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Environmental Policy Water Policy & Water Trading Mike Young Executive Director, The Environment Institute. H 2 0. Water is heavy Gravity is cheap – when we use fossil fuel to make and move water some-one has to pay. Someone has to pay for the infrastructure too. .

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Environmental PolicyWater Policy & Water Trading Mike Young Executive Director, The Environment Institute


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H20

  • Water is heavy

  • Gravity is cheap – when we use fossil fuel to make and move water some-one has to pay.

  • Someone has to pay for the infrastructure too.


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Environmental policy

  • Triple bottom line?

  • Environment first?

    • Transition arrangements often confused with definition of final outcome to be pursued


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Environmental policy design

  • Three Important Principles

    • Tinbergen principle

      • One instrument per objective

    • Mundell’s assignment principle

      • Assign for max leverage and don’t swap use

    • Coase Theorem

      • Get transaction costs as close to zero as possible


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Getting the balance right

  • Recognise the difference between

    • Identifying environmental objectives

    • The science of estimating how much water is needed to deliver each environmental objective

  • Institutional arrangements need to encourage efficient use and innovation in the pursuit of environmental objectives

    • Volumes water needed will change through time as technology and institutional arrangements improve


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Untangling the story

  • Economic efficiency (Productive and allocative)

  • Intergenerational equity

  • Maintenance natural capital (Ecosystem services)

  • The discount rate

  • Precautionary principle

  • Lots of instruments are needed

  • The institutional design will be most efficient if advantage is taken of subsidiarity rather than hierarchical administrative structures

  • Most local decisions do not need to be supervised


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    Who should pay

    • Payment arrangements (Incentives) influence decisions

      • Investment decisions

      • Day-by-day use decisions

    • When the signals are wrong tax-payers, third parties and future people pay

    • Principles

      • Polluter-Pays below environmental duty of care

      • Beneficiary-pays above duty of care

    • Duty of care will change through time


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    Water Policy

    • As water is heavy, why use it to redistribute income?

    • Water is heavy – as heavy as sand

    • Delivered to your house, about 1/20th as valuable as sand (more useful)


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    Three importantobservations


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    Scarcity is compromising Biodiversity!

    After Vörösmarty and others (2010).


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    With 10% less rainfall

    Users

    Users

    Environment

    Environment

    River Flow

    River Flow


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    National Water Initiative

    • Full cost pricing

    • Metering every-where

    • Urban reform

      • Phase in house by house charging

      • Install smart meters

      • Phase out all concessions

      • Phase out all block pricing

    • Rural reform

      • Eliminate administrative barriers to trade

      • Allow entitlement conversion

      • Restore all systems to health using market

      • Replace planning with entitlement-based management

    • Water Act (2007) is inconsistent with the NWI


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    Water Trading

    • Urban-rural trading is a global must

      • 2 billion more people will need to drink and will want access to goods only produced in factories

      • Agriculture will have to get more efficient

    • Still many “clever” administrative barriers

    • The environment should become a key player in the market

      • Is the MDB Authority throwing the baby out with the bath water?


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    Annualised return to water reform

    After Bjornlund & Rossini 2007


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    Water accounting matters

    • Improvements in water use efficiency come at a big cost to rivers

    • Forests, farm dams, overland flow capture water

    • Need to assume groundwater is connected to a river

    • MDB Guide found that the cost of not dealing with water accounting has major (in-equitable) consequences

      • up to 37% reduction in water entitlements if interception excluded, only 29% if included


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    Concluding observations

    • The sooner systems are restored to health the better

    • Trading is essential for prosperity and environmental health in a rapidly changing world

    • Design your entitlement regime to facilitate rapid adjustment in an ever changing world

    • But get your accounting right

    • Price at full cost and let markets deliver scarcity signals – long and short-term

    • Make sure the environment’s future is secure as all user’s future – force risks to be shared

    • Design constellation of governance arrangements to drive innovation and manage rapid emergence of scarcity

      • Allow autonomous adjustment

      • Drive innovation

      • Expect water availability to go down as product prices and water prices go up

      • Enjoy the prosperity that these challenges will bring collectively

    • See increased water scarcity as opportunity


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    www.adelaide.edu.au/environment

    www.myoung.net.au