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A cascade down the Murray

July 18th, 2003

The cascade mode of debate in which an initial post attracted comments, followed by responses, to which further responses were then attached, all indented with quotes, made the old USENet nearly unreadable. Blogs have generally avoided this style. The most notable exception, Fisking, seems to have gone out of style with the winding down of polemics about war and terrorism.

But, in a more civilised form, a question and answer cascade might be helpful. so I’m going to try it in response to Gary Sauer-Thompson’s response to my Murray post. I’ve put Gary’s contributions to the discussion in italics, a device not available in USENet days.

Gary says

John says:
I thought of the following as a back-of-the-envelope exercise in cost estimation. Suppose the government bought back 1500GL of water at $40/ML/year, this would be an annual payment of $60 million, which could be financed from a capital sum of $1 billion at 6 per cent interest. I’d guess that increasing natural flows would solve about half the problem, which would imply a total cost of the order of $2 billion. This is incredibly crude, but I’d think the order of magnitude $1 billion – $10 billion is about right, and that we are likely to end up spending something around the low end of this range.”

I have some queries.

First, this seems to imply that governments enter the water market each year and buy the 1500 gigalitres required for enviromental flows. Why that option? Why not reduce the cap by 10-12%. Why not buy back water licences permanently? Why not take farm land out of production–pay the farmers to leave?

I’m not proposing this as the optimal policy, just one that allows for easy cost estimation. Reducing the cap would have much the same effects, but costs would be borne by farmers rather than the community as a whole. One of the aims of my research project is to look at policies that give both a relatively low-cost (efficient) solution and an equitable sharing of costs and benefits.

Secondly, we have $1 billion for environmental flows and $1billion for the other half of the problem. What is the other half of the problem? Land restoration? Reducing water consumption? Shifting to sustainable agriculture?

Some combination of land restoration and more sustainable agriculture. Again, at this stage I’m just trying to estimate costs, not laying out concrete proposals

Thirdly, how do we go from $2 billion to $10 billion? Is this an insurance for the rapid rise in the cost of water due to increasing shortage?

This just reflects the imprecision of the exercise. I prefer to represent this imprecision in order of magnitude (log scale) terms, rather than as an additive error range.

Fourthly I appreciate its back of envelope calculations but John does talk in terms of “fixing” the Murray. It is not clear what ‘fixing’ means in this context. It is often suggested that the “fixing” problem is about the demand of the domestic consumers, who are unwilling to pay a higher price for their vegetables.

This was implied by Tricky (Ticky, actually) Fullerton in her 4 Corners Sold Down the River. Sure those living in the cities need to change their habits in the use of water, and we need to redesign our cities to make them more sustainable. But the centre of the “fixing “problem is the unsustainable agricultural practices of farming systems (wine industry) geared to exporting their products to an overseas markets.

I’ll look more into this, but I think you’ll find that, given tradable water and a reduction in total allocations, the big reduction in water use will be in irrigated pasture for dairying, which is mostly for domestic markets. Other likely losers of water are rice (mostly domestic) and cotton (mostly export). Horticultural crops like grapes are generally high-value uses of water

.The queries are offered in the spirit of dialogue and debate.

And the responses similarly.

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  1. O
    July 19th, 2003 at 12:23 | #1

    John,

    Re my comments on this issue in Gary’s blog (and I guess the more general application to scarce resource use)do you lean more toward pulling the price, rather than the quantity lever, as a general public policy approach? Do you think that broadly speaking, a personal preference for one or the other, is what really defines an individual’s position in the Left/Right spectrum?(well at least assuming we’re all pretty much Rawlsian democratic socialists these days)

    The preference for pulling price or quantity levers is a recurring one in public policy. Disposable shopping bags is a typical case. We have calls for a 25c levy or a complete ban on their use. The latter solution always seems fraught with definitional legal consequences to me. In this respect I am amused at the recent case of the enterprising chap (can’t recall where), who is selling unpasteurised milk for ‘bathing’ in, even though everybody knows it’s for drinking and is flouting govt. health legislation. I guess this is why I’m a rightist. I don’t like control freaks generally.

  2. John
    July 20th, 2003 at 23:12 | #2

    By comparison with other economists, I lean more towards the quantity lever. But, I am an economist, which means that I tend to think first about the price lever, and then about what might go wrong with it.

  3. gordon
    July 22nd, 2003 at 13:01 | #3

    “Easy cost estimation” is a good criterion but won’t Govt. outlays balloon unpredictably in drought years? Will they not be affected by changes in the price of the irrigated produce (higher prices allowing farmers to bid more)? Will water speculators be able to bring pressure to bear on the Govt. price by “cornering”?

  4. July 23rd, 2003 at 17:59 | #4

    It would have to be both: price and quantity. There is not enough water to ensure current levels of production and a healthy ecology.

    You need to use market mechanisms to get rid of whole of very inefficient irrigators and you need to cut down the amount of amount available to irrigators.

    The effect of global warming —reductions in rainfall of around 20% in the Murray Darling Basin has yet to be factored in in the above comments.

    As a philosophical aside, the notion of levers, which implies that governance is a machine, sits very oddly with the ecological realities of the river. The Murray is not fully a machine, even if manay irrigators and engineers think that it is.

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