Date created:24/2/04
Last modified:24/2/04
Maintained by: John Quiggin
John Quiggin

Lets clear muddy waters

Australian Financial Review

23 October 2003.

The Murray-Darling river system has become a symbol of Australia's hopes, aspirations and fears. The construction of the Snowy River hydroelectric and irrigation scheme was a symbol of Australia's emergence as a modern industrial economy. The current state of the Murray, with problems ranging from rising salinity levels to the loss of wetlands, has become a symbol of our failure to balance the needs of the economy and the environment.

Because of its symbolic significance, discussion of responses to the problems of the Murray tend to be dramatic, or even theatrical. It seems natural to propose grandiose plans, costing tens of billions of dollars, and not to worry too much about the details of implementation. On the other hand, the amount allocated by Australian governments so far is in the hundreds of millions. Given the gap between resources and aspirations, even crude estimates of the scale of the problem may be helpful in bringing the debate to a more realistic level.

Although the allocation of aggregate water flows is not the only issue facing the Murray, it is the biggest and most difficult. Average annual flows into the system are around 10 000 gigalitres (GL), and under current policies, almost all of this flow is allocated to extractive uses, primarily irrigation. (For comparison, Sydney uses around 650 GL each year.) Because of the variability of flows in the Murray-Darling, which is greater than for any other major river system in the world, it is possible to allocate more than 100 per cent of the annual flow, and in some cases this has been done.

A recent scientific survey undertaken as part of the Living Murray Initiative looked at options for restoring environmental flows. Three options were considered, involving flows of 350, 750 GL and 1500 GL. The scientific panel concluded that an environmental flow of 1500 GL was needed to achieve even moderate ecological improvements.

This is not a surprising outcome. Past experience, such as that surrounding the Snowy Flows agreement suggests that somewhere between 15 and 30 per cent of natural flows is needed if a river system is to maintain its environmental health. Having been offered a range of choices from 3 to 15 per cent, the scientific panel naturally chose the figure at the top of the range.

But future reviews are likely to conclude that 1500 GL is not enough. To achieve a genuinely satisfactory environmental outcome, a natural flow of 3000 GL is probably needed. Looked at another way, 3000 GL per year is the amount by which the demands of existing users and the needs of the environment exceed the sustainable volume the system can supply.

Because of the difficulty of moving and storing it, water is a complex commodity. Water at one place and time can be substituted for water at another place and time (this is what irrigation is all about), but only with considerable difficulty and expense. So there is no such thing as a single price for water. That said, a reasonable range of prices for permanent water allocations seems to be between $500 and $1000 per megalitre (ML).

This implies that the economic magnitude of the overallocation problem, is somewhere between $1.5 billion and $3 billion. This is a lump sum, not an annual cost. Considered in this light, the overallocation problem is big, but not unmanageable. The cost of our token contribution to the war in Iraq has been estimated at $750 million and that of 'border protection' at over $1 billion.

Still, the cost is large enough that sharing it around will be a major problem. Some reductions in water use can probably be obtained at relatively low cost through improvements in the technical efficiency of the irrigation system. The rest of the cost will have to be shared out between water users in the form of reduced allocations, the general community in the form of compensation and the environment, in the form of inadequate flows. At present, of course, the environment is bearing the whole of the burden.

John Quiggin is an Australian Research Council Federation Fellow in Economics and Political Science at the University of Queensland.

Read more articles from John Quiggin's home page

Go to John Quiggin's Weblog