Contemporary Issues in Water Policy


Alistair Watson, Freelance Economist, Melbourne,

Talk prepared for a ‘Vital Issues Seminar’ organised by the Parliamentary Library, Parliament House, Canberra, June 21 2006

Positive signs are emerging from bureaucratic and political effort in the water industry.

The Commonwealth and State Governments have grudgingly accepted that the cheapest way to secure water for environmental flows is to obtain water on the market. The possibility of an easy way out through water savings in irrigation and urban water recycling has been exaggerated.

Buy back of licences is a long-established policy mechanism for overstressed fisheries and it was only a matter of time before it was accepted in irrigated agriculture. Buy back of irrigation entitlements or allocations should also impose discipline on ambit claims from environmentalists and encourage greater rigour in project assessment.

Unfortunately, this sensible decision is diminished by unworkable conditions that the purchased water is obtained from savings by irrigators, as if it were possible to judge. A lot of care will be needed in the design of the proposed tendering system.

Along with the imposition of a Cap on water diversions from the Murray-Darling system in the mid-1990s, the most significant reform in the water industry in the last couple of decades was introduction of water trading between irrigators. Nevertheless, the logic of trading was not fully accepted by powerful forces in the environmental movement and irrigation community.

Once property rights are established and water is made tradeable, it is unreasonable to prescribe to whom water is sold and for what purpose water is used, including no use if water were purchased by environmental agencies.

There are also pleasing signs that the rigid separation of the rural and urban water markets is breaking down. In the last couple of years, the South Australian Government has acquired water for Adelaide and environmental purposes from irrigated dairy farms on the Murray Swamps. There is now bipartisan support for transfer of water from the Goulburn-Murray system to long-suffering citizens in water scarce country towns in central Victoria.

Part of the $30 million estimated cost of the pipeline can be found by immediately scrapping the $4 million ‘Every drop counts’ advertising campaign in regional Victoria. Slogans like ‘every drop counts’ demonstrate the gulf between thinkers and carpetbaggers in Australian water policy.

Water policy in Australia has veered between excessive enthusiasm for irrigation and excessive pessimism concerning the environmental consequences of irrigation. This is well documented in the professional literature on irrigation policy in Australia.

Less well documented are the ongoing problems of the urban water sector.

High standard drinking water and sewerage systems were provided in Australian cities from the nineteenth century. Public health was the driving force. Pricing and other issues later arose with cost padding and overmanning in natural monopoly urban water authorities but State governments readily accepted responsibility to finance and provide urban water infrastructure for a growing population.

This is no longer the case. Water has been treated as a special case in the agenda of microeconomic reform with a presumption that prices are too low. What was once arguably true for irrigation was erroneously extended to the urban sector. Prices are being ramped up for urban water consumers through a range of contrivances.

Urban consumers are now conditioned to think that water shortages are their own fault rather than inadequate public policy. In some quarters, water consumption is treated as if it were sinful. Behind all the environmental anxiety and scary billboards, urban consumers are mostly unaware that substantial taxation is collected by State Governments in their water bills.

For both irrigation and urban water, the interests of the public are compromised by the prejudices of the ill informed, and the continuing antics of special interests in the water and environmental lobbies.

Naïve belief and emotion supplanted rational calculation and empirical evidence concerning engineering, environmental and economic aspects of water a long time ago. Water unfortunately attracts zealots, as demonstrated in the fuss over privatisation of Snowy Hydro, which should not have had much to do with water. The amount of water available for irrigation is not altered when it passes through a turbine and is stored downstream.

Whenever we hear the word ‘icon’, we know we have moved from the cerebral to the visceral, and worse.

Another symptom of irrational attitudes to water is widespread ignorance of how water is used and how water use is measured. The ‘Olympic swimming pool’ is a frequent unit of account without journalists, editors, readers or viewers having much idea of what this means in terms of demands and supplies for water in aggregate, or for the average farm or household.

The fundamental insight that rainfall and water supplies are extremely variable in Australia but not, as almost universally believed, chronically scarce for the needs of the Australian population, is insufficiently understood by the lay public, or even people that could be expected to know better.

Water policy badly needs a solid dose of empiricism to sort out what should be manageable technical, environmental and economic problems of irrigation and urban water, rather than the romanticism and pap inflicted on the Australian public in recent years.

Examples of irrational attitudes to water and bad policies are so numerous it is only possible to mention three of the worst cases.

The palpably absurd idea of diverting rivers over the Divide to irrigate inland Australia has attracted a string of otherwise talented individuals, all the way from the Bradfield scheme in the 1930s to contemporary figures like Richard Pratt and Alan Jones.

A modern variant of the irrigation cargo cult that flirted with the Bradfield scheme and produced white elephants like the Ord River Scheme is fuzzy attitudes to urban water, of which the Western Australian far canal incident of last year was a peculiar case in point.

Not that where I live is much better, as the following newspaper report shows:

Clear the desk, stand aside: here comes the bureaucratic project to sink them all. City West Water has just released the findings of the Refugee and Migrant Youth Water Conservation Capacity Building Project Learnings Report 2005! Yes, dear readers an earnest group of researchers has just the probed the “perceptions of water use among migrant and refugee communities living in Melbourne’s west”. The aim: “To increase the knowledge and awareness of water issues of new arrivals so they can help save our precious water.” Suggestion: just tell ‘em to turn off the tap. (‘All wet’ – The Age Diary, page 24, The Age, May 24 2006).

 ‘Learnings’ by the way is up there with icons as a meaningless and useless word. The young targets of this dross know a lot more about what it really means to drink clean water from a tap than the overpaid management of City West Water, and the parasitic clowns lining up for these offensive money-wasting projects.

Something strange happened when our ancestors got up on two legs and struggled out of the swamp – not many generations back, in a few cases. The fear of dying of thirst must be imprinted on our collective DNA.

Even the National Water Initiative has a $200 million Community Water Grants Programme, ostensibly ‘to promote a culture of wise water use through community engagement, awareness and investment in conserving water.’

That amounts to ten per cent of the Australian Water Fund of $2 billion. Anything that needs $200 million of public funds to create ‘awareness’ is not the problem it is cracked up to be. If the successful $50 000 grants announced in newspaper advertisements on World Water Day (March 22 2006) are any guide, the programme is intruding on the territory of local government, and State education and health authorities for no significant benefit (except to the advertising industry and other desperates).

Grants-based funding, too much respect for the power of public relations and confused relationships between tiers of government over water policy have undermined the professionalism of public institutions responsible for water. Excursions into community consultation like the one cited above have little to offer.

Australia has high standards in hydrology, hydrogeology, ecology and other disciplines necessary for water management but the way those resources are allocated is not yielding the best results.

The beads and mirrors frittered away in the Community Water Grants Programme are a poor substitute for such things, for example, as expanded monitoring and metering of surface and groundwater that could occur with a science-based approach.

It is time to scrap the Community Water Grants Programme, and divert the funds to support reasonable objectives of the NWI by purchasing water for environmental projects that are properly researched and evaluated.

The Australian Treasury would do better to concentrate on sorting out funding and evaluation arrangements of the NWI rather than bleat about ‘national consistency’ in water policy as happened in a recent article in the Treasury’s Economic Roundup. Voodoo economics like tables of gross values per ML by industry is not something we expect from an organisation that once prided itself on its standards.

Water use efficiency is an abused concept; wrongly interpreted by scientists and politicians to mean irrigation techniques and the commodity composition of output should be chosen by planners rather than farmers. Legitimate concerns for public policy are the aggregate amount of water used and off-farm effects of irrigation, not what farmers produce on their own farms. All factors of production should be considered in farmer decision-making.

Misunderstanding of economic efficiency in water use has spread from irrigation to urban water with similar faulty reasoning now applied to water recycling. Recycling is promoted as an objective without enough consideration to the process by which ‘how’ and ‘how much’, ‘when’ and ‘where’ recycling can be justified.

The amount of recycling should be an empirical question based on engineering, public health and economic considerations (especially those related to location), not an arbitrary ‘target’ emanating from some broken down journalist or half-educated spiv doctor. The trouble with targets is that the target itself becomes the objective rather than water quality standards or the costs and benefits of saving water through recycling.

Irrational exuberance for recycling creates similar problems to those that were previously the case for irrigation – possibly worse, because natural monopoly water authorities could readily hide losses from recycling in their books. Too much barracking for recycling could lead to further increases in urban water prices to get marginal recycling projects over the line.

Private firms are queuing up to supply subsidised rainwater tanks and other water saving devices to households. These subsidies are transparent and popular with consumers given the current climate of opinion, even if they are most costly in terms of water ‘saved’, and regressive to boot. The onus is on regulators, however, to deny consumer price rises to urban water authorities that incur financial losses chasing Government targets on recycling.

Reports in the rural press reveal that a proposal to pipe treated effluent from Brisbane to the Darling Downs has been knocked back by the National Water Commission. Back of the envelope figuring indicates that the capital cost would have been $6000/ML, about four times the going rate for irrigation water.

What should be news is not the knock back, but that the proponents had the gall (and opportunity) to ask.

An achievement of the NWI has been to cobble together an agreement between New South Wales, South Australia and Victoria over interstate transfers of water. This was not as important as made out. A trial already existed for horticultural projects. Temporary water trade was also relatively unimpeded between the States for extensive irrigated agriculture. Temporary trade substitutes for permanent trade and vice versa. The best thing about the interstate trading agreement is that it will demonstrate that previous fears were unjustified.

A bigger call for the NWI is to resolve conflicts over water between Queensland and the other States. There is not much point to a Living Murray and a Dead Darling.

Despite some achievements to date, the NWI suffers from two main flaws.

Too much emphasis was given in the Intergovernmental Agreement to something called ‘water planning’ when the basis for decision-making about consumptive and non-consumptive uses of water has not been sorted out. Guidelines set out for planning are weak on detail and full of green political correctness about sustainability, best practice and benchmarking; another round of bureaucratic busy work, but for what purpose?

Second, the NWI is careless in the way responsibilities are allocated between the parties. The Commonwealth has a clear and established interest when rivers are shared between States. But what business of the Commonwealth is urban water? The rating base and professional expertise of urban water authorities in Australian capital cities allow them to be responsible for their own actions. Prospects of Commonwealth funding and Commonwealth interference will lead to worse decisions, as demonstrated by the Toowoomba pipeline episode alluded to above.

To paraphrase Professor Max Corden’s remarks on the ill effects of twenty years of meddling by the Commonwealth in tertiary education in Australia, the NWI has the seeds of ‘Moscow on the Molonglo, with an algal bloom.’