Achieving environmental flows where buyback is constrained

David Adamson and Adam Loch

Australian Journal of Agricultural and Resource Economics, 2018, vol. 62, issue 1, 83-102

Abstract: Theory suggests that the development of common property increases national welfare, and consistent with this thinking Australia's Murray–Darling Basin (MDB) Plan uses a common property approach to recover environmental water rights in the national interest. Two water recovery instruments are used: purchasing water rights (buyback) from farmers, and saving water by subsidising irrigator adoption of technically efficient technology. A moratorium on buyback has focused environmental recovery on subsidised technically efficient technology adoption. Economists argue that national welfare is maximised via buyback and highlight the limitations of efficiency savings to recover sufficient environmental water. A risk is that water recovery targets may be reduced in future, limiting welfare gains from water reform. This article evaluates possible welfare trade†offs surrounding environmental water recovery outcomes where arbitrary limits on buyback are imposed. Results suggest that, on average, strategies which attempt to obtain >1500 gigalitres (GL) of water from on†farm efficiency investments will only provide sufficient resources to meet environmental objectives in very wet states of nature. We conclude that reliance on technically efficient irrigation infrastructure is less economically efficient relative to water buyback. Importantly, the transformation of MDB irrigation will significantly constrain irrigators' future capacity to adapt to climate change.

Date: 2018
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https://doi.org/10.1111/1467-8489.12231

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