Date created: 15/11/08 3:02 PM
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John Quiggin

Don't sell water down the river

John Quiggin Australian Financial Review

22 May 2008

With more disappointing rainfall figures over the last month, the announcement by the South Australian government that Murray River irrigators face zero allocations from July this year comes as no surprise. Unfortunately, there is not much likelihood of winter rains relieving the situation.

The long-term picture is equally gloomy. On ‘business as usual’ projections of the impacts of climate change, South-Eastern Australia is likely to get even hotter and drier over coming decades. Even modest declines in rainfall, when combined with higher evaporation due to increased temperatures, translate into large reductions in the inflows to river systems that make irrigation possible. A 10 per cent reduction in rainfall, combined with higher evaporation, could cut inflows in half or even two-thirds.

My research group at the University of Queensland has been examining possible adaptation to climate change in the Basin for some time, and the results are sobering. Projections of current climate trends suggest that, even with extensive adaptation by farmers, irrigated agriculture will decline steadily over coming decades. With droughts becoming increasingly common, irrigation will cease to be viable in many regions.

There is, however, some hope for the future. If global action to mitigate climate change succeeds in stabilising CO2 concentrations at 450 parts per million (ppm) and if systems for allocating water rights are adjusted optimally, our modelling suggests that irrigation systems will be able to adapt successfully. 

With a less stringent target of 550 ppm, we are taking a bet on how the uncertainty surrounding climate change is resolved. Adaptation is reasonably successful for the moderate declines in inflows derived from the median projections of climate models. However, there is a significant risk of hotter, drier outcomes that would lead to the failure of the system.

If the global efforts to reduce carbon emissions are successful, and if we can reform our systems of water allocation, an economically and environmentally sustainable future is possible. But before we can reach this sustainable position, we need to manage the current crisis, and this needs urgent action.

Water reform has traditionally been a slow-moving affair. Concerns about overallocation of water were already prevalent in the early 1980s, when I began work in this field. The first real response was from the Council of Australian Governments in 1994 which capped extractions of water for irrigation. 

Unfortunately, too much water had already been allocated, and even more had been promised. Resolving this problem was always going to be difficult, and progress under the Howard government was glacial.

Even among those pushing for action, it has been assumed that reform must be gradual. An example is the idea of deferred purchase of water rights, aimed at providing farmers with help for adjustment while moving towards a more sustainable use of water. The idea is to make a payment to irrigators now, on the condition that water allocations will be returned, to meet needs for environmental flows or drinking water, in the future.

An early version of this idea, put forward in 2004, envisaged a time frame of ten years (Watershed solution needed, AFR, 3/6/04). Four years later,  it’s clear that a ten-year program is much too slow. A plan for a Future-Proof Basin, put forward by Mike Young of the University of Adelaide and Jim McColl of CSIRO calls for a three year program of adjustment payments, followed by the replace the current entitlement and allocation regime with a robust and sustainable alternative.

The need for an accelerated pace of reform is obvious. More controversial is the suggestion that the current approach, based on the voluntary purchase of rights should be abandoned, and that changes in water allocations should be imposed across the board.

This is a drastic measure. It may prove to be necessary, but compulsory resumption of property rights should be a last resort. Thanks to the inaction of the previous government, the voluntary approach based on purchases from willing sellers has not been given a chance to work. 

If the current tender process, in which $50 million dollars has been allocated to buy water rights on the market, proves successful, it could be expanded to include immediate payments for voluntary deferred purchases. If it fails, more radical approaches may be needed.

Regardless of disagreements over details, Young and McColl have made a crucial contribution to the debate over water policy. On their central point, that urgent action is needed now, there can be no serious dispute.

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

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