prof. mike young executive director the environment institute the university of adelaide

Life Impact The University of Adelaide

Prof. Mike YoungExecutive DirectorThe Environment InstituteThe University of AdelaideSingapore 3rd Tuesday, 19th May 2009

There’s a hole in the bucket

Dear Liza, Dear Liza, a hole!

The Environment Institute

Life Impact The University of Adelaide 2

There’s a hole in the bucket There's a hole in the bucket, dear Liza …

So fix it, Dear Henry … With what should I fix it, … With straw, Dear Henry … But the straw is too long, ...

So cut it, Dear Henry… With what should I cut it, … Use an axe, …But the axe is too dull, … So, sharpen it, …

With what should I sharpen it, … Use the stone, ...But the stone is too dry, … So wet it, … With what should I wet it, …

With water, … With what should I carry it, … With the bucket, Dear Henry, …There's a hole in the bucket, Dear Liza, … a hole!



Australia has been running out of water. Why?



0

500

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Rai

nfal

l (m

m)

14% less 20% less

Rainfall for Jarrahdale

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Str

eam

flo

w (

GL

)

N o te s : S tre a m flo w is fro m Ma y o f la b e lle d ye a r to th e fo l lo w in g Ap ril

48% less66% less

S tre a m in flo w fo r P e rth d a m s (P rio r to S tirlin g D a m )

PERTH

Small declines in rainfall mean big declines in run-off

- 1%

- 3%



With half as much water?

Users

Environment

River Flow

Environment

River Flow

Users



How should we share the water? Dear Henry, Dear

Henry



Volu

me

of W

ater

in t

he

Syst

em



Language & concepts matter

1. Water to maintain the system– Conveyance– Evaporation

2. Shared water1. Users get X%2. Environment gets (1-X)%

3. Major floods managed separately4. Several reliability pools possible



How do we facilitate adjustment

in a changing world? Dear Henry,

Dear Henry



By unbundling licences and

allowing trading, Dear Liza, Dear

Liza



Water

Tradable Licence PriceLand

Single Title to

Land with aWater Licence

Entitlement Shares

in PerpetuityBank-like Allocations

Use licences with limits & obligations

Delivery Capacity Shares

Delivery Capacity Allocations

SalinityShares

SalinityAllocations

National CompetitionPolicy 1993/94Plus Cap

National Water Initiative2004



Unbundle & enable trading, Dear Liza

Source: Murray Darling Basin Commission, 2007.

Murray-Darling Basin Water Entitlement Transfers - 1983/84 to 2003/04

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Tran

sfer

Vol

ume

(GL)

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1 000

1 100

1 200

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/84

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/86

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Intrastate Temporary (GL)Intrastate Permanent (GL)Interstate Temporary (GL)Interstate Permanent (GL)



But there is not enough water for our cities, Dear

Henry, Dear Henry



And people don’t like restrictions,

Dear Henry, Dear Henry



Water restrictions cost• Cost Sydney $223 million/yr (Grafton, 2007)



Diversify, Dear Liza, Dear Liza• Desalination

– Gold Coast, Sydney, Melbourne, Adelaide, Perth

• Stormwater capture and storage• Recycling sewage to parks and

gardens



But water is too cheap, Dear Henry,

Dear Henry



Competitive pricing1. Raise prices2. Charge full costs to everyone3. Get rid of rising block tariffs and fixed charges4. Set water security caps and introduce scarcity

pricing 5. Give credits to those who save water6. Give businesses an entitlement and allow them

to trade7. Appoint independent regulators to set supply

charges and prices



This is part of the Green New Deal, Dear Liza, Dear

Liza



We all have to pay our way, Dear Liza,

Dear Liza



But making all people pay full cost

is inequitable, Dear Henry, Dear

Henry



What about the poor,




Tinbergen, Dear Liza • A separate instrument for every

objective– Unbundle to get control in a

changing world– Don’t compromise everything

• Give the real poor rebates and targeted assistance

• Get the pricing right



Then industry will invest, Dear Liza,

Dear Liza



Cost of water supply

$0.25

$1.30 $1.45 $1.50 $1.58

$2.61$3.00 $3.00

$4.00

$5.00

$5.60$6.00

$9.30

$1.68$1.15 $1.30

$0.63

$0.22

$0.30$0.06

$3.00

$0.00 $0.10 $0.20 $0.15 $0.08$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

$10.00

$/kL



What about infrastructure,

where’s the future, Dear Henry, Dear

Henry?



Build for the future

Developer & Builder ~ 80%

Owners & Occupiers ~ 20%

Source: Marsden Jacob 2005 PMSEIC 2007

Raise subdivision and building standards



The are lots of opportunities1. We could

– Make developers source urban water entitlements prior to subdivision

– Place urban infill and extensions under same regulatory disciplines as new homes

– Require mandatory disclosure of water efficiency at a house sale



What about governance,




We could unbundle the management

system, Dear Liza, Dear

Liza



How many businesses?

Water source management

Water distribution

Water retailing

Waste water purification, use & disposal

Storm water

Storm water



– We are running out of water, Dear Henry …There's a hole in the bucket, Dear Liza …So fix it, Dear Henry, … With what should I fix it, Dear Liza … With shares, give the environment a share, Dear Henry …

– But how shall we adjust, Dear Liza … By allowing trading, Dear Henry … But what about security for our cities, Dear Liza, … Diversity, Dear Henry, … Recycle it, use groundwater, stormwater & seawater, Dear Henry, …

– But water is too cheap, Dear Liza …Business can’t compete, Dear Henry, Dear Liza …So charge for the full cost, Dear Henry… But they will charge too much, Dear Liza… Appoint an independent price regulator, Dear Henry...

– But there is still not enough water, Dear Liza, … Set a security cap and let industry invest, Dear Henry … But what about population growth, Dear Liza …Improve building regulations, Dear Henry, …And unbundle the supply system, Dear Henry …

– Water businesses are growing, Dear Liza, …That’s good, Dear Henry, Dear Henry, that’s good!So we don’t need restrictions, Dear Liza, Dear Liza …That’s right, Dear Henry, Dear Henry, …You have fixed it, Dear Henry, fixed it!


Prof. Mike YoungWater Economics and ManagementEmail: [email protected]: +61-8-8303.5279Mobile: +61-408-488.538

Subscribe to Droplets at www.myoung.net.au



There is a hole in the bucket There's a hole in the bucket, dear Liza …

So fix it, dear Henry, … With what should I fix it, dear Liza … With business, dear Henry …But we have postage stamp pricing, dear Liza … So change the price, dear Henry … But what about equity, dear Liza, … Use rebates, dear Henry, …But business needs access, dear Liza … So charge for access, dear Henry… So who sets the charge, dear Liza… An independent price regulator, dear Henry...But SA Water owns all the water, dear Liza… So lease some of it to business, dear Henry… But there is not enough water, dear Liza, … Recycle it, use groundwater, stormwater & seawater, dear Henry, …But we might need more, dear Liza …Let people trade water, dear Henry …Water businesses are growing, dear Liza, …That’s good, dear Henry, dear Henry, that’s good!So we don’t need restrictions, dear Liza, dear Liza …That’s right, dear Henry, dear Henry, …I think you have got it, dear Henry, we’ve got it!

prof. mike young executive director the environment institute the university of adelaide

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