This is another article that is now online. It won't become an open access document at this stage. I think its my best work to date, and hopefully it can clear up some issues associated with how state-contingent approach works and how annual and perennial decision makers respond to drought.
The article builds from my PhD by firstly introducing the demand response to a given supply of water and then builds this into demand responses for water in alternative states of nature, to explain how the price of water can transition from elastic to inelastic.
The article then develops a game against nature where there are two announcements concerning the water allocated during a drought state of nature and illustrates alternative risk profiles for irrigators when allocation is unknown. By introducing a maintenance volume (i.e. a minimum quantity of water to keep the crop alive) the paper then explains how water is a state-general input for perennial producers and a state-allocable inputs input for annual producers. This subsequently explains why perennial producers are willing to spend above the long-run choke price for water in order to preserve capital expenditure.
When uncertainty (i.e. water supply) determines the quantity of water supplied (and demanded) by alternative irrigators (perennial versus annual), we can reclassify state-general demands as 'risk increasing inputs' and state-allocable as risk reducing inputs of production.
Well the DECRA publications are starting to emerge online and the first one off the rank is building on the collaborative efforts that started last year. The new publication is
Gomez, C. M., Pérez-Blanco, D., Adamson, D., and Loch, A. (In Press). "Managing Water Scarcity at a River Basin Scale with Economic Instruments." Water Economics and Policy 0(0): 1750004. (here)
It will become an open access document.
This paper presents a conceptual framework for both assessing the role of economic instruments, and reshaping them in order to enhance their contribution to the goals of managing water scarcity. Water management problems stem from the mismatch between a multitude of individual decisions, on the one hand, and the current and projected status of water resources on the other. Economics can provide valuable incentives that drive individual decisions, and can design efficient instruments to address water governance problems in a context of conflicting interests and relevant transaction costs. Yet, instruments such as water pricing or trading are mostly based on general principles of welfare economics that are not readily applicable to assets as complex as water. A flaw in welfare economic approaches lies in the presumption that economic instruments may be good or bad on their own (e.g., finding the “right” price). This vision changes radically when we focus on the problem, instead of the instrument. In this paper, we examine how economic instruments to achieve welfare-enhancing water resource outcomes can realize their full potential in basin-scale management contexts. We follow a political economy perspective that views conflicts between public and private interest as the main instrumental challenge of water management. Our analysis allows us to better understand the critical importance of economic instruments for reconciling individual actions towards collective ambitions of water efficiency, equity and sustainability with lessons for later-adopting jurisdictions. Rather than providing panaceas, the successful design and implementation of economic instruments as key river basin management arrangements involves high transaction costs, wide institutional changes and collective action at different levels.
Keywords: Economic instruments; river basin management; political economy; water policy
Read More: http://www.worldscientific.com/doi/abs/10.1142/S2382624X17500047
Bog post by David Adamson & Adam Loch
Well last night’s Federal Budget (here) raised the possibility that the Federal Government would buy out NSW and VIC share of the current Snowy Hydro Scheme. While the Budget talk (no we haven’t trawled through all the Budget documents, here) failed to mention any funding to this process, it is likely that this process will be linked to the thought bubble released on the Snowy Mountains Scheme 2.0.
The Review of Australia's climate change policies closes today (5/5/2017) and the discussion paper can be found (here).
The following is my submission.
Recent developments to encourage economic integration via international agreements (these are not free trade deals) often include a clauses allowing for the Investor State Dispute Settlement (ISDS) process to be included.
For full details about ISDS (see here) but in essence it allows companies in one country to litigate against the government in another country if they introduce some legislation or regulation that may negatively impact on their business. These may include things like a:
From that same website a total of 767 legal proceedings, 495 have been concluded, and if you look at the data in the UNCTAD chart, about 50% of the time the company has won or received some form of compensation in regards to a out of court settlement
With budget time fast approaching, the leaks, fears, and work-shopping ideas in the media is in full swing. It has been suggested that Education is again in the cross-hairs. This time instead of making the states pay a greater proportion of the costs of educating school students, the target returns to the University sector.
The most recent data from the ABS, notes that the real expenditure on higher education has basically plateaued since 2010-11. With real costs constant, the proposal is that a 2-3% efficiency measure will be introduced over a number of years. While those with HECS debt will be targeted to replay loans faster.
This current suggestion comes at a time when business tax breaks are under review in a climate where there is a international ratcheting to the bottom. With a proposed absence of revenue from business, which in the absence of any additional revenue raised from the trickle down zombie, means that somethings need to be cut.
Education is one way of tackling inequality but decreasing funding may only increasing the gap between those who have access to good education and those that don't. While the OECD may have pointed out those risks for Australia's primary and secondary education. the arguments concerning subsequent economic harm do not diminish when tertiary education funding is reduced.
In summary, business gain from well educated individuals, as output and productivity increases in relation to education. Subsequently education can be seen as a business subsidy.
So if the government was truly trying to improve economic productivity, perhaps its time to introduce an education levy on businesses.
With the National Water Commission disbanded in 2014, the Productivity Commission has been tasked to:
The issues paper can be found here
Submissions are open and can be provided now and after the draft report due in September 2017.
Importantly is the on-going nature of inquires and the 2018 inquiry will be the one to keep an eye out for. I have just revised a paper on this issue and I plan to get a lot of my DECRA work ready for that inquiry.
A couple of interesting news items have been raised in Queensland. First is that Adani will have the right to remove up to 26ML (a ML is a million litres) of groundwater a day by 2029. So in a year this is up to 9,490 ML of water removed (I note with interest the report suggests ground water extractions may be capped at 4,550 ML (a gigalitre is a billion litres). So the 26 ML/day must be an upper figure, that suggests that the asset is unreliable or that groundwater recharge rates are variable.
The other news story examines the proposal to increase Wivenhoe Dam by up to 900,000 ML for a cost of $881 million. This works out at a cost of $979/ML.
If I remove all concerns about the difference in value of surface water and ground water, then the Queensland Government is forgoing a water asset worth between $4.45 to $9.29 million. It will be interesting to see if Adani is allowed to use this water in any way they see fit: for example, sell the asset on?
Last Friday I was part of a team that provided a submission to the Standing Committee on Agriculture and Water Resources, inquiry into water-use efficiency in Australian agriculture.
The submission goes through the work I have been doing on water-use efficiency and the Murray-Darling Basin Plan since the 'Possible negative feedbacks from 'gold-plating' irrigation infrastructure'.
The key insights in the document are:
The full text of the submission is in the attached file