Topic Area: Water Conservation

Geographic Area: Australia

Focal Question: What are the results of Australia’s most recent efforts to improve water availability?

Sources:

(1) McMahon, T. Finlayson, B. “Droughts and anti-droughts: the low flow hydrology of Australian rivers.” Freshwater Biology; July 2003, Vol. 48 Issue 7, p1147-1160, 14p.

(2) Nowak, Rachel. News Review 2007: Australia's drought crisis. New Scientist; 12/22/2007, Vol. 196 Issue 2635/2636, p17-17, 1p.

(3) Quiggin, John. “Key issues in Australian water policy.” Australian Research Council Federation Risk and Sustainable Management Group. University of Queensland. 22p.

(4) Bi, Peng. Parton, Kevin A.“Effect of climate change on Australian rural and remote

regions: What do we know and what do we need to know?”

Reviewer: Robert Gorman, Colby College '08

Review:

Australia is currently dealing with its worst drought in approximately 1000 years. In the ten years since the drought began it has transformed numerous aspects of Australian culture. In particular, climate change threatens Australia’s significant competitive advantage relating to superior grasslands and associated crops (Peng 2). While periods of adequate rainfall preceded this most recent drought, warmer and drier weather have been the general trend since 1970 (Quiggin 4). High temperatures lead to high levels of evaporation and decreased stream levels at given levels of rainfall. These stream levels are the largest indicators of falling access to water in a given area. Rainfall itself has decreased in Southern Australia as a result of drier conditions. According to a number of studies, increased heat and resulting impacts on the environment are almost certainly due to global warming caused by humans. Quiggin remarks, “the observed pattern of changes in rainfall is broadly consistent with the predictions of climate models” (4). Regardless of the source, policy will need to adapt to new conditions.

Due to the recent extended drought, water restrictions are currently in place in all of Australia’s mainland capitals (Quiggin 12). These restrictions have brought the current cost of a kiloliter of water to 70 cents. While this is fairly inexpensive in relation to other basic human necessities, a decrease in the supply of water can greatly increase water prices at the margin due to high pumping and transportation costs (5). Because supply is difficult to regulate, effective strategies often decrease demand. Most economic studies suggest that the most effective way to regulate demand is to change prices (12).

The Australian government’s conservation approach has been three-pronged. First, the government has encouraged construction of a number of dams and irrigation projects in order to increase supply. Projects in the past have generally been heavily subsidized and were rarely subjected to economic analysis. In 2005, for example, a 3700-kilometer canal from Kimberleys to Perth proposed by the Tenix Corporation was supported by influential government leaders. A state election removed these leaders from office, but later analysis determined that water would have been delivered from the canal at a cost of $10 per kiloliter, several times the cost of other sources. In fact, shipping water by tanker would have been cheaper (Quiggin 5). It would even have been cheaper to move farming north then to move water south (6).

The maximum amount that people would realistically spend for a kiloliter of water is $1.50, the approximate cost of desalination and water recycling. Irrigated water is generally cheaper than this, but meeting a person’s basic water requirement of around 50 liters per day is feasible (Quiggin 14). Melbourne is currently constructing a US$ 2.6 billion desalination facility (Nowak 1). A recently constructed desalination plant in Perth provides water for $1.16 per kiloliter. Desalination is fairly energy-intensive, and it is therefore largely dependent on energy costs. Recycling costs less, but people tend to be concerned with the health implications of such practices (Quiggin 6).

The Australian national government and several state governments have made efforts to implement tradable water rights that will help to put an effective price on water. The ‘National Water Initiative’ was announced in 2004, and the program has had little success for a number of reasons. First, the government allocated far too many rights. Users were given their traditional allocations regardless of whether they were using them or not, and the new market for these credits made it profitable for users who were not using their credits to sell them (Quiggin 8). As the system was being implemented, owners attempted to capture water that would later become valuable to them, increasing overall water demand (9). On top of this, different regions encountered fairly different situations regarding the amount of water they had access to. New South Wales and South Australia agreed to standardize their trading credits, but, on the whole, trading markets were not fully developed and people and companies were left unsure of just how reliable water rights were (9, 11). While some bodies called for federal regulation, climate differences and water transportation difficulties between states made standardization implausible.

The cap did, however, decrease the number of large-scale extractions, which tend to have a number of harmful environmental effects. First, free extraction on a large scale tends to be very wasteful because users have no reason to limit their consumption. Average flow of streams decreases due to these extractions while variance decreases because of planned releases during times of low flow (Quiggin 17). As mentioned previously, the summer months have always been periods with little water, and species in Australia have adapted to these differences. Current management of water levels now brings flows to their peak during the summer months because these are the months when demand for water is the greatest. Native species that are not adapted to these conditions now face the difficulty of new surroundings, and the changes may lead to the dominance of introduced species (17). Analysis by McMahon reveals that natural Australian ecosystems are more than prepared to deal with the extended dry periods that have been occurring and calls inconsistency through time “an important feature of Australian rivers” (McMahon 1,18).

Attempts to implement block-pricing strategies have also met with difficulties. Household expenditure on water grows in proportion to income. This being said, water demand is fairly inelastic at low levels of consumption. The government would therefore like to increase prices at the margin without significantly increasing overall expenditure. Block tariffs accomplish this, but tend to discriminate against large families whose additional members will use more water by nature (Quiggin 14).

A study commissioned by the Australian government came to the conclusion that 1,500 gigaliters was the minimum increase that Australia needed to its median natural flow of 10,000 gigaliters. The National Water Initiative, while a start, committed to increase flows by just 500 gigaliters per year (Quiggin 18-19). Australia will only fix its problems when it can drop supply and/or demand to effective levels in the short and long run. Permanently high prices will make it profitable to invest in water-saving technologies and for the lifestyles of individuals to adjust. Longer time periods will ease transition, and these adjustments are difficult to make in the short run. Conversely, restrictions on quantity tend to work very well when people and companies are feeling the pain of water shortages, but not in the long run when people have time to adjust their lifestyles in order to work around imposed restrictions. Prices therefore appear to be the ideal long-term solution, while quantity restrictions can help governments deal with short-term shocks (14).