The Role of Water Markets in Climate Change Adaptation
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The role of water markets in climate change adaptation Final Report Adam Loch, Sarah Wheeler, Henning Bjornlund, Simon Beecham, Jane Edwards, Alec Zuo and Martin Shanahan The role of water markets in climate change adaptation Final report prepared for the National Climate Change Adaptation Research Facility Authors: Adam Loch Sarah Wheeler Henning Bjornlund Simon Beecham Jane Edwards Alec Zuo Martin Shanahan March 2013 Published by the National Climate Change Adaptation Research Facility 2013 ISBN: 978-1-925039-01-6 NCCARF Publication 30/13 Australian copyright law applies. For permission to reproduce any part of this document, please approach the authors. Please cite this report as: Loch, A, Wheeler, S, Bjornlund, H, Beecham, S, Edwards, J, Zuo, A & Shanahan, M 2013, The role of water markets in climate change adaptation, National Climate Change Adaptation Research Facility, Gold Coast, 125 pp. Acknowledgement This work was carried out with financial support from the Australian Government (Department of Climate Change and Energy Efficiency) and the National Climate Change Adaptation Research Facility (NCCARF). The role of NCCARF is to lead the research community in a national interdisciplinary effort to generate the information needed by decision makers in government, business and in vulnerable sectors and communities to manage the risk of climate change impacts. Disclaimer The views expressed herein are not necessarily the views of the Commonwealth or NCCARF, and neither the Commonwealth nor NCCARF accept responsibility for information or advice contained herein. Permissions Figures 7, 12, 13, 16 - 20 © Commonwealth of Australia 2011 Figures 8, 11, 14 © Commonwealth of Australia 2012 Figure 10a © Commonwealth of Australia 2005 Cover image Lock 1 at Blanchetown in South Australia © Murray Darling Basin Authority, taken by Arthur Mostead TABLE OF CONTENTS Glossary of terms v Abstract xi EXECUTIVE SUMMARY 1 1. Expected Southern Murray-Darling basin climate change impacts 4 1.1. Background 4 1.1.1. Purpose of the report 4 1.2. Introduction 4 1.3. Rainfall Variability 5 1.3.1. Trends in Rainfall Processes 5 1.3.2. Climate Indices and their Influence on Australian Hydro-climatic Variables 6 1.4. Hydro-climatic Projections of Rainfall and Runoff 7 1.4.1. Murray-Darling Basin Hydro-climatic Projections of Rainfall and Runoff 9 1.4.2. Groundwater in the MDB 12 1.5. Effects on Evapotranspiration 14 1.6. Discussion 14 1.7. Key points 14 2. Agricultural climate change impacts 16 2.1. Agriculture and Water Supply 16 2.1.1. Irrigation in Australia 17 2.1.2. Irrigation in the MDB 18 2.2. Water User Adaptation 20 2.2.1. Influences on irrigator adaptive variability 22 2.2.2. Influences on irrigation community adaptive variability 22 2.3. Consequences of Climate Change for Industry and geographical variation 26 2.3.1. Industry 26 2.3.2. Location 27 2.3.3. Costs 27 2.4. Key points 28 3. An introduction to water markets 29 3.1. Background 29 3.2. Water market background information 29 3.2.1. Economic efficiency from water markets 30 3.2.2. Water Market Operations - Seasonal allocations 31 Water markets in climate change adaption i 3.2.3. Water Market Intermediaries, IIOs and Irrigator Numbers 33 3.3. The Murray-Darling Basin (MDB) 35 3.4. A brief water market history 39 3.4.1. The origins of water markets 41 3.4.2. A recognition of over-allocation 41 3.4.3. Scarcity impacts on water market development 42 3.4.4. Emerging water markets and property rights 43 3.4.5. Water market adoption and broadening 44 3.4.6. Further Water market reform in the 2000s 47 3.5. Key points 54 4. Economic consequences of water markets 55 4.1. The perception of water markets – an overview 55 4.1.1. Water trade background in the 2000s 57 4.2. Economic studies of water trade and reallocation 58 4.2.1. Restoring the Balance water recovery program 60 4.2.2. Water market influences 61 4.3. Improving water markets 66 4.3.1. Basic elements for effective and efficient water markets 66 4.3.2. The influences of caps on water markets 67 4.3.3. Water market Improvements needed 68 4.4. Key points 72 5. Social impacts of water markets 73 5.1. Issues facing rural communities 73 5.2. General social fears related to water trade 74 5.2.1. Community concerns about water buyback 76 5.3. Community adaptive capacity 83 5.4. Key points 85 6. Environmental impacts of water markets 87 6.1. An overview of water, over-allocation and trade in the Basin 87 6.2. Hydrological and environmental impacts from water trade 90 6.2.1. Historical impacts and policy 91 6.2.2. In-stream flow regime changes from trade in the late 1990s to 2000s 91 6.2.3. Salinity issues 93 6.2.4. Increased water use/trade due to carry-over restrictions 95 6.2.5. Transmission losses 95 6.2.6. Exchange rate and tagged water trade 96 6.2.7. Return flows 97 ii Water markets in climate change adaptation 6.2.8. CEWH environmental water trade 97 6.2.9. Seasonal Water Donations by Irrigators 98 6.3. Discussion 98 6.4. Key points 99 7. Future changes to water markets to support adaptation 100 7.1. Policy Responses for Adaptation 100 7.2. Further Water Market Changes Required for Adaptation 100 7.2.1. Institutional 101 7.2.2. Information 101 7.2.3. Policy 102 8. References 104 LIST OF FIGURES Figure 1 Rainfall deciles across Australia (01.01.97 – 31.12.2009) based on climatology 1900 – 2009 .................................................................................................................................. 8 Figure 2 Change in average annual runoff for 1°C global warming (2030 vs. 1990) .............. 8 Figure 3 Difference (%) between mean annual rainfall and runoff in 1997 – 2008 and the long-term means (1895 – 2008) .................................................................................................... 9 Figure 4 Overview of Murray-Darling Basin Sustainable Yields Project regions .................. 10 Figure 5 Percentage changes in average surface water availability by region (median 2030 climate projection) ....................................................................................................................... 12 Figure 6 Water use (GL) in 2004-05 by state and irrigation commodity ............................... 18 Figure 7 Rainfall & storage levels - major MDB dams 1989/90 - 2009/10 ............................ 33 Figure 8 The Murray-Darling Basin with major irrigation districts ......................................... 35 Figure 9 General land use patterns in the MDB, 1996/97 - 2000/01 .................................... 36 Figure 10 Average MDB annual rainfall distribution patterns .............................................. 37 Figure 11 MDB water inflows, 1890 to 2011 (ML) ............................................................... 38 Figure 12 The evolution of Australian water markets .......................................................... 40 Figure 13 Water allocation and entitlement trade in the sMDB ........................................... 46 Figure 14 Net Water allocation trade in sMDB - 1998-99 to 2009-10 ................................. 46 Figure 15 Mean monthly water allocation trade ($/ML) in the sMDB from 2002/03 – 2010/11 ............................................................................................................................ 47 Figure 16 Gross value of MDB irrigated production, 2005/06 to 2008/09 ........................... 59 Figure 17 sMDB adaptive capacity index map, 2006/07 ..................................................... 84 Figure 18 Location, volume & type of sMDB regulated water entitlements (ML) ................ 88 Figure 19 Movement of water allocation 2008/09 & 2010/11 by volume (GL) .................... 89 Figure 20 Natural, observed and without water trade flows for Murray River at SA border .... ............................................................................................................................ 92 Figure 21 Low to moderate environmental flow impacts in dry conditions .......................... 93 Figure 22 Low to moderate environmental flow impacts in wet conditions ......................... 93 Water markets in climate change adaption iii LIST OF TABLES Table 1 Proposed changes in MDB water extractions by catchment/region ....................... 13 Table 2 Predominant irrigated agricultural commodities in the southern MDB .................. 19 Table 3 Incremental Irrigation Adaptation Measures .......................................................... 20 Table 4 Closing water allocations in the sMDB (by security type) ...................................... 32 Table 5 Characteristics of reporting IIOs in the MDB in 2010-11 ........................................ 34 Table 6 Total water resources in the MDB—2010 .............................................................. 38 Table 7 Water recovery policy summary—NPWS and WFF† ............................................. 51 Table 8 Water Trade Attitudes by GMID and NSW Murray in 1998-99 (%) ........................ 56 Table 9 Water Trade Attitudes in NSW, VIC and SA 2010/11 (%) ..................................... 56 Table 10 Intrastate versus interstate sMDB water allocation trade as a % of state trade— 2007-2011 .............................................................................................................. 58 Table 11 Total hypothetical irrigator bills for 2010−11 year, 50 ML, 250 ML and 1000 ML of entitlement with delivery of 100 and 50% allocation ................................................................... 63 Table