Adam Loch

Allocation Trade in Australia: A Qualitative Understanding of Irrigator Motives and Behaviour

Governments in Australia are purchasing water entitlements to secure water for environmental benefit, but entitlements generate an allocation profile that does not correspond fully to environmental flow requirements. Therefore, how environmental managers will operate to deliver small and medium-sized inundation environmental flows remains uncertain. To assist environmental managers with the supply of inundation flows at variable times, it has been suggested that allocation trade be incorporated into efforts aimed at securing water. This paper provides some qualitative and quantitative perspective on what influences southern Murray–Darling Basin irrigators to trade allocation water at specific times across and within seasons using a market transaction framework. The results suggest that while irrigators now have access to greater risk-management options, environmental managers should consider the possible impact of institutional change before intervening in traditional market activity. The findings may help improve the design of intervention strategies to minimise possible market intervention impacts and strategic behaviour.

Drought and the rebound effect: a Murray–Darling Basin example

Droughts are natural hazards, to which irrigators must adapt. Climate change is expected to increase both the frequency and severity of future droughts. A common adaptation is investment in water-efficient technology. However, increased efficiency can paradoxically result in rebound effects: higher resource demand among consumptive users, and lower flow benefits for environmental users. Under an assumption of increasing future drought conditions, we examine anticipated rebound effect impacts on environmental and private irrigator water availability/use outcomes from current water efficiency-centric policy in Australia’s Murray–Darling Basin. We determine that rebound effects for environmental and private irrigation interests are likely. Our results identify greater technological change and higher consumptive land and water demand in northern Basin annual production systems, as irrigators switch to perennial cropping systems under subsidization incentives. Policy incentives to encourage water use efficiency paradoxically reduce environmental flow volumes on average. We find that environmental policy objectives will only be achieved when water is not a binding production constraint, typically in wet states of nature.

Achieving targeted environmental flows: alternative allocation and trading models under scarce supply-lessons from the Australian reform process

The problem of water overallocation in many regions of the world involves how to include environmental flow provisions for long-term sustainability of river systems, especially under scarce supply conditions. Market mechanisms have provided pathways for returning water to rivers for environmental use. We argue that it is important to consider how both market mechanisms and initial water allocation models contribute to achieving satisfactory environmental flow outcomes. The Murray-Darling Basin (MDB) in Australia has had policy processes applied to it for almost twenty years to address these issues, and provides an excellent basis for case-study analysis. Two MDB case studies are used to consider differences in the interpretation and implementation of environmental flow requirements, and the potential for institutional inertia of the systems within which water markets operate. We identify two simplified models from these case studies—one prioritising environmental rights above consumptive extraction and the other prioritising consumptive and environmental rights equally. However, neither of these case-study models provides the full environmental flow spectrum of base in-stream flows to over-bank flush events. Our findings suggest that combining allocation and market-based rights (a third model) offers an effective means to deliver full-spectrum environmental flows. If governments provide prioritised environmental rights for base in-stream ecosystem benefits, together with targeted temporary and permanent water market acquisitions to meet environmental needs associated with over-bank floods and flushes, there will be lower potential for shortfalls relative to targeted environmental flow outcomes.

Water Trading in Australia: Tracing its’ Development and Impact Over the Past Three Decades

This chapter describes why and how water markets have evolved in Australia. The various changes that have occurred in Australia’s water markets from their early inception to their current relative maturity are canvassed throughout. It outlines how various groups—mainly irrigators and governments—have used water markets, as well as some of the general benefits (and costs) that are associated with water markets, including environmental costs.

Adaptation responses to increasing drought frequency

Using state contingent analysis, we discuss how and why irrigators adapt to alternative water supply signals. Focusing on the timing of water allocations, we explore inherent differences in the demand for water by two key irrigation sectors: annual and perennial producers. The analysis explores the reliability of alternative water property right bundles and how reduced allocations across time influence alternative responses by producers. Our findings are then extended to explore how management strategies could adapt to two possible future drier state types: (i) where an average reduction in water supply is experienced; and (ii) where drought becomes more frequent. The combination of these findings is subsequently used to discuss the role water reform policy plays in dealing with current and future climate scenarios.

Managing Water Scarcity at a River Basin Scale with Economic Instruments

This paper presents a conceptual framework for both assessing the role of economic instruments, and reshaping them in order to enhance their contribution to the goals of managing water scarcity. Water management problems stem from the mismatch between a multitude of individual decisions, on the one hand, and the current and projected status of water resources on the other. Economics can provide valuable incentives that drive individual decisions, and can design efficient instruments to address water governance problems in a context of conflicting interests and relevant transaction costs. Yet, instruments such as water pricing or trading are mostly based on general principles of welfare economics that are not readily applicable to assets as complex as water. A flaw in welfare economic approaches lies in the presumption that economic instruments may be good or bad on their own (e.g., finding the “right” price). This vision changes radically when we focus on the problem, instead of the instrument. In this paper, we examine how economic instruments to achieve welfare-enhancing water resource outcomes can realize their full potential in basin-scale management contexts. We follow a political economy perspective that views conflicts between public and private interest as the main instrumental challenge of water management. Our analysis allows us to better understand the critical importance of economic instruments for reconciling individual actions towards collective ambitions of water efficiency, equity and sustainability with lessons for later-adopting jurisdictions. Rather than providing panaceas, the successful design and implementation of economic instruments as key river basin management arrangements involves high transaction costs, wide institutional changes and collective action at different levels.

Water Trade Alternatives in the Face of Climate Change

Purpose – Prolonged drought and climate change uncertainty have created an urgent need to re-distribute water away from irrigators and back to environmental flows. Previous approaches to achieve this objective have had mixed results. The current approach focuses on purchasing water from irrigators to bolster river flows for ecosystem health. However, governments are purchasing entitlements, not allocations, which do not provide large amounts of water for the money that is spent. This paper aims to review the policies and events that have driven this process. Design/methodology/approach – Following a the review of the policies and events, the paper identifies how the regulatory/market-based approaches have resulted in a status quo or path dependent situation, to the detriment of achieving sustainable water use. Findings – Previous approaches have so far simply maintained path dependency, i.e. the consumptive pool at more or less existing levels. Government intervention to purchase entitlements from irrigators for the environment through water markets is meant to break the status quo, but questions whether this can be achieved from a solitary focus on entitlement recovery. Practical implications – It is suggested that both historical approaches offer less reform value, and that appropriate market intervention is warranted. However, entitlement water purchasing alone may limit provision of wet water to key environmental sites during critical periods and perpetuate a continuation of the path dependency arrangements. Originality/value – A suggested expansion of the water-purchasing programme that utilises allocation based products to meet adaptive environmental flow strategies is provided. Such an approach may offer a more suitable framework for dealing with the uncertain outcomes of climate change and ecosystem needs.

The Development of Virtual World Tools to Enhance Learning and Real World Decision Making in the Australian Sugar Farming Industry

In farming, the outcome of critical decisions to enhance productivity and profitability and so ensure the viability of farming enterprises is often influenced by seasonal conditions and weather events over the growing season. This paper reports on a project that uses cutting-edge advances in digital technologies and their application in learning environments to develop and evaluate a web-based virtual ‘discussion-support’ system for improved climate risk management in Australian sugar farming systems. Customized scripted video clips (machinima) are created in the Second Life virtual world environment. The videos use contextualized settings and lifelike avatar actors to model conversations about climate risk and key farm operational decisions relevant to the real-world lives and practices of sugarcane farmers. The tools generate new cognitive schema for farmers to access and provide stimuli for discussions around how to incorporate an understanding of climate risk into operational decision-making. They also have potential to provide cost-effective agricultural extension which simulates real world face-to-face extension services but is accessible anytime anywhere.

Framing effects and benefit transfer in the Fitzroy basin

Policy makers are often interested in how estimates of the value of an environmental asset may be disaggregated into component pieces. This is particularly the case when they are seeking to transfer benefit estimates made in one situation to related circumstances. This is the case for the environmental values of the Fitzroy River basin in Central Queensland. The basin comprises several smaller catchments that share similar development opportunities, environmental issues and water resource constraints. This paper describes an application of the choice modelling technique to estimate values for the basin as a whole and two of the smaller catchments to determine how values may be related. Comparisons are undertaken to assess the validity of the choice modelling approach to benefit transfer issues in environmental valuation studies.

Purchasing Water to Create Sustainable Systems: Where Does this Leave the Regulatory Approach?

Prolonged drought and climate change uncertainty has made a sustainable balance between uses of water much more urgent. Previous strategies have revolved around regulatory approaches to reduce the consumptive pool, and leave more water in the rivers for the environment. These approaches have had limited success. Increased emphasis is now placed on purchasing entitlements from irrigators for environmental water. This paper reviews the events and policies which have driven this process and identifies what role the regulatory approach is now expected to play in achieving sustainable water uses. We suggest that the regulatory approach suffers as a result of a cycle of ‘decision deferment’ and consequently offers diminishing value. However, the water purchasing plan may equally limit the likelihood of ensuring adequate wet water to protect key environmental sites during critical periods. A suggested expansion of the water purchasing programme is therefore provided.