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The Murray Darling Basin Authority released the final MDBP few days ago. Dubbing it as ‘a plan that is a century late, but hopefully just in time…’ the minister signed it into law. It can be found here: http://www.mdba.gov.au/basin-plan . For the first time, the plan provides legislative basis for the environmental requirements related to water management in the Basin. Overall, it is welcomed and, as much as possible for Plans like this, a balanced act. The Plan will help improve management of the Basin, and will hopefully result in minimisation of instances where the existence of critical environmental assets within the Basin is seriously threatened due to mismanagement of water resources.

One thing that caught my eye was the ‘Guidelines for the method to determine priorities for applying environmental water’ http://download.mdba.gov.au/Basin-Plan/Statutory-Guideline-Nov-2012.pdf
The guidelines specify current and preceding (they used a fancier word ‘antecedent’ which has the same meaning) hydro-climatological conditions to determine the state of the water resources – called resource availability scenarios (RSA) – in the Basin. For example, if current surface water availability is between 0 and 15 percentile, and the preceding availability was between 0 and 45 percentile, the state in the Basin is termed ‘very dry’. Likewise, if current availability is between 46 and 60 percentile, and previous availability was between 61 and 100 percentile the state in the Basin is termed ‘wet’. There are total of five possible states identified that the Basin can be in: ‘very dry’, ‘dry’, ‘moderate’, ‘wet’ and ‘very wet’. These states of the Basin are then linked to environmental management outcomes, which stipulate the objectives of management in each state. Not surprisingly, the wording associated with dry states includes terms like ‘maintain’ and ‘support’, whereas wording corresponding with wetter states includes terms like ‘improve’ and ‘promote’.

This is consistent with the thinking that there is not much point in trying to throw a lot of water at the system in dry times. When times are tough, the environmental objectives should be ones of survival, which could be supported with relatively little water. Thankfully, it seems that the water-dependent ecosystems in the Basin are quite resilient, and can sustain dry conditions on very little ‘life support’ for some time, but not forever. That is why it is really important to provide as much environmental water as possible when the state of the Basin is better, i.e. in wetter years. That way, the ecosystems can recover from dry periods, and can build up the resilience to sustain dry periods in the future.

Obviously, my specific interest in all this is in the economics of it. If the mechanisms explained above are roughly right, and they seem to be based on the published Guidelines, the implications for the holder of environmental water in the Basin (Commonwealth Environmental Water - CEW www.environment.gov.au/ewater/index.html ) are very significant. This outfit now holds about 15% of all water entitlements in the MDB, and it has been asking itself how to best manage these holdings. While the holdings are obviously there for environmental purposes, the mechanisms above suggest that the environment does not need the same amount of water under all water resource scenarios in the basin. The question then is whether the CEW should be actively participating in the water market in annual allocations: sell some of the water in dry conditions, provided that sufficient amounts are held for the designated management outcomes under these conditions; and buy water from other water holders in wet periods to further enhance the resurgence and growth of the ecosystems.

While this question is not addressed in the Plan, it has been raised by the CEW in a discussion paper published a year ago: http://www.environment.gov.au/ewater/publications/water-trade-discussion-paper.html

I am currently working on providing some answers to this question, and preliminary results show that indeed it would be beneficial to let the CEW be active in the annual allocation market. Stay tuned for updates, and hopefully a paper on this topic.

Comments

The environmental objective of the MDBP is mainly to protect and restore water-dependent ecosystems and their functions of the MDB, whereas the water entitlements held by CEWH are to be used in increase the flows to rivers and wetlands (increased flows will help improve wetlands and water-dependent ecosystem). However, I agree with you that it is not clear in the MDBP whether the CEW should actively be participating in the water market to further improvement of the ecosystem. I think it is necessary to understand the economics of CEW in relation to its participation in the water market based on the resource availability scenarios (RSA). We hope that your current research work will able to determine the economic and environmental outcomes of the CEW under the framework of MDBP.

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