Global Water Scarcity Gap – billions m 3

1. Running out of waterWhat would a robust allocation system look like? Mike Young Executive Director, The Environment Institute

2. Global Water Scarcity Gap – billions m3 After 2030 Water Resources Group

3. Change - an enduring process • Increasing demand • Population • Wealth • Changing prices and costs • New technology • Adverse climate change

4. - 1% - 3%

5. Users Environment River Flow With half as much water, how much can you use? Users Users Environment Environment River Flow River Flow

6. Robustness • Confident the regime will work, no matter what climatic, economic and technological futures arrive • Likely to withstand the test of time • Recover gracefully and autonomously from shocks • Three examples • Companies • Double entry accounting • Torrens Title Land system

7. Three principles • Tinbergen Principle • As many policy instruments as policy objectives • Mundell’s Assignment Principle • Assign instruments for maximum leverage • Coase Theorem • Minimize transaction costs

8. Indicative template – regulated river systems Volume of Water in the System

9. A fully-specified system Flood water Entitlements Entitlements Environment Environment with a fully-specified share Volume of water available Shared Water Water needed to ensure conveyance

10. Single Title to Land with a Water Licence National CompetitionPolicy 1993/94Plus Cap Water Land Tradable Right Price Entitlement Sharesin Perpetuity Use licences with limits & obligations Bank-like Allocations Delivery Capacity Allocations SalinityShares SalinityAllocations Delivery Capacity Shares National Water Initiative2004

11. Managing risk • Two entitlement pools • High security • Low security • High security pool • % of 10 year moving average of all allocations • Individuals can hold any combination of high and low security entitlements • Critical Human needs may justify a third“Very high security” pool

12. Water system accounting 101 • Flaws have eroded River Murray Health • Dredge in Oct 2002 • A few accounting flaws in our entitlements • Forests • Dams • Groundwater • Return flow (increased efficiency) • Salinity interception • When someone takes more, some-one else must take less • Better to be approximately right rather than comprehensively wrong

13. Environmental water • Need new language • Differentiate between maintenance of base flow and watering beyond the stem of the river • Full specification of entitlement • 100% = X + (1 – X) • Don’t need a cap nor a sustainable diversion limit

14. A single entitlement register Southern MDB RiverFlow Env CIT State Users FloodWater SA Vic ACT NSW Trust 3 Trust 2 CEWH CIT Other RIT

15. Summary • At the global level Australia is leading development of water policy • But we are way behind where we should be • Our systems need robust specification • Is it “reasonable” for the Commonwealth to insist that this happens text

16. www.adelaide.edu.au/environment www.myoung.net.au

17. Australian mistakes & innovations • Regime arrangements • System connectivity => manage GW and SW as one • Capped the wrong thing => cap entitlement potential not use • Return flows => account for them • Unmetered uses => include them • Climate change => plan for an adverse shift • The environment’s share => define it and allocate to it • Storage Management => include in trading regime • Individual arrangements • Registers => validate them early • Entitlements => define entitlements as shares • Trading => get transaction costs and settlement times down • Not enough instruments => needed to unbundle • Inter-seasonal risk management => allow markets to optimize carry forward • Company control => allocate entitlements to individuals