Tag Archives: Australia water

The Shameful Mismanagement of the Murray-Darling River: Australia

Millions of fish have died in the Darling River near his town, Menindee, in outback New South Wales, Australia in March 2023. After days under the sun, their bodies had started to “break up…transforming the river that locals rely on for drinking and showering into an ecological wasteland. Authorities have said the mass death was caused by a lack of oxygen in the water, called hypoxia, a result of recent floods and a heat wave. But furious locals say the true root of the problem is the overuse of Australia’s biggest and most vital river system.

The disaster is the latest episode in a long-running battle over the Murray Darling Basin, a vast network of lakes and rivers stretching across four states in eastern Australia, which sustains much of the country’s agriculture and dozens of communities along its banks. In an arid country where social, economic and environmental interests clash whenever water runs scarce, the issue has pitted states against each other, and riverside communities against farms upstream.

The 2019 fish deaths happened during a drought and the 2023 fish deaths happened after a flood, said Richard Kingsford, the director of the Center for Ecosystem Science at the University of New South Wales. But, he said, the long-term causes were the same both times: “There’s not enough water in the river, and the whole system is engineered so that escape routes are closed.” Over-extraction means parts of the river run dry more often, he said, and the small and medium-sized floods that used to periodically clear away organic debris have all but disappeared. That means when a big flood hits, that debris is all swept into the river, where it breaks down and deoxygenates the water. That, combined with the construction of weirs that have prevented the fish from swimming to better-oxygenated water, has made this disaster worse, he said….

The New South Wales fisheries and water management bodies, by contrast, both attribute the disaster to weather-related causes…

After many of the fish had already sunk to the bottom of the river, the cleanup started with workers in small boats removing floating carcasses with hand-held nets. Authorities said this will be followed by machinery that will drag nets through the river to scoop up sunken fish….

Excerpts from Yan Zhuang, A River Choking on Fish Corpses, and a Community Full of Anger, NYT, Mar. 24, 2023

How to Manage Water Like Money and Fail: Australia

Australia’s Darling River…provided fresh water to farmers seeking to tame Australia’s rugged interior.  No longer. The Darling River hasn’t flowed for eight months, with long stretches completely dried up. A million fish died there in January 2019.  Kangaroos, lizards and birds became sick or died after drinking from toxic pools of stagnant water.  Australia’s water-trading market is drawing blame. The problems with the system, created more than a decade ago, have arisen as similar programs are being considered in the U.S.

Water crises are unfolding across the world as surging populations, industrial-scale farming and hotter temperatures deplete supplies.  Australia thought it had the answer: a cap-and-trade system that would create incentives to use water efficiently and effectively in the world’s driest inhabited continent. But the architects of water trading didn’t anticipate that treating water as a commodity would encourage theft and hoarding.   A report produced for a state resources regulator found the current situation on the Darling was caused by too much water being extracted from the river by a handful of big farmers. Just four license holders control 75% of the water extracted from the Barwon-Darling river system.

The national government, concerned that its water-trading experiment hasn’t turned out as intended, in August 2019 requested an inquiry by the country’s antitrust regulator into water trading.  Anticorruption authorities are investigating instances of possible fraud, water theft and deal making for water licenses. In one case, known as Watergate, a former agriculture minister allegedly oversaw the purchase of a water license at a record price from a Cayman Islands company co-founded by the current energy minister. The former agriculture minister said he was following departmental advice and had no role in determining the price or the vendor. The energy minister said he is no longer involved with the company and received no financial benefit from the deal.

Since 2007, Australia has allowed not only farmers but also investors who want to profit from trading to buy and sell water shares. The water market is now valued at some $20 billion.    But making water valuable had unintended consequences in some places. “Once you create something of real value, you should expect people to attempt to steal it and search for ways to cheat,” says Mike Young, a University of Adelaide professor. “It’s not rocket science. Manage water like money, and you are there.”  Big water users have stolen billions of liters of water from rivers and lakes, according to local media investigations and Australian officials, often by pumping it secretly and at night from remote locations that aren’t metered. A new water regulator set up in New South Wales investigated more than 300 tips of alleged water thefts in its first six months of operation.  In 2018, authorities charged a group of cotton farmers with stealing water, including one that pleaded guilty to pumping enough illegally to fill dozens of Olympic-size swimming pools.  Another problem is that water trading gives farmers an incentive to capture more rain and floodwater, and then hoard it, typically by building storage tanks or lining dirt ditches with concrete. That enables them to collect rain before it seeps into the earth or rivers.

The subsequent water shortages, combined with trading by dedicated water funds and corporate farmers, have driven up prices. Water in Australia’s main agricultural region, the Murray-Darling river basin, now trades at about $420 per megaliter, or one million liters, compared with as low as $7 in previous years.  David Littleproud, Australia’s water-resources minister, says 14% of water licenses are now owned by investors. “Is that really the intent of what we want this market to be?” he asks. “Water is a precious commodity.”

Excerpts from Rachel Pannett , The U.S. Wants to Adopt a Cap-and-Trade Plan for Water That Isn’t Working, WSJ, Sept. 4, 2019

The Water Barons of Australia

Australia has one of the world’s most sophisticated water-trading systems, and officials in other water-challenged places—notably California and China—are drawing on its experience to manage what the World Bank has called world’s “most precious resource.”  The system here, set up after a catastrophic drought in the 2000s saw the country’s most important river system almost run dry, aims to make sure each gallon of river water goes to higher-value activities.

But the return of severe drought to an area of eastern Australia more than twice the size of Texas is testing the system…Putting a price on water is politically unacceptable in many countries, where access to lakes and rivers is considered a basic right and water is often allocated under administrative rules instead of by markets.

Many water markets that do exist only allow landowners to buy and sell water rights. Australia since 2007 has allowed anyone to trade water parcels, putting supply under the influence of market forces in a system now valued at about $21 billion. Water may be freely bought and sold by irrigators, farmers, water brokers or investors through four exchanges—H2OX, Waterfind, Water Exchange and Ruralco—which allow real-time pricing…

As Australia rewrote the rules of its water market over the last decade to deal with its own drought crises, many farmers chose to sell their water licenses and rely on one-off purchases to keep farming.  The tactic worked until winter rains failed to arrive this year, turning fertile areas into dust bowls. Where a megaliter of water in June last year, before the drought took hold, cost around 3,000 Australian dollars (U.S. $2,166), the price is now closer to A$5,000, according to Aither Water, an advisory firm. The high cost has left smaller farmers praying for rain…

Australia’s drought is splitting agriculture-producing regions into those who have water and those who don’t.  Large investors—including Canadian and U.S. funds—bought high-price water licenses to set up agribusiness ventures in profitable almonds, cotton and citrus, with an eye to growing Asian markets. Others have set up dedicated water investment funds, with prices at the highest levels seen since the drought last decade.

In a country where boom-and-bust cycles, through drought and flood, have historically made water a political flashpoint, some rural Australian lawmakers and farmers want the government to divert water to help parched farms…In August 2018, Victoria state auctioned 20 gigaliters of water that had been earmarked for the environment, putting it on the market for dairy and fruit regions around Cohuna…Some water traders and environmentalists criticized the move as political interference—and said it risked undermining the water market by giving priority to farmers and disrupting forward trades and planning by other irrigators….Euan Friday, a water manager for farm and water investment company Kilter Rural, said the market is doing what it is supposed to do, and warned that the country’s fragile rivers—much smaller than the major rivers of North America—would be facing a dire situation without it. Supported by Australian pension funds, Kilter Rural has invested $130 million in buying water rights and redeveloping farmland.

Excerpt from Australia Model Water Market Struggles with Drought, WSJ, Nov. 8, 2018

Owning and Trading Water

Rights regimes that are well designed and implemented are among the most effective tools for distributing water fairly and sustainably. Under one such system, Australian states began reforming water management in 1994. Few others have followed, though attempts at reform in Chile and Yemen have met with varying degrees of success.

To create tradable water rights, Australia first drew up a baseline for water use, taking into consideration past commercial, social and environmental needs. Next, old water rights were replaced with shares that granted holders (usually landowners) a proportion of any annual allocations. Clever formulae take account of the seniority of pre-existing rights. Different classes of shares determine who gets what and when to balance the competing claims of upstream farmers and downstream urbanites. After that a regulatory board makes sure that all users get as much as they are entitled to.

Allocations made to shareholders are tradable, but those receiving them can also store them for the future. This prevents any sudden wasting of water at the end of each year and encourages thrift during a drought. Issuing shares in perpetuity ensures that a holder can have more water only if someone else is prepared to have less. A centralised register holds everything together. Two markets for trading have been created: one in which shares are exchanged, and another for allocations of water in a given year. The idea is not a new one. In places such as Oman, aflaj systems involve villages trading in shares and in minutes of water flow.

Such regime change originally met strong resistance from farmers and other big users in Australia. But trading allocations reaped enormous rewards for shareholders. During the first decade of reform the annual internal rate of return from owning a water right was over 15%; those who held water shares saw the value of their rights double every five or so years. But following this example elsewhere will be tough. Even rich countries will struggle to unbundle rights that have accumulated over decades.

Excerpt from Liquidity Crisis, Economist, Nov. 5, 2016, at 17