DEPARTMENT OF
PRIMARY INDUSTRIES
IMPACTS OF WATER TRADE ON AGRICULTURAL ECOSYSTEMS Trading rules controlling irrigation water movement
July 2007
IMPACTS OF WATER TRADE ON AGRICULTURAL ECOSYSTEMS Trading rules controlling irrigation water movement
For further information contact:
Mike Morris Primary Industries Research Victoria
Department of Primary Industries Private Bag 1 Ferguson Road Tatura Victoria 3616 Phone: (03) 5833 5283 Fax: (03) 5833 5299 Email: [email protected]
Published by Primary Industries Research Victoria Department of Primary Industries, Tatura Private Bag 1 Ferguson Road Tatura Victoria 3616
July 2007
Find more information about DPI on the Internet at: www.dpi.vic.gov.au
ISBN 978-1-74199-219-9 (print) ISBN 978-1-74199-220-5 (online)
Disclaimer The information contained in this report is offered by the State of Victoria, through its Department of Primary Industries, solely to provide information. While the information contained in this report has been formulated with due care by the Department of Primary Industries, the State of Victoria, its servants and agents accept no responsibility for any error, omission, loss or other consequence which may arise from any person relying on anything contained in this paper.
© State of Victoria, Department of Primary Industries, 2007
Executive summary
This report presents an overview of water trading rules controlling irrigation water movement and information on the historical background preceding and underpinning current rules and regulations.
Irrigation water trade ocurs under a Cap on consumptive entitlements implemented in 1995 and administered by the MDBC. Since imposition of the Cap, consumptive allocations have been progressively reduced to improve the condition of riverine ecosystems, and further reductions are likely.
In the last few years significant water reforms have been implemented under the Victorian Government White Paper Our Water Our Future: Securing Our Water Future Together in order to meet the objectives of the National Water Initiative. Reforms have included introduction of a water allocation framework, creation of an Environmental Water Reserve and the unbundling of private water entitlements.
Interstate water trade between Victoria, NSW and SA has been piloted since 1998, with 22,904 ML traded between 1998 and 2003. This represented 22 % of permanent trades and 2 % of all trades in the pilot project area. Full implementation of tagged trading between Victoria, NSW and SA began on 1 July 2007.
In Victoria, temporary trade of allocations started in the 1987/88 irrigation season, with permanent trade of entitlements commencing in 1991. In 2004/05 the total volume of permanent trades was 57 GL and of temporary trades was 444 GL.
Water trade provides significant benefits, allowing water to move to higher value uses, enabling greater flexibility for irrigators and facilitating structural adjustment. Modeling by Peterson et al (2004) has shown that water trade reduced by 50 % the impact on regional economies of reductions in water availability.
Water trade can cause adverse impacts such as altered river flow regimes, changes in river water quality and secondary salinisation of land. While these impacts remain as externalities of the water market, there is potential for resource misallocation and unintended consequences.
Salinity impacts in the Murray Darling Basin are managed through the Basin Salinity Management Strategy, which currently confines treatment of the salinity impacts of water trade to the impact of new irrigation developments in the Mallee.
Significant features of the Riverine Plains that require attention when considering the impacts of water trade include: • the Plains are extensive and heterogeneous • other factors also influence water and salt mobilisation such as climate, the implementation of Land and Water Management Plans, improvements in farm irrigation efficiencies, and greater water distribution system efficiencies through system reconfiguration and modernisation • temporary trade has consistently been an order of magnitude greater each season than permanent trade in entitlements, and may or may not create salinity impacts; and • the small average volume of water trades in the Riverine Plains means that salinity impacts will be related more to district or regional net volume traded rather than to the effects of individual trades. Despite these issues, the Impact Zone differential charging policy implemented as part of water-use licences in the Mallee provides a promising approach to cost-effectively accounting for adverse impacts of water trade.
Contents
INTRODUCTION 1
1. GEOGRAPHICAL AND HISTORICAL PERSPECTIVES 2
2. LIMITS ON WATER AVAILABILITY 3 2.1. THE CAP 3 2.2. THE LIVING MURRAY INITIATIVE 4 2.3. OUR WATER OUR FUTURE INITIATIVE 4
3. WATER TRADE REFORMS 5 3.1. INTERNATIONAL 5 3.2. NATIONAL 5 3.3. VICTORIA 6
4. RULES FOR WATER TRADE 8 4.1. RULES FOR INTERSTATE TRADE 8 4.2. VICTORIAN WATER TRADE 12
5. THE BENEFITS OF WATER TRADE 14
6. THE ADVERSE IMPACTS OF TRADE 16 6.1. CURRENT METHODS FOR MANAGING IMPACTS OF WATER TRADE 16 6.2. IMPLICATIONS FOR THE RIVERINE PLAINS 19
7. CONCLUSIONS 21
REFERENCES 23
APPENDICES 24
IMPACTS OF WATER TRADE ON AGRICULTURAL ECOSYSTEMS Trading rules controlling irrigation water movement
Introduction
This report presents an overview of water trading rules controlling irrigation water movement and information on the historical background preceding and underpinning current rules and regulations.
Water trade enables water to be taken at a different location after the transaction. A properly functioning market for water allows each farmer to decide at any time whether to use, sell or buy water at the prevailing market price. The price of water fluctuates, driven by demand for water and availability of the resource.
Victoria’s water market allows trade of either seasonal water allocation or water entitlement. Prior to unbundling of water entitlements on 1 July 2007, trade in seasonal allocation has been termed temporary transfer, while trade in entitlements has been referred to as permanent trade. Temporary transfer changes the buyers’ and sellers’ water allocation volumes for the current season, but not their ongoing water entitlements. Permanent transfer changes ownership of the water entitlement and the buyer receives all subsequent seasonal water allocations associated with the entitlement.
After unbundling, temporary transfer of seasonal allocations will continue as allocation assignments, while trade in entitlements will be expanded to include the option of limited term transfer , or leasing of water entitlement, as well as permanent water share transfer (G-MW, 2007).
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1. Geographical and historical perspectives
The irrigation industry is the major user of fresh water in Australia, consuming between 70 and 80 per cent of all water used. Although it provides many benefits to the nation, there are also a number of challenges facing the industry. These include: • infrastructure decline (with insufficient public funds to pay for refurbishment) • low profitability in the industry generally • natural resource and environmental degradation such as declining water quality (nitrification, altered flow and temperature regimes, turbidity), rising watertables and groundwater and river salinity; and • limited water availability due to such factors as climate variation and change, bushfires in supply catchments and competing demands for water.
By the 1980s, irrigation in the Murray Darling Basin (MDB) had outgrown the prevailing water entitlement system, where water allocations were tied to land parcels. New irrigation technologies, farming systems and industries were driving change. Growth in the irrigation sector had reached the limit of sustainable consumptive use and/or delivery capacity in many areas, and further irrigation development required mechanisms that facilitated transfers of water entitlements between irrigators.
Temporary water trading began officially in South Australia in 1988, in Victoria in 1989 and in NSW in 1990. Temporary trade remains far the most common form of trade, making up 81% of all trades by volume in Australia and 89% of traded volume in Victoria in 2004-05 (ABS, 2006). Over 90% of the volume traded was within States, and mostly within irrigation supply districts.
The development of a water trading system was one of the major requirements of the Council of Australian Governments (COAG) Water Reform Framework of 1994. A key objective of these reforms was to encourage water allocation to achieve the greatest value in both consumptive and non-consumptive uses, while ensuring ecological sustainability. The reforms were (and still are) seen as a means to encourage a shift to more efficient uses of water. A consequence has been the activation of water entitlements that were not previously being used.
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2. Limits on water availability
Since the 1950s the quantity of water diverted from the rivers of the Murray- Darling Basin has increased substantially. While the development of the Basin's water resources has brought many social and economic benefits, it has also adversely affected the health of the river systems. The Basin has experienced significant degradation, including salinisation of irrigated and dryland areas, high watertables and salt mobilisation, high concentrations of nutrients in drainage water causing toxic algal blooms, and regulation of river flows resulting in degradation of riverine ecosystems. These issues have received increasing attention from communities and governments.
2.1. The Cap An audit of water use in the Basin was implemented in 1995. The audit showed that if the volume of water diversions continued to increase it would exacerbate river health problems, reduce the security of water supply for existing irrigators in the Basin and reduce the reliability of water supply during long droughts (Figure 1). A limit was therefore imposed on the volume of water which could be diverted from rivers for consumptive uses - this limit is generally referred to as ‘the Cap ' ( http://www.mdbc.gov.au/nrm/the_cap ).
Figure 1 Growth in water use in Murray-Darling Basin since 1920 (MDBC, 1995)
For New South Wales, South Australia and Victoria, the Cap was defined as the volume of water that would have been diverted under 1993/94 levels of development, subject to two small allowances that were to be made for Pindari
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Dam (NSW) and Mokoan Storage (Victoria). The Cap for Queensland, which diverts approximately 5% of the Basin’s consumptive use, has yet to be set.
As a result of the Cap there is no additional surface water available for consumptive use in the Basin. New irrigation developments require the transfer of water entitlements to them from enterprises that choose to either cease or reduce their water consumption. Water trading is the mechanism by which new or expanding irrigation developments obtain entitlements to water.
2.2. The Living Murray initiative While implementation of the Cap has helped reduce further degradation of River Murray riverine environments, it has been recognised as being insufficient to ensure the sustainability of these ecosystems. The Living Murray initiative (TLM) was established in 2002 in response to evidence of the declining health of the River Murray system. TLM is a partnership of the Australian, NSW, Victorian, South Australian and ACT governments (http://thelivingmurray.mdbc.gov.au/home).
Stage 1 of TLM will be implemented by 2009 and focuses on recovering 500 gigalitres of water for the River Murray through water savings infrastructure projects that improve the efficiency of water distribution and consumption. The Stage 1 target for water recovery is an average of 500 GL of water per year. Projects to recover 328.45 GL are on the Central Register of Water Recovery Measures and plans are either in place or being finalised to ensure implementation prior to 30 June 2009. Victoria’s contribution is 214 GL, 169 GL of which will be recovered through projects currently being implemented and 35 GL from projects under development.
TLM may enter the water market in the future to supplement water savings from infrastructure improvements and increase the likelihood of reaching the overall water recovery target.
2.3. Our Water Our Future initiative The Victorian Our Water Our Future action plan was launched in June 2004. It involves reforms to Victoria’s water allocation system across all types of water and gives rivers a legal share of water under an Environmental Water Reserve. Within the Our Water Our Future action plan, the Sales Water Reform Package converts existing sales water entitlements into an independent, tradeable, medium reliability entitlement with ongoing tenure. As part of the Sales Package, 20 per cent of the new medium reliability entitlement will be allocated to the environment to provide an average volume of 120 GL per year as environmental flows. An additional 25 GL per year of high reliability water will be recovered from reconfiguration of irrigation water supply infrastructure. This 145 GL annual water saving forms part of Victoria’s TLM contribution.
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3. Water trade reforms
3.1. International Australia has been at the international forefront of the implementation of water trading. In a World Bank blog site on the topic Private Sector Development of August 2006, the following comments were published:
Next up for eBay: water rights? Okay, maybe not quite yet. But in an article on TCS Daily, AEI's Roger Bate argues that trading water rights would be much more effective than the bureaucracies who now decide who gets water and at what price.
The main water allocation problem is the result of Soviet-style management over agricultural water. In most places around the globe, governments decide who gets how much water, when they can use it and often what for, and if they don't use their allocation (regardless of how they use it) they will lose it. Once governmental allocations are made, officials rarely reallocate, even when massive changes in agriculture, industry, mining, domestic and rural demand occur. The result is politically favoured allocation and grotesque situations where farmers often pay 100 times less than other types of users, and the poorest in slums often pay 10 times what rich domestic consumers pay, and for unsafe water.
Bate suggests that India and China could learn a lot from Australia’s rights trading system, in which users can trade water access and distribution along Australia’s Murray Darling Basin by going online; impressive. He also alludes to benefits gained by both farms and the poor in Chile and South Africa as a result of trading water rights.
PwC (2006) concluded that Australia is at the forefront of water market development and that there are few lessons from other countries in water market design which, in some form, have not already been adopted by Australia.
3.2. National The National Water Initiative (NWI) is Australia’s blueprint for national water reform. Central to the initiative are water markets, with trading the main means through which available water resources are to be (re)allocated amongst users. This represents a fundamental shift away from the historic, administrative allocation arrangements. Trading may involve reallocation of water within a sector, between sectors, or between communities (PwC, 2006).
Some key findings of the 2006 NWI Water Trading Study include: • There is no obvious need for major structural reform to support competition. The optimal market structure would be to devolve entitlements down to the level of individual irrigators.
5 IMPACTS OF WATER TRADE ON AGRICULTURAL ECOSYSTEMS Trading rules controlling irrigation water movement
• Existing entitlements meet (most) requirements for economic property rights. Frameworks for the specification of water access entitlements should provide the capability for delivery entitlements to be held separately to any water access entitlement, and to be individually tradeable • Market rules are necessary because they provide clarity to market participants, reduce uncertainty and transactions costs. The presumption should be towards opening up trading opportunities, with restrictions imposed only where these can be justified against rigorous public interest criteria – not the other way around. • Specific regulation of the water sector would not seem warranted. A mix of trading mechanisms, as is currently employed, is likely to be appropriate. This suits the different dimensions of the market (temporary versus permanent exchange, especially) and also provides flexibility and choice for market participants. • Registry systems developed in accordance with Schedule F to the NWI Agreement should be sufficient to support water trade, recognising that the bulk of trade is and likely will continue to be intrastate transfers • Efficiency would be enhanced by allowing for the widest possible participation in the market, including participation of governments as purchasers of environmental water.
While water trade within States has been possible since the 1980s, interstate trade has developed at a slower pace, reflecting complexities associated with trading across jurisdictional borders, such as differences in trading rules and how water entitlements are specified.
3.3. Victoria The Victorian Government White Paper Our Water Our Future: Securing Our Water Future Together (DSE, 2004) has provided the blueprint for water reforms in Victoria. The White Paper introduced a new water allocation framework (Figure 2) that includes surface water, groundwater, recycled water and stormwater, and established an Environmental Water Reserve that has the same legal standing as water allocated for consumptive uses and is used to maintain the environmental values of water systems.
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Figure 2 Victoria’s water allocation framework (DSE, 2004)
The White Paper also heralded changes to private water entitlements, which will be enacted in northern Victoria’s regulated irrigation districts from 1 July 2007. Under these changes, private water entitlements are “unbundled” into three components – a water share linked to a water supply source, a delivery share linked to water supply infrastructure, and a water-use licence linked to land.
Water shares are a legally recognised, secure share of the water available to be taken from a water system. Water share entitlements are held in the Victorian Water Register, and may be mortgaged separately from land. They may be high-reliability or low-reliability, and can be traded permanently or leased. Allocations made under water shares can be traded annually.
Delivery shares are entitlements to have water delivered to land. Entitlement holders are subject to annual fees in order to maintain delivery system infrastructure, but can permanently surrender their delivery share on payment of a termination fee, currently set at a maximum of 15 times the annual fee. Delivery shares are linked to land, but subject to conditions, may be transferred within a delivery system.
Water-use licences permit the use of irrigation water on a particular parcel of land, and set out conditions such as maximum irrigation water application rates. A range of more stringent conditions exist for new irrigation developments. Specific conditions have been applied to water-use licences in the Mallee salinity impact zones in order to cap irrigation water use in the High Impact Zone and internalise salinity impacts in the market trades between zones (Appendix 3).
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4. Rules for water trade
4.1. Rules for interstate trade The MDBC website provides detailed information on Water Trading issues in the Basin ( http://www.mdbc.gov.au/nrm/water_issues/water_trade ). Water Trading is carried out under the Murray-Darling Basin Agreement. This agreement replaced the earlier River Murray Waters Agreement which had been in place since 1915. The Murray-Darling Basin Agreement provides the process and substance for the integrated management of the Murray-Darling Basin. The purpose of the Agreement (Clause 1) is:
"..to promote and co-ordinate effective planning and management for the equitable efficient and sustainable use of the water, land and other environmental resources of the Murray-Darling Basin."
The Agreement was signed by the governments of the Commonwealth, New South Wales, Victoria and South Australia in 1987. In its initial form, it was as an amendment - the final one - to the River Murray Waters Agreement. Five years later, in 1992, a totally new Murray-Darling Basin Agreement was signed, replacing the River Murray Waters Agreement. The new Agreement was given full legal status by the Murray-Darling Basin Act 1993, passed by all the contracting governments. Queensland also became a signatory in 1996, under terms set out in Schedule D to the Agreement. In 1998, the Australian Capital Territory formalised its participation in the Agreement through a Memorandum of Understanding. The Agreement was ratified by identical legislation that has been enacted by the Parliaments of all the signatory governments.
Schedule E to the Agreement describes the Transferring Water Entitlements and Allocations process. (http://www.mdbc.gov.au/__data/page/114/MDB_Agreement_Schedule_E_with _protocols.pdf ).
Clause 10 specifically accounts for salinity impacts of water trade, requiring all transfers of entitlement or allocation to be consistent with Schedule C of the MDB Agreement and providing for salinity credits or debits to be allocated to States as a result of dilution or changes to salt accessions due to interstate water transfers. Clause 17 sets out monitoring and reporting requirements for States and for the Commission.
On 1 January 1998, the MDBC commenced a Pilot Interstate Water Trading Project to facilitate permanent interstate transfers in parts of the southern MDB. The Pilot Project established a set of formalised processes which included the application of exchange rates to account for differences in the specification and characteristics of water access entitlements in New South Wales, Victoria and South Australia.
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Exchange rate trade versus tagged trade
Schedule E of the MDB Agreement recognises both “exchange rate trade”, where entitlements that are sold are converted through an exchange rate to a new entitlement in the buyer’s jurisdiction, and “tagged trade”, under which the authority at the trade origin continues to administer the traded water, and allocations made at the trade origin each season continue to apply to the allocation at the trade destination.
Under exchange rate trade the traded water assumes the characteristics of water in the buyer’s state. Under tagged trade, water retains the characteristics of the seller’s state – effectively the jurisdictional boundary is ignored. Exchange rates to account for differences in distribution losses and/or utilisation can be applied to both exchange rate trades and tagged trades.
Tagged trade, although more complex to administer, has become the preferred system because attributes of the water being traded, such as the supply reliability, is retained with the traded water. This avoids situations such as that which occurred with permanent trades between Victoria’s Goulburn and Murray systems in 2006/07, when Goulburn water, on 24% allocation could be traded to the Murray system on 95% allocation. Under exchange rate trade rules, the 71% difference had to be met by the Murray system, exposing irrigators on the Murray system to greater future supply risk. Under tagged trade rules, the traded water would retain its 24% allocation, which would be met by the Goulburn system and not adversely impact on the Murray system.
Under tagged trading, exchange rates can be applied to allow for factors such as conveyance system losses between the seller and the buyer locations or for conversion from one entitlement type to another as part of the trade - e.g. conversion between high reliability and low reliability water. An advantage for irrigators is that they will be able to tailor for their business needs a “portfolio” of water shares having different supply reliabilities and sources.
The Pilot Project reported that from 1998 to 2003, the volume of trade was 22,904 ML. This represented 22% of all permanent water trades into the Pilot Project region over that period and about 2% of all trades (MDBC, 2006a) (Figure 3). The Pilot Project was characterised by a large number of smaller trades – approximately 80 % of trades were less than 100 ML. The largest individual interstate trade was 1,597 ML.
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Figure 3 Historical water trade in the southern MDB (Productivity Commission, 2006)
Under the NWI, the area of interstate trade has been expanded and is being implemented across the region shown in Figure 4, with tagged trading between Victoria, New South Wales and South Australia from 1 July 2007.
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Figure 4 Interstate water trading zones (Source: MDBC Interstate Water Trade Fact Sheet 1)
Water users in the upper River Murray, the River Murray in South Australia and the regulated reaches of the Goulburn, Campaspe, Loddon and Murrumbidgee river systems can buy and sell permanent water entitlements across these areas. As part of the initiative, the ceiling on annual rates of permanent trade out of supply districts has been set at 4% of the total entitlement, subject to review in 2009.
General principles for interstate water trading are described in MDBC Publication 23/06 – Permanent Interstate Water Trading (MDBC, 2006a). While trade will always be constrained by the physical limitations of the water supply system, trade between systems is facilitated by the concept of back trades , where trade can occur in one direction only after an equal or greater volume of trade in the other direction, thus minimising the net change in water transfer across the supply system.
The general principles can be summarised as: • Transfers within trading zones and downstream transfers between hydrologically connected systems should not be restricted, unless limited by delivery channel capacity or water-use licence conditions. • Where trade is impeded by supply channel capacity or is an upstream transfer to a separate hydrological system, it can be approved as a back trade. • Transfers can occur between the upper reaches of tributary systems, provided the seller’s river system can meet the corresponding downstream supply obligations of the buyer’s river system.
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• Transfers from a downstream seller supplied from a number of sources to an upstream buyer supplied from only one of the sources may require specific conditions to be applied.
4.2. Victorian water trade
Surface water trading Water trading within Victoria became possible in the late 1980s. Temporary trading was first permitted in 1987/88, and the volume traded was about 25 GL per year. The Water Act of 1989 defined a framework for both surface water and groundwater allocation through bulk entitlements to water authorities and licences to individuals, and provided for allocation of water to the environment. It also allowed for the permanent trade of water entitlements, which was implemented in 1991.
Temporary water trade increased to around 200 GL in 1994/95 (Figure 5). This coincided with a relaxation of trading conditions that for the first time, allowed water to be traded between irrigation districts. It also coincided with a relatively dry season and the introduction of the Cap on consumptive water use in the Murray Darling Basin.
Figure 5 Annual volumes traded in Victoria both permanently and temporarily in the period 1990/91 to 2000/01 (DNRE, 2001)
Water trade volumes have continued to grow, driven by ongoing water scarcity and structural adjustment. ABS (2006) reported further significant increases in the volume of water permanently traded (57 GL) and in volume temporarily traded (444 GL) in Victoria in 2004/05. Of the permanently traded water, 31.5 GL was traded inter-regionally, 80% of which was traded from Goulburn-Murray Water to Lower Murray Water. Of the 444 GL of temporarily traded water, 88 GL was traded inter-regionally, with 55% of this water trading into Goulburn- Murray Water from Lower Murray Water and NSW.
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Wijedasa et al (2002) surveyed both buyers and sellers of permanent and temporary water in the Goulburn-Murray Irrigation District and concluded that the drivers of permanent and temporary water traders were different. They found that there were significant differences between the buyers and sellers of permanent water with respect to irrigation method, farm dams, marketing of product, soil degradation and salinity, area fertilised and use of grain for supplementary feeding. Buyers of permanent entitlements were adopting more efficient technologies and this was consistent with water moving to farms undertaking long term structural change and to higher value use.
Horticulture and dairying accounted for 80% of water purchased and mixed farmers for 80% of water sold. In contrast, they found that there was no statistically significant difference between the buyers and sellers of temporary water, which they concluded was consistent with the use of temporary water as a short term response to seasonal shortage. More that 75% of temporary water buyers were dairy farmers, while two thirds of sellers were mixed farmers.
Groundwater trading In addition to surface waters, Victorian groundwater can also be traded within well defined trading zones within contiguous groundwater systems. Information is provided on the Watermove website for the northern Victorian trading zones of Spring Hill, Upper Loddon, Mid Loddon, Campaspe and Katunga (http://www.watermove.com.au/selecttradingzone.asp?rgn_id=3 ).
Carryover Carryover of irrigation water from the 2006/07 season to 2007/08 has been introduced during 2006/07 in response to the projected irrigation allocation shortages for 2007/08. Normally, unused water allocations are returned to the general pool and redistributed to all irrigators the following year.
The scheme applies only in the Murray and Goulburn systems and allows farmers to carry forward up to 30 percent of their water entitlement for this season. However, even if water entitlements are carried over, they may not be able to be delivered as there may be insufficient water to cover the losses in the system in the follow-up season. It is uncertain how the introduction of carryover will impact on water trading volumes.
Trading rules after unbundling Rules for trade of water allocations and entitlements in the regulated systems on northern Victoria following unbundling on 1 July 2007 are detailed in Appendix 1. Directions on unbundled delivery entitlements, including transfer of entitlements, can be found in Appendix 2. Policies specific to water trades involving the Mallee salinity impact zones are in Appendix 3.
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5. The benefits of water trade
The water market establishes the value of water, which varies throughout each irrigation season depending on demand. An irrigator wishing to downsize their operation can sell water entitlement to irrigators that are expanding, and realise an asset that was previously valueless unless sold with their land.
A significant achievement of the COAG Water Reforms has been the establishment of clear water property rights in all states and territories. Efficient water markets require a separation of water property rights from land title. Prior to 1987/88 this was not the case in Victoria - the only way that additional water could be purchased by an irrigator was by the purchase of additional land with a water entitlement and the subsequent transfer of the water entitlement.
The water market allows water to move to higher value uses. Irrigators are able to financially benefit from the sale of water when the price is greater than the value to them from their use of the water, which should lead to greater value for society as a whole from the use of water.
The market also allows users to increase the flexibility of their operations. With trade an irrigator can buy water to expand operations. Alternatively, an irrigator who may wish to sell water that is not needed or to retire land from irrigation, can sell all or part of their water entitlement and gain a financial return from the sale of that asset. Irrigators may choose to sell part of their water entitlement permanently in order to access capital, and then purchase temporary water to meet the balance of their needs at opportune times. Tagged water trade can allow irrigators to manage water availability risk by holding a portfolio of entitlements to water of different reliability, sourced from different supply catchments.
Heaney et al (2004) modelled potential volumes of trade in irrigation water under a range of water delivery charges and estimated that removal of all impediments to trade would result in around 600 GL of additional trade per year in permanent water entitlements, representing about 7% of total entitlements in the southern MDB and generating a net present value of $100 million. While redistribution was not predicted to be uniform across irrigation regions, overall the predicted change in volume traded is of a similar magnitude to current levels of annual temporary trade in allocations.
Peterson et al (2004) used a general equilibrium model to assess the impact on gross regional product of 10%, 20% and 30% reductions in water availability in the southern MDB. They found that intra- and inter-regional water trade together reduced the impact of water availability reductions on regional economies by approximately 50% through the reallocation of water to higher value uses.
Water trading is an equitable way of achieving structural adjustment in irrigation regions, however governments have been reluctant to open water markets to non-irrigators. Under the Our Water Our Future initiative, up to 10% of the available water pool can be owned by entities that do not own land. Policy under the National Water Initiative is for open water markets, and barriers to
14 IMPACTS OF WATER TRADE ON AGRICULTURAL ECOSYSTEMS Trading rules controlling irrigation water movement entry by non-irrigators are likely to be progressively relaxed as water markets mature.
In theory, greater social benefits from water trade will be realised when trade occurs between all sectors of the economy, not just within the irrigation sector. This is particularly important in water scarce regions which are experiencing rapid development of population and industry and have a significant history of rural water use. Examples include the piping of water from the Goulburn system to Bendigo and Ballarat, irrigation to urban transfers in the southwest of Western Australia and transfers from pastoral to mining use in parts of the semi- arid zone. Supplying the increasing water needs of Melbourne and Adelaide are examples of potential future inter-sector trades.
Given that irrigation is the major user of water in Australia, and especially in the Murray-Darling Basin, water trading has the potential to make a major contribution to the sustainability of the irrigation industry. Trade should have a positive effect on the sustainability of irrigated production, while having environmental benefits where water moves from degraded areas of low productivity to productive areas more suited to irrigation.
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6. The adverse impacts of trade
Markets exist to ensure efficient allocation of resources to their highest value uses, but if the significant effects of resource use are not included in market transactions, suboptimal allocation and unintended consequences will result.
An externality is a consequence of a market transaction that affects others but is not considered in the transaction. Examples of potential water trade externalities on the biophysical system include: • Altered river flow regimes • Changes in river water quality (salinity, nutrients, turbidity) • Secondary salinisation of land
Externalities may have either positive or negative effects.
In a study of the potential impact of water trade on irrigation return flows, Heaney and Beare (2001) modelled the altered water volume and riverine salinity externalities of a range of water trade scenarios in the southern MDB and found that significant impacts on downstream users could occur, depending on the scale and direction of trade. They proposed the establishment of trading regions and exchange rates between them as a cost effective means of internalising these effects.
6.1. Current methods for managing impacts of water trade
The Basin Salinity Management Strategy
Adverse biophysical impacts of irrigation development are currently managed through the MDBC Basin Salinity Management Strategy (BSMS) (MDBC, 2001).
Objectives of the BSMS are to: • Maintain the water quality of the shared water resources of the Murray and Darling Rivers for all beneficial uses. River salinity at Morgan, South Australia, will be maintained at less than 800 EC for 95 per cent of the time; • Control the rise in salt loads in all tributary rivers of the Murray-Darling Basin, and through that control, protect its water resources and aquatic ecosystems at agreed levels, meeting the end-of-valley targets; • Control land degradation and protect important terrestrial ecosystems, productive farm land, cultural heritage, and built infrastructure at agreed levels Basin-wide expressed as within-valley targets; and • Maximise net benefits from salinity control across the Basin.
The BSMS has been incorporated as Schedule C into the Murray Darling Basin Agreement. Operational Protocols (MDBC, 2005) provide details of the implementation of Schedule C. The MDBC maintains two registers that record actions that are assessed to have a significant effect (i.e. a change in average daily Murray River salinity at Morgan of at least 0.1 EC within 100 years). Register A is used to record salinity credits or debits arising from the projected effect of actions undertaken after the baseline year of 1988. Register B debits are projected additional delayed salinity impacts from actions implemented prior
16 IMPACTS OF WATER TRADE ON AGRICULTURAL ECOSYSTEMS Trading rules controlling irrigation water movement to the baseline year, while Register B credits arise from actions undertaken to offset Register B debits.
In order to account for climate variability, the salinity impact of accountable actions is modelled using climatic data over a 25 year benchmark period from 1 May 1975 to 30 April 2000.
With respect to water trade, the Operational Protocols confine treatment to the impacts of new irrigation developments in the Mallee region (see Box below).
Approaches for assessing impacts arising from other aspects of water trade, such as altered river flow regimes and associated changes in river water quality, secondary salinisation of land and effects due to retirement of land from irrigation, have not yet been considered in the Operational Protocols.
17 IMPACTS OF WATER TRADE ON AGRICULTURAL ECOSYSTEMS Trading rules controlling irrigation water movement
Basin Salinity Management Strategy Operational Protocols Version 2.0, March 2005 3.7.3 Assessment and recording of the impacts of irrigation development arising from water trade The treatment of the impacts of irrigation development is to be consistent with Schedule C and the Protocols, with particular attention to: • The immediate recognition of any water trade transaction as having potentially a significant effect, leading to its declaration as an accountable action • The aggregation of similar or associated actions that may not individually produce a significant effect in order to treat them collectively (Protocol 3.6.1) • The level of detail provided, and the effort employed to assess, proposals should be commensurate with the potential salinity impact (Protocols 3.3 and 3.6.4) • The Commission’s approval of the use of SIMRAT (Salinity Impact Rapid Assessment Tool), with its associated documentation and administrative arrangements, as a modelling tool for the assessment of water trades in the Mallee Zone. The key steps in estimating the salinity impacts of new irrigation development (using SIMRAT, or other approved model) are: • identify the volume of water being traded • locate the irrigation licence to which the water is trading • identify the actual area to be irrigated (if not known assume an area based on usage of 10 ML/Ha, and located on the nearest portion of the property to the irrigation supply source) • assume that 85% of the total water traded is used by the crop, with the 15% remaining partitioned into 5% losses (e.g. evaporation) and 10% Root Zone Drainage (RZD) • assess the salinity impacts of the 10% RZD across the irrigated area and record impacts on the Salinity Registers. As with all accountable actions, initial estimates of the salinity impacts of new irrigation development will be based on a number of theoretical assumptions (such as the location of the irrigated area, and root zone drainage rates). Monitoring of accountable actions (Protocol 5.4.2) should focus on testing key assumptions, with estimated impacts revised, as appropriate, through the Five Year Reviews (Protocol 5.7.5). More details of SIMRAT and its administrative arrangements are given in Appendix 3.11. The following provisions apply to the use of SIMRAT: • SIMRAT may be used for the assessment of arrival site debits • SIMRAT may be used for the assessment of departure site credits when the history of water use at a disposal site can be proved • Assessments must be based on using the best available data for each specific trade, with jurisdictions ensuring that best available input data is made available for use in SIMRAT • SIMRAT may be used in areas of high confidence without conditions • SIMRAT may be used in areas of lower confidence in a conservative manner under the following conditions: • Trades into these areas are initially designated with a provisional entry pending detailed assessment • All data shall be submitted for these trades as is necessary to make the assessments in future • trades into these areas can be assessed using an alternative (and approved) method if available; • if an alternative method for assessing a trade is not agreed within one year of the transaction, the trade in question will be assessed using SIMRAT as the best available model. The cumulative transactions for each region are to be reviewed every 5 years as part of the program for rolling 5 year reviews (see Protocol 5.7.2). Reviews will take into account actual irrigation development areas and practices, and entries in the Registers adjusted if necessary.
18 IMPACTS OF WATER TRADE ON AGRICULTURAL ECOSYSTEMS Trading rules controlling irrigation water movement
Salinity Impact Zones in the Victorian Mallee
Under the unbundling of water entitlements introduced on 1 July 2007, water- use licences in the Victorian Mallee have been used to incorporate salinity impacts into water trade transactions into and between salinity impact zones. An ongoing operations and maintenance charge to cover the cost of works to offset salinity impacts is levied per ML of annual use limit. In addition, charges apply per ML for water traded into the region or from zones of lower impact to zones of higher impact. These charges vary, depending on the source and destination zones of the trade. Trade into the High Impact Zone has been capped (Appendix 3).
6.2. Implications for the Riverine Plains On the Riverine Plains there are significant problems for policy development in the area of salinity impacts of water trades. Features of Riverine Plains water trade that must be considered include: • the Plains are extensive and heterogeneous, a number of salt mobilisation processes occur, and water trade externalities can vary significantly both spatially and temporally; • interactions between the salinity effects of water trade and other factors influencing water and salt mobilisation such as climate, the implementation of Land and Water Management Plans, improvements in farm irrigation efficiencies, and greater water distribution system efficiencies through system reconfiguration and modernisation; • temporary trade in water allocations, which has consistently been an order of magnitude greater each season than permanent trade in entitlements, and which may or may not create salinity impacts; and • the relatively small average volume of each water trade in the Riverine Plains means that salinity impacts will be related more to district or regional net volume traded rather than to the effects of individual trades.
In the Barr Creek catchment, for example, the dominant salt mobilisation process is discharge from shallow, highly saline watertables to the surface drainage system (Duncan et al, 2005). In contrast, the dominant process mobilising salt from Tragowel Plains is surface washoff. Water trade into and out of these two areas will impact on the Murray River and downstream use very differently with respect to both degree and timing.
The Barr Creek catchment also provides a good example of the interaction of water trade externalities with other factors. Barr Creek has previously been a major source of salt entering the Murray River from Victoria’s Riverine Plain. At present, however, the drought has reduced watertable levels and Barr Creek flow so significantly that 96 % of Murray River outfall is being directed to the Lake Tutchewop salt interception scheme (MDBC, 2006b). During high rainfall years, changes in salt load caused by irrigation water trade into or out of the Barr Creek catchment would be expected to impact on downstream users. Currently there is virtually no impact on downstream users because of the effects of climate. The 25 year benchmark period does not span any of the severe dry periods in the climatic record such as the Federation drought, the drought of the 1940s, nor the present drought.
19 IMPACTS OF WATER TRADE ON AGRICULTURAL ECOSYSTEMS Trading rules controlling irrigation water movement
With respect to temporary trade, many of these processes, including those relating to salinity, occur over extended time periods – up to decades. Mechanisms to internalise the effects of temporary water trade into the market will have to accommodate the different outcomes arising from intermittent compared to continuous water use because sporadic seasonal use of irrigation water is unlikely to create adverse impacts where continuous use for many years may.
South Australia, Victoria and New South Wales have stated that they have difficulty tracking temporary trades with sufficient discrimination to identify what finishes up as, in effect, permanent, and has sufficient cumulative effect to constitute an Accountable Action . Report of the Independent Audit Group for Salinity 2004-2005
The relatively small volume of each trade and large number of trades in the Riverine Plains also presents challenges for policy because the impact of any one trade can be dependent on the aggregate effect of all trades in a locality. For example, the impact of 100 ML traded into a locality may be significant if recent aggregate net trade has been into the locality, but may be negligible if net trade has been out of the locality.
Notwithstanding these issues, the Impact Zone differential charging policy implemented as part of water-use licences in the Mallee provides a promising approach to cost-effectively accounting for adverse impacts of water trade (Appendix 3).
20 IMPACTS OF WATER TRADE ON AGRICULTURAL ECOSYSTEMS Trading rules controlling irrigation water movement
7. Conclusions
Water trade provides significant benefits to irrigators and irrigation based regional economies, facilitating structural adjustment and moving water to higher value uses. By establishing the true value of water, users are motivated to use it more efficiently. The trend is toward greater freedom in water markets, and it is likely that current restrictions on market access by non-irrigators will be progressively relaxed in the future to allow non agricultural uses such as environmental water and urban use to trade in the market.
One of the challenges with accounting for water trade under the BSMS is embodied in the very approach it takes to manage salinity. The BSMS uses the concepts of end-of-valley salinity targets and accountable actions to manage Basin salinity . An accountable action is a discrete work or measure, or change to a work or measure, which will have a significant effect on River Murray salinity. Contracting State Governments are responsible for accountable actions, and must ensure that cumulative salinity credits exceed debits due to accountable actions on the BSMS salinity registers.
The creation of water markets, which control where water is used and within which players can freely trade, has partly removed Government control over where irrigation occurs. Trades are driven by market forces, and individual trades are generally too small to be separately defined as accountable actions under the BSMS.
Actions or measures that Governments can take in this environment have to date been achieved by distorting the market, such as by the use of differential salinity charges on water-use licences in declared High Impact and Low Impact trading zones in the Victorian Mallee. While this approach charges irrigators for the management costs of water trade salinity impacts and has capped water use in High Impact Zones, the rate at which water is traded remains outside Government control.
With respect to the impact of water trade externalities, it is the net trade volume that is important. Whether measured at farm, district or regional scales, it is the change in irrigation water use that will potentially generate external impacts from trade, and in the Riverine Plains, the impact of a change in the volume of water used at a farm scale will be influenced by any aggregate change at a district scale.
The nature, significance and timing of water trade externalities in the Riverine Plains will be strongly influenced by location and by interactions with other factors such as climate, irrigation and water distribution efficiencies, surface/groundwater interactions, and the nature and management of surface and subsurface drainage infrastructure. Prior water use and water trade history will also affect the nature and degree of impacts.
Policy interventions in the market should aim to increase the overall beneficial use of water. To do this, robust mechanisms are required that ensure that the beneficial and adverse impacts of water trade are incorporated into transactions with reasonable accuracy. The challenge will be to achieve this in an
21 IMPACTS OF WATER TRADE ON AGRICULTURAL ECOSYSTEMS Trading rules controlling irrigation water movement environment that is heterogeneous both spatially and temporally, and where significant uncertainty about the biophysical system exists.
22 IMPACTS OF WATER TRADE ON AGRICULTURAL ECOSYSTEMS Trading rules controlling irrigation water movement
References
ABS, 2006. 2004–05 Water Access Entitlements, Allocations and Trading. Australian Bureau of Statistics publication 4610.0.55.003. Canberra, October 2006. DNRE, 2001. The Value of Water - A Guide To Water Trading In Victoria, Department of Natural Resources and Environment, Melbourne DSE, 2004. Our Water Our Future: Securing Our Water Future Together, Victorian Government Department of Sustainability and Environment, Melbourne, June 2004 DSE, 2006. State Water Report 2004/05 - A statement of Victorian water resources. Victorian Government Department of Sustainability and Environment, Melbourne, June 2006 Duncan R, Bethune M, Christen E and Hornbuckle J, 2005. A Review of Salt Mobilisation and Management in Irrigated Areas of the Murray-Darling Basin, CRC for Catchment Hydrology Technical Report 05/1 Heaney A and Beare S, 2001. Property rights and externalities in water trade, ABARE Conference Paper 2001.16, ACIAR Water Policy Workshop, Bangkok, Thailand, 8–9 June 2001 Heaney A, Thorpe S, Klijn N, Beare S and Want S, 2004, Water charges and interregional trade in the southern Murray Darling Basin, ABARE conference paper 04.14 presented at the Establishing Water Markets Symposium, Melbourne, 9 August. MDBC, 1995. An Audit of Water Use in the Murray-Darling Basin. Murray- Darling Basin Ministerial Council, Canberra. MDBC, 2001. Basin Salinity Management Strategy 2001-2015. Murray-Darling Basin Ministerial Council, Canberra. MDBC, 2005. Basin Salinity Management Strategy Operational Protocols Version 2 – March 2005. MDBC Publication No. 35/05. MDBC, 2006a. Interstate Water Trade Fact Sheet 1, Murray Darling Basin Commission, May. http://www.mdbc.gov.au/__data/page/114/MDB3614_Fact_Sheet_1.pdf MDBC, 2006b. Murray-Darling Basin Commission Annual Report 2005–2006, http://www.mdbc.gov.au/subs/annual_reports/AR_2005-06/part1_1-3.htm Peterson D, Dwyer G, Appels D and Fry J, 2005. Water trade in the southern Murray-Darling Basin, The Economic Record, Vol. 81, No. 255, August, 2005, S115–S127 Productivity Commission 2006, Rural Water Use and the Environment: The Role of Market Mechanisms , Research Report, Melbourne, August. PwC, 2006. National Water Initiative, Water Trading Study, Final Report, June 2006. Department of the Prime Minister and Cabinet. http://www.dpmc.gov.au/water_reform/#nwi_wts )
23 IMPACTS OF WATER TRADE ON AGRICULTURAL ECOSYSTEMS Trading rules controlling irrigation water movement
Appendices
Appendix 1. Trading rules for regulated water systems in northern Victoria
Appendix 2. Directions on delivery entitlements
Appendix 3. Policies for managing water-use licences in salinity impact zones
24
Appendix 1. Trading rules for regulated water systems in northern Victoria
Water Act 1989
TRADING RULES FOR REGULATED WATER SYSTEMS IN NORTHERN VICTORIA
I, John Thwaites, Minister for Water, Environment and Climate Change, as Minister administering the Water Act 1989 , make the following Order.
PART 1 – GENERAL
Title
1. This Order is called the Trading Rules for Regulated Water Systems in Northern Victoria.
Purpose
2. The purpose of these Rules is to set out the conditions under which the Minister may consent to applications relating to water shares or water allocations under Part 3A or section 64K of the Act.
Authorising provisions
3. This determination is made under sections 33AZ and 64AZ of the Act.
Commencement
4. These Rules come into operation on 1 July 2007.
Application
5. These Rules apply to trade within, into and out of the water systems, as declared in the Order Declaring Water Systems in Northern Victoria 2007.
Definitions
6. In these Rules: A reference to a section is a reference to a section of the Act. “allocation” means an allocation of water made under section 33AC with respect to a water share from water determined to be available in a water season, or an equivalent allocation of water made interstate; “Act” means the Water Act 1989 ; “back trade” means trade to a trading zone that: a) would not result in the net transfer of a volume of water to that trading zone, or to any other trading zone through which the trade must pass, taking into account all previous trades into and out of those trading zones; or
Page 1 b) in the case of trade from a trading zone above the Barmah Choke to a trading zone below the Barmah Choke, would not result in the net transfer of a volume of water from the group of trading zones above the Barmah Choke since 1 July 2007, taking into account all previous trades into and out of that group of trading zones since 1 July 2007; “entitlement” means a water share or a take and use licence issued in Victoria, or an equivalent water entitlement held in another State; “exchange rate” means a factor used to calculate the volume of an entitlement after an exchange rate trade; “exchange rate trade” means: a) the conversion of a water share to a water share with a different water system in accordance with section 33Q(1)(a), or b) the issue of a water share on the cancellation of an interstate entitlement in accordance with section 33M, or c) the cancellation of a water share on the issue of a right in a non-declared water system in accordance with section 33ABA, or d) the issue of a water share, contingent on the cancellation of a right in an non-declared water system, in accordance with section 33F; “non water user limit” has the same meaning as in the Act; “seasonal determination” has the same meaning as in the Act; “tagging” means that, without the water system or trading zone of an entitlement being varied, approval is given for allocations with respect to that entitlement being taken in a different water system or trading zone – with this being marked by a tag on the entitlement – and includes: a) an approval under section 33AI for taking of ongoing water allocations with respect to a water share outside the water system of the water share, either within Victoria or in another State, and b) within a water system, changing the trading zone in which allocations may be taken, and c) changing an existing tag to a different tag, and d) an approval under section 33AG for the taking in Victoria of ongoing allocations under an entitlement held in another State, accompanied by a parallel approval and tag in relation to the entitlement in that other State; “take and use licence” means a licence issued in accordance with section 51; “trade” means trade of allocation and trade of entitlement; “trade of allocation” means a dealing in an allocation that allows water to be taken at a different location to that at which it could be taken before the dealing, and includes: a) an assignment of a water allocation under section 33X(1)(c) (since this normally must be to the owner or occupier of defined land), and b) approval under section 64K(1)(b) for the use of a water allocation on land that is not associated with the water share with respect to which the water allocation was made – but not an approval relating to ongoing water allocations in connection with a limited term transfer or tagging – and
Page 2 c) approval under section 33AI for the taking of a water allocation outside the water system of the water share under which the water allocation was made – which may be in another State, and d) approval under section 33AG for the taking in Victoria of an allocation made interstate; “trade of entitlement” means a dealing in an entitlement that allows water to be taken at a different location to that at which it could be taken before the dealing, and includes: a) association of a water share under section 33AQ, including when approved as part of the transfer of the ownership of a water share, and b) approval under section 64K(1)(b) for the use of ongoing water allocations on land that is not associated with the water share with respect to which the water allocations are made, in connection with a limited term transfer, and c) variation of the trading zone of a water share without varying the water system, under section 33Q(1)(b), and d) tagging, and e) exchange rate trade; “trading zone” means a part of a water system as described in Schedule 1 and Schedule 3 into or out of or within which trade can occur, and a) in relation to an entitlement , means the trading zone as determined by the Minister at the time of issue of a water share or as subsequently varied through exchange rate trade, or, if the entitlement is held in another State, a trading zone similarly identified; b) in relation to an allocation , means the trading zone of the water share or other entitlement in respect of which the allocation was made, or if the allocation has been traded to a different trading zone, that trading zone. “unregulated trading zone” means a trading zone in a non-declared water system; “water season” has the same meaning as in the Act; “water share” has the same meaning as in the Act. Note: any notes in italics are explanatory only and do not form part of the Rules.
Page 3 PART 2 – TRADE OF ALLOCATION
Trading zone rules
7. Subject to Rules 12, 13, 22 and 23, an application for a trade of allocation may only be approved if the trade: (a) is within a trading zone; or (b) is from a trading zone identified at the top of the table in Schedule 2 to a trading zone identified at the left of the table, and the cell which is directly below the first trading zone and directly to the right of the second trading zone contains “a” (for always); or (c) is from a trading zone identified at the top of the table in Schedule 2 to a trading zone identified at the left of the table, and the cell which is directly below the first trading zone and directly to the right of the second trading zone contains “b” (for back trade), and the trade is back trade; or (d) complies with Rules 8, 9, 10 or 11.
Lower Goulburn (zone 3)
8. An application for a trade of allocation may be approved if the trade is from trading zone 3 to one of trading zones 1 A, 1 B, 1 L, 4 C and 6 B, and – (a) the trade is in water season that, for the purpose of this Rule, is classed by Goulburn-Murray Rural Water Authority as dry; and (b) the total trade under this Rule during the water season has not exceeded a limit, being 5,000 megalitres or less, set by Goulburn-Murray Rural Water Authority.
Lower Broken Creek (zone 6 B)
9. An application for a trade of allocation may be approved if the trade is – (a) from trading zone 6 B to trading zone 1 A, 1 B, 1 L, 3 or 4 C, and the total trade in the water season under this Rule has not exceeded the limit set by Goulburn-Murray Rural Water Authority; or (b) from trading zone 6 to trading zone 6 B, and will not exceed Murray Valley area channel capacity constraints.
Loddon supplement (zone 5A)
10. An application for a trade of allocation to trading zone 5A may be approved if - (a) the trade is: (i) from trading zone 1A or 1B; or (ii) from another trading zone from which trade to trading zone 1A or 1B could be approved under Rule 7(c); and (b) the trade is in a water season that, for the purpose of this Rule, is classed by Goulburn-Murray Rural Water Authority as a season in which the
Page 4 Loddon water system is supplying water to the Goulburn water system as a supplement; and (c) the total trade in the water season under this Rule has not exceeded the limit set by Goulburn-Murray Rural Water Authority.
Special situations
11. Trade of allocation out of a trading zone listed in Schedule 1 (a “regulated trading zone”) which would not be allowed under Rules 7 to 10, may be approved if the property to which the allocation is to be delivered can physically receive a supply from that trading zone, and the property – (a) is situated in another regulated trading zone, and the seasonal determination for that trading zone is less than 100%; or (b) is situated in a trading zone described in Schedule 3 (an “unregulated trading zone”) and is subject to a ban on diversions; subject to any other conditions which the Minister may determine to ensure there are no adverse effects on other water users or the environment.
Limit on trade out of the Loddon
12. An application for a trade of allocation out of trading zones 1 B or 5 A must not be approved if, after the proposed trade, the net trade out (including trade of allocation in the current season, and any trade of entitlement, and any trade carried out under trading rules in existence prior to these Rules) of the combined trading zones 1 B and 5 A would exceed 8,000 megalitres.
Note: Records of trade have been kept since trade was first permitted, and will be used to assess whether an application is affected by this Rule and Rule 15.
Insufficient water to cover losses
13. When the seasonal determination for a trading zone is 0%, a trade of allocation into that trading zone may be permitted only if buyers are advised that the water to be purchased cannot be delivered within an irrigation district unless and until the seasonal determination is increased.
PART 3 – TRADE OF ENTITLEMENT
Trading zone rules
14. Subject to Rules 15, 16, 17, 24 and 25, an application for a trade of entitlement, other than by exchange rate trade, may only be approved if the trade: (a) is within a trading zone; or (b) is from a trading zone identified at the top of the table in Schedule 2 to a trading zone identified at the left of the table, and the cell which is directly below the first trading zone and directly to the right of the second trading zone contains “a”.
Page 5 Limit on trade out of the Loddon
15. An application for a trade of entitlement out of trading zones 1 B or 5 A must not be approved if, after the proposed trade, the net trade out (including trade of allocation in the current season, and any trade of entitlement, and any trade carried out under trading rules in existence prior to these Rules) of the combined trading zones 1 B and 5 A would exceed 8,000 megalitres.
Lower Campaspe (zone 4 C)
16. An application for a trade of entitlement must not be approved – (a) for trade out of trading zone 4 C if the total entitlement for which water may be taken in that trading zone after the trade out would be less than 1,000 megalitres of water shares classed as high reliability, unless the trade out is for the total remaining volume of water shares classed as both high and low reliability in the trading zone; and (b) for trade into trading zone 4 C if all the entitlement has been previously traded out of trading zone 4 C, unless trade in is for at least 1,000 megalitres of water shares classed as high reliability.
Lower Darling (zone 14)
17. An application for a trade of entitlement must not be approved if the trade is into or out of the Lower Darling Valley.
Notes regarding trade of entitlement: (a) Tagging of a water share, other than to interstate, leads to the water share being associated with the relevant land. (b) The giving or surrender of a limited term transfer does not alter the association of the water share. (c) In accordance with Rule 14 above, a water share may only be tagged to a destination in a trading zone to which trade is always permitted, and back trade by tagging is not permitted except by the removal of a tag previously applied. (d) A water share may not be tagged to locations in more than one trading zone.
Exchange rate trade
18. An application for an exchange rate trade, other than for an exchange rate trade to an unregulated trading zone, may only be approved if: (a) the trade is back trade – (i) from trading zone 6 B or 7 to trading zone 1 A or 1 B or (ii) from trading zone 12 to trading zone 1 A or 1 B and South Australia also approves the trade, or (iii) from trading zone 1 A or 1 B to trading zone 4 A or 4 C, provided that the trade does not result in net trade from the Goulburn water system to the Campaspe water system, or (iv) from trading zone 6 B or 7 to trading zone 4 A or 4 C, provided that the trade does not result in net trade from the Murray water system to the Campaspe water system, or
Page 6 (v) from trading zone 1 A or 1 B to trading zone 5 A; and (b) the entitlement being converted or cancelled is a high-reliability water share or an equivalent interstate entitlement; (c) an exchange rate equal to 1.0 is applied.
PART 4 – TRADE TO OR FROM UNREGULATED TRADING ZONES
Trade of entitlement to an unregulated trading zone
19. An application to cancel a water share under section 33ABA to allow the issue of a take and use licence in an unregulated trading zone may be approved if: (a) the take and use licence to be issued only permits the holder of the licence to divert water into or harvest water in a private dam between the months of May to October in each year, or during any shorter period within those months as specified in the licence (that is, it is a “winter-fill licence”); and (b) the take and use licence will not become operative until the next 1 July; and (c) the trade is in accordance with the trading zone rules in Schedule 3; and (d) the exchange rates in Schedule 4 are applied; and (e) the total volume of entitlement transferred out of the associated water system since 14 October 2002 has not exceeded three per cent of the entitlements in existence for that water system on 1 July 2002.
Trade of entitlement from an unregulated trading zone
20. A water share must not be issued in accordance with section 33F, contingent on the cancellation of a take and use licence in an unregulated trading zone, unless: (a) the take and use licence is unused in the current year to 30 June; and (b) the trade is in accordance with the trading zone rules in Schedule 3; and (c) the trade is a back-trade, and (d) the inverse of the exchange rate in Schedule 4 is applied in calculating the volume of the water share.
Trade of allocation to or from an unregulated trading zone
21. Trade of allocation is not permitted –
(a) from a regulated water system to an unregulated water system, except where allowed under Rule 11(b); or
(b) from an unregulated water system to a regulated water system.
Page 7 PART 5 – SPECIAL LIMITS
Trade of allocation after the end of February
22. Approval must not be given to an application for trade of allocation – (a) into New South Wales, or (b) to Coliban Region Water Authority – after the end of February each year to 30 June.
Trade of allocation limited by annual use limit
23. An application to trade a water allocation, other than from interstate, to the owner or occupier of land specified in a water-use licence or water-use registration must not be approved if, after the trade, the volume of water allocation recorded in the water register as available for use on that land (taking into account allocations made with respect to water shares associated with the land, and trade of allocation to and from the owner or occupier of the land) would exceed: (a) 200% of the annual use limit in that water-use licence or water-use registration, or (b) where the water allocation is available for use on more than one parcel of land, 200% of the sum of the annual use limits in the water-use licences or water-use registrations for each parcel.
Limited term transfers limited by annual use limit
24. An application to give a limited term transfer to the owner or occupier of land specified in a water-use licence or water-use registration must not be approved if, after the trade, the volume of limited term transfers recorded in the water register as available for use on that land would exceed: (a) 200% of the annual use limit in that water-use licence or water-use registration, or (b) where the limited term transfer is available for use on more than one parcel of land, 200% of the sum of the annual use limits in the water-use licences or water-use registrations for each parcel. Note: these limits are parallel to the limit on the volume of water shares that can be associated with land in a water-use licence or water-use registration, in section 33AM(2).
Limit on trade of entitlement out of an irrigation area
25. An application to revoke the association of a water share of a certain reliability class with land in any of the irrigation areas set out in Schedule 5 – whether as a dealing by itself or in connection with other dealings – may be refused if revocation would result in –
Page 8 (a) the total volume of water shares of that reliability class with respect to which association with land in the irrigation area had been revoked during any water season, minus (b) the total volume of water shares of that reliability class that had become associated with land in the irrigation area during the same water season – exceeding four per cent of the total volume of water shares of that reliability class that were associated with land in that irrigation area at the beginning of that water season.
PART 6 – MISCELLANEOUS
Adverse impact
26. (1) Notwithstanding any other provisions in these Rules, an application to trade may be refused if that trade would, in the opinion of the Minister, be likely to cause any material adverse impact on the environment or other water users.
(2) Where the Minister has refused an application to trade under this Rule, the Minister must give the applicant the reason for the refusal in writing.
Carryover and advance allocation
27. (1) Transfer of ownership of a water share under section 33S(1) must not alter any limitations on water allocations in the current water season with respect to that water share arising from any allocation carried over from the previous water season under section 33F(2) or any advance allocation taken with respect to that water share.
(2) If a water share is divided under section 33Y, any limitations on water allocations in the current water season with respect to that water share on account of carryover or advance allocation must be apportioned on a pro rata basis between all of the new water shares.
(3) If two or more water shares are consolidated under section 33Z, any limitations on water allocations in the current water season with respect to those water shares on account of carryover or advance allocation must be aggregated against the consolidated water share.
Administration of interstate tagging
28. The following administrative procedures and requirements are to apply to interstate tagging of entitlements – (a) the owner of a tagged water share must apply to the relevant interstate body to establish separate accounting for tagged allocations; (b) an application to tag a water share to a trading zone in another State may only be approved if the owner of the water share: (i) provides details of an interstate account suitable for ongoing accounting for usage arising from the tagging, and
Page 9 (ii) authorises the ongoing transfer of allocations to this account from Victoria as required for administration of the tagging, and (iii) undertakes to ensure that the relevant allocation bank account in Victoria will always contain sufficient allocation to meet orders placed interstate for usage interstate; (c) an application to take water under an interstate entitlement in Victoria may only be approved if the owner of the interstate entitlement: (i) provides details of an interstate account that will hold allocations made in respect of the entitlement ready for transfer to Victoria; and (ii) authorises the ongoing transfer of allocations from that account to an account in Victoria as required for administration of the tagging; and (iii) undertakes to ensure that the interstate account will always contain sufficient allocation to meet orders placed for usage in Victoria.
Note: Schedule E to the Murray Darling Basin Agreement requires each State to provide reports of interstate trade to the Murray Darling Basin Commission as follows:
(1) Within seven days after the end of every month, each Authority must send to the Murray-Darling Basin Commission (“the Commission”) a copy of its records relating to interstate trade of entitlements (whether by exchange rate trade or tagging) and allocations for the preceding month.
(2) If the Commission advises an Authority of a discrepancy between the Authority’s data and that of another Authority or a similar body interstate, the Authority which receives such advice must: (i) give any explanation of the discrepancy to the Commission, within fourteen days after receiving a report; and (ii) in consultation with the Commission, promptly seek to resolve the discrepancy.
Exit fees not permitted on a water share dealing
29. Any fees levied on the dissociation of a water share from land in an irrigation area, or on any other dealings in a water share, must not include any contribution towards the costs of maintaining irrigation infrastructure.
Surrender and cancellation of a water share
30. An application for surrender of a water share under section 33AA or cancellation of a water share under sections 33AB or 33ABA where there is a recorded mortgage held against that water share may only be approved if the mortgagee’s consent has been obtained.
Page 10 Division of water shares
31. Where a water share has been divided under section 33Y, any limited term transfer held in relation to that water share must be carried forward to each of the new water shares that is issued.
Consolidation of water shares
32. (1) Water shares may only be consolidated if they have the same trading zone and the water may be taken at the same location.
(2) Where water shares are consolidated by cancelling a water share and adding the maximum volume to an existing water share under section 33Z(1)(b), any mortgage or limited term transfer over the water share to which maximum volume has been added will, in accordance with section 33Z(4), extend to the whole of the consolidated water share .
Evidence of identity (100 point check)
33. Each of the owners of a water share applying for approval for a transfer of a water share or limited term transfer must establish their identity in accordance with section 84ZE by completing a 100 point identity check including the provision of personal identification in the form of original, or certified copies of original, documents, together with such other information as may reasonably be required by the recording body.
Procedures for the management of applications for trade 1 34. (1) Applications for trade must be managed in accordance with procedures established for the management of such applications. (2) Where there is, or is expected to be, a high volume of applications for trade, and approval of all of those applications may cause either a. the non water user limit to be exceeded, or b. a limit set by these Rules to be exceeded, specific procedures may be established for the grouping of applications, and for the orderly selection, by ballot or any other method, of applications from a group for processing and approval.
1 Rule 34 was made on 19 July 2007 by Steve Bracks, Premier and Acting Minister for Water, Environment and Climate Change, as Acting Minister administering the Water Act 1989.
Page 11 SCHEDULE 1: Trading zones for declared water systems
Trading Trading Zone description Zone
1A Greater Goulburn Lake Eildon; Goulburn River from Lake Eildon to Goulburn Weir; Lake Nagambie; Shepparton, Central Goulburn, Rochester and Pyramid-Boort irrigation areas except the Boort irrigation area. 1B Boort Boort irrigation area 1L Loddon Weir Pool 2A Broken: Nillahcootie to Casey’s Weir Lake Nillahcootie; Broken River from Lake Nillahcootie to top of Casey’s Weir pool. 2B Broken: Casey’s Weir to Goulburn River Casey’s Weir pool; Broken River from Casey’s Weir pool to the Goulburn River; Upper Broken Creek from Broken River to Waggarandall Weir, including Major Creek; Lake Mokoan. 3 Lower Goulburn Goulburn River downstream of Goulburn Weir. 4A Campaspe Lake Eppalock; Campaspe River from Lake Eppalock to Waranga Western Channel; Campaspe irrigation district. 4B Coliban channel system Coliban channel system. 4C Lower Campaspe Lower Campaspe River, from downstream of the Waranga Western Channel to the River Murray 5A Loddon Tullaroop Reservoir; Tullaroop Creek from Tullaroop Reservoir down to Loddon River; Cairn Curran Reservoir; Loddon River from Cairn Curran Reservoir down to top of Loddon Weir Pool; Serpentine Creek system upstream of Bear’s Lagoon. 5B Bullarook Hepburns Lagoon, and downstream to Bullarook Creek; Newlyn Reservoir; Bullarook Creek from Newlyn Reservoir to Creswick Creek. 6 Vic Murray Dartmouth to Barmah Lake Hume; River Murray from Lake Hume to Barmah Choke; Lake Dartmouth; Mitta Mitta River below Lake Dartmouth; Murray Valley irrigation area, excluding Lower Broken Creek.
Page 12 6B Lower Broken Creek Lower Broken Creek downstream of Katamatite. 7 Vic Murray Barmah to SA River Murray from Barmah Choke to the South Australian border; Torrumbarry irrigation area; Tresco irrigation district Nyah irrigation district; Robinvale irrigation district; Red Cliffs irrigation district; Merbein irrigation district; First Mildura irrigation district (Note – this now includes the previous trading zone 8) 9A Ovens Lake Buffalo; Buffalo River downstream of Lake Buffalo; Ovens River downstream of the confluence with the Buffalo River. 9B King Lake William Hovell; King River downstream of Lake William Hovell. 10 A NSW Murray above Barmah Choke River Murray from Lake Hume to Barmah Choke 10 B Murray Irrigation Ltd areas Murray Irrigation Ltd areas, including Wakool Irrigation District 11 NSW Murray below Barmah Choke River Murray from Barmah Choke to SA border (including the Edwards/ Wakool system and the Western Murray Irrigation District). 12 South Australian Murray River Murray in SA and Trust districts 13 Murrumbidgee Murrumbidgee Irrigation and Colleambally Irrigation areas; Murrumbidgee and Tumut below Burrinjuck and Blowering reservoirs (including Yanko, Colombo and Billabong Creek systems) 14 Lower Darling Menindee Lakes and the Darling River downstream of the Menindee Lakes
Page 13
SCHEDULE 2: Trading capability for regulated trading zones (see Rules 7 and 14)
From Trading Zone Zone 1A 1B 1L 2A 2B 3 4A 4C 5A 6 6B 7 10 A 10 B 11 12 13 14 1A a b a a a b b b b b b b b b 1B a b a a a b b b b b b b b b 1L a a b a a a b b b b b b b b b 2A 2B a 3 a a a a a b b b b b b b b b
4A b b b a b b b b b b b b b b 4C a a b a a b b b b b b b b b 5A b b b b b b b b b b b b b b ing Zone d 6 a a a a a a a a a a a a a a 6B a a b a a a b b b b b b b b Tra 7 a a a a a a b a b b a a a a To 10 A a a a a a a a a a a a a a a 10 B a a a a a a a a a a a a a a 11 a a a a a a b a a b b a a a 12 a a a a a a b a a b b a a a 13 b b b b b b b b b b b b b b 14 b b b b b b b b b b b b b b
Notes to Schedule 2: 1. This Schedule does not apply to exchange rate trade, which is governed by Rule 18. 2. This Schedule must be read in accordance with Rules 7 and 14, noting the limits referred to in those Rules. 3. When using this Schedule for trade of allocation: a. ‘from’ is the existing trading zone for the allocation; b. ‘to’ is the proposed new trading zone for the allocation. 4. When using this Schedule for trade of entitlement, other than for exchange rate trade: a. ‘from’ is the trading zone for the entitlement; b. ‘to’ is the trading zone in which allocations are proposed to be taken. 5. Trading zone 1 L is not a trading zone for any water share, but is a trading zone in which water may be taken.
Page 14 SCHEDULE 3: Trading zones for unregulated systems, and the trading zones from which an entitlement can be transferred (see Rules 19, 20 and 21)
A B C
Zone Description Can transfer from 110 Goulburn Unregulated tributaries of the Goulburn River above Goulburn Weir, 110, 111, excluding King Parrot Creek and Yea River and their tributaries. 112 & 1 A Unregulated tributaries above full supply level of Lake Eildon. 111 King Parrot Creek King Parrot Creek and its tributaries, including Break O’Day Creek, 111, 110 Chyser Creek, Little Wallaby Creek, Pheasant Creek (including & 1 A tributaries Cummins Creek and Johnston’s Creek), Silver Creek, Stony Creek, Strath Creek and Wallaby Creek. 112 Yea River Yea River and its unregulated tributaries, including the Murrindindi 112, 110 River & 1 A 120 Broken Broken River above full supply level of Lake Nillahcootie and all 120, 2A unregulated tributaries of the Broken River excluding unregulated & 2 B sections of the Broken Creek and tributaries below Waggarandall Weir. 130 Lower Goulburn All unregulated tributaries of the Goulburn River downstream of 130, 1 A & Goulburn Weir. 3 140 Campaspe Campaspe River above the full supply level of Lake Eppalock. All 140 & 4 A unregulated tributaries of the Campaspe River, excluding the Coliban & 4 C River above Malmsbury Reservoir Embankment and its tributaries above Malmsbury Reservoir Embankment. Unregulated tributaries of the Lower Campaspe River downstream of the Campaspe siphon at Rochester. 141 Coliban Coliban River and unregulated tributaries above Malmsbury Reservoir 141 & 4 B Embankment. 150 Loddon Loddon River above the full supply level of Cairn Curran. Bullarook 150, 5 A & Creek downstream of Lawrence Weir. All unregulated tributaries of the 1B Loddon River above Loddon Weir. 151 Lower Loddon The Loddon River and all its tributaries downstream of Loddon Weir to 151, 5 A & the River Murray and Lake Boort, Lake Leaghur, Lake Meering and 1B Little Lake Meran. 160 Upper Murray Mitta Mitta River above the full supply level of Lake Dartmouth and all 160 & 6 tributaries of the Mitta Mitta River. River Murray upstream of confluence with Swampy Plains River All of the River Murray tributaries above the full supply level of Hume Weir. Those parts of the unregulated tributaries of the River Murray downstream of Lake Hume to the bridge at Barmah that are above the backwater effects from the River Murray at high flow level.
Page 15 161 Upper Murray main stem 161 & 6 River Murray above the full supply level of Hume Weir and downstream of confluence with Swampy Plains River . 170 Barmah to Nyah Parts of the unregulated tributaries of the River Murray downstream 170, 6 B & from the bridge at Barmah to the pumping station at Nyah that are 7 above the backwater effects from the River Murray at high flow level. Unregulated sections of the Broken Creek and tributaries below Waggarandall Weir. 180 Ovens and King The Ovens River upstream of its confluence with the Buffalo River, the 180, 9 A, Buffalo River above full supply level of Lake Buffalo, the King River 9B & 6 above full supply level of Lake William Hovell and all tributary streams within the Ovens and King River System excluding the regulated components of Tea Garden Creek and Maloneys Creek. 190 Kiewa Catchment All tributary streams of the Kiewa River and the Kiewa River upstream 190, 191 of the pondage at Mt Beauty, including the pondage. & 6 191 Kiewa Main Stem The Kiewa River main stem between the pondage at Mt Beauty and the 191 & 6 River Murray.
Note: Trading zone numbers in column C refer to trading zones defined in this Schedule or Schedule 1.
Page 16 SCHEDULE 4: Exchange rates for trade of high-reliability water shares from regulated trading zones to winter-fill licences (see Rules 19 and 20)
Regulated trading zone or zones Exchange rate
Zones 6, 6 B, 7 (Murray system) 1.19 Zones 9 A & 9 B (Ovens) 1.19 Zones 1 A, 1 B, 1 L, 3, 5 A (Goulburn/Loddon system) 1.19 Zone 5 B (Bullarook) 1.19 Zone 2 A & 2 B (Broken system) 1.19 Zone 4 A (Campaspe system) 1.19 Zone 4 B (Coliban System) 1.19 Zone 4 C (Lower Campaspe) 1.19
Note: The exchange rate has been calculated on the basis that the long term cap equivalent of a high-reliability water share is 0.95, and the expected utilisation factor for a farm dam is 0.8.
SCHEDULE 5: Irrigation areas subject to 4% limit (see Rule 25)
Item Irrigation area 1 Torrumbarry Irrigation Area (excluding the Woorinen part) 2 Murray Valley Irrigation Area 3 Shepparton Irrigation Area 4 Central Goulburn Irrigation Area 5 Rochester Irrigation Area 6 Pyramid-Boort Irrigation Area 7 Campaspe Irrigation District 8 Merbein Irrigation District, Red Cliffs Irrigation District, Robinvale Irrigation District 9 Nyah Irrigation District, Tresco Irrigation District, the Woorinen part of Torrumbarry Irrigation Area 10 First Mildura Irrigation District
Page 17
Appendix 2. Directions on delivery entitlements
Appendix 3. Policies for managing water-use licences in salinity impact zones