Disposition of precipitation: Supply and Demand for Water Use by New Tree Plantations

Thomas L. Nordblom, John D. Finlayson and Iain H. Hume

No 101225, 2011 Conference (55th), February 8-11, 2011, Melbourne, Australia from Australian Agricultural and Resource Economics Society

Abstract: As the greatest rainwater users among all vegetative land covers, tree plantations have been employed strategically to mitigate salinity and water-logging problems. However, large-scale commercial tree plantations in high rainfall areas reduce fresh water inflows to river systems supporting downstream communities, agricultural industries and wetland environmental assets. A bio-economic model was used to estimate economic demand for water by future upstream plantations in a sub-catchment (the 2.8 million ha Macquarie valley in NSW) of the Murray-Darling Basin, Australia. Given four tree-product values, impacts were simulated under two settings: without and with the requirement that permanent water entitlements be purchased from downstream entitlement holders before establishing a tree plantation. Without this requirement, gains in economic surplus from expanding tree plantations exceeded economic losses by downstream irrigators, and stock and domestic water users, but resulted in reductions of up to 154 GL (gigalitres) in annual flows to wetland environments. With this requirement, smaller gains in upstream economic surplus, added to downstream gains, could total $330 million while preserving environmental flows. Extending downstream water markets to new upstream tree plantations, to equilibrate marginal values across water uses, helps ensure water entitlements are not diminished without compensation. Outcomes include better economic-efficiency, social-equity and environmental-sustainability.

Keywords: Environmental; Economics; and; Policy (search for similar items in EconPapers)
Pages: 36
Date: 2011
New Economics Papers: this item is included in nep-agr and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aare11:101225

DOI: 10.22004/ag.econ.101225

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