Stuart M. Whitten

A biophysical and economic model of agriculture and water in the Murray-Darling Basin, Australia

Economic analysis of climate scenarios and alternative water policies is critical for development and implementation of appropriate water policies and programs. Mathematical models have been developed to assess water resources policies due to their ability to explicitly represent the biophysical dynamics of natural systems while integrating these within social and economic constraints. These models have been criticised, however, due to the problems of simplification, overspecialisation, plausibility and lack of empirical validation. This paper introduces a mathematical programming model which uses positive mathematical programming method to calibrate and model agriculture and water use in the Murray-Darling Basin of Australia. This paper reviews the theoretical and technical details of the model development including the key steps taken in collating and scaling the biophysical and economic data, and to address model parameterisation issues. The paper summarises results of an application of the model for assessing climate change impacts in the form of reduced rainfall and water allocations and increased crop water use for agricultural production. The results show the degree of variability in gross values under different climate scenarios compared to the base case scenario, especially in very dry years. The results also show how on-farm adaptation options and water markets can mitigate these losses.

Factors determining the economic value of groundwater

Increasing groundwater extraction threatens aquifer sustainability for future generations. Making the best use of limited groundwater resources requires knowledge of its alternative extractive and non-extractive values, as well as the cost of extraction and the hydrological interlinkages between alternative uses. Groundwater value is driven by a number of factors including its supply and demand and institutional and policy factors. These factors and how they affect value of groundwater are described. Also described are the various components relevant to the economic valuation of groundwater and there is discussion on the potential difficulties in their practical estimation. It is argued that groundwater management is essential when there are large potential spatial and temporal externalities related to groundwater pumping. Maintaining non-extractive and option values is likely to require trade-offs with current extractive uses. Well-informed management will be required to allocate groundwater efficiently between different users such as agriculture, industry and the environment, while also balancing the needs of current and future generations.RésuméUn prélèvement croissant d’eau souterraine menace la pérennité de l’aquifère pour les générations futures. Faire le meilleur usage de ressources souterraines limitées nécessite une connaissance de la valeur des alternatives exploitation ou non exploitation, de même que le coût de l’exploitation et les interférences entre les utilisations alternatives. La valeur de l’eau souterraine est conditionnée par un certain nombre de facteurs incluant l’offre et la demande et les facteurs institutionnels et politiques. Ces facteurs et la façon dont ils affectent la valeur de l’eau souterraine sont décrits. Sont de même décrites les diverses composantes relatives à l’évaluation économique de l’eau souterraine avec discussion sur les difficultés potentielles de leur estimation pratique. On argumente que la gestion de l’eau souterraine est essentielle quand le pompage a des incidences spatiales et temporelles externes importantes. Une gestion bien documentée sera nécessaire pour répartir l’eau efficacement entre les différents utilisateurs tels l’agriculture, l’industrie, l’environnement, et aussi pour satisfaire les besoins des générations actuelles et futures.ResumenEl incremento de la extracción de agua subterránea amenaza la sustentabilidad de un acuífero para generaciones futuras. Hacer el mejor uso de los limitados recursos de agua subterránea requiere un conocimiento de sus valores alternativos extractivos y no extractivos, así como el costo de extracción y las interrelaciones hidrológicas entre los usos alternativos. El valor del agua subterránea está impulsado por una serie de factores que incluyen el suministro y la demanda y factores políticos e institucionales. Se describen estos factores y como afectan los valores del agua subterránea. También se describen los varios componentes relevantes para la valuación económica del agua subterránea y una discusión sobre las dificultades potenciales en su estimación prácticas. Se argumenta que el manejo del agua subterránea es esencial cuando existe un gran potencial de externalidades espaciales y temporales relacionadas al bombeo de agua subterránea. El mantenimiento no extractiva y los valores de opción es probable que requieran ventajas y desventajas con los usos extractivos actuales. Un manejo bien informado será requerido para localizar agua subterránea eficientemente entre los diferentes usos tales como agricultura, industria y el ambiente, mientras también un balance de las necesidades de las generaciones actuales y futuras.摘要增大地下水的开采量威胁着子孙后代对含水层的可持续利用。为了充分利用有限的地下水资源,需要了解有关其抽取价值和非抽取价值的知识,此外,抽取的成本和两种用途间的水文联系也是需要了解的。地下水的价值由包括供需情况、制度政策等的多个因素决定。文中阐述了这些因素以及这些因素是如何影响地下水的价值的。与地下水的经济评价相关的各种要素也在文中有所涉及,另外,还讨论了在实际评价工作中的潜在的困难。本文认为,当存在与地下水开采相关的大量潜在时空外部因素时,地下水管理是必要的。维持非抽取价值和选择价值可能需要与当前的抽取价值权衡。全面的管理需要在不同的使用者之间有效地分配地下水,如农业、工业和环境,同时也要平衡当代和后代对地下水的需求。ResumoO aumento da exploração das águas subterrâneas ameaça a sustentabilidade dos aquíferos para as gerações futuras. Fazer o melhor uso dos limitados recursos hídricos subterrâneos requer o conhecimento dos seus valores extrativos e não extrativos alternativos, assim como o custo de extração e as interligações hidrológicas entre usos alternativos. O valor da água subterrânea é impulsionado por uma série de fatores, incluindo a oferta e a procura e os fatores institucionais e políticos. Neste artigo, são descritos esses fatores e o modo como eles afetam o valor das águas subterrâneas. Também são descritas as várias componentes relevantes para a avaliação económica das águas subterrâneas e discutidos os possíveis problemas que se colocam na sua estimação. Argumenta-se que a gestão de águas subterrâneas é essencial quando há potenciais externalidades espaciais e temporais. Manter valores não extraíveis e opcionais é o mesmo que requerer valores comerciáveis com as atuais utilizações extrativas. Uma gestão adequada requer alocar eficientemente as águas subterrâneas entre os diferentes utilizadores, tais como a agricultura, a indústria e o ambiente, ao mesmo tempo que se equilibram as necessidades das gerações atuais e futuras.

How real options and ecological resilience thinking can assist in environmental risk management

In this paper, we describe how real option techniques and resilience thinking can be integrated to better understand and inform decision-making around environmental risks within complex systems. Resilience thinking offers a promising framework for framing environmental risks posed through the non-linear responses of complex systems to natural and human-induced disturbance pressures. Real options techniques offer the potential to directly model such systems including consideration of the prospect that the passage of time opens new options while closing others. The implications (cost) of risk can be described by option prices that describe the net present values generated by alternative regimes in the resilience construct, and the shadow prices of particular attributes of resilience such as the speed of return from a shock and the distance or time to transition. Examples are provided which illustrate the potential for integrated resilience and real options approaches to contribute to understanding and managing environmental risk.

A framework for considering externalities in urban water asset management

Urban communities rely on a complex network of infrastructure assets to connect them to water resources. There is considerable capital investment required to maintain, upgrade and extend this infrastructure. As the remit of a water utility is broader than just financial considerations, infrastructure investment decisions must be made in light of environmental and societal issues. One way of facilitating this is to integrate consideration of externalities into decision making processes. This paper considers the concept of externalities from an asset management perspective. A case study is provided to show the practical implications to a water utility and asset managers. A framework for the inclusion of externalities in asset management decision making is also presented. The potential for application of the framework is highlighted through a brief consideration of its key elements.

The agistment market in the northern Australian rangelands: failings and opportunities

Agistment is the practice of temporarily moving stock between properties, and is used by pastoralists both to strategically develop their enterprises and as a response to environmental heterogeneities such as variation in rainfall. This paper considers the agistment market in the northern Australian rangelands using the ‘market failure framework’. This form of economic analysis identifies failings in a market, thus, provides a rigorous basis for designing interventions intended to improve market performance. Drawing on interviews with pastoralists from the Dalrymple Shire in Queensland we conclude that, although agistment is widely used, there are several failings in the existing market which are likely to result in overall agistment activity being far less than optimal. The market failure analysis indicates that key issues relate to the lack of a common marketplace, asymmetric information on the characteristics of the other party in an agreement, and a lack of mutual expectations at the outset. Innovations with the potential to overcome these failings, while minimising the transaction costs involved in entering an agistment agreement, are discussed.

An optimisation modelling approach to seasonal resource allocation for planned burning

Burning of fine fuels is a crucial activity in Australia as part of reducing the severity of bushfires. Seasonal planning of such planned burning is a very complex task owing to the large number of practical considerations and uncertainty of burn conditions, as well as personnel and equipment resource constraints. Practical considerations include the small number of suitable burn days for different types of burns, as well as different fuel hazard and burn types. This requires careful management of very high resource requirements during the available days. We developed a tool that will use all of the above variables to estimate the resource requirements for different levels of planned burning program. We provide a mathematical programming approach to help plan burning crews and equipment resource requirements in each district by month to minimise likely personnel requirements, under seasonal uncertainty. A key feature is that it accommodates maximum daily resource demands given uncertainty in available burn days and overlap between geographical districts. We implemented the model on a real-world problem of public land across Victoria, and solved it to optimality using GAMS/Cplex 9.

Wetland Management Trade-offs in the Upper South-East of South Australia

Managers face a range of alternatives when deciding how to use their wetland resources. Alternative wetland uses provide different monetary and non-monetary benefits/ costs dependent on the characteristics of the wetland and the management strategies employed. Furthermore, the benefits and costs of alternative wetland uses are not restricted to individual wetland managers. They may spill over to other members of the community. Hence decisions by private managers alter the available benefits and costs of wetlands to society as a whole.

Transferable Mitigation of Environmental Impacts of Development: Two Cases of Offsets in Australia

Transferable offsets are a means of mitigating the adverse environmental impacts of resource developments. Based on insights from institutional economics, there are three elements that need to be in place for offsets to be effective: (1) property rights over the mitigating good can be defined and assigned; (2) a difference exists between the marginal cost of supplying the mitigating good and the communitys marginal value for it; and (3) the transaction costs of exchanging the mitigating good are less than the trade benefit. We suggest that these elements can be used to evaluate the design and performance of offset schemes and illustrate how this can be done using two Australian environmental offset schemes. Trade-offs between cost and environmental outcomes are apparent in the design and operation of these schemes.

AKX – An Exchange for Predicting Water Dam Levels in Australia

The Australian population in rural and urban areas is heavily influenced and affected by such water shortages, either economically or in their life style. Managing water resources is therefore seen as a critical environmental, social and economic issue. Good forecasts can provide better understanding for the current situation (e.g. drought severity) and consequently improve decision making.

Transaction costs in agri-environment schemes

• Transaction costs of agri-environment schemes include the time, effort and expense of gathering information, identifying projects, negotiating contracts, and monitoring and compliance. • They are incurred by participants, scheme proponents and administrators and can be significant, impacting not only on total scheme costs, but also on efficiency. • Transaction costs are directly related to both scheme design and scheme implementation. • Considering transaction costs does not necessarily mean reducing them — indeed, efficient program design may require increased transaction costs in order to more confidently deliver the desired outcome.