C21 water policy opportunities for Canada

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C21 water policy opportunities for Canada

• Prof. Mike Young
• Research Chair, Water Economics
  ManagementSchool of Earth and Environmental
  SciencesThe University of Adelaide
• Tuesday 19th March 2007

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Less rain means much less water!
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(No Transcript)
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Sydney
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River Murray Inflow
5400 GL/yr
6300 GL/yr
Source MDBC 2006 Craik 2005
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High level water reform agenda
2007
Howard Water 10 billion Plan for Water
Security
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National Water Initiative

• Broadly, water planning by States and Territories
  will provide for
• ii) resource security outcomes by determining
  the shares in the consumptive pool and the rules
  to allocate water during the life of the plan.
• .
• 28. The consumptive use of water will require a
  water access entitlement, separate from land, to
  be described as a perpetual or open-ended share
  of the consumptive pool of a specified water
  resource, as determined by the relevant water
  plan.

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Australian water policy mistakes

• Serious Water accounting errors
• Poor consultation and engagement
• Mis-communication of what an entitlements are
• Failure to act early on over-allocation problems
• Introduced trading without addressing
  over-allocation simultaneously
• Forgot to plan for change
• Forgot to build registers with attention to
  detail and integrity
• Forgot to design for low transaction costs
• Used non-cost reflective and non-competitive
  pricing and charging policies
• Allocated water to corporations not individuals
• Plans were more like funding applications than
  statutory instruments
• Program design created a run to Canberra for
  money game

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A Water Licence
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Unbundling robust separation
Low costtrading
WaterConcession or Permit
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Theoretical Design Foundations

• Tinbergen Principle (NP in 1969)
• For dynamic efficiency
• gt One instrument per objective
• Mundells Assignment Principle (NP in 1999)
• For dynamic stability
• gt Pair instruments and
  objectives for greatest leverage
• Coase Theorem (NP in 1991)
• To minimise adverse effects of entitlement
  mis-allocation on economic activity
• gt Ensure very low transaction
  costs

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Water Policy Goals

• Distributive Equity
• Economic Efficiency
• Manage Environmental Externalities

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Three Part Separation - Individual

• Entitlements gt Equity instrument
• Allocation gt Efficiency instrument
• Use licence gt Externalities instrument

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Three Part Separation - System

• Allocation plans gt Equitable sharing
• Trading protocols gt Efficient
  adjustmentCatchment
  plans gt Externality
  management

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A Robust Solution?
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Generalised framework
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Periodic Allocations Trading
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Allocation Trading
WPay
BPay
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Recharge Credits for return flows
100 ML
Extraction
Gross entitlement 100 MLReturn 50 ML
Unconfined Aquifer
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How many entitlement types

• High security reliable supply that varies only
  with long term trends
• General security varies according to supply
• With these two any degree of reliability can be
  achieved
• Important to allow individual carry forward

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Water quality policies

1. Zoning to control new development
2. Trading rules to encourage trade out of high
   impact areas
3. Irrigation efficiency regulations
4. Off-set policies
5. Cap and trade
6. Levies to fund system-wide investment

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Recharge Accounts Trading
Land use Recharge rate Area
Recharge mm
ha
KL Native vegetation 5
100 500 Plantation Timber
5 300
1,500 Dryland lucerne 10
400 4,000 Other Dryland
80 3,000
240,000 Irrigated 120
200 24,000 Total
Groundwater load 4,000
270,000
Recharge Entitlement _at_ 70mm/ha/yr _at_ 4,000 ha
280,000 KL Farm Credit/Deficit
10,000 KL Less
credits sold
5,000 KL Credits
available for sale
5,000 KL
Rebate _at_ 0.10 per KL
500
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Proposed governance arrangements

1. Manage river and groundwater systems as one
2. Independent skill-based management separated from
   politics
3. Arms length management of environmental
   entitlements
4. Separation of infrastructure management from
   policy formation
5. Separation of system management from delivery to
   increase competition
6. Use of companies to manage local infrastructure

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Governance
Ministerial over-site
Independent Authoritywell-specified objectives
power to manage
Environmental Trust
System Infrastructure Manager
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Preferred Groundwater model South East, South
Australia

1. Define each entitlement in nett terms
2. Use surrender approach for significant
   non-metered water affecting activities with
   re-issue guarantee.
3. Allow trade in surrendered forest permits, issue
   new permit to existing forest activity if
   requested.
4. Define each share holding on a separate share
   register with separate use approval system
5. Separate set of volumetric water accounts for
   each user
6. Unit shares to define proportion of each
   consumptive pool held
7. 1 share per kilolitre of entitlement
8. Place any unallocated water in a Ministerial
   Reserve
9. Use carry-forward and borrowing to allow rapid
   alignment with the sustainable yield in
   over-allocated areas
10. Estimate sustainable yield annually but allocate
    on 5-yr rolling average

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10 suggestions for Canada

1. Unbundling of licences into unit shares and use
   approvals.
2. Replace first in time, with 2 or 3 entitlement
   types.
3. Independent Water Allocation Management Boards
   responsible for all connected surface and
   groundwater in a region and making final
   non-appealable decisions on environmental flow,
   abstraction limits, allocations trading rules.
4. No more allocations once any part of a water body
   gets to 70 of WAM estimate of abstraction
   potential. Remaining 30 shares to be tendered.
   Classify water bodies as heritage, conservation
   or working systems.
5. Credit for returns to ground and surface water
   systems.
6. Mandatory off-set of impacts of forests, farm
   dams, and increases in water use efficiency.
7. Mandatory pollution off-set trading in all
   nutrient hotspots.
8. Shares issued to individuals (not supply
   cooperatives).
9. Carry forward of unused groundwater and storage
   allocations.
10. Tradeable forest habitat maintenance credits by
    zone to maintain biodiversity.

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Unbundle, share and design for change
Contact Prof Mike Young Water Economics and
Management Email Mike.Young_at_adelaide.edu.au P
hone 61-8-8303.5279Mobile [phone]