the environment institute where ideas grow running out of water what would a robust allocation...
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The Environment InstituteWhere ideas grow
Running out of waterWhat would a robust allocation system look like?
Mike Young Executive Director, The Environment Institute
The Environment Institute
Life Impact The University of Adelaide
Global Water Scarcity Gap – billions m3
After 2030 Water Resources Group
The Environment Institute
Life Impact The University of Adelaide
Change - an enduring process• Increasing demand
– Population– Wealth
• Changing prices and costs• New technology• Adverse climate change
The Environment Institute
Life Impact The University of Adelaide
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Ra
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mm
)14% less 20%
less
Rainfall for Jarrahdale
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Str
ea
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ow
(G
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48% less
66% less
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 )
PERTH
- 1%
- 3%
The Environment Institute
Life Impact The University of Adelaide
With half as much water, how much can you use?
Users
Environment
River Flow
Environment
River Flow
Users
River Flow
Environment
Users
The Environment Institute
Life Impact The University of Adelaide
Robustness• Confident the regime will work, no matter what
climatic, economic and technological futures arrive
• Likely to withstand the test of time• Recover gracefully and autonomously from
shocks• Three examples
– Companies– Double entry accounting– Torrens Title Land system
The Environment Institute
Life Impact The University of Adelaide
Three principles• Tinbergen Principle
– As many policy instruments as policy objectives
• Mundell’s Assignment Principle– Assign instruments for maximum leverage
• Coase Theorem– Minimize transaction costs
The Environment Institute
Life Impact The University of Adelaide
Volu
me o
f W
ate
r in
th
e S
yste
mIndicative template – regulated river systems
The Environment Institute
Life Impact The University of Adelaide
A fully-specified system
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Water needed to ensure conveyance
Entitlements Environment
Flood water
Shared WaterEntitlements
Vo
lum
e of w
ater availab
le
Environment with a fully-specified share
The Environment Institute
Life Impact The University of Adelaide
Water
Tradable Right Price
Land
Single Title to
Land with aWater Licence
Entitlement Shares
in PerpetuityBank-like Allocations
Use licences with limits & obligations
Delivery Capacity Shares
Delivery Capacity Allocations
SalinityShares
SalinityAllocations
National CompetitionPolicy 1993/94Plus Cap
National Water Initiative2004
The Environment Institute
Life Impact The University of Adelaide
Managing risk• Two entitlement pools
– High security– Low security
• High security pool – % of 10 year moving average of all allocations
• Individuals can hold any combination of high and low security entitlements
• Critical Human needs may justify a third“Very high security” pool
The Environment Institute
Life Impact The University of Adelaide
Water system accounting 101• Flaws have eroded River Murray Health• Dredge in Oct 2002• A few accounting flaws in our entitlements
– Forests– Dams– Groundwater– Return flow (increased efficiency)– Salinity interception
• When someone takes more, some-one else must take less• Better to be approximately right rather than comprehensively wrong
The Environment Institute
Life Impact The University of Adelaide
Environmental water• Need new language• Differentiate between maintenance of base
flow and watering beyond the stem of the river
• Full specification of entitlement– 100% = X + (1 – X)– Don’t need a cap nor a sustainable diversion limit
The Environment Institute
Life Impact The University of Adelaide
A single entitlement registerSouthern MDB
RiverFlow
Env CIT FloodWater
State Users
CIT
RIT
Other
SA Vic ACT NSW
CE
WH
Trust 2
Trust 3
The Environment Institute
Life Impact The University of Adelaide
text
Summary• At the global level Australia is leading
development of water policy
• But we are way behind where we should be• Our systems need robust specification• Is it “reasonable” for the Commonwealth to
insist that this happens
The Environment InstituteWhere ideas grow
www.adelaide.edu.au/environment
www.myoung.net.au
The Environment Institute
Life Impact The University of Adelaide
Australian mistakes & innovations1. Regime arrangements
1. System connectivity => manage GW and SW as one2. Capped the wrong thing => cap entitlement potential not use3. Return flows => account for them4. Unmetered uses => include them5. Climate change => plan for an adverse shift6. The environment’s share => define it and allocate to it7. Storage Management => include in trading regime
2. Individual arrangements1. Registers => validate them early2. Entitlements => define entitlements as shares3. Trading => get transaction costs and settlement times down4. Not enough instruments => needed to unbundle5. Inter-seasonal risk management => allow markets to optimize carry
forward6. Company control => allocate entitlements to individuals