Optimisation as tool to explore climate change adaptation possibilities Dr. Jeffery Connor, Stream Leader Water Policy Opt...
SA Premier’s Science Fund Project:  Climate Change, Communities and Environment  <ul><li>identify risks from climate chang...
Climate challenges Climate impacts on regional water supply and adaptation challenges
Re-live from 1938 2014
Long Run Climate Change Adaptation Evaluatoin -63 -38 -13 Runoff Change (%) -25 -15 -5 Rainfall Change (%) 4 2 1 Temperatu...
Climate impacts on regional water supply and adaptation challenges Inflows have dropped 68%  but use has only dropped 12 B...
Growing “unlicensed” water taking  0GL 1,200GL 2,400GL 3,600GL
Reforestation
Challenges of South Australia  <ul><li>Less, more saline and more variable water supply for irrigation </li></ul><ul><li>L...
Three adaptation challenges –  four optimisation/simulation models to help <ul><li>Challenges </li></ul><ul><li>How can th...
Irrigation sector adaptation model 1
Irrigation sector adaptation model 1 <ul><li>Adaptation possibilities modelled </li></ul><ul><li>Long-run </li></ul><ul><u...
Reduced water allocation - Short-run analysis of adaptation and economic impact <ul><li>Regional irrigation could be manag...
Longer run challenge – a patchwork of abandoned and still irrigated farms, underutilised infrastructure  <ul><li>Case stud...
Adaptation as an opportunity for regional landscape & economy renewal <ul><li>Consider transformational adaptation: </li><...
Environmental assets and threats <ul><li>Regional asset, the River Murray, local impact – Bar Creek, one of the largest so...
Regional development assets in Torrumbarry <ul><li>Land suitability for irrigation </li></ul><ul><li>Environmental and Pot...
Understanding the potential of a transformed landscape: An optimal reconfiguration <ul><li>Hierarchical sorting rules </li...
An optimal reconfiguration
Science / engagement challenges <ul><li>The community has specialised knowledge helpful in adaptation: </li></ul><ul><ul><...
Portfolio analysis for water supply augmentation <ul><li>Min  ∑ CiXi </li></ul><ul><li>subject to  ∑ SiXi +  σ i  ≥  α R <...
Portfolio analysis of water supply options <ul><li>Issues to be investigated </li></ul><ul><li>Water supply options unlike...
Optimisation to support environmental water management <ul><li>Problem </li></ul><ul><ul><li>Too little water to protect a...
The approach <ul><li>Hydrology: </li></ul><ul><li>Inflows </li></ul><ul><li>Inundation potential </li></ul><ul><li>given i...
Model Structure
Challenges <ul><li>Stochastic Dynamic Programming Problem – </li></ul><ul><li>Find highest utility (wieghted multiple envi...
Assets public and private benefits Private benefit to irrigators and supply firms from less cost to supply, when land use ...
Calculating Benefits <ul><li>Need to consider: </li></ul><ul><ul><li>Private benefits </li></ul></ul><ul><ul><ul><li>Incre...
An optimal reconfiguration 0 11.1 120 $-5.5 $0 $1.7 $0 $4.7 $-11.9 Non-targeted Tender $6.5 $5.2 $4.1 $2.8 $3.9 Value of D...
Water Allocation implications <ul><li>Greater climate change brings greater water allocation variability and more years wi...
Floodplain – lack of inundation is greatest risk to floodplain health
The Murray  Darling Basin 1/7 of area of Australia ½ of value of crop production 80% of irrigation Highly allocated –  27%...
Talk overview <ul><li>The current MDB landscape / economy as a relic of history </li></ul><ul><li>New threats, new values,...
Expansionary Phase of MDB water economy 1900 – 1980 (Randall, 1981; Watson and Rose, 1980) <ul><li>Focus on regional devel...
Maturing Phase of MDB water economy 1980 – ongoing  <ul><li>increasing economics in assessment of irrigation projects  </l...
Maturing Phase of MDB water economy 1980 – ongoing <ul><li>Increasing policies to address competing demands for water </li...
The ongoing and unfinished agenda of policy for a maturing water economy <ul><li>Musgrave (2008) suggests two fundamental ...
The genesis of today’s crisis: growing diversions, and extreme variability  Extreme variability (repeated drought)  Growin...
Floodplain health impacts of climate change Area at risk from  lack of inundation 1964 Area at risk from  lack of inundati...
Floodplain health – current drainage management policy is reducing floodplain watertable risk, climate change will reduce ...
Lower Murray Futures <ul><li>4 climate scenarios -  </li></ul><ul><ul><li>1975-2000 conditions  </li></ul></ul><ul><ul><li...
Transdisciplinary and Collaborative Structure:  River Corridor
Water Allocation implications <ul><li>Greater climate change brings greater water allocation variability and more years wi...
Adaptation model <ul><li>Adaptation possibilities modelled </li></ul><ul><li>Long-run </li></ul><ul><ul><li>Reduce irrigat...
Reduced water allocation - Short-run analysis of adaptation and economic impact <ul><li>Regional irrigation could be manag...
Long-run analysis of less water <ul><li>Significant economic impact likely in long-run </li></ul><ul><li>Reduced irrigatio...
Long-run analysis of less water  <ul><li>Less long-run impact with water imports and with less allocation variability </li...
Adaptation <ul><li>To increased water scarcity… </li></ul><ul><ul><li>Water markets can reduce impacts </li></ul></ul><ul>...
Implication at the regional level – a need to adapt <ul><li>At Basin Level </li></ul><ul><ul><li>Less water than is alloca...
Path dependence, lock-in, irrigation, regional landscape & economy <ul><li>Arthur (1990) Path that is first taken depends ...
The adaptation challenge <ul><li>Most irrigation dependent regions are now facing a necessity to adapt  </li></ul><ul><ul>...
Adaptation as an opportunity for regional landscape & economy renewal <ul><li>Consider transformational adaptation: </li><...
Identifying regional adaptation strategies  with an asset based approach <ul><li>An “asset based approach” to choosing NRM...
Applying an asset based approach to regional adaptation strategy development <ul><li>Approach </li></ul><ul><ul><li>Consid...
Applying an asset based approach to regional adaptation strategy development  <ul><li>Case study – Torrumbarry Irrigation ...
Environmental assets and threats <ul><li>Regional asset, the River Murray, local impact – Bar Creek, one of the largest so...
Regional development assets in Torrumbarry <ul><li>Land suitability for irrigation </li></ul><ul><li>Environmental and Pot...
Understanding the potential of a transformed landscape: An optimal reconfiguration <ul><li>Hierarchical sorting rules </li...
An optimal reconfiguration
Calculating Benefits <ul><li>Need to consider: </li></ul><ul><ul><li>Private benefits </li></ul></ul><ul><ul><ul><li>Incre...
An optimal reconfiguration 0 11.1 120 $-5.5 $0 $1.7 $0 $4.7 $-11.9 Non-targeted Tender $6.5 $5.2 $4.1 $2.8 $3.9 Value of D...
Realising the potential: what role for market, what role for policy? <ul><li>Guiding principles: </li></ul><ul><li>Pannell...
Assets public and private benefits Private benefit to irrigators and supply firms from less cost to supply, when land use ...
Water trade in diversion not evapotranspiration 100 ML Unconfined Aquifer 50 ML Water that returns  to the aquifer 45 ML A...
Implications of diversion property rights
The inefficiency of irrigation efficiency investment as environmental flow sourcing policy
 
Salinity externality
The Lower Murray Salinity Issue Lag time ~ 100 years Growing, time delayed, saline groundwater flow into river
Salinity loading and concentration effects of climate change
Fixing the salinity problem engineering - “salt interception”  What is salt interception?
Future Salt Interception cost estimated with optimisation <ul><li>Objective – find least cost options to satisfy salinity ...
Salt interception Economics Solution for lower bound 2050 salinity growth prediction (67EC) =$129 x 10 6   ($175 x 10 6 ) ...
Salt interception economics Conclusions – steeply increasing cost of marginal salinity offset  Lower bound  2050 salinity ...
“ The country that takes top prize in water management is Australia” The next prize depends upon industry &  community wil...
Looking Forward - The Big Challenges  <ul><li>Establish property rights for “unlicensed water taking activities” </li></ul...
Thank you Better Basin Futures, Water Policy Options Analysis Stream Dr Jeffery Connor Environmental Economist and Stream ...
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Dr Jeff Connor at the Landscape Science Cluster Seminar, May 2009

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Dr Jeff Connor on Optimisation as tool to explore climate change adaptation possibilities at the Landscape Science Cluster Seminar, May 2009

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Dr Jeff Connor at the Landscape Science Cluster Seminar, May 2009

  1. 1. Optimisation as tool to explore climate change adaptation possibilities Dr. Jeffery Connor, Stream Leader Water Policy Options Assessment
  2. 2. SA Premier’s Science Fund Project: Climate Change, Communities and Environment <ul><li>identify risks from climate change, </li></ul><ul><li>identify adaptation strategies and policy options to support resource management agencies. </li></ul><ul><li>Use multi-objective optimisation to identify regional adaptation possibilities including: </li></ul><ul><ul><li>new combinations of environment, land (water) use, </li></ul></ul><ul><ul><li>social and economic factors and policies that facilitate adaptation </li></ul></ul>
  3. 3. Climate challenges Climate impacts on regional water supply and adaptation challenges
  4. 4. Re-live from 1938 2014
  5. 5. Long Run Climate Change Adaptation Evaluatoin -63 -38 -13 Runoff Change (%) -25 -15 -5 Rainfall Change (%) 4 2 1 Temperature Change (°C) Severe Moderate Mild
  6. 6. Climate impacts on regional water supply and adaptation challenges Inflows have dropped 68% but use has only dropped 12 Back to empty
  7. 7. Growing “unlicensed” water taking 0GL 1,200GL 2,400GL 3,600GL
  8. 8. Reforestation
  9. 9. Challenges of South Australia <ul><li>Less, more saline and more variable water supply for irrigation </li></ul><ul><li>Less reliable and lower quality water supply for “critical human needs” </li></ul><ul><li>A suffering water dependent eco-system </li></ul>
  10. 10. Three adaptation challenges – four optimisation/simulation models to help <ul><li>Challenges </li></ul><ul><li>How can the irrigation sector adapt to less, more variable and more saline water supply? </li></ul><ul><li>How should SA invest in additional supply and conservation to meet critical human needs? </li></ul><ul><li>How should very little water for the environment be shared across environmental assets and time for best outcomes? </li></ul><ul><li>Models </li></ul><ul><li>Two stage model of irrigation sector adaptation </li></ul><ul><li>Optimal land and water use reconfiguration model </li></ul><ul><li>Portfolio analysis of supply augmentation options </li></ul><ul><li>Environmental “triage” model (stochastic dynamic optimisation) </li></ul>
  11. 11. Irrigation sector adaptation model 1
  12. 12. Irrigation sector adaptation model 1 <ul><li>Adaptation possibilities modelled </li></ul><ul><li>Long-run </li></ul><ul><ul><li>Reduce irrigated area, </li></ul></ul><ul><ul><li>choose new crop mix, </li></ul></ul><ul><ul><li>switch irrigation (12 technology/management options) </li></ul></ul><ul><li>Short-run </li></ul><ul><ul><li>Deficit irrigate (provide less than full water requirement, accept reduced yield) – quadratic crop water production function </li></ul></ul><ul><ul><li>Fallow area with irrigation capital in low allocation state of nature (provide no water, or maintenance water) </li></ul></ul><ul><li>Water trade – included in some version – exogenous price varying with state of water allocation based on Brennan regression </li></ul><ul><li>Future yield loss for heavy deficit irrigation of perenials </li></ul>
  13. 13. Reduced water allocation - Short-run analysis of adaptation and economic impact <ul><li>Regional irrigation could be managed reasonably resiliently in the short-run with allocations of as little as 60-70% </li></ul><ul><li>For allocations less than 30% management for economic resilience is challenging </li></ul>
  14. 14. Longer run challenge – a patchwork of abandoned and still irrigated farms, underutilised infrastructure <ul><li>Case study – Torrumbarry Irrigation Area, Victoria </li></ul><ul><li>Key characteristics </li></ul><ul><ul><li>Water trading – permanent and temporary </li></ul></ul><ul><ul><li>Significant environmental assets – and threats </li></ul></ul><ul><ul><li>Salinity contribution to Murray </li></ul></ul><ul><ul><li>Relatively close to Melbourne – amenity and lifestyle </li></ul></ul><ul><ul><li>Large investment is modernisation of water delivery infrastructure assets </li></ul></ul><ul><li>Water delivery is via a system of trunks, carriers and pods </li></ul><ul><ul><li>Pods - Goulburn-Murray Water decision units </li></ul></ul><ul><ul><ul><li>spatially contiguous grouping of properties serviced by a trunk and several carriers </li></ul></ul></ul>
  15. 15. Adaptation as an opportunity for regional landscape & economy renewal <ul><li>Consider transformational adaptation: </li></ul><ul><ul><li>Rather than, starting from where as result of historical circumstance and considering marginal change (e.g. irrigation efficiency investments), </li></ul></ul><ul><ul><li>How would we optimally configure irrigation, landscape, regional economies in the MDB? </li></ul></ul><ul><ul><li>Starting from scratch, with a blank slate </li></ul></ul><ul><ul><li>Considering modern technologies, preferences, environmental and </li></ul></ul><ul><ul><li>Market conditions: where is the demand for private and public goods? </li></ul></ul>
  16. 16. Environmental assets and threats <ul><li>Regional asset, the River Murray, local impact – Bar Creek, one of the largest sources of river salt load </li></ul>
  17. 17. Regional development assets in Torrumbarry <ul><li>Land suitability for irrigation </li></ul><ul><li>Environmental and Potential Amenity Living: </li></ul><ul><ul><li>Major Waterbodies </li></ul></ul><ul><ul><li>Native Vegetation </li></ul></ul><ul><ul><li>Residential Areas </li></ul></ul><ul><ul><li>500m Buffer </li></ul></ul>
  18. 18. Understanding the potential of a transformed landscape: An optimal reconfiguration <ul><li>Hierarchical sorting rules </li></ul>
  19. 19. An optimal reconfiguration
  20. 20. Science / engagement challenges <ul><li>The community has specialised knowledge helpful in adaptation: </li></ul><ul><ul><li>This is unevenly spread in community (while some are ahead of the curve, some are in denial) </li></ul></ul><ul><ul><li>Not typically well understood by scientists (modelled adaptation often based on rear view mirror perspective) </li></ul></ul><ul><li>Scientists have specialised knowledge helpful for adaptation: </li></ul><ul><ul><li>Often not shared with community in way that is helpful </li></ul></ul><ul><li>Need for interactive process </li></ul><ul><ul><ul><li>canvassing of community adaptation thinking, </li></ul></ul></ul><ul><ul><ul><li>Updating science </li></ul></ul></ul><ul><ul><ul><li>sharing specialised science insights, </li></ul></ul></ul><ul><ul><ul><li>Updated community thinking, adapting </li></ul></ul></ul>
  21. 21. Portfolio analysis for water supply augmentation <ul><li>Min ∑ CiXi </li></ul><ul><li>subject to ∑ SiXi + σ i ≥ α R </li></ul><ul><li>Xi options for Urban water supply </li></ul><ul><li>X1 : Pumping from the Murray, X2 : Mount Lofty Ranges, X3 : Recycled water, X4 : Desalination plants, X5 : Groundwater, X6 : Storm/rain water tanks, X7 household conservation, X8 : Water restrictions policy </li></ul><ul><li>Ci : Cost/investment required per unit Xi </li></ul><ul><li>Si : The expected annual level of water supply per unit investment in option i (ML) </li></ul><ul><li>σ i 2 : The variance of annual level of water supply under option i </li></ul><ul><li>σ ij : The covariance of annual level of water supply between options </li></ul><ul><li>R : Minimum required water for the city of Adelaide; α reliability % </li></ul>
  22. 22. Portfolio analysis of water supply options <ul><li>Issues to be investigated </li></ul><ul><li>Water supply options unlike financial assets are illiquid and not continuously divisible </li></ul><ul><li>Incorporating penalties for interruptions of water supply, irreversible environmental cost/externalities, high sunk costs, and stranded assets into cost function </li></ul><ul><li>The constraint function (meeting the minimum required water for Adelaide)/biophysical constraints (incorporate additional supply into existing grid – distribution - physical equipments such as pipes and institutional constraints (regulations) </li></ul><ul><li>The probability distribution function of each option’s annual water supply level </li></ul><ul><li>Correlations of water supply level across options (water supply levels commonly determined by the hydrological cycle) </li></ul><ul><li>Lumpy costs of investing in options. </li></ul><ul><li>Incentives for utilities </li></ul><ul><li>Behavioural, transactions costs, risks, scale costs with disperse household conservation </li></ul>
  23. 23. Optimisation to support environmental water management <ul><li>Problem </li></ul><ul><ul><li>Too little water to protect all assets (low starting storage levels), </li></ul></ul><ul><ul><li>Uncertain future inflows </li></ul></ul><ul><ul><li>Assets need inundation of certain durations, return intervals </li></ul></ul><ul><ul><li>Apply more water to more assets now, chance insufficient water to for timely return interval? Or sacrifice some assets now, save some water to ensure capacity to return later </li></ul></ul><ul><li>In recognition that: </li></ul><ul><ul><li>Infrastructure (flow control structure) investments can enhance effectiveness of limited water </li></ul></ul><ul><ul><li>Infrastructure will need to operate in conjunction with flow management </li></ul></ul><ul><ul><li>Infrastructure investments and management influence regional socio-economic values as well as ecological outcomes </li></ul></ul><ul><ul><li>Conditions of very low inflow and very little water available for the environment may persist for some time </li></ul></ul>
  24. 24. The approach <ul><li>Hydrology: </li></ul><ul><li>Inflows </li></ul><ul><li>Inundation potential </li></ul><ul><li>given infrastructure, </li></ul><ul><li>flow management </li></ul><ul><li>Ecological </li></ul><ul><li>responses: </li></ul><ul><li>Multiple responses to </li></ul><ul><li>Timing, duration, return </li></ul><ul><li>Socio-economics: </li></ul><ul><li>Irrigation, </li></ul><ul><li>Recreation, Amenity </li></ul><ul><li>Clean water, Cultural </li></ul>Integration: Test investment, management options & technical assumptions
  25. 25. Model Structure
  26. 26. Challenges <ul><li>Stochastic Dynamic Programming Problem – </li></ul><ul><li>Find highest utility (wieghted multiple environmental outcome score) for possible amounts, timings, locations of environmental watering </li></ul><ul><li>The optimisation technique required – SDP: </li></ul><ul><li>has dimensionality issues (can’t solve very big problems) </li></ul><ul><li>doesn’t offer intuitive management rules for practioners </li></ul><ul><li>Solutions – </li></ul><ul><li>simulation to find “heuristics” that give near optimal solutions, </li></ul><ul><li>Agent based modelling? </li></ul>
  27. 27. Assets public and private benefits Private benefit to irrigators and supply firms from less cost to supply, when land use change allows system rationalisation Water conveyance infrastructure Public benefit from enhanced environmental condition, recreation opportunities if land is retired from irrigation converted to reserves Private benefit if residential development is allowed on contiguous land Private demand for carbon credits if land is revegetated High environmental and amenity value land along water courses, wetlands Public salinity benefit to down stream irrigators, municipal industrial water users as land becomes less utilised for irrigation Private demand for land for dryland farming Currently irrigated areas creating large River Murray salt loads Private benefit to irrigator as better land becomes more fully utilised for irrigation Soils Highly suited to irrigation Public or private benefits from change it asset use Asset
  28. 28. Calculating Benefits <ul><li>Need to consider: </li></ul><ul><ul><li>Private benefits </li></ul></ul><ul><ul><ul><li>Increased value of agricultural production; Water deliver cost savings; </li></ul></ul></ul><ul><ul><li>Public benefits: </li></ul></ul><ul><ul><ul><li>Salinity reduction; Carbon sequestration </li></ul></ul></ul><ul><li>For comparison sake we quantified benefits under four potential outcomes: </li></ul><ul><ul><li>Random, non-targeted purchase of water </li></ul></ul><ul><ul><li>Targeted purchase for greatest salinity benefits </li></ul></ul><ul><ul><li>Targeted purchase for reconfiguration and modernisation benefits: </li></ul></ul><ul><ul><ul><li>Reconfigure red and orange pods, and new irrigation development in green pods: </li></ul></ul></ul><ul><ul><ul><li>New development occurs in similar proportions to current (lower bound) </li></ul></ul></ul><ul><ul><ul><li>Complete overhaul with highest value agriculture on most suitable soils (upper bound) </li></ul></ul></ul><ul><li>We calculate benefits under two water sharing rules </li></ul><ul><ul><li>100% water purchased returned to the environment </li></ul></ul><ul><ul><li>50% environment; 50% new irrigation development </li></ul></ul>
  29. 29. An optimal reconfiguration 0 11.1 120 $-5.5 $0 $1.7 $0 $4.7 $-11.9 Non-targeted Tender $6.5 $5.2 $4.1 $2.8 $3.9 Value of Dryland Ag $2.5 $2.5 $2.5 $2.5 $0 Sale of Carbon Credits 8.8 8.8 8.8 8.8 0 Carbon Sequestered (million tones CO2 -e ) 10.4 9.5 10.4 9.5 24.5 ECs Avoided 120 60 120 60 120 Water for Environment (GL) $71.0 $79.4 $1.5 $17.8 $-3.6 Total Benefits $3.8 $3.8 $3.8 $3.8 $0 Water Delivery Cost Savings $1.6 $1.4 $1.6 $1.4 $3.7 Downstream Salinity Cost Avoided $56.6 $66.5 $-10.5 $7.3 $-11.2 Value of Irrigated Ag. 100% for the Environment (40% less water) 50/50 New Irrigation/ Environment 100% for the Environment 50/50 New Irrigation/ Environment Targeted Tender (Upper Bound) Targeted Tender (Lower Bound) Salinity-targeted
  30. 30. Water Allocation implications <ul><li>Greater climate change brings greater water allocation variability and more years with zero water allocation </li></ul>
  31. 31. Floodplain – lack of inundation is greatest risk to floodplain health
  32. 32. The Murray Darling Basin 1/7 of area of Australia ½ of value of crop production 80% of irrigation Highly allocated – 27% of natural flow Diversions capped in 1994 Water trade allowed since 1987 Increasing liberalised and Active temporary & Permanent markets
  33. 33. Talk overview <ul><li>The current MDB landscape / economy as a relic of history </li></ul><ul><li>New threats, new values, and new opportunities </li></ul><ul><li>Thinking transformation not marginal change </li></ul><ul><li>An illustrative example - The transformation opportunity in the Torrumbarry irrigation area </li></ul><ul><li>What role for markets?, what role for government? </li></ul><ul><li>Recommendations to realise the opportunity for transformational change </li></ul><ul><li>A few more projects </li></ul><ul><ul><li>Impacts of climate change on irrigated agriculture – with adaptation including water trade </li></ul></ul><ul><ul><li>The economic of acquiring environmental flows </li></ul></ul><ul><ul><li>The economics of controlling salinity </li></ul></ul>
  34. 34. Expansionary Phase of MDB water economy 1900 – 1980 (Randall, 1981; Watson and Rose, 1980) <ul><li>Focus on regional development – irrigation as way to promote rural population and viable country towns in Murray and Murrumbidgee Valleys </li></ul><ul><li>State authorities subsidised costs of water infrastructure development, delivery, O&M in government sponsored schemes </li></ul><ul><li>farm sizes determined on the basis of “home maintenance area” concept </li></ul><ul><li>Schemes chosen primarily based on engineering feasibility </li></ul><ul><li>Little input from economics in assessment of irrigation projects </li></ul><ul><li>Few pressing externalities, or policies to address externalities </li></ul>
  35. 35. Maturing Phase of MDB water economy 1980 – ongoing <ul><li>increasing economics in assessment of irrigation projects </li></ul><ul><ul><li>Davidson, 1969 – Australia Wet or Dry? The Physical and Economic Limits to Expansion of Irrigation </li></ul></ul><ul><li>Increasing privatisation of water infrastructure </li></ul><ul><li>Increasingly pressing externalities (rising water tables, land salinisation, saline return flow, water pollution, stressed floodplain and estuarine ecosystems) </li></ul><ul><li>Increasing competition among competing demands for water </li></ul>
  36. 36. Maturing Phase of MDB water economy 1980 – ongoing <ul><li>Increasing policies to address competing demands for water </li></ul><ul><ul><li>MDBC salinity agreements and investments to mitigate salinity </li></ul></ul><ul><ul><li>Cap on diversions 1994 </li></ul></ul><ul><ul><li>Movement to free water trade after 1994 </li></ul></ul><ul><ul><li>Living Murray commitment to increase environmental flow </li></ul></ul><ul><ul><li>Current Commonwealth plans for infrastructure investment and buying water </li></ul></ul><ul><ul><li>Victorian water delivery infrastructure investment, rationalisation program </li></ul></ul>
  37. 37. The ongoing and unfinished agenda of policy for a maturing water economy <ul><li>Musgrave (2008) suggests two fundamental reasons that Australia is struggling with adequate policy for a maturing water economy </li></ul><ul><ul><li>The riparian doctrine basis of Australian water law </li></ul></ul><ul><ul><ul><li>Unlike the US prior appropriations (first in time, first in right) doctrine, </li></ul></ul></ul><ul><ul><ul><li>no fundamental consideration of third party impacts </li></ul></ul></ul><ul><ul><li>Extreme variability of water of Australian rainfall </li></ul></ul><ul><ul><ul><li>For a given level of water supply security, Australian dam capacities must twice the world mean, and six times the European average </li></ul></ul></ul><ul><ul><ul><li>Allocations available for consumptive use and environment are highly variable </li></ul></ul></ul><ul><li>Diversions not yet effectively capped </li></ul><ul><ul><li>Trade in diversion rather than consumptive use – increasing consumptive use, reducing return flow </li></ul></ul><ul><ul><li>Reforestation, farm dams </li></ul></ul><ul><ul><li>Uncapped conjunctive groundwater use </li></ul></ul>
  38. 38. The genesis of today’s crisis: growing diversions, and extreme variability Extreme variability (repeated drought) Growing diversion, even with cap
  39. 39. Floodplain health impacts of climate change Area at risk from lack of inundation 1964 Area at risk from lack of inundation 2007
  40. 40. Floodplain health – current drainage management policy is reducing floodplain watertable risk, climate change will reduce this risk further 2050 Lindsay Point Floodplain high watertable floodplain risk Historic drainage rates Current drainage rates Moderate Climate change
  41. 41. Lower Murray Futures <ul><li>4 climate scenarios - </li></ul><ul><ul><li>1975-2000 conditions </li></ul></ul><ul><ul><li>mild warming </li></ul></ul><ul><ul><li>moderate warming </li></ul></ul><ul><ul><li>severe warming </li></ul></ul><ul><li>3 policy options – </li></ul><ul><ul><li>irrigation efficiency, </li></ul></ul><ul><ul><li>irrigation location, </li></ul></ul><ul><ul><li>floodplain protection </li></ul></ul>
  42. 42. Transdisciplinary and Collaborative Structure: River Corridor
  43. 43. Water Allocation implications <ul><li>Greater climate change brings greater water allocation variability and more years with zero water allocation </li></ul>
  44. 44. Adaptation model <ul><li>Adaptation possibilities modelled </li></ul><ul><li>Long-run </li></ul><ul><ul><li>Reduce irrigated area, </li></ul></ul><ul><ul><li>choose new crop mix, </li></ul></ul><ul><ul><li>switch irrigation (12 technology/management options) </li></ul></ul><ul><li>Short-run </li></ul><ul><ul><li>Deficit irrigate (provide less than full water requirement, accept reduced yield) – quadratic crop water production function </li></ul></ul><ul><ul><li>Fallow area with irrigation capital in low allocation state of nature (provide no water, or maintenance water) </li></ul></ul><ul><li>Water trade – included in some version – exogenous price varying with state of water allocation based on Brennan regression </li></ul><ul><li>Future yield loss for heavy deficit irrigation of perenials </li></ul>
  45. 45. Reduced water allocation - Short-run analysis of adaptation and economic impact <ul><li>Regional irrigation could be managed reasonably resiliently in the short-run with allocations of as little as 60-70% </li></ul><ul><li>For allocations less than 30% management for economic resilience is challenging </li></ul>
  46. 46. Long-run analysis of less water <ul><li>Significant economic impact likely in long-run </li></ul><ul><li>Reduced irrigation and changed irrigation management </li></ul>
  47. 47. Long-run analysis of less water <ul><li>Less long-run impact with water imports and with less allocation variability </li></ul><ul><li>Long-run impacts less than in short-run after adaptation </li></ul>
  48. 48. Adaptation <ul><li>To increased water scarcity… </li></ul><ul><ul><li>Water markets can reduce impacts </li></ul></ul><ul><ul><li>Higher commodity prices likely and offsetting irrigation sector economic impact </li></ul></ul>
  49. 49. Implication at the regional level – a need to adapt <ul><li>At Basin Level </li></ul><ul><ul><li>Less water than is allocated in total for the Basin means less diversion than in recent past is possible on average in long-run </li></ul></ul><ul><ul><li>This is true with or without Basin policy to reduce entitlement, and </li></ul></ul><ul><ul><li>Even without climate change induced drying </li></ul></ul><ul><li>At regional irrigation area level this implies a need to adapt as regions face: </li></ul><ul><ul><li>Over capitalisation in conveyance and on-farm delivery infrastructure </li></ul></ul><ul><ul><li>Greater competition amongst regions in market for scarce water </li></ul></ul><ul><li>The theme of this talk – adaptation can represent an opportunity to: </li></ul><ul><ul><li>Better integrate regional development and environmental policy goals </li></ul></ul><ul><ul><li>Address the new Commonwealth Governments objective of “due diligence” in Murray plan investments </li></ul></ul><ul><ul><li>Better harness market demands </li></ul></ul>
  50. 50. Path dependence, lock-in, irrigation, regional landscape & economy <ul><li>Arthur (1990) Path that is first taken depends on historical circumstances (public investment, preferences, relative production costs, marketing) </li></ul><ul><ul><li>Once a path is chosen, others a closed off (lock-in) </li></ul></ul><ul><ul><ul><li>Infrastructure, RD are direct to the chosen path </li></ul></ul></ul><ul><ul><ul><li>Economies of scale exist for the chosen path </li></ul></ul></ul><ul><ul><ul><li>Complementary technologies, business, institutions arise </li></ul></ul></ul><ul><li>The implications for regional irrigation, landscape & economy </li></ul><ul><ul><li>Current situation a result of historical circumstance, but not optimal for current/future </li></ul></ul><ul><ul><ul><li>Conveyance built for past technology (gravity, not pumping) at location of less than optimally productive soils </li></ul></ul></ul><ul><ul><ul><li>At property scale appropriate for the day, but not modern scale economies and household income expectations </li></ul></ul></ul><ul><ul><ul><li>Without great knowledge / consideration of environmental costs </li></ul></ul></ul><ul><ul><li>We have been somewhat “locked-in” to the path set by this history </li></ul></ul>
  51. 51. The adaptation challenge <ul><li>Most irrigation dependent regions are now facing a necessity to adapt </li></ul><ul><ul><li>Less water, higher water prices mean less irrigation is possible </li></ul></ul><ul><ul><li>Less profitable activities are no longer viable, </li></ul></ul><ul><ul><ul><li>drive to realise scale economies, </li></ul></ul></ul><ul><ul><ul><li>switch to more profitable crops, </li></ul></ul></ul><ul><ul><ul><li>Often involving private diversion (for low cost, high service level water) </li></ul></ul></ul><ul><ul><li>Efficiency alone not sufficient to deal with this much less water </li></ul></ul><ul><ul><li>Some deliver capacity will inevitably be excess to capacity </li></ul></ul><ul><ul><li>Competition among regions for comparative advantage in attracting keeping the remaining water </li></ul></ul><ul><ul><li>Diversification of formerly irrigation dependent economies increasingly important </li></ul></ul><ul><ul><li>Environmental assets may represent a key regional development in some cases </li></ul></ul>
  52. 52. Adaptation as an opportunity for regional landscape & economy renewal <ul><li>Consider transformational adaptation: </li></ul><ul><ul><li>Rather than, starting from where as result of historical circumstance and considering marginal change (e.g. irrigation efficiency investments), </li></ul></ul><ul><ul><li>How would we optimally configure irrigation, landscape, regional economies in the MDB? </li></ul></ul><ul><ul><li>Starting from scratch, with a blank slate </li></ul></ul><ul><ul><li>Considering modern technologies, preferences, environmental and </li></ul></ul><ul><ul><li>Market conditions: where is the demand for private and public goods? </li></ul></ul>
  53. 53. Identifying regional adaptation strategies with an asset based approach <ul><li>An “asset based approach” to choosing NRM strategies (Ridley and Pannell, 2007) </li></ul><ul><ul><li>Identify key environmental assets </li></ul></ul><ul><ul><li>Ask whether benefits of managing them are primarily public or private </li></ul></ul><ul><ul><li>Where large public benefits can result, consider public investment </li></ul></ul><ul><ul><li>Where primarily private benefits can result, remove impediments to markets </li></ul></ul><ul><li>Same principles can be generalised to also consider regional development assets </li></ul>
  54. 54. Applying an asset based approach to regional adaptation strategy development <ul><li>Approach </li></ul><ul><ul><li>Consider the assets of a region under pressure to adapt </li></ul></ul><ul><ul><li>Consider what the regions landscape and regional economy could look like, if it could capitalise on private and public demands for the services that regional assets can generate </li></ul></ul><ul><ul><li>Consider how policy could be changed to: </li></ul></ul><ul><ul><ul><li>Better facilitate private investments in ways that can expedite adaptation </li></ul></ul></ul><ul><ul><ul><li>Better realise public good benefits from existing government investment commitments </li></ul></ul></ul>
  55. 55. Applying an asset based approach to regional adaptation strategy development <ul><li>Case study – Torrumbarry Irrigation Area, Victoria </li></ul><ul><li>Key characteristics </li></ul><ul><ul><li>Water trading – permanent and temporary </li></ul></ul><ul><ul><li>Significant environmental assets – and threats </li></ul></ul><ul><ul><li>Salinity contribution to Murray </li></ul></ul><ul><ul><li>Relatively close to Melbourne – amenity and lifestyle </li></ul></ul><ul><ul><li>Large investment is modernisation of water delivery infrastructure assets </li></ul></ul><ul><li>Water delivery is via a system of trunks, carriers and pods </li></ul><ul><ul><li>Pods - Goulburn-Murray Water decision units </li></ul></ul><ul><ul><ul><li>spatially contiguous grouping of properties serviced by a trunk and several carriers </li></ul></ul></ul>
  56. 56. Environmental assets and threats <ul><li>Regional asset, the River Murray, local impact – Bar Creek, one of the largest sources of river salt load </li></ul>
  57. 57. Regional development assets in Torrumbarry <ul><li>Land suitability for irrigation </li></ul><ul><li>Environmental and Potential Amenity Living: </li></ul><ul><ul><li>Major Waterbodies </li></ul></ul><ul><ul><li>Native Vegetation </li></ul></ul><ul><ul><li>Residential Areas </li></ul></ul><ul><ul><li>500m Buffer </li></ul></ul>
  58. 58. Understanding the potential of a transformed landscape: An optimal reconfiguration <ul><li>Hierarchical sorting rules </li></ul>
  59. 59. An optimal reconfiguration
  60. 60. Calculating Benefits <ul><li>Need to consider: </li></ul><ul><ul><li>Private benefits </li></ul></ul><ul><ul><ul><li>Increased value of agricultural production; Water deliver cost savings; </li></ul></ul></ul><ul><ul><li>Public benefits: </li></ul></ul><ul><ul><ul><li>Salinity reduction; Carbon sequestration </li></ul></ul></ul><ul><li>For comparison sake we quantified benefits under four potential outcomes: </li></ul><ul><ul><li>Random, non-targeted purchase of water </li></ul></ul><ul><ul><li>Targeted purchase for greatest salinity benefits </li></ul></ul><ul><ul><li>Targeted purchase for reconfiguration and modernisation benefits: </li></ul></ul><ul><ul><ul><li>Reconfigure red and orange pods, and new irrigation development in green pods: </li></ul></ul></ul><ul><ul><ul><li>New development occurs in similar proportions to current (lower bound) </li></ul></ul></ul><ul><ul><ul><li>Complete overhaul with highest value agriculture on most suitable soils (upper bound) </li></ul></ul></ul><ul><li>We calculate benefits under two water sharing rules </li></ul><ul><ul><li>100% water purchased returned to the environment </li></ul></ul><ul><ul><li>50% environment; 50% new irrigation development </li></ul></ul>
  61. 61. An optimal reconfiguration 0 11.1 120 $-5.5 $0 $1.7 $0 $4.7 $-11.9 Non-targeted Tender $6.5 $5.2 $4.1 $2.8 $3.9 Value of Dryland Ag $2.5 $2.5 $2.5 $2.5 $0 Sale of Carbon Credits 8.8 8.8 8.8 8.8 0 Carbon Sequestered (million tones CO2 -e ) 10.4 9.5 10.4 9.5 24.5 ECs Avoided 120 60 120 60 120 Water for Environment (GL) $71.0 $79.4 $1.5 $17.8 $-3.6 Total Benefits $3.8 $3.8 $3.8 $3.8 $0 Water Delivery Cost Savings $1.6 $1.4 $1.6 $1.4 $3.7 Downstream Salinity Cost Avoided $56.6 $66.5 $-10.5 $7.3 $-11.2 Value of Irrigated Ag. 100% for the Environment (40% less water) 50/50 New Irrigation/ Environment 100% for the Environment 50/50 New Irrigation/ Environment Targeted Tender (Upper Bound) Targeted Tender (Lower Bound) Salinity-targeted
  62. 62. Realising the potential: what role for market, what role for policy? <ul><li>Guiding principles: </li></ul><ul><li>Pannell (Public benefits, private benefits and choice of policy tool for land-use change) </li></ul><ul><ul><li>Rely on markets where primarily private benefits result, remove impediments to markets in such cases </li></ul></ul><ul><ul><li>Where large public benefits can result, consider public investment </li></ul></ul><ul><li>McColl and Young (Australian structural adjustment lessons for water) </li></ul><ul><ul><li>Structural change is inevitable, often required in response to market, technology, or in this case environment change </li></ul></ul><ul><ul><li>Allowing change typically leads to increased productivity, </li></ul></ul><ul><ul><li>Avoid policy that can impede change (concessional finance and exceptional circumstance payments) </li></ul></ul><ul><ul><li>Policy intervention to facilitate, expedite dynamic response to change can be effective </li></ul></ul><ul><ul><ul><li>grants for industry adjustment with clear objectives, </li></ul></ul></ul><ul><ul><ul><li>regional development grants improving hard and “soft’’ infrastructure can create positive environment for change, </li></ul></ul></ul><ul><ul><ul><li>grants for obtaining professional advice on advice on change </li></ul></ul></ul><ul><li>Ward, Connor, and Hatton-MacDonald </li></ul><ul><ul><li>the right policy mix can be chosen through careful consideration how social, environmental, economic, and technology factors influence potential policy effectiveness </li></ul></ul>
  63. 63. Assets public and private benefits Private benefit to irrigators and supply firms from less cost to supply, when land use change allows system rationalisation Water conveyance infrastructure Public benefit from enhanced environmental condition, recreation opportunities if land is retired from irrigation converted to reserves Private benefit if residential development is allowed on contiguous land Private demand for carbon credits if land is revegetated High environmental and amenity value land along water courses, wetlands Public salinity benefit to down stream irrigators, municipal industrial water users as land becomes less utilised for irrigation Private demand for land for dryland farming Currently irrigated areas creating large River Murray salt loads Private benefit to irrigator as better land becomes more fully utilised for irrigation Soils Highly suited to irrigation Public or private benefits from change it asset use Asset
  64. 64. Water trade in diversion not evapotranspiration 100 ML Unconfined Aquifer 50 ML Water that returns to the aquifer 45 ML Actual amount used 5 ML Evapo- transpiration Drainage
  65. 65. Implications of diversion property rights
  66. 66. The inefficiency of irrigation efficiency investment as environmental flow sourcing policy
  67. 68. Salinity externality
  68. 69. The Lower Murray Salinity Issue Lag time ~ 100 years Growing, time delayed, saline groundwater flow into river
  69. 70. Salinity loading and concentration effects of climate change
  70. 71. Fixing the salinity problem engineering - “salt interception” What is salt interception?
  71. 72. Future Salt Interception cost estimated with optimisation <ul><li>Objective – find least cost options to satisfy salinity target </li></ul><ul><li>Constraints – sequencing, exclusivity, capacity, floodplain protection </li></ul>Chowilla (19 895) Rufus River Murtho Stage 2 (882) Murtho Stage 1 (630) Bookpurnong (3960) Pike Stage 2 (2884) Pike Stage 1 (7249) Loxton (7972) Pyap (470) Kingston East (658) Kingston West (658) Woolpunda Extension (630) Woolpunda (5 253) Wakerie (4 344) Wakerie 2L (3 630) Woolpunda South (Proposed) Stockyard Plain Noora Qualco sunlands Interception (2 400) Berri and Renmark Irrigation Area drainage (1 000) Rufus River Interception (827) Present capacity: 14 700 Option 1: 13 000 (scale back for env. reasons) Option 2: 16 400 Option 3: 20 200 Present capacity: n/a Option 1: 10 000 Option 2: 14 600 Option3: 12 900 Present capacity: 1 000* Option 1: 5 046 Option 2: 10 700 Option 3: 13 000 Option 4: 25230 *Disposal of 9 000 possible but potential for adverse env. impacts Present capacity: 4 500 Option 1: 19 940 Option 2: 20 970 <ul><li>Purple - proposed salt interception schemes </li></ul><ul><li>Black - existing schemes </li></ul><ul><li>Blue - proposed and/or existing disposal basins </li></ul><ul><ul><li>All volumes in Megalitres per year, at 2x current inflow rate. Existing schemes are at current inflow. </li></ul></ul><ul><ul><li>Flow volume data from SKM ‘Regional Saline Disposal strategy,’ 2005 ; existing scheme flow data from Phil Pfeiffer, SA Water (personal comm., 2005); disposal data from ‘Victoria and South Australian Interception Schemes Review’, 2004. </li></ul></ul>
  72. 73. Salt interception Economics Solution for lower bound 2050 salinity growth prediction (67EC) =$129 x 10 6 ($175 x 10 6 ) Solution for upper bound 2050 salinity growth prediction (157EC) =$381 x 10 6 ($527 x 10 6 )
  73. 74. Salt interception economics Conclusions – steeply increasing cost of marginal salinity offset Lower bound 2050 salinity estimate Upper bound 2050 salinity estimate Conclusions – cost could exceed benefits of additional investment for plausible salinity growth
  74. 75. “ The country that takes top prize in water management is Australia” The next prize depends upon industry & community willingness to support pursuit of robust permanent solutions
  75. 76. Looking Forward - The Big Challenges <ul><li>Establish property rights for “unlicensed water taking activities” </li></ul><ul><ul><li>ET rather than diversion as basis for trade </li></ul></ul><ul><ul><li>Water licences for conjunctive groundwater use, farm dams, afforestation </li></ul></ul><ul><li>Provide policy to better facilitate risk management </li></ul><ul><ul><li>Remove impediments to water trade </li></ul></ul><ul><ul><li>Allow carry-over “net of evaporation” </li></ul></ul><ul><ul><li>Implement “counter cyclical” water management strategies </li></ul></ul><ul><ul><ul><li>Store flow in groundwater in high flow years, drawdown in drought </li></ul></ul></ul><ul><ul><ul><li>Counter cyclical “Market” environmental water management </li></ul></ul></ul><ul><li>Structural adjustment policy to “facilitate”, not “impede” change </li></ul><ul><li>Understanding environmental consumptive use trade-offs and environmental management “best bets” given thresholds and irreversibility </li></ul><ul><li>Developing new water sharing rules </li></ul>
  76. 77. Thank you Better Basin Futures, Water Policy Options Analysis Stream Dr Jeffery Connor Environmental Economist and Stream Leader Phone: +61 8 8303 8784 Email: jeff.connor@csiro.au Web: www.csiro.com.au/science/WaterPolicyOptions.html Contact Us Phone: 1300 363 400 or +61 3 9545 2176 Email: Enquiries@csiro.au Web: www.csiro.au

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