Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin AWP Knowledge Framework The Australian Water Partnership (AWP) is committed to enhancing sharing of knowledge and tools for sustainable water management to improve water planning, allocation Citation and governance by governments, industries and civil society. Australian Water Partnership and World Bank. (2022). This knowledge product supports the AWP Knowledge Strategy Valuing Water: The Australian perspective. Multiple values of and contributes to the Australian Perspective Series under the water under scarcity in the Murray-Darling Basin. Australian Water Australian Bookcase. The other tiers within this bookcase are the Partnership, Canberra, and World Bank, Washington, DC. Australian Journey Series and Guide Series. For more information, visit waterpartnership.org.au. ©2022 eWater Ltd and The World Bank (published 09 13 2022) International Bank for Reconstruction and Development GWSP The World Bank Group This publication also received the support of the Global Water 1818 H Street NW, Washington, DC 20433 USA Security & Sanitation Partnership (GWSP). GWSP is a multidonor trust fund administered by the World Bank’s Water Global Practice ISBN 978-1-921543-95-1 and supported by the Australian Government Department of Foreign Affairs and Trade, Austria’s Federal Ministry of Finance, Disclaimer the Bill & Melinda Gates Foundation, Denmark’s Ministry of This publication has been funded by the Australian Government Foreign Affairs, the Netherlands’ Ministry of Foreign Affairs, through the Department of Foreign Affairs and Trade. The views the Swedish International Development Cooperation Agency, expressed in this publication are the author’s alone and are not Switzerland’s State Secretariat for Economic Affairs, the Swiss necessarily the views of the Australian Government. Agency for Development and Cooperation, and the U.S. Agency for International Development. This work is also a product of the staff of the World Bank and of the Global Water Security & Sanitation Partnership (GWSP) About the Authors with external contributions. The findings, interpretations, and Prepared by: Will Fargher, Ryan Gormly, Sarah Leck, and Huw conclusions expressed in this work do not necessarily reflect the Pohlner with Aither, and support from Lin Crase, University of views of the World Bank, its Board of Executive Directors, or the South Australia. governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, Acknowledgements colours, denominations, and other information shown on any This report is the result of a collaborative effort between the map in this work do not imply any judgment on the part of the World Bank and the Australian Government Department of World Bank concerning the legal status of any territory or the Foreign Affairs and Trade with financial support from the Australian endorsement or acceptance of such boundaries. Nothing herein Water Partnership to promote more equitable, transparent and shall constitute or be considered to be a limitation upon or waiver effective management of water resources development. of the privileges and immunities of the World Bank, all of which are specifically reserved. In the case of any discrepancies between The World Bank team was led by Si Gou (Water Resources this English version and any subsequent translations, the English Management Specialist, SEAW1), Marcus Wishart (Lead Water version prevails. The report reflects information available up to Resource Specialist, SEAW1), Xiawei Liao (Water Resource December 20, 2020. Specialist, SEAW1), and David Kaczan (Senior Economist, SEAE1). Guidance was provided by an advisory panel of peer reviewers Rights and Permissions within the World Bank, including: Eileen Burke (Senior Water The material in this work is subject to copyright. Because the Resource Specialists and Global Lead for Water Resources), World Bank encourages dissemination of its knowledge, this work Shelley McMillan (Senior Water Resource Specialist and Task Team may be reproduced, in whole or in part, for non-commercial Leader for the Mekong Vision 3.0), Halla Qaddumi (Senior Water purposes as long as full attribution to this work is given. Economist), William Young (Lead Water Resource Specialist) and Giovanni Ruta (Senior Environmental Economist). The report was Any queries on rights and licenses, including subsidiary rights, prepared under the guidance of Jennifer Sara (Global Director of should be addressed to: the Water Global Practice), Benoît Bosquet (Regional Director, Publications, The World Bank Group, 1818 H Street NW, Sustainable Development, East Asia and the Pacific), and Washington, DC 20433, USA Sudipto Sarkar (Practice Manager, Water Global Practice, East Asia E: pubrights@worldbank.org and the Pacific Region). F: 202-522-2625. Australian Government Department of Foreign Affairs and Trade UC Innovation Centre (Bldg 22), University Drive South contributions have been led by John Dore (Lead Water Specialist, Canberra ACT 2617 AUSTRALIA Economic Growth and Sustainability Division, ESD), with guidance T: +61 2 6206 8320 from James Morschel (Water Section, ESD). E: contact@waterpartnership.org.au waterpartnership.org.au Australian Water Partnership contributions by Rory Hunter (Program Lead), Katharine Cross (Mekong Coordinator) and Cover Image Veitania Lepani (GEDSI and Program Officer). The Murray River (Source: Tsivbrav / Dreamstime) Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin iii Contents Executive summary 1 Perceptions of value and scarcity affect how we manage water resources 1 ‘Early development’ phase—managing water for economic development in the early 1900s 1 ‘Emerging costs’ phase—respond to the environmental costs of water abstraction from the 1960s 2 ‘Major water reforms’ phase—a greater focus on economic efficiency and environmental degradation in the 1980s 2 ‘Acceleration’ phase—managing competing values under increasing scarcity since the early 2000s 2 Changing values influence water management 3 Water management in the Basin highlights the importance of considering the multiple values of water 3 Understanding value drives better decisions 4 1 About this report 5 2 The value of water and why it matters 6 2.1 The value of water reflects many different uses 6 2.1.1 Water is one of our most important resources 6 2.1.2 Climate change and population growth are increasing water scarcity and making water management more important 7 2.1.3 Understanding the value of water is crucial for effective management of this scarce and important resource 7 2.2 Approaches to valuing water  8 2.2.1 Using a total economic value framework 8 2.2.2 Cost-reflective pricing 9 2.2.3 Pollution pricing 9 2.2.4 Water markets 9 2.3 How the value of water affects policy and outcomes 10 Four historical phases of values, policy and outcomes in the 3  Murray-Darling Basin 11 3.1 The Murray-Darling Basin 14 3.1.1 Agriculture 14 3.1.2 Communities 14 3.1.3 First Nations people 14 3.1.4 The environment 14 3.2 ‘Early development’ phase—early 1900s to 1960s 15 3.2.1 Basic characteristics 15 3.2.2 Dominant values informing water management 16 Valuing water: The Australian perspective iv Economic values of water under scarcity in the Murray-Darling Basin 3.2.3 Policy instruments used 16 3.2.4 Outcomes 19 3.3 ‘Emerging costs’ phase—1960s to 1980s 21 3.3.1 Basic characteristics 21 3.3.2 Dominant values informing water management 24 3.3.3 Policy instruments used 24 3.4 Outcomes 25 3.5 ‘Major water reforms’ phase—1980s to early 2000s 28 3.5.1 Basic characteristics 28 3.5.2 Dominant values informing water management 30 3.5.3 Policy instruments used 32 3.5.4 Outcomes 38 3.6 ‘Acceleration’ phase—early 2000s to today 40 3.6.1 Basic characteristics 41 3.6.2 Dominant values informing water management 43 3.6.3 Policy instruments used 45 3.6.4 Outcomes 52 4 Lessons from the Australian experience 56 4.1 How the value of water affected management objectives and policy 56 4.2 Key drivers of change for water values in the Murray-Darling Basin 57 4.3 Policy instruments in the Murray-Darling Basin 57 4.3.1 Cap-and-trade mechanisms 57 4.3.2 Cost-reflective pricing 59 4.3.3 Setting limits on specific use 59 4.3.4 Investments in irrigation efficiency 60 4.4 Major challenges in the Murray-Darling Basin 60 5 Conclusions 62 Glossary63 References66 Figures Figure 1 The Murray River in the Murray-Darling Basin 7 Figure 2 Example of the total economic value framework for waterways and other water resources 8 Figure 3 How value drives objectives, management activities and outcomes 10 Figure 4 The Murray River in Victoria at sunset 11 Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin v Figure 5 Four phases of water resources management in the Murray-Darling Basin 12 Figure 6 The Murray-Darling Basin 14 Figure 7 Values of water during the early development phase 15 Figure 8 Overview of river operations in the Murray-Darling Basin 17 Figure 9 Values of water during the emerging costs phase 21 Growth in public storage capacity compared with total water availability and Figure 10  total surface water use 22 Figure 11 Salt exports and trends in river salinities 1975–1995 23 Figure 12 Employment in agriculture from 1911 to 2016 23 Figure 13 Mildura Weir on the Murray River 26 Figure 14 Values of water during the major water reforms phase 28 Figure 15 Irrigated fields at sunset 29 Figure 16 Menindee Lakes in New South Wales 31 Volumes of allocation and entitlement trades in the southern Figure 17  Murray-Darling Basin, 1983–84 to 2009–10 35 Figure 18 An industrial sprinkler on a farm in rural New South Wales 36 Figure 19 Flooded wetland in Australia 39 Figure 20 Values of water during the acceleration phase 40 Figure 21 Shrinking waterhole in canola fields 41 Growth in total and jurisdictional surface water use in the Murray-Darling Basin 43 Figure 22  Figure 23 Irrigated agricultural crops 46 Figure 24 Net intervalley allocation trade 49 Figure 25 Lake Hume and Murray Valley Highway near Tallangatta, Victoria 54 Figure 26 The Murray River 61 Acronyms Acronyms Full term ARMCANZ Agriculture and Resource Management Council of Australia and New Zealand COAG Council of Australian Governments ESLT environmentally sustainable level of intake GL gigalitre MDBA Murray-Darling Basin Authority ML megalitre SDL sustainable diversion limit Valuing water: The Australian perspective vi Economic values of water under scarcity in the Murray-Darling Basin Executive summary This case study explores how the value of water has affected the management of scarce water resources in the Murray-Darling Basin (the Basin) in southeastern Australia. Our analysis of historical events starts during an expansionary phase in irrigated agricultural development in the region at the beginning of the 20th century. We describe four main phases in water management and explore how changing perceptions of value have shaped policy, objectives and outcomes over time. Water policy in the Basin now supports an open and flexible economy, resilient and adaptive businesses, cultural values and a healthy environment. However, challenges remain, which can provide insight for others on their water reform journey. This case study shows the progress in the Murray-Darling Basin in valuing water across all its uses—economic, environmental and cultural—and acknowledges the work still to be done. Perceptions of value and scarcity affect how we manage water resources How we value water is determined by a wide range of factors. These include our patterns and history of water use, cultural perceptions, changes in climate and population, and how others around us use and value water. Value fluctuates over time and between different uses, users and locations. These values can come into conflict, particularly in times of scarcity. We may experience competing demands for water use, whether for consumptive use, environmental flows, or cultural or recreational uses. How we manage water resources under scarcity needs to reflect these many uses and values if we are to achieve the greatest benefits for our communities. Our perceptions of value directly affect how we manage water resources—through the objectives and policies we design and the outcomes we achieve. Water management, in turn, affects our perceived values about scarce water. Australia’s First Nations people have managed, used, and attributed great cultural and spiritual significance to, the continent’s water resources for tens of thousands of years. Policy makers and water managers have begun to recognise, and sometimes explicitly consider, the economic, social and cultural value of water for Indigenous Australians. ‘Early development’ phase—managing water for economic development in the early 1900s Water resource development gathered pace in the Murray-Darling Basin from the early 1900s. An initial expansion of irrigation was accompanied by efforts to improve the navigation of streams in the Basin, with paddleboats employed to transport agricultural produce to downstream ports to satisfy domestic and export demands. The expansion of irrigation and settlement in the Basin drove further demand for water. Fluctuating water availability with alternating droughts and floods meant that management was needed to secure the water supply and navigation routes. During this period, water was mainly valued for consumptive use and was seen as abundant. Policy was focused on supporting water use for agriculture and development, and securing supply. The costs were mainly borne by government, reflecting the strong desire to populate Australia’s vast interior and support regional development. This led to substantial investment in infrastructure and continued but steady expansion of areas under irrigation. Environmental degradation, as we understand it today, was seldom valued in decision making or seen as being as important as food production and regional development. Cultural values were not reflected in the management of water resources during this period. Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 1 ‘Emerging costs’ phase—respond to the environmental costs of water abstraction from the 1960s By the 1960s, the water economy had begun to mature, and relatively low-cost sites for constructing dams and other infrastructure were largely exhausted. The costs of water capture and use, including infrastructure and service provision costs, became increasingly visible. Salinity was affecting agricultural land, and environmental effects were beginning to emerge. Through the 1960s and 1970s, individual states tried to mitigate some of the environmental damage. They introduced volume-based licences to replace area-based water rights, and limits on new water diversions to prevent further deterioration of the environment. Volume-based licences also protected the rights of existing extractive licence holders. But investment in large-scale water supply infrastructure continued—in particular, to support development of irrigated agriculture. ‘Major water reforms’ phase—a greater focus on economic efficiency and environmental degradation in the 1980s By the 1980s, water supply options were decreasing even further, and demand for water was continuing to increase. The focus of Australia’s water resources management began to shift from developing new water resources and investing in infrastructure to managing limited water resources more efficiently and sustainably. The 1982–83 drought across eastern Australia, possibly the worst of the 20th century, underscored this need to change focus. Through the 1980s and 1990s, water management objectives began to account for both the wider costs and the benefits of water use. This meant maximising the economically efficient use of water while limiting environmental costs and impacts. Instruments to achieve this included government commitments to capping total water consumption and allocating water for the environment, enabling water trading, and applying full cost recovery and consumption-based pricing principles. The increasing complexity of policy instruments during this phase was justified by increasing demands and scarcity, and the need to address legacy approaches that did not reflect contemporary values. ‘Acceleration’ phase—managing competing values under increasing scarcity since the early 2000s The prolonged millennium drought, which occurred from 1997 to 2009, prompted a series of major changes in water management. There was an escalation in reforms to try to achieve previous commitments, a number of which had experienced slow progress exacerbated by the drought. During this current phase, the drought, growing awareness of environmental and cultural values, and the increasing value of agriculture have led to a greater awareness of the potential conflicts and trade-offs between environmental, economic, social and cultural values of water. The current approach to management has a focus on managing multiple values and the trade-offs inherent under scarcity. This approach includes Basin-scale management; more water recovery for the environment; and laws for managing environmental, social and cultural outcomes. We also have more sophisticated trading mechanisms, including the use of markets to purchase water for the environment. Valuing water: The Australian perspective 2 Economic values of water under scarcity in the Murray-Darling Basin Changing values influence water management The water reform story of the Murray-Darling Basin shows that scarcity is a major influence on our understanding of value. When constraints on water availability were assumed to be short lived and seasonal, water was valued almost exclusively as an economic input. The focus was on managing variability in water availability for consumptive use, through investment in infrastructure. When it became apparent that overall limits could not be overcome by infrastructure alone, the approach to management diversified. Major droughts were key catalysts in prompting reform, helping to reveal the costs of previous decisions on water allocation and use, and where water management arrangements were not supporting a range of valuable uses. Scarcity during droughts necessitated trade-off decisions to be made between different users and uses. Understanding these values was therefore necessary to provide water for its most valuable uses—environmental, cultural or economic. The Australian experience shows that failing to understand value can undermine water resources management. The costs of inefficient management are borne by the whole community— through environmental degradation, restrictions on water use or loss of cultural values. However, by embedding value through cost-reflective pricing and water markets, or simply identifying the many uses and values of water for our communities, we can help ensure that water management delivers value to the whole community. Water management in the Basin highlights the importance of considering the multiple values of water Water policy in the Basin is now designed to support an open and flexible economy, resilient and adaptive businesses, cultural values and a healthy environment. The current objectives of water management reflect an increasing acceptance of the need to value water across its many competing uses. The policy instruments in the Basin have been developed to support these objectives. But even with the improvements in policy instruments and objectives, challenges remain in ensuring that decisions on water management and use incorporate the economic, environmental and cultural values of water. Recent experiences of extreme dry conditions in the Basin and community discontent highlight the importance of considering the multiple values of water. Failing to do so leaves water policy vulnerable to short-term decision making and uncertain long-term costs. Improving the ways in which we incorporate values into water management in the Basin can help ensure that the right policies and levers are used in ways that benefit all users. The increasing value of scarce and variable water supplies underscores the importance of getting policy and management implementation right, including managing trade-offs across communities, industries and the environment. The experience in the Murray-Darling Basin shows how we can adjust water management in response to changes in our understanding of value, and how value can be incorporated into decision making. Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 3 Understanding value drives better decisions Without knowing the real value of different outcomes to individuals, industries, communities and governments, it is impossible to weigh up priorities and trade-offs. Including value in government decision making is therefore integral to improving how we deal with complex and contested topics, including water and environmental management. The value we place on our water resources will shape the objectives and outcomes that we seek to achieve through policies and management. If we apply a narrow view of what value means to the community, policies might not be accepted or deliver the right outcomes. At the same time, the policy instruments and decisions that are taken can help to better reveal these values, whether by creating markets, setting limits, or ensuring that any pollution or other negative externalities are fully priced. Using management actions to reveal value, and then reflecting these values in future decisions, can help ensure that water resources management delivers the greatest benefit to the community. Valuing water: The Australian perspective 4 Economic values of water under scarcity in the Murray-Darling Basin 1 About this report This report provides an overview of how the value of water under scarcity affects, and is affected by, water management actions. Effective water resources management is essential to human wellbeing and prosperity. It helps balance the needs of our communities, economy and the environment for this precious resource. It requires an accurate understanding of the value of water, particularly in times of scarcity when there are competing demands for a limited resource. Our perception of value is determined by our patterns and history of water use, cultural perceptions, changes in climate and population, and how others around us use and value water. This value fluctuates over time and between different uses, users and locations. This report uses Australia’s Murray-Darling Basin (the Basin) as a case study. It documents how the diverse values we place on water have shaped water policy over time and how this has led to changes in water management under conditions of scarcity. During the past 100 years, we have seen significant changes in how water resources in the Basin are valued and managed, driven by evolving water-use patterns, natural conditions and societal needs. Significant changes have occurred in political and economic priorities and practices for economic development and natural resource management. Relationships between the Australian Government and state and territory governments have also changed. Collectively, these changes have led to challenges and complexity in the management of one of Australia’s most important natural resources. Broader recognition of the value of water is growing, and is reflected in new and ongoing water reform actions. But changes can still be made in Australia to better realise economic, social, environmental and cultural values in water management. This report seeks to inform and support water managers on this journey. Section 2 of this report defines the value of water. It describes the importance of revealing value for all uses and users so that the desired outcomes from water resources management can be achieved. Section 3 assesses how the different values of water have been reflected in water policy, management instruments and decision making in four historical phases of development in the Basin. Section 4 considers lessons from the Basin experience for decision makers seeking to optimise investment, management and use of water resources globally. This report on the Murray-Darling Basin has been prepared alongside two other reports om water use for the Australian Water Partnership. The second report examines the specific value of water for the environment from an Australian perspective. The third report provides an overview of the value of water from a First Nations cultural perspective. Together, these three reports give a detailed understanding of the value of water in Australia. They also highlight how a better appreciation of the many values of water can improve outcomes for all Australians. Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 5 2 The value of water and why it matters Water is fundamental for healthy and functional societies, and most economic activity. It supports the diverse ecosystems that we live in and has profound significance in many cultures. Knowing the full value of the water we use is challenging. The value varies by use, by location and over time. The costs of water provision, or prices paid for it, often do not reflect water’s total value. Accurately valuing water helps us reveal the costs and benefits of different actions—or lack of action— and how these costs and benefits are distributed across users, uses, time and space. Understanding value leads to more informed decision making, from the household level to governments making decisions that affect industries, communities and environments. This is increasingly important in the face of growing water scarcity due to climate change and population growth. More accurately valuing water also helps us more effectively assess our management options. This includes how we allocate water under conditions of scarcity to achieve a better balance between different needs and uses for all. 2.1 The value of water reflects many different uses 2.1.1 Water is one of our most important resources Water is fundamental for the effective functioning of cities, towns and rural settlements: water supply, wastewater disposal services and drainage support households, businesses and industry. Water is an important input to production in agriculture and rural industries, from mining to manufacturing. It supports other industries such as tourism. It also generates many social, cultural and ecosystem services. Sufficient water supply is essential for the healthy functioning of our ecosystems and landscapes, providing healthy vegetation, and supporting waterbird breeding, native fish populations and other services. Water also holds cultural significance for many people, especially indigenous peoples around the world. The value of water is the total benefit that all these groups—people and the environment—receive from water now and in the future. This includes not only commercial benefits (although these should be considered) but also the benefits provided by water-dependent ecosystems and the existence of zones of high biodiversity. Water is implicitly valued in many daily decisions. We make a value judgment about the benefits of fresh water when we pay to have water piped to our homes, and when we turn off the tap to conserve that water and reduce our water bills. Better understanding of value helps us understand the demand for scarce water resources. Valuing water: The Australian perspective 6 Economic values of water under scarcity in the Murray-Darling Basin Figure 1. The Murray River in the Murray-Darling Basin (Source: Ben Goode / Adobe Stock) 2.1.2 Climate change and population growth are increasing water scarcity and making water management more important Water is scarce when there is not enough to satisfy the demands of all uses (agriculture, industry, the environment and cultural use) or individual users. Water resources in the world’s river basins and aquifers are increasingly fully allocated or overallocated. This scarcity seldom reflects climatic conditions or natural variability. It is most often caused by increased demand for water for agricultural, industrial and domestic uses. Policy settings and management practices come under pressure to sustainably manage resources in the face of these demands. Water scarcity affects people, economies and environments in interconnected and mutually reinforcing ways. At times, management of scarcity requires difficult decision making, including decisions involving trade-offs between different users. 2.1.3 Understanding the value of water is crucial for effective management of this scarce and important resource Valuing water requires an understanding of the benefits of water in all its uses and for different users, now and in the future. This knowledge can be used to build resilient water infrastructure that reflects and protects different values of water; manage water resources to maximise their net benefit; and make informed, transparent and consultative decisions about trade-offs. Valuing water is crucial for making good decisions about water management globally and for responding to the many challenges facing the water sector. Although the context may differ by country, city, basin or aquifer, it should not prevent value-informed water management. The experience in the Murray-Darling Basin shows how we can adjust water management in response to changes in our understanding of value and how this can lead to more transparent valuation processes. Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 7 2.2 Approaches to valuing water 2.2.1 Using a total economic value framework Many methods can be used to reveal the value of water and other natural resources. These methods seek to reflect different uses of water, by different users. One of the most widely used frameworks for understanding the value associated with natural resources is total economic value. This aggregates all values provided by an ecosystem or resource. It allows comparisons between options where resources are scarce and decisions must be made about their use. The total economic value framework divides values into ‘use value’ and ‘non-use value’ categories. An example for waterways or other water resources is provided in Figure 2. Use value can be divided into direct use value and indirect use value: 1. Direct use value is through the immediate use of the resource. Examples include consumptive use for irrigation and nonconsumptive use for recreational swimming. 2. Indirect use value is through incidental use of the resource. Examples include flood protection provided by wetlands. Non-use value can be divided into existence value, bequest value and option value: 1. Existence value is the knowledge that a feature of a resource continues to exist, regardless of whether it benefits anyone directly. 2. Bequest value is the knowledge that a feature of a resource will be available for future generations to enjoy. 3. Option value is ensuring that a resource is available for the future—a type of insurance for possible future demand. Urban water use Cultural use Diversions Agricultural use Rowing Rafting Direct use Contact recreation value Swimming In stream Cultural use Use etc Commercial fishing value Navigation Walking Alternative Habitat/environment Passive- economic shoreline Cycling values recreation Fishing Amenity Indirect use etc value Grazing Functional Consumptive Forestry Existence Watershed protection Non-use value Flood control Option Nutrient cycling Figure 2. Example of the total economic value framework for waterways and other water resources (Source: Aither, Valuing externalities for integrated water cycle management planning – a report prepared for the Victorian Department of Environment, Land, Water and Planning, May 2015) Valuing water: The Australian perspective 8 Economic values of water under scarcity in the Murray-Darling Basin Each of these types of value can be estimated by different methods. Some can be directly related to monetary benefits as revealed in markets, such as additional profits accruing to farmers. But many types of value are estimated through people’s own assessments of what it is worth to sustain a value, or by indirect inference of this worth. For example, the use value of water for recreation may be estimated by asking anglers how much they would be willing to pay to continue to access a river for fishing, even if no direct payment is required. Or it can be reflected in the costs to access the angling opportunity and how often anglers access the river. Although these methods have been used extensively to estimate the value of natural resources, they can have limits—for example, due to lack of data. This can make a full assessment of the total economic value of water challenging. The politics of responding to different water values is therefore important. Some of the most common mechanisms for assessing the value of water include elements of both market-based and administrative approaches. Market-based approaches use a market to reveal value (and in many cases prices in that market). Administrative approaches signal value by setting prices or charges based on other techniques, or by setting the level of water available to different users. Both approaches can be applied in different aspects of water management, such as pricing of water-related services and infrastructure, pricing of pollution, or pricing of secure tradeable water rights. Often, market-based and administrative approaches must be combined to some extent. For example, setting the level of a cap in a market-based cap-and-trade system will be an administrative decision. 2.2.2 Cost-reflective pricing Cost-reflective pricing of water-related services and infrastructure can help to signal the costs of water provision to the end user. The value of water is reflected in the costs, such as costs of pipes and pumps, needed to deliver the water to end users. Users weigh the value they place on water-related services against the price, and communicate their assessment of value to water utilities and governments through their consumer choices. This approach cannot fully reveal the value of water. It simply demonstrates whether the value to the end user is greater than the price charged. The decision on how to set charges and their level is an administrative one. 2.2.3 Pollution pricing Pricing of pollution accounts for value by forcing polluters to consider the negative value (costs), such as pollution of surface water and groundwater degradation. This is often done by establishing permit regimes for wastewater discharge, where a permit price is administratively determined. Other mechanisms, such as subsidies, property rights and social norms, can also be used. Cap-and-trade approaches have also been used to establish markets, which then determine the price of polluting or achieving water quality. These markets usually require that the government first establishes limits or tradeable permits. 2.2.4 Water markets Secure tradeable water rights can also be used to value water. When water is traded in markets, this trade can reveal the value of water for different uses. A cap-and-trade water market involves an administrative (usually government) decision to establish a cap on total water use and allow water users (licence holders) to trade water with each other based on their own needs and preferences. This encourages water to move to higher-value uses. Market fluctuations reveal the marginal value of water for various uses at different times and locations, and under different conditions of scarcity. Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 9 2.3 How the value of water affects policy and outcomes A combination of agreements, rules, policies and norms are deliberately developed or evolve over time to determine how a scarce resource is managed and shared between uses and users. These reflect the dominant values of the time—for example, the values of governments, large landowners, water users (including lobbies and peak bodies), other organised collectives, the general public or even multinational entities. The outcomes of water resources management—for water users, the environment, specific communities, and connected local and global economies—are a result of the behaviours of individuals and governments. They reflect the dominant influence of humans on where, when and how water flows. Understanding the values placed on water at a given time and location gives insight into the objectives, management activities and outcomes for water management. These values also simultaneously inform objectives, policy and management activities for water managers, and the resulting outcomes. These outcomes, in turn, influence the values placed on water, revealing the ongoing impacts of water use. Values are always specific to a given time and location, and can change in response to community values and external drivers, such as climate change, political theory, economics and global trends. These are shown in Figure 3. Figure 3. How value drives objectives, management activities and outcomes (Source: Aither) Valuing water: The Australian perspective 10 Economic values of water under scarcity in the Murray-Darling Basin 3 Four historical phases of values, policy and outcomes in the Murray-Darling Basin This section describes four ‘phases’ of water resources management in the Murray-Darling Basin, spanning the period between the early 20th century and the present. For each phase, we introduce its basic characteristics, the dominant water values that informed water management at the time, the water policy instruments designed and adopted accordingly, and the high-level outcomes observed. A summary is in Figure 5. There is never one true ‘value’ for water. At any given time, the value of water to different groups and across regions will vary. These changing and diverse values, particularly in response to scarcity, have driven reform in water management and will continue to shape reform in future. This case study focuses on representative phases of the Basin reform experience rather than on specific dates. Periods of change take time, and there is not always a straightforward or linear progression. There is some overlap between the phases, because the outcomes from one phase directly affect the values, objectives and instruments in the subsequent phases. The events witnessed in the Basin do not occur in isolation—they are influenced by wider national and international priorities that fluctuate over time. These phases are one way to represent the changing values of water in the Basin over time. They are not definitive: other reports on the history of the Basin may use different phases, and many other typologies of the Basin’s history exist. There is no end point to water management reform. Management of the Basin will continue to change in the future. Many challenges remain, not least in improving the understanding and management of cultural water. Environmental issues are ongoing, and the future challenges posed by climate change will likely exacerbate these. But the journey so far provides insights into the drivers and outcomes of reform, and how the value of water underpins water management. Figure 4. The Murray River in Victoria at sunset (Source: Sewon / Adobe Stock) Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 11 Figure 5. Four phases of water resources management in the Murray-Darling Basin (Source: Aither) Valuing water: The Australian perspective 12 Economic values of water under scarcity in the Murray-Darling Basin Box 1: Aboriginal water management In the First Nations world view, people and Country (including lands, waterways and seas) are interdependent entities that are intrinsically linked in the landscape through cultural and spiritual significance. This means that there is no separation of nature and culture—the health of the natural environment and cultural wellbeing of First Nations people are directly influenced by the health of the cultural landscapes. For more than 50,000 years, First Nations people have sustainably managed the lands, waters and natural resources for the health of their Country and people. First Nations people in Australia have understood the importance of water and its centrality to life, and have cherished it accordingly. Traditional ecological knowledge, like stories, is passed down from generation to generation and continues to this day. This allows a symbiotic relationship with the land and water. First Nations rights and obligations over water have a long history in Australia. Several markers in that history are relevant to cultural values of water in the Murray-Darling Basin. Around 50,000 years ago, there was holistic First Nations custodianship of land and water. In 1788, British colonisation began as Australia was declared terra nullius (a ‘land belonging to no-one’). Only in 1967 were First Nations people granted voting rights and census recognition. Source: AWP & World Bank (2022a) Australia’s First Nations people have managed, used, and attributed great cultural and spiritual significance to, the continent’s water resources for tens of thousands of years (see Box 1). In recent decades, policy makers and water managers have increasingly recognised, and sometimes explicitly considered, the economic, social and cultural value of water for First Nations Australians. Relevant mechanisms and shifts in community values are briefly discussed later in this report. A more detailed assessment can be found in the case study on cultural values of water in the Murray-Darling Basin (AWP & World Bank, 2022a). This provides an overview of the recognition of First Nations water values, how these values are considered in decision making, and the protection of these values. The current case study is mainly concerned with how the value of water has affected the management of scarce water resources in the Murray-Darling Basin, including by managing trade-offs between uses, and how these management choices influence value assessments. Our detailed analysis of historical events starts during a major expansionary phase in irrigated agricultural development in the region at the beginning of the 20th century and begins with a brief overview of the Murray-Darling Basin. Further information on the environment of the Basin and its importance to Indigenous Australians can be found in the supporting case studies. Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 13 3.1 The Murray-Darling Basin The Murray-Darling Basin is Australia’s largest river system, crossing four states and one territory. The Basin includes 77,000 million kilometres of connected rivers and is home to more than 2 million people (Figure 6). 3.1.1 Agriculture The Basin is a major agricultural region in Australia. Around 40 percent of all farms in Australia are located within the Basin, and there are 9,200 agricultural businesses. Agriculture in the Basin is a key contributor to the Australian economy, producing $24 billion worth of food and fibre every year, including approximately $8 billion from irrigated agriculture such as cotton Figure 6. The Murray-Darling Basin (Source: MDBA) and horticulture. 3.1.2 Communities Close to 3 million people rely on water from the Basin. Households and businesses all use water from the river system. Locals and visitors make use of waterways for activities such as swimming, fishing and kayaking. Tourists spend $8 billion every year to visit the rivers and lakes and their surroundings, and take part in activities such as boating and fishing. 3.1.3 First Nations people Around 75,000 Indigenous people from more than 40 different First Nations live in the Basin. Water plays a key role in their wellbeing and identity, and in keeping aspects of their culture alive; it is important in some Indigenous cultural traditions and helps maintain a connection with Country. The Basin contains many sacred and spiritually significant sites. Traditional activities such as fishing, hunting, ceremonies, and harvesting medicinal plants and herbs rely on clean water. Water also helps preserve and protect important sites such as burial mounds, campsites, and scarred or carved trees whose bark was used to make tools and record Indigenous history. 3.1.4 The environment Although it spans a vast area, the Basin is a single, interconnected system. It contains a variety of unique and delicate ecosystems, with plants and animals that are not found anywhere else in the world. These include 120 waterbird species, more than 50 native fish species, and 16 internationally recognised and protected wetlands (MDBA, n.d.-a). Valuing water: The Australian perspective 14 Economic values of water under scarcity in the Murray-Darling Basin 3.2 ‘Early development’ phase—early 1900s to 1960s The early development phase covers the period from the early 1900s to the 1960s. During this period, the focus of water resources management was securing variable water supplies, particularly to support regional development. Values during this period reflected that focus; limited value was placed on water for the environment or for cultural use (Figure 7). Figure 7. Values of water during the early development phase (Source: Aither) 3.2.1 Basic characteristics Following federation in 1901, the development of settlements and irrigation schemes gathered pace across the Murray-Darling Basin. Beginning in 1917, soldier settlement farming schemes were established on the Murray River to provide livelihoods for soldiers returning from World War I and their families. A second tranche of these schemes followed in the wake of World War II. As has been the case since record keeping began, water availability fluctuated over the period, with major flooding often giving way to multiyear droughts. The early development phase in the management and use of the Basin’s water resources was characterised by the pursuit of increasing volumes of water held in different forms of storage. These volumes of water needed to be delivered with improved reliability within a highly variable system to support economic development and population growth. To achieve that goal, governments: 1. funded and built locks, weirs and dams, and supported new and growing irrigation districts 2. directly funded other water delivery infrastructure 3. incentivised population growth in rural areas, including through soldier settlement schemes 4. freely handed out water rights to landowners (Musgrave, 2008). In parallel, urban water supplies were being developed for growing cities and towns in the Basin. These mainly depended on surface water and included considerable reserve capacity to manage supply risks. Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 15 3.2.2 Dominant values informing water management The early development phase was underpinned by a worldview and set of values closely aligned to, and directly informed by, those of European countries and their colonies. As described by Allan (2005) with reference to his water management ‘paradigms’: Water management has ... absorbed the driving ideas and technologies associated with the modernity of the past two centuries. Engineers solve problems and engineers showed themselves to be very competent in solving water problems in early modernity. They came to be essential allies of the state in achieving economic goals such as food self-sufficiency. Politicians, engineers, farmers and food consumers were all certain that the progressively larger withdrawals of water, associated with what has come to be called the ‘hydraulic mission’ of ‘industrial modernity’ were good. In the Murray-Darling Basin, as elsewhere, water abstraction to support agriculture and industry was consistent with a view that continually increasing production of goods would yield economic benefit. Any alternative use of water resources was effectively seen as ‘waste’. Given the variability in water availability in the region, building infrastructure to manage security of supply was almost as important as increasing supply. Water resources during this time were generally perceived as abundant, with scarcity a temporary situation driven by external factors such as drought. The political push to populate rural Australia and the dominant role of agriculture in supporting the national economy (Connell, 2007) meant that there was little formal consideration of environmental, cultural, Indigenous or other nonconsumptive values of water. There was also no consideration that users should bear the costs of water infrastructure and services. Direct government funding was the norm during the early development phase. 3.2.3 Policy instruments used The policy instruments used to manage water resources during this phase were focused on managing water to reduce variability and secure supply. The perceived value of water was related to its consumptive use for human settlement and production. Many of the policy instruments developed and used during the early development phase are still used today in various forms. Water-sharing agreements and limits on use In the first half of the 20th century, there was a need to agree on the sharing of the transboundary waters of the Murray River between the states (formerly colonies) of New South Wales, Victoria and South Australia. Pivotal in this was the signing of the River Murray Waters Agreement by the three states in 1914. This agreement established how water was to be shared (and still is) between the states. The River Murray Commission in 1917 was established to enforce the agreement. The River Murray Waters Agreement is one of the longest-lasting policy instruments in the Basin. It was a breakthrough at the time, following more than 10 years of negotiations and four previous attempts to create an agreement (Guest, 2017). The agreement has since been replaced by the Murray-Darling Basin Agreement and amended several times. However, it is still largely unchanged today as the legal basis for sharing surface water resources between the three states. Although not the focus of this case study, the agreement and evolution of water-sharing arrangements between subnational jurisdictions for a transboundary river provide a useful reference for policy makers seeking to craft, prosecute and enforce water-sharing agreements in their own contexts. In the Murray-Darling Basin, before water is allocated to users such as irrigators or industry by state governments, volumes of water are set aside for annual transmission losses, such as seepage and evaporation, and critical human water needs. This was partly driven by the downstream state of South Australia wanting to maintain the river for navigation purposes. Valuing water: The Australian perspective 16 Economic values of water under scarcity in the Murray-Darling Basin The critical human water needs reserve is the amount of water that all towns and cities in the southern Basin would need to meet basic human needs if no rain fell the following year. This volume of water is informed by the average daily need and population size of towns and cities, and the needs of critical infrastructure such as hospitals. Once these volumes are set aside, the remaining water in each state’s share of the available resource is allocated by those states to end users in their jurisdictions. States determine how they use this ‘bulk’ allocation for these users, but irrigation activities use a large proportion of the volume of water resources. Figure 8 shows the current responsibility for operation by different states across the Basin. GL = gigalitre; MDBA = Murray-Darling Basin Authority Figure 8. Overview of river operations in the Murray-Darling Basin (Source: MDBA, n.d.-b) Water rights, allocations and entitlements Each Basin state has the power to define its own water allocation framework and licensing regime to determine how water is shared between individual users (IIG, 2020). The approach taken in allocating and managing water resources evolved significantly during the early development phase. Earlier systems provided water rights based on ownership of land adjacent to water sources. By the end of the period, water licensing and permits were developed to enable greater state control. Although water licences were issued, there was no Basin- or catchment-scale cap on water abstractions or consumption. This means that no explicit policy tool was used to reflect any scarcity value associated with surface water or groundwater resources in the Basin. The earliest systems of water rights were based on English common law, known as riparian rights. This gave rights to water in rivers and streams to the adjacent landholders. However, the extreme variability of water supply in Australia meant that the system was not effective, partly because of the need for large-scale storage to enable water to be used when and where it was required (NWC, 2011). Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 17 In the late 19th and early 20th centuries, governments sought to limit riparian rights by vesting rights to ‘the use and flow, and to the control of water resources’ in the Crown. This allowed state governments to centrally control and administer systems for allocating water rights (NWC, 2011). It supported the development objectives of governments by enabling greater state control over resource distribution and allocation. It also unintentionally gave governments greater control over groundwater compared with the situation in many other countries. Throughout most of the 20th century, state governments used statutory licensing systems, which granted privileges (such as licences or permits to take water) rather than property rights in the legal sense (Tan, 2002). Potential water users generally applied to state agencies for licences, and water was allocated based on crop types. Under these arrangements, government planners, rather than individual farmers, were often responsible for determining what types of crops should be planted. Specific parcels of land were then issued with the necessary water estimated to be required to support these crops (DNRE, 2001). Governments were also heavily involved in the development and trialling of different agricultural crops, and actively participated in the marketing of agricultural outputs. Water licences or permits were tied to use on specific areas of land. They provided farmers with the perpetual use of water to irrigate their land (Deakin, 1885). Even in the mid-1980s, water was still locked to particular pieces of land. Even if a farmer had spare water, they were not officially allowed to transfer it temporarily to a neighbour who may have had a greater need for it, such as finishing a crop during a hot period (DNRE, 2001). Funding for infrastructure and services Consistent with other sectors at the time, the government had a more significant role in the economy in the early development phase, including in developing and providing essential services and infrastructure of various forms. The Australian Government invested in or operated transport, telecommunications, banking and other sectors, including water; it was the key policy actor and service provider for water management. State governments led infrastructure development for water resources in their own jurisdictions, and the Australian Government coordinated these efforts and provided direct investment in infrastructure for shared water resources. Development of water resources was seen as an essential activity for economic growth and prosperity, and was directly supported by government. Government invested in infrastructure and, through its agencies or departments, ran the infrastructure and provided the services. Some exceptions existed— for example, smaller private irrigation districts, although many of these were initially developed by government. During this phase, governments did not recover the costs of investments from water users. Irrigator access and use of infrastructure were heavily subsidised by the general public. This meant that there was little or no price signalling for the efficient provision and consumption of water delivery and associated services. Construction and expansion of infrastructure were primarily about taming variability in supply and supporting existing and further agricultural development. Although droughts and floods occurred throughout the 20th century, there was no perception that water was scarce, as it is often characterised in the 21st century; rather, the perception was that there was too much water at one time and not enough at another. Given this, there was no sense of a need to limit the amount of water that agriculture should be allocated. Valuing water: The Australian perspective 18 Economic values of water under scarcity in the Murray-Darling Basin Other policy instruments During this phase, there were few references to, or policy tools associated with, constraining development and no cap on the amount of water that could be issued in aggregate. State governments continued to license increased access to water, including for new dams, existing dams and other water resources. There were no social and cultural norms around water management, including about the role of the state, and no awareness of the potential for a water market. Another feature of early water resource development in Australia was the widespread introduction of metering. In 1910, John Dethridge invented the Dethridge wheel, which could measure the amount of water being supplied to a property (NWC, 2011). The introduction of metering provided a method for centralised control and helped irrigators manage water delivery applications. 3.2.4 Outcomes For most of the period when development was the primary objective, licences to water were available on demand. Irrigators could generally use as much water as they liked, but only on a specific area for irrigation. Although this contributed to the development of some rural towns and industries, it did not incentivise irrigators to limit their use of water resources other than to avoid the costs of pumping. In some cases, licences did specify volumetric constraints but were not effective in controlling use (NWC, 2011). Supporting arrangements, such as accounting and metering, were generally inadequate, leading to a poor understanding of total extractions and licensed volumes on issue at any time. In addition to the bulk of licences being issued at a time when the Basin was in a 50-year ‘wet period’, this contributed to the overallocation of resources (NWC, 2011). Licences could be amended or cancelled, but there was an expectation of automatic renewal; over time, it became increasingly difficult for governments to establish caps on use (McKay, 2008). This was exacerbated by the many rural communities that now relied on irrigation for employment and wealth generation, although these were much less important than dryland farming at the time. The continual increase in water abstractions led to overcommitment of surface water resources in some of the catchments within the Basin. As water abstraction in more and more catchments reached and exceeded a sustainable level, negative impacts started to accrue for downstream users and the environment. At first, these negative impacts were only or mostly evident in periods of drought. In the early to mid-1940s, for example, a severe drought in the southern Basin resulted in significant economic and environmental damage. By April 1944, northern Victoria was carting water, and failure of the winter– spring rains led to the failure of the wheat crop. As the drought extended into 1945, large rivers almost dried up. By April 1945, most Victorian water storages were empty. The Murray River had stopped flowing at Echuca in northern Victoria more than 1,600 km from its mouth, and the city of Adelaide faced water shortages (BoM, 2004). The extensive program of major water infrastructure construction in this period saw a massive expansion in water storages. Between 1890 and 1955, Goulburn Weir (Victoria), Lake Victoria (New South Wales), Hume Dam (Victoria/New South Wales), Eildon Weir (Victoria), 14 Murray River weirs, and five barrages near the Murray River mouth, as well as other smaller structures, were built to store and manage water for consumptive uses (MDBA, n.d.-c). The extensive investment in water infrastructure and expansion of agriculture in the Basin were instrumental in driving the environmental and financial costs that emerged during the following phase. Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 19 Box 2: Summary of the early development phase How water was valued Water was valued for its use in agriculture, navigation and other productive use industries, and for human consumption. Value was assumed to be driven almost exclusively by the productive use of water. Politicians, engineers, farmers and food consumers saw continued and ever-expanding development and use of water resources as a positive thing, as there was limited knowledge about the potential consequences for the environment. Irrigation development was seen as a public good linked to regional and rural development. Direct government funding of water infrastructure and services was seen as important for supporting development. Water management objectives Based on these values, water management focused on increasing the supply of water available for consumptive use and increasing security of supply, particularly for agricultural producers and, at the beginning of the period, for navigation. The key objectives were to maximise use and supply, to drive economic development and population growth, with limited consideration of the costs of water provision and use. Policy instruments used Water licences or permits were tied to use on specific areas of land, based on the irrigable land and crop needs. They were expected to provide perpetual rights to water to irrigate productive land. There was no Basin- or catchment-scale cap on water abstractions or consumption, and so there was no mechanism to signal scarcity or reveal value in either surface water or groundwater resources. Government invested heavily in infrastructure and, through its agencies or departments, ran the infrastructure and provided the services. During this phase, there were generally no references to, or policy tools associated with, limiting or constraining development. State governments continued to license increased access to water, including for new dams, existing dams and other water resources. Outcomes Rural and regional communities developed that were at least partly dependent on irrigation for their social and economic wellbeing. The continual increase in water abstractions led to overcommitment of surface water resources in some catchments within the Basin. As water abstraction in more and more catchments reached and exceeded a sustainable level, negative impacts started to accrue for downstream users and the environment. The extensive program of major water infrastructure construction by state governments had long-term negative financial consequences for government budgets. Valuing water: The Australian perspective 20 Economic values of water under scarcity in the Murray-Darling Basin 3.3 ‘Emerging costs’ phase—1960s to 1980s The emerging costs phase covers the period from the 1960s to the 1980s. During this period, the environmental impacts of water use and management were beginning to be seen, while demand for water and investment in infrastructure continued to grow. Values during this period began to reflect these changes, with greater value placed on water for the environment, although cultural values were still not widely considered (Figure 9). Figure 9. Values of water during the emerging costs phase (Source: Aither) 3.3.1 Basic characteristics The emerging costs phase in the management and use of Murray-Darling Basin water resources was characterised by the emergence of the legacy effects of the early development phase. Emerging recognition of the effects of unsustainable water use, and increasing recognition of water as a scarce resource, were major drivers of reform during this phase. The legacy effects, and their costs, were economic, environmental and demographic. Economically, the emerging costs phase saw an increasing burden on state government budgets from the operations and maintenance costs of water infrastructure built over the preceding years. However, new storage and control infrastructure projects were still constructed during this phase. Between 1965 and 1980, the final major water storage and control infrastructure projects to be built on the Murray River’s tributaries—Burrendong Dam on the Macquarie River (1967), Menindee Lakes on the Darling River (1968) and Dartmouth Dam on the Mitta Mitta River (1979)—were completed. There was a 10-fold increase in the capacity of major dams in Australia between 1940 and 1990 (NWC, 2011; Figure 10). Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 21 use across t explicitly represented in river models and so are not indicated on the map. Growth in public storage capacity over the last 80 years compared to total water availability Growth in and total surface water use (five-year moving average) 40,000 14,000 35,000 Capacity major storages 12,000 Average annual flow of all rivers (without-development) Average natural flow to the sea 5-year rolling average use (GL/y) 30,000 10,000 Use 25,000 Volume (GL) 8,000 20,000 6,000 15,000 4,000 10,000 2,000 5,000 0 0 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 1920 Source: Data from MDBC Sour GL = gigalitre Figure 10. Growth in public storage capacity compared with total water availability and total surface water use (5-year moving average) (Source: CSIRO, 2008) Widespread development of groundwater resources began in the 1960s with the advent of rotary drilling technology (CSIRO 2008). Demand for groundwater increased to support agricultural and horticultural industries. Widespread investigations into new resources in the 1970s also led to significantly increased extraction for irrigation. As a result, extractions in some areas reached unsustainable levels. This drove early legislation that enabled management of the resources in those specific areas (Nelson et al., 2020). > Sprinkler irrigation, Environmentally, the costs of the early development phase also became increasingly apparent in the Moree, Gwydir region, decades between about 1960 and 1980. The increasing abstraction of water for (principally) irrigated NSW (DEWHA) agriculture started to take a toll on environmental assets and the overall health of the Basin’s river system. For the Australian public, creeping overabstraction was perhaps most dramatically highlighted by the severe drought of 1981. The Murray River mouth closed for the first time in recorded history, and 90 percent of Adelaide’s urban water supply had to be taken from the Murray because of severe declines in water storages (MDBA, n.d.-c). Salinity also emerged as a major environmental (and ultimately economic) issue during this period. Problems of rising water tables and soil salinisation arose soon after the establishment of the first irrigation schemes in the 1890s. By 1987, it was estimated that 96,000 hectares of the Basin’s irrigated land were salt affected (MDBMC, 1999). Many rivers saw a continually rising trend in salinity throughout this phase (Figure 11). River salinity became a persistent problem in the late 1960s when salinity rose to levels high enough to cause economic damage to irrigated crops and to exceed World Health Organization recommendations for human consumption. In the 42 months from January 1965 to June 1968 (a period of drought and low flow), the salt concentration at the town of Morgan in South Australia was above 800 electrical conductivity units (EC) for 31 months, peaking at 1,400 EC in February 1968. Morgan is significant because it is upstream of the off-take points for South Australia’s major urban water supplies (MDBMC, 2015). As salt accumulated in waterways and the landscape, it started to kill the plants and animals that inhabited the rivers and their surroundings, and permanently damage the environment. Valuing water: The Australian perspective 22 Economic values of water under scarcity in the Murray-Darling Basin Figure 4: Salt Exports and T H E in Trends SRiver A L Salinities, I N I T 1975–95 Y A U D I T O F T H E M U R R A Y – D A R L Tambo � River Salinity Trend The Salt Trends report 2 has d � Charleville these processes are causing g > 6 tonnes per km 2 per annum 4 – 6 tonnes per km 2 per annum QUEENSLAND 2 – 4 tonnes per km 2 per annum BRISBANE � to rivers around the Basin (Fig St George � 1 – 2 tonnes per km 2 per annum < 1 tonnes per km 2 per annum While the study indicated the historic tr Rising Trend � Tenterfield that these were often the result of increas No Change � am oi R i v er the rivers. However, the Salt Trends s N Bourke Falling Trend iver gR D rlin catalyst for the current Salt Loads stud a � SOUTH Gunnedah AUSTRALIA been put on the groundwater mobilisatio � Broken Hill NEW SOUTH Menindee Lakes WALES Dubbo � There is a considerable time lag be and the mobilisation of salt to rivers and in t ive r districts where the recharge rates are very hlan R Morgan � Lac close to the rivers, the salt mobilisation pro RIVER � Mildura M � Griffith SYDNEY� ADELAIDE UR Murr u m bidg ee R Y ie RA � r v Land Salinisation � Murray Bridge � � Swan Hill � Deniliquin Wagga Wagga � CANBERRA Lake Alexandrina Albury � Echuca � Salinisation in the landscape VICTORIA MELBOURNE� occurring process in the Murr 0 100 200 km Two hundred years ago, salinity was locations and times of the year. The ex Victorian and New South Wales Mallee Figure 11. Salt exports and trends in river salinities 1975–1995 (Source: MDBMC, 1999) this primary landscape salinisation. H increasingly apparent that secondary s The demography of the Basin’s population changed significantly during the emerging costs phase of land use changes is accelerating. Their water management and use. Urbanisation gathered pace across Australia, and growing capital cities years are just beginning to express the increasingly became the engine of national Figure Salinity, 1996 5: Land growth. economic The number of Australians employed valleys and low-lying landscape. in agricultural industries was also declining (Figure 12). The case for subsidising irrigated agriculture Land salinisation not only affects veg infrastructure and incentivising people to settle in rural regions weakened, although the basic tenets area, but also contributes directly to e declines and stream banks are made le of agrarian ‘goodness’ were not seriously challenged. Scattered Occurrences Throughout phase-lag in the effects of salinisation, s Isolated Occurrences are apparent, they will intensify before reduce their impacts. A 1993 study3 identified only 20,0 QUEENSLAND affected by secondary salinisation, b � BRISBANE 200,000 hectares were actually affected indicated the likely future hazard for the r of 1 million hectares. ve Ri rl i ng Another study in 1995, by the N Da SOUTH Program, estimated 300,000 hectares o AUSTRALIA � Broken Hill NEW SOUTH salt-affected in the form of dryland salin WALES Dubbo � When we compare the conclusions current Salt Loads study, it is clear just h Morgan this emerging threat has grown. Typica � R I V ER Griffith SYDNEY� about rising water tables until they actua M � UR AY R � ADELAIDE Wagga Wagga � � CANBERRA 2 MDBC (1999). 3 Beal (1993). 4 Land and Water Resources and Develop VICTORIA MELBOURNE� 0 100 200 km Figure 12. Employment in agriculture from 1911 to 2016 (Source: Productivity Commission, 2017a) 4 T H E M U R R A Y – D A R L I N G B A S I N C O M Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 23 3.3.2 Dominant values informing water management The emerging costs phase of water management and use in the Basin marks a tipping point in the dominance of values associated with maximising agricultural production and government-funded rural development. This was associated with the increasingly negative impacts of overabstraction and the rising prominence of these impacts in the public consciousness. Economic/productive and environmental values of water resources were coming into conflict in ways that made headline news and raised the possibility of major environmental decline. From the early 1970s, there was a growing awareness of the impacts of water extraction and use on the environment. In particular, toxic blue–green algal blooms and irrigation-induced land salinisation were major concerns for all water users in the Basin. The impacts on the health of aquatic ecosystems associated with existing water extraction and use patterns also began to emerge as a concern for the broader community. In many parts of the world, including Australia, recognition was increasing of the importance of sustaining environmental values and of the reliance on the economic values of water in maintaining healthy water basins. An environmental movement focused on the future of the Basin was emerging at the same time as people were rallying against the degradation of clean air and water resources due to human activity in many parts of the globe. As well as recognising the environmental costs of water abstraction, the growing financial burden of supplying water and managing variability highlighted the need to consider the costs and benefits of production. 3.3.3 Policy instruments used Governments took three main types of action during this phase: introducing volume-based licences to replace area-based water rights, setting limits on new water diversions to prevent further deterioration of the environment, and privatising infrastructure to reduce the financial burden on state governments. These actions were generally taken by individual states within their own jurisdictions. There was no joint action at this time. Water-sharing agreements and limits on use Although caps on water use existed in some form throughout the early development phase, these first assumed meaning as a policy tool for the management of scarce water resources during the emerging costs phase. South Australia was the first state in the Basin to restrict the issuing of licences to control abstraction of surface water resources during times of low flow. No new irrigation entitlements were issued in 1967, and a limit on water diversions was set in 1968 at the peak of a severe drought. That state-based limit on water diversions remained in place after the drought, and was reduced twice, in 1979 and 1991. Water rights, allocations and entitlements In practice, state-based limits on diversions were prescribed and given effect through the use of licensing. The pressure to reduce some of the environmental costs of overallocation led to states limiting further diversions by placing bans on the issuing of more licences. The approach varied both between and within states, focusing on valleys and water sources that were clearly overallocated (NWC, 2011): a) South Australia placed a moratorium on new licences in 1969. b) New South Wales imposed a limit on the issue of licences in a number of valleys in 1977, although a full embargo was not adopted until 1981. c) In Victoria, licences to pump from unregulated streams during summer were generally available after the 1967–68 drought (DNRE, 2001). Valuing water: The Australian perspective 24 Economic values of water under scarcity in the Murray-Darling Basin There were even some initial attempts to claw back existing entitlements. For example, when entitlements were converted to volumetric terms in South Australia in 1976: It was soon evident that some entitlements were excessive. It was therefore decided in 1979 to revise all licences based on their actual use during the 1976 to 1979 period, which resulted in a reduction of total volume of entitlements by nearly 10%. (Bjornlund & O’Callaghan, 2003) Australia’s states progressively vested control over water in the Crown. They abolished or displaced existing common law rights in response to increasing groundwater development in the 1960s and 1970s, creating a system of licensing (Nelson et al., 2020). Water trading Some of the earliest examples of water trade in Australia occurred when there were acute shortages, such as in the 1940s droughts when there were stories of short-term, unofficial trade between farmers (DNRE, 2001). Further examples of trade occurred in the drought of 1966–67, and in a restricted version from 1982–83 to more general introduction in 1986–87 (DWR, 1986). The introduction of trade was initially limited to specific locations or types of users and trades, meaning that some market segments developed before others. There was a greater willingness to allow trading within irrigation districts than between districts. Allowing water to move to another district was seen as an undesirable outcome by some. Initially, there was more acceptance of allocation trading than entitlement trading. Entitlement trading was associated with irrigators exiting agriculture, which could have longer-term regional economic implications (NWC, 2011). Funding for infrastructure and services By the middle of the emerging costs phase, there was growing recognition that governments were slow, bureaucratic and increasingly not coping as service delivery agents. Irrigators (and urban customers) were concerned about poor or declining service levels and increasing costs. The water industry during this period was made up of large, mainly government-funded institutions, which managed urban water services and irrigation areas. As well, a large number of small authorities or local governments provided varying levels of services to regional and rural communities. In irrigation areas, water authorities were heavily dependent on state government subsidies, with only part of their revenue coming from irrigators through water sales and drainage rates. In 1988, the Rural Water Commission in Victoria estimated that losses to the Victorian Government on its operations were more than AU$130 million, including foregone return on equity (Doolan et al., 2016). These outcomes set the scene for privatisation, which started in the 1980s; the majority of privatisation in Australia took place during the ‘major reforms’ phase in the 1990s. 3.4 Outcomes The limits on use implemented during this period successfully halted further diversions. However, they essentially capped water use at the existing levels of development rather than at a level that had been assessed to be sustainable. Moreover, the limits did not apply to all systems. For example, groundwater licences continued to be issued in Victoria. A number of water-using activities were also allowed to continue with minimal or no controls on extraction, such as farm dams, overland flow interceptions, harvesting, forestry and other interception activities. The limits on use were therefore not sufficient to prevent ongoing environmental degradation, which was evident in increasing algal blooms, salinity, and loss of aquatic native plant and animal species (DLWC, 1999). Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 25 Limiting new water licences was not always a straightforward process. For example, when word spread that a limit was to be placed on issuing of new licences in the Gwydir River system (a major river in the Barwon catchment of the Murray-Darling Basin), many applications were submitted (and approved) before the process was completed. Although some forces opposed reform throughout this period, the need to manage scarce resources for the benefit of the community as a whole prevailed. For example, although farmers in Victoria campaigned to have their water rights augmented, by the 1970s the era of large-scale construction was coming to an end. The economic and environmental limits to exploitation were being reached, and the emphasis was shifting to making the best use of what water was already available (DNRE, 2001). Imposition of limits on issuing new licences meant that the only way existing or new users could gain access to more water was from someone who already held a licence. However, because water licences were tied to the land, there were no readily available mechanisms to transfer water or licences from one user to another. Instead, those wishing to secure more water were often forced to buy the land to which a water licence was attached. This entailed considerable costs and delays to transactions for reallocating water. As a result, some users and policy makers increasingly began to advocate for the ability to reallocate water between users via trading. Economists from academia and government agencies pointed out that water markets could help address the existing problems, and developed many of the intellectual and practical underpinnings of water market reform. Farmers, who were increasingly business oriented, were also organising informal trades among themselves. Events such as the widespread drought in 1982–83 helped increase acceptance of the need to begin severing the link between land rights and water rights. However, it took time to secure the necessary legislative changes and implement administrative processes. There was typically a gap of some years between imposing limits on new licences and enabling transfers of water rights between users. Many of the mechanics of trading were developed during these long lead times in the 1980s, and many battles over real and perceived impacts were fought. For example, although the 1982–83 drought drove recognition of the need for water trading in Victoria, it was not until 1989 that a new Victorian Act (the Water Act 1989) enabling trade came into force, after a lengthy public review process and several major reports (Babie, 1997). By the end of the emerging costs phase, water use had increased drastically, while the drought in 1982–83 brought home the consequences of that increased use. This was a key driver for the major water reforms implemented in the following phase. Figure 13. Mildura Weir on the Murray River (Source: Hypervision / Adobe Stock) Valuing water: The Australian perspective 26 Economic values of water under scarcity in the Murray-Darling Basin Box 3: Summary of the emerging costs phase How water was valued This phase saw a shift in focus towards the costs of water use, driven by the increasing burden on government budgets from water infrastructure built over the preceding 60–70 years. The financial viability of irrigated agriculture during this phase often required significant gains in the efficient use of inputs, including water, to generate more profitable agricultural products. The environmental costs of the early development phase also became increasingly apparent in the decades from 1960 to 1980. Water management objectives Based on this perception of value, objectives focused on reducing the costs to government from water infrastructure and services, and increasing the efficiency of water use. The need to limit consumptive use of water to reduce environmental degradation and improve environmental outcomes was recognised. Policy instruments used Governments took two main types of action between the late 1960s and early 1980s: introduction of volume-based licences to replace area-based water rights, and limits on new water diversions to prevent further deterioration of the environment. Some assets and services were privatised to reduce costs for government, and pricing instruments were used to begin recovering the costs of infrastructure and service provision. Outcomes Limits on use halted some diversions and helped limit further increases in the overallocation of water. However, during this phase, the limits did not reflect sustainable levels and could only have a small environmental benefit for already overallocated systems. Water licences were still tied to land, with no readily available mechanisms to transfer water or licences from one user to another. Securing additional water therefore entailed considerable costs and delays. Events such as the widespread drought in 1982–83 helped increase acceptance of the need to begin severing the link between land rights and water rights. Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 27 3.5 ‘Major water reforms’ phase—1980s to early 2000s The major water reforms phase covers the period from the 1980s to the early 2000s. During this period, there were some significant shifts in the way water was valued and how these values were reflected in policy in the Basin (Figure 14). Figure 14. Values of water during the major water reforms phase (Source: Aither) 3.5.1 Basic characteristics During the major water reforms phase, there was an increasing emphasis on using economic tools, and an ongoing national shift to microeconomic reforms and away from protectionism. The winding-back of agricultural protection meant that the sector was increasingly exposed to international competition in commodity markets. This required farmers to be more flexible in responding to variations in prospects in agricultural markets. It also provided a driver for more flexible, market-driven patterns of water use enabled by trading. State governments were no longer willing or able to fund new water supply infrastructure for agriculture. This was partly due to legacy costs and partly because investing in new infrastructure was becoming more expensive—the most cost-effective and feasible dam sites had been developed, leaving only more expensive options available. But it was mostly driven by increasing recognition of the need for environmentally sustainable development. Perceptions in the community about the value of dams for hydroelectricity or agriculture were changing. Service delivery challenges and dissatisfaction with levels of service were also an issue. The inability to meet new and ongoing costs for legacy assets contributed to a shift towards user-pays mechanisms for recouping costs (Musgrave, 2008). This also reflected changes in microeconomic theory and practice, and increasing interest in the removal of the state from service delivery roles across many sectors, including water. Valuing water: The Australian perspective 28 Economic values of water under scarcity in the Murray-Darling Basin It became increasingly apparent that the long-term financial viability of irrigated agriculture in the Basin required vastly more efficient use of inputs, including water, to generate high-value agricultural products. This would particularly be the case if the state stopped directly funding capital and operating costs for irrigated agriculture, leaving irrigators to bear the costs. The microeconomic reform agenda and changes in trade practices were also relevant—changes to tariff arrangements and protection of certain commodities would mean greater competition for Australian producers. Figure 15. Irrigated fields at sunset (Source: Süleyman Şahan / Pexels) Introduction of water markets was also driven by a changing view of the role of government and the public sector in resource management (see Box 4 for a discussion of the current role of government compared with the private sector in Australian water resources management). Smaller government, more involvement of individuals in making decisions in their own best interests, and regulating only where necessary to avoid market failure were increasingly favoured (NWC, 2011). The degree of discretion for water authorities was decreasing, and the need to accommodate economic instruments and market-based approaches in water allocation and use was increasing (Pigram, 1999). Another key driver of the shift during this phase was ongoing and increasing concern about the environmental impacts of water-related developments (Musgrave, 2008). The 1987 Brundtland Report from the United Nations proposed the concept of sustainable development as ‘development that can meet the needs of the present without compromising the ability of future generations to meet their own needs’ (WCED, 1987). Increased concern for the environment was directly reflected in changes in the management of the Murray River. Environmental factors, as well as engineering and economic factors, were incorporated into decisions on the management of the Basin. The River Murray Waters Agreement was amended in the 1980s to reflect these changes, and the responsibilities of the River Murray Commission were extended to include limited environmental issues, particularly the management of salinity (MDBC, 2006). The overall focus of water resources management in Australia saw a shift from the ongoing development of new water resources and management of costs towards more sustainable use of scarce water resources. However, as options for supply were decreasing, demand for water was increasing—water use in Australia increased by 65 percent between 1983–84 and 1996–97. This provided some of the necessary preconditions for greater use of economic instruments in managing and allocating water. Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 29 The new Australian National Strategy for Ecologically Sustainable Development also focused on the use of economic measures to manage environmental issues, including through pricing and market mechanisms. Economic instruments, such as tradeable rights, were developed to manage water resources, and economic instruments already in place were monitored and assessed (COAG, 1992). This reflected the need to drive more efficient and higher-value water use by signalling the value of water through price mechanisms. Without a correct price signal to consumers to indicate the value of water, there was no incentive for efficient use, which was critically important to manage increasing demand and variable supply. Box 4: Roles of government and the market In Australia, the role of the government is to set the aggregate level of water extraction, in coordination with the community and experts. This includes the balance between total consumptive use and environmental use. Government also sets the amount of water that must be set aside and protected for critical human needs. This water is generally (apart from specific exceptions) not traded, although water markets are used for bulk urban water supply. Government sets the rules about extracting and applying water to land in different locations to address environmental issues such as land salinity and third-party impacts. Government is also responsible for setting the sustainable diversion limits and aggregate cap, which is the mechanism for defining the total volume of consumptive use and extraction from the Basin. The market facilitates the reallocation of water among different water uses and users, primarily within the agriculture sector. Water markets are not used by individual home users, or generally by urban water customers, including most industrial water users. This is partly because they often do not share the same sources of supply (with some notable exceptions); they also do not own water rights but rather have a right to receive services from service providers. The objectives of water markets include ensuring that water is used as efficiently as possible, and in a way that reflects its scarcity. This includes ensuring that it is used by its highest-value uses at times of greater scarcity, and used in lower-value uses when it is more abundant. 3.5.2 Dominant values informing water management The major reforms phase marked a further shift in the understanding of the value of water, from development objectives and management of costs towards ensuring that resources were used more efficiently and sustainably. The motivations for reform involved two dimensions: a transition from developmentalism to sustainability, and a transition from state control of resources to individualism (Crase, 2008). Microeconomic reform, such as in the National Competition Policy reforms, aimed to use competition to improve efficiency and community welfare. Reform responded to concerns about Australia’s economic performance and productivity compared with other countries in the Organisation for Economic Co-operation and Development. This led to water sector policies intended to improve the pricing of water storage and delivery services, institutional reform of government-owned water utilities (which had traditionally managed irrigation policy and assets), and further development of water markets to facilitate water moving to its highest-value use. In relation to trading in water allocation or entitlements, water should be used to maximise its contribution to national income and welfare within the social, physical and ecological constraints of catchments (NCC, 1998). Valuing water: The Australian perspective 30 Economic values of water under scarcity in the Murray-Darling Basin Environmental concerns were triggered by a number of high-profile events and investigations into the condition of Australia’s water resources and the environment. For example, from 1981 to 1983, the Murray River mouth closed for the first time since regulation of the river system began, leading to an increased awareness of environmental water requirements (MDBA, 2010). Since 1988, the governments of New South Wales, Victoria and South Australia, together with the Australian Government, have funded the construction of salt interception schemes to reduce salinity (MDBA, n.d.-d). In 1991, a major blue–green algal bloom along the length of the Darling River had major economic, social and environmental impacts. A 1995 audit of water use by the Murray-Darling Basin Ministerial Council outlined the decline in Basin river health and pointed to significant problems if the issues were not addressed effectively (MDBA, 2010). Reforms in the latter part of the major water reforms period were driven by the millennium drought, which was arguably the worst drought since federation in 1901, affecting rural and urban areas across much of Australia for the best part of a decade. The reduced water flows during this period drove an increased focus on the management of water quality. Australia’s commitment to its National Strategy for Ecologically Sustainable Development meant that it was required to consider increasing use of economic measures to deal with environmental problems, including externality pricing and tradeable entitlements. Governments committed to develop economic instruments, such as tradeable rights, in management of resources; monitor and assess economic instruments already in place; and establish pilot programs in natural resource sectors to test different market and regulatory mechanisms (COAG, 1992). This reflected the need to drive more efficient and higher-value water use by signalling the value of water—historically, with no price signal to indicate the marginal value of water, there was no incentive for efficient use, which was critically important with increasing demand and variable supply. Figure 16. Menindee Lakes in New South Wales (Source: NASA/JSC) Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 31 3.5.3 Policy instruments used The drive for economic reform and environmental sustainability led to policies aimed at: 1. cost-reflective pricing of water infrastructure and delivery services to increase efficiency 2. institutional reform of government-owned water utilities 3. further caps on use, and allocation of water for the environment 4. initial development of water markets to encourage efficiency and the movement of water to higher-value uses. Water-sharing agreements and caps on diversions Reforms were also introduced at a Basin-wide level. In 1995, a Basin-wide cap on water diversions was established. This was set at the 1993–94 levels of development (the average amount of water that would have been extracted in total in the 1993–94 season). Its objective was to limit any further development of water resources. The cap was given effect in part by states and territories agreeing not to issue any further licences to extract water from water sources inside the Basin. Before agreement on the cap, states could issue new licences to extract water for consumptive purposes. However, although the cap restrained further increases in surface water diversions, it did not restrain groundwater development (MDBC, 2008). In fact, the cap encouraged increased use of groundwater because it was unrestricted. The cap had another perverse outcome by activating ‘sleeper’ (unused) and ‘dozer’ (underused) licences, leading to increased water use. These reforms reflected a change in values, as well as a recognition of more fundamental scientific and physical realities, including ecological degradation—decreasing water quality, frequent toxic blue–green algal blooms and degraded natural environments. It also reflected the need to secure supply for existing extractive uses, because any further issuing of licences would erode the security of supply of existing licence holders. The decision to cap diversions in the Basin was a first step towards striking a balance between consumptive and in-stream uses. It was realised that any further increase in the extraction of water from the river system would erode the security of supply of existing diverters and cause a continued decline in the health of the river system. The cap was a reflection of some of the changing values placed on water resources. It was also a policy tool that would, in time, reveal the explicit values of water in different uses and drive more efficient water-use practices. It provided a clear scarcity constraint and (later in the reform process) the cap for the ‘cap-and-trade’ approach, a fundamental prerequisite of water markets. In the states, the following reforms occurred: a) The New South Wales Water Management Act 2000 introduced water-sharing plans in the 1990s and 2000s that established the rules for ‘sharing water between the environmental needs of the river or aquifer and water users, and also between different types of water use such as town supply, rural domestic supply, stock watering, industry and irrigation’ (NWC, 2011). b) During the 1990s, Victoria began converting bulk entitlements established under its Water Act 1958 to entitlements under the Water Act 1989, and established streamflow and groundwater management plans. The objectives of the bulk conversion included providing a basis for sharing limited water resources while protecting the entitlements of other users and protecting in-stream values (Productivity Commission, 2003). Valuing water: The Australian perspective 32 Economic values of water under scarcity in the Murray-Darling Basin c) In Queensland, the Water Act 2000 authorised the government (through the Department of Natural Resources and Mines) to plan allocations of water to environmental and other uses. This was to be achieved through a variety of planning instruments (water resource plans and resource operations plans) and licensing arrangements. d) In South Australia, the Water Resources Act 1997 set out the procedures that must be followed in developing a water allocation plan. Among other matters, water allocation plans must provide for allocation and use of water so that an equitable balance is achieved between social, economic and environmental needs for the water, and the rate of use of the water is sustainable. Water rights, allocations and entitlements In 1991, the Industry Commission carried out a broad inquiry into Australia’s water resources and wastewater disposal. The commission strongly recommended water allocation and entitlement transfers within all irrigation systems for surface water and groundwater (see Box 5), and within and between irrigation schemes (Bjornlund, 1999). The subsequent report for the Council of Australian Governments (COAG) by Sir Eric Neal picked up on these ideas, leading to the 1994 COAG Water Reform Framework. For water allocations and entitlements, the framework included an agreement that: a) water be used to maximise its contribution to national income and welfare within the social, physical and ecological constraints of catchments b) comprehensive systems of water allocations or entitlements be established, backed by the separation of water property rights from land title, and clear specification of ownership, volume, reliability, transferability and, if appropriate, quality c) cross-border trading be facilitated, and arrangements be consistent, if socially, physically and ecologically sustainable d) allocations for the environment be created, and the environment be established as a legitimate user of water e) environmental allocations be determined on the basis of the best scientific information available. More broadly, these changes were driven by a reimagining of the role of government and the public sector in resource management. Smaller government, empowering individuals to make decisions in their best interests and regulating only where necessary to avoid market failure were in vogue. As stated by Pigram (1999): A common element is willingness by public agencies to endorse alternative institutional arrangements to the previous regulatory (command-and-control) approach to water allocation and management. The end-result is a lessening in the degree of discretion left to water authorities and an increasing requirement to accommodate economic instruments and market-based approaches in water allocation and use. Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 33 Box 5: Groundwater In principle, the arrangements for managing, licensing and trading groundwater are similar to those for surface water. In practice, water trading is more complex, challenging and, in some cases, limited. Some groundwater resources are ‘fully allocated’, meaning that the licences on issue, and levels of extraction associated with these licences, would extract water at a rate similar to recharge of that aquifer. Extraction is monitored to ensure that aquifer levels are maintained—they cannot be drawn down faster than they are recharging. Other groundwater systems are not fully allocated— that is, if all licence holders drew their full entitlement, the aquifer level would not decline. Groundwater trade is well established in some systems, particularly where demand is high, the system is fully allocated, and there is a diversity of water use types. Trading rules are complex because of the complexity of aquifers, including connectivity of aquifers and proximity between bores (users). There are some examples of integrated or conjunctive surface water and groundwater management in the Basin, but they are the exception rather than the norm. Water trading The 1982–83 drought drove some of the recognition of the need for water trading in the Murray–Darling Basin. In addition, policy makers and academics were increasingly advocating for the introduction of market reforms around that time (AWRC, 1986). Some of the initial steps towards water trading in the southern Basin included the following: a) In South Australia, the restriction on new licences in 1969 was followed by the start of entitlement and allocation trading between private diverters in 1983. Trading within irrigation districts began in 1989, but trading between private diverters and those in irrigation districts was only allowed from 1995. b) In New South Wales, the restriction on new licences from 1977 was followed by trading in water allocations in 1983 and entitlement trading among private diverters in 1989. Intervalley allocation trading was enabled in 1991. c) In Victoria, state government reports recommended no new entitlements for irrigation from the late 1970s and early 1980s. Trading in allocations was possible from 1987 but gained more momentum following the introduction of new legislation in 1989. Intravalley entitlement trading was allowed in 1991, and intervalley entitlement trading began in 1994 (DNRE, 2001; Martin, 2005; Pigram et al., 1992). States adopted different legislative approaches to enable trading, which were consistent with the national framework (e.g. COAG, 1994) so that they could access the national competition payments on offer from the Australian Government. In Victoria, the introduction of trading required legislative reform, whereas, in South Australia, trading was initially enabled by the responsible minister using discretionary powers under existing legislation. It was not until 1994 that tradeable water entitlements were given clear legislative backing. In New South Wales, existing legislation was initially amended and then revised further as part of later reforms (Pigram et al., 1992). Previously, the temporary trading of water allocation volumes was possible only via a seven-step bureaucratic process. This shift led to a significant increase in the volume of allocation trades from 1994 (Figure 17). Valuing water: The Australian perspective 34 Economic values of water under scarcity in the Murray-Darling Basin kets: FIGURE 1 Annual volume of water trade in the southern MDB, 1983–84 to 2016–17 how , ets? , arkets in , e 1980s it , surface , over ), 2011). nd GL de system y-Darling re of the Allocation trade Entitlement trade esource Source: 1983–84 to 2009–10 taken from NWC (2011). 2010–11 to 2016–17 allocation data e these Figure 17. Volumes of the provided by allocation and entitlement Murray–Darling in the southern trades entitlement Basin Authority, Murray-Darling data produced Basin, internally 1983–84 to 2009–10 by (Source: ABARES. Goesch Allocation et al., 2019) data excludes environmental transfers. Entitlement data includes entitlements transferred to the Australian Government as part of the Murray-Darling Funding for infrastructure Basin Plan and services ia: The declining international competitiveness of Australia during this phase drove a focus on encouraging ongoing domestic competition in the provision of goods and services. This led to a further change in policy to Where does water trading occur? ce each reduce government intervention in productive activities, including those that used water as an input. allocated Irrigation, which until then had Australia’s been most largely owned active water subsidised by andmarkets arethe state, in the came under greater scrutiny. Serious questions were raised about the efficacy of public subsidies for water infrastructure MDB, accounting essed as a and state interference 97 per groups for particular designed to favour cent of all allocation trade ofagriculturalists. titlements For irrigation(Figure 2) and 77 per cent of all entitlement trade water, state governments took slightly different approaches, informed by the preferences of in 2016–17 ess rights local irrigators (ABARES, and local communities. Some2018). The of the smaller vast majority irrigation of to be privatised and districts started ary in regulated areas this trade is ownership—these shifted to cooperative-based surface managed water in the local supply and sMDB. delivery networks, and some diversion structures. Irrigator members owned the assets and were solely responsible for managing Most them, delivering Australian services water and recovering costs markets from members,are highly subject localised, to state government regulation or involving trade between users within a single river licensing requirements. wer Some service providers wereA catchment. key exception corporatised. is the Boards were createdsMDBto managewhere the these to a and transition lps high more corporate degree style of hydrological of management that was highlyconnectivity allowsbut removed from government, waterwith government ntitlement remaining the sole shareholder, so the entities and assets remained in public ownership. to be traded between river systems and across state ment. boundaries The COAG Water (Figure Reform Framework 3). resulted from two policy drivers: the push for greater fiscal of 1994 uced the accountability in irrigation, and environmental concerns. The framework included urban water use, and rigators had several key elements relevant to the management of infrastructure and services. First, new pricing practices were introduced aimed at recovering costs, being consumption based, and removing (or at from least making How does overt) cross-subsidies. water Second, trading regulation, occur? water service delivery and resource management nected functions were separated. Two-part tariffs for urban water users were also adopted, where practicable 2012). trade involves the voluntary transfer of water Water (Crase et al., rights. The main options for accessing water markets in are through water brokers and electronic exchanges. city have There are also some private transactions. tions and Buyers and sellers are free to trade water subject Valuing water: The to Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 35 water trading rules established and enforced by state Cost-reflective pricing in Australia implemented during this phase required that all operating and capital expenditure associated with water delivery be recovered from customers. Different states apply slightly different approaches, but the overall framework and outcomes are similar. After costs are determined, the process involves determining how these costs should be allocated between customers or customer groups. Customer groups can include irrigators/farmers, town residents, ‘on river’ diverters and environmental water holders. For the most part, costs are captured by utilities based on the services being provided and the geographic location. Costs include return on capital and depreciation, as well as operating costs. Differences in the costs to serve different locations can result in different tariff levels being applied to these locations. Costs within irrigation districts are generally all, or mostly, allocated to irrigators/farmers within the district. Some districts also provide town water supply services, which are paid for by domestic supply customers (town residents, not irrigators). Where shared infrastructure provides other services, such as flood mitigation and hydroelectricity, costs are apportioned to the beneficiaries. This is based on the proportion of benefits received from the infrastructure, so irrigators usually only pay a portion of costs associated with headworks storages. In some locations, irrigators also pay additional levies or tariffs for other purposes, including environmental amelioration, or costs incurred by government for general water policy and management of irrigation. Figure 18. An industrial sprinkler on a farm in rural New South Wales (Source: fieldofvision / Adobe Stock) Valuing water: The Australian perspective 36 Economic values of water under scarcity in the Murray-Darling Basin Other policy instruments Murray-Darling Basin Agreement The growing awareness of the extent of environmental problems in the Basin and the need for an integrated approach to tackling them led to moves to revamp the interjurisdictional arrangements for water management. In 1992, a new Murray-Darling Basin Agreement was signed by the Australian, New South Wales, Victorian and South Australian governments (Queensland and the Australian Capital Territory later formalised their participation). The new agreement replaced the River Murray Waters Agreement, which had been in place since 1915. The stated purpose of new the agreement was to ‘promote and coordinate effective planning and management for the equitable, efficient and sustainable use of the water, land and other environmental resources of the Murray-Darling Basin’. This represented a significant extension in roles beyond simply sharing water resources for consumptive purposes, to encompass water resource management and environmental issues, such as land degradation and salinity. However, the agreement was largely restricted to resolving issues with the Murray River’s salinity and sharing of surface water; it did not establish an integrated management plan for surface water and groundwater resources with Basin-wide sustainability objectives (Martin, 2005). The Murray-Darling Basin Agreement established several new institutions, including the Murray–Darling Basin Ministerial Council and the Murray-Darling Basin Community Advisory Committee. The Murray-Darling Basin Commission was tasked with advising on all aspects of water, land and other environmental issues throughout the Basin, as well as managing the allocation and delivery of water to the states. Arrangements for promoting interstate water trading were included in a schedule in the agreement. As discussed below, the commission, in conjunction with the states, played a significant role in facilitating interstate water trading. Groundwater management The main focus of the 1994 COAG Water Reform Framework was surface water. However, it specifically tasked the Agriculture and Resource Management Council of Australia and New Zealand (ARMCANZ) with reporting on management arrangements for groundwater and recognised that groundwater basins had environmental requirements. Even the limited consideration of groundwater in the agreement was significant for groundwater governance. It was the first time the Australian Government had directly intervened in a resource management issue for which the states had direct and primary responsibility. The agreement also established a regular reporting mechanism for states to report on their performance in implementing agreed reform measures (Nelson et al., 2020). ARMCANZ developed a national policy paper in 1996: Allocation and use of groundwater: A national framework for improved groundwater management in Australia—policy position paper for advice to states and territories. This dealt with the concept of ‘sustainable yield’ in the groundwater context and the idea of groundwater trading. Importantly, it also explicitly supported, for the first time at the national level, the need to protect the ecological values of groundwater, in addition to sustainability concerns that centred on managing groundwater volumes for consumptive human uses (Nelson et al., 2020). Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 37 3.5.4 Outcomes Although these first steps towards implementing a private market for water were significant milestones, trading was still very restricted and localised (e.g. there was no formal mechanism for interstate trading), was subject to a number of anomalies, and involved fairly cumbersome administrative and approvals processes. At the end of the period, entitlement trading out of public irrigation districts was still extremely difficult, if not impossible. In essence, there were separate local markets and ineffective caps in cross-border systems. Some initial concerns and uncertainty about water trading underpinned the gradual and incremental approach to trading, including restrictions or constraints on trading, particularly entitlement trades out of irrigation districts. In 1994, when interdistrict trading was made possible, the Victorian Government imposed a 2 percent limit on entitlement that could be traded out of an irrigation district in any one season (NWC, 2011). The justification was to control the initial rate of structural change in an area and impacts on the community, including providing reassurance that regional areas would not rapidly collapse (DNRE, 2001). Take-up of trade was initially modest, even after some of the major administrative and legislative barriers were overcome; this may have reflected a lack of understanding and experience in water trading, and the relatively high availability of water in the late 1980s and early 1990s (NWC, 2011). In the first 7 years of allocation trading, less than 1 percent of total water use was facilitated through trade (DNRE, 2001). Allocation trading was tested in 1994–95 when water availability was much lower than in previous years, and trading activity increased dramatically (NWC, 2011). One perverse effect of the initial opening up of water trading was the activation of so-called ‘sleeper’ and ‘dozer’ licences. These were licences that conferred rights to take water but were not being used, or were used only intermittently. Once trading was permitted, holders of such licences realised that they had an asset that was of value to those who needed additional water. Initially, therefore, water for new developments was largely sourced from unused (sleeper) or underused (dozer) licences rather than from existing uses, leading to an increase in aggregate water use. These factors all suggested the need for a more comprehensive and coordinated approach, particularly in the Basin, for water trading to fulfil its potential role in allocating an increasingly scarce resource to its highest-value uses. By the end of the major water reforms phase, the severe impacts of the millennium drought and the lessons from the reforms undertaken in this phase were key drivers for acceleration of reforms in the following phase. Valuing water: The Australian perspective 38 Economic values of water under scarcity in the Murray-Darling Basin Figure 19. Flooded wetland in Australia (Source: Luke / Adobe Stock) Box 6: Summary of the ‘major reforms’ phase How water was valued The value of environmental water was more fully recognised and accepted across government and communities, although this was not universal. The value of nonconsumptive uses of water, such as recreation and amenity, were beginning to be recognised. Consumptive use of water was still highly valued and dominant, but with increasing recognition of the need for, and benefits of, more efficient water-use practices in consumptive sectors. Water management objectives Objectives started to move towards maximising the productivity of water use and minimising environmental degradation. There was an increasing focus on moving consumption towards high-value use, and reducing conflict between environmental use, urban use and productive use. Policy instruments used There was an increase in the complexity and range of instruments used, including new national institutional arrangements and an expansion of water trading. Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 39 Basin-wide caps on total water consumption were implemented, and water was allocated for environmental use. Privatising or corporatising entities enabled infrastructure investment and service delivery costs to be reflected in pricing, thereby increasing cost recovery and eventually leading to full cost recovery mechanisms. Investment was notionally based on recovery of costs and consumption-based pricing principles. Inefficient cross-subsidies were gradually removed. Outcomes Progressive improvement in sustainable water management supported the economic value of water use, while enabling some early but limited success in reducing environmental decline. Water trading was very localised, with essentially separate local markets and ineffective caps in cross-border systems. With the Basin-wide cap based on prior allocation levels, the total consumptive use of water in the Basin was still above sustainable levels. Initially, water for new developments was largely sourced from unused or underused licences, rather than from existing uses, leading to an increase in aggregate water use. 3.6 ‘Acceleration’ phase—early 2000s to today The acceleration phase covers the period from the early 2000s onwards. The millennium drought (1997–2009) was a key driver for changing the perceived value of water, leading to an increased understanding of the multiple values of water under scarcity (Figure 20). Figure 20. Values of water during the acceleration phase (Source: Aither) Valuing water: The Australian perspective 40 Economic values of water under scarcity in the Murray-Darling Basin 3.6.1 Basic characteristics Between 1997 and 2009, southeastern Australia experienced unprecedented dry conditions during the millennium drought. Despite efforts to adapt to these conditions, water carting was required to maintain essential water supplies for several towns and rural supply systems, major infrastructure projects were brought forward, irrigation allocations were the lowest on record, and water shortages were declared. The worst impacts of the drought were borne by the environment rather than consumptive users. This was because environmental flows were sourced from unregulated flows or spills from storage, which ceased during the drought, rather than secure entitlements that received a share of the limited water available (DELWP, 2016). Figure 21. Shrinking waterhole in canola fields (Source: Leah-Anne Thompson / Adobe Stock) As a result of the ongoing impacts of the drought, and the perceived limitations of previous efforts from the states to reform overallocation, the Australian Government proposed an increased federal role in the management of the Murray-Darling Basin. The Australian Government had previously focused on coordination and facilitation of water reform. During the acceleration phase, a shift towards more direct federal intervention and management occurred—although this role remains focused on transboundary and interjurisdictional matters. The Australian Government would also provide funding to improve water management and address adjustment issues. This reflected both a changing political climate and a belief in the benefits of Basin-wide management. The Living Murray Program was established in 2002 to improve the health of six designated ‘icon’ sites that included 37,000 hectares of forests, wetlands and lakes along the Murray River. The icon sites were selected because of their high ecological and economic value, as well as their cultural and heritage significance to Traditional Owners. All icon sites are regionally, nationally and internationally significant, and are recognised under international agreements such as the Ramsar Convention on Wetlands. Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 41 In 2003, the Murray-Darling Basin Ministerial Council announced the ‘First Step Decision’ to recover 500 gigalitres (GL) of water for the environment for the six icon sites along the Murray River and to construct infrastructure to increase the efficiency of delivery of water for the environment (DEW, n.d.) In 2004, the National Water Initiative was implemented. This built on the 1994 COAG framework and reflected concerns about progress in implementing the 1994 agenda. The initiative was more specific and comprehensive, and included a range of new commitments that were to be implemented by the states, including in relation to water planning, water regulation and water markets. It proposed clear and nationally consistent characteristics for secure water access entitlements to improve the security and commercial certainty of entitlements by clearly specifying their statutory nature (NWC, 2011). Actions in relation to markets included reinforcing the need for unbundling land and water rights (which had still not been completed for many important water systems), and actions relating to trade, including removal of artificial barriers to trade. Under the initiative, jurisdictions agreed that water access entitlements and planning frameworks would recognise the needs of Indigenous Australians in relation to water access and management. Commitments were made to include Indigenous representatives in water planning, wherever possible, and incorporate Indigenous social, spiritual and customary objectives—and strategies for achieving them—in water plans, wherever they can be developed. Provision was also made to consider the possible existence of native title rights to water in water planning processes, and to account for water allocated to native title holders for traditional cultural purposes (Productivity Commission, 2017b). In early 2007, the National Plan for Water Security was released by the Australian Government. This continued the direction of reform set out in the National Water Initiative. It also included more than $10 billion of new Australian Government funding to address overallocation in rural Australia through investment in irrigation infrastructure and buying back permanent entitlements for the environment (Howard, 2007). After a change of government later in 2007, the plan evolved into the Water for the Future program, with a budget of more than $13 billion. The Water for the Future program included some initiatives to increase urban water security; however, it also had a significant focus on the Murray-Darling Basin. It provided support to farmers and communities to plan for a future with reduced water availability, as well as encouraging sustainability, irrigation productivity, and improved river and wetland health. Water for the Future has three main elements (NWC, 2011): 1. the Murray-Darling Basin Plan, implemented by the Murray-Darling Basin Authority (MDBA) to provide for the integrated management of water resources and to set scientifically based sustainable diversion limits 2. buybacks of water entitlements for the environment from irrigators and their assignment to the Commonwealth Environmental Water Holder (or state equivalents) 3. extensive investment in more productive irrigation systems. These major changes to water management in the Basin were given effect in interstate agreements and the Commonwealth Water Act 2007. The Act built on the earlier reforms and incorporated the overarching objectives of the National Water Initiative. It also provided the legislative basis for the Basin Plan, which is now effectively a transboundary water planning and management law for the Basin. The Basin Plan was established by the Australian Parliament in 2012 to recover 2,750 GL of water for the environment from an annual consumptive use of 13,623 GL, or implement projects that deliver ‘equivalent’ outcomes. However, this volume did not closely reflect the MDBA’s best estimate that a total reduction in diversions of 3,856 GL was required to achieve environmental water requirements Valuing water: The Australian perspective 42 Economic values of water under scarcity in the Murray-Darling Basin at a level of ‘high uncertainty’. To reach a level of ‘low uncertainty’, a total reduction in diversions of 6,983 GL was required. The Basin Plan also allowed for significant increases in groundwater extractions, and did not set the level of recovery to account for the impact of climate change, particularly in the southern Basin. The acceleration phase was largely characterised by the negative economic, social and environmental impacts of the millennium drought, and the substantial response from governments, including the reform commitments and investments. The fact that some of these investments were not always seriously scrutinised for their economic value represents another shift away from the stricter economic ethos of the earlier phases. The significant increase in water scarcity exacerbated and highlighted the results of orage Water previous use water management activities. These activities continued to allow overallocation of water and rwon- did not consider Surface water or useaccount the values forMDB across the of environmental grew with and cultural from water. public storage capacity the mid-1950s to the mid- arm storage 1990s. In 1995 the Murray-Darling Basin Ministerial Council imposed a ‘Cap’ on surface water diversions. support 3.6.2 Dominant values informing water management New South Wales and Victoria represent over 70 percent of total surface water use. The down-turn r hillside models millennium Thein drought diversions during recentawareness theraised of major drought is very issues evident regarding – especially for water use and New South availability Wales. The recentfor are not community the drought is thein Murray-Darling thetime first that a limitedBasin supply hasother and caused parts of Australia. a major reduction By the summer in total of 2006–07, use. Details of water the Murray River use across the experienced 18 regions under its 10th consecutive the historical month and likely of record future climates areinflow. low In the presented 10-month later period in this report. from June 2006 to March 2007, the inflow was 770 GL, which was less than 60 percent of the previous minimum of 1,350 GL in 1982–83 (MDBC, 2007). This can be clearly seen in drastic declines in total availability surface water Growth inuse totalin and the Basin from 2000 jurisdictional onwards surface water (Figure 22). use in the MDB (five-year moving averages) 14,000 Basin 12,000 New South Wales Victoria South Australia 5-year rolling average use (GL/y) 10,000 Queensland Australian Capital Territory 8,000 6,000 4,000 2,000 0 2000 2010 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Source: Data from MDBC > Sunset Figure 22. Growth in total and jurisdictional surface water use in the over Tragowel Murray-Darling Swamp Basin (5-year moving average) (Source: CSIRO, 2008) near Echuca, Loddon-Avoca region, Vic (CSIRO) Extremely low flows to the river mouth and Coorong wetlands over several years, and the declining health of floodplains and wetlands (such as river red gum forests) in the Murray River system were a major source of concern (CSIRO, 2008). This tangible evidence of ongoing environmental decline and the potential risk of irreversible damage drove a major increase in community concerns about the environmental sustainability of the Basin. A brief discussion of management under drought is provided in Box 3.4. Increasing abstraction of groundwater also occurred in response to the drought, with some negative environmental impacts and increasing awareness of the importance of groundwater resources. This led to a recognition that groundwater needed to be managed based on frameworks and approaches consistent with surface water management. October 2008 17 Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 43 As well as severe reductions in environmental flows, many urban centres in the Basin suffered severe water restrictions as the drought affected runoff into water storages used to supply urban populations. The cost-reflective pricing used to set urban water tariffs meant that there was limited ability to increase prices as a mechanism to reduce demand. Governments therefore had to enact comprehensive restrictions on use to protect limited supplies. In 2005, around 80 percent of city dwellers in Australia were subject to long-term water-use restrictions (Productivity Commission, 2008). This did not accurately reflect urban water users’ willingness to pay for water consumption and so was not an effective method of revealing value. It also highlighted the importance of security of supply in protecting against drought, which had not been a key objective of Australian water management since the 1960s and 1970s. Box 7: Management under drought Australia’s overall policy and management instruments do not change in response to drought. However, rules embedded in them may trigger certain arrangements for water allocation and use in exceptional circumstances—for example, to prioritise meeting critical human needs for water over other uses, such as agriculture, under truly exceptional conditions. Water plans have been updated and modified over time to better clarify how these arrangements work. Climate change (or increased climate variability or lower rainfall) means that ‘exceptional circumstances’ may occur more often. In principle, water-sharing plans should not need such arrangements—they reflect the conditions we expect. For the most part, for agricultural water use, being in a drought simply means that allocations to water entitlements (licences) are reduced, in proportion with the reduced rainfalls and inflows. Water trade then allows the water that is available to move between different uses. Allocation prices respond to these changes in supply and demand. During a drought, water prices rise, reflecting the increased scarcity of water. Annual croppers can choose not to grow in years of high scarcity because they will receive greater value from selling what water they have access to. In contrast, horticulturalists need to maintain the health of their longer-lived crops so that they can continue to be profitable in future years, so they are willing to pay a high price to maintain their plantings. For urban water, management under drought often requires investment in alternative supplies that may not be cost-effective under conditions other than drought. For example, major coastal cities have invested in desalination plants to ensure security of supply in major droughts. Most of this investment occurred during, or immediately following, the millennium drought, which was well outside the scope of usual drought experience and planning. Most desalination plants have been used only sporadically since the millennium drought. Valuing water: The Australian perspective 44 Economic values of water under scarcity in the Murray-Darling Basin The drought, therefore, highlighted the underlying problems in water management, and the ongoing competing interests of environmental, urban, cultural and agricultural uses. Water trade was highly effective in reducing the economic cost of the millennium drought (for the agriculture sector, specifically), with the gross value of irrigated agricultural production in the Murray-Darling Basin falling by only around 14 percent between 2005–06 and 2007–08, while water use fell by 57 percent (Goesch et al., 2019). However, there were no corresponding mechanisms to account for value in environmental and urban water use. Before this phase, the expectation for water utilities was that they would provide clean, reliable and affordable water and wastewater services. However, the millennium drought highlighted the importance of water and water environments to both urban and rural communities. Local lakes and streams dried up (particularly in regional communities), and urban communities had limited water use due to restrictions. As a result, there has been a greater appreciation of the contribution that water management and water environments can make to amenity, livability, recreation and regional tourism (Productivity Commission, 2017b). During this period, there has been increasing recognition of the need for water for Indigenous cultural and economic uses. For example, the Basin Plan stipulates that Indigenous values and uses are to be considered during implementation of the plan. There is now a focus on increasing the involvement of First Nations people in water planning and management activities, such as using water for the environment, and developing water resource plans. However, according to the 2020 Basin Plan evaluation, time is still needed to achieve the outcomes First Nations people are seeking under the Basin Plan, and to further develop meaningful and beneficial involvement of First Nations people in implementation. Specific findings of the 2020 Basin Plan Evaluation included the following: 1. It is not yet possible to evaluate the effectiveness of water resource plans in contributing to outcomes for First Nations people in the Basin. Most water resource plans have only been in place for a short time, and a number of plans are yet to be accredited. 2. Cultural flows are still to be fully developed. Although Basin ecosystems are generally improving, long-term environmental benefits and their outcomes will not be seen for a considerable time. 3. Effective monitoring and evaluation frameworks that attribute First Nations people’s social and economic outcomes to the implementation of the Basin Plan are an important area for future development. This will ensure that the long-term impacts from the Basin Plan are understood (MDBA, 2020). 3.6.3 Policy instruments used During the acceleration phase, the negative environmental outcomes of the millennium drought have driven several changes in the use of policy instruments in the Basin. As well as the increased Australian Government role, there has been further reform of water entitlement arrangements and expansion of the use of water markets, including purchase of water for the environment through buybacks by the Australian Government. Consumptive use has been capped based on ‘sustainable diversion limits’ (SDLs), and there has been investment in irrigation efficiency, and monitoring and compliance. Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 45 Figure 23. Irrigated agricultural crops (Source: USGS/NASA Landsat) Water-sharing agreements and caps on diversions The evidence of ongoing environmental issues during the millennium drought provided a greater incentive to cap extraction at sustainable levels. Historical overallocation of irrigation licences was identified as a major factor leading to flow-related environmental problems (CSIRO, 2008). The permanent cap on diversions implemented in 1997 did not have a specific empirical basis or underlying rationale other than limiting further development. It was not a ‘bottom up’ number based on the needs of the environment or other users—rather, it was a ‘line in the sand’. Implicit in it, however, was a recognition that licences that had been issued up to that point should be honoured, so it ‘valued’ those uses. The cap was set to satisfy the needs of existing levels of development (i.e. extractions) but not exceed them. This did not mean that prior levels of development are or were sustainable. The extent of overallocation of water and problems associated with the prior levels of development meant that this was already an unsustainable level of extraction. The National Water Initiative in 2004 formalised the need for further reforms, recognising the ongoing concerns of many water management practitioners and scientists, economists and others. It committed governments to addressing overallocation in the Murray-Darling Basin and other water systems. This reflected the value placed on ensuring ongoing sustainable extraction for consumptive use, as well as a healthy and sustainable environment. However, it was recognised that changes to the amount of consumptive use would be required to deliver a healthy and sustainable environment. The Basin Plan, which was formulated following the 2004 National Water Initiative, and eventually legislated at the national level in 2007, required the development and establishment of SDLs. SDLs act as a cap on diversions but are somewhat more sophisticated than the previous caps; they are set both within valleys and on a Basin scale. They were established using a scientific assessment of the minimum requirements to meet the needs of the environment. Valuing water: The Australian perspective 46 Economic values of water under scarcity in the Murray-Darling Basin This reflected a form of ‘bottom up’ assessment to determine the minimum amount of water that should be protected for the environment. Inherent in this was a valuation of the environment— that is, environmental degradation is not acceptable to society, and healthy water-dependent ecosystems are valued. Significant bodies of scientific work were completed to identify high-priority water-dependent environmental sites and their watering requirements (e.g. in-river requirements, wetlands, surface water– and groundwater-dependent ecosystems). A range of high-priority sites and their watering requirements were defined, including outflows at the river mouth. The MDBA determined SDLs to meet the requirements under the Basin Plan. The approach reflected a proposed ‘total environmentally sustainable level of take’ (ESLT) for surface water of the Murray-Darling Basin. Finalisation of the ESLT was independent of government, and reflected debate and compromise. The number eventually proposed was not a pure representation of environmental need based on science and has been debated since. A mechanism in the Basin Plan allows the SDLs to be increased (i.e. to allocate less water to the environment and increase the amount for consumptive use), subject to certain caveats. This remains a work in progress (Walker, 2019). The ESLT number (2,750 GL of extraction per year) quantified the level of overallocation—that is, the difference between what the environment would be left with on average under the previous cap on diversions (first established in 1994) and what it should get under the SDLs. The approach to reallocating this water to the environment used a range of instruments, discussed below. Water rights, allocations and entitlements The reforms during the acceleration phase and the previous phase emphasised converting entitlements into tradeable and bankable assets. Key reforms included (NWC, 2011): a) clear and secure specification of entitlements b) further enabling of entitlement trading c) interstate entitlement and allocation trading d) specification of risk assignment provisions e) specification of entitlements for the environment. The National Water Initiative, in particular, included a commitment to implementing a robust framework for water access entitlements to encourage investment and maximise the economic value created from water use, while ensuring that sufficient water is available to support environmental values. It proposed a nationally compatible system of water access entitlements, with actions including: a) defining entitlements as perpetual or open-ended shares of the consumptive pool of a specified water resource (as determined by the relevant water plan) b) clear assignment of risks of reductions in future water availability c) returning overallocated systems to sustainable allocation levels. Throughout this period, the states took steps to define their water access entitlements as clear, secure rights supported by legislation, with clear rules that determine the reliability of the entitlement. To fully establish tradeable entitlements during this phase, the right to access water needed to be separated from the ownership of land. Entitlements also needed to be specified in the form of a right to a share of the pool available for consumption. In addition, entitlements needed to be further unbundled into various elements to allow them to be traded separately. Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 47 As a result, water rights in the Basin comprise several key components (NWC 2011): a) water access entitlement—a long-term interest in (a share of) a consumptive pool, as defined in a water plan b) allocation—a unit of opportunity (usually a volume of water) distributed periodically c) delivery—the right to have an allocation of water delivered to a certain off-take location or to obtain water from a particular location d) use—permission to use an allocation, with prespecified use conditions and obligations to third parties. Previously, these components were combined within each licence, with delivery and use conditions attached to the water access entitlement. This created a number of problems in water access entitlement trading and slowed down approvals of trades. Unbundling of entitlements was therefore seen as a key mechanism to facilitate increased water trading. Water trading Interstate trading To help achieve the goal of moving water to its highest-value use, the 1994 COAG framework specified that, where cross-border trading is possible, ‘the trading arrangements be consistent and facilitate cross-border sales where this is socially, physically and ecologically sustainable’. The states and the Murray-Darling Basin Commission began a process to incrementally enable interstate allocation and entitlement trading. In general, there were fewer concerns about interstate allocation trading, as it was seen to be temporary and reversible, but interstate entitlement trading required the development of a range of complementary regulatory and administrative tools (e.g. to address salinity issues). In 1998, the Interstate Entitlement Trading Pilot Project started in a geographically confined area (in the Sunraysia and Riverland areas close to the intersection of the South Australian, Victorian and New South Wales borders) and involved only private diverters. The project enabled both entitlement and allocation trading. The pilot was gradually expanded. The first extension, in May 1999, included high-security water entitlements within the pumped irrigation districts below Nyah (in northern Victoria). By 2003, the Murray-Darling Basin Ministerial Council agreed to expand the scope of the project to the entire southern connected Basin. These reforms significantly enhanced the tradeability of water entitlements and allocations in the Basin. This can be seen in the increasing volumes of intervalley allocation trades occurring from 2005 (Figure 24). The role of the Murray-Darling Basin Commission in facilitating the interstate trading pilot was an important factor in establishing interstate trading in Australia. The commission convened an interstate trade working group, whose members were from the state departments and had technical skills in water management, hydrology and water policy. The resulting ideas were ‘road tested’ on water system operators, who would be responsible for implementing the arrangements. The commission had the modelling tools and expertise to audit and oversee trading arrangements, and also undertook annual reporting and review of the pilot. The resulting agreed interstate trading rules were established as schedules to the Murray-Darling Basin Agreement, meaning that they could be adapted and refined much more flexibly than if they had been directly included as part of the agreement (which would mean that changes would have to be passed by all relevant state parliaments). Valuing water: The Australian perspective 48 Economic values of water under scarcity in the Murray-Darling Basin 0 1998-99 1999-00 2000-01 2001-02 2002-03 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2003-04 Net intervalley allocation trade (inwards ML) 250,000 SA Murray irrigators Net intervalley allocation trade (inwards ML) Vic Murray irrigators 200,000 150,000 100,000 50,000 0 -50,000 7 -100,000 1998-99 1999-00 2000-01 2001-02 2002-03 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2003-04 ML = megalitre Note: South Australian figures exclude water purchases for urban water use. Figure 24. Net intervalley allocation trade (Source: National Water Commission, 2011) Sources: South Australian, Victorian and New South Wales governments; MDBA Water audit monitoring reports. Changes in water markets This period was also marked by fundamental user-driven changes in the way that water markets 111 were used. These changes were driven by the nature of the demands for water, the characteristics of market participants and the trading strategies that market participants adopted, which became more sophisticated. Some specific changes included (NWC, 2011) the following: • A large increase in the participation of urban water authorities in the water market during the drought. For example, SA Water was a significant purchaser of water allocations to boost supply security in Adelaide. In Victoria, Coliban Water and Central Highlands Water bought a mix of entitlements and allocations to address critical supply shortfalls in Bendigo and Ballarat. • Investment in on-farm water-use efficiency and the downstream movement of water. This created concerns about the extent of trade-related transmission losses. • Increasing sophistication of water users in their mix of production, water-use and water trading decisions. For example, there has been a trend towards irrigators selling all or most of their entitlements and purchasing all their seasonal water requirements in the water allocation market. In addition, the development and refinement of carryover policies, which allow entitlement holders to hold water in storage from one season to the next, have changed market dynamics and focused attention on storage access rights. Corporate agribusinesses, and other Australian and international investors have also increasingly entered the water market. The development of environmental watering strategies and the potential for environmental water holders to become permanent participants in the market created a number of challenges for water markets. Appropriate institutional arrangements must be in place, and environmental entitlement holders are likely to place pressure on storage and delivery rights, and the operation of river systems. For example, delivery of additional environmental water might create third-party impacts (such as flooding) on adjacent landholders and entitlement holders. Some of the potential applications of water markets are described in Box 8. Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 49 Box 8: Potential application of markets Water markets can be applied in different situations, as in the following examples. Trade within agriculture: A water market can be established through a ‘cap-and-trade’ model. This allows water to easily move between different crop types in response to climate or market factors and incentivises more efficient water use. Trade between agriculture and other sectors: Markets can be established that allow trade between agriculture and other water sectors. For example, industry can potentially buy water from agricultural water users (their rights, or savings they generate from efficiencies). Town water users can do the same. Trade between agriculture and government (buyback): Governments can buy water on behalf of ‘public good’ uses, such as the environment. For example, they could enter the market to purchase agricultural water from farmers and direct that water to environmental assets. Trade within or between different water qualities: Markets can potentially be created to allow trade within or between different water qualities, to direct lower- or higher-quality water to the most appropriate uses Maråkets for unallocated water: Where water is not fully allocated—such as a water system where supply exceeds demand—it can be auctioned to ensure that it is directed to higher-value and more efficient uses. Funding for infrastructure and services During this phase, there have been further reforms in water pricing (tariffs) to fully embed the user-pays principles and to ensure economically efficient use. There has also been renewed government funding for irrigation infrastructure, with the aim of increasing irrigation efficiency rather than increasing abstractions (as had been the case for previous government investments). Tariffs In 2004, the National Water Initiative specified the objectives and desired outcomes for water pricing (tariffs). These objectives included: • to promote the economically efficient and sustainable use of water resources, water infrastructure assets, and government resources for the management of water resources • to ensure sufficient revenue streams to allow efficient delivery of the required services • to facilitate the efficient functioning of water markets (including interjurisdictional water markets, and in both rural and urban settings) • to give effect to user-pays principles and achieve pricing transparency for water storage and delivery in irrigation systems • to avoid perverse or unintended pricing outcomes. Valuing water: The Australian perspective 50 Economic values of water under scarcity in the Murray-Darling Basin For pricing for water storage and delivery in rural and regional areas, states and territories agreed that these objectives would be achieved by • implementing consumption-based pricing • achieving consistency in pricing policies that are applied across sectors and jurisdictions where entitlements can be traded • achieve full cost recovery for water services to ensure business viability, and avoid monopoly rents through continued movement towards upper-bound pricing, where practical. The National Water Initiative also required that independent bodies set or review prices, or price-setting processes, for water storage and delivery on a case-by-case basis, consistent with the outcomes and objectives that relate to water pricing. Irrigation investments The Water for the Future program includes the $5.8 billion Sustainable Rural Water Use and Infrastructure Program. The stated aims of this program are to improve the efficiency and productivity of rural water use and management, to deliver substantial and lasting water returns to the environment, and to help secure a long-term sustainable future for irrigated agriculture through value-for-money projects (DSEWPaC, 2011). The program provided funding for on-farm and off-farm irrigation infrastructure, and assistance for local authorities to plan strategically for adaptation to climate change. Other policy instruments Environmental buybacks The other main policy instrument implemented in this phase was the Australian Government’s program to buy back water for the environment. This was significant for water markets because buybacks provided the tool that enabled environmental water to be recovered while compensating irrigators for water sold at rates established in the market. The buyback program was a $3.1 billion commitment over 10 years to buy water entitlements in the Murray-Darling Basin for environmental purposes. This was a quantum shift, in which government purchases went from a small part of the relatively small Living Murray First Step program to a large part of a larger program. Entitlements purchased by the Australian Government are managed by the Commonwealth Environmental Water Holder or the relevant state environmental water holders. Water monitoring During this phase, there has been significant investment in improved water accounting and knowledge generation. Governments have invested substantially in water accounting systems, including state water registers, water monitoring, water metering and the National Water Account. These investments are crucial for the integrity of water entitlement frameworks and water markets. They have provided credible and reliable information, transparent reporting and compliance regimes, and access to information to assist in water management decisions. There has also been substantial investment in research and capacity building for evidence-based water planning and management decisions. These investments have led to advances in technology, innovation and knowledge of water resources that were critical to Australia’s response to the millennium drought (Productivity Commission, 2017b). Groundwater management Although the National Water Initiative does not often refer to groundwater specifically, it sets out reform and management principles that are intended to apply equally to surface water and groundwater. Its most fundamental governance reform was to commit states to a system of legally binding water plans. Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 51 Historically, the allocation of groundwater in the Basin depended on a case-by-case assessment of individual applications to take water. With the development of legally binding water plans, groundwater withdrawals are now consistently licensed and managed in areas subject to relatively high levels of demand. This provides a more strategic, holistic and proactive approach to water management. The approach also reduces overallocation and controls impacts by imposing volumetric caps on aggregate licensed withdrawals. Water plans also offer an increased opportunity to manage groundwater and surface water in an integrated way, and can facilitate groundwater trading (Nelson et al., 2020). The National Groundwater Strategic Framework (2016–2026) was developed by the Australian, state and territory governments. It sets out 28 actions in three priority areas, but recognises that the states and territories will have different priorities and capacities to pursue the actions identified in the framework. The three priorities are: • ensuring sustainable and optimal use of groundwater • providing for ‘confidence for investment through risk-based, consistent and efficient regulation of groundwater resources’ • ‘developing integrated water supply planning’ to increase water security. The framework also calls for development of better information to support groundwater management, increased linkages between groundwater decision makers and managers, ongoing research, and groundwater information and capacity-building initiatives (which have recently been developed) (Nelson et al., 2020). 3.6.4 Outcomes The water allocation system in the southern Murray-Darling Basin is an advanced approach to allocation that relies on a number of fundamental requirements to function effectively, including robust planning frameworks, stakeholder consultation, clearly defined property rights, metering and monitoring, strong regulatory arrangements (including compliance) and a reliance on economic principles. The allocation system performs well, particularly given the highly variable supply of water in southern Australia and the prevalence of periodic droughts. As a result of the current system, a highly effective water market has been achieved in the Murray-Darling Basin. The allocation system supports a high-performing, modern and globally significant agricultural sector, valued at around $24 billion annually. Australia is one of the most food-secure countries in the world (in the top 10), producing much more food than it consumes and exporting around 70 percent of agricultural production. Production has moved, and continues to move, towards higher-value and more efficient agriculture (including various forms of horticulture) and away from low-value crops and industries. However, there is still a large diversity of farming, including significant irrigated production of cotton, vegetables, rice (with a significant export industry), dairy and almonds. Importantly, water moves between crops over time as facilitated by markets, which means that different crops can be grown when water is scarce and when it is more abundant. The water market is one of the key factors underpinning the ongoing success of irrigated agriculture in the southern Murray-Darling Basin, including significantly reducing the economic impacts of drought. Water markets are now integral to Australia’s regional economies, and help to support production and growth in these regions. This approach can enable agricultural producers and other industries to flexibly meet their water requirements, and balance risks and returns. Valuing water: The Australian perspective 52 Economic values of water under scarcity in the Murray-Darling Basin Entitlement and planning reforms during the acceleration phase have significantly improved environmental management. The environment has been clearly established as a legitimate user of water. Water plans now include an identified sustainable volume available for consumptive use, helping to limit further environmental degradation. There has also been a reallocation of water from consumptive use to the environment in overallocated systems, with a long-term annual average target for reallocation of 2,750 GL of water (Productivity Commission, 2017b). Repairing the long-term environmental degradation in the Basin will be an ongoing process, especially given that the SDL is not clearly linked to the desired ecological outcomes. But there are some early indications of the benefits of increased water for the environment. Environmental water provisions have contributed to improved local ecological outcomes, such as breeding of native fish, frogs and waterbirds; improved condition of native vegetation; and better water quality (MDBA, 2020). Further information on the value of water for the environment is provided in the accompanying report Valuing water: The Australian perspective. The environmental value of water (AWP & World Bank, 2022b). Most jurisdictions have improved their engagement with Indigenous communities for water planning and management (NWC, 2014). Ensuring that cultural values are recognised and provided for in water plans has been an ongoing aspiration for Indigenous communities, leading to the inclusion of provisions in the National Water Initiative to meet that goal. In recent years, some states and territories have made progress in ensuring that water planning includes adequate consultation with Indigenous communities, but this is yet to translate into explicit detailing of cultural values and outcomes in water plans (Productivity Commission, 2017b). Further information on the cultural value of water is provided in the accompanying report Valuing water: The Australian perspective. The cultural value of water (AWP & World Bank, 2022a). Despite progress, there is a growing divide between perceptions and reality with regard to water management. Some communities feel that social and economic conditions are declining as a result of water reform, and that the government has failed them. This is often connected to broader economic trends. Larger communities have generally thrived, whereas smaller communities have suffered as a result of structural adjustments such as population decline and changing industrial structures. In particular, there has been resistance to buybacks for environmental water, even though it was the least-cost approach from a society-wide perspective. For example, the chair of the Murray-Darling Basin Ministerial Council and the Minister for Agriculture initially rejected a proposal made by the Productivity Commission in 2005 to make greater use of markets to source water for the environment on the basis that it would hurt farmers (Scanlon, 2006). The government response has been to invest in on- and off-farm water infrastructure to deliver water savings, which have been converted to water licences held by environmental water holders (purchased licences are also given to the same public environmental water holders). The prices the government has paid, through either direct purchases or infrastructure, are an imperfect reflection of society’s general valuation of ensuring water resource sustainability in the Basin (including an optimal balance between consumptive and environmental water). Governments have changed throughout the process, but the commitment to returning water and achieving the long-term annual average targets has been bipartisan. Significant community concerns have arised, as well as issues due to structural adjustment in water-dependent agricultural industries, which have in part arisen because water has been taken out of consumptive use. However, the Australian Government is seeking to address this impact on communities and local economies through the $269.6 million Murray-Darling Communities Investment Package, announced on 4 September 2020. Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 53 Figure 25. Lake Hume and Murray Valley Highway near Tallangatta, Victoria (Source: Greg Brave / Adobe Stock) Valuing water: The Australian perspective 54 Economic values of water under scarcity in the Murray-Darling Basin Box 9: Summary of the acceleration phase How water was valued Recognition of the value of environmental water has continued to increase. There has also been emerging institutionalised recognition of water for Indigenous cultural and economic uses, and for recreational uses. There is increasing concentration on higher-value productive uses of water, including expansion in production of high-value crops. Water management objectives Objectives have moved towards achieving positive social, cultural and environmental outcomes, while still using water for high-value production. A key objective during this period has been to reduce conflict between different users and uses of water through increased national expenditure on water management. Increasing recognition of the likelihood of water scarcity due to climate change has led to a focus on identifying safe and secure water supplies, and renewed interest in investment in supply augmentation. Policy instruments used There has been further expansion and formalisation of the role of the Australian Government, including significant funding increases. Reform of legislation and institutions to support desired outcomes have been undertaken. The cap on consumptive use has shifted to one based on sustainable limits, by recovering water for the environment through buybacks and efficiency measures. Further expansion of trade was supported, leading to increasing sophistication of markets, including to support purchase of water for the environment by governments. Investments were made in irrigation efficiency improvements and monitoring of water use. Outcomes Limits on water use; improved compliance measures; and significant improvements in water metering, monitoring and accounting are in place, and improving sustainable and adaptive water management. This phase has seen a significant return of water from consumptive to environmental uses, leading to both positive environmental impacts and heightened adjustment pressures on rural communities. Policy instruments have moved in the right direction, aiming to support an open and flexible economy, resilient and adaptive businesses, and a healthy environment. However, implementation and execution were imperfect. This means that the community is alienated and debate is polarised. There has been poor value for money from government interventions in some cases, especially in on-farm water-use efficiency investments, which have been much more expensive than buybacks but arguably have not achieved desired ends for irrigation-dependent communities. Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 55 4 Lessons from the Australian experience 4.1 How the value of water affected management objectives and policy The Australian experience of water management in the Murray-Darling Basin provides some lessons for how the value of water directly affects, and is affected by, water policy and management actions. If water is only valued for consumptive use and the costs of consumptive use are largely ignored, policy will focus on maximising extraction and use, and securing supply. Information on water management may also focus only on consumptive activities. This can lead to inefficient economic outcomes, with overinvestment in costly infrastructure and excessive water consumption. Unplanned and unwanted environmental degradation can occur, and opportunities to achieve wider community benefits such as cultural or recreational outcomes may be lost. This approach can later prove unsustainable both financially and environmentally, and would be an even riskier approach in the presence of climate change. If the value of water reflects the costs associated with water use, including infrastructure and service provision and public costs such as environmental degradation, policy will focus on accounting for these costs. Cost-reflective pricing will drive more efficient infrastructure investment and use of water resources. Placing limits on use can limit some environmental costs, particularly if limits reflect sustainable use levels. Cost-reflective pricing and limits on use can start to incentivise the use of water for high-value production, increasing economic value without increasing use. This can also lead to demand for water exchange, as different productive uses are prioritised. Recognising that the value of water relates to net economic benefits leads to water management objectives that maximise the economically efficient use of water and minimise the economic and environmental costs. Instruments to achieve this include capping total water consumption and allocating water for the environment, enabling water trading in certain circumstances, and implementing full cost-recovery and consumption-based pricing principles. The increasing complexity of these policy instruments is justified by increasing scarcity and the greater value that can be returned from higher-value uses of consumptive water. Valuing water based on all economic, social, cultural and environmental use and non-use values is the most comprehensive method of valuation. Full recognition of the many different use and non-use benefits enables informed trade-off decisions to be made in the face of scarcity without imposing hidden costs. This can be achieved through basin-scale management, and setting legislation targeted at managing environmental, social and cultural outcomes. Other instruments include increased support for trading mechanisms, including the use of markets to purchase water for the environment. Progress in water management over the past 100 years in the Murray-Darling Basin has enabled many of these aims to be achieved, although there are still improvements to be made, and the process of reform is not yet complete. Valuing water: The Australian perspective 56 Economic values of water under scarcity in the Murray-Darling Basin 4.2 Key drivers of change for water values in the Murray-Darling Basin Two main drivers have changed the perception of the value of water over the past 100 years in the Basin: • Recognition of the changing economic performance of the water sector over time, in terms of both financial costs and economic returns. The historical drive for continued agricultural expansion, using ever greater volumes of water, was compromised by the growing financial burden of extraction compared with the marginal gains from increased use. There has since been a shift in focus to achieving efficient water use and maximising the benefits of economic production by allocating water to its highest-value use. • Recognition that environmental harm is driven by the consumptive use of water resources, particularly for highly variable water sources. By the 1980s, environmental problems (e.g. salinity, algal blooms, deteriorating river and wetland health) were already emerging. By the time of the millennium drought, 20 years later, environmental problems caused by overallocation were becoming increasingly evident as water became more scarce. Wider global trends towards sustainability and better environmental management have also supported an increasing recognition of the value of environmental water (Crase, 2008). 4.3 Policy instruments in the Murray-Darling Basin A range of different policy instruments have been used to manage water throughout the history of the Murray-Darling Basin. Two key instruments that have been effective in revealing the value of water are cap-and-trade mechanisms and cost-reflective charges for infrastructure and services: • Cap-and-trade mechanisms have been used to create a market for surface water that has enabled water to be reallocated to more productive uses and return water to the environment in overallocated systems. • Cost-reflective pricing has been used to identify appropriate levels of investment in infrastructure and service provision. It has enabled high levels of services with very low water losses in Australia in comparison with other countries. Setting limits on types of water use and investments in irrigation efficiency have achieved some objectives, but have been less effective in specifically revealing or increasing value. Setting limits or controls on use, although helping to signal the scarcity of resources, does not effectively reveal or increase value. Direct investments in irrigation efficiency in recent years have also been economically inefficient, as the cost per megalitre of water recovered is much higher than the traded price of water. These instruments are discussed in more detail below. 4.3.1 Cap-and-trade mechanisms Water markets were primarily introduced to allow users to manage water within the total cap, and drive more efficient and higher-value water use by signalling the scarcity of water. In broad terms, the objective of water markets is to efficiently manage the allocation and reallocation of water among competing users, given scarcity. However, they were also intended to deliver on a number of other objectives. The introduction of a total cap on water extractions means that competition will increase for the available resource. For water to be reallocated between users, there must be a mechanism to do so. Water markets were seen as the most effective way of allowing reallocation between users, as they allowed water users to make decisions about the value of water based on their intended uses. In the absence of a market, there would be no opportunity for reallocation, or government would need to assess and reallocate water, which it is not well placed to do. Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 57 The introduction of water markets was concerned with achieving both economic efficiency and environmental sustainability. Water markets were more fully developed and formally implemented in the 1990s and 2000s, a time of significant interest in microeconomic reform to improve the efficiency and productivity of the economy, and in environmentally sustainable development, including achieving development objectives in a more socially and environmentally sustainable way. Water markets were also generally seen as fairer than other approaches, such as governments attempting to make decisions about reallocating water within the cap—this would require governments to pick winners among different industries, which they have been notoriously unsuccessful in doing. The water market placed decision making in the hands of individual enterprises and users, and, by design, required gains from trade for both buyers and sellers in order for any reallocation (trade) to occur. With the presence of appropriate rules to manage third-party impacts, trade was seen as a more fair and equitable approach, as well as being more efficient (NWC, 2011). Australia’s water markets, and the supporting institutional, regulatory and operational settings are now very well developed. These outcomes are the product of a long period of hard-earned reforms. Australia now has many systems that enable market-based trade—including entitlements with clear characteristics, comprehensive registers, fast trade processing times, interstate trade and deep broker markets. There are now large volumes of trade and a wide range of participants. Barriers to trade have been removed, and remaining rules are generally for hydrological reasons only, to protect third parties and the environment, and are clear and well understood. Based on the experiences of implementing water markets in Australia over the past 30 years, we have learned much about the circumstances when they should be used and what is needed to ensure that they perform effectively. The framework below, by the Australian consultancy Aither, is based on these experiences. For water markets to have benefits in a particular country or specific water system, these characteristics usually need to be present: 1. Scarcity. Water systems need to be at or near full allocation. If water users are able to obtain more water through other means (e.g. new licences from government), there is little incentive to trade. Scarcity can be given effect through a cap on a sector’s water use. 2. Variability. Variation in water availability in and between water years (seasons), across different geographic areas, and over time contributes to the need for water users to trade with others. This is particularly important when combined with heterogeneous demands (see below). 3. Connectivity. Water systems that are connected to others increase the number of water users that can trade with one another. Differences in water availability and demand create greater opportunities for trade. Connected irrigation districts and infrastructure, and connected river systems are usually the main means of connectivity. 4. Sufficient users. As with many markets, more users can increase the number of parties to trade with, liquidity, variation in demand and opportunities for trade. Insufficient users mean fewer potential benefits to be gained from water markets. 5. Heterogeneous demands. Where the demands of all users are the same (e.g. producing one crop type that needs water at the same time), there may be less demand for trade. Different industry or crop types existing in the same or connected areas mean that demand profiles are more likely to vary and create more opportunities for trade. 6. Changing demand. Changes in crop types, including in response to external drivers such as structural shifts in global commodity markets, can increase the need to trade water. Different irrigated producers may enter or exit irrigation, or modify their production. Changing competing demands, such as from industrial or municipal users, can also increase the need for trade. Valuing water: The Australian perspective 58 Economic values of water under scarcity in the Murray-Darling Basin 4.3.2 Cost-reflective pricing Water tariffs in Australia are currently designed with the objective of economic efficiency, including recovering the efficient costs of providing water delivery infrastructure, and providing a signal about the appropriate level of investment in, and consumption of, irrigation infrastructure. Many reforms have been undertaken within the water services sector. One of the most significant has been the move to cost-reflective pricing. Cost-reflective pricing reduces subsidies and improves outcomes. Urban and irrigation water services were heavily subsidised by governments before the pricing reforms that took place in the 1980s and 1990s. Since then, moves towards cost-reflective pricing have seen a reduction in government subsidies. Most current service providers (in both the irrigation and urban sectors) generate enough revenue from user charges to operate without a government subsidy. In the urban sector, the move to cost-reflective pricing was often accompanied by the introduction of some level of consumption-based pricing. Along with restrictions and awareness campaigns during droughts and regulatory changes, this resulted in changed consumer behaviour and lower household water use (Productivity Commission, 2017b). Independent economic regulation has been key to cost-reflective pricing. The National Water Initiative requires that independent economic regulators have a role in the review or setting of prices for water services. Independent economic regulation encourages efficient service delivery by applying rigorous scrutiny to operational and investment decisions. It facilitates consistent and improved planning, increases the transparency of decision making and reduces the risk of political interference in price-setting processes (Productivity Commission, 2017b). Most major irrigation areas now achieve full cost recovery of both capital, and operations and maintenance costs. Some remote areas with very few irrigators may be subsidised by the government or be on a pathway to greater or full recovery of costs. In broad terms, irrigators in Australia have very high levels of service compared with other countries, including on-demand ordering; high levels of automation; relatively low levels of water losses; sophisticated billing, customer and information services; and metering and monitoring. In many cases, both privatised and corporatised entities have received government grants and other support via on-and off-farm efficiency programs. This has usually included investments in infrastructure to attempt to achieve water savings that can be returned to the environment to address overallocation. It is challenging for these entities to balance investment and cost recovery, but most rural water services in all key irrigation areas are fully cost recovered. A constant challenge is the tendency to ‘gold plate’, or overinvest, in assets without sufficiently considering the ongoing maintenance costs that irrigators must continue to meet. Despite privatisation, investment in rural water infrastructure often becomes a political issue, with evidence on the economic and environmental costs and benefits being ignored if it does not meet the political desire for investment. 4.3.3 Setting limits on specific use Setting limits on specific uses of water can help to manage extraction and consumption, and respond to water scarcity. It also can help to drive efficiency gains, as individual irrigators cannot increase their use. This approach was used by individual states during the emerging costs phase to try to limit extraction. The limits on licences successfully halted further diversions. However, they did not apply to all systems. For example, groundwater licences continued to be issued in Victoria. A number of water-using activities were allowed to continue with minimal or no controls on extraction (e.g. farm dams, overland flow interceptions, harvesting, forestry). Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 59 Limiting use for specific uses, users or areas is much less effective at revealing value than a Basin-wide cap-and-trade system. This was also demonstrated in urban water use during the millennium drought. Urban areas in Australia suffered severe water restrictions due to the extended period of low rainfall, which reduced runoff into water storages. Limited supplies had to be allocated across uses and users, and this was largely done through restrictions on use rather than through prices. In 2005, around 80 percent of city dwellers were subject to long-term water-use restrictions. Such prescriptive rationing denied households the opportunity to choose how to use and conserve water in ways they valued most and imposed greater costs (Productivity Commission, 2008). 4.3.4 Investments in irrigation efficiency Flexible approaches to acquiring water for the environment that include direct buyback are widely regarded as much more cost-effective than approaches that prescribe that water must come from investments in irrigation modernisation or ‘water-saving’ projects (Crase & O’Keefe, 2009). For example, the Productivity Commission found that infrastructure projects under the Living Murray program recovered water at an average cost of around $2,200 per megalitre (ML), compared with $1700/ML for market purchases (Productivity Commission, 2010). The average cost of water recovery using infrastructure upgrades ($5,100/ML) was double that of water recovery through the purchase of entitlements ($2,200/ML) between 2007–08 and 2015–16. Individual projects cost 2–7 times more than the direct purchase of equivalent quantities of water (Wentworth Group, 2017). Other studies have also shown that infrastructure projects do not always yield genuine net returns to the environment of the magnitude envisaged, largely because these projects ignore return flows from the irrigation system before upgrade. There has been resistance to buybacks for environmental water, even though it was the least-cost approach from a society-wide perspective. The government response has been to invest in investment in on- and off-farm water infrastructure to deliver water savings, with the water savings converted to water licences held by environmental water holders (purchased licences are also given to the same public environmental water holders). In 2014, expenditure priorities shifted from purchase of water entitlements to investment in infrastructure projects. These investments are often motivated by a desire to invest directly in regional communities to mitigate social impacts, rather than a desire to achieve the greatest environmental benefits. 4.4 Major challenges in the Murray-Darling Basin Although there have been many successful reforms over the past 100 years, and positive environmental, economic and social outcomes have been achieved, there are still challenges facing the Murray-Darling Basin. Given the long period of sustained reforms, as well as some of the impacts of these reforms over time, the emphasis has shifted to ‘staying the course’ and implementing the ‘long tail’ of existing reforms rather than creating new reforms. There has been pressure to unwind some reforms where negative impacts are being felt by certain communities, regardless of whether these impacts were the direct result of reforms or other factors. One of the reasons for this is that water recovery in some districts has compounded, or occurred in parallel to, the many other economic pressures facing rural and regional Australia, which have led to significant challenges for many agricultural communities. Although individual irrigators have benefited from the reforms, less than 1 percent of the $13 billion allocated to water recovery was made available to assist communities affected by the reforms to adapt to a future with less water. Valuing water: The Australian perspective 60 Economic values of water under scarcity in the Murray-Darling Basin Governments face challenges in addressing these issues without negating the benefits that water markets generate. A recent review by the Australian Competition and Consumer Commission (ACCC, 2021) concluded that the governance, regulatory and operational frameworks supporting water markets have not developed to accommodate the current scale of the market and are no longer adequate. A serious consequence of these problems is that many water users do not trust that the markets and key institutions are fair or working to the benefit of water users, particularly irrigation farmers. Impediments to informed and confident trading by many irrigators caused by these problems are likely to impede the investment needed for efficient agricultural production. A series of institutional changes since 2012 have also eroded regulatory oversight and confidence in national water reform. In 2013, the Murray-Darling Basin Ministerial Council abolished the Sustainable Rivers Audit, a program that was established to measure the condition of the river systems in the Basin. In 2014, the Australian Government abolished the National Water Commission, and, in 2017, revelations of possible water theft and meter tampering exposed inadequate monitoring and compliance regimes (Wentworth Group, 2017). The general functioning of the MDBA has also been called into serious question, particularly the transparency with which scientific research has underpinned some decisions (Walker, 2019). The implementation of the Basin Plan since 2012 has achieved important results, with progress and measurable outcomes observed at the Basin scale. However, the Basin Plan is unable to effectively support many floodplain and wetland ecosystems until critical water infrastructure is improved and river operating rules are in place. Accreditation of all water resource plans is also required to set the rules on how much water can be taken from the system on an annual basis, ensuring that SDLs are not exceeded over time. Several major fish death events in 2019 demonstrate the need for whole-of-system management and the urgency to address some of these matters. Basin governments and the Basin Plan need to continue to adapt and improve approaches to managing water quality and salinity, particularly in the context of low- or no-flow conditions (MDBA, 2020). Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 61 5 Conclusions This report explores the economic value of water under scarcity. It documents how water’s diverse values have informed water policy in the Murray-Darling Basin over time and how this has led to better water management in times of scarcity. The water policy settings in the Basin aim to support an open and flexible economy, resilient and adaptive businesses, cultural values and a healthy environment. The current objectives of water management reflect an increasing acceptance of the need to value water across its many competing uses. The policy instruments in the Basin have been developed to support these aims and objectives. But even with the improvements in policy instruments and objectives, challenges remain in fully achieving water management and use decisions that incorporate the economic, environmental and cultural values of water. There is scope to further refine the approach to water policy and management in the Murray-Darling Basin. This includes addressing misperceptions and angst for all stakeholders; better achieving and demonstrating outcomes for communities, industries and the environment; and applying more flexible and effective reforms. Successive governments have contributed to increased efficiency, growth and productivity through competition reforms and deregulation across all sectors of the economy. This is seen in our highly unsubsidised and unregulated agricultural sector, and in water entitlement and market reforms by COAG. Although there have been setbacks, this strategy has achieved positive results and should provide a model for other countries or regions wishing to develop a strong and resilient water sector. Recent experiences of extreme dry conditions in the Basin and community discontent highlight the importance of considering the multiple values of water. Failing to do so leaves water policy vulnerable to short-term decision making and uncertain long-term costs. Improving the ways in which we incorporate value into water management in the Basin can help ensure that the right policies and levers are used in ways that bring about benefits for all users. The increasing value of scarce and variable water supplies underscores the importance of getting policy and management implementation right, including managing trade-offs across communities, industries and the environment. The experience in the Murray-Darling Basin shows how we can adjust water management in response to changes in our understanding of value, and how this can result in improved means to reveal value and incorporate it into decision making. Without knowing the real value of different outcomes to individuals, industries, communities and governments, it is impossible to weigh up priorities and trade-offs. Including value in government decision making is therefore integral to improving how we deal with complex and contested topics, including water and environmental management. The value we place on our water resources will shape the objectives and outcomes that we seek to achieve through policies and management. A narrow view of what value means to the community therefore risks setting policies that are not accepted or that do not deliver the right outcomes. At the same time, the policy instruments that are used and decisions that are made can help to better reveal these values—by creating markets, setting limits or ensuring that pollution is fully priced. Using management actions to reveal value, and then reflecting those values in future decisions, can help ensure that water resource management delivers the greatest value to the community. Valuing water: The Australian perspective 62 Economic values of water under scarcity in the Murray-Darling Basin Glossary Term Definition Allocation markets Allocation markets enable the buying and selling of water allocations. Water allocations are the volumes of water allocated to water entitlement holders during the water year (1 July to 30 June). They are a physical good, analogous to a commodity, and are extracted from watercourses and applied as inputs to production or the environment. Based on the water availability and demand at a given time, the value of water allocation per unit varies (usually expressed in $ per megalitre (ML)). Basin Plan A plan for the integrated management of the water resources of the Murray-Darling Basin, to be adopted by the minister for water under s. 44 of the Water Act 2007 (Cwlth). Cap An upper limit on the volume of water available for consumptive use from a waterway, catchment, basin or aquifer. Consumptive use The use of water for consumptive purposes, including irrigation, industry, urban, stock and domestic use. Entitlement markets Entitlement markets enable the trading of water entitlements. Water entitlements are ongoing rights to receive an annual share of available water resources in a consumptive pool (e.g. river system, catchment). They are analogous to a land property right, are generally secure and mortgageable in the same way, and have substantial value. Each catchment typically has a small number of entitlement ‘classes’, and generally all entitlements within a given class are homogeneous. Environmentally The level at which water can be taken from a water resource without sustainable level of take compromising key environmental assets, key ecosystem functions, the productive base or key environmental outcomes for the water resource. Environmental flow A water regime applied to a river, wetland or estuary to improve or maintain ecosystems and their benefits where there are competing water uses and where flows are regulated. Irrigation infrastructure Operators of water service infrastructure for delivering water for the primary operators purpose of irrigation. Millennium drought Between 1997 and 2009, southeastern Australia experienced the most persistent rainfall deficit since the start of the 20th century. Annual rainfall during the millennium drought was 73 mm below average (12.4 percent below the 20th century mean) for the years 1997–2009 inclusive. National Water A commitment by all state and territory governments and the Australian Initiative Government through the Council of Australian Governments, established through an intergovernmental agreement in 2004. It sets out a coherent and comprehensive framework for the management of Australia’s water resources. Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 63 Term Definition Overallocation A situation where, with full development of water access rights in a particular system, the total volume of water able to be extracted by rights holders at a given time exceeds the environmentally sustainable level of take for that system. Overuse A situation where the total volume of water extracted for consumptive use in a particular system at a given time exceeds the environmentally sustainable level of take for that system. Overuse may arise in systems that are overallocated, or in systems where the planned allocation is exceeded as a result of inadequate monitoring and accounting. Regulated A surface water system in which water in a watercourse can be stored or flow (water system) levels can be controlled, through the use of structures such as large dams or weirs. Reliability The frequency with which water allocated under a water access entitlement is able to be supplied in full. In some jurisdictions, ‘high security’ refers to entitlements that are more reliable (more frequently receive allocations), whereas ‘general security’ entitlements are less reliable (less frequently receive allocations). Security The legal status and tenure of a right to access water. This includes the level of assurance that a water access entitlement will provide what it specifies. For example, an entitlement will be less secure if it expires after a certain time, or its conditions are changed frequently. Surface water Water that flows over land and in watercourses or artificial channels, and is able to be captured, stored and supplemented from dams and reservoirs. Sustainable diversion The maximum long-term annual average quantities of water that can be limits (SDLs) taken, on a sustainable basis, from the basin water resources as a whole, and the water resources, or particular parts of the water resources, of each water resource plan area. SDLs limit the volumes of water that can be taken from surface water or groundwater in the basin for uses such as town water supplies, domestic uses, industry uses and agricultural uses, at both local and basin-wide scales. SDLs are defined as long-term averages, rather than a fixed amount in a given year. Sustainable diversion Options that were considered by the authority for different scales of water limit (SDL) options recovery, from surface water, to meet environmental needs. The SDL options considered were 10,873 GL/year, which corresponds to water recovery of 2,750 GL/year (sometimes assumed to be 2,800 GL/year, for the purposes of economic and hydrological modelling) relative to a June 2009 baseline; 11,223 GL/year, which corresponds to water recovery of 2,400 GL/year; and 10,423 GL/year, corresponding to water recovery of 3,200 GL/year. Unbundling The legal separation of rights to land and rights to access water, have water delivered, use water on land or operate water infrastructure. Unregulated A surface water system that is not a regulated system. (water system) Valuing water: The Australian perspective 64 Economic values of water under scarcity in the Murray-Darling Basin Term Definition Water access A perpetual or ongoing entitlement, by or under a law of a state, to exclusive entitlement access to a share of the water resources of a water resource plan area. Water allocation The specific volume of water allocated to water access entitlements in a given water accounting period. Water plan A statutory plan for a surface water or groundwater system that is consistent with the regional natural resource management plan, and is developed in consultation with all relevant stakeholders on the basis of the best scientific and socioeconomic assessment to provide secure ecological outcomes and resource security for users. The water plan includes trade-offs to achieve agreed outcomes, including environmental outcomes. Water system A system that is hydrologically connected and described at the level desired for management purposes—for example, a subcatchment, catchment, basin or drainage division, groundwater management unit, subaquifer, aquifer or groundwater basin. Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 65 References ACCC. (2021). Murray-Darling Basin water markets inquiry: Final report. Australian Competition and Consumer Commission. Allan, J. A. (2005). Water in the environment/socio-economic development discourse: changing management paradigms and policy responses in a global system. Government and Opposition, 40(2), 181–199. https://doi.org/10.1111/j.1477-7053.2005.00149.x AWP, & World Bank. (2022a). Valuing water: The Australian perspective. Cultural values of water in the Murray-Darling Basin. Australian Water Partnership, & World Bank. AWP, & World Bank. (2022b). Valuing water: The Australian perspective. Environmental values of water in the Murray-Darling Basin. Australian Water Partnership, & World Bank. AWRC. (1986). Proceedings of the Joint AWRC–AAES Seminar on Transferable Water Rights. Melbourne, 11 December 1984. Australian Water Resources Council. Babie, P. (1997). The implementation and operation of transferable water entitlement systems in Victoria and Alberta. Victorian Department of Natural Resources and Environment. Bjornlund, H. (1999). Water trade policies as a component of environmentally, socially and economically sustainable water use in rural southeastern Australia [Unpublished doctoral dissertation]. University of South Australia. Bjornlund, H., & O’Callaghan, B. (2003, January 19–22). Property implications of the separation of land and water rights [Conference presentation]. Ninth Annual Pacific Rim Real Estate Society Conference, Brisbane. BoM. (2004). Drought, dust and deluge: A century of climatic extremes in Australia. Bureau of Meteorology. COAG. (1992). National Strategy for Ecologically Sustainable Development. Council of Australian Governments. https://catalogue.nla.gov.au/Record/165883 Connell, D. (2007). Water politics in the Murray-Darling Basin. Federation Press. Crase, L. (2008). An introduction to Australian water policy. In L. Crase (Ed.), Water policy in Australia: The impact of change and uncertainty. Resources for the Future. Crase, L., & O’Keefe, S. (2009). The paradox of national water savings. Agenda, 16(1), 45–60. https://www.jstor.org/stable/43199583 Crase, L., O’Keefe, S., & Kinoshita, Y. (2012). Enhancing agrienvironmental outcomes: Market-based approaches to water in Australia’s Murray-Darling Basin. Water Resources Research, 48(9). https://doi:10.1029/2012WR012140 CSIRO. (2008). Water availability in the Murray-Darling Basin: A report from CSIRO to the Australian Government. Commonwealth Scientific and Industrial Research Organisation. Deakin, A. (1885). Victoria: Royal Commission on Water Supply: First progress report: Irrigation in western America, so far as it has relation to the circumstances of Victoria—A memorandum for the members of the Royal Commission on Water Supply. Cited in J. M. Powell, Watering the garden state: water, land and community in Victoria, 1834–1988 (pp. 105–106). Allen & Unwin. DELWP. (2016). Managing extreme water shortage in Victoria: Lessons from the millennium drought. Victorian Department of Environment, Land, Water and Planning. https://www.water.vic.gov.au/__data/assets/pdf_ file/0017/512720/DELWP-MillenniumDrought-web-SB.pdf.pdf DEW. (n.d.) The Living Murray Program. South Australian Department for Environment and Water. https://www.environment.sa.gov.au/topics/river-murray/improving-river-health/wetlands-and-floodplains/ the-living-murray-program DLWC. (1999). A white paper: A proposal for updated and consolidated water management legislation for NSW. New South Wales Department of Land and Water Conservation. Valuing water: The Australian perspective 66 Economic values of water under scarcity in the Murray-Darling Basin DNRE. (2001). The value of water: A guide to water trading in Victoria. Victorian Department of Natural Resources and Environment. Doolan, J., Keary, J., Boully, L., Langford, J., Claydon, G. K., & Slatyer, T. (2016). The Australian water reform journey: An overview of three decades of policy, management and institutional transformation. eWater Limited. DSEWPaC. (2011). Sustainable Rural Water Use and Infrastructure Program. Australian Department of Sustainability, Environment, Water, Population and Communities. DWR. (1986). Irrigation management study: Detailed report (Water Resource Management Report Series, Report No. 13). Victorian Department of Water Resources. Goesch, T., Donoghoe, M., & Hughes, N. (2019). Snapshot of Australian water markets. Australian Bureau of Agricultural and Resource Economics and Sciences. https://doi.org/10.25814/5cabfa02a6538 Guest, C. (2017). Sharing the water: One hundred years of River Murray politics. Murray-Darling Basin Authority. Howard, J. (2007). A national plan for water security. Australian Government. IIG. (2020). Impact of lower inflows on state shares under the Murray-Darling Basin Agreement. Interim Inspector-General of Murray-Darling Basin Water Resources. Martin, W. (2005). Water policy history on the Murray River. Southern Riverina Irrigators. McKay, J. (2008). The legal frameworks of Australian water: Progression from common law rights to sustainable shares. In L. Crase (Ed.), Water policy in Australia: The impact of change and uncertainty. Resources for the Future. MDBA. (n.d.-a). Why saving the river matters. Murray-Darling Basin Authority. https://www.mdba.gov.au/why- saving-rivers-matters MDBA. (n.d.-b). Who manages the Murray-Darling Basin. Murray-Darling Basin Authority. https://www.mdba.gov.au/water-management/allocations-states-mdba/managing-murray-river MDBA. (n.d.-c). A path to water reform: Timeline for water resource management in the Murray-Darling Basin. Murray-Darling Basin Authority. https://www.mdba.gov.au/sites/default/files/pubs/MDBA-Historical-Timeline.pdf MDBA. (n.d.-d). Keeping salt out of the Murray. Murray-Darling Basin Authority. https://www.mdba.gov.au/ sites/default/files/pubs/MDBA-14165-Brochure-WEB-FA.pdf MDBA. (2010). Guide to the proposed Basin Plan, vol. 1, Overview. Murray-Darling Basin Authority. MDBA. (2020). The 2020 Basin Plan evaluation. Murray-Darling Basin Authority. https://www.mdba.gov.au/ sites/default/files/pubs/bp-eval-2020-overview.pdf MDBC. (2006). A brief history of the Murray-Darling Basin Agreement. Murray-Darling Basin Commission. MDBC. (2007). River Murray system: Drought update no. 7. Murray-Darling Basin Commission. MDBC. (2008). The cap [Brochure]. Murray-Darling Basin Commission. https://www.mdba.gov.au/sites/default/ files/archived/cap/cap_brochure_0.pdf MDBMC. (1999). The salinity audit of the Murray-Darling basin: A hundred-year perspective. Murray-Darling Basin Ministerial Council. MDBMC. (2015). Basin Salinity Management Strategy 2030 (BMS2030) (Murray-Darling Basin Authority Publication No. 21/15). Murray-Darling Basin Ministerial Council. Musgrave, W. F. (2008). Historical development of water resources in Australia: Irrigation policy in the Murray-Darling Basin. In L. Crase (Ed.), Water policy in Australia: The impact of change and uncertainty. Resources for the Future. NCC. (1998). Compendium of National Competition Policy agreements (3rd ed.). National Competition Council. NWC. (2011). Water markets in Australia: A short history. National Water Commission. Valuing water: The Australian perspective Economic values of water under scarcity in the Murray-Darling Basin 67 NWC. (2014). A review of Indigenous involvement in water planning, 2013. National Water Commission. Nelson R., Barnett S., & Kollmorgen, A. (2020). The evolution of groundwater management policy in the states of Australia. In J. D. Rinaudo, C. Holley, S. Barnett, & M. Montginoul (Eds.), Sustainable groundwater management (Global Issues in Water Policy, vol. 24). Springer. https://doi.org/10.1007/978-3-030-32766-8_7 Pigram, J. J. (1999). Economic instruments in the management of Australia’s water resources: A critical review. International Journal of Water Resources Development, 15(4), 493–509. https://doi.org/10.1080/07900629948727 Pigram, J. J., Delforce, R. J., Coelli, M. L., Norris, V., Antony, G., Anderson, R. L., & Musgrave, W. F. (1992). Transferable water entitlements in Australia: Report to the Land and Water Resources Research and Development Corporation. Centre for Water Policy Research, University of New England. Productivity Commission. (2003). Water rights arrangements in Australia and overseas. Productivity Commission. Productivity Commission. (2008). Towards urban water reform: A discussion paper (No. 0801). Productivity Commission. Productivity Commission. (2010). Market mechanisms for recovering water in the Murray-Darling Basin [Research report]. Productivity Commission. Productivity Commission (2017a). Transitioning regional economies [Study report]. Productivity Commission. Productivity Commission. (2017b). National water reform (Inquiry Report No. 87). Productivity Commission. Scanlon, J. (2006). A hundred years of negotiations with no end in sight: Where is the Murray-Darling Basin initiative leading us? Environmental and Planning Law Journal, 23(5), 386–410. Tan, P. L. (2002). An historical introduction to water reform in NSW: 1975 to 1994. Environmental and Planning Law Journal, 19(6), 445–460. http://hdl.handle.net/10072/24342 Walker, B. (2019). Murray-Darling Basin Royal Commission report. Government of South Australia. https://apo.org.au/sites/default/files/resource-files/2019-01/apo-nid217606.pdf WCED. (1987). Our common future: The report of the World Commission on Environment and Development (the Brundtland Report). Oxford University Press. Wentworth Group. (2017). Review of water reform in the Murray-Darling Basin. Wentworth Group of Concerned Scientists. https://wentworthgroup.org/2017/11/review-of-water-reform-in-the-murray-darling- basin/2017 Valuing water: The Australian perspective 68 Economic values of water under scarcity in the Murray-Darling Basin The Australian Water Partnership is an Australian Government international cooperation initiative helping developing countries in the Indo-Pacific region, and beyond, work towards the sustainable management of their water resources. Australian Water Partnership UC Innovation Centre (Bldg 22), University Drive South, Canberra ACT 2617, Australia T +61 2 6206 8320 E contact@waterpartnership.org.au waterpartnership.org.au