Daily Bulletin


The Conversation

  • Written by Sarah Ann Wheeler, Professor in Water Economics, University of Adelaide
The Conversation

Australia has one of the most sophisticated water markets in the world, particularly notable for the ways in which government can return water to the environment.

Water markets allow the return of this water through two main mechanisms. The first is buybacks, in which the government purchases water licences directly from willing irrigators via an open tender process.

The second involves subsidising irrigation infrastructure on (and off) farms to improve water efficiency, with a percentage of the assumed water savings being transferred to a licence held by the government.

Read more: The Darling River is simply not supposed to dry out, even in drought

However, open tender buybacks essentially stopped in 2014 in favour of infrastructure projects. This was due to the widespread belief that buybacks were inflating the price of water and causing economic hardship in rural communities.

Our research, published in Resource and Energy Economics, set out to test this assumption of the impact of water recovery on water markets. We found that water scarcity (due to seasonal change or water allocation reductions) had far more influence on water prices than government water recovery. In fact, voluntary, open tender buybacks are the most cost-effective and low-risk option for increasing river flow.

By ignoring this option, we are hamstringing Australia’s ability to flexibly cope with drought conditions and long-term climate change.

Lessons from 20 years of data

My colleagues and I wanted to understand the impact of government water recovery on the Murray-Darling Basin’s water markets. To do so, we needed to understand the dynamics and drivers of the markets both before and after buybacks began.

We looked at monthly prices over twenty years in the Goulburn catchment in New South Wales (1A Greater Goulburn) - both for permanent water markets (where a water licence is permanently transferred) and temporary ones (a seasonal transfer of water).

The drivers of water market prices in temporary and permanent water markets are different, but market dynamics are similar: market volatility shocks go from prices to volumes.

Temporary water trade is driven by water scarcity, caused by factors such as seasonal fluctuation in water allocated to licences and the weather. Conversely, permanent water trade is influenced by a combination of past prices and temporary water prices.

What about government intervention?

We found no evidence that government water recovery influenced water prices in either market in a statistically significantly way.

However, we did find that increases in the amount of water recovered by the government reduced the volume of temporary water traded. This is probably due to the fact that many irrigators who sold water to the government had been selling surplus temporary water, and this volume was then taken out of the market.

We also found that government water recovery increased the volatility of temporary market prices and volumes, signalling potential increased risk and uncertainty for irrigators engaging in temporary water markets.

These results are significantly different to previous estimates by consultants, some of which suggest government buybacks cause temporary water market prices to double.

Our findings contradict this. Our results are in line with and reinforce other peer-reviewed economic literature, which has shown buyback of water entitlements had far less impact on rural communities than commonly claimed.

This is partly because government buybacks simply do not create large enough changes in the amount of seasonal water available to affect prices, given that variability. A 1% increase in water buybacks caused a 0.1% drop in temporary water volume traded. In addition, farmers are very good at adapting to changes in water, and have a number of strategies and options available to them in most years.

Unfortunately, commonly held perceptions about the impacts of buyback on rural communities and water markets has had serious policy ramifications.

Irrigation schemes are not enough

As noted earlier, buybacks are now off the table. Funding for water recovery is now directed exclusively to infrastructure projects, which are deficient in a number of key respects.

Since water buybacks started in 2008, A$2.5 billion has been spent to recover 1,227 gigalitres of water licences. At the same time, A$3.9 billion has been spent so far on things like lining channels and building dams, which has saved 695 gigalitres.

Water recovery by infrastructure schemes now cost at least three times as much as buybacks per megalitre recovered. These infrastructure projects may not return as much water to the environment as assumed, while they also also create the risk of environmental harm.

Irrigation infrastructure subsidies can also expand total irrigation areas and increase water use, and encourage a conversion from seasonal crops to permanent plantings such as orchard trees. These permanent crops demand a fixed amount of water every year, making farms less adaptable in the face of drought and climate change.

How did policy get this wrong?

The results of our water market study show that there are key differences between high quality, peer-reviewed economic science on the one hand, and short-term consultancies and people’s perceptions on the other.

High quality economic science takes time, expertise and requires reputable, consistent and long-term datasets that control for the myriad of influences on economic change. Short-term consultancies and inquiries (such as the Northern Basin Review) are often rushed, not representative and are often not based on reliable datasets.

Inquiries also often amplify the voices of lobby groups and the people who are most aggrieved by water recovery, while other voices – floodplain irrigators, indigenous representatives, irrigators who want water reallocated to the environment – may be silenced.

Read more: Aboriginal voices are missing from the Murray-Darling Basin crisis

There are currently two inquiries looking at water markets and socio-economic conditions in the basin. It is vitally important they capture all voices equally and are supplemented by independent, high quality analysis.

If we can’t understand the real drivers of change in the Basin, we can’t identify the best options for improving the social and economic health of its communities – particularly in the face of drought and climate change.

Authors: Sarah Ann Wheeler, Professor in Water Economics, University of Adelaide

Read more http://theconversation.com/scarcity-drives-water-prices-not-government-water-recovery-new-research-124491

Writers Wanted

Heading back to the playground? 10 tips to keep your family and others COVID-safe

arrow_forward

Qatar expresses 'regrets' for 'any distress' to women invasively searched in baby incident

arrow_forward

Education & More – Family Tips on How to Settle in Bangkok

arrow_forward

The Conversation
INTERWEBS DIGITAL AGENCY

Politics

Prime Minister Interview with Kieran Gilbert, Sky News

KIERAN GILBERT: Kieran Gilbert here with you and the Prime Minister joins me. Prime Minister, thanks so much for your time.  PRIME MINISTER: G'day Kieran.  GILBERT: An assumption a vaccine is ...

Daily Bulletin - avatar Daily Bulletin

Did BLM Really Change the US Police Work?

The Black Lives Matter (BLM) movement has proven that the power of the state rests in the hands of the people it governs. Following the death of 46-year-old black American George Floyd in a case of ...

a Guest Writer - avatar a Guest Writer

Scott Morrison: the right man at the right time

Australia is not at war with another nation or ideology in August 2020 but the nation is in conflict. There are serious threats from China and there are many challenges flowing from the pandemic tha...

Greg Rogers - avatar Greg Rogers

Business News

AppDynamics Solves Visibility Gap Between Traditional Infrastructure and Cloud Environments

New Full Stack Observability Platform, Integration With Cisco Intersight Workload Optimizer and Cloud Native Visualisation Features Provide Cross Domain Insights and Analytics of Business Perfor...

Hotwire Global - avatar Hotwire Global

Why Your Small Business Should Bulk Buy Hand Sanitiser

As a small business owner, employee and customer safety is at the very top of your priority list. From risk assessments to health and safety officers, appropriate signage and proper briefing...

News Co - avatar News Co

How Phone Number Search In Sydney Can Help Your Business

To run a successful business, keeping track of your company and competitors are the major factors. With a lot of tools, available businesses have options to stay current. One way in which busine...

News Co - avatar News Co



News Co Media Group

Content & Technology Connecting Global Audiences

More Information - Less Opinion