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Water purchases to save the Murray-Darling Basin

Glyn Wittwer

No 100733, 2011 Conference (55th), February 8-11, 2011, Melbourne, Australia from Australian Agricultural and Resource Economics Society

Abstract: Murray-Darling Basin communities have suffered recurring and prolonged droughts over the past decade. Now that the rains have returned, these communities see the Sustainable Diversion Limits (SDLs) planned by the Commonwealth as a new threat. Modelling with TERM-H2O assumes that since the SDL process is voluntary, Commonwealth purchases will proceed slowly over the next 12 years. This gives farmers time to utilize water saving technologies as they emerge. This is in contrast to the relatively rapid purchase of 920 GL up until September 2010 that has already occurred. These relatively rapid sales reflect hardship associated with drought. If the Commonwealth is to reach the 3500 GL target, it may need to pay over $4 billion more to farmers for water (2010 dollars). The Commonwealth’s budget constraint will limit the volume purchased. Implementing (SDLs) will raise the price of water and the asset value of water held by farmers. At the same time, the value of irrigated land will fall, partly offsetting the increase in the asset value of water. This means that some irrigators may gain more than others. Those who do best will be those whose water entitlements have a high value relative to the value of their land. Under a voluntary scheme that proceeds slowly and gives time for further water savings to occur, there will be modest job losses across the basin. These might fall to 500 jobs below forecast by the year 2026. The extent to which farmers who sell water to the Commonwealth leave the region will have a moderate influence on regional outcomes. TERM-H2O is the only model which has been calibrated by using the drought of 2006-07 to 2008-09 to estimate regional impacts. In the drought scenario, over 6,000 jobs were lost in the short term relative to forecast across the basin. Therefore, SDL impacts are much smaller than drought impacts.

Keywords: Environmental; Economics; and; Policy (search for similar items in EconPapers)
Pages: 19
Date: 2011
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DOI: 10.22004/ag.econ.100733

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