12 December 2014 Australian Water Association

change&grow

Submission to the Agricultural Competitiveness Greenpaper

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Introduction

The Australian Water Association (AWA) welcomes the opportunity to comment on the draft

report of the Agricultural Competitiveness Green Paper.

AWA is Australia’s leading membership association for water professionals and

organisations, representing over 4500 individual and 600 corporate members. The

Association is independent and plays an essential role in supporting the Australian water

sector in the delivery of effective and sustainable water management practices. Our mission

is to foster knowledge, understanding and advancement in sustainable water management –

its science, practice and policy – through advocacy, collaboration and professional

development.

AWA’s submission is in response to Chapter 9.

Chapter 9 – Water and natural resource management

The Association agrees that the sustainable use of land and water resources underpins

agricultural production in Australia. It is clear that by increasing Australia’s area of irrigated

agricultural land, we can significantly increase our agricultural output, which would result in

better net incomes and security of incomes for our farmers, as well as increased export

dollars for Australia. An increased capacity to increase agricultural output to an ever growing

and increasingly urbanised population in Asia is a positive outcome. The opportunity to

improve our national agricultural output and the associated positive attributes that irrigated

agriculture will have to land owners, local regional communities and the Australian economy

needs to be carefully assessed in the context of the potential harm that irrigated agriculture

and dams may bring to local and regional ecosystems.

Policy idea 18 – Improving water infrastructure and markets: Developing our water

infrastructure and improving the efficiency of water trading markets are integral to the

competitiveness of Australia’s irrigation industries. Stakeholders suggested some ideas to

improve water infrastructure, markets and administration. These included:

a) Investment in new dam and infrastructure projects and opportunities to improve

water-use efficiency or increase the amount of water available to agriculture through

infrastructure projects;

b) Providing a 50 per cent per year deduction over three years for investment in on-farm

water reticulation infrastructure; and

c) Improving the functioning and flexibility of water trading markets, such as through

counter-cyclical temporary trade of environmental water by the Commonwealth

Environmental Water Holder and regulating trading of water by speculators.

Our submission will address each proposal under Policy idea 18 in turn.

A. DAMS AND WATER INFRASTRUCTURE

AWA agree with the need to optimise water infrastructure to ensure the most valuable use of

our water resources. We believe that this should be a long-term committed and planned

approach that optimises economic, social and environmental water given all the water

sources in that area.

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Securing water supplies - utilising a portfolio of options

The Association agrees with the Government, that improving regional infrastructure now will

not only assist in drought-proofing Australia, but also has the potential to improve the

productivity of our agricultural land.

A portfolio of options including water efficiency programs, alternative water sourcing and

education are all other mechanisms that should be considered in addition to new dams.

Further, it needs to be ensured that investment is not just spent on large water infrastructure

projects, but also looks to address the deficiencies in drinking water quality, wastewater

treatment and capacity to meet the growing populations of our regional areas.

Selection of options for the portfolio should be made through a robust and transparent

comparison of all demand and supply options, examining the social, environmental and

economic costs and benefits and taking into account the specific water system

characteristics. The aim is to optimise the economic, social and environmental outcomes

and reduce system reliability risks, recognising that in most cases there is no one option that

will provide a total solution.

Assessing the viability of new dams

In the 2014 AWA/Deloitte State of the Water Sector Report the survey gauged the water

sector’s views on dams and their impact on ensuring water security. This follows continued

debate about the potential for constructing new dams and increasing dam capacity,

particularly for irrigation purposes. Fifty-five per cent of respondents at least somewhat

agreed that there is scope for more dams to provide additional water supplies. Thirty-seven

per cent of respondents either strongly agreed, agreed or somewhat agreed that we should

have more big dams in the south of Australia, (such as the Murray-Darling Basin and the

South-east coastal areas). Forty-five per cent agreed we should have more big dams in the

North of Australia, (such as North-West WA, NT, Far North QLD). When asked if dams were

an effective way to manage water security where they lived, 84% strongly agreed, agreed or

somewhat agreed.

While this shows that water professionals believe there is scope for more dams, AWA

believe the feasibility of each proposal should be assessed on a case by case basis, and

have regard to the following factors:

Dams are potent symbols of national pride and enterprise, so it is very important for the enthusiasm to be balanced by a sober appreciation of the history and realistic future of dam building.

A genuine assessment of dam sites - Australia’s dam construction has flat-lined,

potentially because all the feasible locations for new dams have been taken and

building dams in less-than-ideal locations can result in cost blow-outs or excessive

water loss through evaporation and partly because of overly burdensome regulatory

requirements. With advances in technology that can, for example, reduce

evaporation, even sites that may previously have been considered less-than-ideal,

may now be feasible.

Transparency around who will pay for the capital cost of construction and ongoing

costs – full cost-reflective pricing is critical if economically efficient allocation of water

resources and investment in them is to be made, but where this is not deemed

feasible, any subsidies are fully transparent and bounded. These principles were first

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agreed in the 1994 COAG Water Reform Framework and were endorsed in

subsequent reforms on the basis of public policy justifications of the indirect benefits

of subsidies.

Inviting the private sector to invest in dams wherever possible.

An open and transparent cost-benefit analysis where taxpayers’ funds are employed – In the December 2014 issue of the Association’s Water Journal Quiggin et al.

provide the example of the Ord River Scheme which resulted in a net loss between 1958 and 1991 (the government invested A$613 million, but the benefits were A $102 million), yet the expansion of the project has continued, with increasing net losses.

Dams have, for thousands of years, proven a dependable and cost-effective way of

managing water resources and they provide various ancillary benefits including

scope for hydro-electric power generation, flood mitigation, environmental

management (e.g. releases of water to preserve waterbird breeding habitats in

extreme drought) and recreational activities.

Australia needs a dam-planning strategy that incorporates climate-related

uncertainties.

The Water Infrastructure Options Paper is a useful compendium of the range of water

infrastructure projects on the drawing board across Australia. However, while the options

paper has several allusions to the need for robust cost-benefit analysis, there is no evidence

that this has actually been done.

In addition to the above economic and social considerations, the following environmental

concerns should be taken into consideration. Areas of intensive agriculture, usually

associated with irrigated mono-cropping of large areas of land (e.g. cotton), can, if not

managed carefully, generate a number of adverse environmental effects predominantly

associated with potential contamination of surface water receiving environments with

elevated levels of nutrients, suspended solids and pesticide residues. The effects of elevated

levels of nutrients, pesticides and suspended solids on surface water quality cumulatively

generated by large areas of irrigated land is observed both locally as well as regionally, and

may even impact areas of high ecological value; for example, the effects of irrigated and

non-irrigated agriculture along Queensland freshwater waterways (e.g. Burdekin River) and

on the Great Barrier Reef have been well described in the literature. Furthermore, the

construction of dams will have a significant impact on the natural flow regime of

watercourses, perturbation of which will have significant effects on the river’s aquatic

ecosystems. It is very well recognised that in Australia, the natural hydrological cycle of a

watercourse is a crucial river health parameter that drives the local ecological processes. It

is also recognised that these effects can be mitigated and, indeed, environmental benef its

can be obtained through the careful management of water stored in dams as we have seen

with the Commonwealth Environmental Water Holder’s releases of water from dam storage

for environmental purposes.

From an environmental perspective, irrigated agriculture as a land-use should be regarded

differently from resource extracting industries, in that large-scale irrigated agricultural

activities, if done properly, are an indefinitely sustainable form of land use. With regular

monitoring of waterways, we should be able to make sure that water quality and river health

is maintained, and that the ecosystem services of the area are protected. The data

generated needs to be made publicly available on the regulator’s website to ensure

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transparency and to inform the public that dam construction and associated irrigated

agriculture has not resulted in unacceptable adverse impacts to the area’s watercourses.

Adverse environmental impacts should be mitigated where it is practical to do so and they

must be weighed against economic and social benefits. Environmental considerations alone

should not be determinative.

Financing infrastructure by attracting public and private to the water sector

AWA understand it’s critical to maintain and augment Australia’s water infrastructure and

acknowledge that Commonwealth funding is important to doing so. AWA believe the seven

principles for determining when there should be Commonwealth involvement are sound and

should be adhered to.

Principles for Commonwealth involvement in water infrastructure projects

Projects need to be nationally significant and in the national interest

There must be strong State or Territory government support with capital contribution

and involvement of the private sector and where appropriate local government

The investment should provide the highest net benefit of all options available to

increase access to water, taking into account economic, social and environmental

impacts

Projects should address a market failure which cannot be addressed by proponents,

State or Territory governments or other stakeholders and limits a project of national

significance from being delivered

Projects should align with the Government’s broader infrastructure agenda to

promote economic growth and productivity, or provide a demonstrable public benefit

and address a community need

Projects should align with the National Water Initiative principles including

appropriate cost recovery, and where full cost recovery is not deemed feasible, any

subsidies are fully transparent to the community

If providing capital, a consistent, robust analysis of costs and benefits is used and

assessment is undertaken by Infrastructure Australia or similar experts

AWA strongly endorses compliance with the National Water Initiative (NWI) principles.

However, AWA is calling for reinvigoration of the NWI to ensure renewed priority reform

objectives are agreed upon and endorsed by all jurisdictions.

Infrastructure projects seeking $100 million or more in Commonwealth funding must be

submitted to Infrastructure Australia (IA) for evaluation before being considered for funding

by Government. Proponents must include a cost benefit analysis in their submission.

In addition to Commonwealth funding, the paper details that the infrastructure will be

financed by State and private investment where feasible. However, what’s needed is a

discussion of how the sector will attract this additional funding. In particular, AWA believes

that to attract investment into the water sector the following reforms are critical:

Minimise regulatory burden (in order to lower barriers to entry and compliance costs)

under a simplified legal and regulatory framework which is more conducive to

business and ensures that regulatory and approval processes are as inexpensive,

quick and efficient as practicable;

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Harmonisation of regulation between the Commonwealth, States, Territories, local

governments and related agencies to the maximum extent practicable in a consistent

national framework;

Removal of barriers to entry and opening up the water sector to greater competition,

including by requiring water utilities to allow third parties access to water and

wastewater infrastructure; and

Allowing more effective price signals in the water market.

B. TAXATION CONCESSION FOR WATER RETICULATION INFRASTRUCTURE

Providing a 50 per cent per year deduction over three years for investment in on-farm water

reticulation infrastructure

In this proposal, farmers are provided financial incentives, through a tax deduction to

adopt irrigation efficiency measures. On farm irrigation efficiencies can be beneficial, but

these measures should also be considered in the context of the full portfolio of options to

ensure environmental, social and economic outcomes are optimised.

C. WATER MARKETS

Improving the functioning and flexibility of water trading markets, such as through counter-

cyclical temporary trade of environmental water by the Commonwealth Environmental Water

Holder and regulating trading of water by speculators.

AWA believe that there is still substantial progress that can be made in water markets, some

suggested areas of progress are detailed below.

Compatible entitlements, registry and regulatory arrangements

The NWC’s 2014 assessment found that there has been improvement in the functionality of

state registers since 2004, with the Victorian registry setting the benchmark in this area. It

found that areas for improvement include improving public access to jurisdictional registers

and facilitating data searches within these registers.1

An appropriate mix of water products

Water access entitlements and allocations are still the most widely traded products. There is

potential to increase the flexibility of water users through the development of secondary

markets. Secondary market products are exempt from financial product regulation. There is

some evidence that traders have started to offer forward contracts for water products that

are settled at the time of trade, however there is potential for a more sophisticated market for

water to develop.

Regulating trading of water by speculators

Most jurisdictions have implemented NWI compliant entitlements, except for Western

Australia and the Northern Territory. In these jurisdictions there are conditions on water use

to avoid entitlements being held and not utilised by market spectators. Outside of these

jurisdictions and in the primary water market in the Murray-Darling Basin there are views that

speculators can enhance the liquidity of markets and provide price discovery functions.

1 National Water Commission, Australia’s water blueprint: national reform assessment 2014, http://www.nwc.gov.au/__data/assets/pdf_file/0008/37673/Part-1-accessible-PDF-for-web-NWC-Australias-water-blueprint_national-reform-assessment-2014.pdf, pg 40.

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Water Rights of Indigenous communities for economic purposes

There is evidence that there is at present a lack of clear and specific measures for

indigenous water values and for their access to water resources.2 In New South Wales and

Queensland there has been specific provision for Indigenous water use in the form of

cultural access licences embedded in water plans. The evidence is that there has been very

little take-up of these provisions.3

Facilitate water trading between and within the urban and rural sectors

There are still constraints imposed on the operation of utilities that are distorting the

allocation of water resources and increasing the cost of supply. In particular, urban-rural

trade can provide a lower cost source of water and voluntary trade can provide benefits to

irrigators, urban water consumers and the community as a whole.4 Other benefits of

voluntary trade are that it facilitates the efficient allocation of water from lower value uses to

higher value uses, based on the willingness to buy and sell and transportation costs.

Groundwater trading

In Australia water markets for groundwater are less established than surface water markets.

This in part due to the added complexities of groundwater resources, which include a

number of technical, social, administrative and political factors such as the three-dimensional

nature of aquifer systems, boundary uncertainties, water quality variations and local

drawdown impacts. The Association believes that there are benefits to be gained in investing

in overcoming some of these barriers and thereby opening up opportunities to optimise

whole-of-water cycle resources.

The NWC called on governments to ensure appropriate entitlement, regulatory and

information frameworks are in place in the development of new markets (in particular in

Northern Australia).5

Conclusion

The Association acknowledges that water is a crucial economic driver upon which Australia’s

future productivity and prosperity will depend. We agree that the sustainable use of land and

water resources underpins agricultural production in Australia and all that a long-term

planning and considered approach should be taken to improving water infrastructure

provision in Australia. We believe that most importantly a portfolio of options including water

efficiency programs, alternative water sourcing and education are mechanisms that should

be considered, in addition to building dams. We believe that there are fundamental reforms

to the water sector that should be implemented to attract the investment necessary to

maintain and augment Australia’s water infrastructure. Finally, there are suitable refinements

2 National Water Commission, Australia’s water blueprint: national reform assessment 2014, http://www.nwc.gov.au/__data/assets/pdf_file/0008/37673/Part-1-accessible-PDF-for-web-NWC-Australias-water-blueprint_national-reform-assessment-2014.pdf, pg 85. 3 National Water Commission, Australia’s water blueprint: national reform assessment 2014, http://www.nwc.gov.au/__data/assets/pdf_file/0008/37673/Part-1-accessible-PDF-for-web-NWC-Australias-water-blueprint_national-reform-assessment-2014.pdf, pg 102. 4 Productivity Commission, Australia’s Urban Water Sector: Productivity Commission Inquiry Report 2011, http://www.pc.gov.au/__data/assets/pdf_file/0017/113192/urban-water-volume1.pdf, Overview, pg XXIII. 5 National Water Commission, Australia’s water blueprint: national reform assessment 2014, http://www.nwc.gov.au/__data/assets/pdf_file/0008/37673/Part-1-accessible-PDF-for-web-NWC-Australias-water-blueprint_national-reform-assessment-2014.pdf, pg 43.

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to Australia’s water market that could improve efficiency and flexibility for water users and

there is a role for government in facilitating much of this work.

AWA looks forward to providing input and advice as the White Paper comes to fruition.