Prof. Mike YoungResearch Chair, Water Economics and ManagementThe University of AdelaideResearch Tuesday LectureUniversity of Adelaide, 9th October 2007

Water

2

Southern and Eastern Australia is running out of water

All eastern and southern cities are on restrictionsSouth East Queensland on Level 6 restrictionsIrrigations allocations are at an all time low

Drier Hotter Warnings of adverse climate change

How can Australia and, more particularly, South Australia turn this adversity into opportunity?

3

Turning adversity into opportunity

1. River and aquifer management2. Water use strategies

Environment and River Maintenance Irrigation Urban Industrial Mining

3. Storage management4. Infrastructure Access5. Policy Reform6. Governance

In a changing world,

what would SA have to do

to become

the recognised experts in water management and

business?

4

Water withdrawals per capita

0

1000

2000

3000

4000

5000

6000 Australia

United K

ingdom

New

Zealand

Iraq

(Australia = 135/161 countries)

“We have a water management problem not a water supply problem!” Business Council of Australia 2006

Australia = “The driest inhabited continent in the world.”

5

Warragamba + 3 Nepean Dams (Inflows & annual rainfall)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Year

Inflo

w G

L

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Rainf

all (m

m)

892 GL pa

2,027 GL pa

572 GL pa

780 mm pa 907 mm pa 681 mm pa

Sydney

Less rain means much less water!

- 25%

- 75%

Annual rainfall

Storage

6

Total River Murray System Inflows (including Darling River)

DRY WET

7

Total River Murray System Inflows (including Darling River)with post 1938 sequence imposed from 2002

0

5 000

10 000

15 000

20 000

25 000

1892 1902 1912 1922 1932 1942 1952 1962 1972 1982 1992 2002 2012 2022

Ann

ual Inf

low <

= 25

000

GL

(GL)

Re-live from 1938

2014

8

9

Murray System Inflows Excluding Menindee & Snowy Plus 1 June Active storage (approx.)(as at 27/8/2007)

0

500

1000

1500

2000

2500

3000

3500

4000

4500

Jun

Jul

Aug

Sep Oct

Nov

Dec Jan

Feb

Mar

Apr

May

Start of Month

Cum

ulat

ive

Inflo

w +

Sta

rtin

g A

ctiv

e St

orag

e(G

L)

2007/08 2006/07

Inflows plus Starting StorageSeason to date and last year

> 2,500 GL storage used last year

10

Lake Alexandrina SalinityForecasting from 6 August 2007

0

500

1000

1500

2000

2500

3000

3500

10/06 11/06 12/06 01/07 02/07 03/07 04/07 05/07 06/07 07/07 08/07 09/07 10/07 11/07 12/07 01/08 02/08 03/08 04/08 05/08 06/08

Date (month/year)

Salin

ity (E

C)

_

100% AEP: 814GL Flow to SA (Irrigation - 30GL+13%)90% AEP: 1247GL Flow to SA (Irrigation - 30GL+20%)75% AEP: 1255GL Flow to SA (Irrigation - 30GL+25%)50% AEP: 1371GL Flow to SA (Irrigation - 30GL+40%)Observed Lake Alexandrina Salinity

PROJECTION ONLY

Prepared by DWLBC

Forecasting Assumptions (SA w ater year - July to June)Flow : Flow to SA as stated

Diversions:Metro Adelaide (88 GL 2007/08)Country Tow ns / Other S&D (53 GL/yr 2007/08)AOP + LMS as stated

Wetlands: Area of connected w etlands d/s Lock 1 reduced by 50%30GL of reduced loss from w etlands u/s Lock 1

Losses: Maximum Net Evaporation (1982) Conditions

Salinity:Salinity of Flow to SA 315 EC 2007/08

Lake Alexandrina Salinity forecast

11

Lake Alexandrina Level: Forecasting from 6 August 2007

-1.6

-1.5

-1.4

-1.3

-1.2

-1.1

-1

-0.9

-0.8

-0.7

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

09/06 10/06 11/06 12/06 01/07 02/07 03/07 04/07 05/07 06/07 07/07 08/07 09/07 10/07 11/07 12/07 01/08 02/08 03/08 04/08 05/08 06/08

Date (month/year)

Wat

er L

evel

(m A

HD

)

_

100% AEP: 814GL Flow to SA (Irrigation - 30GL+13%)90% AEP: 1247GL Flow to SA (Irrigation - 30GL+20%)75% AEP: 1255GL Flow to SA (Irrigation - 30GL+25%)50% AEP: 1371GL Flow to SA (Irrigation - 30GL+40%)Observed Low er Lakes LevelsMinimum Level for Metro Adelaide pumping after pumps are low ered (-1.5m AHD)

PROJECTION ONLY

Forecasting Assumptions (SA w ater year - July to June)

Flow : Flow to SA as stated:

Diversions:Metro Adelaide (88 GL 2007/08)Country Tow ns / Other S&D (53 GL/yr 2007/08)AOP+LMS as stated

Wetlands: Area of connected w etlands d/s Lock 1 reduced by 50%30GL of reduced loss from w etlands u/s Lock 1

Losses: Maximum Net Evaporation (1982) Conditions

Lake Alexandrina Projections

0.5 m

12

Lake Alexandrina Level: Forecasting from 6 August 2007

-1.6

-1.5

-1.4

-1.3

-1.2

-1.1

-1

-0.9

-0.8

-0.7

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

09/06 10/06 11/06 12/06 01/07 02/07 03/07 04/07 05/07 06/07 07/07 08/07 09/07 10/07 11/07 12/07 01/08 02/08 03/08 04/08 05/08 06/08

Date (month/year)

Wat

er L

evel

(m A

HD

)

_

100% AEP: 814GL Flow to SA (Irrigation - 30GL+13%)90% AEP: 1247GL Flow to SA (Irrigation - 30GL+20%)75% AEP: 1255GL Flow to SA (Irrigation - 30GL+25%)50% AEP: 1371GL Flow to SA (Irrigation - 30GL+40%)Observed Low er Lakes LevelsMinimum Level for Metro Adelaide pumping after pumps are low ered (-1.5m AHD)

PROJECTION ONLY

Forecasting Assumptions (SA w ater year - July to June)

Flow : Flow to SA as stated :

Diversions:Metro Adelaide (88 GL 2007/08)Country Tow ns / Other S&D (53 GL/yr 2007/08)AOP+LMS as stated

Wetlands: Area of connected w etlands d/s Lock 1 reduced by 50%30GL of reduced loss from w etlands u/s Lock 1

Losses: Maximum Net Evaporation (1982) Conditions

> 1,200 GL to refill

Borrowing from the future

Plus Lake Bonney &

disconnected wetlands

13

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!

14

Out of adversity can come opportunity

The world is now watching Australia and how it is dealing with change

Australia and, more particularly, South Australia could become the “Israel” of C21

Renowned for its water expertise Develop a reputation as the world’s most

innovative and successful water laboratory1. Restoring health to rivers and building vibrant

water-using communities in a changing world2. Clarifying roles for government, enterprising businesses

and markets

15

Rural water policy opportunities

Unbundle water licences into their separate elementsDefine all use and environmental entitlements as sharesUsing separate institutions to manage Connected river and aquifer systems as a whole Local land use issues (via NRM Boards)

Full accounting for all forms of interception and useFast, low costentitlement and allocation trading

16

Murray-Darling Basin policy opportunities

A new Basin plan (Agreement) that has hydrological integrity Minimum flow to the mouth

Replace SA’s 1850 GL entitlement with 200 GL to the sea (accounting theory)

Continuous accounting and carry forward Trade without carry-forward increases adversity (Brennan)

Instantaneous trading on government guaranteed registers River Murray shares rather than NSW, Vic & SA shares Across state boundaries at the system level

An environmental share held in an Environmental Water Trust

Risk-based management of environmental assets Counter-cyclically trading of Environmental Allocations

17

Urban water supply and disposal

Water source management

Water distribution

Water retailing

Waste water purification, use & disposal

Storm water

Storm water

18

Cost of water restrictions

Cost Sydney $223 million/yr (Grafton, 2007)

$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

19

Significant urban opportunities

1. Embrace and develop all sources2. Efficient pricing with equity3. Allow competition for the supply of non-

essential water4. Open competitive access to distribution

system5. Open competitive access to sewage6. Use businesses and markets to discover cost

In times of scarcity Of securing security

20

Getting there – a supply template1. Unbundle the storage, supply and treatment system2. Allow private industry to build and sell water from

desalination plants, etc (Whyalla, Port Augusta, Adelaide, etc.)

3. Expand dams and system connectivity Without a reliable River Murray

Adelaide needs more than one year’s storage4. Stormwater Management Authority to encourage stormwater

conservation by issuing credits5. Allocate and manage urban groundwater

• Convert licences into tradeable shares and cap• Credit for aquifer recharge

6. Require developers to source water prior to subdivision and business to source water for expansion

7. Urban water entitlement trading for industry, recreation and, possibly, households

21

Getting there – a price review template

1. Establish separate storage, distribution and sewage management businesses within SA Water

2. Set a fixed water supply and treatment charge Currently minimum is $157.40/yr + $71/yr = $228/yr

3. Raise prices for all water to full cost in each area Rebates for essential household water

(e.g. 100 KL reduced to, say, $1.00/KL)4. Convert remaining sewage payment into a land tax

Currently 0.1424% of the capital value of your property5. Identify water not needed for essential household purposes

and transfer responsibly for managing access to the rest to water retail businesses

6. Use Independent Price Regulator to set infrastructure access charges & supply and treatment charges

7. Legislate to allow competitive third party access to Dams, distribution system, wastewater & storm water

8. Remove all grants and subsidies

22

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!

Contact:

Prof Mike YoungWater Economics and ManagementEmail: Mike.Young@adelaide.edu.auPhone: +61-8-8303.5279Mobile: +61-408-488.538 www.myoung.net.au

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