areas
3. Irrigation efficiency regulations
4. Off-set policies
5. Cap and trade
6. Levies to fund system-wide investment
21
Recharge Accounts Trading
Land use
Recharge rate
mm
Area
ha
Recharge
KL
Native vegetation
5
100
500
Plantation Timber
5
300
1,500
Dryland lucerne
10
400
4,000
Other Dryland
80
3,000
240,000
Irrigated
120
200
24,000
4,000
270,000
Total Groundwater load
Recharge Entitlement @ 70mm/ha/yr @ 4,000 ha = 280,000 KL
Farm Credit/Deficit
10,000 KL
Less credits sold
5,000 KL
Credits available for sale
5,000 KL
Rebate @ $0.10 per KL
$500
22
Proposed governance arrangements
1. Manage river and groundwater systems as one
2. Independent skill-based management separated
from politics
3. Arms length management of environmental
entitlements
4. Separation of infrastructure management from
policy formation
5. Separation of system management from delivery to
increase competition
6. Use of companies to manage local infrastructure
23
Governance
Ministerial over-site
Independent Authority
well-specified objectives
& power to manage
Environmental Trust
System Infrastructure
Manager
24
Preferred Groundwater model – South East, South Australia
1.
Define each entitlement in nett terms
2.
Use surrender approach for significant non-metered water
affecting activities with re-issue guarantee.
3.
Allow trade in surrendered forest permits, issue new permit to
existing forest activity if requested.
4.
Define each share holding on a separate share register with
separate use approval system
5.
Separate set of volumetric water accounts for each user
6.
Unit shares to define proportion of each consumptive pool held
7.
1 share per kilolitre of entitlement
8.
Place any unallocated water in a Ministerial Reserve
9.
Use carry-forward and borrowing to allow rapid alignment with
the sustainable yield in over-allocated areas
10. Estimate sustainable yield annually but allocate on 5-yr rolling
average
25
10 suggestions for Canada
1.
Unbundling of licences into unit shares and use approvals.
2.
Replace first in time, with 2 or 3 entitlement types.
3.
Independent Water Allocation & Management Boards responsible
for all connected surface and groundwater in a region and making
final non-appealable decisions on environmental flow, abstraction
limits, allocations & trading rules.
4.
No more allocations once any part of a water body gets to 70%
of WAM estimate of abstraction potential. Remaining 30%
shares to be tendered. Classify water bodies as heritage,
conservation or working systems.
5.
Credit for returns to ground and surface water systems.
6.
Mandatory off-set of impacts of forests, farm dams, and
increases in water use efficiency.
7.
Mandatory pollution off-set trading in all nutrient hotspots.
8.
Shares issued to individuals (not supply cooperatives).
9.
Carry forward of unused groundwater and storage allocations.
10. Tradeable forest habitat maintenance credits by zone to
maintain biodiversity.
26
Unbundle, share and design for change
Contact:
Prof Mike Young
Water Economics and Management
Email: [email protected]
Phone: +61-8-8303.5279
Mobile: +61-408-488.538